Guest Columnist - John Ropa
Posted: July 30, 2010
In tough times like these, manufacturers look for any means to cut costs. So that means they should pay a visit to their accounts payable department. Just think what's there: Hard copies of invoices sorted by vendor in chronological order. Sure, these documents are summarized in lots of computer reports, but, take my word for it, there is no substitute for examining the paperwork themselves. The most important item is the vendor's invoice description.
Chances are very good that the biggest file in the accounts payable department will consist of freight bills. Classification called NOS (not otherwise specified) can return freight dollars if the descriptions are corrected. All freight bills should be audited. There are many freight bill auditing firms which only charge a percentage of the money recovered. That way your only out-of-pocket expense is getting the freight bills to the audit firm.
The bills will also show you shipment frequency. "Just in time" is a great concept until inbound freight expenses double or even triple. Shipment frequency can also be exaggerated by vendors who can't afford to wait to consolidate multiple products into a single shipment: They simply need money now because times are tough for them, too. Finally, high shipment frequency can and does create backlogs in incoming quality assurance, negating some of the benefits of "just in time". Vendor batch control can help reduce these costs.
Next, look for purchases of foreign origin. If you import directly, the documents will also be in accounts payable in the customs broker file. With a few exceptions, duties are paid on nearly every imported item. Some you may pay directly; others are paid by distributors who are importing on your behalf. As with freight bills, never assume that the tariff has been applied correctly. An import agent or distributor will generally rely on the vendor's invoice description. Remember that the tariff rate is determined by what the item is, not what it's used for.
The document that describes the import transaction is called the consumption entry, which is created by your import broker or your own customs department. You can examine the tariff rates you paid and validate the tariff by looking it up in the Harmonized Tariff System of the United States (HTSUS), which is available online (though I prefer using the book). There can be a lot of subjectivity in determining the correct tariff classification, particularly if the vendor invoice description is vague in any sense. There's money in landed cost.
John Ropa retired after 20 years in the international division of a large, multinational corporation. He can be reached at:J.Ropa@yahoo.com