Background on GTM Solutions
E-business promises to shrink the world into a "global village" as people source and procure products via the ubiquitous Web. Products and services are bought and sold via various e-commerce sites, and international supply chains are managed with interactive software and trading exchanges. However, though one can hop borders via a computer terminal, e-business still faces the challenges of global trade compliance and meeting the diverse needs of international customers and trading partners. Simply put, most supply chain management (SCM) and enterprise resource planning (ERP) vendors still typically lack strong international trade logistics (ITL) and global trade management (GTM) capabilities.
Most businesses are unprepared for the barriers that exist to conducting international business over the Internet. Large companies are running their international business though an assortment of self-contained, foreign subsidiaries, but they lack global logistics management and instead, operate as separate businesses running their own systems. Moreover, throughout the enterprise itself, functional silos further aggravate a seamless approach to global logistics management. For instance, compliance departments report to legal; purchasing drives import; and export is driven by sales. Meanwhile, the transportation departments focus on getting the best rates. These silos often make gains or losses against each other, and no one really questions whether or not the company is shipping efficiently throughout the system.
Supply chain planning (SCP), trade compliance, strategic sourcing, and other strategic tasks cannot be managed on a global scale when key data is inconsistent and not easily shared. As a result, the logistics costs of every stage the goods go through—from raw goods to the finished, shipped product—may equal close to half of the total cost. The problem is that accounting is hardly assigned to each stage. For example, using the unit price only, a company may deduce that it has saved dozens of millions of dollars by expanding its global supplier base, only to realize later that its total logistics costs increased by twice the amount of its supposed savings because goods where sent on uneconomical less-than-truckload (LTL) shipments.
Successful implementation of GTM solutions requires companies to integrate elements of their physical and financial supply chains. To do this, they must share data and collaborate across functional silos and external business partners. Of course, making different solutions work seamlessly is a challenge in every aspect of SCM. Global logistics is perhaps the most difficult discipline to manage through one platform, because its universe of users is large and spread around the world, and systems and user capabilities vary widely. On the other hand, mandates for more functionality are growing as seen in the recent trade security regulations from US Customs, which will be expanded upon shortly.
To prosper in a highly competitive global economy, where competition can come from Arkansas or Argentina, enterprises have to take advantage of the global availability of reasonably high-quality, low-cost goods and services, low-cost labor rates, and efficient, reliable transportation. If one doesn't, then the competition will.
With this in mind, getting these goods and parts shipped from one country to another is a daunting task. Every country has its own requirements for importing and exporting goods. Tariffs, duties, country-to-country preferences, anti-dumping laws, and increased security measures resulting from September 11, has amplified the risks of non-compliance penalties and general costs. Importers and exporters are subject to a growing list of requirements aimed at improving trade security and preventing terrorism. According to the Brookings Institute, the cost of slowing the delivery of imported goods by just one day because of additional security checks could amount to $7 billion (USD) per year. Consequently, it is more important than ever that companies use GTM software and a service provider that has global trade domain knowledge, proven processes, and international trade best practices.
Security Initiatives Boost GTM Software
In order to secure trade and foster growth, many new laws and initiatives shift from traditional paper-based trade systems to new electronic formats. Emphasis is now being placed on collecting trade information earlier in the supply chain, to integrate invoice reconciliation and trade financing systems more seamlessly. effectively "pushing back the borders".
Thus, time, cost savings, and now security are the main reasons exporters, importers, shippers, financial institutions, and the like are increasingly interested in GTM software. Companies need more functionality from their existing enterprise software packages and providers, and at the same time are spending more cautiously on new technology. To that end, many of GTM products include modules for checking orders against denied-parties lists, tracking suppliers' and end users' activities, and checking compliance with export control regulations. Some shippers are using the software to create electronic advance shipment notices (ASN) now required by US Customs and Border Patrol (CBP) and to comply with C-TPAT, the CBP program requiring importers and their suppliers to document processes to ensure an acceptable level of security.
ERP Backbone Cannot Be Ignored
Importing and exporting are intimately connected with the enterprise's internal finance, and the ease of integrating GTM with ERP is a top priority for many companies. Many shippers are using import/export software to create uniform, global information infrastructures and practices on all company subsidiaries.
For any company that has a worldwide ERP-based order-processing system, the ability to directly link export compliance to order processing and eliminate re-keying data could be a big selling point.
The software should preferably gather information and feed it back into the parent company, creating visibility into the actions and processes of remote divisions. The software providers, though, must strike the right balance between global consistency and local needs (see Standardizing on One ERP System in a Multi-division Enterprise). By working with customs and trade law experts around the world, many GTM software and service providers are including adaptations for local requirements while still maintaining procedural consistency. Global logistics systems should also be well equipped to classify shipments, identify denied parties, collect and disseminate data electronically, and provide the visibility needed to ensure shipment security.
Despite this need, the vast majority of ERP and SCM vendors still lack native GTM functionality. The exception is SSA Global owing to its recent acquisition of Arzoon (see SSA Global Forms a Strategic Unit with an Extended-ERP Savvy).
Nonetheless, considering the ongoing increase in global sourcing, vendors will likely move to fill this gap via acquisitions or through strategic alliances with content providers. The former PeopleSoft, however, may be considered an exception to this rule. Since the midnineties, it has long offered in-built trade compliance capabilities which checks compliance any time an order moves through the system. With this system, a manufacturing company, for example, cannot accept a legitimate order, and then find through a subsequent change of customer name, address, carrier, or country of destination that it has inadvertently breached the law.
SAP Global Trade Services (GTS)
SAP has always been an enterprise application leader. One only has to look at its approach to other adjacent ERP markets, such as radio frequency identification (RFID) or retail management systems, (see SAP's Approach to the Retail Market) to see its leadership in in-house product delivery. Keeping with past trends, in February, SAP introduced an updated global trade solution that should help companies conduct business under the North American Free Trade Agreement (NAFTA) and European Union (EU) trade agreements with lower costs and easier regulatory compliance. Important new trade preference processing capabilities have been added to the latest version of SAP Global Trade Services (SAP GTS), a packaged composite application that enables businesses to standardize and streamline import and export processes to speed-up their global supply chains. Over 125 companies are reportedly achieving new trade efficiencies and legislative compliance with SAP GTS. Of these are Advanced Micro Devices (AMD), a leading designer and producer of innovative microprocessors; ASML, a semiconductor manufacturer; and Teekanne Group, a tea trading company.
Powered by the SAP NetWeaver technology platform, SAP GTS provides companies with a holistic approach to managing global trade activities across their heterogeneous technology landscapes. This new release also offers tight integration with the business intelligence (BI) capabilities of SAP NetWeaver offering customers added flexibility with reporting and new business insight. Developed with the services-based approach of SAP's Enterprise Services Architecture (ESA) strategy in mind, SAP GTS sits on top of a company's existing information technology (IT) environment and pulls data from underlying systems and applications to complete and close the loop on import and export processes.
SAP GTS was first introduced in 2002 to provide companies with functionality designed to directly meet the challenges of today's business environment, where security, speed, and global trade are not only required but are imperative. A key capability of its new product is compliance management. SAP Compliance Management automates sanctioned party list-screening and import and export control through license management and embargo screening. It immediately screens a company's business partners along the sales and purchase management processes, checking them against the latest sanctioned party lists published by government agencies. This commoditized function supports tighter national security regulations and helps companies manage compliance and avoid paying heavy fines because of trade violations.
On the export side, the software checks if a particular product can be exported from one country to another, what licenses and documents are required, and screens for denied parties and embargoes. It then submits the export declaration directly to customs. On the import side, it checks the product against a database of harmonized numbers for classification and appropriate duties and determines whether any trading agreements, favored nation status, or other special rules apply. The ability to claim duty drawback, however, is still only in the planning stage. This capability will eventually leverage import, product, and export information to provide all the documentation a company needs to reclaim duty for imports that have been re-exported.
SAP GTS is a completely new product developed ground up by SAP (although parts of it used to be within the GTS' former incarnation called SAP Foreign Trade). It meets the needs of its customers including global views of trade activities and import/export processes standards in various business units. It also extends the enterprise to work more efficiently with outside parties like custom brokers, freight forwarders, and government agencies. Because interoperability is a big concern, SAP GTS uses open standards and leverages the SAP NetWeaver technology platform to provide companies with a more holistic approach to managing global trade activities. It integrates with back-end logistic processes to enable companies to operate locally and manage centrally. SAP GTM features open standards including XML and Web services, and is able to interact with SAP and non-SAP systems allowing it to sit between several enterprise systems, such as ERP, CRM, SRM, or product lifecycle management (PLM).
Integration With SAP MDM
SAP GTS will also become a unique offering when it integrates with other SAP and third-party modules—feature that is still in development. Such integration will manage master product data and allow greater supply chain visibility. Consequently, SAP's master data management (MDM) module will eventually provide deep product information that will also support trade compliance capabilities in the SAP GTS module. This is of particular interest because US importers have significant compliance responsibilities and will want a greater degree of control over what they are storing. For example large importers, may want a product description and its associated, harmonized classification number in one central system to allow for greater control.
The SAP MDM module (see SAP Bolsters NetWeaver's MDM Capabilities) manages the user company's product data and its relationship with the rules in the SAP GTS module, The two modules link the product description with the appropriate rules for licenses, tariff classification, product origin, and for the parties involved. This way, user companies can buy and sell all over the world based just on the part, product, and associated harmonized numbers, because SAP will be managing that information very precisely behind the scene.
Therefore, SAP GTS should eventually solve two common problems for trade compliance. First, the trade module will always be up-to-date, because does not depend on an internal trade compliance database. Instead, for each transaction, the system will send queries to an SAP reference database that will check the product and shipping data against the most recent trade rules. SAP will thereby be responsible to make sure its centralized trade compliance database is constantly updated. Second, the product will provide a solution for global companies that have multiple ERP systems. SAP MDM can help companies create one instance of product data that all the ERP systems throughout the global enterprise will share.
Integration With SCEM
Further, SAP's version of supply chain event management (SCEM) will also become part of the SAP GTS package in future releases, because companies needs to know the location of their product at all times, across carriers throughout the fragmented transportation systems. To accommodate this, GTS and SCEM information will be delivered throughout the supply chain using the SAP Enterprise Portal application, so that all parties, regardless of size, can access the information with their Web browser. Because all of these functions are to be integrated with the mySAP ERP system, other enterprise functions such as the Transportation Management System (TMS), which is part of the SAP LES (Logistics Execution System) suite, could eventually be automatically integrated into the system.
In 2003, SAP announced the availability of SAP Customs Management, a new component of SAP GTS that should assist customers in expediting the clearance of goods through customs, mitigating the risks of non-compliance, and reducing the overall costs of cross-border trade. The module facilitates electronic messages to the various government trade systems, such as Automated Export System (AES), New Computerized Transit System (NCTS), and Automated Tariff Classification and Local Customs Clearance System (ATLAS). Companies using SAP Customs Management might benefit from faster customs clearance, reduced cycle times, minimized buffer stock, improved customer service, and increased efficiency when selling and purchasing goods globally. Through its use, companies can also classify products to calculate customs duties and taxes more accurately. They can then print pertinent import and export trade documentation, and reduce wait time at the border. SAP Customs Management should also help companies meet strict standards for electronic communication with local customs trade systems to expedite customs clearance.
The recent capabilities of SAP GTS were developed to help companies leverage the benefits of trade agreements, from NAFTA, the EU, and other countries. While the benefits from trade agreements are numerous, the process is highly complex and time consuming because written declarations need to be written by suppliers about product origin to calculate preference eligibility and to fulfillment of document requirements such as movement certificates as the goods pass through customs. SAP Risk Management is the latest component to be released within SAP GTS. It automates this process, by requesting vendor declarations from suppliers, calculating and publishing eligibility information in sales documents, and providing detailed reports. These will supposedly help companies comply with regional trade agreements, eliminate risks through documentation and audit trails, and ensure competitiveness through reduced duty rates their customers can claim. SAP Risk Management ties together these new capabilities along with the existing SAP GTS components, including SAP Customs Management, and SAP Compliance Management.
To continue to help companies drive cross-border trade efficiencies, in mid 2004, SAP announced a new agreement with FedEx Trade Networks, a subsidiary of FedEx Corp., whereby user companies can integrate and use worldwide duty and tax data from FedEx Trade Networks through SAP GTS. FedEx Trade Networks and SAP has since been working together to help companies automate, standardize, and enhance international trade processes. The integration between FedEx Trade Networks, SAP GTS, and a customer's ERP system (either from SAP or a competitor) should help mitigate trade risks and allow for enhanced supply chain transparency. Trade compliance managers will be able to review and calculate imports and exports accurately, since the flow of goods is visible via SAP GTS. Automatic updates also includes among other things HTS numbers and duties. It will also
- Enhance supply chain compliance by having access to accurate product classifications and corresponding duty and tax information in one central location
- Audit product classifications in foreign markets ensuring subsidiaries (or affiliates) pay the lowest legal duty rate
- Save money in global purchasing by choosing the lowest-priced vendor based on total landed cost, which includes prices, taxes and shipping costs
FedEx Trade Networks has since been offering SAP GTS customers a competitive advantage with up-to-date customs duty and tax information from more than 118 countries worldwide, and importers and exporters will now benefit from tariff schedules that are continuously collected, simplified, standardized, and translated into English and uploaded into SAP GTS. Hence, SAP GTS customers should now be able to purchase and use FedEx Trade Networks data to plan, bid, operate, and audit duty and tax data more effectively.