Few supply chain executives expect to see strategic benefits from compliance. To them, compliance is purely a cost of doing business. These same supply chain executives tend to view global trade management software systems as a technology that enables their supply chains by automating export and import compliance processes.
Export processes managed by global trade management software include:
- screening against sanctioned party lists,
- managing export licenses,
- performing embargo checks,
- sending electronic communications to customs,
- maintaining export classification, and
- driving outbound trade finance services such as letters of credit.
Import processes managed by global trade management software include:
- managing classification codes,
- producing import documents,
- calculating landed costs,
- managing open letters of credit, and
- ensuring import controls.
A company that deploys a global trade management software system can reduce the costs, risks and delays associated with manual compliance and tracking efforts. In addition, the records generated by such a system can easily pass the audit of a government or external agency.
Global trade management software systems deliver five advantages to companies by increasing supply chain efficiency. These benefits include streamlined screening of export orders; the elimination of order processing delays; visibility into landed costs; the reduction of inbound delays; and the streamlining of financial trade. Let's look at these advantages in more detail.
Advantage #1 -- streamlined screening of export orders: Organizations that do not have a global trade management software system must manually screen every sales order from an international customer to ensure that the customer and associated parties are not on the sanctioned party lists published by various government agencies.
Such organizations must also manually check the sales order for compliance with export license requirements. When such manual screening is performed in a high-volume sales environment, it delays the acknowledgement of the sales order and the determination of the ship date to the customer. Such delays can add days to a company's order-to-cash cycle time, affect cash flow and impact revenue.
But consider the company that has a global trade management software system fully integrated with its sales order management system. As soon as a sales order is entered into the system, the system either instantly clears the sales order for shipment or flags it for export compliance issues. This capability eliminates bottlenecks from a manual compliance testing process and frees the company to focus on manually evaluating only that small percentage of export orders that are flagged for possible violations. The international customers of such an organization enjoy fast turnaround on communication around commit dates and experience fewer delays in order delivery.
Advantage #2 -- elimination of order processing delays: Once the export order is ready to be shipped, the organization must still ensure that all required export documentation is completed and that any filing, such as Shipper's Export Declaration, is done correctly. Furthermore, last-minute surprises such as additional license requirements can delay shipments.
Research shows that over 10% of sales orders to international customers get delayed due to documentation or license requirement errors. Such delays hurt customer loyalty and impact future revenue. The delays can also lead to cancellation of outstanding orders. Such cancellations can be very expensive in today's economic environment.
A global trade management software system ensures that all such activities are done correctly and quickly, so that shipments can be delivered on time. In addition, these systems ensure that any customers whose shipments will be delayed due to export violations can be notified in a timely manner. Finally, these systems also ensure that potential fines due to non-compliance are avoided.
Advantage #3 -- visibility into landed costs: Organizations that lack a global trade management software system must compute landed costs manually. Since manually tracking and determining landed costs is a time-intensive and error-prone process, most organizations lack clear visibility into actual landed costs for a shipment.
As a result, actual costs do not always get factored into decisions on product pricing, rebates and discounts. This means that an organization could be losing money on a product it thinks is profitable.
Clear visibility into landed costs can also help a company design an economically efficient supply chain by locating plants and assembly sites in countries where landed cost is lower due to smaller import duties on components. A global trade management software system provides clear visibility into landed costs for a product and improves the organization's ability to make business decisions.
Advantage #4 -- reduction of inbound delays: An import shipment that lacks accurate paperwork can be significantly delayed at customs. If an organization experiences such delays frequently, it is forced to either carry excess inventory or incur more stock-outs. Delays in inbound shipments are particularly expensive for companies in industries where product life cycles are extremely short, such as high tech or fashion.
Advantage #5 -- streamlining financial trade: Letters of credit are critical to doing business with an international customer. However, recent studies have shown that up to 70% of all Letter of Credit documents submitted to the bank for payment are rejected upon first presentation due to incorrectly issued documentation. This leads to payment delays and additional fees.
With working capital so hard to raise in today's tight credit environment, any delay in collecting cash from international shipments due to incorrect or incomplete documentation against a letter of credit can be expensive. A global trade management software system streamlines the process for collecting and filing such documentation and ensures that the set of papers is correct and complete every time.
About the author: Jessie Chimni is vice president of North America Consulting Services for Bristlecone, a leading supply chain consulting firm. Bristlecone brings expertise across the entire spectrum of supply chain, including demand and supply planning, network collaboration, sourcing, eProcurement, global trade management, spend analytics and supply chain performance management.