Fundamentals of International Purchasing

& International Procurement

Strategy

What you will learn

• What is international purchasing?

• What are the challenges that companies need to be aware of when dealing with foreign based manufacturers?

• What are the success factors/benefits of international Purchasing?

• What are the future trends in International Sourcing

• What are the strategies to be adopted for international / global purchasing?

• What are the risks of international / global purchasing?

• What is the current political climate in India?

What is Purchasing?

Purchasing refers to a business or organization attempting to acquire goods or services to accomplish the goals of the

enterprise

Objectives: Meet the needs of the manufacturing function or

other internal functions for which it was buying Play a role in keeping the operation running

smoothly by ensuring a reliable source of supply

International Purchasing

"Boundaries are shrinking and disappearing, and what’s becoming

apparent is that global purchasing and domestic purchasing are flowing, blending,

and converging into one stream."

R. Jerry Baker

Definition of International Purchasing

• Relates to a commercial transaction between an buyer and a supplier in different countries

• Optimal procurement of Material

• World wide search for procuring from vendors who meet the right quality, price, quantity, delivery target.

• Identifying, developing and accessing the optimal source of supply to the business regardless of the location

• Process of manufacturing and /or purchasing of components in various parts of the world and then assembling them into a final product

Reasons for Purchasing Internationally

• Change in business environment

• Insufficient domestic capacity

• Lower prices, better quality, better deliveries

• Reciprocal trading and Countertrade arrangements

• Access to better technology

Indian context

International Business: Strategy,

Management, and the New

Realities

7

Drivers of International Purchasing

• Technological advances, including instant Internet connectivity and broadband availability

• Declining communication and transportation costs

• Widespread access to vast information including growing connectivity between suppliers and the customers that they serve; and

• Entrepreneurship and rapid economic transformation in emerging markets.

International Purchasing Factors

Trade off required while taking decisions are :

• Item Cost

• Movement cost for delivery

• Inventory cost implication

• International taxes, duties

• Supply security and quality / guarantee issues

• Supply and operational, financial risks

• Awareness of Harmonized System (HS) code and International Commerce Terms (Incoterms)

Prime Requisites for World class purchasing

• Commitment to total quality management

• Commitment to just-in-time/total cycle time reduction

• Long-range strategic plans

• Supplier relationships

• Training and professional development

• Service excellence and Performance measurements

• Corporate social responsibility

• Learning, Managing Resistance to change

• Management and leadership

Challenges in International Sourcing

10

• Lack of knowledge and skills concerning global purchasing

• Awareness Tariffs, duties and export/import procures

• Difficulty in contact with suppliers due to difficult – time zones, working week etc.

• Locating, evaluating, sourcing and expediting Payments/Currency Management

• Communication Methods due to language barriers etc.

• Longer Time span for negotiations

• Cultural, political and labor problems

Challenges in International Sourcing

11

• 3rd party cost, hidden costs

• Protection against product liability and quality management

• Longer lead times leading to additional inventory

• Documentation

• Legal matters and dispute settlement

• Delays in logistics issues, transport

• Resistance to change

Organizing for Global Sourcing • Centralized Control vs. Autonomy vs. Hybrid

• Management commitment

• Leverage expertise as a competitive edge

• Recognize need for specialists if no expertise exists in-house

• Commodity Teams

• Identify world-class suppliers, regardless of location

• Local purchasing groups focus on continuous supply; commodity

teams negotiate selection and deals

• International Purchasing Offices

Benefits of Global Sourcing

• Lower purchase price/cost

• Greater access to product technology

• Improved supplier relationships/ supplier responsiveness

• Greater access to process technology

• Aims to exploit global efficiencies (low cost skilled labor,

low cost raw material and other economic factors like tax

breaks and low trade tariffs) in the delivery of a product

13

Benefits of Global Sourcing

• Better management of supply chain inventory

• Greater standardization of the sourcing process

• Higher material, component, or service quality

• Improved information sharing

14

Global Sourcing Success Factors Centrally

coordinated and led decision

making

Decentralized (site-based) operational

activities

Real-time communication

methods

Information sharing with

suppliers

Availability of critical

resources

Sourcing and contracting

systems

International purchasing

office support

15

Future Trends in Global Sourcing

• Seeking suppliers highly capable of conducting

global business

• Shift from component sourcing to subsystems,

systems, and services sourcing

• Continued cost reduction pressures

• More suppliers in low-cost, emerging markets

P 16

Future Trends in Global Sourcing

• Development of higher level skill sets

• Need to reach agreement on global performance

measures

• Need to establish integrated systems

• Greater internal integration

• Continued development and refinement of global

sourcing strategies

17