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Purchasing: A link in a Supply ChainHisham M. El-TawilEZZ Steel Corporate Procurement Planning S. ManagerB.Sc. Production Engineering (1997)MBA (Operations Management) (2013)
5 December 2015
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Content• Introduction & Definitions• Purchasing Hierarchy• Purchasing Methods• General Purchasing Cycle & Total Cost of Ownership• Global Sourcing• INCOTERMS
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What am I doing related to FIVE
Years Engineering?
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WHAT IS PURCHASING? 4
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Purchasing Definitions
• “The act of buying something” (Cambridge Dictionary)
• “The activity of acquiring goods or services to accomplish the goals of an organization” (BusinessDictionary.com)
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Purchasing vs. Procurement
Procurement• Vendors Selections• Vendors Evaluation• Market Research• Contract Negotiation
Purchasing• Request for Quotation• Approvals• Purchase order issuance• Receipt of Goods 6
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Procurement in Supply Chain
Supply Chain Management
Procurement
Purchasing
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Purchasing MUSTs• Right Solution• Right Price• Right Quality• Right Quantity• Right Time• Right Place• Right Source
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PURCHASING HIERARCHY 9
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Centralized vs. Decentralized Purchasing
Centralized Purchasing
Head Office / Board
Plant A Plant B
Production
Marketing / Sales
Plant C
Corporate Purchasing
Corporate Staff
De-Centralized Purchasing
Head Office
Plant A
Purchasing Dept.
Plant B
Purchasing Dept.
Plant C
Purchasing Dept.
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Centralization vs. Decentralization
Centralized Purchasing
• Economy of Scale• Uniform deal with
suppliers.• Easy Supply market
research• Unique materials / spares
specifications• Unique commercial
conditions among different business units
Decentralized Purchasing
• Strong Orientation & Communication with internal user / demander• Less Bureaucracy.• Shorter Lead time
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Purchasing Internal Network
Purchasing
Warehouse / Inventory
Control
Planning• Production• Materials
Demander• Production• Maintenance• Others
Accounting
Logistics
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PURCHASING CYCLE & TCO 13
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General Purchasing CycleDetermine
Needs / Receiving Purchase
requisitionSuppliers Selection
Request For Quotations
Price Determinati
on
Purchase Order /
Contracting
Follow-up delivery
Receiving & Accepting
Goods
Payment Approval
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The Best Offer• The lowest bid price is not always the best offer.• The best offer is the offer who represents the best value
Best Total Cost of Ownership
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Total Cost of Ownership TCO
TCOPurchase Price
Acquisition Cost• Logistics /
Handling• Insurance• Fees / Customs
Usage Cost• Lifetime / Unit
Consumption• Maintenance • Repairs
End of Life Cost
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PURCHASING METHODS 17
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Purchasing MethodsPurchasing Methods
Informal
Oral
Electronic / Credit card
Petty Cash Fund
Formal
Direct Order
Bidding
Long-Term Contract
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GLOBAL SOURCINGWhy Shall I (Sometimes) buy from a foreign Country?
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Definition
It is the process of sourcing (procuring) goods and/or services from the international market
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CONs & PROs of Global sourcing
PROs• Access to unavailable
materials in Local market• Cost reduction / Better
Prices• Broad list of alternative
Suppliers• New Ideas/solutions and
Experience Exchange• Better Quality
CONs• Higher Risk (Financial,
Political and Legal)• More complicated process
& Logistics• Longer Lead time• Higher hidden and non-
value added cost (Tariffs, Insurance, payment terms, etc.)
• Communications barriers21
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Methods of Payment in International trade
• Advanced Payment• Open Account• Documentary Collection• Documentary Credit (Letter of Credit)
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Each Method has its risk & cost
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Buyer (Importer) RiskSeller (Exporter) Risk
Open Account
Advance Payment
Payment Cost
Documentary Collection
Documentary Credit
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INCOTERMS 25
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Who Will pay Which Amount?
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?
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Introduction to INCOTERMS• Published by International Chamber of Commerce (ICC)• Set of rules to explain trade terms (abbreviated in 3 letters)
reflecting Business-to-Business (B2B) practice in contracts of Sales of Goods
• INCOTERM arranges the Transfer of Risk and the Cost of Transfer.
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Incoterms
Any type of Transport
Sea Waterway Transport
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INCOTERMS: Ex-Work(Any way of transport)
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Cost
Risk
Seller Buyer
Delivery
Seller Warehouse
Buyer:• Loads goods• Pays transport• MIN Seller’s obligation
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INCOTERMS: FOB Port of Shipment(Sea water/ way of transport)
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Cost
Risk
Seller Buyer
Delivery
Seller:• Delivers goods till
the Vessel Rail.
Buyer:• Pays transportation & Insurance
from board of vessels
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In Summary• Purchasing is a process of buying the needs at right time,
quantity and quality.• Purchasing Hierarchy can be centralized, de-centralized or a
mix based on company size and business model.• Within a Purchasing cycle, the best deal is the deal that ensure
a best TCO (Total Cost of Ownership).• Global sourcing increase the company opportunity for better
purchase in an international competitive market.• A good Buyer has to select the best Purchasing Method and
best payment method.• International Community unified the terms of delivery and
shipping showing cost and risk for easy international trade. 30
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I like Business & Engineering
What do you think?
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Thank YouQ & A
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