international procurement process, benefits and challenges ippu 14 th cpd presented by: grace paddy...

InternationalInternationalProcurement Process, Procurement Process,

benefits and challengesbenefits and challenges

IPPU 14th CPDPresented by:

Grace Paddy Wanzala (MCIPS)

IPPU Grand Imperial 1

Tour de Tour de PresentationPresentation

Definition of procurement management

Procurement management processInternational procurement

managementWhy international procurement?Barriers and Overcoming barriersDocuments used and factors to

consider in International ProcurementBenefits and Challenges of

International procurementIPPU Grand Imperial 2

PROCUREMENT PROCUREMENT MANAGEMENTMANAGEMENT

Definition:Procurement means acquiring goods, works and/or services from an outside source. Procurement is the term generally used by government, while business uses the term purchasing and outsourcing is commonly used by the information technology industry.

Procurement Process for Procurement Process for GovernmentGovernment

Public Procurement – purchasing for government. Public Procurement is characterized by: Competitive bidding - contract is usually

awarded to lowest priced technically compliant bidder.

Sealed Bids are used to satisfy the Invitation to Bid (ITB) and are opened publically.

Bid Security - successful bidder will accept contract.

Performance Bonds - incentive to fulfill contract and work will be on time and meet specifications.

Advance Payment Guarantee - protection against 3rd party liens not fulfilled by bidder


Legal FrameworkLegal FrameworkGOU ProcurementGOU Procurement

Rules that govern Government Procurement:

PPDA Act 2003. PPDA Regulations, 2003: LG PPDA Regulations, 2006: Guidelines Circulars


Procurement Management ProcessesProcurement Management Processes

Procurement management includes the following processes for acquiring goods and services from outside the entity:

Procurement planning: determining what to procure and when.

Solicitation planning: documenting product requirements and identifying potential sources.

Solicitation: obtaining quotations, bids, offers, or proposals as appropriate.

Source selection: choosing from among potential vendors. Contract administration: managing the relationship with

the vendor. Contract close-out: completion and settlement of the

contract.


Procurement ProcessProcurement Process


PlanningTender Notice Receipt of bids

Tech bidEvaluation

Fin. bidEvaluation

AwardReceipt of GoodsPayment

International International ProcurementProcurement

International procurement relates to a

commercial purchase transaction between a buyer and a supplier located in a different country.

This type of purchase is typically more complex than a domestic purchase. PDEs must contend with longer material pipelines, increased rules and regulations, currency fluctuations, customs requirements, and a host of other variables such as language and time differences.


International Procurement International Procurement UtilitiesUtilities


TIME PLACE POSSESSION

y

Why International Why International Procurement?Procurement?

Reasons for International Procurement:

Opportunity to improve quality, cost, and delivery performance


Reasons for international Reasons for international procurement procurement

Materials are not available domestically Domestic manufacturers are unavailable to supply

specific materials; Incapable of meeting required delivery time or limited technical capabilities.

Unsatisfactory quality of domestic products Quality of products in the domestic market does

not meet the requirements of the PDE. Supplier cannot provide satisfactory warranties or after-sales services to the manufacturers and PDEs.

Price Products supplied by domestic suppliers may be

too expensive, and PDE can obtain the same goods with a cheaper price elsewhere around the world.

Technology PDEs may have no choice but to source

internationally; otherwise they cannot get the supplies.


Why international Why international procurement? procurement?

Cont’dCont’dNo suitable domestic suppliersRequired supplies got from

overseas suppliersEntity has information about

international sourcesSupplier selection issues dictate


Procurement & Supply chain Procurement & Supply chain managementmanagement


ProductSelection

QualityAssurance

SupplierSelection

Distribution

Forecasting

ProductProcurement

Rational Use

Receipt andStorage

Procurement

Needs identified

Govts

CSOs

IN-COUNTRY LOGISTICS

•

Supply Chain

Assessment Planning

Good Clearance

Procurement

Warehousing and Inventory Management

Shipping

Inland Transport and Distribution

Supply Tracking and Evaluation


Function Scheme

Logistical Services

Logistical Services

LogisticalServices

LogisticalServices

Technicalsupport

Technicalsupport

Procurement& Contracting

Procurement& Contracting

Quality Asurance

Quality Asurance

Technicalsupport

Technicalsupport

Procurement &

Contracting

Procurement &

Contracting

Quality Assurance

Quality Assurance

WarehouseWarehouse

Country Country PartnersPartners

Norm

ative

Crisis area

Suppliers

Normative

Management and Support Services

Suppliers


Barriers and Overcoming themBarriers and Overcoming them(International Procurement)(International Procurement)

Barriers Lack of knowledge

and skills concerning international sourcing

Resistance to change Longer lead times Different business

customs, language, and culture

Currency fluctuations

Overcoming Barriers

Education and training Publicizing success

stories Globally linked

information systems Measurement and

reward systems Use of third-party

intermediaries Obligate in stable

currency


Barriers ExplainedBarriers Explained

1) Lack of Knowledge and SkillsHow to identify potential sources of

supplyDocumentation issues2) Resistance to ChangeEstablished, routine sourcing

patternsShifting from longstanding suppliersDomestic market nationalism


3). Longer Lead Times3). Longer Lead TimesExtended material pipelinesForecasting over longer time

horizonsNeed to more closely manage

delivery datesPossibility of transit and/or

customs delaysGreater logistical, political, and

financial risks


4). Cultural Issues4). Cultural Issues

Business practicesLanguageCultureNeed to more closely manage delivery

and engineering changesDifferent meeting and negotiation

stylesMore difficult interpersonal

relationshipsIPPU Grand Imperial 19

5). Currency 5). Currency FluctuationsFluctuations

Often daily or hourly fluctuationsNeed to understand highly

complicated financial optionsHow to price purchases


Documentations used in Documentations used in International International ProcurementProcurementLetters of creditMultiple bills of

lading (Air way bill; Bill of lading

Dock receiptsImport licensesCertificates of

originCertificates of

insurance

Packing lists/ Proforma Invoice

Commercial invoices

WarrantiesManufacturers

AuthorisationsClearance

certificates (NDA; UNBS e.t.c)


Factors to consider in Factors to consider in International ProcurementInternational ProcurementCosts

Local labor rates International freight tariffs Currency exchange rates

Customs DutyDuty rates differ by commodity and level of

assembly Impact of GATT/WTO: Changes over time

Export RegulationsDenied parties list Export licenses


Source: Global Supply Chain Associates (GSCA) 1999

Factors to consider in Factors to consider in International ProcurementInternational Procurement

TimeLead time Cycle time Transit time Export license approval cycle Customs clearance

Taxes on Corporate IncomeDifferent markups by country

Offset Trade and Local ContentLocal content requirement for government

purchases Content for preferential duty rates


Factors to consider while Factors to consider while selecting suppliers: selecting suppliers:

Product and process technologies Willingness to share technologies and

information Quality Cost Reliability Order system and cycle time Capacity Communication capability Location Service Different companies have different criteria based

on their products, price offered, quality, on-time delivery, after-sales services, response to order change, supplier location and suppliers financial


Benefits of International Benefits of International ProcurementProcurementCost savingsAvailabilityQualityInnovationEntry to new markets


Sources of RisksSources of Risks


Risk sources and their characteristics

Sensing and Sensing and RespondingRespondingSpeed in sensing and responding can

help the PDE overcome unexpected supply problems

Failure to sense could lead to:◦Failure to respond to changes in the supply chain

◦Can fail an entity to achieve the intended goals and objectives.


Cultural DifferencesCultural DifferencesLanguage

◦Expressions, gestures, and contextBeliefs, or specific values about

something◦Can differ widely from culture to culture

Customs◦Vary greatly from country to country◦Important for the business person to adhere

to local customs to avoid offending anyone. Example: the practice of gift giving varies greatly


Logistical IssuesLogistical IssuesExtended pipelinesAdditional planning and

management requiredShipping delays are to be

expectedOften less capable transportation

infrastructureINCOTERMS

IPPU Grand Imperial

29

INCOTERMS 2000INCOTERMS 2000

EXW

Ex Works

Buyer takes title when taking delivery of the goods at supplier’s facility. Buyer is responsible for the shipment and duties.

FCA Free Carrier

Buyer takes possession and title at the airport or truck terminal at the port of export in the seller’s country after the goods clear customs.

FASFree Alongside

Ship

Buyer takes possession at the dock at the port of export after the goods clear customs.

FOB Free of BoardBuyer takes responsibility and title for

the goods as they pass over the ship’s rail during loading.



CFRCost and Freight

Supplier arranges freight and pays as far as the buyer’s port of entry. Title and risk of loss remain with the buyer.

CIFCost,

Insurance, and Freight

Supplier arranges freight and buys insurance for the goods as part of the sales price. Title and risk transfer to the buyer once the goods clear a ship’s rail while being loaded.

CPT Carriage PaidTitle transfers to buyer when goods are

loaded into a container. Seller selects and pays the carrier. Similar to CFR.

CIPCarriage and

Freight Paid toSimilar to CIF but applies to air or truck

transport only.



DAF

Delivered at Frontier

Goods are delivered to a border by truck or rail. Title transfers at the border after goods are cleared for export but not yet cleared through import customs.

DESDelivered Ex

Ship

Seller pays freight costs to a port of import, and title transfers on the ship at arrival. Buyer is responsible for unloading the freight and clearing customs.

DEQ•Delivered Ex

Quay

Seller is responsible for having the ship unloaded at the port of entry. Title transfers when goods are unloaded from the ship, either before or after customs. Term must include “Duty Paid” or “Duty Unpaid”



DDU

Delivered Duty Unpaid

Seller delivers goods with duty unpaid to a buyer’s specified location. This location, where the title transfers, is different from the port of import. These goods have not cleared customs and require proper customs supervision and bonding.

DDPDelivered Duty

Paid

Seller delivers goods to the buyer with all duties paid. Title transfers at the buyer’s designated receiving location.


INCOTERMS 2000INCOTERMS 2000EXW

FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ

Warehouse

StorageS S S S S S S S S S S

Warehouse

LaborS S S S S S S S S S S

Export Packaging S S S S S S S S S S S

Loading Charges B S S S S S S S S S S

Inland Freight B

B/S**

S S S S S S S S S

Terminal Charges B B S S S S S S S S S


** May be 1 of 2 FCA Terms: FCA Seller’s Premises FCA Named Place (Int’l Carrier)

INCOTERMS 2000INCOTERMS 2000EXW

FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ

Forwarder’s Fees B B B B S S S S S S S

Loading on Vessel B B B S S S S S S S S

Ocean/Air Freight B B B B S S S S S S S

Charges on Arrival

at Destinatio

n

B B B B B B S S B B S

Duty, Taxes, & Customs

B B B B B B B B B B B

Delivery to

Destination

B B B B B B B B B B B


International TransactionInternational Transaction Costs Costs

Base priceToolingPackagingEscalationTransportation

from supplier to buyer

Customs dutiesInsurance

premiumsPayment terms

Additional fees and commissions

Port terminal and handling fees

Customs broker feesTaxesCommunication costsPayment and

currency feesInventory carrying

costs


Letters of CreditLetters of CreditAssure the seller that it will be

paid for the shipmentPaid when accurate and

appropriate documents are presented to buyer’s bank

Revocable vs. irrevocable


Port Terminal and Port Terminal and Handling FeesHandling FeesUnloading of cargoAdministrative services of port

authority personnelGeneral use of the portTemporary storage for goods

awaiting customs and/or documentation clearance


Currency RiskCurrency RiskPurchase in U.S. dollarsSharing currency fluctuation riskCurrency adjustment contract

clauses◦Delivery-triggered vs. time-triggered

Currency hedgingFinance/treasury department

expertiseTracking currency movements


Benefits of International Benefits of International ProcurementProcurementLower purchase price/costGreater access to product technologyImproved supplier relationshipsGreater access to modern technologyGreater supplier responsivenessGreater appreciation of purchasingHigher material, component, or

service quality


Challenges in Challenges in International International ProcurementProcurementCultural understanding

Language and communication differences

Logistical issuesLegal issuesCosts associate with international

purchasingCurrency risk


2. Foreign language:2. Foreign language:

Although English is the international language of business, consumers want to use their own language.

Ads may become lost in translation. Eg. KFC “finger-lickin good” translated

into Chinese as “eat your finger off”.Jif changed to Cif due to difficulty with

J….


3. Exchange Rates:3. Exchange Rates:

If the euro increases in value exports become dearer and imports become cheaper. (happening now with €1 = £0.90).

If the value of the euro decreases in value then exports become cheaper and imports become dearer. This will make supplies more expensive.


Other problems connected Other problems connected with International with International

ProcurementProcurementTransportInsuranceSafety standardsPaymentCultural differencesPotential Challenges: Requires additional skills and

knowledge to deal with international suppliers, logistics, communication, political environment, and other issues


E-PROCUREMENTE-PROCUREMENT

PRESENTATION ON PROCESS, BENEFITS AND CHALLENGES

14th CPD GRAND IMPERIAL


Tour de PresentationTour de Presentation

What is E-Procurement? Open trading environmentE-Procurement processBenefits of e-procurementE-procurement challengesSuggestions for e-GP system

Implementation


What is E-Procurement?What is E-Procurement?


SuppliersBuyer

Web Based Application

Software

E-Procurement is the value-added application of Internet and e-commerce solutions to facilitate, integrate and streamline the entire procurement process, from buyer to supplier and back.

Buyers implement software

• Maintain Local Catalogue• Access Suppliers Catalogue

Open Trading Open Trading EnvironmentEnvironment


Suppliers are Free to Choose

• Maintain Catalogue or Marketplace• Visible to Widest Possible Market

Flexibility

The E-procurement The E-procurement ProcessProcess

Advantages of the e-Procurement System

Time savingsCost savingsAccuracyReal timeMobilityTractabilityManagementBenefits to the suppliers


The e-Procurement ProcessThe e-Procurement ProcessContinuedContinued

Step 1- User inputs a Procurement requisition:Relevant information such as quantity and date needed.Step 2- Procurement requisition submitted to PDU: At PDU (hardcopy or electronically). Step 3- PDU assigns qualified suppliers to bid:Product description, closing date, & conditions are given.Step 4- Entity reviews closed bids & selects a supplier


The The e-Procuremente-Procurement Process Process


Small Value Purchase Small Value Purchase OrdersOrders

Processing costs for small value purchases are minimized through:

Procurement Credit Card/Corporate Purchasing Card (P-card)

Blanket or Open-End Purchase OrdersBlank Check Purchase OrdersStockless Buying or System ContractingPetty CashStandardization & Simplification of Materials &

ComponentsAccumulating Small Orders to Create a Large

OrderUsing a Fixed Order Interval


Supports Online Reverse AuctionSupports Online Reverse Auction

Core ObjectivesOf e-procurementCore Objectives

Of e-procurement

Real Time MonitoringReal Time Monitoring

Process Efficiency Process Efficiency

New supplier discovery

New supplier discovery

Cost Reduction

Cost Reduction

Paper less environmentPaper less

environment

TransparencyTransparency

Benefits of e-Benefits of e-ProcurementProcurement


StreamliningProcurementprocesses

Benefits of e-Benefits of e-procurementprocurementBuyers end facilitates tendering entity to create online tender including technical bid and financial bid After receiving bids, software performs the evaluation

task Result of tender evaluation can be viewed on the web. Supplier end Instant access to all tender notices and tender

documents for contractors Reduction in tender preparation time attend pre bid meeting electronically Savings for contractors in document fees submission of digitally signed technical bid and financial

bid


Benefits Cont’dBenefits Cont’d Strategic Benefitso Align Procurement strategy with procurement Goalso Exchanging key suppliers with market information Reduces Riskso Diversify risk with key suppliers for product failure. Reduces Spending and Timeo Cost reduction

• e-Tender, e-Auction and e-Contract Management • Avoid grouping of Bidders; Avoid Mafia • User friendly and paperless procurement process

o Savings in processing time◦ From e-Indent to decision making


Supplier SelectionSupplier Selection

Best Best Practice Practice

BenefitsBenefits ChallengesChallenges E-E-procuremenprocurement Solution t Solution Feature Feature

Able to Able to generate generate prospective prospective list of list of suppliers suppliers from existing from existing database database

Drastically Drastically cut time cut time

and logistics and logistics billsbills

Lack of data Lack of data aggregation,aggregation,

Cleansing and Cleansing and analytical analytical capabilitiescapabilities

Category Category Management, Management, Search Search Capabilities Capabilities and friendly and friendly user interfaceuser interface

Accurate Accurate evaluation of evaluation of suppliers suppliers based on based on multiple multiple factors with factors with attached attached documentsdocuments

Cuts time and Cuts time and cost in cost in evaluation evaluation and reduce and reduce bias in bias in supplier supplier selectionselection

Difficulty in Difficulty in defining and defining and integrating integrating quantitative quantitative and and qualitative qualitative parametersparameters

Portals for better Portals for better internal internal collaboration, collaboration, integration integration tools and tools and analytics to analytics to evaluate bid evaluate bid optionsoptions


Contract ManagementContract ManagementBest Best

Practice Practice BenefitsBenefits ChallengesChallenges E-procurement E-procurement

Solution Solution Feature Feature

Clear Clear definition definition of roles of of roles of

people, people, process process

and and standardsstandards

Brings Brings AccountabilityAccountability

, Sets , Sets Standards Standards reduces reduces

maverick maverick spending, cuts spending, cuts

overheads overheads

Resistance to Resistance to changechange

Change Change ManagementManagement Contract Contract Compliance Compliance

toolstools

Standards Standards and and

targets for targets for contract contract

setset

Improves Improves performanceperformance

Lack of Analytics Lack of Analytics to measure to measure

performanceperformance

Contract Contract evaluation evaluation

Strong Strong external external

complianccompliancee

To ensure To ensure reliability and reliability and compliance of compliance of appropriate appropriate

contract contract termsterms

Inability to real Inability to real time tracking time tracking

and and communicatiocommunicatio

n with n with suppliers suppliers

Portals for real Portals for real time time

communicatiocommunication. n.

Automatic Automatic triggering of triggering of

eventsevents

Strong Strong internal internal

complianccompliancee

Reduce Reduce Maverick Maverick spending spending

Lack of Lack of purchase purchase

standards and standards and manual errorsmanual errors

Automation of Automation of events to events to eliminate eliminate

manual errors.manual errors.


Procurement ProcessProcurement Process

Best Best Practice Practice

BenefitsBenefits ChallengesChallenges E-E-procuremeprocurement Solution nt Solution

Feature Feature

Automation of Automation of possible possible

ProcuremenProcurement activities:t activities:

From From Purchase Purchase

requisition requisition to to

payment.payment.

DramaticallDramatically cuts y cuts

time and time and cost and cost and increases increases reliabilityreliability

Lack of Lack of coordinatiocoordinatio

n of n of departmendepartmen

ts and ts and segregated segregated data and data and

documents documents and and

Supplier Supplier BehaviorBehavior

Portals both Portals both for internal for internal as well as as well as external external

communicatcommunicationion

Integration Integration of of

applicationsapplications


E-Procurement - E-Procurement - ChallengesChallengesCommitment of Top ManagementChange Management IssuesInability to Capture Required

BenefitsCost & Time OverrunComputerized Auditing


E-Procurement challengesE-Procurement challenges

Supplier ManagementRelationship must be beneficial to suppliers

Providing support & services for suppliers who are not yet prepared to go online

Working with smaller businesses not enabled for e-Procurement

Continuing to build and sustain relationships with suppliers


E-Procurement challengesE-Procurement challengesIntegration to Legacy & Back-end

systemsCurrent applications are customized hence

integration – big challengeMany Govt depts are still running manual

systems, implementation of pre & post procurement systems and building integration is critical

IT infrastructure readiness in terms of hardware, software, connectivity/ linkage is below par

Government would intend to leverage existing investments and hence integration assumes importance



Buyer AdoptionStrong Leadership , Political support and top-

down approach is criticalSecuring high level support to negotiate better

prices through volume aggregation Commitment to the business model and

approach chosen for roll-out Commitment in achieving process efficiencies

and effecting changes in legal & regulatory framework to streamline the process changes

IT readiness -infrastructure & user training



Security & data sharing◦ Internet enabled procurement means transaction

on public domain ,perception holds contradictory to the confidential nature of the bidding process

◦ Physical bidding process provides documentary proofs and the electronic system is assumed to be incapable of providing the same

◦ e-Procurement process is about data sharing, communication & is competitive - security of such a system is of paramount importance

◦ Evolving regulatory frame works◦ Choice of technology in the rapidly changing

technology landscape


Suggestions for e-GP system Suggestions for e-GP system Implementation in GOUImplementation in GOU

Suggestions based on experienceMake clear policies to implement e-

Procurement across all the PDEs and communicate to all concerned stake holders.

Set a road map with time lines for implementing e-Procurement in terms of applications to PDEs

Conduct a business process study of procurement to arrive at feature list , best practices model for e-Procurement that can be rolled across all the PDEs in the country.

Solicit a suitable vendor who can provide infrastructure, applications, domain knowledge, process re-engineering knowledge & consulting


Suggestions for e-GP system Suggestions for e-GP system ImplementationImplementation

PDEs be directed to use the applications with specific incentives for using e-Procurement

Evaluation of computer literacy of the users in PDEs, the task of improving the computer literacy should be entrusted to a separate set of vendors

Conduct spend analysis and set e-Procurement tools to address various types of spends to be carried out .

Implement e-Procurement in a phase wise manner addressing major spend in pilot PDEs.


Conclusion Conclusion

E-procurement system must be an integral part of any entity supply chain and corporate

strategy to enable it to sustain its competitive advantage.


Questions and DiscussionsQuestions and Discussions


international procurement process, benefits and challenges ippu 14 th cpd presented by: grace paddy...

Documents

government procurement

procurement planning

government public procurement

ippu grand imperial8

ippu grand imperial6

challenges ippu

contract closeout

contract administration