Global trade management is more about integrating compliance with finance and logistics.
By Eric Johnson
Compliance practitioners, analysts, and technology vendors alike point to the Sept. 11, 2001 terrorist attacks as the inflection point for global trade management — the day when it became critical for companies to tackle the compliance aspect of GTM less as a paperwork burden, and more as a strategic process.
But equally important, the more recent GTM shift has seen companies ever-so-slowly start thinking about global trade management as encompassing more than meeting increased regulation with increased automation.
They are seeing GTM as the point at which compliance, transportation management, and finance intersect. This broader definition of GTM encompasses functions that have traditionally resided outside the compliance department, like logistics operations, or the finance department.
What’s driving this integration is the realization that these functions do overlap — that a customs hold on a container at origin can delay the transportation of that container, or that failure to pay a supplier or logistics service provider accurately and on time could gum up a shipment. In other words, compliance is not just an independent process of filing documents to government agencies domestically and abroad. It’s part of a larger process that is indelibly intertwined.
What’s enabling this integration, meanwhile, is technology. And that leads to another issue: Companies need to lean on some sort of technology, whether built in-house, licensed, or cloud-based, but the investment in IT is only the starting point, not the destination.
“Don’t make the mistake of thinking that if you dump a piece of technology into a process, suddenly the sky will open and everything will work perfectly well,” Pete Mento, director of global customs and trade policy at C.H. Robinson, said earlier this year in an American Shipper
webinar on global trade management. “Some people think that if they write a big enough check, that’s what’s going to happen. Technology is a tool, it is not the solution. It is part of the solution.”
During the webinar, Investing in People and Process: Fundamentals of Effective Global Trade Management
, Mento spoke at length about how companies need to prepare themselves for the changes that technology brings to their GTM processes.
The convergence of those functions is important, but equally so is preparing those departments to work together as they maybe haven’t before.
“How many parts of your company are going to have to embrace change, which is not an easy thing to do, whether it’s one department or 50 departments,” he said. “If there’s going to be a return on investment (from investment in GTM technology), finance has to be engaged in it, transportation, and in some cases, research and development, and engineering. Everybody has a role to play. We see all the time where you have companies that have nine different systems that aren’t working in concert.
“How often are compliance people brought in to talk about the finance department’s changes with existing systems, and how you might be able to attach that or make them work more smoothly?”
Compliance, in particular, has long been segmented from broader company decisions, whether it’s strategic decisions on sourcing locations or choice of technology platform.
“When is the last time you looked at compliance not just as a regulatory concern, but as part of the entire supply chain from purchase order through payment?” Mento said, suggesting companies write all their processes on a dry erase board to see all the departments a shipment touches. “Because that’s going to illuminate a bunch of things, not the least of which is just how many parts of your company are associated with compliance.”
Indeed, companies likely struggle with this rapid change affecting the GTM landscape because for many years prior to 9/11, compliance was viewed largely as administrative work.
“Fifteen years ago, global trade management solutions were the stepchild,” the supply chain technology analyst Adrian Gonzalez said in a June webcast on his Talking Logistics
Website. “It was poorly integrated with ERP and (transportation management systems), it was standalone desktop applications, primarily focused on export processes. Import was viewed as too complex. Vendors focused on the export side, especially the documentation side of it.”
Gonzalez said he recalled a vice president of compliance for a major shipper standing up in a workshop more than a decade ago and bemoaning how lightly her company took compliance.
“She said ‘we as a company would never hire someone off the street to work in finance, but that’s exactly what we do in compliance. We view global trade as paperwork,’” he said. “Global trade management was not viewed as a strategic business process, as an area that required a lot of investment. It was viewed very much as tactical, very paperwork-driven.”
He said 9/11 served as a catalyst both within shippers and the vendor community to generate a lot of activity related to trade security, and the U.S. government’s 24-hour manifest rule, 10+2, and importer security filing initiatives enhanced that momentum.
“One thing that drives the need for automation and technology is regulation,” he said.
But Gonzalez also noted some other factors driving adoption of technology within the GTM arena. Global trade rose rapidly post-9/11, while customs organizations worldwide began to modernize, moving away from paper-based systems to more automated ones. Trade agreements and protectionist measures developed in response to growing trade also complicated the picture.
“The need to automate and manage these processes more intelligently has increased,” Gonzalez said.
As companies became more acutely aware of the complexity, risk, and cost in managing global trade, it was clearer that managing the hundreds of regulations was something that couldn’t be done manually anymore.
But that was only the first evolution.
More recently, Gonzalez said, he’s seen the scope of GTM expand beyond compliance, with GTM vendors at the forefront of this second stage of development.
“GTM solutions today deal with trade financing, purchase order processing and settlement, letter of credit generation, invoice presentment, reconciliation,” he said. “On the transportation side, we’re seeing ocean procurement and contract management as falling under the umbrella of GTM. Contract negotiation, managing rates, all in a centralized manner. Visibility and event management. (Shippers) are dealing with a lot of different entities, and having visibility to all the steps involved, like lead times involved with customs clearance, is crucial. The scope of these solutions has expanded beyond compliance.”
Yet technology, as Mento noted, is not the answer in and of itself.
Companies grapple with a couple crucial issues with the integration of technology, even beyond the change management discussed earlier. One is that the number of systems companies use can become unwieldy.
At the American Association of Exporters and Importers’ annual conference in Washington mid-June, a speaker from a major shipper mentioned they struggled with around three dozen instances of their ERP platform globally. The audience duly gasped.
In a later session, Stephanie Norris, global customs projects leader for the global operations team at General Electric, jokingly said she’d love to only have 30 or so instances of her ERP. The comment spoke poignantly of the number of systems, inside and outside of global trade, that companies are forced to juggle. Most won’t have the burden of a company the size of GE, but nearly all face integration headaches. And it’s particularly relevant as GTM functions converge, but the systems that underlie those functions remain largely disparate.
“Many companies have multiple inventory systems, shipping systems, and outside service providers with their own systems,” said Jeff McCauley, vice president of global solutions for the GTM vendor Integration Point. “Very few of these disparate systems talk well to one another. This could be a problem when you start implementing GTM technology that is going to share information across all systems. So, to prepare for data sharing, review the compliance procedures across all divisions to make sure they are consistent. Without consistent procedures, it will be hard to get a handle on all import and export activity happening, even with technology.”
But investment in new technology can play a role in changing that scenario.
“At Crate & Barrel, we’re implementing a new visibility solution, and we spent quite a few months going through the development of the RFP document that we sent out to the vendors, but that time was paid off in spades,” Virginia Thompson, senior director of import/export operations and international trade compliance for Euromarket Designs, which does business as Crate & Barrel (Thompson is also a member of American Shipper
’s editorial board). “The detail we were able to offer helped the software providers tailor their solutions so much more successfully.”
Thompson, speaking on the same webinar as Mento, said the visibility tool was primarily designed to take days out of Crate & Barrel’s supply chain on a transportation management level, as well as reduce stock levels.
“But we recognized right away that we could also use the data to replace what is today a more manual process to get our ISFs filed on time,” she said. “We’re now going to be able to receive information about goods before they’ve been shipped in a way we haven’t before because it’s now a manual process.”
Many shippers aren’t so well-connected when it comes to logistics operations and compliance, but they all can strive to be.
“What (compliance) is asking from other parts of the organization is what they want from you,” she said. “Everybody’s businesses intersect.”
McCauley said companies eyeing investment in GTM technology ought to enter the process thinking about their workflow.
“Know which workflows you want to automate and decide if the process of checks and balances used now will still work once automation is in place,” he said. “Take the time to look at all your processes — approvals, shipping, sourcing — and see where workflow automation can help and where current workflow might need to be altered to gain efficiency once automation is available.”
Indeed, Mento amplified the message that while investment in GTM technology creates a need for internal change, it can also be the mechanism to drive that change.
“There’s a lot to be said about using a resource play as a lever to bring about a tremendous amount of change within a company,” he said. “A lot of what we see with our clients is a process that was put in place in the late 90s or in 2001 that really hasn’t been changed fundamentally since then. They’ve had to work around other business opportunities or business situations to make that old, existing process fit into something new.”
The limitations of that shoehorned process are often illuminated when another department decides to expand to new markets without little notice given to compliance.
“The rush to market is interesting,” he said. “It’s usually a sales-driven process, so there’s a rush to a market, and there’s a wake left behind it. And you end up learning a lot from what’s left of the wake.”
Mento said what companies often learn is their systems — typically not working in concert — are exposed in those new markets.
“So maybe what they were working on worked well for the U.S. and Canada, but now they find themselves in all kinds of new jurisdictions, which require an understanding of new content, new regulations, how things are classified in one place versus another, and they find themselves behind the eight ball,” he said.
Mento, in conversations with American Shipper
, described a crucial split among companies he sees: those that look at GTM from a process management perspective, and those that look at it from a data management stance.
The second group hordes data, sometimes from shiny, new systems, but doesn’t emphasize the integration of that data among all the groups within that company that are touched by global trade. The first group focuses on stitching together its systems in such a way that data is shared among all the relevant partners, with decisions made in a joint manner.
So, the compliance department might have a say not just in how cargo is cleared, not just in the transportation and financing of that shipment, and not just from the purchase order, but potentially all the way back to product development.
“Most companies struggle with realizing the benefits of all the data they have in their reach,” McCauley said. “This is due to the fact that many have unstructured data residing in separate silos and do not have the bandwidth or knowhow to analyze the data once they have access to it. The solution to this, which is a key point for preparing for technology, is data consolidation and harmonization.
“Through consolidating data into a centralized location, everyone will see all the pertinent information needed to leverage opportunities such as trade agreement qualifications. By harmonizing the data, you ensure that everyone is working with the same information regardless of their division or geographical location with the GTM implementation.”
Mento said this split between process management-oriented companies and data management-driven ones often has much to do with whether a company has experienced a supply chain disruption significant enough to effect a change. It need not be a compliance penalty that spurs the change; it could be a simple internal miscommunication that fouled up a critical shipment.
Either way, companies that have been burned, Mento said, are much more likely to take a broader view of GTM. They’re more likely to invest in technology, and thus the challenge becomes preparing for the change that’s going to come.
Keys to successful investment in GTM technology
- Decide which current GTM processes are sound and should be automated, and which should be cast aside.
- Encourage vendors to provide tailored, not customized solutions.
- Prepare internally for a major change, including connecting all the disparate departments that touch global trade.