A report from American Shipper shows that trade policy is driven largely by either the supply chain or compliance group. I assumed when I read this that the supply chain folks mentioned would be mostly logistics personnel. However, I had a conversation with John Wainwright, Vice President of Customs Compliance at Leggett & Platt, a company that makes a variety of components used in various industrial and consumer finished products. At Leggett & Platt, trade compliance reports up through procurement, and John makes a compelling case for why this makes sense.
Leggett & Platt bought a Global Trade Management (GTM) system 10 years ago from a software vendor now known as Amber Road. The solution was implemented at the same time as an ERP solution from PeopleSoft (now Oracle). The GTM solution and the ERP were tightly integrated to support an end-to-end international procurement process. The company designed the procure-to-pay process first, then bought and implemented the two systems simultaneously. The end-to-end process for both domestic and international procurement is the same, although customs processes generated by the GTM are, of course, not necessary for domestic procurement.
Leggett & Platt’s process includes developing supplier relationships and managing those suppliers on an ongoing basis. This procure-to-pay process includes: placing purchase orders (POs) with suppliers, having the supplier strictly limited to working within the existing process, and having any substantial changes outside the boundaries of the original PO be implemented only with changes to the actual PO on the procurement side (e.g., “you asked for 1000, we can only make 950 by that due date”). The PO-centric environment internally creates the commercial invoice, as well as various other customs documents. Then the various documents, reports and alerts flow from the system to the appropriate supply chain parties (suppliers, customs brokers, LSPs, the company’s procurement and supply chain planning departments, customs authorities, etc.) as needed at the correct point in time.
This process is designed to dramatically improve data integrity across the extended international supply chain. Data in one document automatically populates other documents without having to be rekeyed. Suppliers access their data through a secure portal. The supplier needs to add relatively little data to the PO screen they are using — the Stock Keeping Unit and terms of purchase are already auto-populated. The supplier just adds that it will ship this number of items on this particular date.
Leggett & Platt’s International Supply Chain Solution
This technology and process creates the essential data elements – importer security filings and routing instructions – that in turn need to be passed on to other key players in the supply chain. This also means that the company has all the information it needs to do self-filings. However, Leggett & Platt still prefers to use customs brokers as an additional compliance resource for its interactions with customs. In the company’s view, freight forwarders/customs brokers provide a second set of eyes for compliance, and if there is a mistake, they provide valuable local representation with foreign customs agencies. The company believes a forwarder’s ability to provide such services make them worth the money, even though compliance control is ultimately Leggett & Platt’s responsibility.
So what were the benefits for Leggett & Platt? Because there is no supplier paperwork –- everything is filled online through a secure portal — the whole process of invoicing and issuing payments is much cleaner and faster, and it is supported by many times fewer people. And, of course, with more accurate data comes Days Payables Outstanding (DPO) reductions. The portal generates the pack list, so the warehouse receiving process is much more accurate.
Further, as the government came out with new regulations for importer security filings (ISFs) and conflict minerals, the company found it easy to comply. For ISF, the only thing Leggett & Platt needed to do was get a correct bill of lading in a timely fashion. For ongoing conflict minerals needs, it already has much of the required data available for its suppliers in place.
Leggett & Platt’s solution has made it a better partner to its suppliers. The company has almost completely eliminated expensive Letters of Credit among suppliers. Letters of Credit are driven by fear of late payments or the need for financing. Because invoicing disputes virtually disappear, suppliers don’t need to worry about late payments. For suppliers that need financing, the visibility provided by this solution makes them a better banking risk and enables Leggett & Platt to help them work with some of its financial partners.
John tells me it is impossible to put an exact payback number on all this. But it is a better and cleaner procurement process, and there is big money in doing procurement better.
In conclusion, the American Shipper article argued that “best practice” would be to have trade compliance reside in the compliance department. Leggett & Platt’s experience shows that there is a very strong argument for having it report up through procurement.