GPV Inc.

GPV Inc.

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GPV Inc.
Our company, GPV Inc., headquartered in Chicago is a specialized company engaged in providing supply chain management services to small and medium sized US Bulldozer water pump companies importing Bulldozer water pump from China and Japan. Our services include production planning and management, quality assurance, shipping and warehousing. Our value proposition is to create value by providing Global Supply Chain Management to Small and Medium sized US Companies to increase their flexibility and efficiency.

International logistics is a complex process since it involves significant of planning, implementing and controlling the flow of storage of goods, services and related information from a point of origin to a point of consumption in multiple countries. Due to the fact that GPV Inc’s business model which is to provide product and services to three different markets, the characteristics of our supply and value chain are much more complex. Furthermore there are more governmental legislation in trade, that differentiate us from being a simply domestic firm.

GPV Inc. targets the sourcing needs from China and Japan for small and medium sized Bulldozer water pump retailers, marketers and brand manufacturers. Our company will leverage our network with the Chinese and Japanese water pump manufacturers add value by providing manufacturer selecting, quality control, logistics and warehousing services for US water pump buyers and provide product marketing in the US for the Chinese and Japanese manufacturers. The two groups of customers, the medium and small sized US buyers and Chinese and Japanese suppliers, face the similar dilemma. US buyers often do not have the resources to set up a division or send qualified employees stationed in the foreign countries to inspect the product quality. It is often not worthwhile to do so considering the size of their orders and the expenses they would incur.

On the other hand, the Chinese and Japanese counterparts know little about US Bulldozer water pump industry and marketing strategy to sell their products. Nor do they have the resources and personnel to operate. GPV Inc. will act as a two-way agent to connect the US customers and the Chinese and Japanese customers together.

Reasons for Sourcing

We choose to mainly source our products motivated mostly by the low cost that the Asian market offers. After all we are in the position to leverage the low material and labor cost existing in the Asian Market. China, was mostly known from exporting textiles, electronics and steal however recently they have increased the percentage of mechanical parts they export worldwide, more specifically with United States their main export destination. (Exhibit 2 shows the most imported products from China to US, ranking machinery & parts on the top 10 )

Import Regulations

The U.S. trade deficit with China is now larger than that of any other U.S. trading partner, including Japan ($75.2 billion). The growth of the trade deficit between its Asia counterparts ( China and Japan) has worried many in US, pointing out that the trade imbalance was unfair and politicians were worried about the loss of jobs due to outsourcing specially manufacturing jobs. This factor had led United State to ask for better trade policy and going as far as imposing trade regulations such as high tariffs and quotas. However heavy machinery parts such as water pumps do not have a direct limit on the quantity of import to USA neither do they have increased tariffs. Currently the duty rate for Mechanical part ( Bulldozer parts in our case) is simply 2.5%.

This factor refers to both of our trading partners, China and Japan. Moreover, Regulations are very strict with regard to the quality of goods produced and documentation. Proper documentation become a very important factor specially after September 11 in order to prevent acts of terrorism.

In order to avoid added costs due to duty and quotas many companies will chose to manufacture their goods in foreign trade zones. This areas are beneficial for countries like China that are trying to encourage foreign direct investment. In our case, instead of directly investing in manufacturing, we are outsourcing our products.

Due to the complexities in trade relations and In order to conduct successfully our business GPV Inc took a careful look into to the incoterms to figure out which tasks would be performed by us, and which activities are for our responsibility and to which we are financially liable as legislated by the International and the Federal Trade Commissions. Understanding the trends of trade, the regulations and responsibility in trade is of vital importance in our import strategy since it is linked to reliability consistency and efficiency of our supply chain.

Facts and figures of US import trade with China
The United states is the #1 export destination for china thus its will be easy to import from china, leveraging competitive transportation means and cost savings. China is now the third-largest U.S. trading partner; it is the second-largest source of imports. The influx of imported products from China is significantly large that it created a trade deficit for between the two countries; the deficit rose from $30 billion in 1994 to $162 billion in 2004. This trade deficit is mainly based on products that are labor intensive.. After the ascendance of China to the WTO the import of machinery and parts to the US grew significantly.

Facts and figures of US import trade with Japan

Japan has been conducted significant trade with US for a long time; only in the last year has its trade volume been surpassed by China ( refer to exhibit 3 for trade volume as of September 2006). Due to its long history of trade, there are no many trade restrictions especially not in bulldozer parts. Japan is looked favorably by US in terms of trade due to their free market approach. Just recently The U.S. deficit in goods trade with Japan fell 10% to $6.73 billion thus taking away room for trade barriers such as higher tariffs and quotas.

GPV Inc. Services

Our services enable us to build a bridge for water pump trade between US, China and Japan. The culture, languages and political differences makes it extremely difficult for the US buyers to source water pump in China. Our services eliminate those barriers or reduce those barriers for the US buyers. Our services solve the major problems that the US Small and Media size companies are concerned with the most when sourcing in China and Japan: the quality of the products and the logistics of shipping the products to the US.
In this regard, we are going to act on behalf of the US buyers and ourselves to make sure the quality standards of the products are met and the logistics run smoothly. Additionally when sourcing water pumps in China and Japan, a business needs to either set up an office in China and Japan or hire full time employees to travel between China, Japan and US to supervise the various aspects of the business, we are providing cost savings for the Small and Media size companies.

Quality Control

GPV Inc. offers quality control services for water pumps leaving China and Japan and arriving in the US. It is necessary to monitor the quality of products to ensure high standards in the Bulldozer water pump industry. This quality control used to be done mostly by hand/eye checking. Today that is seen as too slow a process and there is now specialty equipment to perform the quality control. Sample of Water pump might be tested before large orders are made and continue to test samples of the water pump once order is received. It is also possible to outsource the quality control of the water pump to companies that specialize in this area.

Supply Chain Management Services

GPV Inc. provides Logistics, Warehousing and Inventory Management Services to its customers. After getting PO from Chicago headquarter, GPV Shanghai/Osaka will issue FOB PO to Chinese or Japanese water pump manufacturers. When the manufacturers finished the PO, they will ship the goods to Shanghai or Osaka port. According to our customers’ service requirements, we will ship the water pumps to GPV Chicago warehouse or US customer directly. See Exhibit 1--- Import & Export Procedures Flow Chart
Generally, our annual PO amount of Bulldozer water pump would be 21,038 units. Based on our Logistics cost analysis, see exhibit 2. We decided that our main method of transportation from China and Japan would be by water, and a small number would come by air from China. In all shipments leaving Japan we would use the port of Osaka, shipments leaving from China would be from the port of Shanghai. Any shipment would arrive to the US at the port of Los Angeles. The main reason we focused on water transportation is because each individual piece weighs about 80 lbs, and if we shipped everything by air, it would be very costly.

When shipping our products by ocean, there was an initial consideration was whether we would use 40 ft or 20 ft containers. We decided to ship our products in 20 ft containers, and the main reason behind this was the reduction in inventory holding cost. Once the containers reached the US we also looked at two more options to deliver the products from California to Chicago. First we looked at transporting the goods by rail and then we analyzed transporting them by truck. The two main points that we looked at when analyzing the best option were the transit time and cost of using this mode. We found that the transit time difference was not as significant and the cost difference was greater so we focused on using rail as our main source of transportation from Los Angeles to Chicago.
Even though our main mode of transporting good from Japan and China was by ocean, we also considered to ship a small percentage of our products by air, directly to Chicago, since some of the emergency orders might be placed by our customers in the US. Since the number of water pumps that would be shipped by air was much smaller than that of ocean, we also chose to ship the air bound pumps from one destination and this would be China. This was the more expensive out of all of the options but it was also the fastest.

Total Supply Chain Analysis

The water pumps coming from China would mainly come by ocean, and once it reaches the US, it will be moved by rail to its final destination of Chicago. This would be the same case for water pumps that are coming from Japan. Ocean freight and containerships are the main component of our transportation matrix and it also fits the trend the logistic industry is taking. about 60% of the world trade is containerized, and container transportation volume is growing by 9% per year. To assure efficiency in our supply chain we would prefer conducting business with liners, which have regular schedules, and with pre-determined ports. Also, a small percentage of the products will be shipped by air directly from Shanghai to Chicago. But these transportation factors, even though they are a major part of the supply chain costs; they are not the only factors. Another factor of the supply chain that we focused on was the duties placed on the products. The duty cost associated with the supply chain cost is the import duties placed on products coming into the US. This was standard number given to us by the government and any parts for mechanical equipment such as bulldozers would have to pay duties of 2.5%.

Other costs associated with the supply chain are the in-transit inventory holding cost and the warehousing costs associated with moving the equipment. For the in transit inventory holding cost we used the standard of 17% cost per year of holding cost. By combining this information with the transit times that we obtained we were able to calculate the in transit inventory holding cost. In order to calculate the warehousing cost we assumed that the demand for the water pumps would be linear. Since we are shipping about 21,037 pumps per year, it would give us an average demand of about 58 water pumps sold per day. Also, since we are shipping 50 containers per year that is almost one container per week, this combined with the assumption of average demand would give us an average inventory of 2.5 days if we always use 20 ft containers. Another point that must be considered for the total supply chain cost was the delivery cost. We use LTL mode to delivery water pumps to our US customers and the average delivery cost is about $7 per unit. See Exhibit 3.

We also provide Warehousing and Inventory management Service to our US customers. According to our analysis, the 60 day inventory management cost is $22.36. See exhibit 4.
Once we obtained the individual parts of the supply chain we took all the areas into consideration and obtained the average cost of around $80.95 per part this was about 10% of the production cost of the water pumps.

Conclusion

There are many different issues that must be considered when outsourcing products from countries such as China and Japan. These countries can provide advantages such as cheaper labor, access to special trade zones, access to cheaper source of raw materials, etc. But, many other costs need to be estimated that are involved with moving the goods from those countries to a final destination, such as Chicago in our case. When calculating these additional costs one should look at the different aspects of the supply chain such transportation costs, duties, warehousing costs, in-transit inventory costs, etc.

Disclaimer
The above essay was written by a college student and merely states opinions of a college student. However, if you feel strong about responding to the opinions stated, please write to articles@directorym.com and express your concerns.


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