Guest Column: Global Supply Chain Best Practices Quiz

Start the New Year right with nine tips for evaluating your supply chain management organization

January 12, 2007 — As we settle into the New Year, many of us have made resolutions as we strive for continued growth and improvement. At this time of self-reflection, why not take a look at your business operations as well?

Below is a self evaluation quiz that touches upon several key supply chain issues that are sometimes overlooked. Created by the global supply chain experts at JPMorgan Chase Vastera, the quiz is designed to help you gain greater insight into some of the strengths and potential weaknesses of your current supply chain operations.

Upon finishing the quiz, if you find that you have responded with more "no" than "yes" answers, 2007 may be the time to transform these gaps into opportunities for improved supply chain management and greater profitability.

1. Design of your Global Supply Chain Network should align with your customers' requirements and expectations. The customer needs to drive the design of the supply chain, as any misalignment with customer expectations can result in lost sales, unhappy customers and product delivery failures. A well-designed and successfully implemented supply chain is a competitive weapon that can result in increased sales, reduced time to market and increased cash flow.

Questions:
  • Does your supply chain management team regularly review customer expectations (service levels) for all sales channels?

  • Are customer service levels understood, and is the supply chain designed to meet them?

  • Are corrective and preventive actions timely when customer service level failures occur?

2. Supply Chain exception management processes should drive action. Effective processes should enable you to take action on issues/hiccups, thus preserving inventory value, avoiding fines and maintaining positive customer relationships. Having information without the ability to act is like watching your business burn without a fire hose.

Questions:
  • Is information about the goods in the major trade lanes made available to supply chain operations?

  • Are processes in place that allow alternative actions to be undertaken based upon the information provided?

  • Have key supply chain information and data collection points been identified?

3. Sourcing decisions should consider the impact on customer service and profit — not just unit cost or landed cost. Global sourcing carries a high degree of risk and reward. If executed poorly, material risks can outweigh the benefits. Such risks can include political risk in the sourcing country, the risk of physical damage and loss, intellectual property protection, inflation, currency exchange, etc. Sourcing decisions must look at both quantitative costs and qualitative risks in dealing with vendors and their local governments, economies and physical infrastructure.

Questions:
  • Are global sourcing and landed cost tools used to assist in sourcing decisions?

  • Are these tools or models comprehensive and include all the cost and risk elements?

  • Do you model a range of possible costs through the lifecycle of the product? Or just calculate based on the "perfect order" in an assumed steady state?

4. A single function should be responsible for establishing the value of imported goods and must reconcile financial input from all sources of supply. Failure to properly reconcile and declare the value of goods declared at the port vs. A/P payments can result in fines and penalties. Supplier invoices need to be audited to ensure complete accuracy and declaration of all elements pertaining to the valuation method of appraisement to avoid fines.

Questions:
  • Are the processes and procedures for valuation determination and declaration documented and integrated into company operations?

  • Is there a process in place for ensuring that required additions to transaction value are captured and reported (assists, proceeds of subsequent sales, royalties, license fees, selling commissions)?

  • Are packaging and transportation values considered and correctly included or withheld from transaction value?

  • Is product valuation regularly audited?

5. Harmonized tariff schedule (HTS) classification processes for imports should include an audit trail of information used in determining the HTS and metrics to monitor accuracy. Classification is the heart of any import compliance program. Incorrect classification cascades through the business creating multiple compliance failures and high compliance risks of fines and penalties. Having a clearly defined process to avoid erroneous classification that results in the underpayment or overpayment of duty is critical.

Questions:
  • Are the processes and procedures for the company's product classification documented and integrated into company operations?

  • Is the classification information and rationales maintained in a database or matrix and provided to the broker?

  • Are classifications tested and audited on a regular basis?

  • Has your company addressed the new HTS reclassification requirements?

6. C-Level executives must actively support trade compliance and empower their supply chain executives. One of the primary reasons for trade compliance failure is lack of management focus on such issues. As global sales (exporting) and global procurement (importing) are critical to the business, C-level executives must be aware that lack of compliance can result in significant supply chain interruptions — not to mention serious fines and penalties.

Questions:
  • Is there a documented company trade policy from the CEO?

  • Are there documented compliance programs processes and procedures?

  • Is there employee compliance awareness training that includes executives?

  • Are there defect metrics on key compliance and trade processes?

7. Trade compliance processes must be integrated with supply chain processes. Trade processes touch nearly all enterprise processes, including research and development (R&D), procurement, logistics, manufacturing, sales and finance. For example, R&D provides information that enables products to be classified for importing and exporting. Logistics hires brokers and forwarders and supplies them with trade information required to move the goods. Manufacturing provides country of origin and product valuation information. Sales must avoid selling to restricted parties. Finance manages international payments, receivables, assists and transfer pricing. Without company-wide integration, the supply chain stops or is inefficient at best.

Questions:
  • Are there documented processes and procedures that define each function's responsibilities in trade?

  • Are trade metrics part of normal operational performance reviews?

  • Is there employee compliance awareness training and defined roles and responsibilities?

  • Are regular internal audits conducted?

8. Unique data that facilitate trade should be accurately created once, stored in a central location and used over and over again. Import and export classification, country of origin, valuation, licenses, certificates of origin and special authorizations are best maintained in one place. Data can be sent anywhere to support goods movement. Incomplete or missing information stops the supply chain.

Questions:
  • Are trade data created and stored in a centralized location?

  • Are trade data easy to access? (This includes classification, country of origin, certificates of origin, historical transactions, government inquiries and responses.)

  • Are NAFTA certificates of origin easy to locate?

9. Export determination, the process of determining the appropriate government authorization for your transaction, must be performed on all export shipments. Export determination tells us if you need a license to export an item. Each and every export must be "authorized", whether by formal written export license, use of a license exception or exemption or other permissive authority. Exporting is a privilege in the United States, not a right, and the privilege can be revoked.

Questions:
  • Do you make proper export determinations at the individual transaction level?

  • Do you screen all of your customers, suppliers, distributors, forwarders, brokers, bankers, etc., against the various "bad guy" export lists at time an order is placed and again prior to shipment?

  • Do you perform export determination for each hand-carry, temporary export, release of technology, etc., that is outside the normal revenue shipment stream?
All businesses need to improve, whether it be in the area of global sourcing, trade compliance controls, exception management or supply chain design. If you are significantly weak in any of the areas described above, take the time in 2007 to resolve these issues and benefit from continued improvement.

About the Author: Bernie Hart, global product executive at JPMorgan Chase Vastera, has more than 20 years experience in the global trade management arena. He joined Vastera in 1999 after holding various international trade positions at IBM for nearly 15 years. More information at www.vastera.com.
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