Slide 14.

Buying from Overseas

Terminology from Overseas

Terminology
International sourcing: Multinational sourcing: Foreign sourcing:

Buying outside the firms country of manufacture is such a way that does not co-ordinate requirements among world-wide business units of a single firm. The co-ordination and integration of procurement requirements across world-wide business units, looking at common items, processes, techniques and suppliers. A commercial transaction between a buyer and a seller located in different countries.

Strategic global sourcing:

International purchasing:

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 14.2

Buying from Overseas

Benefits from International Sourcing

Benefits from international sourcing (Birou and Fawcett 1993) Rank 1 2 3 4 5 6 7 8 Benefits from international sourcing Access to lower priced goods Enhanced competitive position Access to higher quality goods Access to worldwide technology Better delivery performance Better customer service Increased number of suppliers Helps meet counter trade obligations Rating 5.56 5.29 4.89 4.49 3.48 3.38 2.76 2.60

All ratings on a seven-point Liker scale with 7 greatest benefit

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 14.3

Buying from Overseas

Challenges to International Sourcing

Challenges to international sourcing (Birou and Fawcett 1993) Rank 1 2 3 4 5 6 7 8 9 Challenges to international sourcing JIT sourcing requirements Finding qualified foreign sources Logistics support for longer supply links Culture and language differences Duty and customs regulations Fluctuation in currency exchange rates Knowledge of foreign business practices Nationalistic attitudes and behaviour Understanding the political environment Rating 5.14 4.92 4.91 4.61 4.41 4.39 4.42 3.86 3.82

All ratings are on a seven-point Likert scale with 7 = major challenge

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 14.4

Buying from Overseas

Incoterms

EXW
FCA FAS FOB CFR CIF CPT

Ex Works
Free Carrier Free Alongside Ship Free on Board Cost and Freight Cost Insurance and Freight Carriage Paid To

CIP
DAF DES DEQ DDU DDP

Carriage and Insurance Paid

Delivered Ex Frontier Delivered Ex Ship Delivered Ex Quay Delivered Duty Unpaid Delivered Duty Paid

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 14.5

Buying from Overseas

Minimising Freight Costs Sitting manufacturing and assembly processes nearer to customers and suppliers
Cross docking Avoiding empty return loads Using smaller vehicles Negotiating lower rates Undertaking cost analysis Balancing conflicting pressures, delivery date v lowest cost carrier
Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 14.6

Buying from Overseas 5 Types of Counter trade

1. Barter/swaps 2. Counter purchase 3. Buy back/compensation 4. Switch trading

5. Offset

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 14.7

Buying from Overseas Comparison of Costs of Overseas and UK Sourcing

Expense category 1. Basic price Costs Area of expenditure Suppliers quoted price per item Packaging Sea/air freight Marine insurance Suppliers final price CIF/destination Handling charges (port of entry) Storage Port costs Internal transport to buyer Freight forwarding fees Insurance Customs duties Customs clearance fees Overseas supplier Home supplier

2. Handling/ transportation charges

3. Customs and associated charges

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 14.8

Buying from Overseas Comparison of Costs of Overseas and UK Sourcing

Expense category 4. International financing Costs Overseas supplier Home supplier

Area of expenditure
Costs of documentation Currency conversion rates Exchange rate fluctuations Bank fees Holding costs of higher inventory Levels at x% per annum Costs of visit to overseas supplier Estimate communication costs Costs of inspection by overseas agent Special fees e.g., translation, legal

5. Inventory costs 6. Sourcing costs

Total actual or estimated costs

Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005

Slide 14.9

Buying from Overseas Factors Influencing Success in International Sourcing

Factors influencing success in international sourcing (Birou and Fawcett 1993) Rank 1 2 3 4 5 6 7 Factor Top management support Developing communication skills Establishing long-term relationships Developing global sourcing skills Understanding global opportunities Knowledge of foreign business practices Foreign supplier certification and qualifications Rating 5.68 5.67 5.65 5.62 5.13 5.09 5.02

8
9 10 11

Planning for global sourcing

Obtaining expert assistance Knowledge of exchange rates Use of third party logistics services

5.02
4.79 4.53 4.12

Note: all ratings are on a seven-point Likert scale with 7 = major challenge
Lysons & Farrington, Purchasing and Supply Chain Management, 7th edition, Pearson Education Limited 2005