Category Archives: Global Trade

Supply Chain Inefficiencies Exacerbated by Lack of Visibility

As stated in a recent Supply & Demand Chain Executive Article, effective supply chain management is based on the ability to know the “what, where, when, and how” of your operations in real-time. However, it’s more than this. It’s the ability to understand the ripple effects and consequences from changes made to the processing of payables, receivables, shipments, and inventory. A “solution” could actually cause more problems than it solves if the full effects of its implementation are not considered.

To this end, the article “Seven Studies in Supply Chain Visibility” attempted to provide some examples of how a lack of visibility can cause importers and exporters challenges and headaches. Some of these examples illustrated the dangers of a lack of visibility from a trade and finance perspective, and need to be highlighted.

  • Transitioning to an Open Account from Letters of Credit can Cripple Suppliers
    Sometimes suppliers require letters of credit to finance their operations from the time they get an order to the time they get paid – even if they are located in the US – as a US supplier might source components and sub-components from foreign suppliers whose banks don’t recognize open-accounts as a basis for financing. The answer is to only use open accounts with suppliers where there is enough history to satisfy their lenders (or where a common bank that knows the financial status of each party) is used .
  • Rapid Growth can lead to Compliance Risk
    Rapid growth in international markets can create significant export compliance risk as every country has it’s own documentation, safety, and product composition requirements for each good you are exporting. Failure to satisfy even one requirement can have a shipment held-up, confiscated, or even destroyed. The answer is to bring in expert help from the outside to make sure everything gets done – and gets done right – during a rapid growth period.
  • Substantial Changes in Manufacturing, Distribution, and Process Execution can Pose Major Risks and Inflate Costs
    Done right – process improvement can increase efficiency and cut costs. Done wrong – attempted process improvement can slow everything down, produce waste, and increase cost. The key to success is to bring in some experienced change management consultants to guide you through the process.
  • Invalid Product Classifications Can Delay Shipments and Cause Taxation Nightmares
    HTS classification can be a nightmare. The answer is to use appropriate decision support software systems to guide you through the classification process, tax rate selection, and document preparation.

Integration Point: Another Way to Get Your Trade Data in Order

I know I risk sounding like a broken record when I continually repeat myself on a topic, but some topics just can’t be ignored – and at least this time I’m introducing you to another company with a solution that I believe could help you with your trade data management efforts.

I recently had the opportunity to review Integration Point’s (acquired by Thomson Reuters) solution, and I believe that they are definitely one of the few providers with a chance to approach a solution that could theoretically be extended to tackle your global trade data management problems 100% in the future through a single, integrated, web-based platform. Right now, they’re probably a good two-thirds of the way there, and that’s currently further than any other solution I’ve had the opportunity to review so far.

Before we dive into their capabilities, let’s step back and define the problem again. If you review the Introduction to Global Trade wiki-paper over on the e-Sourcing Wiki [WayBackMachine], you quickly realize that Global Trade is quite involved, with the basic import and export cycles taking (at least) 14 steps each in the average case. Furthermore, in order to execute global trade, you need to effectively tackle ( 1 ) customs, security, and classification, ( 2 ) free trade / secure trade zones and agreements, and ( 3 ) regulatory compliance. Effectively tackling each of these challenges requires the ability to track and instantly access large amounts of data to create the forms and documents that different regulatory bodies require for the purposes of import / export, security verification, and regulatory compliance. Add extra emphasis to the “instantly” – the information needs to be accessible in real time – and this includes the ability to query up-to-date classification codes, tax laws, regulatory requirements, and denied party lists in real time.

As far as I can tell, with respect to the key supply chain destinations that compose most global supply chains (mainly, North America, the European Union, China, and India), Integration Point, with their extensible modularized web-based platform, has effectively solved the core customs, security, and classification challenge as well as the free trade / secure trade zone challenge. With solutions that address import and export classification (HTS codes), import documentation requirements, export documentation requirements, C-TPAT, AEO, denied party screening, FTA qualification, duty deferral, customs warehousing, customs control processing, and advance security filing – they have most of what your average multinational based in the US or the EU needs. Furthermore, they’ve built their platform to be extensible so that if you have additional classification or security needs, they can extend the solution to meet your needs. Maybe that’s why they already have over 80 multinationals as clients, including 11 of the Fortune 100.

The solution also integrates with a wide range of ERP and competitor trade platform software – including SAP, Oracle, JD Edwards, MAPIS, BPCS, MFG/PRO, American Software, EXE, Manhattan Associates, PKMS, and Infor – and they can usually integrate with additional software in reasonable timeframes since everything was built in house on a single, .NET-based, platform.

This only leaves regulatory compliance – which is a difficult challenge for any vendor because most of the major acts, like REACH, RoHS, WEE, etc. in the EU, require significant amounts of low-level manufacturing and product design details that are only found in, often archaic, PLM systems. However, their platform can track any product-specific data you like, can store any regulatory-specific requirements you like, and they can build custom searches and custom-matches as required by their customers – often in just a few hours – so if you know what the concerns are, you can track them and make sure they are checked before each award is made or each shipment approved, so if your needs are elementary, with some effort, you can extend it to serve as a basic regulatory requirements tracking system. However, it won’t be a full solution until they build in basic PLM data integration, tracking, and matching capabilities as well as the requirements of the major regulatory acts in North American, the EU, China, and India.

Integration Point also has the right viewpoint when it comes to global trade management – it should be proactive and not reactive. You don’t want to know about exceptions after a shipment has been approved, you want to prevent shipments with known problems from occurring in the first place. You want to make sure that the customer is not on the denied party list, that the distributor or 3PL has the proper transport licenses, and that you have the right export licenses before you even approve the order. You want checks to occur automatically as soon as each relevant piece of information is entered, every time something changes, and again just before the shipment is loaded – since denied party lists can change daily.

It’s definitely worth checking out – as they have more integration than Global Data Mining. However, that’s not to say that Global Data Mining isn’t a valuable solution too – as they are particularly good at mining your transaction data to find inaccuracies in classification or tariff & tax overpayments that a transaction-based compliance system like Integration Point isn’t customized for. The reality is that global trade is so complex that one solution probably isn’t going to cut it for a long time, if ever, but I do believe that starting with a web-based platform, like Integration Point’s, is a good start. For your reference, other players in the space are TradeBeam, QuestaWeb, Kewill Systems, and Management Dynamics.

The 12 Days of X-emplification: Day 10 – Trade Data Management

Trade Data Management is a broad topic, and means different things to different people. As far as I’m concerned, Trade Data Management is the process of tracking all of the data that you need to manage the global trade cycle, as defined in the Global Trade Primer on the e-Sourcing Wiki [WayBackMachine].

Global Trade is quite involved. It encompasses supplier selection and management, e-Procurement, transportation, import & export, government organizations, third parties, and a host of regulations depending on where you’re shipping from, where you’re shipping to, and where you’re passing through in between. However, since most shops already have e-Sourcing, e-Procurement, Supplier Management (SRM/SPM/SIM), and logistics solutions, when they look for a global trade management solution, they are specifically looking for a solution that can capture all of the data they need to produce the documentation needed by each organization that they interact with (government, carriers, and other third parties), produce those documents for them, and automatically submit electronic versions of the documents to those systems capable of receiving the documents automatically. Secondarily, they want a system that can help them with export classification, tax calculations, and regulatory requirement identification. Thus, we will specifically focus on those requirements in the questions that follow.

1. Does the vendor they have a software based solution, a blended software and services solution, or is it entirely services?

Although the first two choices can be equally adequate, be wary of a services only solution. Not only do you need to produce a lot of documents when trading internationally, but you need to have those documents submitted in a timely fashion, especially to government agencies that can stop, confiscate, and even destroy your goods if you don’t follow the rules. How fast can a purely services company turn these documents around, especially given the sometimes dynamic and unpredictable nature of global trade?

2. Does it address import and export classification (ETS) and corresponding tax rates (HTS)?

Let’s face it – import and export codes can be bewildering. Without the right expertise, you might find that your product apparently fits the requirements of three or four different codes, especially if there have been recent changes in the country you’re importing into or exporting from. However, given that each code might require different documentation requirements, and, more importantly, that each code might be associated with a different tax rate, it’s critical that you select the right one. Unless you have an expert on staff, you want a service provider that can provide you with that expertise.

3. Can it produce the documentation required by government agencies? Can it submit those documents directly into existing systems?

It’s one thing to track all of the data, it’s another thing to create the forms – automatically. You want a partner that not only tracks the data you need for every form you might need in the global trade cycle, but that automatically creates those forms for you and, when possible, electronically submits those forms to the appropriate government agencies. For example, those companies operating in the US need to submit their manifests to ACE before the truck reaches the border.

4. Does the solution support appropriate performance metrics?

It’s not just the services offered, but how effective those services are. You want a company that tracks its performance by customer and globally and makes a continual effort to improve its performance over time. Completeness, on-time delivery, cycle time reductions, and other meaningful metrics need to be tracked and available to you at all times.

5. Does it support all available transportation methods adequately?

If you’re global, chances are you’re shipping by land, sea, and air and using multiple carriers and methods for each transportation method. For example, you might have your own trucks for local shipments between a warehouse and your retail location, a 3PL for shipment from a supplier to your warehouses, and an agreement with Fedex for customers who shop on-line for home-delivery. You want a partner who is adept at managing all transportation methods that are available to you.

6. Does it support regulatory data requirements such as RoHS, REACH, WEE?

Let’s face it – it’s not just customs and associated regulations you have to comply with when trading globally, it’s also a slew of regulations that govern the safety and material content of your products. You want a service provider that can track all of the data required to produce the necessary documentation to show that you are in compliance with each regulatory code that can be applied to your products.

7. Does it support your vendors and partners?

If you use a 3PL, you want them to be able to access the system to print off the documents you need, and if you use contract manufacturers, you want them to be able to input the data required to demonstrate that you are in compliance with the appropriate regulations. Thus, it needs to be a web-based system that is accessible to those who need access.

8. Does it integrate with your visibility solution?

Hopefully you’ve realized that if you’re not tracking what’s going on in your supply chain, then you’re just asking for a major disruption, given that the average company is now experiencing at least one major disruption a year. (Furthermore, the frequency of disruptions to those companies not actively engage in supply chain monitoring and risk management is expected to increase significantly over the next decade.) If you have, then you’re in the process of implementing a visibility solution that lets you track the status of each order and alerts you when something does not ship or arrive at the expected time. For this type of system to be useful, it needs to track all of your supply chain data – and this includes the document submissions and information requests managed through your trade data management system. So make sure it can implement with the visibility solution you have, or the one you plan to implement (if you haven’t started yet).

Supply Management in the Decade Ahead II: The Eight Major Forces – Part I

In Part I of our review of Succeeding in a Dynamic World: Supply Management in the Decade Ahead, we overviewed the various external forces that will impact a company’s supply chain as identified by CAPS, AT Kearney, and the survey respondents. We then concluded with the eight major forces that were identified specifically by supply managers who took part in the study. Today, we will dive into the first four of these eight major forces and explain not only why they are important, but what can be done about them.

Global Competition

The report notes that the impact of China on the world economy will continue to be enormous over the next ten years and that, to prosper, companies will have to embrace China as both a market as well as a source of supply for their goods and services. As China continues to modernize and urbanize, China will consume an increasing share of the world’s raw materials, driving up prices and / or creating shortages. The growth of China as a supply and demand market will create opportunities for all and those that embrace the China opportunities will have profound advantages over those that do not. Furthermore, enormous intellectual capital exists in China that can be tapped for invention, innovation, and new technology.

The report also notes that other developing countries will continue to emerge as attractive supply sources and bases of growth and identifies Russia, Mexico, and India. Personally, I think India will emerge as the next great shaper of the global economy and challenge China for supremacy. See my predictions on the winner of the talent war and the loser of the innovation challenge.

Merger, Acquisition, & Supply Market Consolidation

To meet the onslaught of new competition, companies headquartered in developed economies will need to increase in size with improved economies of scale and market power to survive. This will thus force many companies to merge and consolidate. As the M&A game plays out, supply management will be tasked with assessing the impact on the supply chain, including costs, risks, and opportunities. Supply management will need to understand the new supply base, how it can be used to gain advantage, and how to find the forecasted cost savings. In addition, when oligopolies are created by supplier consolidation, power will shift in the marketplace and diminish customer bargaining power while creating a major threat for buying companies.

This is one recommendation that I disagree with. To meet the onslaught of new competition, companies headquartered in in developed economies will need to do something to maintain their place in the market, but increasing in size and market power through consolidation isn’t the only option. They could survive by finding a niche and being the best player in the niche, or they could survive by generating greatly improved economies of scale through the application of innovative processes and methodologies. Now, I know that the approach most big companies take to innovation is to buy it, but it doesn’t have to be this way. Look at Apple.

Increased Government Regulation

Government legislation and regulation of business will only continue to increase, requiring companies to dedicate sufficient resources to ensure compliance, especially in the U.S. and EU. This will lengthen contract negotiations which will have to discuss government regulations and privacy legislation to make sure all parties will be able to remain in compliance. In addition, government actions to support or restrict economic development, such as tax incentives and trade restrictions, will have a large impact on supply strategies.

Government legislation and regulations will continue to multiply, but I believe that China and India could pose just as many issues in the next decade as the US and EU do now. China is already pursuing its own version of RoHS due to the extreme amount of e-Waste that companies are trying to dump there. India is trying to become the next great knowledge and service economy and will eventually enact regulations necessary to satisfy the requirements of dependent nations in terms of privacy and IP. Furthermore, there’s more than one way to deal with the legislation onslaught. The first is to add resources, as the report suggests, but a company could choose to implement systems to manage the data gathering and reporting requirements without increasing resources. These systems are rare today, relative to other supply management solutions, but will become more common as niche providers will rise up to address a problem that companies, who are currently paying millions of dollars just to generate compliance reports, will pay handsomely for.

Technology Advances

Technology breakthroughs will continue to cause major changes to how products and services are provided. These changes will ultimately lower the customer’s total cost of ownership. Core technologies of many industries will become commoditized, forcing geographic consolidation and concentration of the supply base. Shortages of key raw materials will lead to technology changes and the use of alternative raw materials.

I have to agree wholeheartedly here, but point out that the early winners will be those that latch onto new technologies early, lowering their cost and ushering in the era of commoditization. In the software industry, on-demand and SaaS providers will be the big winners next decade, as will providers who can deliver enterprise systems based on low-cost open source technologies and make their money off of services.

It’s Time To Get Your Trade Data In Order

Did you know that, right now:

  • You could be eligible for VAT rebates?
  • You could be eligible for Import Duty refunds?
    or that …
  • You could be overpaying for freight?
  • You could be saving more if you took advantage of trade agreements or trade zones?
    or that …
  • You could be buying counterfeit goods?
  • You could be weeks away from having your supply chain frozen?
    and more!

Let’s start with the Aberdeen findings, which have been, more-or-less, corroborated by Hackett. There are millions (upon millions) of dollars in working capital languishing in your international supply chain. A $1B company can easily free $10M to $40M in cash by better controlling just its basic global trade processes. Aberdeen found:

  • Large companies’ international supply chains are only 50% as automated as their domestic supply chains.
  • 87% of large enterprises have inadequate staffing to manage global supply chain and global trade compliance processes.
  • Trade compliance is consistently a low priority for IT funding.

Now let’s add the Global Data Mining findings that error rates in global trade processes approach 10 to 20% and that effective control of global trade processes is often 100 to 200 times worse when compared to accounts payable processes in an average company!

Basically, the following is a reality for your average multi-national, whether it realizes it or not:

  • It’s manufacturing facilities in China are still failing to claim VAT rebates they are eligible for, because it is unaware that some of its goods are now eligible under the recent changes that took place this summer.
  • It’s using outdated HTS codes and some of these codes have a higher tax rate than what it could be paying if it was using the new HTS codes that took effect in January of this year.
  • It’s not keeping track of total freight payments by carrier and cross-referencing its 3PL agreements and not demanding the discounts that were supposed to come into play once a certain threshold was reached – discounts that sourcing spent a lot of time negotiating into the contract in an attempt to save the organization money.
  • It’s not taking advantage of special economic zones in India and China that offer tax exemptions for items simply passing through the country and / or lower tax rates on corporate profits and not taking advantage of US Foreign Trade Zones that allow payment of duties to be deferred until the product leaves the trade zones.
  • It’s going through a distributor to buy its goods from China, and this distributor is actually distributing counterfeit goods!
  • It still hasn’t updated it’s entire fleet to be ACE compliant. Now that ACE has been rolled out at almost every land border port in the US, CBP expects that all truck-based shipments will be supplying ACE-compliant e-manifests BEFORE the truck reaches the border. Send the wrong truck – and it won’t be going anywhere for a while – freezing your supply chain!

So what can you do? Besides better educating yourself on what’s involved in Global Trade, starting with the Introduction to Global Trade wiki-paper, and the Customs and Security Primer, Free Trade Primer, and Regulatory Compliance Primer on the e-Sourcing Wiki [WayBackMachine], you can start by getting an audit of your processes and data and see where you’re weak and where the greatest refund and savings opportunities are.

Make sure to do a complete review of trade agreement management, FTZ/STZ analysis, HTS classifications, VAT payments, supply chain finance strategies, freight, and sourcing opportunities. If you’re a Fortune 500 company, this could easily identify 20M to 100M (or more!) of savings that are instantly attainable, above and beyond what you’re going to find in an average strategic sourcing project (even if it does use strategic sourcing decision optimization as this only optimizes the model provided at the category level – it does not look at your sourcing network holistically from a trade perspective, which should be done once every one to three years, on average).

And we still didn’t talk about the fact that “Gender & Age Discrimination is Costing US Importers Billions of Dollars!” (Global Data Mining, acquired by CUSTOMS Info, acquired by Descartes) Data mining analysis has determined US Importer’s have overpaid more than $1.3 billion in discriminatory duties over the past two years. When it comes to tariffs on clothing, shoes, and other age or gender differentiated products, there is often no apparent pattern which penalize men in some instances, and women in others. Research has identified more than 2,200 pairs of US Harmonized Tariff codes (HS codes) impacted by discriminatory duties, over 300 for Age Discrimination and more than 1,900 for Gender Discrimination. More than 40 importers have already filed a lawsuit to protect their interests. Have you?

That’s why Global Data Mining is Sourcing Innovation’s Vendor of the Week. Not only is it one of the few companies offering these desperately needed audit and data mining services, and doing so at a rate every company can afford (it’s goal is to provide you with a blended cost of under $100 per man hour – compared to the Big Consulting Shops who want to charge you at least three times that), but it’s also one of the few companies making a concerted effort to educate you on what savings opportunities you may be missing in your global trade operations and what issues, such as the gender & age discrimination in HTS duties, you should be aware of, and speaking out against. Check them out.