Financing, Procurement and Logistics Flashcards
Cash-Flow Financing
- Large infrastructure projects
- Financing from
expected earnings
Commercial lenders
- EulerHermes
- Delcrede Ducroire
- OPEC - Fund for International Development
- China Export-Import Bank
Classic funders
- World Bank
- KfW – Kreditanstalt für Wiederaufbau
- African Development Bank
- AFD – Agence Française de
Development - Asian Infrastructure Investment Bank
- Islamic Development Bank
Financing Models
- Build-Own-Operate (BOO)
- Design-Build-Operate
(DBO) - Renovate-Own-Transfer
(ROT) - Design-Construct-Manage-
Finance (DCMF) - Design-Build-Operate-
Transfer (DBOT) - Build-Rent-Transfer
(BRT) - Build-Operate-Transfer
(BOT) - Build-Own-Operate-
Transfer (BOOT)
Characteristics of a project financing
- Cash-Flow Financing
- Off-Balance-Sheet Financing
- Risk Sharing
- Sponsor
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.
Sponsors
Promoter providing equity capital for implementation of project and exercising an ownership function
Guarentee in Germany
Guarantee in international projects
Strategic Procurement
- Market/price evaluation
- Global procurement
- Customer relationship
- Process improvement
- Product improvement
- Volume concentration
Make-Or-Buy-Portfolio
Internal influence factors:
- Has the service a high strategic importance (differentiation possibility, performance on critical
path, etc.) ?
- Are technical know-how and
capital available?
External influence factors:
- Are services available on
procurement market? Is there a suitable subcontractor?
- What are advantages of outsourcing in terms of price, quality, flexibility and reliability?
Procurement Process
- develop general product and supplier information
- meet demands
- assess supply market
- set procurement strategy
Strategy: - select suppliers
Tactic: - conduct negotiations
Contract: - integrate suppliers
- continuous evaluation
Strategies of procurement objects –”Standardization and modularization”
Strategies:
Standardization through …
… increased use of
components, methods or processes
… prefabrication
… modularization
Goals:
- Improving productivity and quality
- Reduction of costs and construction time
Strategies of procurement financing
- Local Sourcing
- National Sourcing
- Global Sourcing
- Supplier Credit
- Operate-Leasing
- Bill of Exchange
- Finance Leasing
Local Sourcing
- Purchasing from suppliers in immediate vicinity of construction site
- Low logistical risk potential
- low costs of communication and order processing
- intensive cooperation and high flexibility
National Sourcing
- Sources of supply in own country
- Price reduction through expansion of possible
procurement sources
Global Sourcing
- Global purchasing through 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 (risk correlates with length of transport routes)
Supplier Credit
- If customer does not pay supplier, 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
- Rental agreement terminable by both parties at
short notice (useful life shorter than technical
life, e.g. rental of equipment for construction period) - Advantage: Increase in liquidity and avoidance of risks
Bill of Exchange
- Security that is subject to strict legal regulations and can be passed on to third parties as a means of payment
▪ Supplier advantage: Liquidity is not burdened
▪ Advantage for the customer: Extension of payment period to up to 180 days
Finance Leasing
- Lease agreement not terminable for a certain
period of time - Rates are to cover acquisition, ancillary and
financing costs
Strategies of procurement organization
- Central procurement
- Lead-Buyer-System
- Decentralized procurement
Central procurement: Advantages
- Higher demand and negotiating power towards suppliers = more favorable prices
- Uniform appearance -> reduction of market segmentation efforts by suppliers
- Better enforceability of strategic procurement decisions -> e.g. framework agreements
- Less coordination effort
- Development of special knowledge about building
materials and materials of complex trades - Lower probability of bribery
Central Procurement: Disadvatages
- Bureaucratization tendencies -> cumbersome and reduced flexibility
- Remote operation and market -> low employee satisfaction and motivation
Logistics in construction projects
- Planning building usage
Start Planning Logistics: - Building design
- Planning construction
- Construction (Construction site logistics)
End Planning Logistics: - Building usage
Logistic goods in construction project
Construction site:
- Employees
- Spare parts
- Devices
- Materials
- Know-How
Transport systems in logistics
- ship
- truck
- train
- plane
Ship
1. Duration
2. Flexibility
3. Reliability &
Punctuality
4. Stress on
transported goods
- Low transport speed
- Fixed routes
- Low departure density
- No weight and volume limitation
- Fixed routes
- Exactly to the day
- Containers: low
- Conventional packaging: high
- Containers: low
Truck
1. Duration
2. Flexibility
3. Reliability &
Punctuality
4. Stress on
transported goods
- Average transport speed
- Spatially and temporally very flexible
- Weight and volume limitation
- Spatially and temporally very flexible
- Exactly to days
- Containers: low
- Conventional packaging: medium
- Containers: low
Train
1. Duration
2. Flexibility
3. Reliability &
Punctuality
4. Stress on
transported goods
- Average transport speed
- Spatially and temporally limited flexibility
- Weight and volume limitation
- Spatially and temporally limited flexibility
- Exactly to the day
- Containers: low
- Conventional packaging: medium
- Containers: low
Plane
1. Duration
2. Flexibility
3. Reliability &
Punctuality
4. Stress on
transported goods
- High transport speed
- Tightly woven network
- High departure density
- Weight and volume
limitation
- Tightly woven network
- Exactly to the hour
- Possible delays with clearance in host country
- Exactly to the hour
- Low
Spare parts supply
Option 1:
Provision of extensive spare parts warehouse
- Advantage:
Constant availability of many spare parts
- Disadvantage:
Commitment of a large capital for a long time
Option 2:
Quick purchase and transportation after demand
determination
- Advantage:
Exclusively purchase of required spare parts
- Disadvantage:
High purchase/transport costs per part
Optimal: combining both methods (first phase:
option 1, second phase: option 2)
