Executive Briefings

Anritsu's Testing Instruments Must Meet Strict Export Controls

A conversation with Jane Solomon, trade compliance manager at Anritsu Corp., a manufacturer of industrial test and measurement instruments.

Anritsu is a Japan-based company that makes a wide range of electronic products for the communications and industrial markets. The company's primary business is test and measurement instruments used by telecom carriers, equipment makers, and construction contractors worldwide. Because this equipment also can be used in weapons development, Anritsu has to pass strict export requirements when shipping to customers around the globe. Jane Solomon, trade compliance manager, makes sure the company adheres to regulations from multiple countries without allowing its products to get caught in red tape

Q: How long have you been working in trade compliance with Anritsu?
Solomon: I have been doing this for about 15 years. I really do enjoy the job. It is very challenging and there is never a dull moment. I have global responsibilities for our products, so I deal not only with U.S. regulations, but with Japanese and U.K. regulations as well.

We have sales offices around the world and three manufacturing centers. In the U.S., our main manufacturing facility is in Morgan Hill, Calif., We have engineering offices and a sales center in Dallas, which also is where our call center is located. We have repair facilities on the East Coast, in the Midwest and in California. Overseas, we have field offices in multiple countries. We have service support in all of our field offices and we have several large repair facilities in Europe and in Asia. So our supply chain is fairly extensive, especially when you consider that we are not only selling new products but bringing in products for repair and sending repaired products back to the customer-we cover the whole gamut.

Q: What does a typical shipment look like?
Solomon: We can ship a diode that you probably couldn't see with the naked eye, or we may ship a test system that includes 17 pieces in a rack and that would put a significant dent in a cargo hold. In the latter case, each of the instruments is packaged separately and then assembled in a rack when they reach the destination of the end user. We range from equipment that is very large and that normally isn't moved once it's in place to handheld equipment.

Q: Does this equipment require special handling?
Solomon: Our handheld equipment is built to survive rough handling because service guys toss them in the back of trucks or have them hanging from their belts when they are climbing telephone towers. But the larger equipment is sensitive. If it is moved we might need to recalibrate it. We do a calibration before it leaves our plant. It is carefully packaged, but if it gets dropped in transit, it will probably need to be recalibrated when it gets to its destination. There is a lot of built-in calibration so that when you turn the instrumentation on, it recalibrates itself. Normally, though, we bring these back in on an annual or a semi-annual basis to recalibrate the instrument. This is part of our warranty services.

Q: Why is exportation of your product so tightly controlled?
Solomon: Our products are controlled for national security reasons. We manufacture test equipment for telecommunications and microwave industries. This can range from testing small radios to testing equipment used to manufacture missiles and weapons. Because our equipment has a wide variety of end uses, it is governed by export regulations known as "dual use" controls. The degree of regulation is based both on our product's frequency level and by end user applications.

For instance, we have synthesizers that operate at 20 gigahertz (GHz) that can go to China without a license, but we still have to answer an additional question, which is whether there is a military or weapons application. If so, we would kick into a license condition. And there are certain products where the same synthesizer operating over 43.5 GHz needs a license to that county regardless of what the end use is. This is why we are heavily dependent on both end-user screening as well as license screening, which is the reason we implemented the trade compliance solution from TradeBeam.

Q: How does the TradeBeam solution actually help with that?
Solomon: We are using the export compliance module from TradeBeam, which does licensing and restrictive party lists screening. This is a web-based service that we have integrated with our ERP. When we place an order into the system, it talks to the TradeBeam system and gets back the answers that are required. Depending on the answer, it then either flips that order to "hold" or leaves it able to ship. What it does is to take the multiple addresses or entities listed on an order-which can be as many as five and includes the billed-to, shipped-to, sold-to and the end user-and it screens these names against restrictive parties lists or lists of bad guys who we are not allowed to do business with. If it clears this screening, then the system takes the export classification number for each individual line item of the order and looks at the regulations to see whether a license is required to ship the product to the destination country. If a license is required, it comes back and tells us what licenses are available for that country for that particular product.

It also does end-use screening. If it hits an end use that is not appropriate for the country, we get a "hold" returned on it that we have to resolve. So for our purposes, we use TradeBeam to get the compliance information we need to actually make the shipment.

We actually use the restrictive parties screening program worldwide, in all of our field offices. Our sales reps have access to the program and before they take in a repair or a warranty service order or make a sale, they can go in and screen the customer to make sure we are allowed to do business with him.

Even with countries where there is less risk, we push everything through the system for screening, so we know exactly where our equipment is going and who is using it.

Because our product is controlled for national security reasons, we need to be extraordinarily careful about who our end users are and be certain that we actually get the licenses right before the products go out the door. You just don't want to send a licensable product to a country without a license. Governments frown on it. They fine you big dollars and they can send people to jail.

Q: Was this handled manually before?
Solomon: Yes, this was an extremely manual process that was very, very time consuming, particularly on my part, because I had to keep all the lists current. These lists are hundreds and hundreds of pages with thousands and thousands of names and addresses. And they are constantly changing, particularly since 9/11. Prior to 9/11, these lists would change maybe a couple of times a year, which wasn't too difficult to manage. But since 9/11, these lists sometimes change daily. It would easily take two hours of my time to put together a searchable document that I could send to all of our order processing centers and all of our field offices for them to screen customers against.

And because we operated under a special comprehensive license (SCL), we had additional record-keeping requirements. We not only had to send these lists out, we also had to track them and get responses back that are kept on file-a complete audit process for every single person that receives a list. This was an enormous job.

When we implemented the TradeBeam system for screening purposes, it made all the difference in the world. It allowed us to go to an automated process. In the U.S. it is completely automated. The folks in the order entry department or quote department merely enter their information and the system automatically goes out and comes back with a "yes" or "no," and they can just move on. They don't have to stop and do anything, so that alone saved us a tremendous amount of time.

Overseas, our folks are still using a manual process because we haven't integrated the TradeBeam solution into their system. It still saves them time, though, because they don't have to look through a bunch of lists. They simply go in and type in a name and address and they have their answer.

For the end-user screening, we have another manual process that is partially automated. This is a set of checklists with certain questions and answers that had to be reviewed before we could release the order. This also is now partially done automatically. If there is a "hold", then Trade Compliance, which is my department, reviews it and decides whether to release the order.

TradeBeam really does a fine job for us on these issues. It would be mind boggling to me to think about going back to doing this without automation.

Q: Do you feel that using this system had decreased your risk exposure?
Solomon: Yes, absolutely. TradeBeam gives us a much tighter handle on the licensing approvals process, whereas relying on written lists to determine if we needed a license was very high risk. Also, the less centralized your order-taking, the more risk you have, so we also automated that portion. Now our employees simply enter the order for a product and the tariff number and the export control classification number (ECCN) are built in. The system takes the part number with its' assigned ECCN, compares it to a country list, finds out what the license requirement is and sends back an answer. So it really takes the burden off the department or employee that enters the order. They don't have to worry about making a mistake.

We still have manual processes in case the system goes down-all our people are stilled trained-but we have a greater reliance on the system and it really has decreased our risk level. We also have fine-tuned our shipping documentation using part of the system. We utilize the TradeBeam screening process again at shipment to assure that the order still meets all requirements. We also can pull information out of our catalogue that supports the TradeBeam system to create each shipper export declaration. TradeBeam has an additional module that we may purchase at some point that actually creates these documents for you, but right now we are doing in-house using the information that we are pulling from TradeBeam. This has reduced our error rate during an audit process. Three years ago we had an audit error rate of 62 percent but that has dropped to less than 8 percent now. So it has tremendously improved our systems and our quality.

Q: Do you ship direct to customer or go through a distributor?
Solomon: I would say that 90 percent of our shipments are shipped under a consolidated order to our field offices and then they are broken out into individual orders and delivered to the customers.

Q: Do you believe the government's new security requirements have made the supply chain safer?
Solomon: Well, what the government has done is shifted the burden to the manufacturers. There were enormous constraints before-you had to get licenses for everything you did. There actually has been some decontrol in terms of licensing, but more of the responsibility for confirming and verifying the supply chain, particularly the end user and the end use, has shifted from the government to the manufacturer. You may have a product that does not require a license to go to a certain country, but because of dual-use controls, you need to know the end user and what he is doing with it that product. If he is using it to work on a weapon, depending on country of destination, you might need a license. This is true for allies as well as adversaries. If I sell something to Israel that goes into making a missile, I need a license. So an enormous burden has been shifted to manufacturers to prove they are in compliance with these laws.

We are all working harder and spending more money to secure the supply chain all the way back to the vendor. When I look at a manufacturer in China for my components, I look at the security of the building, who he hires and how he hires, all those issues, because it is all part of securing the supply chain and enabling me to qualify for voluntary programs like C-TPAT.

Certainly, the more we tighten and secure the supply chain, the less risk we have as a manufacturer that we will do something wrong or violate some regulation. And the more automatic tools I have, the easier it is. I can then spend more time on the other things that are not automated, such as doing research into the end user and end use. TradeBeam can tell me that this guy is not on any of the bad guy lists and that this model number can ship to this end user with no license, but that is only part of the job. The hard part of the job is finding out who this person really is, does he really exist, and is he really using this piece of equipment for what he says he is or is he diverting it to another country and or another end user. Automating as much as possible has allowed us to work on those exceptions, those customers and orders of concern.

Q: Do you have other supply chain initiatives under way that you can tell us about?
Solomon: TradeBeam has several modules that I would like to implement, but I can't say when we will be able to do that. Our industry is still coming out of recession and there are a lot of factors to consider before making that commitment because these modules are not cheap. The only gripe I have is the price. But you have to compare it against the cost of in-house labor and your risk levels and what you save in potential penalties and fines. That's how we make our decisions. And our biggest risk level was on the front end in the export compliance component where we want to make sure that we are using the appropriate license and are shipping it to someone who is not on a bad guys list. That is a higher risk than blowing a tariff code, which are the kinds of things we will deal with in the next module.

Anritsu is a Japan-based company that makes a wide range of electronic products for the communications and industrial markets. The company's primary business is test and measurement instruments used by telecom carriers, equipment makers, and construction contractors worldwide. Because this equipment also can be used in weapons development, Anritsu has to pass strict export requirements when shipping to customers around the globe. Jane Solomon, trade compliance manager, makes sure the company adheres to regulations from multiple countries without allowing its products to get caught in red tape

Q: How long have you been working in trade compliance with Anritsu?
Solomon: I have been doing this for about 15 years. I really do enjoy the job. It is very challenging and there is never a dull moment. I have global responsibilities for our products, so I deal not only with U.S. regulations, but with Japanese and U.K. regulations as well.

We have sales offices around the world and three manufacturing centers. In the U.S., our main manufacturing facility is in Morgan Hill, Calif., We have engineering offices and a sales center in Dallas, which also is where our call center is located. We have repair facilities on the East Coast, in the Midwest and in California. Overseas, we have field offices in multiple countries. We have service support in all of our field offices and we have several large repair facilities in Europe and in Asia. So our supply chain is fairly extensive, especially when you consider that we are not only selling new products but bringing in products for repair and sending repaired products back to the customer-we cover the whole gamut.

Q: What does a typical shipment look like?
Solomon: We can ship a diode that you probably couldn't see with the naked eye, or we may ship a test system that includes 17 pieces in a rack and that would put a significant dent in a cargo hold. In the latter case, each of the instruments is packaged separately and then assembled in a rack when they reach the destination of the end user. We range from equipment that is very large and that normally isn't moved once it's in place to handheld equipment.

Q: Does this equipment require special handling?
Solomon: Our handheld equipment is built to survive rough handling because service guys toss them in the back of trucks or have them hanging from their belts when they are climbing telephone towers. But the larger equipment is sensitive. If it is moved we might need to recalibrate it. We do a calibration before it leaves our plant. It is carefully packaged, but if it gets dropped in transit, it will probably need to be recalibrated when it gets to its destination. There is a lot of built-in calibration so that when you turn the instrumentation on, it recalibrates itself. Normally, though, we bring these back in on an annual or a semi-annual basis to recalibrate the instrument. This is part of our warranty services.

Q: Why is exportation of your product so tightly controlled?
Solomon: Our products are controlled for national security reasons. We manufacture test equipment for telecommunications and microwave industries. This can range from testing small radios to testing equipment used to manufacture missiles and weapons. Because our equipment has a wide variety of end uses, it is governed by export regulations known as "dual use" controls. The degree of regulation is based both on our product's frequency level and by end user applications.

For instance, we have synthesizers that operate at 20 gigahertz (GHz) that can go to China without a license, but we still have to answer an additional question, which is whether there is a military or weapons application. If so, we would kick into a license condition. And there are certain products where the same synthesizer operating over 43.5 GHz needs a license to that county regardless of what the end use is. This is why we are heavily dependent on both end-user screening as well as license screening, which is the reason we implemented the trade compliance solution from TradeBeam.

Q: How does the TradeBeam solution actually help with that?
Solomon: We are using the export compliance module from TradeBeam, which does licensing and restrictive party lists screening. This is a web-based service that we have integrated with our ERP. When we place an order into the system, it talks to the TradeBeam system and gets back the answers that are required. Depending on the answer, it then either flips that order to "hold" or leaves it able to ship. What it does is to take the multiple addresses or entities listed on an order-which can be as many as five and includes the billed-to, shipped-to, sold-to and the end user-and it screens these names against restrictive parties lists or lists of bad guys who we are not allowed to do business with. If it clears this screening, then the system takes the export classification number for each individual line item of the order and looks at the regulations to see whether a license is required to ship the product to the destination country. If a license is required, it comes back and tells us what licenses are available for that country for that particular product.

It also does end-use screening. If it hits an end use that is not appropriate for the country, we get a "hold" returned on it that we have to resolve. So for our purposes, we use TradeBeam to get the compliance information we need to actually make the shipment.

We actually use the restrictive parties screening program worldwide, in all of our field offices. Our sales reps have access to the program and before they take in a repair or a warranty service order or make a sale, they can go in and screen the customer to make sure we are allowed to do business with him.

Even with countries where there is less risk, we push everything through the system for screening, so we know exactly where our equipment is going and who is using it.

Because our product is controlled for national security reasons, we need to be extraordinarily careful about who our end users are and be certain that we actually get the licenses right before the products go out the door. You just don't want to send a licensable product to a country without a license. Governments frown on it. They fine you big dollars and they can send people to jail.

Q: Was this handled manually before?
Solomon: Yes, this was an extremely manual process that was very, very time consuming, particularly on my part, because I had to keep all the lists current. These lists are hundreds and hundreds of pages with thousands and thousands of names and addresses. And they are constantly changing, particularly since 9/11. Prior to 9/11, these lists would change maybe a couple of times a year, which wasn't too difficult to manage. But since 9/11, these lists sometimes change daily. It would easily take two hours of my time to put together a searchable document that I could send to all of our order processing centers and all of our field offices for them to screen customers against.

And because we operated under a special comprehensive license (SCL), we had additional record-keeping requirements. We not only had to send these lists out, we also had to track them and get responses back that are kept on file-a complete audit process for every single person that receives a list. This was an enormous job.

When we implemented the TradeBeam system for screening purposes, it made all the difference in the world. It allowed us to go to an automated process. In the U.S. it is completely automated. The folks in the order entry department or quote department merely enter their information and the system automatically goes out and comes back with a "yes" or "no," and they can just move on. They don't have to stop and do anything, so that alone saved us a tremendous amount of time.

Overseas, our folks are still using a manual process because we haven't integrated the TradeBeam solution into their system. It still saves them time, though, because they don't have to look through a bunch of lists. They simply go in and type in a name and address and they have their answer.

For the end-user screening, we have another manual process that is partially automated. This is a set of checklists with certain questions and answers that had to be reviewed before we could release the order. This also is now partially done automatically. If there is a "hold", then Trade Compliance, which is my department, reviews it and decides whether to release the order.

TradeBeam really does a fine job for us on these issues. It would be mind boggling to me to think about going back to doing this without automation.

Q: Do you feel that using this system had decreased your risk exposure?
Solomon: Yes, absolutely. TradeBeam gives us a much tighter handle on the licensing approvals process, whereas relying on written lists to determine if we needed a license was very high risk. Also, the less centralized your order-taking, the more risk you have, so we also automated that portion. Now our employees simply enter the order for a product and the tariff number and the export control classification number (ECCN) are built in. The system takes the part number with its' assigned ECCN, compares it to a country list, finds out what the license requirement is and sends back an answer. So it really takes the burden off the department or employee that enters the order. They don't have to worry about making a mistake.

We still have manual processes in case the system goes down-all our people are stilled trained-but we have a greater reliance on the system and it really has decreased our risk level. We also have fine-tuned our shipping documentation using part of the system. We utilize the TradeBeam screening process again at shipment to assure that the order still meets all requirements. We also can pull information out of our catalogue that supports the TradeBeam system to create each shipper export declaration. TradeBeam has an additional module that we may purchase at some point that actually creates these documents for you, but right now we are doing in-house using the information that we are pulling from TradeBeam. This has reduced our error rate during an audit process. Three years ago we had an audit error rate of 62 percent but that has dropped to less than 8 percent now. So it has tremendously improved our systems and our quality.

Q: Do you ship direct to customer or go through a distributor?
Solomon: I would say that 90 percent of our shipments are shipped under a consolidated order to our field offices and then they are broken out into individual orders and delivered to the customers.

Q: Do you believe the government's new security requirements have made the supply chain safer?
Solomon: Well, what the government has done is shifted the burden to the manufacturers. There were enormous constraints before-you had to get licenses for everything you did. There actually has been some decontrol in terms of licensing, but more of the responsibility for confirming and verifying the supply chain, particularly the end user and the end use, has shifted from the government to the manufacturer. You may have a product that does not require a license to go to a certain country, but because of dual-use controls, you need to know the end user and what he is doing with it that product. If he is using it to work on a weapon, depending on country of destination, you might need a license. This is true for allies as well as adversaries. If I sell something to Israel that goes into making a missile, I need a license. So an enormous burden has been shifted to manufacturers to prove they are in compliance with these laws.

We are all working harder and spending more money to secure the supply chain all the way back to the vendor. When I look at a manufacturer in China for my components, I look at the security of the building, who he hires and how he hires, all those issues, because it is all part of securing the supply chain and enabling me to qualify for voluntary programs like C-TPAT.

Certainly, the more we tighten and secure the supply chain, the less risk we have as a manufacturer that we will do something wrong or violate some regulation. And the more automatic tools I have, the easier it is. I can then spend more time on the other things that are not automated, such as doing research into the end user and end use. TradeBeam can tell me that this guy is not on any of the bad guy lists and that this model number can ship to this end user with no license, but that is only part of the job. The hard part of the job is finding out who this person really is, does he really exist, and is he really using this piece of equipment for what he says he is or is he diverting it to another country and or another end user. Automating as much as possible has allowed us to work on those exceptions, those customers and orders of concern.

Q: Do you have other supply chain initiatives under way that you can tell us about?
Solomon: TradeBeam has several modules that I would like to implement, but I can't say when we will be able to do that. Our industry is still coming out of recession and there are a lot of factors to consider before making that commitment because these modules are not cheap. The only gripe I have is the price. But you have to compare it against the cost of in-house labor and your risk levels and what you save in potential penalties and fines. That's how we make our decisions. And our biggest risk level was on the front end in the export compliance component where we want to make sure that we are using the appropriate license and are shipping it to someone who is not on a bad guys list. That is a higher risk than blowing a tariff code, which are the kinds of things we will deal with in the next module.