May 15th, 2009
Today’s supply chain is much more complex than it was ten years ago given the monumental shift from domestic to global sourcing. Also with new regulations like Customs 10+2 that place accountability on the importer, there is a big push to control (or at least have visibility) to operations at origin. So , business process mapping today plays a key role to understand product flows, process hand-offs and informational triggers.
Some of the hot areas that I see with a specific application of BPM include:
* The order management process with contract manufacturers. BPM can be used to confirm POs with suppliers and automate the approve to ship process.
* The origin planning process with logistics providers to plan the inbound supply chain. BPM can coordinate factory loads and consolidation services as well as automating the routing guide and booking approval process.
* The Importer Security Filing process that can requires coordinated input from the Importer, Forwarder, Broker and Carrier.
* The shipment process where in-transit inventory is monitored. BPM can be used to alert on shipment status, escalate hot issues and coordinate hand-offs
* The entry process where a filing error has occurred. BPM can coordinate the resolution of an entry issue among the broker and import compliance team.
These processes can be tackled individually or linked to form an integrated inbound supply chain. Also, many companies have such a broad product portfolio that they effectively need to manage multiple supply chains, so the supply chain technology needs to be highly configurable
Tags: BPM, business process management, process mapping, SCV, Supply Chain Visibility
Posted in Supply Chain Visibility | No Comments »
April 25th, 2009
Many companies are trying to figure out in this current economic crisis how to cut costs and do more with less. Here are some strategies that we are seeing supply chain experts implement to get “leaner” and survive the recession:
1) Eliminate bottlenecks and reduce inventory at the port, at manufacturing sites and warehouses
2) Reduce fines for holding carrier equipment too long (demurrage & detention)
3) Identify opportunities to shift modes, eg. airfreight to seafreight
4) Use postponement strategies to divert inventory at an international gateway
5) Become a self-filer to reduce the broker’s cost to make an entry
6) Use preferential trade agreements to lower (or eliminate) duties and total landed cost
7) Rebalance supply (and fulfillment networks) by determining tax efficient sourcing and distribution strategies
The key enabling technologies to implement these solutions include Supply Chain Visibility and International Trade Compliance.
Tags: lean, reduce cost, strategy
Posted in GTM, Global Transportation, Supply Chain Visibility | No Comments »
March 4th, 2009
Last in my “outlook for 09″: a new priority to automate imports. Many companies have imported for years through distributors or aligned closely with a logistics service provider that facilitated the process. With the recent legislation around supply chain securty like Customs 10+2, many importers are realizing that they are fully accountable, but don’t feel like they have enough visibility and control over their destiny.
Another key trend affecting importers is the degree to which they rely on logistics providers. I have heard from many companies (especially after higher than expected rate increases) that the reliance on an LSP provided information system often limits their ability to foster competition and manage costs. Not a surprise.
What is needed is a system that centralizes compliance for an importer globally, then integrates the trading partner community to execute the process. And along the way, comply with just about any trade regulation that world governments can dream up.
Leading import automation solutions can do just that by:
- Establishing a compliant PO with respect to classification, other government agency controls, etc
- Supporting direct procurement strategies to “cut out” the middleman
- Coordinating orders with suppliers to manage ship windows and product compliance
- Gaining control over origin logistics to optimize inbound freight
- Complying with new security initiatives such as ISF
- Monitoring global fulfillment and diverting inventory as needed
- Preclearing customs and reducing brokerage fees by automating the entry process
- Controlling landed cost to pay the legally minimum amount of duty
And importantly your new import solution should promote collaboration among all trade parties and allow you the importer to engage new trade relationships through portals and control process execution and the flow of information.
Tags: automation, Import, trade security, trends
Posted in GTM, Import | No Comments »
February 12th, 2009
Next in the series of prognostications for 2009: look for companies to expand the benefit of low-cost country sourcing by leveraging the duty savings from preferential trade agreements. NAFTA was signed into law in 1993, and in the past decade the number of trade agreements has multiplied many times over. The World Trade Organization tracks this trend and has this nifty chart on the the number of trade agreements in force and also tracks the degree of change (see the solid lines) associated with “notifications” related to regional trade agreements
And if you are interested in the details, here is a link to a database of all 220+ regional trade agreements. Behind each of these agreements is a mountain of legalese that defines the rules to get preferential rates and save on duty. Also called rules of origin, it is pretty straight-forward to determine the origin of the product and whether an adjust to duty is warranted. Where it gets more complicated when a product is assembled from multiple component parts from multiple suppliers and origins. Here the rules of origin try to close the loophole on a simple trans-shipment strategy to test whether the end-item has undergone sufficient processing or has been substantially transformed into a different end-item. If you can master the rules of origin for a trade agreement and integrate this knowledge into how you make sourcing decisions, solicit suppliers and ultimately justify whether a product qualifies for preferential treatment you can save millions of dollars.
Sounds good, but without automation you need a small army of compliance experts to interpret the rules and test each and every product, transaction by transaction to ensure that you are in compliance. This makes sense for a company that has just a few products and sources from a few origins. However, if you source from mulitple countries with an assemble-to-order strategy, it becomes a complicated process that doesn’t scale.
The way to capture this hard dollar savings is through automation. Since the early days of NAFTA, trade agreement solutions have matured and offer a number of benefits to any company that is interested in reducing total landed cost:
- Campaign Management – automate the process of developing campaigns that solicit suppliers to certify the country of origin for their various purchased parts
- Supplier Portal – give suppliers a portal to interact with the import, respond to the campaign and generate certifications
- Multi-FTA Qualification – integrate a qualification engine with your order management system to determine if a give bill of material qualifies for preferential treatment
- Trade Content – identify a partner that can power the qualification engine for the trade agreements that apply to your supply network (hopefully without having to make code changes to your software).
The key innovation of today’s trade agreement solutions is that they manage multi-FTAs by deeply integrating trade content — the rules of origin — with your execution systems.
Tags: low cost sourcing, trade agreements, WTO
Posted in NAFTA, trade agreements | No Comments »
January 14th, 2009
In the last two posts, I summarized some key trends that formed in the GTM space in 2008. With the new year, I think it is appropriate to make a few predictions. The first is the rise of the SME. The Small Medium Enterprise? Not quite. Actually we see the larger market of exporters (and there are over 230,000 in the United States alone), the Small to Medium Sized Exporter start to invest in managing export compliance.
A few trends are driving the SME and it starts with some good compelling events:
- Enforcement is up
- Fines are up (including imprisonment)
- Regulations are not getting simpler (no 1040-EZ here)
So beyond the effective scare tactics of
Don’t Let This Happen to You companies are starting to realize that exporting is a priviledge in the United States and can be taken away if you really screw up. So, the Bureau of Industry and Security has a comprehensive program to help exporters comply with their EMCP
Export Management and Compliance Program. This was recently updated and expanded and covers all the bases from policy, to process, to training and systems.
Now, any time you build out a big process, you need to staff up. The challenge for many SMEs is that they have jsut a few compliance players and no budget to hire staff. This is where technology comes into focus to provide a highly targeted information system that meets the needs of the SME.
- Highly configurable to reduce the cost of implementation
- Able to integrate to any back-end system
- Automates the time-consuming activities of an EMCP like screening and license determination
- Demonstrates “reasonable care” by implementing a standard process with controls
- Is available on-demand to eliminate the need to buy hardware, software or bother your IT staff
As the urge to “go global” shapes SME business strategy, operations has to follow. The good news is that a new class of applications are available that can do the heavy lifting and don’t take a smoke break.
Tags: export compliance, small-medium enterprise, trends
Posted in Export, GTM | No Comments »
December 20th, 2008
Another interesting trend in 2008 is the maturing of the global trade compliance market (also known as Global Trade Management). Born in the mid-90s as ITC (international trade compliance), the category has grown up with demonstrable success from early adopters and a recent surge in interest from the “early majority”. And, the analyst community has started to ramp up coverage with various reports that attempt to dimension the category and identify the leaders.
Gartner: Developing an End-to-End Global Trade Management Functional Map
Forrester: Modern Global Trade in Tough Economic Times Requires Next-Generation Software Solutions
ARC: Global Trade Management Software Market to Grow 10.1% Annually
AMR Survey Data: The Quiet Revolution
AMR Survey Data: The Revolution becomes Evolution
Marsh: Unlocking Hidden Value in Global Trade Management
Aberdeen: Global Trade Compliance Priorities in 2008
As the Global 2000 supply chains are becoming more centralized, they are also revamping information systems to address the complexities and manage risk. Trade compliance decisions are shifting from more tactical “how do I screen for restricted parties?”, to more strategic notions of automation across all compliance domains. Characteristics of strategic trade compliance solution include:
- An automated export process that manages product compliance, sanctioned party screening, license management, document generation, and filing
- An automated import process that classifies products and manages admissability, establishes compliance purchase orders, manages supplier and logistics decisions at origin, visibilty to in-transit shipments, complies with new security regulations, pre-validates import entries, files entries and manages post entry reconcilliation and amendments
- An automated trade agreement process that manages all supplier parts, establishes campaigns to solicit suppliers to certify the origin of products, and qualifies duty savings across any number of preferential trade agreements.
- Trade content that deeply integrates with the trade execution system to support a higher level of automation across a number of content categories including denied party lists, classification, regulatory controls, documents, embargoes, rules of origin, and land cost.
With a strategic trade compliance infrastruture, supply chain complexity starts to evaportate by:
- Running a compliant global process that is fully auditable (sleep well at night)
- Shifting your trade talent to more strategic activities by managing transactions “by exception”
- Eliminating “islands of automation” by centralizing compliance and retiring point solutions
- Reducing costs by generating and automatically distributing documents
- Responding faster to new security regulations such as Customs 10+2
- Supporting new direct procurement models that allow you to “go direct” to cut costs
- Pre-clearing Customs to reduce inventory and fines
- Leveraging trade agreements to lower total landed cost
Aberdeen reporting a few years back that the global supply chain was only 50% as automated as the domestic supply chain. In 2008, we started to see a major shift in investment to the global supply chain and I would expect to see this trend to endure for many years to come.
Tags: compliance, global trade management, trends
Posted in GTM | No Comments »
December 4th, 2008
Having been involved in the supply chain visibility market for over ten years, 2008 was one of the most impressive years in terms of number of projects. It seems that the generalization that SCV is simply “a feature of every application” is being tempered with the realization that a specialized information system is needed to manage complex global supply chains. Not visibility in your TMS. Not visibility in your WMS. And, not that visibility that comes packaged with your ERP but doesn’t connect to any data sources outside the four walls of your enterprise. What is to deliver true global supply chain visibility are purpose-built solutions that exhibit the following characteristics:
- Highly configurable to map your business processes
- Bolts on to all your four wall systems like ERP, TMS, WMS
- Leverages an existing supply chain network for pre-integrated connections to carriers, forwarders, brokers, and suppliers
- Employs an expert on-boarding process to efficiently certify and manage new connections
- Applies advanced data quality management methods to cleanse and synchronize the flow of information
So it is a combination of software, network and services that allows this dog to hunt.
Now why is the SCV space taking off? McKinsey has some interesting insights from their recent survey on managing global supply chains:
- Supply chain risk is rising rapidly
- Companies are not meeting their cost reduction and customer satisfaction objectives
- Supply chain processes are still very inefficient
- Companies are centralizing operations to get control
These trends all point to the need for an information system (SCV) to provide the command and control infrastructure. An information system that delivers transparency in global operations, collaboration among different functions and business groups, and an infrastructure to manage business partner relationships. Which certainly supports the McKinsey finding of trends influencing supply chain strategies:
The most common responses to the trends influencing supply chain strategies are increasing the efficiency of supply chain processes (71 percent of executives), actively managing risks along the supply chain (56 percent), and sourcing more inputs from low-cost countries (47 percent). The degree of attention paid to supply chain processes seems prudent, as process improvements are an effective way to manage increasing complexity.
2008 was the year when the ground started to shake under many supply chain teams. Smart investments in SCV promises to be the enabler for better times to come.
Tags: Supply Chain Visibility, trends
Posted in Supply Chain Visibility | No Comments »
November 13th, 2008
On October 17th all European – based conferences were disbanded. Deregulation of ocean shipping has finally come to pass and we are seeing early signs that beneficial cargo owners (BCOs) and logistics providers alike are scrambling to figure out how to manage transportation costing with a whole new level of rate volatility.
In the cozy world where carriers conferred on vessel capacity and agreed upon pricing levels for surcharges, there was a modicum of price stability. Competition among carriers was focused on relatively simple factors of base ocean freight rates and service levels, which made it easy for BCOs to manage rate agreements, understand their total costs and select a carrier.
That has all changed. In this past month, many are seeing divergences in Bunker, Terminal Handling, Canal and War Risk surcharges among carriers. While BCOs might be able to find generally lower rates, it is significantly harder to calculate a bottom-line cost. The process impacts are real and many are trying to define how:
- service contracts are negotiated and managed,
- alternative routes and rates for a shipment are calculated and compared to select a carrier service, and
- freight invoices are audited.
Clearly these new rate components and volatility will require new processes and information systems.
This rate volatility is hard for a BCO, but significantly more difficult for logistics providers that have more complexity in terms of routes, rates and contract structures. A screw-up when calculating a rate for a quote is potentially much more costly. And beyond margin, the extra effort will certainly affect how fast the sales department can respond to new market opportunities and prepare differentiated proposals.
Many will point to all-in rates as the answer, though a win-win doesn’t seem possible with the volatility in commodity prices. Who really has the stomach for prix fixe nowadays?
The answer is to look to history and the deregulation of ocean shipping in the United States. Leading companies addressed the challenge of confidential services contracts and highly volatile accessorials with TMS systems that can handle this complexity and allow companies to capture the benefit of deConferencing.
Here are some resources to help clarify how a Transportation Management system – focused on the complexities of seafreight – can help logistics providers and beneficial cargo owners.
Tags: audit, booking, carriers, Europe, seafreight, transportation
Posted in Global Transportation | No Comments »
September 17th, 2008
Earlier this year I had the opportunity to hear former president Vincete Fox of Mexico talk about the the changing economics of Nearshoring. And sure enough, I was sitting next to an executive from a large high technology company that had recently shifted production from Asia back to Mexico. Roll forward four months and McKinsey today published a nice article Time to rethink offshoring?
The world has changed over the past four years. China wage inflation has run rampant (19% year over year) and now wages in Mexico are only 15% higher – a small price to pay for a half-day plane ride and the luxury of dealing with operations in the same time zone.
McKinsey then analyzed the impact of increased logistics costs on these sourcing decisions. Net-net, with fuel increases (crude is up from $28 a barrel to about $100 over the past few years) it is not surprising that the cost of shipping a 40′ is 3 times more expensive than in 2000. They translated this cost to an equivalent tariff of 11% on the cost of goods.
Considering the increase in wages and logistics costs, McKinsey calculated break-even curves for manufacturing in the US, Mexico and China. Then, plotted a number of high technology products like servers, copiers and TVs. Not a big surprise: the curves are shifting in favor of producing in Mexico and for certain (heavy) products like copiers and TVs, the United States.
The key take away here is that you can’t establish a sourcing strategy without periodically revisiting your assumptions like:
- Total landed cost including product invoice, duties, excise VAT, other governmental charges, transportation, insurance, and other logistics costs
- Regulatory controls (both export & import) including licenses, embargoes, quotas, and AD/CVD
- Country risk including political stability, macro-economic policies, quality of infrastructure, environmental factors, availability of capital, and labor risk. Check out some good resources at CountryRisk.com and Trading-Safely.com.
Web-based information services are available to keep up to date on changes in landed cost and regulatory environment and optimize sourcing as well as distribution decisions.
As commodity & freight costs continue to grow and the comparative advantage in labor wages falls, we are seeing the proliferation of preferential trade agreements. This is becoming a real challenge to not only find these ‘global optimums’ but then put in place the business process and automation to ensure compliance.
Tags: Import, Landed cost, nearshoring, strategy, trade agreements
Posted in Import, Landed cost, Near-sourcing | No Comments »
September 10th, 2008
Finally. After ten years of hype surrounding Supply Chain Visibility (SCV), I am seeing mainstream adoption. Sure, many ‘earlier adoptor’ companies took the plunge during the go-go days of 1999/2000, then the market flat-lined post-bubble. Nobody had investment dollars to spend on projects numbered 2, 3 and 4. The big enterprise app companies were doing a good job soaking up the cash and attention of most IT teams.
Roll forward eight years and the market is ramping up based on two key trends:
- the shift to Direct Procurement models of global sourcing; and,
- the increased accountability of importers with regulations such as the Importer Security Filing (ISF), affectionately known as Customs 10+2.
Fundamentally, the advance of low cost sourcing strategies is challenging the old forwarder/spreadsheet business process that many Importers have employed. Importers must extend business processes, collaborate with trading partners, and control the flow.
Read the rest of this entry »
Tags: Customs 10 2, Import, ISF, Supply Chain Visibility, technology
Posted in Import, Supply Chain Visibility | No Comments »
