GTM Best Practices

Look for these key trends to impact your global trade strategy in 2011

1. Technological innovation drives gains in operational excellence

Market complexity and volatility are driving new levels of investment in technologies that better manage and control global operations and processes. Importers and exporters need a greater degree of visibility to improve agility, such as corrective action in response to a supply chain disruption or the monitoring of priority shipment to a needed delivery date.  Advances in information and communications technologies that automate forecasting, supply and production management, transport, and logistics processes have stepped up to provide the necessary visibility and also flexibility to accommodate and also take advantage of market volatility, rapidly changing demand, and emerging markets. Trading partners and groups interconnect dynamically and reconfigure as either opportunities or constraints require.

2. The need to manage volatility (and risk) will increase

Most experts agree that global market volatility is here indefinitely.  If not driven by sudden demand disruptions, than by supply or other vendor disruptions, or weather anomalies, or wars and terrorist attacks, or a list of other economic and market constraints.  The foundation of any risk management system and the key to managing volatility is to have an “early warning” system. It is critical to link supply chain processes outside the four wall of your enterprise and develop a shared set of metrics to manage success and to highlight the need for implementing contingency plans when performance goes South.

3. Sourcing strategies take into account total landed cost and increased flexibility

Rising fuel and resource costs, aging economies, and market turbulence have motivated proactive global traders to rethink their sourcing strategies. Companies are becoming more fluid about their sourcing policies in order to save on transportation costs and also to pursue new and profitable markets. Companies sourcing from China may switch to sourcing from Mexico in order to serve NAFTA customers. They also may source the same product elsewhere to serve European or Asian customer or trading group locations. Or they may continue to source from China or Asia, but ship materials and subassemblies to be assembled closer to the delivery point. Sourcing and manufacturing/assembly locations may change again as demand changes, in what is becoming a continuously dynamic trading mode.

4. The rise of emerging markets and trading blocs

Intra-Asia shipping is booming as China and its 10 ASEAN trading partners (Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand, Viet Nam, Lao PDR, Cambodia and Myanmar) see significant sales increases. From January to August this year China-ASEAN imports were up 54 percent and exports up 40 percent year-over-year (U.S. Bureau of Transportation Statistics, 7/2010). Companies looking for growth opportunities are shifting to these emerging markets – not only the Asia Pacific, but also India, Russia, and Eastern Europe — where double-digit sales are out-performing the typical established-market sales in the U.S. and European Union.

Increasingly global trade is becoming more concentrated in specific areas such as the China-ASEAN bloc, in much the same way as trading within the Western Hemisphere became focused within NAFTA for the U.S., Canada, and Mexico. However, the emerging high-demand areas are currently attracting more manufacturing and logistics-related service infrastructure, and the attention of global exporters and their networks.

Global trade management applications require agile networks. Focused outside the four walls of an organization, GTM synchronizes orders with global suppliers, manages transportation with global carriers and controls how companies legally and efficiently cross borders.  This extra-enterprise nature of GTM requires an architecture that can handle the demands of connectivity and collaboration across a dynamic supply chain.  Introducing, the Cloud.

So What is the Cloud?
The cloud is an innovative offshoot of SaaS (and is sometimes called PaaS – platform as a Service). According to a recent Gartner forecast,* worldwide cloud computing services will generates revenues pegged at $68.3bn in 2010, representing an increase of 16.6% over the same period last year, with global cloud services revenue projected to reach $148.8bn in 2014. Increasingly, says Gartner, companies are adopting the cloud, and service companies – well-established, and start-ups both – are offering a range of cloud design and implementation solutions.

Intersted to learn more – check out The Cloud Industry Forum

The Cloud and GTM

Among global trade management stakeholders, manufacturers are the largest early adopters of cloud services to date, but high-tech industries are moving to cloud adoption as well, says Gartner.

Cloud computing offers a numer of capabilities for GTM:

• Integrate global suppliers and logistics providers with a shared network
• Plug into value-added services such as trade content from hundreds of countries
• Support new workflows and collaborative processes across the spectrum of imports and exports
• Use configurable software solutions to enable rapid implementation

This leads to several key benefits:

• Reduced operating costs of 20% and upwards
• Elimination of the need for capital investment to support expansion or to handle demand surges
• A cost effective solution for small-to-midsize companies to compete in IT functionality with larger competitors.

Many of these benefits are well understood from the On-Demand hoopla a few years ago, so what is exatly new about Cloud may not be so clear.

Managing logistics issues and supply and demand fluctuations is rarely routine, but the current hyper-reactive global economy as well as unforeseen weather anomalies can magnify the suddenness and breadth of disruptions throughout the supply chain. Any number of factors can potentially wreak havoc:

• For manufacturers facing unforeseen supply and demand anomalies and work stoppages, capacity and tooling decisions become critical
• For OEMs and retailers subject to short product lifecycles, market and economic uncertainty, rapidly changing technologies, product recalls, stock-outs. ever-escalating competition, and dramatic demand fall-off, the success or failure of a product and/or the company’s brand equity and market position can hang in the balance
• For LSPs as well as those above, customer bankruptcies, or blind-siding weather, political, or terrorist events resulting in major transportation disruptions can cost $millions in lost revenues and key customer accounts.

Even if you have an overall planning process in place with established long-term goals, short-term contingency plans tend to receive less considered thought. Rarely do they result in quick and decisive action when it is most needed. Below are some contingency measures you can take proactively to limit risk exposure and enable rapid and effective crisis management.

1. Develop a Plan
Form a contingency team composed of key supply chain partners, (e.g., from the OEM, manufacture, logistics sides); and identify contingency scenarios:

• Re-examine sourcing partnerships and identify alternatives
• Model the impact of disruptions on your sourcing and inventory strategies
• Identify a core contingency inventory strategy – in what form and quantity across the entire procurement, manufacturing, and distribution network – to be fine-tuned as the need arises
• Develop a list of appropriate immediate and follow-up actions to achieve an optimal outcome for each contingency scenario, and, most important, appoint a point person to take charge of each contingency

2. Create Visibility
It is essential that all networks linking trading partners support end-to-end visibility and that all network partners participate in contingency strategies.  In this way you can monitor supplier performance in real-time and address any variances in your risk management system.

3. Build Flexibility
An agile supply chain can help mitigate risks.  Look at opportunities to alleviate current supply chain bottlenecks, model alternative transportation network configurations and look for alternative sources of supply.

4. Respond Decisively
Proactively link contingency plans and business objectives; and assure that contingency point people have previously obtained corporate authority and by-in for the rapid execution of contingency strategies.

5. Continuously Improve the Plan
Continuously optimize inventories against long-term business objectives as well as changing market conditions, supply constraints, customer bankruptcies, and other contingency scenarios.

As significant business, currency rates, fuel costs, and other changes occur, re-examine supply chain decisions from materials procurement, manufacturing, inventories, distribution, transportation, to constraints and costs.

Although posted in April 2008, Supply Chain Digest has a good article for anyone planning a  Trade Compliance implementation: Five Surprises from a Trade Compliance Application. Most trade compliance experts know what they want to achieve with a new solution – but this article does a good job identifying some critical applications to efficiently maintain a system:

• Data Archiving Tools
• Data Processing Reports
• Automated Compliance Updates
• Product Classification Tools

In a recent research report, Aberdeen Group found that few companies have examined and quantified the financial benefits that their trade compliance group brings to their company or assessed fully where the greatest opportunities are for driving further improvement. Click here to request a copy.

Fantastic reading to understand how your company can generate new savings in areas like:

• Optimizing sourcing decisions with accurate total landed cost
• Reducing brokerage costs by self-filing
• Expand the number of trade agreements managed and reduce duties
• Implement a free trade zone

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.

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

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)

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.