Purchase and Supply Analysis

Content

1.0        Introduction        2

2.0        Findings        2

2.1        Reasons of sourcing overseas        2

2.1.1        Effect of internal business environment        2

2.1.2        Effect on competitiveness        2

2.1.3        Contribution of quality standards        3

2.1.4        Effect of technology        3

2.1.5        Strategic nature        4

2.2 Key challenges in overseas sourcing        4

2.2.1        Effect of culture on overseas purchasing        4

2.2.2        Factors affecting exchange rate        5

2.2.3        financial risk of change in exchange rate        5

2.2.5        benefit of forward buying        6

2.2.6        The need to achieve continuity and security of supply        7

2.3        The operation of an International Purchasing Department        8

2.3.1        The strategic role of IPD in reducing costs        8

2.3.2        The objective of IPD in sourcing overseas        8

2.3.3        The components of international purchasing circle        9

2.3.4                9

2.3.5        Contribution of IPD to the appraisal of overseas suppliers        10

2.3.6        Need for import payment documentation        10

2.3.7        The impact of Incoterms        11

2.4         Reasons for using distribution channel intermediaries        12

2.4.1        Intermediaries involved in international distribution channels        12

2.4.2        Role of freight forwarders        12

2.4.3        Contribution of Information and Communication Technology        13

2.4.4        Contribution of transport modes to minimise freight costs        13

3.        Conclusion        15

4.  Reference        16

1. Introduction

This is a report that includes the reasons why a business would consider sourcing overseas, the key challenge in overseas sourcing, the operation of an International Purchasing Department (IPD), and the reasons for using distribution channel. In the following report, Apple will be chosen as the research target of international purchasing.

1. Findings

1. Reasons of sourcing overseas

2.1.1 Effect of internal business environment

The international business environment can exert a major impact that can be either beneficial or detrimental on IPD. It includes five factors and is also known as PESTEL.

One of the most decisive factor is the economic environment. The globalization of economy can be an opportunity for the company, as it accelerates the flow and distribution of resources, capital, technologies, information, etc. according to the World Economic Outlook published by IMF, China’s economic growth rate was 6.3% in 2016, which means that Apple Company can gain significant profit from such market with ever-growing purchasing power. (IMF, 2015)

Companies should also beware that political environment can also affect their business. A healthy Sino-US relationship can lead to more favourable condition, such as reduced tariff and trade barriers for multilateral companies, and vice versa.

1. Effect on competitiveness

The IPD can increase business competitiveness in different ways. First is the cut in cost. It is known that iPhones are assembled mostly in China, and it is estimated that an iPhone would cost $4 more if it was built in the US and there will be 35% tax on its profits. Once the cost is reduced to a lower level, the company can label its product with a lower price which is more competitive.

Yet it is not simply about price, but also quality. Apple now sources from 766 suppliers located in more than 30 countries. A global horizon enables the company to find suppliers that can provide parts with the highest efficiency. Based in Taiwan China, TSMC is the top chipmaker and the lead supplier of chips for iPhones, including A8, A9 and A10, and Apple will maintain cooperation this chip supplier in the future.