|Edition description:||Third Edition|
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Purchasing Management Skill Sets in Foreign Markets
Purchasing Management and Global Sourcing are becoming increasingly important verticals and disciplines in every company of every size that operates in global business.
This chapter provides an overview of the skill sets that any supply chain executive would benefit from in any aspect of import or export activity. However, the focus here is for the "purchasing" manager to have a set of skill sets that can be used when sourcing goods and material from overseas suppliers.
Companies have grown to realize that supply chain costs can seriously be reduced when foreign sourcing options are visited, particularly with "private label" merchandise.
This initiative to source globally requires another entire set of skills, capabilities, and wherewithal.
The skill sets, not limited to the following, include:
* Global sourcing
* Foreign contract management
* Purchasing in foreign markets
* Harmonized tariff classifications
* Customs (CBP) regulations
* International logistics
* Managing customhouse brokers and freight forwarders
* Duties and taxes
* Antiboycott regulations
* Contemporary import issues
* Customs Trade Partnership Against Terrorism Program (C-TPAT)
* Security and terrorism concerns
* Free trade agreements
* Bonded warehouses and foreign trade zones
The array of challenges facing managers who engage in foreign procurement can be daunting. However, if the challenges are met with a can-do attitude, they can be managed successfully. Keys in this endeavor to getting it all right are the following:
* Develop resources externally that can provide useful intelligence.
* Foreign procurement is staying ahead of the learning curve, making learning always a "work-in-process."
Master the gain of knowledge, training options, and procurement management.
* Build good relationships with key support services: freight forwarding, customhouse brokerage, carriers, NVOCCs, international attorneys/bankers/accountants, and consultants.
* Pay attention to detail at an extreme granular level.
* Make sure trade compliance management is factored into every supply chain decision.
* Create a balance between value and spend, cost and risk.
* Build risk management strategies in the running of your global supply chain proactively and comprehensively.
Purchasing managers have several goals to consider when determining which overseas suppliers to buy from: costs, specifications, and scheduling.
The bottom-line potential saving with product that is less costly from a supplier located in a country with cheap labor costs, deregulated Occupational Safety and Health Administration (OSHA)-type controls, less environmental issues, etc.
An analysis of the "landed cost" will assist in determining this cost issue. One must measure the "total" of all the incremental costs to then view the final landed cost in determining ultimate supplier options. This analysis process requires an experienced eye and tenure in operations, logistics, and negotiation management.
LANDED COST COMPONENTS
* Inland freight
* Export clearance
* International freight
* Import costs: license, registrations
* Import clearance
* Duty, taxes, and so on
* Inland freight and on-forwarding
* Possible repacking, remarking, or relabeling
* Possible further processing, refinements, or manufacturing
* Black money????
The experienced purchasing manager must evaluate all these parameters to make an intelligent decision about where to source product from.
MEETING PRODUCT SPECIFICATIONS
This parameter is relevant no matter where the goods originate. One only need to be sensitive to the differences in language, culture, legal, design metrics, and so on when comparing "apples to apples."
Prior to the 1980s, foreign sourcing was always considered shabby. But the influence of western engineering, quality control, and technology on foreign manufacturing in the last twenty years has significantly brought up its capability. In some product lines, like communication and broadcast equipment and high-end automobiles, foreign suppliers have proven very capable.
If you are venturing into product lines in which the overseas supplier has little experience, the obvious initiative of being more diligent and exercising greater scrutiny brings on new meaning.
Based on my 40 years plus experience in global trade, most foreign manufacturers and distributors have experience exporting from their country and can be of great value in assisting the U.S. based importer with support in making sure the goods and export from their country.
MEETING DELIVERY SCHEDULES
I witness many importers frustrated when purchasing from foreign suppliers who continually miss shipping deadlines and delivery schedules. It is critical to bring this into the overall formula when evaluating an overseas source, as missing deadlines could prove to have deadly consequences to customer, inventory, or manufacturing schedules. If they can't deliver on time, then "cheap" loses its value.
Many importers who have "just in time" inventory controls need to be more on top of the inbound supply chain and more proactive in the face of potential delays or work flow stoppages.
Some importers hold extra inventory that is sourced from overseas, allowing potential delays to have minimal effect.
So, cost, specifications, and delivery capabilities are the key governing factors in determining overseas supply options. I know some import purchasing managers who live by managing all three concerns in a manner that avoids pitfalls and leverages opportunities.
Controls need to be put into place, driven by relationship building, contractual obligations, and potential financial consequences to the source for nonperformance or poor performance.
In certain markets, it is the financial consequence that will drive performance.
DETAIL, DETAIL, AND MORE DETAIL
Purchasing managers must pay attention to a lot of detail in making sure their inbound supply chains are managed cost-effectively and are competitive. (See Figure 1-3)
The detail to be managed requires experience, creativity, and awareness of all of the parameters of inbound supply chain management.
Inbound supply chain management is as much an art as it is a science. I have outlined several areas that purchasing executives ought to consider in their day-to-day responsibilities.
Companies looking to foreign suppliers can create quality purchasing opportunities. However, the importer must go through several steps before buying the goods to make sure the deal will work successfully. For example, the importer must make sure that the party overseas is a "legitimate" entity approved to do business with U.S. companies.
In addition, importers must determine the duties and taxes applicable for an import from that country, to analyze the "landed cost," which will allow them to determine the competitiveness of that sourcing option.
Importers have an array of steps they must take to purchase goods from foreign suppliers. Some of these steps are
1. Make sure all of the entities you are doing business with are legitimate. This is general business sense — make sure you check them out, as you would any party within the United States, before you enter an agreement. I am always astonished at the lack of due diligence in checking out foreign suppliers in the face of million-dollar transactions.
2. In addition, you should check all of the U.S. government lists, like Denied Parties, Unverified, Office of Foreign Asset Control (OFAC) Sanctions, and State Department, to make sure the party and individuals you are engaging are not on them. In the appendix, the access to these government sites is provided. It is part of an importer's due diligence to make sure these lists are checked.
3. Make sure that the supplier can meet all of your manufacturing and production needs. I would suggest that before moving all of your business to the new supplier and reaching long-term agreements, you allow a period of testing and review. There should be no reason to rush into a new supplier and arrange a long-term agreement until you are reasonably sure it can meet your needs on a timely and efficient basis. Do not give up your existing supply lines until the new one is solid. You may want to "wean" the new one into full time while the other is gradually turned off.
4. Review all vulnerabilities and set up "plan Bs" and contingency arrangements. Set up a committee with all of those engaged in the inbound supply chain. Make a checklist of "what ifs" and vulnerabilities. Then create a new checklist with a proactive strategy to deal with all of the issues.
5. Work with qualified consultants and attorneys in the United States and locally overseas. Typical "house" counsels lack the expertise required and ultimately can cause more harm than good. Check with outside counsel, trade associations, the Internet, and vendors for names of experienced international legal counsel. The National Institute for World Trade (NIWT.org) is a reputable option in this regard.
6. Develop contracts that limit exclusivity and have arbitration agreements in them. Do not commit to deals that restrict your ability to change or modify the agreement, if you're not satisfied with your supplier's performance. All disputes should be settled in a neutral setting like an arbitration panel in London, Toronto, or Sydney, not in the country where you are sourcing your goods.
7. Do extensive product testing before entering the U.S. market or for use in your full-scale manufacturing. It can become a real embarrassment when you have a "boatload" of goods coming in and the prototypes are not meeting specification. Buying from overseas markets requires patience and thorough diligence.
8. Make sure your suppliers' products meet all regulatory requirements. These include customs, OSHA, USDA/FDA, BATF, DEC, DOT, FCC, and CDC, to name a limited few. It is imperative that the importer coordinates the import legal requirements with the various agencies that govern the specific product line. In many cases, there could be multiple agencies involved with similar or conflicting regulations. Larger corporations may have multiple compliance specialists in the various purviews, like a pharmaceutical company that would have a FDA compliance person, an OSHA compliance person, and an import compliance manager.
9. Make sure your new supplier meets all packing, marking, and labeling requirements. It is an importer's responsibility, typically as "importer of record," to ensure the goods entering the United States meet all requirements for how they are marked, packed, and labeled. For example, a cereal product must have the carton and internal wrapping meet FDA standards. The outside of the carton must meet United States Department of Agriculture (USDA) guidelines on communicating product, handling, and nutritional information.
With new security guidelines in place, like the 24-Hour Manifest Ruling and the Importers Security Filing (ISF), the importer must make sure that the details of what is entering the United States are manifested by the inbound ocean carrier at least twenty-four hours prior to the vessel sailing from the exporter's outbound port.
Timeframes for new changes have occurred since 2008 and continue into 2018.
10. Control the inbound logistics by controlling the terms of purchase.
Use free on board (FOB) or (FCA) Outbound Gateway or Ex Warehouse International Commercial (INCO) Terms. This will give you control of the inbound supply chain. This will typically allow you better pricing, control of delivery scheduling, and control of all compliance responsibilities.
Many importers have determined, unwisely, that removing themselves from the hassles of the import process and inbound logistics serves their best interests. My group has studied this circumstance for over twenty years. Every analysis clearly points out that importers are always in a "best served" position when they control the inbound and "importer of record" responsibilities.
The importer benefits in reducing overall logistics costs, managing compliance and security requirements, and maintaining control over the inbound status and disposition of the imported merchandise.
11. Control who the customs broker will be. Use your customhouse broker where you can have documentary and compliance controls in place — and where you have the relationship to make things happen. Many importers appreciate being out of the "loop" of the clearance process. Customs has regulations referring to "ultimate consignee", which may force you to be the "importer of record" irrespective of who manages the clearance process.
We have always identified the scenario that those importers who "control" the importing and clearance process are better exercising due diligence and reasonable care, which are dictates of Customs Border and Protection.
In a new era of increased "compliance and security" post 9/11, control offers the best strategy for mitigating risk, avoiding fines and penalties of the import process, and maintaining open inbound supply chains.
12. Calculate the anticipated "landed costs." This is imperative to make sure you are competitive in comparison to local purchasing or from other sites. This is covered in more detail on page 136. Too many times we have seen importers begin to import a product, raw material, or component from a foreign supplier and then get hit with duties, taxes, and inland charges, which make the transaction cost prohibitive.
Do your homework before you import!
13. Pay attention to detail. Make sure that all the minutia of information is relevant and accurate, including but not limited to valuation, classification, origin, language, and invoice data.
Failure to do so, after the fact, slows the inbound supply chain, adds unnecessary import costs, and opens you up to fine and penalty exposure. Utilization of quality and compliant customhouse brokers will greatly assist you in this endeavor.
14. Make sure your transaction from point of purchase to point of processing or sale is well documented and all records are maintained for at least five years. This is a "reasonable care" standard, for which failure can result in serious penalties. Five years is a good benchmark.
15. Make sure the shipment is insured for the full value of your expected loss. The valuation for insurance purposes can be calculated to full sales value, including profit. It is at the time of loss or damage that most companies worry about cargo insurance. Then it's too late. Set up the insurances to provide "All Risk" "Warehouse to Warehouse" coverage on your imports with a quality third-party insurance company that specializes in international transportation risks.
16. Pay attention to global and local economic and political events and trends. Bring these circumstances into your equation for determining the viability of the foreign source you are contemplating. Not paying attention could cost millions. Many foreign companies invested money into construction projects in Iraq, pre-U.S. invasion. Now their investments are worth zero.
Business losses have been identified in 2017 in countries like Yemen, Sudan, Somalia and Libya, where terrorism and political events have resulted in economic hardships and financial losses to external interests.
Importers who pay attention to detail and follow the sixteen steps and integrate these into Inbound Supply Chain standard operating procedures (SOPs) will place themselves in the very best situation to always be compliant and secure, cost-effective, and competitive.
17. Assess the risks and arrange all the necessary insurances throughout the inbound supply chain. Two specific areas will always need to be addressed — product liability and marine cargo insurance.
DETERMINING THE BEST OVERSEAS SUPPLIERS
For the most part, U.S. purchasing managers will have options when looking at potential foreign suppliers.
The following set of guidelines will assist the purchasing executive with a set of parameters to maximize the opportunity for the right choice.
Excerpted from "Mastering Import & Export Management"
Copyright © 2017 Thomas A. Cook.
Excerpted by permission of AMACOM.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
SECTION ONE: The Global Supply Chain
CHAPTER 1 Purchasing Management Skill Sets in Foreign Markets 3
CHAPTER 2 Freight, Logistics, and Specialized Transportation Issues for Import/Export Managers 25
CHAPTER 3 Risk Management in International Business 87
CHAPTER 4 Technology in Global Trade 119
CHAPTER 5 Global Personnel Deployment and Structure 133
CHAPTER 6 Developing Resources in the Import/Export Supply Chain Management 147
CHAPTER 7 Foreign Trade Zones, Bonded Warehouses, Free Trade Agreements, and Business with China 161
CHAPTER 8 Essential Overview of Import/Export Compliance and Security Management: Post 9/11 181
SECTION TWO: Export Operations
CHAPTER 9 Export Management: Incoterms, Documentation, Compliance, Operations, and Export Supply Chain Skill Sets 209
SECTION THREE: Import Operations
CHAPTER 10 The Import Supply Chain: Purchasing, Operations, Documentation, and Compliance Management 255
CHAPTER 11 Import Strategies in Maintaining a "Compliant and Secure" Inbound Supply Chain 275
CHAPTER 12 Bureau of Customs and Border Protection: Compliance and Security Expectations: Post 9/11 283
CHAPTER 13 Concluding Remarks 293
What People are Saying About This
"Not since 9/11 has a book covered all the old and new supply chain import/export management issues, and offered an array of cost-effective options in bringing competitive advantage and reducing global risks....This is a must-read book and a key addition to every supply chain manager’s library." — From the Foreword by Spencer Ross,
President, National Institute for World Trade"