Adding value

Customs processes in spare parts management

Speed is of the essence in spare parts management. How can suppliers manage customs processes to their advantage to gain a competitive edge? Tangible tips.

Idle machines are the worst nightmare for any manufacturer. The damage this brings is often immeasurable. Quick action is needed. The defective part must be replaced – immediately.

This puts pressure on the spare parts supplier to respond quickly and deliver ASAP. It’s critical that supply chain processes run smoothly – especially across international borders – so that the supplier can ship the right part to the right place at the right time.

Unambiguous identification is key

Despite preventative maintenance management, manufacturers still need to be prepared for an equipment failure. It’s essential that they obtain complete and accurate information on the necessary replacement part so that the shipping process goes smoothly.

If the customer is unable to identify the defective part with certainty, it may be necessary to send a service technician to the site to assess the situation and provide the missing information. This takes time and delays the repair work.

That’s why any optimization measures depend on spare parts being clearly identifiable to all parties. It helps if spare parts suppliers know as much as possible about the equipment types, locations, and maintenance processes of their customers. Ideally, this allows them to even diagnose remotely which part is likely defective.

The only way to truly be a good supplier is to understand the business and workflows of your customers. Experts recommend establishing clearly defined service levels right from the onset. This way customers and suppliers both know exactly what is expected of them. And spare parts suppliers need to optimize their own inventory and warehouse management, of course, to avoid running out of stock and to ensure quick deliveries.

Collaborative networks across borders

It’s important to take upstream procurement processes into account as well. Spare parts suppliers need to know exactly which parts can be obtained how quickly and with what lead times. If customers have been promised rapid response times – 12 or 24 hours, for example – the necessary parts may need to be back-stocked in sufficient quantity.

Equipment makers who don’t wish to keep their own emergency parts inventories can also turn to service providers or partnerships among spare parts distributors. This type of partnership is often critical in long supply chains or those across international borders. As a result, it’s not always so important to have the necessary part in your own warehouse – you just need know which one of your partners has it in stock.

Customs management plays a critical role when customers are outside the EU or when the required parts must be procured outside the EU. Traditionally perceived as somewhat of a burden, this area is complex but can be well managed to the advantage of a business:

With the right information at the right time and the right customs procedures, it’s possible to accelerate processes and even save customs duties at the same time. Global trade management as an element of supply chain management is a critical tool to achieve time gains and use customs procedures strategically to minimize customs and import duties. When it is done right…

Exports done right: what’s to consider

To stay on the right side of the law, spare parts suppliers must always first check whether exports outside the EU are subject to any restrictions under EU embargoes or require a license under general export control regulations. This means checking the recipients against restricted party lists, checking embargo regulations, checking the goods themselves, and checking their intended end-use.

The basis of these checks is the EC Dual-Use Regulation 428/2009 applicable throughout the EU. If your activities fall under US jurisdiction, you may also have to comply with the US Export Administration Regulations (EAR) or even the International Traffic in Arms Regulations (ITAR).

What many businesses fail to consider is that export control regulations are relevant to more than just makers of weapons and munitions. They also apply to many civilian goods – so-called dual-use items. All businesses need to think about the end-use of their goods. If this end-use is deemed critical under export control regulations, you need to obtain an export license from the relevant national export control authorities.

Managing import processes to your advantage

Savvy spare parts suppliers who purchase materials outside the EU can also optimize their import processes and save customs duties. Many economic operators today opt to collect import customs duties at the final destination, not at the border.

This means instructing the forwarder to ship the goods under the New Computerized Transit System (NCTS) from the EU border directly to the recipient. The customs duties remain unpaid while the goods are still in transit. The economic operator must be an “authorized consignee” to complete the transit procedure with the appropriate transit accompanying document and then dispose freely of the goods.

The main benefit of this is: even if the goods enter the EU through a different country than the destination country, the consignee can still register receipt of the goods through the electronic customs system of the destination country. One of the challenges is that the consignee often learns about the forwarder using NCTS only after the goods arrive at their destination with the transit accompanying document.

To allow the recipient to effectively plan its personnel resources at the point of goods receipt and streamline the process of procuring a needed replacement part or repairing the defective material, shipment information must be available ahead of time.

Accelerating imports through simplified procedures

If you know right from the outset exactly which goods are currently en route, you can benefit from customs processing at the border. For shipments to the Netherlands, for example, you can apply for a presentation to customs if you know that the goods will enter the EU at a Dutch border crossing. The customs status can then be determined right at the customs office of entry, such as the port of Rotterdam, at which point you can dispose of the goods freely.

In this scenario, the simplified declaration procedure can accelerate customs clearance. This is especially helpful if the consignee does not yet have all the details about the incoming goods and is therefore unable to complete the import documentation. Under a simplified declaration, economic operators first submit a simplified customs declaration to the office of clearance.

Only afterward does the recipient have to submit a supplementary customs declaration with the missing data and documents. The simplified procedure always requires the prior consent of the main customs office with jurisdiction. Once businesses know about the procedure before the goods reach the EU border, so they plan ahead and create the conditions for streamlined spare parts management.

You can also take advantage of an extension of the payment deadline without any additional notice, so you don’t need to pay import duties until later.

Benefitting from temporary storage in bonded warehouses

The bonded – or customs – warehousing procedure is a good opportunity for suppliers to store spare parts from outside the EU on an interim basis. Goods stored in a bonded warehouse are under customs supervision.

This makes it possible to manage the import customs clearance only after the customer actually requests them. And only then do the customs duties and licensing requirements apply. And if the goods are subsequently sent back out of the EU (transit function), no fees apply.

Anyone already using a bonded warehouse should be aware of some minor changes since the introduction of the Union Customs Code (UCC) on last year: goods moved into bonded warehouses type D and E (authorized as D) on or after May 1, 2016, that are subsequently discharged for release into free circulation are subject to the tax base applicable when the customs debt is incurred – including the exchange rate in effect at the time.

Goods moved into bonded warehouses type D and E (authorized as D) before May 1, 2016, can still use the tax bases determined at the time they were put into storage through the end of the transition period on December 31, 2018. This means the supplementary customs declarations for bonded warehouses can be managed as before.

Inward processing: repairs made at your site

Sometimes the easiest way to repair defective parts or small equipment is to ship them directly back to the plant where they were manufactured. If they are sent from outside the EU, then the inward processing customs procedure can be helpful.

Non-EU goods that are imported for modification, refinement, or repair and then exported outside the EU again qualify for customs privileges. The import of parts and semi-finished products and subsequent export of manufactured (semi-finished) products is explicitly available for “repair runs” as well. If the goods leave the EU again once the repairs are complete, no customs duties are imposed. Here, however – unlike with customs warehouses – businesses must adhere to time limits.

Inward processing requires the consent of the customs authorities. Businesses that rarely use inward processing or do not have the appropriate authorization can still take advantage of inward processing by submitting a written customs declaration with a corresponding request. This is not currently possible in all EU e-customs procedures, however, so this sometimes means filing a paper application.

Outward processing: refinements made outside the EU

Outward processing, as the counterpart to inward processing, is also worth mentioning here. EU goods temporarily exported outside the EU for modification, refinement, or repair qualify for reduced customs duties at the time of re-import. They may even be duty-free.

The savings are calculated by the “difference” or “added value.” This procedure also requires the consent of the customs authorities. But here, too, businesses have the option to submit a written request.

Customs law actually offers a simplified procedure for authorizing outward processing for repairs or warranty obligations. This allows businesses to save time and benefit from the advantages of such procedures for repairs without applying for them in advance.

In good shape overall with the right IT foundations

Businesses with foreign customers are typically in good shape when it comes to exports. When they receive orders for exports, they generally think right away about how they can get any spare parts across borders to their customers without delay.

Tips at a glance
Tips at a glance

Having the right IT support is always a key factor. From warehouse and inventory management to shipping and the transmission of shipping information to the carriers: software helps render supply chain processes clear and transparent. Even – and especially – between different customs areas.

IT has also become an indispensable ingredient of well-functioning partnerships in the spare parts sector. Experts agree on this: from the customers to the suppliers and beyond to the business partners and manufacturers – a seamless chain of communication must be in place.

This is the only way to ensure that everyone involved understands the precise specifications of the part needed.

This in turn requires high-quality product information management. The necessary processes must be supported by IT and be stable enough so that, when the situation demands it, there is even transparency over a partner’s inventory level, for example.
Because when an emergency arises, businesses need to know right away where the replacement part is and how it can be obtained as quickly as possible. This is not possible without computer-assisted integration.

How you do manage your spare parts supply chain? Which customs procedures do you take advantage of and how integrated are all involved parties and processes? I look forward to hearing from you on LinkedIn.