Procurement Trend #33: Governmental Regulations

As we indicated last week in our posts that attempted to explain why the “futurists” are still stuck in the past where Procurement is concerned, and why we needed to spend thirty posts on the subject, we are going to discuss in detail each and every “future” trend that we debunked in our Future of Procurement series on old-blues and ongoing news. By the end of this series, you will not only understand why the historians are still talking about these trends, but why they are still relevant to many Procurement organizations that are stuck in the past with the historians and what you need to do to prevent staying there with your organizational “peers”.

As per our original series, government regulations have been enabling and restricting trade since trade between nations began. It’s always been an issue, it always is an issue, and always will be. It’s going to be an issue until the end of humanity, but is not a future trend as it’s been an issue since the dawn of humanity.

So why do so many historians keep pegging it as a future trend? There are a number of reason, but the top three today are:

  • Environmental Regulations
    Regulations like WEEE, REACH, and RoHS are coming fast and furious around the globe and are limiting what you can produce, export, import, and sell. And, in some cases, tying you to the product from cradle to grave (as sometimes you are required to take the product back at end of life and safely recycle or dispose of hazardous materials).
  • Free Trade Regulations / Free Trade Zones
    Preferential Trade Agreements such as NAFTA make certain types of trade more profitable or less costly than other types of trade and free trade zones can delay taxation until sale time or even eliminate the unnecessary collection and reclamation cycle (which is timely and costly) for goods passing through to another destination country, but only if you know how to use them to your advantage.
  • Trade Security Regulations
    Regulations like 10+2, part of the US CBP ISF, that require 24 hour advance notice of manifests can cause significant delays for companies that are non-compliant and even result in seizure and forfeiture of goods.

So what does this mean for your organization? How do you blast out of the past and into the present in preparation for planning for the future?

Environmental Regulations

You need to be current on the regulations that affect all of the products you are producing, importing, or exporting. This requires bill of materials (BoM) level visibility into each product produced and detailed lists of each material regulated by one or more regulations that your organization has to adhere to as well as software that can automatically match BoM raw materials to regulatory material lists and alerts you to a potential conflict before the product is produced and becomes useless to your organization because it contains a raw material that prevents it from being imported into the target market.

Free Trade Regulations / Free Trade Zones

You need to identify all of the regulations that impact your global trade, index them by product, and use them to your best advantage. In addition, you have to cross index your product categories against the HTS Codes to produce the best products for importation into the target country at the best locations to get the lowest rates. For example, “gloves” can be found under codes 3926.20.40, 4014.19.50, and 4203.21.60 and the tariff rates are 6.5%, 14%, 5.5%, or, if the good is coming from a country with a preferential trade agreement, 0%.

You also need to identify all of the free trade zones in each country you plan to import/export into/out of and make sure that your global trade routes flow through them when appropriate. Having to pay tariffs weeks, or months, before the product is sold poses a serious hit to your cash-flow, especially if the tariff is on a good destined for re-export, as it could be a year or more before you are able to reclaim the tariff the organization is exempt from! So you need to use the Free Trade Zones whenever you can.

Trade Security Regulations

You need to put systems in place that not only ensure that all documents are filed that need to be filed, but that all information required is automatically collected and all documents that need to be filed are automatically produced and filed with this information whenever possible. Furthermore, when information is missing, an appropriate person needs to be immediately alerted so that the documents get in on-time every time.

And that, dear reader, is why this issue stays on the “futurists” lists and what you need to do about it to make sure you don’t join your competition in the past they are all stuck in.