While supply chains across the world have been riddled with disruptions and have grown increasingly complex, managing them should be easier than ever, not harder.
The difference between crumbling under the weight of complex supply chains and reacting to sudden change is a matter of having the right tools — specifically, adaptive supply chain software. Following are four key areas of application.
Supply chain visibility. From raw material sourcing to end customer delivery, supply chains are full of links with operations, carriers, suppliers, customers and other partners. When one link breaks or shows signs of vulnerability, the whole chain is at risk. For many companies, this story is all too familiar, causing them to conclude that supply chain management must have increased in difficulty. In reality, they’re simply not using the right tools. With the right software, companies can gain visibility over the entirety of their chains, allowing them to adapt quickly to disruptions and instill connected supply chain processes.
Trade compliance. Trade laws are notoriously complicated. Thanks to modern innovations such as global e-commerce and a rapid increase of interconnectivity, trade is increasingly globalized. Any organization involved in international shipping finds it difficult to comply with a plethora of ever-changing import and export regulations, cross-reference sanctions and blacklists, and deal with language barriers in labeling. Laws such as the Uyghur Forced Labor Prevention Act and the German Supply Chain Act are requiring companies to do their due diligence in ensuring that their supply chains aren’t violating human rights and environmental standards. Global trade compliance is complicated if companies attempt this management without the right automation to facilitate import-export requirements and other routine tasks.
Foreign trade zones. For companies that manufacture or distribute in the U.S. market, significant savings can be realized on import duties and fees by using a foreign trade zone. An FTZ is a designated zone within the U.S. that is considered to be outside the country for duty and tax purposes. Despite being around for nearly 100 years, FTZs still aren’t being used by many companies because setting them up can be complicated. With FTZ software, however, a partner can proactively guide shippers through the process, submit paperwork and manage FTZ operations, simplifying this otherwise complicated process and resulting in duty savings.
Carrier selection. Gas prices have soared, and transportation prices are constantly changing. While accessing a proper carrier network seems more difficult than ever, it can be made easier. With global transportation execution software, shippers can gain access to thousands of carriers, easily compare carrier routes and rates, and change to a new carrier if prices change.
Simplification Through Unification
Imagine two companies in the apparel industry. Both sell similar T-shirts, source from similar regions, and sell into the American market. Company A is trying to manage its supply chain without the use of 21st-century supply chain software. Company B has the best global trade software at its fingertips.
Step 1: The Uyghur Forced Labor Prevention Act forces companies to examine trade compliance. As the act becomes implemented by U.S. Customs and Border Protection to prevent goods from the Xinjiang Uyghur Autonomous Region of China from entering the market due to concerns over forced labor, executives at Company A scramble to find out if they’re sourcing cotton from the region. Like many companies, they have insufficient visibility over early stages of their supply chain, so they’re in the dark as to whether or not they’ll soon be out of compliance. They begin firing off e-mails, hoping that someone can track down their cotton suppliers.
Company B has full visibility over its supply chain. An alert has already appeared on the dashboard of its global trade compliance software, letting it know that it is in fact sourcing cotton from the region. The software also alerts it that this could have ramifications not only for the American market, but also in Germany due to the recent German Supply Chain Act. Supplied with this information, the company is able to quickly pivot to the next step: finding new suppliers.
Step 2: Finding new suppliers. Company A struggles to find new suppliers due to fragmented information on available suppliers and language barriers. Its team spends weeks sending cold e-mails to suppliers found on Google, hoping to find a new solution before they’re out of compliance. Rushed for time, it’s forced to go with three suppliers who can each only fulfill part of its inventory needs. It has little visibility into their operations, and hopes that the suppliers won’t be the cause of future regulatory concerns.
With global sourcing software, Company B is able to see dozens of suppliers who have been pre-screened for compliance. It quickly compares prices, service levels and reviews for suppliers ranging from large organizations to niche shops. Through its sourcing software, it’s able to centralize all communication, collaboration and data analytics for suppliers. Soon, Company B connects with a new partner that has low prices, high quality, and conforms to both internal and governmental ESG (environmental, social and governance) regulations.
Step 3: Importing product to the U.S. Now that Company A is using three suppliers instead of one, it’s importing from all over the world, paying steep import duties upon arrival on each shipment. Like many companies that experienced soaring demand in the first quarter of 2022, Company A ordered extra inventory to stockpile. However, as the market experiences a bullwhip effect, it now has an excess of product that has already been charged import duties. Cash flow is negative, and profit margins are thinning.
Using FTZ software, Company B has set up a portion of its warehouses as FTZ locations. When shipments arrive, it groups the merchandise processing fees into a weekly payment, rather than paying MPF on each shipment, saving thousands. Like Company A, it has overestimated market demands. However, because it imported to an FTZ, it doesn’t \have to pay duties until the shirts leave the FTZ. Cash flow stabilizes, and margins have grown thanks to reductions in MPF.
Step 4: Delivery. Company A has been using the same carriers for years. It doesn’t have access to carrier networks, so is unaware that there are better prices with improved on-time performance. When it ships, it crosses its fingers that the customer doesn't return the product, because it has little ability to track returns. Unfortunately, shirts from one of the three new suppliers aren’t up to quality standards and are experiencing higher than usual return rates. Company A scrambles to track down the remaining shipments from this supplier. By the time the other shipments arrive to customers, products are late and over budget.
Company B quickly selects the lowest-cost carrier with high performance standards from a network of more than 5,000 carriers using global transportation execution software. It has notifications set up for every step of the delivery, and if anything happens, it can easily process returns. The client receives the product on time, and its margins are intact.
Both companies were faced with the same reality: complex, disrupted global supply chains. However, their experience differed greatly depending upon the tools they were using. If companies want to thrive amid complex supply chains, they’ll need sophisticated tools and a digital approach. When it comes to managing global supply chains, there’s no substitute for modern global trade software.
Brent Dawkins is product marketing director with QAD.
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