Category Archives: Miscellaneous

Buyer Beware! A Tax Efficient Supply Chain is Not a Tax Effective Supply Chain!

Many global consultancies with large tax practices and some supply chain capability like to preach tax efficient supply chains and how they can help you optimize your global supply chain to minimize the overall tax that you pay. As many multinationals know all too well, sometimes the biggest cost after the product cost is not the logistics cost, but the tax. Depending on where you are buying from, where you are storing your goods, and where you intend to sell the goods, you can end up paying a plethora of taxes that can add up real fast.

The country you are buying from likely imposes federal and state taxes on all sales, and might even impose municipal taxes as well (especially if there is a value-added service component). Then you have to get those goods to a port (air or sea), and guess what, there will be taxes on the transportation. Then the dock or carrier likely charges a loading service fee, which is, of course, taxed. And let’s not forget the export duties. Ka-ching! And then there’s the air or sea transportation tax (as the carrier is registered somewhere). And, of course, landing/docking unloading fees when you get back to land. And then, Free/Foreign Trade Zone be damned, when you (finally want to) import those goods, import duties! Ka-ching! Then you have local transportation costs, taxed, and local warehouse costs, taxed, and even final transportation costs to the store or consumer, taxed again. Taxes. Taxes. Taxes. And if you have to pay all those taxes, you might as well just source from the closest factory because, regardless of how much more their unit cost is, we guarantee it will be cheaper.

However, if you have what the tax consultants call a tax efficient supply chain, then, because you are theoretically sourcing from countries you are not doing (much) business in (or selling in), then your organization is not responsible for most of these taxes, and the rest of the taxes, through clever classification and trade agreements, are minimized.

But just because you are not responsible for a tax doesn’t mean that you don’t have to pay the tax up front (and then file for reimbursement later). In many countries, unless you have an exemption id to provide the seller or [logistics, etc.] service provider (which may or may not exist or which might only be granted to non profits, etc.), the seller / service provider still has to collect the tax. And if it takes six, nine, or even twelve months to recover the tax, this is not exactly tax efficient.

First of all, your working capital is tied up, and there is a cost to having this tied up, which is the greater of what it costs you to borrow that working capital from your lender, the average early payment discount you are giving up, or the investment opportunity your Finance department has at its disposal (through factoring, short term GICs, etc.).

Secondly, there is a cost associated with the recovery of that tax. It will consist of at least the time required to submit the paperwork for recovery, and fees associated with submitting the paperwork for recovery, and, if the process is so involved or onerous that you really need a best-of-breed software solution to help you, the cost of that solution. (Note that you might need multiple such solutions, as many as one for each country you have to to through a submission process as some countries might only certify in-country vendors to connect to their e-document submission systems or accept, without [mandatory] audit, documents produced by an in-country provider.)

Third, and most important, the supply chain is not cost efficient if the cost of minimizing the tax ends up creating a considerably more dispersed supply chain that ends up significantly increasing the logistics cost, and, as an effect, the overall cost. Tax efficiency is supposed to minimize overall cost and cannot always be considered on its own.

In other words, unless the consultant creates a model that takes all of this into account (and many don’t due to the overall complexity of such a model), the “tax efficient” supply chain is not a “tax effective” supply chain and is not necessarily one you want to pursue.

… And Trade Extensions is No More!

As of Thursday, one could look up a Form 8-K filing on the SEC site from May 3, 2017 that simply stated that Coupa had completed its acquisition of Trade Extensions, now called Coupa Advanced Sourcing for those of you on the ball (and watching TE profiles on LinkedIn for updates as well). SI expects you’ll see a formal press release early this week.

While SI completed its initial analysis shortly after announcement, it’s going to hold off publishing until after Coupa Inspire to see if Coupa inspiration changes the doctor‘s mind at Inspire. :-) # Look for a deep analysis the week of the 22nd.

(For speculators, you can check out SI’s historical writings on M&A in general and its posts on the importance of cultural conformity in partnerships and then balance these views with the simple fact that only one* acquisition of an optimization platform provider has succeeded in the Sourcing/Procurement space to date, and probably take a guess as to the doctor‘s current view. But it would be only a guess.)

*Tigris was swallowed by VerticalNet; CombineNet shrivelled in SciQuest, now Jaggaer; Mindflow was killed by Emptoris (which was in turn butchered by IBM, whose initial foray into optimization was so bad that they ended up giving it all away for free in COIN-OR) and the founders of Algorhythm subsumed their optimization capabilities into their rapid application development platform Applifire! Only the VerticalNet acquisition by BravoSolution was a success, and likely only because the BravoSolution model required keeping VerticalNet more-or-less in-tact as the US operation of the global BravoSolution organization (as there was essentially no US presence at the time).

#Or at least lets him focus in on one analysis in particular (as his analysis is actually a bifurcated analysis that depends on decisions and directions taken over the next year … will make for a very long blog series as is … )

Fraggles and Doozers Require a Delicate Balance to Co-Exist

Thirty-Four years ago Fraggle Rock debuted on TV. This masterpiece of the late Jim Henson featured a number of races including, but not limited to the Fraggles (that the show was named after) and the Doozers (that were critical to their survival).

The Fraggles (mainly Gobo, Mokey, Webley, Boober, and Red) are small anthropomorphic creatures, typically 18 inches tall with fur-tuft tipped tales, that generally live a carefree life playing, exploring, and enjoying themselves. With their 30 minute work-week, they enjoy their bohemian life-style to the max and are generally worry free as they can subsist mainly on radishes (which grow plentiful) and Doozer sticks (that the Doozers use to build their constructions).

The Doozers are pudgy, green ant-like creatures that stand about 4 inches tall and that live an industrious lifestyle dedicated to work and progress. They spend their days (and the waking part of their nights) busily constructing all shapes and sizes of scaffolds and buildings throughout Fraggle Rock from their Doozer sticks, which are made from processed radishes (and taste like candy to Fraggles).

This gives the Doozers a steady stream of work as the Fraggles love Doozer sticks and tend to eat the constructions on a daily basis, given the Doozers constant space to rebuild.

This is generally the only interaction between the two species, and in Fraggle Rock it makes both groups happy as Doozers like their work to be enjoyed and Fraggles love enjoying the work (by eating it). But this only works because there is a delicate balance between the two races.

Consider what would happen if there were not enough Fraggles relative to the Doozer population. The Doozers would build and build until they ran out of space. Then they would be unhappy as they could not build any more. They would eventually go into a bleak depression, as they need to build creatively to be happy, and some might even become suicidal. Either way, it would be devastating to the Doozer population.

Now consider what would happen if there were too many Fraggles. They’d eat the Doozer’s constructions faster than those poor little Doozer’s could build. The Doozers, who would initially be pleased at the standing ovation, would build harder and faster until they literally collapsed. Then, without the food supply they are used to, the Fraggles, who’d have to resort to a single food source (ground-up radishes), would become very unhappy as this would not only be boring, but they’d have to work a lot more making the food (which would substantially cut into their bohemian lifestyle).

Lesson? Don’t forget to take culture into account in your relationships. If the partner you intend to select has a substantially different, almost opposite, culture, even though opposites attract, if the relationship isn’t delicately balanced, at least one side will wither away. Keep this in mind as you start thinking about that new IT partner (which is on your mind after our three-part series this week that asked should I stay or should I go?)

One Hundred and Twenty Years Ago Today

One Hundred and Twenty Years Ago Today J.J. Thomson announced his discovery of the electron at the Royal Institution in London.

Without a good understanding of electrons, which play an essential role in electricity, magnetism, and conductivity (in addition to more fundamental gravitational, electromagnetic, and weak force interactions), we would never have made the advances we made in modern technology. For example, even though, based on the work of Goldstein and Hittorf, Sir William Crookes developed the first cathode ray tube back in the 1870s without knowing what they were, it was electrons that made them work — as determined by J.J. Thomson and colleagues through experiments they conducted in 1896 (based on the work of Lorentz and Schuster).

The visual computing revolution started with the cathode ray tube, and, moreover, as there is no computing without electricity, and no electricity without electrons, without the discovery of electrons, and a good understanding of what they enabled, we wouldn’t be where we are today.

Opposites Attract

A Sourcing and Procurement Love Story.

[S] I’m M.C. Doc on the rap so mic it
[S] Here’s a little story and you’re sure to like it
[S] Swift and sly and I’m playing it cool
[S] With Procurement, ’cause buyers rule!

[S] Oh it seems we never ever agree
[S] You like catalogs
[S] And I like RFPs
[S] I take things serious
[S] And you take ‘em light
[S] I analyze daily
[P] And I buy when I like

[P] Back office sayin’
[P] We ain’t gonna last
[P] Cuz I move slowly
[S] Catalogs move fast

[S] I like it quiet
[P] And I love it loud
[B] But when we get together
[B] We both can stand proud

[S] I take 2 steps forward
[P] I take 2 steps back
[B] We come together
[B] Cuz opposites attract
[S] And you know — it ain’t fiction
[P] Just a natural fact
[B] We come together
[B] Cuz opposites attract

[P] Who’d a thought we could be partners
[P] I place the orders
[S] And I cut the contracts

[S] I like it neat
[P] And I make a mess
[P] I take it easy
[S] But I get obsessed
[S] I’ve got the budget
[P] And I’m always broke
[P] I don’t like strategy
[S] My eyes on the prize

[B] Things in common
[B] Just ain’t a one
[B] But when we’re working in-sync
[B] It’s nothin’ but black ink

[S] I take 2 steps forward
[P] I take 2 steps back
[B] We come together
[B] Cuz opposites attract
[S] And you know–it ain’t fiction
[P] Just a natural fact
[B] We come together
[B] Cuz opposites attract

[Repeat Chorus]

[B] Oh ain’t it somethin’
[B] How we lasted this long
[B] Both of us
[B] Provin’ everyone wrong
[B] Don’t think we’ll ever
[B] Get our differences patched
[B] Don’t really matter
[B] Cuz we’re perfectly matched

[Repeat Chorus Twice]

[B] Nothing in common, only trust
[P] I’m like a minus …
[S] I’m like a plus
[S] One saving up,
[P] One spending down
[B] But together we’re on common ground

[P] When things go wrong we make corrections
[S] To keep things moving in the right direction
[B] Try to fight it but we’re telling you Jack
[B] Its true — this — Opposites Attract!

… but the unanswered question is, should they?