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Global Trade Compliance is a Massive Undertaking for Big Shippers

Global Trade Management Solutions | By Steve Banker • 11/22/2021

I recently completed a study of the Global Trade Compliance software market. I managed to speak to two executives a multinational global conglomerate about their approach to trade compliance. As is often the case when speaking about compliance issues, these executives asked me not to identify their company or mention their names or job titles.

The company these executives work at generated sales of over 50 billion euros. The company relies on a solution from SAP called Global Trade Services (GTS). This solution helps companies to automate their international trade compliance processes, manage partners and trade compliance-related documents, and ensure that their companies monitor and comply with the ongoing revisions and amendments to international legal requirements.

Restricted Party Screening Challenges are Massive

Between open orders and deliveries, this company generates over 30 million transactions a year. Every single one of these transactions must be analyzed to ensure the conglomerate is not trading with a company on some nation’s denied parties sanction list. Governments require business to comply with laws that prohibit businesses from dealing with parties – either individuals or organizations – which are on a sanctions list.

In the US, for example, the Office of Foreign Assets Control (OFAC) publishes lists of individuals and companies, and the addresses of those entities, owned or controlled by targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers, that are not country specific. The US will, for example, prohibit companies from doing business with companies in North Korea. If a company exports to the US, even if they are not based in the US, and OFAC discovers that they are trading with a company on the sanctions list, large fines can result. In many cases, civil and criminal penalties can exceed several million dollars. If the trading is considered egregious, prison can result. The fines are not just imposed on US companies, they are imposed on foreign companies. If a foreign company wants to continue to do business in the US, they must pay the fines.

Other nations will have a different list of parties that they prohibit a company from doing business with and they will also seek to penalize companies doing business with those firms. Across the world, there are more than 650 such restricted party lists.

An executive at this company explained that they “invest to be close to 100% compliant (100% compliance is impossible). Integrity is priceless.” As bad, or worse, than fines, would be an article reporting that their company had traded with an undesirable firm. Trade compliance is core to brand protection.

While trade classification at this company, which ensures the correct duties and tariffs are paid, is not completely centralized, the denied party screening function has been. More than 20 people are involved in making sure that none of those 30 million transactions are with entities on a restricted parties list. Clearly, without the automation provided by the SAP GTS solution, that would be impossible.

The SAP GTS solution approves most transactions, disapproves some, but some transactions are not clear cut. These transactions are flagged by GTS as potentially problematic. For these transactions, a subject matter expert reviews the order and determines whether the transaction is legitimate. All the GTS transaction determinations are archived so that, if necessary, the company can prove good intent.

It should be noted that, all transactions, even transactions for shipments whose origin and destination occur within the borders of a nation, are part of the compliance regime. That is because sanctioned parties don’t always reside outside the borders of a nation. It should also be pointed out, that companies and individuals are continually being added to these lists. When new restricted party entities are added, then that data must be input into the GTS solution for the automation to work. This multinational has formed a services group that is focused on reviewing these myriad lists and updating GTS on a continual basis.

GTS is a core application for this shipper. If GTS goes down, a high proportion of their shipments will not be shipped (some domestic shipments with uncritical products or customers do ship). This makes GTS one of the most important applications in the company in terms of the need for uptime and reliability.

Properly Classifying Goods for Tariffs is Highly Complex

This company is also using GTS to determine what tariffs should be paid on their products.

While restricted party screening is difficult because of the scale of the effort for a large shipper, trade classification is difficult because of the complexity. There is an incredible gap between how products are described commercially by trade and how they are expressed in the national customs tariff schedules. Global trade is highly complex! What a regular person might call “baby food,” for example, a trade compliance person would describe as “homogenized composite food preparation.” A hair dryer is an “electrothermic hair dressing apparatus;” before you can determine the tariff associated with rayon, you must know whether it is an “artificial” or a “synthetic” fiber. You would think an automotive part, like a car alarm, would be listed in the automotive section of the global tariff tables. It is not. It is an “electronic signaling device.” Trade compliance officers must learn to speak a specialized jargon and think in a way that is often incomprehensible to outsiders. Worse, while there is an international format for describing goods that goes out to six digits, every country or trading bloc has its own taxonomy beyond these first six digits.

This multinational is also working to improve trade classification by committing to implement SAP’s next generation trade compliance solution, SAP GTS on HANA. They are also partnering with SAP to apply artificial intelligence (AI) and machine learning to the complexities associated with trade classification.

Finally, both these executives spoke of their relationship with SAP as a “partnership.” By playing an active role in the SAP GTS product advisory committees, they have played a role in making GTS into the mature trade compliance solution it is today.

SAP and Oracle vs. The Best of Breeds: Lessons from the Supply Chain Planning Market

Supply Chain Planning | By Steve Banker • 12/19/2019

I’ve just finished a global study on the supply chain planning (SCP) market. In the process of doing this, I spoke to every significant supplier in the market as well as many small suppliers with very interesting solutions.

I also spoke to Oracle and attended a supply chain conference put on by SAP for industry analysts. SAP and Oracle are the two largest suppliers of enterprise applications in the world. They are also leaders in the supply chain planning market. I’ve been covering the SCP market for years. It is interesting to note how the way they position themselves against best of breed planning suppliers has changed.

The big ERP suppliers may admit that they have a gap in their functionality but promise that they are working diligently to plug the hole and that the updated solution will soon be available. SAP, for example, admits they do not offer concurrent planning, but that their solution soon will.

In Oracle’s case, the company offered its first Cloud SCP solutions in 2016 and now leads with the cloud solution. While they may sell complimentary on-premise solutions, the majority of their sales come from the Oracle Cloud Supply Chain Planning. Oracle continues to invest heavily in the Cloud SCP, to bring its functionality up to and beyond the on-premise solution.

But Oracle, and particularly SAP, always point out the value of an integrated solution that goes beyond any one application area. Best of breeds will frequently talk about certified integrations to the big enterprise resource planning (ERP) vendors and argue that it is really the quality of the SCP solution that matters.

Here is how Vikash Goyal, the Vice President Product Strategy Supply Chain Planning at Oracle, answers that. “Part of our end-to-end value proposition is the integration between our enterprise applications and our SCP solutions. For example, if a company wants to create a new product, there is an approval process, the creation of conceptual Bill of Material (BOM), and the approval of that BOM. Once that BOM is approved, it automatically flows into the manufacturing application, becomes orderable, and becomes plannable in the planning system.” In other words, there is an elegance and seamlessness to the integration that best of breeds can’t match.

Oracle also argues that their machine learning investments go beyond a focus on supply chain planning. For example, algorithms may monitor metrics important to the entire organization. These include things like an increase in the amount of demand at risk, falling fill rates, or rising costs. Machine learning can provide suggested resolutions to these issues to targeted users. In some cases, the guided resolution suggestions will go to planners; in some cases, the suggestions will go to users in other parts of the organization; and finally, in some cases the engine might suggest planners run specific types of scenarios before making a decision.

Interestingly, when it comes to supply chain applications, one hot area is supply chain collaboration networks (SCCN). Neither SAP or Oracle are significant players in this market. But both companies recognize the increased buzz this solution is getting from industry analysts. For companies that want to create robust supply chain control towers, it will be necessary to combine SCCN data feeds with concurrent planning capabilities.

Oracle stressed to me in my SCP briefing that they are beginning to invest in expanding their supply chain collaboration network capabilities in order to support and end-to-end approach to supply chain management. Currently the Oracle supplier network connects to 150,000 supplier sites with the focus being on indirect spend; this has limited importance in SCP. But they want to take their Business-to-Business platform and connect it to all the major SCCN networks. Then as a supply chain organization wants tighter connections to certain partners, users would come into a supply chain application, open a user interface, select the network providers and specific forms of documents they want to exchange with key partners. And then without integration or implementation work, the company would be able to communicate seamlessly with those partners.

SAP has a more aggressive SCCN/SCP roadmap. Their Integrated Business Planning suite includes a native integration to the Ariba network, which is mostly used for indirect procurement, and again of limited use in SCP. However, SAP reports they are actively working to increase the use of the Ariba network for direct procurement (a supplier network). SAP also seeks to build out an asset intelligence network, a logistics business network, a design network, and a manufacturing network. SAP seeks to harmonize these networks for a single onboarding experience for trading partners.

SAP also points to another application that is a natural complement to SCP. In 2018, SAP spent $6 billion to acquire Qualtrics, a provider of customer centricity solutions. SAP seeks to build more customer centricity into their supply chain applications. In addition to a control tower that reports things like rising costs, supply chain risks, manufacturing delays, falling service levels, or shipment delays, SAP also wants to report customer satisfaction or product scores to significantly improve accuracy for demand planning leveraging ML-based forecasting methods. In resolving satisfaction issues, SCP levers could also be used to speed fulfillment for example.

But both SAP and Oracle are increasingly arguing that their differentiation in SCP, and other application markets, has as much to do with their investments in infrastructure as in the breadth of their applications. SAP has investing in the Internet of Things (IoT) in areas like predictive maintenance and the detection of shipments that are running behind schedule. These feeds can be fed into SCP to respond faster to exceptions improve planning outcomes. Oracle has similar messaging around IoT.

So how are the arguments of the big ERP vendors resonating in the marketplace? There is a tendency for enterprise application markets to consolidate over time; the big get bigger, and the small disappear. That has not occurred in the supply chain planning market, if you combine SAP and Oracle’s market shares from five years ago and compare them to their share today, their power in the market has declined.

Logistics Solutions Are Becoming Logistics Marketplaces

Transportation Management Systems | By Steve Banker • 09/18/2017

Logistics solutions have long had logic for both improving a shipper’s transportation capabilities and for doing commerce. For example, a transportation management system (TMS) optimizes routing, but also allows shippers to tender out to carriers in the route guide and then insure the amount paid to the carriers is accurate. In recent years, TMS solutions have allowed shippers to connect to load boards and find a new carrier for a route if the existing carriers in the route guide don’t accept a tender quickly enough.

Some providers of routing solutions also offer fleet asset management. These solutions can use telematics to detect when transportation assets either need service or will soon need service. The solutions have logic to help with ordering the correct parts and scheduling time in local repair yards. Routing solutions can also have logic that suggests when and where trucks should refuel to reduce their fuel bills.

Commerce Capabilities of Logistics Solutions are Increasing

But with IoT, the commerce capabilities of newer platforms are expanding. At SAP’s Leonardo Live conference in July, Kenny Hawk, the CEO of a young company called Mojio gave a presentation. Mojio is a fast-growing platform for connected vehicles. The platform is mainly for cars, but there are also truck fleets – not big rigs, but vans and trucks associated with last mile deliveries or service calls – that are connected.

While new cars come with ports you can plug your smart phone into and get GPS directions, 80% of the 1.2 billion passenger vehicles are still not connected. With Mojio, a customer that owns one of these older cars can plug a device into the OBD port of a car and generate a WIFI connection that can allow a smartphone to get GPS mapping, car diagnostics, and information on how safely drivers are operating their machines.

They are partnered with T-Mobile USA. For $10 a month, customers can get GPS and telematics services. Mojio launched last November, but they already have over 300,000 subscribers.

The commerce capabilities include enabling drivers to plan and reserve a parking spot based on calendar events or search, as well as to find and pay for a spot in real time based on the connected vehicle’s location. And Mojio is envisioning using their solution for fueling services, allowing “safe” drivers to get email offers for purchasing insurance more cheaply, or getting email offers from local repair shops to rotate tires or provide other maintenance services when a car’s mileage indicates these services should be performed.

The platform does not include personal information. If Michelin, for example, wanted to send an offer on buying new tires based on how far the car has traveled on the old tires, they would not know the name of the driver. Michelin would have a vehicle identification number, they would know the model and age of the vehicle, they would potentially have data on how far the vehicle has traveled on the old tires, and would know the location of the driver so they could promote the closest store to the driver selling their tires.

*Mojio Relies on SAP Vehicles Network to Create a Logistics Marketplace*

These commerce capabilities are based on SAP’s Vehicles Network solution. This Cloud-based IoT solution is a B2B marketplace for connected car apps and services. Powered by SAP HANA Cloud, this is a worldwide network that connects buyers, such as fleet owners, with sellers, such as gas stations and parking chains. All members have access to unified APIs, inventory visibility, and process governance – and drivers have an easy way to connect to the services they routinely need.

In a B2B marketplace, potential customers will be more selective about what kinds of offers they want to receive. Unlike car drivers, shippers may perceive messages that the tires on one of their trucks need servicing as a junk email. But there are scenarios that could make sense. Mr. Hawk stated that one in six truck drivers get robbed. The problem is that with Hours of Service drivers must stop and rest after a certain number of hours driving, but that rest areas are often full at night. So, drivers pull off the highway and over to the side of the road where they become vulnerable. “What if industrial parks were opened at night?” The drivers could use the platform to reserve and pay for a slot. When they’ve paid, they would get the access code that would get them into the park. In the longer term, this kind of platform might also help to improve backhaul opportunities for carriers, although shippers would need a way to vet the carriers.

As opposed to traditional logistics solutions, where the intelligence and commerce is instigated and controlled by the shipper, these new marketplace platforms allow for bidirectional commerce. Outside solution providers can send pertinent offers to the appropriate vehicle owners. But in B2B, what constitutes a “pertinent” offer must be carefully curated by the platform.

Advanced Demand Management and Process Optimization at a Water Distribution Network in Brazil

Consulting Services | By Valentijn de Leeuw • 08/29/2017

SAP held its “Leonardo Live” event in Frankfurt, Germany in July to further familiarize customers, partners, media, and analysts with the company’s SAP Leonardo brand. SAP Leonardo provides an approach to develop and implement innovative processes, applications, and business models. This includes a design approach dubbed “design thinking.” SAP supports design thinking with “Leonardo Labs” located around the world. One of their labs is located in Brazil.

AEGEA in Brazil, a holding company of the ProLagos water distribution company, executed a fast track project with the SAP Leonardo Lab in Brazil. Prolagos, a company of the Aegea Sanitation group, is prototyping IoT, Big Data, machine learning, and predictive analytics on the SAP Leonardo Platform. Two of the most innovative projects that were presented at the Leonardo Live event involved Brazilian companies. Usually, Latin America is not seen as a particularly innovative region, but perhaps partially because of the SAP Lab, some very interesting work is being done in that region of the world using evolving technologies.

SAP product development teams, labs, partners, and users all have access to a portfolio of services and apps from the Leonardo Foundation that offers business and technical services. These include access to Big Data from operational technology (OT), geographical information systems (GIS), and IoT; plus machine learning to find new relationships between these data and put them into context using analytics. These analytics can then be built into “Leonardo Apps” to support existing process or business models, or facilitate new ones.

The water purification company seeks to stabilize and optimize the water supply in Armação dos Búziosis, ideally with a self-regulating system. This city is a tourist and weekend destination with a very high fluctuation in water demand. The demand for their water treatment and sewage services can increase as much as four times on a sunny day on a weekend. To more accurately forecast demand, Prolagos is doing something quite interesting. They count the number of vehicles driving into the community. Demand analysis also relies on a forecast of weather conditions and historical tourism data.

Using SAP’s design thinking approach and with the participation of a university and a partner, an application was designed that stabilizes operations along the several-kilometer-long network, including reservoirs, pumping stations, and distribution network. To anticipate demand and prepare for demand fluctuations, machine learning techniques correlated demand with weather and traffic conditions and other variables. The project resulted in a simulation model to predict demand and coordinate and controls the pumps across the network. The company estimates that this could potentially save the utility approximately $100,000 per month, some of which could be passed along to ratepayers.

The next step will be to run the system autonomously and control operations in closed loop. Operators will be notified of the changes applied by the system, observe the system behavior, and only have to intervene in case of abnormal behavior. AEGEA expects that this system could be easily applied to its other water distribution companies.

Most companies implement established solutions to reduce costs or improve service. But when companies seek to implement new technologies, not fully mature, they need extra help. The SAP Leonardo Labs can be a key partner for these kinds of projects.

Precision Farming Provides the Best Example of an Industry Undergoing Digital Transformation

Food & Beverage Industry | By Steve Banker • 08/22/2017

At SAP Leonardo Live last month, the most interesting presentation was by Cristiano Buss, the CIO of Stara S/A. Stara is a Brazilian manufacturer of farm equipment. The company has gone through two transformations. In 2005, they began manufacturing their own sensors, software, and computers. Then in 2015 they launched a Telemetrics System.

Christiano Buss, CIO of Stara S/A, Speaking at SAP Leonardo Live

Today, Stara is not a commodity supplier of farm equipment, they provide “precision farming” solutions. For Stara, that means that 21 percent of their revenue is now derived from computer hardware and software revenues; 40 percent of their revenues comes from products launched in the last three years. For farmers, it means better yields, produced more economically and sustainably.

The core idea behind digital agriculture is that a farmer should not uniformly apply seeds, fertilizer and other inputs to their field. The farm is carefully mapped using machinery with the appropriate soil sensors. Then the farmer’s smart machinery applies seeds and fertilizer at variable rates based on the soil characteristics – nitrogen levels, organic matter content, moisture, etc. – at different points in the field.

There are far more sensors being used, and many more being developed, then you might guess. There are twenty sensors on a seed spreader machine, for example. These sensors measure not just how much seed is being applied, but the quality of the seed based on its size and shape. If the system determines that the seed is of relatively poor quality, the seed spreader in real-time “decides” to apply more seed. This real-time decision making capability is supported with in-memory computing supported by the SAP HANA platform and cloud-based analytics.

Mr. Buss asserted that the savings from variable seed application is 15 percent and are 19 percent for fertilizer. And these inputs are not cheap; a kilogram of soybean seed can cost $45 and a large farm can apply 18,000 kilograms of seed.

There are also savings from 6% savings on seed from overlap control. The idea here is that when the spreader comes to the end of the row and turns around, the turn is precise because of GPS-guided automatic steering and internet-connected telemetry systems. Thus, no piece of land is getting fertilizer or seed put on it twice. Mr. Buss said the precision of the moves was down to less than 2 centimeters of drift.

One of Stara’s large customers is quoted in an article saying “People didn’t think it would pay off to invest in tractors with infrared sensors. The sensor alone is a third of the price of the tractor, but … in two years I was able to recover my investment and significantly increase productivity.”

This is an Internet of Things solution because data is collected by sensors mounted on the GPS-equipped farm equipment. This is also a Big Data solution, telemetry generates huge volumes of data. And Stara has used these technologies to create a digital platform. The idea is that all farm machinery should connect to their platform, and in the future drones and satellite data as well. Further, the vision is this is not just an analytics platform, that the platform can be used integrate with suppliers to improve the inbound supply chain, farmers to share intelligence, and 3PL partners to reduce crop wastage from inefficient logistics.

Precision farming is perhaps the best current example of how IoT and related technologies can be used to transform business models to the benefit of both solution providers and their customers.

Put SAP Leonardo Live on the List of Must Attend Supply Chain Conferences

Learning & Leadership | By Steve Banker • 07/31/2017

At the beginning of every year, I give my recommendations in Logistics Viewpoints about the top supply chain shows to attend. Next year, SAP Leonardo Live will be on my list. They had their inaugural show in Frankfurt, Germany on the 11th and 12th of July. This is one of the most interesting shows I’ve been to in years.

*SAP Leonardo Live July 11-12, 2017 in Frankfurt am Main*

SAP has three shows: SAP Sapphire – which is their CIO and IT management show; SAPInsider – for line of business leaders, including supply chain leaders; and now SAP Leonardo Live – which is focused on implementing cutting edge technologies that are just now coming of age. Those technologies include IoT, Big Data, Artificial Intelligence, Additive Manufacturing, and Blockchain. When SAP uses the term “Digital Transformation,” they are talking about using these technologies. SAP Leonardo is the platform they have built to support and enable these technologies.

What I found most interesting at this show were user case studies where these new technologies were being used to transform a company’s business model or supply chain. The most interesting presentations I saw in this area were from Stara, Mojio, ARI, and Prolagos.

Stara is a Brazilian manufacturer of agricultural equipment. They have been on a journey to enable Precision Farming using Telematics, Cloud, and predictive analytics. What they have accomplished is more impressive than larger and better known competitors in the industry. Stara worked with SAP Labs to hooks the farm equipment sensors up with the SAP Cloud Platform and SAP ERP Central Component to monitor vital farming processes in real time. The Stara telemetry platform allows farmers to achieve better yields while using less fertilizer and fewer seeds. The company is also working to build out the platform to improve farm to fork logistics.

The CEO of a fast-growing Silicon Valley startup called Mojio stated that there are 1.2 billion cars on the road, and 80 percent of them are not connected. Mojio is a platform for connected vehicles. A customer inserts a Mojio telematics device into an OBD port in the car, and for ten dollars a month their car becomes a high speed WIFI hub that provides the driver’s smart phone with access to data on driver performance – speeding, hard stops, etc.; diagnostic data on the health of the vehicle; and information such as whether your vehicle has a safety recall pending, when it is due for service, and locations where the car can be serviced. Mojio is integrated to the SAP Vehicle Network, a B2B marketplace for connected car apps and services.

ARI, a leading global fleet services provider headquartered outside of Philadelphia, uses a combination of the telematics fault codes from trucks and call centers staffed by repair professionals with detailed knowledge of maintenance fault codes, to schedule and negotiate maintenance with dealerships and repair shops. ARI saves their customers money by being able to negotiate better deals with the dealerships than the great majority of companies would be able to negotiate on their own behalf. Analyzing telematics data is a Big Data problem. ARI uses SAP HANA as their Big Data analytics solution.

Prolagos, a company of the Aegea Sanitation group, is prototyping IoT, Big Data, machine learning, and predictive analytics on the SAP Leonardo Platform. The water purification company seeks to improve the quality of the water supply in Armação dos Búzios, a city in Brazil. These technologies are used to analyze real-time network performance in areas such as flow, pressure, power consumption and the reservoir level. Búzios is a popular resort town, and the demand for their water treatment and sewage services can increase as much as four time on a sunny day on a weekend. To more accurately forecast demand, Prolagos is doing something very innovative. They count the number of vehicles driving into the community. Demand analysis also relies on a forecast of weather conditions and historical tourism data.

Most of the shows I attend have users speaking about how they use established solutions to reduce supply chain costs or improve service. End users speaking about how they are using evolving technologies to transform their business are rare. The number of stories focused on transformation at Leonardo Live was impressive.

A complete analysis of logistics trends, technologies, and services

Restricted Party Screening Challenges are Massive

Properly Classifying Goods for Tariffs is Highly Complex

Commerce Capabilities of Logistics Solutions are Increasing

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