Supply Chain Chapter 10

Trade Compliance Systems

- Have become a vital tool for every major importing and exporting company in the US. - Really the only way to keep current with all of the continuously changing laws, regulations and procedures. -Trade Compliance Systems can automate the process of checking every transaction * For commercial and non-commercial products against every legal regulation before import or export.

Benefits of Trade Compliance Systems

- Increased level of compliance compared to a manual process. - Decreased number of physical inspections by US Customs & Border Protection - Faster release of shipments by US Customs & Border Protection. - Avoidance of fines and penalties. - Opportunity to interface with other systems.

Global Supply Chain - Challenges

- Tariffs or duties (import taxes) - Transporting goods across borders - Customs, business practices, and regulations vary by country - Foreign markets are not homogeneous even within the country

Permitted Activities in Foreign Trade Zone's

-Assembly -Exhibition -Inspection -Salvage -Destruction -Reclassification -Manufacturing -Processing -Storage -Testing -Relabeling -Repackaging

U.S. Customs and Border Protection (CBP)

-CBP control the import process -the mission for CBP is to protect our borders from dangerous people while enhancing the nation's global economic competitiveness by enabling legitimate trade and travel -CBP protects U.S. through active inspections at ports of entry -CBP has a strong base of industry partnerships and technology

U.S. Department of Homeland Security (DHS)

-DHS mission is to protect US from terrorism -they have to make sure to protect the country but also to have an efficient flow of lawful traffic and commerce

Environmental Issues

-Global warming, air pollution, and acid rain are debated as being the price of industrialization. -Trade liberalization creates the need for environmental cooperation

Labor Issues

-Labor availability, productivity, & skill. -Unemployment & underemployment rates. -Wage rates; turnover rates; labor force competitors.

Taxes and Incentives

-Several levels of government must be considered when evaluating potential locations -Tariffs are federal taxes that are designed to protect local businesses -Countries with high tariffs discourage importing goods into the country and encourage multinational corporations to produce locally

International Freight Security

-Transportation across national boundaries introduces added complexity, particularly security. -Since 9/11 there is more conflict between the U.S. government and industry regarding more security and restrictions for international shipments.

Export Process

-When a shipment is ready to be exported, the shipper will file export documents for the goods' at the port of departure. -Shipments must conform to Export Administration Regulations: The shipper must: Know the product or technology being exported Know where it is being produced Know where and to whom it is being sent Know who will use the product Know whether there are any illegal restrictions in the order, L/C or other document (e.g. Boycott clauses). -Complete and submit a Shippers Export Declaration (SED) -Submit a Commercial Invoice for the product.

Global Supply Chain - Opportunities

-increased revenue -increased sourcing options

Utility Availability and Cost

-supply of electricity, internet, other utilities must be available

Right-to-Work Laws

28 states have laws protecting the right of employees to decide whether or not to join or support a union.

Offshore Factory

A factory set up for manufacturing or assembly in a country where labor and/or raw materials are less expensive, for eventual import back into the manufacturer's home country. -things made in another country for cheaper, then you ship it back to your own home or directly to customer

Server Factory

A factory set up to take advantage of government incentives, reduce taxes/tariff barriers to meet regional needs -factory uses government incentives and has low exchange risk and tariff barriers to reduce taxes and other logistical costs

Global Location Decisions

Companies can locate anywhere in the world due to increased globalization, technology, transportation, and open markets. Decisions Involve: 1. Defining each facility's strategic role (what type of facility) 2. Determining the location for each facility (where in the world) 3. Identifying the markets that each facility serves

The Weighted-Factor Rating Model

Compares the attractiveness of several locations along a number of quantitative and qualitative dimensions. -Identify the factors -assign weights to each factor; weight sum to 1 -determine a score for each factor -multiply the factor score by the weight, then sum the weighted scores -the location with the highest total weighted score is the recommended location

Penalties for Violations

Criminal Penalties - Substantial Fines (and/or) - 10+ years imprisonment Civil Penalties - Substantial fines per occurrence - Individual and/or company sanctions Statutory Sanctions - Seizure and forfeiture of items in violation, including the vessels and aircraft carrying the items. - Loss of import and/or export privileges for a business unit, division, or for the entire company. - Detailed inspections of every single shipment, and delayed release by US Customs & Border Protection.

Global Logistics Intermediaries

Customs Brokers - Move global shipments through customs and handle documentation. International Freight Forwarders - Move goods to and from foreign destination Trading Companies - Put buyers and sellers from different countries together and handle export/import arrangements, documentation and transportation. Non-Vessel-Operating Common Carriers (NVOCC) - Operate like freight forwarders but use only scheduled ocean liners.

Regional Trade Agreements

European Union (EU) North American Free Trade Agreement (NAFTA) Southern Common Market (MERCOSUR) Association of Southeast Asian Nations (ASEAN) Common Market of Eastern and Southern Africa (COMESA)

Outpost Factory

Factory set up in an area with an abundance of advance supplier, competitors, research facilities, etc. -factory close to a lot of other advanced factories and research facilities

Contributor Factory

Focused on product development and engineering for products that they manufacture -factory that is more innovative and focus on actually building the product from scratch

Global Facility Types

From basic to more complex 1. Offshore Factory 2. Source Factory 3. Server Factory 4. Contributor Factory 5. Outpost Factory 6. Lead Factory

12 Pillars of Competitiveness

Institutions Infrastructure Macroeconomic stability Health and primary education Higher education and training Goods market efficiency Labor market efficiency Financial market sophistication Technological readiness Market size Business sophistication Innovation

Source Factory

Manufactures products at low cost but with skilled workers and significant managerial resources -things made at low cost but has a skilled workforce and factory more developed

Foreign Trade Zones (FTZ's)

Physical areas inside the US supervised by U.S. Customs and Border Protection that are considered to be outside of the U.S. territory. Usually located at or near a port of entry. Foreign and domestic merchandise may be moved into FTZs for operations not otherwise prohibited by law While in the FTZ, merchandise is not subject to U.S. duty or excise tax Internationally, similar areas are called Free Trade Zones

Lead Factory

Source of product and process innovation and competitive advantage across the entire organization (world-class) -the best factory you can have; source of innovation and has the competitive advantage of the organization

Global Location Factors

These are factors used to compare and contrast one potential location against another Competitiveness Taxes and Incentives Currency Stability Access and Proximity to Markets Labor Issues Right to Work Laws Access to Suppliers and Cost Utility Availability and Cost Environmental Issues Land Availability and Cost Quality of Life Issues Business Clusters Trade Agreements

Break Even Model

Useful location analysis technique when fixed and variable costs can be determined -Identify the locations to be considered. -Determine the fixed cost of land, property taxes, insurance, equipment, and buildings. -Determine the unit variable cost, materials, utilities, and transportation costs. -Construct the total cost lines. -Determine the break-even points on the graph. -Identify the range over which each location has the lower cost.

Import Process

When a shipment reaches the US, the Importer of Record (i.e., the owner, or purchaser) must file entry documents at the port of entry Goods are not legally entered into US commerce until: -The shipment has arrived within the port of entry -Delivery to the shipping destination has been authorized by CBP (following submission and review of required documentation) -Estimated duties have been paid CBP also is concerned with revenue collection with items such as: -Correct valuation (price paid or payable) -Correct classification -Country of Origin (COO) -Identification of the merchandise -Identification of buyer and seller and whether they are related

Quality-of-Life Issues

You will need people to work at these locations - so consider the following Quality-of-Life issues in terms of maturity, sophistication, robustness, etc., in each location, and do a comparison/evaluation: -Education -Economy -Natural Environment -Social Environment -Culture -Healthcare -Government / Politics -Mobility -Public Safety -Recreation

International Trade Compliance

a typical cross-border shipment involves: -accurately completing and filing about 35 documents -compliance with over 600 laws and 500 trade agreements which are constantly changing -interfacing with about 25 parties, including customs, carriers, freight forwarders, other government agencies, etc. -every import or export has to be checked with all laws and regulations -businesses that violate the policies can face fines up to 40% of the value of their merchandise

Land Availability and Costs

as land and construction cost in big cities continue to escalate, the trend is to locate in the suburbs and rural areas

World Trade Organization (WTO)

deals with the global rules of trade between nations; main goal is to ensure that trade flows as smoothly, predictably and as freely as possible WTO functions include: -administering agreements -forum for trade negotiations -trade disputes -monitor trade policies -aid for developing countries -international organizations 164 member countries

Currency Stability

impacts business costs and consequently location decisions

Access to Suppliers and Cost

supplier proximity influences the delivery of materials and effectiveness of the supply chain

Business Clusters

the geographic concentration of interconnected companies and institutions in a particular field -research parks and special economic / industrial zones serve as magnets for business Reasons for success: -Innovation and competition can be geographically concentrated -Close cooperation, coordination, and trust among clustered companies -Fierce competition among rival companies Companies recruit from local skilled workers

Deemed Exports

the release of technology or source code that is subject to the Export Administration Regulations, to a foreign national located in the United States.

Access and Proximity to Markets

the trend in manufacturing is to be within delivery proximity of your customers