The American business sector is growing and expanding foreign sourcing at unprecedented rates. This growth is due to a number of factors. One contributing impact is the need to source competitively priced raw materials, components, and finished products from foreign markets.
While there is always a value in “Buying American” the reality is that we participate in a global economy and buying and selling in a multitude of markets offers all companies value in growth, profits and sustainability.
This holds true for all business verticals in a robust fashion. More and more USA based retailers, manufacturers, and distributors are finding alternative sourcing opportunities in other countries.
Consumer products, chemicals, electronics (both components and finished products), industrial goods are examples where we witness increased foreign sourcing.
China leads the world as a source for most manufactured products. . “Hats-off” to them for creating a huge capacity, with a robust bandwidth to be both comprehensive and competitively priced, making all other markets subordinate in comparison.
The United States has lost a lot of ground to foreign competition but has still maintained a strong manufacturing profile in numerous verticals. And in recent years has begun to grow again.
Most management personnel in expanding companies … are pressured into short term profitability goals, source internationally, which can lower production and purchasing costs, so margins can be maximized.
These strategies create a dependence on foreign sourcing and a continued need to develop numerous options in purchasing both materials and finished products from low-cost countries.
Cost reduction is the main reason for foreign sourcing that comes with certain risks and challenges, that we need to navigate successfully.
Some of the examples of the challenges and risks in global sourcing:
-Making sure “landed costs” are figured into the cost of goods purchased
-Handling the complications of shipping internationally
-Dealing with U.S. Customs (CBP)
-Managing Trade Compliance
-Packing, marking, and labeling concerns
-Other government agencies, such as but not limited to: USDA, FDA, ATF, DOE, etc.
The critical step is to evaluate and understand your risks and manage solutions to mitigate the challenges of global sourcing and the import process.
In that regard we have eight recommendations:
1. Proceed with new suppliers cautiously.
Do not rush into sourcing relationships. Initially obtain a flow of samples. Check, recheck and check again. Initially buy limited quantities till you have had a number of successful import transactions.
2. Raise the Bar of Quality Control (QC)
Many Industrial Companies we have interfaced with over the last 20 years have had QC issues with foreign suppliers. We strongly suggest you acting diligently and with high reasonable care in assuring that all quality standards are being met.
3. Control the Term of Purchase
INCO Terms control international sales and purchasing. Chose terms that leverage your purchase, such as Ex Works, FOB, FCA and stay away from the DDP Term.
4. Align with Qualified Service Providers
Freight Forwarders and Customhouse Brokers become a reliable partner in your import supply chain. We maintain strong relationships with several service providers that understand the Pet Products Vertical and can refer you to several options.
5. Create Robust “Landed Cost Models”
Landed Cost Models outline all the costs in an import transaction that impact the overall expense in choosing a specific foreign supplier. Freight, duties, taxes, clearance charges, consolidation, etc are just a few of the many expenses associated with imports.
It is critical to make sure you are identifying and covering all of your expenses in the import transaction.
6. Continually do comparison purchasing and diversify your sourcing options
Foreign sourcing is a “work-in-process”. It is a best practice to always seek options, explore alternative suppliers in various countries to make sure you are truly obtaining the most competitive price and highest level of QC and product performance.
7. Utilize and leverage your Logistics Options
Bonded warehousing, foreign trade zones, tariff engineering are practices available to help lower landed costs of goods purchased and are legitimate options to reduce inbound logistics costs.
8. Pay attention to detail
Issues such as Harmonized Tariff Codes, Valuation, Transfer pricing, and Record-Keeping are all issues you have to manage successfully to keep your inbound supply chain running and managing successfully.
Thomas Cook is a recognized leader in global supply chain and author of 20 books on global trade and business management. He can be reached at firstname.lastname@example.org or 516-359-6232.