How to use the purchasing environment to reduce procurement costs?

By justchinait
December 1, 2020

The project’s procurement environment will have a significant impact on the formulation of procurement strategies and the implementation of procurement plans.

The procurement environment includes the macro environment and the microenvironment.

1. The macroenvironment refers to the external environment that can affect the project organization and how to purchase, including changes in national macroeconomic policies, adjustments in fiscal and financial policies, fluctuations in market interest rates and exchange rates, inflation and its trends, wars, strikes Various factors such as political turbulence and seasonal changes in the market.

2. The micro-environment refers to the project organization’s internal conditions, including the organizational policies, methods, and procedures that the project organization may adopt in procurement, project funding conditions, site, roads, docks, and other receiving conditions.

On the premise of complying with the micro-environment principles and effectively using the macro-procurement environment, scientifically organize the supply of materials and effectively reduce procurement costs.

The specific approach is as follows:

1. In the buyer’s market, use fierce competition among suppliers (mostly manufacturers) to organize supply

The characteristics of this supply mode are sufficient and stable supply, ideal prices, payment for goods can be postponed, excellent service, and a considerable proportion of materials can be delivered directly to the construction site. The cement market in Bangladesh after 2000 is a buyer’s market. Small shot countries include Japan Pacific, South Korea’s Hyundai, Hong Kong Seven Rings, Mexico’s Cemax, the local Tiger, Wuma, Shan, Scan, and other well-known brands cement plants. This situation.

2. Use foreign exchange and exchange rates to lower purchase prices

A certain percentage of U.S. dollar payments for overseas projects provide conditions for us to use foreign exchange and exchange rates to reduce procurement costs. The U.S. dollar as the world currency is more reliable than that of the less developed countries in Southeast Asia. It is possible to sign a purchase contract with a supplier that is priced in local currency and settled in U.S. dollars and is converted into U.S. dollars at the exchange rate on the day of delivery.

In this way, as the local currency continues to depreciate, the same amount of goods will pay fewer dollars. Suppliers can get a national tax rebate for foreign exchange operating income. This cooperation can last for some time but is restricted by the federal tax rebate policy. In recent years, this kind of supply method in Myanmar and Bangladesh has achieved relatively satisfactory results.

3. Seasonal material preparation, use and avoid market deviation of material supply and price

The seasonal market deviation has the following two aspects:

①. The project construction is affected by the climate and is in the off-season (such as the off-season construction in winter and the off-season construction in the rainy season), and the price of materials generally drops;

② Material production and transportation are affected by climate and climate-derived factors, and material prices deviate from normal levels.

Therefore, seasonal material preparation also includes two meanings,

①. Make use of the reduced demand for materials in the off-season and the decrease in prices. Properly prepare the documents (such as implementing the FIDIC contract and the material prepayment clause, you can fully develop the materials). If the off-season is not low, you can also report the budget and speed up the recovery of funds.

②. Avoid the shortage of supply and rising prices due to climate and climate-derived factors affecting material production and transportation. For example, during the rainy season, open-air brick factories in lowland countries in Southeast Asia have a six-month shutdown period; cement plants also shut down accordingly. Water transportation is entering the golden season, suitable for the preparation of sand and stone materials.

4. Make use of the globalized international market to fight against the monopoly supply of certain primary materials by large suppliers with special status

At present, most of our overseas projects are concentrated in relatively small underdeveloped countries, and resource shortage is their common feature. Large government-backed companies and large international consortia control primary local supplies in short supply, such as steel, asphalt, and oil, forming a monopoly supply, seriously affecting project implementation and cost control.

Using the globalized international market, relying on the precious resources of the motherland and comprehensive open policies, understanding and mastering global economic and trade-related knowledge and general market information can effectively counter the monopolistic supply of certain primary materials by large suppliers with special status. The steel for the Myanmar shipyard project is imported from China; the asphalt for the Bangladesh highway project is imported from India, and anchors and high-strength steel strands are imported from China are more successful examples.

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