International Logistics &

Supply Chain Management

S. No Reference No Particulars Slide
From-To

1 Chapter 1 Introduction to Logistics and Supply Chain Management

2 Chapter 2 Globalisation and International Trade

3 Chapter 3 Factors and Challenges Driving Logistics and Supply

Chain Management

4 Chapter 4 Supply Chain Strategies

5 Chapter 5 International Procurement and Sale

Chapter 5: International
Procurement and Sale
 Chapter Index

S. No Reference No Particulars

1 Learning Objectives

2 Topic 1 International Purchasing/Procurement System

3 Topic 2 Financing Global Supply Chains

4 Topic 3 Selecting International Logistics Operator

5 Topic 4 Contract Logistics

 Chapter Index

S. No Reference No Particulars

6 Topic 5 ISO Supply Chain Management Selection

7 Topic 6 Export Sales Contract and its Constituents

8 Topic 7 Warehousing and Materials Management

9 Let’s Sum Up
• Explain the concept of international purchasing/procurement system
• Discuss how an international logistics operator is selected
• Describe contract logistics
• Explain ISO supply chain management selection
• Describe export sales contract and its constituents
• Explain the contract of warehousing and materials management
 1. International Purchasing/
Procurement System

• International procurement is an activity that involves the purchase of goods or services from a
source located anywhere in the world.
• International procurement involves a bidding process wherein an organisation/corporate buyer
invites bids for certain goods or services from various suppliers.
• The supplier who offers goods or services at the minimum price with the required quality and
quantity within the given time frame is awarded the contract.
 2. International Purchasing/
Procurement System

Types of Procurement
• Based on the nature of products, procurement activities are broadly divided into two
categories, which are:

Direct Procurement

Indirect Procurement
 3. International Purchasing/
Procurement System

Advantages and Disadvantages of International Procurement

• The advantages of international procurement are:
− ‰Goods can be procured at competitive costs.
− ‰Skilled manpower can be sourced at low cost.
− ‰Alternative supplier relationships can be developed.
− Supply capacity of suppliers increases.
 4. International Purchasing/
Procurement System

Advantages and Disadvantages of International Procurement

• The disadvantages of international procurement are:
− ‰Exposure to political and financial risks
− ‰Risk of loss of intellectual property
− ‰Higher monitoring costs
− ‰International suppliers take long delivery times as compared to domestic suppliers.
 5. International Purchasing/
Procurement System

International Procurement Process

• The procurement process is a systematic procedure that involves a number of steps ‰ which
are:
Need Recognition

Supplier
Identification

Supplier
Communication

Negotiation

Supplier Liaisoning

Logistics
Management
 6. International Purchasing/
Procurement System

Trends in International Procurement

• Various trends in international procurement are‰:

Accurate Demand Forecasting

Short Product Life Cycles

More Mature Management

E-procurement
 7. International Purchasing/
Procurement System

Trends in International Procurement

• Accurate demand forecasting: Procurement orders are processed whenever demand is
generated at the organisation’s end thereby reducing the level of inventory at both the sides -
the supplier and the organisation.
• Short product life cycles: Today, the average life of products is shorter as compared to the
products manufactured a decade ago.
• More mature management: Organisations nowadays have streamlined business processes
that help in better management.
• E-procurement: E-procurement has made it easier for the organisation to track the exact
location of shipment till it reaches the intended destination.
 8. International Purchasing/
Procurement System

Principles and Policies of International Procurement

• Any procurement activity must be based on three principles, which are explained as follows:
− Efficiency and effectiveness: The ultimate goal of a procurement process is to ensure
that the price, quantity, quality and delivery schedule of the sourced products is as desired
by customers.
− Accountability: Both the supplier and the procurement officer from the organisation’s
side should be responsible for every action taken by them during the procurement
process.
− Transparency: The entire procurement process must be transparent so as to increase the
visibility of the process.
 1. Financing Global Supply Chains

• A global supply chain is an interconnected network of organisations that produce and

distribute goods from the point of origin to the desired destination at the international level.
• Global Supply Chain Finance (GSCF) also known as supplier finance or reverse factoring,
involves a set of solutions that help organisations optimise cash flow by extending payment
terms with their suppliers and also provide an option for large-scale suppliers to get paid early.
• In this case, the working capital of the organisation (buyer) is optimised and additional
operating cash flow is generated by the supplier, thereby reducing risk across the supply chain.
 2. Financing Global Supply Chains

• GSCF includes the following solutions for buyers and suppliers:

− ‰Global asset-based lending (GABL)
− ‰Inventory financing, which enables organisations to secure finance on the basis of the
inventory they hold.
− ‰Receivables management wherein consignments are managed by an outsourced agency.
− ‰Payables discounting wherein payables are outsourced to a third party. A buyer having
a good credit rating gets credit at favourable finance rates.
− Insurance that mitigates risks associated with consignment.
 3. Financing Global Supply Chains

• Broadly, there are three forms of the Supply Chain Finance (SCF) structure, which are as
follows:‰
− Bank proprietary: This kind of structure exists where the technology platform, services
and credit is provided by a large commercial bank.
− Buyer managed: This kind of structure exists when the buyer owns and manages the
finance programme, supplier on boarding and liquidity itself.
− Multi-bank: This kind of structure exists when independent third-party supply chain
finance providers offer multi-bank platforms.
 1. Selecting International Logistics Operator

• Selection of an international logistics operator depends on several factors that may vary from
one company to another.
• Some of these factors include the organisation’s business plans and goals, expansion plans,
acquisitions, competitive strategy, external environment, etc.
• With increased global competition, an organisation must carefully choose an international
logistics provider so that shipments can be handled effectively.
 2. Selecting International Logistics Operator

• Some important points must be kept in mind while selecting a 3PL provider, which are as
follows:
− Cultural alignment: It is important to determine if a logistics provider has the same
values as the organisation.
− Infrastructure: A logistics provider must have the requisite infrastructure and resources
to meet the client’s needs.
− Expertise in IT: A logistics provider must have efficient IT facilities so that real-time
communication can take place between the client and the provider.
− Metrics: The logistics provider and the client must have well-established parameters for
performance.
 3. Selecting International Logistics Operator

− Ability to live up to its commitment: Feedback can be taken from various existing
clients of the logistics provider to ascertain its reliability and service quality.
− ‰Price: Price charged by a logistics provider is an important determinant in its selection
as a preferred logistics partner.
− ‰Spectrum of services: The range of services provided by the logistics provider is an
important consideration.
− Financial stability: The logistics provider must be financially stable and sustainable.
− ‰On-time performance: The track record of the logistics partner with regard to timely
deliveries must also be considered.
 4. Selecting International Logistics Operator

• For the selection of the right logistics operator, it is important to understand the three types of
3PLs. These are:

Asset-based Providers

Management-based Providers

Integrated Providers
 5. Selecting International Logistics Operator

• Asset-based providers: These operators use their own vehicles and infrastructure like trucks,
warehouses and manpower in their operations.
• Management-based providers: These provide managerial and technical expertise, but use the
infrastructure of other organisations.
• Integrated providers: These operators supplement their services with the required
infrastructure as and when required by the client.
 6. Selecting International Logistics Operator

3PL Selection Process

For selecting a 3PL provider, the following steps need to be followed:
1. The organisation drafts a Request for Information (RFI).
2. The organisation invites quotations in the form of Request for Quotation (RFQ), which
involves receiving bids from various logistics operators.
3. Once the bids have been evaluated, the organisation often selects top three bidders for a site
visit which includes interviews with senior team members, survey of their infrastructure and
examination of their financial stability.
4. The most eligible supplier is finally shortlisted.
 7. Selecting International Logistics Operator

Developing a Successful 3PL Relationship

• There should be a congenial relationship between the client organisation and the 3PL.
• This not only reduces costs of both the entities but also improves their efficiencies.
• The essentials for a successful relationship between a 3PL and the client organisation are:
− A person who will be the point of contact for both parties should be identified.
− Both the parties must be respectful towards each other.
− Transactions between the two parties should be transparent.
 8. Selecting International Logistics Operator

− Communication between the client organisation and the 3PL should take place on a
regular basis.
− Returns (consignments) need to be tracked and examined regularly to understand if
something needs to be corrected in the supply chain.
− ‰Measures of success should be reviewed periodically.
− The client organisation should align the interests of the 3PL with its own goals.
− ‰The client organisation must help the 3PL to understand its constraints and the business
environment.
 Contract Logistics

• Contract logistics refers to the management and control of a logistics system by a third party
as per the terms and conditions of a contract.
• A contract is signed between organisation and the third party for a specific period of time
usually for one or more years.
• Third-party contract logistics organisations offer a combination of logistics services such as
supply chain planning and designing, warehousing, transport scheduling, order processing,
payment collection, inventory management, customer support and so on.
• Contract logistics service providers first need to have in-depth knowledge of the client
organisation’s requirements before actually entering into a contract.
 1. ISO Supply Chain Management Selection

• International Organization for Standardization (ISO) is an international, independent and non-

government organisation that works for developing standards in various fields internationally.
• About 162 national standard bodies are the members of ISO.
• Under the umbrella of ISO, experts in various sectors come together and share their
knowledge to develop voluntary, consensus-based and market-related international standards.
• ISO grants various types of quality certifications to organisations.
• It is considered as the benchmark for quality assurance across the world.
 2. ISO Supply Chain Management Selection

• In the field of supply chain management, ISO also develops several standards.
• Some organisations hire or outsource their supply chain functions only to ISO-certified
suppliers.
• ISO issues certifications that encompass specifications related to production process,
transportation systems, warehousing, recycling, packaging, environmental concerns and so on.
 1. Export Sales Contract and its Constituents

• The elements that are present in all export contracts are:

− Name of the parties
− ‰Address of the parties
− Standards and specifications in relation to the product
− ‰Quantity of products in words and figures both
− ‰Inspection-related details
− ‰Total value of the contract
− ‰Delivery terms (the location of dispatch and delivery)
− ‰Duties, taxes and all other charges
− ‰Shipment and transhipment details
 2. Export Sales Contract and its Constituents

− Packaging and labelling requirements

− ‰Payment terms
− ‰Discounts and commissions
− ‰Information related to licences or permits
− ‰Associated risks and coverage
− The period of product guarantee
− ‰Contract of damages to be paid to the buyer by the seller (supplier) in case of delays in
delivery
− ‰Force majeure (excuse for non-performance of contract) conditions
− Signatures of both the parties
 1. Warehousing and Materials Management

• A warehouse or stockroom is a place for the storage and handling of any type of inventory
(raw materials, work-in-progress and finished goods.
• Warehousing refers to an activity of storing inventory in a warehouse.
• The activities under warehousing include:
− Receiving goods and entering data for the same into the stock register
− Maintaining the account of finished goods, work-in-progress and raw material
− Storing goods for the required time period in good condition
− Retrieving goods as and when required
− Ensuring careful handling of goods
 2. Warehousing and Materials Management

• There are three ways in which goods can be stored in a warehouse, which are:

Random Storage

Fixed Position

Categorised Fixed Location

• Random storage: Goods are stored depending on the available space.

• Fixed position: Specific goods are stored at a fixed space. In case, those goods are
not in the warehouse, that space is kept empty. No other products can be kept at
the place of another product.

• Categorised fixed location: Here, a set of products is allocated a particular space.

Any product belonging to a set of products can be put anywhere in the space fixed
for the set of products.
 3. Warehousing and Materials Management

• There are various types of warehouses such as:

Commercial Warehouse

Transit Warehouse

Government Warehouse

Open Storage

Bonded Warehouse
 4. Warehousing and Materials Management

• Commercial warehouse: It is normally in a building or any other facility that might be owned
by an organization or taken on rent.
• Transit warehouse: This warehouse stores goods for a temporary period. ( for cross docking )
• Government warehouses: These are owned by a government and are normally located at
ports.
• Open storage: It refers to a space that is open or a space over which there is no constructed
building. In this warehouse, goods are exposed to environmental factors such as rain, pests,
etc.(
• Bonded warehouse: This refers to a type of warehouse in which bonded goods are stored.
(secured area in which dutiable goods may be stored without payment of  duty.)
 Let’s Sum Up

• Procurement is an activity that involves purchasing goods and services from an

individual/company supplier. This term is specifically used in the context of corporate buyers
who require buying products in large quantities.
• Any procurement activity must be based on three principles: Efficiency and effectiveness,
Accountability and Transparency.
• A global supply chain is an interconnected network of organisations that produce and
distribute goods from the point of origin to the desired destination at the international level.
• Logistics refers to the management of goods from the time they are picked up from their
source (point of origin) till the time they are received at their intended destination (point of
consumption).