Enabling Global Trade Compliance
through AutomationIncrease in global trade has not accelerated software utilization, survey finds
Valerie Bonebrake, Senior Vice President of Global Supply Chain Services at Tompkins Associates, tackles the topic of global trade management and interviews an expert on global trade management software.
The ability for companies of all sizes to source and sell globally has added significant complexity to supply chains. Despite recent volume declines due to the recession, globalization will continue to be a major force in supply chain management.
Fortunately, we are now beginning to hear a lot about recession recovery. Jim Tompkins' research, published in The Great Comeback blog series and executive briefing, propels organizations to think wisely about recovery planning.
For many companies, globalization is an important component of future growth, yet it is fraught with opportunities for costly mistakes. Examples of these issues abound. Consider a U.S. export shipment being delayed three months to its destination due to improper export procedures. How might that affect future orders from that customer?
Another shipper recently shared an example in which a container of finished goods was impounded due to improper declaration of one component of the assembled product; this resulted in lost sales as well as fines to pay. As recovery plans are put in place and investment decisions are made, improving efficiency in global trade management (GTM) is one aspect of supply chain performance that should be considered.
Recognizing these issues across various supply chains, the Supply Chain Consortium recently completed a Global Trade Compliance survey report (PDF). After reviewing the data, it was surprising to find that only half of the companies surveyed are utilizing global trade compliance software packages to manage global trade, even with the evolution of software applications enabled by ease of delivery over the Internet.
For quite a few years now, companies have looked to automation to improve supply chain performance by implementing OMS, TMS and WMS, to name a few. Will this trend in automation eventually extend to further adoption of global trade management software?
To explore this further, I spoke with Alex Thompson, Chief Architect and VP of Market Strategy at TradeBeam, a global trade management software and services company. Here is what he had to say.
ALEX: At a high level, global trade compliance software is not as widely adopted as one might expect, because of the relatively recent significant increase in globalization.
TradeBeam has co-authored a study with Stanford on Global Trade Management and automation, and in it we open by noting that, after WWII, the world economy was in an inward-looking mode, up through the '70s. Throughout the three decades from the '80s through today, we have had a dramatic increase in trade. Companies have rushed to globalize their supply chains, sourcing and selling overseas, setting up facilities all over the world for manufacturing, assembly, and distribution, all to take advantage of low labor and material costs, as well as new markets.
Evaluating Global Trade Compliance
For the companies that have not evaluated their global trade compliance processes and tools lately, now is a great time.
Below are the steps to get started.
- Perform an assessment, beginning with mapping current processes from entry to post-audit.
- Examine both import and export shipments.
- Benchmark your results.
- Evaluate automation opportunities to reduce tax and duty costs, to identify and capture free trade savings, to achieve process savings and to reduce the costs of noncompliance.
- Ensure that you have the required expertise to achieve your goals.
- Develop a plan to achieve your desired solution, including identification of enabling software applications.
- Evaluate alternatives.
- Implement and execute.
If you want to increase sales, improve customer service, reduce the cost of noncompliance and decrease processing costs, then evaluate whether implementing global trade management software can help you achieve your goals.
However, companies' supply chain processes and supporting skills and technologies have not kept pace in terms of efficiency. While domestically and regionally, companies have established automated, lean operations, broadly speaking they have not done so yet with global supply chains, because typically, there are fewer resources devoted to global supply chain management.
VALERIE: The Supply Chain Consortium report shows a high percentage of outsourcing of customs activities. Does this enable or inhibit the use of compliance software?
ALEX: Some companies that we have talked to outsource some or most of their compliance to forwarders, brokers, or contract manufacturers, and that would explain a fair percentage of those claiming to have no compliance automation.
Generally, as companies get larger, they take compliance programs in-house and automate processes. Even if they outsource global trade compliance, importers and exporters are ultimately liable if anything goes wrong, so they reduce their risk by taking control of compliance in-house.
Once they take it in-house, there is no option but to automate if they are medium- to large-scale companies, due to the volumes.
VALERIE: Does the use of compliance software vary by industry?
ALEX: While many compliance rules apply across industries, there are some industries that have more product license controls than others, and there are many that have no product license concerns at all.
High Tech, Manufacturing, Aerospace and Defense, Chemicals and Pharma are examples of areas that have high compliance controls, and enforcement often focuses on sectors like these, whereas industries such as office supplies may receive less attention.
As a consequence, companies with less historical compliance focus may have a greater tolerance for leaving compliance less automated or outsourcing operations.
Some industries do less global trade because of the nature of their supply chains. They may have intra-company shipments that reduce their compliance concerns, or they may have networks of facilities around the world that buy and sell within the same country or region.
VALERIE: In seeing some of the fines that can be levied for noncompliance, as well as the opportunity to reduce duties paid and missing deductions available through free trade agreements and special programs, it is clear that in some cases companies could be looking at impacts to their bottom line in the millions. The current global economy has resulted in companies taking action to reduce their costs. Why isn't this issue getting a higher level of visibility in the executive suite?
ALEX: It is possible that some executives are not aware of global trade compliance automation that is occurring at their companies, because global trade compliance has not had a high profile within businesses. Often it is a subgroup within other areas such as purchasing or logistics. As a consequence, the survey could be under-reporting the numbers for large companies.
VALERIE: Historically, most compliance work has been managed through spreadsheets and written work instructions that may or may not be kept up to date. In the case of high shipment volumes, a 10% audit might be all that is possible. This area seems ripe for automation that enables exception management. What are you seeing?
ALEX: Small- to medium-size companies, as well as large companies with few products and/or few customers often believe that they can best handle compliance with manual processes or spreadsheets. Their products or customers do not change much, so they do not want to invest in automated systems. This is likely to change, as the cost of compliance software has come down significantly with SaaS offerings. Therefore, the subject matter experts are likely to adopt more GTM automation in the future as a result of lowering costs for the solutions, as well as increasing enforcement.
Overall, companies are predicted to automate GTM at a significantly greater level in the next 10 to 20 years as global supply chains catch up to the level of automation and process efficiency that is present in domestic and regional supply chains. There are some trends, such as those noted above, that will slow this progression down in certain industries or companies. However, the overall trend will take place because of the "carrot" (the search for competitive advantage from lower costs within global supply chains and increased revenues from global markets), as well as the "stick" (the need to comply with increasing government regulation of global trade).
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This article is available for reprint with attribution. If you would like more information or an interview, please contact Keri McManus, (919) 855-5516.
Tompkins Associates designs and integrates global end-to-end solutions for companies that embrace supply chain excellence. For more than 30 years, Tompkins has evolved with the marketplace to become the leading provider of global supply chain services, distribution operations consulting, technology implementation, material handling integration, and benchmarking and best practices. Headquartered in Raleigh, NC, the company is known for innovative, practical solutions that improve supply chain performance and produce value-based results. For more information, visit www.tompkinsinc.com.
TradeBeam is a Global Trade Management (GTM) software and services company providing on demand solutions that streamline global trading for enterprises and their partners. TradeBeam's integrated solution provides import and export compliance and visibility including inventory management, shipment tracking, and supply chain event management, as well as global trade finance solutions such as open account and letter of credit management. Founded in 1999 and headquartered in the San Francisco Bay Area, TradeBeam has operations in the United States, Europe, China, and India. www.tradebeam.com
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