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Managing Risk With Trade Compliance In Global Supply Chains

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Managing Risk With Trade Compliance In Global Supply Chains

When we view the risks associated with global supply chain management, trade compliance stands out as an area often misunderstood, miscalculated and at times misaligned with corporate cultures of compliance and operational excellence.

It often is also not appropriately aligned with corporate sustainability, resiliency and adherence to company policies, credos and goals. While we are seeing this beginning to gain ground in some larger public companies, we are continuing to witness a huge void in small, medium and larger organizations.

Typically, when an infraction on an import or export transaction or trade compliance issue arises that no one saw coming, it sets off the alarm bells of corporate governance. This leads to scrutiny from all levels of management and legal oversight … causing discomfort, stress and often chaos. 

Read also: Resiliency, Wherever You Can Get It: Uncertainty In Global Supply Chains Is Going To Stay

When I began my supply chain career in the 1980s, “trade compliance” was heard but it was a benign factor in global trade. Only the most serious goods related to the military were scrutinized on exports and importing into the U.S. was a routine process.

Historically, the turning point was the Customs Modernization Act of 1993, which changed the entire landscape of imports into the States. Furthermore, it changed the relationship between U.S. Customs and Border Protection (CBP), brokers and principal importers.

Trade compliance, like any aspect of global supply chain—procurement, manufacturing, operations, distribution, import/export, customer service, sales, finance, and other related silos—became a more important aspect of the global supply chain in 1993, but it took a huge leap forward following the events of 9/11. 

From that point forward, trade compliance took on a whole new meaning and continues to do so in 2024. Trade compliance has become a much more integral and functioning component of larger corporations and made a more serious medium in smaller importers and exporters.

Managing trade compliance responsibilities prevents supply chain disruption, mitigates exposures to fines and penalties, avoids civil and criminal prosecutions. Public companies can gain Sarbanes-Oxley compliance, while for private companies a best practice culture is created. Trade compliance opens the door for better run supply chains, faster movement through the border and potentially less delay.

Trade compliance can be utilized to gain access to reducing “Landed Costs,” including:

  • Foreign Trade Zones
  • Bonded Warehousing
  • Container Freight Stations
  • Drawback Opportunities

It can provide access to the Customs Trade Partnership Against Terrorism and the CTPAT Trade Compliance Program, where a host of benefits are gained. And it keeps management out of time-consuming compliance issues, allowing execs to focus on business development and sustainability matters.

Trade compliance management can be viewed as both a Risk Management Silo or a Best Practice Silo in a company, depending upon how the silo is utilized and its role in the corporate structure. In the most likely circumstances, in most global supply chains we would weigh trade compliance as 70% prevention and 30% opportunity. 

Government agencies actively involved in trade compliance include CBP, Alcohol, Tobacco and Firearms, the Food and Drug Administration and the departments of State, Justice, Commerce, Treasury, Agriculture and Homeland Security, to name a few of the more than 20 agencies that interface with the import and export supply chain, from a regulatory perspective.

There are four pillars of trade compliance: due diligence, reasonable care, supervision and control and proactive engagement.

Due diligence and reasonable care are defined by court precedence, common practice and interpretation of CBP and other government agencies in enforcement proceedings. In other words, it is a concerted, responsible and comprehensive effort put forth by a company and the individuals responsible for trade compliance to actively pursue the compliant operations in their global supply chain according to the import and export regulations that apply to their business model.

The concept of supervision and control refers to the typical scenario where importers and exporters outsource much of their supply chain responsibilities to service providers, channel partners, freight forwarders, customshouse brokers, direct carriers, 3PLs and other related parties.

Though the work is outsourced, the government mandates that the principal importer and exporter supervise and control those actions of their engaged third parties. This means that the principal importer and exporter create capabilities followed by controls to responsibly supervise their activities. In fact, that supervision can be outsourced to third party auditing and inspection type companies. This would not usurp responsibility; the principal importer and exporter is simply enlisting professional assistance in the review process.

Proactive engagement may not be specifically written into government regulations, but it is implied in the enforcement practices of the various agencies outlined previously and is something we supply chain consultants with over 35 years of experience have learned. More specifically, there is an implied responsibility that the government expects, which is that the company and the personnel involved in trade compliance will proactively outreach to develop an information flow, resources, skill set development and practical guidance on how to responsibly manage trade compliance in your company’s global supply chain.

Examples of such outreach include:

  • Joining trade compliance organizations, such as the International Compliance Professionals Association (ICPA)
  • Engaging in trade compliance training
  • Working with consultants, attorneys and service providers that have expertise in trade compliance.
  • Attending government outreach events sponsored by agencies including CBP, the Census Bureau and the Bureau of Industry and Security
  • Studying and developing trade compliance skill sets through various mediums and documenting same

When we consider the four pillars, the natural question that arises is, “How are those standards best achieved?” That question weighs into our experience over 35 years in managing trade compliance matters, being engaged in the global supply chain industry and being involved in all sorts of compliance cases, problem resolutions and in the development of best practices.

This can only be achieved if senior management strongly endorse a trade compliance management culture in their organization. Additionally, proper funding, support and guidance need to be in the senior management team’s credo.

An internal memo and doctrine notating and documenting that support needs to be published publicly and regularly re-endorsed.

A point person, potentially supported by a committee of stakeholders, should be designated to lead trade compliance initiatives in the organization. It may be a full-time position or part of an individual’s job description.

If there is leadership, follow-through and proactive engagement, the structure can vary and succeed.

Standard operating procedures are a significant and important methodology in keeping a company aligned in trade compliance adherence. It also demonstrates to government agencies your organization’s commitment in writing to how trade compliance will be managed in your company.

Training from an oversight perspective should be mandated to all stakeholders in the import and export operation, including procurement, sales, customer service, finance, operations, manufacturing, legal, distribution and senior management. It should be thorough, comprehensive and timely, occurring periodically and with the new hire of personnel in the supply chain.

Technology can be utilized as a major tool to support trade compliance management responsibilities. Classifications, denied parties checking, record keeping and auditing are examples of technology interface in trade compliance management. Artificial intelligence is also developing as an important tech gain helping companies manage trade compliance programs. 

Auditing is a requirement demonstrating due diligence and reasonable care in assuring your company is operating compliantly. It can assign degrees of compliance, provide recommendations for improvements or efficiencies, and can hold personnel and systems accountable for their performance in compliance responsibilities.

Trade compliance management is certainly a risk management policy for corporations to follow. More importantly, it can be utilized in foreign trade zones and drawback programs that can not only minimize risk but reduce landed costs and earn revenue gains in the organization’s bottom-line.

Author Bio

Thomas A. Cook is a seasoned global supply chain professional, author of more than 20 books on global trade and managing director of Blue Tiger International. He can be reached at tomcook@bluetigerintl.com or (516) 359-6232.

global trade management

Best Practices, Resiliency, Risk Management And Sustainability In 2024

Companies with global footprints are now defining their strategic plans for the next three to five years. For many companies the first long-term planning since the pandemic put us in perpetual react mode.

Read also: Supply Chain: Challenges and Key Solutions 

From February 2020 to December 2022, the pandemic created disruption, delays, additional costs, and uncertainty.

From December 2022 until the spring of 2023, the state of global trade, supply chain and logistics very rapidly reverted to pre-pandemic scenarios.

The rebound happened very fast, was unexpected and moved so quickly that it caught every person in business and government by surprise.

The only area where change did not occur was “uncertainty.” 

The big 2024 question is this: Is uncertainty going to continue, subside, grow, or morph into a new scenario that we will have to learn how to deal with, as we had with COVID?

As that dilemma continues, we in global supply chain, operations, manufacturing, procurement, distribution, and management must plan ahead.

Our experience in managing disruption and change over 40 years has brought us to certain conclusions that can guide us in planning when uncertainty is looming.

Each of the following areas offer us a blueprint for strategically thinking through our options and devising our strategy for what many refer to as … “The New Norm.”

This two-part article offers insight and guidance for the 3- to 5-year strategic planning process. “The Management Structure” follows the critical tops-down senior-management driven planning process, then in “Additional Considerations and Challenges,” I discuss macro areas of uncertainty that must be incorporated into your planning—from geo-politics to the global economy.

THE MANAGEMENT STRUCTURE

The five cornerstones of top-down strategic planning, engaging senior management are:

  • Understand the long-term goals of senior management. 
  • Collaborate with senior management in how to best achieve those goals. 
  • Turn those collaborative processes into tactical concepts. 
  • Establish a committee of stakeholders. 
  • Create the plan and execute, once senior management “buys in.”

These cornerstones are very straight forward and easily executed. Four to six weeks should be allocated for that process. Once the strategic plan has been agreed to, the tactics need to be organized, as follows:

  • Logistics 
  • Distribution 
  • Demand Planning 
  • Customer Service 
  • Manufacturing 
  • Technology

The strategic plan and follow-on tactical plan should take in the following considerations:

LOGISTICS: You need to conduct a review and possibly issue an RFP to determine what service providers and carriers with whom you can:

Depend upon consistently.

  • Develop a “partnership” relationship.
  • Obtain the balance between price, service and value-added.
  • Develop solutions as challenges arise in freight, transportation, and international shipping.
  • Employ comprehensive and integrated technology solutions.

DISTRIBUTION: The cost of distribution skyrocketed through the pandemic and continues to be an expensive area of supply chain. We expect that as demand dissipates, distribution—which combines warehousing, inventory management and shipping—will once again have competitively priced offerings.

Other factors:

  • A study on the demographics of your customer base
  • The number, size, functionality, and location of your distribution locations
  • Should the locations be turned into Bonded or Foreign Trade Zones, where additional financial and operating benefits can be achieved?
  • Can the distribution process be improved with technology and/or business process enhancements?
  • Should we control distribution or outsource and utilize a 3PL that specializes in distribution?

DEMAND PLANNING: At best a “best guess” of future inventory needs, demand planning does have a parameter or “sweet spot” that can be established with an acceptable range for accuracy. We like +/- 5%, but each industry and business model will establish its own forecast threshold.

Demand planning simplified includes two driving factors: historical data and anticipated need. Historical data can typically be obtained easily, and it generally is reasonably accurate. It is around the area of anticipated need which requires outreach by sales and customer service to existing accounts and key prospects to develop that anticipated need. That need is usually more subjective and prone to higher degree of inaccuracy due to multiple factors, which can include a lack of seriousness, diligence and persistence of customer service and sales personnel interfacing with their client priorities or in other words, “Don’t push the client too hard.” 

The art and science of demand planning, through the utilization of technology, predictive analysis techniques along with artificial intelligence (AI) can minimize the discrepancies and bring along more accurate predictions. 

Holding customer service and sales personnel accountable to obtain quality, accurate and dependable demand data from the clients, however, requires no investment in technology or AI and is often the most accurate—and as such is a necessary component of demand planning.

CUSTOMER SERVICE: Managers of customer service must raise the bar of providing customer care, differentiation and value add into the service portfolio.

Many companies are moving to technology to reduce cost, which has been successful in reducing cost but more likely at the expense of frustrated customers.

Leaders must consciously discern between where technology can be utilized as an advantage in client relationships and where human interaction provides a better option.

Personalization in customer service is making a comeback and companies that emphasize this methodology may see some additional cost, but that is ultimately outweighed by higher margins and more sustainable client relations.

MANUFACTURING: Companies are assessing their manufacturing options and, in some cases, diversifying manufacturing as a risk management strategy, including seeking alternative sources such as nearshoring and friend-shoring.

Reducing manpower needs in manufacturing is a good example of a strong strategic plan as blue collar American-based manufacturer workers are few and far between. 

Technology can be utilized successfully in manufacturing as a business process enhancement, reducing manpower needs and providing cost effective efficiencies.

AI also has been utilized in manufacturing to streamline process and reduce manual labor including in-person oversight and supervision.

Automating Quality Control (QC) is also another option in reducing labor costs and simultaneously eliminating human errors.

Manufacturing conducted in Foreign Trade Zones is another option that can provide significant benefit in lowering landed costs, reducing import charges, deferring duty obligations, and affording tariff inversions.

TECHNOLOGY: Technology is moving at the speed of light and AI is becoming a huge contributor to technology’s growth and value-add in its applications in global supply chain management.

In every area we outlined above technology plays a role in process, communication, assessment, planning and in execution.

We must create a balanced approach in recognizing where technology can provide benefit and where it may not, drawing the conclusion that we need to not overuse technology where it ends up having a negative impact on our business model.

The chief technology officer, often a new seat in the C-Suite, can manage the technology strategy and provide informed guidance on where, how, and when specific areas of the global supply chain can move forward with technology enhancements that offer “enterprise solutions.”

Technology in the global supply chain includes the following:

  • Total integration with all parties in a global transaction.
  • Provides 100% transparency to information and data.
  • Provides the platform for analysis, tied into AI … can provide extraordinary data that help in making better, more informed decisions.
  • Ties into one platform … sourcing, purchasing, vendor management, supply chain, demand planning, manufacturing, inventory, warehousing, distribution, customer service and accounting.
  • Provides robust information flows, management reports and utilizes AI for analysis.

ADDITIONAL CONSIDERATIONS AND CHALLENGES

Moving beyond the top-down strategic planning process, in this section we explore the other key considerations and challenges that we face in doing business in 2024 and beyond, all of which must be factored into our long-term planning.

THE ECONOMY AND A RECESSION: We are experiencing an uncertain economic picture:

  • Recession still a possibility 
  • Tightening of the money supply
  • Significant discourse in Washington, with the two dominate political parties rarely being able to create “bridges and compromises.”
  • A major downturn in import volumes, consumer purchasing and unused inventories.

All these factors must be weighed into any strategic decision that management in global supply chain will make.

Additionally, global demand has fallen off a cliff, creating a rise in transport capacity. 

Carriers, service providers and all aspects of the global supply chain are likely to slide. In fact, most international carriers in air and ocean freight along with domestic trucking have all been diminished, creating a pull back on asset placement, development and utilization.

Transportation in general is “pulling back.” Large trucking companies like Yellow Freight fell into bankruptcy, causing further disruption and a loss of capacity.

The shift in transportation services and capacity must be considered in establishing an informed strategy and business plan.

TRADE COMPLIANCE MANAGEMENT: Sanctions are still increasing—in number and severity. This is causing political discourse with retaliatory actions from our trading partners, particularly China, Russia and Iran.

Customs & Border Protection (CBP) has brought social compliance into its purview and is now further threatening some of our trading partners—such as China once again—with respect to “forced labor” practices.

CBP is still practicing enforced compliance and focused assessments, making the lives of import managers much more challenging.

And as the importance of corporate trade compliance management grows, its value in managing growth, spend, profits, and sustainability is evident in all supply chain business models. 

As a result, having point personnel who manage trade compliance is even more a full-time job with any company developing a formidable global reach.

THE RUSSIAN-UKRAINE CONFLICT: The United States and most of the West are providing billions of dollars of support to Ukraine and sanctioning Russia intensely. The U.S. and certain western allies are providing other levels of military and economic support to Ukraine, both directly and indirectly.

The region has witnessed great impact and even if the war ended today, the damage and upheaval in Ukraine will take decades to reverse.

Global trade has seen a residual impact in certain areas of agriculture, manufacturing, raw materials, precious metals and several other products and commodities.

Russia has paid a huge price in their image and place in the world geopolitically and may never recover to its international standing again.

The cost to the West is high and the outlay of all the military and economic aid is beginning to stress numerous politicians, governments, and the will of the masses in many countries. The U.S. support of Ukraine will no doubt play into November’s presidential election.

In the face of a constantly changing sanctions landscape, once again we emphasize the need for dedicated, well-trained personnel who manage trade compliance at the corporate level.

RISK MANAGEMENT MINDSET: Supply chain managers are quickly developing a “risk management” mindset in their operational and planning responsibilities.

A risk management mindset includes:

  • Assessing and evaluating where risk exists in every nook and cranny in the global supply chain.
  • Collaboratively working with senior management in understanding the “degree and taste for risk” in their company’s culture and business model.
  • Measuring the risks and their impact to the organization and more specifically the supply chain.
  • Creating and implementing solutions, where possible, to mitigate risk, accept risk or transfer risk.
  • Adapting supply chain policies where reducing risk and spend take high priority in the decision-making process.

While cost will always be an important factor in our supply chain decision-making, risk control and mitigation now carry much more weight.

SUPPLY CHAIN MANAGEMENT IN THE C-SUITE

The pandemic has elevated the relevance and importance of supply chains in every business vertical, every company and country in the world.

Today, the supply chain manager is likely to have “a seat at the table” in the running of an organization, become part of the senior management team; witness the chief supply chain officer position.

We believe this to be a positive consequence of the supply chain disruption from the pandemic. It now affords supply chain managers a greater and more important role in designing overall business models, operations, resilient and sustainable practices.

CREATIVE JUICES FLOWING

To survive the pandemic-driven consequences of cost increases, delays and uncertainty, supply chain managers met those challenges by:

  • Being diligent, working harder and smarter.
  • Developing creative solutions and trying techniques never-before utilized. 
  • Taking better, well-thought-out risks to make things happen.
  • Collaborating intensively up to senior management, internally to other stakeholders, with vendors and suppliers, and with customers.
  • Making the significant effort to influence the behavior of others in the above collaborations.
  • Developing successful communication skills. 
  • Finding and exploiting additional and robust resources. 
  • Leading subordinates, colleagues, stakeholders in directions not yet travelled, and doing it timely and comprehensively.

The supply chain managers who rose to the occasion and did well were, in most cases, shown appreciation by their senior management and their profile and significance in the organization was raised.

It is likely that from now on, supply chain management is clearly identified as a critical aspect of any company’s business model.

Creating and executing a strategic plan in the global supply chain will greatly assist a company at meeting both its short-term and long-term planning objectives. Additionally, being prepared for disruption and bringing forward ideas to mitigate risk and spend is a “Best Practice” to be followed, managed, and cherished by all prudent and successful business managers. 

Our “Best Practices in Global Trade” columnist Thomas A. Cook is a seasoned global supply chain professional, author of more than 20 books on global trade and managing director of Blue Tiger International. He can be reached at tomcook@bluetigerintl.com or (516) 359-6232. 

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Reducing Costs In The Global Supply Chain: The Drawback Program For Exporters/Importers

Companies engaged in global trade can apply for access to the drawback program administered by U.S. Customs and Border Protection (CBP). This program provides a refund on duties and taxes that were previously imported and have now been exported. 

Usage of the drawback program is a tool companies can use to reduce operating costs. The program may be used for goods that are unused, rejected or manufactured. 

The drawback program has several key factors that provide leverage to eligible companies. 

THE PROCESS

The process to submit a drawback claim and collect a duty refund is an evidence-based undertaking. Companies must have the required import, export and inventory documentation to support the drawback claim.

The drawback applicant prepares a detailed sample to CBP including lot numbers or product stock keeping units (SKUs) to tie the product to the import and export transaction. This presentation is submitted to CBP electronically using approved software. 

Documentation specifically supporting the drawback claim will include bills of lading, commercial invoices, packing lists and 7501 entry forms for the inbound portion. 

Documentation supporting the outbound piece will include the commercial invoice and bill of lading. Exports to Canada and Mexico will also require data elements from the Canadian B3 and the Mexican pedimento (CBP 7501 equivalents). 

RETRO ADVANTAGE

Drawback claims may be filed for up to five years from the import date. When this occurs, it can be a windfall for a company resulting in a sizeable check when the retroactive drawback claims are paid. 

It is key to appreciate that it takes some digging (excavating) through documents, receipts and recordkeeping systems to obtain historical data.

In the event a company determines it does not have complete documentation to support the claim, they will find themselves requesting this documentation from their customs brokers, freight forwarders, carriers and third-party providers. 

Therefore, it is incumbent upon a company to ensure they are maintaining accurate and required documents as part of their import/export recordkeeping process. This may also require working internally with the finance and information technology (IT) department to obtain the necessary details required.

NOT THE “IMPORTER OR EXPORTER”

A company may submit a drawback claim for goods on which they may not have been the importer of record or the actual exporter. This can be a bit tricky to manage. 

For the import side, the company would need to be able to collect evidence that the domestic purchase price included duties and taxes and an ability to support that claim from the supplier. The CBP7501 data elements would also be required to submit the drawback claim. The actual importer of record may be reluctant to provide this level of detail. The assistance of a third party to broker and address this challenge can be beneficial.

Where the drawback claimant is not the exporter, the company will need to obtain an export waiver from the actual exporter. Additionally, the supporting documentation will be required to provide the export data elements. 

This process is doable and over the years, we have helped companies successfully meet this challenge. However, we would be remiss not to mention it requires a substantial amount of coordination and collaboration with sellers and buyers (vendors and customers). 

Service providers with robust technology platforms can also be helpful in providing the necessary data.

FORMS OF DRAWBACK

In weighing a company’s eligibility for drawback, it is important to understand the different types of drawbacks. The most common types are:

  • Unused Merchandise 
  • Manufactured Merchandise
  • Rejected Merchandise
  • Destruction

There are other types of drawbacks that are specialized and focus on specific industries and business models.  

DRAWBACK CHALLENGES

The challenges faced in coordinating drawback claims may include management support, cross organizational support, IT support, data collection and data integration. These challenges can be resolved through an organized and responsible management process, utilization of professional support and being both diligent and patient through the process.

To manage these challenges successfully, over the past 20 years we have developed a four-step process:

  1. Assessment
  2. Financial Model
  3. Operational Model
  4. Application

The process begins with an intellectual assessment of your company’s likelihood (or not) to benefit from a drawback program. The financial model creates the costs and the gains associated with a drawback claim to assure a responsible and realistic return on investment. 

ADDITIONAL FACTORS

The drawback process has been somewhat simplified by the ability to submit a combined application. This application will include a waiver of the notice of intent to export for past exports, a waiver of notice of intent for future exports, and a request for accelerated payment of the drawback claim by CBP. 

NEXT STEPS

Should you decide you are interested in a drawback, options for additional information and next steps include accessing the websites of both CBP and Blue Tiger. 

Drawback | U.S. Customs and Border Protection (cbp.gov) 

Management Consulting | Blue Tiger International (bluetigerintl.com)

We recommend first assessing the opportunity and benefits of committing to drawback to decide the need to move forward. Once that decision has been made, create a financial model addressing costs and time required to manage a drawback program to determine the return on investment and justify the decision to move forward.

Should the ROI be sufficient to move ahead, you need to assess what operational changes will be needed to collect the necessary data on imports and exports to create an accurate and detailed drawback claim.

Consider aligning your company’s technology with the required data elements or work with a drawback intermediary who will act as an interface on your behalf. These companies typically charge a fee of 5% to 25% of monies collected, paid on a contingent basis. The amount is determined by the degree of difficulty in making the specific drawback program function as required by CBP.

The use of a consultant or drawback intermediary is a potentially good option as they will smooth out the process and expedite the ability to avoid delays, address challenges and, most importantly, help expedite payment of your drawback claim.

Author Bio

Thomas A. Cook is a seasoned global supply chain professional, author of more than 20 books on global trade and managing director of Blue Tiger International. He can be reached at tomcook@bluetigerintl.com or (516) 359-6232. 

transfix container ocean freight ASIA mycarrierpackets

Managing the Costs of Global Freight + Logistics: Ten Working & Salient Solutions – Tried, Tested and Proven!

Freight is a critical component of landed cost for both importers and exporters. It can become a serious expenditure, impacting margins and profitability.

The Pandemic impacted every aspect of the global freight market. This included all areas of the world, all products, all trade lanes and all modes of transit.

As an example, ocean freight costs in January 2020, on a 40’ container from Shanghai, China to Long Beach, CA ranged in cost from $1200-$2500 depending on volume factors.

The average cost for that same container in November of 2021 was $16,000-$22,000 and in some lanes premium service was in excess of $25,000.

Average air freight costs went from $1.80/kilo to as much as $12.00/kilo – unprecedented in global freight markets that had previously never seen these numbers.

The good news was that by the time we hit the spring of 2023 pricing was normalized. Consultants like me never anticipated the original price increases and would never have predicted such a rapid descent either.

With all these “elevator changes” seen over the past three years, supply chain managers are faced with dealing with a new reality of:

  • An unstable international freight market
  • An unstable economic certainty on a global scale
  • Capacity and infrastructure exceeding demand

So, within all this chaos, the supply chain executive needs to think: resilience, sustainability and long-term.

With many senior managers seeking short-term results, there will have to be a balanced approach that meets both short-term and long-term strategies. That is not easy, but it is doable when we consider the following recommendations:

  1. Don’t look to the “cheapest.” Look where the best value for your spend can be achieved.

 2. Look for service providers, 3PL’s and carriers, where strategic partnerships can be accomplished.

 3. Bring technology advancements and “state-of-the -art” solutions which create efficiencies and business process enhancements.

 4. Seek partners that have demonstrated stability of personnel at both the senior management and operational levels.

 5. Seek where “bundling of services” can be achieved where pricing discounts would be gained.

 6. Work intimately with your “demand planning” teams to allow for lower cost transportation solutions to be utilized, such as ocean freight as compared to the higher cost option of airfreight or expedited services.

 7. At a detail level assess your “landed costs.” The five pillars of these costs can be dissected to determine where both risk and cost can be reduced. By making changes in your strategy and choices in any of these areas of cost, you could very favorably impact both risk and cost in freight.

As an example, a company distributing its imported products from a single warehouse and distribution facility in Baltimore Maryland. A demographic analysis determines that 45% of their customers are west of the Mississippi River.

By creating a secondary distribution facility in the West, they open the door to lower freight costs on companies nearer that facility and additionally, the overall overhead costs are lower than the Maryland location.

 8. Create strategic relationships with all the internal stakeholders … sales, customer service, inventory management, manufacturing, demand planning, etc. and work in a collaborative methodology where much more can be achieved, compromises made, and the company benefits from the cooperation and unity thinking. This will create effective working relationships … “all rowing in the same direction”.

Your role demonstrates leadership, which will be valued up the management chain.

 9. Look within your industry for “buying consortiums”; where “spend” can be combined and thereby “leveraged” for favorable terms and pricing. 

We have been very successful at putting together buying consortiums within industry segments, benefitting both shippers and carriers.

 10. Get yourself out there … at conferences, trade shows and industry events where:

  • You can network, i.e. develop valuable resources and contacts
  • Access competitor information flows
  • See state-of-the -art options
  • View new technology opportunities
  • Keep the “learning process” contemporary and alive

Every supply chain executive’s primary responsibility is to find ways to reduce risk and cost in their global supply chain. This was a great challenge during the Pandemic but as we emerge from that difficult period, a door has opened for us to make betterments, adopt change, and have our supply chain evolve into a much more efficient, resilient and sustainable component of our company’s overall business model.

Typically, on an annual basis (often in March/April) negotiations take place between principal shippers and the carriers and service providers that move their freight. These negotiations can be intense and sometimes even a “slugfest” where freight rates are reduced and – depending upon your perspective – either not enough or way too much!

Shippers too often focus on freight cost negotiation as their primary tool in reducing overall landed costs. Over the past 30+ years I have come to believe this is the wrong focus; it is just not true that contract pricing is the primary cost driver in landed cost.

Furthermore, a singular focus on contract pricing actually creates angst between the shippers and carriers and leads to competitive pressures that destabilize the marketplace.

I firmly believe in free market negotiations, but what happens in international freight in the spring and throughout the year does not create mutual benefit for both sides, rather, it creates an imbalance that has longer-term negative impacts.

Shippers have other options and courses of action to reduce supply chain costs without taking a singular focus on freight rates.  In our consulting practice, this is often the challenge we face in meeting customer expectations, that is, helping our clients expand their focus beyond freight contract negotiations.  Here are a few of the most impactful options.

Demand Planning

Our first area of exploration with most companies is to assess to what extent a company’s demand planning systems are in synch with logistics. Too often they are not – and as a result supply chain risks and costs increase.  There will be too many LCL orders and not a dominant mix of FCL shipments, which based on a cubic measurement is a less expensive option, maybe as much as 20-30%.  

Demand planning also includes understanding inventory needs and placing replenishment orders on a timely and lean basis.

Many times, air freight, which can be as much as 18 times more expensive than ocean freight, must be utilized because product needs to be moved more expeditiously than ocean freight allows. Too often this is not a strategic planning event but rather a negative consequence of poor planning or lack of coordination between the various fiefdoms and verticals in any organization responsible for inventory, replenishment, purchasing, demand planning, supply chain and/or logistics.

Technology that allows an interface between all the internal stakeholders, service providers, carriers and suppliers is an integral component of any well-run global supply chain. For inbound logistics, these systems are often referred to as “PO Management Systems” and can become an invaluable tool in the arsenal to create very defined efficiencies in supply chain operations. For exports, similar systems are often referred to as “export order entry systems”.

Technology can become an extension of a corporation’s operating platforms or a “value-add” available from quality service providers, 3PL’s and carriers. The technology creates timely information transfer, transparency, lean practices and accountability between all the vested parties involved in the international transaction.

Managing these exposures proactively enables the global supply chain executive to create contingency plans in advance, defining the strategies and action steps that will mitigate these risks and costs.

Consolidate Service Providers

Another strategy in reducing logistics costs that has proven successful is by reducing the number of service providers and carriers. Some experts on international transportation caution companies against “putting all their eggs in any one basket.” I have found while that concern is real, it can be managed.

If you reduce the number of providers and carriers to better leverage spend and place more “eggs in the basket,” then you can more closely watch and manage that basket. Over the last 5-7 years (with the exception of our Covid years), as more companies have pressed hard to run leaner supply chain operations, we have moved them into a reduction of carrier and service providers. The benefits outweigh the potential downside consequences.

Sea-Air Combination

Another option available to shippers whose freight originates in Southern Asia is what is referred to as the Sea-Air Combination. Freight is shipped to various Middle Eastern Cities such as Dubai and then transferred to the airfreight mode which moves it to Europe, North and South America.

Cost savings on freight of as much as 45% is available with arrival time reduction moved from 28 days to as little as 14 days. This allows larger bulk moves to occur from Asia to the West with costs significantly less than air freight direct, but at transit times almost cut in half.

The Sea -Air option both reduces cost and risk to the global supply chain while creating a value add of efficiency and convenience well worth taking a look at by those who operate global supply chains.

Summary

At the end of the day, the most important factor in all of this discussion is to recognize that there are a variety of considerations, components and opportunities that exist to reduce risk and cost in the global supply chain and deliver more value for your spend with freight and logistics.

The key is to recognize that the “cheapest” negotiated contract price typically has negative consequences. Negotiating with a mindset of “obtaining value for your spend” is a more prudent option.

 

Qatar compliance growth global trade

“Best Practices in Global Trade”: With … Thomas A. Cook

Trade Compliance Management 101

There are over 28 government agencies involved directly or indirectly with regulating goods and services that pass through our borders each day.

It is a daunting task to keep track of these agencies, just a few of whose logos appear above. While  many companies are impacted by multiple agencies, it is not always clear where these agencies overlap. 

Those actively engaged in trade compliance management are engaged with the various agencies that may regulate their goods and services in international trade. Trade compliance management is a moving target, affected by economic, political, and commercial factors – and these factors change frequently.

The successful trade compliance professional has multiple inputs coming into them every day containing changes, modifications, and updates. They must know how to comprehensively apply updates and changes to their companies’ supply chain and business model. This is not an easy task to begin with and many trade compliance managers may encounter disbelievers and nay-sayers within their company who block the path to proactive trade compliance culture and activity.

Negotiating these challenges is a daily activity for most trade compliance professionals. 

Rules involved in import and export trade have always been in place but were significantly moved to the forefront of global supply chain management when 9/11 occurred.

We were involved in management training at the World Trade Center on the 55th Floor so we were directly impacted by the events that happened that day. Our hearts and prayers go out every September, to all the families, as the day is continually memorialized.

Those events of 9/11 significantly boosted “Trade Compliance Management” to the forefront of every global supply chain’s operation and ultimately a necessary component of any company with a global footprint.

Here we are in 2023, and there are still regulations that continue to evolve and new regulations being implemented including CTPAT, export controls, and forced labor initiatives. 

Here some 20 years later, the functionality of global trade incorporates trade compliance in every aspect of how goods and services move in international business.

Almost every company, service provider and carrier engaged in global supply chain operations has at least one dedicated person serving in the responsibilities of trade compliance, or it is one of the many “hats” one wears in purchasing, supply chain, logistics and transportation management. 

Many supply chain professionals view trade compliance as an intrusion of government regulation and oversight. Others see it is a necessary evil related to managing the impact of terrorism and keeping our country secure and safe.  Irrespective of one’s individual view, trade compliance is a reality – made up of of expense, time, and resources that we all must manage in our global supply chain operations, purchasing and export global reach.

Having said all that, many corporations have embraced trade compliance as a standalone function in the organization, that when managed successfully, can reduce risk and cost, as well as improve effective operations and performance.

Focus on Forced Labor

In the past two years, CBP has adapted social compliance as part of their governance and “Forced Labor” is now a focused area of their oversight into inbound global supply chains. Definitions can be categorized as:

  1. Work or service refers to all types of work occurring in any activity, industry or sector including in the informal economy.
  2. Menace of any penalty refers to a wide range of penalties used to compel someone to work.
  3. Involuntariness: The terms “offered voluntarily” refer to the free and informed consent of a worker to take a job and his or her freedom to leave at any time. This is not the case for example when an employer or recruiter makes false promises so that a worker takes a job he or she would not otherwise have accepted.

Importers now need to vet suppliers on whether they are utilizing forced labor in their manufacturing, along with their supplier base, as well.

In December of 2021, The Uyghur Forced Labor Prevention Act was announced.  It is a United States federal law that would change U.S. policy on China’s Xinjiang Uyghur Autonomous Region with the goal of ensuring that American entities are not funding forced labor among ethnic minorities in the region.

Trade Compliance Management includes staying up to date on any import and export regulations that could impact their supply lines. This is many instances is a full-time responsibility and should be taken seriously, such as now evidenced in these recent efforts to thwart “forced labor” in China.

The Four Pillars of Trade Compliance

Key edicts of trade compliance are:

  • Due diligence
  • Reasonable Care
  • Supervision and Control
  • Proactive Engagement

Due Diligence and Reasonable Care means developing knowledge of the regulations and applying that knowledge within the operation of the company’s global supply chain structure.

Supervision and Control ties in the reality that most companies with an international presence will use the third party resources to help manage various supply chain responsibilities, such as but not limited to:

  • Trade Compliance Consultants & Attorneys
  • Freight Forwarders and Customhouse Brokers
  • Carriers and 3PL’s
  • Sourcing or Buying Agents 

This means that the principal importer and exporter must supervise and control that outsourced activity.  In other words, it is ok to outsource, but you will be held accountable, therefore you must have the knowledge and skill set needed to manage that outsourcing.

Proactive Engagement.  Government agencies such as, but not limited to Customs and Border Protection, Bureau of Industry and Security, Departments of State and Treasury – are all proactively engaged in regulations, operating guidelines, and legal controls on how companies manage their import and export operations.

These agencies require companies (the principal importers and exporters along with the companies providing forwarding, brokerage, and related transportation services) to follow the four edicts outlined above as general guidelines, followed by a vast amount of regulatory minutia.   All of which needs to be incorporated into their global business operations.

Trade Compliance: a Competitive Edge?

Of the 50,000 plus companies here in the United States involved in global trade a small number have embraced trade compliance as a tool to gain competitive advantage.

Examples of trade compliance areas that can provide operational or financial benefits:

  • Lower insurance costs
  • Free Trade Agreements
  • Buy America and Buy American Programs
  • Access to government programs such as C-TPAT and FAST that move freight more quickly through the borders.
  • Less opportunity for fines, penalties and the hassles involved in delays and seizures
  • Correct utilization of the Harmonized Tariff Codes to lower duties
  • Access to Foreign Trade Zones
  • Utilization of Bonded Warehouses
  • Leveraging of Free Trade Agreements
  • Utilization of Technology
  • Access to Drawback Refunds

There are numerous methods for how companies can change their mindset about trade compliance and utilize it both as a necessary point of control, but more importantly as a method to reduce both risk and spend and thereby providing certain advantages.

Trade compliance managers, supply chain and logistics professionals need to maintain a regular flow of information, intelligence, and regulatory updates to be in the best position to maintain operational excellence in their global supply chains.

Successful trade compliance managers can contribute to profitability in the following ways:

  • Access to government programs that can reduce risk and cost in their global supply chain
  • Keeping companies out of regulatory cost and entanglements
  • Reduce risk in the global supply chain
  • Provide competitive options in how goods and services move internationally
  • Impact bottom line on profits and margins

Resources for the Trade Compliance Manager

Successful trade compliance managers need to be up to date with the information flow necessary to maintain the challenges they face in handling the multitude of compliance and regulatory concerns not only here in the United States but in all the countries they import from or export to.

Periodicals and information sources such as Global Trade Magazine offer a very reliable and contemporary flow of data that can be very useful in leveraging trade compliance opportunities. (www.globaltrademag.com)

Accessing key important government web sites is another option. (www.cbp.gov, www.bis.doc.gov)

Continuing education and training are also critical elements of any trade compliance program and the process of learning contemporary options in importing and exporting. Two examples, the American Management Association (www.amanet.org) and The National Institute for World Trade (www.niwt.org), are excellent options for certificated public and in-house instruction, coaching and educational capabilities specializing in international business and supply chain.

A professional organization, ICPA, International Compliance Professionals Association (icpainc.org) is a great resource for trade compliance operatives to join in order to gain tremendous resources and insight.

Conferences and seminars offer excellent intense information flows that can be of immediate and of long-term value along with the networking and professional colleague interface. Affiliation with professional organizations in your field always proves beneficial.

Bottom Line: Trade Compliance Management is Growing in Importance

As the complications of geopolitical events continue to occur in the world, the importance of assuring a trade compliant global supply chain will be as relevant as what the COO, CFO, CSO and CIO are in any business model.

compliance

Trade Compliance Management 101:Here’s How Global Traders Can Increase Speed and Lower Spend

There are more than 28 government agencies involved directly or indirectly with regulating goods and services that pass through our borders each day. It is a daunting task to keep track of these agencies. While  many companies are impacted by multiple agencies, it is not always clear where they overlap. 

Companies actively engaged in trade compliance management may have to deal with various agencies that regulate their goods and services in international trade. Trade compliance management is a moving target, affected by economic, political, and commercial factors–and these factors change frequently.

The successful trade compliance professional has multiple inputs coming into them every day containing changes, modifications, and updates. They must know how to comprehensively apply updates and changes to their companies’ supply chain and business model. This is not an easy task to begin with, and many trade compliance managers may encounter disbelievers and naysayers within their companies who block the path to proactive trade compliance culture and activity.

Negotiating these challenges is a daily activity for most trade compliance professionals. Rules involved in import and export trade have always been in place but were significantly moved to the forefront of global supply chain management when 9/11 occurred.

We were involved in management training on the 55th floor of the World Trade Center, so we were directly impacted by the events that happened that day. Our hearts and prayers go out every September, to all the families, as the day is continually memorialized.

Here we are in 2023, and there are still regulations that continue to evolve and new regulations being implemented including export controls, forced labor initiatives and Customs-Trade Partnership Against Terrorism (CTPAT), a voluntary supply-chain security program led by U.S. Customs and Border Protection (CBP) focused on improving the security of private companies’ supply chains with respect to terrorism. 

The functionality of global trade incorporates trade compliance in every aspect of how goods and services move in international business. Almost every company, service provider and carrier engaged in global supply chain operations has at least one person dedicated to trade compliance, or it is one of the many “hats” one wears in purchasing, supply chain, logistics and transportation management. 

Many supply chain professionals view trade compliance as an intrusion of government regulation and oversight. Others see it is a necessary evil related to managing the impact of terrorism and keeping our country secure and safe.  Irrespective of one’s individual view, trade compliance is a reality–composed of expense, time, and resources that we all must manage in our global supply chain operations, purchasing and export global reach.

Many corporations have embraced trade compliance as a standalone function in the organization that, when managed successfully, can reduce risk and cost, as well as improve effective operations and performance.

FOCUS ON FORCED LABOR

In the past two years, CBP has adapted social compliance as part of its governance, and forced labor is now a focused area of their oversight into inbound global supply chains. Definitions can be categorized as:

  1. Work or service refers to all types of work occurring in any activity, industry or sector including in the informal economy.

  2. Menace of any penalty refers to a wide range of penalties used to compel someone to work.

  3. The term “offered voluntarily” refers to the free and informed consent of a worker to take a job and his or her freedom to leave at any time. This is not the case, for example, when an employer or recruiter makes false promises so that a worker takes a job he or she would not otherwise have accepted.

Importers now need to vet suppliers on whether they are utilizing forced labor in their manufacturing, along with their supplier base.

In December of 2021, the Uyghur Forced Labor Prevention Act was announced. It is a federal law that changed American policy on China’s Xinjiang Uyghur Autonomous Region, with the goal of ensuring that U.S. entities are not funding forced labor among ethnic minorities there.

Trade compliance management includes staying up to date on any import and export regulations that could impact one’s supply lines. In many instances this is a full-time responsibility and should be taken seriously.

FOUR PILLARS OF TRADE COMPLIANCE

Key edicts of trade compliance are due diligence, reasonable care, supervision and control and proactive engagement.

Due diligence and reasonable care refer to the development of knowledge of regulations that will be applied within the operation of a company’s global supply chain structure. 

Supervision and control ties in the reality that most companies with an international presence will use third-party resources to help manage various supply chain responsibilities, such as trade compliance consultants, attorneys, freight forwarders, customhouse brokers, carriers, 3PLs and sourcing or buying agents. 

However, the principal importer and exporter must supervise and control any outsourced activities. So, while it is OK to outsource, know that you will be held accountable and therefore must have the knowledge and skill set to manage the third parties.

Government agencies, including CBP, the Bureau of Industry and Security and the departments of State and Treasury are all proactively engaged in regulations, operating guidelines, and legal controls on how companies manage their import and export operations. These agencies require companies (the principal importers and exporters along with the companies providing forwarding, brokerage, and related transportation services) to follow the four edicts outlined above as general guidelines, followed by a vast amount of regulatory minutia.   

All of this needs to be incorporated into one’s global business operations.

TRADE COMPLIANCE: A COMPETITIVE EDGE?

Of the 50,000-plus U.S. companies involved in global trade, a small number have embraced trade compliance as a tool to gain competitive advantage. This is a shame because compliance can: speed deliveries, lower insurance costs; reduce opportunities for fines, penalties, seizure, and delays; and provide access to technology, lower duties, and drawback refunds.

This is especially true if the movement of goods is covered under free trade agreements, foreign trade zones, bonded warehouses, Buy America/Buy American programs, government programs such as CTPAT and Free and Secure Trade (FAST), and correctly utilized Harmonized Tariff Codes.

There are numerous methods for how companies can change their mindset about trade compliance and utilize it both as a necessary point of control and, more importantly, method to reduce risk and spend.

Trade compliance, supply chain and logistics professionals need to maintain a regular flow of information, intelligence, and regulatory updates to be in the best position to maintain operational excellence in their global supply chains.

Successful trade compliance managers can contribute to profitability by accessing government programs that can reduce supply chain risks and costs; keeping companies out of regulatory costs and entanglements; and providing competitive options in how goods and services move internationally.

All of this can impact the bottom line on profits and margins.

TRADE COMPLIANCE RESOURCES 

Successful trade compliance managers need to be up to date with the information flow necessary to maintain the challenges they face in handling the multitude of compliance and regulatory concerns not only here in the U.S. but in all the countries they import from or export to.

Periodicals and information sources such as Global Trade magazine offer a very reliable and contemporary flow of data that can be very useful in leveraging trade compliance opportunities. (www.globaltrademag.com)

Accessing key important government websites is another option. (www.cbp.gov, www.bis.doc.gov)

Continuing education and training are also critical elements of any trade compliance program and the process of learning contemporary options in importing and exporting. Two examples, the American Management Association (www.amanet.org) and the National Institute for World Trade (www.niwt.org), are excellent options for certificated public and in-house instruction, coaching and educational capabilities specializing in international business and supply chain.

The professional organization International Compliance Professionals Association (icpainc.org) is a great resource for trade compliance operatives to join to gain tremendous resources and insight.

Conferences and seminars offer excellent intense information flows that can be of immediate and of long-term value along with the networking and professional colleague interface. Affiliation with professional organizations in your field always proves beneficial.

BOTTOM LINE: TRADE COMPLIANCE MANAGEMENT IS GROWING IN IMPORTANCE

As the complications of geopolitical events continue to occur in the world, the importance of assuring a trade compliant global supply chain will be as relevant as who the COO, CFO, CSO and CIO are in any business model.

Thomas A. Cook is a seasoned global supply chain professional, author of more than 20 books on global trade and managing director of Blue Tiger International. He can be reached at tomcook@bluetigerintl.com or (516) 359-6232. 

 

procurement

Best Practices in Global Trade: Senior Management’s Role in Global Procurement

A critical area of any organization’s spend and, ultimately, its ability to operate successfully is in procurement management.

The larger a company is and as it grows, procurement is a critical area that will increasingly become an integral component of managing and controlling costs and the sustainability of its operation in the long term.

As most companies mature so does its structure of a fixed and robust purchasing management functioning department.

 Additionally, there are two very important and relevant factors:

  1. The pandemic created a greater role in importance in most organizations in any business vertical related to the supply chain, for which procurement is a critical silo.   
  1. Global sourcing is both a necessity and growing challenge as more companies seek alternatives to foreign purchasing in general and with China, more specifically.

Procurement must focus primarily on developing and managing supplier relationships. Keep in mind that suppliers can be a very important ingredient to your company’s overall business model and therefore greatly impact—both adversely and positively–your potential for sustainability, growth, and profitability.

Most companies have a supply chain that is a foundation for their operational profile. Typically, procurement runs in tandem with the supply chain and is sometimes the most important aspect in a supply chain, particularly in organizations that have a global presence where products and services are sourced, manufactured, or operated in overseas.

Procurement primarily impacts risk, spend and business processes. Depending upon a company’s gross sales volume, a 5% reduction in spend can be compared to several million dollars in sales.

Procurement is an internal servicing function that works on behalf of business owners and stakeholders who utilize the materials, products, components, and services purchased by the procurement group.

A robust procurement initiative keeps the supply chain open and the business model working successfully. Conversely, a poorly managed procurement operation causes delays, disruption, and additional expense to a company’s operation.

The best run procurement operations not only keep the supply chain running but they continually add value and benefit through their sourcing, purchasing and supplier/vendor management practices.

Procurement can be divided into three separate functions: sourcing, purchasing and vendor management.

SOURCING

Sourcing is the function that finds supplier and vendor options, both reactively and proactively to the internal needs of business owners and stakeholders in a corporation.

The successful sourcing manager has a corral of business contacts and will know who to call when an internal purchasing need is required.

Sourcing managers are responsive to internal “fires” when they ignite and often come to the rescue as imminent supply needs develop.

Great sourcing managers are engaged in the strategic planning process in an organization and will often proactively find sourcing options before they are called for, positioning them to be ready as needed.

Sourcing managers are “state of the art,” contemporary and utilize leading edge technologies and business processes to find and develop raw material, product, components, and services, anticipating future demand and need.

Often, they can add significant value in several ways:

– Lowering acquisition costs

– Negotiating better supply deals

– Finding supply options that offer competitive advantages

– Develop vendor/supplier relationships that assist your operations to be viable, productive, and sustainable

PURCHASING

Once sourcing options are found it is the responsibility of purchasing personnel to transition the vendor/supplier into the organization. This transition process can often be convoluted and arduous and will often determine the outcome of a successful vendor relationship.

Purchasing managers need to be excellent negotiators as they will be the front line in finalizing a vendor/supplier relationship.

Some of the negotiated areas are:

– Price

– Payment terms

– Warranty and return policies

– Insurance requirements

– Dispute resolution

– Cancellation wording

– Responsible parties

– Scope of work

– Agreed deliverables

– Performance specifications

– Contract period or tenure

– Signing officers

 These relevant and salient points get transferred into a Statement of Work (SOW), Master Services Agreement (MSA), or simply a Service Agreement (SA) or contract between the parties.

This dimension of responsibility for the purchasing officer adds another required skill set: legal prowess. An attorney still may be required to review and finalize any contracts, but the purchasing officer must be able to negotiate the basic terms and bring it all the way past “third base.” 

 This brings us to an interesting and important aspect of the purchasing function: It requires an array of management skills:

 – Ability to communicate well, both written and verbal

– Be organized

– Prioritize

– Negotiation

– Understanding people’s behavior

– Leadership

– Insurance

– Finance

– Legal

– Product knowledge(s) in the company’s verticals

– Team and project management

– Conflict resolution

The purchasing manager is the conduit between all operations in a company to organize and execute their spend. Primary responsibilities are:

–  Reducing risk

–  Reducing spend

–  Business process improvements

Secondary responsibilities include:

– Creating internal controls on procurement

– Creating standard operating procedures (SOPs) and protocols in the purchasing functions

– Internal resource for all operating and business owners in an organization

– Vendor management

– Strategic planning for future purchasing needs 

– Managing requests for proposal (RFPs)

– Developing long-term sourcing options

– Market intelligence

– Budgeting

– Collaborating with demand planning initiatives 

– Managing various projects

– Transactional and enterprise solutions

– Technology and its utilization throughout an organization

– Compliance

– Diversity inclusions

– Sustainable practices

– Disruption management

MANAGING RFPs

Purchasing managers need to learn that managing RFPs is a principal responsibility and as they master the requisite skills they will have more successful RFP outcomes.

 RFP management is a process often taken in methodical steps that become a “defined process” that in turn lead to more favorable results.

 It is critical for purchasing managers to make sure they understand what the expectations of the RFP is to assure all deliverables are achieved.

 The purchasing manager has numerous personnel and personality challenges while trying to bring responsible procurement practices into their organization, namely:

– Silo protectionism

– Resistance to change and improvement

– Personalities

– Disbelief and suspicious motivations

– Internal leadership and cultural issues

– Lack of effective working relationships

All these challenges must be overcome and managed successfully if the purchasing manager will have any opportunity to move forward successfully with any procurement initiatives and improvements. 

Relationship building with business owners and company stakeholders will go a long way in creating more effective opportunities for successful collaboration.

Mutual respect and trust are paramount and foundation characteristics of good working relationships within an organization.

Trust will help a purchasing manager move company personnel into a better scenario for procurement initiatives and betterments.

Though ultimately, trust only goes so far … performance that delivers consistent and frequent successes will also greatly help relationships build and sustain.

VENDOR MANAGEMENT

The pandemic created a greater importance for critical suppliers and their overall critical nature in a buyer’s business model. This has raised the profile of vendor management within most organizations since March of 2020, when the impact of the pandemic began to raise its ugly head.

A process, with protocols, SOPs and consistency must be achieved to successfully bring on and manage sustainable relationships with key vendors.

We strongly recommend “tiering” suppliers so you can rank their importance, relevance, and supplier risk. Most companies have hundreds, if not thousands of suppliers and vendors. By tiering them you can than successfully prioritize where you spend time in managing and negotiating.

Tier 1 suppliers make up 20% of your supplier base that represents 80% of spend. It is also likely that you will want to include a supplier where the spend may not be significant, but the importance of those vendors’ products or services are considered critical.

It is in that Tier 1 supplier/vendor base where vigorous, disciplined, and robust management is focused.

Once a new supplier/vendor is on-boarded into an organization, the practice of “vendor management” is triggered, consisting of the following:  

– Successfully transitioning the new vendor/supplier into the organization 

– Taking ownership of the maintenance of that vendor/supplier and their well-being from an oversight perspective

– Taking responsibility for the vendors’/suppliers’ performance in the delivery of their product or service into the organization … to the benefit of senior management, business owners, stakeholders, or any of the other business beneficiaries. 

– Coordinating with internal stakeholders any activity with the vendors/suppliers that may impact on operations now or in the future.

– Conducting vendor risk assessments and managing any areas of risk to assume, mitigate or transfer. 

– Managing the system that “tiers” vendors by amount of spend or the critical nature of the product or service they provide to your organization.

– Maintaining a robust relationship with the vendors and suppliers, so that they continually add value to the alliance between both organizations.

– Continually benchmarking price and cost to make sure that your “spend” is “in order”–that you are continually receiving value for your spend.

– Handling a proactive system for renewing vendors as their contracts and agreements reach expiration.

THE RFP TOOL IN MANAGING THE PURCHASING FUNCTION

A valuable tool for those in sourcing, purchasing and vendor management is the request for proposal or RFP. Often also referred to as RFI, RFQ, etc. … this business concept allows those in procurement to create a process to:

– Identify potential vendors and suppliers

– Keep favored incumbents “sharp”

– Vet potential providers

– Maximize favorable results in any bid initiative

– Establish a consistent and responsible means of managing spend with both existing and potential providers, vendors, and suppliers.

– Develop a favored and professional relationship both within your organization and with outside vendors/suppliers, of which will establish better working relationships and a greater opportunity for successful and consistent procurement.

The management of RFPs is both an art and science. Managing successful RFPs can be learned. Schools inside of organizations include AMA (amanet.org), NIWT (niwt.org), ASCM (ascm.org) or ISM (ismny.org).

Continual learning is the key to mastering the management of RFPs and being a “top-notch” procurement professional, well respected and with a robust career … and accomplishing successful purchasing for your organization’s benefit.

RISK MANAGEMENT IN PROCUREMENT

Purchasing managers need to understand that vendors and suppliers, just as any aspect, activity, or person in your organization, carry risk.

These vendor risks must be evaluated, assessed and a determination made on one of the three options to manage same:

– Assume the risk and set up a contingent liability

– Transfer the risk to a third party, such as a surety or insurance company

– Mitigate the risk through actions sometimes referred to as loss control, loss prevention and other related options.

Managing the risks of vendors and suppliers can be a heavy percentage of work hours of those engaged in vendor management. But it is considered a necessary component of a successful vendor management program. This initiative will prevent occurrences from causing damage and financial losses within or to your supply chain when the vendor fails to perform.

Some of the risks might be:

– Financial failure of the vendor/supplier

– Missed deliveries or delays

– Quality Control issues

– Non-performance

– Intellectual property right concerns

– Inability to compete

In vendors/suppliers that provide critical raw materials, parts, components, finished products or services, their failure in anyone of the above outlined sample risks could cause a serious blow to your operations and even be catastrophic. With respect to the overall risk management of vendors and suppliers, those engaged in vendor management need to coordinate a continuous search with those responsible for sourcing to always have options in the pipeline and creating “Plan Bs” with alternate vendors and suppliers.

In the world of procurement this ties into the debate about “single source” versus “multiple source” strategies utilized by various companies to leverage spend and at the same time reduce risk. Some would argue that multiple options clearly reduce vendor/supplier risk. Others would argue that single sourcing allows you to focus spend in one entity to leverage your purchasing power. Both are correct strategies. A purchasing manager should always be assessing the risks in both options and making decisions where consensus and compromise provide viable choices. This must be done in concert with senior management to understand their tolerance for acceptable risk levels.

PROCUREMENT ABIDES

Procurement is clearly a vital and growing function of relevance and importance in every organization. Senior management must consciously recognize this fact and allocate funds and resources to the procurement structure within their organization. Since the spring of 2020, when the COVID-19 pandemic became troublesome is when the more serious relevance of procurement was raised.

Senior management must give the authority to procurement managers who will set up SOPs, protocols, and business processes in the sourcing, purchasing and vendor management verticals to assure that both risk and spend are completely managed on all goods and services acquired from third party entities.

Senior management must create a culture within the organization that brings both the quantitative and qualitative disciplines of procurement into every nook and cranny of your business model and the organization overall, understanding that the success of the company’s business model is now more than ever dependent upon the procurement management function.

Thomas A. Cook is a seasoned global supply chain professional, author of more than 20 books on global trade and managing director of Blue Tiger International. He can be reached at tomcook@bluetigerintl.com or (516) 359-6232. 

 

Managing Landed Costs in the Global Supply Chain logistics

Best Practices in Global Trade with Thomas A. Cook: Managing Landed Costs in the Global Supply Chain

Personnel managing their global supply chains according to recognized best practices will manage their total costs of good purchased or sold through modeling the “landed costs.”

Landed cost is the total cost of a product once it has arrived at the buyer’s door. What follows are the components that are needed to determine landed costs, including the original price of the item (converted to U.S. dollars, all custom brokerage and handling charges, complete freight and shipping costs, custom duties, tariffs, taxes, insurance, packaging costs and surcharges.

  • Purchase price of goods (acquisition cost) – variable depending on unit price and quantity (converted to USD)
  • Buying agents fees – variable depending on level of service
  • Consolidation – securing LCL shipments into larger shipments and coordinating freight from several suppliers
  • Local trucking and international freight – variable, depending upon choice of mode, carrier, freight rate negotiation and surcharges
  • Duty – variable percentage of the value Customs put on your goods … typically origin and HTS# factored
  • Tax (goods and services tax or value added tax) – $ variable percentage of (The Customs value of cost of goods + freight + insurance + Customs duty)
  • Insurance charges, typically referred to as cargo insurance
  • Customs clearance, ISF, CBP 7501, courier and handling charges, etc.
  • Storage and deconsolidation
  • Inland freight– from inbound gateway to final destination
  • Demurrage – if applicable when potential delays occur. (Note: this became a more impactful expense and concern through the pandemic.)

Every supply chain will have some unique factors and variables that impact landed costs that must be taken into consideration. However, the above generic model will serve as a base template for landed cost calculations.

I firmly believe that senior management and a “best-practice mindset” warrants paying attention to this critical detail in global trade and supply chain management.

In an international trade, both parties enter into a purchase agreement that will include either named or by default an “INCO Term,” as defined by the International Chamber of Commerce in Paris, subscribed to by most trading nations of the world that belong to the United Nations.

As an example: Importers into the United States by ocean freight typically buy FOB outbound gateway. In China this might be written as FOB Shanghai.

This means that the buyer will assume all risks and costs once the goods are placed onboard the ocean-going vessel in the port of export from overseas. The key words being “risks and costs.”

A potential additional cost in the import or export transaction will be the cost of marine cargo insurance and typically would be considered a necessary component of reducing the risks involved in international transportation.

Marine insurance, when thoroughly written, offers “All Risk,” “Warehouse to Warehouse” coverage for the buyer at specific terms and a rate of premium to be agreed.

Exporters also need to be concerned with landed costs:

  • They need to make sure that the final costs to their customers are competitively structured, which would mean the accumulation of costs to get from the origin to destination, and everything included.
  • The choice of INCO Term may require them to bear all the logistics and customs charges such as in a DDP (delivered duty paid) transaction.
  • Areas such as quality customer service, profitability, margin impact.
  • The exporters freight costs may be less expensive than what the importer would pay.
  • To accommodate foreign customer needs.
  • In e-commerce transactions, the INCO Term DDP is a very likely option in an export sale, which the shipper (exporter) would cover in the COGS.  Thus, obtaining competitive freight costs (international and last mile) will help reduce the overall landed cost.

The following recommendations should be considered: 

  • Learn how INCO Terms impact cost and risk in every transaction and learn to leverage the best INCO Term between you and your supplier and/or buyer.
  • Review all areas of cost in the landed cost model to determine where savings might exist. It might be negotiating better freight rates, or service provider fees.

For example, it might be from sourcing from a country that we have a free trade agreement with, thereby eliminating the duty and tariff.

Companies that import from China are greatly impacted by the 301 tariffs, which added as much as 25% additional cost due to the duty surcharge, which was implemented during the Trump Administration and continued with President Biden’s policies.

By considering another country as a manufacturing source could greatly impact the calculation of duty and tax.

Near-shoring and friend-shoring have grown over the past six years and will likely continue to expand as the risks tied into costs on goods originating in China have created significant exposure to sustainable supply chain management.

Another area would be the HTS number utilized, impacting duties and tax rates.  Keep in mind that it is the country of origin and the product HTS number outlined in a matrix within customs regulations that determine the duty rates.

Mode of transportation will impact landed costs. Many times, air freight is utilized, when ocean freight could be a less expensive option. This means better demand planning and coordination between purchasing/sales/sourcing and the logistics department handling the transportation choices.

Included in this area is control over the suppliers with setting more realistic expectations, tighter control over order status and communications, contractual obligations, and penalties for non-performance.

  • Inland freight expenses can be included in the ocean freight, where there is an opportunity to leverage the larger ocean freight spend to obtain a better inland freight cost.
  • Utilization of technology and reducing “paper” in the transaction can reduce ISF, Customs clearance and handling charges when automation replaces repetitive human handling of import and export documentation.
  • When freight does not have to be consolidated or deconsolidated and can be shipped in units direct from suppler to point of end use, will also reduce costs.

The pandemic took witness to unprecedented increase in freight pricing all over the world. Through 2022, we saw a normalization of freight pricing take hold.

In 2023, the pricing is moving toward pre-pandemic levels and there are signs that demand is diminishing, which might impact pricing to even more competitive levels.

For companies with larger volumes, negotiating certain incidental costs in a soft freight market is available. Surcharges such as PSS, GRI’s and BAF will also impact landed costs favorably.

  • Another option is to minimize the number of service providers and carriers where you can better leverage your freight spend.
  • Freight forwarders, customhouse brokers, 3PLs and other forms of service providers when chosen wisely can be a very critical partner in your global supply chain to both assist in reducing risk and spend through their resources, knowledge, and skill sets.
  • The pandemic forced supply chain managers to pay attention to detail to a much greater extent. This scrutiny brought magnification of all the components of an international transaction.
  • Make sure the risk of loss and damage during transit is managed with a marine cargo insurance policy, written through a qualified insurance broker and underwriting company. And guarantee the terms are customized to the unique risks associated with your supply chain model.
  • In purchasing, when we strive to negotiate a competitive price, we should be wary of “cheap pricing,” as the “cheapest” may have trade-offs on timeliness, safety, and security.

To improve the landed cost model, you must first identify the areas of cost and which ones can be impacted favorably. This will work best in a collaborative process internally with all your stakeholders and externally with all your service providers and consultants.

The assessment process should lead to strategies followed by tactics that develop into action steps creating favorable results in reducing “landed costs” in your global supply chain.

Thomas A. Cook is a seasoned global supply chain professional, author of more than 20 books on global trade and managing director of Blue Tiger International. He can be reached at tomcook@bluetigerintl.com or (516) 359-6232. 

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The Four Big Challenges of Exporting Successfully: Explained and Answered

While there are numerous challenges that companies in all business verticals face, there are four that dominate the export process. Manage these successfully and you’ll reduce export headaches and maximize the profitability and long-term sustainability of your export program.

The four areas are:

1. Choice of INCO Terms
2. Logistics
3. Import Clearance
4. Getting Paid

1. Choice of INCO Terms

INCO Terms are internationally recognized terms of sale between exporters and importers that go back over 65 years, managed by the International Chamber of Commerce in Paris, France.

Incoterms provide a universal set of rules and guidelines that help facilitate trade. In essence, they provide a common language that traders use to set the terms of their trades. Buyers and sellers can use Incoterms in a variety of activities necessary to conduct business. Typical activities that call for the use of Incoterms include filling out a purchase order, labeling a shipment for transport, completing a certificate of origin, or documenting an import or export transaction.

There are 11 INCO Term options:

Incoterms Applying to Any Mode of Transport

The following Incoterm rules apply to any mode of transport:

  •  EXW – Ex Works (insert place of delivery)
  •  CIP – Carriage and Insurance Paid To (insert place of destination)
  •  CPT – Carriage Paid to (insert place of destination)
  •  DAP – Delivered at Place (insert named place of destination)
  •  DPU – Delivered at Place Unloaded (insert place of destination)
  •  DDP – Delivered Duty Paid (insert place of destination)
  •  FCA – Free Carrier (Insert named place of delivery)

Incoterms Applying to Sea and Inland Waterway Transport

The following Incoterm rules apply to sea and inland waterway transport:

  • CFR – Cost and Freight (insert named port of destination)
  • CIF – Cost Insurance and Freight (insert named port of destination)
  • FAS – Free Alongside Ship (insert name of port of loading)
  • FOB – Free on Board (insert named port of loading)

It is important for exporters to learn all the options and in collaboration with their foreign buyer choose the best term that mirrors the intended transaction.

CAUTION: For exporters we do not recommend Ex Works or Delivered Duty Paid Inco Term options. We prefer FAS or any of the “Cxx” terms where better control can be maintained.

NOTE: E-commerce export sales usually require the use of the DDP Term, again for greater control.

2. Logistics

Exporting requires moving freight from origin to destination, crossing international borders, often over greater distances, and at times subject to potentially harsh and dangerous exposures.

We make the following recommendations in handling export logistics:

– Make sure that your personnel who will be handling this responsibility are well-trained. NIWT.org is a viable option for export training. Better informed staff will produce better outcomes.

– Make sure the packaging of your shipment will meet the demands of the journey.

– Establish a good working relationship with a capable and experienced freight forwarder. Their knowledge will be a great asset to your export supply chain performance.

– Since the beginning of the pandemic, logistics has become more expensive with greater delays. Allow sufficient time to meet customer delivery requirements and budget higher costs for transportation.

– Track and trace your shipments. Due diligence will assure that the goods arrive at the intended destination timely and responsibly.

– Pay attention to export trade compliance. Make sure you are checking the denied parties list, follow all export regulations and apply due diligence and reasonable care along with supervision and control in your export program.

The fines and penalties for non-compliance can be severe.

3. Import Clearance

Always keep in mind that the goods that you are selling will need to go through customs formalities in the country of destination.

This will mean:

– Adherence to the import regulations of the country you are selling to

– That includes packing, marking, labeling and documentation requirements

– Correct Harmonized Tariff Schedule Numbers

– Import permits and potentially other documentary requirements.

The use of a qualified freight forwarder together with collaboration with the buyer and informed personnel will all mitigate this challenge.

4. Getting Paid

If you do all three of the prior steps correctly yet do not get paid, it will all be for naught.

Getting your money paid upfront before shipping is always a good option but is likely not to be competitive. Offering terms is typically a better long-term strategy.

Due diligence to consider, when offering terms:

– Judiciously vet the companies you sell to

– Letters of credit can work, but are costly

– Payment drafts against documents can work but pose some risk

– Arranging for export credit risk can be a viable option, which comes at lower cost and can offer risk avoidance. At Blue Tiger International, we have a program available to companies that services exporters requiring receivable protection.

Summary

Exporting creates opportunity for all industries but also creates risk. Manage the risks through these four pillars of exporting and you will significantly reduce exposure, maximize profits, and create a robust long-term export program.

The Author

Thomas A. Cook Is a 30-year seasoned veteran of global trade and Managing Director of Blue Tiger International, based in New York, LA and West Palm Beach, Florida.

The author of 19 books on international business, two best business sellers. Graduate of NYS Maritime Academy with an undergraduate and graduate degree in marine transportation and business management.

Tom has a worldwide presence through over 300 agents in every major city along with an array of transportation providers and solutions.

Tom works with a number of Associations providing “value add” to their membership services and enhancing their overall reach into global sourcing and in export sales management.

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Global Supply Chain Management: “A Look Back, A Look Ahead”

Strategies for Managing the Impact of Freight Disruption

The last two years have created significant challenges for global supply chains.  As we enter into 2022 we need to reflect on the last 22 months to better prepare for 2022 and beyond.

The impact to the automotive aftermarket has been unprecedented and significant, fraught with increasing issues in meeting customer and industry demands.

The issues we faced can be summed up as follows: delays, costs, and uncertainty.

As the pandemic grew in February 2020 to year end 2021, every month the problem grew worse in the form of delays, increased costs, and difficulties in demand planning as a result of the continued uncertainties in global markets and the transportation infrastructure moving freight globally.

While every business vertical and country in the world saw disruption, manufacturers and distributors in the automotive aftermarket, with huge dependencies on Asian markets and in just-in-time parts distribution, saw dramatic increases in freight costs and long delays.

The primary cause of the disruption relates to two areas: increases in demand and limitations in capacity.

The demand – starting with consumers, then followed by industry and government agencies, all on a buying spree and seeking enhanced inventory balances – has never been seen in modern history.

This demand has impacted manufacturing, production, demand planning and distribution management.

This historical increase in demand has overwhelmed the global transportation infrastructure that enables comprehensive and timely performance.

The results are frustration, anger, dismay, and even belligerence toward all companies associated with logistics services: Carriers, Freight Forwarders, NVOCC’s/Consolidators, Customhouse Brokers, 3PL’s and related companies.

The problems are huge, complex, and multi-caused.

They derive from the demand vs capacity issues, but when viewed on a micro-level they are caused by a shortage of drivers, trucks, chassis, manpower, handling and shipping equipment, space limitations, Covid-caused blackouts, shortfalls in demand planning, closed facilities, mis-routings, Covid shut-downs, greed, ill-preparedness, weather and a host of other issues.

That multitude of issues is where the challenges derive from, have now existed for two years, continue to worsen, and show no real end in the short-term.

Demand planning for buyers meeting manufacturing, distribution and customer needs is very much in disarray as the uncertainty of the Covid pandemic has made this responsibility a very difficult one to manage successfully and consistently.

There are two big questions we must consider when preparing for the challenges coming at us in 2022: When will it end?   And what can we do about the issues associated with the pandemic disruption?

When will it end?

We utilize both quantitative and qualitative data obtained from numerous government and confidential data banks and resources. We compile and analyze the data, combined with our own insight and experience gained over the last 40 years of operating in global supply chains, to draw conclusions and make recommendations.

Our best guess places the disruption to begin to subside in the third quarter of 2022 and last through Chinese New Year 2023.

A Look Ahead:  Predictions

From observing delays and pricing as we enter 2022 and look ahead, here are some of our predictions:

  • Delays will continue to increase in ocean freight through to the Fall of 2022
  • Air, truck, and rail will still have some capacity issues, which will more quickly subside, by the summer of 2022
  • Warehouse space will continue to have capacity limitations and price increases as much as 20%
  • Principal manufacturers and distributors will upgrade the role of supply chain management in their business models and seek options that produce lower risk, and possibly accepting cost increases as reasonable trade-offs for on-time performance, dependability and “ride, as-booked” options.
  • The most problematic trade lane has been between USA and China, particularly on imports to the Americas.
  • This factor combined with China/USA political and economic instability, IPR concerns, trade imbalances, forced labor issues and increased costs … will cause numerous companies to seek sources for alternative manufacturing and moving to new suppliers in other more friendly countries, near shoring back to the USA or Mexico … but certainly out of China.
  • Companies will aggressively seek other opportunities to reduce risk and spend. These might be utilization of programs in drawback, foreign trade zones, bonded warehousing, free trade agreements, tariff engineering … to name a few options.
  • Logistics managers will more closely manage their vendor relationships in providing freight services. Price will be less of a driving factor, more dominated by performance.
  • Demand planning systems will need to become more pliable and flexible in their approach to product ordering.

Procurement teams will work harder to study historical data, combined with future anticipated needs and collaborate more closely with suppliers in better predicting need and the time frames for purchase ordering.

  • Technology will be moving at light speed to make supply chains run better, more cost efficiently and allow for ease of demand planning requirements.

The integration of technology between manufacturers, distributors, service providers, carriers, vendors, government agencies and customers will become more robust, thereby more efficient and cost-effective operational connections between the parties in the supply chain.

We have been involved in numerous supply chain disruptions since the late 1970’s. From Hurricane Katrina in 2005, The Japanese Tsunami in 2011, the Global Financial Crisis of 2008/9, to the events surrounding 9/11 … these are a few of the more recent global crises that have had major disruptive impact to world trade and global supply chains.

We as a country and as a globally connected trading partner managed to get through all of these over time with the right actions. Though this Covid-19 pandemic has been much worse on a global scale, many of the lessons-learned from those preceding events have guided us to potentially successful solutions, tried and tested.

A Look Ahead:  Recommended Actions

Looking ahead, we are outlining six action items for 2022 Global Supply Chain Preparedness:

Companies now recognize the increasing importance of supply chain management, resulting in the following actions and accomplishments:

  • Raising the profile of supply chain senior management to a “seat at the table” in your organization, giving them more authority and influence on decisions impacting the business … leading to less disruption in the supply chain
  • Build resilience in the supply chain, making longer-term decisions that may tradeoff short term cost implications.
  • Successful supply chain management in every business model requires intense collaborative processes among all the silos of any organization.

Senior management must create a culture and pathway for robust collaboration.

In a pandemic, as circumstances disrupt the supply chain,  flexibility, pliability and the ability to demonstrate a willingness to change direction are critical attributes to managing the challenges and creating pathways moving forward.

In this Covid-19 pandemic over the past two years we have closely monitored over one hundred global supply chains, and we can clearly and concisely conclude that those supply chains that bent like a willow tree in the winds of disruption survived and even prospered. Those that were not willing to bend became stuck and were on the losing side of their business models.

Take for example, a Baltimore-based distributor of tire rims who had two primary selling channels, big box retailers and e-commerce.

Before Covid, they imported from two major suppliers, one in China, the other in Spain. They brought all merchandise into a 250,000 sq ft facility on the US East Coast, near their corporate office in Maryland. This model was opened in 1981 and continued through to the Fall of 2020, when it started to fail.

Covid caused huge delays in meeting the big box retailer’s PO requirements on delivery. In e-commerce, where margins were thin, additional inbound freight costs impacted profitability as well as financial viability.

They engaged our firm. We took a four-step process to mitigate their issues:

The process, in a simplified review, studied the details of their business model and how the supply chain operated. We benchmarked that model and began to collaborate on potential solutions.

Once we identified potential solutions, we determined financially and operationally how the potential solutions might impact and work within their business model, with some modifications and process changes.

For the big box retailers, who had their own consolidations going on in China, we changed the delivery from their U.S. warehouses to their consolidation facilities in China.

The big box retailer controlled more volume and ocean freight carrier capacity, and through their allocation allotments were in a much better position to move the freight timelier.  It worked.

With the e-commerce business, we designed the capability to ship directly from a fulfillment center near Shanghai, through a consolidator, and then last mile to the customers in the U.S.  We eliminated the warehousing in the USA, which was a mainly a “pass-through,” i.e., no value-add.  And when shipments were under the $800 de minimis value we also eliminated some of the tariff and customs clearance costs. We not only protected margin but now offered a more competitive “landed cost” model.

Bottom line: in this difficult period of supply chain disruption we were able to impact cost and risk with a supply chain management team that demonstrated flexibility and creativity in their approach to problem resolution.

We are also recommending that monies be budgeted and allocated to more robust integration in the supply chain, from the PO through to shipping, inventory WIP and distribution, which can create efficiencies and more cost-effective operations.

Resource development is part of information gain. And information is “gold” anytime a major disruptive event like Covid-19 occurs. Executives involved in business models with critical supply chain operations must allocate time and money to resources and information gain.

Better decisions come directly from more informed decision-makers.

Even when the transportation infrastructure finally catches up to the demand and costs are lowered, we do not anticipate that a 40’ Container from China into the West Coast of the United States, which cost $2,750 in 2019, and is now costing $23,500 in January 2022, is not likely to go back down to $2,750 but more likely will settle in at around $4,000-6,000 range.

As such, both in the short-term and in the long-term we should anticipate that freight as a component of “Landed Cost” will likely cost us more now and into the future.

Drewry Consultants in the UK are an excellent source for freight information and assessment. From their website a sampling of freight costs:

One of the impacts of the pandemic is personnel working from home, all over the world. To some extent, this has been a resolution strategy, but from another perspective is adding to overall disruption in the global supply chain arena.

In either case, with the uptick in the Covid Omicron surge we currently face globally, it appears that working remotely is likely to continue well into 2022.

The point being as we adapted to this remote business model, we need to accept its continued presence and create better methods to assure personnel productivity, performance and supply chain skill set.

The remote model may have been a “band-aid” solution but most of us in senior management have raised concerns about its effectiveness on areas of employee performance.

If the supply chain disruption challenge continues, which all predictive models point to that occurrence, our remote supply chain, procurement, logistics and management teams must find creative ways, flexible pathways and solutions that work well in that “work-at-home” mode of operation.

Summary

All of us in global supply chain, in all business verticals including the automotive aftermarket, should feel good about how we performed in the past two years among such uncertainty and disruption.

While most supply chains faced difficulties, most found ways to navigate to successful solutions and mitigating options.

As we look forward, many of these challenges will still exist and some even will become more volatile. Many of the comments, recommendations and thoughts produced in the article can be beacons of direction to find both solution and mitigation.

“Article previously published in Aftermarket News Magazine, Feb. 2022,”