Over the past 4-6 months, as we have been discussing solutions for trade compliance with literally 100′s of trade compliance officers. It is apparent that trade compliance is an area of business that struggles to get the respect and recognition it deserves from their organizations. This is unfortunate for there are opportunities where trade compliance can translate into real value for an organization in terms of corporate reputation, cost reduction, and improved compliance. Trade compliance is an area which is under serviced by technology and is still highly reliant on spreadsheets or simple databases to manage the basics such as HTS codes , Supplier or Customer and 3rd party profiles.
Trade Compliance touches virtually all areas of the business involved in international trade. It impacts product records (HTS classification and tariff rates, documentation, product registration numbers [ECCN], licenses and visa documentation), accounts (account registration numbers, denied parties, documentation), countries (embargoes) as well as most operational functions (sourcing, purchasing, sales, import/export logistics, and customs). It is a significant supporting activity, but is very often ignored or undervalued.
With respect to implementing Trade Compliance there are five (5) basic questions that need to be answered:
- why implement trade compliance?
- who owns the trade compliance responsibility in the organization?
- who has the authority to impose trade compliance across the organization?
- what is the role of software in supporting trade compliance?, and
- who owns the responsibility for the selection requirements and maintenance of the software?
The answer to each of these questions lies in the commitment of the senior management and the structure of the organization.
Why implement trade compliance?
Trade compliance is a necessary requirement of international trade. It is usually a core process of the Customs department of a country. However, the responsibility of complying with the import/export laws and regulations lie with the importer or exporter. This responsibility for trade compliance cannot be delegated although the execution of compliance can be. Under the United States tariff act the importer or exporter is ultimately responsible for using reasonable care for product classification, valuing the product for import or export, insuring correct documentation is collected and submitted to support customs in collecting any duties or fees, statistics for census purposes, and enforcing any other legal requirements.
Failure to comply with trade compliance laws and regulations exposes the importer/exporter to delays at the border for their shipments, the possible imposition of significant penalties, and impairment of reputation for the organization and/or its management.
However, the best argument for implementing a strong trade compliance program is that it provides management with the ability to align trade management with overall corporate governance policies and compliance practices. It makes the organizations operational units better and more effective and contributes positively to the bottom line. By understanding the rules that govern import and export compliance companies can can take advantage of tariffs and special programs that enable them to reduce costs of imports. A trade compliance program in conjunction with new software trade management solutions provide clear and structured processes that result in improved record management, analysis and reporting. It provides effective and practical opportunities to significantly reduce reliance on and costs associated with Customs Brokers and Freight Forwarders. New IT solutions allow organizations to manage trade compliance much more easily than in the past and take advantage of automating the interaction with Customs and OGAs.
Who owns the trade compliance responsibility in the organization?
The answer to this question lies in the leadership, size and structure of the organization. The ultimate responsibility for implementing an effective and responsible trade compliance program lies with senior management.
In small/medium size organizations trade compliance often is applied informally without any specific direction or leadership from top management. In larger organizations, where management has identified trade compliance as an area of risk either from a regulatory or reputation perspective, there is a higher level of compliance specialization often headed by a senior executive and implemented by a trade compliance team. In those organizations that treat trade compliance seriously, the operational responsibility lies with senior legal counsel, supply chain managers, or under the IT umbrella. The actual responsibility for day to day trade compliance is often under the leadership of a designated responsible operator who understands the basics of customs import/export compliance at the product, account and country level.
Note: In most organizations, trade compliance gets short shrift, is often ignored or is treated very cavalierly by senior management. Senior management may be unaware of the risks associated with non-compliance with customs or OGAs, figure that they have not been held accountable to date and therefore either they are acting in a compliant manner, or intentionally ignore the need for a meaningful trade compliance regime.
Who has the authority to impose trade compliance across the organization?
The dictum – Responsibility without authority is futile. This dictum is as pertinent to trade compliance as to any other activity. Without the authority to impose and enforce procedures on the cross-functional operations that trade compliance impacts, the results will be modest at best. Herein lies the greatest challenge to implementing a successful trade compliance program. Because trade compliance is often seen as a necessary, but burdensome, staff function in the organization it does not receive the full support from top-management that is required to give it the authority to enforce its responsibilities on the operational units.
In those organizations that have dedicated trade compliance teams, the authority resides with the C-level executive or director. Titles often associated with the responsibility and authority for the trade compliance activities are Chief Supply Chain Office, Director of Global Supply Chain, Legal Counsel, COO, Director of Operations, and Director of Global Sourcing. However, even in these organizations trade compliance is often short funded, short staffed, and without the requisite IT support to keep it strong enough to carry out its mandates.
In many organizations, trade compliance is given a cursory nod as to its importance but without any authority to impose process and procedures on the operations. In the majority of import/export organizations trade compliance is often minimized and the responsibility outsourced to a customs broker or freight forwarder with misconception that they will keep the company compliant with Customs and OGA regulations.
What is the role of software in supporting trade compliance?
Software and IT are increasingly important factors in supporting trade compliance within and across the organization. In many organizations, managing trade compliance without supporting software or IT is inefficient, ineffective and prone to errors and omissions. Trade compliance software provides structure, process resulting in streamlined operational processes. Trade compliance software should not only support the requirements of the trade compliance group in managing product, party and country information but should integrate with the cross-functional global operations to insure that trade compliance is a seamless part of the workflow.
In many organizations trade compliance management is still rudimentary. Where companies have implemented trade compliance many struggle with the basics, such as managing HTS codes Party screening or Country programs. If managed internally the HTS codes are mostly managed in the ubiquitous spreadsheet or Access database and require significant manual input to maintain and update records. The process is heavily labor intensive, inefficient and prone to error. Denied party screening, embargoed country management, visa and license management are all difficult to manage in a manual process.
Currently, a variety of trade compliance software solutions are available in a SaaS (Software as a Service) environment. These applications allow organizations to export their trade compliance information to a managed service which maintain and update the product, party and country details. The information is then accessed on-demand or integrated back into the ERP system for operational use. Some of these SaaS solutions have extended global trade management capabilities that include shipment visibility and payment processing. Three negatives for these solutions are:
a) a relatively high cost and is beyond the reach of many small and medium sized organizations,
b) the information is limited to their platform, and
c) lack of portability.
New generation software solutions are evolving which allow for trade compliance to be more open and collaborative. The open solutions act as a comprehensive platform for trade compliance information and are open to accept compliance and operational content from any authorized provider. The open platform allows for the trade compliance team to configure their network in a way that supports of their needs and can be reconfigured to their needs as they change. Open trade compliance software solutions free the trade compliance team from any specific content provider and gives them the flexibility to configure the trade compliance content and deployment environments. Open trade compliance software solutions are important for organizations that have disparate companies or divisions operating on different enterprise systems.
Who owns the responsibility for the selection requirements and maintenance of the software?
No one knows the requirements of Trade Compliance better than dedicated compliance staff. In the absence of a dedicated trade compliance staff, operations has the best knowledge of their products, trade parties and countries with which they do business. According to many trade compliance professionals, operations should have the responsibility for setting the trade compliance requirements the software. If the software solution is brought in-house IT will definitely be involved with respect to authorizing the technical specifications of the application and the integration of the application to other internal and external solutions. The maintenance of the software is the responsibility of IT.
The issue of who is responsible for the budget is an issue that can confuse the lines of responsibility. The budget falls into the acquisition and maintenance. How it is allocated and who controls the budget will suggest who is responsible for the selection and maintenance.
Random thoughts on implementing Trade Compliance
There really is not a good reason why a company cannot implement a highly automated and comprehensive trade compliance program. The new trade compliance software solutions that are available to companies are often scalable for functionality and price. Depending on how far into automating the entire trade compliance process a company wants to go determines how cost effective the program will be. The cost of implementing a trade compliance program has been reduced dramatically and is within the reach of any organization of any size. The benefits are many (see they Why) and being trade compliant is only one of the benefits.