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Q: SMI in a country we are not licensed to sell in ( Answered 4 out of 5 stars,   0 Comments )
Subject: SMI in a country we are not licensed to sell in
Category: Business and Money
Asked by: abernag-ga
List Price: $150.00
Posted: 31 Mar 2006 10:29 PST
Expires: 30 Apr 2006 11:29 PDT
Question ID: 714047
My company needs to participate in a Supplier Managed Inventory (SMI)
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.
Subject: Re: SMI in a country we are not licensed to sell in
Answered By: wonko-ga on 01 Apr 2006 09:34 PST
Rated:4 out of 5 stars
The issue you face with the SMI arrangement (more commonly known as
Vendor Managed Inventory (VMI) in the United States) will be where
ownership of the inventory passes from you to the customer and how the
country hosting the hub will view that transaction.  Under your
current business practices, presumably you transfer ownership to your
customer within either the Netherlands or the United States where you
are licensed to engage in buy/sell transactions.

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  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)

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.



"Vendor Managed Inventory (VMI)" Blue Habanero Inc. (2005)

"Making Consignment and Vendor-Managed Inventory Work for You" By Mark
K. Williams,

"Vendor Manage Inventory" by Jacqueline Emigh, Computerworld (August
23, 1999),11280,36744,00.html

"Effectively Implementing Vendor Managed Inventory" by Jeffrey
Jackson, Institute for Supply Management (2003)

"Vendor Managed Inventory (VMI) ? to the DC? To the shelf?" Bearing
Point (June 9, 2005)

"Vendor Managed Inventory in Retail Industry" by Phani Kumar & Muthu
Kumar, Tata Consultancy Services (February 2003)

"The importance of clear contractual terms"
by Dusty Donnelly, Routledge Modisse Moss Morris (Dec 3, 2004)

"Section 13: Shipping To and From Stanford" Stanford University (May

"Free On Board Overview" UC Santa Cruz

"Incoterms" (2006)

Search terms: VMI inventory ownership; ownership free onboard;
ownership transaction free onboard; Malaysia "business license";
export to Malaysia license
abernag-ga rated this answer:4 out of 5 stars
Answer was clear and gave some decent links for more info.  Wish that
the answer had included something on China and Ireland as well as

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