LAW 3111 MEMO ASSIGNMENT You were recently hired as an associate in the procurem
ID: 347838 • Letter: L
Question
LAW 3111 MEMO ASSIGNMENT You were recently hired as an associate in the procurement department of a local construction company, Grump Industries. Yesterday, the head of the company, Ronald Grump, came to your office and told you that he had located a supplier of high-grade iron rebar in China. Rebar is the life-blood of the Grumpf it is used in the construction of concrete buildings, bridges and roadways. Grumpf explained that in the past the company bought its rebar from U.S and Mexican companies, and it was delivered by truck. But lately, the price of high quality rebar has been rising on world markets, and there have been some shortages. Grumpf explained to you that the sellers in China offered good quality at a good price, and he wanted to buy from them CIF NY. He said he was worried about shortages (and getting "squeezed," and not getting what he paid for The only problem, Grump tells you, is that the sellers insist on "payment against documents." Grump says he had never done anything like that before, and is worried about paying before getting the goods. Grump demands that you submit to him a one-page memo setting out the benefits and risks of the proposed documentary sale, and your suggestions on how to manage those risks. IMPORTANT: All submissions must be word-processed and checked for spelling, diction and grammar. Memos must be at least 12 point font with inch margins. Space-and-a-half or double space, please. No more than 1 page. Only hard copy submissions are acceptable.Explanation / Answer
Memo
To: Ronald Grump, Grump Industries
From: ABC, Procurement Associate
Date: March13, 2018
Subject: Analysis of payment against documents payment tool
Payment against documents is a payment tool generally used in international transactions. Here the buyer gets the shipping/delivery documents only when the full invoice payment is done.
This mode of payment is used by international suppliers to ensure that they receive the payments from the importer via legal methods. It will help Grump industries, as it is easier than using line of credit and cost of using this tool is comparatively lower than line of credit. It is also comparatively faster.
The concern here is that we are issuing the payment without seeing or receiving the actual shipment. Also, in case of a quality or another order related issue, we will have less bargaining power with the Chinese suppliers, provided they will have order payment already done.
We will although have the ability to examine the documents before authorizing the payment, and we can demand better terms in lieu of advance payments.
To mitigate the risks of using this tool, we should demand better terms or discounts on our orders. We should also start with smaller order sizes, to better assess the quality of the Chinese suppliers. After analyzing the effectiveness of these suppliers we should chose one or more prime suppliers who can offer us best terms at best cost and quality, and chose to build long term relationships with them to ensure we can reap the benefits of supplier development in the long term.
Lastly, we should also demand references from the suppliers to cross check their business’s rating in the industry and international markets.
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