Procedure And Documentation In International Purchasing notes

TOPIC 2 :

Procedure And Documentation In International Purchasing

Methods Of Specifying Requirements In International Purchasing

Specification: A specification for an item has been defined as ‘a statement of the attributes of a product or service. It is basically a description of an item, its dimensions, analysis, performance or other relevant characteristics in sufficient detail to ensure that it will be suitable in all aspects for the purpose for which it is intended.

There are two main approaches to specification that are performance and conformance.

• The idea of performance specification is that a clear indication of the purpose, function, application and performance expected of the supplied material or service is communicated and the supplier is allowed or encouraged to provide an appropriate product. In this case, the detailed specifications is in the hands of the supplier where applicable, performance specifications are to be preferred in that they allow a wider competition and enable suppliers to suggest new or improved ways of meeting the requirements.
• Design : Conformance specifications apply in situations where the buying organisation lays down clear and unambiguous requirements that must be met (In this case the specification is of the product, not the application). This type of specification is necessary where for example items for incorporation in an assembly are required or where a certain chemical product is to be acquired for a production process. It has been said that specifications restrict innovation.

 

Additional methods of specification:

Can be done both manually and electronically.

Manual :

• Use of brand or trade name: This will be applicable under the following circumstances:
• When manufacturing process is secrete or covered by a patent
• When manufacturing process of the vendor call a high degree of skill that cannot be exactly defined in a specification
• When only small quantities are bought so that the preparation of the specifications by the buyer is impracticable
• By sample: The sample can be provided either by buyer or seller and is useful method of specification in relation to printing and some raw materials e.g. cloth. When sample specifications are used:
• The bulk must correspond with the sample in quality
• The buyer must have a reasonable opportunity of comparing the bulky with the sample
• The goods must be free from any defect making their quality unsatisfactory which a reasonable examination of the sample would not reveal.

 

The value of specifications:

Specification will ensure that:

• All commodities specified will be suitable for their intended purpose when put in place
• Materials is of a consistent quality at all times
• The inspection or testing to be applied to goods purchased is notified in advance to the inspection section and to suppliers
• In respect of the purchase of the specified items, all suppliers will have the same date on which to base the quotations

Guidelines to specifications:

• Avoid over-specification: This may lead to goods becoming more expensive and also may be difficult to find a manufacturer willing to quote
• Avoid under-specification since this may lead to inferior goods and services
• In order to be practicable, pay attention to convenience in handling and storage
• If there is to be inspection after delivery, the specifications ought to state what tests are to be applied
• If any special marking or packing is wanted, include the relevant instructions in the specifications.

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Procedures in international purchasing:

1. Identification of a need by the user(s) department
2. Send purchase order requisition to procurement department
3. Identification of overseas suppliers by the procurement function: This can be done by use internet, import brokers, directories etc.
4. Send request for quotation to overseas suppliers
5. Receive proforma invoice (Commitment from Overseas suppliers to provide specified goods to the buyer at specific prices).
6. Evaluate the suppliers
7. Select the supplier(s)
8. Write and place contracts
9. Obtain import declaration form (IDF)-This is an import control document provided by the ministry of trade and industry to monitor imports into the country. It is mandatory for importers to complete import declaration form at the time of placing import orders.
10. Receive bill of lading or airway bill from overseas supplier(s)
11. Notify the clearing agent at task of clearing the goods
12. Receive the goods from the transporting agent.
13. Pay the overseas supplier if the agreement is based on payment after receipt of the goods.

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Factors to consider when planning international purchasing:

The following factors generally hamper planning for international purchasing:

• International risks: These risks relate to:
• Financial factors such as currency uncertainty, financial policy uncertainty and financial effect of economic performance
• Economic factors such as performers of economic indicators etc
• Political factors such as radical changes in government composition or policies
• Operational environmental factors such as the legal structure of the country of export, the rules and procedures governing international trade.
• Logistical barriers: Long distances mean increased transport costs and long delivery times, hampering the supplier in rendering a service
• Customs regulations and duties: Import duties can disrupt prepared cost estimates at very short notice, political motives in the importing country can hamper purchases on specific foreign markets etc
• Nationalism: Local source preference is a factor that influences the development of an international purchasing policy and strategy.

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METHODS FOR CERTIFYING QAULITY OF GOODS IN INTERNATIONAL PURCHASING

1. Inspection by KEBS
2. Exporter Iso certification
3. Export certification sticker
4. Goods declaration form
5. IDF control form

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Criteria for deciding mode of transport for international purchasing:

1. Cost of the transport
2. The urgency of the material
3. Nature of the material
4. Distance covered
5. Availability of the means of transport5
6. Flexibility of the mode of transport
7. Reliability of the mode of transport
8. Efficiency/effectiveness

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Kenya Freight Clearance and Forwarding Procedures

1. Kenya Customs Clearance Procedure

Imports into Kenya undergo various tasks through Kenyan customs and Kenya Port Authority during clearance of freights and cargo in Kenya. All this are procedures that freights and cargo undergo and carried out by Kenya clearing ageants and Kenya Revenue Authority (KRA) Customs officials.

1.1 Customs Declaration

All going well, prior to actual vessel arrival date in Mombasa, the shipping line lodges its online manifest with customs (into Simba Tradex system) and the port authorities (port KWATOS system). The manifest number pertaining to the concerned shipment on board of the vessel is advised by the shipping line. Special attention has to be given to the place of clearance (port / CFS (Container Freight Station) as this may differ depending on special nature of the cargo (dangerous cargo) or special request from the importer as stated on the bill of lading or granted by the ports authorities (see point 1.3 – Container Freight Station consigning above).

Against the uploaded manifest, a customs entry is prepared on the Simba Tradex online system by the importers clearing agent.

Parallel to this, once the manifest is uploaded by the shipping line, the original Bill of Lading duly endorsed by the consignee (or the telex release) is submitted to the shipping line for issuance and release of a delivery order. This is done after settlement of the local shipping line charges. The shipping line has to ensure the delivery order is also uploaded online.

Uploaded entries are passed after either payment of duties or confirmation of exemption by means of the exemption letter code in the customs system.

1.2 Customs Long Room Formalities

A customs folder is prepared by the clearing agents declaration team, and a set of documents is
dispatched to customs long room in Mombasa where the documents are endorsed after being checked by customs. Endorsed documents are dispatched to the point of final clearance, i.e. Port of Mombasa (KPA) or nominated Container Freight Station to the resident customs officers.

At the point of clearance the mode of verification is assigned by customs and executed i.e. sight and release, direct release, normal verification, 100% verification, scanning, etc…

1.3 Customs Verification and / or Scanning

For scanning the container is loaded on a truck and passed through the scanning machines either in the port or at the Container Freight Station. If the scanning image shows any irregulaties, customs will usually proceed to do verification.

For customs verification containers have to be placed down, opened and stripped. If verification is to be performed at a Container Freight Station, all cargo has to be transferred to the respective Container Freight Station by the Container Freight Station operator.

A verification report, which must tally with the customs declaration, is inserted on the Tradex – Simba system by the Customs Officer. If the results of the designated verification procedure indicate any abnormalities then the customs will usually proceed for 100% verification. Any discrepancies on value-quality-quantity or the finding of any undeclared items will lead to customs raising an offence for which the outcomes are varied and guided by the customs management act.

If cargo was not verified / scanned or if the results of this was a clean bill, customs can issue a customs release order once it is confirmed that the delivery order obtained earlier is reflecting online (indicating the clearing agent for which the cargo was checked by customs is indeed to be released to this clearing agent).

1.4 KPA Pick Up Order or Container Freight Station Release order

A pick up order is generated via the Kwatos website, on line, for all consignments cleared within the port of Mombasa. This pick up order is attached to the set of documents (which includes the delivery order, passed customs entry, customs release order) and presented to CDO (Customs Documentation Office) at Port.

Port Charges are then paid usually by deducting the clearing agents running account with the port. Cargo can then be evacuated out of the port premises. Allocated truck and trailer must be booked via kwatos for loading purposes.

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Documentation in international purchasing

Introduction:

Documentation in international purchasing plays an important role in perfection of commercial transactions. Both exporters and importers are duty bound to handle documents properly. Documentation must be precise because slight discrepancies or omissions may prevent merchandise from being exported, result in nonpayment, or even result in the seizure of the shipment by customs. Collection documents are subject to precise time limits and may not be honored by a bank if time has expired. Most documentation are routinely handled by freight forwarders and customs brokers, but the exporter is ultimately responsible for the accuracy of its contents.

1. Bills of exchange:

This is defined as ‘’unconditional order” in writing addressed by one person (the drawer) to another (the drawee) signed by the person giving it (the drawer) requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time a sum certain in money to or the order of a specified person or to the bearer (the payee). The bills of exchange (often referred to as drafts) are used to establish a written legal undertaking to pay a sum of money. Finance may be arranged in a number of ways using bills of exchange, both for the buyer (drawee) and for the seller (drawer). The drawee signifies an agreement to pay on the due date by writing an acceptance across the face of the bill. Bills of exchange are widely used in international trade, partly since they are convenient tools for collecting payment from traders abroad. After payment the discharged bill of exchange is retained by the drawee as evidence of payment, in other words it becomes a receipt for money.

2. Letters of credit:

A letter of credit arrangement will be agreed upon in the contract of sale. The buyer instructs a bank in his own country (the issuing bank) to open a credit with a bank in the seller’s country (the advising bank) in favour of the seller, specifying the documents which the seller has to deliver to the bank for him to receive payment. If the correct documents are tendered by the seller during the currency of the letter of credit arrangement, the advising bank pays him the purchase price or accepts his bill of exchange drawn on it, or negotiates his bill of exchange, which is drawn on the buyer.

Types of letters of credit:

Letters of credit can be revocable or irrevocable, confirmed or unconfirmed. Whether the credit is revocable or irrevocable depends on the commitment of the issuing bank. Whether it is confirmed or unconfirmed depends on the commitment of the advising bank. These commitments are undertaken to the seller, who is the beneficiary under the credit. There are four main types of letters of credit, namely, the revocable, and unconfirmed letter of credit, the irrevocable and unconfirmed letter of credit, the irrevocable and confirmed letter of credit and the transferable letter of credit.

1. The revocable and unconfirmed letter of credit: Neither the issuing nor the advising is committed to the seller nor as such the credit can be revoked at any time. This type of credit affords little security to the seller that he will receive the purchase price through a bank.
2. The irrevocable and unconfirmed letter of credit: In this case, the authority that the buyer gives to the issuing bank is not revocable and the issuing bank is obliged to pay the seller provided that he has tendered the correct document before the expiry of the credit.
3. The irrevocable and confirmed letter of credit: In this type, the advising bank adds its own confirmation of the credit to the seller. Thus, the seller has the certainty that a bank in his own country will provide him the finance if the correct documents are tendered within the time stipulated. The confirmation constitutes a conditional debt of the banker i.e. a debt subject to the condition precedent that the seller tenders the specified documents. A confirmed credit that has been notified cannot be cancelled by the bank on the buyer’s instructions.
4. The transferable letter of credit: The parties to a contract of sale may agree that the credit is transferable. The seller can use such credit to finance the supply transaction. The buyer opens the credit in favour of the seller and the seller (who in the supply transaction is the buyer) transfers the same credit to the supplier (who in the supply transaction is the seller). This type of credit is used when a person buys goods for immediate resale and wishes to use the proceeds of resale to pay the original seller.

 

3. Shipping documentation:

Numerous documents are required for shipping. The primary shipping documents entail:

1. Air way bill: This is the consignment note used for carriage of goods by air. It is basically a receipt for goods for dispatch and is prima facie evidence of the conditions of carriage.
2. Bill of lading: This is a receipt for goods shipped on board a vessel, signed by the person who contracts to carry them and stating the conditions in which the goods were delivered to (and received by) the ship.
3. Commercial invoice: This is a document used in foreign trade. It is used as a customs declaration provided by the person or corporation that is exporting an item across international borders.
4. Certificate of origin:This is a declaration which states the country or countries of origin of the goods. The certificate should include the name and address of the exporter, the manufacturer, and importer, description of the goods as prescribed in invoice, signature and seals of the authorizing organization.
5. Insurance certificate: This is a document issued by insurance company/broker that is used to verify the existence of insurance coverage under specific conditions granted to litails of the packing of the goods. The documents are required by customs authorities to enable them to make spot checks or more thorough checks on the contents of any particularly content.

 

4. Customer documentation:

A customer (importer) is duty bound to submit to customs authorities import documents.  The prime Customer documentations comprise:

• Import declaration form (IDF): This is an import control document provided by the ministry of trade and industry to the importer.
• Proforma invoice
• Payment acknowledgement
• Import license: This is a document issued by a national government to the importer authorizing importation of certain special goods to its territory.
• Custom import entry: This is a document that shows declaration of information on imported goods.
• Single administrative document (SAD) – C88: This is a document used to clear imports. The C88 allows a legal declaration for the import of goods to be made on one form – therefore the signatory takes responsibility for the import.
• Clean report of findings (CRF): This is a report issued by an inspection firm, specifying that the price has been verified and the goods have been inspected before shipment and that both of these comply with the buyer’s specifications.

5. INCOTERMS:

Incoterms- which is an abbreviation for International Commercial Terms entail a set of rules for interpreting trade terms in international trade. They were first published in the international chamber of commerce (ICC) in 1936. They have been updated many times over the years. The new incoterms 2010 became effective January 2011. The basic function of Incoterms is to clarify how the functions, costs and risks are divided between the buyer and the seller in connection with delivery of the goods as required under a contract of sale. The key issues relate to delivery, risks and costs. Each Incoterm clearly stipulates the responsibilities of the seller and the buyer. Incoterms cover all types of transport systems, including intermodal and multimodal. They only apply legally when both parties to the contract agree. Incoterms are divided into four distinct groups, which are: