international sourcing
Transcript of international sourcing
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Fundamentals of International Purchasing
& International Procurement
Strategy
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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?
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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
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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
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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
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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
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International Business: Strategy,
Management, and the New
Realities
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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.
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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)
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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
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Challenges in International Sourcing
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• 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
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Challenges in International Sourcing
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• 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
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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
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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
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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
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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
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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
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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
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