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, which is why the Global Trade Management (GTM) systems market is one of the fastest growing segments of the software industry.
The scope and capabilities of GTM solutions have evolved significantly over the past two decades, from simple desktop applications focused on generating and printing export documents to service-oriented, enterprise-class solutions focused on a broad spectrum of import and export processes.
Compliance is what most people associate with a GTM solution. These capabilities focus on automating customs and regulatory compliance activities, including:
- Facilitate product classification
- Perform restricted party screenings and embargo checks
- Create and file trade documents
- Determine total landed costs
- Assign export and import licenses
- Communicate electronically with legal authorities
- Manage customs processes and transit procedures
- Determine preferential trade eligibility
Compliance, however, is only one component of a best-in-class global trade management solution.
The Three Cs of Global Trade Management
The other two critical components of a GTM solution, which many companies overlook, are content and connectivity.
Companies must have accurate and complete trade content for every country they operate in and trade with in order to successfully comply with trade regulations and prevent customs clearance delays. A GTM solution without a comprehensive and continuously updated trade content database is only marginally useful.
Trade content should include information regarding (among other things):
- Denied parties
- Embargoed countries
- Harmonized system chapters and descriptions
- License codes, descriptions, and requirements
- Document templates
- Duty, value added tax, excise taxes, seasonal taxes
Not all GTM vendors, however, provide their own trade content. Many vendors partner with content providers, while others aggregate and supply trade content themselves. Establishing a trade content group is not a trivial task. It requires a commitment to having trade experts on staff, as well as a network of in-country sources, who can interpret, normalize, and digitize the information collected, as well as track and process ongoing changes.
Briefly stated, trade content is the foundation of a GTM solution. A book without words is just sheets of paper bound together. Similarly, a GTM solution without accurate, complete, and up-to-date trade content is just a collection of software code with limited applicability.
The value of trade content, however, is not only limited to importing and exporting processes. For example, consider the role of trade content in making sourcing decisions. At many companies, sourcing decisions are driven primarily by unit cost, but this silo perspective could have serious and costly consequences. At a minimum, purchasing managers must evaluate sourcing options from a “total landed cost” perspective, taking into account other cost factors such as duties, taxes, and transportation costs. In addition, purchasing managers must consider the impact of country of origin. Duties and taxes can be minimized or eliminated by sourcing from a country participating in a preferential trade agreement, such as the North Atlantic Free Trade Agreement (NAFTA). Country of origin can also limit a product’s exportability.
Connectivity is perhaps the most underrated aspect of global trade management, but its importance cannot be overstated. Simply put, global trade processes do not occur in a vacuum. A cross-border shipment typically involves the exchange of information with about 25 external parties, including customs agencies, freight forwarders, brokers, banks, regulatory agencies, transportation providers, and suppliers. Establishing and maintaining connectivity with a dynamic set of trading partners, as well as keeping up with customs modernization efforts around the world, is a challenging task that few companies would call a core competency. This is why poor data quality (late, inaccurate, and/or incomplete) is the Achilles’ heel of global trade management, a problem that results in higher supply chain costs and lower productivity.
Internal connectivity presents similar challenges. Many companies have very heterogeneous IT environments, due to mergers and acquisitions, different stages of ERP rollouts, and other factors. As a result, companies have a hard time implementing standard GTM best practices across the enterprise, and they often lack centralized visibility to global trade processes and activities.
Fortunately, resolving these internal and external connectivity challenges is one of the hidden benefits of software-as-a-service (SaaS) global trade management solutions. There are several reasons why a growing number of companies are implementing SaaS GTM solutions:
- Trade content is continuously changing and users cannot afford to manage their operations using outdated information. The situation is analogous to anti-virus protection where users need continuous updates to virus definitions pushed to them. Briefly stated, managing the creation, distribution, and maintenance of global trade content lends itself very well to a SaaS subscription model.
- As highlighted earlier, GTM process flows span across many distributed parties and users, including customs agencies, freight forwarders, carriers, and financial institutions. SaaS is well suited for these types of “network-based” processes because they facilitate connectivity between disparate parties (among other benefits). SaaS solutions, most of which are based on a services-oriented architecture, also serve as a centralized platform for enabling GTM functionality across multiple internal ERP systems and other applications.
- The global trade management group is often an underdog when it comes to receiving IT budget and support. SaaS offers many companies the opportunity to acquire GTM capabilities without obtaining capital expenditure approval or requiring much IT support.
Simply stated, SaaS is arguably the best model for integrating the three Cs of global trade management: compliance, content, and connectivity.
(This posting is an excerpt from a more detailed Executive Brief that ARC wrote on behalf of IntegrationPoint. The report, which contains a case study of Avery Dennison, is available for download here).