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Graham Napier has more than 20 years' experience building global businesses. He came to TradeBeam from Fritz Companies, where he was president and chief operating officer of the $1.8bn logistics services provider. Before that, Napier was vice president and general manager at Allied Signal Aerospace, responsible for developing new ventures, strategic growth initiatives and supply chain services. He also has worked for Ryder Integrated Logistics in North America and Europe. Under his leadership, TradeBeam has become a leading provider of integrated trade management solutions that include import and export compliance, inventory management, shipment tracking, supply chain event management, and global trade finance. The company has more than 3,000 customers in 100-plus countries.
Q: Based on your experience at TradeBeam and, previously, at Fritz and Allied Signal, what are the most challenging supply chain issues for companies involved in global trade?
Napier: No company is the same, but I would categorize issues into three general clusters. The first is around visibility. Companies are selling their products more and more globally and moving more and more manufacturing and sourcing offshore, but they don't have enough line-item visibility through their own factories and warehouses, nor through those of their suppliers and customers. So the first thing they need is a better degree of visibility. Ten years ago a supply chain event management solution would probably have captured and measured 10 event points through the distribution channel. Today we have many customers measuring five times that number. And they are not just monitoring and measuring the physical goods movement, but also information in the form of invoices, debt facilities and so on. It has gone beyond just measuring the physical supply chain.
A second area where there are challenges is around compliance. This also is an area where there have been a lot of changes. Functionalities that were once divided among the different providers in the supply chain are now expected to be more integrated and operate in a seamless way. So compliance, which used to be fairly isolated at the customs broker level, now needs to be part of an integrated work flow between the various pieces. In addition, with today's concerns around terrorism, compliance requirements have become more rigorous and sensitivity to compliance has definitely increased. So it is not just that companies need better work flow around compliance, they actually need a higher level of compliance. And as the complexity of requirements and the demand for compliance increase, there is a greater need for technology solutions. For instance, concerns about smuggling used to be limited to actual physical goods. Now, sophisticated smugglers are using the insurance on goods as a kind of money laundering scheme. So now the sophistication is such that it isn't just an issue of whether there are a few extra widgets in the container. You also have to look at who is funding the goods and who is insuring the goods. It is a lot more complex than it used to be.
Of course, security of the physical supply chain is extremely important, but it is very hard to envisage a world where every container would be inspected. I think we currently inspect 4 percent of all containers. If we tried for 100 percent, we would have full employment and still not do it all. We need to develop this concept of a trusted network, where if you have a repeatable situation, with the same buyer and supplier shipping containers every month, the same weight, by the same carrier, then you know it is unlikely to have been tampered with. The more we can get this kind of trusted network, the better we can target those that should be physically inspected.
The final category of challenges is around finance and working capital. Typically, a company goes from being domestic to international, which means, in the U.S., that it is still an American company but it is importing or exporting goods. The next step is to become a global company, where it might make purchasing decisions in America for goods that are shipping from Indonesia to Australia, for example. This makes the financing very complex and companies are trying to get a better handle on that. There are a number of new trade financing models being developed by the really big banks to meet the needs of global traders that are important to understand. The one getting the most attention is called Open Accounts, which can be used in place of letters of credit where allowed by the countries involved. Some countries mandate the use of letters of credit so LCs have not gone away and they won't go away for many years. But these newer financing models are increasingly gaining traction and becoming more the norm.
Q: So in global trade there needs to be an integration of the physical and financial supply chains?
Napier: Yes, absolutely. Global companies have cross-docks around the world and then a big central group treasury sitting somewhere. The group treasury is doing all the factoring and debt facilities and letters of credit, while the people out in the field are trying to manage the company's warehouses and cross-docks. What you need is to be able to do those group treasury functions at the cross-dock level, so if a container has a credit risk on it because of a particular vendor or customer, you can treat it differently.
That means you really have to tie that information together so there is visibility to both aspects. This is a challenge because warehousing, by its very nature, is a distributed system, whereas treasury typically is located in one central point or one point per continent.
So, again, this adds complexity. In the old world, the goods left port, were in transit for a period of time, hit the port of entry, got moved to a warehouse and title was transferred. Now, there are a number of work flow elements that have to occur before the goods ever move an inch. A purchase order has to be issued and acknowledged, a compliance check done, financing and insurance have to be in place-then you can move the goods. So you have a lot more events that need to be part of a seamless work flow.
While I was at Fritz, we were incentivized by some of our big customers to take hours out of the supply chain. By linking the physical and financial supply chains, which have traditionally been worlds apart, you can take days out of the supply chain from a working capital perspective.
For example, it is not uncommon for a shipment to be ready and for a company to take one day to get the insurance certificate. Now, if this causes the freight to get left on the dock, they may have to pay a premium for it to be airfreighted. So you have the logistics guys beating the carriers up to get tighter and tighter time frames, but it is these other activities, most of which are legally required, that are adding days to the cycle. And what is legally required in America may not be in China, or vice versa, and the guy doing the planning in America may not have clarity on what is required inside China to get the goods out. So you need more and more data to make better and better decisions.
You also need to be able to look at this holistically. For example, say you are running a factory in Phoenix. Your objective is to produce finished goods and get them shipped by the end of the month. Now, suppose the bulk of these goods go to your company's warehouse in Singapore. Your pushing the goods out one day earlier may help your metrics as a factory manager, but it doesn't do anything for the group and it may add to your costs. So, again, you need to start looking at it from a holistic perspective, and for that you need more data, more check points, more sophistication.
Q: How big a barrier is the lack of technology among providers in some parts of the world?
Napier: It is an issue. If you have two world class companies shipping between Japan and the U.S., it will be highly automated. But you can have those same two global companies shipping between Nepal and Indonesia and it will likely still be a manual, fax-based transaction-like going back 20 years. So the readiness and state of development of an IT trade platform at a country level has serious economic impacts.
Another issue companies have when they go international is that they tend to have a lot of low-density suppliers, spread across a large geographic region. This makes it hard to get them all on an electronic platform. In addition, there often is high churn among the supplier base. If you are in the retail business, for example, you may buy one particular fashion from one supplier and the next season or the next year, the fashions you want to stock will require a different supplier. With that kind of dynamic change in some verticals, how do you justify setting up a supplier electronically, knowing you may have to de-commission the system six to nine months later?
One of the things we have tried to do with our new China program is to overcome that obstacle. We have a pre-installed supplier base, so if you want to do business with a supplier in China and you choose one of the clients we have implemented, you already have your electronic connection.
Q: Can you tell us a little more about that program?
Napier: This is a deal that has been in the planning stages for a number of years and has just gone live. We have a 10-year strategic partnership with the China International Electronic Commerce Co. (CIECC), which is part of the Ministry of Commerce, to bring a standard trade platform to the Chinese market. The CIECC will market and sell our on-demand software to Chinese businesses, which will allow them to replace manual processes with electronic communications. The more these companies can digitize and become electronic importers or exporters, the more they can share information with their buyers or supplier overseas, which will result in greater efficiency and accuracy. The more they can send documents that are correct and perform correct compliance checks, the easier trade will be. It will reduce lead times and reduce errors.
Q: Is this an exclusive franchise for this kind of trade management software in China?
Napier: It is not officially exclusive because the Chinese government doesn't give out exclusive relationships. But we do have a very intimate and tight relationship. The CIECC is our sales force in China and we are locked into them. We have a development shop there now with more than 40 people adjacent to their building. We are very committed to this venture and to the Chinese market.
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