Commentary: Compliance’s unstoppable transformation
Global trade compliance doesn’t evolve as noticeably or quickly as fashion changes with the seasons. However, the fashion brand Gitano was forever transformed almost overnight by the powerful effect of enforced trade compliance.
Gitano, a designer of jeans had been a thriving apparel manufacturer until the company’s executives pleaded guilty to charges of evading import duties on their merchandise in December 1993. After an ensuing multimillion-dollar penalty case and loss of their largest customer, Walmart, the board of directors put the company up for sale. Not only was the company crippled, a family lost most of its fortune as a result of not complying with import laws. Since then, many companies have learned from Gitano’s downfall and transformed their global trade compliance programs from a “necessary evil” to a strategic imperative.
Historically, global trade compliance positions and entire departments were mostly created out of fear or in reaction to avoiding a fine or penalty similar to Gitano. The role that trade compliance managers had in the past were best described as gate keepers and typically led to being one of the least liked people in their organizations. Today, the reputation of these managers and their departments has transformed to become both functional and strategic leaders within their organization’s global supply chain.
One significant factor impacting this transformation from necessary evil to strategic imperative is the growth of the global regulatory environment. According to a recent study by Thompson Reuters, “We have been tracking a fairly steady 16 percent increase in global regulatory activity, with nearly 60 new regulatory announcements every working day.” Furthermore, government authorities have increased their requirements for electronic customs and compliance communications, according to Clint Reiser, enterprise software analyst at ARC. The steady increase in volume and depth of compliance regulations has forced organizations to evaluate their expertise to handle the increased complexity of remaining compliant without negatively impacting their bottom line. Organizations are placing greater strategic focus on trade compliance by adding industry experts to their ranks whose responsibilities include supply chain optimization and improvement, support of new market initiatives, and cost-saving solutions which are imperative to compete in today’s global market place.
As further support of the transformation, “lean manufacturing” has adjusted its definition of global trade compliance to reflect its greater significance within an organization. Lean manufacturing was introduced in the 1990s and mostly derived from Toyota as a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination. The concept initially defined trade compliance as a “non-value added” function. This was a hard label to overcome and didn’t help the reputations of trade experts.
Today, according to Michael Guliano, U.S. patent and trademark holder of Certifiedlean, “the term ‘non-value adds’ is outdated for trade compliance. Trade compliance is a common place and a must for global business.
“The transition from ‘non-value add’ to ‘value add’ is attributed by the fact that a finished good cannot be sold without quantifiable global trade compliance measures,” he added. “There is a physical change to the finished good if the supply chain literally stops when goods cannot get in through the ports, cannot be shipped out of the country and cannot reach the customer. Global trade compliance is a value-add function, which can be measured, sustained and improved.”
The transformation of trade compliance has been a quiet one, which occurred behind the news headlines of terrorism, fraudulent corporate behavior and tough economic times. Transformed trade compliance departments can now fund their own initiatives by envisioning and mapping reportable cost savings. These departments don’t even include the money possibly saved by not having fines and penalties as part of their cost-saving formulae. Instead, transformed organizations rely on measurable savings that come from planning and operating strategically to leverage compliance through automation and evaluating government programs that were implemented to support global trading such as free trade agreements, foreign trade zones, and duty drawback, among others.
Other quantifiable benefits that further support the transformation of a trade compliance program from a supply chain perspective include, but are not limited to lower safety stock, speeding up the supply chain and brand name protection. These benefits and cost savings become possible to manage and control by backing trade compliance with information technology.
A properly implemented automated global trade management solution will capture the actual data used to support compliance with internal processes. Armed with this data, compliance managers not only have support in their corporate compliance initiatives, they are now invited to meetings to ensure compliance is part of the decision-making process when designing new materials, establishing a new business relationship, and formalizing processes and business decisions that incorporate a global position.
While many organizations still view trade regulations as a burden of doing business even 20 years after Gitano’s demise, we are clearly on an unstoppable path of transforming global trade compliance programs from a necessary evil to strategic imperative within supply chains.
Vice President of Operations,
Vigilant Global Trade Services