1. 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

2. 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)

3. 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.

4. 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

5. FTZs

6. Free Trade Agreements

7. Free Trade Agreements

8. 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.

9. 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.

10. 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.

11. Export processes

12. Import processes

13. Import process

14. Import process

15. Import processes

16. 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

17. Importing processes

18. Importing processes

19. 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

20. 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, …

21. 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

22. 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)

23. 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”