Executive summary
This research paper analyses international purchasing, logistics and supply chain management processes. The major aim is to explain how these processes are affected by the competitive business environment. This paper discusses different theories and models relating to international purchasing, logistics and supply chain management, which contribute to delivering superior goods and services in a competitive business environment. International purchasing and logistics are considered the most important functions in any business, whether an MNC or an SME. The reason is that they provide access to markets, raw materials and labour at lower costs than would otherwise be possible. The key to international purchasing and logistics success is understanding each country’s competitive business environment. The competitive business environment refers to competition between firms that sell similar products or services in a given country. It also includes economic conditions, government policies and regulations, infrastructure availability, labour laws and costs. In today’s globalized economy, international purchasing and logistics play a vital role in the success of any business. These processes enable companies to access a wider range of markets, raw materials, and labour at lower costs, increasing their competitiveness. However, it is important to note that each country’s competitive business environment can significantly impact these processes. Economic conditions, such as GDP growth, inflation, and currency exchange rates, can greatly affect the cost and availability of goods and services. Government policies and regulations can also play a big role in shaping the business environment. For example, tariffs, import or export restrictions, and taxes can make it more expensive or difficult to move goods across borders.
Introduction
International purchasing, logistics, and supply chain management are all interconnected fields critical to the success of any business that operates on a global scale. These fields involve coordinating and managing all the activities involved in acquiring goods and services from suppliers, transporting them to the point of consumption, and delivering them to the customer. Theories and models in international purchasing cover a wide range of topics, including supplier selection, sourcing strategies, negotiation tactics, and risk management. These theories help organizations identify and select the best suppliers, establish mutually beneficial relationships, and mitigate the risks associated with doing business on a global scale. In logistics, the focus is on planning, coordinating, and controlling the flow of goods and services.
Models and theories in logistics help organizations optimize their transportation, warehousing, and inventory management processes to minimize costs and improve efficiency. Supply chain management is an interdisciplinary field that combines elements of purchasing, logistics, and operations management. Theories and models in supply chain management focus on how to effectively design and manage the entire process of bringing a product or service to market, from sourcing raw materials to delivering the final product to the customer. These three fields are interconnected and complex and require managers to have a broad and deep understanding of the various theories and models that apply to each area of the process. Implementing these theories and models effectively can lead to more efficient and profitable business operations.
Implementing these theories and models effectively can lead to a more efficient and profitable business operation. For example, effective supplier selection and negotiation tactics in international purchasing can help an organization secure better prices and terms, which can lead to cost savings. Effective transportation and warehousing management in logistics can minimize costs and improve efficiency. Furthermore, in supply chain management, an effective and efficient supply chain can lead to a more responsive and adaptable organization that can respond to changes in demand and market conditions. Additionally, Supply Chain Management strategies that are mindful of the full life-cycle of products can also lead to an increase in sustainability and a reduced impact on the environment. However, a well-designed and executed supply chain can also create more resilience in the face of unexpected disruptions such as natural disasters, pandemics or political crises. Therefore, International Purchasing, Logistics, and Supply Chain Management are all interconnected fields critical to the success of any business that operates on a global scale. These fields require managers to have a broad and deep understanding of the various theories and models that apply to each process area and to think about the long-term benefits for the organization and society.
Theories and models relating to international purchasing logistics, and supply chain management
International purchasing, logistics, and supply chain management are all closely related fields that involve the planning, coordinating, and controlling activities related to the procurement, transportation, and delivery of goods and services. Several theories and models have been developed to help organizations optimize their operations in these areas.
Strategic sourcing model
One of the most widely-used models in international purchasing is the strategic sourcing model, which is a framework that helps organizations identify and select suppliers that can provide the best value for money. It involves identifying the most important suppliers for an organization and developing long-term partnerships with them to achieve cost savings, improve quality, and increase efficiency. Strategic sourcing includes identifying the most important spending categories, analyzing spending data, evaluating potential suppliers, and negotiating contracts. Strategic sourcing typically involves several stages, including supplier identification, pre-qualification, supplier selection, and contract management (Nevo and Kotlarsky, 2020). Strategic sourcing aims to develop long-term partnerships with suppliers that can provide high-quality goods and services at competitive prices. The strategic sourcing process typically starts with supplier identification, where an organization identifies potential suppliers to provide the goods or services it needs. This can be done through various methods, including market research, industry databases, and networking. Once potential suppliers have been identified, the organization will pre-qualify to assess their capabilities and suitability. This might include checking their financial stability, reviewing their compliance with laws and regulations, and assessing their quality management systems. This process helps the organization create a shortlist of suppliers capable of meeting its needs.
The next stage is supplier selection, where the organization evaluates the shortlisted suppliers in more detail to determine which offers the best value for money. This process may involve several activities, such as RFQ, RFP, and negotiation with the suppliers. The organization should consider various factors when making its decision, such as the supplier’s price, quality, lead times, and delivery performance. Once a supplier has been selected, the organization will enter into a contract with them to establish the terms and conditions of the relationship. This process is called contract management, a key step in developing a successful long-term partnership with the supplier. This phase includes formalizing the agreement, setting up payment and delivery schedules, and specifying the responsibilities of each party. The organization should also establish performance metrics to measure the supplier’s performance and identify areas for improvement. Strategic sourcing aims to develop long-term, mutually beneficial relationships with suppliers that can provide high-quality goods and services at competitive prices. This enables the organization to reduce costs, improve quality, and increase efficiency, ultimately improving competitiveness and profitability. Additionally, a well-planned strategic sourcing process helps an organization manage risk by diversifying its supplier base and reducing its dependence on any supplier.
Total Cost of Ownership (TCO) model
Another important model in international purchasing is the Total Cost of Ownership (TCO) model, which is used to evaluate the total costs associated with acquiring and using a product or service. The TCO model takes into account the purchase price of the product or service and the costs of transportation, customs clearance, insurance, and any other costs associated with the procurement process. By using the TCO model, organizations can make more informed purchasing decisions and identify opportunities for cost savings. Using the TCO model allows organizations to understand the true costs of a product or service and identify areas where they may be able to reduce costs(Lee et al.,2021). For example, the TCO model may reveal that a supplier closer to the organization’s facility would lower transportation costs or that different insurance coverage would be more cost-effective. The TCO model can also be useful for comparing different products or services to determine which one offers the best value for money.
The TCO model is especially important for organizations that operate in a global market, as it can help them to make informed decisions about sourcing products or services from different countries. It can compare the costs of sourcing products or services from different locations, considering exchange rates, tariffs, and freight costs. By understanding the TCO, organizations can make decisions that will help them to stay competitive in the global market while also managing costs and improving their bottom line. Therefore, the TCO model is a comprehensive and valuable approach for organizations to evaluate the costs of acquiring and using a product or service; it helps identify areas where costs can be reduced, allowing for informed decisions and effective sourcing to manage costs and stay competitive.
Bullwhip effect model
One of the most widely-used models in logistics and supply chain management is the bullwhip effect model, which describes the phenomenon of demand fluctuations amplifying as they move upstream in the supply chain. The bullwhip effect is caused by various factors, including uncertainty in demand, order batching, and price fluctuations. It can lead to inefficiencies and increased costs in the supply chain(Yang et al.,2021). Organizations can use various techniques to mitigate the bullwhip effect, including demand forecasting, inventory management, and supplier collaboration. The bullwhip effect is a common phenomenon in supply chain management that occurs when demand fluctuations become amplified as they move upstream in the supply chain. This can lead to inefficiencies, such as overproduction, stockouts, and excess inventory.
The effect is caused by various factors, including uncertainty in demand, order batching, and price fluctuations. For example, retailers may place large orders with manufacturers in anticipation of customer demand, but if that demand materializes, they are left with excess inventory. Organizations can use various techniques to mitigate the bullwhip effect, such as demand forecasting, inventory management, and supplier collaboration. For example, implementing demand forecasting can help organizations better predict customer demand, which can help them avoid overproduction or stockouts. Additionally, implementing inventory management techniques, such as just-in-time inventory systems, can help organizations better align their inventory levels with actual demand. Finally, supplier collaboration can help organizations better understand and anticipate customer demand, which can help them reduce the bullwhip effect.
The risk management model
Another important model in logistics and supply chain management is the risk management model, which identifies and mitigates potential risks that could disrupt the supply chain. Risks can come in many forms, including natural disasters, supplier bankruptcies, and geopolitical events, and they can significantly impact the availability and cost of goods and services. Risk management models typically involve identifying potential risks, assessing their likelihood and impact, and developing mitigation strategies to minimize their impact on the supply chain. Risk management in logistics and supply chain management is a critical process that helps organizations identify, assess, and mitigate risks that could disrupt the flow of goods and services (Zaruba and Parfentenko, 2020). Effective risk management can help organizations minimize the impact of disruptions on their operations and ensure the continuity of their supply chain. One of the key steps in risk management is identifying potential risks. This can be done through various methods, such as conducting risk assessments, reviewing historical data, and consulting with experts in the field. Once potential risks have been identified, they must be assessed in terms of their likelihood and impact. The likelihood of risk refers to the probability that it will occur, while the impact refers to the potential consequences if the risk does occur.
After identifying and assessing risks, organizations can develop mitigation strategies to minimize their impact. These strategies can include a variety of actions, such as diversifying suppliers, implementing inventory management systems, and developing contingency plans. For example, diversifying suppliers can help to minimize the risk of disruptions caused by supplier bankruptcy. Similarly, implementing inventory management systems helps ensure that organizations have enough stock to meet customer demand even during a disruption. The Risk Management model also considers the insurance policy, which covers the financial loss caused by some major risks, such as natural disasters and transportation accidents. Moreover, these insurance policies may not cover all the risks, so it is important to have multiple mitigation strategies in place.
In summary, organizations can use several theories and models to optimize their international purchasing, logistics, and supply chain management operations. Some of the most important models include the strategic sourcing model, the Total Cost of Ownership (TCO) model, the bullwhip effect model and the risk management model. By utilizing these models and others, organizations can improve their supply chains’ efficiency, effectiveness and responsiveness. In addition to these models, organizations can also use other approaches to optimize their international purchasing, logistics, and supply chain management operations. For example, lean manufacturing principles, such as kanban or just-in-time inventory systems, can help organizations reduce waste and improve efficiency. The use of technology such as IoT, Blockchain and AI can also provide real-time visibility and traceability, improve accuracy and reduce human errors along the supply chain (Kaur et al., 2022).
Furthermore, organizations can gain a competitive advantage by forming strategic partnerships and collaborating with suppliers, logistics providers, and other partners to share knowledge, expertise, and resources. Using different models and approaches can help organizations optimize their international purchasing, logistics, and supply chain management operations. By using these models and approaches, organizations can improve their supply chains’ efficiency, effectiveness, and responsiveness. To gain the most benefits and achieve long-term success, organizations should regularly review and update their strategies, consider the changing market conditions, and continuously innovate and improve their supply chain operations.
The impact of theories and models
Strategic sourcing is identifying, evaluating, and selecting suppliers based on their ability to meet the organization’s needs in terms of quality, price, and delivery. Strategic sourcing aims to develop long-term relationships with suppliers that can help the organization achieve its strategic objectives, such as reducing costs, improving quality, and increasing efficiency. The Total Cost of Ownership (TCO) model is a methodology that organizations can use to evaluate the total cost of acquiring and using a product or service. The TCO model takes into account not only the initial purchase price of the product or service but also the ongoing costs of owning and operating it, such as maintenance and repair costs, training costs, and the costs associated with disposing of the product or service at the end of its useful life. The TCO model helps organizations make more informed decisions about purchasing by providing a more accurate picture of the true costs of owning and using a product or service.
The bullwhip effect is a phenomenon that can occur in supply chain management, in which small fluctuations in demand at the retail level can lead to large fluctuations in demand at the supplier level. This can occur due to a lack of communication and coordination between different levels of the supply chain, leading to inefficiencies and increased costs. One way to mitigate the bullwhip effect is by implementing effective demand forecasting and inventory management practices and increasing communication and coordination between different levels of the supply chain. Risk management is identifying, assessing, and prioritizing potential risks to an organization’s operations and implementing strategies to mitigate or avoid those risks. In the context of supply chain management, risk management can include identifying potential disruptions in the supply of goods or services and implementing contingency plans to minimize the impact of those disruptions (Ivanov et al., 2019). This can include developing backup suppliers, stockpiling critical components, or diversifying the sources of materials or services.
Overall, these models contribute to delivering superior goods and services in a competitive business environment by allowing organizations to make more informed decisions about how they source materials and services, better manage costs, mitigate risks and respond to fluctuations in demand. The ability to effectively implement these models and processes can help organizations remain agile and adaptable to market changes, helping them stay competitive in the long term.
Application of theory to the real-world scenario
One practical application of the bullwhip effect theory in real-world scenarios is retail supply chain management. Retailers often face a high degree of uncertainty in customer demand, which can cause the bullwhip effect (Ernawati et al., 2021). By implementing demand forecasting techniques and working closely with suppliers, retailers can better predict and respond to customer demand. This can help them avoid stockouts, leading to lost sales and unhappy customers. Additionally, retailers can use inventory management techniques, such as just-in-time inventory systems, to align their inventory levels with actual demand better. This can help them reduce the excess inventory they carry, leading to cost savings and increased efficiency.
Another practical application of the bullwhip effect theory is in the automotive industry. The automotive industry is known for its long and complex supply chain, making it difficult for manufacturers to predict and respond to customer demand. By implementing demand forecasting techniques and working closely with suppliers, manufacturers can better anticipate customer demand, which can help them avoid overproduction or stockouts. Additionally, manufacturers can better use inventory management techniques to align their inventory levels with actual demand. This can help them reduce the excess inventory they carry, leading to cost savings and increased efficiency.
The last practical application is using RFID tags and IoT technology. RFID tags allow retailers to track products as they move through the supply chain, giving them a more accurate view of customer demand. By using IoT technology, retailers can collect and analyze product movement and sales data, which can help them anticipate customer demand more accurately (Halbauer and Klarmann, 2022.). Retailers can also use this data to reduce lead times and improve the efficiency of their supply chain, which can help them reduce the bullwhip effect. Additionally, retailers can use inventory management techniques such as Just-In-Time (JIT) systems. JIT systems aim to reduce inventory levels and improve efficiency by ensuring that inventory is delivered to retailers exactly when it is needed and not sooner. This approach allows retailers to align their inventory levels with customer demand better. Retailers can also use JIT inventory systems to reduce their excess inventory, which can lead to cost savings and increased efficiency.
Using the bullwhip effect theory in both of these examples can lead to significant business improvement by allowing companies to better predict and respond to customer demand. This can lead to superior customer service, as companies can better meet the needs of their customers. Additionally, by reducing excess inventory and increasing efficiency, companies can gain a competitive advantage by reducing costs and increasing profitability. Overall, the bullwhip effect theory can be applied in many industries. It is a powerful tool for supply chain managers and professionals to improve customer service, increase efficiency, and reduce costs, leading to improved business performance and profitability. Therefore, retailers can effectively mitigate the bullwhip effect through demand forecasting, supplier collaboration, inventory management techniques and technology. This improves customer service by avoiding stockouts and having the right products in stock when customers want them. It also leads to cost savings and increased efficiency by reducing excess inventory and speeding up the flow of products through the supply chain. This can ultimately lead to a competitive advantage for retailers in the long run.
Conclusion
International purchasing, logistics, and supply chain management are all critical components of a company’s operations, particularly for companies that operate globally. These processes can be complex and challenging, but they are necessary to ensure that companies can source products from the best suppliers, transport goods efficiently, and manage inventory effectively. International purchasing involves identifying, evaluating, and selecting suppliers from different countries, which can help companies reduce costs and improve product quality. Logistics, on the other hand, is the process of planning, implementing, and controlling the movement of goods from the point of origin to the point of consumption. Effective logistics management is crucial for reducing transportation costs, meeting customer demands, and increasing supply chain efficiency. Supply chain management, which involves coordinating and managing all the activities involved in sourcing, procurement, conversion, and logistics, is also critical for companies that operate internationally. Effective supply chain management can help companies reduce costs, improve efficiency, and increase customer satisfaction. However, managing an international supply chain is complex and multifaceted. It requires dealing with different laws, regulations, languages, and cultures. Additionally, companies need to consider the different modes of transportation, currency exchange rates, customs clearance, and tariffs, which can all significantly impact logistics and costs.
In conclusion, international purchasing, logistics, and supply chain management are all essential components of a company’s operations. They can help companies reduce costs, improve product quality, and increase efficiency. However, managing an international supply chain can be challenging, and companies need to have a strong understanding of the legal, regulatory, and cultural differences in different countries to succeed. Investing in technology, strategic partnerships, and staying current on regulations can help companies manage these complex operations effectively.
References
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