Bright Spark Pty Ltd Exporting Its Technology Products Commerce Essay

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Bright Spark Pty Ltd is a company intended to export its technology products to the US market through two newly contracted distributors; Flotsam and Jetsam Inc. members of the US C-TPAT Program. The technology products are sourced from a variety of raw materials and semi-finished components from several different countries around the world and assembled in Malaysia and exported from Singapore which is a CSI port.

A key component is sourced from a country with a significant lower labor costs but has been listed by the US Government as a" Security Concern".

Issue for Policy Analysis

To prepare a brief on the implications of the new contract for the current global sourcing model and recommend the most cost-effective means of supplying the US market.

General Background

In the era of globalization: defined to mean the movement of people, goods, capital and ideas due to increased economic integration which in turn is propelled by increased trade and investment, the ambition to generate income and hence wealth would be realized irrespective of national boundary.

The following confirm the above statement:

"The last twenty years has seen a marked acceleration in the trend towards 'Globalization' Driven by the increasing ease and availability of worldwide travel, the ongoing revolution in information technology and the creation and expansion of worldwide communications and financial networks, the world has become increasingly distance-less and border-less: in effect, a smaller place.

Unfortunately, however, the benefits arising from the opening of the global

Communications and transportation networks have not been confined to legitimate entities. Globalization has also increased the scope and reach of other actors, among them terrorist groups and criminal networks. It has provided the means for terror groups to operate within a global context, to the extent that global terrorism has now become the biggest challenge to the globalization trend."(CCES, International Supply Change Management, 47)

From the above-cited statement, it can be observed clearly that although globalization and the global integration of trade have impacted positively, the opportunities for terrorist activity that has significant negative impact have also increased. Emphasizing to such negative increment, the World Bank Report stated 'The terror and tragedy of September 11, 2001, have emphasized the need for reforms in border and transport infrastructure. Terrorist attacks can seriously disrupt the passage of people, goods, and modes of transport across borders. Measures designed to stop terrorism can add certainty and stability to the global economy, raise investor confidence, and facilitate trade. Secure trade is now as important as free trade.' (World Bank, 2003, p182)

Note the phrase 'secure trade' to emphasize measures to be taken by Government and business concerns about international terrorists using supply chain systems to carry weapons of mass destruction or by destroying critical parts of supply chain infrastructure, created momentum for new sets of supply chain security standards, at national, regional and global levels. The security standards are required to serve to the extent of regional and global levels as the impact of terrorists extend to such levels. The following statement depicts this concern:

"The impact is felt not only in the country of the attack but also by other countries linked economically to that country through trade. As an example, a significant attack on the U.S. that caused them to close down their seaports and airports for a lengthy period would have a significant impact on a major trading partner such as China." (CCES, International Supply Change Management, 47)

The impact as explained by CCES, ISCM, is not just short-term. It has stated that a study by the Australian Department of Foreign Affairs "Combating Terrorism in the Transport Sector …. Economic Costs and Benefits" has found "That in addition to the short-term disruptive economic effects of terrorist attacks, the ongoing threat of terrorism will have a medium to long-term impact on the world economy''. (DFAT, 2004)

The stated study has shown that one of the major impacts is on the operating costs of Governments and businesses. Because businesses are required to hold larger inventories in case of possible disruption in the supply chain and pay higher insurance premiums as a security measure to mitigate the risk of terrorist attacks. These costs can ultimately lead to a decline in productivity.

In response to such threat of terrorism that impact negatively on the economy, initiatives to secure an international trade have been taken on country, regional and global levels. The US Customs Trade Partnership against Terrorism (C-TPAT) and Container Security Initiative (CSI) are among the major initiatives developed and implemented as a security tools for goods destined to the US territory. The World Customs Organization (WCO), the International Maritime Organization (IMO) and the International Civil Aviation Organization (ICAO) have also developed international standards to guide member countries in implementing appropriate responses.

Based on the foregoing general background this paper attempts to assess and recommend the most cost-effective means of supplying the US market considering the issue of the following case.

Case for Policy Analysis

Bright Spark Pty Ltd is a company intended to export its technology products to the US market through two newly contracted distributors; Flotsam and Jetsam Inc. members of the US C-TPAT Program. The technology products are sourced from a variety of raw materials and semi-finished components from several different countries around the world and assembled in Malaysia and exported from Singapore which is a CSI port.

A key component is sourced from a country with a significant lower labor costs but has been listed by the US Government as a" Security Concern".

Issue for Policy Analysis

To prepare a brief on the implications of the new contract for the current global sourcing model and recommend the most cost-effective means of supplying the US market.

Concepts and practices of Supply Chain Management, Supply Chain Security, Global Sourcing, Customs Trade Partnership Against Terrorism (C-TPAT) and Container Security Initiative (CSI) have been considered briefly to analyze the given case.

Supply Chain Management

The fundamental objective of supply chain management is to increase sales of goods and services to the final, end use customer while at the same time reducing both inventory and operating expenses. Therefore, it is worthy to have Knowledge of what a supply chain is and how it operates in any comprehensive understanding of international trade whose need has been further highlighted by the globalization of international trade and the incidents of September 11, 2001. From that incident there existed significant increase in government intervention in international supply chain operations both at national and international levels.

Studies reveal that parties involved in contemporary supply chain include manufacturers, suppliers, transporters, warehouses retailers and consumers. The parties involved in the supply chain strive to work together in on effort to:

Acquire raw materials;

Process and convert it into final products to be consumed by other entities;

Deliver the final proudest to retailers.

"Supply Chain Management" has been described as "the systematic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole" (Mentzer, John T., William DeWitt, James S. Keebler, Soonhong Min, Nancy W. Nix, Carlo D. Smith, and Zach G.Zacharia, 2001, "Defining Supply Chain Management", Journal of Business Logistics, Vol.22, No. 2, page 18).

Although different schools defined contextually, I considered the following definition as it expresses the context under discussion. Accordingly:

"A supply chain may be defined as an integrated process wherein a number of various business entities (i.e. suppliers, manufacturers, distributors, and retailers) work together in an effort to :( 1) acquire

Raw materials, (2) convert those raw materials into specified final products, and (3) deliver these final products to retailers. This chain is traditionally characterized by a forward flow of materials and a backward flow of information" (Beamon, Benita M.: Supply Chain Design and Analysis - Models and Methods, International Journal of Production Economics (1998) Vol.55, No.3, pp281-294).

I considered this definition relevant to the case under discussion, because raw materials ad parts for the technology products sourced from various countries around the world confirms the acquisition, while the assembling process in Malaysia resembles with conversion to final products, and the exporting aspect reflects the delivery of the technology products.

The raw materials and semi-finished parts of the technology products of the company under discussion, being sourced from different countries indicate the commencement of the supply chain in other different location. Particularly a key component with a significant lower labor costs sourced from the country that listed by the US Government as a "Security Concern", thus, influencing the cost due to the non-ease movement of the raw material. There could also supply chain disruption influencing negatively the 'velocity' of the supply chain. Such instances in the supply chain is to be considered as supply chain risks and must be identified, assessed, and treated appropriately and the business system is required to designed to support that process cost effectively and sustain ably.

The relevant supply chain process with respect to the case under discussion involves the process of an international supply chain that has three distinct movement components. The three distinct movement components as described by the CCES study Guide, Module 1 are;

Origin to Departure port;

Port - to - port shipping (sea or air) ; and

Port of Arrival to destination (CCES,5)

Here, the parties involved in the supply chain will include, as defined by Chopra, Sunil and Meindel, Peter "… the manufacturer and suppliers, transporters, ware houses, retailers, and customers." Referring the issue under discussion the manufacturer, i.e. the company for whom I am working as a supply chain manager sources raw materials and semi processed components from various different countries around the world to process it and export to the US market.

Here other issues of consideration for the export of the stated product are regulatory organs, mainly the role Customs and Export and import authorization agencies of the respective countries.

The World customs organization (WCO) defines Customs as: "the government service which is responsible for the administration of customs law and the collection of import and export duties and taxes and which also has responsibility for the application of other laws and regulations relating, inter alia to the importation, transit, and exportation of good."(WCO)

Words/phrases in the definition of Customs cited above reflect various roles and responsibilities of contemporary Customs. Accordingly, the phrase '…administration of Customs law' is mainly concerned with and entry to and exit from a country fulfilling appropriate procedures and obligations stipulated within respective Customs law. The phrase'…responsibility for the application of other laws and regulations', encompass the responsibility of customs administration tend to carry out border control functions on behalf of other agencies. "These activities are likely to be under taken on behalf of and /or in conjunction with immigration, quarantine and health authorities, border or economic police, agriculture and environmental agencies and many others."(CCES, ISCM)

The role of customs within the supply chain represents government's responsibility to regulate supply chain functions. For this very reason it is important, to identify and understand Customs regulations and procedures that can impact the shipment of the sourced raw materials and other components intended for the product. Accordingly, customs regulations and procedures of all countries involved in the supply chain process related to export and import have to be duly understood.

It is recognized "Customs administrations around the world have important powers that are unique amongst government agencies, the authority to inspect all cargo imported and exported from a country. With this power, usually come the power to refuse entry of goods to their country and additionally the power to facilitate or impede entry.

Customs is also the agency in government to which importers and exporters provide information about their cargoes. They can also mandate the form in which that information is provided and the timing of the provision of that information".(CCES, ISCM,)

To realize responsibilities and exercise powers, contemporary Customs rely on the WCO Framework of standards and the Revised kyoto Convention. The issue under discussion is required to take into account relevant provisions of these Frameworks, to realize the ultimate purpose of balancing regulatory compliance and facilitation.

Regarding the case under review Customs administrations of all countries included in the supply chain are required to implement Customs procedures adopted on the WCO Framework of Standards and US initiatives developed in response to the incident of September 11, 2001.

With the supply chain process the other issue of consideration is to decide the mode of transport to ship the materials required as input and forward the products, which is among the supply chain infrastructures.

US Response to Terrorist Threat

AS explained by the CCES, ISCM the benefits arising from the opening of the global communication and transportation networks have not confined to legitimate entities. Globalization has also provided the means for terrorist groups to operate within a global context. This shows global terrorism has become the biggest challenge to the globalization trend.

The action of terrorism can seriously disrupt the free movement of people, goods and modes of transport across borders and even within interlard. ­­­­Particularly the terrorist attacks of September 11, 2001 have emphasized the need for reforms in world trade and global transport infrastructure. Thus, various measures to stop terrorism have designed to secure stability, to global economy, raise investor confidence and facilitate international trade.

The initiatives developed by the US have become the template for the international, regional and other governments' response to supply chain security.

The very purposes of range of initiatives introduced by the U.S.Government are to improve security in the supply chain and fall under the U.S. Department of Homeland Security (DHS). DHS coordinates over 20 federal government agencies including Customs, Immigration, Coast Guard, Secret Service and an agency Transportation Security Administration (TSA) created to ensure transport security screening was undertaken by a government agency.

It has been pointed, "Most initiatives developed are run by U.S. Customs and Border Protection (CBP). The U.S. initiatives are not necessarily integrated and because of the way, they were created through new legislation and a series of subsequent funding proposals, they, largely, stand-alone. CBP describes their cargo security strategy as being a risk-based, layered enforcement approach''.(CCES, ISCM,49)

The initiatives include;

24 Hour Advanced Vessel Manifest Rule, (AMR) that requires the cargo carrier to submit detailed cargo data to Customs & Border Protection, (CBP) at least 24 hours prior to lifting containers onto a U.S.-bound ship. The AMR rule states, containers are allowed into the U.S. only after supplying information electronically to Customs at least 24 hours before the container is loaded on the ship. The information containing 14 data elements used to prescreen containers of risk prior to arrival in U.S. ports and to select containers for inspection at ports of entry.

10 plus 2 - Advanced Security Filing that enquires information about the earlier stage of the supply-chain process; basically back to the

point of container stuffing. The 10 plus 2 Advanced Security Filing included a requirement for an additional 12 elements of data provided prior to the container being loaded on the vessel.

The additional information required comprises to the carrier and importer.

It requires the carrier to submit Vessel Stow Plan: no later than 48 hours after the carrier's departure from the last foreign port, and Container Status Messages (CSM): CSMs must be submitted to CBP daily for certain events relating to all containers laden with cargo destined for the U.S. by vessel.

Importer Requirements include:



Importer of record number / FTZ applicant identification number;

Consignee number(s);

Manufacturer (or supplier);

Ship to party;

Country of origin ; and

Commodity Harmonized Tariff Schedule of the United States (HTSUS) number.

The rule provides 48 hours and 24 hours respectively for the carrier and importer flexibility for importers with respect to the submission of required information.

The importer will also need to include two data elements that must be submitted as early as possible, but no later than 24 hours prior to the ship's arrival at a U.S. port.

These data elements are:

Container stuffing location; and


As par t of the implementation CBP will conduct a review to determine any specific compliance difficulties that importers and shippers may experience in submitting all 10 data elements 24 hours before lading. The structured review will cover a range of enterprises, from small to large, and will include both integrated and non-integrated supply chains.

Container Security Initiative, CSI

This scheme requires the U.S. and some trading partner governments to pursue supply chain security by pushing inspections and screening upstream to originating ports.

Regarding this scheme it has been pointed "they have established a series of bilateral agreements that permit exchange of Customs officers and more screening of shipments at the outbound ports". It further stated "The CBP officers work with the host Customs officers to ensure containers are targeted and screened using non-intrusive inspection (NII) and radiation detection technology. The goal is for CBP's overseas CSI teams to review all the manifests before containers are loaded on vessels destined for the United States. However, in those locations where the CSI team cannot review all the bills because of the tremendous volume, CSI targets at the National Targeting Center - Cargo provide additional support to ensure that 100 percent review is accomplished". CCES, ISCM, 52)

Reports indicate that CSI has partnered with 32 countries and is operational in 58 ports in North America, Europe, Asia, Africa, the Middle East, Latin and Central America have implemented CSI at the end of 2008 resulting in approximately 86% of all maritime containerized cargo imported into the United States now being subject to prescreening prior to importation. (CBP 2008a)

We have to bear in mind that the port of Singapore is a CSI port from which the product under review is exported to the US. Therefore, all shipments destined to US markets are expected to complete all the requirements of CBP. As our intention is to analyze the impacts of security initiatives developed and implemented at different levels by different organs, let us have a brief impacts SCI on SCM.

Impacts of SCI on Supply Chain Management Decisions

Considering sourcing, manufacturing, and shipping to the intended US market the product under discussion optimally forces us to look at the operational elements of SCM.

The operational elements of supply chain management are categorized under efficient and effective processes of Planning; Sourcing; Making or Manufacturing; and Delivering.

For Bright Spark Pty Ltd, a company intended to export its technology products to the US market through two newly contracted distributors; Flotsam and Jetsam Inc. members of the US C-TPAT Program, to be successful with its ventures the efficiency and effectiveness of these elements are vital.

Therefore, Bright Spark Pty Ltd's planning process comes at the heart of the supply chain process commencing from identification of raw material and low labor cost country to the end of exporting the final product to the intended market to satisfy customers demand.

CCES, ISCM has described these operational elements as follows:


"Planning refers to all the business processes needed to plan and organize the operations in the other three categories and include processes such as demand forecasting, product pricing, and inventory management. Planning is therefore at the heart of any supply chain's efficiency.

Sourcing includes all those business processes necessary to acquire the inputs to create products or services including processes such as procurement, finance and invoicing.

Making (Manufacturing) includes all those business processes required to develop and build the products and services that a supply chain provides. These processes include product design, product management, and facilities management.

Delivery includes all the business processes that are part of receiving customer orders and delivering products to customers. The two main sub-categories are order entry/order fulfillment and product delivery and constitute the principal connections between companies in a supply chain. The other main sub-category is return processing when

Customers need to return a product for any reason''.(CCES, ISCM, 34)

Global Sourcing

The technology products under discussion are sourced from several different countries around the world. Particularly a key component is sourced from a country with a significant lower labor costs but has been listed by the US Government as a" Security Concern".

This shows the prevalence of "Global sourcing", the term used to describe the situation where a company elects to source goods and services from locations in different countries; most often from a lower labor cost location and often in emerging market economies. Global sourcing has also been described as "unbundling the supply chain" which means product components may be manufactured in several countries and assembled into the final product in a different country. Such scheme is known as the first phase type of global sourcing has been a characteristic of trade growth in Asia. The case analysis under discussion conforms to this as the final product is assembled in Malaysia, and shipped through Singapore port. During this phase, a large manufacturing company set up global operations and utilizes suppliers from different countries to take advantage of low labor costs.

As Wilding and Braithwaite point out: "The first consequence of this drive for low cost is the core characteristic that global sourcing is not 'adjacent'. Global chains are extended in terms of the time that is locked up in the sequential processes of ordering, provisioning,

manufacturing and shipping" (Wilding and Braithwaite 2006 page 1).

It is stated "they go on to estimate that between 30% and 50% of the time that goods spend in the total supply chain is represented by the global sourcing element and yet it adds 2-5% to the transactional cost. They also estimate that "there could be as many as 7 additional

parties to executing the global sourcing transaction, including consolidation centers, shipping lines, customs and compliance authorities" (Wilding and Braithwaite 2006 page1).

We have to note that an effective global sourcing requires the lowest cost suppliers including a range of factors that contribute to the" total landed cost" (that is, the total cost of purchasing, transporting, warehousing and distributing raw materials, semi-finished and finished goods. of goods); and it is the combination of these factors that informs the decision on what is the optimum global sourcing strategy.

The range of factors include: Manufacturing and delivery costs; Availability of skills; Cost of inputs to production; Exchange rate fluctuations; Availability and quality of infrastructure (including transportation, communications

and energy); Industrial and cultural fit; Taxation issues; Regulatory issues; Risk profile including security and intellectual property protection.

The decision for global sourcing is required to take into account "Logistics, inventory management, geographical distance and lack of knowledge about foreign business practices", (CCES, ISCM, 40) as these factors cause significant operational difficulties for companies that are involved in global sourcing. Analyzing all the factors and finally, weighting the advantages and disadvantages helps to make optimal decision.

The manufacturing company under discussion is required to account the range of factors mentioned above in its process of sourcing.

Customs Trade Partnership Against Terrorism (C-TPAT)

CBP describes C-TPAT in the following way:

"C-TPAT is a voluntary government-business initiative to build cooperative relationships that strengthen and improve overall international supply chain and U.S. border security. C-TPAT recognizes that CBP and Border Protection (CBP) can provide the highest level of cargo security only through close cooperation with the ultimate owners of the international supply chain such as importers, carriers, consolidators, licensed customs brokers, and manufacturers. Through this initiative, CBP is asking businesses to ensure the integrity of their security practices and communicate and verify the security guidelines of their business partners within the supply chain." (CBP 2007b)

Taking directly the statements described from CCES, ISCM to note the requirements, and benefits/challenges with the C-TPAT let us observe the following:

"C-TPAT encourages the supply chain parties to improve security and rewards them with benefits such as reduced cargo examinations. It is stated that "the initiative commenced in 2002 and CBP have now completed over 8,000 total initial validations and over 2,218 revalidations''.(CCES, ISCM,52)

The basic process involved as described by CCES,ISCM include:

Sign Agreement with CBP to cooperate, assess & improve security;

Self-assessment by applicant against Security Guidelines

Application (file Security Profile)

Certification after background investigation and document review - Tier 1

Validation after on-site assessments (including at foreign locations) - Tier 2

Compliance with additional guidelines - Tier 3

Periodic re-assessment and revalidation (every 4 years)

CCES, ISCM indicated that the program continues to grow and become more prescriptive. In 2005, minimum requirements were established by CBP based on practices that appeared to be prevalent throughout the trading community in companies who submitted their applications pre-2005. In 2006, the SAFE Port Act codified the C-TPAT program.

The US Government Accountability Office (GAO) undertook a review of C-TPAT and reported in 2008 that CBP has strengthened its policies and improved its validation processes. A particular focus of the review was on the policy for granting benefits to importers, C-TPAT's largest member sector. The report commented that CBP have successfully implemented a three tier approach for importers but have struggled to identify additional benefits to offer non-importers in a tiered structure. (GAO 2008a)

In 2007 CBP undertook a cost benefit survey of the C-TPAT program and found that 57% of businesses surveyed indicated that C-TPAT benefits outweighed the costs. (University of Virginia, 2007) CBP claims that C-TPAT importers are 4 to 6 times less likely to incur a security or compliance examination than other importers. (CBP 2008c)

Membership for C-TPAT is voluntary but companies who have not

Joined in the program are likely to find it more difficult to partner with companies who have been certified under the C-TPAT or other World Customs Organization (WCO) accredited security program (Authorized Economic Operator).

Fortunately, the two distribution companies, Flotsam and Jetsam Inc. are members of the US C-TPAT Program. Thus, they are in a position to enjoy the advantages of membership. The advantages include fewer security checks leading to faster import procedures.

Being member of C-TPAT enhances international supply chain security and prevents potentially crippling economic disruption, thus, the company under discussion enjoys US market as the newly contracted firms are members of C-TPAT.

The survey conducted by the University of Virginia indicated:

C-TPAT benefits equaled or outweighed the affiliated costs;

Greater ability to predict lead time;

Decrease in supply chain disruptions;

Decrease in wait times for carriers at border;

Increase in number of customers and revenues;

Improve security for work force;

Reduce cargo theft and pilferage.

These benefits and the future benefits derived from the implementation of current C-TPAT program goes to the new contract.