Professional Documents
Culture Documents
Chapter 10 Worldwide Sourcing
Chapter 10 Worldwide Sourcing
Impact of Globalization
Interdependence
Connectivity
Integration of economies
Social
Technical
Political
Impact of Globalization
Cost savings opportunities on supply
side
Opportunities for new markets on
demand side
Issue of trade balances and currency
fluctuations
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Definitions
International purchasing
Commercial purchase transaction between
buyer and supplier in different countries
Global sourcing
Proactively integrating and coordinating
common items and materials, processes,
designs, technologies, and suppliers
across worldwide purchasing,
engineering, and operating locations
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
Cost/Price Benefits
Lower labor rates
Different productivity levels
Possible willingness to accept lower
profit margin
Exchange rate differences
Lower-cost materials and inputs
Government subsidies
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
Documentation Requirements
Letters of credit
Multiple bills of
lading
Dock receipts
Import licenses
Certificates of origin
Inspection
certificates
Certificates of
insurance coverage
Packing lists
Commercial
invoices
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Resistance to Change
Established, routine sourcing patterns
Shifting from longstanding suppliers
Domestic market nationalism
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Other Barriers
Offshore business practices
Language
Culture
More difficult negotiations
Need to more closely manage delivery
and engineering changes
More difficult interpersonal
relationships
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Currency Fluctuations
Daily or hourly fluctuations
Need to understand highly complicated
financial options
How to price purchases
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Developing
a Worldwide
Sourcing
From Domestic
to International
Program
Legal systems
Countertrade requirements
Costs associate with international
purchasing
Managing currency risks
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Triggering Events
Supply disruption
Rapidly changing currency exchange
rates
Declining domestic supply base
Inflation within home market
Sudden emergence of worldwide
competitors
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
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Third-party support
Trade consulates
Foreign nationals
International purchasing offices (IPOs)
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Role of IPOs
Identify potential
suppliers
Solicit quotes or
proposals
Expedite and trace
shipments
Negotiate supply
contracts
Obtain product
samples
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
Manage technical
and commercial
concerns
Represent the buyer
to suppliers
Manage countertrade requirements
Perform supplier
site visits
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Supplier Qualification
and Selection Issues
Does significant total cost difference
exist between domestic and foreign
sources?
Will foreign supplier maintain price
differentials over time?
What is effect of longer material
pipelines and increased average
inventory levels?
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
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SupplierSelection
Qualification
Supplier
Issues
and Selection Issues
What are suppliers technical and
quality capabilities?
Can supplier assist with new designs?
What is suppliers quality
performance?
What types of quality systems does
supplier have in place?
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
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SupplierSelection
Qualification
Supplier
Issues
and Selection Issues
Is supplier capable of consistent
delivery schedules?
How much lead time does supplier
require?
Can we develop longer-term
relationship with this supplier?
Are patents and proprietary technology
safe with supplier?
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
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SupplierSelection
Qualification
Supplier
Issues
and Selection Issues
Is supplier trustworthy?
What legal system does supplier
expect to follow?
What are suppliers payment terms?
How does supplier manage currency
exchange issues?
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Language
Religion
Values and attitudes
Customs
Social institutions
Education
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Behavior
Based on values and attitudes
Affect the way people act
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Language Differences
Communicating purchase requirements
clearly and effectively
Not everyone speaks and understands
English the same way Americans do
Message speed
Level of content
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Logistical Issues
Extended pipelines
Additional planning and management
required
Shipping delays are to be expected
Often less capable transportation
infrastructure
Role of INCOTERMS
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
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INCOTERMS 2010
Location
Seller
Premise
Export
Formalities
Named
Place or
Terminal
Loading
Port of
Shipment
On Board
Ship/Rail/
Plane
Discharge
Port of
Arrival
Named
Place or
Terminal
Import
Formalities
Buyer
Premise
Ex Works
(EXW)
Seller
***
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Free Carrier
(FCA)1
Seller
***
Seller
Seller
***
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Free
Alongside
Ship
(FAS)
Seller
Seller
Seller
Seller
***
Buyer
Buyer
Buyer
Buyer
Buyer
Free on
Board
(FOB)
Seller
Seller
Seller
Seller
Buyer
***
Buyer
Buyer
Buyer
Buyer
Cost &
Freight
(CFR)
Seller
Seller
Seller
Seller
Buyer
***
Buyer
Buyer
Buyer
Buyer
Cost,
Insurance,&
Freight
(CIF)
Seller
Seller
Seller
Seller
Buyer
***
Buyer
Buyer
Buyer
Buyer
Freight
Responsibility
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INCOTERMS 2010
Location
Seller
Premise
Export
Formalities
Named
Place or
Terminal
Loading
Port of
Shipment
On Board
Ship/Rail/
Plane
Discharge
Port of
Arrival
Named
Place or
Terminal
Import
Formalities
Buyer
Premise
Carriage Paid
to
(CPT)2
Seller
***
Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Carriage &
Insurance to
(CIP)2
Seller
***
Seller
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Delivered at
Terminal
(DAT)
Seller
Seller
Seller
Seller
Seller
Seller
***
Buyer
Buyer
Buyer
Delivered at
Place
DAP)
Seller
Seller
Seller
Seller
Seller
Seller
Seller
***
Buyer
Buyer
Delivered
Duty Paid
(DDP)
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
Seller
***
Freight
Responsibility
Notes:
*** Where risk passes
1 Delivery can occur at seller premise or place of departure
2 Risk passes from seller to buyer when the goods are delivered to the first carrier
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
34
Legal Issues
Common law vs. codified or civil law
Different levels of protection for the
buyer
Role of trust and personal relations
Intellectual property issues
U.N.s Convention on Contracts for the
International Sale of Goods (CISG)
World Trade Organization (WTO)
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
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Countertrade Requirements
Refers to all international trade where
there is full or partial exchange of
goods for goods
Purchasing is often responsible for
negotiating and managing countertrade
agreements
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Types of Countertrade
Counterpurchase
Barter
Buyback
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
Offset
Switch
trading
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Barter
Straight exchange of goods for goods
with no exchange of currency
Involves single contract
Usually relates to specific transaction
and covers shorter period of time
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Counterpurchase
Requires selling firm to purchase
specified amount of goods from
country that purchases its products
Generally percentage of original sale
Involves products unrelated to
companys primary business
Issue of disposition of goods
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
42
Offset
Closely related to counterpurchase
Generally percentage of original sale
over specified period
Allowed to offset its countertrade
requirements with any company or
industry more flexible
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Buy-Back
Sometimes called compensation
trading
Occurs when
Building a plant in third world country or
Providing services, equipment, or
technology to support a plant
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Switch Trading
Occurs when selling company agrees
to accept goods from buying country
as partial payment
Company may decide to utilize thirdparty to sell or market goods
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Base price
Tooling
Packaging
Escalation
Transportation
Customs duty
Insurance premiums
Payment terms
Letters of Credit
Assure supplier that it will be paid for
shipment
Issued by the buyers bank to suppliers
bank when LOC terms are fulfilled
Paid when accurate and appropriate
documents are presented to buyers bank
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Currency hedging
Finance department expertise
Tracking currency movements
2012 Cengage Learning. All rights reserved. May
not be scanned, copied or duplicated, or posted to
a publically accessible website, in whole or in part.
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Currency Hedging
Form of risk insurance that can protect
both parties
Seeks risk aversion, not monetary gain
Option
Buy or sell foreign currency at certain
future rate
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International purchasing
Level II foreign purchases as needed
Level III part of strategic sourcing
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