Manufacturers can spend 50 percent or more of revenue on purchasing parts. As a result, low cost sourcing has become an important business strategy to improve competitiveness. To achieve the next level of savings from a low-cost country sourcing strategy, leading companies are using free trade agreements (FTAs) to reduce landed costs through duty reduction.
Here are five steps to address these challenges and lower costs with an FTA program.
1. Implement a Supplier Management Program
A supplier management program is critical to gathering the information needed to claim preferential status under an FTA. Most FTAs require a certificate of origin, as well as a Trade Program certificate to prove a claim. To have an effective program, you’ll need to establish a communication channel with suppliers for obtaining the necessary information. Additionally, you’ll need to explain the reason why you are collecting this information and beta test the program with a subset of suppliers to identify program gaps prior to going live. Finally, all suppliers in the program will need to be trained on how it works.
2. Achieve Multi-sourcing Data Visibility
An effective supplier management program requires systems support to provide multi-sourcing data visibility. When sourcing from multiple suppliers there are often multiple countries of origin as well as multiple FTA opportunities, depending on the source country for the part.
Global trade management (GTM) solutions allow you to keep separate information for each part with each individual supplier. By using a GTM solution, you can construct this information from purchase orders and build a request without rekeying part information.
3. Automate the Supplier Solicitation Process
Your FTA supplier solicitation process should only target suppliers eligible to participate in a given FTA. A solution that automatically identifies and solicits the right suppliers for each FTA opportunity allows you to focus your requests to a particular preference program and streamlines the process. Your solution should have campaign management capabilities, which allows you to solicit hundreds of suppliers for a program in just a few minutes. With campaign management capabilities you can eliminate 90 percent or more of the effort required for solicitations and manage non-responsive suppliers. The solution should also provide dashboards and alerts and check and validate responses.
4. Automate the Qualification Process for Multiple FTAs
The final step is systematically qualifying bills of material (BOM) to determine product eligibility for a particular FTA. To support high volume environments, it is critical that rule of origin content – for each FTA in the portfolio – is integrated and maintained with a GTM solution that uses a qualification engine to analyze the BOM against rules of origin and available certificates to determine eligibility – without the need to classify or manage certificates for low-value component parts that do not affect calculations.
5: Add New FTAs by Building on Your Base Portfolio
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