Category Archives: Supply Chain

Managing Global Trade Data

In our last post on Global Trade Data Management we indicated that not a lot of focus has been traditionally placed on the management of Global Trade Data because, if it’s done right, there are no significant savings opportunities and most companies still are not really aware that they should be focused on it. The reason they should be focused on it is that error rates in global trade processes approach 10% to 20% and this is costing many companies millions of dollars, especially when affordable technology solutions to tackle these problems now exist.

Why is managing global trade data so important? In addition to the fact that the Customs Modernization Act of 1993 shifted the responsibility of documentation accuracy from the government to the importer and that errors can result in long delays, huge fines or overpayments (that the government will not identify for you), this years budget for US Customers and Border Protection (CBP) increased 4.8%. As part of this increase, CBP plans to spend $305M in the implementation of the Automated Commercial Environment (ACE) and another $16M on the International Trade Data System (ITDS) program in conjunction with the Customs Trade Partnership Against Terrorism (C-TPAT). When you combine these initiatives with the compliance legislation of the recent Sarbanes-Oxley act, the level of visibility and control you really need with respect to your trade data is probably well beyond what you have. And since you never know when you could be audited, which is probably more likely than you think when you consider that statistics indicate that the goverment collects $7 in fines and interest on underpayments for every $1 it spends on a trade-compliance audit, you should be getting your data into shape now. (Furthermore, in addition to the Securities and Exchange Commission, depending on what you are importing or exporting, you may also be subject to oversight from the Department of Transportation, Department of Defense, Federal Communications Commission, Federal Aviation Commission, and the Food and Drug Administration, for example.)

You start with an audit of your current processes, systems, and, most importantly data, to determine where the issues are and what you have to address. A company like Global Data Mining (acquired by CUSTOMS Info which was acquired by Descartes) can help you do this using a 3-R process that recreates years of historical import transactions to identify and quantify errors and non-compliance activities, produces executive-level reports to provide decision makers the information they need to determine priorities and define go-forward plans, and reparis existing data and current control processes to prevent the same mistakes from happening again.

Manual processes, which are still standard for the majority of importers, and which typically rely on a person to make a decision with only shorthand invoice descriptions available, are subject to errors and generally produce the following common inaccuracies:

  • inaccurate notation of merchandise value
  • improper classification of merchandise
  • incorrect payment and documentation of duties

Generally speaking, your reporting process will highlight these issues and your repair process will focus on implementing new, preferably technology driven, processes that will prevent these errors from happening again.

The reality is that despite the fact there are tens of thousands of rulings by US Customs that need to be referred to in product classification, and that this shear number is beyond the grasp of even the best of human experts, this is a very small number from a systems perspective and a good technology solution can locate and apply the right ruling, classification, and rate in a fraction of a second with the right description and HTS codes.

For more information, I encourage you to check out Global Data Mining’s white papers and their white paper on Import Compliance in particular. I think it will be worth your time.

Global Trade Data Management

We’ve discussed Global Supplier Visibility and Performance, Supply Chain Finance, and even Supply Chain Audits, but we have not yet delved into Global Trade Data Management, an area that, if mismanaged, can cost you millions of dollars.

Why? Maybe it’s because if it’s done properly, there are no considerable savings opportunities when compared with other areas of the supply chain. With visibility, there are always new ways to manage risk that can be significantly more cost competitive. With finance, new payment methods or arrangements always present noticably increased potential. With sourcing, we know where the enormous opportunities are. With global trade, governments fix tariffs and duties and that’s that.

But only if your items are property classified and validated and only if you pay the right amount. The reality is that, in many corporations, error rates in global trade processes approach 10% to 20%. The effective control of global trade processes is often 100 to 200 times worse compared to accounts payable processes in the same company.

Why? A combination of reasons. Up until 1993, the government was responsible for reviewing the accuracy of documentation and markings and assessing appropriate duties. Then the Customs Modernization Act shifted responsibility for import compliance to the importer. Businesses were not ready, so they deferred to third-party providers (customhouse brokerage services). But as they expanded, so did the broad range of countries and commodities they had to processes, as well as the ever increasing range of HTS (Harmonized Tariff Schedule) codes they had to deal with, many of which had confusing sub-classifications that were not well known or commonly used. In addition, whereas accounting had a number of sophisticated accounting systems to choose from on the marketplace, technology solutions for these customhouse brokerage providers were almost non-existent. In effect, proper classification depended on the expertise of the human classifying the data – which leads to errors, all of which are costly since they will result in delayed clearance, fines, or undetected overpayments – the last of which the government is not looking for on your behalf.

How could this happen? Many categories have subcategories. Consider 3703.10, photographic paper. It’s US HTS rate is 3.7% unless it’s 3703.10.60, Other (not falling into the .30 category of rolls exceeding 610 mm), and then its 3.1%. If you were unaware of this special subclassification, or simply left off the .60, you’d be paying 0.6% more. Another common error is a mixed shipment where a rushed or lazy agent simply uses the high level four digit code in a mixed shipment. If the majority of the shipment was at a lower rate, or was subject to reduced rates because of a free trade agreement or free trade zone, you could be considerably overpaying. And if you’re importing 50M and overpaying 2%, that’s 1M you’re losing.

So what can you do? Up until recently, the best you could do is subscribe to a service that kept up-to-date rates and manually verify each shipment against the rates, which required lots of manpower and might cost more than you save if you are a mid-sized company or smaller. Today, there are technology solutions to assist you. One such solution is that offered by Global Data Mining [GDM] (acquired by Customs Info, acquired by Descartes), a company that specializes in helping high-volume, high-value global trade businesses build effective trade databases for extensive trade reporting and comprehensive auditing to significantly improve their processes, reduce their error rates, and save time and money in their global trade endeavors.

Earlier this week I had a chance to speak with the president of GDM, and the president of their sister company, International Trade Bureau and I must say that I was impressed with their knowledge of the issues in the global trade space and their processes and solutions for addressing them. Although they do not provide a complete solution on their own, with the right internal team and consulting partners, the foundation their solutions provide will allow you to address your trade issues end to end. How? That’s a topic for a later post.

A Systemic Blindness (in the Supply Chain)

One of the presentations at the Fourth Annual International Symposium on Supply Chain Management was by Mark Gallant of Accenture on Supply Chain Management: The Road to High Performance based on yet another global study that they have recently completed on 600 Global 300 companies.

One of the most interesting aspects of this study was, as far as I was concerned, the lack of any new results. It might as well have been Capgemini reporting on their results (which I mentioned in my post on The Need for Supplier Relationship Management Education and which Jason Busch of Spend Matters critiques in “The Consulting SRM Research Pile-On Continues”*) or another consulting firm.

This leads me to hypothesize that not only are many companies not spending enough time and money training and educating their procurement team, they are not concentrating enough of their focus on their supply chain and still not attributing the necessary amount of importance to it.

I know I should not find this surprising given the traditional pace of transformation in the corporate world, but I do. After all, I reminded you of Dr. John K. Potter’s claim that most major initiatives in an organization required 5 to 10 years in The Change Management Myth: Why e-Procurement Initiatives Fail, indicating that many enterprises have just not caught up with the speed of business – even though, as I have pointed out a couple of times now, Aberdeen recently found that your average company experiences two major supply chain disruptions a year.

However, when you consider the direct impact that supply chain performance has on the stock market price of your corporation, and the considerable focus financials have always received, this systemic blindness should be changing as I type this.

After all, SAP’s recent analysis of supply chain glitches (as presented by Al Norrie in the software panel discussion), has found that stock prices drop by an average of 7.5% to 11% after a supply chain disruption.

Glitch Stock Price Delta
Product Development Delays 10%
Rollout Delays 11%
Production Problems 10%
Quality Problems 9%
Material Shortage 7.5%

In addition, Accenture analyzed stock prices of market leaders, transformers, laggards, and decliners over the last decade and found that while leaders maintained a market cap approximately 15% above average for their industry, laggards were roughly 5% below market average and decliners were as much as 15% below market average. In simple terms, bad supply chain performance can result in a stock price 30% less than the market leader under an apples-to-apples comparison!

So what can you do? According to Accenture, you should

  • incorporate supply chain into your core business strategy
  • make strategic in-source vs out-source decisions
  • build effective linkages with trading partners
  • adopt leading edge technology and best practices
  • relentlessly shorten your supply chain
  • flawlessly execute against your capabilities
  • continuously evolve strategies and optimize models
  • have a vision and a strategy
  • adopt the right culture

In other words, just follow all of the good advice that bloggers such as Jason Busch (Spend Matters), David Bush (e-Sourcing Forum [WayBackMachine], Dave Stephens (Procurement Central [WayBackMachine]), Tim Minahan (Supply Excellence [WayBackMachine]), and I have been imparting since we started blogging and most importantly, if you truly believe your supply chain is very important or critical (as 44% and 45% of survey respondents, respectively, believe), be sure to commit the appropriate resources to address it.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

The Talent Series VI: The Impending Crunch

THESE are heady days for most companies. Profits are up. Capital is footloose and fancy-free. Trade unions are getting weaker. India and China are adding billions of new cheap workers and consumers to the world economy. This week the Dow Jones Industrial Average hit a new high.

But talk to bosses and you discover a gnawing worry—about the supply of talent. “Talent” is one of those irritating words that has been hijacked by management gurus. It used to mean innate ability, but in modern business it has become a synonym for brainpower (both natural and trained) and especially the ability to think creatively. That may sound waffly; but look around the business world and two things stand out: the modern economy places an enormous premium on brainpower; and there is not enough to go round.

So starts the well-written article The Search for Talent (subscription required) in a recent issue of the Economist. You know that talent acquisition is a real issue when even the economist starts harping about it!

According to the article, companies of all sorts are taking longer to fill jobs — and, according to a survey quoted therein, many companies say they are having to make do with sub-standard employees! In addition, they say there is evidence that the talent shortage is about to get worse! In addition, the proportion of American workers doing jobs that call for complex skills has grown three times as fast as employment in general. Moreover, as other economies move in the same direction, the global demand is rising quickly! For example, where are our best construction engineers? I’d bet some of them are in Dubai working on the Dubai Mega Islands project while tens of thousands more are probably scattered on engineering projects the world over! After all, the talent crunch is worse in some countries, with Mexico, Canada, and Japan leading the pack. And when you consider that by 2025, the number of people aged 15-64 is projected to fall by 7% in Germany, 9% in Italy and 14% in Japan, talent these days truly has global opportunity.

Not to say the talent crunch isn’t bad at home … with the baby-boomers preparing to retire, some estimates predict that half the top people at America’s 500 leading companies will go in the next five years! Ouch! And the Economist is not the only publication to point out this fact in recent times, an article in last month’s Inside Supply Management, entitled “The Greying Supply Chain” notes that 76 million baby boomers in the United States will soon be eligible for retirement!

And it’s going to be just as hard to replace our leaders as it is replacing everyone else. After all, with all of the downsizing, outsourcing, and rightsizing crazes of the eighties and nineties, employee loyalty is a distant memory for many employers who will continue to lose current and potential employees to the highest bidder. (There’s something to be said for putting your employees before your stock price!)

So what can you do? First of all, you can prepare to open your checkbook. Talent is not cheap … but when you consider the ROI on a talented employee vs. a sub-par employee, it’s not as expensive as you think … especially when a talented supply chain professional can save your firm millions upon millions of dollars with just one brilliant idea. How do you attract talent? Although my last post was a bit lengthy on the topic, the answer is simple. Really simple. Be a Great Place to Work!

The truth is … talent is attracted to talent, and great places to work attract talent. This starts with an innovative culture focused on success and the people who enable it. One where employees are empowered and encouraged to try new things, even if they fail once in a while. We often learn more from our mistakes than our successes, and a failure in a small controlled experience is often worth more than a major success. (Read my earlier posts on innovation here and on eSourcing Forum.)

What can you do to prepare for the impending crunch that will result from your retiring workforce? The ISM article provides some good tips.

  • Make sure you understand the demographics of your supply chain organization.
    Who’s nearing (early) retirement? What do they do? And, more importantly what do they know?
  • Put plans in place to preserve your most critical institutional knowledge before it walks out the door!
    Your employees, and the knowledge in their heads, is your most critical asset. Give them time to document it, buy systems to help them document it, and make sure those systems are accessible by all employees.
  • If you haven’t already, put alternative work arrangement programs in place.
    Can your employees work part time? Remotely? On a project basis? Not all employees may want to go from 60 to 0 right away – you need to be prepared to take advantage of those who want to phase into retirement slowly.
  • Work on an open organizational culture that accepts and respects everyone.
    You need the knowledge of the seasoned veterans, the education of the new graduates, and the raw skills of the experienced individuals in between. Everyone should feel wanted – and needed – and each individual should be able to contribute on her or his strengths.

In parting, the following quote from the Economist article sums up the situation nicely: Eventually, supply will rise to meet demand and the market will adjust. But, while you wait, your firm might go bust.

A Competitive Advantage (in the Supply Chain)

The theme of this year’s Fourth Annual Symposium on Supply Chain Management was Optimizing the Supply Chain: Competitive Advantage through Information Technology, and a competitive advantage is what you would have taken away if you had attended.

Despite a relatively low attendance when compared with other eProcurement conferences, this is by far one of the better conferences you can attend. Even though attendance was around 95 this year (typical attendence is slightly over 100), you had participants from America to Australia, from academia and industry, and the practitioners in attendance cut across almost every industry. Thus, even though it’s sponsored primarily by PMAC (Purchasing Management Association of Canada, now the Supply Chain Canada Association), it’s truly an international event – and substantially different from PMAC’s annual meeting, which would be more of a Canadian event.

I know many of you are probably scared off by the dual academic/industrial nature of the event, noticing that it’s also sponsored by the McMaster eBusiness Research Centre, and worried that it will be overrun with academics in their ivory towers who have no clue about, and no interest in, real world problems, but this is not the case with this event. I understand where your concerns are coming from – I attended many academic conferences in my day and was consistently put off by not only the lack of application of much of the work, but the academic indifference toward the lack of application at many such conferences – but these concerns are unfounded. In fact, attending these types of events is even more beneficial then attending purely practitioner events as true innovation comes from the merging of great ideas, great technologies, and great best practices. Academics exist to come up with great ideas and foundations for best technologies and Practitioners exist to build great technologies tailored to best practices, using the best ideas they can find in the process. When the two come together with common goals in a common forum and work together, in my view, that’s when the best innovation occurs.

Furthermore, when you consider the broad range of topics that were covered in this year’s symposium, you quickly see that there’s something for everyone. In addition to papers on supply chain management, global supply chain management, risk management, supply chain design, supply chain integration, and e-Procurement, you also had papers on green initiatives, flexible manufacturing, talent sourcing, value networks, RFID, project management, and supplier management from the perspective of a range of industries including health care, pharmaceuticals, automotive, consulting, and software. In other words, the conference is just as informative as many two day crash courses in supply chain issues, at a fraction of the price.

I learned something in every presentation I went to, even the ones on the topics I knew very well. As a whole, the presentations were very well done. There’s so much to report that, as you probably guessed from my posts on New Technology Strategies and Managing Business Risk, I’m not even going to try to cover the conference in a post or two. Instead, I’m going to do a series of posts over the next few weeks on, or inspired by, the ten most informative or thought provoking presentations that I attended at the conference and apologize in advance to the speakers who get left out. (I could only attend a fixed number of presentations and even an overactive human brain can only process a finite amount of information in a short time period.)

In conclusion, I would strongly encourage you to join the academics who’ve stepped outside of their ivory tower and the innovation-focussed practitioners and attend next year’s event – especially if you reside in Canada or the United States and are only a short flight or two away – as I’m sure you will benefit from the experience. And who knows, maybe you’ll even get to meet a blogger!