Electronics: Global Trade Management Challenges & Solutions

Targus USA “Gets a Handle” on Duty Drawback with QuestaWeb GTM, Less Paperwork and 30% Higher Refunds Result

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Background

Targus Group International, Inc., headquartered in Anaheim, Calif., pioneered the development of notebook carrying cases for personal computers. Today, it offers a full line of computer accessories including keyboards, docking stations, mice and chargers. The firm maintains 45 offices worldwide and distributes products in over 145 countries.

Targus USA (hereinafter Targus) manufactures most of its goods in southern China and imports finished goods into the United States for distribution. Targus is the world’s largest carrying case provider.

 

Challenges

Targus relied on two systems to do self-entries and drawbacks (refunds of duties paid on imported products subsequently exported or used to produce products for export). Freight forwarders prepared Importer Security Filing (ISF), or 10+2, documents on the firm’s behalf.

Targus faced four separate challenges:

1. The self-entry system was near the end of its supported life cycle.
2. Duty drawback filings were behind schedule, and the filing deadline for some claims was fast approaching.
3. Freight forwarders prepared ISF filings because Targus could not compile data elements in a timely manner. While a viable short-term solution, moving the function in-house would be more economical and efficient, as self-entries used much of the same information as ISFs.
4. Neither of the two current systems providers offered ISF software; thus, Targus would have to acquire a separate system from a third vendor.

Targus decided to explore whether one software solution could meet all of its global trade management (GTM) needs. It solicited several bids and compared vendor offerings.

 

Solution

After a comprehensive analysis, Targus selected Westfield, N.J.–based QuestaWeb and its modular, web-based GTM software. It opted for the Customs House Broker^QW module, which offers key components such as ABI, AII/RLF, ACH, AMS, Protest, Reconciliation, Drawback, In-Bond, Document Binder and Query Reporting.

Brian Couch, Targus’ Manager of Logistics, says, “QuestaWeb’s system offered full integration, a great layout and flexibility for adding future functionality. No other provider could match all these features. QuestaWeb’s software was well suited to our current and future needs and was a good value, too.”

Tami Nelson, Import Supervisor, Targus, adds, “My counterpart at a major importing firm did a demo of the QuestaWeb software for us. She is a very demanding individual and, after using the system for years, remains very happy with its reliability and the QuestaWeb support staff. To me, these comments conveyed a lot about QuestaWeb software.”

Targus opted to have QuestaWeb perform all of the integration and implementation tasks. Targus’ self-entry and ISF components were operational in a matter of hours; however, the customization requested for the drawback portion took a bit more time.

 

Results

QuestaWeb’s Customs House Broker^QW easily accommodated Targus’ three GTM needs in one, fully integrated system. Since QuestaWeb was one of the first companies to have U.S. Customs and Border Protection (CBP) certification for electronic connectivity initiatives—and the first vendor certified for ACE ABI—Targus can transmit and receive data on imported merchandise through a direct electronic interface with CBP, leading to more timely, complete and accurate data.

Targus is now working with suppliers across the globe, preparing them to enter their own ISF data elements via QuestaWeb’s web-based system. Since ISFs and self-entries rely on many of the same data elements, having suppliers enter data will eliminate one step in the current two-step process. Targus will no longer need to pay freight forwarders to prepare ISFs, and QuestaWeb’s software will be able to automatically generate import documentation from systems data, saving more time and money.

Relative to duty drawback, Couch says, “Duty drawback is the key reason why we do our own self-entries. On average, we reclaim over 10% of the duties we pay annually. So it’s a substantial piece of our operations as far as managing costs and profits.”

In moving to the QuestaWeb system, Targus gained four important drawback-related benefits: (1) a labor-intensive task became totally automated, (2) electronic filing was possible, (3) the amount of filings decreased significantly and (4) eligibility for accelerated payments was acquired, meaning refunds are now available in 5 weeks’ time instead of a year. Nelson explains, “We ‘proved’ the reliability of our drawback documentation and record-keeping system to Customs. That pre-approval means we don’t have to provide the same level of documentation; Customs only requires two to three sample documents to support our claim. We only must produce detailed back-up if Customs decides to do a desk audit.”

An important side benefit emerged from the implementation: QuestaWeb put Targus in touch with a drawback consultant who advised Targus to use a different accounting method for matching exports and imports for drawback purposes. For years, Targus had employed a First In, First Out methodology for drawback computation because that’s what its old software required. However, Targus’ duty rates are not variable, making the low-to-high methodology more appropriate. This new methodology increased the percentage of claimed refunds successfully recovered from 70% to almost 93%. The savings exceeded six figures annually.

In 2010, due to a backlog in drawback filings, Targus claimed higher refunds and, with the new methodology, netted substantially more. Couch comments, “QuestaWeb’s expertise—and its concern that we implement the best methodology for our firm—went well beyond the normal level of support a firm would expect from a vendor. Our drawback refund was significantly higher than expected as a result. In years to come, the system should net average annual refunds that are much higher as well.”

“The beauty of our software,” says Felix Pekar, “is its flexibility in accommodating the unique requirements of each and every customer. Regardless of the type or amount of customization required, the software can accommodate it—and our staff has the expertise to program it. Better still, we automatically share system enhancements designed for one customer with all our clients free of charge.”

Nelson adds, “We saw a lot of potential for growth in the amount and sophistication of our automation with QuestaWeb’s GTM software. We can easily add new functionality on our schedule with no fear of obsolescence.”

Yamaha Manages Two Foreign Trade Zones Compliantly with QuestaWeb’s FTZ^QW

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Background

Yamaha Corporation is the world’s largest manufacturer of musical instruments and a leading producer of audio/visual products. Yamaha Corporation of America (YCA), headquartered in Buena Park, Calif., is one of the largest wholly-owned subsidiaries of Yamaha Corporation, Japan.

Yamaha manufactures products overseas, imports them to the United States and then distributes them to markets in the United States, Canada (for Yamaha Commercial Audio) and elsewhere in the Americas. YCA is focused on compliant trade and strict regulatory adherence, and it relies on QuestaWeb’s TradeMaster^QW global trade management software to achieve these goals.

 

Challenges

The expense of importing and exporting product is an area where YCA seeks to keep its costs as low as possible. So, YCA is continually evaluating its operations to identify opportunities for cost savings.

YCA recognized that, for example, when it imported goods destined for Canada, it would pay U.S. duty upon arrival in the United States and then pay Canadian duty when shipped across the border. This practice was not cost effective. Moreover, there were broker fees associated with each product movement.

Beyond duty, YCA also was subject to user fees on imported goods, notably a Merchandise Processing Fee (MPF) on formal entries. A pending MPF increase threatened to increase YCA’s import costs further.

Eager to contain costs, YCA opted to leverage the benefits of a foreign trade zone (FTZ). YCA sought to establish two FTZs, one near Los Angeles and the other in the Chicago area, but needed an FTZ solution that could integrate easily with its ERP, GTM and third-party WMS. Moreover, the software needed to handle input from two FTZs concurrently but maintain complete data separation and integrity.

 

Solution

YCA explored the available vendor options and licensed QuestaWeb’s FTZ^QW module. Implementation was completed in less than 6 months’ time.

QuestaWeb’s FTZ^QW proactively manages the entire FTZ process. The solution is ABI approved, allowing electronic filing of entries, weekly estimates and in-bonds directly to CBP; it also is AES approved, with direct electronic filing of CF 214s. The system automatically generates other documents, such as CF 216s. Much of the module’s advanced functionality derives from its comprehensive product database.

Juna Kim, Import/Export Director, YCA, said, “Beyond our familiarity with QuestaWeb and its GTM products, three things drove our decision making: the module’s robust functionality and rich content; its rule-based integration tools; and its electronic links to multiple regulatory government agencies.”

Kim continued, “FTZ operations require precise inventory control and compliant inventory movements. With the QuestaWeb solution, when product enters the FTZ it interfaces with the ERP system and third-party WMS; inventory reconciliations occur nightly. We felt we had tight inventory control processes before the FTZ, but with the FTZ they’re even better. We can be sure that we pay all the legally required duty but not a penny more.”

 

Results

YCA is managing operations and global supply chain costs better and is saving considerably on its import/export costs. At this writing, four YCA divisions (Keyboard, Band & Orchestral, Pro Audio & Combo and Audio Video Divisions) are using the two FTZs.

Unlike many solutions, QuestaWeb’s FTZ^QW allowed YCA to automate its existing business processes rather than use unfamiliar ones programmed into the solution. YCA staff quickly adapted to the software, with few learning curve delays. System integration was straightforward, a hallmark of QuestaWeb solutions.

As expected, YCA is leveraging the many benefits an FTZ confers including

• Duty Deferral: YCA only pays duties when products enter CBP territory.

• Duty Avoidance: YCA does not pay duty on goods exported from its FTZs, transferred between FTZs or destroyed.

• Time to Market: Items aren’t held for customs clearance, speeding up the supply chain by at least 3 days.

• Tax Benefits: While goods are within the FTZ they generally are not subject to state and local inventory taxes.

In addition, YCA is reviewing and modifying its ERP system to eliminate its Duty Drawback program eventually.

Using FTZs as distribution facilities has lowered YCA’s duty payments dramatically. In addition, per the provisions of the Trade Development Act of 2000, YCA only must prepare one weekly entry rather than filing individual entries as it was required to do previously. This provision translates to cost savings as well.

Collectively, these benefits translate to improved corporate cash flow. Moreover, YCA achieved complete ROI on its system costs within year 1. Most important, YCA is fully compliant with all FTZ regulations and enjoys reduced exposure to fines and penalties.

According to Wayne Slossberg, Vice President of QuestaWeb, “One of the often overlooked features that QuestaWeb’s FTZ^QW solution offers is its unique ability to generate mandatory reports as well as analytical and management information tailored to whatever format the customer desires. This output gives managers actionable information, as well as increased visibility across the supply chain, that facilitates decision making. If any atypical information needs arise, the system can execute customized queries as well.”

Kim agrees, stating, “YCA has a complete grasp of its global trade situation through the customized system it’s designed using QuestaWeb solutions. The QuestaWeb staff knows global trade and was able to understand our business processes and automate them. We’re moving product to market compliantly, quickly, efficiently and cost effectively. In the final analysis, that’s the ultimate objective any firm involved in global trade hopes to achieve.”

Kim adds, “None of this could have been accomplished without the consolidated effort of the Yamaha FTZ Project Team, consisting of QuestaWeb, YCA’s consultants and its third-party warehouse provider.”