Taming and Trimming Import Costs
Global sourcing is an effective way to reduce supply costs, but unanticipated expenses—particularly related to imports—can sink the ship. The discrepancy between forecast and actual total landed cost of goods—including product cost and transportation, duties, and taxes—can vary from 2 percent to 10 percent, according to a recent Aberdeen Group study of 400 companies that import from China. That disparity jumps to more than 10 percent for one in five respondents.
It’s not surprising then to find corporate supply chain teams upping their efforts to trim and tame the cost of importing goods. Jim Preuninger, CEO of Management Dynamics, an East Rutherford, N.J.-based global trade management solutions provider, offers these 10 tips to control import costs.
1. Make sourcing decisions based on all elements of total landed cost. Don’t just look at product cost savings; look at the whole picture. Calculate associated duties, taxes, and financial impact from other regulatory controls; factor in total transportation costs; and adjust for increased lead times, inventory variability, and customer service. Also, continually monitor multiple sourcing scenarios to effectively manage the process and reduce risk.
2. Take advantage of preferential trade agreements. Understanding and leveraging trade agreements is crucial because they can offer double-digit reductions on import duties. Implement a system that actively monitors changes in preferential trade agreements and automates compliance. This allows you to capture full duty savings, and eliminate the complex manual tasks needed to qualify imported goods. It also minimizes the risk of penalties and fines.
3. Integrate overseas suppliers. Communicating and collaborating with overseas suppliers is an essential first step in building a consistent and predictable import process. Web-based supplier portals help automate tactical purchasing efforts, eliminating the need to re-key data. Portals also automatically generate export documentation based on an original purchase order, and allow suppliers to improve shipment quality metrics.
4. Actively manage supplier performance. Integrating supply chain execution processes with suppliers provides information to let you actively manage and benchmark supplier performance. With details on order and line-level fill rates, you can implement an equitable chargeback program to promote order compliance across your supplier network.
5. Make sure import documents are accurate and complete. At best, inaccurate, incomplete documents delay shipments for days or even weeks. At worst, your company may be subject to audits or fines for failing to correctly classify and value imported merchandise. Ultimately, you are responsible for paperwork—not your broker. Having accurate and complete documentation also improves the efficiency of import logistics staff and customs brokers. Use a system of checks and balances to make sure documents are complete and accurate. Integrating technology systems with trading partners can help flow data through the import and documentation process, reducing manual re-keying errors.
6. Integrate the clearance process with your brokers. Automating the import process allows you to connect with brokers electronically. As a result, you can streamline pre-customs and customs entries with CF 3461 and CF 7501 transactions, and maintain a complete audit trail for each shipment. Simplifying the process with brokers not only reduces delays at the border, but also offers an excellent opportunity to negotiate transaction cost reductions for each import shipment.
7. Tame transportation costs. Higher-than-expected transportation costs top the list of landed cost discrepancies. Be sure to accurately calculate the total cost of shipments based on contracted rates and applicable governing rules tariffs. Actively managing transportation costs and optimizing carrier selection decisions allows companies to reduce costs by 5 percent or more.
8. Improve fulfillment decisions with supply chain visibility. ‘Place-and-pray’ strategies simply don’t work. Better supply chain visibility eliminates black holes, and provides detailed status information on in-transit inventory. Visibility also improves customer service by allowing more predictable deliveries, and helps reduce costs by diverting inventory—either within your distribution network, or bypassing distribution centers and delivering directly to stores.
9. Recover costs with efficient audits. Efficiently auditing and reconciling all brokerage transactions and freight invoices ensures that you pay the correct freight, duty, and tax on each shipment. Automating import processes can further reduce costs by cutting the time it takes to perform an audit.
10. Implement a Six Sigma quality program. A successful Six Sigma program can improve your company’s import processes. What is key? Accurate data. The more data you have about your supply chain operations, the more effective your Six Sigma program will be. Comprehensive supply chain visibility systems and processes provide a wealth of information you can use to implement a Six Sigma program for your entire supply chain. Understanding the underlying causes of unanticipated costs and time delays will ultimately empower you to identify various opportunities to improve logistics performance.