Under the umbrella of trade compliance there are many and a constantly growing list of administrative activities that require regular attention. All fall into the discipline called Master Data. For most trade compliance teams the two primary administrative tasks are HS product classification (Product/Item master data) and Denied Party Screening (Account master data). Other administrative tasks include FTA qualification, Country of Origin determination, HazMat X (RoHS) management, Duty Drawback, and Corporate Social Responsibility (Forced Labor, Conflict Minerals, Ownership relationships).
Managing a single task, like product classification or Denied Party screening is time consuming. Managing the other trade compliance functions and the associated downstream trade compliance activities can be challenging and overwhelming if the team is resource constrained. And, what trade compliance team is not resource constrained?
How an organization manages its master data is reflected in the efficiency of its trade compliance team and the team’s effectiveness in understanding specific regulatory requirements, executing its functional processes, collaborating with internal stakeholders, and communicating with its external suppliers and service providers.
To appreciate the importance of master data control specifically for trade compliance, it is critical to understand the breadth of operational activities the trade compliance team is responsible for. Trade compliance activities include, but are not limited to:
- Customs entry oversight - this means ensuring that:
- ~the customs broker has the master data elements needed to properly create and file the Entry, ISF, and PGA filings in a timely manner into ACE.
- ~Post summary corrections or reconciliation filings are managed and filed with customs.
- Entry audit - reviewing entry filings to ensure that entry details (IOR, Products, Quantities, Prices, HS codes, duty rates, transactional parties, logistics details (carrier, shipping units, locations) are correct as filed.
- Customs Broker audit and scorecarding to ensure compliance with corporate SOPs, filing accuracy and timeliness.
- Export AES filing oversight to ensure that EEI files have been submitted correctly
- Import/Export Documentation creation, filing, retention, and management
- ACE review - periodic review of ACE files to ensure IOR and Broker filing correctness
- Supporting internal stakeholders - providing necessary information to different stakeholders to optimize product development (HS classification, FTA qualification), sourcing (DPS, duty optimization, COO determination, CSR, documentation), purchasing (HS classification, markings), transportation (RoHS), sales (DPS, FTA and COO Documentation), and finance (Invoice auditing, duty optimization).
For a more in-depth understanding of the basics of Master Data these 2 blogs by my colleague, Dan Gardner: The Role of the Product Master File In a Successful Import Management Program and The Role of the Product Master File In Managing Bills of Material, are really very instructive.
In this blog, I am looking at 5 major challenges trade compliance encounters in managing the day-to-day operational activities and functions, and the underlying root problems. But, more than just identifying the problems and challenges I am highlighting the significant benefits that a well designed and executed master data program has on the management of trade compliance activities, processes, and outcomes.
4 Major Challenges of Master Data management for Trade Compliance
Challenge 1: Knowledge, Time, and Resources
Without a doubt, the greatest challenge to trade compliance is finding time to adequately do all the required tasks given the current state of resources. After talking with literally hundreds of trade compliance pros, it categorically ranks as the number 1 issue, even though it is not explicitly state as such. Simply stated, there is more work to be done than there is time to do it.
Managing the required activities is a direct function of knowledge, time and resources - both of which are limited commodities. As the demands on trade compliance continue to expand (and they will) this challenge will grow in scope and magnitude.
Challenge 2: Effort and Control
The purpose of these discrete activities and functions is to support the broader trade compliance processes which include internal process management, customs broker management (entry and post summary correction oversight, broker management and audit), export documentation management, and cross-functional support. At a higher level, the trade compliance function oversees corporate trade risk mitigation as part of the overall compliance mandate. Efficiently exercising the level of control these operations should have requires significant manual effort if there are no automated systems supporting these basic master data functions.
Accuracy and timeliness of data are essential for any trade compliance activity. Unfortunately, in any organization the data sources are many and diverse. Effectively pulling the information into a coherent structure, analyzing it, and ensuring accuracy requires committing human and technological resources.
Another major contributing factor to the amount of effort required to carry out these basic functional activities is a fundamental lack of data control. Ensuring that data is reliable (up to date, accurate, and accessible) takes a lot of effort and time - if not well organized.
Challenge 3: Lack of Institutionalized Knowledge
Each of the operational activities, and the supporting information necessary, has its own level of complexity and requires specialized product and account knowledge. Historically, the knowledge required to carry out the tasks has resided within the expertise of individuals -i.e. The product design engineers who create a product’s technical specifications, or license customs brokers (LCBs),
This reliance on individuals for the specialized expertise and the lack of systemic institutionalized knowledge exposes the organization to compliance and reputation risk, potential penalties and fines.
Challenge 4: Collaboration and Communication
The opportunity for trade compliance beyond its traditionally defined roles, tasks, and functions is often overlooked with negative consequences. Trade compliance information impacts sourcing, purchasing, sales, and finance (Product Cost - Duty optimization [FTA], Customs and PGA conformance (labelling and COO declarations), Ensuring that 3rd party actors have the correct information to fulfill the regulatory import/export requirements is a direct result of being able to share information on-demand, when needed. Collaboration and communication break down when information is not easily available in a timely manner and format that the consumer needs to effect their work.
The Problems With Poor Master Data Management - Through a Trade Compliance Lens
Poor Data Management and Control
Managing trade compliance holistically requires a Master Data capability that provides for centralized and synchronized Product/Item and Account master data that supports both operational and trade compliance information needs and processes. Most trade compliance teams lack a centralized, database solution for master data and are forced to use fragmented solutions (HS classification, DPS, etc.) and spreadsheets to support their activity.
The failure of generalized enterprise Master Data:
Enterprise solutions (like SAP. Oracle, Microsoft, Infor) often don’t easily accommodate the unique requirements necessary to manage and scale Master Data from a trade compliance perspective. It is not that these systems can’t accommodate the need, it is that the ability to capture the underlying data elements are not easily managed or accessed by trade compliance and/or are very expensive to implement and maintain. The shortcoming of enterprise master data results in inefficiencies and the need to manage off-system. Without systematized control of master data it is difficult to manage the data and integrate into automated downstream trade compliance processes.
The alternatives to managing the master data for trade compliance in enterprise systems is to use spreadsheets, light weight (Access) databases, or GTM solutions. Spreadsheets, while very effective under certain circumstances, falter as a solution when there is the need to manage large product and account master data tables. Spreadsheets, while extremely nimble and flexible are less than optimal when it comes to ensuring accuracy of data and the ability to collaborate.
Another problem with the spreadsheet is that it is a non-secure environment and controlling and recording access, as well as version control becomes problematic.
Wasted effort and resources - the inability to automate downstream trade compliance processes
A major problem that evidences itself when trade compliance has poor control over its master data is the inability to automate the downstream processes such as import entry preparation, import entry auditing, export documentation preparation, export AES filing detail, FTA qualification preparation, Bills of Material management, Duty Drawback, broker scorecarding, reporting and analytics.
Each one of these activities is possible to automate if the master data is available to support the GTM solution. Without centralized, synchronized, secure, and accessible master data records, automated downstream processes through a GTM solution is virtually impossible - regardless of the manual effort and resources directed to the opportunity.
Poor Master Data - The lost opportunity for collaboration and communication
In order for collaboration and communication to be effective the underlying information must be accessible, trusted, and timely. Well designed, accessible master data is essential for collaboration with internal cross-functional peers and communication with external suppliers and service providers.
Tariff numbers, country of origin and duty rates, Customs and PGA regulations, documentation are all necessary for optimizing product design, sourcing, and purchasing. Collaboration is essential for these internal teams to take advantage of special customs programs that minimize landed costs.
Clearing shipments through customs and regulatory agencies, for import or export, depends on communicating accurate and detailed product and account information to customs brokers, or through a direct filing. Tariff numbers and other PGA details are necessary to communicate to external suppliers and service providers in order to ensure that documentation necessary for import or export filings is accurate.
Incomplete enterprise master data and limited spread sheet efficacy are a problem for ensuring the trustworthiness of trade compliance master data. And it is this lack of trustworthiness in information that inhibits the effectiveness of collaboration and communication and limits the opportunities they represent.
3rdwave Master Data - Uniquely designed to support trade compliance
Master Data for trade compliance is foundational and the single most important element for an organization. 3rdwave Master Data eliminates the gaps that enterprise solutions and spread-sheets don’t address. It is a central repository for all product/item and account master details with a unique trade compliance perspective. It eliminates duplication with simple interfaces to enterprise master data for the uploading and downloading of common data elements. Easily synchronizing the common elements from the enterprise master data and providing highly user-friendly, low touch master data tables increases trade compliance data integrity and empowers the trade compliance teams in executing their tasks effectively, efficiently and collaborating with internal stakeholders and external partners.
Product and Account Master Profiles
The primary purpose of 3rdwave Master Data is the centralized management and maintenance of all necessary product master data trade compliance elements like:
- Customs and PGA descriptions
- Trade Compliance attributes - UoM translation and configuration
- HS Codes, rulings and trade content
- PGA Profiles
- Bills of Material relationships
- Supplier/Product Relationships
- Country of Origin
- Entry filing history
- Documentation management
3rdwave maintains trade compliance specific account master data essential to ensure management of all actors in the supply chain, enhance conformance, and streamline operational activity.
3rdwave captures and maintains:
- Account name and address records
- Account profile types - by class of service:
- ~Importer, Exporter
- ~Freight Forwarder
- ~Customs Broker
- Account relationship management
- ~Related parties
- ~Suppliers, Manufacturers, Factories
- ~Carriers, Freight Forwarders
- Contact details and organization relationships
- Denied Party Status
- Registration number control
- ~PGA (FDA, TTB, DOT, USDA, etc.)
- ~Customs (MID, FIRMS)
- Product/Supplier relationships
Driving Trade Compliance Process and Excellence through Master Data
With all of the above said, 3rdwave Master Data is much more than a centralized repository for product/item and account information. There are three (3) major objectives and benefits to 3rdwave Master Data - internal control of Master Data, control and execution of internal trade compliance practices, and external coordination and management of 3rd party service providers.
3rdwave: Internal Control of Master Data - a Trade Compliance perspective
Throughout this blog, we discussed the importance of a centralized control capability by trade compliance to create, manage, and control master data from the unique perspective of compliance. The effectiveness of a Master Data program for trade compliance depends on its ability to synchronize the interchange of data between the enterprise records and the trade compliance master data. However the success of the master data for trade compliance depends on the ability to validate the details, identify missing data elements, and report the exceptions to the trade compliance team.
With the ability to centrally control master data, 3rdwave ensures the robustness and the quality of the information by synchronizing and validating the enterprise master data. Any missing detail that is required, from a customs compliance perspective, is highlighted and an exception report generated so that information is corrected or updated. With process driven master data management 3rdwave enables internal process automation and enhances collaboration and communication between necessary actors.
3rdwave: Enabling Process Management and “Total” Automation
A major objective of 3rdwave master data is to seamlessly integrate and support trade compliance processes. With validated and accurate 3rdwave Master Data, trade compliance is able to fuse the product and account information with operational commercial invoice, bill of lading, and packing list information to automatically create internal representations of the Customs and PGA Entries and the ISF. 3rdwave’s Master Data database provides for the storage of documents so that they can be easily accessed by broker, entry file, and export file.
3rdwave Master Data: Ensuring everyone sings from the same songbook
With confidence in the accuracy, completeness, and timeliness of master data, 3rdwave simplifies the sharing of information with colleagues and external partners so that everyone (on a need to know basis) is working off the same information. Coordination with Customs Brokers, from updating the broker's “item master” to the automatic preparation and communication of the pro-forma security filings and customs entries is routine. Auditing of customs broker entry and invoices is easy. Record and document management, BOM management for FTA and COO determination, ADD/CVD product/account management, License management, and Duty Drawback preparation are all derivative actions with 3rdwave Master Data.
The bottom line on Master Data
Master Data is the lifeblood of trade compliance. Everything that trade compliance does is directly impacted by the management, quality, timeliness, and accessibility of the master data.
The Bottom Line: 3rdwave Master Data increases control, confidence, and value by simplifying master data management, streamlining processes, increasing collaboration and communication, and improving the quality, timeliness, and availability of reports and analytics.