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Transcript of Pgm process rev1
PGM PROCESSBUSINESS CASE STUDY
FOR GM DO BRASIL
MAY – 2007
Rev.1
PGM PROCESS AND BUSINESS CASE FOR LAAM
BACKGROUND Platinum Group Metal (PGM) is currently controlling the process of procurement and usage of Platinum, Palladium and Rhodium, required for the Catalytic Converter, in USA and Europe;
These precious metals are considered commodities in the market place, thus their prices vary constantly;
GM Corporation is willing to include the LAAM group in this process, starting with GM do Brasil.
At current market prices the annual usage of these metals, for GMB, has been estimated in US$ 36 millions;
Estimated savings, as per preliminary study done by the PGM group, is US$ 2.1 millions.
PGM PROCESS AND BUSINESS CASE FOR LAAM
ISSUES OR CONTRAINTS
Consignment process in Brasil requires a dedicated group to control it, due to its taxes and legal complexities, thus becomes very expensive (6%);
Transfer price policy for businesses between companies of the same group ( affiliated or allied ), involves a high risk of tax paying and penalties, if it is not done as per the established rules ( 20 to 60 %);
Paper or virtual companies to cover this process are not allowed in Brasil;
Insurance coverage must be defined, who pays what, depending on the INCOTERM, and including Inland portion, both at origin and arriving ports.
PGM PROCESS AND BUSINESS CASE FOR LAAM
SCENARIOS BEING CONSIDERED
CURRENT PROCESS
GMB IMPORTING FROM GM WORLWIDE METAL POOL
a) Consigns to Coater / Sell to Canner
TRADING CO. IN BRASIL AS IMPORTER
PGM PROCESS AND BUSINESS CASE FOR LAAM
PGM CURRENT PROCESS FOR GM DO BRASIL
TIER 1 -SUPPLIERS
CONVERTER(CANNER)
WASHCOAT(COATER)
UMICOREBRASIL
UMICORETRADING
(EUROPE/USA)GMB
UMICORETRADING
BUYS RAWMATERIAL FROM
THE MARKETAND SELLS TO
UMICORE BRASIL
UMICOREBRASIL
BUYS RAWMATERIAL
FROM UMICOREABROAD
UMICOREBRASIL
SELLS ANDSEND RAW
MATERIAL TOCOATERS
UMICOREBRASIL
IMPORT ANDRECEIVING
PROCESS ISDONE BYUMICOREBRASIL
COATER
BUYS ANDRECEIVE RAW
MATERIAL FROMUMICORE
COATERPROCESS RAWMATERIAL ANDPRODUCES THE
BRICK
COATERSENDS THEBRICK TOCANNER
CANNER
RECEIVES THEBRICK ANDPROCESS
ENCAPSULATION
CANNERSELLS AND
SENDSUNDERFLOOR
TO GMB
PLATINUM,PALLADIUMRHODIUM
GMB
RECEIVESUNDERFLOOR
AND SEND IT TOTIER 1 -
SUPPLIER TIER - 1SUPPLIER
WELDSUNDERFLOORINTO FRONT
PIPE
SUPPLIER
SENDS FRONTPIPE TO GMB
CANNERSELLS AND SENDSCLOSE COUPLED
TO GMB-SJC(POWER TRAIN)
POWER TRAINASSEMBLIES
CLOSECOUPLED INTO
THE ENGINE
GMB
ASSEMBLIESFRONT PIPE
INTO THE CAR
END OFPROCESS
CONSIGNMENTPROCESS
GMB
RECEIVESCLOSE
COUPLED ANDSEND IT TO
POWER TRAIN
PGM PROCESS AND BUSINESS CASE FOR LAAM
PGM PROCESSES TAXES COST
Current STEPS PER PROCESS IMPORT
PIS/COFIN
S ICMSTRANSFER PRICE ADD-ON
STEP 1
UMICORE Brasil imports from UMICORE Europe/USA.(Import duty is not recoverable ; PIS/COFINS and ICMS are recoverable; Transfer price policy does not apply, as it is a non-related transaction) 2% 9,25% 18% N/A 4,50%
STEP 2 UMICORE sells to Washcoater ( Taxes on sales ) N/A 9,25% 18% N/A ?
STEP 3 WashCoater sells BRICKS to Canner. ( Taxes on sales ) N/A 9,25% 18% N/A ?
STEP 4Canner sells UNDERFLOOR and CLOSE COUPLED to GM do Brasil ( Taxes on sales ) N/A 9,25% 18% N/A ?
STEP 5
GMB sends in consignment, UNDERFLOOR, to TIER-1 supplier, with local invoice in consigment( Nota Fiscal- For industralization ). Note: This consignment is not taxed if material returns within a 180 days period, if not, then it will be taxable. N/A N/A N/A N/A 6%
STEP 6
TIER-1 supplier sends FRONT PIPE with UNDERFLOOR to GMB with local invoice of return( Nota Fiscal- Return from Industralization, where material and manpower used should be detailed ). N/A 9,25% 18% N/A ?
STEP 7GMB sells and sends CLOSE COUPLED to Power Train to install it the engine. ( Taxes on sales ) N/A 9,25% 18% N/A ?
Note - 1Add-on cost in step 1, refers to Global PGM handling (2%); Financing charges (1.5% )and PGM Logistic ( 1%).
Note - 2Add-on cost in step 5, refers to GMB administrative control on the Consignment process.
Note - 3 Do not know percentages of cost for steps 2, 3, 4, 6 and 7
PGM PROCESS AND BUSINESS CASE FOR LAAM
PGM PROPOSED PROCESS FOR GMB - ALTERNATIVE “A”
TIER 1 -SUPPLIERSGMBCONVERTER
(CANNER)WASHCOAT(COATER)
GM PLATS(SOUTHAFRICA)
GMWORLDWIDEMETAL POOL
GMB
BUYS RAWMATERIAL
FROM GM CORP.
GM CORP
SELLS RAWMATERIAL TO
GM-BRASIL
GMB
CONSIGNS RAWMATERIAL TO
COATER
COATER
RECEIVES RAWMATERIAL IN
CONSIGNMENT
CONSIGNMENTPROCESS
COATER
PROCESS RAWMATERIAL,PRODUCESBRICK AND
SEND IT TO GMB
GMBRECEIVES
BRICK FROMCOATER
GMBSELLS AND
SENDS BRICKTO CANNER
CANNER
RECEIVES BRICKAND PROCESS
ENCAPSULATION
CANNERSENDS
UNDERFLOORTO GMB
CANNERSENDS CLOSE
COUPLED TO GMB-SJC
(POWER TRAIN)
GMB
RECEIVESUNDERFLOOR
AND SEND IT TOTIER 1 -
SUPPLIER
SUPPLIER
SENDS FRONTPIPE TO GMB
TIER - 1SUPPLIER
WELDSUNDERFLOORINTO FRONT
PIPE
GMB
RECEIVESCLOSE
COUPLED ANDSEND IT TO
POWER TRAIN
POWER TRAINASSEMBLIES
CLOSECOUPLED INTO
THE ENGINE
GMB
ASSEMBLIESFRONT PIPE
INTO THE CAR
END OF PROCESS
CONSIGNMENTPROCESS
PGM PROCESS AND BUSINESS CASE FOR LAAM
PGM PROCESSES TAXES COST
IMPORT THROUGH GM BRASIL STEPS PER PROCESS IMPORT
PIS/COFINS ICMS
TRANSFER PRICE ADD-ON
Alternative " A "
STEP 1GMB imports PGM from a GM Worldwide Metal Pool. ( Import duty is not recoverable ; PIS / COFINS and ICMS are recoverable). Transfer price applies. 2% 9,25% 18% 20% / 60% N/A
STEP 2
GMB consigns and sends PGM to Washcoater, with local invoice in consignment ( Nota Fiscal - For industralization ). This consigment is not taxed if material returns within 180 days period, if not, then it will be taxable. N/A N/A N/A N/A 6%
STEP 3
Washcoater ( Coater ) returns processed material, BRICKS, to GMB with a local invoice of return. ( Nota Fiscal - Return from Industralization, where material and manpower used should be detailed ) Taxes on sales. N/A 9,25% 18% N/A ?
STEP 4 GMB sells and sends BRICKS to Canner ( Taxes on sales ) N/A 9,25% 18% N/A ?
STEP 5Canner sells UNDERFLOOR and CLOSE COUPLED to GMB ( Taxes on sales ) N/A 9,25% 18% N/A ?
STEP 6
GMB sends in consignment, UNDERFLOOR, to TIER-1 supplier, with local invoice in consigment( Nota Fiscal- For industrialization ). This consignment is not taxed if material returns within a 180 days period, if not, then it will be taxable. N/A N/A N/A N/A 6%
STEP 7
TIER-1 supplier sends FRONT PIPE with UNDERFLOOR to GMB with local invoice of return( Nota Fiscal- Return from Industralization, where material and manpower used should be detailed ).Taxes on sales. N/A 9,25% 18% N/A ?
STEP 8GMB sells and sends CLOSE COUPLED to Power Train to install it the engine. ( Taxes on sales ) N/A 9,25% 18% N/A ?
Note - 1 Do not know percentages of cost for steps 3, 4, and 5.
Note - 2Add-on cost in steps 2 and 6, refers to GMB administrative control on the Consignment process.
Note - 3 Do not know percentages of cost for steps 7 and 8
PGM PROCESS AND BUSINESS CASE FOR LAAM
PGM PROPOSED PROCESS FOR GMB - USING TRADING IN BRASIL
TIER 1 -SUPPLIER ANDPOWER TRAIN
GMBCONVERTER(CANNER)
WASHCOAT(COATER)
TRADING(BRASIL)
GM WORLWIDEMETAL POOL
TRADINGRECEIVES
BRICKS FROMCOATER, SELLSAND SENDS TOCANNER, ANDPAY SERVICES
TO COATERCANNERPROCESS
ENCAPSULATION,SELLS AND SENDS
TO GMB
COATER
RECEIVES ANDPROCESS RAW
MATERIAL
CANNER
RECEIVES BRICKSTO BE PROCESSED
GM CORP.SELLS RAW
MATERIAL TOTRADING -
BRASIL
COATERPRODUCES
BRICKS, SENDSTO TRADINGAND INVOICE
SERVICES
PLATINUM,PALLADIUMRHODIUM
TRADING
SENDS RAWMATERIAL TOCOATERS FOR
INDUSTRIALIZATION
GMBBUYS
UNDERFLOORAND CLOSE
COUPLED FROMCANNER
TRADING
IMPORT ANDRECEIVES RAW
MATERIAL
TIER - 1
SUPPLIER WELDSUNDERFLOOR
INTO FRONT PIPE
GMBRECEIVES
CLOSECOUPLED ANDUNDERFLOOR,
AND PAYSCANNER
SUPPLIER
SELLS ANDSENDS FRONTPIPE TO GMB
GMB
SENDS CLOSECOUPLED TOPOWER TRAIN
GMB
SENDSUNDERFLOOR TOTIER-1 SUPPLIER
FORINDUSTRIALIZATION
GMBRECEIVES
FRONT PIPEAND PAY TIER-1
SUPPLIER
POWER TRAIN
ASSEMBLIESCLOSE COUPLEDINTO THE ENGINE
POWER TRAINSENDS ENGINE TO
GMB
GMB
RECEIVESENGINE
PGM PROCESS AND BUSINESS CASE FOR LAAM
PGM PROCESSES TAXES COST
IMPORT THROUGH TRADING - BRASIL STEPS PER PROCESS IMPORT
PIS/COFINS ICMS
TRANSFER PRICE ADD-ON
STEP 0
A Trading Co. should be hired, in Brasil, to run the PGM process where the GM Corporation will be making the required controls.( Cost is estimated based on previous quotation received from CISA Trading Co. for a similar project ). 3,5%
STEP 1
Trading Co. - Brasil imports from GM WORLWIDE METAL POOL.(Import duty is not recoverable ; PIS/COFINS and ICMS are recoverable; Transfer price policy does not apply, as it is a non-related transaction) 2% 9,25% 18% N/A ?
STEP 2 Trading Co. - Brasil sends raw material to Washcoater for industrialization. N/A N/A N/A N/A ?
STEP 3WashCoater sells BRICKS to Trading Co. - Brasil.( Taxes on sales/services ) N/A 9,25% 18% N/A ?
STEP 4Trading Co. - Brasil sells and sends BRICKS to Canner.( Taxes on sales ) N/A 9,25% 18% N/A ?
STEP 5Canner sells and sends UNDERFLOOR and CLOSE COUPLED to General Motors do Brasil ( Taxes on sales ) N/A 9,25% 18% N/A ?
STEP 6
General Motors do Brasil sends UNDERFLOOR to Tier-1 supplier, for industrialization and CLOSE COUPLED to Power Train. ( Taxes on sales/services ). N/A 9,25% 18% N/A ?
STEP 7Tier - 1 supplier sells and sends FRONT PIPE to GMB. ( Taxes on sales ) N/A 9,25% 18% N/A ?
STEP 8 Power Train sends engine to GMB ( Local Transference Invoice ) N/A N/A N/A N/A ?
Note - 1All taxes are recoverable.( ICMS, PIS, COFINS), but Income Tax on profits will apply.
Note - 2This alternative includes an industrialization / consignment process, to be made by the Trading Co., whose estimated cost needs to be defined.
Note - 3 Do not know percentages of cost for steps 2 through 8.
PGM PROCESS AND BUSINESS CASE FOR LAAM
PRELIMINARY ANALYSISThe figures in the GM do Brasil option are showing that processes involving Consignment made through GM, represent a high cost in Brasil. A more detailed study should be made, in order to identify cost drivers and compare them with the Trading option.
Purchasing should complete data related to the cost of sales for every transaction in each alternative, in order to compare all financial data.
Purchasing should also verify with local Trading Companies in Brasil, through a normal bid, with corresponding SOR, the cost and scope of the operations.
PGM PROCESS AND BUSINESS CASE FOR LAAM
To avoid high cost and still become part of the PGM process initiative, we suggest to choose the Trading Co. option.
All controls and quality surveillance that PGM in the States requires should be part of the process to be negotiated with the Trading and suppliers.If it is required to Export original parts, Catalytic Converter, to GM-Argentina or any other LAAM allied company, the Trading Co. could also do it.
SUGGESTIONS.