Daily Archives: December 3, 2007

the doctor Goes Mental on Auctions

With respect to e-Auctions, there’s a host of myths out there that need to be busted. Where-forth they sprang from, I don’t know, but to the graveyard, they must go! I’ll start with some of the more dangerous ones, and maybe the experts from e-Sourcing Forum and Where Next will chime in with some of their personal favorites (or is that afflictions) in the comments.

Myth 1: Auctions won’t save me a single penny!
Dozens upon dozens of providers have saved hundreds upon thousands of clients millions upon tens of millions (and sometimes hundreds of millions) of dollars using e-Auctions – and sometimes saved this much on the first auction! Done right, on the right category, an e-Auction will save you money – with savings in the 5% to 35% range, depending on the category and whether or not this is your first time applying serious e-Sourcing to the category.

Myth 2: I’ll e-Auction it! e-Auctions always save money!
This myth is almost as bad as myth #1. Not everything can be auctioned – and anytime some fool starts with the one – and I mean the one – high dollar category in the company that can’t be auctioned, and gets dismal results, he all of a sudden does a 180 and decides that he was wrong, and that myth #1 is right – and won’t ever budge from that position. (Even though his stupidity costs his company tens, if not hundreds, of millions!) There are a number of requirements for a successful e-Auction. The first two are the existence of a competitive supply base and demand exceeding supply. If there are only two suppliers in the whole world for the item you need, and if demand is increasing faster than their production capabilities, even if the suppliers agree to an e-Auction, your prices aren’t going to go down. The suppliers are going to bid high and stay there. And that’s if you’re lucky! If you’re unlucky, they’ll collude and you’ll be up sh*t creek without a paddle or a way to plug that slow leak in your canoe.

Myth 3: If I don’t like the results of the e-Auction, I can just hold it again.
If you believe this, then you’re the one giving e-Auctions a bad name! Assuming you can even get any of the suppliers whose chains you jerked to even agree to another round, do you really think they’re going to give you anywhere near their best price? And do you think they’re going to want to participate in your future auctions? And do you think they don’t talk to each other? The rule is this – if you commit to an e-Auction, you commit to an award based on the result of the e-Auction – whether you like the results or not. That’s why you do your homework before deciding to do an e-Auction and make sure that the category, and market, is right for an e-Auction. If it’s not, you choose another negotiation method, such as a multi-round sealed-bid RFx with Decision Optimization to help you appropriately analyze potential awards.

To find out more about the Key Steps to a Successful e-Auction and the ethics you need to abide by to build and maintain a positive reputation in the supplier community, check out the e-Auction wiki-paper over on the eSourcing Wiki. You’ll be glad you did.

It’s Time To Get Your Trade Data In Order

Did you know that, right now:

  • You could be eligible for VAT rebates?
  • You could be eligible for Import Duty refunds?
          or that
  • You could be overpaying for freight?
  • You could be saving more if you took advantage of trade agreements or trade zones?
          or that
  • You could be buying counterfeit goods?
  • You could be weeks away from having your supply chain frozen?
          and more!

Let’s start with the Aberdeen findings, which have been, more-or-less, corroborated by Hackett. There are millions (upon millions) of dollars in working capital languishing in your international supply chain. A $1B company can easily free $10M to $40M in cash by better controlling just its basic global trade processes. Aberdeen found:

  • Large companies’ international supply chains are only 50% as automated as their domestic supply chains.
  • 87% of large enterprises have inadequate staffing to manage global supply chain and global trade compliance processes.
  • Trade compliance is consistently a low priority for IT funding.

Now let’s add the Global Data Mining findings that error rates in global trade processes approach 10 to 20% and that effective control of global trade processes is often 100 to 200 times worse when compared to accounts payable processes in an average company!

Basically, the following is a reality for your average multi-national, whether it realizes it or not:

  • It’s manufacturing facilities in China are still failing to claim VAT rebates they are eligible for, because it is unaware that some of its goods are now eligible under the recent changes that took place this summer.
  • It’s using outdated HTS codes and some of these codes have a higher tax rate than what it could be paying if it was using the new HTS codes that took effect in January of this year.
  • It’s not keeping track of total freight payments by carrier and cross-referencing its 3PL agreements and not demanding the discounts that were supposed to come into play once a certain threshold was reached – discounts that sourcing spent a lot of time negotiating into the contract in an attempt to save the organization money.
  • It’s not taking advantage of special economic zones in India and China that offer tax exemptions for items simply passing through the country and / or lower tax rates on corporate profits and not taking advantage of US Foreign Trade Zones that allow payment of duties to be deferred until the product leaves the trade zones.
  • It’s going through a distributor to buy its goods from China, and this distributor is actually distributing counterfeit goods!
  • It still hasn’t updated it’s entire fleet to be ACE compliant. Now that ACE has been rolled out at almost every land border port in the US, CBP expects that all truck-based shipments will be supplying ACE-compliant e-manifests BEFORE the truck reaches the border. Send the wrong truck – and it won’t be going anywhere for a while – freezing your supply chain!

So what can you do? Besides better educating yourself on what’s involved in Global Trade, starting with the Introduction to Global Trade wiki-paper, and the Customs and Security Primer, Free Trade Primer, and Regulatory Compliance Primer, you can start by getting an audit of your processes and data and see where you’re weak and where the greatest refund and savings opportunities are.

Make sure to do a complete review of trade agreement management, FTZ/STZ analysis, HTS classifications, VAT payments, supply chain finance strategies, freight, and sourcing opportunities. If you’re a Fortune 500 company, this could easily identify 20M to 100M (or more!) of savings that are instantly attainable, above and beyond what you’re going to find in an average strategic sourcing project (even if it does use strategic sourcing decision optimization as this only optimizes the model provided at the category level – it does not look at your sourcing network holistically from a trade perspective, which should be done once every one to three years, on average).

And we still didn’t talk about the fact that Gender & Age Discrimination is Costing US Importers Billions of Dollars! Data mining analysis has determined US Importer’s have overpaid more than $1.3 billion in discriminatory duties over the past two years. When it comes to tariffs on clothing, shoes, and other age or gender differentiated products, there is often no apparent pattern which penalize men in some instances, and women in others. Research has identified more than 2,200 pairs of US Harmonized Tariff codes (HS codes) impacted by discriminatory duties, over 300 for Age Discrimination and more than 1,900 for Gender Discrimination. More than 40 importers have already filed a lawsuit to protect their interests. Have you?

That’s why Global Data Mining is Sourcing Innovation’s Vendor of the Week. Not only is it one of the few companies offering these desperately needed audit and data mining services, and doing so at a rate every company can afford (it’s goal is to provide you with a blended cost of under $100 per man hour – compared to the Big Consulting Shops who want to charge you at least three times that), but it’s also one of the few companies making a concerted effort to educate you on what savings opportunities you may be missing in your global trade operations and what issues, such as the gender & age discrimination in HTS duties, you should be aware of, and speaking out against. Check them out.