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Dr. Sahar Elbarky Global Logistics and Supply Chain Management Lec3: Global Procurement ( Chap.9) Lec4: International Logistics Service Providers (Chap.5) 1  Course Syllabus Weeks...

Dr. Sahar Elbarky Global Logistics and Supply Chain Management Lec3: Global Procurement ( Chap.9) Lec4: International Logistics Service Providers (Chap.5) 1  Course Syllabus Weeks Lectures Topics Time Global Procurement and Lec.3 Outsourcing 10:00 am- W2 Logistics Service Providers and Lec.4 6:00 pm contracting 2 Lec3: Global Procurement 3 The Importance of Procurement  To supply the org. with a flow of materials and services to meet the needs.  To ensure continuity of supply by maintaining effective relationships with existing sources.  To buy efficiently, obtaining by ethical means the best value for every bound spent.  To maintain sound co-operative relationships with other departments. 4 Common Problems in Procurement Management  Undesired quality of goods/services and inadequate quantity  High cost of purchased goods/services  High cost of inventory  Unsecured sources and uncertainty of continuous supply  Absenteeism of supplier management  Failure to meet customers' needs ‫الهيئة المصرية للشراء الموحد واإلمداد والتموين الطبي‬ UPA  What is Procurement ?  Procurement is about specifying requirements, identifying sources, evaluating options and acquiring resources that are fit for purpose, cost effective and sustainable.  Importantly, and distinct from “purchasing”:  procurement involves the activities involved in establishing fundamental requirements, sourcing activities such as market research and vendor evaluation and negotiation of contracts.  What is Purchasing?  “Purchasing” refers to the process of ordering and receiving goods and services.  It is a subset of the wider procurement process.  The process involved in ordering goods such as request, approval, creation of a purchase order record and the receipting of goods. The Objective of Procurement To select the best suppliers in the market. To protect the company’s cost structure. To maintain the correct quality/value balance. To monitor supply market trends. To negotiate effectively in order to work with suppliers who will seek mutual benefit through economically superior performance. To adopt environmentally responsible supply management.  Classification of goods/services  Raw material  Semi-manufactured products  Finished products  Investment goods or capital equipment  Maintenance, repair and operating materials (MRO items)  Services (catering, housekeeping, 3PL, 4PL…etc)  7 R’s of Procurement 1. Right Price 2. Right Quantity 3. Right Quality 4. Right Time 5. Right Place 6. Right Source 7. Right Service  Types of Purchasing Industrial Commercial Purchasing Purchasing Purpose of converting Purpose of resale and doing purchased materials and traders who buy goods for the supplies to the condition of consumer's needs and adding other commodities vary a certain percentage of their qualities after making profit and then resell it to the industrial processes. consumer. 11 The prime rationale of adopting an international purchasing strategy  Enhance the value-added benefit of the product or service to the consumer. – Material availability – it may be a price factor – Quality – Technology & innovation – standards  Global sourcing is not simply a buying function; it is the process of obtaining a product/service in line with consumer needs and technology, thereby enhancing the attraction, the profile, the quality or the value- added benefit. 12  International Procurement  Commercial purchase transaction between buyer and a supplier located in a different country  It is more complex than a domestic purchase due to: – Material pipelines – costs – Export and Import Rules and regulations – Currency fluctuations – Customs requirements – Language and culture – Lack of knowledge about international sourcing 13 The Procurement Process 15  The procurement process  Specify the requirements that the contract must deliver – Requirements should be defined from a technical, commercial and end-user perspective – In many cases organizations do not understand the market better than suppliers – Sometimes the specification is unclear or ambiguous 16 “Procurement Positioning” based on Kraljic Procurement Management  The procurement process  Identify suitable potential suppliers who are able to meet the defined requirements or specification – Determining an appropriate level of competition to reflect the risk and value being procured – Attracting new or more interesting suppliers who may be able to add more value to your business – Choosing which suppliers have the capability and capacity to deliver the required service 18  Factors that affect sourcing strategy  As a minimum a sourcing strategy for a clearly defined requirement should include: – Level (amount) of spend being considered – Risk – One-off (project) or recurring procurement – Technology lifecycle of market – Number of sources and potential suppliers – Contract duration – Potential for performance improvement and cost reduction 19  The procurement process  Select a suitable supplier or suppliers to deliver the contract – Choosing which suppliers have the capability and capacity to deliver the required service – Picking a winner from suppliers who have sufficient capability and capacity to deliver the contract – The evaluation criteria in terms of quality and price – The balance needed between quality and price 20 The Procurement Process  Manage the contract to ensure that the key deliverables are fully met – Success criteria or key performance indicators are required to ensure that the contract requirements are being met – Lessons learned are applied to subsequent contracts 21 The difference between buying and selling Buyer motivation Supplier motivation – Wants the lowest price? – Wants the highest price? – Increase scope? – Decrease scope? – Buyer power? – Supplier power? – Best service? – Fit for purpose? – Wants to limit risk? – Limit obligations? 22 The changing Nature of Relationships The ‘transactional’ relationship The ‘mutual’ relationship  The price / cost iceberg It is important not to confuse price with cost, terms which are sometimes used interchangeably but mean very different things.  Forward Buying  Zero Stock Buying  Speculative Buying  Buy-or-make decision  Tender  Global Tender  Open Tender  Limited Tender  Direct order  Forward Buying  It is not meant for meeting the present consumption requirement only.  Forward Buying is the system under which buying is done with longer term in perspective.  It is usually done for Raw materials but is not limited to it  Follow this policy, usually in large facilities that have the financial capacity and sufficient storage  Advantage of Forward Buying  Take advantage of buying large quantity (discount).  Avoid the scarcity of materials and production ceased.  Save transportation costs.  Take advantage of getting consistent specifications.  The cost of storage and freezing of funds.  The possibility of falling prices  The possibility of damage and obsolete inventory Procurement Management 27  Zero Stock Buying  Buying in a manner that the system ensures that the material is delivered by the seller only when it is required and that no prior inventory of the item is maintained by the buyer.  Normally, under this system the firms try to operate on the basis of zero stock and the supplier holds the stock for these firms.  The system could work well if the seller holds the inventory and if the two parties work in close coordination.  Advantage of Zero Stock Buying  Reduce storage costs  Reduce inventory investment  The price per item in this system is slightly higher as the supplier may include the inventory. Procurement Management 29  Speculative Buying  When purchasing is done purely from the point of view of taking advantage of a speculated rise in price of the supply it is called Speculative buying.  The intent is not to buy for the internal consumption but to resell the supply at a later date when the prices have gone up and to make a profit by selling.  The items may be those that are needed for internal consumption but the quantity shall be much more than the requirement so as to take advantage of the coming price rise. What are the Risks ?  Buy-or-Make Policy  Organizations need a lot of different physical requirements necessary to work and the provision of such supplies, either by purchase or by manufacture.  Industrial organizations prefer internal sources and through follow policy made ​in the provision of some basic materials, especially ones that consume large quantities and are most important for the productive process.  To ensure its continuity in the provision of material and non- stop productive work.   Forward Buying  Zero Stock Buying  Speculative Buying  Buy-or-make decision  Tender  Global Tender  Open Tender  Limited Tender  Direct order  Purchasing procedure according to ISO or country procedure Purchasing using direct order  Method is used direct purchase in cases where direct recourse to a single source for the purchase of items needed without having to contact several suppliers, falls under this method are several methods subsidiaries include Urgent purchase.  The reasons why the use of direct purchase and not purchase method of doing or purchase tender.  Purchasing Methods: Tender  Tender/Bid buying is selecting a supply source (supplier) out of many sources available.  The main focus through tender buying is on competition of price and quality.  Usually, the best quality is selected after assessment of: – The technical and financial offers. Tender procedure Tender Process: Form Tender Team  The procurement team will typically involve: Procurement The budget holder Others involved in managing the contract Possibly representatives from health and safety, human resources, quality management etc. – The dollar value of the purchase, and its business category, determine when a tender process is used.  Tender Process: Develop Tender & Evaluation Criteria  The procurement team then agree what the tender will involve eg: Specification or general requirement Supplier requirements and mandatory requirements (eg ISO standards) Questions Tender rules or instructions Evaluation criteria (how it will be scored e.g. 60% quality / 40% price) Contract (e.g. one-off, term or framework) The tender procurement process (e.g. PQQ or not) 38 Pre Qualification Questionnaire (PQQ) or Tender Long-List  This is an initial selection process to help sift potential suppliers for suitability.  It is used to draw a long-list of bidders to be invited to tender.  This stage of the tender process might be by invitation or open to everyone (e.g. public sector tenders).  The qualification stage might take the form of an approved supplier list, an initial screening interview or a formal PQQ (questionnaire to assess against minimum requirements).  Some tenders incorporate aspects of the PQQ within the tender therefore eliminating this stage. 39  Tender Process: Issue Tender  Tenders are invited  The value, complexity and business category determine how tenders are invited.  The invitation to tender (ITT) is issued to the long-list of selected bidders. The ITT can involve a set of questions to answer along with a pricing matrix. – How purchasing works explains the rules and guidelines for when, where and how tenders are invited.  Alternatively it could be less formal – simply asking the bidder to submit a proposal and a price.  Public sector and corporates tend to use formal ITTs, especially for higher-value tenders.  E-tenders are now the most common way of tendering.  Tender Briefing Meeting  It is not uncommon for the tender procurement panel to hold supplier briefing meetings (pre-tender meetings).  They help clarify the tender and answer any bidders’ questions. – clarify any uncertainties; – plan and prepare your response 42  Tender Process: Initial Evaluation  The tender panel marks each bid against the agreed evaluation matrix.  This results in a league table of the highest and lowest bidders’ scores.  As a supplier, you should first obtain all relevant documentation. Then: – submit your response ( technical and financial offers) in the right format, on time and at the right location. Procurement Management Tender Process: Tender Short-list  The evaluation is used to select a short-list of potential suppliers.  The number of bidders in a short-list will depend on the nature of the contract.  For example, a framework agreement has several suppliers 44 Tender Process: Presentations, Interviews & Visits  Short-listed bidders are sometimes subject to further evaluation.  This can be a tender short-list presentation or a question and answer session.  And possibly a visit to supplier’s premises and/or meeting some of their customers.  Again, the tender panel will assess this against their pre- determined evaluation criteria. Procurement Management  Tender Process: Selection  Whatever the tender procurement process, the tender panel will arrive at its final scores.  These are used to select the best performers and award contract(s).  Notification and debriefing – When a contract has been awarded, the successful supplier will be advised in writing of the outcome. – Unsuccessful supplier are also advised and offered a debriefing interview. 46 Tender Process: Negotiations  The limit of tender negotiations depend on the nature of each individual tender procurement process.  A formal tender may not offer any scope for negotiation.  Others will allow small negotiations. This can include: – Some aspects of price (e.g. additional items) – Contract wording and specification (e.g. items that don’t affect the overall service) – It is unlikely that there will be opportunity for any major negotiation. Certainly not on the overall price. 47 Tender Process: Contract Award  Contracts established and managed  a formal agreement will be required between the successful supplier and the company.  The contract comprises all information provided to and by the successful supplier. These include: – Conditions of Tender; – specifications, including any plans and other attachments; – Conditions of Contract. – Incoterms 2020 Procurement Management  Workshop  Can the procurement dept. cancel the tender ?  Up on which conditions the procurement dept. can cancel the tender? 49 Types of Tendering 50 Types of Tendering: Global Tender  A global tender is floated with a view to obtain offers / response from any supplier/vendor situated anywhere in the world.  The need for a global tender arises when the purchaser either does not know about the vendors for a particular item when he thinks that a wider choice of vendor is possible through it, irrespective of his nation's boundaries. Procurement Management Types of Tendering: Global Tender  listing the tender in international trade journals, https://www.tendernews.com/  leading world newspapers etc. Procurement Management  https://www.tendersinfo.com/ https://www.globaltenders.com/ www.tendertiger.com 53 Types of Tendering: Open Tender  The basic difference assumed between an open tender and a global tender enquiry is essentially the range of its applicability.  While a global tender gets the worldwide publicity, an open tender is limited only within a country.  Otherwise, the concept remains the same as it also seeks to elicit better or wider response. Procurement Management Types of Tendering: Limited Tender  When the issue of tender enquiry is limited only to a selected few vendors ,it is called Limited Tender Enquiry (LTE).  LTE is issued when the capabilities of the vendors is well known to the purchaser.  It is considered better than Global and Open tender modes as there is always an element of uncertainty in those two modes with respect to the capabilities of the vendors.  For issuing LTE , a purchaser maintains a list of approved / registered vendors whose capabilities are checked periodically. International purchasing strategy interrelated with the global supply chain embraces the following methodology:  Identifying through market research, in-house discussion and other sources, including legislation, the product/service specification and standards together with the volume and the quality required;  Researching the most suitable suppliers using all means available including trade directories, trade associations, trade exhibitions, logistic operators and cyberspace (i.e. the Internet);  Selecting the 3PL or 4PL  Formulating a negotiating plan with the preferred supplier.  Activating the contract within the buyer global supply chain network relative to the date, place of delivery, quantity, funding arrangements with the buyer’s issuing bank. 56  International purchasing strategy interrelated with the global supply chain embraces the following methodology:  Managing the global supply chain in accordance with the delivery date, involving the collection of the goods by the 3PL from the supplier’s premises. (Incoterms 2020)  Tracking the cargo throughout the transit using online computer access or by representatives– a facility available from the 3PL/4PL;  Taking delivery of the goods and undertaking any product evaluation – transit delays, damage claims, payment arrangements including currency, import customs, clearance, etc. (Incoterms 2020)  Developing an after-care strategy.  To monitor the benchmark performance. 57  Negotiating the Contract  Communication between the buyer and seller today relies on excellent communication systems, not only for the online accessibility of discrete information, but also for direct global communication using: – video clip messages, and – online visual conferencing aided by increasingly sophisticated web cameras and mobile phone technology.  The ability to communicate better, faster, more efficiently and economically – whether by voice or data – is a major stimulant in a fast-growing international trade. 58 Seller & Buyer Responsibilities Seller supplying good(s) in conformity with the contract; Buyer licenses and authorizations;  licenses and authorizations; place of delivery (not delivery of goods);  notices, receipt of documents; carriage of goods contract and  taking delivery; insurance;  transfer of risks; documentation and notice to buyer;  transfer and division of costs; transfer of risks;  other obligations. transfer and division of costs; checking, packages, marking; other obligations. 59  Ethical Sourcing  Green products  Diversity and equality  Carbon emissions  Standards at work including  Transport suppliers  Environmental performance  Sustainability  Health and safety 60 Risks of International Procurement  Natural disasters  Geopolitical risks  Terrorists attack  Volatile fuel price  Currency fluctuations  Port Delay  Market changes  Forecasting accuracy 61 Supplier Evaluation and Selection CENGAGE LEARNING Monczka – Handfield – Giunipero – Patterson  Evaluation and Selection Process  Overall objective is to reduce sourcing risk  Maximize value to the buyer  Need to select suppliers for the long-term 63 Supplier Selection and Evaluation 64  Sources of Information   Trade journals/Magazines Current suppliers  Trade directories  Sales representatives  Trade shows/exhibitions  Information databases  Internet searches  Experience  www.bestsuppliers.com  Alibaba 65 Determine Sourcing Strategy  Single vs. multiple sourcing  Short-term vs. long-term contracts  Full-service vs. non-full-service suppliers  Domestic vs. foreign-based suppliers 66 Limit Suppliers in Selection Pool  Financial risk analysis – Ex. Dun and Bradstreet reports (https://www.dnb.com/products/small-business/business- information-report-on-demand.html)  Evaluation of supplier performance – For existing suppliers  Evaluation of supplier-provided information – Preliminary surveys (entry qualifiers) 67 Key Suppliers Evaluation Criteria  Process and technological capability  Price  Environmental  regulation compliance Cost structure   Financial stability Quality  Location  E-commerce capability  Services  Supplier’s sourcing  Delivery strategies, policies, and techniques  Communication capabilities   Longer-term Management capability relationship potential  Employees capabilities 68  Evaluation and Selection Surveys  Identify supplier evaluation categories  Assign a weight to each category  Identify and weight subcategories  Define a scoring system for categories and subcategories  Evaluate supplier directly  Review results and make decision 69 Evaluation and Selection Surveys Rate (1 - Criteria Weight ( 100) 5 scale) Total Score Min. rate 3 Price 15 Quality 20 Delivery 15 Management capability 10 Employees capabilities 10 Process and technological capability 10 Environmental regulation compliance 5 Financial stability 10 Reputation Longer-term relationship potential 5 Supplier A score Evaluation and Selection Surveys AHP analyzer as Multi-criteria decision making  Minimum rate for each criteria can be determined  The minimum score can be determined to accept the supplier https://deyako.co.uk/product/ahp-software/ A Good Supplier do the Following:  Builds quality into the product, aiming for zero defects  Makes delivery performance a priority  Demonstrates responsiveness to a buyer’s needs  Works with the buyer to reduce lead times  Provides the buyer with capability and workload information  Reinvests part of its profits into R&D with a long-term view  Meets stringent financial stability criteria when evaluating new customers 72  International Procurement  Commercial purchase transaction between buyer and a supplier located in a different country  It is more complex than a domestic purchase due to: – Rules and regulations------------------awareness and ISO implementation – Currency fluctuations------------------ Obligation in contract – Customs requirements------------------4PL – Language and culture-------------------4PL – Lack of knowledge about international sourcing---------training and education 73 Logistics Service Providers The 3PL sector has now become quite sophisticated. 74  1, 2,3, 4party logistic 4PL serves as the integrator that brings together the needs of the client and the resources available through the 3PL providers, the IT providers and the elements of business process management. 4PLs build closer relationships between the participants along the supply chain, support cost-cutting initiatives and improve the flexibility to deal with supply and demand uncertainties 75 Logistics Service Providers The 3PL and 4PLs are very fast growing markets; to put it into perspective. 76 3PL can do the following operations and services: 77  Fourth-party logistics 4PL  In 1996, who originally defined it ‘as a supply chain integrator that assembles and manages the resources, capabilities and technology of its own organization, with those of complementary service providers, to deliver a comprehensive supply chain solution’  Fourth-party logistics is a model in which manufacturers outsource both the organization and management of their supply chain to an external provider.  4PL offers a higher level of effective supply chain management to customers, which allows manufacturers to completely outsource their logistics process to external professionals for better management. – For example, the manufacture of a product will outsource aspects such as logistics, packaging, warehousing, and delivery of their products to a 4PL company.  A 4PL company will then take control all these operations so that the manufacturer or retailer can focus on other aspects of their business. 78 Fourth-party logistics 4PL Freight sourcing strategies Logistics Analysis of transportation expenses Analysis of carrier performance Effective 3PL management Business planning Project management Management of inbound, outbound, and reverse logistics Coordination of a wide supplier base Network analysis and designs Analysis of capacity utilization Inventory planning and management 79  Unilever  Unilever uses 100 3PLs in its global operations and spends between 1 billion and 1.5 billion on warehousing and transport.  It is one of the world’s biggest manufacturers of FMCG for a consumer global market of 150 million people.  The European brand represents 38 per cent of the 15 billion business. Unilever focus on benchmarking and encourage more dialogue from the 3PLs to understand the business and develop best practice. 80  3PL 4PL  FedEx, United Parcels Service (UPS) and DHL.  These companies’ unique sales proposition is that they offer a seamless (i.e. integrated) end-to-end service from consignor to consignee (i.e. responsibility for the consignment doesn't move from, for example, a haulier to a freight forwarder to an airline, and so forth). 81  Work shop  Define the selection criteria for selecting 4PL 82 Examples of Leading Logistics services Providers 83  Incoterms 2000 p.48  International commercial terms, which were first published in 1936 by the International Chamber of Commerce (www.iccwbo.org) and are now commonly accepted standards in global trade.  The role of Incoterms 2000, adopted in 96 countries, is to give the business person a set of international rules for the interpretation of the more commonly used terms such as – FOB (free on board) – CIF (cost insurance freight) and – EXW (Ex-works) in foreign trade contracts.  Such a range of terms enables the business person to decide which is the most suitable for their needs, knowing that the interpretation of such terms will not vary by individual country. 84 85  Standards https://www.iso.org/home.html  ISO 28000:2022 specifies the requirements for a security management system, including those aspects critical to security assurance of the supply chain. Security management is linked to many other aspects of business management. Aspects include all activities controlled or influenced by organizations that impact on supply chain security.  ISO 22301:2019, Security and resilience – Business continuity management systems – Requirements, the International Standard for implementing and maintaining effective business continuity plans, systems and processes. 86  Standards https://www.iso.org/home.html  ISO 31000:2018 provides guidelines on managing risk faced by organizations. The application of these guidelines can be customized to any organization and its context.  ISO 45000:2018 Occupational health and safety For organizations that are serious about improving employee safety, reducing workplace risks and creating better, safer working conditions 87  Standards https://www.iso.org/home.html  ISO 9000:2015 describes the fundamental concepts and principles of quality management to improve the quality of their products and services and consistently meet their customers’ expectations, ISO has an answer.  ISO 14001:2015 specifies the requirements for an environmental management system that an organization can use to enhance its environmental performance. 88