Global sourcing for Malawi in procuremen

procurement procedures

1. Global Sourcing & Procurement Faculty of Business Administration Presented by: Tony Msiska

2. Procurement Definition Procurement is the business management function that ensures identification, sourcing, access and management of the external resources that an organisation needs or may need to fulfil its strategic objectives. Procurement exists to explore supply market opportunities and to implement resourcing strategies that deliver the best possible supply outcome to the organisation , its stakeholders and customers.

3. Purchasing Cycle Need Identification - A requirement/gap is identified by the user department Define Specification - User departments will provide the specifications/attributes of the items in need Define Contractual Terms Put together the terms that will guide the transaction e.g., delivery period, payment terms Source the Market - Search for prospective suppliers on the market

4. Purchasing Cycle Cont’d Request for Quotation Once suppliers have been identified an RFQ is sent for terms, price, quality, period, and quantity comparison Selection/Analysis & Order The supplier with favourable terms, price, quality and quantity is selected and issued with a purchase order Delivery Supplier delivers, procurement verifies the purchase order terms with the ones on a delivered note or delivered. Payment Depending on the agreement (payment on delivery , 30 days payment) supplier is paid Vendor Rating - Analysis of vendor performance after the transaction

5. Global Sourcing Strategic global sourcing is defined as: the coordination and integration of procurement requirements across worldwide business units, looking at common items, processes, technologies and suppliers. International procurement is: a commercial transaction between a buyer and a seller located in different countries. Global sourcing involves: positively integrating and coordinating common items and materials, processes, designs, technologies and suppliers across worldwide purchasing, engineering and operating locations.

6. Why Global Sourcing Cost/Price Benefits • Lower labor rates • Different productivity levels, Exchange rate differences • Lower-cost inputs for materials Access to Product and Process Technology Quality Access to the Only Source Available Introduce Competition to Domestic Suppliers React to Buying Patterns of Competitors Establish a Presence in a Foreign Market

7. Barriers to Global Sourcing Lack of knowledge and skills concerning global sourcing; resistance to change; longer lead times; different business customs, language, and culture; and currency fluctuations.

8. Considerations Cultural Understanding Values and behaviors Language and Communication Differences Logistical Issues Legal Issues

9. Information about Worldwide Sources International Industrial Directories Trade Shows Trading Companies Trade Consulates ■ foreign embassies and high commissions ■ import brokers ■ shipping and forwarding agents trading company web sites ■ professional and trade organisations ■ the Internet.

10. Countertrade Requirements a generic term for parallel business transactions, linking sellers and buyers in reciprocal commitments that usually lie outside the realm of typical money-mediated trade. This broad term refers to all international and domestic trade where buyer and seller have at least a partial exchange of goods for goods. This exchange can involve a complete trade of goods for goods or involve some partial payment to a firm in cash.

11. Types of Countertrade Barter The oldest and most basic form of trading is barter, a process that involves the straight exchange of goods for goods with no exchange of currency. It requires trading parties to enter into a single contract to fulfill trading requirements. Despite its apparent simplicity, barter is one of the least-practiced forms of countertrade today. Counter-purchase requires a selling firm to purchase a specified amount of goods from the country that purchased its products. The amount to counter-purchase is a percentage of the amount of the original sale

12. Cont’d Offset agreements, which are closely related to counter-purchase, also require the seller to purchase some agreed-upon percentage of goods from a country over a specified period. However, offset agreements allow a company to fulfill its countertrade requirement with any company or industry in the country Buy-Back Some countertrade authorities also refer to this type of countertrade as compensation trading. Buy-back occurs when a firm physically builds a plant in another country or provides a service, equipment, or technology to support the plant

13. Benefits Lower Purchase Price/Cost Greater Access to Product Technology Improved Supplier Relationships Greater Access to Process Technology Greater Supplier Responsiveness Greater Appreciation of Purchasing Better Management of Supply Chain Inventory Greater Standardization of the Sourcing Process Higher Material, Component, or Service Quality Improved Sharing of Information with Suppliers

14. INCORTEMS Incoterms refer to the set of international rules for the interpretation of the chief terms used in foreign trade contracts. . The Incoterms rules describe mainly the tasks, costs and risks involved in the delivery of goods from sellers to buyers. EXW Ex Works means that the seller delivers when it places the goods at the disposal of the buyer at the seller’s premises or at another named place (i.e., works factory, warehouse, etc.). The seller does not need to load the goods on any collecting vehicle, nor does it need to clear the goods for export, where such clearance is applicable

15. Cont’d FCA Free Carrier means that the seller delivers the goods to the carrier or another person nominated by the buyer at the seller’s premises or another named place. The parties are well advised to specify as clearly as possible the point within the name CPT Carriage Paid To means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties) and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination

16. Cont’d CIP Carriage and Insurance Paid To means that the seller delivers the goods to the carrier or another person nominated by the seller at an agreed place (if any such place is agreed between parties), and that the seller must contract for and pay the costs of carriage necessary to bring the goods to the named place of destination. The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIP the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements

17. Cont’d DAT Delivered at Terminal means that the seller delivers when the goods, once unloaded from the arriving means of transport, are placed at the disposal of the buyer at a named terminal at the named port or place of destination. Terminal includes a place, whether covered or not, such as a quay, warehouse, container yard or road, rail or air cargo terminal. The seller bears all risks involved in bringing the goods to and unloading. DAP Delivered at Place means that the seller delivers when the goods are placed at the disposal of the buyer on the arriving means of transport ready for unloading at the named place of destination. The seller b ears all risks involved in bringing the goods to the named place.

18. Cont’d DDP Delivered Duty Paid means that the seller delivers the goods when the goods are placed at the disposal of the buyer, cleared for import on the arriving means of transport ready for unloading at the named place of destination. The seller bears all the costs and risks involved in bringing the goods to the place of destination and has an obligation to clear the goods not only for export but also for import, to pay any duty for both export and import and to carry out all customs formalities FAS Free Alongside Ship means that the seller delivers when the goods are placed alongside the vessel (e.g., on a quay or a barge) nominated by the buyer at the named port of shipment. The risk of loss of or damage to the goods passes when the goods are alongside the ship

19. Cont’d FOB Free On Board means that the seller delivers the goods on board the vessel nominated by the buyer at the named port of shipment or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel, and the buyer bears all costs from that moment onwards CFR Cost and Freight means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination

20. Cont’d CIF Cost, Insurance and Freight means that the seller delivers the goods on board the vessel or procures the goods already so delivered. The risk of loss of or damage to the goods passes when the goods are on board the vessel. The seller must contract for and pay the costs and freight necessary to bring the goods to the named port of destination ‘The seller also contracts for insurance cover against the buyer’s risk of loss of or damage to the goods during the carriage. The buyer should note that under CIF the seller is required to obtain insurance only on minimum cover. Should the buyer wish to have more insurance protection, it will need either to agree as much expressly with the seller or to make its own extra insurance arrangements

21. Cont’d

22. Questions??