SMI in a country we are not licensed to sell in Best answer on the web
program for a major customer in order to do business with them. The
customer's SMI hubs are in Ireland, Malaysia, China, and the US. My
company is only licensed to do buy/sell transactions in the US and
Netherlands. Does my company need a buy/sell license in each country
where there is an SMI hub? If so, please summarize why and if there
are ay suggestions to get around this.
I need answer by April 6.
In its purest sense, VMI does not require any change to the customer's ownership of the inventory at the hubs. However, many VMI arrangements also include the concept of consignment, where inventory ownership is not transferred to the customer until the inventory leaves one of the hubs. In this case, you might need to acquire licenses to engage in buy/sell transactions in the countries where the hubs are located since the actual transfer of ownership transaction is occurring there. For example, "A foreign entity may carry out trade or services direct with any business entity in Malaysia. However, to carry on business in trade or services in Malaysia it has to be carried out through a registered business entity under the laws of Malaysia." "Doing Business In Malaysia" Malaysian Institute of Accountants http://www.mia.org.my/misc/business.htm. How your activities under VMI would be viewed by the Malaysian government is uncertain. Hopefully, your customer could provide you with insight into the regulatory requirements you would face. At the very least, you could be subject to paying import duties and obtaining the necessary permits to import your goods into Malaysia that might have previously been your customer's responsibility. "Malaysia" Association of Southeast Asian Nations (2003) http://www.aseansec.org/14296.htm.
My research has uncovered two ways to get around this. First, you could manage the inventory at the hubs while maintaining your current contract terms that transfer ownership of the inventory from you to the customer in the Netherlands or the United States. I have included a list of international commercial terms so that you can understand what terms the customer may be asking for and how those influence when ownership is transferred. ExWorks, Free Carrier, Free Alongside Ship, Free On Board origin, Cost & Freight, Cost, Insurance & Freight, Carriage Paid To, and Carriage & Insurance Paid To would all enable you to transfer ownership within the Netherlands or the United States. Terms based on the delivery point or when the inventory leaves the SMI hubs would cause transfer of ownership to occur in the country where the hub is located. In those cases, buy/sell transaction licensing for those countries could be required, and you might also be subject to paying import duties and acquiring import permits.
The other option would be to outsource the vendor managed inventory activities to a third-party who would take on ownership of the inventory and would maintain the necessary buy/sell licenses and importation permits in the countries hosting the hubs. There are many contract logistics companies that provide VMI services. The transfer of ownership issue would be a potential obstacle with some of them.
I have provided a variety of sources describing VMI/SMI in general and the associated inventory ownership issues.
Sincerely,
Wonko
"Vendor Managed Inventory (VMI)" Blue Habanero Inc. (2005) http://www.invendia.com/vendor_managed_inventory_vmi.htm
"Making Consignment and Vendor-Managed Inventory Work for You" By Mark K. Williams, vendormanagedinventory.com http://vendormanagedinventory.com/article7.htm
"Vendor Manage Inventory" by Jacqueline Emigh, Computerworld (August 23, 1999) http://www.computerworld.com/news/1999/story/0,11280,36744,00.html
"Effectively Implementing Vendor Managed Inventory" by Jeffrey Jackson, Institute for Supply Management (2003) http://www.ism.ws/ResourceArticles/Proceedings/2003/JacksonEE.pdf
"Vendor Managed Inventory (VMI) ? to the DC? To the shelf?" Bearing Point (June 9, 2005) http://www.onenetwork.com/events/05/retail/retail4.html
"Vendor Managed Inventory in Retail Industry" by Phani Kumar & Muthu Kumar, Tata Consultancy Services (February 2003) http://www.tcs.com/0_industry_practices/retail/download/VMI_white_paper.pdf
"The importance of clear contractual terms"
by Dusty Donnelly, Routledge Modisse Moss Morris (Dec 3, 2004) http://www.ports.co.za/legalnews/article_2004_12_3_3143.html
"Section 13: Shipping To and From Stanford" Stanford University (May 1993) http://purchasing.stanford.edu/toolkit/101081.html
"Free On Board Overview" UC Santa Cruz http://purchasing.ucsc.edu/howto/freeonboardoverview.html
"Incoterms" OpenRussia.ru (2006) http://www.openrussia.ru/all/incoterms/
Search terms: VMI inventory ownership; ownership free onboard; ownership transaction free onboard; Malaysia "business license"; export to Malaysia license
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