3 - Financing, Procurement and Logistics Flashcards
Financing models of construction projects
- Build-Operate-Transfer (BOT)
- Build-Rent-Transfer (BRT)
- Design-Build-Operate-Tranfer (DBOT)
- Design-Construct-Manage-Finance (DCMF)
- Renovate-Own-Transfer (ROT)
- Design-Build-Operate (DBO)
- Build-Own-Operate (BOO)
- Build-Own-Operate-Transfer (BOOT)
Key investors and financiers
- Classic funders (World bank, KfW, …)
- Commercial lenders (EuerHermes, China export-import bank, …)
Characteristics of a project financing
- Cash-flow financing
- Off-balance-sheet financing
- Risk sharing
- Sponsor
Cash-flow financing
- Suitability for large infrastructure projects
- Financing from expected earnings
Off-balance-sheet financing
- Liability of the sponsors
- Guarantees outside the balance sheet of the sponsors
Risk sharing
- Risk distribution
- Sponsors (Banks, Insurances, Suppliers, etc.)
Sponsor
Promoter providing equity capital for the implementation of the project and exercising an ownership function
Goals for strategic procurement
- Product improvement
- Process improvement
- Customer relationship
- Global procurement
- Market/price evaluations
- Volume concentration
Steps of the procurement process
Start
1. Development of general product and supplier information
2. Meet demands
3. Assess supply market
4. Set procurement strategy
Strategy
5. Select suppliers
Tactic
6. Conduct negotiations
Contract
7. Integrate suppliers
8. Continuous evaluation
Internal influence factors for procurement strategies
- Does the service has a high strategic importance?
- Are the technical know-how and capital availiable?
External influence factors for procurement strategies
- Are these services availiable on the procurement market?
- Is there a suitable subcontractor?
- What are the advantages of outsourcing in terms of price, quality, flexibility, and reliability?
Strategies of procurement objects
- Standardization through increased use of components, methods or processes
- Standardization through prefabrication
- Standardizaion through modularization
Overall goals of procurement objects
- Improving productivity and quality
- Reduction of costs and construction time
Strategies of procurement financing
- Local sourcing
- Global sourcing
- National sourcing
- Supplier credit
- Operate-leasing
- Bill of exchange
- Finance leasing
Local sourcing (procurement financing)
- Purchasing from suppliers in the immediate vicinity of the construction site
- Low logistical risk potential
- Low costs of communication and order processing
- Intensive cooperation and high flexibility
Global sourcing (procurement financing)
- Global purchasing trough indirect import
- Cost advantages due to lower wages, taxes, energy, and raw materials
- Lower standards of environmental protection
- Reduced dependence on national suppliers and more intense competition
- Political, cultural, legal and tax risks
- Logistical uncertainties
National sourcing (procurement financing)
- Source of supply in your own country
- Price reduction through expansion of possible procurement sources
Supplier credit (procurement financing)
- If the customer does not pay the supplier directly, a credit relationship arises
- Credit granted either with express authorization or involuntarily
- Particularly convenient and simple form of debt financing
- No interest, but costs due to non-utilization of cash discount
Operate-leasing (procurement financing)
- Rental agreement terminable by both parties at short notice (useful life shorter than technical life, e.g. rental of equipment for the construction period)
- Advantages: Increase in liquidity and avoidance of risks
Bill of exchange (procurement financing)
- Security that is subject to strict legal regulations and can also be passed on to third parties as a means of payment
- Supplier advantage: Liquidity is not burdened
- Advantage for the customer: Extension of the payment period to up to 180 days
Finance leasing (procurement financing)
- Lease agreement not terminable for a certain period of time
- (rates are to cover acquisition, ancillary and financing costs)
Procurement organization
- Central procurement
- Lead-buyer system
- Decentralized procurement
Advantages / Disadvantages centralized procurement
Pro:
- Higher demand and negotiation power towards suppliers
- Uniform appearance
- Better enforceability of strategic procurement decisions
- Less coordination effort
- Development of special knowledge
- Lower probability of bribery
Contra:
- Bureaucratization tendencies
- Remote operation and market
Logistics in the construction project
- Planning building usage
- Building design
- Planning construction
- Construction site logistsics
- Building usage
Logistic goods in the construction project
- Employees
- Know-how
- Materials
- Devices
- Spare parts
Logistsics process chain construction project
- Determine demand (Construction site)
- Determine demand qualitatively and quantitatively (Construction site)
- Approve material (Building consultant / Engineer)
- Order material (Purchaser of construction company)
- Supply material (Supplier)
- Organize transport and prepare material for transport (Freight forwarder)
- Transport material (Transporter)
- Receive and store material (Construction site)
Spare parts supply
Option 1: Provision of an extensive spare parts warehouse
Option 2: Quick purchase and transportation after demand determination
Optimal: Combining both methods
International Commercial Terms (Incoterms)
- Trade clauses for contracting in international trade in goods
- Define the responsibilities of buyers and sellers in the international trading system and allocate costs and risks
- Voluntarily integrable into a contract
- Rultebook distinguishes 11 trading conditions
