Unifying Global Trade Management: Challenges and User Recommendations

Complex Requirements Drive Future Development

Enterprises with global operations can no longer manage their transportation needs with generic sourcing and e-procurement applications. They need more astute systems to address their evermore complex requirements. The functionality of their supply chain management (SCM) systems will also need continual enhancements to manage supply chain business relationships, transactions, and communication.

Undeniably, while supply chain outsourcing is exploding because of offshore manufacturing, subcontracted manufacturing, third-party logistics, sadly, too many companies pursue adverse "follow suit" strategies because of poor and incomplete information. Today, logistics costs across industries average double-digit percentages of revenues. Multiple factors, such as rising fuel costs, driver shortages, trade policies, border, and security measures will continue to drive logistics costs higher. Still, few companies adequately factor in the cost of global logistics in their outsourcing decisions. Decisions are based almost exclusively on per-unit nominal manufacturing costs and irresponsibly, do not consider deeper logistics cost data.

Therefore, in addition to global trade management (GTM) solutions, companies should consider solutions that support strategic and tactical decision-making, such as logistics activity-based costing, which is offered by companies like Acorn Systems; strategic supply network design from i2, SSA Global, Insight, LogicTools, Manugistics, Oracle etc.; and optimized strategic sourcing, as offered by MindFlow or TradeStone.

The situation might become even more jumbled with the recent US Federal Maritime Commission's major ruling, that allows Non Vessel-Owning Common Carriers (NVOCC) to negotiate private contracts with their customers. The ruling, which effectively deregulates the US maritime industry, attempts to level the playing field between shipping lines and the freight-forwarding community, and thus ends the six-year advantage that vessel-owning shipping lines had over the non vessel-owning ones. In other words, shippers with less freight than large corporations, which, for several years have privately contracted with ocean line companies, will now the same opportunity.

Whereas the passing of the US Ocean Shipping Reform Act (OSRA) in 1996 freed ocean lines to create private contracts with independent customers, now NVOCCs will have basically the same power. However, this freedom comes at the cost of many planning and execution alternatives for shippers. Moreover, emphasizes the need for more complex contract information recordkeeping for NVOCCs and executing against such contracts.

One might note that a similar move was made by the US government in the early 1980s with the deregulation of the trucking industry. This resulted in a new enterprise applications category—transportation management systems (TMS)—that has helped optimize decisions for trucking services. The NVOCC ruling should help smaller shippers, as well as introduce more options. Consequently, one should therefore expect similar software solutions for the planning and management of ocean freight alternatives to emerge. Such a solution will likely resemble a TMS solution and will include ocean and sea-based transportation. As a result, companies that continue to rely on people-intensive, paper-based processes may end up walking away from potential savings if they do not switch.

Such technology should definitely help shippers navigate the maze of alternatives between providers, rates, and service, and broader logistics resource management (LRM) systems required for NVOCCs to manage the new multitude of private contracts. There will also be a need for multimodal transport procurement optimization, rate and service databases, sailing schedules, and shipment management and settlement functions, as shippers analyze and predict freight demand and negotiate contracts with their carriers that keep rate increases to a minimum. It will also have to secure capacity in the right lanes as best as possible, especially for critical seasons. These systems should allow shippers to create and issue standardized bids, optimize across multiple carriers' responses, convert the results into digitized on-line contracts, and create detailed plans that weigh price, service, and capacity commitment levels across the network of a shipper's select carriers. Currently, vendors that come close to fulfilling these tasks include the likes of GT Nexus and Management Dynamics.

However, just as with any SCM application, the benefits of an optimized plan cannot be realized unless an execution system is put in place to monitor and ensure daily compliance with negotiated contracts and commitments (see SCP and SCE Need to Collaborate for Better Fulfillment). Consequently, these multimodal TMS systems will have to monitor both sides of the contract, as either the shipper or the carrier may not live up to their commitments. That is to say, shippers must follow the plan, make sure their forwarders are following it, and continuously track the actual versus planned situation to ensure commitments are being met and the desired ocean freight savings are being realized. There appears to be more options for vendors than there are in the planning phase, with solutions offerings from vendors the likes G-Log, i2, TradeBeam, and Descartes.

This is Part Six 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 Five discussed dealing with GTM complexity.

Shippers Balk at One System Fits All

Currently, it is clear that TradeBeam is far from being close to espousing an LRM system, given its forays to deliver some intrinsic GTM capabilities, such as foreign exchange, transfer pricing, contract management, compliance audit, or inter-company orders. On the other hand, some point solutions might still have exceptional functional traits, that appeal to customers inclined to purchasing software in a piecemeal manner due to financial constraints.

Some believe that there are too many silos of technology for any vendor to handle every aspect of global logistics, and many companies may decide on separate packages for trade compliance, TMS, forecasting, or other tasks. Given that a lot of logistics and manufacturing is outsourced, companies also need technology to work with the counterpart systems used by their carriers and 3PL providers. Trying to roll all of these diverse capabilities into a single application, based on a single set of universal data standards, is certainly daunting, if not a wrong approach. No doubt, trying to integrate disparate systems has always been a challenge, but the emergence of Web services-based architectures, however, may ease some of these integration issues, at least in a loose-coupled and hosted mode. For instance, a freight forwarder and customs broker may first buy modules to help them conduct denied-party screenings and put together landed-cost quotations, based on customers' requests for assistance with those specific activities. The software typically steps in when automation can meet customers' requirements faster and more efficiently than existing capabilities.

ERP Backbone Cannot Be Ignored

However, importing and exporting are intimately connected with the enterprise's internal finance, increasingly making ease of integration with ERP systems a top priority for many companies. For any company that has already rolled-out an ERP-based, order-processing system worldwide, the ability to link export compliance around the world to directly order processing and eliminate re-keying data, could be a big selling point. Also, many shippers are using import/export software to create worldwide uniform information infrastructures and to impose uniform practices on all subsidiaries.

The software should preferably gather information and feed it back into the parent company, giving it visibility into what remote divisions are doing and how they are doing it. The software providers, though, must strike the right balance between global consistency and special local needs (see Standardizing on One ERP System in a Multi-division Enterprise). Working with customs and trade law experts around the world, many GTM software and service providers have thus been building in adaptations for local requirements while still maintaining procedural consistency.

For example, Arzoon, which was recently acquired by the ERP dignitary SSA Global, was one of a few dot-com TMS start-ups to become what was possibly the first software vendor to provide an integrated TMS/GTM solution. Arzoon, with offices in North America and Europe, achieved this feat by acquiring From2, Inc. a provider of trade compliance content and automation software, in March 2001. The move gave Arzoon's existing procurement, and inventory, and transportation management suite Web-based ITL/GTM capability for regulatory compliance, cross-border landed costing, and global trade document generation. It also excelled in options for rail, an area where TMS and LRM vendors were limited. Before the SSA Global acquisition, the company had developed Internet transportation technology (logistics exchange) to help companies procure, monitor, and manage services that involve one or more modes of transportation—rail, highway, air, or water.

In addition to such functionality, global logistics systems should be well-equipped to classify shipments, identify denied parties, collect and disseminate data electronically, and provide the visibility needed to ensure shipment security. The Arzoon LIFE software suite takes item-level data from a purchase order and then records each movement of the shipment to document who exactly has touched it. The system, which incorporates a database of trade regulations, tariffs, and duties from more than twenty-five countries, heads-off potential problems at border-crossing by letting user companies correct inaccuracies in shipping documents before goods reach the border. The system also lets companies track shipments by multiple reference numbers in a single lead of cargo, providing much greater visibility into shipment status. This visibility into individual shipments (via pre-inspection of purchase orders) also makes it possible for the companies prioritize and move urgent freight orders ahead of less urgent shipments.

Yet, with the exception of SSA Global, the vast majority of ERP and SCM vendors still lack native GTM functionality. However, considering the ongoing increase of global sourcing, they will likely fill this gap through acquisitions of providers or through strategic alliances with content providers. An exception to this trend was pre-acquisition PeopleSoft (currently owned by Oracle). PeopleSoft had long offered a built-in trade compliance capability (since the mid 1990s). For example, any time an order moved through the system, or changes its status, it would be checked for compliance. Thus a legitimate order could not be excepted only to later find that the company inadvertently breeched the law because of changes to the customer name, address, carrier, or country of destination.

Conclusions and User Recommendations

The moves of major GTM players demonstrate the need for a software category that handles incomprehensible regulations, complex supply chains, inevitable disruptions (due to the weather or geopolitical events etc) and so on. As enterprises move production and continue to source from remote places worldwide to supposedly lower item costs, complexity will inevitably be introduced into the supply chain, resulting in bloated multi-echelon inventories or lower customers service levels.

Companies that need to manage intricate details of their goods movements across borders, such as trade financing, regulatory compliance, HTS coding, multimodal carrier handling etc., may want to look for a full-fledged GTM system. The ITL or GTM system should be able to track all the activities and incremental costs as the shipment is processed from point of origin to final point of receipt.

However, while this technology (like most other IT tools, for that matter) can provide critical assistance, it will not replace the import and export savvies of experts knowledgeable about international trade. It will also not eliminate the need for freight forwarders and customs brokers. Now that US laws shifts the responsibility and of customs compliance to the importer, human experience and expertise might even become more important than ever to manage financial decisions or negotiate cultural issues. It is not just a matter of diligently inputting data. Everyone has to be preemptive in managing international trade.

Once the GTM/ITL software is fully implemented, dedicated staff will have to meticulously update and manage the content and programs, and more importantly, trade experts will be needed to interpret reports and respond appropriately. GTM software typically provides an indication whether there will be an issue, whereas users will have to follow up on those alerts by researching other sources, either electronically or manually. The software alone will never completely prevent logistics delays and disruptions either. Optimized processes, procedures and training are needed, but even then many problems caused by the factors that are beyond anyone's control may arise.

In any case, manufacturers also need to make sure their outsourcing providers have the necessary global trade and logistics knowledge, skills, and technology. They might want to audit their outsourcers to ensure that the documentation is being done properly. In order to thoroughly monitor customer transactions, new account openings, and relationships and timing between account transactions, large corporations must ensure scalable solutions that are capable of handling high volumes of transactions.

Customs duties and tariffs, as well as associated rates of exchange and transportation costs should be available to accurately calculate total cost of goods, which requires a data model and integration at the product and item level between the ITL system and ERP, order management, warehouse management, transportation, and other pertinent enterprise systems. While the integrated GTM features by ERP providers will have the logical advantage of unified data, there is usually a trade-off that the software will provide only the procedural framework. The user must build in business rules and regulatory content.

As mentioned earlier, the complexity and specialization of the GTM space makes it hard for any aspiring vendor to handle all the requirements of automating global e-business, and these issues and requirements should be taken into account when selecting either a stand-alone ITL/GTM system or one within a broader SCM framework. Therefore, owing to a still fragmented market, one should keep in mind that each GTM package will have its own unique combination of features components and will require varying degrees of data input and updating by users.