Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
58 Cards in this Set
- Front
- Back
|
Sourcing Personnel |
-Will attend trade shows to learn about new materials, new vendors, and new technology • Sourcing personnel get involved in the very initial stage of new product development as part of the company’s demand and supply management efforts. • Reviewing the history of the garment cost will help identify those products with low costs and high sales, as well as those with high cost and low sales. Two critical aspects of the proposed products reduce the overall cost of sourcing: • Sourcing personnel must compare different duty rates assigned from different fiber content of the proposed products. • Sourcing personnel must have full knowledge of different duty rates from different countries, depending on trade preference programs between the sourcers and the suppliers countries |
|
|
Line Review |
- ensures that new product lines that are proposed in a two dimensional sketch format are attractive and functional in a three dimensional garment format.
• Key personnel within the company get involved in line review |
|
|
Sourcing Personnel focus on whether proposed products are
|
(a) functional, (b) producible (c) within the budget
• (a) Functional- ensures whether a proposed garment would actually serve as a wearable garment • Examples: the size of the neck opening, the number of buttons, the length of zippers, etc. • (b) Producible- ensure that the product can be produced in manufacturing facilities • Example: heat transfer rhinestones on high brushed or pile fabric • (c) Affordable- can it be produced within the budget • Estimate the potential upcharge or discount due to different trims, fabrications, and details from the past |
|
|
Product Classification |
• During the development stage, sourcers must check the proposed products against product classifications recognized by his or her country.
• U.S International Trade Commission (USITC, 2012) published Harmonized Tariff Schedules of the United States (HTSUS) with: (a) Product classification number, (b) article descriptions, (c) tariff rates, and (d) special tariff programs. • It is critical for sourcers to understand product classification and interpretation of such classifications • Product details and fiber contents directly affect how they will be classified by HTSUS ->affecting duty rates • Sourcers should learn about various trade incentive programs and special duty programs |
|
|
Harmonized Tariff Schedule |
• Total, there are 22 sections and 99 chapters
• Sections 11 and 12 address textile based goods • Section 11, Chapters 61 and 62 with apparel products • 61 includes knitted apparel, while 62 contains non-knitted or woven apparel • http://hts.usitc.gov • Each product category is represented by a 10- digit number for statistical purposes • The heading of each product category consists of the first 4 digits ( first two digits either 61 or 62) • Ex. 6203.42.40.11 • The classifications are based on (a) men’s and boys (b) women’s or girls • Men’s and Boys= tend to be odd numbers • Women’s and girls= tend to be even numbers • 6203 vs. 6204 • There are two subheadings each with a 2-digit number - Fiber contents (over 50%) (42) if the garment is made of 50% or more of that fiber that’s the number you will use- And garment style (40) • Followed by an additional 2-digit number for the statistical suffix (11) • 6203.42.40.11 – Men’s denim jeans • The classifications also include the 3-digit quota category number • (347) men’s denim jeans not included in the 10 digit number |
|
|
Rules of origin have two standards: (a) Preferential (b) non-preferential |
Rules of origin have two standards:
Countries we want to do business with vs countries we don’t want to do business with (a) Preferential ( Column 1 of rates of duty) (b) Non- preferential ( Column 2 of rates of duty)General rates of duty have a regular rate vs. Special rates of duty usually have a free rate or a lower rate than general |
|
|
Macro Environmental Analysis for Supplier Selection |
• If sourcing personnel is looking into new countries as sourcing destinations, macro environmental analysis must be performed to see if entering into such countries would be feasible for any given sourcing project.
|
|
|
PEST Analysis |
• Political environment analysis - Tax policies, trade agreements, import/export regulations, and or political stability, etc.- A stable government structure and strong relationships with the sourcer’s country are always a plus.
• Economic environment analysis - Currency exchange rates, unemployment rates, inflation rates, etc. - If rates are changing during production, it becomes very difficult to estimate the true cost of goods • Social environment analysis - Work ethics, culture, and the quality of the labor force in the textile and apparel industry, etc. • Technological environment analysis - Ease of communication, infrastructure related to air, ocean, and ground transportation, the degree of automation in the textile and apparel industry, etc. - Proper and timely communication is the key to success |
|
|
Enforcement of Intellectual Property Rights |
• Sourcers must consider if they could share their unique designs and brands and be protected for their intellectual property right ( IPR) in the suppliers countries
• IPR are the rights given to persons over the creation of their minds. • ( our designs and patterns, trademark, copyright) |
|
|
Four Major Intellectual Property Rights |
(a) Trademarks, (b) Copyrights, (c) Patents, and (d) Trade secrets ( Cohen, 2008)
• Trademarks: Name, Logo, Color, and three dimensional images • Similar logo or color that would likely create confusions among consumers is considered a trademark infringement. • Copyrights ( Drawing, designs, websites, or marketing materials) • Patents ( Processes and products that the sourcer may uniquely possess) • Trade Secrets ( Any confidential or classified information that the sourcer may only share with the supplier) • In the U.S. customs and border protection (CBP) and Immigration and customer’s enforcement (ICE) monitor counterfeit and pirated goods coming into the country. • In 2011, the total retail value of the products seized by both organizations was $1.1 billion ( U.S. CBP, 2011) • Apparel, footwear, perfume and colognes were top seized commodities, each representing 11.4% (or 126.3 million), 8.7% or (97 million), 4.6% or ($51 million) representatively. • 62% of infringed products were made and shipped from china followed by Hong Kong (18%), and India (3%) • Sourcers may have no power over the suppliers acts of IPR violations • In 2008, 62% of infringed goods produced in China stayed in China for Chinese consumption. • In 2008, 38% of infringed goods produced in China were exported to different countries • The regulations and enforcement of intellectual property rights differ in each country making it extremely difficult to enforce them in the global marketplace. |
|
|
Micro Analysis Level |
• At this step, a sourcer is now looking into specific factories within these countries and compares each factory’s advantages and disadvantages as a potential supplier.
• The core mission of this analysis is to find an answer to the question- Who would produce the right products, in the right condition, in the right quality, at the right time, at the right price, for this specific sourcing program? |
|
|
5 R's |
1.Right Product 2.Right Quality 3.Right Time 4.Right Conditions 5.Right Price |
|
|
Right Product |
• Each garment factory is organized to produce single product categories. - Knit products vs. Woven products
• Sourcing personnel must clearly understand in the product category to be sourced • Create a pool of right suppliers who can product the right products for the sourcer. |
|
|
Right Conditions |
1. Social and Environmental compliance's 2. Customs-Trade Partnership Against Terrorism |
|
|
Right Quality |
• The term quality means different things to different consumers and companies
• The goal of sourcing personnel is to deliver products of the right quality- the quality expected by the target consumers of the products. |
|
|
Right Time |
• Production lead time can be affected by the supplier’s production efficiency, capacity, and obligations to other buyers.
|
|
|
Right Price |
• Sourcing personnel may want to select the supplier who can produce the goods at the right price- not necessarily at the lowest price.
|
|
|
Customs Trade Partnership against Terrorism (C-TPAT) |
• Customs trade partnership against terrorism is a voluntary supply chain safeguard led by U.S. customs and border protection (CBP)
• C-TPAT began in November 2001 to improve the safety and security of private companies supply chains against terrorism. |
|
|
Direct Cost |
Five major components of direct costs:
a. Fabric b. Labor c. Trims/embellishments d. Transportation e. Duties |
|
|
What are the 7 cost terms? |
• Ex Point of Origin
• Free Alongside ( FAS) • Free on board ( FOB) • Cost and Freight (C&F) • Cost, Insurance, and freight (CIF) • Landed duty paid (LDP); • Delivered duty paid ( DDP) |
|
|
Ex Point Of Origin |
• The seller prepares the goods at the point of origin ( mostly the facility in which the goods were made and packed)
• And assumes all the costs and risks until the buyer picks up the goods from that facility. |
|
|
Free Along Side (FAS) |
• The supplier delivers the goods alongside the vessel so the goods can be within the reach of the loading tackle.
• Therefore, the supplier is responsible for all associated costs and risks until the goods reach the loading area of the ocean freight vessel. |
|
|
Free On Board (FOB) |
• The supplier is responsible for all the costs and risks until the goods are placed in or on the vessel at the loading point. ( Cheaper Option)
|
|
|
Cost, Insurance, and Freight (CIF):
|
• CIF covers all costs and risks of apparel manufacturing, ocean insurance policies, and freights, until the goods reach the point of destination that the sourcer designated
|
|
|
Cost and Freight (C&F or CNF):
|
• Cost and Freight does not include the cost of ocean insurance policies.
• Some sourcer's want to be in charge of insurance policies, instead of relying on the supplier |
|
|
Landed Duty Paid ( LDP):
|
• LDP covers all costs and risks associated with shipping up to the point at which the goods are delivered to the point of destination.
• And cleared for the sourcers country’s customs with the payment of appropriate duties. (Country you are trying to get the goods to the retail location, may not be the company’s home country). |
|
|
Delivered Duty Paid ( DDP)
|
• DDP includes one additional step of transportation to LDP• That additional step is the transportation cost from the port of the sourcer’s country, to the sourcer’s final destination.
|
|
|
Indirect Cost |
- Costs of making and shipping samples
- Costs of reworking products if production failed during inspections ( ex. Failed zipper, too small of a button hole) - Cost of monitoring pre-production and production processes - Cost of communicating through emails and/ or phones. - Cost of expediting the shipments due to production delays - Ruined reputation due to irresponsible business activities • Indirect costs are not easily identifiable • Prior reputation and history are very important • Natural Disasters, political unrests, economic instabilities could also affect cost overall. • It would be wise to add 5-10% addition to FOB to prepare for unexpected indirect costs. |
|
|
Purchase Order |
• A purchase order stipulates what the buyer has purchased • And what the seller has agreed to provide at a particular price as well as the delivery terms. • A payment method will also be negotiated. |
|
|
Components of a purchase order |
A) Product Identification
B) Product Descriptions C) Quantity per unit and total quantity per contract D) Price per unit, total amount, terms of price E) Delivery Date and Method F) Other terms and conditions |
|
|
Product Identification Numer |
• Each company will generate a unique identification number for each product or style
• This product identification number could be linked with a universal product code • (UPC), or a barcode. • A two-dimensional code, or Quick Response (QR) code, was developed to track and store a greater amount of information than a uni-dimensional code ( Furht,2011) |
|
|
Product Descriptions |
• Product descriptions includes:
- Acceptable fabrics, including fiber content, fabric construction, finishing techniques, etc. - Acceptable trims or embellishments, if any, including fiber content trim construction, finishing details, etc. - Trim/ Embellishment placements - Technical design sketches with size specifications - Production techniques - Label/ tag requirements and placements. |
|
|
Contract Quantity |
• A purchase order also includes the total quantity that the sourcer wants the supplier to produce
• The total quantity is a sum of quantities per style, per size, per color, and per other assortment requirements • Amazing jeans, 120,000 pieces, 75% regular and 25% capri length pants. • Size ration of 7/8-10/12-14-16= 1-2-2-1 • Even quantity breakdown of three different color choices per style |
|
|
Price per Unit, Total Contractual Amount, and the Terms of the Price
|
• A proper purchase order includes the price agreed upon between the sourcer and the supplier
• The most common price unit is piece, set, or dozen • Must be clear as to what these prices really represent and include, including a correct cost term, such as FOB, CIF, or LDP. |
|
|
Deliver Date and Method
|
• A purchase order should indicate an acceptable shipping mode as well as a delivery date.
• Sourcing personnel then communicate this information to other teams, such as distribution centers, imports, and finance, so these teams can be prepared to receive, store, and pay for the shipment in a timely manner. |
|
|
Other Terms and Conditions
|
• Examples of other conditions are quality assurance policies, order cancelation policies, and or contingency plans in case any of the contractual conditions are not met.
|
|
|
A purchase order must specify the method of payment and any required conditions of such payment |
**** |
|
|
Types of Payments |
• Consignment sales
• Open account • Documentary Collection • Letter of credit • Cash Advance |
|
|
Consignment Sales |
• Under the consignment sale contract, the sourcer does not pay until the suppliers goods are sold to a third party
• For the sourcer, consignment payment is one of the least risky methods of payment |
|
|
Open Account |
• Open Account is similar to consignment sales, except that the term of payment usually ranges from 30 to 120 days, regardless of whether the sourcer sold the goods to a third party .
|
|
|
Documentary Collection |
• Documentary draft is one of the most common methods of payment in global sourcing ( Seyoum,2000)
• In documentary collection, two banks, suppliers (remitting bank) and the sourcers (collecting bank), are involved to facilitate the payment. |
|
|
Letters of Credit |
• Letter of Credit ( or L/C) is another common method of payment in global sourcing
• It refers to a sales agreement between the sourcer and the supplier that the sourcer’s bank assumes liability for payment to the supplier on behalf of the sourcer. • Banks on both sides of the agreement act together and are involved in the payment process. • L/C transactions are possible if the following four bilateral contracts are present: A) a sales contract or a purchase order between the sourcer and the supplier B) a credit and repayment contract between the sourcer and the issuing bank; C) a letter of credit between the issuing bank and the supplier as beneficiary; and D) a payment contract between the advising bank and the supplier. |
|
|
Advantages of using L/C |
• Because of the banks guarantees to payments, both supplier and sourcer would be less vulnerable to contract violations by each party.
• Through a payment contract between the supplier and its bank the supplier is guaranteed to receive the payment as long as he or she ships the goods and presents the necessary documents. |
|
|
Disadvantages of using L/C |
• The sourcer must maintain a good credit rating.
• Without a good credit rating, the sourcer may have to come up with cash or other collateral securities before opening any new L/Cs |
|
|
Cash in Advance |
requires the sourcer topay before a shipment is made.
•The supplier assumes no risk of delay inpayment or nonpayment. •The sourcer has a poor credit rating •The sourcer has little or no prior historyor relationship with the supplier •The financial and political situation ofthe sourcer’s country is unstable |
|
|
* |
|
|
Trade Evolution |
|
|
|
Trade Barriers |
|
|
|
3 types of Tariffs |
1. Ad Valorem 2. Specific 3. Combination |
|
|
Ad Valorem Tariff |
|
|
|
Specific and Combination Tariff |
|
|
|
Two Types of Quotas |
1. Absolute Quota 2. Tariff- Rate Quota |
|
|
Absolute Quota |
|
|
|
Tariff Rate Quotas |
|
|
|
Quotas |
|
|
|
Free Trade Agreements |
-As of 2014 the U.S. has FTA's with 20 Countries - 12 Countries are bilateral - 8 are multilateral- NAFTA, CAFTA- DR |
|
|
Trade Preference Programs |
|
|
|
Currently the United States offers 4 trade preference programs |
|
