Dealing with Global Trade Management Complexity

Dealing With GTM Complexity

The moves of JP Morgan Chase and TradeBeam, and their respective acquisitions, as discussed in Market Leaders of Global Trade Management of this note, indicate that the global trade management (GTM) space is consolidating and that point solution providers are disappearing. Leaders like JP Morgan Chase and TradeBeam understand that to truly improve global trade, one must be able to manage both the physical and the financial supply chain across the entire trade transaction. The physical supply chain consists of export/import compliance, document management, shipment tracking, supply chain electronic management (SCEM), inventory management, global parts management, security management, and contract management. The financial supply chain refers to tasks such as purchase order processing, letter of credit (LC) management, open account management, pre- and post-shipment financing, reconciliation, invoice presentment, dispute management, foreign exchange, and insurance management (See figure 1).

As for the acquisition of Open Harbor by TradeBeam, product integration should be complete by the second half of 2005, and TradeBeam pledges to maintain uninterrupted service and support for a key group of Open Harbor clients during the immediate transition phase and post contract execution. TradeBeam has also been engaged in discussions with Open Harbor's customers to understand their specific circumstances, the scope of their projects, and to jointly agree on terms to work together to ensure alignment of business goals. GTM is a new and potentially very large enterprise applications space that has been compared by some to be the next corporate paradigm after enterprise resource planning (ERP). TradeBeam is considered a thought-leader because of its significant "first mover" advantage. It has had a few years head start compared to most competitors, and began with an "end-to-end" GTM portfolio, and did not retrofit its solution onto other "cousin" enterprise applications. So far, TradeBeam has an impressive functional scope, and it promises much more in the future.

Figure 1: Physical and financial solutions value chart (Source: TradeBeam)

Some enterprise applications, such as international trade logistics (ITL) and GTM simply seem to lend themselves well to a hosted model. Because of their widespread nature, they can not efficiently work the other way. Namely, global import/export "procure-to-pay" or "order-to-cash" processes entail a number of activities, such as source suppliers and customers; process purchase and sales order; insure goods; issue and receive LC; finance trade; arrange shipping; create trade documents; customs compliance export/import; send and receive goods; send and receive invoice; reconcile; and initiate and receive payment (see figure 2).

On a more granular level, these activities belong to the following sub-processes:

• order—includes plan demand needs, manage bills of materials (BOM), manage product catalogs, check inventory status, create purchase orders, check compliances, manage inventory, manage purchase orders, assess supply chain management (SCM) risk, acknowledge order, classify goods, calculate landed costs, manage contract, insure goods, and obtain credit insurance
  
  
• finance—apply and manage LC, manage documents collection, manage open account, request financing pre- and post-shipment, check compliance, assess SCM risk, and arrange foreign exchange
  
  
• ship—request booking, ship book, create ship notification, create shipping documents, manage shipping notification, manage shipping guarantee, track shipments, manage events, assess SCM risk, manage customs, clear customs, receive goods, and manage returns
  
  
• settle— create invoice, present invoice, reconcile documents, manage disputes, prepare documents, present documents, manage insurance claims, and receive remittance

In any case, many of these could only be efficiently fulfilled through a Web-based hosted solution, priced per transaction. To optimally complete the global trade cycle, a business must automate, track, and provide visibility to the entire GTM process to optimize its supply or distribution chains.

The average global trade cycle of order through settlement is 120 days, whereas a comprehensive hosted GTM solution like the one from TradeBeam can reduce this cycle by an average of 12 days, which can improve users' cash flow by 10 percent or so.

Figure 2. Global order-to-cash and procure-to-pay cycle

This is Part Five of a six-part note.

Part One defined GTM.

Part Two discussed the tradeoffs.

Part Three addressed managing global trade flows.

Part Four presented the GTM leaders.

Part Six will present challenges and make user recommendations.

Web-Based Tools

The number of users wanting solutions delivered over the Internet with monthly subscriptions or transaction-based fees has noticeably increased. Most new customers want a transaction-based model rather than a straight purchase with a big, upfront, payment (see Trends in Delivery and Pricing Models for Enterprise Applications). Moreover, an enterprise-wide, on-premise approach to global trade and logistics might not be the best approach because of high costs and implementation difficulties. In fact, products with the broadest appeal for global trade today appear to be hosted, web-based solutions that allow companies to go outside their firewall to deliver supply chain visibility, event management, multimode logistics execution, import and export management, and trade security to enterprise shippers.

Such a web-based tool is not just the choice for connecting to far-flung carriers, forwarders, and other service providers, but is often a better approach than ERP-oriented solutions for trade compliance and documentation. This is largely because ERP systems usually only have product marketing descriptions in their item master data, not technical descriptions needed for regulatory compliance. So, for example, if Apple Computer is importing PowerBooks, its name and associated marketing description would not be adequate for US Customs. Trade compliance applications should be able to take the marketing description off of the purchase order and associate it with a commercially acceptable description and the correct Harmonized Tariff Schedule (HTS) classification. For example, the system should list the PowerBook as a laptop computer with certain features and specifications, and the right HTS code number.

Further, complying with the 24 Hour Rule, and based on the importer's purchase order, and the information about the customers' products, the application should be able to create the shipping instructions for the forwarder and send it to the carriers for their manifest. Thus given all the information that needs to be complied, a web-based system, connected to trading partners around the world, should be faster, easier, and better than taking an enterprise-based system and trying to turn it into a global logistics system. Enterprise-based systems are notoriously difficult to integrate with a large network of users. Also, hardly any company would want its ERP master data going directly to vendors. It is far more secure to have a system that takes only the absolute necessary data from the ERP or back-office system to share with the supplier.

In the case of TradeBeam, the company has been striving to distinguish itself from peers and competitors by offering more than the mere ability to track orders and shipments, by aiming to improve all three groups of activities that make up a global trade—the order, the shipment, and the financial settlement. It has designed several so-called "solution blueprints" for solving specific global trade issues, ranging from providing import shipment visibility and trade compliance to eliminating financial discrepancies while managing LC. TradeBeam's Solution Blueprints begin with the key pain points of global trade and identify tools and strategies available to corporations seeking the advantages of the value of optimized GTM. They include an on-demand set of GTM applications that individually might contribute significant value to a corporation while solving specific event management problems. This supply chain monitoring system enables businesses to proactively monitor their supply chain performance by automatically alerting users to exceptions in the order fulfillment process. TradeBeam harnesses data to provide integrated decision support to give managers their best response to out-of-tolerance situations pertaining to order execution and fulfillment. TradeBeam provides near real-time monitoring, measuring and visibility of order and shipment tracking across the entire global supply chain.

Competitive Landscape

Although the TradeBeam's solution has been (and will be) indisputably competitive, especially in light of Vastera's logistics product gaps, the GTM market is characterized by early adopters and is rapidly evolving. Even a company of TradeBeam's current stature—one with several years of existence, less than $20 million (estimated) in annual revenues, an immaculate financial position, and a slew of marquee customers—might not be able to maintain its competitive position against current and potential competitors in the long term, especially against international brokers, freight forwarders, logistics companies, and other companies with greater financial resources, name recognition, and other resources. Competition might also come from in-house development efforts, consulting companies, other software companies, and third-party development efforts. The market is competitive, rapidly evolving, and highly fragmented, and one should only expect the intensity of competition to increase in the future.

Just as banks, such as JP Morgan Chase, are changing their roles, so will the roles of third-party logistics (3PL) providers, which are focused predominantly on the management of the shipment bookings through proof of delivery process and logistics costs management. As user companies continue to embrace the value of broader GTM solutions, logistics providers will be looked upon to provide leadership and to add more value to the entire order life cycle, including purchase order management, total landed cost modeling, insurance and claims, import/export compliance, security regulations, and more seamlessly integrate invoice reconciliation and trade financing systems.

Like other parties in global trade, 3PL providers must still mitigate their risks of providing correct and timely documentation relative to documents for transportation, customs, and settlement, such as LC. They will also be liable for trade compliance issues such as denied parties and anti-boycott and will need a corporate wide solution to protect them from liability. TradeBeam will likely prefer to partner with banks, 3PL providers, or even some logistics management vendors like G-Log or Xporta, given the currently complementary nature of their offerings. These entities, however, might likely decide to grab a bigger slice of the GTM pie through acquisitions such as that by JP Morgan Chase of Vastera or through in-house developments and competency building.

Additionally, the number of stand-alone GTM vendors is quickly dwindling, given the fairly recent mergers of SSA Global and Arzoon (see SSA Global Forms a Strategic Unit with an Extended-ERP Savvy); TradeBeam and Open Harbor, Qiva, etc.; and Kewill and TradePoint (which had previously acquired ClearCross). One should expect GTM software technology and managed services to continue to merge. These acquisitions may also indicate that further, accelerated restructuring in the logistics services market is inevitable. Currently, there is a plethora of point solution providers that specialize in narrow areas, from land cost calculation, visibility, collaboration, export compliance, trading document generation, hazardous material handling; they may move to more complete transportation management capabilities.

There are, however, a number of remaining players in several niches, just enough to muddle the message and nibble at the potential revenues of full-fledged GTM players. For example, we could talk about the remaining ITL players like NextLinx, Precision Software, Intermart, Nistevo, MercuryGate, Xporta, Tarrific.com, OCR Services, Importers Software Services, MSR Customs Corp., Questaweb, GT Nexus, and LOG-NET, global settlement players like Bolero.net, TradeCard and S1, and a number of other vendors that, arguably, are more specialized in SCEM, visibility, and shipment tracking like Viewlocity, Descartes Systems, Management Dynamics (through recently acquired BridgePoint), Timogen, etc. But, none of these vendors handles all the requirements of automating global e-business. Furthermore, some of these vendors have apparently already merged with or acquired other companies to provide more complete offerings.

Still, some companies are comfortable with using freight forwarders to handle the details of cross-border movements. Companies wanting visibility of the critical events like departed origin, estimated arrival date and time, arrived at customs, cleared customs, etc., may be served well by SCM vendors and stand-alone SCEM and visibility solutions. Namely, both supply chain planning (SCP) vendors like i2 Technologies, Manugistics, or Logility and SCE vendors like Manhattan Associates, RedPrairie, HighJump, and Provia offer visibility and trading partner collaboration components to provide transparency of inventory, orders, and shipments across the entire trading network. These systems do not typically have the capability of sharing demand forecasts with suppliers, but, in addition to products like i-Supply, there are other players like OneNetwork, weSupply, RiverOne, or Valdero.

Furthermore, to build a complete and fully-functional GTM system, any user enterprise will have to integrate it with transportation management systems (TMS), ERP, SRM, partner relationship management (PRM) and other adjacent enterprise applications. We might be then talking about a full-fledged logistics resources management (LRM) system that would provide total "command and control" over the entire spectrum of global logistics activities. This spectrum could include transportation procurement contracting, shipment planning and optimization, load tendering, trade compliance, customs reporting, shipment and inventory visibility, warehousing, reverse logistics and could be done over the Internet, so that all internal managers and trading partners can access information. But, at this stage, there is no such thing as a native LRM application that covers all these bases.

This concludes Part Five of a six-part note.

Part One defined GTM. Part Two discussed the tradeoffs.

Part Three addressed managing global trade flows.

Part Four presented the GTM leaders.

Part Six will present challenges and make user recommendations.