1. International Procurement Process, benefits and challenges
IPPU 14th CPD
Presented by:
Grace Paddy Wanzala (MCIPS)
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2. Tour de Presentation Definition of procurement management
Procurement management process
International procurement management
Why international procurement?
Barriers and Overcoming barriers
Documents used and factors to consider in International Procurement
Benefits and Challenges of International procurement
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3. PROCUREMENT MANAGEMENT
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.

4. Procurement Process for Government
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
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5. Legal Framework GOU Procurement
Rules that govern Government Procurement:
PPDA Act 2003.
PPDA Regulations, 2003:
LG PPDA Regulations, 2006:
Guidelines
Circulars
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6. Procurement 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.
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7. Procurement Process Tender Notice Tech bid Evaluation Planning
Receipt of bids
Tech bid
Evaluation
Fin. bid
Award
Receipt of Goods
Payment
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8. International Procurement
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.
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9. International Procurement Utilitiesy
TIME
PLACE
POSSESSION
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10. Why International Procurement?
Reasons for International Procurement:
Opportunity to improve quality, cost, and delivery performance
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11. Reasons for international 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.
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12. Why international procurement? Cont’d
No suitable domestic suppliers
Required supplies got from overseas suppliers
Entity has information about international sources
Supplier selection issues dictate
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13. Procurement & Supply chain management
Product
Selection
Needs identified
Rational Use
Forecasting
Govts
CSOs
Distribution
Supplier
Selection
Procurement
Receipt and
Storage
Product
Procurement
Quality
Assurance
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14. IN-COUNTRY LOGISTICS Supply Chain
Assessment
Planning
Procurement
Shipping
Warehousing and Inventory Management
Good Clearance
Inland Transport and Distribution
Supply Tracking and Evaluation
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15. Management and Support Services
Function Scheme
Crisis area
Partners
Country
Normative
Logistical
Services
Logistical
Services
Normative
Suppliers
Suppliers
Technical
support
Technical
support
Procurement
&
Contracting
Procurement
& Contracting
Quality
Asurance
Quality
Assurance
Warehouse
Management and Support Services
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16. Barriers and Overcoming them (International Procurement)
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
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17. Barriers Explained 1) Lack of Knowledge and Skills
How to identify potential sources of supply
Documentation issues
2) Resistance to Change
Established, routine sourcing patterns
Shifting from longstanding suppliers
Domestic market nationalism
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18. 3). Longer Lead Times Extended material pipelines
Forecasting over longer time horizons
Need to more closely manage delivery dates
Possibility of transit and/or customs delays
Greater logistical, political, and financial risks
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19. 4). Cultural Issues Business practices Language Culture
Need to more closely manage delivery and engineering changes
Different meeting and negotiation styles
More difficult interpersonal relationships
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20. 5). Currency Fluctuations
Often daily or hourly fluctuations
Need to understand highly complicated financial options
How to price purchases
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21. Documentations used in International Procurement
Letters of credit
Multiple bills of lading (Air way bill; Bill of lading
Dock receipts
Import licenses
Certificates of origin
Certificates of insurance
Packing lists/ Proforma Invoice
Commercial invoices
Warranties
Manufacturers Authorisations
Clearance certificates (NDA; UNBS e.t.c)
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22. Factors to consider in International Procurement
Costs
Local labor rates
International freight tariffs
Currency exchange rates
Customs Duty
Duty rates differ by commodity and level of assembly
Impact of GATT/WTO: Changes over time
Export Regulations
Denied parties list
Export licenses
Source: Global Supply Chain Associates (GSCA) 1999
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23. Factors to consider in International Procurement
Time
Lead time
Cycle time
Transit time
Export license approval cycle
Customs clearance
Taxes on Corporate Income
Different markups by country
Offset Trade and Local Content
Local content requirement for government purchases
Content for preferential duty rates
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24. Factors to consider while 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
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25. Benefits of International Procurement
Cost savings
Availability
Quality
Innovation
Entry to new markets
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26. Sources of Risks Risk sources and their characteristics
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27. Sensing and Responding
Speed 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.
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28. Cultural Differences Language
Expressions, gestures, and context
Beliefs, 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
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29. Logistical Issues Extended pipelines
Additional planning and management required
Shipping delays are to be expected
Often less capable transportation infrastructure
INCOTERMS 29
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30. INCOTERMS 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.
FAS
Free Alongside Ship
Buyer takes possession at the dock at the port of export after the goods clear customs.
FOB
Free of Board
Buyer takes responsibility and title for the goods as they pass over the ship’s rail during loading.
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31. INCOTERMS 2000 CFR Cost 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.
CIF
Cost, 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 Paid
Title transfers to buyer when goods are loaded into a container. Seller selects and pays the carrier. Similar to CFR.
CIP
Carriage and Freight Paid to
Similar to CIF but applies to air or truck transport only.
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32. INCOTERMS 2000 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.
DES
Delivered 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”
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33. INCOTERMS 2000 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.
DDP
Delivered Duty Paid
Seller delivers goods to the buyer with all duties paid. Title transfers at the buyer’s designated receiving location.
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34. INCOTERMS 2000 S B B/S** EXW FCA FAS FOB CFR CIF CPT CIP DAF DES DEQ
Warehouse Storage S
Warehouse
Labor
Export Packaging
Loading Charges B
Inland Freight
B/S**
Terminal Charges
** May be 1 of 2 FCA Terms:
FCA Seller’s Premises
FCA Named Place (Int’l Carrier)
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35. Charges on Arrival at Destination Delivery to Destination
INCOTERMS 2000
EXW
FCA
FAS
FOB
CFR
CIF
CPT
CIP
DAF
DES
DEQ
Forwarder’s Fees B S
Loading on Vessel
Ocean/Air Freight
Charges on Arrival at Destination
Duty, Taxes, & Customs
Delivery to Destination
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36. International Transaction Costs
Base price
Tooling
Packaging
Escalation
Transportation from supplier to buyer
Customs duties
Insurance premiums
Payment terms
Additional fees and commissions
Port terminal and handling fees
Customs broker fees
Taxes
Communication costs
Payment and currency fees
Inventory carrying costs
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37. Letters of Credit
Assure the seller that it will be paid for the shipment
Paid when accurate and appropriate documents are presented to buyer’s bank
Revocable vs. irrevocable
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38. Port Terminal and Handling Fees
Unloading of cargo
Administrative services of port authority personnel
General use of the port
Temporary storage for goods awaiting customs and/or documentation clearance
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39. Currency Risk Purchase in U.S. dollars
Sharing currency fluctuation risk
Currency adjustment contract clauses
Delivery-triggered vs. time-triggered
Currency hedging
Finance/treasury department expertise
Tracking currency movements
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40. Benefits of International Procurement
Lower purchase price/cost
Greater access to product technology
Improved supplier relationships
Greater access to modern technology
Greater supplier responsiveness
Greater appreciation of purchasing
Higher material, component, or service quality
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41. Challenges in International Procurement
Cultural understanding
Language and communication differences
Logistical issues
Legal issues
Costs associate with international purchasing
Currency risk
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42. 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….
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43. 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.
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44. Other problems connected with International Procurement
Transport
Insurance
Safety standards
Payment
Cultural differences
Potential Challenges:
Requires additional skills and knowledge to deal with international suppliers, logistics, communication, political environment, and other issues 
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45. E-PROCUREMENT PRESENTATION ON PROCESS, BENEFITS AND CHALLENGES
14th CPD GRAND IMPERIAL
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46. Tour de Presentation What is E-Procurement? Open trading environment
E-Procurement process
Benefits of e-procurement
E-procurement challenges
Suggestions for e-GP system Implementation
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47. Web Based Application Software
What is E-Procurement?
Suppliers
Buyer
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.
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48. Open Trading Environment
Buyers implement software
Maintain Local Catalogue
Access Suppliers Catalogue
Suppliers are Free to Choose
Maintain Catalogue or Marketplace
Visible to Widest Possible Market
Flexibility
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49. The E-procurement Process
Advantages of the e-Procurement System
Time savings
Cost savings
Accuracy
Real time
Mobility
Tractability
Management
Benefits to the suppliers
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50. The e-Procurement Process Continued
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
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51. The e-Procurement Process
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52. Small Value Purchase Orders
Processing costs for small value purchases are minimized through:
Procurement Credit Card/Corporate Purchasing Card (P- card)
Blanket or Open-End Purchase Orders
Blank Check Purchase Orders
Stockless Buying or System Contracting
Petty Cash
Standardization & Simplification of Materials & Components
Accumulating Small Orders to Create a Large Order
Using a Fixed Order Interval
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53. Benefits of e-Procurement
Supports Online
Reverse Auction
Core Objectives
Of e-procurement
Real Time
Monitoring
Process
Efficiency
New supplier
discovery
Cost
Reduction
Paper less
environment
Transparency
Streamlining
Procurement
processes
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54. Benefits of e-procurement
Buyers 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
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55. Benefits Cont’d Strategic Benefits
Align Procurement strategy with procurement Goals
Exchanging key suppliers with market information
Reduces Risks
Diversify risk with key suppliers for product failure.
Reduces Spending and Time
Cost reduction
e-Tender, e-Auction and e-Contract Management
Avoid grouping of Bidders; Avoid Mafia
User friendly and paperless procurement process
Savings in processing time
From e-Indent to decision making
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56. Best Practice Approach
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57. Supplier Selection Best Practice Benefits Challenges
E-procurement Solution Feature
Able to generate prospective list of suppliers from existing database
Drastically cut time
and logistics bills
Lack of data aggregation,
Cleansing and analytical capabilities
Category Management, Search Capabilities and friendly user interface
Accurate evaluation of suppliers based on multiple factors with attached documents
Cuts time and cost in evaluation and reduce bias in supplier selection
Difficulty in defining and integrating quantitative and qualitative parameters
Portals for better internal collaboration, integration tools and analytics to evaluate bid options
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58. E-procurement Solution Feature
Contract Management
Best Practice
Benefits
Challenges
E-procurement Solution Feature
Clear definition of roles of people, process and standards
Brings Accountability, Sets Standards reduces maverick spending, cuts overheads
Resistance to change
Change Management
Contract Compliance tools
Standards and targets for contract set
Improves performance
Lack of Analytics to measure performance
Contract evaluation
Strong external compliance
To ensure reliability and compliance of appropriate contract terms
Inability to real time tracking and communication with suppliers
Portals for real time communication.
Automatic triggering of events
Strong internal compliance
Reduce Maverick spending
Lack of purchase standards and manual errors
Automation of events to eliminate manual errors.
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59. E-procurement Solution Feature
Procurement Process
Best Practice
Benefits
Challenges
E-procurement Solution Feature
Automation of possible Procurement activities:
From Purchase requisition to payment.
Dramatically cuts time and cost and increases reliability
Lack of coordination of departments and segregated data and documents and Supplier Behavior
Portals both for internal as well as external communication
Integration of applications
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60. E-Procurement - Challenges
Commitment of Top Management
Change Management Issues
Inability to Capture Required Benefits
Cost & Time Overrun
Computerized Auditing
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61. E-Procurement challenges
Supplier Management
Relationship 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
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62. E-Procurement challenges
Integration to Legacy & Back-end systems
Current applications are customized hence integration – big challenge
Many 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
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63. E-Procurement challenges
Buyer Adoption
Strong Leadership , Political support and top-down approach is critical
Securing 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
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64. E-Procurement challenges
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
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65. Suggestions for e-GP system Implementation in GOU
Suggestions based on experience
Make 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
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66. Suggestions for e-GP system Implementation
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.
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67. 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.
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69. Questions and Discussions
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