Global Logistics and Supply Chain Strategies - August 2008 - (Page 53) ing or distributing or selling in multiple countries regard tariff engineering as a big opportunity to take better advantage of trade agreements and significantly lower costs,” says Enslow. Another way to get the desired result may be to change suppliers, says Hart. “Say we run a bill of materials from a client through our qualification engine and it comes back that two of the components are at 49 percent when they need to be at 51 percent. A company might want to consider re-sourcing these two components. With the information we provide, they can go back to their purchasing organization and give them a clear picture of what they need.” With an appropriate analysis companies might also find that their best option is to separate combined products for importation. “We recently worked with a food company that was importing olives in vinegar,” says Enslow. “The company found that it could have saved 17 percent if it had imported these separately and packaged them in Canada.” While there clearly are many savings opportunities, sometimes compliance costs or risks don’t justify trying to take advantage of them. The decision to whether to take advantage of specific agreements is analogous to deciding whether to take advantage of a tax loophole, says Marshall Gordon, senior vice president of worldwide sales and marketing, a global trade management vendor based in New York. “If you and I were to maximize the intended purpose of the IRS tax code, using every possible deduction we could take, we may end up having at some point a cost of accountants that exceeded the benefits of the savings,” says Gordon. Sometimes compliance has such a significant impact on overhead in the office of the buyer or importer that it exceeds any savings opportunity, he says. “There are overhead costs associated with documentation, inspection and the compliance process as well as the cost of risk mitigation associated with complying properly,” he says. One way of reducing compliance costs is through automation with solutions like TradeCard, he says. “When many activities are automated, overhead costs do not increase proportionately to the amount of sourcing going through a preference pro- gram,” he says. “Automation also minimizes the risk of incurring fines or penalties at a later date and minimizes the risk that a company might lose its import privileges or be viewed by Customs as suspicious, which can result in transit delays.” TradeCard’s automation software is not so much decision support as process discipline, Gordon says. “Some of our clients call us the process police. Instead of having people chasing things down, we collect, catalog and flow the right documents to the right place so the whole process is far less cumbersome and in compliance. And all those people people and managing documentation to prove qualification under rules of origin, you had better know that it is worth it at the end of the day.” Aberdeen’s analysis supports this warning. It identified shipments where trade agreements probably should not have been taken. “For instance,” asks the report, “should an organization really bear the additional risk burden of using a trade agreement for a $33 shipment?” Automation also is critical to communicating and monitoring compliance throughout the organization, says Irmen. “One of the things we help companies “A company that imported olives in vinegar could have saved 17 percent [on tariffs] if it had imported these separately and packaged them in Canada.” — Beth Enslow of Marsh Inc. are able to spend their time doing real value-added work.” At the same time, Gordon says, automation is driving companies to look deeper for low-hanging fruit. “One of the things we are seeing, even among clients that are relatively automated, is the realization that they can take advantage of small unit savings that would not have been possible with manual systems. Perhaps they can save three cents on a unit. If they have two million units, it is worth the $1,000 it would cost to set that up because it can run in perpetuity. So, along with a flight to automation, we do see customers trying to maximize the value of a lot of these programs.” Van de Heetkamp also emphasizes the importance of understanding the costs of compliance with preferential agreements “If the duty rate difference is 8 percent and your cost of compliance is 9 percent, you clearly shouldn’t bother, even though, on its face, the 8 percent may seem substantial,” she says. “The goal is to make sure your return on investment is there. With the money you have to put into systems and compliance deal with is in monitoring all of the transactions that happen in an organization, because if a decision is made to start buying parts from a different location and your compliance manager doesn’t get informed of that, there’s going to be problems.” Since the part number may not change, “the only way a company can know this has happened is if it has a system that knows what to look for and monitors every receipt transaction in the system. That can only be done with automation.” To access this article online, visit The Digital Edition at www.SupplyChainBrain.com. Resource Links Aberdeen Group, www.aberdeen.com Marsh Inc., www.marsh.com TradeBeam, www.tradebeam.com Management Dynamics, www.managementdynamics.com JPMorgan Chase, www.jpmorganchase.com TradeCard, www.tradecard.com Integration Point, www.integrationpoint.net www.SupplyChainBrain.com GLOBAL LOGISTICS & SUPPLY CHAIN STRATEGIES 53 http://www.SupplyChainBrain.com http://www.aberdeen.com http://www.marsh.com http://www.tradebeam.com http://www.managementdynamics.com http://www.jpmorganchase.com http://www.tradecard.com http://www.integrationpoint.net http://www.SupplyChainBrain.com
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