Managing global purchasing is basically managing supplier relationships and managing supplier relationships is a critical component of an effective purchasing operation.

The trend in business is leading toward a reduction in the number of suppliers reinforcing the need to select quality suppliers and develop and maintain strong relationships with them. And in dealing with business people in other countries, it is important to be sensitive to local business practices and etiquette, negotiating and entertainment styles, as well as the cultural influences on the business environment.

If there is one word which represents the basis for successful relationships in global purchasing, that word would be "TRUST".

Trust is the foundation and key to effective customer-supplier relationships. Trust is the foundation and key to effective customer-supplier relationships. But, "trust" unlike expression such as "cooperative supplier relationships" which can be based and measured by a number of practical and quantifiable criteria, "trust" is a philosophical idea.

To translate "trust" from a philosophy into workable set of practices and action, it requires three components - according to Timothy Laseter, vice president of Booz-Allen, and Hamilton in New York: 

MUTUAL DEPENDENCY: "This occurs when both parties understand that cooperation is necessary for each company to succeed."

AMBITIOUS GOAL: Alone, mutual dependency can lead to stagnation but common goals drive both sides to achieve the best they can from the relationship. A company might begin with the philosophy that suppliers should be as profitable as their customers, resulting in win-win negotiations, shared-savings programs, and incentives for superior performance.

KNOWLEDGE OF COMPETENCY: Blind trust of even the most committed supplier is misplaced, Laseter argues, noting that mutual dependency and common goals are meaningless if a supplier lacks capacity to meet customer requirements.

But, in spite of the best relationships possible, and on a continuous basis, monitor the performance of your suppliers by tracking changes that may affect their ability to meet your supply needs such as:

In addition, you still need a more elaborate system.

Define a Performance and Review Program to monitor your suppliers. It becomes very costly dealing with poor performing suppliers, and if you lack the measures you are doomed to a life of putting out fires started by someone else.

Following the lead of world-class purchasing departments, more and more companies are developing formal program to measure performance throughout the supply chain. The Performance and Review Program should be tailored to your company’s needs and objectives. In addition, on regular basis re-qualify your existing suppliers and plan for contingencies: 

Ask yourself the following:

And, make sure you source new avenues of supply for back-up before it’s too late.

Regular negotiations are a part of global purchasing.
The globalization of product and service, competition and global purchasing turned the table-banging negotiator of the past into a kinder, gentler advocate of trust-based partnerships.
As a matter of fact, the table-banging negotiations were never part of the international business culture.

The pricing strategy and the terms of sale related to global purchasing should take into account these additional considerations:

It is critical for a firm engaged in global purchasing to understand the international trade terms, the relevant cost and risk assumptions, so that they can minimize the risk associated with ownership of goods, while effectively managing the total costs associated with a shipping program.

A useful exercise in establishing the price is to develop a pro-forma invoice which includes all of the specific costs associated with getting the good all the way to your premises, or at least on-board ship.

At the initial prices negotiation with suppliers, it is advisable that you develop some tool to help you track price increase. This tool, such as SCI (Sourcing Cost Index), which prevents any conflict between you and your supplier when it comes to price increases and might even create an atmosphere where the supplier is encouraged to initiate cost freeze or cost reduction while delivering increased value.

To be effective, and fair, this tool should include overall commodity prices, economic factors that drive those commodities, strength of the dollar, wage, technology, etc. Tactically, this index gives the buyer leverage over the supply base as they have a better idea of the suppliers’ cost structure. It is a powerful negotiation tool. Through the index, buyers have a numerical backup to support their sense of the market.

There are several methods of payment in common use by firms engaged in international purchasing. The selection of a method of payment involves a trade-off between credit risk exposure for the seller versus issues of cost and convenience for the buyer.

The four principal methods include:

Be aware of governments’ standard forms agreement or contract. Customarily, such forms are utilized merely as a starting point. They should not be used blindly, that is, without being tailored to the particular supplier or transaction and to the laws of the countries involved.

In general, in your negotiations, you should think about the following issues:

The logistic of global purchasing must be closely evaluated.
Shipping product from overseas involves a number of different parties (e.g. freight forwarders, shipping companies, customs, etc.) as well as specific requirements for packing, labeling, documentation, and licensing.

Many companies out-source the responsibility to freight forwarders and other trade service providers for coordinating the shipments and meeting these various requirements.

However, it is still important to fully understand the various considerations (including costs and risks) in order to avoid unnecessary problems and ensure that the associated expenses are incorporated into the total cost of the product imported.   
One of the considerations is the transportation options. When determining the mode to be used in international shipping, the importer/exporter should consider the total logistics cost, not simply the least cost transportation option.

Although air carriers are more expensive from a narrow transportation cost measurement, their cost may be offset by lower domestic shipping expenses or reduced inventory carrying costs. Ocean transport is cheaper but slower, and requires further transportation arrangements should the goods be bound for an inland destination.

Documentation is an important element of the import/export process and is primarily driven by the requirements of both exporter's and importer's governments. However, trade documentation is also needed to support financial aspects of the transaction, such as the insurance of the shipment and collection of payment from the importer or his bank. The following documents are commonly used in exporting/importing, although which are actually used in each case depends on the requirements of both the governments involved.

Documentation must be precise. Slight discrepancies or omissions may prevent merchandise from being imported, cause delays or even result in the seizure of the shipment by the customs authorities. Much of the documentation is routine for freight forwarders or customs brokers acting on the firm's behalf, but the exporter is ultimately responsible for the accuracy of the documentation.

While developing a global purchasing strategy, you should consult with the necessary trade service providers in order to establish the costs involved in a given transaction. The most important trade service providers for importing include banks and freight forwarders.

Firms dealing in the international marketplace must deal with a number of financial risks, including foreign exchange risks and the risk of damage to goods while in transit. Fortunately, the banking and insurance industries have developed a number of products and mechanisms to help their clients lay off these risks, including:
The insurance industry offers various types of insurance policies to protect goods in transit against theft or damage. Cargo insurance coverage can vary between "minimum cover" policies and "all risks" policies, at the discretion of the insured. Insurance can be purchased for a specific shipment or cover all shipments for a set time period (open cover policy).