Case Study: Overcame LMW Quota Limits from Supplier
Background:
The client, a leading provider of high precision machining manufacturing services, faced significant operational challenges due to its reliance on a licensed manufacturer warehouse (LMW) for sourcing essential raw materials. The client encountered a supply chain disruption when the LMW reached its quota for local sales, limiting its ability to procure critical inputs. Compounding this issue, the client's buyers mandated that raw materials must be sourced exclusively from the LMW. Given the LMW's restrictions, which only allowed for 20% of its production to be sold to local companies while 80% must be exported, the client's production capabilities were at risk, jeopardizing its ability to meet client demands.
Challenges:
Challenge 1: Limited access to raw materials due to the LMW’s quota restrictions on local sales.
Challenge 2: The client was not prepared to transition into an LMW status, which would categorize all future sales as exports and add complexity to compliance processes.
Compliance Issues: Potential compliance risks associated with navigating LMW regulations and requirements.
Operational Complexity: The lack of manpower and expertise to manage the complexities of becoming an LMW.
Solution:
Baryk Partners conducted a comprehensive assessment of the client's operational challenges and designed a tailored solution to optimize their supply chain while ensuring compliance.
Alternative Compliance Framework: Implemented an alternative compliance framework to help the client navigate its challenges without transitioning to LMW status, providing guidance on maintaining compliance with current customs regulations.
Duty Exemption Utilization: Introduced another exemption available in Malaysia under Section 14(2) of the Customs Act 1967, which provides duty exemptions on imported goods used in manufacturing. This strategy involved securing partnerships with companies inside free zones that could collaborate in these transactions.
Free Zone Trading Arrangements: Made arrangements with the LMW to utilize free zone benefits by conducting trading activities within the free zone. Once trading between the LMW and collaborating parties was completed, the client then purchase raw materials from these parties and imported them into Malaysia using the exemptions approved under customs regulations.
Training & Development: Provided specialized training for the client’s team on customs regulations and alternative procurement strategies to enhance their operational capabilities and ensure effective implementation of the new strategies.
Results:
Through Baryk Partners' intervention, the client was able to resolve its supply chain issues effectively.
Compliance Rate Improvement: Achieved improvement in compliance with customs regulations through effective training and strategies.
Cost Savings: Estimated annual cost savings of 15% from alternative sourcing and procurement strategies, avoiding potential penalties for non-compliance.
Efficiency Gains: Reduced procurement processing times enabling quicker turnaround for raw materials.
Review:
"Baryk Partners helped us think outside the box and provided solutions that allowed us to navigate a complex situation. Their expertise in customs compliance was invaluable to our operations."