1. Global Supply Management
Chapter 14
Global Supply Management
This is a test 1

2. Growth in World Trade
The total value of world merchandise imports in 2008 was $16.4 trillion
World commercial services exports in 2008 was $3.5 trillion
The total value of U.S. merchandise imports in 2008 was $2.1 trillion
The total value of U.S. commercial services trade in 2008 was $368 billion
The WTO estimates the value of worldwide merchandise trade imports grew by a factor of 95 times between 1948 and 2001

3. Reasons for Global Purchasing
Unavailability of items domestically
Price/cost
labor costs, exchange rates, equipment and processes, product and pricing focus
Government/marketing pressures
Quality
Faster delivery and continuity of supply
Better technical service
Technology
Marketing tool
Tie-in with offshore subsidiaries
Competitive clout

4. Potential Problem Areas in Global Purchasing
Source location and evaluation
Lead/delivery time
Expediting
Political and labor problems
Hidden costs
Currency fluctuations
Payment methods
Quality
Warranties and claims
Tariffs and duties
Administration costs
Legal problems
Logistics and transportation
Language
Communications
Cultural and social customs
Ethics and social responsibility

5. Potential Hidden Costs
Foreign exchange premiums
Commissions to customs brokers
Terms of payment costs and finance charges: letter of credit fee, translation costs, exchange rate differentials
Foreign taxes imposed
Import tariffs
Extra safety stock/buffer and transit inventory, plus inventory carrying costs due to longer lead times
Extra labor for special handling
Obsolescence, deterioration, pilferage, and spoilage
Additional administrative expenses
Packaging and container costs
Business travel
Fees for freight forwarders, consultants, or inspectors
Marine insurance premium.
Customs documentation charges
Transportation costs, including from manufacturer to port, ocean freight, from port to company plant, freight forwarder’s charges, port handling charges, warehouse costs

6. General Guidelines for Dealing with International Suppliers
Even if English is spoken, speak slowly, use more communication graphics and avoid use or metaphors and jargon
Bring an interpreter to all by the more informal meetings
Allow extra time to educate interpreters on issues
Document in writing the main conclusions and decisions
Learn about the country’s history and taboos
Do not use first names unless invited to
Get cultural advice from professional or your own company employees, not from supplier representatives in the U.S.
Expect negotiations to last longer with some cultures
Suppliers must learn to accept you and your company as a customer
Source: Dick Locke, Global Supply Management, New York: McGraw-Hill, 1996

7. Organizational Considerations
Regional purchasing offices
Organized geographic regions
Global Commodity Management Organization
When there are a large number of common requirements across facilities or business units and the supply base is not always located in the same geographic area as the buying company’s operations
International Purchasing Office (IPO)
Separate purchasing organization usually reporting to head office purchasing department

8. Intermediaries Import brokers and agents Import merchants
For a fee will assist in locating suppliers and handling the paperwork
Import merchants
Buys the product, takes title and delivers it to buyer
Supplier’s subsidiary
Sales representatives
Trading companies
Potential advantages: convenience; efficiency; potentially lower costs, due to volume; reduced lead times; and greater assurance of the product meeting quality specifications

9. Information Sources The Internet Government sources
Chambers of commerce located in major cities in the United States, Canada and around the world
Supply organizations at other companies
Supplier locator directories
Kelly’s Directory, Thomas Register, Dun & Bradstreet
Importers and foreign trade brokers
Other sources
e.g., Suppliers, banks

10. Incoterms Developed by the International Chamber of Commerce
Updated: Incoterms 2000
Internationally recognized standard definitions that describe the responsibilities of a buyer and seller in a transaction
Variations across regions and among carriers possible so make sure to specify conditions
13 standard Incoterms
Each term must be followed by a geographic location, such as a port or city

11. Incoterms: Departure EXW: Ex Works (named place)
Buyer takes title when goods picked up at the supplier’s factory and is totally responsible for shipment, customs clearance and duties.
Places greatest responsibility on the buyer

12. Incoterms: Main Carriage Unpaid
FCA: Free Carrier (named place)
Goods have cleared by the seller for any export customs procedures and the seller is responsible for loading the goods
The buyer takes possession at the named place in the seller’s country
FAS: Free Alongside Ship (named port of shipment)
The seller clears the goods for export and delivers them to the port of export
The buyer takes possession at the dock at the port of export

13. Incoterms: Main Carriage Unpaid
FOB: Free on Board (named port of shipment)
The supplier clears the goods for export and is responsible for the costs and risks of delivering the goods past the rail at the named port of shipment
The buyer takes responsibility for the goods as they pass over the ship’s rail during the loading process.
Note: This term is used differently from the conventional North American term “F.O.B.”

14. Incoterms: Main Carriage Paid
CFR: Cost and Freight (named port of destination)
The supplier clears the goods for export and arranges and pays freight as far as the port of entry
Title and risk of loss transfer to the buyer from the time the goods go over the ship’s rail in loading - the buyer owns the goods on a carrier selected by the supplier.

15. Incoterms Main Carriage Paid
CIF: Cost, Insurance and Freight (named port of destination)
The supplier clears the goods for export, arranges and pays the freight and marine insurance for the goods
Title and risk transfer once the goods clear the ship’s rail while being loaded
CPT: Carriage Paid To (named port of destination)
The supplier clears the goods for export, delivers the goods to the carrier and pays for carriage to the port of destination, unloading customs clearance and duties
Title and risk risk of loss transfers when goods are transferred to the carrier

16. Incoterms Main Carriage Paid
CIP: Carriage and Insurance Paid To (named port of destination)
The supplier clears the goods for export, delivers the goods to the carrier and is responsible for paying carriage and insurance to the named port of destination
The seller is also responsible for costs of unloading, customs clearance and duties
Title and risk risk of loss transfers when goods are transferred to the carrier

17. Incoterms: Arrival DAF: Delivered at Frontier (named place)
The supplier clears the goods for export and is responsible for making them available to the buyer at the named place at the frontier, and not cleared for import.
Title transfers at named place and time at the frontier.
DES: Delivered Ex Ship (named port of destination)
The supplier is responsible for clearing the goods for export and for making them available to the buyer on board the ship at the port of destination, not cleared for import.
Title transfers from time the goods are made available at the named port

18. Incoterms: Arrival DEQ: Delivered Ex Quay (named port of destination)
The supplier is responsible for clearing the goods for export and making them available to the buyer on the warf at the named port of destination, not cleared for import
The buyer is responsible for import clearance, duties and other costs upon import and transport to the final destination
Title transfers from time the goods are made available at the warf

19. Incoterms: Arrival
DDU: Delivered Duty Unpaid (named place of destination)
The supplier clears the goods for export and is responsible for making them available to the buyer at the named destination, not cleared for import.
The buyer is responsible for import clearance, duties and associated administrative costs.
Title transfers at the named place of destination

20. Incoterms: Arrival
DDP: Delivered Duty Paid (named place of destination)
The supplier clears the goods for export and is responsible for making them available to the buyer at the named destination, cleared for import, but not unloaded
Title transfers at the named place of destination.

21. Countertrade
Countertrade is the practice of a company promising to buy material, products or services from a country in return for the privilege of selling in the country
The supply function may be called to:
Use material acquired through a barter/swap
Identify cost-effective sourcing alternatives to fulfill offset agreements
Identify goods and services to fulfill counter purchase agreements
Set-up buyback agreements
Negotiate switch trade agreements with a broker or trading house

22. Foreign Trade Zones (FTZ)
FTZ: isolated, enclosed area in or adjacent to a port of entry, used to used to import, process, and reship products to foreign markets.
Main purpose for using FTZ’s are to avoid, postpone, or reduce the tariff on imported goods
FTZ’s differ depending on their major functions.
transshipments, storage, exhibition and display, manufacturing