International Procurement strategy

What is a Strategy

• A strategy is an action plan designed to achieve

specific long-term goals and objectives.

• A strategy should concentrate on the key factors

necessary for success and the major actions that

should be taken now to ensure the future.

• It is the process of determining the relationship of

the organisation to its environment, establishing

long term objectives and achieving the desired

relationship(s) through efficient and effective

allocation of resources

Definition of Strategic Purchasing

• The co-ordination and integration of procurement

requirements across world-wide business units,

looking at common items, processes, technologies

and suppliers and the development and management

of supplier relationships to acquire goods and services

in a way that aids in achieving the immediate needs of

the business.

• Global purchasing strategy encompasses

management of the interfaces among R&D, manufacturing, and marketing on a global basis and Logistics of identifying which production units will serve which particular markets and how components will be supplied for production

The Strategic Role of Purchasing

• Perform sourcing related activities in a way

that support the overall objectives of the

organization

• By establishing external contacts with the

supply market, gain important access to

External Markets about new technology,

potential new materials or services, new

sources of supply and changes in market

conditions

Common Reasons for a Global Purchasing Strategy

• Reducing overall cost structure

• Availability of new technology and capacity.

• Establishing alternative sources of supply – reduced risk.

• Access to new designs or specialized intellectual capital.

• Superior quality - typically due to supplier investment in technology and capacity to attract global business.

• Downside

• Inventory Investment increase

• Increased Transportation / Logistics

Global Sourcing/Supply Strategies • Significant obstacles to the development of an effective

supply strategy lies in the difficulties inherent in translating organizational objectives into supply objectives

• Typical supply objectives normally are expressed in quality and function, delivery, quantity, price, terms and conditions, service and so on

• Global sourcing brings more profit in the business and

helps to extend the business.

• The sourcing agent of the global sourcing countries helps you to identify the proper countries. But one needs to follow some global sourcing policies. E-Bidding. ERP, E- Sourcing

Global Sourcing/Supply Strategy Areas

Overall supply strategy is made up of sub strategies that can be grouped together into six major categories:

1. Assurance of supply with emphasis on quality ,quantity considering changes in demand supply

2. Cost reduction strategies

3. Supply chain support strategies

4. Environmental change strategies

5. Competitive edge strategies

6. Risk management strategies

Development of a Global Procurement Strategy

• Strategy 1: Domestic buyers designated by the business unit for international purchasing.

• Strategy 2: Business units use subsidiaries or other corporate units for international sourcing assistance.

• Strategy 3: International purchasing offices (IPOs) established throughout the world.

• Strategy 4: Assign design, build, and sourcing responsibility to a specific business unit somewhere in the world i.e. the exploitation of the comparative advantage of that business unit.

• Strategy 5: Integration and co-ordination of world-wide global sourcing strategy. It involves integration and coordination of procurement requirements and the maximisation of buying leverage on a global basis.

Strategic Components

Any strategy chosen should include determination of what,

quality, how much, who, when, what price, where, how

and why.

Emerging Markets- Multi Country Approach

• China is the primary Low Cost Country (LCC)

• But near shore countries need to part of strategy

• Brazil, Mexico and Argentina are viable markets and closer to US based companies

• Eastern Europe is growing and EU allows for free trade across borders

Moving Beyond Cost • After cost saving, Companies need to:

• Ensure new suppliers will last over time

• Help new suppliers to grow with you

• Add new suppliers for additional products

• How?

• Evaluate total value and total cost of global sourcing decisions

• Find personnel with worldwide knowledge and skills

• Increase visibility of available sourcing data

• Enhance knowledge of available global suppliers

• Make global sourcing part of overall company operations

Challenges In Global Purchasing

Global Purchasing is not without challenges

• Lengthened supply lead times, supply interruptions and delay

• Changes in Prices, Increased transportation and logistics costs

• Supplier quality

• Intellectual property

• Lack of supplier responsiveness

• Language issues

• Reputation issues

International Business: Strategy,

Management, and the New

Realities

13

Risks in Global Sourcing

• Less-than-expected cost savings

• Environmental factors

• Weak legal environment

• Risk of creating competitors

• Inadequate or low-skilled workers

• Over-reliance on suppliers

• Erosion of morale and commitment among home country employees

•

International Business: Strategy,

Management, and the New

Realities

14

Strategies for Minimizing Risk in Global Sourcing

• Firms ought to go offshore for the right reasons

• Need to get employees on board

• Choose between a captive operation and a contract with outside specialists carefully

• Choose countries and suppliers carefully

• The firm needs to invest in supplier development and collaboration

• Managers need to proactively safeguard interests

Trends in Global Sourcing Strategy

• Trend 1: The Decline of the Exchange Rate Determinism of Sourcing

• Trend 2: New Competitive Environment Caused by Excess Worldwide Capacity

• Trend 3: Innovations in and Restructuring of International Trade Infrastructure

• Trend 4: Enhanced Role of Purchasing Managers

• Trend 5: Trend toward Global Manufacturing