Trade Compliance

The Role of the Product Master File In a Successful Import Management Program

Starting with a purchase order that’s placed on an overseas vendor, the Documentation Trail should tell the complete story of an item-specific import transaction.

Dan Gardner

January 26, 2021

With a minimum of twelve entities involved in the most basic of import models, it’s not surprising to see the vast number of hard copy, as well as digital documents that are produced during the life of a single transaction. Be they internal to an importer (e.g. the generation of a purchase order) or external (e.g. a freight forwarder creating an Advance Ship Notice), there are literally dozens of communications, documents and digital files that carry details about the products being purchased by a U.S. importer.

As both a forwarder and BCO, I’ve always been an advocate of using the “Documentation Trail” to chronicle the life of an import. Now conducted in what should be a digital environment, the Documentation Trail represents all of the information that tracks an end-to-end import purchase. Starting with a purchase order that’s placed on an overseas vendor and through tactical matters like payment for goods, container bookings and customs entries, the Documentation Trail should tell the complete story of an item-specific import transaction.

Who Provides the “Single Version of the Truth”?

Given the number of players in a basic import shipment and the quantity of information that they produce, it is very important that all participants are providing data that is Complete, Consistent and Correct. Certainly not an unreasonable objective, this need begets important questions around what I’ve come to call the “Three C’s of Documentation”, and among other things, who determines the meaning of “correct” and who is responsible for providing all participants with this single version of the truth.

Without question, the answer to the above is that the importer is responsible for determining product-specific data requirements, with the entire process being managed through what is known as a “Product Master” (aka “Item Master”) file. As the name indicates, the Product Master is a database that is controlled by the importer and that contains all information specific to an individual item. These days, one can find Product Masters housed in anything from an Excel spreadsheet to the most sophisticated of Enterprise Resource Planning software packages.

Regardless of the technology used to manage a Product Master, this tool must serves as the “genesis” of all documents, files and/or communications that are generated throughout an import transaction. Without some sort of item-centric source file, experience has shown that it will be impossible for the importer to achieve network-wide compliance with the Three C’s requirement and as such, the likelihood of ensuing problems, delays and confusion across the entire import chain will be much higher.

Fields in a Product Master

Because importing is more complex than sourcing goods domestically, the field-specific requirements for a well-designed Product Master are greater. Be they related to fields such as country of origin, currency of purchase or product testing requirements, there is just more item-specific “stuff” to account for when setting up an import-oriented Item Master. Although the content of a Product Master may vary by type industry type, the below bullet points capture +90% of the details that should be included in this tool:

-Item Name -Item Description -Importer Item Number
-Vendor(s) -Vendor Item Number -Unit of Measure
-Country of Origin -Unit Price -Landed Cost per Unit
-G/L Code -Minimum Order Quantity -Harmonized Number
-Master Pack -Carton Dimensions -Unit Weight
-Cumulative Lead Time -Product Family -Bill of Material
-Customs Duty -Purchasing Terms -Quantity Discounts
-Documentation Req. -Product Testing -Incoterms 2020 Rule
-Free Trade Agreement(s) -Name of Purchasing Agent

Pitfalls of a Poorly Constructed Product Master

Of course, a Product Master is only as good as the number of people whose work it positively impacts. While always being sensitive to the proprietary nature of the overall file, it is essential that supply chain partners have access to the information needed to do their jobs correctly. Given that most import supply chains are made up of third parties like contract manufacturers, inspection companies, carriers, insurance firms, customs brokers, et al., there is just no way that an import transaction can be properly chronicled and executed without (limited) dissemination of the data found in a Product Master.  

Applicable to virtually any importer, let’s use a furniture company that brings in goods from multiple countries to illustrate some of the aforementioned points.  As one will quickly see, just a few examples demonstrate just how pervasive and harmful a poorly constructed Product Master can be.

For the sake of illustration, let’s say that our furniture importer brings in items from China that are made (in part) of plywood and/or particle board. Because the Environmental Protection Agency (EPA) requires that the formaldehyde content of such products be below a certain level, product testing and certification is required prior to importation into the U.S. If there is no field in the Product Master that identifies an item as having this requirement, trouble will quickly follow.

Another issue tied to a Product Master revolves around Section 301 Tariffs and items that are subject to the additional 25% duty on goods coming out of China. Without fields for country of origin and Harmonized Tariff Schedule number, there is a chance that the additional duties won’t be accounted for, and that the true landed cost of the item will be undervalued. In this instance, an additional Yes/No field that flags Section 301 items by HTS number would be very helpful.

To illustrate the importance of having a “Documentation Requirements” field in the Item Master, let’s say that our importer has decided to move the sourcing of some of its particle board furniture from China to Mexico (to avoid the Trump Tariffs). Regardless of the country of manufacture, the importer is going to need a commercial invoice, packing list, bill of lading and an EPA formaldehyde testing certificate. However, because the product will now be coming from Mexico, the importer would also need to produce (on request) a USMCA Certificate of Origin, and/or proof of Regional Value Content (i.e. a Bill of Material).

Using Technology to Maximize the Value of Your Product Master

With just a couple of limited examples, it’s easy to see how an improperly designed and disseminated Product Master can wreak havoc on a supply chain. So, the question really isn’t whether or not an importer needs one; it’s a matter of what technologies can be used to maximize its value to all involved in the import supply chain.

When treated as the “Genesis File” that drives the both the Documentation Trail and the 3C’s of Documentation requirement, the ideal scenario is for the Product Master to be housed on a web-native platform that allows permission-based access to player-specific information. Again, examples abound, but a Customs Broker could be allowed access to product description, country of origin and HTS number, all for purposes of classifying merchandise. Another example might be where a vendor has access to only the purchase orders placed on their company, using the product description from the Item Master to create all subsequent commercial documentation.

As one can plainly see, it is definitely important for supply chain partners to access information found in an importer’s Product Master. Of equal importance, however, is the ability to feed new data into the file that keeps it updated at all times. Specifically, the most modern of web-based Item Master tools have API’s in place with third party providers that automatically feed item-specific data into the file, without the need for human intervention.

One such example is automated updates to changes in duty rates as published in the Harmonized Tariff Schedule of the United States. Another example could be an auto-feed of updates on requirements from U.S. Partner Government Agencies (FDA, EPA, et al.). On the financial side, a change in the unit price of a particular item could trigger a recalculation of that product’s landed cost. As companies manage existing items, as well as get New Product Introductions (NPI’s) into the Master, it value grows exponentially.  

Summary

The examples of how importers can benefit from an Internet-based, “smart” Product Master are too vast to list here. While each tells an important story, the objective of this blog was to show that the Item Master really is the genesis file that it’s been portrayed as, and that its impact on all facets of import supply chain management are pervasive.

As a stand-alone tool, every importer needs a platform from which it can manage the item-level detail of every imported product. On a broader scale, when the technology is there to allow for permission-based access, multiple supply chain players can use the details in an Item Master to enhance the quality of their own work. At the next level of technology, when an importer can update and manage a Product Master through API’s that minimize manual input, the power of the tool becomes that much greater.