For some time now, the application of the philosophy of “global trade management” (or GTM) has been heralded by the consulting world and the trade community as the gold standard of organizational strategies. Yet, the truth is most companies engaged in international trade have not embraced this method of optimizing their supply chain globally.
Benefits of a Global Trade Management Strategy
The benefits of strengthening import and export processes against delays caused by governmental agencies are significant. A study carried out by consulting firm Gartner found that entry costs can be reduced by as much as 30% through simply automating the import compliance processes. The same study found that managing global logistics could cut landed costs by at least 5%.
These numbers are certainly nothing to sneeze at, but statistics are not normally enough to push an importer to automate the inbound customs process. Truth be told, the modern import professional is inundated with so many responsibilities that the work needed to engage in GTM seems too daunting to undertake.
Like any other large undertaking, it is best to start with a simple plan and attack the issue one stop at a time. Tompkins lays out four strategic priorities for importers and exports that want to capture benefits like these as part of a cohesive GTM program.
Four Strategies for Building Resilient Global Operations
1. Excel at the basics of tariff and trade compliance.
Import processes have a lot of direct, common costs such as duties, customs brokerage fees, and demurrage charges. Identify and minimize all of them. Watch out for a lack of transparency in your total landed costs. Tompkins cites an example where a client that imported product that was virtually duty-free into the U.S. saved more than $2 million annually on one trade lane by avoiding merchandise processing fees.
There are number of creative ways your Customs House Broker can assist you with this such as consolidated entry processing and working with you to use the benefits of Foreign Trade Zones.
2. Employ sourcing strategies that optimize total landed cost.
Great compliance programs are always focused upstream at the point of product design, procurement and production. Carefully analyze your global sourcing options during the early stages of the product design and development process. It can be possible to capture significant savings by designing products to achieve the lowest possible import duty.
Customs House Brokers refer to this practice as “tariff engineering.” There can also be significant benefit to looking at all of the possible origin countries that may have trade agreements that could result in duty free treatment. Most importers choose a country for production and stick with it, never adjusting for new trade preference programs that might be available.
Develop a strategic view of customs valuation that maximizes allowable deductions (such as foreign inland freight costs) and reduces customs value and duty exposure. Keep in mind that these adjustments have a compliance responsibility that comes with them and your organization needs to make sure their processes and manuals address the pitfalls that can come from using these strategies.
3. Leverage existing technologies and add new ones to improve GTRM-related processes.
If there is one thing all importers seem to have in common, it is a shortage of resources in their compliance department. With GTM technology you ought to be able to deploy staff more effectively by relieving them of labor-intensive tasks such as record keeping, post entry audit and the constant passing along of documents to brokers and transportation providers. A global TMS can offer solutions to help identify potential areas of savings and compliance oversight.
According to Tompkins, a recent study found that multinational companies missed more than 50% of free trade agreement benefits to which they were entitled. Automating supplier solicitation and qualification processes, for example, is one way to prevent benefits like these slipping through the managerial net.
Effective GRTM technology – from software to GPS tracking systems – enables you to better manage trade compliance and reap the rewards of more efficient cross-border operations.
4. Capitalize on the business benefits of global risk management initiatives.
All international trade has an element of risk. The trick is understanding where risk most likely will present itself and applying processes and technology to deal with it. The first step is to adopt a strategic risk agenda that includes the four important steps listed below:
- Identify and assess risks.
- Quantify risk exposure
- Develop scenarios and contingency plans
- Develop risk mitigation and business resumption action plans.
The successful implementation of these four priorities requires you to adapt the company’s risk management focus to this critical area of operations, to raise awareness internally, and to collaborate with trading partners.
You really can’t tell if these steps are producing results if you aren’t able to properly measure your processes. The true measures of success include the cost savings and improvements in customer service achieved by implementing these steps. Still yet another way to gauge success is if your company’s GTRM practices score more than a passing grade from government agencies responsible for regulating and monitoring trade compliance.