Financing, Procurement and Logistics

Question 1

Cash-Flow Financing

Answer 1

• Large infrastructure projects
• Financing from
  expected earnings

Question 2

Commercial lenders

Answer 2

• EulerHermes
• Delcrede Ducroire
• OPEC - Fund for International Development
• China Export-Import Bank

Question 3

Classic funders

Answer 3

• World Bank
• KfW – Kreditanstalt für Wiederaufbau
• African Development Bank
• AFD – Agence Française de
  Development
• Asian Infrastructure Investment Bank
• Islamic Development Bank

Question 4

Financing Models

Answer 4

• Build-Own-Operate (BOO)
• Design-Build-Operate
  (DBO)
• Renovate-Own-Transfer
  (ROT)
• Design-Construct-Manage-
  Finance (DCMF)
• Design-Build-Operate-
  Transfer (DBOT)
• Build-Rent-Transfer
  (BRT)
• Build-Operate-Transfer
  (BOT)
• Build-Own-Operate-
  Transfer (BOOT)

Question 5

Characteristics of a project financing

Answer 5

• Cash-Flow Financing
• Off-Balance-Sheet Financing
• Risk Sharing
• Sponsor

Question 6

Off-Balance-Sheet Financing

Answer 6

• Liability of the sponsors
• Guarantees outside the
  balance sheet of the sponsors

Question 7

Risk Sharing

Answer 7

• Risk distribution
• Sponsors
• Banks
• Insurances
• Suppliers
• Etc.

Question 8

Sponsors

Answer 8

Promoter providing equity capital for implementation of project and exercising an ownership function

Question 9

Guarentee in Germany

Question 10

Guarantee in international projects

Question 11

Strategic Procurement

Answer 11

• Market/price evaluation
• Global procurement
• Customer relationship
• Process improvement
• Product improvement
• Volume concentration

Question 12

Make-Or-Buy-Portfolio

Answer 12

Internal influence factors:
- Has the service a high strategic importance (differentiation possibility, performance on critical
path, etc.) ?
- Are technical know-how and
capital available?

External influence factors:
- Are services available on
procurement market? Is there a suitable subcontractor?
- What are advantages of outsourcing in terms of price, quality, flexibility and reliability?

Question 13

Procurement Process

Answer 13

1. develop general product and supplier information
2. meet demands
3. assess supply market
4. set procurement strategy
   Strategy:
5. select suppliers
   Tactic:
6. conduct negotiations
   Contract:
7. integrate suppliers
8. continuous evaluation

Question 14

Strategies of procurement objects –”Standardization and modularization”

Answer 14

Strategies:
Standardization through …
… increased use of
components, methods or processes
… prefabrication
… modularization

Goals:
- Improving productivity and quality
- Reduction of costs and construction time

Question 15

Strategies of procurement financing

Answer 15

• Local Sourcing
• National Sourcing
• Global Sourcing
• Supplier Credit
• Operate-Leasing
• Bill of Exchange
• Finance Leasing

Question 16

Local Sourcing

Answer 16

• Purchasing from suppliers in immediate vicinity of construction site
• Low logistical risk potential
• low costs of communication and order processing
• intensive cooperation and high flexibility

Question 17

National Sourcing

Answer 17

• Sources of supply in own country
• Price reduction through expansion of possible
  procurement sources

Question 18

Global Sourcing

Answer 18

• Global purchasing through indirect import
• Cost advantages due to lower wages, taxes, energy and raw materials
• Lower standards of environmental protection
• Reduced dependence on national suppliers and
  more intense competition
• Political, cultural, legal and tax risks
• Logistical uncertainties (risk correlates with length of transport routes)

Question 19

Supplier Credit

Answer 19

• If customer does not pay supplier, a credit relationship arises
• Credit granted either with express authorization or involuntarily
• particularly convenient and simple form of debt financing
• no interest, but costs due to non-utilization of cash discount

Question 20

Operate Leasing

Answer 20

• Rental agreement terminable by both parties at
  short notice (useful life shorter than technical
  life, e.g. rental of equipment for construction period)
• Advantage: Increase in liquidity and avoidance of risks

Question 21

Bill of Exchange

Answer 21

• Security that is subject to strict legal regulations and can be passed on to third parties as a means of payment
  ▪ Supplier advantage: Liquidity is not burdened
  ▪ Advantage for the customer: Extension of payment period to up to 180 days

Question 22

Finance Leasing

Answer 22

• Lease agreement not terminable for a certain
  period of time
• Rates are to cover acquisition, ancillary and
  financing costs

Question 23

Strategies of procurement organization

Answer 23

• Central procurement
• Lead-Buyer-System
• Decentralized procurement

Question 24

Central procurement: Advantages

Answer 24

• Higher demand and negotiating power towards suppliers = more favorable prices
• Uniform appearance -> reduction of market segmentation efforts by suppliers
• Better enforceability of strategic procurement decisions -> e.g. framework agreements
• Less coordination effort
• Development of special knowledge about building
  materials and materials of complex trades
• Lower probability of bribery

Question 25

Central Procurement: Disadvatages

Answer 25

- Bureaucratization tendencies -> cumbersome and reduced flexibility - Remote operation and market -> low employee satisfaction and motivation

Question 26

Logistics in construction projects

Answer 26

1. Planning building usage Start Planning Logistics: 2. Building design 3. Planning construction 4. Construction (Construction site logistics) End Planning Logistics: 5. Building usage

Question 27

Logistic goods in construction project

Answer 27

Construction site: - Employees - Spare parts - Devices - Materials - Know-How

Question 28

Transport systems in logistics

Answer 28

- ship - truck - train - plane

Question 29

Ship 1. Duration 2. Flexibility 3. Reliability & Punctuality 4. Stress on transported goods

Answer 29

1. Low transport speed 2. - Fixed routes - Low departure density - No weight and volume limitation 3. Exactly to the day 4. - Containers: low - Conventional packaging: high

Question 30

Truck 1. Duration 2. Flexibility 3. Reliability & Punctuality 4. Stress on transported goods

Answer 30

1. Average transport speed 2. - Spatially and temporally very flexible - Weight and volume limitation 3. Exactly to days 4. - Containers: low - Conventional packaging: medium

Question 31

Train 1. Duration 2. Flexibility 3. Reliability & Punctuality 4. Stress on transported goods

Answer 31

1. Average transport speed 2. - Spatially and temporally limited flexibility - Weight and volume limitation 3. Exactly to the day 4. - Containers: low - Conventional packaging: medium

Question 32

Plane 1. Duration 2. Flexibility 3. Reliability & Punctuality 4. Stress on transported goods

Answer 32

1. High transport speed 2. - Tightly woven network - High departure density - Weight and volume limitation 3. - Exactly to the hour - Possible delays with clearance in host country 4. Low

Question 33

Spare parts supply

Answer 33

Option 1: Provision of extensive spare parts warehouse - Advantage: Constant availability of many spare parts - Disadvantage: Commitment of a large capital for a long time Option 2: Quick purchase and transportation after demand determination - Advantage: Exclusively purchase of required spare parts - Disadvantage: High purchase/transport costs per part Optimal: combining both methods (first phase: option 1, second phase: option 2)