Quantity and Inventory Management

L9- Quan5ty and Inventory Quan5ty and Timing Issues Forecasts à Managers must make purchase decisions before, o[en a long.me before, actual requirements are known. Costs à There are costs associated with placing orders, holding inventory, and running out of materials and goods. Availability à Materi...

L9- Quan5ty and Inventory Quan5ty and Timing Issues Forecasts à Managers must make purchase decisions before, o[en a long.me before, actual requirements are known. Costs à There are costs associated with placing orders, holding inventory, and running out of materials and goods. Availability à Materials may not be available in the desired quan..es without paying a higher price or delivery charge. Price-Volume Rela.onship à Suppliers may offer reduced prices for buying larger quan..es. Shortages à may cause serious disrup.ons. Quan.ty and Delivery à Order less, deliver more frequently; order more, deliver less frequently Time-Based Strategies à Compe..ve advantage accrues to organiza.ons that can Successfully reduce the.me it takes to perform ac.vi.es in a process (reduce setup and cycle.me). Coordinate the flow of resources to eliminate waste in the system and ensure that materials and equipment arrive on.me or just-in-.me in economically sized batches. Forecas5ng Where should the responsibility for forecas.ng future usage lie? If the forecast is wrong, who bears the risks? Types Quan.ta.ve Forecas.ng: o causal models, e.g., linear or mul.ple regression models Time series forecas.ng: o neutral networks, e.g., Long Short-Term Memory (LSTM) networks Qualita.ve Forecas.ng: o Market forecasts developed from the es.mates of sales staff, district sales managers o Delphi Technique à process used to arrive at a group opinion or decision by surveying a panel of experts. § Experts respond to several rounds of ques.onnaires, and the responses are aggregated and shared with the group a[er each round. § The experts can adjust their answer each round, based on how theyinterpret the "group response" provided to them. § The ul.mate result is meant to be a true consensus of what the groupthinks. Collabora.ve Planning, Forecas.ng, and Replenishment (CPFR) 37 Order Quan5ty and Inventory Levels: EOQ R à annual demand ( Là lead.me Cà price S à variable order setup cost K à holding cost percentage When inventory drops to the reorder point (P ), a fixed economic order quan.ty (Q ) is ordered. Back orders and stockouts are not allowed. To find the op.mal: TC = RC+RS/Q + QKC/2 Fixed Period Model O à Order period R/O à order cycles, T=O/R Q=O=RT Safety Stocks EOQ does not consider demand variability à We adopt safety stock to cover 1) demand variability; 2) delivery lead.me requirement Ex: : No Safety Stock, Lead4me for Part 300 is 22 days. Lead4me for Part 400 is 19 days. What if the customers would like parts 300，400 to be delivered in 15 days? 38 Safety Stock with Part 100, Lead.me for Part 300 is 12 days Safety Stock part 100, the lead.me for part 400 is 11 days Safety Stock Part 50,lead.me for part 400 is 4 days Material Requirements Planning MRP systems a}empt to support the ac.vi.es of manufacturing, maintenance, or use by mee.ng the needs of the master schedule Basic MRP inputs 1. Master produc.on schedule. details how many end items are to be produced during a specified.me period. 2. Structured bill of materials (BOM). info from the engineering and/or process records à details the subcomponents necessary to manufacture 1 finished item. 3. Inventory record. Includes open orders, lead.mes, and lotsize policy etc. à ensures quan.ty and.ming of orders can be calculated. Supply Implica.ons On -.me delivery needs coopera.on from suppliers. o Purchasers must educate their suppliers to the importance of: quan.ty, quality, delivery promises to the purchaser Purchasing modules in MRP perform rou.ne clerical supply tasks o making supply’s job more analy.cal and strategic Purchasers must understand the produc.on processes both of their own organiza.ons and of their suppliers. Capacity Requirements Planning Capacity à how much work can be done in a set amount of.me CRP performs a similar func.on for manufacturing resources that MRP performs for materials MRP system develops a materials plan, CRP translates the plan into the required human and machine resources by worksta.on and.me bucket. CRP compares the required resources against a file of available resources. 39 Manufacturing Resource Planning (MRP II) MRP II links the firm’s planning processes with the financial system. Combine the capability of “what if ” produc.on scenario tes.ng with financial and cash flow projec.ons to help achieve the sales and profitability objec.ves of the firm. Enterprise Resource Planning ERP systems are so[ware that allows all areas of the company—manufacturing, finance, sales etc.— to combine and analyze informa.on. Many companies use ERP systems, which include MRP modules à to integrate business systems and processes. Inventory Purpose On To provide and maintain good customer service. To smooth the flow of goods through the produc.ve process. To provide protec.on against the uncertain.es of supply and demand. To obtain a reasonable u.liza.on of people and equipment. Classifica.on 1. Transit or pipeline inventories: In just-in-.me (JIT) produc.on, a variety of means to reduce transit inventories, local suppliers, small batches in special containers, trucks specifically designed for side loading in small quan..es 2. Cycle inventories: When management decides to purchase, produce, or sell in lots rather than individual units or con.nuously 3. Buffer or uncertainty inventories or safety stocks: Exist as a result of variability in demand or supply 4. An.cipa.on or certainty inventories Are accumulated for a well-defined future need à REASONS: strikes, weather, shortages, or announced price increases. 5. Decoupling inventories Buffers of raw materials, work-in-process (WIP), or finished goods placed at key points in a produc.on or supply chain process. These inventories "decouple" or separate the opera.ons before and a[er a major process linkage point, allowing each side to operate independently to some extent. NB: Amount held depends on the costs and increased opera.ng flexibility 40 Forms (1) Raw materials, purchased parts, and packaging; (2) work-in-process; (3) finished goods; (4) MRO items; (5) resale items. 41 Inventory Management Inventory Cos9ng Carrying, holding, or possession costs: handling charges; the cost of storage facili.es or warehouse rentals; the cost of equipment to handle inventory; storage, labor, and opera.ng costs; insurance premiums; breakage; pilferage; obsolescence; taxes; investment or opportunity costs. Ordering or purchase costs: managerial, clerical, material, telephone, mailing, fax, e-mail, accoun.ng, transporta.on, inspec.on, receiving costs associated with a purchase or produc.on order. Setup costs à all the costs of sevng up a produc.on run. Stockout costs à costs of not having the required parts or materials on hand when and where they are needed. Varia.ons in delivered costs à fluctua.ons in the total cost of acquiring and transpor.ng goods due to changes in: Purchase quan..es (e.g., bulk discounts vs. small orders). Timing of purchases (e.g., seasonal price changes, fuel surcharges, or demand surges). These varia.ons mean that the same item can cost more (or less) depending on how much you buy and when you buy it. ABC classifica9on 42 More managerial.me and effort should be spent on A and B items than on C items. A items o par.cularly cri.cal in financial terms o thus, normally carried in small quan..es and ordered/reviewed frequently. B items o fall between the A and C categories o Are well suited to a systema.c approach à less frequent reviews than A C items à commonly managed by: o carrying inventories, o concentra.ng a wide variety of requirements with one or a few suppliers, o arranging stockless buying agreements or systems contrac.ng, o using procurement cards, o exploi.ng e-catalogs, and by reviewing the items infrequently Vendor- or Supplier-Managed Inventory (VMI/SMI) Aka Stockless Buying Defini.on: A more sophis.cated merging of the ordering and inventory func.ons than blanket contracts Characteris.cs: Rely on periodic billing procedures, Require suppliers to maintain minimum inventory levels, BUT do not specify the volume of contract items a buyer must buy (MRO) Lean Supply (Big Philosophy) à JIT (Strategy) à Kanban (Tool) 1. Lean supply Defini.on: Approach in which rela.onships with suppliers are managed based on a long-term perspec.ve to eliminate waste and add value. à manufacturing concepts pioneered by Toyota. Purpose: improve the procurement process and workflows by: o reducing.me and elimina.ng waste; reduce/lower costs while improving the quality of products and services; improve the performance and responsiveness of suppliers; increase the focus on those ac.vi.es that add value to the firm; enhance procurement’s strategic rather than transac.onal focus reducing prepara.on efforts as much as possible improving.me to market drama.cally reducing lengthy custom proposals to one-page documents reducing the number of procurement team members involved in the sourcing process. 43 2. JIT Defini.on: No excess inventory sits around. Materials show up right before they’re used in produc.on. Advantages: Very low setup + order costs Instead of making 100 parts at once (which creates waste if demand shi[s), JIT makes one at a.me. NB: Setup and order costs à are treated as variable (vs. in EOQ they are fixed) How does it achieve this? 1. Simple Machines o Modify machines for faster changeovers (e.g., snap-on tools). o Fewer suppliers = standardized parts = less adjustment.me. o Simple, dedicated machines (lightweight, single-purpose). 2. Worker Responsibility & Built-In Quality o Workers stop produc.on if defects are found (no "pass it along"). o Quality checked at every step (not just at the end). o Strict standards ensure consistency (no devia.ons). 3. Kanban Systems Kanban systems are visual signals that control workflow, ensuring materials are only produced and moved as needed—elimina.ng waste and streamlining opera.ons. They are tools that make JIT possible. Types Single-card system → Uses only C-kanban (conveyance) Double-card system → Uses both: o C-kanban (controls part movement between departments) o P-kanban (authorizes produc.on) Key Rules 1. No unauthorized produc.on o Workers only produce when a P-kanban is present o Otherwise, focus on maintenance/improvements o C-kanban controls part transfers 2. Standardized containers only o Each container holds a fixed small quan.ty 3. One card per container o Exactly 1 C-kanban + 1 P-kanban per container 44 Supply Chain Inventory Management Bullwhip Effect Defini.on: he inaccurate or distorted demand informa.on created in the supply chain when small changes in customer demand cause wild swings in orders up the supply chain retailer orders more→ distributor thinks demand doubled → factory overproduces Key Causes: Demand forecas;ng errors à Small customer changes get exaggerated at each step Order batching à Companies wait to order in bulk (to save costs). Price fluctua;ons à Discounts or price hikes cause panic buying or order delays Ra;oning à If supplies run short, customers over-order to secure stock Gaming à Buyers manipulate orders (e.g., ordering extra during shortages to get priority) Counterac.ng the Effect: Change the way suppliers forecast product demand by making this informa.on available at all levels of the supply chain Share real demand informa.on (POS terminals) Eliminate order batching Stabilize pricing Eliminate gaming Determining Quan9ty of Services 1. Aggrega.ng Demand Bring the services categories under the umbrella of supply management. Take professional buying tools and techniques to the users/consumers of services who have typically purchased services for themselves. Benefits: Coopera.ve rela.onships among buyers/users/suppliers of services lead to: clarity about requirements, clarity about consump.on pa}erns, opportuni.es to reduce costs improve performance. 45 2. Managing Consump.on: there is the tension between user desire for customiza.on and buyer’s goal of standardiza.on and simplifica.on more evident than the services spend Factors in deciding Quan9ty of Services Degree of Tangibility: Quan.ty decisions is focused on different things based on tangibility: Intangible à ex. management consul.ng: o how many people need to be on the consul.ng team? o what qualifica.ons they must have? o how long they need to be available? Tangible à IT services: o Does the contract penalize delays? o Does it reward on-.me comple.on? o Do they allow the project.me and cost to escalate? Direc.on of the Service: People-based (e.g., Lawyers, Cleaners) à Quan.ty = "Hours worked, skill level." Equipment-Based (e.g., Cloud Storage) à Quan.ty = "GB of data, up.me guarantees." Produc.on of the Service: by people à ex. Plan for trainer availability. by equipment à ex. Plan for server capacity. or a combina.on of both Nature of the Demand: con.nuous periodic or one-shot Degree of Standardiza.on and Skills Required High Skill (e.g., Brain Surgery): Very specific quan.ty/quality needs. Low Skill (e.g., Janitorial): Can standardize contracts easily. 46 L10 - Global Supply Chain Management CAPS Study The main reason for global sourcing is to reduce costs à global sourcing resul.ng in cost reduc.ons of 19% and a total cost-of-ownership reduc.on of 12%. China, India, Eastern Europe and Brazil à con.nue to gain importance as sources of supply over next five years U.S., Canada and Western Europe à markets will decline Top Five Exporters in 2012 Represented 36 percent of world exports China (11.4 percent) the United States (8.6) Germany (7.8) Japan (4.5) the Netherlands (3.7) Greater growth (rising by 4.5 percent in 2012) in the BRIC (Brazil, Russia, India, China) than in NAFTA (Canada, USA, and Mexico) or the European Union Growth in World Trade Total value of world merchandise in 2012: o imports: $18.6 trillion; o exports: $17.9 trillion World commercial services imports 2012 o transporta.on, construc.on, communica.ons, computer and informa.on, insurance, and financial services à $4.1 trillion WTO es.mate: o Between 1948 to 2001 à merchandise trade imports grew by 95.mes o Between Fall 2008 and Spring 2009 à global trade collapsed by 20% in volume Global Management Perspec5ve Future of Global Supply Management Interna.onal business is no longer limited to large mul.na.onal corpora.ons Fewer marketplace differences exist “Westerniza.on” of global consumer markets is occurring at a rapid rate Manufacturing firms in “developing” countries have improved their capabili.es Produc.vity and quality is drama.cally improving worldwide Stages to Global Supply Management Stage One: Interna.onal Purchasing à Org focusing on leveraging volumes. Stage Two: Global Sourcing à Org focused on global opportuni.es. Stage Three: Global Supply Management à Organiza.ons op.mize supply networks. 47 Reasons for Global Sourcing Unavailability of items domes.cally Superior Quality Be}er Timeliness-Faster delivery and con.nuity of supply Lower price/Total Costs o Labor costs, exchange rates, equipment and processes, product and pricing o Government pressures and trade regula.ons o Be}er technical service More Advanced Technology Broader Supply Base Expanded Customer Base Marke.ng tool Tie-in with offshore subsidiaries Compe..ve clout or leverage Poten.al Problems Cultural Issues—languages, customs etc. Long lead.mes Addi.onal Inventories Lower Quality Social and Labor Problems--sweatshop Higher Costs of Doing Business translator, duty and customs, currency risk, payment, use of brokers and interna.onal carriers High Opacity Corrup.on in government bureaucracy Laws governing contracts or property rights Economic policies (fiscal, monetary, and tax-related) Accoun.ng standard Business regula.ons China vs. US 48 1. Poten4al Hidden costs Foreign exchange premiums Commissions to customs brokers Terms of payment costs and finance charges le}er of credit fee, transla.on costs, exchange rate differen.als Foreign taxes imposed Import tariffs Extra safety stock/buffer and transit inventory; inventory carrying costs due to longer lead.mes Extra labor for special handling Obsolescence, deteriora.on, pilferage, and spoilage Addi.onal administra.ve expenses Packaging and container costs Business travel Fees for freight forwarders, consultants, or inspectors Marine insurance premium Customs documenta.on charges Transporta.on costs, including from: manufacturer to port, ocean freight, from port to company plant etc. Addi.onal security measures 2. Currency Fluctua4on Depending on the length of the contract Foreign purchase cost may change Payment Op.ons In foreign currency Strong RMB: Lower cost of goods Weak RMB: Higher cost of goods In domes.c currency lower risk Risk-sharing contract Payment fluctuates with exchange rates Currency hedging Op.on-Buy or sell à foreign currency at certain future rate Forward exchange contract à Agreement to pay pre-established rate for currency in future EXAMPLE: Contract was awarded for 1 million euros. Contract is for payment in foreign currency Rate of exchange was $1.00 = Eur 0.689 Eur l,000,000 Eur.69/$ = $1,451,590 However, dollar strengthens to $1.00 = Eu 1 Eu l,000,000 Eu 1.0/$ = $1,000,000 49 Ques.ons Before Going Global Does it qualify as high-volume in your industry? Does it have a long life (two to three years)? Does it lend itself to repe..ve manufacturing or assembly? Is demand for the product stable? Are specifica.ons and drawings clear and well defined? Is technology not available domes.cally at a compe..ve price and quality? If, yes, then go on to evaluate the support network within his or her company. Supply Channels A[er deciding to source globally à must to decide what supply channels to use. NB: The lowest price method for direct procurement à May be infeasible due to total costs and limited resources à Simplest way to source globally is through the use of an intermediary Global Trade Intermediaries Import merchants Easiest method Basically like buying from a “domes.c source” Commission houses Act for exporters abroad Paid by the exporter They do selling, shipping and customs details, but do not bill Agents or reps Same as Commission House, handle customs clearance and shipping Except, they work for the exporter Import brokers Commission paid by sellers and buyers Charges fee for bringing par.es together Not involved in shipment or custom clearance Trading companies Perform all of the above May work for both or one party Selling, shipping, customs details Poten.al advantages: convenience; efficiency; poten.ally lower costs due to volume; reduced lead.mes; greater assurance mee.ng quality specifica.ons Subsidiaries Facilitate interna.onal sales Large percentage of expatriate ini.ally Example: Hitachi Americas, Honda America 50 Informa5on Sources The Internet Government sources Chambers of commerce in major ci.es worldwide Supply organiza.ons at other companies Supply chain partners Supplier locator directories à Thomas Register, Dun & Bradstreet Importers and foreign trade brokers Other sources ; suppliers, banks Interna5onal Procurement Offices Expands buyer’s supplier base Allows personal contact (evaluate suppliers physically and personally) Be}er understanding of local condi.ons On-site support Staffed by expatriates in the past, but not necessarily true today Direct Suppliers Elimina.ng Intermediaries Results in lowest purchase price But, direct procurement requires extra cost beyond price Requires knowledge involvement of the company in all aspects of the procurement Can use: custom brokers à handle entry requirement, export brokers à for foreign customer clearance freight forwarders à for transporta.on Iden.fying Direct Suppliers 1. Iden.fy and contact key players at the supplier 2. Visit with the supplier's key personnel 3. Use the mee.ng to provide performance feedback 4. Explain your company's goals and values 5. Take care not to appear to be an unreasonable 6. Consider the.ming of your request—a change or a new selec.on of suppliers 7. If dealing with a new supplier, state your inten.on to deal directly right from the start 8. Be prepared to give reasons for direct buying Qualifying Direct Suppliers 1. Country and regional analysis 2. Financial condi.on 51 Preparing for Direct Rela.ons 3. Cultural prepara.on 4. Interpreters 5. Technical and commercial analysis Prepare and review specifica.ons and drawings Pack samples or photos of required materials if helpful Clearly prepare the quality requirements Iden.fy specific scheduling requirements Determine what % of produc.on can be placed offshore Determine requirements for special packaging Iden.fy likely lead.mes Develop a clear idea of the price objec.ve The Ini.al Mee.ng 1. Provide a briefing on your firm Informa.on on the relevant product line and related lines Actual and forecasted sales volume Customers Market share Unclassified corporate strategy informa.on Annual reports An indica.on of why the buying firm is solici.ng the poten.al global supplier's interest (quality? price?) 2. Provide a tour of your facility If the ini.al mee.ng is at the supplier’s facility, then tour the supplier’s facili.es 3. Meet with cri.cal personnel 4. Describe how and when the supplier’s firm would get paid 5. Always remember that the poten.al supplier is judging your firm at the same.me Currency and Payment Issues Preferred method of payment is a[er receipt and inspec.on of the goods It may be customary in many countries for advance payments to be made prior to commencing work Le}ers of credit are common in global commerce Of par.cular importance are: Exchange Rates Payments Absence of Fixed Exchange Rates: 52 Countertrade Types 1. Barter à Goods are exchanged for other goods with no money involved 2. Offset à The value of the sale is offset by purchases of items produced in the buying country Types: direct offset and indirect offset 3. Counter purchase à Unrelated goods are exchanged Normally involves two separate contracts 4. Buy-Back/Compensa.on à Agreement by the seller of turnkey plants, machinery, or other capital equipment to accept as par.al or full payment products produced in the plants and/ or on the capital equipment Advantages Avoiding exchange controls Selling to countries with inconver.ble currencies Marke.ng products in less-developed countries Reducing risks with unstable currency Goodwill with foreign countries Fuller use of plant capacity Disadvantages Lengthier nego.a.ons Complex nego.a.ons Government involvement Higher transac.on costs Technology transfer Payments Simplified when an intermediary or Interna.onal Purchase Office is used Direct payments are more difficult Le}ers of credit are usually used i. Irrevocable or Revocable ii. Confirmed or Unconfirmed iii. Revolving or Non-revolving Countertrade Refers to any transac.on in which payment is made par.ally or fully with goods instead of money Links sale of a product into a foreign country and sale of goods out of that country Foreign governments may impose countertrade requirements 53 Procedure for Payment in Interna5onal Trade In interna.onal trade, payment methods are chosen based on trust, risk tolerance, and the nature of the transac.on. Here’s a step-by-step breakdown of common procedures: 1. Nego9a9on and Agreement on Payment Terms Par.es Involved: o Buyer (importer) and seller (exporter). Process: o Before the trade, both par.es agree on a payment method during contract nego.a.on. Common op.ons include: o Open Account: Buyer pays a[er receiving goods (high trust, risk for seller). o Cash in Advance: Buyer pays before shipment (low risk for seller, high risk for buyer). o Documentary Collec.on: Payment via banks using trade documents (moderate risk). o Le}er of Credit (LC): Bank guarantees payment upon mee.ng condi.ons (secure for both) Example: A U.S. importer and Chinese exporter agree on an LC for a $50,000 machinery shipment. 2. Issuance of Payment Instrument For Le}er of Credit (LC): o Buyer applies for an LC at their bank (issuing bank) o Issuing bank sends the LC to the seller’s bank (advising bank). o Seller verifies the LC terms (e.g., amount, shipment deadline). For Documentary Collec.on: o Seller prepares documents (e.g., invoice, bill of lading) and submits them to their bank. o Seller’s bank forwards documents to buyer’s bank for payment or acceptance. For Open Account or Cash in Advance: o Direct bank transfer (e.g., SWIFT) is arranged. 3. Shipment and Document Submission Seller ships goods and prepares required documents (e.g., commercial invoice, packing list, cer.ficate of origin, bill of lading). Documents are submi}ed to the bank (for LC or documentary collec.on) or directly to the buyer (open account). 4. Payment Execu9on LC: Seller’s bank checks documents against LC terms à If compliant, payment is released by the issuing bank. Documentary Collec.on: Buyer pays or accepts a bill of exchange (e.g., 30 days post- shipment), and documents are released. Open Account: Buyer ini.ates payment (e.g., wire transfer) a[er receiving goods. Cash in Advance: Payment is already completed, so no further ac.on is needed. 54 5. Confirma9on and Reconcilia9on Seller receives funds and confirms receipt with the buyer. Both par.es reconcile accounts to ensure no discrepancies (e.g., currency exchange issues). Ex: A $10,000 payment in euros is converted to USD, and the exporter confirms receipt via email. Key Considera.ons o Currency: Agree on a currency (e.g., USD, EUR) and account for exchange rate fluctua.ons. o Bank Fees: Factor in charges from issuing, advising, or intermediary banks. o Risk Mi.ga.on: Use trade insurance (e.g., from Export-Import Bank) to protect against non-payment. Procedure for Logis5cs in Interna5onal Trade Logis.cs in interna.onal trade involves moving goods from the exporter to the importer, naviga.ng customs, and ensuring.mely delivery. Here’s the step-by-step process: 1. Planning and Documenta9on Par.es Involved à Exporter, importer, freight forwarder, customs broker. Process à Determine Incoterms (e.g., FOB, CIF, DAP) to define responsibili.es for shipping, insurance, and costs. 2. Prepare export documents: Commercial invoice Packing list Export license (if required) Cer.ficate of origin Bill of lading (B/L) or airway bill (AWB). 3. Verify import requirements (e.g., tariffs, quotas) in the des9na9on country. 4. Packaging and Labeling Goods are packed to withstand interna.onal transit (e.g., sea containers for ocean freight). Labels include product details, des.na.on, handling instruc.ons (e.g., “Fragile”), and barcodes. Ex: A shipment of electronics from Japan to Germany is packed in moisture-resistant crates with mul4lingual labels. 5. Selec9on of Transporta9on Mode Op.ons: Ocean Freight: Cost-effec.ve for bulk goods (e.g., 20[ or 40[ containers). Air Freight: Faster, for high-value or.me-sensi.ve items. Land Transport: For intra-regional trade (e.g., trucks across Europe). Process: Exporter or freight forwarder books space with a carrier (e.g., Maersk, FedEx). 55 6. Export Customs Clearance Exporter or customs broker submits documents to the expor.ng country’s customs authority. Goods are inspected (if required), and export du.es (if any) are paid. Customs issues clearance, allowing goods to leave the country. 7. Interna9onal Transit Freight forwarder coordinates movement: o Goods are loaded onto a vessel, plane, or truck. o Carrier issues a bill of lading (B/L) or airway bill (AWB) as proof of shipment. Tracking systems (e.g., GPS) monitor progress. Example: A container ship departs Shanghai for Rolerdam, tracked via the carrier’s online portal. 8. Import Customs Clearance Importer or customs broker files documents with the des.na.on country’s customs authority: o Import declara.on o Proof of payment (e.g., LC documents) o Cer.ficates (e.g., health, safety). Customs assesses du.es/taxes based on HS codes (Harmonized System) and releases goods a[er payment. 9. Final Delivery Goods are transported from the port/airport to the importer’s loca.on (e.g., warehouse). Op.ons: trucking, rail, or last-mile delivery services (e.g., UPS). Importer inspects goods and confirms receipt with the exporter Key Considera.ons o Lead Time: Factor in transit dura.on (e.g., 2 days by air vs. 30 days by sea). o Insurance: Purchase cargo insurance to cover loss/damage (e.g., under CIF terms, seller arranges it). o Regula.ons: Comply with trade sanc.ons, restricted goods lists, and safety standards. Poli5cal and Economic Alliances European Union (EU) Common foreign policy Single currency Central bank ISO 9000:2000 Reduced red tape Advantages: Greatly Reduced Transac.on Costs Increased Compe..on Reduced Exchange Rate Risk Increased Trade and Capital Movement 56 North American Free Trade Agreement U.S., Canada, Mexico Advantages: Elimina.on of tariffs Remove agricultural barriers Remove manufacturing barriers Remove service trade barriers Remove investment restric.ons Protect intellectual property rights Resolve environmental concerns Emerging Markets Countries undergoing a high growth rate and rapid economic liberaliza.on 2014 MSCI Emerging Markets Index (msci.com) The Americas (Brazil, Chile, Columbia, Mexico, and Peru) Europe, the Middle East, and Africa (Czech Republic, Egypt, Greece, Hungary, Poland, Russia, South Africa, Qatar, Turkey, and the United Arab Emirates) Asia (China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand) One Belt One Road China is the primary Low Cost Country (LCC) But near shore countries need to be part of strategy Brazil, Mexico and Argen.na are viable markets and closer to US based companies Eastern Europe is growing and EU allows for free trade across borders Remarks for supply professionals when dealing with global supply management Develop a global supply management view Learn to deal with changing global environments Deal with diverse cultures effec.vely Work within distributed organiza.onal structures Work with teams composed of global members Learn to communicate effec.vely with cultural beliefs and values different than their own 57 Common Terms Import du9es (or rates) Ad valorem rate à Most common, a % of appraised value of the merchandise (such as 5%) Specific rate à Specified amount per unit, such as $1,000 for a fur coat Compound rate à Combina.on of the ad valorem and specific rates Du9able or free of duty GSP - Generalized System of Preferences à Basically means “Duty Free” MFN - Most Favored Na.on à Duty rates are lower than full rates (statutory rates). Statutory Rates à Full rates for tariffs Assists Aid the produc.on outside of the buying firm’s country and are provided by the buying firm Components à Subassemblies or parts in imported goods Special tooling à Tools, dies, molds, equipment Design Informa.on Rulings on imports With respect to du.es, these occur a[er entry documents have been filed and the entry is liquidated à there is no guarantee that subsequent shipments will receive the same tariff Customs invoice Used to clear merchandise through customs Not a commercial invoice Supplied by U.S. Treasury Filled out by the supplier Pro forma invoice Commercial invoice es.mate used mainly for banking & permit needs Enables the firm to obtain an import or exchange permit Packing list More than one is may be needed Movement order, contents, descrip.ons (weights, markings, measures) Bill of lading Receipt issued by the carrier for merchandise A contract for shipment of merchandise A receipt of merchandise Document of freight charges List of Handling Instruc.ons May contain a.tle Types Ocean bill of lading Air way bills 58