How the Leaders Are Tackling Global Trade Management

Aberdeen Group’s Chief Supply Chain Officer (CSCO) Survey, conducted in July 2012, collected data from 191 companies. That survey revealed that the increase in the number of suppliers, customers, carriers, and countries of trade is changing the importance of collaborative synchronization between all parties in the multi-tiered global supply chain. As a result, we’re seeing a growing shift in focus towards collaboration and Global Trade Management (GTM) with suppliers and trading partners.

The insights in this article will focus on an important segment of that research sample—the 69 companies in discrete manufacturing industries. In particular, we examine the key process and technology differentiators displayed by the chief supply chain officers in these companies to improve visibility to supplier/partner/customer product flow across an increasingly global, multi-tier, and cross-channel distribution network.

Complexity Overtaking the Supply Chain
Our CSCO study found that the top business pressures facing the discrete segment are the impact of increasing supply chain complexity (that is, longer lead times and lead-time variability, or increasing numbers of suppliers, partners, carriers, customers, trade countries, logistics channels) and rising supply chain management costs (for example, total landed costs, fuel costs, labor costs), as shown in Exhibit 1.

Globalization, global trade, and offshore sourcing are on the upswing as the overseas supplier base grows relative to a given company’s home country. Three quarters of the companies in the discrete segment report having suppliers in China and 60 percent indicating suppliers in Europe. Fully 90 percent of discrete companies in this study have imports or exports, compared to only 38 percent for the others. Other key findings regarding the discrete companies compared to the other respondents include:

• 84 percent of discrete companies are importing (receiving from other countries) vs. 74 percent for others.
• 88 percent are shipping domestically vs. 74 percent for others.
• 83 percent are receiving domestic shipments vs. 64 percent for others.

Exhibit 2 illustrates the percent of suppliers by region among the companies in Aberdeen’s survey data. (Note: Discrete companies’ percentage indicated in black; all other companies in red).

Top Supply Chain Strategic Actions
Exhibit 3 compares the top strategic actions that discrete and other industry segments are pursuing to alleviate the pressures associated with globalization and supply chain cost or complexity. Top among these strategies is internal collaboration, as companies struggle to synchronize and integrate data across various management systems and internal groups. This strategy of multi-party, multi-enterprise collaboration in GTM has held fairly constant during the last year.

All companies need internal collaboration to operate; however, the level of external collaboration and its relevance grows with the degree of overseas sourcing and global trade. And as was shown in Exhibit 1, consistent with the level of overseas sourcing, the discrete segment is more than twice as likely as the others to be pressured by the growing numbers of supplier, carrier and trading partners.

Not surprisingly, when it comes to strategic actions the companies in the discrete group desire higher levels of control and coordination with the external parties they depend on. For example, they are 1.65-times more likely than the others to “consolidate or redesign sourcing geographies across multi-tier points” and they are 1.69-times more likely to outsource, optimize and manage logistics services providers (see Exhibit 3).

Discrete and process industries alike are hoping to address the rising costs with more seamless systems and process flows—both within their own company and with their extended multi-country, multi-party supplier base.

To gain visibility and address this complex, multi-party global supply-and demand GTM challenge, we see that the discrete companies are more focused on “B2B collaboration/visibility” with suppliers, trading partners and 3PLs. Consistent with this priority, the vast majority of discrete companies (88 percent of those in our survey) indicate they have plans to invest in new supply chain visibility platforms. The intend to connect them to GTM processes and technology within the next 12 months to drive Return on Investment (ROI) success. (We will elaborate on this further in our discussion of supply chain visibility below.)

Synchronization of Process Steps: Inbound to Outbound
The global landscape is changing and the new priority for the office of the CSCO has shifted to supply-and-demand synchronization across each linked process step in the extended global supply chain. In a March 2012 study, we explored the level of capability the average company has when it comes to coordinating information and synchronizing operations across these process steps from source to end consumer (see Supply Chain Visibility Excellence: Mastering Complexity and Landed Costs, Aberdeen Group, March 2012).

In Exhibits 4 and 5, we plot the degree of automation from the 183 companies mentioned in that March study across the Best-in-Class (top 20 percent of aggregate performance scorers), Industry Average (the middle 50 percent of aggregate performance scorers), and Laggards (the bottom 30 percent of aggregate performance scorers). Looking at the best-in-class, for example, we identified the following performance levels:

• 96 percent of orders delivered complete and on time.
• 96 percent of orders received from suppliers complete and on time.
• Decreased by 3 percent the total landed costs per unit.
• Decreased by 3 percent supply chain costs relative to revenue.

Examining these companies across 21 key inbound-to-outbound process steps we can better understand process weaknesses and isolate potential areas of improvement for the office of the CSCO. As we discovered in prior studies, companies of all sizes and classes are hampered in their ability to track, monitor and synchronize supply chain process steps with trading partners.

Generally, only about 30 percent of companies (average of blue bars in Exhibit 4) have automated data and event monitoring and/or have optimized process capabilities in place. From source to destination, the 13 inbound process steps or milestones needed to synchronize product and information flows are still being monitored manually (phone, fax and email) in up to 49 percent of all companies.

The good news is that leading companies have superior financial and service metrics and are several times as likely as their peers to automate many of these events. For instance, compared to the Industry Average and Laggard companies combined (all others), the Best-in-Class are more frequently measuring and automating events for inbound:

• Suppliers’ projected production plans—Best-in-Class are 1.42-times more likely to track than all others (68 percent of the Best-in-Class monitoring this milestone).
• Customs clearance events (inbound)—They are 1.34-times more likely to track than all others (90 percent of the Best-in-Class monitoring this milestone.
• In-transit status events at order line level (inbound)—Best-in-Class are 1.34-times more likely to track than all others, with 87 percent monitoring this milestone.

On the outbound side (Exhibit 5) eight additional linked process steps are plotted and the picture is almost identical. In the typical sequence of event flow (i.e., outbound from shipment/pickup to proof of delivery and settlement), the degree of visibility/collaboration and automated monitoring and control ranges from 24 percent to 45 percent (blue bars). So across warehousing, pickup, outbound transportation/delivery, and payment, anywhere from 28 percent to 49 percent of respondents claim they are still manual (phone, fax and email).

Once again the good news is that leading companies are performing better and are several times as likely as their peers to automate many of these events. For outbound compared to all others, the Best-in-Class from the study are more frequently measuring and optimizing:

• Trucking (haulage) events—1.24-times more likely to track than all others (84 percent of the Best-in-Class monitoring this milestone).
• In-transit status events at order line level (outbound)—1.20-times more likely to track than all others (84 percent of the Best-in-Class monitoring this milestone).

Capabilities for Global Visibility and GTM
So far we have we have discussed the growing interest in GTM, supply chain visibility, and collaboration platforms in the extended supply chain in response to globalization and rising supply chain costs. Let’s now dig deeper into the visibility aspect.

Aberdeen’s 2012 Chief Supply Chain Officer Study reveals that 78 percent of executives surveyed said that improving extended supply chain visibility was a top priority. But this requires integration—bringing together best practices and integrating global trade process improvements with the technology available in the market today. It also requires a focus on performance management and automation. In the following sections we explore the capabilities that the leaders have in these key areas.

Performance Management/ Knowledge Management
When KPIs related to Global Trade Compliance (GTC) are embedded in management objectives from the chief supply chain officer down, it drives performance. In Exhibit 3 we saw the relative importance of enabling internal staff and management teams to “collaborate” behind the GTM program and initiatives. But performance management extends beyond the internal organization and becomes extremely crucial in the extended collaborative supply chain. Again, it is not surprising that the Best-in-Class are both measuring more comprehensively and extending performance management to their vendors or suppliers.

• At 80 percent, the Best-in-Class are 1.6-times as likely as all others to support vendor enablement with process and technology (a performance management focus). They are more capable of accessing and integrating with freight forwarders, carriers and brokers as well as measuring and monitoring their real-time performance.
• At 65 percent, the Best-in-Class are 1.4-times as likely as all others to support cross-functional cost, metrics and reporting provided to management on a regular basis. This capability from a knowledge management standpoint allows management to assess the performance of their internal and external teams.

Compliance Management and Automating Trade-Related Knowledge
Having near real-time access to the latest trade related content is very important. Even a 10 percent improvement can lead to superior performance. Frequent and accurate updates on security regulations, tariffs, restricted party lists and other trade-related information are needed for fast and effective trade compliance management. About half of all respondents have adopted or developed automated software tools to obtain such content.

Likewise, the degree of automation is another differentiator across all classes. “Automated” companies (those that have some or high levels of automation) are 3.44 times as likely as the “mostly manual” companies to have automated customs entry validation or audit. Similarly, they are 3.5-times as likely to automate supplier enablement, whether manufacturer or distributor (e.g. electronic interface or integration via EDI, XML, portal, and SaaS). (For more on the automation advantages, see accompanying sidebar.) Having timely access to accurate trade data and then being able to proactively execute for exception management is one of the fundamentals to successful GTC/GTM management.

GTC and GTM generally lag behind other more generic supply chain software (such as supply chain visibility, transportation management systems or labor management systems) as to the level of “manual” functions vs. automated. Sixty-seven percent of all companies in this study report that some components of their overall GTM/GTC technology solution involve manual trade compliance practices, with many hybrid and fragmented automation efforts for certain processes reported.

While a given component of technology like ERP may be adopted at fairly equal levels across all companies, there is generally a wide variety of disparate systems, including in-house custom solutions, that in aggregate make up the overall GTM/GTC system. Indications are that this will continue to be the case. Today’s multi-enterprise supply chain is evolving and well over 60 percent of companies indicate that they intend to continue to incorporate collaborative tools to help seam together legacy, ERP, BI, SC Visibility and GTM needs and become more automated.

We’ve identified the following main levels of global trade management technology maturity as reported by respondents (in ascending order of automation): 

• “Mostly manual” and spreadsheet driven (25 percent).
• Fragmented IT approach (28 percent).
• Departmental level automation (15 percent).
• Some end-to-end and cross-functional process automation (23 percent).
• Highly automated (9 percent).

Benefits Explored: The Impact of Process Automation on Metrics
Aberdeen Group in this report defines “automated” companies as those with some cross-functional automation or a high level of automation (compared to those with “mostly manual” process automation). As the sidebar shows that there are some fairly dramatic automation advantages across these two groups. But do these automation gaps result in superior metrics? The automated companies have delivered superior gains as follows:

• Automated companies had an annual average improvement in effectiveness of 9.07 percent vs. 3.67 percent for the “mostly manual” companies. The trade compliance functions included in this metric are balanced across reduced supply chain risk and/or costs, increased staff productivity/effectiveness, or improved trade relations with government or trading partners.
• The productivity of the trade compliance staff vs. the prior year improved for automated companies by 25.88 percent compared to just 9.81 percent for those that are mostly manual.
• The number of supply chain disruptions (on import/ export shipments) due to trade compliance errors vs. the prior year decreased for automated companies by 4.29 percent compared to a 1.03 percent increase for the mostly manual.
• Companies with automated processes for restricted party screening are 35 percent more likely to have maintained or decreased government fines for non-compliance vs. the prior year.

Of the 69 discrete companies, 51 are planning to either invest in or enhance their capabilities in the areas GTM and GTC to be “more connected and automated”.
The real challenge in selection is aligning the right technology/solution to each operation’s specific need or operating profile—and then ranking the cost/benefit analysis for all the competing options and to evaluate the relative payback each choice may yield.

While Global Trade Management and Global Trade Compliance vary radically from one supply chain to the next, there is broad consensus (up to 78 percent of CSCOs) that these areas are ripe for renewed investment in the next 12 months. However, each company has different operating profiles and requirements. And these always should be matched to the solutions that best fit their current operating needs. 

Three Recommendations for Success
As companies go global and increase the numbers of trading partners, the need for collaborative integration with external parties is certainly going to intensify and raise new challenges for supply chain leaders. As the degree of global collaboration grows—and global supply chains become more complex—it is likely that visibility systems and global trade platforms will increase and, as Aberdeen predicts, gain added popularity. All of these trends give evidence to the growing complexity and multi-tiered nature of today’s supply chain.

As illustrated by our research specific to supply chain visibility (Supply Chain Visibility: Fostering Security, Resiliency, and Efficiency, Aberdeen Group, March 2012), the top performing companies are most successful in integrating their people, process, and technology.

Those successful in this threefold integration are gaining a more end-to-end and close-to-real-time visibility of their supply chain operations and across the multi-tier supplier base. In that Visibility research report, Aberdeen makes the following point: “Companies of all maturity groups have varying levels of supply chain visibility. Numerous event and product flows—on inbound and outbound, SKU, container, order, lot and package level—across dimensions of both cost and service, are being monitored in the course of supply chain execution. It is important that a standardized and structured system roadmap is developed to integrate these system events and data flows as companies bring online new capabilities and new event tracking.”

Although most companies and supply chain leaders recognize the importance of effective trade compliance in reducing fines and penalties as well as overall risk, few have understood the true value of GTM and GTC in reducing end-to-end costs. We offer three key recommendations for all companies on their journey to reduce costs and risks in a complex global supply chain to achieve Best-in-Class performance:

1. Improve core processes and leverage automation in Global Trade Management and Global Trade Compliance.
2. Establish or renew the corporate focus on a formal GTM program and ensure alignment with all applicable trade regulations to gain full management buy-in.
3. Use GTC knowledge and analytics in company-wide sourcing, purchasing, and supply chain network design decisions to significantly restructure and enhance those activities. (For example, consider special provisions like preferential trade agreements, free trade agreements, and so on, in periodic strategic plans).

There is no one answer for a successful GTM/GTC program. It is a combination of excellence in the areas of access, enablement internally and externally, process/technology, and proactive planning and execution. Most companies are leveraging managed services and collaborative technology beyond the enterprise and are seeking to be more “connected and automated.” When these elements are aligned, in proper combination, they yield superior results.

As companies adapt to the globalization of their supply chains, these recommendations and guidelines can equip supply chain executives with actionable steps they can take to bolster performance and address each challenge. Further, this information can enable synchronization of both planning and execution across the multi-party extended demand-supply network.