Transcript MASTER - Texas Tech University

CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 11A
LEGAL SYSTEMS AND ISSUES AROUND THE WORLD
ALAN L. WHITEBREAD
BUSINESS ETHICS
•
•
•
•
Ethics and morals
Business practices
Corporate governance
Responsibility
– Personal
– Social
ETHICS & CORE VALUES
• MORALS
– are the distinctions between right and wrong.
• ETHICS
– are the values relating to human conduct.
Whether an action is right or wrong, and the
good or bad of motives and ends.
ETHICS & CORE VALUES
• ETHICS
– Personal ethics should exceed legal
requirements.
– If you have to ask about its legality, you are
likely in ethical trouble.
– Intent …
– Corporate ethics …
ETHICS & CORE VALUES
• CORE VALUES
– Values and beliefs: you can not live a dual
life.
– It's more important to do the right thing AND
to do things right to maximize you chances for
success in international trade.
FOREIGN CORRUPT PRACTICES
ACT - 1977
• Prohibits American companies from making
payments [anything of value] to foreign officials
knowing some or all of the funds will be used for
the purpose of obtaining, keeping, or directing
business [to themselves or an affiliated party]
and it applies to all
•
•
•
•
Employees and Agents
Distributors
Consultants
Contractors
For current information see http://www.usdoj.gov/criminal/fraud/fcpa/ .
FCPA - DETAILS
• Also applies to foreign customers selling to
a government.
• Any attempt to bribe is illegal.
• BEWARE OF ANYONE THAT
– does not want to keep records or has poor
records, or
– is an agent and a government official, or
– has other third parties involved in the
transaction [especially the payments].
FOREIGN CORRUPT PRACTICES
ACT - 1977
• Civil and criminal penalties include
– Fines up to $100,000 and / or
– SEC fines up to $500,000 and / or
– Up to five years imprisonment
– Per offense and / or
– Loss of export privileges
Foreign Corrupt Practices Act –
SCENARIO 1
A very high level foreign government
official which has done business with you
before asks to visit your American
facilities. Before you invite him, his
spouse, and two aides to fly first class to
be your guests in Texas, visit company
headquarters, manufacturing facilities and
the Alamo, you should be able to answer a
number of questions.
Foreign Corrupt Practices Act
1. Can you extend the invitation
without the involvement of any
other level of management?
Yes
No


Answer
Only a very senior [C-level] executive would do this and
would likely have a legal review. Any other manager
level should have approvals.
Foreign Corrupt Practices Act
2. Are such trips permitted under the
FCPA?
Yes
No


Answer
Maybe. The amount of business in the past and projected
in the future will be a critical element of whether this
visit would comply with FCPA.
Foreign Corrupt Practices Act
3. Would conditions be attached to
this visit?
Yes
No


Answer
Yes. Expenses must be reasonable and directly related to
the promotion, demonstration, or explanation of
products or services, or the execution or performance
of an existing or pending contract.
Foreign Corrupt Practices Act –
SCENARIO 2
After getting appropriate management
approvals, you arrange for the Minister
and his party to also stop in California for 2
days.
4. Is such a stop permitted if it is
unrelated to company business?
Yes
No


Foreign Corrupt Practices Act
4. Is such a stop permitted if it is
unrelated to company business?
Yes
No


Answer
Not if you are paying for any part of it. If they are paying
separately it is probably ok.
Foreign Corrupt Practices Act
5. Is such a stop permitted if it is
related to company business?
Yes
No


Answer
Reasonable and proper expenses can be incurred since
there are direct benefits to the company to do this.
Foreign Corrupt Practices Act
6. What are the guidelines for
entertainment?
Yes
No


Answer
Reasonable, customary, directly related to business.
What’s reasonable?
FCPA UPDATE
• The FCPA was amended by the International AntiBribery Act of 1998 to implement the anti-bribery
conventions of the Organization for Economic
Cooperation and Development [OECD] Convention
on Combating Bribery of Foreign Officials in
International Business Transactions.
• The Act expands the FCPA's coverage to include all
foreign persons who commit an act in furtherance of
a foreign bribe while in the U.S.
• See http://www.usdoj.gov/criminal/fraud/fcpa/ for more details.
COMPARATIVE LEGAL SYSTEMS
• Different legal systems have different
ways of dealing with the same issue. The
major legal systems are
– Common Law
– Civil Law or Code Law or Statute Law
– Religious Law
– Customary Law
– Mixed legal systems
LEGAL FRAMEWORK:
COMMON LAW NATIONS
• Have legislative codes [written law]
• Rely heavily on precedent
• Verbal and written communications are
binding
– USA and the old British Empire countries
LEGAL FRAMEWORK:
STATUTE, CIVIL, or CODE LAW NATIONS
• Based on Roman Law
• Relies heavily on legislative code
• They generally have a strict, literal
interpretation of the code with very little
judicial discretion
• Common in continental Europe
– France, Germany, Spain, and Portugal and
their old colonies, and Japan
LEGAL FRAMEWORK:
RELIGIOUS LAW
• Religious law provides a model of ideal
behavior of being moral rather than
practical or abstract. The sources of law
are often religious books [or sometimes
religious leaders] rather than legislation or
judicial decisions. Decisions often lie in
the hands of religious leaders.
– Muslim nations
– Israel
LEGAL FRAMEWORK;
CUSTOMARY LAW NATIONS
• Communal and customary laws
– Mongolia
– Parts of Africa
–?
SOME LEGAL ISSUES IN CHINA
• Formal antitrust law does not exist.
• Manufacturer rebates may be paid directly
to consumers, but not sales people.
• All commissions must be on the books
otherwise they are likely to be treated as
kickbacks or bribes.
LEVELS OF INFLUENCE:
DOMESTIC
• Home country laws that affect marketing
activities
– a ban on the import or export of specific
products
• drugs, endangered species, fire arms, counterfeit
goods, certain agricultural products, …
– or to and from specific countries
• Cuba, North Korea, Iran, and Iraq
– and / or using specific practices
• Foreign Corrupt Practices Act [FCPA]
LEVELS OF INFLUENCE:
FOREIGN
• Host country laws that limit some
practices, products and / or trading
partners.
– Japan [store size]
– Korea [advertising by foreign firms]
– Germany [some forms of direct marketing]
LEVELS OF INFLUENCE:
INTERNATIONAL
• Agreements made between and among
nations that create a legal environment
specific to trade among those countries
– treaties
• GATT
– agreements
• EU agreements such as the Maastrich Treaty,
NAFTA, …
APPLICATION OF U.S. LAWS
AROUND THE WORLD
• Antitrust Laws
– Cartels or a Monopoly
– US DOJ Antitrust
• Guidelines may be found at
http://www.usdoj.gov/atr/public/guidelines/internat.htm
• National Security Laws
– Import restrictions
– Export restrictions
• Anti-boycott Laws
– Cuba …
• Foreign Corrupt Practices Act
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 11B
LEGAL AGREEMENTS AND ISSUES AROUND THE WORLD
ALAN L. WHITEBREAD
DISTRIBUTION AGREEMENTS
• BASIC REQUIREMENTS
– Parties
– Appointment
•
•
•
•
•
Territory
Products
Limits
Term
Termination
DISTRIBUTION AGREEMENTS
• TERRITORY: EXCLUSIVITY
– Some statement is virtually required.
• Indonesia allows only one distributor.
– So what do you do?
• Some countries imply exclusivity unless the
contract specifies differently.
• Exclusivity is not allowed.
DISTRIBUTION AGREEMENTS
• BASIC REQUIREMENTS
– Products and / or Services
• All, extensive, or limited product accessibility
• Supplier’s rights
• Reseller’s rights
– Distributors, dealers, wholesalers, retailers, jobbers,
various types of representatives, …
DISTRIBUTION AGREEMENTS
• OBLIGATIONS CLAUSE
• The part of an agreement or contract that
specifies what each party will do.
– Examples?
DISTRIBUTION AGREEMENTS
• BASIC REQUIREMENTS
– Prices
• What, how long, revising
• New products
– How do you handle these?
– Payment terms
• Where? When? How?
– Is the agreement assignable?
– If yes, why?
DISTRIBUTION AGREEMENTS
• BASIC REQUIREMENTS
– Performance requirements
• Initial goals
• Subsequent targets
• Remedial measures
– Force majeure
• These clauses cover natural disasters or "Acts of God", war,
or the failure of third parties--such as suppliers and
subcontractors--to perform their obligations to the contracting
party. Force majeure clauses are intended to excuse a party
only if the failure to perform could not be avoided by the
exercise of due care by that party.
DISTRIBUTION AGREEMENTS
• BASIC REQUIREMENTS
– Performance requirements
• Initial goals
• Subsequent targets
• Remedial measures
– Processes
• Ordering
• Shipping
– Detail responsibilities of the parties
– Government filings or approval
• Which party is responsible?
DISTRIBUTION AGREEMENTS
• BASIC REQUIREMENTS
– Warranty and claims [processing]
– Intellectual property rights
– Termination
• With or without cause
• Special circumstances
DISTRIBUTION AGREEMENTS
• TERMINATION CLAUSE
• A legal clause that specifies duties and
obligations [if any] of each party at once a
contract is concluded or ended.
• This is an especially risky area! Consult
an international legal attorney first.
TERMINATION
• Varies greatly by country
– Belgium = normal costs + goodwill
• “Agent” – acting on behalf of the company
• “Distributor” – acting independently with
the right to promote and sell the
company’s products
DISTRIBUTION AGREEMENTS
• BASIC REQUIREMENTS
– Post-termination rights
– Dispute resolution
• Jurisdiction
• Arbitration
• Legal action
DISTRIBUTION AGREEMENTS
• ARBITRATION CLAUSE
• This contract clause describes the process
of resolving a dispute or a grievance
outside of the court system by presenting
it to an impartial third party or panel for a
decision that may or may not be binding.
ARBITRATION VS. LITIGATION
• ARBITRATION
– Jurisdiction chosen by the
parties
– Arbitrator decisions are
usually final
– Confidential
– Arbitrators are usually
experts
– More time effective
– May be cost effective
• LITIGATION
–
–
–
–
Law determines jurisdiction
Appeals are common
Usually public information
Judges are not subject
experts
– May take years
– May be very expensive
DISTRIBUTION AGREEMENTS
• Beware of local [country] law
– It can invalidate some [or all] of the contract.
– The reseller should agree to comply with all
local and country law including obtaining
required licenses.
U.S ANTITRUST LAWS
• Unless exempt from regulation, a U.S.
company may be subject to fines if it
allows a distributor to sell in one EU
country and prohibits it from selling in
another EU country.
– How do you handle that situation?
GOVERNMENT APPROVAL
• Japan
– Licensing agreements must be approved by
the Japanese Fair Trade Commission.
• South Korea
– Software distribution agreements of 1 or more
years must be approved by their Fair Trade
Commission.
• What do you do?
AGENTS
• ENTRY POINT
• CHARMING
EXPATRIATES
To leave one's country and reside in another
• CAN BE VERY COSTLY
• CAN BE A DISASTER
• MAY BE CRITICAL TO SUCCESS
• ARE ALWAYS A QUESTION
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 12A
INTERNATIONAL PRODUCT AND SERVICE DECISIONS
ALAN L. WHITEBREAD
INTERNATIONAL PRODUCT
PLANNING
– Which products should be supplied for which
markets?
– What product modifications must be made for
this specific market [segment]?
– How should we enter the market?
PRODUCT PLANNING OBJECTIVES
• Key product objectives:
– Business definition
– Product offering
• Product lines
• Variety within the product line
– Marketing mix [4P’s]
LOCAL, NATIONAL, REGIONAL and
GLOBAL PRODUCTS
• LOCAL
– offered in a portion of a national market
• NATIONAL
– offered in a single national market
• INTERNATIONAL
– offered in multinational / regional markets
• GLOBAL
– offered in the global market [multi-regional]
THE THREE LEVEL PRODUCT CONCEPT
Installation
Warranty
Packaging
Brand Name
Delivery
Quality
Level
Credit
Terms
Features
Core Product
[most basic offering]
AfterDesign
Sale
Service
Manuals
Actual / Branded Product
[likely to see in a store]
Augmented Product
[store product plus services]
THE EXPANDED PRODUCT CONCEPT
1-GENERIC [CORE] PRODUCT
5-POTENTIAL PRODUCT
Serves the fundamental need or want.
2-EXPECTED – Typical basic product
Future: most advanced product
Warranty
Installation
Extended
Warranty
Packaging
Delivery
Credit
Terms
Brand Name
Features
Quality
Level
Design
AfterSale
Service
Updates
3-BRANDED
What you see in the store
4-AUGMENTED PRODUCT
Attributes, benefits, or services
used for competitive advantage
Advanced
Features
PRODUCT ATTRIBUTES
•
•
•
•
•
DESIGN
FEATURES
SPECIFICATIONS
QUALITY STANDARDS
PERFORMANCE STANDARDS
STANDARDIZATION DECISION
CRITERIA
• Nature of product
– Industrial goods are easier to standardize.
– Non-durables generally need more
customization.
INTERNATIONAL BUSINESS:
Communications Needs
Same
Different
EXPANSION STRATEGY ALTERNATIVES
Extension
New messages
SUV, SUT, …
Expansion
Aggressive Growth
All new approach
Apple iPODTM
Your examples ?
Adaptation
Simple roll-out
Product changes
or innovations
Various packages of
Campbell’s soups
Various flavors of CocaCola products
Same
Different
Products / Services Needs
A BRAND IS A
• NAME, TERM, SYMBOL, or ANY OTHER
UNIQUE ELEMENT of a product that identifies
one firms’ product[s] and sets them apart from
ALL competitive offerings.
• Beware of cultural, symbolic, and linguistic
interpretations!
• See Interbrand’s Annual Ranking of The Best
Global Brands.
– See http://www.interbrand.com/surveys.asp for more information.
BRAND EQUITY
• THE VALUE OF THE BRAND TO THEIR
CUSTOMERS AND AN ACQUIRER – AN
OFF BALANCE SHEET NUMBER.
Altria [PMI] – Kraft Foods $13B
KKR – RJR Nabisco
$ 5.8B
600% of book
550% of book
"The secret to our enduring brand lies in
delivering an experience rather than just a
collection of products and services."
- Harley-Davidson Annual Report, 2003
BRAND STRATEGY
• Standardization of brand names
– One corporate brand world-wide
• Coca-cola, Perrier, Kodak
– Modified brand names for each regional
market
• Tide - Ariel
– Family brand world-wide
• Levi-Strauss, 3M
GLOBAL BRAND DISADVANTAGES
• Bad news travels fast. You can not afford
bad news.
• One product’s problems can reflect on
other products and damage the brand.
• Local brand loyalties may be hard to
overcome.
FIVE KEY BRAND DECISIONS
Selection
•Brand
•No brand
[Generic]
Sponsor
Name
Strategy
•Manufacturer
Brand
•Individual
Brand
•Private
Label
Brand
•Family
Brand
•Brand
Extension
•Multibrands
•Separate
Family
Brands
•New
brand[s]
•Joint
•License
•Line
Extension
•Cobrand[s]
Position
•Reposition
-brand
OR
-competitor
•Maintain
current
position
BRAND DECISIONS
Selection
Should the product have a brand
name?
•Brand
•No brand
[Generic]
Go through the brand name selection
process. See goals on the next slide.
Should all products be branded?
What about sand and play sand?
BRAND NAME SELECTION
• The brand name should
–
–
–
–
–
–
–
–
Be distinctive [not found in any language]
Be easy to pronounce, recognize, and remember
Lack poor foreign language meanings
Project a positive image or characteristic
Suggest product benefits
Suggest product qualities
Be timeless [enduring]
Be versatile for expansion purposes
• If you do three or four of the above, you
have likely done a good job.
BRAND DECISIONS
Sponsor
Who owns the brand name?
•Manufacturer
Brand
•Private
Label
Brand
•Joint
•License
If it is a joint brand [usually two
entities] there are special
considerations.
Licensing a brand is a common
practice and can be a source of
significant royalties.
BRAND DECISIONS
Name
•Individual
Brand
Should I have a brand name for
an individual product?
•Family
Brand
Should I have a brand name for
a set of product lines?
•Separate
Family
Brands
Should product line have
separate brand names?
BRAND DECISIONS
Strategy
Should I have a product line or brand
name and then a surname to help
identify the products?
Are the product families so different
they would benefit from multiple brand
names?
Is the product [line] so different it
requires a new brand name?
Cobrands [usually two companies
own] have special considerations.
•Line
Extension
•Brand
Extension
•Multibrands
•New
brand[s]
•Cobrand[s]
BRAND DECISIONS
Position
Is there something significant to be
gained by repositioning the brand?
Repositioning a competitor is risky
and can be expensive.
Is maintaining the current position the
best strategy?
See Positioning in Section 7.
•Reposition
-brand
-competitor
•Maintain
current
position
ADDITIONAL BRAND DECISIONS
•
•
•
•
•
PRODUCT SAFETY
PRODUCT SPECIFICATIONS
PRODUCT LIABILITY
PRODUCT WARNINGS
WARRANTIES
TYPE OF WARRANTY
• What do each of the following mean in the
U. S.?
– Limited lifetime
– Lifetime
– Extended warranty
– Free from manufacturer’s defects
– Merchantability and fitness of use
PACKAGING AND LABELING
[More asterisks indicates increased importance].
FUNCTION
Selling
Competitive advantages
Product safety
Identify contents
Describe the product
Promote the product
PACKAGE
LABEL
***
***
*
*
**
**
*
***
***
**
**
PACKAGING IS CRITICAL! USE IT FOR
Differentiation
Recognition
Company & brand image
An opportunity for innovation
Value perception – additional utility [reuse]
Promotion
Cost effectiveness
PACKAGING ISSUES
• Developing cost-effective packaging that
will meet the requirements of
– Intermodal transportation and climates, and
– Package and handling testing, and
– Labeling, and
– Shelf life requirements, and
– Fit with the infrastructure, and
– Potentially fit with recycling requirements, and
– Promotional and legal issues
PACKAGING ISSUES:
INTERMODAL STRESS POINTS
TRUCK
DOCK
RAILROAD
PORT
SHIP
Acceleration /
Retardation
Acceleration /
Retardation
Acceleration /
Retardation
Acceleration
Heaving /
Pitching
Centrifugal
forces in curves
Drop impact
Centrifugal
forces in curves
Drop impact
Rolling /
Yawing /
Swaying
Vibrations
[Group 1]
Vibrations
[Group 2]
Vibrations
[Group 3]
Shunting
impact
Centrifugal
forces
PACKAGE TESTING
• Numerous package testing standards exist
for distribution system testing for pallet
loads.
–
–
–
–
–
–
–
ISTA procedures
ASTM D-4169, D-4728, D-999
Mil specs
Company specified tests
Custom test protocols
UN, IATA, ICAO
HAZMAT testing
PACKAGE TESTING
•
•
•
•
•
•
•
•
Product testing inside the package
Temperature / Humidity testing
Mullen Burst testing / ECT testing
Shock testing
Incline-impact testing
Compression testing
Drop testing
Vibration testing
DUNNAGE
• Dunnage refers to materials or containers
designed to minimize the movement of
products during transit. It includes
– package inserts to keep the product in place
– inflatable air bags that go inside trailers or
containers to squeeze the product into a fixed
position
– fillers, stuffings, and more.
LABELING
• ON-PACKAGE LABELS ARE USUALLY
SPECIFIED BY COUNTRY LAW
– Language[s]
– Required information
– Placement of the information
• 1/1/2005 U.S. & CANADA CONVERT TO
INTERNATIONAL 13-DIGIT BAR CODES
• COUNTY NOT INTERNATIONAL STANDARDS
PACKAGING ISSUES
• Developing cost-effective packaging that
will meet the requirements of
– Intermodal transportation and climates
– Package and handling testing
– Labeling
– Shelf life requirements
– Fit with the infrastructure
– Potentially fit with recycling requirements
– Promotional and legal issues
PRODUCT SUPPORT SERVICES
• QUALITY
• DESIGN
• FEATURES
• INSTALLATION
• WARRANTY / AFTER-SALE SUPPORT
INTERNATIONAL PRODUCT
TRAINING
• LANGUAGES
• MANUALS
• PRESENTATIONS
• TRAINERS
• COMPATIBILITY
COUNTERFEITS or KNOCKOFFS
• Worldwide counterfeiting losses exceed
$20 billion annually.
• Counterfeiters operate so that nearly any
product or technology is fair game.
• Counterfeiting can be difficult to stop, but
with some dedicated effort it can be
controlled.
• What items do you know are
counterfeited?
MANAGING INTERNATIONAL
PRODUCTS
• Product line decisions
– There are numerous products and product changes
by market [segment].
• Product life cycle decisions
– It is common to have older versions of a product just
entering underdeveloped markets.
THE PRODUCT LIFE CYCLE OVERVIEW
[Countries or products in boxes]
H
G
I
E
J
E
K
D
A
B
Introduction
SALES
C
Growth
Maturity
TIME
Decline
MANAGING INTERNATIONAL
PRODUCTS
• Product line decisions
[products and product
changes]
• Product life cycle
decisions
• Value [supply] chain
systems and
adjustments
• Quality [internal]
• Standards
• Product/service
elements
– FAB’s
– Brand[s]
• Global, regional, or
local?
–
–
–
–
–
Packaging
Warranty
Service[s]
Quality
Logistical efficiency
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 12B
GLOBAL DISTRIBUTION ALTERNATIVES AND SYSTEMS
ALAN L. WHITEBREAD
DISTRIBUTION STRATEGY:
DIRECT AND / OR INDIRECT
Manufacturer
Manufacturer’s
Retail Stores
Manufacturer’s
Internet Site
Wholesaler
Retail Store
Direct distribution
CONSUMERS
Indirect distribution
JAPANESE DISTRIBUTION
• High density middlemen
– Average 5-7 levels between the manufacturer and
the consumer
• High level of channel control
– Market access is restricted
• Business philosophy
– Full employment; life long employment is common
• Large-Scale Retail Store Law
– Restrict construction of Wal-Mart type stores
– 2003 Wal-Mart acquisition in Japan
• Numerous resellers inflate consumer prices.
COMPLEX DISTRIBUTION CHANNELS:
JAPAN
Automobile makers
affiliated parts
makers
1 Automobile
Independent
parts makers
Wholesalers
makers
2 Dealers 1
Repair parts
makers
1
Cooperative
sales firms
2nd-level
wholesalers
3Sub-dealers2
Retailers
Large users
Special agents
2
3
4, 3
2
1
Gasoline
stations
2
Auto repair shops
2
4
3
End users
4
5
3
Channels are usually described as having so many steps or levels. The large numbers indicate the step
number at that level for the indicated color. The number of levels equals the number of steps + 1. So if a
channel has five steps it could also accurately be described as having six levels.
TYPES OF RESELLERS
Resellers or
Merchant Wholesalers
-Take Title to Goods
-Independently owned
-Fairly standard arrangements
Distributor - Wholesaler
Dealer – Retailer
Jobber
Exporter
Export Trading Company
and more
Outside Sales Entities
-Independently owned firms
-Never take Title to the goods
-Help negotiate business arrangements
-Be careful of payments !
Export Broker
Export Management Co.
Manufacturer’s Rep
Freelance Sales Person
and more
CHANNEL ROLES &
EXPECTATIONS
• Manufacturer
expects of reseller
– Marketing mix:
• product, place,
promotion, price
– Channel functions:
• Contact, service,
information, promotion,
negotiation, inventory,
logistics, and financing
• Reseller expects of
manufacturer
– Marketing mix:
• product, place,
promotion, price
– Channel functions:
• Contact, service,
information, promotion,
negotiation, inventory,
logistics, and financing
In the best relationships, this is a fairly even set of items .
If it gets too one-sided, the relationship may deteriorate. 
RESELLERS ADD VALUE
BY PERFORMING
• FUNCTIONS FOR THE
SUPPLIER
•
•
•
•
•
•
-Market coverage
-Sales contact
-Inventory
-Order processing
-Information
-Customer support
• -Are you sure your reseller is
doing these?
• How well do they do them?
How do these items get
evaluated in the reseller
selection process?
RESELLERS ADD VALUE
BY PERFORMING
How do these items get
evaluated in the reseller
selection process?
• FUNCTIONS FOR
CUSTOMERS
•
•
•
•
•
-Information
-Credit
-Customer service
-Technical support
-Allocation / expediting
• -Are you sure your reseller is
doing these?
• How well do they do them?
ROLES OF CHANNEL MEMBERS
Entity
Role
Inventory?
Financing?
Broker
Bring buyers and
sellers together
No
No
Manufacturer’s
representative
Represents several
manufacturers
No
No
Sales agent
Negotiates on the
seller’s behalf
No
No
Manufacturer
Produces finished
goods or
components for sale
Yes
Yes
OEM
Manufacturers
and/or assembles
products into a final
unit
Yes
Yes
Distributor or
Wholesaler
Provides goods to
other resellers
Yes
Yes
Dealer or
Retailer
Carries goods for
purchase by
consumers
Yes
Yes
RETAILER ROLES BASED ON LEVEL OF
PRODUCT
RETAILER FOR CORE
PRODUCT ONLY
RETAILER FOR BRANDED
PRODUCT
RETAILER FOR AUGMENTED PRODUCT
PRODUCT
DEFINITION[S]
Plain metal, one cycle,
washer with only an on button
FEATURES include multiple
wash rinse cycles, porcelain
finish, multiple colors,
ergonomic, and functional
Various DESIGN and load
styles, aesthetic
Quality parts and
construction, some warranty
Branded
Packaging to protect
promote, and reduce
cognitive dissonance
Everything in the ACTUAL / BRANDED product plus
Credit
Delivery
Installation
After-sale service
Extended warranty and service
CORE
PRODUCT
Very low selling price to
maximize volume for this
market segment
Not available
Not available
Push brand, product
knowledge and sales training
are required,
Promotes the product line
These brands / models are not available
BRANDED
PRODUCT
AUGMENTED
PRODUCT
Excellent product knowledge, mandatory sales training, retailer has a
strong local reputation, full service retailer providing credit, delivery,
installation, after-sale and extended warranty service, spare parts
inventory, participates vigorously in all promotions, frequently asks to run
local promotions, …
ROLES OF CHANNEL
INTERMEDIARIES
•
Roles, expectations, and controls need
to be defined for
–
–
–
–
–
Resellers of all types
Sales organizations of all types
3PL’s
Fulfillment houses
?
CHANNEL CONFLICT
• The amount of channel conflict is directly related
to the cleanliness of channels and programs.
– A lot of channel conflict indicates the management of
the channel[s] is [are] ineffective!
– Channel conflict takes management time away from
their primary objectives.
• Conflict must be minimized! 
TYPES OF CHANNEL CONFLICT
Horizontal Conflict
Two resellers disagree in whose
territory an account actually
resides.

Vertical Conflict
The manufacturer disagrees with a
particular reseller's service
policies.

MEXICO BEARING INDUSTRY – 2000
The Players
•Domestic
Manufacturers
•Wholesalers
•Foreign subsidiaries
•Distributors
•Very Large Endusers
•Major End-users
•Medium End-users
•Small End-users
•Retailers
MEXICO BEARING INDUSTRY - 2000
Domestic Mfgs.
Foreign Mfgs. + subs.
Selling
Price
Wholesalers (also
major importers)
$1.00
$1.25
Distributors
(11,000)
V. Large End-Users
(auto assembly, …)
53% of consumption
<(20-30% MU)
brands
Retailers
(20,000)
$1.56
POTENTIAL /
ACTUAL
VERTICAL
CONFLICT 
(20-30% MU)
Major End-Users
(few in number)
$1.95
Sm. & Med. End-Users
(???)
Copyright A. Whitebread 3/1/98, updated 12/1/00
CHANNEL CONTROL
• Is the ability to manage the efforts of
channel members
– Begins with the selection process
– Depends on the implementation of roles,
expectations, and controls
– Special skills are needed for large account
management
• All firms [regardless of size] have the
opportunity for channel control. 
CHANNEL EVALUATION
• Are we retaining / growing our top
producing resellers & other
intermediaries?
• Is channel conflict minimized?
• Do we have the flexibility to restructure
and / or add additional channels?
• How effective is channel n?
SUMMARY
• Channel decisions are difficult to manage
globally
• A global marketer must
– tailor the marketing program to different types
of channels
– or introduce new merchandising concepts
• Reseller selection is critical to long-term
success.
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 13
INTEGRATED MARKETING COMMUNICATIONS
ALAN L. WHITEBREAD
INTEGRATED MARKETING
COMMUNICATIONS (IMC)
The careful integration and coordination
of all communication channels to deliver
a clear, consistent, and compelling
message.
INTERNATIONAL IMC ISSUES
• Every IMC item is influenced by cultures,
customs, and symbolism.
• The concept of time varies from culture to
culture.
• There can be very different legal and regulatory
restraints from country to country.
IMC HAS MANY COMMUNICATION
CHANNELS
ADVERTISING
PROMOTION
COLLATERAL
TRADE
SHOWS /
EVENTS
SAMPLES /
DEMOS
PUBLIC
RELATIONS
POINT OF
PURCHASE
[POP]
SALES
AIDS
SALES /
DIRECT
MARKETING
PACKAGING
& LABELING
INTERNET
SETTING THE PROMOTION MIX:
How can I maximize the impact of many
different communication tools?
ADVERTISING
-Extensive reach
-Expressive
-Impersonal
PUBLIC
RELATIONS
-Believable
-Effective
-Economical
DIRECT
MARKETING
-Can not be used everywhere
PROMOTION
-Incentives to buy
-Short-lived
SALES
-Collateral
-Support
CREATIVE CHALLENGES
– The communication mix
• Legal considerations
• Production issues
– Size, color choices, symbolism
• Acceptable communications by country and
encoding issues
– Delivering and receiving the right message
• Media availability limitations
• Decoding differences
CREATIVE CHALLENGES
– Getting through the NOISE
• Noise refers to the amount of additional
communication messages competing for the
attention of the target.
• There are a lot of messages
• You need to have your message heard or seen
and remembered
STEPS FOR DEVELOPING AN EFFECTIVE
COMMUNICATIONS PROGRAM
•
•
•
•
•
•
Identify the target audience[s]
Establish the communication objectives
Design the message[s]
Select the best communication vehicle sets
Collect and monitor feedback
Adjust components as necessary
NEVER FORGET CULTURAL DIFFERENCES ! 
Context Class / Social Values Religion Beliefs Time
Symbolism Language / Dialect Thought processes
EFFECTIVE INTERNATIONAL
ADVERTISING DEPENDS UPON
EXTERNAL FACTORS
-culture
-language
-regulations
TYPE OF CAMPAIGN
-standardized
-customized
-types of appeals
TYPES OF MEDIA
-availability
-habits
ORGANIZATION
-agency [types]
-coordination
SELECTING ADVERTISING MEDIA
1.
Determine the Desired Reach,
Frequency, and Impact
Select Major Media Types –
these will change by each of the
following
2.
–
–
–
–
Media Habits of Target Market[s]
Nature of the Product[s]
Type of Message[s]
Cost by Media Type[s]
WHAT IS
ALLOWED IN
THE
COUNTRY?
Developed
To
Underdeveloped
nations
SELECTING ADVERTISING MEDIA
3. Select Specific Media
Vehicles
–
–
Specific Media By Type
Balance Media Cost and
Factors:
•
Audience Quality, Attention, Editorial
Quality, Paid vs. Unpaid Subscribers
4. Decide on Media Timing
–
–
Program Advertising Schedule
Select the Pattern of Ads:
•
Continuous or Pulsing
WHAT IS
ALLOWED IN
THE
COUNTRY?
Developed
To
Underdeveloped
nations
AD AGENCY SERVICES
Account Management
Creative Services
Develops the Campaign
Strategy for Client
Creates and Produces
the Materials
Media Planning
Research & Marketing
Services
Determines Effective
Communication Vehicles
Collects and Analyzes Information
to Help Develop / Refine a Strategy
DEVELOPING THE PROMOTION MIX
• PUSH STRATEGY
– Through channels to consumers
– The most common way in international business
Manufacturer
Reseller(s)
Advertising & promotion
Consumers
DEVELOPING THE PROMOTION MIX
• PULL STRATEGY
– To consumers and back through channels
– Relatively rare in international business
Manufacturer
Reseller(s)
Advertising & promotion
Consumers
INTERNATIONAL ADVERTISING
• THE USE OF COLOR IN ADVERTISING
– Compare ads from different nations and see the
differences in the colors frequently used in ads by
country.
• The U.S. tends to use more black and white ads than
France.
• Black is usually associated with expensive or powerful.
• INTERNATIONAL ADVERTISING RESOURCE
CENTER
– http://www.bgsu.edu/departments/tcom/faculty/ha/intlad1.html#mc
GLOBAL MEDIA CHALLENGES
• Variety of media
– Availability and use varies by country
• Consistency of the delivered message
• Scheduling and coordination
• Multiple agencies
– Do you have a lead agency? Where are the others?
• Legal restrictions vary by country
– Comparative advertising is not allowed in the EU or in
many countries in Asia.
SOME PUBLIC RELATIONS
OBJECTIVES
• A good public relations program is a
cost-effective way to
– Introduce new products to businesses and
/ or consumers
– Enhance the company and / or product
image
– Influence opinions / legislation
– Demonstrate the firm’s role in the
community
– Many more options.
AN EXCELLENT PR PROGRAM WILL USE
MANY PUBLIC RELATIONS TOOLS
Press releases / articles
(Firm, products, services, and news)
Facility tours
(Plants, offices, grand openings, sites)
TV / radio exposure
(Interviews, news blurbs, stories, …)
Company Presentations
(Conferences, events)
Public Affairs
(Community relations, sponsorship, …)
Lobbying
(Specialized firms & tasks)
Investor Relations
(Information – corporate officer level)
Development / Miscellaneous
IN COUNTRY / REGION / DIVISION RESPONSIBILITIES
CORPORATE RESPONSIBILITY
SPECIALIZED RESPONSIBILITY
Look up the PR releases from selected great firms on the web to see
how they use the PR area to their advantage.
SALES PROMOTION
• Any consumer or trade program of limited
duration that adds value to a product/service
offering.
• These are usually developed on a country-bycountry basis due to restrictions on
– Customs, laws, and regulations;
– Size; and
– The nature of the sample, premium, or prize.
SALES PROMOTION
• Sales promotion is used to
– Stimulate customers to sample or make the first purchase
of a product;
– Increase consumer use;
– Increase product availability; and
– Expand into a new distribution channel / area.
• China: Coke has been there since the 1930’s, Diet Coke was
introduced in 2001
• Coke to began the DASANI rollout in Europe [3/15/04]. It later
became a major problem due to clean water definitions in the
UK. See the Internet for many more details.
INTERNATIONAL CONSUMER
PROMOTION
Consumer-Promotion
Objectives
Consumer-Promotion
Tools
Increase Short-Term Sales
Samples
[without hurting future sales]
Build Market Share
Coupons
Get Retailers to
Cash Refunds
Advertising
Specialties
Awards
Contests
Add Products
Provide Sales Force Support
Price Packs
Build Long-term Consumer
Relationships / Usage
Premiums
Sweepstakes
Games
Point-of-Purchase
[POP] Displays
Be sure to get expert legal assistance with all promotion tools and
especially with samples, contests, games, and sweepstakes. 
INTERNATIONAL TRADE PROMOTION
Resellers of all types
Trade-Promotion
Objectives
Persuade Resellers
to Carry a Brand
Get a Brand Shelf Space
[Amount, Location]
Promote a Brand
Push a Brand through
a channel of distribution
Trade-Promotion
Tools
Price-Offs
Premiums
Allowances
Displays
Buy-Back
Guarantees
Discounts
Free Goods
Contests
Payments
Specialty
Advertising
Items
Be sure to get expert legal assistance with all promotion tools and
especially with contests, free goods, premiums, buy-back guarantees, and
any form of payments. 
INTERNATIONAL TRADE PROMOTION
Business Customers
Business-Promotion
Objectives
Generate Sales Leads
Stimulate Short-term
Purchases
Business-Promotion
Tools
Advertising
Allowances
Reward Customers
Inventory
Buy-Back[s]
Motivate Customer
Salespeople
Sales
Contests
Conventions
And Trade
Shows
POP and
Other Displays
Discounts /
Free Goods
Special
Programs
Be sure to get expert legal assistance with all promotion tools and
especially with rewarding customers, sales contests, or discounts which
include free goods. 
6 STEPS FOR DEVELOPING A SALES
PROMOTION PROGRAM
Determine the Key Objectives of the Incentive
Determine the Size [Ranges] of the Incentive
Program

Establish Conditions for Participation
Get expert legal assistance for this.

Determine How to Roll-out and
Distribute the Promotion Program.
Determine the Program Duration
Monitor and Evaluate the Program
[Be sure you have good systems].
GLOBAL TRADE SHOWS
•
•
•
•
•
•
They are massive
Require extensive planning
Logistics are critical
Staffing and expense considerations
Directories
For additional information search the web
for international trade shows and / or refer
to the following.
–
–
–
http://www.mmaweb.com/meetings/Directory/tradesearchnfr.html
http://www.business.com/directory/government_and_trade/events/directories/
http://www.fita.org/index.html
BUILD AN IMC PLAN WITH*
MEDIA
ADVERTISING
CONSUMER
PROMOTIONS
POINT
OF
PURCHASE
COLLATERAL
EVENTS
PUBLIC
RELATIONS
PACKAGING
& LABELING
DIRECT
MARKETING
SALES
AIDS
INTERNET
ADVERTISING
PLACE
ADVERTISING
TRADE
PROMOTIONS
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 14A
BASICS OF INTERNATIONAL TRADE;
IMPORTING AND EXPORTING
ALAN L. WHITEBREAD
AN OCEAN SHIPMENT TO THE U.S.
Container Security
Initiative [CSI]
Participating
Port
Manifest goes to
Homeland Security
24 hours before
loading.
Container is loaded
onto a truck which
passes through at
least one detection
device.
U.S. Customs and
Border Protection at
participating
port
verify information
and provide an OK to
load.
At sea, the manifest
is sent to the U.S.
Coast Guard.
≥96 hours before
entering the U.S. the
ship identifies itself
and all crewmembers
Coast Guard inspects
the ship.
Customs verifies only
U.S. bound
containers are
offloaded.
Coast Guard allows
entry or intercepts
ship far offshore
For additional information see http://www.cbp.gov/xp/cgov/border_security/international_activities/csi/
EXPORT INTERMEDIARIES:
ROLES AND RESPONSIBILITIES
• Freight forwarder
• Customs broker
• Export management company [EMC]
• Export trading company [ETC]
FREIGHT FORWARDER
At the beginning of a sale, they can provide the exporter
with a quotation for
• Freight costs
• Port charges
• Insurance costs
• Freight forwarder's fees
• And, if applicable
–
–
Consular fees
Cost of special documentation
CUSTOMS BROKER
http://www.itds.treas.gov/broker.html
“… a Customs Broker prepares and files the
necessary Customs entries, arranges for
the payment of duties found due, takes
steps to effect the release of the goods in
Customs custody, and represents their
clients in custody matters. ”
EXPORT MANAGEMENT COMPANY
(EMC)
• An EMC
– Performs the typical functions of an export or
international sales department of a company.
– Develops personalized services promoting their
client's products to international buyers and
resellers.
– An EMC usually represents a manufacturer on an
exclusive basis. They solicit and transact business
in the names of the producers it represents, or
sometimes in its own name. EMC’s work for a
commission, but are know to work for a salary, or
retainer plus commission.
EXPORT MANAGEMENT COMPANY
(EMC)
• Large EMC’s may
– provide payment for the products
– arrange financing, or
– directly purchase products for resale.
• EMC’s are very specialized. They know their products,
markets, and have networks of foreign resellers. The
primary reason for using an EMC is nearly immediate
access to market[s].
• Building a good relationship with a foreign representative
can be a costly, risky, lengthy, and trying process.
EXPORT TRADING COMPANY (ETC)
• An ETC encourages small and medium-sized
companies to participate in the global
marketplace.
• It is more transaction driven than an EMC and
often acts as a distributor by linking domestic
producers and foreign buyers.
• An ETC determines what products are desired
in a given market and then works with multiple
producers to satisfy the demand.
INCOTERMS
• To successfully conduct business around the world a
company needs to gain a good understanding of
INCOTERMS 2010, documentation requirements, key
channel issues in international business, and a host of
other items dealing with international marketing.
• INCOTERMS ARE
– Part of the Buyer – Seller agreement
– Recognized by most nations
– Updated every 10 years
INCOTERMS
• The 13 Incoterms of 2000 have been condensed to 11 in
INCOTERMS 2010. Eight of these terms are common.
• They are in four different groups.
–
–
–
–
Departure [E]
Main Carriage Unpaid [F]
Main Carriage Paid [C], and
Arrival [D] These terms should be used only with
experienced expert assistance!
INCOTERMS
• Ex Works (EXW)
• Free Carrier, Named Place (FCA)
– Seller's Premises or Named Place of Origin (FCA)
• Free Alongside Ship, Named Port (FAS)
• Free on Board, Named Port (FOB)
• Cost and Freight, Port of Destination (CFR)
INCOTERMS
•
•
•
•
Cost and Freight, Port of Destination (CFR)
Cost, Insurance and Freight, Port of Destination (CIF)
Carriage Paid To, Named Place of Destination (CPT)
Carriage and Insurance Paid To, Named Place of
Destination (CIP)
• Delivered at Terminal (DAT)
• Delivered at Place (DAP)
• Delivered Duty Paid, Named Place of Destination (DDP)
INCOTERMS: E Group
Seller makes goods available at its dock.
• EXW ExWorks
• –Title transfers at the seller’s dock.
INCOTERMS: F Group
Seller arranges and pays for transportation to a named place in Seller’s
country.
• FCA Free Carrier
– Title transfers at the named place in the Seller’s country and has
filed a Shipper’s Export Declaration [SED] or equivalent form
with the government.
• FAS Free Alongside Ship [water transport only]
– Seller clears the goods for export and title transfers when the
cargo passes at the side of the vessel at the named departure
port in Seller’s country.
• FOB Free On Board [water transport only]
– Seller clears the goods for export and title transfers when the
cargo passes the ship’s rail at the named departure port in
Seller’s country.
INCOTERMS: C Group
Seller arranges primary transportation [and sometimes insurance] but
title transfers to the Buyer when the goods have passed the ship’s rail or
been delivered to the destination port or place.
• CFR Cost and Freight
– Title transfers past the ship’s rail while buyer incurs all costs and
inland freight from the destination port.
• CIF Cost, Insurance, and Freight
– Title transfers past the ship’s rail although Seller arranges
transportation and insurance to the destination port. Buyer incurs
all costs and inland freight from the destination port.
• CPT Carriage Paid To
– Seller pays all carriage to a named place of destination.
• CIP Carriage and Insurance Paid to
– Seller pays all carriage and insurance to a named place of
destination.
INCOTERMS: D Group
Seller arranges primary transportation [and sometimes insurance] but
title transfers to the Buyer when the goods have been delivered to the
destination port or place.
• DAT Delivered at Terminal [replaced DEQ]
– Seller has delivered when the goods have been unloaded and
are placed at the buyer’s disposal the the named terminal, port,
or place of destination.
– Seller must clear the goods for export and bears all costs [other
than any import clearance costs] and risks in getting the goods to
the named destination.
• DAP Delivered at Place [replaces DAF, DES, & DDU]
– Seller bears all costs [other than any import clearance costs] and
risks in getting the goods to the named destination.
• DDP Delivered Duty Paid
– Seller bears all costs including any import clearance costs and
risks in getting the goods to the named place in the destination
country.
MAJOR CHANCES IN INCOTERMS
2010
• Applicable to both domestic and international contracts
of sale.
• Guidance notes have been added to assist in the
selection of the appropriate INCOTERM. They are not
part of the INCOTERM.
• Electronic and paper communications are treated the
same as long as the parties agree or where that is a
customary practice.
MAJOR CHANCES IN INCOTERMS
2010
• They have been modified to comply with information
duties in the revised Institute Cargo clauses.
• Recognized the need for buyer and seller to assist or
obtain security-related clearances such as the U.S. CTPAT program.
• Under C and D terms the seller must make
arrangements for carriage of the goods to an agreed
destination. Although this freight is paid for by the seller
it is usually included in the total selling price.
INCOTERMS DO NOT
• Determine ownership or transfer title to the goods,
• Define rights for breach of contract,
• Protect parties from the own risk of loss,
• Specify details of transfer, transport, and/or delivery
REMEMBER – INCOTERMS are not law so they need to
be clearly stated in the sales contract.
EXPORT REGULATIONS
•
•
•
•
•
Product specific
Country specific
Application specific
Numerous sources to check
Do not forget
– OFAC [Department of the Treasury]
– EAR
– and more
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 14B
BASICS OF INTERNATIONAL TRADE:
IMPORTING AND EXPORTING—DOCUMENTATION
ALAN L. WHITEBREAD
DOCUMENTATION
• The only acceptable way to complete
international documentation is to dot every
“i” and cross every “t”.
• Mistakes cost time, money, and customer
unhappiness.
• Several of the typical international
documents will be examined.
DOCUMENTATION
• Sarbanes-Oxley requires publicly traded
companies and their vendors to keep import and
export documents for up to seven years.
• GUIDELINES:
– [1] Keep all transaction records and correspondence.
This will help you if there is ever an issue about an
illegal or questionable diversion, re-export, or
transshipment of your product[s].
– [2] Having properly executed Export Reseller [EAR]
Questionnaires can be very useful. See Section 10A
to review this READING.
BILL OF LADING [B/L]
[Straight B/L; Shipper’s Order B/L; or Air Waybill]
• This form differs by mode of transportation and
provides
– [1] a receipt for the items,
– [2] detailed content of the shipment, and
– [3] title to the items under certain circumstances.
• There are several varieties of B/Ls. They
include signed, unsigned; received for shipment,
on-board; clean, foul; accommodation;
forwarder’s; NVOCC; and uniform through
export.
BILL OF LADING TYPES
• Signed
– If negotiable copies are signed by the master of the
vessel or its agent, the signed copies carry title to
the goods.
• Unsigned
– Signed non-negotiable copies are used as proof of
shipment. [See also Straight Bill of Lading.]
– These are used by the shipper, consignee, the
steamship company, insurance company, bank,
and potentially others involved in the transaction.
BILL OF LADING TYPES
• Straight Bill of Lading
– This is made out to a specific consignee at
the destination—the only entity authorized to
take delivery of the goods.
• Order Bill of Lading
– This is made out to the order of the shipper,
bank, agent, or “to order”. Whoever
possesses the document can take delivery of
the goods.
OCEAN [MARINE] BILL OF LADING
•
This negotiable document [unless
specifically marked “non-negotiable”]
serves as
1. a receipt for goods,
2. an evidence of the contract of carriage, and
3. a document of title to the goods.
•
“Full Set 3/3” means 3 out of 3 Bills of
Lading must be originals.
DOCK OR WAREHOUSE RECEIPTS
• May be required by the shipper or exporter
if the shipment lands at one port and then
goes on to a further destination.
• If that further destination is in another
country, it is a transshipment and you
must be sure you comply with U.S. law for
that product / nation shipment.
PRO FORMA INVOICE
• The Pro Forma invoice states an offer to sell at the
prices, terms, and conditions listed on the document.
It looks like a Commercial Invoice and acts as a
quote for goods from Seller to Buyer. The Buyer
needs this invoice to prove intent to purchase and
arrange payment by Letter of Credit [L/C] or similar
financial instrument. Buyer’s bank will use the Pro
Forma invoice as part of their arranging for Buyer’s
payment through a Letter of Credit or some other
financial instrument.
• Be sure to include a statement about compliance with
U.S. laws and regulations on this document.
COMMERCIAL INVOICE
• The Commercial Invoice looks like the Pro Forma invoice but
acts as a Bill for Goods from Seller to Buyer. The Buyer needs
this invoice to prove ownership and arrange payment. Customs
examines the Commercial Invoice at the time of delivery and
may use it to assess import tariffs based on the transaction
value. It is signed and must provide the following.
•
•
•
•
•
•
Letter of Credit number [if applicable]
Waybill number
Voyage number
Bill of Lading number
Container number
Seal number
COMMERCIAL INVOICE
• Always check to make sure your commercial invoice
has the following.
• An antidiversion clause [strongly recommended].
– “U.S. law prohibits disposition of these items to …”
choose either the Sanctions List or ECCN controls.
• Letter of Credit numbers and names [if applicable].
• Any certification and/or inspection that may be
required by the foreign country / Buyer.
• It may need to be signed and / or notarized.
• Check with the U.S. Department of Commerce for
specific requirements [especially if you are shipping to
a country for the first time]. 
COMMERCIAL INVOICE TRAP
• EXAMPLE:
– Your customer asks you to provide two different
Commercial Invoices. One is to go with the
shipment and mail the other one with a smaller
value to the customer.
• WARNING: 
– The customer knows the mail copy will arrive
before the shipment. So they can use the
mailed copy to pay less duty.
– This is illegal. Never provide invoices at
different amounts for the same goods!
CONSULAR INVOICE
• This is a Commercial Invoice validated with a
consular stamp, number, and signature by the
foreign embassy. It is for foreign inspectors.
Although it is frequently written in English, it
may be in the language of the foreign
destination and your Buyer frequently
supplies the translation. It is most often
required in nations in Central and South
America.
FOREIGN CUSTOMS INVOICE
• This is similar to a Commercial Invoice but in
foreign form. It is for foreign inspectors and
frequently written in the language of the
foreign destination. Your Buyer will usually
provide this for you in the necessary
language.
EXPORT LICENSE
• Most exporters work under “no license required”
[NLR]. Others need a general “distribution license”
[DL].
– If your item falls under U.S. DOC jurisdiction and is not
listed on the Commerce Control List [CCL] it is
designated as EAR99 and generally does not require
an export license.
– However, if your proposed export of an EAR99 item is
to an embargoed country, to an end-user of concern, or
in support of a prohibited end-use, you may be
required to obtain a license. See
http://www.bis.doc.gov/licensing/ExportingBasics.htm for more information.
EXPORT LICENSE
– The DL allows multiple shipments of products within an
ECCN to 3 or more consignees for four years.
– If the product going to the specified end user does not
require an Individual Validated License—enter NLR
[No License Required].
EXPORT LICENSE
• However, if your company deals in products
considered "controlled" under U.S. or foreign laws,
you must obtain a “Individual Validated License” also
called an IVL.
• The IVL license allows you to ship a specific item, to
a specific named consignee, to a particular country,
sometimes to a specific location, for a specific enduse.
• You should contact the BIS Exporter Counseling Staff
at U.S. Department of Commerce at 202-482-4811
for individual assistance.
ITEMS NEEDING A VALIDATED EXPORT
LICENSE [IVL]
• Defense articles and services
– National security items
• Dangerous drugs and narcotics
• Endangered plants and wildlife
• Chemicals
– Precursors
– Fertilizers
– Other
• Radioactive materials
• Explosives
A LICENSE EXCEPTION
• If you meet all of the terms and conditions of
a license exception, you may be able to put a
license exception mark on your export control
document.
• See Part 740 of the EAR for details and the
three letter symbols.
SHIPPER’S EXPORT DECLARATION [SED]
U.S. FORM 7525V
• This is required for
– any shipment covered under a "validated license“
regardless of value; or
– mail shipments over $500; or
– all other shipments valued over $2,500
– The SED information is used by the Bureau of Census
to track the type of goods exported overseas. It
requires the Harmonized System - Schedule B number
for every product configuration in the shipment.
• For instance, if you provide Product A in two fairly different
package sizes or forms, you will probably have two
different Schedule B numbers.
SHIPPER’S EXPORT DECLARATION [SED]
U.S. FORM 7525V
• It is strongly recommended that you always
include the following statement on your SED
or in your Automated Export System [AES]
document.
– The commodities, technology or software were
exported from the United States in accordance
with the Export Administration Regulations.
Diversion contrary to U.S. laws is prohibited.
AUTOMATED EXPORT SYSTEM
[AES]
• The AES is a free online internet SED filing
system.
• It allows users to file SEDs one-at-a-time on the
Internet.
• You must pass an AESDirect certification quiz to
use the AES system.
• See http://www.aesdirect.gov/ for details.
Simplified Network Application
Process [SNAP] U.S. Bureau of Industry and Security
• SNAP allows you to submit requests via the
Internet in a secure environment for
– export and re-export applications,
– commodity classification,
– receiving the same day acknowledgment of your
submission, and/or to
– obtain online validations [e.g. an electronic facsimile
of an export license] from BIS.
• See http://www.bis.doc.gov/snap/index.htm for
details.
CERTIFICATE OF ORIGIN
• This document is usually countersigned by the local
Chamber of Commerce and on rare occasion by the
Consulate / Embassy of the destination foreign country.
It can save money when it certifies preferential duty rates
in countries offering favorable trade agreements to U.S.
exports.
• This document is often the one used for determining
lower import duty rates.
• NOTICE-This is a simple Certificate of Origin—do not
get it confused with any specific one for a trade area. 
EXPORT PACKING LIST
• This document itemizes your product in imperial and
metric weights, unit of measure, quantity of each
package, and how it is carried; i.e., box, crate, drum,
etc.
• Units of measure on all international documents
should always be the same. Never use a mixture like
one pallet and one pallet of twenty-five cases! 
• It may be duplicated in the foreign language of your
destination. Your Buyer should be able to determine
the total shipping weight, volume, and the contents of
the cargo from this document.
INSURANCE CERTIFICATE
• The Insurance Certificate is negotiable as
soon as it is signed. It certifies the amount of
insurance coverage provided on the shipped
goods. The minimum is usually of 110% of
CIF.
• The insurance certificate must be
– negotiable in the same currency as the transaction
and
– it must specifically identify the insurance coverage
concerning all risks of the credit it covers.
INSPECTION CERTIFICATE
• The Inspection Certificate is requested by the Buyer
and usually certified by [1] an independent third-party
or [2] the affidavit of the Seller.
• It specifies that the goods either conform to the order
and / or indicates where discrepancies exist.
• A “Complete Report of Findings” usually
accompanies the certificate.
IMPORT CLEARANCE REQUIREMENTS
•
To determine the status of your shipment,
your licensed customs broker needs to
have the following information.
1.
2.
3.
4.
The value of the shipment.
Verification of the required marking and labeling.
The merchandise is allowed to enter the U.S.
Be able to verify the invoice with over and under
amounts.
PROHIBITED / RESTRICTED IMPORTS INTO
THE UNITED STATES
•
For a current list and details go to
http://www.cbp.gov/xp/cgov/travel/vacation/kbyg/prohibited_restricted.xml
ABSINTHE (ALCOHOL)
AUTOMOBILES
BIOLOGICALS
CERAMIC TABLEWARE
DOG AND CAT FUR
DRUG PARAPHERNALIA
FIREARMS
FISH AND WILDLIFE
FOOD PRODUCTS (PREPARED)
FRUITS AND
VEGETABLES
GAME AND HUNTING TROPHIES
GOLD
MEATS, LIVESTOCK, AND POULTRY
MEDICATION
PETS
PLANTS AND SEEDS
SOIL
TEXTILES AND CLOTHING
TRADEMARKED AND COPYRIGHTED ARTICLES
MERCHANDISE FROM EMBARGOED COUNTRIES
CULTURAL ARTIFACTS AND CULTURAL PROPERTY (ART / ARTIFACTS)
U.S. IMPORT DUTIES AND FEES
•
Duties [specific, ad valorem, or combination of
these based on the item] are paid to the
Customs and Border Protection [CBP].
•
Fees usually include
1.
2.
Harbor Maintenance Fee [HMF] [ocean freight only
and only through certain ports] is 0.125% of
entered value.
Merchandise Processing Fee [MPF] applies to all
imports except NAFTA and a few specified goods.
MPF is 0.21% of entered value to a maximum of
$485 per shipment.
VALUATION OF IMPORTS INTO THE
U.S.
• Report a value on all goods.
• Keep records supporting the value and
any deductions [damaged goods, …].
• Importers usually use transaction value
[TV] which is the price paid or payable for
the goods based on the contract or invoice
price.
VALUATION OF U.S. IMPORTS:
COMPUTING TRANSACTION VALUE
INCLUDE:
DISREGARD:
Assists [any goods and services
provided by Buyer to Seller at a
reduced cost or are free].
Post-import rebates
Additional packaging costs
International freight and marine
insurance
Commissions, royalties, and / or
licensing fees paid by Buyer
Allowances for damages and
impurities
Any Buyer expense that directly
benefits Seller [e.g. advertising]
IMPORTING – ONCE THE GOODS
ARRIVE
• Importer must file to have CBP release the
goods
– Customs Form 3461 + B/L + Air Waybill or Carrier’s
Certificate + Commercial Invoice + Packing List +
other documents based on the product and the
exporting nation.
• Importer must file entry documents
– Customs Form 7501 + other documents required
for that product shipment and exporting nation.
• Importer must pay estimated duties, taxes, and
fees when the entry documents are filed.
• Keep all import-related records for at least five
[preferably seven] years form the date of entry.
IMPORTING – U.S. DUTY
DRAWBACK
• Duty drawback reduces production costs and
operating costs by allowing manufacturers and
exporters to recover duties that were paid on
imported materials when the same materials are
exported either as finished products or as
component parts of a finished product.
IMPORTING – U.S. DUTY
DRAWBACK
•
There are 3 types.
1. Unused goods that have been re-exported or
destroyed within 3 years of their date of entry.
2. Manufacturing components that have been reexported or destroyed within 5 years of their date
of entry.
3. Rejected merchandise that is non-conforming,
defective, or not ordered and is returned
[exported] or destroyed within 3 years of the date
of customs release.
•
Maintain all drawback-related records for at
least three years after receipt of the refund.
FINDING DOCUMENT REQUIREMENTS
• The ONLINE JOURNAL OF COMMERCE
is a very useful publication for
international business.
• Details may be found at
– http://www.joc.com/handbook/exportdocuments.shtml
LABELING
MARKINGS - 1
•
•
•
•
•
•
•
•
Shipper's Mark
Shipper's name and address
Consignee's name, address and ID code
Reference numbers
Any special handling instructions
Purchase Order numbers
Contract numbers
Country of origin
LABELING
MARKINGS - 2
•
•
•
•
•
Country of origin
Gross and net weight in pounds and kilograms
Number of packages
Size of cases in inches and centimeters
Handling and / or cautionary marks
– using international pictorial symbols or
– "Store this side up," "Store in a cool, dry space“, …
• Port of Entry and final destination
• Hazardous materials
– use the universal symbols of the International Maritime
Organization [IMO]
LABELING
MARKINGS - 3
• For detailed information about required general
markings, exemptions, and special markings go to
the U.S. government International Trade Data
System at http://www.itds.treas.gov/marking.html
• Ask for specialized assistance if necessary.
BOYCOTT REGULATION LAWS PROHIBIT
http://www.bis.doc.gov/ComplianceAndEnforcement/oacrequirements.html
• Agreements to refuse [or furnish information] or the
actual refusal [or furnishing of information] to do
business with Israel or in Israel with blacklisted
companies.
• Agreements to discriminate [or furnish information] or the
actual discrimination [or furnishing of information] against
persons based on race, religion, sex, national origin or
nationality.
• Implementing Letters of Credit containing prohibited
boycott terms or conditions.
BOYCOTT REGULATIONS
• “Tax Reform Act (TRA) requires U. S. persons to
report
– With the Export Administration Regulations (EAR)
quarterly requests they have received to take
certain actions to comply with, further, or support an
unsanctioned foreign boycott.
– The TRA requires taxpayers to report "operations"
in, with, or related to a boycotting country or its
nationals and requests received to participate in or
cooperate with an international boycott. The
Treasury Department publishes a quarterly list of
"boycotting countries.“”
FOR EXAMPLES GO TO
http://www.bis.doc.gov/ComplianceAndEnforcement/oacantiboycottrequestexamples.html
EXPORT REGULATIONS
The Export Control Classification
Number and the Commerce Control List
“The ECCN is an alpha-numeric code, e.g., 3A001,
that describes a particular item or type of item,
and shows the controls placed on that item. All
ECCNs are listed in the Commerce Control List
[CCL] [Supplement No. 1 to Part 774 of the
EAR] which is available on the Government
Printing Office Web site. The CCL is divided into
ten broad categories, and each category is
further subdivided into five product groups.”
SOURCE: http://www.bis.doc.gov/licensing/exportingbasics.htm
EXPORT CONTROL CLASSIFICATION
NUMBER [ECCN]
If you do not find your product quickly, check the EAR 99
items at the end of every Commodity Control List category
or call and ask for assistance. 
SOURCE: http://www.bis.doc.gov/licensing/exportingbasics.htm
BUREAU OF INDUSTRY AND SECURITY
[BIS] ACTIVITIES
• “regulating the export of sensitive goods and
technologies in an effective and efficient manner;
• enforcing export control, antiboycott, and public
safety laws;
• cooperating with and assisting other countries on
export control and strategic trade issues;
• assisting U.S. industry to comply with international
arms control agreements;
• monitoring the viability of the U.S. defense industrial
base;
• and promoting federal initiatives and public-private
partnerships to protect the nation's critical
infrastructures”
SOURCE: http://www.bis.doc.gov/about/index.htm
NOT SURE IF YOU NEED AN
EXPORT LICENSE?
• Submit a request to BIS.
• They will tell you if it is subject to the EAR
and give you the appropriate ECCN.
• They will also tell you if it needs a license
and if the license is likely to be granted.
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 15A
BASICS OF SUPPLY CHAIN AND VALUE CHAIN MANAGEMENT
ALAN L. WHITEBREAD
WHAT IS SCM TODAY?
It is the seamless end-to-end management
of a complex set of decisions requiring the
exchange and flow of information,
products, services, and money.
-Institute for Supply Management
Simply put,
SCM involves everything from taking
materials out of the ground to the satisfied
customer.
SUPPLY CHAIN MANAGEMENT
Mining companies –
Manufacturers – Suppliers
– Assemblers – Services
MARKETS
Consumers:
Customers
Prospects
Suspects
Your entity is
always the
FOCAL FIRM.
Resellers of all
kinds or final
purchasers
Final
purchasers
of resellers
CUSTOMER’S
CUSTOMERS
SUPPLIER’S
SUPPLIERS
SUPPLIERS
FOCAL
FIRM
FOCAL FIRM
NEW PRODUCT
DEVELOPMENT
CUSTOMERS
CREATING CUSTOMER VALUE:
DEMAND PULLS ALL PRODUCT!
B2C
B2B
Suppliers
Manufacturers
B2C is business-to-consumer.
B2B is business-to-business.
Warehouses
or Distribution
Centers
Resellers
B2B or B2C
Consumers
INFORMATION, PRODUCTS AND SERVICES, MONEY
Planning and forecasting accuracy are critical as any delay in the system has a ripple effect!
SUPPLY CHAINS ARE
INTERDEPENDENT
MARKET
Consumers:
Customers
Prospects
Suspects
FOCAL FIRM
SUPPLIERS
CUSTOMERS
CUSTOMERS’
CUSTOMERS
SUPPLIERS’
SUPPLIERS
If you change one thing in a supply
chain, you know that one or more
other things will be affected. So you
must make decisions for the good of
the entire supply chain, not for a
specific area.
For instance, the system losses in all
other areas may greatly exceed the
benefit to the one area. This causes
the supply chain to lose efficiency.
SYSTEMS THINKING
requires all firms and employees anywhere in the supply
chain to understand their place in the larger chain as well
as the place of others.
• All entities in the supply chain must participate in
– Establishing the core goal[s]
– Defining systems and their boundaries
– Determining the nature of the interrelationships
– Determining the information requirements
– Performing trade-off analysis
– Evaluating and implementing system constraints
CREATING CUSTOMER VALUE
These are some
of the tools
available to you
to create and
increase
customer value.
A great SCM
system will strive
to add value
throughout the
supply chain with
everything thing it
does.
Benefits
Quality
Innovation
Cost
Delivery
Flexibility
CREATING CUSTOMER VALUE:
BENEFITS ARE THE KEY
• Benefits are the reason we buy everything!
• Benefits
1. May be real or perceived, and
2. Must be meaningful to be valued, and
3. Must always exceed customer expectations!
• Delivering meaningful benefits and
exceeding expectations are the keys to
customer satisfaction in every step of the
supply chain.
THE NETWORKED ECONOMY’S IMPACT
ON PORTER’S FIVE FORCES
You need to understand these five forces
to put your firm in the best competitive
position.
Entry by potential competitors
Bargaining power of suppliers
Bargaining power of buyers
Threat of substitute products
Rivalry among existing competitors
See Michael E. Porter’s Competitive Strategy [Free Press, 1980] for a comprehensive study.
MARKETING DISTRIBUTION
Firm A
Firm B
}
Potential
Conflict 
Customer A
Customer B
Customer C
CHANGE
Requires continual adjustment by all.
UNCERTAINTY IS ASSURED
Choice – Competitive behavior - Negotiations
KEY DEFINITIONS
Marketing Channel /
Channel of Distribution
A set of interdependent organizations that
transfer ownership of products as the
products move from producer to business
user or consumer.
Supply Chain
The connected set of all value-added
business entities and flows that perform or
support the logistics function required for
production.
Value Chain
All activities [regardless of ownership] that
seek to enhance firm performance -- in every
single event, process, and / or system from
raw materials suppliers through customer
satisfaction.
SUPPLY CHAINS VS. VALUE
CHAINS*
SUPPLY CHAIN
The set of all
value-added business
entities and flows that
perform/support the
logistics functions
required for production.
These focus on upstream
supplier and producer
processes, efficiency,
and waste reduction.
LOGISTICS
All activities
[regardless of ownership]
that seek to enhance
firm performance through the
efficient systems for
transporting and storing
products.
VALUE CREATION
Enhancing value by
examining
every single event,
process, and/or system
from raw materials
through
customer satisfaction.
This tends to focus on
downstream value creation
for the customer.
VALUE CHAIN
SUPPLY CHAIN MANAGEMENT
[SCM]
A network that performs the functions of:
– Procurement
• purchasing or materials management
– Conversion of materials into work-in-process
[WIP] and/or finished products
– The management of inventories
– Distribution of products to all resellers and
direct customers
– Creating and improving support systems
THE SUPPLY CHAIN AT WORK
Toyota builds more than 600,000 cars per year in Europe utilizing ~200 1ST
TIER suppliers with more than 400 factories. The number of suppliers grows
exponentially as you go to the 2ND and 3RD TIER suppliers.
UPSTREAM
DOWNSTREAM
DEALERS
STEEL
UPSTREAM
DIRECT
FORD, GM
COMPANY
SUPPLIER
SUPPLIER
CHRYSLER
3RD
TIER
2ND
TIER
1ST
TIER
OEM
Manage all other tiers.
STEEL
FASTENERS
RADIATORS
RENTAL
AGENCIES
CONSUMERS
BUSINESSES
CONSUMERS
FLEETS
SPECIAL
VEHICLES
Raw materials, semi-finished, and component products
VEHICLES
Finished products and components
THE VALUE CHAIN: Basic Functions
The efforts to increase value to any or all entities from raw materials
suppliers through customer satisfaction.
• Firm Infrastructure
– Financing of all needs, planning systems, investor
and certain stakeholder relations, administration
• Human Resource Management
– Recruiting, training, career planning, compensation
systems, benefits, legal HR compliance
• New Product & Technology Development
– Design, development testing, process design,
research of all types
THE VALUE CHAIN: Operating
Functions
• Operations
– Assembly, manufacture, and / or procurement of
components and finished products
• Logistics
– Material flow, order processing, warehousing,
scheduling, shipping, and reporting
• Marketing
– New product development, marketing programs,
sales, integrated marketing communications,
customer relations [installation, support, and repair]
MANAGEMENT NEEDS SCM
BECAUSE OF
• A large and expanding variety of products
• Rapid change in products
• Shorter product life cycles and life cycle
stages
SOURCING DECISION FACTORS
•
What are the capabilities of the vendor?
•
What are the quality and performance
records of the vendor?
•
How much logistical compatibility exists
with this vendor?
•
Will there be extensive corporate
access?
PHYSICAL DISTRIBUTION
• Order processing
– Documentation, tracking, systems, …
• Warehousing
• Inventory management
• Transportation
KEY SCM FLOWS
– MATERIALS
• For all the parts
– INFORMATION
• To get everything to the right place at the
right time.
– MONEY
• For financing or payment
SCM ISSUES
• SUPPLIER SELECTION
– Contract or partnership?
– Setting requirements
– Continuous improvement program[s]
– Key performance metrics
SCM ISSUES
• SUPPLIER CERTIFICATION
– Initial approval
– Continuing approval
– Failure to recertify
• SUPPLIER LOGISTICS
– Overall capabilities
– Ability to respond the changing conditions and
emergency situations
SCM ISSUES
• SUPPLIER INVOLVEMENT
– Design
• Standardization [high volume items]
• Customization [low volume, made-to-order items]
• Modularization [many component parts can be
assembled in a variety of ways - PCs]
SCM ISSUES
• SUPPLIER INVOLVEMENT
– Supplier managed inventories
• Changing customer demand
• Real-time POS monitoring
– Wine in some stores
SUPPLY CHAINS
Multiple demand schedules
70
60
50
40
30
20
10
0
1
2
Wholesaler
3
Retailer
4
5
Internet
6
Total
DEMAND AND MAKE TO ORDER
PRODUCTION SCHEDULE
1000
900
800
700
600
500
Level loaded facility –
usually the lowest cost
of operation
400
300
200
100
0
1
Distributors
2
3
Wholesalers
4
Retailers
5
6
Produced
TOTAL PRODUCTION COST
9,000
8,000
7,000
6,000
5,000
Likely lowest cost
schedule.
4,000
3,000
2,000
1,000
0
1
2
3
Make to order
4
5
Continuous
6
MATERIALS REQUIREMENTS
PLANNING [MRP]
•
•
•
•
•
•
•
•
Master scheduling
Item lead time analysis
Inventory analysis and tracking at all levels
Purchase requirements per time period
Shipment forecasts
Lead time analysis
Purchase order generation
Like Enterprise Resource Planning [ERP]
PURCHASING
Overhead & PPV
• UNDERABSORPTION OF OVERHEAD RATES [cost is
too low]:
– RESULT: Company takes a loss
– CAUSE: Underestimated costs and/or overestimated
business
• OVERABSORPTION OF OVERHEAD RATES [cost is
too high]:
– RESULT: Company may be priced out of the market
– CAUSE: Overestimated costs and/or underestimated
business
• PURCHASE PRICE VARIANCE [PPV]
– The difference to projected total purchases. It is positive if
you saved money and negative if you spent more than
forecast.
SCM ISSUES
• SUPPLIER INVOLVEMENT
– Vendor managed inventories - continued
• Component management
• Inventory versus Consignment
• Just-in-time [JIT]
– Frequent, small and consistent deliveries
– Co-location of inventories may be required
– Direct shipments and milk-runs
DIRECT SHIPMENTS
Direct Return Shipments
[Closed-loop system]
Vendor
A
Vendor
B
Vendor
C
Packaging is returned
for refill and cycles
through the loop
hundreds of times.
Manufacturing
Plant
Vendor
F
Direct Shipments
[Open-loop system]
Packaging is new
every time so the
plant must reuse it
[if possible] or send
it to the landfill.
Landfill
Vendor
D
Vendor
E
MILK RUN SHIPMENTS
Vendor
B
Items are picked up at
several suppliers on
each route and delivered
all at one time to the
plant.
Vendor
A
Vendor
C
Manufacturing
Plant
Vendor
D
Vendor
E
The packaging materials
may be disposable for
open-loop systems or
returnable for closedloop systems.
SCM ISSUES
• SUPPLIER INVOLVEMENT
– Flexible Business Relationships can be part of
any of the following.
•
•
•
•
•
Purchasing agreements
Blanket purchase orders
Single source arrangements
Primary / secondary sourcing
Alliances
SCM ISSUES
• SUPPLIER INVOLVEMENT
– Infrastructure compatibility
– Packaging [at all stages]
– Packaging shipment systems
• Closed loop systems
• Open loop systems
• Customer required
SCM ISSUES
• SUPPLIER INVOLVEMENT
– Target costing approach
• Component costs
• Product costs
• System costs
SCM ISSUES
• SUPPLIER SECURITY: CONTAINERS
– Some of many key questions are shown
below.
•
•
•
•
Where have they been?
Where did they stop?
Who had access?
What security exists for transportation and port
workers?
• What are the security checks and verifications
used by your carriers?
SCM ISSUES
• SUPPLIER PAYMENT
– TradeCard® [includes numerous reports about
improving your supply chain operations].
– For more information go to
• http://www.tradecard.com/
THIRD PARTY LOGISTICS
PROVIDERS [3PL’s]
• Outsourced logistics functions include but
are not limited to
– Freight and transportation services, freight
payments, and auditing
– Fleet management
– Carrier selection and rate negotiations
– Warehousing operations
– Logistics information systems
– Supply chain management
BENEFITS FROM USING A THIRD
PARTY LOGISTICS SUPPLIER [3PL]
• The savings for all supply chain functions
in year one generally exceeds the
projected cost of operation.
– Year one freight payment savings
– Year one inventory management savings
– Potentially many more
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 15B
LOGISTICS, PACKAGING, TRANSPORTATION, AND FEDERAL SECURITY
REGULATIONS
ALAN L. WHITEBREAD
SUPPLY CHAIN MANAGEMENT [SCM]
COMPONENTS INCLUDE
Facility Location
L
Transportation
Customer Service
O
Purchasing
Order Processing
G
Packaging
Demand forecasting
I
Standards
Production Scheduling
S
Warehousing
Facility Management
T
Material Handling
I
Return Goods
Handling
Inventory & Control
C
S
Salvage and scrap
disposal
LOGISTICS
• Involves the processing and tracking of goods during
warehousing, inventory control, transport, customs
documentation, delivery and shipment of products.
• Right Goods - Right Place - Right Time - Right Cost
• Logistics is important because those expenditures represent
up to 15% of manufacturing cost,
up to 26% wholesale or retail costs,
and consume around 25% of the firm’s assets.
• A total systems approach is usually employed in sophisticated
logistical systems.
– Every part of a logistics system interrelates to all the other parts!
– If you evaluate any part of a logistics system, make sure you
understand what any change will do to the entire system!
LOGISTICS DECISIONS
• Order processing
– The efficient processing of customer requests.
• Inventory control
– Managing inventory to the maximum benefit of the
firm and its customers.
• Materials handling and warehousing
– The efficient storage and movement of inventory.
• Transportation management
– Arranging for the timely and cost-effective delivery of
inventory.
TYPICAL LOGISTICS GOALS
• Market coverage
– We will operate a network of stores so that 90% of the
U.S. population can reach one of our stores in less
than four hours travel time.
• Customer service level
– All customer calls will be answered within two
minutes.
• Product fit
–?
• Cost minimization
–?
LOGISTICS PERFORMANCE METRICS
•
•
•
•
•
REVENUE-BASED
COST-BASED
CUSTOMER SERVICE-BASED
PRODUCTIVITY-BASED
ASSET-BASED
LOGISTICS ASSISTANCE
• Look at your favorite carriers’ websites to
see the range of information and services
they offer.
PHYSICAL DISTRIBUTION
• Warehousing
• Material Handling
• Inventory and control
• Transportation
WHAT TYPE OF WAREHOUSE?
• PRIVATE
– Private Warehouses
– Distribution Centers
– Alternatives to private warehouse
• [1] Direct store delivery / “ship-to-stock”
• [2] Cross Docking
• PUBLIC
– Bonded warehouse
– Customs bonded warehouse
– Field warehouse
WAREHOUSE ORGANIZATION
ALTERNATIVES
• DOMESTIC
– Structured
• Every item is assigned a specific location.
– Random
• Items go into the first available location.
– Pick-and-pack
• Items may be stored in bulk and also in some pick
configuration to assembling small orders.
WAREHOUSING: FLOW
Receiving
Bulk
and
Rack
Storage
2nd option
Pick
and
1st option
Staging
Packing
and
and
Loading
Boxing
Consolidate
2nd option
WAREHOUSE ORGANIZATION
ALTERNATIVES
• DOMESTIC
• Foreign Trade Zone [FTZ]
CHARACTERISTICS
– If you want to use an FTZ, be sure to conduct
a comprehensive review before making the
selection since they do not all function the
same way.
WAREHOUSING - U.S. FTZ
• Created by the Foreign-Trade Zone Act of 1934
• Supervised by U.S. Customs & Border Patrol
• FTZs offer numerous ways to save on
administrative expenses, are usually exempt
from state and local inventory taxes, and fees,
and defer duty payments indefinitely.
• Types
– General Purpose Zone [GPZ] is for multiple
companies
– Subzone – is usually for a single company
– There are 250+ GPZs and 400+ subzones in the U.S.
WAREHOUSING ISSUES
•
•
•
•
•
•
•
•
Material handling equipment
Building height / rack profiles
Dock size and configuration
Slot sizes and strategies
Handling methods
Ergonomics
Traffic flows
Layouts:
– rack and aisle, product oriented, repetitive [for
assembly], …
WAREHOUSE SECURITY
• AREAS OF CONCERN
– Dock
• Theft, spoilage
– Carrier
• Especially for high-value or highly-sought items
– Inventory
• Mislabeled, spoilage, inaccurate transfers
– Employees
• Theft
– Computer and data warehousing security
– For an example of how Presidential decrees have impacted
agricultural storage see
• http://www.cotton.org/tech/safety/warehouse-security.cfm
MATERIAL HANDLING DEVICES
•
•
•
•
•
•
•
Conveyors
Palletizers
Pallet lifting
Robots
AGV’s
AS/RS
Many more
– Find pictures and descriptions of each of
them on the internet.
INVENTORY AND CONTROL
Inventory costing methods
• FIRST IN, FIRST OUT (FIFO)
– The oldest cost incurred is the first cost charged to
production. The latest costs are shown in the
inventory.
• LAST IN, FIRST OUT (LIFO)
– The latest cost incurred is the first cost charged to
production. The oldest costs are shown in the
inventory.
• WEIGHTED AVERAGE
– The average cost of all units in inventory. This
cost is charged to production/operations and
shows up as the inventory price/cost.
MARGINAL INVENTORY COST
16.00
14.00
12.00
Set-up cost
10.00
Production cost
8.00
Holding cost
6.00
Total cost
4.00
2.00
0.00
100
500
1000 2500 5000
UNITS IN INVENTORY
CYCLE TIME
INVENTORY PER TIME PERIOD
1600
1400
1200
1000
800
600
400
200
0
Cycle 1
1
2
3
4
5
6
Cycle 2
7
8
9
10
11
Cycle frequency, duration, and magnitude
[stockout, minimum, maximum, average, safety stock]
12
CYCLE TIME MANAGEMENT
BENEFITS
• Reduced total inventory levels
• Lower total cost schedules
• Shorter time-to-market
• Improved sales forecasting and
production scheduling
INTERNATIONAL CYCLES ARE
AFFECTED BY
• WAIT TIMES
– For a complete set of order documents
– Inserting the order into the schedule
• EXTENDED TRANSPORTATION TIMES
– Ports
– Ship arrival, loading, transit, and unloading
• VERIFICATIONS AND INSPECTIONS
– Customs
– Other inspections required by the importing country or
customer
POLITICS AND SUPPLY CHAINS
• Fall, 2005
– 80,000,000 clothing items were impounded at
EU entry points because import limits were
exceeded.
– A compromise was eventually reached. Items
were allowed to enter.
TRANSPORTATION COST FACTORS
• Dollar cost vs. Total cost
• Distance
• Density
– Cube out or weigh out?
• Handling
– Refrigeration, cranes, …
• Liability
– Susceptibility to damage, perishability, theft,
HAZMAT, value per pound
• Market factors
– Back-hauling vs. deadhead, seasonality, fuel
TYPES OF CONTAINERS
• Dry freight
– General purpose container
• High cube
– 9’6” high vs. standard 8’6” for additional volume
• Reefer or insulated or refrigerated
– For cooling, freezing, or heating of foods or
chemicals
• See http://forum.europa.eu.int/irc/dsis/coded/info/data/coded/en/gl007607.htm for a
complete ISO listing.
FIND EXAMPLES OF THESE ON THE
WEB
• Types of ocean transports
– Cargo, tanker, RORO, …
•
•
•
•
Port / dock operations / gantry crane
Container loading software
Types of air transport
Dunnage
PACKAGING ISSUES:
INTERMODAL STRESS POINTS
PLACE
FORCES
Truck
Acceleration / Deceleration [increasing speed; slowing; stopping]
Centrifugal [making turns; curves]
Retardation [slowing; stopping]
Vibrations from movement and bumps
Transfer point
Acceleration [lifting; lowering]
Impact [dropping onto surface]
Retardation [slowing; stopping]
Rail car
Same as truck plus
Shunting [train car switching operations]
Port
Same as truck plus
Impact [dropping onto surface]
Ship
Centrifugal [ship movements]
Heaving [the movement of the ship in response to the waves]
Pitching [the up-and-down motion of a ship]
Rolling [the side-to-side motion of a ship]
Swaying [the rocking motion of a ship]
Vibrations [caused by wave and impact forces]
Yawing [the degree to which the ship is pointed away from its intended course]
PACKAGE TESTING
• Distribution system testing
– ISTA procedures
– ASTM D-4169, D-4728, D-999
– Mil specs
– Company specified tests
– Custom test protocols
– UN, IATA, ICAO
– HAZMAT
PACKAGE TESTING
• Product testing inside the package
• Temperature / Humidity testing
• Mullen Burst testing / ECT system
testing
• Shock testing
• Incline-impact testing
• Compression testing
• Drop testing
• Vibration testing
Definitions, examples, and pictures of all of test methods can be found on the web.
FEDERAL SECURITY
DEVELOPMENTS
• U.S. Customs - Container Security Initiative [CSI]
– Currently 20 nations and 44 ports including all 20 of the
world’s largest ports.
– See
http://www.cbp.gov/xp/cgov/border_security/international_activities/csi/csi_in_brief.xml
for
details.
– See
http://www.cbp.gov/linkhandler/cgov/border_security/international_activities/csi/csirev_1002.c
tt/standard_current_generic_csi.ppt#628,1,Slide%201
for a slide presentation.
– Identify and pre-screen high-risk U.S. inbound containers
at the port of departure or the U.S. port for
• physical examination or
• non-intrusive inspectional [NII] equipment [gamma-ray
or X-ray imaging] and radiation detection equipment
FEDERAL SECURITY
DEVELOPMENTS
• U.S. Customs Trade Partnerships Against
Terrorism [C-TPAT]
– Provide the highest level of security through close
cooperation with the owners of the supply chain,
importers, carriers, brokers, warehouse operators and
manufacturers through a detailed self-assessment
process.
– Requirements vary by type of carrier or storage.
– For details see
http://www.cbp.gov/xp/cgov/import/commercial_enforcement/ctpat/
Aviation Transportation and Security Act
Ruling Effective December 1, 2006
• All aircraft entering or operating within the U.S.
with a take-off weight of 12,500 pounds or more
must
– provide for screening of all property, cargo, carry-on
and checked baggage, and other articles, that will be
carried aboard a passenger aircraft operated by a
domestic or foreign air carrier; and
– establish a system to screen, inspect, or otherwise
ensure the security of freight that is to be transported
in all-cargo aircraft as soon as practicable.
FEDERAL REGULATIONS
http://www.customs.ustreas.gov/xp/cgov/import/commercial_enforcement/wpm/
• “In a final rule published in the Federal Register on September 16,
2004, the U.S. Department of Agriculture (USDA) amended its
regulations with the goal of decreasing the risk of introducing plant
pests into the United States. USDA has adopted the international
standard for wood packaging material (WPM) that was approved by
the International Plant Protection Convention (IPPC) on March 15,
2002.
• The IPPC standard calls for most WPM to be either heat treated or
fumigated with methyl bromide in accordance with the Guidelines
and marked with an approved international mark certifying that
treatment. The final rule, which becomes effective on September 16,
2005, will affect all persons using wood packaging material in
connection with importing goods into the United States.” 
WOOD STAMPS
http://www.customs.ustreas.gov/linkhandler/cgov/import/commercial_enforcement/wpm/ippc_stamp_sam
ples.ctt/ippc_stamp_samples.doc
AGRICULTURE INSPECTIONS
http://www.customs.ustreas.gov/linkhandler/cgov/import/commercial_enforcement/wpm/ippc_stamp_sam
ples.ctt/ippc_stamp_samples.doc
• “Import Alert: USDA Suspends Importation of
Wooden Craft Items from China
The United States Department of
Agriculture/Animal and Plant Health Inspection
Service (APHIS) beginning April 1, 2005 will
suspend the importation of craft items from
China that contain wood logs, limbs, branches or
twigs greater than 1 centimeter in diameter and
intact bark. All in bond shipments meeting these
criteria must be cleared by April 1, 2005 or be
refused entry.”
CERTIFIED GLOBAL BUSINESS PROFESSIONAL
Online/Distance Learning Course
SECTION 15C
PIRACY, INSURANCE, CARGO AND CARRIER RESPONSIBILITIES, AND
TRANSPORTATION CONVENTIONS
ALAN L. WHITEBREAD
CARRIAGE OF GOODS BY SEA ACT
[COGSA 1936, 1983]
• Only applies to shipments with a Bill of Lading [B/L]
• Requires due diligence to make the ship seaworthy
before leaving port.
• There are both a UN version and Country versions.
– Country versions supersede the UN version.
• There is great similarity, but not uniformity between
versions.
COGSA DEFENSE:
PERILS OF THE SEA
• SITUATION: The cargo is damaged en route
when the ship ran into very heavy seas.
• Is the carrier protected from liability by the
perils of the sea exception clause to COGSA?
• Yes, if it could meet the burden of proof that
the ship was [1] seaworthy and [2] that
damage resulted from a peril.
U.S. CARRIAGE OF GOODS BY SEA ACT
• Has a $500 per package liability limit.
– BEWARE of what defines a package! 
• The shipment must have a Bill of Lading.
• A list of COGSA subscribing countries may be
found at
–
http://www.exportlawyer.com/CM/PracticalInformation/PracticalInformation732.asp
U.S. SHIPPING ACT OF 1984:
VIOLATIONS
It is illegal for any firm
to seek a lower shipping rate by
misclassifying merchandise or stating false
measurements.
It is illegal for a steamship line
to charge more or less than its publicly filed
tariff, or pay rebates to shippers.
LIABILITY VERSUS CLAIM
• Liability determines the dollar value of the
claim.
• The claim is the process for recovering
compensation for a loss.
INSURANCE TYPES
http://www.tis-gdv.de/tis_e/bedingungen/trp_faktoren/trp_faktoren.htm
• MARINE / CARGO INSURANCE
– The shipper may obtain insurance policies
tailored to their specific needs. The
standard policy provides only some
protection! 
– The most common insurance is an "all-risk“
policy. Coverage begins when transportation
commences and continues until the goods
are delivered at the destination.
MARINE / CARGO INSURANCE TYPES
[Greatest to least coverage]
• ALL-RISK COVERS
– All risks except standard war or strike clauses. 
– Make sure you understand what is not covered by
your particular policy! 
• WITH AVERAGE COVERS
– Covers a partial or total loss by sea.
• FREE OF PARTICULAR AVERAGE COVERS
– Covers a total loss only!
MARINE / CARGO INSURANCE
• DOES NOT COVER
–
–
–
–
–
–
–
–
–
Delay
Vice, willful misconduct, or other illegal activity
War
Strikes, riots, civil disobedience, terrorism
Use of atomic or nuclear weapon
Ordinary loss or wear
Insufficient or unsuitable packaging
Unseaworthy vessel at the time of loading
Insolvency or default of the vessel owners / operators
– You can always get additional coverage through attaching
riders to you policy. See your insurance carrier.
MARINE / CARGO INSURANCE
• Look at cargo damage and losses on the
web. A suggestion is
–
http://www.cargolaw.com
ADDITIONAL INSURANCE TYPES
• CARRIER LIABILITY INSURANCE
– Purchased by motor carriers to protect
against a number of risks including their
liability for loss and damage to cargo.
– Key issues include the condition of the
original package and whether it was sufficient
under normal conditions. 
ADDITIONAL INSURANCE TYPES
• SELF-INSURANCE
– Describes a shipper’s or carrier’s own
assumption of the risk of loss and damage in
an attempt to lower its costs. This is done to
reduce the insurance premium.
AIR CARGO
• Nearly every country is a party to the 1929 Warsaw
Convention and updates, 49 Stat. 3000, T.S. 876.
• The air waybill requires 17 documentation details.
Absence of certain of these details from the air
waybill will cause a change in the liability and will
likely reduce the amount of your reimbursement! 
• A carrier is presumed to be liable for loss, damage,
or delay unless it proves it has
– [1] taken all reasonable and necessary measures, and
– [2] either it was not at fault or negligent, or that the shipper
was negligent.
WARSAW CONVENTION
• There is a fixed minimum liability.
– The air carrier liability is a fixed minimum of $20
per kilogram [$9.07 per U.S. pound]. 
• The shipper must declare and pay for the
higher value to receive additional protection.
– Williams Dental v. Air Express: The plaintiff
[Williams Dental] declared a higher value of the
shipment and is entitled to collect.
WARSAW CONVENTION
UPDATE – PROTOCOL 4
• Sets a $75,000 death or personal injury
limit [expressed in national currency
equivalents of an amount of gold].
• Awards may be exceeded if the airline
is found to be “reckless”.
• Find examples of damage on the web.
• See also
–
–
http://www.cargolaw.com/2001nightmare-saudi-flop.html
http://www.cargolaw.com/2000nightmare_africa_air.html
INTERNATIONAL MOTOR
TRANSPORT
• All motor carriage in Europe and into Asia
is subject to the Convention on the
Contract for International Carriage of
Goods by Road [CMR] Convention.
• The CMR establishes documentation
requirements for the motor carrier Bill of
Lading.
INTERNATIONAL MOTOR
TRANSPORT
• Liability for all carriage under the CMR
presumes the carrier's liability unless the carrier
proves that it was not at fault.
• Liability is limited to 8.33 Special Drawing Rights
[SDRs] per kilogram [~ $5 per U.S. pound]. 
• Parties may not negotiate a lower limit, but the
shipper may declare excess value and pay for
excess value insurance.