Imports: Optimizing your supply chain with offshore production

Offshore production can be a great way to enhance your offer and boost your profit margins. It has 2 variations: raw material or semi-finished good imports and offshore subcontracting. Whichever you choose, managing foreign suppliers is key to your business's value chain. Foreign suppliers often have the pick of the litter when choosing customers. Buyers (importers) sometimes need to establish a program to identify the perfect supplier, sign it and win its loyalty.

Identifying and signing a foreign supplier

Businesses develop or diversify their global supply chain to get better prices, quality or customer service. To optimize your purchasing, start with an internal review to lay the groundwork for signing a foreign partner. Here's what you need to do:

1. Determine (quantify) your import or subcontracting objectives (lower raw material prices, better quality, etc.) based on your business's specific needs.
2. Identify regions that could help you meet these objectives and compare them (e.g., labour costs in China are rising faster than in some Latin American countries).
3. Identify potential partners in your chosen region. You can use local partners (trade commissioners, etc.), industry directories or bilateral chambers of commerce to identify potential suppliers.
4. Evaluate these potential partners based on their offer, financial strength, management and sales teams, etc. Don't hesitate to get references so you can verify information, and pay special attention to working conditions and environmental standards in order to protect your reputation and integrity.
5. Address the first items in the agreement with your partner, such as quality, delivery period, price, volume, product modification options and everything your partner will need to perform the contract to your satisfaction.
6. Negotiate the other items (terms of payment, delivery responsibility, third party liability, intellectual property protection, non-compete, insurance, penalties, other obligations, etc.).
7. Present your supplier with an attorney-reviewed agreement.

Optimize your business relationship with your foreign supplier

Follow these tips to ensure a mutually beneficial experience:

• Maintain open lines of communication with your foreign supplier and make sure to visit regularly to show that you are serious. You can also involve the supplier in the product and strategy development process.
• Share important news with your supplier and don't hesitate to use your supplier's services or network for your business development.
• Be attentive to your supplier's concerns and suggestions.
• Educate your supplier about business best practices and offer your support.
• Work to improve your purchasing process and consult with your supplier before rolling out any new technology.

Governance and control

The quality of your supply chain governance has a huge impact on the chain's performance and transformation. Many supply projects fail because of a lack of management and oversight.

Organization: You and your supplier's managers must monitor the distribution of tasks and strategic objectives, maintain the structure and prioritize initiatives.

Function: Your supply chain team must coordinate and communicate with the supplier's sales team.

Operations: Your warehouse team must communicate with your supplier to constantly seek out new ways to optimize logistics for both parties.

Governance entails a number of aspects:

• Performance management
  • Analyzing trends
  • Analyzing processes and operation flows
  • Analyzing opportunities for improvement
• Financial management
  • Monitoring prices in light of volumes and market conditions
  • Approving unbudgeted expenses
  • Renegotiating prices
• Contract management
  • Monitoring compliance programs and new regulations
  • Monitoring prices
• Relationship management
  • Monitoring the flow of communications and integration gateways
  • Keeping the supplier focused on the business
  • Monitoring problems and the quality of the interaction
• Human resource management
  • Monitoring and coordinating the people involved
  • Monitoring the transition
  • Monitoring information sharing

Developing a guide for your foreign suppliers

A good way to communicate your supply requirements is to put together a guide for your foreign suppliers. Have it translated into their language and update it frequently. The guide can include the following information:

• Packaging rules
  • Types of packaging, maximum volumes, weight, additional protection
• Labeling rules
  • Required information, standards, colours, codes, etc.
• Rules regarding customs documentation
  • Sample required documents, number of copies, etc.
• Transit rules
  • List of authorized carriers
  • Documentation responsibilities
  • Acceptable transit times
  • Required transportation and handling equipment
• Delivery rules
  • Delivery coordination procedure
  • Appointments and time of receipt
• Quality rules
  • Tolerance
  • Return procedure
  • Warranties
• Review rules
  • Supplier performance review criteria
  • Review schedule
• Penalty procedure
  • Possible penalties
  • Dispute procedures
• Risk and liability
  • Insurance and compliance
• Information sharing rules
  • Confidentiality
• Ethics rules

Setting up an extranet and information sharing tools

Set up an extranet to provide your suppliers with secure, privileged access to some of your documents. It is an extension of your local area network and can be accessed via a URL. It can be ID and password protected and used to:

• share a supplier guide
• share official price lists
• post digital marketing material for printing
• share the employee directory
• share confidential documents that cannot be saved or printed
• share technical documents
• track invoices and orders
• share inventories

Desjardins can help you do business internationally, maintain good relations with your foreign customers and suppliers and manage your business risks. Contact Desjardins International Services