Supply Chain Chapter 10

Goods are not legally entered into US commerce until:

1. The shipment has arrived within the port of entry 2. Delivery to the shipping destination has been authorized by CBP (following submission and review of required documentation) 3. Estimated duties have been paid.

Global facility types

1. Offshore Factory 2. Source Factory 3. Server Factory 4. Contributor Factory 5. Outpost Factory 6. Lead Factory

DHS is the government agency who's mission is to:

1. Prevent terrorist attacks within the United States 2. Reduce America's vulnerability to terrorism 3. Minimize the damage from potential attacks and natural disasters

10 major laws/ initiatives in 2 immediate years post 9/11

-"Focus Assessment" (replaces CAT) -Container Security Initiative -Automated Customs Environment (ACE)- Replaces ACS -24-Hour rule -Trade Act of 2002 -C-TPAT (customs-trade partnership against terrorism) -TCMP- Trade Compliance Measurement Program -The Bio-Terrorism Act of 2002 -US Customs and border protection -department of homeland security established

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.

WTO functions include:

-Administering agreements -Forum for trade negotiations -Trade disputes -Monitor trade policies -Aid for Developing countries -International organizations

Outpost factories setup in a location with proximity to:

-Advance suppliers. -Competitors. -Research facilities & universities for materials, components and products.

Penalties For Violations Can Be Substantial

-Criminal penalties -civil penalties -statutory sanctions

Nations forming trading groups:

-European Union (EU): [1950] 27 members countries in Europe -North American Free Trade Agreement (NAFTA): [1994] U.S., Canada, & Mexico -Southern Common Market (MERCOSUR): [1991] Argentina, Brazil, Paraguay, & Uruguay -Association of Southeast Asian Nations (ASEAN): [1967] 10 member countries in in SE Asia -Common Market of Eastern and Southern Africa (COMESA): [1993] 19 member countries in Eastern & Southern Africa

Business Clusters

-Geographic concentrations of interconnected companies and institutions. -Research parks and special economic / industrial zones serve as magnets for business.

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

Trade Compliance Systems (or global trade management)

-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 csn 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.

Business clusters 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

Export process: 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).

Labor issues

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

U.S Department of Homeland Security

-On March 1st 2003, DHS assumed responsibility for securing our nation's borders and transportation systems which straddle 350+ official ports of entry and connects our homeland to the rest of the world. -The Department's first priority is to prevent the entry of terrorists and the instruments of terrorism, while simultaneously ensuring the efficient flow of lawful traffic and commerce.

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, including these Permitted Activities -While in the FTZ, merchandise is not subject to U.S. duty or excise tax. -U.S. duty and excise tax, if applicable, are only payable when the material is moved outside the FTZ for consumption. -Foreign-trade zone sites are subject to the laws and regulations of the United States as well as those of the states and communities in which they are located. -There is no limit on the time material may remain in the zone. -Internationally, similar areas are called Free Trade Zones.

Source factories are basically an offshore factory that includes:

-Plant management involvement in supplier selection -Plant management involvement in production planning -More developed local infrastructure -Access to skilled workforce -Low production costs

Contributor factory is basically a server factory that includes:

-Product development. -Production planning. -Procurement decisions. -Supplier development.

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.

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.

Criminal penalties

-Substantial Fines (and/or) -10+ years imprisonment

Civil penalties

-Substantial fines per occurrence -Individual and/or company sanctions

7 Major Laws/Acts in the 70 years from 1930-2000

-Tariff Act of 1930 & Subsequent Regulations -Anti-Smuggling Act of 1935 -Public Laws 95-410 -Trade & Tariff Act of 1984 -Title VI of the NADTA- "Mod Act" & Subsequent Regulations -CAT Audits- Compliance Assessment Team Audit -FDA/USDA- Presidential initiatives for safety of imported goods.

Challenges of global supply chain:

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

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 -Complete and submit a Shippers Export Declaration (SED) -Submit a Commercial Invoice for the product.

Global Logistics intermediaries

-customs brokers -international foreign forwarders -trading companies -Non-Vessel-Operating Common Carriers (NVOCC)

Opportunities of operating your supply chain globally:

-increased revenue -increased sourcing options

Global location decisions involve:

1. Defining each facility's strategic role (i.e., what type of facility) 2. Determining the location for each facility (i.e., where in the world) 3. Identifying the market(s) that each facility serves

12 pillars of competitiveness

1. Institutions 2. Infrastructure 3. Macroeconomic stability 4. Health and primary education 5. Higher education and training 6. Goods market efficiency 7. Labor market efficiency 8. Financial market sophistication 9. Technological readiness 10. Market size 11. Business sophistication 12. Innovation

Right-to-Work Laws

25 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. -Manufactures products at low cost with minimal technical and managerial resources -Take advantage of low labor costs -Import or acquire parts locally, then export to the manufacturer or directly to customers -Local management serves in a supervisory roll not in making management decisions. -exp: Clothing produced in Bangladesh, Indonesia

Server Factory

A factory set up to take advantage of government incentives, and/or reduced tax/tariff barriers, to meet regional or local market needs. -Firm uses government incentives -Low exchange risk and tariff barriers to reduce taxes and logistics costs. -Makes minor improvements to product and processes -Set up to serve the local market -exp Coca-Cola bottling. Mix the final ingredients to take advantage of exchange rates, tariff, & taxes.

Land Availability and Costs

As land and construction costs in big cities continue to escalate, the trend is to locate in the suburbs and rural areas.

Global Location Decisions

Companies can locate anywhere in the world due to increased globalization, technology, transportation, and open markets. Facility location must be part of the firm's supply chain strategy.

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. The weights 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.

Increased revenue

Do this through global business (i.e., more customers) and economic opportunities.

Increased Sourcing Options

Do this with more potential sources of supply to choose from including potential economic opportunities.

Outpost factory

Factory set up in an area with an abundance of advance supplier, competitors, research facilities, etc. -exp: Raleigh, Durham, Chapel Hill NC. Research Triangle Center. UNC, Duke, IBM , Cisco, etc. Silicon Valley, Calif.

Contributor Factory

Focused on product development and engineering for products that they manufacturer -exp: 1973 Sony built a Server factory in Wales and then 15 years later got involved in development, planning, etc. and now is a Contributor factory

Regional Trade Agreements:

Impact local decisions. -European Union (EU): [1950] following WWII, consists of 27 members countries in Europe -North American Free Trade Agreement (NAFTA): [1994] Removed most barriers to trade and investment among U.S., Canada and Mexico. -Southern Common Market (MERCOSUR): [1991] among Argentina, Brazil, Paraguay, and Uruguay -Association of Southeast Asian Nations (ASEAN): [1967] among 10 member countries in in SE Asia -Common Market of Eastern and Southern Africa (COMESA) [1993] among 19 member countries in Eastern and Southern Africa

Currency Stability

Impacts business costs and consequently location decisions. -A few years back, Brazil had 1000% annual inflation rate. Not so easy to set prices in that currency environment.

Source Factory

Manufactures products at low cost but with skilled workers and significant managerial resources. -exp: Hewlett-Packard Singapore factory produced calculators and keyboards

Customs Brokers

Move global shipments through customs and handle documentation.

International Foreign Forwarders

Move goods to and from foreign destination

Non-Vessel-Operating Common Carriers (NVOCC)

Operate like freight forwarders but use only scheduled ocean liners.

U.S Customs and Border protection

Originally established in 1789, U.S. Customs and Border Protection (CBP) controls the import process -It is the gateway agency for more than 20 other government agencies each of which has some control over various aspects of international trade. -Its' mission is to safeguard America's borders thereby protecting the public from dangerous people and materials while enhancing the Nation's global economic competitiveness by enabling legitimate trade and travel. -CBP works to secure and facilitate imports arriving in the U.S., accommodating the increasing volume and complexities of international trade. -"pushing the borders back"

Trading Companies

Put buyers and sellers from different countries together and handle export/import arrangements, documentation and transportation.

Lead Factory

Source of product and process innovation and competitive advantage across the entire organization (world-class) -Source of innovation. -Competitive advantage of the organization. -exp: Intel factory in Penang, Malaysia opened in mid 1970's, now is a lead factory. This is your "Go-To" factory

Access to Suppliers and Cost

Supplier proximity influences the delivery of materials and the effectiveness of the supply chain.

Utility Availability and Cost

Supply of electricity has not always kept pace with the high speed of development. -China (2006) made several factories shut down for 1 day/week -In heavy industries the availability and cost of energy are critical considerations. -Telecommunication costs have dropped dramatically. Many organizations now have back office operations and call centers internationally to serve the U.S. market.

Access and Proximity to Markets

The trend in manufacturing is to be within delivery proximity of your customers. -Logistics timelines and costs are the concerns, so that reinforces a clustering effect of suppliers and producers to places that offer lower cost labor and lower real estate prices. -In the service industry, proximity to customers is even more critical. You can't service a washing machine if your technician is 3000 miles away.

Global Location Factors

These are factors used to compare and contrast one potential location against another when making global location decisions -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

International Trade Compliance

Trade regulations and related content are at the heart of ITC, but staying up-to-date is a major challenge because: -The information changes frequently -It's often made available only in a foreign language -It's not always produced in an electronic form -Is a major concern and dozens of laws, regulations and rules have to be checked and complied with for every import and/or export transaction. -Millions of shipments cross into the US annually providing the US with goods and services: -Businesses violating trade regulations face fines of up to 40% of the value of the merchandise for "negligence," which can mean simply failing to keep certain necessary records.

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.

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

CBP protects the U.S. through.....

active inspections at ports of entry.

World Trade Organization

deals with the global rules of trade between nations. Its main goal is to ensure that trade flows as smoothly, predictably and as freely as possible.

CBP has a strong base of...

industry partnerships and technology to safeguard the American public and promote legitimate international commerce.

CBP is also concerned with:

revenue collection (i.e. tariffs and duties). Revenue is determined by item 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

Deemed Exports

the release of technology or source code that is subject to the Export Administration Regulations, to a foreign national (i.e., non-US citizen) located in the United States. -An intentional or unintentional export of controlled technology can easily occur within the walls of your company, even if located within the borders od the United States. -The release can ve visual, orall, through on the job training, or via systems access, etc -"Technology" is defined as the specific information necessary for the development, production or use of a commodity -Usually, technology is even more strictly controlled than a commodity -The proper controls are needed to ensure that any such export occurs ______ (i.e., with the proper licenses and approvals) and does not expose you or your company to penalties.