The world is changing fast. The growth of the digital economy, changes in international production networks and the speed of transportation are changing the way we conduct foreign trade, making processes more inclusive and efficient. To stay in the market, it is needed to keep up with these new technologies and trends.
Globalization, transport and communication advancements make technologies and know-how cross borders much faster, increasing the growth and innovation potential of many emerging market companies. According to the International Monetary Fund, “between 2004 and 14, the knowledge flows of technology leaders may have generated, for an average sector of the country, about 0.7% of labor productivity growth per year. This is about 40% of the average productivity growth observed between 2004 and 2014.”
Cryptocurrency and the financial decentralization proposed by blockchain will definitely change the way foreign trade happens, as people begin to include this technology in their daily lives. Since it has no central authority, the blockchain is a democratic and transparent system. Learn more about blockchain in our blog.
The chain is maintained by the so-called miners. By constantly watching what happens and what is updated on the system, each of them are able to identify and report malware or fraud, making them responsible for each other’s actions. The network can be accessed anywhere on the globe and every information added is copied as in a chain reaction so that it can no longer be edited. All of this global transaction management, tracking, compliance and non editable truth capabilities will surely change the financial transactions as we know.
Artificial Intelligence and Machine Learning
AI will be able to manage vessel and truck traffic at ports, track shipping worldwide, translate ecommerce search queries from one language to another, and respond with translated inventory, for example; The possibilities are endless. In short, this technology will streamline and optimize shipping routes and the entire system will be less prominent to error.
3D printers can print any kind of thing using three-dimensional printing technology. When it was created, about 10 years ago, to acquire the technology, it was necessary to spend around 30 thousand dollars. In 2009 it could already be found for five thousand dollars and, today, it is possible to purchase a simple traditional model for less than R$700. This popularization allowed the purchase not only for industrial production, but also for personal use.
There is still a lot of debate regarding the real impact 3D printing will have in international trade. Maybe in the short term, the impact would be close to none, since the reality of mass manufacturing is rather complex. But in a few decades, when 3D printing becomes cheap, faster its mass adoption would decrease 25% in the global trade according to studies.
An increasing number of people worldwide is using mobile payments systems such as Alipay in their daily life. World Bank Global Inclusion Database affirms that the access to bank accounts increased by 20% between 2011 and 2014 thanks to mobile phones, especially in emerging economies. Soon enough, companies will start using these systems for their international purchases as well.
We can also mention technologies such as Optical Character Recognition (OCR), used to read container numbers, Radio Frequency Identification (RFID) and QR codes to identify and trace shipments in the improvement of reliability and efficiency of global trade. From basic digitization of trade documents to the technologies cited above will make the opportunities of innovation in international trade endless and many challenges will be overcome.
These innovations will most likely develop faster than the regulations for the industry. In terms of agreements and regulations, the International Chamber of Commerce have been keeping an eye on the changes to adjust Incoterms for example, but industries and governments also need to start accepting the big impact of technology and start thinking about options to regulate this market. Some national governments are already responding to this transformations, working on increasing the benefits and to mitigate adverse effects.
“As with every technology and solution, there will be bad actors who deliberately try to cheat or find some way to circumvent the system. Governments need to reward individuals and companies that participate and use the systems as intended and, conversely, need to react swiftly and harshly to those that seek to circumvent the system.” says David Mounts to Forbes.
The World Trade Report 2018 also points out to some downsides of the technology on world commerce. As said in the report: “while technological advance and trade-opening continue to yield enormous benefits for economies overall, they can also adversely affect specific groups and regions – a problem which a number of countries are currently struggling to address”.
To keep on improving the purchasing professional’s career in the Digital Era, it becomes essential to develop some fundamental skills and always increase the knowledge regarding innovations. So you are always up to date with the latests trends, on the Soluparts blog we bring valuable information about the impacts of main new technologies on the supply chain and tips to keep your career development on the right track. Here are some articles:
On September 20, 2019, the International Chamber of Commerce, ICC, published the latest Incoterms update.
The International Chamber of Commerce has been publishing Incoterms rules for over 80 years, reviewing them every 10 years to keep up with new market technologies and innovations, to better represent new business practices, facilitating and making negotiations more accessible.
Incoterms, known worldwide and translated into 30 languages, define the responsibilities of the exporter and importer at each stage of the import / export process, transferring the ownership of the material.
They provide importers, exporters, attorneys, carriers, insurers and students from the international arena with rules and guidelines that reflect the latest developments in the business environment, aligning different levels of insurance coverage, including transportation arrangements, such as modal, safety-related requirements, transportation obligations and costs, among other points.
According to ICC Secretary General John W.H. Denton:
The Incoterms 2020 rules make business work for everyone, facilitating trillions of dollars in global trade annually. Because they help importers and exporters around the world understand their responsibilities and avoid costly misunderstandings, the rules form the language of international sales transactions and help build trust in our valuable global trading system.
The updated Incoterms 2020 list contains the rules for 11 Incoterms. They have already been published and will be effective on January 1, 2020. Therefore, their use is suggested from that date. If importers / exporters wish to consider the Incoterms 2010, this should be added to the documents (eg EXW Incoterm 2010)
Here is the updated list:
1- EXW – Ex Works – At the source, at the given location. It represents the minimum obligation for the exporter.
2- FCA – Free Carrier – Free at the carrier at the specified place of delivery. It is now accepted for sea transportation provided it is in container. In addition, BL will now be released on board and terminal shipping will be accepted.
3- FAS – Free Alongside Ship – Free by the ship at the specified port of embarkation. Incoterm used for loose cargo, ie it is not required to be in a container.
4- FOB – Free On Board – Free On Board at the given port of embarkation. It can also be used in cabotage.
5- CPT – Carriage Paid To – Transportation Paid To Destination
6- CIP – Carriage And Insurance Paid To – Paid transportation and insurance to specified destination. It is now possible to negotiate insurance. In the incoterms of 2010, insurance was 10% of the value of the merchandise, now it can be any value, 20%, 45%, 60,%, and so on.
7- CFR – Cost And Freight – Cost and freight at the designated port of destination. Commonly referred to as FOB + Freight and can only be used for sea and cabotage shipments.
8- CIF – Cost Insurance And Freight – Cost, insurance and freight at the designated port of destination. Like insurance, freight cost can now be negotiated, not exempting the exporter from providing it, which remains mandatory. .
9- DAP – Delivered At Place – Delivered to the given destination location. Exporter fulfills the obligation to deliver the unloaded goods to the place of destination.
10- DPU – Delivered At Place Unloaded – Delivered to the specified destination landing location. It forces the exporter to unload cargo at the importer’s destination.
11- DDP – Delivered Duty Paid – Delivered duty paid at the specified destination. Unloading can be negotiated, which does not guarantee that it will be accepted, but the goods must be cleared for importation at the designated place.
Do you know what the best strategies have in common, other than absolute success?
Some researches show that more than half of the companies consider themselves more successful just because they keep a closer look on performance indicators. And those companies are not wrong!
Basically, keeping a closer eye on performance indicators is the best way to determine the results of your strategy – which decisions were right, which were not, how much money was saved or lost in the process… It’s all about the data!
Within a company, every department has its own indicators, which display the quality and efficiency of the work. Which indicators are used to measure the performance of your department in your company?
Here, we like to use KPIs!
Key Performance Indicators
Key Performance Indicators (KPI’s) are a group of parameters used to evaluate the performance of different areas of an organization. This type of management emerged in the early 90s, and is now considered the best way to keep up with the most important metrics in each sector of any business.
KPIs are relevant not only because they allow measurement and performance evaluation in each department, but also and mainly because they make it easier for the manager to see where are the rights and wrongs, and which areas need more investment and attention.
KPIs in the Purchasing Department
The purchasing department is one of the most important in any business, be it large or small. This sector is responsible for mediating the company’s relationship with suppliers: from the choice of best supplier at the best price and quality required, to the control of performance standards, without an effective management the purchasing department is left disorganized and can be accountable for large losses – and even the bankruptcy of the company.
To measure up the performance of the purchasing department, KPIs cannot be forgotten! Let’s go through the 7 most essential KPIs to keep up with the purchasing department:
This KPI measures how well the purchasing department is when it comes to finding what the organization needs when it needs it.
How to measure: Number of on time deliveries / Total number of deliveries per supplier
Important: the company should not penalize a supplier for missing delivery dates if the lead time required by the supplier is not complied by the company or a change was requested at the purchase order. These two situations need to be taken into consideration when calculating this metric.
#2. Cycle time
It’s the average amount of time spent between the moment when the requisition from another department is submitted and the placement of the purchase order. In other words, the time the purchasing department takes to fulfill the needs of the organization.
How to measure: Moment of purchase order placement – Moment of requisition submission
This metric is usually measured in day and it excludes the supplier lead time.
#3. Supplier lead time
It’s the average amount of time spent from the moment of the order placement until the delivery.
How to measure: Moment of delivery – Moment of order
This metric is also measured in days and must be measured per supplier. It relates directly to the Delivery KPI.
It’s important to keep track of the quality standards, which means knowing exactly if the goods purchased fulfill the needs of the company. If they do, great. If not, a change of supplier may be necessary – read here about compliance in the purchasing department.
How to measure: Amount of rejected items / Total amount of items ordered
This metric is usually calculated on a monthly basis.
If the percentage is too high, an analysis must be held to determine why the items are being rejected – if it’s due to problems with the supplier, with the purchasing orders or something else. To improve your purchasing department’s strategy read our article about Strategic Sourcing.
#5. Inventory risk
The obsolescence of goods is a real problem for companies that make large purchases. Over time, the entire inventory can become obsolete, and the money spent to buy and maintain them goes down the drain – read here the applications of the Opex and Capex concepts, considering the 4.0 Industry era.
How to measure: Amount of money lost due to obsolescence / Total worth of the inventory
This metric is usually measured on a monthly basis, but could also be by trimester or semester.
Soluparts can help you find obsolete spare parts: send us a request for quotation.
#6. Employee Learning
This metric should be used more by all companies, big and small. Here, the purchasing manager must verify if the personnel are striving to deliver more quality and efficiency at work.
Keep tabs on the number of purchasing employees with certifications that improve their performance on the job. The certifications can be college degrees, participation in lectures, specializations, MBAs, etc. The more they search for knowledge and improvement, the better for the company – check out 3 essential skills for purchasing professionals to stand out in the digital age.
This is a very good way to find out if the team feels motivated and driven, and also to reward the employees who show the biggest efforts of improvement. Finally, it’s an easy way to realize the need to provide training to the team.
Here, we are looking at 3 metrics.
Number one is the Cost Avoidance, that helps the purchasing team find the lowest price for the same good among suppliers.
Here’s how you calculate it: Actual Purchasing Price – Lowest Price Quoted
Number two, Cost Saving. This indicator differs from the latter as it shows how much the department has been able to save when buying the same good, from the same supplier, for the second time, for a lower price. It demonstrates how well the department is at negotiating.
It can be calculated as: Actual Purchasing Price – Last Price Paid
Last, but not least, is the well-known ROI, Return Over Investment. It shows if investments were made wisely, if the return is positive. If it’s negative, it means that something went wrong in the process, and the company is losing money – See here the best way of comparing quotation.
ROI = (Cost Saving + Cost Avoidance) / Cost of Purchasing Operation
These 7 are just examples of KPIs that you should follow in your company!
By keeping up with these indicators, your purchasing team will be able to better understand the purchasing habits of the company, the performance of suppliers and if the procedures are working as they are supposed to. This way, it becomes easier to make changes in staff, reallocate investments, and, in short, assess the issues and find the appropriate solutions.
Other than analyzing KPIs do you keep up with the new technologies for the purchasing department? We have some articles in this regards you will enjoy reading:
Soluparts – a global company with offices in Brazil, Germany, Portugal, Hong Kong and the United States – can connect you to the most relevant manufacturers around the world.
We specialize in purchasing all types of industrial materials and have access to thousands of products and suppliers from around the world – Send us a request for quotation.