As stated in a recent Supply & Demand Chain Executive Article, effective supply chain management is based on the ability to know the “what, where, when, and how” of your operations in real-time. However, it’s more than this. It’s the ability to understand the ripple effects and consequences from changes made to the processing of payables, receivables, shipments, and inventory. A “solution” could actually cause more problems than it solves if the full effects of its implementation are not considered.
To this end, the article Seven Studies in Supply Chain Visibility attempted to provide some examples of how a lack of visibility can cause importers and exporters challenges and headaches. Some of these examples illustrated the dangers of a lack of visibility from a trade and finance perspective, and need to be highlighted.
- Transitioning to an Open Account from Letters of Credit can Cripple Suppliers
Sometimes suppliers require letters of credit to finance their operations from the time they get an order to the time they get paid – even if they are located in the US – as a US supplier might source components and sub-components from foreign suppliers whose banks don’t recognize open-accounts as a basis for financing. The answer is to only use open accounts with suppliers where there is enough history to satisfy their lenders (or where a common bank that knows the financial status of each party) is used .
- Rapid Growth can lead to Compliance Risk
Rapid growth in international markets can create significant export compliance risk as every country has it’s own documentation, safety, and product composition requirements for each good you are exporting. Failure to satisfy even one requirement can have a shipment held-up, confiscated, or even destroyed. The answer is to bring in expert help from the outside to make sure everything gets done – and gets done right – during a rapid growth period.
- Substantial Changes in Manufacturing, Distribution, and Process Execution can Pose Major Risks and Inflate Costs
Done right – process improvement can increase efficiency and cut costs. Done wrong – attempted process improvement can slow everything down, produce waste, and increase cost. The key to success is to bring in some experienced change management consultants to guide you through the process.
- Invalid Product Classifications Can Delay Shipments and Cause Taxation Nightmares
HTS classification can be a nightmare. The answer is to use appropriate decision support software systems to guide you through the classification process, tax rate selection, and document preparation.