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Worldwide Sourcing

Worldwide Sourcing. Chapter 10. Chapter Overview. Worldwide sourcing overview Progressing from domestic buying to international purchasing Progressing from international purchasing to global sourcing. Impact of Globalization. Interdependence Connectivity Integration of economies Social

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Worldwide Sourcing

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  1. Worldwide Sourcing Chapter 10 CENGAGE LEARNING Monczka – Handfield – Giunipero – Patterson

  2. Chapter Overview • Worldwide sourcing overview • Progressing from domestic buying to international purchasing • Progressing from international purchasing to global sourcing Purchasing & Supply Chain Management, 4e

  3. Impact of Globalization • Interdependence • Connectivity • Integration of economies • Social • Technical • Political Purchasing & Supply Chain Management, 4e

  4. Impact of Globalization • Outsourcing opportunities on the supply side • Opportunities for new markets on the demand side • Issue of trade balances Purchasing & Supply Chain Management, 4e

  5. Global Sourcing Benefits • Cost savings • Availability • Quality • Innovation • Entry to new markets Purchasing & Supply Chain Management, 4e

  6. U.S. Trading Partners (2006) Purchasing & Supply Chain Management, 4e

  7. Definitions • International purchasing • Relates to a commercial transaction between an buyer and a supplier in different countries • Global sourcing • Involves proactively integrating and coordinating common items and materials, processes, designs, technologies, and suppliers across worldwide purchasing, engineering, and operating locations Purchasing & Supply Chain Management, 4e

  8. Why Source Worldwide? • Cost/price benefits • Access to product/process technology • Quality • Access to only source available • Introduce competition to domestic suppliers • React to buying patterns of competitors • Establish a presence in a foreign market Purchasing & Supply Chain Management, 4e

  9. Barriers to Worldwide Sourcing • Lack of knowledge and skills concerning global sourcing • Resistance to change • Longer lead times • Different business customs, language, and culture • Currency fluctuations Purchasing & Supply Chain Management, 4e

  10. Lack of Knowledge and Skills • How to identify potential sources of supply • Documentation issues Purchasing & Supply Chain Management, 4e

  11. Documentation Requirements • Letters of credit • Multiple bills of lading • Dock receipts • Import licenses • Certificates of origin • Certificates of insurance • Packing lists • Commercial invoices Purchasing & Supply Chain Management, 4e

  12. Resistance to Change • Established, routine sourcing patterns • Shifting from longstanding suppliers • Domestic market nationalism Purchasing & Supply Chain Management, 4e

  13. Longer Lead Times • Extended material pipelines • Forecasting over longer time horizons • Need to more closely manage delivery dates • Possibility of transit and/or customs delays • Greater logistical, political, and financial risks Purchasing & Supply Chain Management, 4e

  14. Cultural Issues • Business practices • Language • Culture • Need to more closely manage delivery and engineering changes • Different meeting and negotiation styles • More difficult interpersonal relationships Purchasing & Supply Chain Management, 4e

  15. Currency Fluctuations • Often daily or hourly fluctuations • Need to understand highly complicated financial options • How to price purchases Purchasing & Supply Chain Management, 4e

  16. Overcoming Barriers • Education and training • Publicizing success stories • Globally linked information systems • Supplier providing U.S.-based support personnel • Measurement and reward systems • Use of third-party intermediaries Purchasing & Supply Chain Management, 4e

  17. From Domestic to International • No suitable domestic suppliers • Competitors are gaining competitive advantage from overseas suppliers • Triggering events in the supply market Purchasing & Supply Chain Management, 4e

  18. From Domestic to International • Information about worldwide sources • Supplier selection issues • Cultural understanding • Language and communication differences • Logistical issues Purchasing & Supply Chain Management, 4e

  19. From Domestic to International • Legal issues • Countertrade requirements • Costs associate with international purchasing • Currency risk Purchasing & Supply Chain Management, 4e

  20. Information about Worldwide Sources • International industrial directories • Trade shows • Trading companies • Third-party support • Trade consulates Purchasing & Supply Chain Management, 4e

  21. Supplier Selection Issues • Does a significant total cost difference exist between domestic and foreign sources? • Will the foreign supplier maintain price differentials over time? • What is the effect of longer material pipelines and increased average inventory levels? Purchasing & Supply Chain Management, 4e

  22. Supplier Selection Issues • What are the foreign supplier’s technical and quality capabilities? • Can the supplier assist with new designs? • What is the supplier’s quality performance? • What kinds of quality systems does the supplier have in place? Purchasing & Supply Chain Management, 4e

  23. Supplier Selection Issues • Is the supplier capable of consistent delivery schedules? • How much lead time does the supplier require? • Can we develop a longer-term relationship with this supplier? • Are patents and proprietary technology safe with this supplier? Purchasing & Supply Chain Management, 4e

  24. Supplier Selection Issues • Is the supplier trustworthy? • What legal system does the supplier expect to follow? • What are the supplier’s payment terms? • How does the supplier manage currency exchange issues? Purchasing & Supply Chain Management, 4e

  25. Cultural Understanding • Culture is the sum of all understandings that govern human interaction in a society • Language • Religion • Values and attitudes • Customs • Social institutions • Education Purchasing & Supply Chain Management, 4e

  26. Values vs. Behavior • Values • Shared beliefs or group norms that are internalized; they affect the way people think • Behavior • Based on values and attitudes; they affect the way people act Purchasing & Supply Chain Management, 4e

  27. Language Differences • Communicating purchase requirements clearly and effectively • Not everyone understands English the same way we do • Message speed • Level of content Purchasing & Supply Chain Management, 4e

  28. Recommendations from An Expert • If the supplier is using English as a second language, the buyer should be responsible for preventing communication problems • To aid in communication, speak slowly, use more communication graphics, and eliminate jargon, slang, and sports and military metaphors Purchasing & Supply Chain Management, 4e

  29. Recommendations from An Expert • Bring in an interpreter to all but the most formal meetings • Allow an extra day to educate interpreters on your issues and vocabulary • Document, in writing, the conclusions and decisions made in a meeting before adjourning Purchasing & Supply Chain Management, 4e

  30. Logistical Issues • Extended pipelines • Additional planning and management required • Shipping delays are to be expected • Often less capable transportation infrastructure • INCOTERMS Purchasing & Supply Chain Management, 4e

  31. INCOTERMS 2000 Purchasing & Supply Chain Management, 4e

  32. INCOTERMS 2000 Purchasing & Supply Chain Management, 4e

  33. INCOTERMS 2000 Purchasing & Supply Chain Management, 4e

  34. INCOTERMS 2000 Purchasing & Supply Chain Management, 4e

  35. INCOTERMS 2000 ** May be 1 of 2 FCA Terms: FCA Seller’s Premises FCA Named Place (Int’l Carrier) Purchasing & Supply Chain Management, 4e

  36. INCOTERMS 2000 Purchasing & Supply Chain Management, 4e

  37. Legal Issues • Common law vs. codified or civil law • Different levels of protection for the buyer • Intellectual property issues • U.N.’s Convention on Contracts for the International Sale of Goods (CISG) • World Trade Organization Purchasing & Supply Chain Management, 4e

  38. U.S. Foreign Corrupt Practices Act • Designed to prevent companies from making questionable or illegal payments to foreign officials to secure or retain business • Applies to U.S. citizens and their agents • Requires accurate recordkeeping and adequate controls Purchasing & Supply Chain Management, 4e

  39. U.S. Foreign Corrupt Practices Act • Also applies to foreign nationals who make such payments while in the U.S. • No dollar threshold amount • Enforcement focuses on intent Purchasing & Supply Chain Management, 4e

  40. International Purchasing Offices • Identify potential suppliers • Solicit quotes or proposals • Expedite and trace shipments • Negotiate supply contracts • Obtain product samples • Manage technical and commercial concerns • Represent the buying firm to suppliers • Manage countertrade requirements • Perform site visits Purchasing & Supply Chain Management, 4e

  41. Countertrade Requirements • Full or partial exchange of goods for goods • Purchasing is often responsible for negotiating and managing countertrade agreements Purchasing & Supply Chain Management, 4e

  42. Why Countertrade? • Some countries lack hard currency • Countertrade provides a means to sell products in that country • Factors • Typically involve large dollar amounts • Found in countries with perceived low or non-differentiated (commodity-like) goods Purchasing & Supply Chain Management, 4e

  43. Types of Countertrade • Barter • Counterpurchase • Offset • Buy-back • Switch trading Purchasing & Supply Chain Management, 4e

  44. Barter • Straight exchange of goods for goods with no exchange of currency • Involves a single contract • Usually relate to a specific transaction and cover a shorter period of time Purchasing & Supply Chain Management, 4e

  45. Counterpurchase • Requires a selling firm to purchase a specified amount of goods from the country that purchases its products • Generally a percentage of the original sale • Involves products unrelated to the company’s primary business • Issue of disposition of the goods Purchasing & Supply Chain Management, 4e

  46. Offset • Closely related to counterpurchase • Generally a percentage of the original sale • Allowed to offset its countertrade requirements with any company or industry – more flexible Purchasing & Supply Chain Management, 4e

  47. Buy-Back • Sometimes called compensation trading • Occurs when building a plant in a third world country • Building company agrees to buy back some or all of the plant’s output as payment Purchasing & Supply Chain Management, 4e

  48. Switch Trading • Occurs when a selling company agrees to accept goods from the buying country as partial payment • Company may decide to utilize a third-party to sell or market goods Purchasing & Supply Chain Management, 4e

  49. Costs of International Purchasing • Common costs • Comparable to costs in domestic sourcing • Purchase price • Tooling charges • Transportation from supplier to buyer • International transaction costs • Additional costs over and above domestic sourcing Purchasing & Supply Chain Management, 4e

  50. International Transaction Costs • Base price • Tooling • Packaging • Escalation • Transportation • Customs duties • Insurance premiums • Payment terms Purchasing & Supply Chain Management, 4e

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