Global Trade Management Systems: A Smart Bet
What's the payout on global trade management (GTM) systems? They help organizations comply with trade regulations and tariffs, automate transactions, and gain supply chain visibility. Leverage the information captured by the GTM and you hit the jackpot.
As trade regulations increase in number and complexity, and tariffs change seemingly overnight, how can organizations be confident they're complying with both and minimizing potential fines and penalties? As supply chains become ever more global, how can organizations efficiently manage them?
Manual processes and spreadsheets carry the risk of error and quickly become unwieldy. That's why, for many organizations, the answer is a global trade management system (GTM). Along with experienced compliance professionals, a robust GTM can help organizations take a strategic, automated, and efficient approach to global trade compliance.
For example, Altana, an international specialty-chemicals company, uses a global trade system (GTS) to ensure it does not transact with denied parties, says Billy Duty, global head of supply chain with BYK, Altana's additives and instruments division. The system also helps Altana track shipments of some chemicals that are subject to export limits, ensuring volumes remain below those requirements.
Accuracy in global trade is key for several reasons:
- Cost. When auditing transactions for a client, BPE Global, a trade consulting firm, found misclassifications in two of 10 transactions. That cost the company an extra $8,000 in tariffs. By applying the proper classification to the items being shipped, GTM systems can minimize this risk. "GTM solutions can truly support trade compliance operations," says Beth Pride, president of BPE Global.
- Liability. Even if a company outsources its international trade functions to a broker or freight forwarder, the shipper or importer remains responsible for complying with regulations and tariffs. A GTM solution can help ensure compliance, says Wayne Slossberg, senior vice president with QuestaWeb, a GTM solutions provider.
- Information. GTM systems can also help disseminate accurate information across multiple parties. Only about 20% of the information required for cross-border trade comes from the buyer. The remaining information comes from suppliers, carriers, and other entities.
"Companies that succeed, that can best control costs and ensure supply, ultimately are the ones that can manage data," notes Gary Schneider, vice president of financial services with Infor, a global software company. Again, GTM systems can play a role.
When a GTM Makes Sense
While GTM solutions can provide value to many organizations, not every company needs one.
"It's all about your risk profile," Pride says. A company selling into a known supply chain—for instance, an established American company that can demonstrate its compliance with all regulations—typically has a lower risk profile than a company selling into regions of the world with high levels of corruption. Companies with an expansive distribution model they don't control also tend to have greater risk.
Another consideration is the frequency and severity of mistakes that occur when moving products. If customs authorities regularly hold shipments due to inaccurate trade information, or charges from brokers are mounting because they must add data or make corrections, it may be time to consider a GTM solution, recommends Linda McKee, senior director, solution management, global trade services with SAP.
Also factor in the amount of duties being paid, says Elizabeth Connell, vice president of product management with Thomson Reuters. The higher they are, the more likely the company can benefit from the tighter controls and/or the identification of possible savings opportunities available through a GTM solution.
When choosing a GTM system, quality updated content, such as tariff schedules and denied party lists, is the "golden nugget," says Ann Grackin, chief executive officer with ChainLink Research, a supply chain advisory firm. Supplying such content requires experts in international trade who constantly monitor and update the system's database.
Because a GTM often connects to multiple other systems, such as enterprise resource planning and transportation management systems, it should be "solution agnostic," Schneider says.
The system should handle all facets of international trade. This includes the ability to screen for denied or sanctioned business partners, in real time or batch mode; automatic determination of when import or export licenses are required, and the ability to apply for and manage them; the ability to make available the documentation required by customs authorities, as well as visibility to missing or incomplete documents; and tariff management. It should also support audit requirements by recording, maintaining, and storing relevant actions and changes.
"These features should be provided in such a way that only exceptions are highlighted," McKee adds. This allows most transactions to flow without manual intervention.
Any GTM should be able to handle all modes of transportation, as well as multiple languages and currencies, says Johann van der Westhuizen, vice president of strategic business development with One Network Enterprises, a platform for autonomous supply chain management.
Visibility tools—say, the ability to track a shipment on its journey—while formerly "nice-to-have" features, have become critical for companies trying to make strategic sourcing and supply chain decisions.
"In the past, the compliance department was more about keeping the company out of trouble and less about bottom-line savings," Connell says. Now, retaliatory tariffs are impacting many organizations' bottom lines.
"Visibility and analysis tools help ensure they are taking advantage of all the savings opportunities available," she adds.
Questions to Ask
Even if a GTM appears to have all the capabilities a supply chain needs, a few additional questions can help check whether it will live up to its promise. Ask which features come with which versions. Are you looking at the base model or the Tesla? "It's not always clear," Pride says.
Also inquire about maintenance and updates. As the industry has consolidated, some investors have come from outside the GTM space, prompting concern about their willingness to maintain and update the systems' content and functionality during the long term. A few questions can help assess this: Have employees in product management been let go? How frequently do you release new versions? How much are you investing in the system?
steps to Implementation
One first step to a successful GTM implementation is reviewing current processes and systems. If a supply chain organization uses several systems, all doing similar things but in slightly different ways, a GTM implementation is an opportunity to standardize and centralize these processes.
That's the case with the four divisions within Altana. "We're going to go to one GTM that will be centrally maintained," Duty says. That will help boost both efficiency and compliance. Say one employee enters "ABC Company" while another writes "ABC Co."; a centrally maintained system will offer a greater ability to catch all variations.
A second step is to define the business requirements and have a solid idea which features are most critical before contacting a vendor, Pride advises. For instance, if you're limited to shipping no more than $3,000 of a specific product per day, and you're shipping from six locations, you'll want a system that can monitor all shipments and alert you when you're closing in on the limit.
Any GTM is only as accurate as the data within it. In particular, the harmonizing codes and final recipients "are the two things you have to get right," Grackin says. Mistakes in either can lead to fines, penalties, delays, and other negative consequences.
To do its job, a global trade management system has to work with the multiple parties involved in cross-border trade, including carriers, suppliers and others. Getting everyone on board can be challenging. "Can the GTM company help?" Schneider asks. Does it have experience onboarding suppliers? Has it located staff in the regions of the world in which your suppliers are located?
While a GTM should automate most trade transactions, it may not make sense to try to automate every single one. "You want to automate as much as possible, but not spend thousands to get the last 3 to 5%," says Joe Vernon, supply chain analytics practice leader with Capgemini America.
Given that exceptions are going to occur, plan how you'll handle them before you implement a system. For instance, who will research potential recipients who show up on the denied party list, and check whether a mistake in their name caused them to land there? What time frame will they have?
"Weak processes can cause all kinds of problems," Duty says, particularly if the data isn't as clean as it should be.
Once a system is up and running, use the data it provides. "These systems collect a tremendous amount of data, but few companies leverage it," Grackin says. If the system shows it's difficult to get shipments out of a particular country, it may also provide insight into routes that would be more straightforward.
Many GTM systems can also offer information on a product's chain of custody, such as the farm at which a shipment of crops was grown. This data is becoming increasingly important, given consumers' growing interest in the provenance of the goods they buy, as well as increasing regulations around tracking the chain of custody for pharmaceutical and other products.
AI AND BLOCKCHAIN
Artificial intelligence (AI) and blockchain technology, while emerging, are enhancing the capabilities of GTMs, says Troy Duncan, managing director, trade and customs, with KPMG. Blockchain, for instance, can track products and trade documentation—a key function for products such as pharmaceuticals.
Advances in AI also promise to make trade compliance easier. Today, for instance, an employee may need to check a potential recipient's age by pulling their driver's license for each shipment. AI can streamline this check.
As GTM system capabilities improve, so will their value—especially as trade regulations and tariffs proliferate and change. While compliance professionals are critical to efficient, effective global trade, proper tools can enhance their efforts.
"GTM systems are starting to hit their stride," Slossberg says.