News & Noteworthy

"Surge" or "Flow" - Optimize Your Classification Strategy

Posted by Rick Phipps on Sep 7, 2016 1:00:00 PM


Commodity classification is critical. In fact, we call it Job #1 since most of your compliance requirements are based on these determinations. But classification projects are not all the same. Most companies use the “surge” approach, tackling the entire inventory all at once, be it dozens, hundreds or thousands of items. Other companies, for various reasons, can’t process everything at once and must rely instead on the “flow” method of classifying items only when they enter the Order Processing system. Both are valid and effective methods, giving companies the licensing requirements they need, but to help you pick your strategy, we’ll walk you through the pros and cons of wholesale “surge” classification versus the “flow-through” basis.

The entire-inventory “surge” approach has many advantages, particularly if your product, parts and technologies don’t change regularly. Most importantly, it’s all done at once, not piecemeal. All your items and technologies are classified and the results are stored in your data system so that licensing requirements are immediately apparent in every new order or situation. It is also valuable, particularly in the current environment of ongoing Export Control Reform, that the classifications are all up to date and accurate. The final advantage is that the maintenance of your classification database is far easier if you need only focus on new additions and occasional categorical updates.

There are important factors when considering the entire-inventory approach. The first is time, which of course equates to money. Do you train existing employees to do your classifications? That diverts them from their regular duties and their speed at classification may not be efficient, that is, cost-effective. The second factor is quality, which is even more important. Erroneous classifications could lead to export violations and result in fines, bad publicity and significant legal issues. None of this is good. Commodity classification is best done by trained experts who are fast, accurate, and cost efficient. Full disclosure: We at CTP specialize in classification services but the statement is undeniably true.

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The other approach is the “flow-through” methodology: classifying items in batches on an as-needed basis, usually when they are included in a sales transaction or a large scale project procurement. This approach is especially beneficial for distributors and resellers that access multiple inventories and vendors whose inventories are particularly dynamic. Since the cost and quality factors are still in play, magnified typically due to product diversity and time pressures, CTP gets many and repeated requests for this type of service. In these scenarios, companies send the items to us in the morning and we usually have the classifications back to them in hours, or a few days on larger orders.

This is a win-win from a compliance perspective. Clients get the classifications they need, when they need them, and with assurance of accuracy. There is only one concern, which is shared actually with the “surge” option. Classifications require specific technical information since the engineers cannot guess. In order for either classification method to work, the Export Compliance Officer has to provide sufficient details about the items to be classified. The information may be conveyed in an Excel spreadsheet, data sheets, or via URLs to company web pages—it doesn’t matter. As long as the engineer can access the relevant data efficiently, the work can proceed quickly.

Whether “surge” or “flow” makes sense for your situation, CTP Compliance can help meet the challenges. Our experts are specialized engineers, many being former licensing officers with the USG who authored key processes and controls in the export regulations. Classification is what they do every day, staying abreast of changes in the regulations. We provide an effective and efficient solution, like having adjunct staff down the hall whenever you need assistance.

Call us today to discuss your classification project. With over twenty years’ experience in performing projects large and small, we’ll find the right solution for you.

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Topics: Export Compliance, Commodity Classification