Finished goods inventory: Manufacturing process has three stages in which the inventory is classified: Raw material: This is the inventory that has not been processed yet. Work-in-progress: This is the manufacturing process where the inventory is still being

processed and hold for this purpose. Finished goods: In this part of the manufacturing process, all the work on the inventory is

completed, and it is turned into the finished good and is ready to be sold.There are some terms related to the finished goods inventory below that will help better understand the importance, features and accounting of the finished goods inventory:Finished goods accountingUntil the goods are not completed in the product and the work-in-progress phase of the goods manufactured is finished, the finished goods are not written to the inventory account. Instead, common practice is to open a work-in-progress account where you manage the inventory that is still being finished.Apart from this, the value of the inventory for the current accounting period is calculated in the financial statements and then shown in the final accounts. The inventory is calculated by balancing-off the sales with cost of sales and calculating the closing balance figure. This figure is then reported in the balance sheet to show the current inventory value in the current assets of the company.WarehousingOnce the work-in-progress good are finalized and converted into finished goods, the companies have to move them to the warehouses for selling purpose until a potential buyer comes along. The costs on handling the finished goods in the warehouse are called warehousing costs.Inventory holding daysThe inventory-holding day’s ratio allows you to calculate the time for which you have held the inventory in your premises after finishing it into the complete product.Just-in-time inventory systemIf a company introduces a just-in-time inventory system, then the finished goods do not hold in the premises of the business. The goods are produced on the order basis and sold once they are manufactured. In this method of inventory holding, there is no need to keep finishing good in the warehouse. This saves the costs associated to the warehousing and allows the company to save inventory losses otherwise suffered. 

Supplier Selection Strategies and CriteriaSupplier selection criteria for a particular product or service category should be defined by a “cross-functional” team of representatives from different sectors of your organization. In a manufacturing company, for example, members of the team typically would include representatives from purchasing, quality, engineering and production. Team members should include personnel with technical/applications knowledge of the product or service to be purchased, as well as members of the department that uses the purchased item.

Common supplier selection criteria:

Previous experience and past performance with the product/service to be purchased.

Relative level of sophistication of the quality system, including meeting regulatory requirements or mandated quality system registration (for example, ISO 9001, QS-9000).

Ability to meet current and potential capacity requirements, and do so on the desired delivery schedule.

Financial stability.

Technical support availability and willingness to participate as a partner in developing and optimizing design and a long-term relationship.

Total cost of dealing with the supplier (including material cost, communications methods, inventory requirements and incoming verification required).

The supplier's track record for business-performance improvement.

Total cost assessment.

Methods for determining how well a potential supplier fits the criteria:

Obtaining a Dun & Bradstreet or other publicly available financial report.

Requesting a formal quote, which includes providing the supplier with specifications and other requirements (for example, testing).

Visits to the supplier by management and/or the selection team.

Confirmation of quality system status either by on-site assessment, a written survey or request for a certificate of quality system registration.

Discussions with other customers served by the supplier.

Review of databases or industry sources for the product line and supplier.

Evaluation (SUCH AS prototyping, lab tests, OR validation testing) of samples obtained from the supplier.

Outsourcing: What is Outsourcing?

Introduction

So, what is outsourcing? Outsourcing is contracting with another company or person to do a particular function. Almost every organization outsources in some way. Typically, the function being outsourced is considered non-core to the business. An insurance company, for example, might outsource its janitorial and landscaping operations to firms that specialize in those types of work since they are not related to insurance or strategic to the business. The outside firms that are providing the outsourcing services are third-party providers, or as they are more commonly called, service providers.

Although outsourcing has been around as long as work specialization has existed, in recent history, companies began employing the outsourcing model to carry out narrow functions, such as payroll, billing and data entry. Those processes could be done more efficiently, and therefore more cost-effectively, by other companies with specialized tools and facilities and specially trained personnel.

Currently, outsourcing takes many forms. Organizations still hire service providers to handle distinct business processes, such as benefits management. But some organizations outsource whole operations. The most common forms are information technology outsourcing (ITO) and business process outsourcing (BPO).

Business process outsourcing encompasses call center outsourcing, human resources outsourcing (HRO), finance and accounting outsourcing, and claims processing outsourcing. These outsourcing deals involve multi-year contracts that can run into hundreds of millions of dollars. Frequently, the people performing the work internally for the client firm are transferred and become employees for the service provider. Dominant outsourcing service providers in the information technology outsourcing and business process outsourcing fields include IBM, EDS, CSC, HP, ACS, Accenture and Capgemini.

Some nimble companies that are short on time and money, such as start-up software publishers, apply multisourcing -- using both internal and service provider staff -- in order to speed up the time to launch. They hire a multitude of outsourcing service providers to handle almost all aspects of a new project, from product design, to software coding, to testing, to localization, and even to marketing and sales.

The process of outsourcing generally encompasses four stages: 1) strategic thinking, to develop the organization's philosophy about the role of outsourcing in its activities; 2) evaluation and selection, to decide on the appropriate outsourcing projects and potential locations for the work to be done and service providers to do it; 3) contract development, to work out the legal, pricing and service level agreement (SLA) terms; and 4) outsourcing management or governance, to refine the ongoing working relationship between the client and outsourcing service providers.

In all cases, outsourcing success depends on three factors: executive-level support in the client organization for the outsourcing mission; ample communication to affected employees; and the client's ability to manage its service providers. The outsourcing professionals in charge of the work on both the client and provider sides need a combination of skills in such areas as negotiation, communication, project management, the ability to understand the terms and conditions of the contracts and service level agreements (SLAs), and, above all, the willingness to be flexible as business needs change.

The challenges of outsourcing become especially acute when the work is being done in a different country (offshored), since that involves language, cultural and time zone differences.

Global sourcing: A procurement strategy in which a business seeks to find the most cost efficient location for manufacturing a product, even if the location is in a foreign country. For example, if a toy manufacturer finds that manufacturing and delivery costs are lower in a foreign country due to lower wages of foreign employees, the company might close the domestic factory and use a foreign manufacturer. The use of global sourcing has been the driving force behind the development and expansion of the global economy. Including suppliers from around the world in the bidding process for large contracts reduces prices and increases competition. The creation of this type of infrastructure allows firms to create subsidiary offices in locations around the world. There are three main industries that are ideal for this strategy: manufacturing, skilled services and telephone call centers.

Manufacturing costs vary internationally due to currency conversion and the cost of living in different countries. The costs of labor and materials are lower in developing nations than in North America. This difference translates into significant savings in salary and benefit costs.

Telephone call centers have grown exponentially in India and other countries where English is the primary language. The staff, equipment and construction costs for these

facilities are significantly less than in North America. In addition, there is a large pool of potential employees who are interested in this type of employment opportunities.

So what are the pros and cons of Global Sourcing?

Some advantages..

Companies get to tap into skills of resources that are not locally available

The supplier base is not restricted to the domestic market, giving companies the opportunity to transact with more competitive suppliers.

Time difference between countries can be used as a huge advantage where processing times are of high importance

Companies get to focus on their core processes and have more capital to invest in the same.

Some disadvantagesExistence of ‘hidden costs’ that arise due to cultural as well as time zone

differences.

There may also be increased ‘monitoring’ costs when work is near shored or off shored when compared to domestic suppliers.

There is an increased risk of loss of data as well.

To overcome some of the cons listed above, Off shore Service Providers ( as they are commonly known as) take a number of measures such as -having culture orientation classes for their employees serving a client in say Australia. They have voice and accent training for their teams to increase communication satisfaction levels. For better confidence as well as trying to reduce the distance barrier, many Service Providers of business outsourcing services now have ‘onsite’ program managers who act as liaisons between the onsite Client and the Off shore business unit. This has helped in instilling confidence and reducing issues and conflicts that arise in day to day operations.

Improving Purchasing Negotiation SkillsDoes negotiating make you generally apprehensive or uncomfortable?Do you fear that the other parties will take advantage of you?Are you concerned about getting the best possible terms when you negotiate?Do you find yourself not knowing where to start at the negotiating table?

Negotiation is an indispensable part of the purchasing function. As a buyer, you play a critical role in the financial success or failure of your organization; therefore, the more skillfully you negotiate, the better your organization's chances for turning a profit.

One of your major functions is to negotiate the best terms and price for the materials and services your organization needs to operate. This complex task requires knowledge, tact, superior communication skills, and a solid game plan! But few people understand the 90% of all negotiations takes place before the involved parties even get to the bargaining table.

1. Manage your time2. Prepare open questions3. Design a strategy route map4. Consider style and personality5. Define your targets6. List your tactics7. Rehearse your opening statement

IncoTerms: The Incoterms rules or International Commercial Terms are a series of pre-

defined commercial terms published by the International Chamber of Commerce (ICC) that are widely used in International commercial transactions or procurement processes. A series of three-letter trade terms related to common contractual sales practices, the Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks associated with the transportation and delivery of goods.

The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide for the interpretation of most commonly used terms in international trade. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries. As such they are regularly incorporated into sales contracts worldwide.

The larger group of seven rules applies regardless of the method of transport, with the smaller group of four being applicable only to sales that solely involve transportation over water. EXW – Ex Works (named place of delivery).[edit]

The Seller makes the goods available at his/her premises. This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a buyer incurs the risks for bringing the goods to their final destination. The seller does not load the goods on collecting vehicles and does not clear them for export. If the seller does load the goods, he does so

at buyer's risk and cost. If parties wish seller to be responsible for the loading of the goods on departure and to bear the risk and all costs of such loading, this must be made clear by adding explicit wording to this effect in the contract of sale.

The buyer arranges the pickup of the freight from the supplier's designated ship site, owns the in-transit freight, and is responsible for clearing the goods through Customs. The buyer is responsible for completing all the export documentation. Cost of goods sold transfers from the seller to the buyer.

FCA - Free Carrier (named place of delivery)[edit]

The seller to deliver goods to a named airport, terminal, or other place where the carrier operates. Costs for transportation and risk of loss transfer to the buyer after delivery to the carrier.

When used in trade terms, the word "free" means the seller has an obligation to deliver goods to a named place for transfer to a carrier. Contracts involving international transportation often contain abbreviated trade terms that describe matters such as the time and place of delivery and payment, when the risk of loss shifts from the seller to the buyer, and who pays the costs of freight and insurance.

CPT – Carriage Paid To (named place of destination)[edit]

The seller pays for carriage. Risk transfers to buyer upon handing goods over to the first carrier at place of shipment in the country of Export. The Shipper is responsible for origin costs including export clearance and freight costs for carriage to named place (usually destination port or airport). Shipper not responsible for buying Insurance.

This term is used for all kind of shipments.

CIP – Carriage and Insurance Paid to (named place of destination)[edit]

The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier. CIP is used for intermodal deliveries & CIF is used for Sea .

DAT – Delivered at Terminal (named terminal at port or place of destination)[edit]

This term means that the seller covers all the costs of transport (export fees, carriage, insurance, and destination port charges) and assumes all risk until after the goods are import duty/taxes/customs costs.

DAP – Delivered at Place (named place of destination)[edit]

Can be used for any transport mode, or where there is more than one transport mode. The seller is responsible for arranging carriage and for delivering the goods, ready for unloading from the arriving

conveyance, at the named place. Duties are not paid by the seller under this term (An important difference from Delivered At Terminal DAT, where the buyer is responsible for unloading.)

DDP – Delivered Duty Paid (named place of destination)[edit]

Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. The seller is not responsible for unloading. This term is often used in place of the non-Incoterm "Free In Store (FIS)". This term places the maximum obligations on the seller and minimum obligations on the buyer. With the delivery at the named place of destination all the risks and responsibilities are transferred to the buyer and it is considered that the seller has completed his obligations [5]

Sea and Inland Waterway Transport[edit]

To determine if a location qualifies for these four rules, please refer to 'United Nations Code for Trade and Transport Locations (UN/LOCODE)'. [Link below]

The four rules defined by Incoterms 2010 for international trade where transportation is entirely conducted by water are as per the below. It is important to note that these terms are generally not suitable for shipments in shipping containers; the point at which risk and responsibility for the goods passes is when the goods are loaded on board the ship, and if the goods are sealed into a shipping container it is impossible to verify the condition of the goods at this point.

FAS – Free Alongside Ship (named port of shipment)[edit]

The seller delivers when the goods are placed alongside the buyer's vessel at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that moment. The FAS term requires the seller to clear the goods for export, which is a reversal from previous Incoterms versions that required the buyer to arrange for export clearance. However, if the parties wish the buyer to clear the goods for export, this should be made clear by adding explicit wording to this effect in the contract of sale. This term can be used only for sea or inland waterway transport.[6]

FOB – Free on Board (named port of shipment)[edit]

See also: FOB (Shipping)

The seller must advance government tax in the country of origin as off commitment to load the goods on board a vessel designated by the buyer. Cost and risk are divided when the goods are actually on board of the vessel. The seller must clear the goods for export. The term is applicable for maritime and inland waterway transport only but NOT for multimodal sea transport in containers (see Incoterms 2010, ICC publication 715). The seller must instruct the buyer the details of the vessel and the port where the goods are to be loaded, and there is no reference to, or provision for,

the use of a carrier or forwarder. This term has been greatly misused over the last three decades ever since Incoterms 1980 explained that FCA should be used for container shipments.

It means the seller pays for transportation of goods to the port of shipment, loading cost. The buyer pays cost of marine freight transportation, insurance, unloading and transportation cost from the arrival port to destination. The passing of risk occurs when the goods are in buyer account. the buyer arranges for the vessel and the shipper has to load the goods and the named vessel at the named port of shipment with the dates stipulated in the contract of sale as informed by the buyer .

CFR – Cost and Freight (named port of destination)[edit]

Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is transferred to the buyer once the goods are loaded on the vessel. Insurance for the goods is NOT included. This term is formerly known as CNF (C&F, or C+F).

CIF – Cost, Insurance and Freight (named port of destination)[edit]

Exactly the same as CFR except that the seller must in addition procure and pay for the insurance.