Compliance's corporate home
Thursday, June 28, 2012
For big importers, customs experts are often the “go-to” staff for international trade answers.
By Eric Kulisch
Large companies differ in how they structure their trade compliance functions, but the best ones at leveraging regulations to their advantage tend to maintain in-house expertise for customs issues, invest in global trade management systems and have a laser focus on ensuring accurate documentation.
That was the theme emerging from two panel discussions involving representatives from several major manufacturing brands at the American Association of Exporters and Importers’ annual conference outside Washington June 4-5.
At Chrysler Corp., the customs compliance office is part of the supply chain organization, while at Stanley Black & Decker global trade compliance reports through the corporate comptroller to the chief financial officer. At Boeing Co., the trade controls group answers to the Office of Internal Governance, which has a direct link to senior leadership.
Some experts argue that compliance should reside within the legal or finance departments to avoid pressure to cut corners for profits, but many companies view supply chain as a natural fit for international trade compliance functions because staff in that group are close to the suppliers and the documents they generate.
Customs compliance plays a big role in how Chrysler Group LLC structures its supply chain and is integrated into the organization because import/export rules influence day-to-day procurement and just-in-time logistics activities, William Cook, the company’s director of worldwide logistics and customs, said.
A large portion of the automaker’s cross-border trade involves plants in Canada and Mexico, which is covered under the North American Free Trade Agreement.
Compliance is treated as “a go-to group” for answers on international trade instead of a “barnacle stuck on the side of the organization,” he said.
The structure has been “very effective because all the rules and regulations need to be operationally implemented. So it’s not an outside group telling operations people what to do,” Cook elaborated after his presentation.
“I’ve seen it with other companies where a general counsel is in charge and they don’t know how the company operates in the field. They’re detached,” he said.
Chrysler has also recently hired someone in the general counsel’s office who has customs responsibilities, he added.
In the past, Chrysler executives didn’t always appreciate the significance of having internal customs expertise and even considered outsourcing the function. That perception has changed in recent years after the supply chain group was raised to executive-level status, Cook said.
Chrysler hires customs brokers and other third parties to handle customs clearance, pay duties and file documents with government agencies, but felt it was important to have the in-house ability to set policy, oversee contractors and directly deal with government authorities.
“We want the internal experts to be able to develop the relationships with customs agencies anywhere in the world,” Cook said. That means Chrysler employees are the company’s spokespeople to resolve issues, not the service provider, he added.
Chrysler is now rebuilding its compliance staff back to 10 after losing four people to buyout offers in 2008 when the company was slashing costs to stay afloat, Cook said.
The Detroit automaker was able to maintain a good customs track record because standard operating procedures had been ingrained throughout the supply chain organization and its service providers, and customs data requirements were already built into its information technology platforms, he added.
Stanley Black & Decker manages global trade compliance from its headquarters in New Britain, Conn., with small compliance teams in Europe and Asia. It also retains legal counsel in those geographies to address problems. At least one person on the operations side at each production and distribution facility that imports and exports continually receives training so they have the autonomy to process shipments without having to always check with the compliance department, Yolanda Costantini, vice president of global trade management and compliance, said.
These personnel can handle tasks such as making sure customers are screened for export restrictions or a simple classification decision. The training helps them understand that just because a product is bought in one country doesn’t mean it’s made there or is eligible for lower duties.
One of the primary duties of trade compliance offices is to make sure a company is properly and effectively applying duty preferences under free trade agreements to its imports and exports. Free trade agreements tend to bestow benefits on goods that are made, or substantially transformed, in the signatory countries. The required content level to qualify for preferential duty varies by product and country.
Under NAFTA, reduced or eliminated tariffs are granted to products made in Mexico, Canada and the United States.
When a bilateral or multi-lateral trade deal goes into effect, Stanley analyzes the potential benefits to its normal trade flows from participating in the preference program. The more products and volume eligible for preferential treatment the greater the likelihood that Stanley will invest in additional trade management software, Costantini said.
The tool manufacturer uses Integration Point in Charlotte, N.C., as its primary provider of automated compliance functions and trade data, but has many acquired companies under its roof that still run on different enterprise resource planning systems without a global trade management module, she told American Shipper.
Stanley uses both fully automated and hybrid, or semi-automated, products from Integration Point. The automated system takes information, such as a master product list or the tariff classification, on its own from an ERP system as well as information from suppliers, applies it to regulatory rules and generates the certificates of origin for customs purposes. The system also automatically queries the foreign supplier to provide details about the source of all the inputs into components or finished goods. Companies that lack such software have to research each product classification number and whether it qualifies for lower duty by hand.
The hybrid solution requires personnel to manually enter data from the ERP system into the global trade management system.
Boeing’s compliance team has strong corporate support and is viewed as a business partner rather than an extra layer of bureaucracy that creates more work, according to Jada Fox, manager of import trade controls. The goal is to embed import and export controls in daily business processes.
“Our strategy these days is really using compliance as a competitive advantage,” she said.
The aircraft manufacturer, systems integrator and defense contractor uses global trade management software from Amber Road, Fox told an audience member afterwards.
The automated system is a big improvement over manually analyzing multiple spreadsheets or the home-grown NAFTA compliance application that still required manual intervention, she said during her presentation.
The most important feature Boeing sought in an off-the-shelf commercial GTM system was the flexibility of the software to be customized for multiple ERP systems, Fox said. Boeing also wanted an import management system that could process parts from all over the world.
Flexibility, scalability and cost were the primary considerations for Stanley, Costantini said.
Checking the integrity of data, and who maintains it, before it is fed into an automated system is critical to ensure there are no errors with duty claims, the two compliance specialists said.
“Whether you’re providing a certificate (of origin) to a customer or claiming under a trade preference program, make sure you verify your data” by engaging sourcing, manufacturing, financing and other groups within the organization, and auditing the supplier’s bill of material to make sure all the pieces in a finished product and the values are accurate, Costantini said.
Educating logistics and factory managers about the interdependencies of all the content and the free trade rules is important so they understand the impact that switching suppliers, parts or source countries can have on the company’s ability to claim lower, or zero, duties, she said.
Complicating Stanley’s technology implementation was the need to transition from a previous service provider to Integration Point for one of the Stanley businesses.
Costantini said she understood all the compliance processes on the Stanley side, but in retrospect should have spent a little more time understanding the process and data sources at Black & Decker, which was acquired in 2010.
Fox also recommended that company personnel understand where the data is coming from, whether it’s easily accessible and in the right format, and that they audit all classifications and financial data before loading it into a new system.
“Those are some of the things that we learned. If we had done a little more of that there could have been a huge cost savings and we could have greatly reduced our implementation time,” she said.
Also, compliance staff should make sure the vendor is consistently updating the software so certifications are based on the latest information, she added.
Costantini and Fox advised importers to include expectations for supplying content data and certificates of origin in their purchasing agreements because that increases the likelihood suppliers will follow through.
Another best practice carried out by Stanley is on-site audits of its largest suppliers to make sure trade data is accurate, Costantini said. Convincing foreign vendors to open their records, including sensitive cost information, takes a lot of careful negotiation and support from the legal department, she added.
Stanley takes a conservative approach and generally doesn’t claim a duty preference if the content from the exporting nation is close to the allowable threshold, Costantini said. Boeing also allows for extra leeway above the minimum content requirement to make sure it doesn’t make a mistake on duty calculation, Fox concurred.