Procurement buyers often encounter various trade terms, and understanding them is essential for smooth transactions. These terms define responsibilities, costs, and risks in international trade.
Common trade terms like Incoterms1 help buyers understand shipping responsibilities, costs, and risks, ensuring better decision-making in procurement.
Grasping these terms will empower you to negotiate effectively and avoid misunderstandings in international transactions.
What are the Incoterms of procurement?
Incoterms are internationally recognized rules that define the responsibilities of buyers and sellers in trade agreements.
Incoterms, like FOB and CIF, clarify who handles costs and risks at each step of the shipping process.
As a procurement buyer, understanding Incoterms can prevent disputes. For example, FOB2 means the seller delivers goods to the port, and you handle the costs and risks from there.
Key Incoterms for Procurement
| Incoterm | Responsibility of Buyer | Responsibility of Seller |
|---|---|---|
| FOB | Freight, insurance, import duties | Delivery to port, export clearance |
| CIF | Import duties, delivery | Freight, insurance, export clearance |
| EXW | All costs and risks | Minimal - goods at seller's premises |
What are the 7 principles of procurement?
The 7 principles of procurement ensure ethical and efficient purchasing processes.
The principles include accountability, transparency, value for money, and sustainability, guiding buyers to make responsible decisions.
For procurement buyers, adhering to ethical procurement principles3 builds trust and ensures long-term supplier relationships.
The 7 Principles
- Accountability: Clear roles and responsibilities.
- Transparency: Open communication and fair competition.
- Value for Money: Balancing quality and cost.
- Ethical Behavior: Avoiding conflicts of interest.
- Sustainability: Considering environmental impacts.
- Fairness: Equal treatment of suppliers.
- Efficiency: Streamlined processes to save time and resources.
What are the 3 P's of procurement?
The 3 P's of procurement stand for People, Process, and Performance.
These focus on building strong teams, improving workflows, and delivering measurable results in procurement.
Improving procurement processes4 ensures better efficiency, accountability, and supplier management.
Breakdown of the 3 P’s
| Principle | Explanation | Example |
|---|---|---|
| People | Skilled teams managing procurement | Training buyers on negotiation |
| Process | Well-defined workflows | Automating purchase approvals |
| Performance | Measuring outcomes | Tracking cost savings |
What are the best Incoterms for a buyer?
The best Incoterms for buyers depend on their level of control over shipping and associated risks.
DDP5 (Delivered Duty Paid) and FOB (Free On Board) are buyer-friendly as they minimize responsibility and ensure smoother transactions.
Choosing the right Incoterm6 depends on your priorities. For example, DDP shifts all shipping and duty responsibilities to the seller, while FOB gives you more control over shipping costs.
Buyer-Friendly Incoterms
| Incoterm | Buyer Benefits |
|---|---|
| DDP | Seller handles all responsibilities |
| FOB | Buyer controls shipping costs |
| CIF | Seller manages freight and insurance |
Conclusion
Understanding trade terms like Incoterms, procurement principles, and buyer-friendly options ensures effective procurement processes and risk management.
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Comprehensive guide to Incoterms and their roles in procurement. ↩
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Detailed explanation of FOB (Free On Board) and its implications. ↩
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Overview of ethical procurement principles. ↩
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Explanation of the 3 P’s of procurement and their importance. ↩
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Overview of DDP (Delivered Duty Paid) and its benefits for buyers. ↩
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Buyer-friendly Incoterms and how to choose the best one. ↩
