Most executives erroneously consider compliance as the cost of doing business and expect to see no strategic benefits from it.  As a result of this misconception, they might see Global Trade Management Systems (GTM Systems) as an enabling supply chain technology that just automates key export compliance processes or import compliance processes, but providing no strategic value. This article explores why their assumption is far from the truth and also outlines five clear and measurable strategic advantages that a global trade management system can deliver to your company.

Before we look at the strategic value of the GTM systems, let’s quickly recount the scope of such a system. Export processes automated by such systems include screening against sanctioned party lists compiled by multiple government organizations across the world, managing export licenses to ensure they are current for specific products, performing embargo checks to flag export orders that may result in non-compliance, sending electronic communications to customs to comply with export regulations, maintaining export classification data (such as ECCN classification) and streamlining the process for outbound trade finance services such as letters of credit. Similarly, import processes managed by GTM systems include managing classification codes (based on Harmonized System or HS), producing import documents for clearance by customers, calculating landed costs, managing open letters of credit and ensuring import controls. In addition, these solutions significantly reduce cost of resources by determining the Country of Origin in an automated fashion and enabling manufacturers to comply with local legislations on a shipment-by-shipment basis.

From our experience in implementing GTM systems for companies, here are at least five strategic advantages that these systems deliver to companies by making their supply chains more efficient. These benefits include:

1.    Streamlined Screening of Export Orders: Without a GTM system, an organization has to manually screen every sales order that requires shipment to an international customer to ensure that the customer and associated parties are not on the sanctioned party lists published by various government agencies. In addition, the sales order has to be manually checked for compliance with export license requirements. If such a screening is performed manually in a high volume sales environment, it can add significant delays to acknowledgement of the sales order, as well as determination and communication of the ship date to the customer. In a current economic climate where every customer and every sales order counts, such a delay can either cause revenue from that order to slip to the next quarter or loss of that customer order. In addition, such a delay can add days to a company’s order-to-cash cycle time and affect cash flow, another key issue on CFO’s minds these days, when working capital financing is extremely expensive. If a company has a GTM system that is fully integrated with its sales order management system, as soon as a sales order is entered into the system, it either instantly clears the sales order for shipment or flags it for export compliance issues. Such capability eliminates significant bottlenecks from a manual compliance testing process and frees the company to focus on manually evaluating only a small percentage of export orders that are flagged for possible violations. As a result, most international customers of such an organization continue to enjoy good turnaround on communication around commit dates and fewer delays in order delivery—a huge source of competitive advantage.

2.    Order Processing Delays Eliminated: When the export order is ready to be shipped, the organization still needs to ensure that all required export documentation is completed and any filing such as Shippers Export Declaration is done correctly. In addition, last minute surprises such as additional license requirements can cause significant delay to shipments. Industry research reports show that over 10% of sales orders to international customers get delayed due to documentation or license requirement errors. Such delays not only affect revenue recognition, but more important, affect customer loyalty and future revenue. The delays can also lead to cancellation of outstanding orders. Such cancellations can be very expensive in today’s economic environment of shrinking demand, when every sales order counts. A GTM system ensures that all such activities are done correctly and in a timely manner, so shipments can be delivered on time. Furthermore, a GTM system ensures that any customers whose shipments will be delayed due to export violations can be proactively notified in a timely manner. They also ensure that any potential fines due to non-compliance are avoided. 

3.    Clear Visibility into Landed Costs: Without a GTM system, most organizations end up computing landed costs manually. However, manual tracking and determination of landed costs is time-intensive and error prone. As a result, most organizations lack clear visibility into actual landed costs for a shipment and use rules of thumb to approximate landed costs. Too, actual costs do not always get factored into decisions on product pricing, rebates and discounts. Therefore, and organization could be losing money on a product or a specific sales order that it thinks is profitable. In addition, clear visibility into landed costs can help a company design an economically efficient supply chain by locating plants and assembly sites in countries where landed cost is lower due to smaller import duties on components. A GTM system addresses the issue and provides clear visibility into landed costs for a product/shipment and improves business decision-making ability.

4.    Reduces Inbound Delays: If an import shipment does not have accurate paperwork, it can cause significant delays at customs. If an organization experiences such delays more frequently, it is forced to either carry excess inventory or incur more stock outs. Such actions increase either opportunity costs or direct costs for an organization and significantly increase working capital requirements—a very expensive proposition in today’s economy. In addition, delays in inbound shipments can be extremely expensive for a company in the fashion industry or in high tech industry where product life cycles are extremely short and speed-to-market is the difference between profits and write offs. Reducing such delays by using a GTM system can be a source of competitive advantage for a company especially in sectors with short product life cycles.  

5.    Streamlining Financial Trade: Letters of Credit are a key aspect of doing business with an international customer. However, recent studies have shown that up to 70% of all Letter of Credit documents submitted to the bank for payment are rejected upon first presentation due to incorrectly issued documentation, leading to payment delays and additional fees. With working capital very expensive and not easy to raise in today’s tight credit environment, any delay in collecting cash from international shipments due to incorrect or incomplete documentation against a letter of credit can be expensive. A GTM system streamlines the process for collecting and filing such documentation and ensures the set is correct and complete every time.

By deploying GTM systems, a company reduces the costs, risks and delays associated with manual compliance and tracking efforts. In addition, the records generated by such a system can easily pass the audit of a government or external agency. As a result, such systems provide a significant and sustainable competitive advantage in the marketplace.



Jessie Chimni is the Vice President of North America Consulting Services for Bristlecone, a leading supply chain consulting firm. Bristlecone brings expertise across the entire spectrum of supply chain including demand & supply planning, network collaboration, sourcing, eProcurement, global trade management, spend analytics and supply chain performance management. Bristlecone can be reached at www.bcone.com.