Procurement: Why do small and medium enterprises avoid a global procurement strategy?
Working in a global economy transforms a company and the people within it. The rules of engagement are different and as a result the expectations are greater. Participation in a global materials procurement marketplace will challenge the organization in many ways and here is a list of the most common activities that management and staff will need to prepare themselves for:
- Cultural values are different – Evening engagements involving exotic dinners and some alcohol is out of step with North American entertainment activities
- Language – English is a second language to everyone but yourself
- Travel expectations – Chinese personnel have difficulty getting travel visas, for this reason the travel responsibility is borne by the company
- Travel budgets to account for long distance and extended duration of trips have not been part of the organization
- Cannot be without any staff for any extended period of time
- Negotiations tend to be brokered using a translator … how do you know you have a person that is working for you?
- Payment terms are 50% down with purchase order and second payment when container loaded on cargo ship – North American payment term schedules (30 days, 60 days, etc…) are not available
- Banking practices – purchase order payments either done by Letter of Credit (LC) or Electronic Funds Transfer (EFT)
- Added banking costs associated with payment processes
- Lack of knowledge and skills as a contact to work in global marketplace
- Hours of work – must be prepared to work late evening hours as timezone change is 12 hours
- Production lead times can be shorter however shipping lead times are longer
- Confusion on Minimum Order Quantity (MOQ) – MOQ’s are less but usually must purchase by container load to get best shipping cost averaging