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Playbook

Avoid These Assumptions in Global Supply Chain Management

September 1, 2017

Global supply chain

With over 30 years of international trade experience, I have been witness to numerous and repeated errors that sales, purchasing, and global business executives consistently make.

Here are six assumptions that must be avoided in the global supply chain:

I have no personal liability. The reality is that there is significant personal liability for individuals who operate in global supply chains.

U.S. government enforcement agencies, such as but not limited to the following, will prosecute both organizations and individuals who are seriously out of trade compliance with their import and export regulatory responsibilities:

  • Department of Justice
  • Customs Border and Protection
  • Departments of State, Commerce and Treasury
  • Bureau of Alcohol, Tobacco and Firearms
  • Department of Homeland Security
  • United States Department of Agriculture and the Food and Drug Administration

While criminal prosecution is a rare occurrence, it does happen every day in the supply chain, somewhere in the world of international trade.

The FOB term is always a safe Incoterm to utilize. The FOB (free on board) Incoterm has three deadly areas of concern:

  • Its use in domestic trade
  • Its gray area in the loading process
  • Its ambiguity when the point in time responsibility and liability shift from the seller to the buyer (exporter to importer)

Contracts override relationships. In international trade, relationships trump contracts.

It is a relationship that will drive a successful deal and a long tenure. I have always extolled “you can contract out risk,” but you can seriously minimize and mitigate risk by establishing favored relationships that will allow the best opportunity for problem resolution and working out the issues that will likely occur over time and trade.

Service providers are the experts in all aspects of the global supply chain. This is just not so. While a small percentage of service providers are clearly experts, professionals, and aligned with teams of knowledgeable staff, the majority have serious limitations.

While many have expertise to arrange affreightment, pickup, and delivery, many:

  • Lack the necessary local connections in all foreign markets
  • Do not take trade compliance seriously
  • Do not understand how best to eliminate risk and cost from the supply chain

I can manage the supply chain reactively. Most companies talk to their supply chain teams once decisions have been made.

Companies that do not engage their supply chain management teams before purchasing and sales decisions are made are creating a recipe for disaster.

Proactive discussions and “stone turning” to determine the best options for buying, selling, and overseas expansion is contemplated as a “best practice,” with long-term rewards with less aggravation, lower costs, and risk-management options.

We have been doing this this way for over five years with no problems. We hear that a lot. Just because you have not had a specific problem does not mean you are doing things correctly.

A volcano is not only a problem when it erupts. The problem is underlying, just waiting for emergence. Dealing with it proactively and anticipating consequences is a much better option.

Potential problems, along with potential improvements, must be proactively chased to assure you do not have serious issues and are doing everything possible to reduce risk and cost and/or make business process improvements.

Adapted, with permission of the publisher, from Mastering Import & Export Management, Third Edition, by Thomas A. Cook with Kelly Raia. Copyright 2017 Thomas A. Cook. Published by AMACOM.

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About The Author

Thomas A. Cook is the author of Mastering Import & Export Management, Third Edition (AMACOM, 2017). He has 35 years of experience in global logistics and international business, and 25 years teaching with the American Management Association, National Institute for World Trade, and the District Export Councils. Kelly Raia has years of experience in international global supply chain, with a focus on trade compliance.

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