5. How to acquire and purchase training equipment
Best coverage of all commercial terms you need to consider when buying education training systems for your vocational training center or your engineering education lab. This blog article is also chapter from the Free eBook: Managing Technical Training Equipment.
When you have settled on which training equipment you would like to implement into your training center, learning lab or classroom, it is time for acquisition.
You might have to run through a tendering process, or you might be able to buy the training equipment outright without competitive bidding. This would depend on your organizations purchasing policies.
Below we will run you through a few key parameters to consider in any purchasing scenario, and why they are relevant in the industry of didactic training equipment.
You might have received quotations from various supplier with different commercial terms, what does all of this mean and what information should you focus on?
Let us jump straight in!
Product & Services
Any type of quotation will always specify what products are offered. Review this information to clarify that the product name and the product code is corresponding with those which you are looking to purchase.
Also, have you requested any services such as installation support, training, commissioning etc.? Are these services written out on the offer?
Additional services are always important to clarify upfront before placing an order, specifically because it clarifies the full cost of your project, but also because the sellers are more inclined to offer something for free before you have ordered a product, rather than if you ask for extra services afterwards.
Make sure to check that the one-time price is aligned with what has been agreed or is expected, and that the incoterms are justified for your case (more on incoterms further down).
Also, have a look if there are any recurring fees such as content subscriptions or software licenses. This is quite common since the producers continuously keep working on and improving the learning experiences or the software associated.
If the product is sold within the EU, they would include value added tax (VAT) or in the USA it would be called sales tax. However, this does rarely apply when a product is exported. Furthermore, in some jurisdictions educational institutions are exempt of sales tax so check clearly what types of rules apply to your case.
The quotation you have received from the producer will almost always be in a major currency, such as USD or EUR if not otherwise requested. The reason for this is to reduce the risk of currency fluctuations.
The costs associated to the production of your training system (such as ingoing material, parts, or fixed costs such as salaries etc.) are normally tied to any of the previously mentioned major currencies.
If you want to receive a quotation in a smaller local currency, the producer must consider the potential development in exchange rates and will add a margin of uncertainty to the cost of your product.
Many producers are unwilling to take this currency risks and will only quote their product in major currencies.
Validity of quotation
Your quotation might have a limited validity, which means that the producer only guarantees the price for a certain amount of time, i.e. 30 / 60 / 90 days or 3 / 6 / 9 / 12 months.
The reason is that the producer wants to decrease the risk of losing money on a sale due to a potential price increase for ingoing materials, parts, or salaries, as well as volatility in currency exchange.
If you know that your project might take longer to implement, then pay close attention to this information when planning your project and the acquisition of equipment.
The longer time that will pass between a quotation and the purchase, the larger is the risk that the producer does not make a profit from your sale and will be unwilling to supply the goods at the initially quoted price.
Incoterms is an abbreviation of “international commercial terms” and is used to aid communication and reduce confusion when dealing with international trade.
An incoterm describes and defines a transaction between two parties, usually the party exporting goods and the party importing them. Your quotations probably refer to EXW, FOB or similar.
More specifically, it defines which party is responsible for various costs, tasks, and processes and in which way that the different parties share obligations and responsibilities.
There are 11 official INCOTERM rules used as a globally recognized set of standards, and they are promoted by the International Chamber of Commerce.
Your quotation or the terms and conditions associated to this would somehow refer to the terms of the payment for your purchase. Below the three most common scenarios.
- Upfront payment: this is the most common payment term used in international trade. It is often mandated by the producer in order to eliminate the risk of non-payment, since the payment is received prior to the transfer of ownership in products.
- Sometimes trade parties agree to schemes such as: 50% upfront payment to start production, 30% before shipping, and 20% upon installment and training.
- Letters of Credit (L/C): international letters of credit are commitments by a bank on behalf of a foreign buyer that the payment will be made to the exporters bank, provided that the terms and conditions stated in the L/C have been fulfilled.
- Terms and conditions need to be evidenced by presentation of specified documents, often related to logistics, such as shipping documents, bill of landing etc.
- Letters of credit are always executed exactly as written; thus, it is important to have an appropriately trained person to write or review any L/C before signing.
- Open accounts: this type of payment terms means that the seller receives a purchase order, ships, and delivers the products before the payment is due, which is most often within 30/60/90 days from the delivery.
- Such an arrangement requires a significant amount of trust between the seller and the buyer, which normally arise after repeat purchases and consistent business.
- Furthermore, such terms are significantly more common if the seller and the buyer are in the same country, but quite rare in international trade.
For how long does the manufacturer guarantee the functionality of the product? How long is the expected availability of spare parts?
When you purchase a training system from abroad, the exporter will have to prepare a set of documents for clearing exports from their country.
The exporter typically by law (depends on jurisdiction) need to check whether the customer (that is you), your country, or the type of product that they export are restricted in any way.
The US government, United Nations or the European Union publish a list of restricted parties to whom no one can export without a specific license.
Such restricted parties are individuals, businesses or other organizations that has been identified as engaging in activities related to weapons trade, terrorism, or drug trafficking.
Also, not only the trade partner, but some products can be restricted as well. Typically, this would be products such as weapons, munition, chemicals, biology etc.
Some training products can fall within “dual use”, (civil products which can also be used for military purposes) and in such cases the exporter needs to know how the product will be used by the customer.
It is important to classify products correctly. This is done through the Harmonized System and HS codes, which is a standardized numerical method of classifying traded products.
As you can see there are some requirements for the exporter to know not only who you are, but where you are based and what you will use the product for.
When you import a product from another country, such as a technical training system, it will have to clear customs in the destination country and become legalized or nationalized.
Typically, this means that the product and documents will have to be declared with customs, and duties for import will have to be paid.
The tariff depends on various parameters, such as whether there is a free-trade-agreement between the country of export and import, the type of products that are traded (determined by the HS codes), and the specifics in the importing country’s legislation.
Some jurisdictions are import-friendly with clearly defined processes, where required documentation and fees are made available in many different languages, and these rules are being adhered to by customs officials.
Other jurisdictions are not very import-friendly, where processes, fees, or required documentation is not made readily available, or not adhered to by officials. In some countries unexpected and irrational fees or penalties can eliminate any profit for the producer.
The quotation you get from the producer will include INCOTERMS, which will define how much responsibility the producer is prepared to take when it comes to preparing documents and clearing the exportation and importation.
As you can see, setting up the infrastructure of a technical training center requires both time and efforts to search and find (chapter 3), to evaluate (chapter 4), and to acquire (chapter 5) the products.
In the next chapter we will go through how to best maintain and service the training center once the training equipment has been acquired and setup.
In the previous chapter you could read about how to evaluate and select technical training equipment.
In the next chapter we will explore how to maintain and service a technical training center.
You can also download the full Free eBook: Managing Technical Training Equipment.