GEOP 4355 Supply Networks: Global Sourcing & Outsourcing Outline Global sourcing basics Free Trade Zones/ FTAs Custom brokers Import processes Outsourcing (make or buy) Sources/references used in the preparation of this presentation are listed in the Introduction presentation

Global Sourcing basics Today’s sourcing is global. Why? Lower costs (labor, economies of scale, free trade zones,…) Capabilities of suppliers located in other countries Market entry (previously discussed) Results in additional complexity given managing multi-country processes… Some key agents FTZ (free trade zones) Custom brokers Bonded warehouses (building /location where materials subject to duty are stored, manipulated, or undergo manufacturing operations without payment of duty. They pay the duty at disposition…) Transportation COs. (was covered in the transportation sets)

Free Trade Zones An area where foreign and domestic merchandise or commodities are considered to be in an international commerce zone and not within the territory of the country in question. Taxes and most other regulations regarding entry do not apply However, HAZMAT and other environmental/health rules typically apply Therefore materials in the FTZ do not pay taxes or face quota limitations.

Raw materials imported FTZs Usually located in industrial parks, seaport, or airport complexes with facilities available for use by the general public. Some types are located inside particular firms (for example inside a company’s warehouse (this is a subzone of a general purpose zone). No taxes/ quotas No taxes/ quotas Final product shipped (exported) Raw materials imported Mfg/ Assembly Foreign Market Final product shipped Local Market Taxes/ Quotas apply

FTZs

Free Trade Agreements

Free Trade Agreements

Customs brokers Customs brokers are the companies/individuals who have the know how and legal authorization to complete importing/ exporting processes. This function is similar across most countries Involves the preparation of documents and/or electronic submissions, the calculation and payment of taxes, duties and excises, and facilitating communication between government authorities and importers and exporters. http://en.wikipedia.org/wiki/Customs_broking

Customs brokers Customs brokers in the United States prepare and submit documentation to notify or obtain clearance from government agencies such as the U.S. Food and Drug Administration, the U.S. Department of Agriculture, and the Fish and Wildlife Service. They can also arrange the transshipment (i.e., local delivery) of merchandise via trucking companies. Specialize in certain goods like apparel, perishables, or clearing the crew and manifest of large cargo vessels.

Customs brokers Customs brokers must pass an examination and background check to become licensed by the U.S. Customs and Border Protection. Other countries also require licenses, in EU not the case. They are not government employees - not be confused with "customs officers" (in other countries, however, the two terms may be interchangeable). Customs brokers need to be familiar with the tariff schedule, a listing of duty rates for imported items, and the regulations governing imports found in the Code of Federal Regulations Title 19 (19 CFR). Customs broker functions include: determining tariffs, quota limits, special permits, and insurance requirements Failures result in fines, holds, and seizures.

Export processes http://www.itradevan.com/Custom.jsp

Import processes http://www.hh-express.com/jp/en/solution/ship/flow.html

Import process http://msc.mitsui-soko.com/en/service/forwarding_s.aspx

Import process http://en.customs.go.th/content.php?ini_content=import_export_151006_01&lang=en&left_menu=menu_import

Import processes

Importing processes Clearing borders can be challenging due to complex rules, lack of staff, incompatibility of system, bureaucracy,… Security systems and regulations Health/ environmental regulations

Importing processes

Importing processes

Outsourcing (make or buy?) What is it? The process of moving an activity from internal to external. From in-house to purchased – supplier managed Old days, Ford produced all parts/ assemblies and even had steel and rubber plants. High level of vertical integration. Slowly, over time, these internal activities were outsourced, became external to the company. Today suppliers produce most major assemblies including the engine, electronics, transmission,…. Ford designs (some of it), and assembles the final product. Outsourcing non-critical functions has become commonplace http://www.youtube.com/watch?v=rYaZ57Bn4pQ

Outsourcing Part of supplier management is determining if internal functions should be outsourced (a supplier can do it better, cheaper, faster, …) When activities/processes are outsourced, is difficult to move back to an in-house operation due to lost know-how, resources, equipment, space, …

Insourcing The flip side… Determining if operations/products provided by suppliers should be performed internally To reduce risk. This typically relates to operations or components that are critical to operations and the supplier has failed often However, this is often hard to do given the investments required

Outsourcing Reason to outsource Focus on core elements of the business Total cost reduction Acquire know-how and technology Eliminate (expensive, obsolete, risky) facilities/ resources Capacity is at limit (expensive to expand) Reduce risk given internal sole sourcing (move from internal sole to internal + external source)

Outsourcing Reason to keep making it or start making it (insource) Keep the know-how (knowledge/skills) Use existing resources/ avoid downsizing Can make it better/cheaper than suppliers Suppliers lack the capabilities /knowhow/equipment Suppliers are not reliable enough Suppliers cannot meet quality standards Suppliers do not invest on technology or process improvement Protect patents/ technology/ proprietary designs Get out of supplier “manipulation”