International Procurement - Global sourcing

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InternationalProcurement

• You must take action now that will move you
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Introduction

• Definition of procurement management
• Procurement management process
• International procurement management
• Why international procurement?
• Barriers and Overcoming barriers
• Documents used and factors to consider in
  International Procurement
• Benefits and Challenges of International
  procurement

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PROCUREMENT MANAGEMENT

• Definition
• Procurement means acquiring goods, works and/or
  services from an outside source. Procurement is
  the term generally used by government, while
  business uses the term purchasing and outsourcing
  is commonly used by the information technology
  industry.

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Procurement Management Processes

• Procurement management includes the following
  processes for acquiring goods and services from
  outside the entity
• Procurement planning determining what to procure
  and when.
• Solicitation planning documenting product
  requirements and identifying potential sources.
• Solicitation obtaining quotations, bids, offers,
  or proposals as appropriate.
• Source selection choosing from among potential
  vendors.
• Contract administration managing the
  relationship with the vendor.
• Contract close-out completion and settlement of
  the contract.

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International Procurement

• International procurement relates to a commercial
  purchase transaction between a buyer and a
  supplier located in a different country.
• This type of purchase is typically more complex
  than a domestic purchase. PDEs must contend with
  longer material pipelines, increased rules and
  regulations, currency fluctuations, customs
  requirements, and a host of other variables such
  as language and time differences.

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International Procurement Utilities
y
TIME
PLACE
POSSESSION
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Why International Procurement?

• Reasons for International Procurement
• Opportunity to improve quality, cost, and
  delivery performance
• How about what you think !!!!

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Reasons for international procurement

• Materials are not available domestically
• Domestic manufacturers are unavailable to supply
  specific materials Incapable of meeting required
  delivery time or limited technical capabilities.
• Unsatisfactory quality of domestic products
• Quality of products in the domestic market does
  not meet the requirements of the PDE. Supplier
  cannot provide satisfactory warranties or
  after-sales services to the manufacturers and
  PDEs.
• Price
• Products supplied by domestic suppliers may be
  too expensive, and PDE can obtain the same goods
  with a cheaper price elsewhere around the world.
• Technology
• PDEs may have no choice but to source
  internationally otherwise they cannot get the
  supplies.

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Why international procurement? Contd

• No suitable domestic suppliers
• Required supplies got from overseas suppliers
• Entity has information about international
  sources
• Supplier selection issues dictate

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Procurement Supply chain management
Product Selection
Needs identified
Forecasting
Rational Use
Govts CSOs
Supplier Selection
Distribution
Procurement
Product Procurement
Receipt and Storage
Quality Assurance
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IN-COUNTRY LOGISTICS
Assessment
Planning
Procurement

Shipping
Warehousing and Inventory Management
Good Clearance
Inland Transport and Distribution
Supply Tracking and Evaluation
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Function Scheme
Crisis area
Partners
Country
Normative
Logistical Services
Logistical Services
Normative
Suppliers
Suppliers
Technical support
Technical support
Procurement Contracting
Procurement Contracting
Quality Asurance
Quality Assurance
Warehouse
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Management and Support Services
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Barriers and Overcoming them(International
Procurement)

• Barriers
• Lack of knowledge and skills concerning
  international sourcing
• Resistance to change
• Longer lead times
• Different business customs, language, and culture
• Currency fluctuations

• Overcoming Barriers
• Education and training
• Publicizing success stories
• Globally linked information systems
• Measurement and reward systems
• Use of third-party intermediaries
• Obligate in stable currency

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Barriers Explained

• 1) Lack of Knowledge and Skills
• How to identify potential sources of supply
• Documentation issues
• 2) Resistance to Change
• Established, routine sourcing patterns
• Shifting from longstanding suppliers
• Domestic market nationalism

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3). Longer Lead Times

• Extended material pipelines
• Forecasting over longer time horizons
• Need to more closely manage delivery dates
• Possibility of transit and/or customs delays
• Greater logistical, political, and financial risks

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4). Cultural Issues

• Business practices
• Language
• Culture
• Need to more closely manage delivery and
  engineering changes
• Different meeting and negotiation styles
• More difficult interpersonal relationships

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5). Currency Fluctuations

• Often daily or hourly fluctuations
• Need to understand highly complicated financial
  options
• How to price purchases

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Documentations used in International Procurement

• Letters of credit
• Multiple bills of lading (Air way bill Bill of
  lading
• Dock receipts
• Import licenses
• Certificates of origin
• Certificates of insurance

• Packing lists/ Proforma Invoice
• Commercial invoices
• Warranties
• Manufacturers Authorisations
• Clearance certificates (NDA UNBS e.t.c)

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Factors to consider in International Procurement

• Costs
• Local labor rates
• International freight tariffs
• Currency exchange rates
• Customs Duty
• Duty rates differ by commodity and level of
  assembly
• Impact of GATT/WTO Changes over time
• Export Regulations
• Denied parties list
• Export licenses

Source Global Supply Chain Associates (GSCA) 1999
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Factors to consider in International Procurement

• Time
• Lead time
• Cycle time
• Transit time
• Export license approval cycle
• Customs clearance
• Taxes on Corporate Income
• Different markups by country
• Offset Trade and Local Content
• Local content requirement for government
  purchases
• Content for preferential duty rates

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Factors to consider while selecting suppliers

• Product and process technologies
• Willingness to share technologies and information
  
• Quality
• Cost
• Reliability
• Order system and cycle time
• Capacity
• Communication capability
• Location
• Service
• Different companies have different criteria based
  on their products, price offered, quality,
  on-time delivery, after-sales services, response
  to order change, supplier location and suppliers
  financial

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Benefits of International Procurement

• Cost savings
• Availability
• Quality
• Innovation
• Entry to new markets

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Sources of Risks
Risk sources and their characteristics
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Sensing and Responding

• Speed in sensing and responding can help the PDE
  overcome unexpected supply problems
• Failure to sense could lead to
• Failure to respond to changes in the supply chain
  
• Can fail an entity to achieve the intended goals
  and objectives.

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Cultural Differences

• Language
• Expressions, gestures, and context
• Beliefs, or specific values about something
• Can differ widely from culture to culture
• Customs
• Vary greatly from country to country
• Important for the business person to adhere to
  local customs to avoid offending anyone.
• Example the practice of gift giving varies
  greatly

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Logistical Issues

• Extended pipelines
• Additional planning and management required
• Shipping delays are to be expected
• Often less capable transportation infrastructure
• INCOTERMS

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INCOTERMS 2000
EXW Ex Works Buyer takes title when taking delivery of the goods at suppliers facility. Buyer is responsible for the shipment and duties.
FCA Free Carrier Buyer takes possession and title at the airport or truck terminal at the port of export in the sellers country after the goods clear customs.
FAS Free Alongside Ship Buyer takes possession at the dock at the port of export after the goods clear customs.
FOB Free of Board Buyer takes responsibility and title for the goods as they pass over the ships rail during loading.
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INCOTERMS 2000
CFR Cost and Freight Supplier arranges freight and pays as far as the buyers port of entry. Title and risk of loss remain with the buyer.
CIF Cost, Insurance, and Freight Supplier arranges freight and buys insurance for the goods as part of the sales price. Title and risk transfer to the buyer once the goods clear a ships rail while being loaded.
CPT Carriage Paid Title transfers to buyer when goods are loaded into a container. Seller selects and pays the carrier. Similar to CFR.
CIP Carriage and Freight Paid to Similar to CIF but applies to air or truck transport only.
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INCOTERMS 2000
DAF Delivered at Frontier Goods are delivered to a border by truck or rail. Title transfers at the border after goods are cleared for export but not yet cleared through import customs.
DES Delivered Ex Ship Seller pays freight costs to a port of import, and title transfers on the ship at arrival. Buyer is responsible for unloading the freight and clearing customs.
DEQ Delivered Ex Quay Seller is responsible for having the ship unloaded at the port of entry. Title transfers when goods are unloaded from the ship, either before or after customs. Term must include Duty Paid or Duty Unpaid
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INCOTERMS 2000
DDU Delivered Duty Unpaid Seller delivers goods with duty unpaid to a buyers specified location. This location, where the title transfers, is different from the port of import. These goods have not cleared customs and require proper customs supervision and bonding.
DDP Delivered Duty Paid Seller delivers goods to the buyer with all duties paid. Title transfers at the buyers designated receiving location.
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INCOTERMS 2000
EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ
Warehouse Storage S S S S S S S S S S S
Warehouse Labor S S S S S S S S S S S
Export Packaging S S S S S S S S S S S
Loading Charges B S S S S S S S S S S
Inland Freight B B/S S S S S S S S S S
Terminal Charges B B S S S S S S S S S
May be 1 of 2 FCA Terms FCA Sellers
Premises FCA Named Place (Intl Carrier)
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INCOTERMS 2000
EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ
Forwarders Fees B B B B S S S S S S S
Loading on Vessel B B B S S S S S S S S
Ocean/Air Freight B B B B S S S S S S S
Charges on Arrival at Destination B B B B B B S S B B S
Duty, Taxes, Customs B B B B B B B B B B B
Delivery to Destination B B B B B B B B B B B
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International Transaction Costs

• Base price
• Tooling
• Packaging
• Escalation
• Transportation from supplier to buyer
• Customs duties
• Insurance premiums
• Payment terms

• Additional fees and commissions
• Port terminal and handling fees
• Customs broker fees
• Taxes
• Communication costs
• Payment and currency fees
• Inventory carrying costs

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Letters of Credit

• Assure the seller that it will be paid for the
  shipment
• Paid when accurate and appropriate documents are
  presented to buyers bank
• Revocable vs. irrevocable

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Port Terminal and Handling Fees

• Unloading of cargo
• Administrative services of port authority
  personnel
• General use of the port
• Temporary storage for goods awaiting customs
  and/or documentation clearance

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Currency Risk

• Purchase in U.S. dollars
• Sharing currency fluctuation risk
• Currency adjustment contract clauses
• Delivery-triggered vs. time-triggered
• Currency hedging
• Finance/treasury department expertise
• Tracking currency movements

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Benefits of International Procurement

• Lower purchase price/cost
• Greater access to product technology
• Improved supplier relationships
• Greater access to modern technology
• Greater supplier responsiveness
• Greater appreciation of purchasing
• Higher material, component, or service quality

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Challenges in International Procurement

• Cultural understanding
• Language and communication differences
• Logistical issues
• Legal issues
• Costs associate with international purchasing
• Currency risk

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2. Foreign language

• Although English is the international language of
  business, consumers want to use their own
  language.
• Ads may become lost in translation.
• Eg. KFC finger-lickin good translated into
  Chinese as eat your finger off.
• Jif changed to Cif due to difficulty with J.

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3. Exchange Rates

• If the euro increases in value exports become
  dearer and imports become cheaper. (happening now
  with 1 0.90).
• If the value of the euro decreases in value then
  exports become cheaper and imports become dearer.
  This will make supplies more expensive.

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Other problems connected with International
Procurement

• Transport
• Insurance
• Safety standards
• Payment
• Cultural differences
• Potential Challenges
• Requires additional skills and knowledge to deal
  with international suppliers, logistics,
  communication, political environment, and other
  issues 

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What is the secret of success !!! Right
Decisions.How do you make right decisions
!!!Experience.How do you get experience
!!!Wrong decisions.Lesson Never Giveup
success is a learning curve

• Thank you for Attending.
• Regards
• Esimu Felix Jude - JEF
• 0757190275
• fesimu_at_yahoo.com