2008: Taking Care of the Pennies (Part 3)
IMPORTED PRODUCT HS CODE RE-CLASSIFICATION
Executive on Demand Position:
TBA
Project Outline:
TBA
Project Outcome:
A bottle filling client used my services to help them source and manufacture a mould and production capability in Asia for a unique proprietary multi-dose plastic bottle. The bottle was designed in three containment sizes. A buyer understands that many factors affect the landed cost value (ExWorks versus Port, HS Codes, import duties, etc…) for a product and each one of them must be examined carefully to identify any potential cost relief opportunities.
A quick analysis indicated that there was an opportunity to reduce the import fees for this unique bottle by having the product’s HS import code reclassified to a category that has a lower importation fee (duty). HS codes are applied to each product imported in order to create a fair competitive environment in the market place and provide some protection to the local manufacturing community. A product’s HS code can be changed if it can be argued that the category that the product is currently associated is a category that does not require protection as the industry usually does not exist within the country at the time.
Cost Reduction due to HS reclassification:
The unique feature that separated this packaging from that of a regular pour style bottle is that required the contents to be pumped to be dispensed. Canada does not have a plastics industry specializing in pump style packaging and therefore a reclassification of the packaging was granted. The reclassification yielded an import duty cost reduction of 6.5%, which is significant over the life of the product and the company’s ability to generate new products and programs for its customers at a competitive price. A condition for the HS reclassification was that the bottles and plugs must be shipped together on the same container in the same container. Adhering to this mandate provided additional cost benefits in the form of productivity and efficiency.
Productivity:
Productivity is achieved at the plant due to a reduction in stock keeping unit (SKU) count since the bottles and plugs are packaged together. Packaging the two components together ensure that there is always an exact same count of plugs to bottles, thus avoiding overstocking due to minimum order quantities (MOQ). Secondly, when feeding the bottle line, the stock picker brings with him the proper quantity of bottles and plugs from a single area of the warehouse.
Efficiency:
Shipping efficiencies were gained from this process as the plugs are packaged inside the multi-dose bottle master cartons in the same quantity as the bottles. By packing the plugs in a small bag in each carton instead of the usual high quantity master carton of plugs, the personnel loading the bottles and plugs did not have to reduce the quantity of bottles to make room for the plugs.