Published: April 01, 2008
Domestic or international supply chain redesign in 2008 is being driven by the need to reduce costs. How can your company’s global trade compliance (GTC) process help to alleviate this pressure? A number of GTC costs could be targeted, including taxes and duties, transaction/document processing costs and potential government fines for non-compliance (e.g. as a result of product misclassification, inadequate export or import licenses or doing business with denied parties/ countries). The latter costs pose significant corporate risk, not only because they can bring about unanticipated, sometimes very high, fines, but also because they can lead to reputation damage and the ensuing loss of customers. In an Aberdeen Group’s study of 340 global importers and exporters, 74% of surveyed companies reported that they were currently in the process of improving their GTC, which indicated that global corporations today place a high priority on trade compliance and reducing associated costs.
Figure 1 shows the top three strategic actions targeted at improving GTC:
[[[PAGE]]]
For most companies, GTC is as an increasingly complex global responsibility, with international trade security regulations becoming more sophisticated. At the same time, internally, there is often both a knowledge gap and a lack of communication - when stakeholders outside the compliance department do not understand the impact of their actions on trade compliance and the associated risks, and inefficient, manual processes. GTC risk is exacerbated because many departments are routinely involved in global trade management: trade compliance (if it exists), legal, supply chain, procurement, sourcing and executive management.
The mandates of GTC have become more pressing and complex over the past decade. Meanwhile, trade compliance departments at many companies have been unable to establish company-wide processes and enforcement mechanisms to ensure that all internal stakeholders are aware of how their actions impact GTC and why they should do their best to comply. Firms that are Best-in-Class in managing GTC have understood the importance of bringing the GTC function into the spotlight and evaluating potential cost savings from process improvements and better-designed global supply chains.
Global supply chain costs, as mentioned above, are impacted by the GTC department’s processes and knowledge. Among other performance advantages, Best-in-Class companies have the edge in the following categories:
These are some of the activities that companies are looking to in order to decrease costs.
Process: Consider some of the transactional procedures that need to take place to ensure an inbound shipment, for example, complies with government regulations. To name a few: screening for restricted suppliers, classifying the product accurately, filing customs documentation, and paying import / export duties, among other compliance tasks. The majority of companies are looking to streamline their GTC process and - when appropriate - implement technology. Many Best-in-Class companies are managing a more efficient compliance department by automating processes, such as:
[[[PAGE]]]
Knowledge: There are opportunities related to a company’s import entries that could have been eligible for trade agreements or other special programs, but were not taken. The reasons for not taking these opportunities range from incorrect product classification to the lack of knowledge about applicable trade agreements or the lack of staff to process relevant documentation. Furthermore, how would the duties be impacted if the product was sourced from a new supplier versus an existing supplier (e.g. suppliers from which a company has already sourced some product with the same HTS code)?
Today, many companies are undertaking initiatives to reduce their GTC process-related costs and increase staff productivity. While Best-in-Class companies are successfully automating certain critical export/import processes, as described above, GTC still lags behind other global trade management functions in the use of information technology: Sixty-four percent of all companies in Aberdeen’s recent trade compliance study report having mostly manual trade compliance practices, even though disparate automation efforts for certain processes are reported by many respondents.
Certain export/import process automation has a direct impact on metrics, which in turn influence trade compliance costs: for example, companies with automated communications / document exchange with their 3PLs and forwarders are (compared to those with no automation):
While automation and process improvements are effective in reducing costs, companies should not forget that it is not just about processing cost savings - as GTC breaches can potentially lead to negative impact on the company’s brand, not to mention potentially dramatic government fines, eroding the larger percentage of the profit margin from a particular series of shipments. Among the companies in Aberdeen’s trade compliance study that indicated an increase in the overall effectiveness of their GTC functions over the past year, sixty-nine percent (69%) reported that ‘the number one benefit of this improvement has been a reduction in global supply chain risk.’ Global exporters and importers that have not yet examined GTC’s costs and risks should turn their attention to this function, which may reveal strong potential for improved management of global trade, including cost reduction, new product development and - potentially - additional sales and revenue due to improved global supply chain sourcing and sales strategies that take into account trade compliance considerations.
To access the full report, ‘Global Trade Compliance Priorities in 2008: How Exporters and Importers Are Redefining their Approach to Trade Compliance to Reduce Costs and Grow Revenue’ (available free until May 23, 2008), please visit:
http://www.aberdeen.com/link/sponsor.asp?cid=4636
How Thought Leadership Can Reduce the Cost of Sales by Patrik Havander, Havander & Partners A focused attention on the costs incurred by the global sales and marketing processes is becoming increasingly important for corporate banks and their transaction banking departments. While the client/bank relationship remains vital, research has shown that in fact relationship selling […]
