ISCM2 Notes PDF

Chapter 2 - Guide to Plan Inventory and supply chains Types of inventory: Inventory - The quantity of goods that is Cycle or replenishment stock: necessary to meet regular demand. available on hand or in stock Safety stock: buffers against forecast error and supplier...

Chapter 2 - Guide to Plan Inventory and supply chains Types of inventory: Inventory - The quantity of goods that is Cycle or replenishment stock: necessary to meet regular demand. available on hand or in stock Safety stock: buffers against forecast error and supplier unreliability. In-transit stock: stock in process of being transported to stocking or Formats of inventory: delivery point. Seasonal stock: built up in advance to meet increased sales during - Raw Materials time of year - Work-in-progress (WIP) Promotional stock: feeds into marketing campaigns and advertising - Finished Goods Speculative stock: protects against price increase or limited availability Cycle stock: - Average cycle stockholding: average cycle stock held during a particular timeframe Typical quantity of the orders Avg. cycle stock investment: 2 Average cycle stockholding * product cost (Assuming demand is stable) Safety stock: Formula: Goal: guard against stock-outs Safety stock = (a) + (b) Due to: (a) safety stock supply (b) Safety stock demand - Unplanned production & delivery days - Unplanned demand Safety stock supply: Average demand * supplier uncertainty (SU) Reducing Inventory: Cycle stock: reduce by ordering more often Safety stock demand: Safety stock: Standard deviation of demand * service level factor - reduce lead times - reduce supplier uncertainty * SQRoot (lead time + SU) - reduce forecast error. - Reduce service level Demand and supply planning: Level of demand - classified as high or low Frequency of demand - over a certain period of time, 2 patterns slow and fast Patterns of demand - stable, trend or seasonal  Product life-cycle positioning: 5 phases in product lifecycle, demand can take on different form and can effect planning and inventory management 1. Launch: build stock prior to launch, demand uncertain 2. The emerging phase: demand building on the launch, dependant on growth rate of demand methods will be chosen to maintain momentum 3. Established: demand increases and decreases occur but less sudden and heavy in magnitude 4. Decline: demand needs monitoring so inventory levels are sufficient 5. Withdrawals: demand nearing zero, phase out strategy needed Product Classification: segmentation of product portfolio based on turnover rather than by single stock keeping units (SKU) to make decisions about planning and management Forecasting methods: - reducing uncertainty of future Time series method: 2 types: statistical forecasting based 1. Qualitative forecasting of assumption of continuity (intuitive) (historical patterns) Demand planning improvements 2. Quantitative forecasting (casual and historical) - Forecast accuracy (FA) - measured using the mean absolute percent forecast (MAPE) Error (%) = (Actual forecast - forecast) / actual FA (%) = 1 - error(%) Supply planning: Deciding when to order: order cycle management Re-order point - a fixed quantity is Deciding how much to order: calculating economic order quantity ordered when stock drops below a Order cycle management approaches: certain point 1. Continuous Review (fixed order quantity) Min- max policy- stock planner 2. Periodic Review (fixed order cycle) keeps inventory between min and Economic order quantity (EOQ): max stock level Formula: Sales and operations planning: → - concept of integrated business planning - process of constantly realigning decisions in sales, marketing, demand and supply planning to synchronise with strategic financial plans Guiding principles for successful S&OP Implementation: 1. Stakeholder Commitment: engaged and educated to understand the whole process 2. One set of Numbers: all the different numbers of sales, marketing etc. in one set of numbers 3. Accountability and Decision Making: as organisation size increases decision making becomes complex, detail of roles and responsibility during meeting (set out in design phase) 4. Alignment of business objectives: effective S&OP solutions have to align to KPIʼs 5. Appropriate time horizon: moving conversation into the future will help managers reach best for business solutions and less micromanagement and firefighting 6. Understanding the benefits of S&OP: recognises imperfections on a regular basis and re-optimises plans across the supply chain, customers benefits from improved customer service and efficiency Customer service Improvements through S&OP: 1. From S&OP principles (improved forecast) 2. From improved forecast (improved reconciliation of D&S) 3. From improved reconciliation of demand and supply (improved Customer service) Why S&OP implementations fail: 1. People 2. Process (between departments) 3. Strategy 4. Performance (measure and monitor) Different planning Horizons:  Chapter 7- Guide to Strategy Corporate Strategy: direction and sale of an Competitive strategy: organisation long term. - Matches resources to changing environment (market, customer, clients) to meet expectations Mission- purpose of organisation Goal- aim or purpose Operational excellence: delivery high quality products Objective- clear, measurable and needs a verb quickly, error free, reasonable price (have to do something) Customer intimacy: deliver what customers want with Strategies- broad types of action to achieve high service and value objective Product leadership: delivering products and services that Actions- specific activities by team or individual push performance boundaries that lead to reward Rewards- payoff for satisfying objectives Strategic alignment: Concepts to support supply chain strategy - To execute competitive strategy all functions must development: develop supporting plans and strategy Inventory- what cycle or safety stock held Product Development strategy: identifies company Information- decisions on system requirements (e.g. portfolio they will develop and functionality mrp) Sales and marketing strategy: segments the market Facilities- manufacturing and warehouse strategies and identifies product structure & positioning, price, (strategic location, capacity requirements) promotion Transportation- mode and network decisions Supply chain strategy: - how materials will be sourced Lean and agile: - where and how production will be performed Lean supply chain: supply demand at lowest cost - where and how delivery and returns will operate Agile supply chain: respond quickly to demand - customer support after delivery Supply chain strategy perspective: - consider supply chain a combination of processes - supply is upstream, demand downstream Five inventory strategies: Supplier RM WIP FG Customer Postponement: delayed confirguration based on principles of common platforms where the final assembly or customisation does not take place until the final market Forecast driven activity Order driven activity destination and/or customer requirement is known Supply Demand  Chapter 9- Supply Chain Finance > supply chain companies are usually in business to generate cash and give a return to their investors Supply chain finance: Gearing: how much capital investment is funded by Internal and external funds - measure of financial leverage - demonstrates degree to which a firms activities are funded by owners funds (shareholders), creditors funds (banks) Gearing: Debt as a percentage of total funds (debt + equity) Assets > sales and services : cashflow out Sales and services > assets : cash flow in (products Returns: to start a company the bank will inject some sold) investment and the remaining capital from investors (shareholders) Financial information: - bank will expect a 5% return on investment and Profit and loss account (income statement: shareholders a return as-well - detailed summary of the sales revenue for one - if the company goes bankrupt the bank owns the assets financial year and the associated costs and shareholders lose everything Hurdle Rates: Return rates have two main components: 1. Cost of debt capital 2. Cost of equity capital - most companies are financed by both and need to find a balanced combination If debt required 5% and equity 15% return then: Weighted average cost of capital (WACC) = 10% “hurdle rate” Influence of supply chain activities on profit & loss Four criteria: Quality: not delivered the required quality, sales will decrease Service: short delivery to a customer, so that the service level is affected Cost: can be considered from a competitive perspective rather than the absolute number - supply chain costs between 25/70% of total costs - e.g. raw materials purchases, salaries, factory conversion costs, depreciation on supply chain assets, facility energy costs, insurance and utilities for facilities, inventory storage and interest. Time: the time it takes to get a product to the market place. Could be a customer ordering a product or new product launch  Balance sheet: Return on capital employed (ROCE) - summarises how the company has been financed - measures how efficiently a companies available capital Fixed assets- compromises trucks and heavy is utilised > the higher the better > attracts investors machinery used in manufacturing Current assets: ROCE. = Operating profit (P&L) - Stock: inventory in the form of raw materials Capital employed (BS) - Debtors: customers that havenʼt paid for their Capital employed = purchases (Total assets - current liabilities) Or (Shareholders equity + debt liabilities) SCM-decisions impact ROCE and ROA because the impact Assets, Costs and Sales through influence on: - flow of funds - flow of goods - flow of information Return on assets (ROA) - measures profitability and financial efficiency Cash flow statement: - focuses specifically on the efficient use of assets - shows the cash in and out for the business in a ROA = Operating profit given year Total assets Methods to improve cash flow: ROA = total assets turnover ratio * gross profit margin - customers paying sooner and suppliers paid later - reducing inventory (gives business cash without need to raise extra capital) - for global companies switch manufacturing to countries with a weak exchange rate Six supply chain performance levers: - used as a checklist when auditing supply chain - improve supply chain financial performance 1. Demand: Customer transfers demand up supply chain (forecast or order) this is where supply chain starts 2. Supply: Upstream from each element we have the supply of product. Improved supply chain, activities on time in full 3. Lead times: Inventory is lowered, lead time and responsiveness is a key measure of success within the chain 4. Information: Improve Information flows reduce raw material waste, wasted labour, and overheads. Information is important to advise the delivery time and to ensure the correct product is shipped to the correct place. 5. Physical quality: Better quality impacts materials, labour, overheads, stock and potentially debtors and creditors. Products should arrive in good shape without any defects or damage. 6. Throughput efficiency: Product is pulled through the supply chain with less waste and less waiting time. Refers to the amount of working capital in the chain and the efficiency of the network.  Chapter 11- Guide to Outsourcing Outsourcing- the process of moving aspects of your own company to another supplier referred to as the 3rd party logistic provider (3PL) with functions such as buying, manufacturing, warehousing and transportation The Tendering Process of Outsourcing: Growth drivers in outsourcing: - clearly define process of 9 steps for contractor selection 1. Globalisation: - global companies have global needs - its difficult to operate in a global environment rather than serving local market - 3PL players have expanded services and offer fully integrated services in global tra 2. Increasing Complexity: - globalisation causes complexity e.g. multiple freight transportations for the distribution of finished goods 3. Emerging Markets: - drive logistics outsourcing (e.g. growth in transportation volumes when emerging) Common reason for outsourcing: 1. Increase in operating flexibility (seasonal, transport Step 1. Review scope for outsourcing and methods etc.) requirements: 2. Reduced fixed assets (save money as donʼt need to - internal assessment of need for outsourcing provide transport capacity/reduced fixed assets) Two modes of operation to choose: 3. To increase efficiency (reduce operating costs - dedicated resources (exclusive service from 3PL) through logistics outsourcing) - shared resources (3PL offers to multiple clients) Benefits and drawbacks: Outsourcing concerns: 1. Lose direct interface with the customer (lose control over relationship) 2. Takes 3PLʼs time to get to know your business 3. Once long term commitment is made 3PLʼs customer focused mind-set may diminish Step 2. Identify potential service providers - draw up long list of potential service providers - focus on equipment, Human Resources/training, facilities & resources, infrastructure & networks Considerations that affect outsourcing decision: - complete logistics package - quality of service - reliability in performance - access to top management - strong partnerships - implementation record Step 3. Produce request for information and shortlist Step 5. Assess the tenders - Send Request for information (RFI) document to - time for assessment, reflection and discussion receive specific information from all potential - can be done in cross functional teams providers - e.g. teams for distribution outsourcing will be RFI document - concise document covering key logistics, procurement, finance and Human Resources areas of information: 1. Introduction and confidentiality clause 2. Description of company 3. Description of opportunity Step 6. Select contract and assess risk - then you go through the selection process and Risk assessment to identify potetntial issues e.g.: response - Operational/Service risk (demand changes, new - evaluate responses based on key selection criteria product introduction) defined (should be left with 5-10 candidates for - Business risk (3PLʼs insolvency, tax problems tender - External risk (fire or flooding) Step 4. Prepare and issue the request for quotation Request for quotation (RFQ)- extensive document to collect detailed data and info from companies in Step 7. Determine contract standard format Object related factors: warehouses, equipment, (Invitation to tender (ITT) and request for proposal personnel (RFP) are synonyms for RFQ) Cost related factors: capital investments, operational and management costs Service related factors: service level agreement RFQ will include the following sections: Example of cost elements: 1. Business description and background 2. Data provided with the RFI 3. Physical distribution network 4. Information systems 5. Distribution service levels and performance monitoring 6. Risk assessment 7. Industrial and business relations 8. Charging structure \ Step 8. Implement contract 9. Terms and conditions 10. The selection procedure and response Step 9. Manage ongoing relationship format including deadlines Improved service through better 3PL management a Reasons why both might be responsible: Reasons why 3PL might be responsible: - unclear contract - little involvement and pushing back during negotiation, - no clear goal setting and performance design and implementation phase measurement - over-promising capabilities - poor implementation - poor implementation (on their side) - Poor communication - no continuous improvement - poor service levels and performance - not behaving as part of supply chain Reasons why the outsourcing company might be responsible: - inaccurate volume info - inappropriate resources to manage 3PL - unclear or unrealistic expectations - poor outsourcing contract implementation (on customer side) - cost reduction focus too strong - no clear SLA in place - 3PL regarded as another supplier Managing expectations - to ensure success relationship needs to be managed from start to finish - important that expectations are shared and both parties work towards the same goal Managing the relationship: Two key areas for management: Operational control: 1. Performance monitoring. 2. Operational control Performance measures Operational plan Performance monitoring: Costs are divided by: - period (week/month) Two fundamental characters: - functional element (fuel or insurance) 1. Checking agreed service levels - logistics component (transport or warehousing) 2. Monitoring that serviced are delivered at - activity (customer or product group) acceptable cost Major causes of deviation: 1. Changes in level of activity (less availability on - need to monitor through financial measures or equipment customer service measures 2. Changes in efficiency or performance - to monitor performance you must set targets 3. Changes in price (e.g. fuel cost increase) (KPIʼs)  Chapter 5- Choosing an entry strategy Methods of exporting: Two basic approaches for foreign markets: 1. Direct export- company exports itself 2. Indirect export- uses an intermediary to export 3. Cooperative export- cooperate with another company to enter the export market Entry strategy principles: Choosing an entry strategy: 1. Naïve principle- uses same strategy for all Entry strategy- a.k.a the distribution policy as it markets determines the way the product is distributed abroad or 2. Pragmatic principle- chooses strategy channels foreign market, low risk chosen and changed if Distribution channel- system of marketing organisations not enough business which links the producer and end user 3. Strategic principle- various strategies are compared and choice based on sales channel Factors that influence the choice of exporting methods: that fits will companyʼs marketing objective Internal: Indirect export: -size of the company - nature of the company - experience of the company - the nature of the product (phase of lifecycle, physical characteristics, marketing approaches, differentiation) External: - socio-cultural aspects - market size and growth - situation in the foreign market - marketing objectives Most common indirect export methods are: 1. The Agent - familiar with sector and has contacts/clientele 5 EU requirements for agents: - aware of competition - independent entrepreneur Agent expects support by: - listed into trade register (acts on behalf of his own - catalogues and price lists - receives commission on transaction mediated or - sufficient promotional material concluded - participation in sales promotion and trade fairs - does own bookkeeping and income tax return Contract with agent specifies: - may work for more than one company - goods - region - conditions of exclusivity - the clientele - agreement in restraint of trade Entry strategy using agent: comes with commercial - possible secrecy - action for insolvent customers risks (canʼt influence the way they work in the market) - conditions of sale - procedure for conflicts in law - risk is limited due to small investment need to make - industrial property rights 2. The importing re-seller and/or wholesale dealer 4. Piggy-Backing - form of cooperation between two companies - buys goods on own account and at own risk - one (the rider) uses distribution channels and - then passes on goods to wholesaler in market sales organisation of the other (the carrier) - company has little to no control and has no Riders advantages: knowledge on end customer - costs are lower 4 Exporter agreements with importers: - benefit from carriers market expertise 1. Simple distribution agreement - takes care of own marketing plan so has 2.Exclusive re-selling agreement maximum control 3. Exclusive purchase agreement 4. Selective distibution agreement 3 Distribution channels: 3. The trading house/wholesale dealer - trading houses important entry in Africa and Far East - trading houses work at own risk and on own account General trading houses: a.k.a. sogo shosha e.g. mitsui and Mitsubishi Small Specialised trading house: senmonshosha active good for specialised product range Reasons for choosing trading houses: - turnover in markets difficult to market - easy marketing with low costs - simple to fit turnover (from foreign market) into production process (of home market) - offers expertise in foreign market (can anticipate developments) Drawbacks for exporting companies: - control over turnover and marketing is lost/minimal - have many products so no exclusive attention 5. Joint selling - sort of international piggy-backing - two companies work together one in one country uses the sales organisation of a foreign company for exports Reasons for joint selling (benefits for parties): - standardisation leads to reorganisation of product ranges - drop in product costs (favourable impact on home market - independence of their partners - few financial demands (no need to invest heavily) - swift access to the foreign market Drawback: - Piggy-backing is suitable for companies - exporter has no influence on how foreign market is beginning to internationalise worked (other party is responsible) - For SMEʼs good strategy as need for foreign market comes first 6. The export combination 7. The international joint venture - cooperation between limited companies which form a - strategic alliance between two or more companies ʻcentral bodyʼ where participating companies delegate from more than one country that remain export function independent Export function examples: Reasons to start a joint venture: - doing market research creating export opportunities - compliment each other in tech or management for members (new opportunities) - establishing contacts with agents, wholesalers and - faster way to enter market large customers - export company demands foreign companies - executing export marketing strategy collaborate with national companies Central body may take place of members in: - accessibility to global investment and R&D - selection of target groups - promotional activities Reasons to consider a joint venture: - branding - stock-keeping - fast entry to markets - pricing - choice of distributing channels - lower production costs - need to develop new technology Benefits of Cooperating through export combination: - speeding up product introduction - joining part product ranges (needs of foreign market - avoiding legal and trade barriers fully met) Access to each others companies: - common interests in export areas - finances: annual reports, ratios, history etc. - same group of customers - organisation: structure , labour, quality and culture - shared need to delegate export functions of management - financial reasons - production: efficiency, quality control, R&D - institutional: relationships/negotiations to Producing abroad: government Motives: Producing abroad can be done in the form of: - lower production costs (labour and capital 1. Licensing - can change production process without changing 2. Franchising production in home country 3. Contract manufacturing - faster delivery 4. Assembly - avoiding import and trade restrictions 1. Licensing 2. Franchising - international license is a form of international - collaboration where foreign producer or collaborating situated abroad distributor (franchisee) is allowed to make use of May grant the use of: the marketing strategy of the company granting - product or production process (franchisor) - knowledge about production Hard franchising - technical advice (use of elements or investments) - decisions are taken centrally and commercial - marketing support and assistance independence of franchisee is limited - trademark or brand name Soft franchising Licensing out: - franchisee has more influence and free to - point of view of the licensor determine part of the policy reasons: Master franchise: principle franchise in a certain - keep technological control over product Dev area and has rights to grant (sub)franchises - products at end of lifecycle and can be extended - licensor too small in finance, management and marketing to make investments 3. Contract Manufacturing 4. Assembly - international company has its products manufactured - implies international company arranges for the final by an independent local producer phase of production to take place in country of - this producerʼs responsibility is limited to production export - entry chosen in markets with low turnover and a high - investment cost not high and low labour cost in degree of protections by means of tariffs host country Entry strategies: E-commerce 1. Management contracting - training local staff to - “all business activities which are carried out implement the production and sales process electronically in order to improve the efficiency and 2. Joint ownership - exporter provides part of capital effectiveness of market and business processes” for production because foreign government demands Four reasons for increase in power to the end user: it 1. Desire for convenience: gives ability to get 3. Local production - builds complete strategy information and goods directly abroad 2. Incorporation of the net in buying process: pre- reasons: buying and post-buying behaviour has increased due - convince customers to change producer to possibilities of the internet, not clear where product - wants to follow important customer if opts for is bought local production 3. Shift in loyalty: customers loyal to online sellers and - realise substantial reduction in costs make repeat purchases Clear differences in markets due to E- 4. Change in business practice: companies expect commerce: online buying in the future Business-to-business (B2B): exchange of electronic > E-commerce could change from a push strategy to a data, now companies use EDI (electronic data pull strategy as exporters can informs potential interchange) to contact each other customers through the internet Business-to-consumer (B2C): traditional chain E-commerce in relation to entry strategy facing competition, consumers now approached - international companies use e-commerce as directly by companies (vice versa) complement to existing entry strategy Consumer-to-business (C2B): reverse auction Advantages: where buyer takes initiative for transaction rather - saves money (lower sales and transaction costs) than seller - access to larger markets Business-to-government (B2G) and Government- - efficiency in distribution to-business (G2B): concerns for instance tenders - opportunity for customer service, intimacy and direct which European governments put out through TED- marketing information system, businesses can submit tenders - reduced delivery times and governments can invite for tenders in - in B2B can choose from more suppliers than with EDI transportable property and real estate. system Disadvantages: Added value of e-commerce in a strategic - cannot examine products physically distribution policy - knowledge limited to codified information Traditional distribution model: linear, producer - lack of face-to-face contact with suppliers or produces, wholesalers and agents collect and distribute customers Internet distribution channels: are value webs - time consuming navigation providing info and facilitating new ways of doing - extra logistical costs in gathering, packing, and business called “wired marketplace” offers shipping small orders opportunities to companies that act as info companies  Competition in foreign markets Channel integration: process where links are joined together - first consideration in choice of entry with one principal link strategy is channel that suits the character of company and market Two types of integration: - suppliers of similar products often use 1. Vertical Integration: Links are integrated by forward or same channel backward integration, aim is greater market power and less - higher-value products have shorter dependance of supplier and/or customer (e.g. retailers may channels than low-value prefer backwards for more control over buying processes) - change channels due to local and global 2. Horizontal Integration: one link in the channel tries to competitors having agreements with control another link in a different channel (usually a wholesalers abroad competitor) Local business practices Mergers and acquisitions Real merger: companies united losing their independence - in certain countries legislation may ban the partly or wholly use of certain channels Unreal merger: often characterised as take-over or Choosing a distribution channel implies risk acquisition analysis Reasons for acquiring internationally: - Realisation of economics of skills: intensive change of 3 categories of risk are distinguished: experience between various companies can be realised 1. Low risk: trading house and piggy-back - local acquisitions make it possible to react quickly to systems, low costs, existing networks and strong growth in a market distribution channels - through economies of scale a company will be able to 2. Medium risk: company is influenced by its achieve a critical mass and realise profit in the short term foreign intermediary links (distributors, (risks are more spread out) dealers, wholesalers, agents etc.) increased - avoid problems which may be caused by the entry dependance on their wellbeing strategies previously discussed 3. High risk: company sets up own sales office aboard to increase turnover and control over distribution systems) careful analysis needed of foreign situation Internal influences on choice of distribution channel - Choice of entry strategy connected to market cover which channel can provide 3 approaches to market covers: 1. Intensive cover: strategy where product is distributed by as many international links as possible 2. Selective cover: needs different links for each area in the market 3. Exclusive cover: company is selective in its choice of intermediary links Market cover choice is influenced by: - type and lifecycle of product. - price - brand loyalty -frequency of buying - uniqueness - complexity of product Strategic alliances License May take the following forms: Licensing is another method of penetrating - a license foreign markets - contracting Aims in concluding a licensing agreement: - a joint venture - penetrate the market more quickly Strategic alliance: a long term collaboration between - drive income from patents or trademarks two or more companies which combine their core - gain indirect access to the market competences with the purpose of achieving a global - overcome obstacles to exporting (gov regs) advantage, easier market access is also a motivation - enable to company to expand its capacity Advantages of strategic alliances: - share large costs or investments Contracting - access to new technologies Producing products abroad is called contract - acceleration of the ROI. - spreading risks manufacturing - efficiency by economies of scale, specialisation - Regarded as cross between licensing and direct - fighting competition export - Described as global sourcing The core objectives of an alliance are: Advantages: Strategic benefits: alliance should result in clear - minimal investment needed advantages for both companies - control over marketing and sales remain Interdependence: partners are dependent on one - currency risks avoided another and risk of conflict should be minimal - high import tariffs avoided Commitment: companies should commit themselves - product may get image of locally made clearly to the collaboration Management contracting: another form of contracting Coordination: should be coordinated so the where international company runs the foreign company, bureaucracy is not increased best know variant is turnkey operation Joint venture Two companies collaborate abroad both technically and emotionally - strategy enables companies with limited capital to work an overseas market successfully - governments are often less hostile to joint venture than other strategies  Chapter 6: Financial policy in exports Financial policy- formulated as part of a professional export policy (internal guidelines) When cost price approach is applied to an export cost price Financial analysis its clear variable costs should be increase with specific A companies financial management is based on: export costs - Assessment o balance sheet Export cost examples : - Results in profit-and-loss account - transport costs - sales costs Purpose of financial analysis: - export marketing costs - fees - to provide an insight into the financial situation - insurance - bank charges of the company - costs related to intermediaries decide if company is able to internationalise Financial characteristics of an Financial analysis includes the following elements: export business: - financial data covering last 3 years - export company will be confronted - record of the percentage growth in net turnover with differences in assessing and over last 3 years, total costs, the company result controlling components of capital and net profit invested. - record of the chief items on the balance sheet Therse will be dealt with in depth in over 3 years following subsections: - description of way company establishes its 1. Liquidity management: cash selling prices (export) and cost prices (export) management is the management of liquid - break-even analysis assets as well as operational flows of a - analysis of capacity utilisation company - record of most important and relevant financial - these include financing, subsidies, indicators or ratios export financing, taxes, and insurance 6 ways of Covering against currency risks: Two types of flow in money: 1.To and from third parties 1. Leading and lagging: Principle to accelerate reciepts in case of 2. Within the company appreciateion in foregin curency and delay expenditure in case of depreciation 2. Active Cash management policy: 2. Cash cover: cash transactions done on spot market (immediate advantages especially when several payment or delivery) customers for froeign currency to be delivered accounts in one currency in an interest within 2 working days combination are combined 3. The forward currency contract: locks in an exchagne rate for 3. Debtors purchase, most effective way of covering (hedging) a currency risk but 4. creditors not in in the offer phase due to potential losses 5. Stock in hand: nature of good decided 4. The currency option: right to buy currencies at a fixed price whether risk results from stock in hand - exercise price (EP) is a call option, right to sell at EP is a put option - not physical stock but economical and price to obtain right is a option premium stock 5. Insuring against exchange rate risk: use credit risk insurance - stock on which a price risk in born ppolicy so if exchange rate has dropped they pay the difference for - physical stock augmented by goods longer durations bought but not received and diminished 6. The exchange rate clause: frequently in export contract and by goods sold but not delivered specifies exhange rate the value of contract has been calculated Average credit term formula: Average debtors Balance Debtors software/spreadsheet keeps Years turnover on account overview of: - average credit term in weeks Factoring - percentage of the arrears in outstanding - tool for financing, enabling conversion of part of debts into claims liquid assets - invoiced turnover and debtors balance per factor commits to taking all debts and also collection of debts future period on day of expiration - overview of questionable debtors and In fields of: historical overview of provisions for debtors 1. Administaration 2. Montiroring 3. Financing Using factoring: 4. Insolvency risk assumtion Risks covered by export credit insurance w Export credit insurance - secure receipt amount which is basis of claim on importer Four types of export credit insurance: Organisation of debt collection 1. turnover policy 2. single transaction policy 3. time of delivery 4. Period of payment International payments - purpose of terms to secure payment to smaller or greater extent Methods of international payments: 1. Advance payment: Receives payment before production or project starts 2. Payment in open account takes place without relevant delivery documents going to bank so takes time and relies on trust 3. Payment against documents Agreement where payment is made after the buyer is offered documents which dover delivery with assistance of bank Two methods: a) documents against payment (D/P)- importer revives documents which makes him owner when fulfils obligation to pay (greater security with less familiar buyers) b) documents against acceptance (D/A) - buyer receives documents from offering bank after has accepted bill of exchange once expired bill must be presented and importer must pay 4. Credit against documents (letter of credit L/C) Commitment by bank to pay seller amount of the purchase, accept bill of exchange or accept or negotiate against submission of documents as prescribed in credit agreement (acts as irrevocable guarentee of payment to beneficiary) Four steps: 1. importer applies for credit by asking credit-opening bank to issue L/C 2. issuing bank takes on obligation to pay credit sum and if T&Cʼs are okay to pay exporter 3. advising bank receives L/C from issuing bank checks conditions and pays exporter 4. exporter supplies right documents to receive payment  Two types of L/Cʼs: a) unconfirmed L/C - L/C forwarded to exporter by bank without undertaking to make payment or accept responsibility but confirm authenticity b) confirmed L/C- L/C bank as confirmed payment will be made (with compliant docs) Financial documents D 1. Cheque: 2. Bill of exchange: 3. Promissory note: “Written and unconditional order “Written and unconditional order by “written and unconditional to pay certain sum of money to drawer (creditor) to drawee (debtor) promise to pay a specific sum of beneficiary named on cheque or to to pay certain sum of money to money in a specific place on his order” payee (beneficiary) or to his order” specific date to a specific steps: steps: beneficiary “ a) importer draws cheque a) importer draws bill of exchange - promise made by debtor rather b) exporter sends cheque to bank b) bill of exchange accepted by than order to pay from creditor c) bank accepts cheque or clears third party by writing on front of bill - only bears one rather than two cheque, credits exporter and and signing and dating signatures cancels earlier credit it should not c) exporter takes bill to bank who - less easy to trade recieve money pays him Four commonly used bank guarantees: 1. Tender or bid bond- when large project is bid for also for supply of goods, gives some certainty that bidder will adhere to the offer 2. Performance bond- guarantees agreed completion of work/delivery of goods (e.g. by certain date) 3. Advance payment bond or down payment- particularly for supply of capital goods or large projects (prepayment) 4. Maintenance bond- after delivery of capital goods or completion of project supplier remains responsible for faults and short comings  Chapter 7- exports, logistics and customs policy Logistics - the process of organising, planning, managing and processing the flow of goods from the moments of buying through production, storage and distribution up to delivery to the end user in such a way that the requirements of the market are met against minimal cost and use of capital Main goal of logistical process: Physical distribution- all activities concerned with packing, To make desired goods aailable in the right transporting, storing, gathering, re-packaging and quantity at the right moment in the right reconditioning goods from the end of the production process place at the lowest possible cost up to and including delivery to customer strategic thinking- forefront when trying to achieve highest 3 parts of logistical process (3 pʼs): operational profit especially in international companies 1. Purchase logisitcs 2. Production logistics 3. Physical distribution 2 Logistics management influences on Factors in export logistics: operating results: - different physical situation departure/arrival - different languages and culture 1. Contribute positively to turnover as level of - customs arrangement customer service improves company image - difference in quality perception 2. Determine cost of delivered product (export, transport and packaging contribute to total costs) Trends in international logistics: 1. Changing global logistics- international trading blocs influences movement of goods 2. Globalisation - New markets, redistribution of production, Global Sourcing 3. Environmental issues- environmental awareness 4. Technological developments- ICT, transport (speed of movement of goods ) 5. E-commerce- online purchasing increase Reasons to buy or produce abroad: Areas of field management should make 1. Lower costs decisions on in logistics: 2. having production closer to where goods are sold (save freight/custom charges) 1. companys contribution to the logistical process 2. level of cutoemr service 3. Logistical policy 5 Custom purposes: - collector of taxes Factors that influence logistics chocies: - protector against diseases - core business of company - results of cost-benefit analysis - national security watchdog - position in the market - technical limitations and possibiities - monitor of compliance with international - financial margins - companyʼs mission statement agreements - implementation of government regulation Basic rule in case of legislation relating to tariffs: Customs Legislation = value to customs * tariffs Strategic limiting factors: - possible ways of cooperating with intermediaries System formalities - formal requirement of - Implementation of incotemrs and elements of customer customs, especially documents to be completed service (EDI) is recommended - use of ITC in logistical processes > important at tactical level to adopt integrated approach Intermediaries- specialised external parties that and use systematic thinking handle international freight for companies Important actors in field of physical distribution: 1. Shipping agent- commissioned by shipper to arrange transport of goods 2. Ship broker- representative of ship owner who makes arrangement with shipper (sometimes collect freight changes) 3. Integrator- offers a complete package off services for integrated Customs duty = customs value * tariff logistical process 4. Surveyor- provides pre-shipment inpection (to developing companies especially) Incoterms- compared to the general conditions applied to many companies sometimes sectors relating to terms of delivery Frequently used incoterms: Incoterms Incoterms does not: - arrange for transfer of ownership -EXW (ex works) regulates: - FCA (free carrier) - govern relationship between buyer and - sharing of cost - FOB (free on board) seller - distribution of risk - CFR (cost and freight) - offer solution for situation which the buyer - division of task - CIF (cost, insurance and freight) refuses to accept goods for whatever reason - CPT (carriage paid to) - DDU (delivered duty unpaid) ICT and Logistics: - communication technology - electronic data interchange - E-commerce (e-business) Customs value: Customer service - whole of reliability in delivery, speed, - aim to reduce customs duty accuracy, flexibility, customer friendliness and many factors - value of good s for cutoms is baed on GATT which a supplier can distinguish itself other than price and (general agreement on tariffs and trade) quality. Criteria for customer service: Methods of establishing value for - degree of deliverability or service level. cutomers: - lead time 1. transaction value of imported goods - reliability of delivery 2. transaction value of identical goods - Correct delivery 3. transaction level of similar goods - speed in case of rush orders 4. reverse calculation method - flexibility concerning size of orders/ timing of orders 5. method calculated - simplicity and comprehensibility of procedures 6. other method - correctness and completeness of invoices  Transaction value - the price paid or price to be paid for goods sold for export with an import destination 3 conditions of transaction value: Transport modalities: 1. existance of a purchase and sales agreement 1. Road transport 2. existance of an import destination Adv: reach, specialization, flexibility, reliabiity, 3. the fact that the price has been agreed controllability Dbks: damaging to environment, traffic, trust Authorised Economic Operator - “an economic problems operator who can be regarded as safe and reliable in respect of his customs-linked activities 2. Rail transort in the entire EU on the basis of this” Adv: separated infrastructure, limited damage to AEO certification - indicator of quality by environment, high speeds, suitability to bulk goods, trading partners and customs authorities and is less vulnerable to problems, natural obticles used by customs to enforce compliance with avoilded, rail systems harmonized customs regulations Dbks: not always easy to reach 3 AEO statuses: 3. Inland shipping 1. AEO customs Adv: transit can take place without hindrance during 2. AEO securtiy 24-hour period so large distances covered 3. AEO customs and security Dbks: unsuited for small volumes Transport for product deecided by looking at: - physical requirements/restrictions 4. Seagoing shipping - accessibility - most significant in volume (bulk) - speed Two important systems: - reliability - liner trade (fixed route fixed schedule) - saffety - tramp shipping (basis of contract or charter to - legal restirctions specified destination) - costs 5. Pipeline/cable Specific customer regulations: Pipeline: natual gas, drinking water, 1. Customs warehousing - goods are stored, often for sewage unlimited period without customs duty being payable Cable: transport of invisible goods 2. active upgrading - certain types of goods are allowed to Adv: limited damage to environment, low be imported duty-free provided that they are re-exported accident risk, relive traffic, used 3. temporary import - goods are allowed to be imported on continueously certain conditions for certain period wholly/partly exempt from custom duty 6. Air freight 4. Passive upgrading - goods that are re-imported and that Transport of more expensive goods have been exposed temporarily and undergone upgrading Adv: speed for long distances Dbks: not as regular because of expensiveness and not suitable for bult cargo and has difficult Important choices at operational level: clearing porcess - various transport modalities available - what kind of packaging is used for destinations allowing for customer requirements and local conditions - level of stock control to be maintained - what risks are run during transport and how thees should be insured against Export Packaging requirements: Logistics at operational level: 1. Clustering - keeping shipment together, convenience in - transport in practice (un)loading, ease of storage - transport modalities 2. Protection - against transport damage, climatic effects, theft - stock control 3. Communication - handling instructions, usage instruction, - transport insurance provide product info, advertising medium Two aspects of operational customs clearance: 1. Material customs legislation - requirement to put a customs destination on goods 2. System of formalities - system of regulated forms Material customs legislation implementation checklist: Simplification of customs - put custom destination goods legislation: -Map purchased goods and products regarding tariffs - start with creation of a framework - Analyse customs regulations in import country within which compliance with rules - Check if goods meet preferential origin requirements is assured and in which the possible - Establish who is liable for paying duties risks are reduced to a minimum - Check if goods meet requirements for favourable treatment - Consider having goods manufactured for active upgrading - Compare customs arrangement with setting up oneʼs own office