As a consultant and trainer for the past 18 years I have been involves with providing my expertise in the areas of procurement and purchasing and one of the most striking ignorance of supply chain and procurement specialists failure in understanding when a contract is actually made and how a delivery term can backfired on the buyer.
Giving a real case example.....
A purchasing executive prepare a Normal Purchase Order to a supplier in Japan and and the PO was signed off and approved by the manager of the buying company. PO was emailed on same day.
The purchase order indicate term of delivery as C.I.F Yokohama, Japan. Date of delivery was indicated as 10th April 20XX North Port, Port Klang, Malaysia. The supplier then issue a Order confirmation and requested the buyer to sign off to confirm the order.
Later, there was a dispute between the buying and the seller party and the problem arise due to the material arrive late at the port of discharge by one week causing financial loss to the buying company.
Supplier refuse any form of compensation. Reason being, their confirmation order clearly stated C.I.F 10th April 20XX Yokohama, Japan and the buyer has acknowledged and sign the document.
In this example above, the document of contract is not based on the Purchase Order but based on the Order Confirmation. The Purchase order only act as a notice that the buyer is going to buy and the seller offer their own contract to the deal.
The hierarchy of document flow is that the document that hold superior to the other document is based on when both party signed onto the same document.
If the buyer insist on having the PO as the official contract document, then they must indicate so and the seller must sign onto the PO to accept the offer to buy from the buyer and later if the seller still insist on issuing the Order confirmation, ensure that all information remain unchanged.
The 2nd error made by the buyer is failure to understand place of delivery and risk transfer of the incoterms used. Under C.I.F, the delivery is based on seller loading on board and this also where the risk is transferred to the buyer. The seller merely agreed with the buyer on C.I.F but made a correction to the buyer "error" by indicating loading up the ship as place of delivery and not a Port Klang.
Back to the issue of hierarchy of document conflict, example if the PO indicate C.I.F and the Bill of Lading indicate C.F.R and if the buyer accept the Bill of Lading, then the Bill of Lading will likely be the winner in the court of law as the law will assume that both party has waive the agreement in the Purchase order.
That is why it is very important for procurement, shipping and supply chain personnel's get themselves familiarize with document process and incoterms term of delivery to avoid mistakes.
