Saturday, 19 of May of 2012
Dedicated to sharing ideas and advancing global trade management for all industry players
Here’s an informative 8.5 minute video about automating import compliance and how this streamlines and helps build a more secure supply chain.
Good to share with Management to help them understand key process and technological enablers. Enjoy!
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:
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:
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.
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:
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.
In our last post we wondered if the pain of 10+2 was worth the gain. Well, I thought we developed a fairly compelling gain perspective, but industry has recently shot back with a quantification of the pain – $20 billion reasons to take it slow.
The proposed rule will cost U.S. companies over $20 billion annually—costs that will be passed down to the consumer at a time when hardworking families can least afford it.
Over forty trade groups recommend that Customs & Border Protection implement a pilot program and take a slow-roll approach to the Importer Security Filing rule.
This trial application will allow CBP to improve the rule and tailor it to meet the requirement of Executive Order 12866’s requirement that it be least burdensome on “businesses of different sizes.”
While I can not find much support for how the coalition calculated the $20 billion, the regulation clearly holds increased costs for businesses of “small sizes” that have little or no global supply chain automation.
I still see a net gain for the Global 2000 and the pilot program will provide much needed relief to put a strategy and information systems plan in place.
With the recent buzz around Importer Security Filing (aka Customs 10+2) many are wondering if the pain is worth the gain. Complying with this new regulation will undoubtedly increase costs in the short-term, but could also drive a re-engineering of the import supply chain that could cover this investment many times over.
Re-engineering a business process starts by mapping the existing flow. Importers need to map their supply chain and understand the exact process of order delivery, manufacture, container load, consolidation and clearance. And at each step, you need to understand the entities and systems involved as well as the known bottlenecks and points of failure. This is called the ‘As-Is’ process map and creates a baseline understanding of what works and what can be improved. With your Import As-Is process flow you should look for improvement opportunities in several key areas:
As a result of this effort, importers can start to map out the ‘Should Be’ import process. This is the fun part of re-engineering that allows you to design new policies, new business process flows and the technology needed to implement this optimal, future state.
GTM technology plays a key role in this future state with an automated approach that not only helps the importer comply with and generate an ISF, but also to effectively handle increasing import volumes by being amble to do more, with fewer resources:
This is the time to define the ‘Could-Be’ plan by identifying the feasibility of the Should-Be vision with constraints that include cost (your budget), risk (can the new processes be automated) and time.
The good news is that GTM technology can mitigate the systems risk and provide a level of automation that allows an importer to effectively shift to a Direct Procurement model. Ultimately, the price of complying with heightened security regulations will cost more, but this new business model promises to generate a stream of benefits for the importer by:
The gain is worth the pain; especially, if your business relies on sourcing from low-cost countries and values operational excellence.
Still unsure? Wait around and see what CBP will come up with in terms of the stick. While there might be a grace period negotiated for a few months, I am sure the government is going to find a way to pay for continued automation upgrades. One way or another, a business case for GTM can be made.
Global supply chains faced their fair share of new and existing challenges in 2007. While improving both cost efficiencies and customer-service levels remained top of mind for supply chain executives, they are now chartered with enabling new business priorities, such as support for growth through more rapid innovation, increased flexibility to respond to demand variations, and sustainability and environmental needs.
Furthermore, in 2007, global supply chain risk took center stage with stories like Mattel’s major issue with lead paint on toys and Dell’s portable battery recall, amplifying the need for mitigating the potential for supply chain disruptions. What does 2008 hold for supply chain management (SCM) and logistics? AMR Research believes that a confluence of economic, technology, and political factors will further emphasize that SCM and logistics are keys to the future success of global businesses. Specifically, here are the top ten supply chain management and logistics trends that AMR anticipates in 2008.
1. SCM and logistics technology markets enjoy healthy growth: In our supply chain spending study, twice as many companies said they will increase spending on supply chain technologies, projecting to grow their budgets by nearly 12% for 2008). The 12% growth in supply chain technology spending will target controlling costs, raising productivity, and improving customer service. Companies can no longer make do with their 10 to 15 year old SCM systems. The research shows that an application replacement cycle is in progress as competition and globalization are driving the move to newer technologies.
2. Near-shoring presents a viable alternative to low-cost country offshoring: AMR Research believes that the trend of near-shoring will continue to gather steam in 2008 for multiple reasons. Companies are discovering some hidden costs of low-cost country outsourcing ranging from the loss in their ability to be demand driven or to manage product quality and protect their brand image. Additionally, focus will remain on the goal of protecting domestic producers against unfair trade practices of countries like China and encouraging U.S. manufacturing through tax incentives, especially in this presidential election year. Expect near-shore sourcing, manufacturing, and design in the United States and in the western hemisphere to be closely analyzed as a more cost-effective–not just faster–alternative to low-cost country sourcing.
3. Best-of-breed vendors regain some lost ground from ERP competitors: In the same AMR Research Report on SCM spending, respondents were evenly divided on which category of vendors they will rely on for new technologies and replacement of existing applications. ERP vendors have gained a strong foothold in areas like demand planning and inventory management. However, users still prefer best-of-breed applications, either packaged or custom-built, in areas like transportation management, warehouse management, and network design as well as for collaborative processes such as vendor-managed inventory (VMI) that extend outside of the four walls of the enterprise.
4. SCM outsourcing alleviates the SCM talent shortage in increasingly complex global supply chains: When combined, several current industry factors are propelling the growth of logistics and greater supply chain outsourcing. A decade of staff downsizing, the globalization of supply chains, the complexity of operating today’s demand-driven networks, and the rise of the offshore, low-cost back-office outsourcing firms have naturally produced an awareness and a new level of acceptance of outsourcing. 2008 will prove to be a fertile year for outsourcing. Look for a slow expansion of additional supply chain services beyond the traditional transportation and warehousing offerings.
5. Companies manage risk for business continuity and competitive advantage: Whereas cost efficiencies, customer service improvement, inventory reductions and other fundamental goals will remain top priorities for supply chain organization, emphasis on supply chain risk mitigation will grow in 2008. Realizing that risk in global supply chains is unavoidable, companies will build a risk-conscious culture, to ensure business continuity. Leading companies will take risk mitigation a step further, building competitive advantage by continuously balancing risk and reward to expand their market presence, improve their profitability or capture bigger market share from their competitors.
6. Impressive returns on investment from current projects nudge RFID back into the spotlight: From arm’s length, the RFID application market looks somewhat listless. Closer examination shows a very different picture. Early adopters now have hands-on experience implementing RFID and a better understanding of its potential value as well as limitations. Ongoing standards development eases the concerns of those companies that fear technological obsolescence. Technology providers have been working hard to keep pace with end-user expectations. Along with tag and reader development, enterprise software applications are focused on easing management and distribution of the RFID data collected.
Look for big advances in item-level tracking that will demonstrate the unmistakable value in the technology in industries as varied as pharmaceutical, publishing, healthcare, and apparel and footwear. Already shown to be a major growth area, the use of RFID in asset tracking and management will continue to expand. We will also see exciting and innovative applications of the technology in emerging markets such as India and Brazil, where companies are defining their supply chain processes from the ground up with RFID as a foundational technology enabler.
7. Software vendors expand their managed-services offerings to deliver results: Software implementations often fail to deliver the benefits expected because oftentimes skills within the organization are insufficient to maximize the value that sophisticated technology can potentially provide. To help companies reach their goals, many software vendors and service providers are coupling domain expertise with deep application knowledge to not only conceptualize, but also actualize the benefits their software and services can bring to an organization. The menu of managed services runs the gamut from business-to-business (B2B) electronic connectivity to demand planning, forecasting, and transportation management. In fact, some of the software-as-a-service (SaaS) transportation networks and managed-services offerings are being adopted by the more mature users, suggesting that increasingly, it does not matter who presses the keys as long as process performance is being achieved.
8. S&OP technologies–not just processes–take center stage: Viewed as the make-or-break process for profitably matching demand with supply, designing sales and operations planning (S&OP) processes and building a supporting organization were high on business priority lists in 2007. But now, more companies are realizing that building S&OP excellence is constrained by their existing S&OP technologies. Look for better definition of the S&OP technology market space and wider adoption of S&OP functionality that enables fast what-if analysis, profitable demand and supply shaping, and structured internal and external user collaboration and consensus building.
9. Connectivity grows in importance as companies extend their value networks: Companies are increasingly realizing that electronic connectivity is necessary to sustain and scale up collaborative relationships with trading partners. But the cost and complexity of building this connectivity had traditionally limited the scope of integration to just a small segment of a company’s trading community. In 2008 we expect to see a growing acceptance of third-party networks, created by integration hubs and SaaS providers that enable companies to more rapidly and easily connect to a broader segment of their customer, supplier, and service provider bases. We will also see some game-changing strategies in the B2B connectivity market that will alter pricing structures and deployment options.
10. What-if analysis and simulation-based tools see growing adoption: Gone are the days when users expected a black-box optimization engine to churn their data, model their problem, and generate a definitive optimal solution. User companies are now more interested in decision-support tools that, while still using optimization techniques, can allow them to conduct scenario planning, perform what-if analysis, and compare the trade-offs among multiple options. Similarly, simulation techniques will see wider adoption as the emphasis continues to shift from the ever-elusive “single optimal solution” to a better understanding of the effect of different supply chain decisions on the top line, customer-service levels, and other business priorities.
In 2008, global companies will continue to focus on supply chains as a necessary enabler for business growth. To do that, companies will search for better strategies to manage their extended supply chains profitably. These strategies will span the deployment of technologies like RFID and S&OP and the analysis of alternative business models like both near-shoring and expanded SCM and logistics managed services. Companies will also focus on alleviating supply chain challenges that could negatively affect their long-term growth potential, including the shortage in SCM talent, limited connectivity, and increased supply chain risk in global value networks.
Source: http://www.amrresearch.com
Our recent post on the compelling argument that Former President Vicente Fox made on near-sourcing from Mexico really begs the question: are you getting what you expected from China sourcing? It seems that a decision to source from China is as easy as recommending SAP for IT (or IBM for just about anything else). However, a recent study by the industry analyst Aberdeen Group reported that the total landed cost of goods – product cost and all related supply chain costs including transportation, duties, and taxes – varied from 2% to 10% for half of the 400 companies surveyed that import from China.
Now that the decision is made and operational, read on to discover ten strategies that can help your company tame those landed cost over-runs.
