Executive Briefings

A New Process Model Documents Value of GTM

Stanford University and TradeBeam, a global trade management software company, have jointly published a new process model for determining the value of trade automation in the China-to-US trade lane.

The Stanford Trade Process Model (STPM) was developed to improve the level of understanding of GTM, and to help companies estimate and work to realize efficiency gains through skills, process and technology investments. The model contains sufficient detail on cross-border trade processes to allow users to estimate the benefits of IT-enabled GTM at the individual process step level for over 100 separate process steps. The analysis performed for this study focused on the apparel industry in the China-U.S. trade lane, so as to provide a real-world context. Researchers obtained estimates of both current process step times and reduced times due to IT-enablement from knowledgeable sources from both the U.S. and China.

Under reasonably conservative scenarios, excluding IT-enablement implementation costs, the study estimates key benefits of IT-enabled GTM to be as follows:

• Dollar savings amounting to 1.7 percent in annual sales for exporters
• Dollar savings amounting to 0.6 percent in annual sales for importers
• These savings represent a 28-percent increase in annual profit for exporters and a 10 percent increase in annual profit for importers (assuming profit equals 6 percent of sales)

In addition to increases in profitability for each party, there were also reductions in various cycle time metrics: the manufacture to invoice time was reduced by 9percent, the days sales outstanding was reduced by 28 percent to 29 percent, and the order to receipt time, often called the lead time by the importer, is reduced by 35 percent.

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Stanford University and TradeBeam, a global trade management software company, have jointly published a new process model for determining the value of trade automation in the China-to-US trade lane.

The Stanford Trade Process Model (STPM) was developed to improve the level of understanding of GTM, and to help companies estimate and work to realize efficiency gains through skills, process and technology investments. The model contains sufficient detail on cross-border trade processes to allow users to estimate the benefits of IT-enabled GTM at the individual process step level for over 100 separate process steps. The analysis performed for this study focused on the apparel industry in the China-U.S. trade lane, so as to provide a real-world context. Researchers obtained estimates of both current process step times and reduced times due to IT-enablement from knowledgeable sources from both the U.S. and China.

Under reasonably conservative scenarios, excluding IT-enablement implementation costs, the study estimates key benefits of IT-enabled GTM to be as follows:

• Dollar savings amounting to 1.7 percent in annual sales for exporters
• Dollar savings amounting to 0.6 percent in annual sales for importers
• These savings represent a 28-percent increase in annual profit for exporters and a 10 percent increase in annual profit for importers (assuming profit equals 6 percent of sales)

In addition to increases in profitability for each party, there were also reductions in various cycle time metrics: the manufacture to invoice time was reduced by 9percent, the days sales outstanding was reduced by 28 percent to 29 percent, and the order to receipt time, often called the lead time by the importer, is reduced by 35 percent.

Read Full Article