automating the import supply chain

8/7/2019 Automating the Import Supply Chain

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Management Dynamics, IOne Meadowlands Pla

East Ruther ord, NJ 070(201) 935-858

[email protected]

Automating the

Import Supply Chain

New Global Trade Managemen

technologies drive performance

improvement across procurement,

compliance and security


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U.S. corporations import nearly $2 trillion worth o products rom more than 150 countries, a number that is expected to triple by 2015, according to U.S. Customs & Border Protection (CBP). This tremendousgrowth re ects a strategic shi t in organizations buying behavior to seek product cost reductions witha low-cost country sourcing (LCCS) strategy. While it has been well documented that LCCS strategiescan reduce total product cost they are also burdened with many indirect costs that, when not properlymanaged, can ultimately erode the benefts o such a program. Total landed costs must be managedwith a comprehensive review o product classifcations by country, standard duties and the applicabilityo pre erential trade programs, as well as the impact o import/export controls.

In addition to the proli eration and complexities o pre erential trade agreements, Customs organizationsaround the world are establishing partnership programs where trade acilitation and border security co-exist as primary goals. The United States C-TPAT (Customs-Trade Partnership Against Terrorism) and theEuropean Unions AEO (Authorised Economic Operators) initiatives o er benefts o greater predictabilityand reduced inspections, but require an investment in sel -compliance. Importers o record must haveproven controls and processes to ensure proper supply chain security and compliance requirementsare met and can withstand a comprehensive audit by Customs. The drivers or the sel -complianceinitiative include knowing exactly what is being purchased at what price rom which supplier in a givencountry and when it will be delivered and by whom. And, while C-TPAT and AEO are voluntary initiatives,

new legislative requirements like 10+2 require the importer to report to CBP on key supply chain dataelements no later than 24 hours prior to loading containers onto a vessel at the port o departure.

These challenges are highlighted in a recent Aberdeen Group study that identifed the management o an increasingly global supply chain as a primary driver or supply chain technology spend in 2007, a112.5% increase over the same study in 2006.

NewGlobal Trade Management (GTM) technologies so tware, trade content and e-commerce services

are increasingly important to automate global operations and manage increasingly restrictivegovernment regulations. A GTM plat orm can e ectively synchronize the procure-to-pay to process andnavigate the complexities o constantly emerging pre erential trade agreements to deliver on the promiseo optimal LCCS strategies.

This whitepaper will explore these trends in more detail and propose a ramework or GTM that cansupport the complete automation o the import supply chain.

Primar y Drivers for SC Technology Spend 2006 2007 % Change

Lowering supply chain operating cost 28% 24% -14.29%

Meet customer mandates or aster, more accurate andmore unique ulfllment 23% 31% +34.78%

Management o increasinglyglobal supply chain 8% 17% +112.5%

Minimize supply-demand imbalances 12% 7% -41.67%

Others 29% 21% -27.59%

Source: Aberdeen Supply Chain Technology Footprint, April 2007 & May 2006

Automating the Import Supply Chain - Page

Executive Overvi
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Automotive

Communications andHigh Tech

Retail andConsumer Products

Industrial

Resources

Government andPublic Sector

Transportation andTravel Services

Finance and Insurance

Pharmaceuticals andHealth Services

Dramatic increase in low-cost country sourcing:Companies are under continuous pressure to increase product di erentiation while maintaining or reducing product costs. LCCS stratetake advantage o emerging economies by sourcing rom suppliers located in countries where labor, material, manu acturing and operacosts are signifcantly lower than in developed economies. A 2007 Accenture report documented these continuing trends with an average o122% planned increase in low-cost country sourcing across industries within the next three years. With the massive shi t to LCCS, leadcompanies are ormalizing their overseas sourcing processes to achieve parity with domestic procurement practices through new Gtechnologies that help make optimal sourcing decisions and support higher levels o integration and collaboration with trading partners.

In addition, an analysis o Journal of Commerce trade statistics identifed that the Top 100 U.S. importers showed a 56% increase in imporvolume growth rom 2003 and 2006. Not surprisingly, the Retail industry still has the largest share o TEU volume increasing 71% ove3 years period and accounting or 55% o the total 5.7 million TEUs in 2006. To manage this increasing volume, many companies are getmore involved in managing inbound logistics. Accordingly, this shi t is driving demand or new international transportation managesystems that provide visibility and help to manage contracts, optimize carrier selection and automate the reight audit and pay process.

Automating the Import Supply Chain - Page 3

Source: Accenture, 2007

The communications and high tech sector should see the greatest increase in savings.

15%19%

14%24%17%

23%18%

25%15%

19%13%

20%16%

18%20%21%21%

19%

Savings today Savings in three years

All industry sectors expect to increase the levelof spending within low-cost countries.Low-cost-country spending as a percentage of totalprocurement spending

Spending today Spending in three years

18%32%

17%30%

15%27%

8%20%

14%24%

5%13%

6%13%

3%10%

5%12%

Automotive

Communications andHigh Tech

Retail andConsumer Products

Industrial

Resources

Government andPublic Sector

Transportation andTravel Services

Finance and Insurance

Pharmaceuticals andHealth Services

TEUs of Top 100 Importers

6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0

Chem

icals

Cong l

omera

t e CPG

Forest

Prod Mfg Re

t ail Tot al

Source: JoCs Top 100 Importers, May 31-Jun 6, 2004 and JoC Top 100 Importers, May 28, 2007

2003

2006

+77% +146%+7%

+7%

+49%

+71%

+56%

Four key trends in uencing how global enterprises managetheir global supply chain:

Planned increase in low-cost country sourcing across industries

Global adoption o voluntary programs or tradewhich partner with Customs organizations to better manage security while acilitating trade growth

Increased legislative reporting requirements o the supply chain in advance o port departure

Rapid proli eration o available trade pre erenceprograms

Taken as a whole, it is clear that an automation strategy isneeded to properly manage the import supply chain in thisincreasingly complex environment.

Key Trends A ecting the Import Supply C


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Widespread adoption of Customs-Trade partnership programs Coinciding with the increase in low-cost country sourcing activities, Customs organizations around theworld are enacting trade partnership programs to achieve a sa e supply chain through sel -compliance.The emphasis o many o these programs, such as U.S. Customs and Border Protections (CBP) C-TPAT (Customs-Trade Partnership Against Terrorism) and ISA (Importers Sel Assessment), is to encourage

the trade community in developing new processes and controls to support supply chain security andin ormed compliance.

Similarly, 166 member countries in 2005 have adopted the World Customs Organization (WCO)Framework whose goal is to standardize procedures in securing and acilitating global trade. Guidedby the WCO SAFE Framework and ollowing the example set orth by C-TPAT, the EU is implementing itsAEO (Authorised Economics Operator) program e ective January 1, 2008. The AEO program encouragesvoluntary participation where members must demonstrate proven processes and controls or supplychain sa ety and import management best practices.

Success ully participating in these programs (C-TPAT, ISA, AEO) require that importing organizations havesolid trade compliance processes with continuously updated trade content to ensure that they knowwho they are buying rom (are they on any restricted parties list?), what are they actually buying (arethe goods properly classifed or Customs reporting measures and duty/valuation determination?) andwhere the goods are actually made (whats the real country o origin not just whats stated on themani est?).

Increased Reporting RequirementsWhile there is much ocus on those voluntary programs, there are also increased legislative reporting requirements imposed on the importers in todays global supply chain. The U.S. Customs and Border Protection has mandated the 24-Hour Advance Mani est rule in which cargo release details must besubmitted in advance prior to departure.


ISA

SAFE FrameworkSAFE Framework

AEO

SEP (Secure ExportPartnership)

Customs Co-operation and MutualAdministrative Assistance in

Customs Matters (EU & China)

Trade Partnership Programs Across the Globe

ISA AEO Customs Co-operation and MutualAdministrative Assistance in Customs Matters(EU & China)

SEP (Secure Export Partnership

SAFE FrameworkSAFE Framewo rk

The rewards or companies that can master these Customs-Trade Partnership programs include:

Reduced time and cost o getting cargo released by the respective Customs agencies

Reduced time and requency o secondary cargo inspections

Improved predictability in moving goods across borders; and

Reduced penalties as the importer is actively monitoring its inbound shipments rom asupply chain ow AND compliance perspective.



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Another CBP initiative or Security Filing known as 10+2, enacted as an interim fnal rule in January 2008 and e ective January 20requires the importer to compile and report on ten sets o key supply chain data elements. Many elements must be fled 24 hours prior toloading the goods in the oreign port or transit into the U.S and all must be fled and correct no later than 24 hours prior to arrival at the Uport. Furthermore, the corresponding ocean carrier or designated agents will be required to report o two additional sets o data elementslater than 48 hours a ter the departure, or prior to the frst U.S. port arrival, whichever is earlier. Importers ound to be in violation o thewill receive a $5,000 penalty assessment or each in raction.

These new programs demand that in ormation ows aster than the physical movement o cargo. Simply reacting to what has been shipdays or minutes prior to the goods arriving into the port o entry will no longer su fce. In order to avoid violating Customs regulaimporters must be proactive in providing in ormation in advance o shipments leaving the country o export.Automating with a GTM platprovides the process integration and access to detailed purchasing, logistics and compliance in ormation rom sourcing to fnal destinatito deliver on this objective.

Rapid Proliferation of Trade Preference Programs:The worlds economies are uriously negotiating pre erential trade agreements either on a country specifc level and more requently,regional basis. Established programs such as NAFTA are joined by a plethora o pre erential trade programs such as CAFTA (Central AmEU-MX (EU and Mexico) and AU-FTA (Australia). As LCCS expands to multiple regions around the world, a new paradigm o managinproduction as a port olio o contract manu acturers with allocations based on pre erential trade programs and demonstrated total cosdelivery will soon become the norm. Error-prone spreadsheets and manual processes, used by 63% o global enterprises surveyed in a 200Aberdeen study, cannot support this level o planning and control and is driving the adoption o GTM plat orms.

In short, the accountability imposed upon the importer by these global trends whether voluntarily or required via legislations e ectmakes having a comprehensive GTM process, across its end-to-end supply chain, a strategic pre-requisite to support continuous growtGTM is no longer just a nice-to-have system to support a random Customs audit. As illustrated in the fgure Spheres o Accountability,importer/buyers scope o accountability grows as procurement moves rom Domestic to the Traditional Import state.

With the proli eration o new Customs-Trade partnership programs around the world, and with new legislation requiring supply chainsubmission prior to the goods physically leaving the port o export, the Sphere o Accountability has increased to the point where impomust adopt new GTM technologies to e ectively manage their global supply chain.


End-to-End Supply Chain Accountability

Advance mani est

10+2C-TPAT

Supply chain controls urther extend to allplayers in the physical ow

Traditional Import

Brokers Management

Classifcations & Entry F ilings Accuracy

Supply chain controls extend to Port o Loading

Domestic Procurement

Inventory Planning

Supply chain controls or domestic acilitiesSupply Chain Accountability

Number o Supply Chain Partners to Inter ace With

The New Global Environment:End-to-End Accountability

TraditionalImport

DomesticProcurement

Spheres of Accountability for the Importer

Port o Loading Carrier Freight Forwarder/Consolidator

Seller Port o Arrival

Broker Domestic Carrier

ImportersWarehouse

Buyer / Importer

CBP /Customs

Supplier



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GTM technologiesare an evolution o traditional, domestic- ocused supply chain management solutions.As described in the ramework below, GTM solutions ocusing on automating the import procure-to-payprocess will accommodate key trends in the global environment as well as the business drivers that support success ul implementation o a LCCS strategy.

The Important Role of Global Trade ContentIn order or a GTM plat orm to truly automate the process, it must be supported by a comprehensive,timely and accurate source o global trade content such as product classifcations, standard andpre erential duty rates, applicable import/export controls, and documentation requirements. For companies importing a limited set o products rom a hand ul o countries, this in ormation can bemanually researched and maintained. However, or larger organizations that import tens o thousands o products rom 10 to 20 countries or more, the in ormation requirements to support the import supplychain are daunting. To realize the value rom a GTM implementation, it must be integrated with a tradecontent service that specializes in monitoring, interpreting, validating and publishing this in ormation or all trading economies. With tightly-coupled process integration, trade content supports straight-through

processing and allows supply chain pro essionals to ocus on managing by exception.


GlobalEnviron-ments

BusinessDrivers

KeysFunctions

GlobalTradeMgmt (GTM)

Plat orm

Low Cost CountrySourcing

Global Customs-Trade Partnerships

Pre-DepartureLegislative Mandates

Pre erential TradePrograms

Sourcing decision support

Landed cost analysis

Product classifcations

Pre erential trade programsidentifcation

Restricted partiesscreening

C-TPAT questionnaire

Supplier questionnaire

PO issuance andamendments

Order collaboration

Origins Management

Invoice and ASNgeneration/approval

Entry preparation

Broker Collaboration

Entry audits

Post Entry Management

LSP/Broker bills audits

Metrics and Measures

Supply Chain Visibility and Work ow

Documents and Reporting

GlobalProduct

Management

GlobalSupplier

Management

GlobalTransactionsManagement

GlobalCustoms

Management

Global Trade Content (timely and accurate updates)Restricted Parties, Import & Export Controls, Landed Costs, HS & Duties, Rulers of Origin, Document Requirements

Identi y sourcing opportunities

Manage ordersand deliveries

Comply with Customsrequirements



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Process Automation Supports Global Import RequirementsWhile most ERP and legacy systems provide the oundation o an organizations data structure or supporting global trade, such as prodand suppliers, they o ten do not track the product details to support multi-country sourcing in di erent countries or by di erent supplthe same or di erent countries. Consequently, the in ormation required to accurately determine valuation and duties and to e fcientlyan entry, or to accurately report on supply chain security, is missing. A GTM plat orm that is integrated with global trade content prov

the decision support to make accurate landed cost calculations, classi y products and manage regulatory controls, such as dealing witapplicable Anti-dumping and Countervailing duties, as well as respond to rising regulatory requirements relating to supply chain security

To support emerging Customs-Trade partnership programs, the GTM plat orm must actively screen supply chain partners against restriparty lists in advance o initiating a purchase order transaction through them. The plat orm should also establish the proper procedurcontrols and audit trails to demonstrate reasonable care and support the highest levels o compliance.

Once an order is generated, the GTM plat orm automates the global purchasing process by centralizing in ormation and supporcollaboration with all supply chain partners. Brokers may now access product in ormation including classifcation and other Custocompliance details that will minimize mistakes and expedite entry preparation. More importantly, suppliers may log into a portal to recePurchase Orders (PO), collaborate to confrm PO details and delivery, and subsequently, generate the invoice and Advance Shipping Noti(ASN), and deliver many o the 10+2 requirements that importers need to comply.GTM solutionssupport supply chain integration with boarding services that expertly integrate with carriers, 3PLs, brokers and other trading partners and maintain a network that reliably deliv

in ormation with the highest levels o data quality.

Advanced GTM plat ormscan also help to coordinate logistics at origin and monitor delivery to the fnal destination. By integrating logistproviders in the process, goods ready to ship rom a actory can be scheduled or pickup, value-add consolidation processes can monitored, and carrier selection decisions can be optimized based on cost and service. Once in-transit, visibility to the shipment, wimilestone planning and alerting unctions, supports the proactive management o delivery issues. Detailed line-level in ormation can support advanced ulfllment strategies such as DC Bypass and diversions upon arrival. Aberdeen Research has a documented study thaindicated that Best-in-class companies achieved over 40% improvements in key per ormance metrics, such as reduction in transaction coand increases in per ect orders by adopting the type o visibility and supplier portal solutions that are available in a GTM plat orm.


Best-in-class Companies Achieve >40% ImprovementsBy Using Visibility and Supplier Portal Solutions

Reduced transactionprocessing cost

Lead time reduction

Increase in per ect ordersReduced sa ety stock

Decrease in data errors

Reduced invoicediscrepancies

Increase in per ect orders

Reduced invoicediscrepancies

Decrease in data errors

Supplier Portal Solutions

>40% Improvement Reported

Visibility Solutions

>40% Improvement Reported

All CompaniesEvent management / visibility users

% of Companies

All CompaniesSupplier portal users

% of Companies0 10 20 30 0 10 20 30 40

Source: Aberdeen, June 2004

The Opportunities to Automate Imports with G
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Once the goods have arrived, the GTM plat orm provides the necessary entry preparation, audits and conducts post-entry managemeunctionalities that organizations need to complement the e orts o brokers. While brokers will continue to play a valuable role in the i

supply chain, importers need these advanced capabilities o a GTM solution to reduce the risk o non-compliance and prevent supply chdisruptions in light o new, more stringent security initiatives.

Achieve Best Practices with Performance Management

Perhaps the greatest beneft o automating with a GTM solution is to collect and interpret the data that is critical to drive continuoimprovement programs. Metrics can be developed to measure e ectiveness o your supply chain partners, as well as within internal departments. Since the GTM plat orm manages the complete global trade transaction, it provides exibility and ease o settup these metrics and can become the oundation or senior management reporting and QBR (Quarterly Business Review) with supply chain partners. The ollowing import metrics were derived rom samples o customer eedback in 2007 byGTM so tware ve

Management Dynamics:

Metrics are also o ten used to measure the tolanded cost and e ectiveness o sourcing decisiArmed with global trade content, historical dcan urther be compared with the current traenvironment or additional business analysis.

The beneft o having a comprehensive and uto-date repository o all import supply chain dcannot be overstated or both senior managemeand operations sta . Measuring procesestablishing tolerances and managing exceptionestablishes the oundation o a continuimprovement program and a key success actorcompanies to realize the long-term potential oLCCS strategy. GTM is the new SCM. For compthat need to develop competencies in managinglobal operations, new GTM technologies support this objective across procurement, logistand compliance disciplines.


30.00%

70.00%

28.57%

71.43%

33.33%66.67%

100.00%

100.00%

0.00%

50.00%

50.00%

75.00%

25.00%33.33%

66.67%

All Brokers:% Meeting GoalAverage

All Brokers:% Meeting GoalSep 07

All Brokers:% Meeting GoalOct 07

ABC Brokers:% Meeting GoalAverage

ABC Brokers:% Meeting GoalSep 07

ABC Brokers:% Meeting GoalOct 07

123 Brokers:% Meeting GoalAverage

123 Brokers:% Meeting GoalSep 07

123 Brokers:% Meeting GoalOct 07

% of Brokers Meeting Clearance Goal (of 3 Days)

% Met Goal % Not Met Goal

4.504.003.503.002.502.001.501.000.50

0.00 Average Sep 07 Oct 07

2.70

2.70

2.75

2.57

2.75

2.33

3

2.5

4

Average

ABC Broker

123 Broker

The Opportunities to Automate Imports with G

Overall Average:% Meeting 3 Days or Less Goal:

% Not Meeting 3 Days or Less Goal:

September Averages:% Meeting 3 Days or Less Goal:


October Averages:% Meeting 3 Days or Less Goal:


BrokersPer ormance(in # o days)

ABCBroker

123Broker

2.7070.00%30.00%

2.5771.43%28.57%

366.67%33.33%

2.6766.67%33.33%

2.7550.00%50.00%

2.5100.00%

0.00%

2.7575.00%25.00%

2.33100.00%

0.00%

40.00%

100.00%

Number of Days from Arrival to Clearance by Brokers
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Management Dynamics is a leading provider o global trade management solutions that improve theper ormance o global supply chains or importers, exporters, logistics service providers, and carriers. Thecompanys solutions synchronize the ow o in ormation among trading partners, optimize supply chainexecution decisions, and streamline import and export processes to ensure regulatory compliance andminimize cost and risk involved in cross-border transactions. More than 13,000 global users at some o the worlds most success ul 3PLs, carriers, manu acturers, retailers, and high technology companies useManagement Dynamics time-proven solutions.

Management Dynamics Global Trade Management (GTM) Suite provides a complete, on-demand, enterprise-class solution or managing all acets o a global supply chain operation.

The GTM Suite is comprised o supply chain networking services to interconnect trading partners; specializedexecution applications to manage suppliers, optimize global transportation, ensure trade compliance, andautomate key aspects o trade fnance; and, a supply chain visibility and per ormance management solution

or timely resolution o operational issues as well as a data warehouse and analytical tools or advanceddecision support.

Management Dynamics solutions are powered by Global Knowledge, the industrys most comprehensivesource o trade content and business rules data covering 99 percent o the world market, enabling companies

to automate and streamline key business processes to make better-in ormed operational decisions.For more in ormation, please contact us at [email protected], visit www.ManagementDynamics.com or call (201) 935-8588.

Management Dynamics, IOne Meadowlands Pla

East Ruther ord, NJ 070(201) 935-8588

[email protected]

2009 Management Dynamics, Inc. All rights reser ved

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