The purchasing sector in the industry 4.0
For some time now, companies have been investing in creating a purchasing industry that uses resources such as automation technology and cloud computing for greater efficiency.
But has this area reached the level of maturity necessary to benefit from the transformation that is within the reach of purchasing in Industry 4.0? That’s what we’ll see next.
Digital maturity of the purchasing sector
In a recent study, Forrester Consult interviewed 417 purchasing leaders from North America and Europe to identify the degree of digital maturity in the area, noting that 65% of organizations said they were at an advanced stage in this regard.
However, the same survey showed that they are further away from a 4.0 Purchasing sector than they had imagined, with only 16% of companies at an advanced level of maturity – meaning they make intelligent use of the technological innovation available and are programmed to keep up with all the evolution that technological resources will bring in the coming years.
Another highlight of this study concerns the poor technological choices that companies have made. The result is that 82% of them have changed (or are thinking of changing) their digital provider, mainly due to the lack of integration between the implemented solutions (30%) and the difficulty of use of the tools by users (27%).
The conclusion of the researchers is that the vast majority of the companies interviewed still adopt a digital approach that simplifies processes and improves the efficiency of the purchasing sector, but this is not close to the transformation provided by Purchasing 4.0.
And the first step in this direction is up to the purchasing manager: to realistically assess the digital maturity in which the sector currently finds itself and, together with the Information Technology department, to outline the best strategy towards a planned and continuous transformation journey that will provide real competitive advantage for the company.
Organizations that do not adopt a smart approach to purchasing will risk losing space to the competition with digital knowledge, since the current business environment is one of extremely rapid change.
The Purchasing Team in Industry 4.0
Purchasing managers are still reticent about implementing new technologies, such as Artificial Intelligence, Robotic Automation or Blockchain in the industry routine.
This is the conclusion of a survey conducted by Deloitte – an American business consulting firm based in several countries around the world, including Brazil – pointing out that 51% of the managers interviewed are hesitant because they understand that their teams do not yet have enough resources to execute a digital purchasing strategy.
It is clear, therefore, that Purchasing 4.0 managers need to find new talent and also prepare the employees already hired, forming a multifunctional team with training to face the digital transformation.
Another essential factor to obtain the best possible performance from the purchasing team is to establish metrics that make it possible to evaluate all the collective and individual work. This analysis will allow us to know the team’s weak and strong points, investing in improvement actions.
And, of course, we must not forget that the purchasing manager himself must adapt to the new times, acquiring fundamental skills for the digital era.
Using modern tools correctly, the area will be able to capture, analyze and act from updated data in real time, creating agile connections with the entire organization, optimizing processes and increasing purchasing efficiency.
Purchasing 4.0 raises the sector’s value proposition
According to the German Henrik von Scheel, creator of the expression and fundamentals of Industry 4.0, we entered the second wave of Industry 4.0, characterized by the connection between advanced technologies and the use that humans can make of them, aiming at the improvement of organizational processes.
The purchasing sector has the opportunity to take advantage of this phase to increase its value proposition within the company, uniting its strategic knowledge about the market and its wide experience in purchasing with the opportunities brought by technological transformation.
This is the case, for example, with the use of bots. Considered a kind of assistant with Artificial Intelligence, it can provide updated information on purchasing processes and also generate automated demand. Through sensors placed in the stocked materials (making use of systems based on intelligence of things, IoT), the bot can identify the decrease in the stock of products and issue, autonomously, the purchase order before the item finishes and interferes in the organizational routine.
One of the great advantages of bots is that they can be implemented quickly, with little change in the process already used. That doesn’t eliminate the need for constant monitoring, by a properly trained professional, to ensure control over the resource – IT specialists recommend that the monitoring takes place on a daily basis, to ensure that the bots are running, and that there is a deeper performance assessment, on a monthly basis and whenever system changes occur.
Bots are already a reality in organizations, providing vendor management, purchase order creation, order and payment processing. But there is much to explore in this resource, and it is important that organizations reflect on operational details and impacts before the bots are deployed in the area.
In our blog, we’ve already covered other technologies that are influencing purchasing in Industry 4.0. Therefore, to complement your knowledge on the subject, we recommend reading from:
4 technologies that will change global trade
Soluparts can also collaborate for greater efficiency in the purchasing area, offering benefits such as better prices and agility to its customers. Get to know Soluparts differentials and values and take the opportunity to quote with our experts.
4 challenges of an international operation
The department of purchases of indirect materials from foreign sources faces extra challenges on a daily basis due to the complexity that the international origin of products brings. In addition to the activities inherent in purchasing, it is necessary to pay attention to several other issues that directly influence the success of operations.
As increasingly connected global markets are becoming more accessible due to new technologies and business digitization, some challenges involved in doing business internationally continue to deserve attention.
In today’s article, we’re going to talk about the main challenges you need to address.
1. Different languages and cultures
The level of complexity of international purchasing operations scales as it is necessary to do business in other languages with people from different countries around the world. Good communication is the central part when closing a good purchase, and language barriers increase the risk of errors related to:
- Form of payment
- Necessary material
Trading is not an easy skill to develop. In addition to mastering techniques, practice is required. This task becomes more challenging when this requires to be done in foreign languages and in the case of the purchasing department, it may be necessary to deal with different languages on the same day.
Clear and effective communication is essential for successful international operations.
This communication even involves small practical considerations that can easily go unnoticed, such as translations of nomenclatures or product descriptions in quote requests.
So far we have talked about the verbal language involved in a negotiation, but more important than that is the non-verbal language. It is critical to pay attention to the nuances that different cultural habits bring to the negotiation.
Culture consists of traditions and social norms followed by a specific group of people. But issues that sometimes go unnoticed such as response time, cordiality, organization, and protocols are some of the points that can shake international relationships if the cultural factor is not observed.
Success in dealing with other nationalities requires an open mind and international experience capable of bringing a deep knowledge of other cultures, mainly related to norms and values.
Being aware of acceptable commercial etiquette abroad and how things like religious and cultural traditions can influence business will help in resolving potential communication issues in international business.
In addition, demonstrating that you’ve taken the time to understand the trading partner’s culture can project the respect and emotional intelligence needed to successfully conduct business.
2. Exchange rates and inflation
When buying materials in other countries, when negotiating the price, pay attention to the currency traded and the behavior of its exchange rate in relation to the original currency of the country where your company is located.
Exchange rates must be monitored at all times, as large fluctuations can affect expenses and profits. Companies to avoid such situations can make a sale and pay the cost in the same currencies to balance the expense and income rate. The timing of payment must be taken into account.
It is also important to monitor inflation rates, which are the rates at which general price levels in an economy increase from year to year, expressed as a percentage. Inflation rates vary between countries and can affect material costs.
3. Politics, laws, and crises
When making a purchase in another country, it is necessary to be aware of the political scenario and cargo export laws. It is necessary to observe if the country is going through any political, conflict or economic crisis that could cause problems for the shipment of your product.
Changes in governments can bring about changes in policies, regulations, and interest rates that can be detrimental to business. Issues such as poorly defined or unstable policies and corrupt practices can also be extremely problematic for a deal.
A buyer’s great skill is to be able to analyze the international scenario and understand the risks involved in a particular purchase to mitigate risks and proactively find solutions.
It is also important to observe the bilateral relationship between the country of origin of the part and the country where its plant or factory is located. Will the logistical team face problems when bringing the part? Will you need extra documents, will you pay different fees or higher taxes?
Managing international supply chains is no easy task. It is essential to have a risk-management strategy that considers the volatile global scenario so that responses to crises are quick, not interrupting or causing major losses to operations.
Most countries have some type of tariff or fee charged to companies that bring goods into their countries. You need to know about these fees, so you can incorporate them into the financial planning element of your globalization plans.
Also remember the legal side: you may have to pay different types of fees depending on the transport and logistics laws in force in that particular country.
Each country charges customs duties on imports to protect its domestic industries. Likewise, tariffs are applied to exports of raw materials. Importers and exporters have to face tariff restrictions.
They are required to comply with various customs, formalities and rules. Foreign trade policy, procedures, rules, and regulations differ from country to country and continue to change from time to time.
A practical solution
The challenges discussed in this text can be facilitated with the existence of a partner company that has great knowledge of purchasing in the international market. Soluparts, for example, has a multicultural team, capable of negotiating in several languages, achieving the best prices, payment terms and delivery.
The high volume of logistical operations that we coordinate gives us full knowledge of global political situations, bilateral agreements, international crises, making it possible for us to fully support our clients’ logistics department.
We also facilitate the transit of materials through the possibility of consolidating cargo in our five warehouses located in the most strategic markets in the world, to facilitate shipments, documentation and contribute to your logistical operation.
We also offer annual contracts that freeze the prices of listed parts for one year, giving our customers more control over their expenses and less risk of exceeding their department’s budget.
To find out more about our services and how we can help you overcome the challenges of international shopping, please contact us.
Corporate cyber-resilience in the purchasing department
Cybersecurity is an increasingly recurrent agenda within companies, especially in relation to indirect material purchasing departments, since the complexity of the corporate environment provides the emergence of gaps for new and complex fraud risks.
Here we highlight the indirect material purchasing departments, but it is important for the entire company. But why is cybersecurity so important to a company?
The main purpose of cybersecurity is to protect data. Hackers around the world may plan to obtain confidential information for illegal activities, such as setting up fake online accounts to purchase products. Cyber criminals direct their attention to companies due to their large amount of important and sensitive data.
Considered a protection for the information that is processed, stored and transported in interconnected business systems, security in the virtual space is essential for the business when it comes to blocking digital threats.
When it comes to corporate cybersecurity, we can highlight two distinct scenarios:
- The first is the fact that organizations take on fraud protection on occasion.
- The second shows that there is a contradiction between what executives responsible for security in large companies believe can happen (or not) in relation to security risks and what actually happens in practice.
There is a contradiction between the understanding reported by the executives interviewed for a survey conducted by Gartner Research and the reality of the attacks suffered by organizations, which demonstrates that there are still many problems related to the subject in the corporate environment.
The so-called cyber risks (cybernetic or virtual risks) are growing more and more and companies and organizations around the world must accompany this growth, being prepared for such.
Cyber-resilience cannot be achieved if the company only protects itself; it should ensure that all organizations connected to the company comply with the necessary standards.
Organizations should also exchange knowledge and experiences, share information about common threats, dialogue with governments to facilitate the adoption of standards and expand cooperation between organizations. All of this requires cyber leaders to engage in such dialogues and connect technology experts with business and government representatives.
The Three Pillars of Global Cyber Resilience
Promoting cyber awareness
The first pillar requires leaders to explain why cybersecurity is important, how to implement a risk-containment strategy in each organization, as well as basic cyber hygiene rules.
Cyber hygiene is a term that refers to best practices and other activities that computer system administrators and users can perform to continuously improve digital security while participating in online activities, such as web browsing, sending emails, text messages, etc.
The second pillar implies that the necessary cybersecurity norms and rules must be implemented in companies, sectors, and countries.
Many business leaders who have not yet experienced a devastating attack probably don’t believe it can happen to them. They see no value in investing in this sector.
However, in many cases, these leaders don’t evaluate all the losses and long-term consequences that a cyberattack can cause. And, most importantly, they don’t take into account the risks they might pose to other organizations they are working with or otherwise related to.
Appropriate standards and compliance rules at the industry and government levels are needed to meet this challenge, and cyber leaders need to participate in the creation and implementation of these regulations.
The third and most important pillar is cooperation. Cybercriminals collaborate with each other and share information and insights to launch massive and devastating attacks. Collaboration allows them to stay one step ahead.
Organizations around the world need to exchange data on incidents and threats, work together on international action, and not let geopolitical turmoil stop this process.
Applying the concept of cyber-resilience in the purchasing department
The purchasing department is extremely connected to other companies and supply chain agents located around the world. This interconnection and use of software end up leaving this area even more vulnerable to hacker attacks, and can be a gateway for them to have access to sensitive information from other departments of the organization.
This complex context in which the purchasing department is inserted makes it a protagonist in cybersecurity strategies. Based on the pillars explained above, we can define four actions to protect the sector.
Adopt a cybersecurity mindset
Any computer can serve as hacker access to the organization’s systems. Therefore, it is necessary for the entire team to have a vigilant eye for software failures and errors to alert the responsible departments before the problem becomes large and can have a major impact on operations.
It is important for the team to participate in training on the subject so that everyone understands what to pay attention to. In these preparatory trainings, show the team the importance of the cooperation pillar of cyber-resilience. Communication between the team is necessary for attacks to be fought together and for information to be shared about the types of threats and their identification.
The establishment of constant and close communication with the Information Technology departments is also fundamental for the efficiency and speed of responses to attacks.
Map cyberattacks into risk management strategy
The department’s strategic risk management plan must map out the possible attacks that the sector could suffer and instructions on how to respond to each one of them.
Benchmark with partner companies and seek to understand the type of attacks they have suffered and how they protect themselves or solve the problem. Understand the technological resources and skills of the technical teams needed to draw up action plans for each scenario.
Do this same job with vendors. Remind them that systems throughout the supply chain are connected, and attacking one link can have serious consequences for everyone.
Establish defense protocols
As internal studies of cyberattacks are carried out — combined with team training and external benchmarking — you should document findings and develop protocols and checklists of what to do in each type of situation. This knowledge management will make attacks more easily countered by everyone on the team, should they happen again.
Have reliable partners
When choosing a vendor or new partner, remember to check their compliance documents and understand how they manage cyber risk and if there are cybersecurity protocols.
Be part of the change
In an increasingly fast, complex, interconnected world that demands more and more transparency from organizations, it is not possible to continue operations without the team having a corporate cyber-resilience mentality and being trained to fight possible attacks.
As we’ve talked about in our blog on other occasions, to be a successful professional, technical skills and emotional intelligence are not enough today, since it is extremely important to have holistic knowledge about the network connections of supply chains, and the technology that is associated with them.
Paying attention to new market trends — especially the challenges faced by other companies, from other countries and markets — is essential for the development of each professional and the purchasing department as a whole.
To help you on this journey, the Soluparts blog always brings updates on the latest trends, technologies, and techniques in the market, so you don’t miss out on anything. Subscribe to our newsletter and receive our articles in your email monthly.
Top 5 Criteria for Choosing Suppliers
Dealing with suppliers involves several steps. Once you’ve identified what your company needs when receiving the purchase order, it’s time to assess the potential suppliers and choose the best one is a complex process.The biggest mistake you can make is choosing a supplier without fully analyzing all the necessary criteria. Fortunately, there are a few key points that can help you make your decision more easily.
First: Know your demand very well
The first step in supplier mapping is to fully understand each demand directed to the purchasing department, especially with regard to quantities and delivery deadlines that need to be met.
With this information in hand, you can better align your demand with the service each provider offers, and then choose the one that best suits your needs and conditions.
In addition, it becomes possible to identify probable errors that may occur in the delivery of products, such as differences in quantity or accessories that need or do not accompany the part, for example. In this way, you can proactively prevent this from happening.
1. Price and conditions
Perhaps the price and payment terms are the factors that weigh most when choosing a supplier, especially considering that the cost in question must fit the budget and be in line with the planning of the area.
Suppliers must offer a fair price for the product, but it is good practice to always negotiate. It is worth considering that low price does not always mean low quality, just as a high price does not necessarily indicate a high level of quality.
Carefully review the submitted quote identifying what makes up your price, such as included parts, packaging and selected Incoterm, and see if the final value really makes sense.
Beware of budgets far above or far below what the market usually offers. High prices may be just the beginning of the negotiation, with a margin for it to be reduced to an acceptable level, while very low prices may hide contractual obligations.
A good way to analyze the product price is to calculate the Purchase Price Variance (PPV). It refers to the difference between the actual price of the purchased product and its standard price, always related to the number of units purchased. This is one of the main indicators used to measure the variation in the price of goods and services purchased in a given period of time.
Remember to check the quote’s expiration date, because the price you see today may not be the same 3 weeks from now, and if you need to make the purchase next month, this quote may no longer be valid, so it’s necessary to resubmit the quote requests. Unless an annual contract is signed or that a term is established for that amount.
To maintain a good relationship with suppliers, it is important to establish deadlines that can be met, making sure that the part will be in your factory, or warehouse, before it is needed for production.
Try to find out if the supplier has a history of unforeseen events that have caused delays in delivery, such as accidents or frequent transport problems, for example. Once again, it is worth checking the delivery options and Incoterms that each supplier offers. In addition to making a huge difference in the final price, different types of transport require different deadlines, and you should be prepared for that.
Nowadays, the priority of purchasing departments is not exclusively cost reduction, it is necessary to generate value at all stages of the supply chain, including the choice of supplier.
Only associate with companies that work with visions and values similar to those of your company and that, in some way, can also enrich your production in an intangible way. An analysis criterion relates to the sustainability of the supplier’s production in question, does it have environmental awareness and environmental protection programs, for example?
Make sure your supplier is trustworthy. Check the company’s legal and economic status and documents related to compliance and code of ethics before entering into a partnership.
Especially in the digital age, in which the consumer demands more and more transparency regarding the origins of direct and indirect materials, the reputation of its supplier can be decisive in the final customer’s purchase decision. As we said in the topic of values, it is important to partner with good companies, which can enrich not only your business, but also your image.
In uncertain times like the one we live in, it is worth asking if the supplier has risk management plans in case of crises and recessions in the world economy.
Also, make sure the supplier is accessible and has a customer relationship service. This is especially important if a problem occurs, and you need their help to resolve it.
To ensure you’re not being taken in by empty promises, deepen your research by consulting sources beyond the corporate website and look for other supplier customers before closing the deal. Research providers’ social media profiles, analyzing how they handle criticism and complaints, as well as whether there is any effort to maintain a good public image.
Develop a sourcing plan
Technological transformation has revolutionized the routine of all sectors, including purchasing. There are options that allow you to constantly monitor the performance of each supplier, calculate risks and possible delays, generate reports, compare conditions and much more!
It is essential to have the entire purchasing movement very well organized, with information such as the status of each demand, supplier responsible for each order, terms, and conditions of delivery, among others, organized in an easy-to-view panel.
To do this, use technological solutions that allow you to follow each step of the process. But before adopting any technology, it is necessary to study the cost and feasibility of each solution so as not to fall into the herd effect. Also ensure that your entire team has been trained to deal with the new solutions, being able to extract as much information as possible.
Be sure to adjust the schedule whenever necessary. Take into account changes and/or additions to the order and any other situations that may delay a delivery.
By facilitating the relationship with suppliers, you enable a better exchange of information between the parties, so that improvements can be implemented without too much complication and with mutual benefits.
Another way to ensure good service provision with suppliers is to trust a company that works daily for the satisfaction of its customers in all areas. If you haven’t tried our services yet, send us your international spare parts quote request today!
5 ways the purchasing department can optimize the supply chain
As a buyer of indirect materials from large industries, the idea of optimizing a supply chain from start to finish may seem a little intangible, as all its integrated steps require the work and strategic vision of various areas. However, there are some actions that can be implemented in the purchasing department, so that process optimization is achieved. We have listed below some key points that should be noted to better manage your supply chain.
1. Promote integration
Intrinsic to the supply chain is the mutual dependence between its phases so that it can be successfully executed, with one of the biggest concerns with supply chain management being the lack of communication between the stages. It is true that the technology available today can facilitate this process, but the key to good chain management remains integration.
A supply chain management model should include ways to provide more information exchange between different stages and areas so that all perform better.
In the midst of the Digital Revolution, the best way to do this is by using integrated management software for sensors and other devices, so that data captured and transmitted in real time can be quickly distributed and processed in order to generate valuable information about possible risks, even before they happen, and projections of better solutions.
Having real-time information helps you to have a holistic view of the entire chain and the ability to act to remedy failures and leverage what is already good. For this to be possible, it is also necessary to have dashboards with key performance indicators (KPIs) and to monitor them closely, questioning and analyzing them.
To make better use of the annual budget and avoid delays in parts delivery, planning, linked to risk management designed to work in the current VUCA scenario, is essential. It is with well-structured and contextualized planning that it is possible to adapt and rethink processes.
Planning forecasts the demands for a given period based on the department’s purchase history. To forecast demand for December, go back a year, analyze the data, apply the growth or decrease comparisons, and you will have the expectation for the month.
In the same sense, it is essential to understand what is in stock, what needs to be replaced and in what quantity, to avoid deterioration of parts and subsequent waste. There are countless variables that affect the final cost of production. One of them is inventory control, which, if done well, can avoid high maintenance costs, excess purchases and higher personnel expenses than necessary.
When considering the company’s stock needs, the purchasing sector acts preventively, making purchases before the demand arises, based on some usage forecasts. In this way, urgent purchases are reduced, giving space to negotiate lower prices.
3. Be aligned
Establishing protocols and proper training of employees significantly reduces the chances of errors in submitting the purchase requisition. The requisition data is essential to proceed with the search for the ideal supplier and decide for the purchase, poorly computed or wrong information can lead to unnecessary purchases.
It is interesting to invest in ways to automate this stage of the purchasing cycle, reducing paperwork and making the activity of submitting an order more streamlined and simplified.
4. Strategic choice of suppliers
Always try to maintain a close relationship with your suppliers, as well as being transparent about your company’s needs and expectations, so that deliveries can match your standards and priorities for each purchase, whether price, delivery, or payment term.
In the event of unforeseen circumstances, it’s easier to resolve a problem with a partner you know well than to deal with someone you don’t know what to expect.
When selecting suppliers, it is a good tip to have a history of relationships with them and observe the performance of those who already have active service contracts. Knowing if they respond promptly to emails or delay deliveries are examples of key points so that your choice will not bring problems in the future.
Soluparts, based on its entire history of relationship with suppliers, has a ranking with the best in the market so that our customers do not have any problems with their purchases of indirect materials.
After checking the internal system and having established the need for a new supplier, it is important to analyze, in addition to their prices, support, and payment and delivery conditions, their reputation, and commitments to ethics and sustainability.
The assertive choice of the supplier increases the value of your supply chain, even reaching competitive advantages.
5. Have a suitable partner
A purchasing department in a large company handles hundreds of purchase requisitions per week for different types of goods.
To facilitate and speed up quotations, the suggestion is to partner with a company connected with the best suppliers around the world, capable of finding the best prices and conditions to meet your needs. This way, you can concentrate multiple orders in one place, making the process more organized.
Closing partnerships with this type of company is very valuable for your business, as it reduces the workload of the purchasing department, streamlines routines and allows the process to be conducted in a more coordinated manner, being an example of a win-win situation!
In addition, by optimizing routines, the team has more time to deal with other procedures, such as better organization of procedures, metrics, innovations, analysis and forecasts, which have a direct impact on the control of deliveries and deadlines for each supplier.
Why is the purchasing sector so strategic?
In an increasingly competitive world, companies need to act strategically, maximizing activities that directly affect productivity and business profitability. Each action is placed under a microscope to assess its viability and the return it can bring.
When it comes to cutting costs and reducing expenses, the effective management of the purchasing department, linked to the use of new technologies, can guarantee very positive results, whether by guaranteeing the best prices in the purchasing process or by improving the performance of the sector.
In addition, lower purchase prices directly impact the final price of the product, increasing the company’s competitive advantages. Therefore, the evaluation and negotiation strategy with suppliers must be in line with the organization’s objectives, so that it is possible to project profit margins and establish attainable goals.
Keep in mind that Soluparts is entirely at your disposal to get the best prices on purchases of spare parts of international origin. Learn more about our company and send us your request for a quote.
5 steps to improve your relationship with your suppliers
Finding a good supplier is no easy task. Even if the choice was judicious and the first services had good results, the performance may drop over time. This may be because the relationship with suppliers is not being conducted in the best possible way.To ensure a lasting relationship with its suppliers, as well as maintaining quality standards, it is essential to pay attention to some critical points.
1. Respect the purchase order
If a delivery is disrupted by sudden changes to the order, it is not the supplier’s fault. This type of change can cause strain on the relationship, so leave changes to be made only in times of extreme need.
Check and review the order and delivery schedule as often as necessary, align all the points and try to stick to what was agreed. Follow each step of the process closely, showing concern but not distrust. Trust the work of the supplier you’ve chosen.
2. Encourage communication
It is important to establish a strong communication link with suppliers from day one. Define which channels they should contact you in case of problems, changes, unforeseen events, doubts, among others, and be attentive to respond to these requests.
In addition to keeping in touch with current suppliers to monitor the progress of orders, it’s also worth trying to stay on the radar of older ones, who don’t currently have active contracts. After all, you never know when you might need their services.
Share with your providers a little about your internal processes. You can invite them to get to know the operation up close on a visit to your company, for example. This way, they can adapt some steps of your process to facilitate integration with your operation.
3. Automate your processes
Automating processes means adopting tools that facilitate and optimize the organization and consultation of the most important data for each order, transforming them into predictive information capable of optimizing your processes and reducing costs.
There are also numerous management software options, which allow you to view all suppliers, their activities, analyze the performance of each one and even predict risks.
4. Offer constant feedbacks
Conduct assessments and monitor your suppliers’ performance constantly, letting them know your reports and insights. This way, they can better understand what their experience was like as a customer and how they can improve service delivery.
Check out some criteria you need to follow and how best to assess each of them:
A very important quality criterion to keep track of is the quantity of items that are rejected in each delivery. This index says a lot about the supplier’s concern to ensure that deliveries are made in accordance with your purchase order.
To check this criterion, companies often measure quality in PPM, parts per million, by scaling how many PPMs were delivered damaged or rejected. The company must define an acceptable rate of quality problems for each type of delivery and use this standard to assess the performance of each supplier.
In addition to monitoring them, it is important to have these standards recorded and make them explicit at the time of hiring. Thus, it is clear that those who disrespect the quality standards can be penalized and even excluded from the list of service providers, depending on the extent of the situation.
Another group of criteria that must be evaluated are those related to the performance of deliveries. When closing a contract, the dates on which the products must be delivered are defined.
However, in general, companies establish a “standard deviation” from the exact agreed date, of about a day before and a day after, so that deliveries made on this margin are still considered correct. This deviation exists to anticipate possible complications in the delivery, which takes into account a margin of error for undelivered quantities, around 10% of the total order.
Keep a strict control of dates and quantities, safeguarding the acceptable margin of errors to absorb possible accidents, and assign grades to each supplier in these items. On a scale of 0 to 10, for example, a supplier would only score 10 if their deliveries perfectly matched the three requirements: deadline, conditions and adequate quantity.
Other evaluation criteria
It is also possible to assess the supplier’s performance through its posture in some negotiation fronts. Assess if it is open to reduce costs based on their proposals and make payment terms more flexible. This shows your desire to maintain a lasting relationship with your company.
5. Analyze the supplier performance
After evaluating the performance of your providers, assigning grades and making the necessary observations, it is important to analyze this data. For providers that provide the same type of service, it is even interesting to draw a comparison between assessments and observations.
For all of them, it is important to assess the feasibility of keeping them in the company’s framework. If any of them do not perform to expected standards, it is worth scheduling a meeting to review the terms of that partnership, and even consider canceling the contract.
These assessments are also a great way to analyze the functioning of the processes involved in your company’s supply management and find areas for improvement. In this way, the company gains not only by keeping the best suppliers, but also by constantly optimizing management processes and methods.
At Soluparts, we evaluate all our suppliers based on quality and performance criteria. Our evaluations and observations generate an internal ranking with the best suppliers in the international market. Thus, we are able to offer our customers a service with the highest quality! If you haven’t tried our services yet, request for quotation today!
How to choose the best Incoterm for your purchase order?
Greater success in the purchasing department is directly linked to a good knowledge of logistics, especially of Incoterms. As much as some companies focus on specifics for most of their purchase orders, having a good understanding of how all those available work can help speed delivery, reduce costs and, above all, contain risks.
It is true that the purchasing department, as part of the supply chain, has strong advice from logistics professionals, cargo agents, insurance companies, among others, but it is the buyer who negotiates and determines which Incoterm will be used in each purchase, and, therefore, what is the company’s responsibility for transporting the cargo and the total cost of acquiring the part, which includes transport and charges.
This complete cost calculation is possible through the “total cost of ownership” indicator, which we have already covered in our blog. It includes acquisition, financial transaction, opportunity, logistical, currency fluctuation, and trade regulation costs.
Cost reduction happens when, by mapping this total property value, it is possible to calculate values related to each charge, forecasting the expenses of each involved party, buyer and seller, and evaluating possible savings that can be made by choosing Incoterm.
In this mapping, consider possible loss costs, such as the recent accident involving the Ever Given. In this case, those responsible for the risks and triggering of the insurance are defined by Incoterm in the purchase order for each product on board the ship.
We propose a review of the most important points defined by Incoterms and that should be kept in mind during the negotiations of each purchase order. Incoterms:
- define the precise moment of the transfer of risk (loss and damage liability) between the seller and the buyer, as well as the transfer of additional costs and expenses.
- are limited to matters relating to the rights and obligations of the parties to a sales contract and the respective delivery of tangible goods.
- define when and where the merchandise will be available to the buyer.
- establish which of the parties must provide the international transport vehicle.
- define the functions of each of the parties related to contracting insurance (mandatory in some Incoterms), freight, obtaining shipping and export documentation.
- define the critical cost point, that is, the moment of transfer of expenses with transport, insurance, terminal cargo handling, customs duties, in other words, all the amounts necessary to proceed with the operation.
In order to discuss and clarify the main points to be considered by buyers when choosing the Incoterms for purchase orders, we invite Soluparts Logistics leader, Iara Lasmar Chaves, to talk a little about the subject:
The importance of Incoterms in international trade
According to data published by the Brazilian Federal Government through the Ministry of Economy, in 2020 Brazil’s trade balance had a surplus of US$ 50.9 billion. But what does this mean? Does it mean that Brazil exported more than it imported?
If we analyze it technically, yes. But what made the businesses so profitable? We know that it is not enough just to export and import, we need to see the situation in a more micro-analytical way.
Such an analysis begins on the terms that will permeate international contracts. Such terms are known worldwide as Incoterms. Incoterms were created by the ICC (International Chamber of Commerce) in 1936, as it was already understood that it was necessary to standardize and simplify international negotiations. In this way, 11 acronyms are formulated that are known as International Trade Terms. Review our article with the definition of each one by clicking here.
As the name implies, these are nomenclatures that will help determine the transition of responsibility between importers and exporters regarding international freight, insurance, fees and associated taxes.
By determination of the ICC, Incoterms are reviewed every 10 years. The last one we had and which is currently in effect is the 2020 one.
Incoterms are divided into four groups. Such groups are defined by the responsibilities of the parties. Make no mistake, Incoterms must always be viewed from the exporter’s perspective.
Group E (ex) – holds the least responsibility for the exporter;
Group F (free) – international transport is not the responsibility of the exporter;
Group C (carriage) – international transport is the responsibility of the exporter;
Group D (delivery) – holds the greatest responsibility for the exporter.
What to consider when choosing Incoterms
Every exporting/importing company must know what each term means. Choosing the ideal Incoterm for your business depends on the act of negotiating, in addition to prior knowledge.
Every purchase process is based on this same principle, and with Incoterms it is no different. So, negotiate! Remember that Incoterms were created as a means to facilitate trade, and not as an impediment to it. By negotiating, both parties have greater chances of leaving satisfied.
Therefore, we recommend knowing in depth the possibilities offered by each Incoterm to negotiate the one that is the most advantageous in terms of risk, responsibility and costs for your company. Keep in mind that liability for damages on the goods has a decisive influence on contracting an export operation.
Calculate shipping costs
In addition to the negotiation, it is important to understand all the adjacent costs of the Incoterm chosen to permeate the transaction. Assuming that in foreign trade, there are fees, costs and taxes that are inherent to import/export, guaranteeing the lowest price per product is not necessarily the best choice if, in the future, there will be a compromise of profit due to adjacent values not considered initially.
Check the credibility of the parties involved
Additionally, it is necessary to take into account that the purchasing and negotiation processes take place with companies that have a history of integrity, commitment and solid values. In this way, the risk for your company is reduced.
International trade agreements
Last but not least, Foreign Trade holds many opportunities linked to trade agreements between countries. This implies expansion of commercial partners, but also specific fees and costs for certain countries.
Government authorities can directly or indirectly influence decisions on which bases to export or import in order to obtain a positive balance in the trade balances of the countries involved. Therefore, entrepreneurs can be led to sell CIF and buy FOB, conditions that, despite implying greater responsibility, favor national insurance companies, for example
In this case, consulting a shipping specialist is the best option to avoid unwanted expenses at the end of the purchase process.
Conclusively, it is proposed to return to the statement that initiated and inspired the writing of this article. After the above, what is the role of your company in your country’s trade balance surplus?
Article written by Iara Lasmar Chaves, bachelor in International Relations, MBA in COMEX and International Negotiation.
By Iara Lasmar Chaves
Head of logistics at Soluparts
In order to help you choose the ideal Incoterm for your purchase orders, Soluparts has prepared a free infographic with the exact moment of transfer of responsibility and risk for the cargo between buyer and seller in each Incorterm.
We also point out the definitions and specificities of each term. To download this material that will make your routine easier, reduce your risks and save your time, click below: