international procurement process, benefits and challenges ippu 14 th cpd presented by: grace paddy...
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InternationalInternationalProcurement Process, Procurement Process,
benefits and challengesbenefits and challenges
IPPU 14th CPDPresented by:
Grace Paddy Wanzala (MCIPS)
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Tour de Tour de PresentationPresentation
Definition of procurement management
Procurement management processInternational procurement
managementWhy international procurement?Barriers and Overcoming barriersDocuments used and factors to
consider in International ProcurementBenefits and Challenges of
International procurementIPPU Grand Imperial 2
PROCUREMENT PROCUREMENT MANAGEMENTMANAGEMENT
Definition:Procurement means acquiring goods, works and/or services from an outside source. Procurement is the term generally used by government, while business uses the term purchasing and outsourcing is commonly used by the information technology industry.
Procurement Process for Procurement Process for GovernmentGovernment
Public Procurement – purchasing for government. Public Procurement is characterized by: Competitive bidding - contract is usually
awarded to lowest priced technically compliant bidder.
Sealed Bids are used to satisfy the Invitation to Bid (ITB) and are opened publically.
Bid Security - successful bidder will accept contract.
Performance Bonds - incentive to fulfill contract and work will be on time and meet specifications.
Advance Payment Guarantee - protection against 3rd party liens not fulfilled by bidder
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Legal FrameworkLegal FrameworkGOU ProcurementGOU Procurement
Rules that govern Government Procurement:
PPDA Act 2003. PPDA Regulations, 2003: LG PPDA Regulations, 2006: Guidelines Circulars
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Procurement Management ProcessesProcurement Management Processes
Procurement management includes the following processes for acquiring goods and services from outside the entity:
Procurement planning: determining what to procure and when.
Solicitation planning: documenting product requirements and identifying potential sources.
Solicitation: obtaining quotations, bids, offers, or proposals as appropriate.
Source selection: choosing from among potential vendors. Contract administration: managing the relationship with
the vendor. Contract close-out: completion and settlement of the
contract.
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Procurement ProcessProcurement Process
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PlanningTender Notice Receipt of bids
Tech bidEvaluation
Fin. bidEvaluation
AwardReceipt of GoodsPayment
International International ProcurementProcurement
International procurement relates to a
commercial purchase transaction between a buyer and a supplier located in a different country.
This type of purchase is typically more complex than a domestic purchase. PDEs must contend with longer material pipelines, increased rules and regulations, currency fluctuations, customs requirements, and a host of other variables such as language and time differences.
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International Procurement International Procurement UtilitiesUtilities
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TIME PLACE POSSESSION
y
Why International Why International Procurement?Procurement?
Reasons for International Procurement:
Opportunity to improve quality, cost, and delivery performance
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Reasons for international Reasons for international procurement procurement
Materials are not available domestically Domestic manufacturers are unavailable to supply
specific materials; Incapable of meeting required delivery time or limited technical capabilities.
Unsatisfactory quality of domestic products Quality of products in the domestic market does
not meet the requirements of the PDE. Supplier cannot provide satisfactory warranties or after-sales services to the manufacturers and PDEs.
Price Products supplied by domestic suppliers may be
too expensive, and PDE can obtain the same goods with a cheaper price elsewhere around the world.
Technology PDEs may have no choice but to source
internationally; otherwise they cannot get the supplies.
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Why international Why international procurement? procurement?
Cont’dCont’dNo suitable domestic suppliersRequired supplies got from
overseas suppliersEntity has information about
international sourcesSupplier selection issues dictate
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Procurement & Supply chain Procurement & Supply chain managementmanagement
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ProductSelection
QualityAssurance
SupplierSelection
Distribution
Forecasting
ProductProcurement
Rational Use
Receipt andStorage
Procurement
Needs identified
Govts
CSOs
IN-COUNTRY LOGISTICS
•
Supply Chain
Assessment Planning
Good Clearance
Procurement
Warehousing and Inventory Management
Shipping
Inland Transport and Distribution
Supply Tracking and Evaluation
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Function Scheme
Logistical Services
Logistical Services
LogisticalServices
LogisticalServices
Technicalsupport
Technicalsupport
Procurement& Contracting
Procurement& Contracting
Quality Asurance
Quality Asurance
Technicalsupport
Technicalsupport
Procurement &
Contracting
Procurement &
Contracting
Quality Assurance
Quality Assurance
WarehouseWarehouse
Country Country PartnersPartners
Norm
ative
Crisis area
Suppliers
Normative
Management and Support Services
Suppliers
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Barriers and Overcoming themBarriers and Overcoming them(International Procurement)(International Procurement)
Barriers Lack of knowledge
and skills concerning international sourcing
Resistance to change Longer lead times Different business
customs, language, and culture
Currency fluctuations
Overcoming Barriers
Education and training Publicizing success
stories Globally linked
information systems Measurement and
reward systems Use of third-party
intermediaries Obligate in stable
currency
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Barriers ExplainedBarriers Explained
1) Lack of Knowledge and SkillsHow to identify potential sources of
supplyDocumentation issues2) Resistance to ChangeEstablished, routine sourcing
patternsShifting from longstanding suppliersDomestic market nationalism
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3). Longer Lead Times3). Longer Lead TimesExtended material pipelinesForecasting over longer time
horizonsNeed to more closely manage
delivery datesPossibility of transit and/or
customs delaysGreater logistical, political, and
financial risks
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4). Cultural Issues4). Cultural Issues
Business practicesLanguageCultureNeed to more closely manage delivery
and engineering changesDifferent meeting and negotiation
stylesMore difficult interpersonal
relationshipsIPPU Grand Imperial 19
5). Currency 5). Currency FluctuationsFluctuations
Often daily or hourly fluctuationsNeed to understand highly
complicated financial optionsHow to price purchases
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Documentations used in Documentations used in International International ProcurementProcurementLetters of creditMultiple bills of
lading (Air way bill; Bill of lading
Dock receiptsImport licensesCertificates of
originCertificates of
insurance
Packing lists/ Proforma Invoice
Commercial invoices
WarrantiesManufacturers
AuthorisationsClearance
certificates (NDA; UNBS e.t.c)
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Factors to consider in Factors to consider in International ProcurementInternational ProcurementCosts
Local labor rates International freight tariffs Currency exchange rates
Customs DutyDuty rates differ by commodity and level of
assembly Impact of GATT/WTO: Changes over time
Export RegulationsDenied parties list Export licenses
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Source: Global Supply Chain Associates (GSCA) 1999
Factors to consider in Factors to consider in International ProcurementInternational Procurement
TimeLead time Cycle time Transit time Export license approval cycle Customs clearance
Taxes on Corporate IncomeDifferent markups by country
Offset Trade and Local ContentLocal content requirement for government
purchases Content for preferential duty rates
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Factors to consider while Factors to consider while selecting suppliers: selecting suppliers:
Product and process technologies Willingness to share technologies and
information Quality Cost Reliability Order system and cycle time Capacity Communication capability Location Service Different companies have different criteria based
on their products, price offered, quality, on-time delivery, after-sales services, response to order change, supplier location and suppliers financial
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Benefits of International Benefits of International ProcurementProcurementCost savingsAvailabilityQualityInnovationEntry to new markets
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Sources of RisksSources of Risks
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Risk sources and their characteristics
Sensing and Sensing and RespondingRespondingSpeed in sensing and responding can
help the PDE overcome unexpected supply problems
Failure to sense could lead to:◦Failure to respond to changes in the supply chain
◦Can fail an entity to achieve the intended goals and objectives.
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Cultural DifferencesCultural DifferencesLanguage
◦Expressions, gestures, and contextBeliefs, or specific values about
something◦Can differ widely from culture to culture
Customs◦Vary greatly from country to country◦Important for the business person to adhere
to local customs to avoid offending anyone. Example: the practice of gift giving varies greatly
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Logistical IssuesLogistical IssuesExtended pipelinesAdditional planning and
management requiredShipping delays are to be
expectedOften less capable transportation
infrastructureINCOTERMS
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INCOTERMS 2000INCOTERMS 2000
EXW
Ex Works
Buyer takes title when taking delivery of the goods at supplier’s facility. Buyer is responsible for the shipment and duties.
FCA Free Carrier
Buyer takes possession and title at the airport or truck terminal at the port of export in the seller’s country after the goods clear customs.
FASFree Alongside
Ship
Buyer takes possession at the dock at the port of export after the goods clear customs.
FOB Free of BoardBuyer takes responsibility and title for
the goods as they pass over the ship’s rail during loading.
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INCOTERMS 2000INCOTERMS 2000
CFRCost and Freight
Supplier arranges freight and pays as far as the buyer’s port of entry. Title and risk of loss remain with the buyer.
CIFCost,
Insurance, and Freight
Supplier arranges freight and buys insurance for the goods as part of the sales price. Title and risk transfer to the buyer once the goods clear a ship’s rail while being loaded.
CPT Carriage PaidTitle transfers to buyer when goods are
loaded into a container. Seller selects and pays the carrier. Similar to CFR.
CIPCarriage and
Freight Paid toSimilar to CIF but applies to air or truck
transport only.
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INCOTERMS 2000INCOTERMS 2000
DAF
Delivered at Frontier
Goods are delivered to a border by truck or rail. Title transfers at the border after goods are cleared for export but not yet cleared through import customs.
DESDelivered Ex
Ship
Seller pays freight costs to a port of import, and title transfers on the ship at arrival. Buyer is responsible for unloading the freight and clearing customs.
DEQ•Delivered Ex
Quay
Seller is responsible for having the ship unloaded at the port of entry. Title transfers when goods are unloaded from the ship, either before or after customs. Term must include “Duty Paid” or “Duty Unpaid”
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INCOTERMS 2000INCOTERMS 2000
DDU
Delivered Duty Unpaid
Seller delivers goods with duty unpaid to a buyer’s specified location. This location, where the title transfers, is different from the port of import. These goods have not cleared customs and require proper customs supervision and bonding.
DDPDelivered Duty
Paid
Seller delivers goods to the buyer with all duties paid. Title transfers at the buyer’s designated receiving location.
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INCOTERMS 2000INCOTERMS 2000EXW
FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ
Warehouse
StorageS S S S S S S S S S S
Warehouse
LaborS S S S S S S S S S S
Export Packaging S S S S S S S S S S S
Loading Charges B S S S S S S S S S S
Inland Freight B
B/S**
S S S S S S S S S
Terminal Charges B B S S S S S S S S S
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** May be 1 of 2 FCA Terms: FCA Seller’s Premises FCA Named Place (Int’l Carrier)
INCOTERMS 2000INCOTERMS 2000EXW
FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ
Forwarder’s Fees B B B B S S S S S S S
Loading on Vessel B B B S S S S S S S S
Ocean/Air Freight B B B B S S S S S S S
Charges on Arrival
at Destinatio
n
B B B B B B S S B B S
Duty, Taxes, & Customs
B B B B B B B B B B B
Delivery to
Destination
B B B B B B B B B B B
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International TransactionInternational Transaction Costs Costs
Base priceToolingPackagingEscalationTransportation
from supplier to buyer
Customs dutiesInsurance
premiumsPayment terms
Additional fees and commissions
Port terminal and handling fees
Customs broker feesTaxesCommunication costsPayment and
currency feesInventory carrying
costs
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Letters of CreditLetters of CreditAssure the seller that it will be
paid for the shipmentPaid when accurate and
appropriate documents are presented to buyer’s bank
Revocable vs. irrevocable
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Port Terminal and Port Terminal and Handling FeesHandling FeesUnloading of cargoAdministrative services of port
authority personnelGeneral use of the portTemporary storage for goods
awaiting customs and/or documentation clearance
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Currency RiskCurrency RiskPurchase in U.S. dollarsSharing currency fluctuation riskCurrency adjustment contract
clauses◦Delivery-triggered vs. time-triggered
Currency hedgingFinance/treasury department
expertiseTracking currency movements
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Benefits of International Benefits of International ProcurementProcurementLower purchase price/costGreater access to product technologyImproved supplier relationshipsGreater access to modern technologyGreater supplier responsivenessGreater appreciation of purchasingHigher material, component, or
service quality
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Challenges in Challenges in International International ProcurementProcurementCultural understanding
Language and communication differences
Logistical issuesLegal issuesCosts associate with international
purchasingCurrency risk
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2. Foreign language:2. Foreign language:
Although English is the international language of business, consumers want to use their own language.
Ads may become lost in translation. Eg. KFC “finger-lickin good” translated
into Chinese as “eat your finger off”.Jif changed to Cif due to difficulty with
J….
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3. Exchange Rates:3. Exchange Rates:
If the euro increases in value exports become dearer and imports become cheaper. (happening now with €1 = £0.90).
If the value of the euro decreases in value then exports become cheaper and imports become dearer. This will make supplies more expensive.
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Other problems connected Other problems connected with International with International
ProcurementProcurementTransportInsuranceSafety standardsPaymentCultural differencesPotential Challenges: Requires additional skills and
knowledge to deal with international suppliers, logistics, communication, political environment, and other issues
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E-PROCUREMENTE-PROCUREMENT
PRESENTATION ON PROCESS, BENEFITS AND CHALLENGES
14th CPD GRAND IMPERIAL
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Tour de PresentationTour de Presentation
What is E-Procurement? Open trading environmentE-Procurement processBenefits of e-procurementE-procurement challengesSuggestions for e-GP system
Implementation
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What is E-Procurement?What is E-Procurement?
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SuppliersBuyer
Web Based Application
Software
E-Procurement is the value-added application of Internet and e-commerce solutions to facilitate, integrate and streamline the entire procurement process, from buyer to supplier and back.
Buyers implement software
• Maintain Local Catalogue• Access Suppliers Catalogue
Open Trading Open Trading EnvironmentEnvironment
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Suppliers are Free to Choose
• Maintain Catalogue or Marketplace• Visible to Widest Possible Market
Flexibility
The E-procurement The E-procurement ProcessProcess
Advantages of the e-Procurement System
Time savingsCost savingsAccuracyReal timeMobilityTractabilityManagementBenefits to the suppliers
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The e-Procurement ProcessThe e-Procurement ProcessContinuedContinued
Step 1- User inputs a Procurement requisition:Relevant information such as quantity and date needed.Step 2- Procurement requisition submitted to PDU: At PDU (hardcopy or electronically). Step 3- PDU assigns qualified suppliers to bid:Product description, closing date, & conditions are given.Step 4- Entity reviews closed bids & selects a supplier
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The The e-Procuremente-Procurement Process Process
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Small Value Purchase Small Value Purchase OrdersOrders
Processing costs for small value purchases are minimized through:
Procurement Credit Card/Corporate Purchasing Card (P-card)
Blanket or Open-End Purchase OrdersBlank Check Purchase OrdersStockless Buying or System ContractingPetty CashStandardization & Simplification of Materials &
ComponentsAccumulating Small Orders to Create a Large
OrderUsing a Fixed Order Interval
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Supports Online Reverse AuctionSupports Online Reverse Auction
Core ObjectivesOf e-procurementCore Objectives
Of e-procurement
Real Time MonitoringReal Time Monitoring
Process Efficiency Process Efficiency
New supplier discovery
New supplier discovery
Cost Reduction
Cost Reduction
Paper less environmentPaper less
environment
TransparencyTransparency
Benefits of e-Benefits of e-ProcurementProcurement
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StreamliningProcurementprocesses
Benefits of e-Benefits of e-procurementprocurementBuyers end facilitates tendering entity to create online tender including technical bid and financial bid After receiving bids, software performs the evaluation
task Result of tender evaluation can be viewed on the web. Supplier end Instant access to all tender notices and tender
documents for contractors Reduction in tender preparation time attend pre bid meeting electronically Savings for contractors in document fees submission of digitally signed technical bid and financial
bid
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Benefits Cont’dBenefits Cont’d Strategic Benefitso Align Procurement strategy with procurement Goalso Exchanging key suppliers with market information Reduces Riskso Diversify risk with key suppliers for product failure. Reduces Spending and Timeo Cost reduction
• e-Tender, e-Auction and e-Contract Management • Avoid grouping of Bidders; Avoid Mafia • User friendly and paperless procurement process
o Savings in processing time◦ From e-Indent to decision making
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Supplier SelectionSupplier Selection
Best Best Practice Practice
BenefitsBenefits ChallengesChallenges E-E-procuremenprocurement Solution t Solution Feature Feature
Able to Able to generate generate prospective prospective list of list of suppliers suppliers from existing from existing database database
Drastically Drastically cut time cut time
and logistics and logistics billsbills
Lack of data Lack of data aggregation,aggregation,
Cleansing and Cleansing and analytical analytical capabilitiescapabilities
Category Category Management, Management, Search Search Capabilities Capabilities and friendly and friendly user interfaceuser interface
Accurate Accurate evaluation of evaluation of suppliers suppliers based on based on multiple multiple factors with factors with attached attached documentsdocuments
Cuts time and Cuts time and cost in cost in evaluation evaluation and reduce and reduce bias in bias in supplier supplier selectionselection
Difficulty in Difficulty in defining and defining and integrating integrating quantitative quantitative and and qualitative qualitative parametersparameters
Portals for better Portals for better internal internal collaboration, collaboration, integration integration tools and tools and analytics to analytics to evaluate bid evaluate bid optionsoptions
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Contract ManagementContract ManagementBest Best
Practice Practice BenefitsBenefits ChallengesChallenges E-procurement E-procurement
Solution Solution Feature Feature
Clear Clear definition definition of roles of of roles of
people, people, process process
and and standardsstandards
Brings Brings AccountabilityAccountability
, Sets , Sets Standards Standards reduces reduces
maverick maverick spending, cuts spending, cuts
overheads overheads
Resistance to Resistance to changechange
Change Change ManagementManagement Contract Contract Compliance Compliance
toolstools
Standards Standards and and
targets for targets for contract contract
setset
Improves Improves performanceperformance
Lack of Analytics Lack of Analytics to measure to measure
performanceperformance
Contract Contract evaluation evaluation
Strong Strong external external
complianccompliancee
To ensure To ensure reliability and reliability and compliance of compliance of appropriate appropriate
contract contract termsterms
Inability to real Inability to real time tracking time tracking
and and communicatiocommunicatio
n with n with suppliers suppliers
Portals for real Portals for real time time
communicatiocommunication. n.
Automatic Automatic triggering of triggering of
eventsevents
Strong Strong internal internal
complianccompliancee
Reduce Reduce Maverick Maverick spending spending
Lack of Lack of purchase purchase
standards and standards and manual errorsmanual errors
Automation of Automation of events to events to eliminate eliminate
manual errors.manual errors.
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Procurement ProcessProcurement Process
Best Best Practice Practice
BenefitsBenefits ChallengesChallenges E-E-procuremeprocurement Solution nt Solution
Feature Feature
Automation of Automation of possible possible
ProcuremenProcurement activities:t activities:
From From Purchase Purchase
requisition requisition to to
payment.payment.
DramaticallDramatically cuts y cuts
time and time and cost and cost and increases increases reliabilityreliability
Lack of Lack of coordinatiocoordinatio
n of n of departmendepartmen
ts and ts and segregated segregated data and data and
documents documents and and
Supplier Supplier BehaviorBehavior
Portals both Portals both for internal for internal as well as as well as external external
communicatcommunicationion
Integration Integration of of
applicationsapplications
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E-Procurement - E-Procurement - ChallengesChallengesCommitment of Top ManagementChange Management IssuesInability to Capture Required
BenefitsCost & Time OverrunComputerized Auditing
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E-Procurement challengesE-Procurement challenges
Supplier ManagementRelationship must be beneficial to suppliers
Providing support & services for suppliers who are not yet prepared to go online
Working with smaller businesses not enabled for e-Procurement
Continuing to build and sustain relationships with suppliers
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E-Procurement challengesE-Procurement challengesIntegration to Legacy & Back-end
systemsCurrent applications are customized hence
integration – big challengeMany Govt depts are still running manual
systems, implementation of pre & post procurement systems and building integration is critical
IT infrastructure readiness in terms of hardware, software, connectivity/ linkage is below par
Government would intend to leverage existing investments and hence integration assumes importance
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E-Procurement challengesE-Procurement challenges
Buyer AdoptionStrong Leadership , Political support and top-
down approach is criticalSecuring high level support to negotiate better
prices through volume aggregation Commitment to the business model and
approach chosen for roll-out Commitment in achieving process efficiencies
and effecting changes in legal & regulatory framework to streamline the process changes
IT readiness -infrastructure & user training
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E-Procurement challengesE-Procurement challenges
Security & data sharing◦ Internet enabled procurement means transaction
on public domain ,perception holds contradictory to the confidential nature of the bidding process
◦ Physical bidding process provides documentary proofs and the electronic system is assumed to be incapable of providing the same
◦ e-Procurement process is about data sharing, communication & is competitive - security of such a system is of paramount importance
◦ Evolving regulatory frame works◦ Choice of technology in the rapidly changing
technology landscape
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Suggestions for e-GP system Suggestions for e-GP system Implementation in GOUImplementation in GOU
Suggestions based on experienceMake clear policies to implement e-
Procurement across all the PDEs and communicate to all concerned stake holders.
Set a road map with time lines for implementing e-Procurement in terms of applications to PDEs
Conduct a business process study of procurement to arrive at feature list , best practices model for e-Procurement that can be rolled across all the PDEs in the country.
Solicit a suitable vendor who can provide infrastructure, applications, domain knowledge, process re-engineering knowledge & consulting
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Suggestions for e-GP system Suggestions for e-GP system ImplementationImplementation
PDEs be directed to use the applications with specific incentives for using e-Procurement
Evaluation of computer literacy of the users in PDEs, the task of improving the computer literacy should be entrusted to a separate set of vendors
Conduct spend analysis and set e-Procurement tools to address various types of spends to be carried out .
Implement e-Procurement in a phase wise manner addressing major spend in pilot PDEs.
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Conclusion Conclusion
E-procurement system must be an integral part of any entity supply chain and corporate
strategy to enable it to sustain its competitive advantage.
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Questions and DiscussionsQuestions and Discussions
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