What would a Global Trade Management (GTM) solution that took a lifecycle approach to trade compliance look like? John Wainwright, the Vice President of Customs Compliance at Leggett & Platt, has an insightful answer to this question: Trade compliance processes should mirror a customs audit.
Leggett & Platt (L&P) is a global, diversified manufacturer of engineered components made mostly from steel. Even if you are not familiar with L&P, chances are you are sleeping on a bed made with L&P components (box spring, innerspring, etc.), or relaxing on a recliner with an L&P motion mechanism inside, or shopping in stores with shelving made by L&P.
Full-blown customs audits are conducted about once every ten years, if there are no red flags, but a number of spot audits can occur in the interim. Customs auditors seek to verify all the information surrounding customs entries. They will review, for example, proof of payments and compare warehouse receipts with the information included in customs entries. John argues that many companies have trouble responding to these audits because their data resides in disparate systems, and the main users of these systems reside in various corporate operating groups, including purchasing, accounting, warehousing, and customs.
In many organizations, the customs compliance group is part of the global logistics or finance group. At L&P, customs compliance is part of the purchasing organization. The company’s trade process begins when one of its 20 business units issues a purchase order to one of its overseas manufacturing facilities to ship goods to a particular country (L&P has 160 factories in 18 countries and about three quarters of its shipments are to the United States).
The trade compliance group at L&P does not issue purchase orders, but its systems check that the POs correspond to the downstream customs declarations that result from the POs. The group’s systems and people also verify that the product descriptions on the PO match the descriptions on the customs declaration. The trade compliance group also reviews payments because if there was an audit, customs would want proof of payment, and it checks to make sure that warehouse receipts match what the broker reported to customs.
From a systems perspective, L&P’s process automation is built off a specially-configured PeopleSoft procurement solution. Layered on top of PeopleSoft is a trade solution, Trade Collaborator, from Management Dynamics. The company’s goal in implementing these two solutions was to achieve customs and purchasing efficiencies simultaneously. It took L&P about two years to implement the PeopleSoft solution in a way that reflected the its “to be” process. The system includes exception reporting that flags, for example, when a branch PO does not match what the customs entry should be (or is perhaps missing a field). In this situation, the exception is highlighted and a person looks at the information. If there are no exceptions, the checks are completely automated.
Because L&P is C-TPAT certified, and because it has a robust trade audit processes in place, the company can participate in the Importer Self-Assessment (ISA) program. In particular, the ISA program asks how trade data is being shared by various stakeholders in the organization and what sorts of checks are in place. ISA is a voluntary program that has several benefits, including exemption from comprehensive compliance audits (Focused Assessment Audits can take a year or more to perform) and, in theory, a reduction in shipment inspections and delays.
John finished our conversation by commenting that many trade professionals believe that the customs compliance group should be part of the logistics or legal departments. He strongly disagrees. Customs does not care about the timeliness of a shipment, which is the key concern of the logistics department. Similarly, legal does not focus on day-to-day activities; it cares about preventing or responding to a legal problem. Trade compliance should really reside in purchasing, where the customs process starts and where one of its key systems, procurement, resides.
Great Article, Steve! Thanks for featuring Leggett & Platt & interviewing their VP of compliance! They have put a lot of effort into creating a finely tuned procurement process and it’s really paying off for them- great example of how using trade compliance isn’t just risk avoidance but helps them develop both customs and purchasing efficiencies.
Interesting thought on Trade Compliance residing under Purchasing -definitely makes sense for L&P’s goals and initiatives, maybe others will follow suit.
If anyone wants to check out a case study, Management Dynamics has one at: http://www.managementdynamics.com/html/rl_cs_leggett.html