How can we deal with a monopoly supplier and maintain a sustainable business.

Dealing with monopoly suppliers always a herculean task, they often increase the price, high delivery lead time, etc....

Most of the time you will end up delay in delivery and also decrease the profit of the business, we had faced these issues several times, let's check how we tackled.

Our Aim to make our customers happy and supply the product with competitive price, due to the above issue we were unable to manage the same, we had decided to make a sustainable formula in order to move forward and make our customer happy. We had analyzed the problem identified following issues:

• There is no proper forecasting for the product required, so let us analyze the past trend (3 years) forecast accordingly
• Lead time is very high in suppliers side for production (8 Weeks) which has to be reduced at the bare minimum level same has to be taken up with higher management (Suppliers).
• If we start ordering based on the forecast we may end up with higher NPA, so we have to order only fastest moving models.
• We need to work out the alternative of this product (though it is a monopoly), the similar product needs to be identified and try to convince the customer who required the product immediately.

Believe me, by implementing these we manage to fulfill the requirement of our customers almost 90%, Implemented solutions:

• We had analyzed the ordering trend and sale trend and accordingly we ordered fast moving goods for 3 months and started reviewing the trend of every month.

• Production lead time issue had been taken up with supplier higher management and they had agreed to reduce the lead time from 8 weeks to 6 Weeks provided that we have to sign a contract where our obligation to make sure minimum number units has to procured from supplier / Year, and by agreeing this supplier had agreed 5% discount on each unit.

• Now we saved 5% of product cost and lead time also reduced but we found some more areas for improvement.

• External lead time has been reduced but what about internal lead time? normally it will take 1 week to sent a PO to the supplier, now it has to reduced to one day how we can do this, we had discussed with all relevant department heads and made them understood the issue, they had decided PO will not be kept unsigned in their table more than 30 mins, in case of any discrepancy it has to clear immediately otherwise it will move to next level, finally we achieved this as well. now we saved almost 3 weeks delivery time.

Still some areas for improvement?

Yes, it is transit time, we had decided will rely on only fastest transit time and reliable shipping line (Within the budget) service, which again makes another 4 to 5 Days saving, and make sure immediate clearance so now our customer happy & sales happy.

But how long this can sustain? we have to expect the unexpected.

We started to find the alternative product in market finally we found somebody who can make a similar product and explained them about our product which we required and they manage to build the similar product with similar performance, and it had been tested in our labs and approved as well, also we had given some pilot order to the supplier, We started supplying this product to our customers who required the material immediately. 

Finally, we achieved the target, by implementing this and we made our customer happy and also our sales volumes increased.

"A customer is the most important visitor on our premises, he is not dependent on us. We are dependent on him. He is not an interruption in our work. He is the purpose of it. He is not an outsider in our business. He is part of it. We are not doing him a favor by serving him. He is doing us a favor by giving us an opportunity to do so."Mahatma Gandhi

Letter of Credit (LC) - Questions

 What is a letter of credit ?? why it is used ??

Letter of credits is a written undertaking of a bank to pay beneficiary against the delivery of specified documents as mentioned in the letter of credit.

Documents normally include following:

Evident of cargo loading: (Bill of lading, Airway bill, Truck waybill, Truck consignment note, etc...)

Invoice, Packing list, certificate of origin, Test report,  etc...

How many banks are involved in Letter of credit ?? what are the functions of bank ??

Issuing Bank  (Buyers Bank):

This Bank will take the payment obligation from Buyer and they will release the payment toSupplier'ss bank if certain conditions are met as per the LC.

Advising Bank:

Advising bank will be Issing bank representative or counterpart in sellers country normally this bank will receive a letter of credit from Issing bank and then will forward the LC to sellers bank (Beneficiary Bank) / to the seller directly.

Advising bank will not take any payment responsibility they are just representatives of Issing bank.

The seller can request the buyer to make their bank (Beneficiary Bank) and hence seller can save some charges and time. 

Beneficiary Bank (Sellers Bank):

In which bank seller will receive payment and submit the document If buyer nominates seller as advising bank and then Beneficiary will act as advising bank.

There are other banks also involved in LC which are not in use regularly, Like: Negotiating bank, etc...

May I know what is mean by Revocable and Non - Revocable LC ?? Which are the LC's are used more often ??

Non -  Revocable LC:

The majority of the LC are NON - Revocable LC's  we can say the use of revocable LC is very rare.

Non - Revocable LC: In a Non - Revobale LC you will be changed, amend or canceled without mutual concern from the seller, If buyer or seller has to change LC then sellers bank has to be informed buyers bank will raise the amendment to sellers bank and then same has to be approved by seller.

Revocable LC: Buyer can change, amend or cancel the LC without sellers consent.

What is  LC @ Sight ??

LC at Sight means Byers bank (Issing bank) will release payment to sellers Bank after receiving the document in buyers bank and after approving the LC arrival advice by the buyer.

Apart from LC @ sight, there are other payment terms as well LC @ 30 Days, 60 Days, 90 Days and 120 Days which means after credit days after the acceptance of documents.

Eg: LC@ 60 Days: Seller will receive payment after 60 Days of LC acceptance by buyers Bank.

Did you explain what is LC discrepancy ?? 

We had discussed previously as well seller required to submit some documents in Banks in order to get payment from Issuing Bank these documents has to match with LC issued if there is mismatch other than the tolerance allocated in LC which is allocated for Qty, Price (Not mandatory to allocate the tolerance) any bank can raise the discrepancy buyer should accept the discrepancy in order to get the payment to seller.

If the buyer rejects the discrepancy then the buyer will not get the document and seller could not get the payment.

Normally in such cases, buyer and seller will agree on an amicable solution in order to avoid further complications.

Why bank required only a clean bill of lading ?? why they will not accept a claused bill of lading ??

In LC BL will be consigned to BANK not to consignee directly so bank needs make sure cargo is safe from the port of loading.

Which are the main LC terms we have to look into it while getting an LC ?? What does it mean ??

• 40 A: Type of LC (Revocable / Irrevocable)
• 20: Documentary credit no (LC NO)
• 31C: Date of LC Issue 
• 31D: Date and place of expiry.
• 50: LC Applicant
• 59: Beneficiary 
• 32B: Currency code amount
• 39A: Percentage of credit amount tolerance.
• 41 D: LC document submission (ie: Advising bank by negotiation)
• 43 P: Partial shipments allowed / not allowed.
• 43 T: Transhipment allowed / not allowed
• 44 E: Port of loading / Airport of discharge 
• 44F: Port of Discharge 
• 44 C: Latest date of shipment
• 45A: Commodity description 
• 46A: Document requirement.
• 47A: Additional requirement.
• 71B: Charges (Who will pay & What will pay )
• 48: Period of presentation (Within how many days document has to be presented in Bank)
• 57 D: Advising bank

Which are the points I need to consider before submitting the document to Bank ?? in order to avoid discrepancy ??

• L/C amount and currency (and if applicable the tolerance) in conformity with LC.
• Check whether Insurance is required or not if required organize accordingly.
• Make sure shipment has been taken place before the (LDS - Latest date of shipment) and whether documents are being submitted to Bank before the LC expiry date / prior the presentation date.
• Make sure description of goods is mentioned as per the LC.
• If LC doesn't permit transshipment and partial shipment make sure it has been followed.
• In case any document required legalization required make sure it has been done.
• Cross check consignee details and LC details mentioned in documents are in line with LC.
• Make sure All document as per LC is made ready for submission.
• Are documents are issued stipulated number copies as per LC.
• Also check the LC make sure all additional conditions are followed.

What is bank guarantee ?? why it is required ?? What is the pro and cons of Bank guarantee ??

Some instances shipments will have very shorter transit time whereas document will arrive bank very late due to various reason, under such circumstances buyer can use bank guarantee in order to clear the shipment, shipment will be cleared with the copy of shipping document and without presentation of original shipping document.

Advantages of Bank guarantee: 

Buyer doesn't require to wait for the original document,  he/her can get his goods released from port / Airport faster.

Buyer can avoid port detention and demurrage charges.

Dis-Advantages of Bank guarantee: 

Buyer required to sign an indemnity to the bank by accepting all the discrepancies. 

Buyer will have a liability until a certain period of time or original documents received from Bank.

Before taking the bank guarantee shipper should make sure he/she will be able to clear this shipment with a copy of documents, make sure all documents are ok or else it w.ill end up in a big problem.

I hope this article find good please advice your suggestions and shall write about LC process in another post.

Incoterms 2010

What is Incoterm ??

Incoterm is the commonly used term in trade for Internation and domestic trade which is published by Internation chamber of commerce

What is the latest Incoterm??

Current Incoterm is 2010, which is widely accepted everywhere, most of the Banks will accept only incoterm 2010 version, but there are some cases people still using previous incoterm versions. 

What are the changes they made in Incoterm 2010 from the previous version?

Incoterms: DEQ, DES, DAF & DDU has been removed and added DAT & DAP
Here DDU will replace with DAP and DEQ, DES, DAF will replace with DAT.

May I know what is prepaid shipment and freight collect ?? which are the incoterms will cover on those ??

In Prepaid shipments, the shipper will take payment obligation of freight,  whereas in freight collect it is vice versa payment obligation being taking taken care by consignee/buyer.

Moving on to your next question 

Following incoterms are covered in prepaid shipments,

CFR, CIF, CPT, CIP, DAT, DAP & DDP

In Freight collect shipments following incoterms are covered 

EXW, FCA, FAS, FOB

Reference: Incoterms: 2010 

Is this all incoterms are used in all mode of shipment ?? I will make it clear is all incoterms are used in SEA, AIR, RAIL, AND ROAD ??

No, all Incoterms are not used in all mode of shipments.

Incoterms: EXW, FCA, CPT, CIP, DAT, DAP & DPP are used in all mode of shipments but FAS, FOB, CFR & CIF are used only for SEA and Inland waterway transport.

Did you please explain the Incoterms one by one ??

OK will start one by one.

1. EXW (Ex works):

Exwork will have very less obligation to seller, seller has to make cargo ready for delivery and also seller has to make Invoice and packing list  ready, once material and documents are ready buyers / it is agent need to make arrangement for cargo collection, export clearance, freight, Import clearance & transportation is on buyer responsibility.

In Exwork shipment sellers obligation will finish after handing over the cargo to an agent/buyer.

If Certificate origin is required as per the term it has to be arranged by buyer, but most of the cases seller will arrange the COO though it is not mandatory.

2. FCA (Free Carrier): 

As per FCA seller will have less obligation than the buyer. seller has to prepare the cargo and document ready for export but unlike EXW seller has to finish export clearance and arrange cargo delivery to named place*  in sellers country.

* Named place can be buyers agent warehouse in sellers country, an Airport or consolidators vehicle or port, etc..

3. FAS (Free alongside ship):

In this term, the seller has to prepare the shipment and document ready for export and also facilitate the export clearance and deliver the cargo to port and seller will obligate to pay the charges of THC and the buyer is responsible for loading the goods and all cost thereafter.

4. Free on Board (FOB):

This is the most commonly used incoterms for Import shipments, In which buyer has to make the cargo and documents ready for delivery and proceed for export clearance and arrange cargo delivery to port and buyer obligated to pay all the charges in the port of loading.

Note: In incoterm 1 to 4 what are thing are common did you observed ??

In all terms, buyer obligation is limited to the port of discharge/loading country and buyer is not paying the freight cost and insurance.

So these terms are referred as freight collect.

Here is the next level of incoterms where the buyer will have more responsibilities, let's have a look at those.

5. CFR (Cost and Freight):

Also referred as CNF & CIF but CFR is the correct word as per incoterm 2010.
In this term Sellers, responsibility is not limited until loading country seller has to arrange freight as well.

Seller has to book and arrange freight upon cargo readiness and process for export clearance and pay all charges in load port and arrange cargo delivery till port of Discharge (Seller is responsible for freight payment as well).

Charges at Port of discharge, Export clearance and Insurance charges has to be borne by the buyer. 

6. CIF (Cost Insurance and Freight):

This term is almost similar as CFR the only difference is seller has to arrange insurance as well.

7. CPT (Carriage Paid to):

In this term, the seller has to process export clearance and arrange cargo delivery till the named place* in the port of discharge from their buyer has to clear the goods and take the cargo into their premises.

Named place can be a CFS, 3-PL warehouse, and any other port or Inland terminal (ICD / Dry port) in a third country, etc...

Eg: Shipment to Afganistan from Dubai, so we decided sent the shipment through CPT term and the term will be CPT, Bandar abbas (Iran) (Which means the seller will arrange cargo till Bandar abbas port and shipper will clear the goods from Bandar Abbas and will take into their premises.

In this term, insurance is not covered by the seller.

8. CIP (Carriage and Insurance paid to):

Same as CPT only difference shipper will take care the responsibility of Insurance.

Note: All 'C' terms shipper is responsible for freight and export clearance and not responsible for Import clearance, delivery charges at destination. let's have a look at following remaining three incoterms see what is the difference.

9. DAT (Delivery at the terminal):

Seller has to arrange the cargo delivery till terminal (Terminal can be any place, container yard, warehouse, transport hub) in supplier country, the buyer has to arrange import clearance and cargo delivery from the terminal to their premises. 

Sellers obligation will finish after handing over the cargo to the terminal. 

10. DAP (Delivered at place);

In this term, the Seller has to do almost everything except one thing.

Seller has to arrange freight, export clearance and deliver the cargo to suppliers premises but duty has to paid by buyer.

Most of the courier companies are using DAP by default for outbound shipments, Eg: DHL.

11. DDP (Delivered at Site): 

Seller will take all responsibilities of the cargo and deliver to buyers premises. Import and export customs clearance and duty payment also will be done by seller.

Mostly these terms are being used in Local deliveries, Courier delivery, and road transport.

For Terms 9 to 11 in case any support required for export clearance from buyer then it has to facilitated accordingly. 

Epilogue : This is 1st article certainly there will be mistakes, so I request everyone to look into it and advise the suggestions and complaints.