Utilising FTA for Supply Chain Modelling

Siecap is a project management and advisory firm specialising in providing a full range of corporate and operational services across the asset and investment lifecycle which assist our to clients optimise cost, increase performance and manage risk.

Initiated by the US / China trade war the distributor of a US sourced product required an understanding as to the viability of using free trade agreements (FTA) to bypass punitive tariffs

The Background

The Australia distributor of the leading global brand of whey-based supplements holds the China market supply rights with last mile Chinese distribution being conducted by three local importers.

The current USA / China trade dispute had led to the imposition of punitive tariffs commencing at +20% and increasing over time to +30%.

To maintain margin, alternative blending options that could utilise one of a series of FTA needed to be investigated and modelled in the form of end to end supply chain costs. 

How the Siecap team helped

A multi-phase approach was utilised:

Phase 1 Discovery
Using China base resources, conduct a desktop evaluation into the NZ, AU, Singaporean and ASEAN FTAs to determine the treatment of the core ingredient chapter headings.

Phase 2 Analyse and inform.
Using projected sales data, build a manufacturing and distribution cost model for the alternative supply paths including an assessment on the ability to conduct local ingredient sourcing.

Phase 3 Develop, test and recommend.
Through direct engagement with Chinese and local country regulatory bodies confirm the validity of the desktop proposition. Confirm the operational parameters relating to cross border selling from Hong Kong to China. Recommend a preferred model for further detailed study.

The Results

A strategy was developed that laid out a pathway to:

Confirm the range allowance for local blending in each country options (value creation + 10 -20%).

Generate a $2.5m reduction in penalty tariffs.

Through the development of an end to end cost model confirm the viability of moving manufacturing from the USA to NZ.

Provide an articulation as to the requirements for registering production facilities with the Chinese national customs agency relating to hygiene.

Confirm the value capture model & associated tax regime for each country option.

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