The old tune may assert that it's a small world after all, but to assume that makes cross-border trade simple is still a bit of a fantasy. Time differences, language barriers, distance, customs (and Customs) considerations, security, and arcane and ever-changing trade rules make managing international trade far more complex than its domestic counterpart.And that can mean headaches for businesses— particularly as retailers and consumer goods and electronics companies source an evergreater portion of their products from suppliers in Asia or Latin America.
But supply chain managers aren't entirely on their own when it comes to navigating the sometimes treacherous currents of global trade. They can choose from a dazzling array of sophisticated software tools—platforms that provide visibility from the foreign factory through to the local DC, and that can assure compliance with varying and oft-changing trade, security and documentation rules.
What the best of those tools provide, says Beth Enslow, a specialist in international trade research for Aberdeen Group, are three major components. The first is visibility into the flow of goods and the ability to manage that flow. Second is trade compliance—the varied documentation needed to assure that the information flow enhances, rather than impedes, product movement. That includes keeping shippers in the good graces of security agencies, which keep a close watch not only on what's moving, but also who's doing it.
"The third pillar we define as trade finance," she says. "We're finding that most of the data you need for transportation and logistics are the same data that you need to handle financial processes. A central repository of trade data can be used by multiple functions."
Enslow adds that this last capability has captured the attention of senior management."We're seeing CFOs become cheerleaders for these [global trade management systems]," she says."They are seeing financial ... benefits such as better cash flow and better working capital optimization."
Jim Preuninger, CEO of Management Dynamics, a company that provides trade management software, agrees. "That is an emerging trend," he says. "They are always concerned about where the money is." He notes that senior management is paying more attention to international trade finance issues as international trade's share of corporate business grows.
Trade management software's financial management capabilities have come a long way in recent years. Historically, it's been difficult for shippers to obtain a real-time view of the true landed cost of imports—that is, the product cost plus all the associated logistics expenses. But that's starting to change, says Greg Johnsen, a vice president with GT Nexus, another trade management software provider. Johnsen and other trade management software vendors claim that the latest tools go a long way toward overcoming that problem. Johnsen says the very tools that track inventory can, with additional applications, track costs as well. "Precisely because we have an integrated network providing physical visibility, we can get into financial visibility," he says. "It is not a quantum leap."
Expertise on demand
Software tools for managing international trade come in a variety of forms, but what seems to be gaining the most traction with shippers right now is software offered on an on-demand basis. Instead of buying and installing the software, customers "rent" the software, which is hosted and updated by the provider, on a pay-as-you-go basis.
What attracts companies to the on-demand model? To begin with, it minimizes their IT investment. Though the end user's IT team still plays an important role, it does not have to take on the responsibilities (and headaches) of a full- scale integration.
Second, on-demand arrangements can be implemented relatively quickly. Enslow says that a recent Aberdeen study showed that about two- thirds of the respondents using on-demand platforms were able to begin operating on the platform within three months of selecting a vendor, and had a return on the investment within a year. "That's two to four times faster than a traditional application," she says.
In addition, because on-demand vendors are continually expanding their connections with governments, manufacturers and logistics providers, it's a relatively easy matter for a shipper to change suppliers or carriers or to shift sourcing to another nation. These days, shippers are likely to find that about 70 percent of the companies they want to hook up with are already connected with a given provider, says Enslow. And the rates are accelerating.
Enslow believes the on-demand model has much to offer in comparison to installed software. "On-demand is compelling, certainly, for supply chain visibility," she says. "Any time you can leverage an existing system, you reduce the overall project risk."
Further, by signing on with an on-demand service provider, customers get almost instant access to the wide information infrastructure many of those companies have built. "The analogy I like to use is that we're like a power plant that supplies your electricity," says Johnsen of GT Nexus. "It's built—you're just using the electricity."
Trade management provider TradeBeam, for example, supports about 90 percent of international regulations, according to Duncan Jackson, the company's vice president of business development and marketing. Jackson says TradeBeam has 3,000 customers globally and users in more than 100 countries.
For its part, Management Dynamics taps into more than 280 sources of information for 118 countries to keep up with trade and security rules and regulations. "It's almost impossible for one company to do that," says Preuninger. "We have 13,000 users, so we can afford to do it."
One step at a time
It is not plug and trade, however. As eager as customers may be to automate everything at once, it's unlikely that any system—even an on-demand system—could be fully functional in all trade management tasks in three months. They're simply too complex.
A better strategy is set priorities and take it in stages. "You have to have defined the process and take it in incremental steps," Enslow says. "Using on-demand, you can be laser focused on what part of the supply chain you want to deploy to. The worst thing you can do is say 'Track these 12 events, provide these 20 alerts.' It would take too long, and there are too many data quality issues. It would just become noise, and your users wouldn't use it. Start with three or four events and two or three daily reports."
That was the approach taken by fashion retailer and marketer Liz Claiborne. Its import staff worked closely with the retailer's software vendor, TradeBeam, to determine requirements and to implement the tools. (See the accompanying sidebar.) Implementation took place in stages, not all at once. According to the Aberdeen Group's report on the implementation, EDI integration began with the highestvolume products and largest logistics providers, and then others were added. Liz Claiborne continues to expand its use of the system, adding functions like product classification, restricted party screening, calculating dutiable values, and filing customs declarations.
Then the work really starts
But implementation is only a part, and perhaps the easiest part, of the journey to automated trade management. What counts is what happens next. The real power of any such tool comes not from the information it provides, but from how shippers make use of that information.Used properly, visibility into each step of the supply chain can provide end users with a competitive edge—supplying the information they need to lower costs, reduce cycle times and inventory, reduce working capital, and find and eliminate the inevitable snarls in the supply chain. But no software will solve shippers' problems for them.
"Too many companies think of visibility as track and trace and magically lead times and inventory are improved. That's dead wrong," Enslow warns. "The whole key is [understanding] that when you turn the system on, you will get information, but unless you do something, you will not see improvements."
What visibility will provide, she says, is the information needed to diagnose supply chain problems and locate recurring bottlenecks.With that information at hand, managers can take actions to reduce variability in the supply chain. "Once you have confidence in where your inventory is, you can manage in-motion inventory more actively or you can have the confidence in when goods will arrive and use that in safety stock calculations."
Further, the information available through trade management tools can prove very useful for strategic decisionmaking. Jackson cites the experience of one large customer, the automaker Renault, which used the tools to analyze where it should build a new low-cost vehicle for the Egyptian market. The solution—sending semi-assembled vehicles to Morocco for completion in a free trade zone and then shipping to Egypt—took advantage of a free trade agreement between the two countries, substantially reducing Customs costs for Renault.
Preuninger says the process of taking on a trade management system starts with sourcing strategy and builds from there. "It's fairly encompassing," he says. "You work with suppliers to adjust for errors or problems. You can start to implement new strategies, such as DC bypass or in-transit allocation. You get rid of as much paper as you can."
He also urges managers to look at both the tactical and strategic capabilities. "The tactical set of tools gives you supply chain visibility and alerts that give you the ability to understand when a problem occurs or is about to occur well before you might have without a sense-and-response system," he says. "On the strategic level, you can see how your vendors and logistics companies perform, or look at performance by commodity or by trade lanes."
Johnsen adds, "The first thing the importer has to bring to the equation is a real vision of what the supply chain will look like in two years. From there, it is all about execution."