EXAM 2 global sourcing Flashcards
role of sourcing personnel
- trade shows
- collaboration
- review past sales
- forecast future demand
line review
ensures that proposed designs are both attractive and functional in their final garment form
- functionality
- producibility
- affordability
HTSUS
harmonized tariff schedule of the United States
HTSUS includes
product classification numbers, article descriptions, tariff rates, and special tariff programs
- textile sections: sections 11 & 12, focusing on apparel in 61 (knits) & 62 (wovens)
HTSUS classification system
- 10 digit number for each product category
- differentiates by gender (odd-men, even-women)
- includes subheading for garment style, fiber content, and a statistical suffix
- 3 digit quota category number
classification impact on duty rates
fiber content and origin affect duty rates
rules of origin
- preferential: lower rates
- non-preferential: standard rates
tariff cost reduction strategy
compare duty rates based on fiber content and origin to optimize sourcing costs
purpose of macro analysis
assess the feasability and potential risks of entering new countries for sourcing
- PEST analysis
PEST analysis
- Political environment
- Economic environment
- Social environment
- Technological environment
IPR
Intellectual Property Rights: Protects unique designs and brands from infringement in supplier countries
Patents
Protects unique processes and products
US Monitoring
Prevents counterfeit and pirated goods from entering thr country
- ICE: Immigration and Customs Enforcement
- CBP: Customs and Border Protection
Protectionism
Uses trade barriers to limit imports and support domestic production
Free Trade
Allows unrestricted exchange of goods between countries
Trade Barriers
Includes tariffs (tax on imports) and quotas (limit on import quantity)
Ad Valorum vs. Specific Tariffs
Ad Valorum: Based on product value percentage
Specific: Fixed fee per unit
Combination: Mix of the two
Absolute quotas vs. Tariff-Rate quotas
Absolute: Fixed quantity limits
Tariff-Rate: Allows a certain quantity at a reduced rate for a limited period
textile and apparel quotas were…
eliminated among WTO members in 2005
FTA
Free Trade Agreement
TPP
Trade Preference Programs: offer duty free treatment for specific products from eligable countries
US TPPs
- AGOA (African Growth & Opportunity Act)
- CBTPA (Caribbean Basin Trade Partnership Act)
- HOPE Act (duty free access for Hatian textile & apparel goods
purpose of micro analysis
assess each factory’s strengths and weaknesses within a country to identify the best potential suppliers based on compliance, cost, and efficiency
The 5 Rs
- Right Product
- Right Condition
- Right Quality
- Right Time
- Right Price
C-TPAT
Customs-Trade Partnership Against Terrorism: voluntary U.S. Customs and Border Protection (CBP) program focused on securing the supply chain from terrorist threats.
5 major components of direct costs
- Fabric
- Labor
- Trims and embellishments
- Transportation
- Duties
Ex Point of Origin
Supplier covers all costs up to the point of origin
Free Along Side (FAS)
Supplier delivers goods alongside the vessel
Free on Board (FOB)
Supplier responsible until goods are loaded onto the vessel.
Cost and Freight (C&F)
Supplier covers costs up to the destination but not insurance.
Cost, Insurance, and Freight (CIF)
Supplier includes insurance to the destination.
Landed Duty Paid (LDP)
Supplier covers all costs to the destination, including duties
Delivered Duty Paid (DDP)
Supplier covers all costs, including transport to the final destination.
Indirect Costs Examples
- Cost of samples, reworking products, and production monitoring.
- Communication expenses (e.g., emails, calls).
- Costs due to expedited shipments and potential reputational damage.
- Indirect costs can be unpredictable, so sourcing agents often add 5-10% to budget for unexpected expenses.
Purchase Order
official document issued by the buyer, specifying what the supplier will provide, at what price, and under what terms.
- includes a negotiated method of payment to ensure clear financial arrangements.
components of a purchase order
- Product Identification: Unique id number for each product, often linked to a Universal Product Code (UPC) or barcode
- Product Descriptions: Details about fabrics, trims, embellishments, and their placement. Technical design sketches, size specifications, production techniques, and label/tag requirements.
- Quantity: Total quantity per contract, including size ratios and color choices.
- Price & Terms: Per unit and total amount, along with any specific pricing terms.
- Delivery Date & Method
- Other Terms: Quality assurance polieis, order cancellation policies, contingency plans (actions in case of contract violations)
Types of Payment
- Consignment Sales
- Open Account
- Documentary Collection (Documentary Draft)
- Letter of Credit (L/C)
- Cash in Advance
Letter of Credit (L/C)
A common method where a bank issues a line of credit to the buyer.
* Provides security for both parties; the supplier is guaranteed payment upon shipping goods and providing documents.
* Requires a good credit rating for the buyer and involves complex coordination among banks.
Cash in Advance
Buyer pays before shipment; used when the buyer has a poor credit rating or if there is instability in the buyer’s country.
* The supplier assumes no risk of nonpayment, making it the least risky option for them.
Documentary Collection (Documentary Draft)
Involves the supplier’s bank (remitting bank) and the buyer’s bank (collecting bank). The buyer pays their bank to receive the necessary documents to clear the goods.
Open Account
Payment term ranges from 30-120 days after receipt. Higher risk for the supplier; not a common method.
Consignment Sales
Payment is made after the goods are sold to a third party. Low cost and risk for buyer; not commonly used.
