Procurement

1. What gets bought in covers raw materials, components, stock for resale, equipment, and services such as cleaning, insurance and IT support.
2. Procurement is more than placing an order, because someone has to compare quotations, negotiate the price and the payment terms, and check what arrives against what was agreed.
3. The target is the right quality, in the right quantity, at the right time, for the right price, and all four have to hold at once.
4. In a large business a buying team handles this full time, while in a sole trader it is the owner ringing round on a Friday afternoon.

Logistics

1. Logistics covers three linked jobs: bringing materials in, storing them safely, and getting the finished product out to the customer.
2. Each of those jobs involves a choice about transport, and the choice trades cost against speed: road and rail are cheap and slow, air freight is fast and expensive.
3. Where goods are stored is itself a logistics decision, because a warehouse near the customers shortens every delivery that follows.
4. Tracking matters too, since a business that knows where a lorry is can tell the customer, and can react when it is delayed.

The effect on efficiency

1. When materials arrive on time and to specification, production runs without stopping, so staff and machines are never paid for standing still.
2. Ordering the right quantity avoids both extremes: no warehouse full of stock nobody needs, and no gaps that halt the line.
3. Good goods-in handling means fewer wrong or damaged deliveries to sort out, which frees staff time for work that adds value.
4. Get it wrong and the reverse happens: a late or incorrect delivery stops production, forces an emergency order at a premium price, and leaves overtime to catch up.

The effect on unit costs

1. Every pound taken out of the price of materials or the cost of transport comes straight off the cost of each unit the business sells.

1. Buying in larger quantities earns a purchasing economy of scale, and filling a lorry rather than half-filling two spreads the fuel and driver cost over more units.

Balancing lower cost against quality of service

1. The cheapest option in procurement and logistics is usually the slowest and the least dependable, so the saving is bought with service.
2. A cheaper courier that misses delivery slots hands the business refunds, complaints and lost repeat orders, which can cost more than the transport saved.
3. The customer only ever sees the service, so they judge the business on whether the order turned up on the promised day, not on what the business paid to send it.
4. How far a business can push cost savings depends on its customers: a discount retailer can accept a longer wait, while Deliveroo cannot.