Dissertation on "International Procurement"

Dissertation 56 pages (15360 words) Sources: 20

[EXCERPT] . . . .

School of Engineering and Design

Science in [your course title goes here]

This study investigates the circumstances in which buying materials and components from foreign suppliers can offer benefits to a manufacturer and those in which buying locally offers more advantages, taking into consideration factors such as the nature of the item to be purchased, the level of production technology, the item costs, the volatility of demand, rate of change of specification, among other variables. Firms must make important changes if they wish to reap the potentially huge scale economies of international procurement. For example, procurement decisions for low-volume, low-cost commodities (especially those with high transportation costs) can be left to regional headquarters or even to individual affiliates. Within the firm, procurement decisions need to be based on close and continuous interaction among purchasing, engineering, finance, and quality assurance. Improved inter-firm networking and administration are thus increasingly crucial to the effective implementation of inter-firm networks.

CHAPTER ONE: INTRODUCTION

INTRODUCTION

International procurement is used to describe the process between firms around the world to offer contracts for goods and services. The globalization of large corporations has allowed them to gain the benefits of lower labor and materials costs while still selling the same quality and quantity of products. Buying internationally is much more complex than buying domestically. There are differences in cultures, laws, communications, currencies, and more and these issues have to be understood to support international procurement. International procurement can provide lower costs and increased consumer base. The lower costs that can be achieved through purchasing services or goods from other counties are derived from currency valuation and the effects of product specialization.

Product specialization is the basic concept that some items have a lower cost of production, based on the natural or human resources available in different locations. Specializing in this area allows a particular national economy to offer that product or service at a lower cost that other economies, resulting in increased customers and more economic opportunities. In order to build a global economy, each nation must have some contribution or basket of goods that they can offer to potential customers. If a country is limited to just the goods that it can produce internally, then it needs to invest significant government spending to meet every need or leave those needs unfilled. Global market attracts customers to the lower prices and higher quality of the products provided by the different nations. As more goods and services are purchased from other countries, the wealth of those economies increases. This creates the capacity for increased spending, allowing customers and businesses to purchase goods and services. Effectively increasing the customer base then encourages more spending and growth, fueling the economic cycle.

In this dissertation, automotive industry with both local and international supplier choices will be particularly observed and compared within international procurement term. Automotive industry mainly depends on international procurement and same difficulties can probably occur in this mutual relationship. As it is known, many car manufacturing companies move their factories out of their origin country and also they buy different spare parts of cars from other countries around world. This study is a step ahead and aimed to critically explore the different circumstances where sourcing material from the international vendors can prove to be advantageous or less beneficial as compared to domestic suppliers.

AIM

The overarching aim of this study was to investigate the benefits of buying material from foreign suppliers instead of local vendors. The study also presents the positive points of buying material locally. Additionally, the factors taken into consideration will include nature of the item to be purchased, the level of production technology, the item costs, the volatility of demand, rate of change of specification etc.

OBJECTIVES

The main objective of the dissertation study was to compare the benefits of buying material from foreign vendors over the local suppliers. However, the research is also associated with a set of sub-research questions which are stated below:

1. Can usage of best and latest technology for production eliminate the drawbacks of buying material for low quality vendor?

2. To what extent can cost of procurement be controlled by buying material from a local supplier as compared to international supplier?

3. Does buying material from a famous international vendor help add a brand name to the production process?

RATIONALE in SUPPORT of the STUDY

Doing business across borders has become both easier to undertake, and at the same time, necessary to maintain a competitive position (Smith 2007, p. 117). In an increasingly globalized and competitive marketplace, companies of all sizes and types have been confronted with a wide array of opportunities and challenges as they seek to optimize their operations and achieve a competitive advantage and a growing number of firms are using their procurement function for this purpose as illustrated in Figure 1 below.

Figure 1. Strategic development of purchasing

Source: Smith 2007, p. 118

As can be seen from Figure 1 above, the strategic development of purchasing to achieve a competitive advantage has assumed new importance and relevance as the processes that are fuelling growth in the internationalization of businesses intensifies. In this regard, Smith emphasizes that, "The increasing economic competitiveness which companies experience demands that they find new ways of creating commercial strengths and advantage and, as a result, purchasing is being perceived as a strategic function of business. Some studies go even further and indicate that procurement and the elective management of the supply chain are in fact the key activities to achieve world class performance. A part of this process of redefining procurement as a significant strategic function is the globalisation of purchasing, so as to make elective use of the opportunities created by the very internationalisation of business which initiated the process (Smith 1999, p. 117).

Therefore, firms must make important changes if they wish to reap the potentially huge scale economies of international procurement. For example, procurement decisions for low-volume, low-cost commodities (especially those with high transportation costs) can be left to regional headquarters or even to individual affiliates. Within the firm, procurement decisions need to be based on close and continuous interaction among purchasing, engineering, finance, and quality assurance. Improved inter-firm networking and administration are thus increasingly crucial to the effective implementation of inter-firm networks (Borrus, Ernst & Haggard 2001).

.In addition, auto parts suppliers are playing an increasingly important role in the automotive industry. Their current share of up to two-thirds of the value added of a car is expected to reach 75 per cent among some manufacturers. The worldwide employment breakdown between assemblers and suppliers, which is currently estimated to average 54:46 is likely to move towards a ratio of 33:66. Although developing countries accounted for only 12 per cent of world components exports in 1999, the increasing importance of suppliers will benefit emerging markets, particularly central and Eastern Europe, China and India, allowing them to increase their share of global components production (Automotive Industry Trends Affecting Component Suppliers 2005, p. 131).

Viewed from the perspective of the importance of the automotive industry for a country's merchandise exports, the report also finds that automotive products accounted for over 20 per cent of exports in Canada, Cyprus, Japan, Mexico and the Slovak Republic, over 10 per cent in countries such as Belarus, the Czech Republic, Hungary, the Republic of Korea, Lithuania, Poland, Slovenia and the 15 countries of the pre-enlargement European Union, and almost 10 per cent in South Africa, Turkey and the United States. The potential for companies in advanced countries to lower labour costs by outsourcing, coupled with the continuous pressure to reduce costs, diversify and deliver to just-in-time schedules, will impact on suppliers' working conditions and require even greater flexibility on the part of the workforce (Automotive Industry Trends Affecting Component Suppliers 2005, p. 131). According to one industry analyst, "Turkey is a big market in itself, but it also serves as an export platform to Europe. There is a misperception that it exports small, cheap products. But it is increasingly exporting items like auto parts and cars to Europe" (Green 2006, p. 28).

CHAPTER TWO:

LITERATURE REVIEW

Introduction

All firms will rely on their supply chain to ensure they have sufficient inputs in order to continue with production; this is true regardless of the size of the firm and the industry in which it operates. A key element of the supply chain is the way in which suppliers are chosen. When determining the supplier the aim of the firm will be to ensure they have the right product, of the right quality, delivered to the right place, at the right time, in the right quantities and at the right price (Quayle, 2006, p52). Different suppliers, wherever they are located, may have varying abilities to meet these requirements. The choice of supplier will depend on the way the buyer assesses the ability of the potential supplier to satisfy these various requirements.

In some cases there may be the decision to make use of international suppliers, buying goods from… READ MORE

How to Reference "International Procurement" Dissertation in a Bibliography

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