Global Purchasing: Reaching for the World

VNR MATERIALS MANAGEMENT/LOGISTICS SERIES Eugene L. Magad, Series Editor

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by Leon Wm. Morse Global Purchasing: Reaching for the World by Victor Pooler Material Requirements of Manufacturing by Donald P. Smolik

Global Purchasing: Reaching for the World Victor H. Pooler C.P.M. Foreword by Harold Fearon, Ph.D., C.P.M.

~ SPRINGER SCIENCE+BUSINESS MEDIA, LLC

Copyright © 1992 by Springer Science+Business Media New York Originally published by Van Nostrand Reinhold in 1992

Library of Congress Catalog Card Number 91-38975

ISBN 978-1-4757-5337-0

All rights reserved. No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means-graphic, electronic, or mechanical, including photocopying, recording, taping, or information storage and retrieval systems-without written permission of the publisher.

16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 -1

Library of Congress Cataloging-in-Publication Data

Pooler, Victor H. Global purchasing: reaching for the world/Victor H. Pooler.

p. em. Includes bibliographical references and index.

ISBN 978-1-4757-5337-0 ISBN 978-1-4757-5335-6 (eBook) DOI 10.1007/978-1-4757-5335-6

1. Purchasing. 2. Foreign trade regulation I. Title. ll. Title: Global purchasing. HF5437.P63 1991 658.7'2-dc20 91-38975

CIP

To the memory of our beloved son, creator of this bookcover sketch, "Reaching for the World," and one of the finest persons who ever lived-

Thomas John Pooler 1959 to 1985

Contents

Foreword xiii

Preface xv

CHAPTER 1 Domestic Versus Offshore Sourcing: An Overview 1

INTERNATIONAL TRADE ENVIRONMENT 3

COUNTERTRADE BECOMES A REALITY 4

EMERGENCE OF THE GLOBAL CORPORATION 8

CHANGING PURCHASING ROLE 10

DISINCENTIVES-ROADBLOCKS TO OVERCOME 13

CHAPTER 2 Starting an Offshore Global Buying Program 17

STRATEGY #1. IMPLEMENTATION STEPS TO OFFSHORE SOURCING 18

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viii Contents

CASE mSTORY: SETTING A GLOBAL SUPPLIER SOURCING STRATEGY 29

CHAPTER 3 Set Your Global Sourcing Strategies 34

STRATEGY #2. USE PROCUREMENT PLANS STEMMING FROM COMPANY GOALS 35

STRATEGY #3. MAINTAIN A STRONG TOTAL QUALITY MANAGEMENT (TQM) SYSTEM 37

STRATEGY #4. COMPARE TOTAL LANDED COST OF ACQUISITION 39

STRATEGY #5. SEEK ASSURANCE OF SUPPLY 41

STRATEGY #6. STRIVE TO SOURCE THROUGH THE BEST BUYING CHANNEL 43

STRATEGY #7. USE AVAILABLE PURCHASING TECHNIQUES 47

STRATEGY #8. CONSIDER NEED FOR AN INTERNATIONAL BUYING OFFICE 48

CHAPTER 4 Negotiations Dealing with Foreign Cultures SO

HOW DO AMERICANS SEE THEMSELVES? 52

FOREIGNERS VIEWPOINT OF THE AMERICAN BUYER AS NEGOTIATOR 53

OFFSHORE NEGOTIATIONS AND TACTICS 59

PUT IT IN WRITING! 65

Contents ix

CHAPTER 5 Business Customs and Cultural Nuances 67

CULTURES OF THE ORIENT 68

CULTURES OF EUROPE 77

CULTURES OF THE AMERICAS 82

CHAPTER 6 Complying with u.s. and International Legalities 87

INTERNATIONAL SELLER AND BUYER'S OBLIGATIONS 88

UNIFORM COMMERCIAL CODE (UCC) 89

IMPORT CUSTOMS LAWS AND REGULATIONS 90

ANTITRUST LAWS AND TRADE ACTS 92

GLOBAL TRADE BARRIERS 96

FOREIGN CORRUPT PRACTICES ACT 99

CHAPTER 7 Constructing the International Purchase Order 101

DOCUMENTATION REQUIRED IN INTERNATIONAL TRADE 101

WHAT THE IMPORTER/BUYER SHOULD SPECIFY 103

KEY CLAUSES FOR OFFSHORE PURCHASES 103

DISPUTE SETTLEMENT CLAUSES 114

x Contents

CHAPTER 8 Meeting U.S. Customs Tariffs and Regulations 122

HAruMOMZEDT~SCHEDULEOFTHE

UNITED STATES (HTSUS) 122

ENTRY OF MERCHANDISE STEPS 123

HOW CUSTOMS BROKERS HELP IMPORTING BUYERS 136

ELECTRONIC DATA INTERCHANGE (ED!) 138

CHAPTER 9 U.S. Programs Benefiting the Importing Buyer 139

SPECIAL IMPORTATIONS 139

GENERALIZED SYSTEM OF PREFERENCES (GSP) 141

BILATERAL AND MULTILATERAL TRADE AGREEMENTS 142

FOREIGN TRADE ZONES AND SUBZONES 147

DUTY DRAWBACK SAVINGS 150

BENEFITS FROM FOREIGN GOVERNMENTS 155

CHAPTER 10 Methods of Payment 157

PROVISIONS AND DEFINITIONS 157

METHODS OF PAYMENT 158

DOCUMENTS NEEDED FOR CREDITS 165

Contents xi

CHAPTER 11 Protecting Your Buy from Foreign Currency Exposure 170

FOREIGN EXCHANGE MARKET TERMINOLOGY 171

VALUE OF THE U.S. DOLLAR 175

MINICASE: MAKING A TIllRD COUNTRY BUY 178

WAYS TO MINIMIZE RISK 181

CHAPTER 12 Controlling Global Logistics Costs 187

AIR SIllPMENT 188

MOTOR TRANSPORT 191

OCEAN CARRIAGE 192

TRANSPORTATION CONTRACTS 197

PACKAGING AND LABELLING FOR OVERSEAS TRANSPORT 203

USE OF A FREIGHT FORWARDER 205

DOCUMENTS USED FUR TRANSPORTATION 206

CHAPTER 13 Supplier Relationships 211

ETHICAL STANDARDS CHANGE WHEN BUYING OFFSHORE 211

DEVELOP SUPPLIER PARTNERING PRODUCTIVITY 214

USING BUYING TEAMS AND COUNCILS 216

OVERSEAS VISITS: AT WHAT POINT NECESSARY? 222

xii Contents

CHAPTER 14 Future Buying Prospects in Global Trade 227

CAN GLOBAL "FREE TRADE" SURVIVE? 227

BUSINESS AND GOVERNMENT AS PARTNERS? 229

IMPLICATIONS FOR THE FUTURE 232

APPENDIX A Organizations Buyers May Contact 236

KEY EMBASSY ADDRESSES 237

APPENDIX B Existing u.s. Foreign Trade Zones 239

Bibliography 244

U.S. GOVERNMENT PRINTING OFFICE 246

TRADE DIRECTORIES 247

MAGAZINES AND NEWSPAPERS 249

Glossary of Global Purchasing Terms 250

LOGISTIC TERMS 255

Index 259

Foreword

In his book, Global Purchasing: Reaching/or the World, Victor Pooler has stripped the supposed maze of complexity and misunderstanding from international com­merce. This book provides extensive background materials for both the purchas­ing/materials practitioner and the academic who wishes to use it as a text.

The author's extensive international experience lends credibility. Of special interest are the global supplier sourcing strategies.

The basics of good offshore buying are universal and of great importance to America. There is a need to analyze and investigate global supplier capabilities. On-the-job buyers need global techniques they can apply. Import prices are destined to rise, and it will take better buying strategies to deal with the multi-bil­lions of dollars of purchases made outside the United States.

This book brings together in great detail the full spectrum of benefits available to the global buyer. He or she has an opportunity to view the global economy and understand its financial implications. It contains a working knowledge of import regulations, customs tariffs,_ currency translation issues, hedging, cultural aware­ness applied to negotiations, and logistics-all covered in detail.

During the 1990s, the world of the global buyer will become a reality. Long neglected is the American buyer's study of other cultures and the techniques of dealing with suppliers outside our national boundaries. This book goes a long way in filling that knowledge void.

Harold Fearon, Ph.D., C.P.M Director, Center for Advanced Purchasing Studies, and the National Association of Purchasing Management Professor Emeritus at Arizona State University

xiii

Preface

1hls book is a labor of love. My motivation has been twofold: to keep giving to my profession, but primarily as a means to honor my late son. Tom and I had talked about his illustrating a management and sports bookcover. He envisioned a quar­terback drifting back to throw a pass to a businessperson sitting at a desk. It was not to be.

After Tom's death, I found his pencil sketch, "Reaching for the World," depict­ing his hand stretched toward the globe. Hence, the birth of this bookcover and title: "Global Purchasing: Reaching for the World."

The information in this book comes largely from my more than 40 years of experience as a licensed engineer, buyer, senior buyer, manager, director, presi­dent, and consultant. Presenting offshore seminars for the last seven years provided the discipline and feedback to improve this work. At the World Trade Institute, in New York City, I increased my working understanding about customs, import regulations, tariffs, currency translation issues, ancilogistics.

Teaching purchasing as an adjunct professor at Syracuse University helped me to appreciate the need for practical educational material. Foreign government officials attended the International School of Management, where I lectured, bringing me contacts with cultural diversity. Conducting on-site negotiations, facilities capability surveys, and lectures, and travelling to 30 countries has in­creased my cultural awareness and international business understanding.

For about the past ten years, U.S. companies have urged American buyers to buy offshore. While imports continue today to good advantage, the pendulum of costs has shifted. U.S. labor costs have dropped, compared to those of offshore suppliers. American labor costs are now in fifth place globally.

The buyer has far more economic leverage than many buyers themselves sense. The sales function legitimately seeks to cut out competition. Yet the essence of buying is to create and use competition among sellers!

I've long sought to explain the scope of the buying job, which is unusual in business. Often, when making specific purchases, the buyer must control and

xv

xvi Preface

coordinate other actions, such as engineering requirements, quality standards, and production timing. Yet seldom does the buyer have any direct authority over any of the people or departments having influence.

fu 1964 I wrote the American Management Association's "The Purchasing Man and His Job." Typical of the times, this fIrSt purchasing management book did not recognize the impending contributions of women in the profession. Nonetheless, it filled a void. Translated into several languages, the book sold in Japan for 20 years. Hopefully this current work will fill an offshore void in the body of knowledge, much as my earliest publication did.

Authors know it's not as simple as sitting down to write a book. When I began POOLER & ASSOCIATES consultant business in 1986, I documented every purchasing, materials management, and importing topic. Using a personal com­puter and Wordperfect software, it took five years to set down the "nuts and bolts."

Special thanks go to several people who advised, reviewed, and helped with this manuscript. Many suggestions were followed, others were not, and the opinions expressed are mine. I was fortunate to have help from true professionals. They included:

• Dr. Harold Fearon, former chairman of the Department of Management at Arizona State University, and the National Association of Purchasing Manage­ment Professor. My thanks to my longtime friend who wrote the Foreword for this book.

Dr. Fearon unknowingly planted the seed for this book. fu an interview! about the need for educational teaching materials, he asked, "Should there be a formal course in international purchasing?" Assuming a "Yes" response, Dr Fearon continued, "If there should be, are there teaching materials available to do it? .. Who's going to teach it? .. They're interesting questions, and ones which we have to come to grips with ...

• David J. Pooler, former Director of Corporate Purchasing and Subcontracts for General Dynamics. David, my oldest son, has the skills and insights to remove wordiness. His global travels as a skilled practitioner updated me where needed. Among those that edited certain chapters were:

• George Yarusavage, Corporate Manager, Transportation, GTE Service Corpora­tion made suggestions on logistics reflecting deregulation.

• Dr. LeRoy H. Graw, Adjunct professor at the University of Texas at Arlington, was a latecomer to the review team. He helpfully volunteered and shaped several chapters on the buying routines.

• Tomas R. Serrano of Associated Technical Services prepared my special graphics.

lNew England Purchase Magazine. December 1985. p. 16

Preface xvii

• Dr. Joseph L. Cavinato, Penn State University, author of West's Purchasing and Materials Management. I was that publisher's reviewer. By a strange twist of fate, the favor was returned when Van Nostrand Reinhold assigned this book to Professor Cavinato as their expert reviewer. Thanks to him for his contributions and early support.

While leading sales training sessions, it became clear to me that the buying job has much inherent power. Yet buyers often fail to use leverage because they do not understand their buying role. To gain competitive conditions, a company must put as much global leverage as is possible into the hands of its buyers. And the buyer must use it!

Today's buyer must conscientiously seek to expand their outlook toward global buying. When a young boy picks up a lump of coal, he sees a rock to throw. In the same lump of coal the engineer sees a source of heat energy, the BTUs to cook a meal. The nuclear scientist sees enough pent up power, if released by nuclear ftssion, to drive a ship to Europe. The lump of coal doesn't change.

The buying job itself may be like that rock. It may look the same to some, but global purchasing is an expansion of an already complex job. There are few limits to the variety and type of global buying arrangements that buyers can carry out. It's a matter of outlook. What do you see when you think of global purchasing?

During the 1990s, I believe we shall witness the further evolution of a buyer dealing in global markets with economic acumen. To negotiate and source well offshore, a buyer doesn't have to be a student of world affairs and geopolitics. He or she does have to be knowledgeable and well read! This book is part of the answer to advance a professional strategic overview of today's demanding global purchasing arena.

Global Purchasing: Reaching for the World