Global Supply Chain

This PwC Global Supply Chain Survey 2013 is worth a very close look. It provides insights into the why, how, at what will drive supply chains to excellence in the foreseeable future. It is predicated on the basis that the macroeconomic cycles are becoming more volatile and unpredictable and make supply chain planning and management much more challenging.

As part of the survey PwC looked at 6 key industries:
Automotive
Chemicals and Process
Industrial Products
Pharma and Life Sciences
Retail and Consumer Goods
Technology and Telecon

6 key findings:
1) Companies that are committed to strategic supply chain management achieve significant operational and financial advantage over their peers.
2) The leaders are focused on customer needs and requirements. But they are also focused on delivering high levels of service at lower cost and maximum flexibility.
3) It is not good enough to be the same. Tailored solutions set the leaders apart from their peers.
4) Core competencies are not outsourced because they are strategic.. This requires an understanding of what are the core competencies of the company.
5) Leaders are constantly investing in differentiated supply chain capabilities. This means extending their capabilities to take advantage of real-time demand and supply signals and collaborating more effectively across all supply chain partners.
6) Constant improvement in technologies to support their supply chains is endemic to the leaders as is a concern with sustainability.

The survey is full of important supporting information that provides context and content. For virtually all companies, large or small, it is worth studied reading. Every company has a supply chain that they must manage. From the PwC study the clear impression is that companies that are focused on their supply chains as strategic weapons are decisively winning the battle in the trenches.

Today’s Best Practices allows the people with the best knowledge and understanding of their products (importers) to manage the regulatory and customs process with no more risk than using a traditional custom broker. What is necessary for an importer to implement the new Best Practice paradigm is confidence to actually control and manage the compliance and filing processes for which it is ultimately responsible. 

So, what has changed the landscape for the redefinition of best practices in Import Compliance and Customs Management?

The internet has dramatically altered the landscape and changed the possibilities for the way importers interact with Customs and other regulatory agencies.  The internet allows for solutions providers to create systems that enable importers to confidently take control of the heretofore unsupported functions that created the need for traditional freight forwarding and customs broker services.

Today Best Practices in Import Compliance and Customs Management are defined by the ability of the Importer to directly manage the entire process of importing products into the United States while being able to comply with all regulatory and CBP Customs requirements.  Because the internet and new SaaS (Software as a Service) solutions provide a broad range of solutions – from specific TMS and Trade Compliance applications) to fully integrated import control, execution and reporting capability, best in class importers are taking control of the entire import compliance and customs management processes and driving incredible and previously unattainable value from their global supply chains.

9 Steps to executing a secure, independent Best Practice capability in Import Compliance and Customs Management

1)  Establish management commitment – It is important to have management commitment to an import compliance program to establish its importance for the organization.  Compliance, while important, often flies under management’s radar until there is a significant problem.  In order to avoid being reactive to regulatory agencies it is important to create a set of policies or an explicit understanding that addresses CBP, Customs and other regulatory agencies issues.  It is not enough to have management’s initial buy-in.  Commitment implies a long-term commitment and support of the import compliance and customs management program.

2)  Professional and well trained staff –The importance of a well trained staff that is familiar with import processes and customs procedures cannot be overstated.  While having a licensed customs broker on staff is a benefit, it is not critical to implementing a best-in-class automated import compliance and customs management program.  What is necessary is to be able to have trained people who understand the requirements surrounding the import environment and are able to deal with the professionals who interface with customs and other government agencies with respect to imports.  Implement a centralized responsibility for import compliance and customs management with the full support of management.  Because compliance issues have a way of becoming very problematic, high profile and expensive to resolve, a centralized authority and responsibility will mitigate the effects of problems where non-compliance might be an issue.

3)  Create a set of policies and procedures – The global supply chain is very procedural and regulated.  Therefore a best in class importers have in place policies and procedures  governing import compliance and customs management.  These policies and procedures should be published and made readily available to members of the import and customs staff.  Most importantly, the procedures and policies should be managed to insure that they are implemented in practice.

4)  Automate and centralize Product, Account and Customs Record management – Implement an automated infrastructure to capture and maintain all product, account and customs details in a data base structure.  The ability to relate HTS codes to the product record in a database environment is necessary to support and streamline import workflow and execute import compliance and customs management at a high level of competence.  (A concern among importers is their ability to properly classify their products.  With the on-line customs solutions available today, the ability to classify a product is made much simpler. In instances where product classification is more complex special rulings might be required to classify a product properly and the on-line systems provide licensed customs brokers to support proper classification.) Relating product HTS codes and compliance details with the product and account record allows the import operator to execute their work, manage their 3^rd parties and insure compliance effectively and with a very high level of confidence.

With a central repository for product, account and customs information, importers are able to:

Create and maintain a Customs and regulatory product record that captures the relationships of the product to HTS codes (General, Special Programs and rates (including Antidumping and Countervailing [ADD/CVD]), Country of Origin relationships, visa and license requirements).      

Interface with internal systems and external information sources to capture landed product costs, supplier and logistics information necessary to provide data to support regulatory and customs filings as well as providing a comprehensive Procure-to-Pay product provenance capability.

5)  Automate and integrate internal and external import processes – There are several solutions, both SaaS and Licensed models that automate and support seamless integration of the import processes from the purchase order to the receipt of product at the importers DC or customer.  Automation streamlines import processes, finance, compliance and customs management by enforcing process while simplifying workflow.  Automation of the internal import processes also provides the ability to easily interface to 3^rd party partners information – including customs and other regulatory agencies – with the added benefit of further streamlining workflow, electronically capturing critical supply chain data, providing visibility into products across the supply chain, improving visibility into suppliers and other 3^rd party partners, and providing a rich source of data for analysis and reporting on products and partners.

6)  Automate Customs and Regulatory Filing Processes – Establish an e-filing capability with CBP Customs through on-line Customs Brokers or in-house ABI.  Establish filing and payment profiles with CBP Customs – Importers can go on-line and quickly obtain an Importers filing code and ACH settlement code that comply with customs to support the electronic filing and settlement process.  Today it is possible to generate electronic facsimiles of the 7501/3461 entry, ISF, and FDA Prior Notice messages that can be filed directly with customs without the intermediary of a traditional customs broker.  The entries can be generated from the system, audited prior to submission, and filed with Customs when executed.  The system automatically tracks the filing and provides visibility into the status of the entry and release.

7)  Establish and maintain complete data records and document files of all import and customs transactions – Record maintenance is critical for import compliance and customs management.  Automated import solutions assure accurate, searchable and retrievable records in data format is manageable and simple.  The information that is maintained includes product details (supplier, manufacturer, product [packing lists, production codes]), carrier details (tracking dates, container numbers, B/L details), delivery receipt details, Customs entry information.  This data records are augmented with the paper based files to insure responsiveness to Customs and Regulatory agency inquiries and audits.

8)  Take Charge of Import Processes that you pay for – Taking charge of the import processes is made much more manageable today because of the global commerce technology that exists.  However, it is not simply about the technology.  A critical factor that makes taking charge of and managing the import processes possible is the integration of the systems which result in a completely synchronized information and document environment.  Best in Class import organizations do very little, if any, of the physical work. However, they have systems which allow them to effectively manage those who do.  Best in Class importers command the entire procure to pay environment from the time the purchase order is issued until it is received and paid for.  This means integrating purchase order management, global transportation management, customs compliance and filing, total landed cost management, vendor invoice auditing and payment control into a cohesive solution that provides end-to-end visibility, tracking and alerting capabilities.

9)  Benchmark your Performance – Benchmark yourself against the industry.  Industry stats so that you can are available and for a modest fee you can obtain these from consulting organizations or your trade partners.  However, most importantly it is necessary to benchmark yourself.  This requires analysis tools and reports that let you see how your supply chain and your supply chain partners are performing period over period) and adjusting your organization to make continuous improvements.

Benefits of Implementing a Best Practices Environment for Import Compliance and Customs Control

The benefits that are achieved by implementing a best practices Import Compliance and Customs Control program range from the “hard” benefits – the ones that deliver real dollars, to the usual “soft” benefits that are harder to quantify.

The hard benefits are achieved as an outcome of implementing a comprehensive automated customs entry solution supported with automated global supply chain source data.  The major hard benefit is the ability to fully automate the ISF and 3461/7501 customs filing processes that when implemented provide real savings that flow to the bottom line.  Typically, a traditional customs broker charges between $25-$40 for an ISF filing and $80-$120 for a 3461/7501 customs entry.  By automating the import compliance and customs management processes and integrating to an e-broker filing system the rates can drop as low as $5 for the ISF filing and $25 for the 3461/7501 customs entry.  This savings for the combined automated ISF and 3461/7501 filing amounts to between $75-110 per filing.  For a relatively average size importer – 500 entries per year the net savings can be ~$50,000.  For a large importer the net savings can run into the millions of dollars.

The soft benefits are the ones that result in consistent and timely information presentation, improved supply chain visibility, streamlined business process, greater operational efficiency, improved inventory planning, replenishment and utilization, greater CBP and regulatory compliance management, and the development of internal core competencies.  The soft benefits are the ones that every software solution claims will be achieved when the solution is implemented, but are hard to quantify and often not delivered for a variety of legitimate and practical reasons.  

Managing CBP compliance is a challenge that has potential for all kinds of opportunity and problems.  As CBP becomes more capable to manage import data, every importer becomes more susceptible to a customs audit.  This can/will lead to additional expenses and potential penalties if the importer does not have proper documentation and systems in place to support their import practices.

A substantial opportunity lies in the ability to make GSP claims.  There are however, minimum requirements that the importer must meet in order to take advantage of the lower opportunities that this special customs program provides.  The first is understanding that minimally 35% of the products’ input ingredients must originate in the beneficiary country.  Secondly, it is important to be able to validate all aspects of the entry during an audit.

These requirements lead to fundamental questions about the GSP filing process.

1. Who has the knowledge about whether a product qualifies for the GSP?  Answer: the supplier.
2. Who will verify the supplier statement?  Answer:  The Importer
3. How will your customs broker know whether the product should be claimed under a GSP entry?  Answer:  ???

Because, being able to take advantage of special custom’s programs is so opportunistic there are strong reasons that the importer should take a hands on interest into the customs filing process.  Nobody knows the product better than the importer.  With responsibility for product duty classification residing with the importer and the new technologies supporting automated customs record management, the importer has incredible opportunity to take advantage and significantly increase compliance while reducing cost at no greater effort.

The Association of Food Importer has published an insightful article on GSP Compliance – Getting it right

Best Practices in Import Compliance and Customs Management

Best practice in Import Compliance is a topic that is well discussed.  The issue of Customs Management is another issue.

There are several major best in class global players in the area of Trade Compliance – MIC, Amber Road, Integration Point, Tradebeam – along with the ERP modules of SAP, Oracle and Microsoft.  There are others players that deal with import and/or export compliance specific to their local geographies.  However there are very few trade compliance solutions that are able to fully manage and automate the last mile of trade compliance – which is the Customs entry process.

The area of Customs Management is not often written about in the popular supply chain journals.   However, the ability to integrate and automate Import Compliance with Custom Management is now possible with the result that importers are able to achieve dramatic hard-dollar results along with the more typical soft benefits.

This blog is the first of a 4 part series that addresses how you can develop a Best Practices automated Import Compliance and Customs Management program.  The series outlines how importers (of virtually any size) can take advantage of the new technologies to achieve best-in-class trade compliance and automated customs management and as a result dis-intermediate the costs that are associated with providing a best-in-class trade compliance and customs management environment.

• Part 1 – Introduction
• Part 2 – The state of Customs Management with Traditional Customs Brokers
• Part 3 – Best Practices in Import Compliance and Customs Management – redefined
• Part 4 – Conclusions

Part 1 – Introduction

Traditionally, the import process has been managed by freight forwarders and customs brokers.  This relationship, between the importer, freight forwarder, customs broker and customs has been in place since the inception of the country.  The need for the relationship grew out of the complex logistics requirements and documentation management and the relative specialization that is required to deal with international suppliers, carriers and customs.   The Customs Broker has traditionally filled a critical function as an intermediary between the importer and customs.  The Customs Broker provides services to facilitate the filing and remittance process and support a level of objectivity that may help insulate the importer from penalties or prosecution.  However, the Customs Broker does not relieves them of the ultimate responsibility for the custom’s entry filing.

Aligning Control with Responsibility

Today, importers have the opportunity to take charge of the import process and align authority with responsibility.  The reality is that the importer is responsible for insuring they are compliant with customs and other government agencies involved with the regulatory control of foreign produced products into the United States.  The importer, not the customs broker is liable for the regulatory entries supporting imports.  What the Customs Broker provides is expertise and an arms-length authority so that if there is an infraction with a filing, there is the appearance that “reasonable care” has been exercised and the resulting penalty will be minimized.

Import compliance and the customs filing process has historically been managed by full line Customs Brokerage firms.  Where large companies manage the processes internally they are usually staffed by licensed customs brokers and lawyers who oversee and manage their compliance programs and filing process.  However, even in these instances, most companies still use the external services that a full time Customs Broker offers.  This is what has constituted “best practices” when it comes to import compliance and customs management.

Until recently the process of managing an import compliance program with a level of comfort was beyond the reach of most import organizations for several reasons.

The Mystique of Customs

Firstly, there is a mystique around the actual process of the customs relationship and the complexity of the filing process.  This leads to the belief that the Customs Broker is necessary to navigate the relationship with Customs.

Secondly, importers mostly feel they don’t have the expertise to manage the classification, compliance and custom filing processes.   The belief that classifying product is difficult to manage and maintain is one of the greatest concerns of the importer.  The inability to easily maintain product tariff classification within a relational data structure means that the information is not readily available to the importer to support the customs compliance requirements from both an operational and filing support level.  Because of the inability to easily manage the regulatory and tariff information, managing compliance processes is virtually impossible for the importer without the services of a full line customs broker.

Thirdly, the increase in regulatory requirements, from national security and product safety, adds complexity to the import process and makes managing the process appear significantly onerous.

Fourthly, there has been a lack of tools and systems to support the interfacing with customs.  Without information systems to capture, maintain, and access regulatory information, across multiple regulatory agencies, related to a product, supplier or country, simply and within the context of operations, the management of information required to execute a customs import filing is daunting.

The result is that the importer relies on the traditional full-line customs broker to manage the relationship with customs including classifying products, filing entries, etc.  The customs broker extends their services to support the importer in interfacing with the government and helping insure that they are operating in a way that will be deemed to be “reasonably careful” in the import processes and provide the importer with “cover” from penalties or legal proceedings.

It is in this light that traditional best practices for Import Compliance and Customs Management is framed.

These opening 2 paragraphs from a McKinsey Quarterly report (https://www.mckinseyquarterly.com/Operations/Supply_Chain_Logistics/Building_the_supply_chain_of_the_future_2729) clearly enumerate the challenges that companies face in managing their global supply chain.  How they deal with these challenges will determine their success in the future.  The BRIC countries (Brazil, Russia, India and China) are radically changing the playing field and affect everything in the supply chain from raw material availability to logistics capacity to currency exchange.   How successfully organizations deal with the rapidly changing global environment will depend on creating and implementing agile global supply chain strategies and executing the mechanics of those strategies.

The integration of strategy with mechanics is so inextricably linked that it can be easily argued that one without the other will ultimately lead to limited success of the former.  Which come first – the global supply chain strategy or the supporting mechanics that provide the infrastructure?   While having a global supply chain strategy provides companies with powerful differentiating plans of action, lacking comprehensive supply chain execution mechanics leaves the organizations highly vulnerable to failure in carrying out the strategy.

Executing agile global supply chain strategies is dependent on information that provides transparency into all aspects of the global supply chain.  As a company moves further away from its basic manufacturing paradigm – both physically and geographically – it depends more and more on information to provide insights into events and their outcomes.  This requires a comprehensive set of tools designed to support the gathering, synthesizing, contextualizing and reporting of the information into meaningful and easy to access analysis and reports.  However, without the ability to execute the tactical activities in support of the overarching strategy limited success is the most likely outcome.  It is being able to rapid execute change across their global supply networks that ultimately delivers the success of the strategy.

In our white paper, Lean, Agile and Adaptive Global Organizations,
http://blinco.com/casestudies/whitepapers/leanagile02206.pdf we present a comprehensive roadmap on how it is possible to build a lean, agile organization that will be able to support whatever agile global supply chain strategy the organization implements.

In many instances, 25-40% of an organization’s business is transacted internationally. This number has risen dramatically over the past five years and is predicted to reach anywhere from 35% to greater than 50% within the next decade.

With this continuing seismic transformation to a global economy, the complexity of a company’s supply chains increases geometrically if not exponentially. The ability to manage inventory, costs, and compliance effectively and efficiently across a network of global supply chains is being severely compromised when using traditional processes and technologies. Rising levels of inventory, misunderstood total cost of product ownership, increased regulatory business compliance and the risks associated with international business have brought an unprecedented level of awareness to the C-level executives.

With this growing percentage of global activity in a company’s product mix, the way a company constructs and manages its global supply chain has a significant and growing impact on its financial results and strategic competitiveness. The inability to effectively manage these complex supply chain networks, places organizations at significant risk. Whereas the ability to command, streamline and control the global supply chain environment brings with it incredible opportunity and strategic advantage.

Synchronizing Your Supply Chains

The key challenge to developing a comprehensive 21st century global commerce management capability (the management and synchronization of international physical, financial and information supply chains) is rooted in the basic architecture of information systems that are poorly integrated across functional business silos and units. Lack of synchronization limits the ability to predict and respond to events across the supply chain, resulting in sub-optimal results. With many activities across the global supply chain being outsourced to contract suppliers and service providers, the level of direct control over results is limited. To achieve and assure high levels of performance in this less controlled environment, companies must have the appropriate tools in place to influence partners and service providers to deliver the highest levels of compliance to contracts and commitments. To achieve a best-in-class global supply chain capability requires integrated solutions that synchronize activities and information across multiple participants in the supply chain.

The synchronization of global supply chains is comprised of four elements, each of which is critical to effectively managing your global supply chains. This synchronization is imperative if superior supply chain and organizational performance is to be achieved:
1. Developing a global network of suppliers and service providers
2. Retaining people with the right level of expertise to manage the global environment
3. Creating the right processes
4. Providing the information infrastructure that enables controlled global supply chain execution and management

Integrating the Physical and Financial Supply Chains

Within an organization, operations handles the physical supply chain while finance manages the financial supply chain. Whereas management’s focus is on setting strategic goals and overseeing the activities to ensure these goals are met or even exceeded. Virtually all see their world through the presentation of tangible assets in digital format. In a perfect world, information represents the physical and fiscal worlds as they are, in as close to real-time as possible. Accurate and real-time information that is available for collaboration across an organization’s supply network (internal or external) and that supports timely execution of tasks and responsibilities, tactical problem solving, and strategic decision-making, is the fundamental underpinning of optimal global commerce management.

Information and visibility, while important in and of themselves, are limited in their potential unless put into meaningful context. Contextualized information allows users to understand the implications of an action within the supply chain and its effect on a specific activity. It empowers users to make optimal decisions.

Contextualized supply chain information enables users to see where an item is in its supply chain life-cycle and understand its effect on distribution or manufacturing. Contextualized financial information allows users to see the impact a physical event has on the cash and asset position of the company, and to optimize financial asset allocation and execution. With intelligent contextualized supply chain information, management has 100% visibility into where any department, business unit or organization is at any point in time.