Importers and exporters are under more pressure than ever before to conform to government regulations on security and trade compliance. But that's not enough to sell them on the need for new global trade management (GTM) systems, says Jim Preuninger, chief executive officer of Management Dynamics Inc. They need to establish a solid business case before opening their wallets. And once the decision has been made, they require a detailed roadmap for implementing the chosen solution. That was one of the major themes to arise from eVOLVE 2007, Management Dynamics' first-ever user conference, held May 6-9 in Annapolis, MD. In the 1990s, says Preuninger, compliance "was something you did to stay out of jail. A lot of folks never took the time to sit down and say, 'What is this automation going to save me? How is it going to positively impact my business?'" The post-9/11 era has brought a slew of new requirements, including the Customs-Trade Partnership Against Terrorism (C-TPAT) and the Sarbanes-Oxley law on financial reporting. As a result, the need for compliance has become even more pressing. But what really got companies interested in GTM were the bottom-line business benefits that it can yield, Preuninger says. GTM systems offer a degree of visibility and control over cross-border shipments that wasn't possible before--not, at least, without a collection of cumbersome, manual processes. Still, the automation of GTM carries with it some big questions, chief among them the best way to derive value from the project. Large global companies struggle to manage both freight and inventories while capitalizing on the growing number of free-trade agreements. GTM can address all of those areas, but it should be implemented in phases, tailored to a company's individual needs. At the same time, says Preuninger, it's important to show "quick wins," which can ensure continued support for the project by top management. From the beginning, the effort should be methodically broken down into stages that solve specific business problems and get users up and running on the system. Each stage should then build on the success of the previous one. "We start our relationship [with the customer] by identifying a single problem," says Preuninger. And that starting point can differ with every user. He says companies are just now waking up to the possibilities of GTM. "The size of the opportunities we're chasing today is four times what it was last year. We've seen an explosion in the market."
An Ever-Moving Target: Best Practices in Global Trade Management
In a world of tightening security, new trade agreements and stricter compliance requirements, global traders don't have any choice but to enhance their GTM programs. A "best practice" in this area is really a necessary adjustment to modern-day realities. Companies must find better ways to address common issues such as trade documentation, customs clearance, denied-party screenings, and landed-cost calculations. As governments move to globalize and harmonize customs procedures, especially under the auspices of multi-lateral bodies such as the European Union and North American Free Trade Agreement, global business must do the same. Certain industry-government initiatives, such as the Customs-Trade Partnership Against Terrorism (C-TPAT) and Europe's new Authorized Economic Operator (AEO) might appear to be voluntary, but companies failing to participate could find themselves at a severe competitive disadvantage. Here are 12 best practices that companies should embrace, to ensure that they are making the best use of GTM tools and processes:
Go for the green lane: get current with customs regulations for the expedited treatment of approved importers
Harmonize information systems and business processes on a global basis, in line with similar efforts by trading blocs
View bureaucratic trade requirements not as a necessary evil, but as an opportunity to gain competitive advantage
Know the rules of trading for "dual-use" products, which have both commercial and military applications
Supplement the ERP backbone with specialized systems that can calculate all duties, taxes and other fees involved in importing and exporting
Work proactively to offset the additional headaches, including longer supply lines and miscommunications with suppliers, that stem from outsourcing production to overseas locations
Maintain a detailed record of all transactions, including the justification for estimated duties, in the event of an audit by U.S. Customs
Tear down organizational "silos"; give customer service direct access to crucial data on logistics costs, to facilitate fast and accurate quotations
Cut down on lead times by deploying a Web-based system that permits close collaboration among suppliers, producers and logistics providers
Apply GTM principles at the very beginning of the supply chain, including initial product design--Look for innovative ways to cut the cost and processing time of trade financing
Exploit the provisions of free-trade agreements to reduce or eliminate import duties
What Do Companies Want Most to Help Manage Global Supply Chains?
The greatest area of need for global companies today is inventory optimization. That was the top choice of 82 percent of the respondents to a survey conducted by the Aberdeen Group on behalf of Global Logistics & Supply Chain Strategies magazine. In the previous year's survey, demand management and inventory management shared the top spot among companies' desire for tools to improve cross-border supply chains. Now, the inventory category bests all others on the wish list. One reason for this choice is the growing complexity of global supply chains. Compared with the prior year, twice as many companies said their chief supply-chain motivation was better management of the challenges of globalization. The increased length and variability of lead times, coupled with tighter customer-service requirements, are causing companies to hold more inventory. They need ways to compensate for the extra time and cost that result, according to Beth Enslow, senior vice president of enterprise research at Aberdeen. But there are key differences in the way that innovators and less-advanced companies are implementing GTM systems to address that challenge. Leaders are more likely to prioritize the various elements of that function, making decisions about whether to ship through a distribution center or directly to customers from the supplier. Supply-chain visibility was the second-highest area of interest listed by survey respondents, followed by sales and operations planning (along with demand management) and transportation management systems.
Military Sales Can Mean a Huge Increase in Compliance Vigilance
International Truck and Engine Corp., the big maker of farm and construction equipment, has discovered a lucrative market in military vehicles. At the same time, the company has had to ratchet up its compliance efforts, to stay on the right side of the U.S. State Department's International Traffic in Arms Regulations (ITAR). Failure to comply with the law can result in heavy fines. And companies might be surprised to learn that unexpected products and components can fall under its purview. Anything that has both a commercial and military application can be subject to ITAR jurisdiction. The law applies to technical data as well as software and services required for the design, production, operation, repair, testing or modification of a defense-related item. So International Truck had to review every single one of its programs, product and contracts, matching the government agencies that oversaw each one. And the company had to move fast. In a short time, it grew military sales from zero to more than $1bn. International Truck also needed a parts-stocking strategy at locations close to the end-user, in order to fulfill its promise to repair any vehicle within 72 hours in five major cities of Afghanistan.
Do You Know Your Inventory-Carrying Costs? Probably Not
Many companies don't take into account all of the factors involved in calculating true inventory-carrying cost. They apply only the weighted average cost of capital as their carrying-cost rate, a number that averages between 10 and 12 percent, depending on the cost of debt (tied to interest rates) and equity. What's missing is the cost of obsolescence, scrap, shrinkage, storage, taxes and utilities. Adding in those factors can triple the final number used to determine inventory-carrying costs, and evaluate supply-chain tradeoffs. Techniques to improve operations include the elimination of nodes in the network, increasing visibility of product in the pipeline, greater reliance on just-in-time deliveries and lean manufacturing concepts. By determining actual cost, companies can make more intelligent decisions as to which mode of transportation is right for any given shipment.
Problem of Safety-Stock "Creep" Cries Out for Optimization
Globalization, product complexity and stricter service demands are causing companies to experience safety-stock "creep"--a gradual increase in inventories that are intended to compensate for unforeseen kinks in the supply chain. Multi-echelon chains rely heavily on outsourced manufacturing, with many layers of suppliers and distribution points. As a hedge against mounting risk, companies will build up safety stock; in the process, they boost the likelihood of obsolescence, and directly affect the corporate bottom line. One problem is that most supply-chain and enterprise resource planning (ERP) systems are based on linear programming. Yet the risks and variables of the real world follow non-linear patterns. Local optimization efforts address only once piece of the puzzle at a time. The real answer lies in the adoption of modern inventory optimization tools, which can help companies to decide where inventory is best deployed throughout the supply network. Such applications use a stochastic or probabilistic approach, which takes into account multiple factors impacting demand and supply variability across many products and sites.
Logistics Outsourcing Stretches to Include Technology Hosting
Companies have finally gotten comfortable with the notion of outsourcing their logistics processes to a skilled independent service provider. Now vendors are seeking another piece of the pie: information technology. Logistics service providers (LSPs) are out to convince manufacturers, distributors and retailers that they can deliver the same quality of service on the IT side as they can with the physical storage and movement of freight. One of their most powerful tools is the emerging practice of Software as a Service (SaaS), whereby key applications are hosted and don't come anywhere near a client's hard drive. Still, convincing clients of their IT prowess continues to be an uphill battle for LSPs. A 2006 study on third-party logistics (3PL) found that just 35 percent of respondents were satisfied with the IT capabilities of their 3PL providers. And that percentage was on the decline, perhaps due to the introduction of new technology such as radio frequency identification (RFID), which was far from reaching maturity. Still, the demand for outsourced IT continues to rise, and LSPs have hopes that they can make their clients comfortable with the idea as their track record lengthens and improves.
Calendar: Upcoming Events Related to Global Trade Management
2007 APICS International Conference and Exposition
Oct. 21-23, 2007
CSCMP 2007 Conference will be held October 22 - 24 in