All posts by mitch

Nuts & Bolts

Logistics and Finance

Logistics managers with operations backgrounds and responsibilities typically leave finance to the accountants. This is understandable given the full time need to stay on top of logistics details. However, some basic financial knowledge can help make sure that operations managers are “in the room” when strategic business decisions are made. Consider the 3 logistics flows of material, information, and financial. These different tracks often result in silos which are counterproductive. It has been said that accountants look back while managers must look forward. Here is some info from the text Global Logistics & Supply Chain Management published by John Wiley and Sons. This is common knowledge for accountants and finance professionals.

Balance Sheet- snapshot of assets and liabilities at a particular point in time.

Income Statement- profit and loss for a defined period of time.

Cash Flow- where the money comes from and where it goes.

Obvious implications for logistics are that time is money, so shortening the supply chain or eliminating delays results in greater profit. High working capital (inventory) reduces profit. Efficient resource utilization (labor, real estate, equipment) increases profit. Cash to cash cycle is key.

Debt financing can be described as gearing. Low gearing means little or no debt. High gearing means the firm has a large proportion of debt to assets. This presents high risk for investors. It also may preclude opportunities to expand or improve operations and debt service (interest) will constrain cash flow.

International logistics involves greater risk which may include uncertain demand, unstable infrastructure and services, political instability, or currency fluctuations. Cost accounting for logistics companies is not as straightforward as for manufacturers. Services are intangible, quality can be difficult to measure, they cannot be stored (perishable), and may involve more that one provider.

More Basics

Order Cycle- Short order cycle leads to reduced inventory; Long order cycle leads to increased inventory.

Cost of Lost Sales- High inventory results in lower lost sales; Lower inventory results in higher lost sales.

Transportation costs- similar tradeoffs as lost sales. Mode shifts from slower to faster (ground to air) can reduce inventory. Shifts from faster to slower (air to ocean) will increase inventory.

Commodity dollar value- High value commodities lead to high inventory, transportation, and packaging costs.

Density- High density commodities lead to reduced transportation and inventory (warehousing) costs.

Loss/Damage- commodities with high susceptibility to loss/damage result in higher costs of transportation and warehousing.

Location decision- Plant or distribution center proximity from materials sources or markets can mean relative advantage or disadvantage vs competitors. These are C- level decisions.

Nuts & Bolts

Stuck in Customs?

I often hear from potential clients about shipments “stuck” in customs and, needless to say, they are always frustrated. The shipments may include critical parts needed for an equipment or plant shutdown, expensive high tech components not generally carried in inventory, or medical instruments for hospitals. Delayed orders also mean delayed payments which gets everyone’s attention.

The data used in customs entries comes directly from the commercial invoice for the transaction. All countries have different, and sometimes obscure, customs regulations. It is true, however, that most delays are caused by a few commercial invoice errors or omissions.

Commodity descriptions should answer the questions: What is it? What is it made of? What is it used for? Use plain language which can be understood by anyone. Avoid trade names, brand names, and jargon. These can be added below the description or to the packing list as needed. If using a harmonized code enter only the first 6 digits which are universal. All countries apply their own last 4 or 6 digits.

Value for customs may be questionable for the commodity being shipped. The customs agencies in the destination country need to make sure that duty rates are accurate and will hold up the shipment if in doubt. Make sure that your commercial invoice reflects the correct transaction value.

Recipient contact info is often lacking on the commercial invoice. Customs in the importing country will not contact the exporter if they have questions or issues. If they are unable to contact the importer the shipment will go into storage. Make sure you include recipient name, address, phone number, and e mail address on your CI.

Contact mitch@adhoclogistics.com for immediate assistance.

Nuts & Bolts

Exporters Own Your Mistakes

As noted in a recent post self-blinding carries risk for exporters in addition to the fines and penalties associated with export violations. Mistakes happen and it is best to take corrective action on your own as a part of your compliance program.

Export compliance means attention to detail, consistent procedures, up to date knowledge, and oversight. Due diligence is required for EEI filings, Schedule B and ECCN classification, Licensing entries, and Country of Origin determination. In spite of best efforts, mistakes will be made. In these cases a Voluntary Self-Disclosure is a smart move. Here is some info from the BIS (Bureau of Industry and Security) website:

BIS encourages the submission of Voluntary Self Disclosures (VSDs) by parties who believe they may have violated the Export Administration Regulations (EAR). VSDs are an excellent indicator of a party’s intent to comply with U.S. export control requirements and may provide BIS important information on other ongoing violations. BIS carefully reviews VSDs received from disclosing parties to determine if violations of the EAR have occurred and to determine the appropriate corrective action when violations have taken place. Additional information regarding VSDs can be found in Part 764.5 of the EAR, or the enforcement section of our website www.bis.doc.gov.

https://www.bis.doc.gov/index.php/documents/enforcement/3262-vsd-policy-memo-04-18-2023/file

Contact mitch@adhoclogistics.com for help with Voluntary Self Disclosures.

Nuts & Bolts

Billable vs. Pro Bono Consulting

I have posted about this topic in the past and use this approach whenever the situation arises. “Quick Question” queries are frequent and I look at them as an opportunity. I am always happy to hear from former clients, colleagues, and business associates. The scope of their requests vary so need to be handled accordingly. For a consultant this is a good problem to have.

Consultants often receive “Just a quick question?” queries from clients or others and everyone responds differently. Most likely the questioner believes that their question is an easy one and may be looking for pro bono service. In fact, while it is easy to ask a quick question, an accurate response is not always quick.

I have been offered lunch or dinner as compensation for quick questions. Others have assumed that, since their question is quick, there will be no charge for the answer. As a solo practitioner I know that I need to remain flexible and avoid rigid procedures while making sure that I am compensated for my time and expertise. Based on trial and error, here is how I handle “quick questions”.

Active clients– I truly value my long-term clients who are the foundation of my business. It is easier to keep clients than to gain new ones. So, if I can help a client on the spot I will do so as a part of my service. This usually involves something simple like identifying a resource for them. If time and/or research is required I let the client know how I will handle the request and what I will charge. Most clients understand this approach because I have added value for them in the past. If they have frequent quick questions I may suggest my retainer service which allows them to prepay for brief consultations by choosing a set number of hours.

Prospective clients– This is a little trickier because of situations such as the ones I have described, so I am more selective in my responses. I do try to be helpful as I want them to remember me when they have a real project. If I can answer a question without expending time and research I may do so and consider it a free sample of my work. If time and research is required I will propose the retainer option or quote a minimum charge. I will always try to learn about the potential client’s business so that I can determine their real needs and follow up at a later date.

Former colleagues– One of the benefits of being a FedEx alum is having contacts with excellent colleagues all over the world. A number of active clients have been the result of referrals by former colleagues. Any questions they have are on behalf of their clients which can potentially become mine. Their referrals are my compensation. If they have a project requiring time and research I may ask them to connect me to the client if possible. I’m always happy to hear from former colleagues so FedExers don’t hesitate to reach out.

Friends and family- This is rare as I try not to mix personal with professional and I don’t want to charge friends or family. I will accommodate a minor request and give them a referral for anything more complex.

This method is not perfect but works well enough for me in my growing practice. I would be interested in hearing how other consultants handle “quick questions”

Contact mitch@adhoclogistics.com

Nuts & Bolts

Think You Know Your Customers?

No doubt you stay in close contact with your customers. Perhaps you even perform due diligence on prospective customers. In any case, exporters are required to screen all exports using the various watch lists or the Consolidated Screening List. Export software is a valuable tool for this purpose.

Most SMEs (Small and Medium-Sized Enterprises) do not have an ECP (Export Compliance Program) or in-house expertise. If you are the CEO, COO, or CFO of one of these companies we advise assessing the risk of non-compliance and taking action. Fines and penalties for export violations can be as high as $1 million. In the meantime, here is a list from the Bureau of Industry and Security (BIS) website of things to look for in an export transaction. Make sure you are not doing business with the bad guys. A little due diligence up front saves a lot of trouble later on.

The customer or its address is similar to one of the parties found on the Commerce Department’s [BIS’] list of denied persons.

The customer or purchasing agent is reluctant to offer information about the end-use of the item.

The product’s capabilities do not fit the buyer’s line of business, such as an order for sophisticated computers for a small bakery.

The item ordered is incompatible with the technical level of the country to which it is being shipped, such as semiconductor manufacturing equipment being shipped to a country that has no electronics industry.

The customer is willing to pay cash for a very expensive item when the terms of sale would normally call for financing.

The customer is unfamiliar with the product’s performance characteristics but still wants the product.

The customer has little or no business background.

Routine installation, training, or maintenance services are declined by the customer.

Delivery dates are vague, or deliveries are planned for out of the way destinations.

A freight forwarding firm is listed as the product’s final destination.

The shipping route is abnormal for the product and destination.

Packaging is inconsistent with the stated method of shipment or destination.

When questioned, the buyer is evasive and especially unclear about whether the purchased product is for domestic use, for export, or for reexport.

For help contact mitch@adhoclogistics.com

Nuts & Bolts

Character Counts

Congratulations to all who passed the May 2024 Customs Broker License Exam! You are now eligible to go through the application process, background check, and fingerprinting to obtain your license.

It may come as a surprise that it can take up to a year before your license is issued. In addition to a passing grade on the CBLE, eligibility to become a customs broker requires applicants to be a US citizen at least 21 years of age, not be a current Federal Government employee, and possess good moral character.

Character is determined by an extensive background investigation. From the CBP website:

“Each Broker license applicant must undergo a background investigation that includes a fingerprint analysis and review of character references, credit reports, and arrest records.  Arrests and convictions do not necessarily preclude the issuance of a license.  In partnership, association, or corporation applications, individuals identified as principals with controlling interest, officers, partners, or members will also undergo a background investigation.”

Licensed Customs Brokers, via their entry filings, are responsible for the assessment of revenue for the United States in the form of duties and taxes. They must also ensure that they, and their clients, comply with the laws and regulations in all transactions. So the background check is more than a mere formality. Be patient applicants!