Category Archives: Risk Management

A Customs Audit is Coming Your Way – Are You Ready?

As per this recent post over on the C.H. Robinson blog, the U.S. Customs and Border Protection (CBP) is stepping up enforcement of customs compliance. It’s not just looking for fraud, but for poor record-keeping, mistakes, and uncorrected discrepancies that will allow up to impose fines of up to $10,000, penalties of up to 8 times the value of the loss of duty on dutiable items, and penalties of up to 80% of the value of non-dutiable items which allow the CBP, and the U.S. Government, to fill its coffers at your expense. Just like ignorance of the law is no excuse, neither is an innocent mistake.

And while you can’t prevent an audit, you can prevent a fine and a penalty by making sure you don’t make any of the nine-common trade-related errors the CBP will get you on and, in a few cases, taking extra steps to limit what can be held against you. To minimize fines and penalties,

  • Report Manufacturing Assists which are dutiable (at cost).
  • Have a system and process in place to verify the mainfest immediately after the ship is loaded.
    If there are additional, missing, or damaged items, and the price is modified, the price you are actually going to pay needs to be reported.
  • Be sure not to include dutiable costs! While you will be refunded duty overpayments, you can also be fined $10,000 for a record-keeping error!
  • Don’t screw up the country of origin. It’s not necessarily the exporting country. It may ship from China, but it could be manufactured in Myanmar and Vietnam.
  • Get the HTS code right. Hire a consultant or acquire an import trade tool if you have to, because if you get this wrong, here’s where the 8X penalty comes into play!
  • If claiming Free Trade, make sure you have the arguments, documentation, and, if they exist, previous determinations or rulings to back it up.
  • If you are re-importing goods into the US (HTS 9801 & 9802), be sure to have tangible proof of US manufacturing and a full chain of custody that demonstrates no advance while abroad.
  • Don’t screw up the amounts claimed in a related-party transaction.
    Just because you trade goods for $1 does not mean this is the value you can claim when calculating duty.
  • Keep exactly 5 years of records. You have to keep five years, or get fined, but if you have more than 5 years, you are just giving the CBP more records to go through to find problems.

Will this completely eliminate your risk? No, but it will greatly reduce it!

If You Are In Food and Beverage, You Can Not Afford NOT to Have Supply Chain Visibility!

As per this recent article in Inbound Logistics, product recalls cost the U.S. economy $7 Billion annually, and the average product recall costs $10 Million. That’s Ten Million US Dollars that will disappear from your bank account if you are faced with a recall and are unable to quickly and effectively recall product. This is an incredible risk to your viability, and a real risk for the vast majority of companies that struggle with real-time visibility and managing inventory across a network of suppliers, distributors, and manufacturers.

Every day of recall delay results in lost revenue and lost consumer confidence, and, if you’re talking products with salmonella or e-coli poisoning, additional lost lives. The first empties your bank account, the second dries up your revenue stream, and the third can shut you down if consumers decide they do not trust your brand anymore (even if the regulators chalk it up to an accident and allow you to continue operating with additional monitoring and safety precautions).

Ten years ago, given the dearth of supply chain visibility solutions and the cost of extended enterprise ERP systems that could manage your inventory and talk to supplier systems through EDI, you might have had an excuse to not have such a system as it would have cost you 10 Million to acquire and implement such a solution and millions in annual maintenance costs to maintain it. Given that serious incidents, like supply chain disruptions, were much rarer than they are today, the cost savings just weren’t there (and by the time you extracted the relevant data and sent the message out to the affected parties, who probably had to be faxed, the damage was done, the news was on TV, and the opportunity to prevent a significant number of injuries and death wasn’t there).

But today, when you can acquire such solutions for six figures and completely map the supply chains of the suppliers who account for the majority of the goods you buy, and all critical or perishable items, there is no excuse. Properly implemented, these systems can track the complete chain of custody for any item manufactured, stored, or shipped within the supply chain and when (not if) a recall is needed, a simple query will pull up the inventory location by item, batch, and lot — anywhere, and at any time.

In addition to the quick location of an affected product, the system allows a manufacturer to focus in on contaminated or faulty batches, instead of recalling an entire product line because the affected product cannot be isolated quickly enough. So not only is the supply chain more visible, but actions can be taken on a more granular level – allowing a company to minimize the impact to the revenue and reputation with minimal effort and cost. As Nike would say, Just Do It.

Maintaining Competitiveness – Adaptable Supply Chain Structure

In our recent series on The End of Competitive Advantage, we noted that in many industries, there is no such thing as sustainable competitive advantage. The best a company can hope for is to deftly move from temporary advantage to temporary advantage in an effort to remain in the black.

In order to do this, it has to follow a new playbook with a new set of rules, which include the switch to competing in arenas and not industries, the requirement to get (out) while the gettin (out)’s good, the support of the C-suite, and the continual resource re-allocation to deftly move from one arena to another where temporary advantage can be obtained.

In order to do this, a company needs a supply chain that can keep up. Such a supply chain has an adaptable structure at its core, as per this article on the essence of supply chain flexibility. Such a structure allows a company to get back to business quickly following a disruption. Consider Nissan, the first Japanese car company to get back to business following the 2011 quake. And in the wake of the Thai floods, it was able to contain the issues locally by swiftly resourcing parts from China. It was able to do this because its low-cost “V” platform for vehicles in emerging markets allowed Nissan to extend its production base across the world using standardized parts in different production facilities.

So how do you get an adaptable structure? Start with the checklist presented in the article:

  • focus on risk management, not risk avoidance
    with a 98% chance of a disruption within 24 months no matter what you do, this only makes sense
  • develop a variable cost structure
    that can be applied on a node-by-node basis and ramped up and down as needed
  • launch flexible capacity initiatives
    to adequately handle peaks and troughs in demand
  • establish hedging strategies for critical components
    and put appropriate backup plans in place
  • acquire actual supply chain insurance policies
    and insure specific high-risk events are covered
  • explore shared services models
    and use them where they make sense
  • implement flexible pricing structures
    to support flexible capacity initiatives that allow demand to be rapidly aligned with supply
  • and form cross-functional teams, led by a C-suite officer, to get the job done!

Within days of the Japan earthquake, the CEO of Nissan and a risk management team visited the plant, surveyed the damage, and determined what needed to be done to regain normal operations. The CEO. Take note of that.

Twenty Five Years Ago, Nippon Made Air Travel Safer … For Birds!

Twenty five years ago today, Nippon Airways announced that it gave birds everywhere the clear message that jet planes taste bad. In an industry where birds caused over half a million dollars worth of damage to airplanes in 1985, Nippon Airways managed to come up with an innovative, cheap solution to keep birds away from its planes. They painted eyespots on the rotating fans of their jet engines.

An eyespot is an eye-like marking found on butterflies, moths, and certain other insects that taste bad to birds. After they painted the eyespots on their jet engines, in the following year, only one bird struck one of their engines. Nippon later announced that the eyespots cut mid-air bird collisions by 20%! Sometimes innovation is easier, and cheaper, than you think!


Engine Eyespot

Supply Chain Resiliency: More than Supplier Management!

We have a thorough supplier (performance) management program in place — all of our strategic suppliers are appropriately managed and monitored. We don’t have to worry about unexpected bankruptcies, lapses in quality, or shipment delays.

Falser words could not be spoken!

Just because your suppliers are well managed and not likely to be a source of risk unless an external event causes one or more of those suppliers to shutdown or become inaccessible, that doesn’t mean your supplier’s supplier is managed! According to the BCI 2012 “Supply Chain Resilience Survey”, 39% of analyzed disruptions originated below the immediate tier-one supplier! In other words, the best (tier one) supplier management program in the world is only going to mitigate 60% of supplier-based risks that can be mitigated! Given that, depending on the study, somewhere between 73% and 85% of companies experienced at least one disruption last year (with the average survey respondent experiencing an average of 5), and that 21% of companies suffered disruptions that cost more than 1 Million Euros, can you really rely on your world-class supplier (performance) management program?

So how do you identify and assess sub-tier risks? We’ll get to that in a series of posts on supply chain visibility that will begin this summer, but if you want a leg up on your competition, I would suggest that you strongly consider the forthcoming webinar on “Assessing Sub-tier Risks” by Resilinc, who will be doing a deep dive into a proper process, the benefits it will produce for your organization, and the high cost of doing nothing in today’s global economy.

You can Register for the webinar, which will take place on June 19, 2013 @ 11am PDT / @ 3 pm EDT, at your earliest opportunity.