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Purchasing a link to sc - sc next
1. Purchasing: A link in
a Supply Chain
Hisham M. El-Tawil
EZZ Steel
Corporate Procurement Planning S. Manager
B.Sc. Production Engineering (1997)
MBA (Operations Management) (2013)
5 December 2015
2. Content
• Introduction & Definitions
• Purchasing Hierarchy
• Purchasing Methods
• General Purchasing Cycle & Total Cost of Ownership
• Global Sourcing
• INCOTERMS
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5. Purchasing Definitions
• “The act of buying something”
(Cambridge Dictionary)
• “The activity of acquiring goods or services
to accomplish the goals of an
organization” (BusinessDictionary.com)
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6. Purchasing vs. Procurement
Procurement
•Vendors Selections
•Vendors Evaluation
•Market Research
•Contract Negotiation
Purchasing
•Request for Quotation
•Approvals
•Purchase order issuance
•Receipt of Goods
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8. Purchasing MUSTs
• Right Solution
• Right Price
• Right Quality
• Right Quantity
• Right Time
• Right Place
• Right Source
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10. Centralized vs. Decentralized
Purchasing
Centralized Purchasing
Head Office
/ Board
Plant A Plant B
Production
Marketing /
Sales
Plant C
Corporate
Purchasing
Corporate
Staff
De-Centralized Purchasing
Head
Office
Plant A
Purchasing
Dept.
Plant B
Purchasing
Dept.
Plant C
Purchasing
Dept.
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11. Centralization vs.
Decentralization
Centralized Purchasing
• Economy of Scale
• Uniform deal with
suppliers.
• Easy Supply market
research
• Unique materials /
spares specifications
• Unique commercial
conditions among
different business units
Decentralized Purchasing
• Strong Orientation &
Communication with
internal user / demander
• Less Bureaucracy.
• Shorter Lead time
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14. General Purchasing Cycle
Determine
Needs /
Receiving
Purchase
requisition
Suppliers
Selection
Request For
Quotations
Price
Determinati
on
Purchase
Order /
Contracting
Follow-up
delivery
Receiving &
Accepting
Goods
Payment
Approval
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15. The Best Offer
• The lowest bid price is not always the best offer.
• The best offer is the offer who represents the best value
Best Total Cost of Ownership
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16. Total Cost of Ownership TCO
TCO
Purchase Price
Acquisition Cost
• Logistics / Handling
• Insurance
• Fees / Customs
Usage Cost
• Lifetime / Unit
Consumption
• Maintenance
• Repairs
End of Life Cost
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20. Definition
It is the process of sourcing
(procuring) goods and/or services
from the international market
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21. CONs & PROs of Global
sourcing
PROs
• Access to unavailable
materials in Local market
• Cost reduction / Better
Prices
• Broad list of alternative
Suppliers
• New Ideas/solutions and
Experience Exchange
• Better Quality
CONs
• Higher Risk (Financial,
Political and Legal)
• More complicated process
& Logistics
• Longer Lead time
• Higher hidden and non-
value added cost (Tariffs,
Insurance, payment terms, etc.)
• Communications barriers
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22. Methods of Payment in
International trade
• Advanced Payment
• Open Account
• Documentary Collection
• Documentary Credit (Letter of Credit)
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23. Each Method has its risk & cost
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Buyer (Importer) RiskSeller (Exporter) Risk
Open
Account
Advance
Payment
Payment Cost
Documentary
Collection
Documentary
Credit
25. Who Will pay Which Amount?
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26. Introduction to INCOTERMS
• Published by International Chamber of Commerce (ICC)
• Set of rules to explain trade terms (abbreviated in 3 letters)
reflecting Business-to-Business (B2B) practice in contracts of
Sales of Goods
• INCOTERM arranges the Transfer of Risk and the Cost of
Transfer.
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Incoterms
Any type of
Transport
Sea
Waterway
Transport
28. INCOTERMS: FOB Port of Shipment
(Seawater/wayoftransport)
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Cost
Risk
Seller Buyer
Seller:
• Delivers goods till
the Vessel Rail.
Buyer:
• Pays transportation & Insurance
from board of vessels
29. In Summary
• Purchasing is a process of buying the needs at right time,
quantity and quality.
• Purchasing Hierarchy can be centralized, de-centralized or a
mix based on company size and business model.
• Within a Purchasing cycle, the best deal is the deal that ensure
a best TCO (Total Cost of Ownership).
• Global sourcing increase the company opportunity for better
purchase in an international competitive market.
• A good Buyer has to select the best Purchasing Method and
best payment method.
• International Community unified the terms of delivery and
shipping showing cost and risk for easy international trade.
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