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Fundamentals of

International Purchasing
&
International Procurement
Strategy

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?

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

International Purchasing
"Boundaries are shrinking and
disappearing, and whats becoming
apparent is that global purchasing and
domestic purchasing are flowing, blending,
and converging into one stream."
R. Jerry Baker

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

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

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.

International Business: Strategy,


Management, and the New
Realities

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)

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

Challenges in International Sourcing


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


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

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

International
purchasing
office support

Sourcing and
contracting
systems

Availability of
critical
resources

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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

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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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