Procurement vs Purchasisng

Centralized and decentralized purchasing refer to two different approaches to

procurement within an organization.

1. Centralized Purchasing:
● In a centralized purchasing system, all purchasing decisions and processes are
managed by a single department or authority within the organization.
● This central authority is typically responsible for sourcing, negotiating
contracts, and making purchases on behalf of the entire organization.
● Centralized purchasing offers several advantages, including better leverage for
negotiating volume discounts, consistent purchasing practices, and centralized
control over spending.
2. Decentralized Purchasing:
● In contrast, decentralized purchasing involves delegating purchasing authority
to various departments or individuals within the organization.
 ● Each department or unit is responsible for its own procurement decisions,
sourcing, and purchasing processes.
● Decentralized purchasing can offer advantages such as faster decision-making,
flexibility to adapt to specific departmental needs, and potentially closer
relationships with suppliers.

Policies

1. Open Tender:
● Open Bidding: Any interested supplier can participate in the bidding process,
which is open to all.
● Closed Bidding: Only pre-qualified suppliers are. invited to participate in the
bidding process.
2. Limited Tender:
● The purchasing process is restricted to a limited number of pre-selected
suppliers.
3. Single Tender:
● The purchasing decision is made with only one supplier without inviting bids
from others. This could be due to reasons like urgency, sole supplier
availability, or proprietary technology.
4. Cash Purchases:
● Goods or services are bought directly with cash without any formal
procurement process. This is often used for low-value, non-recurring
purchases.
5. Repeat Orders:
● The same goods or services are purchased from the same supplier repeatedly,
often without going through a formal bidding process.
6. Team Purchase:
● Multiple departments or individuals within an organization collectively make
a purchase decision, pooling their requirements and resources.
 7. Global Tender:
● The bidding process is open to suppliers from around the world. This is
typically used for large-scale projects or purchases where international
competition is desired.

Deveplopmet of supply chain startegies

1. Know Your Customers: Understand what your customers want, like how often they
want deliveries, what they expect in terms of quality, and how they want returns
handled.
2. Check Your Abilities: Figure out what your company is good at and where it
struggles. This could be things like managing inventory or dealing with complex
products.
3. Keep Up with Trends: Stay updated on what's happening in the supply chain world,
like new ways of working together or focusing on being more efficient.
4. Know Your Competition: Understand what other companies are doing and how
they're doing it. This helps you make smarter choices for your own business.
5. Use Technology Wisely: Look into tools and tech that can help you do things better.
But remember, it's about meeting customer needs, not just having fancy gadgets.
6. Stay Safe: Think about what could go wrong in your supply chain and how to prevent
it. Plan for things like delays or unexpected events.
7. Get Better: Keep improving your supply chain by adding new skills and capabilities.
Bring in experts if you need to.
8. Get Everyone on Board: Make sure everyone in your company understands and
supports your plans. Show them how it benefits them and the company.
9. Put Your Plan into Action: Start making changes based on your strategy. Keep track
of how things are going and adjust as needed.
10. Keep Going: It's not a one-time thing. Keep working on your supply chain strategy,
adapting to changes, and making improvements.
Procurement Performance Evaluation
1. Procurement Cycle Time: This is how long it takes from requesting goods to
receiving them. Shortening this time saves money. Ways to speed it up include:
● Making requisition and approval faster.
● Sending purchase orders to vendors quickly.
● Keeping track of orders actively.
● Allowing vendors to handle their invoices.
2. Vendor Performance: Keep an eye on how well your vendors are doing. This helps
improve efficiency and customer satisfaction. Key things to watch include:
● How quickly they deliver.
● How fast they communicate.
● The quality of what they provide.
● Their prices and how often they change.
● If they follow the agreed terms and conditions.
● How often they make substitutions or run out of stock.
3. Spend Under Management: This measures how much of your spending is controlled
by the procurement department. The more you manage, the more you save. Look for
ways to manage all your spending, not just some of it.
4. Cost Savings: Saving money is crucial for procurement success. Top-performing
procurement teams spend less and save more. Techniques to save money include:
● Investing in digital tools and automation.
● Letting vendors handle some tasks themselves.
● Using mobile apps for requests and approvals.
● Offering guided buying options for easier purchasing.
5. Percentage of Catalog-based Purchase Orders: This shows how many of your
orders come from approved vendors with negotiated prices. More catalog-based
orders mean lower prices, better service, and fewer mistakes. Encourage users to buy
from approved vendors whenever possible.
Sourcing vs Purchasing

Factors for sourcing

1) Landed cost refers to the total expenses associated with shipping a product, especially
for international shipments. It includes various costs like taxes, fees, and other
expenses incurred during the shipping process. Knowing the landed cost is crucial for
businesses involved in international trade to set competitive prices and ensure
profitability.

Here's a breakdown of what goes into calculating the landed cost:

1. Insurance: Protects against loss or damage of goods during transit, with costs
depending on the value and category of the merchandise.
2. Customs: Fees and regulations imposed by countries for importing and exporting
goods, including duties and tariffs.
3. Exchange Rates: Fluctuations in currency exchange rates that impact the cost of goods
and shipping.
4. Demurrage Fees: These are charges that shipping companies apply if containers stay
too long at ports or terminals after the allowed free time. It's like a late fee for keeping
the containers longer than agreed.
 5. Free On Board (FOB): This term decides who's responsible for goods if they get
damaged while being moved. It affects how much you pay for buying and shipping
stuff.
6. Export License: Some goods may require export licenses, with associated costs based
on regulations and product classifications.
7. Port Charges: Various fees related to port services, such as early or late port charges,
demurrage fees, and cancellation costs.
2. Product Quality:
● Definition: The standard of excellence or superiority of the goods or services
being sourced.
● Importance: Ensures customer satisfaction and minimizes the risk of returns
or defects.

3. Logistics Capability:
● Definition: The ability of the supplier to efficiently manage the transportation
and distribution of goods.
● Importance: Affects delivery times, costs, and overall supply chain
efficiency.
4.Location:
● Definition: The geographical proximity of the supplier to your business or
target market.
● Importance: Influences shipping costs, lead times, and responsiveness.
5.Trade Regulations:
● Definition: Laws and regulations governing the import and export of goods.
● Importance: Compliance ensures smooth and legal international trade
operations.
6.Responsiveness of Supplier and Global Sourcing Agent:
● Definition: The ability of the supplier and sourcing agent to quickly and
effectively address inquiries, changes, or issues.
● Importance: Ensures timely responses to market demands and challenges.
7.Communication and IT Capabilities:
● Definition: The effectiveness of communication channels and technology
systems used for sourcing and collaboration.
 ● Importance: Facilitates seamless communication, data exchange, and
coordination between parties involved in the sourcing process.

Supplier Price & Cost Analysis:

● Supplier Price Analysis: This involves examining the prices offered by
different suppliers for the same goods or services to determine the best value.
● Cost Analysis: This involves assessing the total cost of acquiring goods or
services from a supplier, including not only the purchase price but also any
additional costs such as shipping, taxes, and handling fees.
Value Analysis:
● Definition: Value analysis is a systematic approach to improving the value of
products or services by understanding their functions and costs. It aims to
optimize the balance between cost and performance.
● Process: Value analysis involves examining the functions of a product or
service, identifying opportunities for cost reduction or performance
improvement, and implementing changes to achieve the desired value.
Just-in-Time (JIT):
● Definition: Just-in-Time is a production strategy aimed at minimizing
inventory and production lead times by delivering components or materials to
the production line exactly when they are needed.
● Benefits: JIT helps reduce inventory holding costs, minimize waste, improve
production efficiency, and enhance responsiveness to customer demand.
Kanban System:
● Definition: Kanban is a visual system for managing workflow and inventory
levels. It uses cards or signals to indicate when to produce or replenish goods
or services based on customer demand.
● Functioning: Each stage of the production process or supply chain has a
designated kanban card that triggers the production or procurement of items
only when needed, ensuring a smooth and efficient flow of work.
Important terms

1. Inventory Visibility:
● Definition: The ability to track and monitor inventory throughout the supply
chain in real-time.
● Importance: Provides insights into inventory levels, location, and movement,
enabling better decision-making and efficient inventory management.
2. Factors to Measure Quality of Private Distribution Functions:
● Order Processing Time: Time taken to process an order from receipt to
fulfillment.
● Order Fulfillment Accuracy: Accuracy in fulfilling customer orders without
errors or discrepancies.
● Inventory Accuracy: Precision in maintaining accurate inventory records and
minimizing discrepancies between physical and recorded inventory.
● Shipping Accuracy: Precision in shipping the correct items to the right
destinations within specified timeframes.
● Delivery Time Performance: Timeliness and reliability of delivery services,
ensuring orders reach customers within agreed-upon timeframes.
● Customer Satisfaction: Feedback and satisfaction levels of customers
regarding their overall experience with the distribution functions.
● Cost Control: Effectiveness in managing distribution costs while maintaining
quality and efficiency.
3. Onshore, Offshore, and Nearshore:
● Onshore: Operations or activities conducted within the same country as the
primary business location.
● Offshore: Operations or activities conducted in a foreign country, often to
leverage lower labor costs or other advantages.
● Nearshore: Operations or activities conducted in a nearby or neighboring
country, offering some cost advantages while maintaining geographical
proximity for easier management and coordination.
Chapter -2
Customs duties and tariffs play a significant role in global supply chain management as they
impact the cost, feasibility, and profitability of international trade. Here's an overview of
these terms within the context of global supply chain management:

1. Customs Duties: Customs duties are taxes imposed by governments on goods that are
imported into or exported out of a country. These duties are typically based on the
value, quantity, or weight of the goods and are collected by customs authorities at
ports of entry or exit. Customs duties serve various purposes, including generating
revenue for the government, protecting domestic industries from foreign competition,
and regulating the flow of goods across borders.
2. Import Duties: Import duties are taxes levied on goods imported into a country from
foreign sources. These duties can vary depending on factors such as the type of goods,
their country of origin, and any trade agreements or tariff schedules in place between
the importing and exporting countries. Import duties are typically paid by the importer
of record and are calculated as a percentage of the customs value of the imported
goods.
3. Export Duties: Export duties are taxes imposed on goods that are exported out of a
country to foreign destinations. These duties are less common than import duties and
are typically imposed to regulate the export of certain goods, protect domestic
supplies, or generate revenue for the government. Export duties can also be used as a
trade policy tool to incentivize or disincentivize the export of specific goods.
4. Tariffs: Tariffs are a type of customs duty that is specifically levied on imported
goods. Tariffs can be ad valorem, meaning they are calculated as a percentage of the
value of the imported goods, or specific, meaning they are based on a fixed amount
per unit of weight, volume, or quantity. Tariffs can vary widely between countries and
can be used to protect domestic industries, promote trade policies, or generate revenue
for the government.
5. Non-Tariff Barriers: In addition to customs duties and tariffs, global supply chain
management also involves navigating non-tariff barriers to trade, such as quotas,
licensing requirements, technical standards, and sanitary and phytosanitary
regulations. These non-tariff barriers can have a significant impact on trade flows and
supply chain operations and require careful consideration and compliance by
importers and exporters.
Certainly! Let's delve deeper into each of these terms:

1. Rules of Origin:
● Rules of Origin are crucial in determining the eligibility of goods for
preferential treatment under trade agreements. They specify the criteria used to
determine the country of origin of a product.
● These criteria may include the location where the product was wholly obtained
or produced, the substantial transformation of materials, or the percentage of
value added in a particular country.
● Compliance with Rules of Origin is essential for businesses to qualify for tariff
preferences, such as reduced tariffs or duty-free access, within trade
agreements. Non-compliance can result in higher tariffs or exclusion from
preferential treatment.
2. Letter of Credit (LC):
● A Letter of Credit is a financial instrument widely used in international trade
to mitigate payment risks for both buyers and sellers.
● It serves as a guarantee from a bank to the seller that the buyer will make
payment for the goods or services upon presentation of specified documents
confirming the shipment or delivery of goods.
● LCs provide security and assurance to both parties by ensuring that payment is
made only when the conditions specified in the LC are met. This reduces the
risk of non-payment for the seller and helps facilitate trade transactions
between parties in different countries.
3. International Transportation:
● International Transportation involves the movement of goods across borders
using various modes of transport, including sea, air, road, and rail.
● It encompasses the coordination of logistics, documentation, and compliance
with customs regulations and trade laws of multiple countries.
● Effective international transportation management is essential for ensuring
timely delivery of goods, minimizing transportation costs, and optimizing
supply chain efficiency.
4. Landed Cost Analysis:
 ● Landed Cost Analysis involves a comprehensive assessment of all costs
associated with importing goods into a country.
● It includes not only the purchase price of the goods but also transportation
costs, customs duties, taxes, insurance premiums, handling fees, and other
expenses incurred until the goods reach their final destination.
● By accurately calculating the landed cost, businesses can make informed
decisions regarding pricing, sourcing, and supply chain optimization to
enhance competitiveness and profitability.
5. Trading Blocks:
● Trading Blocks, also known as regional trade agreements or economic unions,
are alliances formed by groups of countries to promote trade and economic
integration.
● These agreements aim to reduce or eliminate trade barriers, such as tariffs,
quotas, and regulatory restrictions, among member countries.
● By facilitating trade and investment flows within the bloc, trading blocks
promote economic growth, increase market access, and enhance regional
cooperation and stability.
6. Trade Zone:
● A Trade Zone, also known as a free trade zone or special economic zone, is a
designated area within a country where trade barriers are reduced or
eliminated to encourage economic activity and foreign investment.
● Businesses operating within trade zones benefit from incentives such as tax
exemptions, streamlined customs procedures, relaxed regulatory requirements,
and access to infrastructure and logistical support.
● Trade zones play a vital role in attracting foreign investment, promoting
exports, creating jobs, and stimulating economic development in host
countries.
7. Bonded Warehouses:
● Bonded Warehouses are secure facilities authorized by customs authorities for
the storage, processing, or manufacturing of imported goods without
immediate payment of customs duties or taxes.
● Imported goods can be stored in bonded warehouses for an extended period,
allowing businesses to defer payment of duties until the goods are released for
sale or export.
 ● Bonded warehouses facilitate international trade by providing flexibility in
inventory management, cash flow optimization, and duty deferment options
for importers.
8. ICD (Inland Container Depot):
● Inland Container Depots (ICDs) are inland facilities strategically located near
major transportation hubs to facilitate the handling, storage, and transport of
containerized cargo.
● They serve as key nodes in the logistics network, connecting seaports with
inland destinations through efficient rail and road infrastructure.
● ICDs play a vital role in decongesting seaports, reducing transportation costs,
enhancing supply chain efficiency, and promoting intermodal transportation.
9. Currency Fluctuations, Exchange Rate Risks:
● Currency Fluctuations refer to the fluctuations in the value of one currency
relative to another in the foreign exchange market.
● Exchange Rate Risks arise when businesses engage in international trade and
are exposed to the risk of adverse movements in exchange rates impacting the
cost or value of their transactions.
● Businesses need to manage exchange rate risks effectively through strategies
such as hedging, diversification, pricing adjustments, and financial
instruments to mitigate potential losses and protect profit margins.
10. Transfer Pricing:
● Transfer Pricing refers to the pricing of goods, services, or intangible assets
transferred between related entities within a multinational company.
● It involves setting prices for intercompany transactions to determine taxable
profits and comply with tax regulations in different jurisdictions.
● Transfer pricing regulations aim to prevent tax evasion and ensure that
transactions between related entities are conducted at arm's length prices,
similar to those in independent transactions.
11. Permanent Establishment:
● Permanent Establishment (PE) is a concept in international tax law that
determines the tax liability of a foreign company operating in another country.
● It refers to a fixed place of business, such as an office, branch, factory, or
project site, through which the company carries out its business activities in a
particular jurisdiction.
 ● The existence of a permanent establishment can subject the foreign company
to tax obligations, including corporate income tax, withholding tax, and other
taxes, in the host country where the PE is located.

Bonded warehouse

A bonded warehouse is a warehouse operated by a private company in a foreign country

under the regulatory supervision of that country’s customs agency. Its main advantage is to
defer the payment of customs duties. Like a standard warehouse, bonded warehouses let
businesses store their goods closer to foreign customers for faster delivery, with the
advantage of pushing out the payment of custom duties until the goods are released from the
bonded warehouse. They are used for storing imported or exported goods.
ICDs and CFSs

In India, Inland Container Depots (ICDs) and Container Freight Stations (CFSs), also known
as dry ports, are essential for handling customs procedures related to importing and exporting
goods. They serve as key hubs in the country's transportation and logistics system.

According to guidelines from the Ministry of Commerce and Industry (MoCI), ICDs/CFSs
are common user facilities with public authority status. They offer services for handling and
temporarily storing import/export containers under Customs control. These facilities can clear
goods for various purposes like home use, warehousing, re-export, and temporary storage for
onward transit.

Difference between ICD and CFS

The main difference lies in their connectivity and location:

ICDs are a bit further away from big ports and are connected by trains. CFSs are closer to the
main ports but might not have train connections.

ICDs deal mostly with big metal containers that are transported by trains, while CFSs handle
smaller loads of stuff that come directly from ships.

Trading bloc
A trading bloc is a group of countries that agree to trade more freely with each other by
reducing or removing barriers like taxes or limits on imports. They often have their own rules
and organizations to manage trade agreements and sometimes have other goals too. The idea
is to make it easier for member countries to buy and sell things with each other.

Incoterms

Incoterms are standardized terms used in international trade to define the responsibilities and
obligations of buyers and sellers in a sales contract. They specify who is responsible for
various costs and risks associated with the transportation and delivery of goods from the
seller to the buyer.

Here's a simplified explanation:

1. Incoterms Definition:
● International Commercial Terms (Incoterms): A set of standardized terms
issued by the International Chamber of Commerce (ICC) that clarify the
obligations of buyers and sellers in international trade transactions.
2. Key Points:
● Responsibilities: Incoterms define who is responsible for tasks such as
transportation, insurance, customs clearance, and delivery.
● Risk Transfer: They specify when the risk of loss or damage to the goods
transfers from the seller to the buyer.
● Cost Allocation: Incoterms determine which party bears the costs associated
with shipping, including freight, insurance, and customs duties.
● Applicability: Incoterms are applicable only to the terms of sale, not the
contract of sale itself.
3. Common Incoterms:
● Some common Incoterms include EXW (Ex Works), FOB (Free On Board),
CIF (Cost, Insurance, Freight), and DDP (Delivered Duty Paid).