Global Trade Management

Stephen DeAngelis

December 21, 2011

The consulting world offers all sorts of management solutions to companies. For multinational corporations, one of the latest solutions to come along involves Global Trade Management. According to the ARC Advisory Group, “Global Trade Management (GTM) solutions streamline and automate processes related to customs and regulatory compliance and trade financing.” [“Despite Declining Trade, the GTM Market Does Well,” Global Trade Management Worldwide Outlook] The article continues:

“GTM solutions facilitate the flow of information, money, and goods in global trade supply chains that include buyers, sellers, and intermediaries including customs agencies, banks, and freight forwarders. GTM solutions automate trade processes.”

As supply chains get extended across the globe, their complexity rises dramatically. GTM solutions are aimed at helping reduce that complexity through automation. The article explains:

“Managing the flow of goods, information, and money across borders is a highly complex, regulated, and dynamic process — and becoming more so every day. Therefore, companies can no longer rely on manual processes to manage their global trade operations. This is why the Global Trade Management systems market will be one of the fastest growing segments of the enterprise software industry.”

Gene Nusekabel, Worldwide Industry Lead – Wholesale Distribution at IBM, agrees that “getting goods to a foreign destination is not a simple game.” [“Global Trade Management: Are You on Top of Your Game?” Logistics Viewpoints, 8 November 2011] Despite the complexity, Nusekabel reports that “some supply chain organizations are able to ‘win’ this game, day in and day out.” He continues:

“As you would expect, organizations that take a more a systematic approach and utilize GTM/supply chain solutions [are among those that] succeed at this game. So, if most organizations are ‘getting the job done’ when it comes to global trade management, where is the opportunity for improvement? Getting the job done is fine, but getting on top of your game requires the merging of ‘International Execution + Technology = Game Changer.'”

The primary purpose of technology is to help make people more productive. As complexity increases, technology can perform complex behind-the-scenes activities that make decision making and process execution appear simpler. GTM solutions are no different. Nusekabel continues:

“GTM solutions are bi-directional–imports and exports–and both require a comprehensive solution that includes both execution and technology. Importing, however, poses a larger challenge for US companies as they continue to source globally and have to comply with ever-changing security and customs regulations. Solution flexibility is a crucial consideration for companies as they continuously analyze the off-shoring/near-shoring equation, and they must also take into account the growing compliance requirements (and their resulting complexity) as foreign nations look to manage sustainability and the economic issues impacting their countries.”

A good GTM solution will take all of those factors into account when an order is received. If a potential challenge is detected, the solution should alert executives so that a plan of action can be determined to deal with the challenge. Business is much simpler if you can manage by exception. Technology helps you do that. Nusekabel continues:

“Research shows that companies can achieve cost and productivity benefits by investing in technology to manage the complexity of global trade processes. But in considering a game-changing GTM solution, the key is to look at your international shipping activity. Will sourcing in foreign countries continue to grow imports? As companies look to emerging markets for future growth, will this contribute to more exports? If so, added complexity will take place in both imports and exports for the organization.”

Even though complexity may increase, the benefits from economic growth should outweigh the cost of dealing with the added complexity. But Nusekabel wonders if organizations really know whether that it true. He continues:

“Most people would agree that managing freight transportation costs is a critical factor in global trade management, but that is often because these costs are clearly visible and measurable. Most organizations can easily state how much they spend on freight costs (by carrier, origin country, etc.), but how many know how much they pay in duties, entry fees, or penalties in a given period? For a given order? Who even has responsibility for capturing and reporting such information in the organization? Logistics? Procurement? Finance? Customs Compliance?”

A good GTM solution should capture all of those variables and provide a fairly definitive answer about corporate profitability in various locations around the globe. By understanding its various costs, a company is in a much better position to make informed decisions about where it needs to improve and to see where opportunities exist. According to Nusekabel, “a recent publication survey noted that the average global shipping expenditure for companies with $100 million to over $1 billion in sales was 18 percent. While the focus on annual RFP negotiations to attain the ‘best’ transportation rates is understandable, a better focus would be to improve GTM processes.” He notes that the “US Customs and Border Protection [Agency] expects import product value to triple by 2015,” and he expects complexity increase as well. He continues:

“The complexity of the global playing field requires an integrated GTM technology solution to mirror TMS execution, not just in being timely, but also in gaining more visibility to all the data points that impact the movement of a shipment. This integrated process design merges transportation management systems (TMS) with GTM solution functionality to create a single source of truth, breaking down the silos of information on which to act. This single source of truth being composed of all the data from EDI execution status; product description compliance; and applying country-specific preferential trade agreements and contract management.”

Nusekabel’s observations are in line with most other supply analysts who insist that corporate silos must be done away with, a single source of data must be used throughout a company, and improved visibility must be achieved throughout the supply chain. Nusekabel continues:

“An integrated GTM process consists of automating critical applications for rates, routes and carriers while optimizing both the international and domestic segments of a shipment, something that eludes many organizations today. The inclusion of freight auditing, invoicing, logistics execution and contract management functions provides additional value to the solution design. In addition, the seamless flow between internal and external partners in the supply chain is a fantastic win by giving invested partners, through visibility dashboards, their unique information in support of the process. Each member then contributes their value to bring success to the overall team.”

I agree completely with functionality that Nusekabel describes for a good GTM system. For many companies, such a system would indeed be a game changer. Steve Banker asserts that, if you are having a difficult time convincing your CEO that the company needs a good GTM solution, you might want to convince the CEO that he or she could go to jail if they don’t. [“Buy Global Trade Management System, Keep Your CEO Out of Jail!” Logistics Viewpoints, 28 November 2011] He writes:

“At one of the conference receptions I attended this fall, I heard an interesting story about a Global Trade Management (GTM) system implementation. At one level, the business case was focused on fine mitigation. US Customs had warned this company several times about shipments lacking the proper licenses, permits, and classifications. Finally, customs lost its patience and fined the company more than $50 million. Part of the business case for implementing a GTM system was so that the company could argue to customs, ‘We have a system with the proper controls, and we won’t do it again.’ The argument worked and the fine was reduced to less than $5 million. That is a solid Return on Investment! But there was a second part to the business case: It was about keeping the company’s CEO out of jail. Now that is a project almost guaranteed to get the green light!”

What were employees doing that could land the CEO in jail? Banker explains:

“The company’s foreign sales executives were modifying trade classifications to win business. In some countries, multiple layers of licenses and import duties can add another 75 percent to the base price. In some of these countries the sales force was dealing with customers who were saying in effect, ‘If you can manage to get this tax lower, we will do business with you.’ The sales force would then print out the trade document prepared by the compliance department, modify values or classifications on those documents without letting the compliance department know, and complete the sales transaction. The company thought this form of corruption was only happening in Latin America. But after implementing the GTM, it locked down the Adobe application so that users could not modify values and fields in the trade documents without the proper password. Sales people from all regions of the world called and asked for the password; corruption was endemic! It goes without saying that this permission was not granted.”

It’s one thing to take a perp walk for your own unethical behavior and quite another to be imprisoned for something that someone else did. In Banker’s case study, the GTM solution not only uncovered corruption, it helped establish a new corporate culture and helped improve corporate alignment. Banker continues:

“Another control exists in the GTM itself. Once a shipment is confirmed by the company’s ERP system, the GTM trade documentation associated with the shipment is locked down and cannot be changed. In response to these changes, the sales force began to make angry and even threatening calls to the compliance department. Obviously, this company’s culture needed to change as well. A system, even one with good controls, will be hard pressed to keep up with the ingenuity of users seeking to subvert those controls.”

For Banker’s case study company, GTM really was a game changer — for a lot of reasons. Without advanced technology, the complexities of global trade are simply too difficult to deal with effectively. Nevertheless, getting information from some stakeholders remains a challenge. Increased implementation of GTM solutions could go a long way in encouraging all supply chain stakeholders to collaborate better.