scm Flashcards
the seller is responsible for making the goods available at its premises. The parties can also agree on another named place such as factory, office or warehouse. At this point, the buyer gains ownership of the goods. Then, he handles all costs and risk after the products are collected.
This is most favourable to the seller. He has no obligation to load the goods or to cover freight costs once the goods have left the premises. This term can cause complications for the buyer if products are for export.
EXW – Ex Works
EXW
–Ex Works
the seller is responsible for delivering the goods to the buyer’s nominated premises. He needs to load the stocks onto the buyer’s transportation. Then, the seller organises the shipping, including export clearance and meeting security requirements. The risk is transferred once the goods are loaded onto the buyer’s transportation. Thus, any damage to the products when on board the vessel is the responsibility of the buyer.
The buyer pays the cost of freight, bill of lading fees and insurance. Also, he pays for unloading and transportation costs to the final destination.
FCA - Free Carrier
is the term that has been most significantly changed under the Incoterms 2020 rules. Previously, the use of a transport intermediary meant the seller was unable to obtain a bill of lading with onboard notation. The reason was that he did not present the goods directly to the international shipper. Without the BL, the transacting bank would not authorise payment to the seller.
Under the new Incoterms 2020, this incoterm resolves this problem. The buyer should instruct the carrier to issue a bill of lading with the onboard notation to the seller. The parties specify this notation on the sale contract.
FCA
goes beyond FCA by specifying that the seller bears the costs of transportation to the buyer’s place of destination. The seller clears the goods for export and delivers them to the carrier or place of destination as instructed by the buyer.
At the defined place of shipment is where the risk is transferred to the buyer. The seller is responsible for the transportation costs associated with delivering goods. However, he is not responsible for procuring insurance.
If the buyer requires the seller to obtain insurance, the parties should consider the Incoterm CIP instead.
CPT Carriage Paid To
CPT
Carriage Paid To
is broadly similar to CPT. However, the seller is required to insure the goods in transit and to pay the transportation itself.
The seller clears the goods for export and delivers them to the carrier or place of destination as instructed by the buyer. The seller is responsible for the transportation costs of the items to the designated place of destination.
The risk is transferred to the buyer at the defined place of shipment.
CIP – Carriage and Insurance Paid To
CIP –
Carriage and Insurance Paid To
The risk is transferred to the buyer at the defined place of shipment.
In one of the most significant changes under Incoterms 2020, this incoterm requires the seller to purchase a higher level of insurance. This level of coverage is appropriate for containerised goods: 110% of the contract value under Institute Cargo Clauses (A) of the Institute of London Underwriters. Previously the minimum insurance was applicable under Institute Cargo Clauses (C).
CIP
It was previously known as Delivered at Terminal (DAT). It has been renamed because the buyer (or seller) may want to specify the delivery location rather than the terminal. This term is often used for consolidated containers with multiple consignees. It is the only term that tasks the seller with unloading the goods.
The seller covers all the costs of transportation (export fees and carriage). Also, at the destination port, the seller pays the unloading from the carrier and the port charges. He assumes all risks until arrival at the destination port or terminal.
The buyer is responsible for all costs and risks after unloading. It includes import duties, taxes and customs clearance. Also, the buyer pays local transportation to the final named place of destination.
If the seller is not able to organise unloading, he should consider shipping under DAP terms instead.
DPU – Delivered at Place Unloaded
DPU –
Delivered at Place Unloaded
The seller delivers the goods to a named place of destination but is not responsible for unloading. His responsibilities include packing, export clearance, carriage expenses and any terminal costs up to the agreed destination port.
DAP – Delivered At Place
means the buyer is responsible for all costs, duties and taxes associated with unloading the goods. He is also responsible for clearing customs to import the products into the named country of destination.
The risk is transferred to the buyer at the final designated place of destination.
DAP
DAP
Delivered At Place
means the seller bears all risks and costs associated with clearing and delivering the goods to the designated place.
The seller is liable for clearing the goods through customs in the buyer’s country. It includes payment of both duties and taxes. Furthermore, he needs to obtain the necessary authorisations and registrations from the authorities. However, the seller is not responsible for unloading.
This term places the maximum obligations on the seller and minimum obligations on the buyer. The buyer bears no risk or responsibility until the goods are at the final agreed place. Hence, the term is favourable for online businesses seeking eCommerce financing for cross-border trading.
DDP – Delivered Duty Paid
DDP –
Delivered Duty Paid
The seller delivers the goods alongside the buyer’s vessel at the named port of shipment. It means that the buyer bears all costs and risks of loss or damage from that moment.
FAS – Free Alongside Ship
term requires the seller to clear the goods for export (under previous Incoterms, the buyer arranged export clearance).
FAS
FAS –
Free Alongside Ship
Under this terms, the seller bears costs and risks until the goods are loaded on board of the designated vessel.
The seller’s responsibility includes arranging export clearance. At the same time, the buyer pays the cost of marine freight, bill of lading fees and insurance. He is also responsible for unloading and local transportation costs from the port of arrival to the final destination.
Any damage to the goods when on board the vessel is the responsibility of the buyer.
FOB
FOB –
Free On Board
is ideal for invoice financing solutions. This is because the risk of goods is transferred to the buyer once the goods are shipped.
Since Incoterm FCA was introduced in 1980, FOB should be used only for non-containerised sea freight and inland waterway transport.
FOB
incurs more significant risk and responsibility for the seller who pays for the carriage of the goods up to the named port of destination.
The risk is transferred to the buyer at the country of export. Specifically, when the goods have been loaded on board the ship.
The shipper pays for export clearance and freight costs to the selected port. Furthermore, he is responsible for any damage to the goods on board the ship until the port of final destination.
The buyer pays for local delivery from the port to the final destination and is responsible for purchasing insurance. If the buyer requires the seller to obtain insurance, the parties should consider the Incoterm CIF instead.
CFR – Cost and Freight
should only be used for non-containerised sea freight and inland waterway transport. For all other modes of transportation – and for containerised goods – it should be replaced with CPT, as specified in a critical change in Incoterms 2020.
CFR – Cost and Freight
CFR –
Cost and Freight
The seller clears the goods for export and delivers them when they are on board at the port of shipment. The seller bears the cost of freight and insurance to the designated port of destination. Also, he is responsible for any damage to the goods on board the ship.
The seller needs to purchase the minimum level of insurance under Clause C of the Institute Cargo Clauses. (This requirement is unchanged from Incoterms 2010.)
At the port of arrival, the seller must turn over three key documents – invoice, insurance policy and bill of lading. Those documents represent the cost, insurance and freight of CIF.
This Incoterm is similar to CFR. However, the seller needs to obtain insurance while the goods are in transit.
CIF – Cost, Insurance & Freight
CIF –
Cost, Insurance & Freight
IS THE MANAGEMENT FLOW OF GOODS, INFORMATION AND OTHER RESOURCES
Logistics
IT INVOLVES THE INTEGRATION OF INFORMATION, TRANSPORTATION, INVENTORY, WAREHOUSING, MATERIAL – HANDLING, AND PACKAGING AND OCCASIONALLY SECURITY
Logistics
generally the detailed organization and implementation of a complex operation. In a general business sense, logistics is the management of the flow of things between the point of origin and the point of consumption to meet the requirements of customers or corporations. The resources managed in logistics may include tangible goods such as materials, equipment, and supplies, as well as food and other consumable items.
Logistics
activities associated with receiving, storing and disseminating inputs products.
Inbound Logistics
HOW CAN INBOUND LOGISTICS CAN BE IMPROVED?
- LOCAL ECONOMICS
2.PLANNING OF INBOUND LOGISTICS
3.FORECASTING
ACTIVITIES ASSOCIATED WITH COLLECTING, STORING AND PHYSICALLY DISTRIBUTING THE PRODUCT TO THE BUYERS.
Outbound Logistics
an action plan designed to achieve specific long term goals and objectives.
strategy
is the process of “planning, implementing, evaluating, and controlling strategic and operating purchasing decisions for directing all activities of the purchasing function toward opportunities consistent with the firm’s capabilities to achieve its long-term goals
Strategic Purchasing
is a process that develops supply relationships between manufacturers, suppliers and retail businesses. Fully integrating strategic purchasing activities into your company’s business management plan is the best way to ensure your company has the products consumers are looking for.
Strategic Purchasingl
Strategic Role of Purchasing
Perform sourcing related activities in a way that support the overall objectives of the organization by establishing external contacts with the supply market
COMMON REASONS FOR A GLOBAL PURCHASING STRATEGY
REDUCING OVERALL COST STRUCTURE
AVAILABILITY OF NEW TECHNOLOGY AND CAPACITY
ESTABLISHING ALTERNATIVE SOURCES OF SUPPLY- REDUCED RISK
ACCESS TO NEW DESIGNS
DOWNSIDE of STRATEGIC PURCHASING
INVENTORY MANAGEMENT INCREASE
INCREASED TRANSPORTATIOIN/LOGISTICS
TRANSLATING ORGANIZATIONAL OBJECTIVES INTO SUPPLY OBJECTIVES
GLOBAL SOURCING BRINGS MORE PROFIT IN THE BUSINESS
THE SOURCING AGENT OF THE GLOBAL SOURCING COUNTRIES HELPS YOU TO IDENTIFY THE PROPER COUNTRIES.
Supply Strategies
ANY STRATEGY CHOSEN SHOULD INCLUDE DETERMINATION OF WHAT,QUALITY, HOE MUCH, WHEN, WHAT PRICE, WHERE, HOW AND WHY
STRATEGIC COMPONENTS
can be defined as the strategic use of outside resources to perform activities traditionally handled by internal staff and resources.
Outsourcing
It is where an organization contracts out major functions to specialized and efficient service providers, who then become valued business partners.
Global Outsourcing
Why Do Companies Outsource?
External supplier has better capability
Freeing resources for other purposes
Reduction and control operating costs
Sharing risks with a partner company
Lack of internal resources
Streamlining or increasing efficiency for time-consuming functions
Desire to focus more tightly on core business
Pros and Cons of Global Outsourcing
PROS
Greater flexibility
Lower investment risk
Improved cash flow
Lower potential labor costs
Pros and Cons of Global Outsourcing
CONS
Long lead times/capacity shortages
Existing staff may feel disposable or threatened
Issues with product/service quality
Problems with communication
Loss of control over policies and procedures
Most important factors influencing success in outsourcing
Understanding company goals and objectives
A strategic vision and plan
Selecting the right, high quality supplier
A properly structured, effective contract and contract monitoring
Good relationship with the supplier
Watch the video below for an overview:
https://www.youtube.com/watch?v=3oHLh0bP5Lg
as an instrument of settlement of payment obligation between buyer and seller.
Documentary Credit
A credit issued by the issuing bank and addressed to the Beneficiary in the form of a ‘Letter’
Letter of Credit
A credit issued by the issuing bank in settlement of a commercial transaction
Commercial Credit :
A credit issued by the issuing bank and requires the presentation of stipulated documents for compliance
Documentary Credit
A credit issued by the issuing bank to be used for settlement only where there has been some form of default or financial guarantee
Standby Letter of Credit :
is a letter issued by a bank to guarantee the payment of proceeds.
An Letter of Credit
Other Roles of LC
1.Supplementation of credit of the buyer (importer). L/Cs make it easier for buyers to gain trust from sellers in selling their product.
2.Convenient tool for the seller (exporter). Sellers will have the opportunities to receive finance for the proceeds from the bank easily, in the form of negotiation of export bills.
Abbreviation for INTERNATIONAL COMMERCIAL TERMS
Incoterms
BENEFIT OF INCO TERMS
The main benefit of incoterms is to reduce risk.
Incoterms do not cover, however, ownership or title transfer of the goods. These terms are agreed upon separately between two transacting parties.
draw enumerate incoterms table
