How Digitization Can Improve Trade Compliance Performance
What is digitization, and why should Trade Compliance care? It is a cornerstone capability that enables Trade Compliance to deliver its true potential.
January 23, 2019
What is Digitization?
Digitization is the conversion of analog information (paper-based) into a digital format. In a business context, it goes further - Digitization is the automation of processes based on digital information formats. It is the replication of the real (physical) world in a digital format.The more granular and comprehensive the data captured in digital format the higher the fidelity and resolution of the picture presented through digitization. The greater the clarity and scope of the picture the better the quality and contextualization of information - which in turn improves the decision process and outcomes.Digitization began in the early 1970s with the advent of the computer. It accelerated through the 1990s and 2000s as PCs became accepted and commonplace in business and for personal use. However, digitization really became mainstream around 2009 when there were officially more "things" than people connected to the internet. The interaction of people and things on the internet increased in intensity around the same time with the creation of the "smartphone" and its ubiquitous adoption. Digitization is an essential cornerstone capability that enables Trade Compliance to deliver to its true potential. From the perspective of Trade Compliance, understanding digitization is particularly relevant because Trade Compliance is heavily dependent on lots of information and much of that information is still in analog format. By converting all that information into a dynamic virtual representation of the real world, Trade Compliance will be able to deliver its true potential. However, just being able to receive or send information digitally does not make for a digitized environment. What defines digitization is the synchronization of digital information with the work processes. The degree to which the information is synchronized with and integrated to the business processes defines the level of digitization.
Why is Digitization suddenly important?
The combination of "things and people" constantly connected to the internet radically changes the way we relate to our customers, suppliers, service providers, and internal associates. Digitization changed and continues to change, the way we see and interact with information. The smartphone ushered in the "app" which changed how we access and use information and this has carried over into a vast universe of new products. Shrewd investment in digitalization holds the promise to leapfrog an organization over its competitors, enabling unimagined value to customers while streamlining response times, cutting through complexity, and dramatically reducing the assets needed to carry out operations. (A Savvy Guide to the Digital Supply Chain - How to Evaluate and Leverage Technology to Build a Supply Chain for the Digital Age. Haslam College of Business, April 2018)The tools supporting digitization enables the presentation of information in ways not conceived of pre-2009. The ability to present digital information dynamically and graphically provides the user with interfaces that make information gathering and sharing a pleasant, exciting, or sometimes addictive experience. Today, we often see the world through a lens of digitized information. With the advent of Augmented Reality (AR) and Virtual Reality (VR), this trend of viewing the world through digitization will only increase in speed and intensity.But the presentation of information is only part of the digitization revolution. The real power comes from the process change that accompanies the digitization of information. It is the interweaving of the presentation of information with processes and workflow that make digitization an ever increasingly powerful and compelling capability. Analog information is mostly static. Analog information is paper-based. A best-case analog scenario is that information is maintained in "Word", spreadsheet, or PDF documents. Digitization is more than email or a scanned document. Digitized information is fluid and fungible. Digitized information is not bounded by the same physical constraints that are imposed on the analog world. In order to be truly digitized the information must be available on-demand with rules-based accessibility in support of dynamic decision making and work processes. Digitization is suddenly so important because the current technology supports the capturing of phenomenal amounts of raw data from an unlimited number of sources and the converting of that data into meaningful, contextual, and actionable information - quickly and at low cost.
Why should Trade Compliance Care about Digitization?
Trade compliance should care about digitization because its activity is heavily dependent on vast amounts of data outside its control. Trade compliance is a highly procedural function with clearly defined responsibilities to both its organization and to government regulatory agencies. While the transactional activities of Trade Compliance - such as product classification (HS, Schedule B, ECCN, USML), Denied Party Screening, Country of Origin Determination, FTA qualification, and Risk assessment - are important, in and of themselves, these individual activities fail to deliver to their potential if they are not orchestrated and synchronized to support the comprehensive Trade Compliance business and regulatory objectives. The lack of digitization results in the Trade Compliance functions being less effective, less efficient, less responsive, and more costly than otherwise can be achieved. Trade Compliance is broadly and distinctively a laggard in adopting technology and digitizing its information and processes. By not adopting digitization the Trade Compliance function will continue to be seen as a necessary but undervalued and underappreciated activity in a global supply chain. The use of spreadsheets or siloed databases for Trade Compliance data management is a tell-tale sign that a company is a laggard in its handling of critical information. Why should Trade Compliance care? Because digitization enables:
Centralized data control
Accurate, verifiable, and accessible master data management
Real-time operation data management - visibility
Sustainable synchronization for streamlined workflow and business processes
Greater data accuracy for entry filing support, analytics, and reporting
System driven audit support - for information and process
Dramatically better communication and collaboration capability
Higher levels of compliance resulting in reduced risk
Simplified integration and interfacing with 3rd party information providers
Digitization is a fundamental building block in creating and delivering verifiable information and process improvement. Trade Compliance should care about digitization because the work output and effort is directly dependent on accurate and timely information and standardized processes. The ability for Trade Compliance to communicate and collaborate with internal stakeholders and external service providers effectively is directly dependent on the accuracy and accessibility of information.
5 Reasons Trade Compliance Should Digitize
Centralized Trade Compliance Data Management:
Centralized data simplifies the maintenance of "all" required data elements necessary to support Trade Compliance activity.
It increases the control and accuracy of data elements related to specific Trade Compliance requirements - Product descriptions, units of measure, product classification (HS, Schedule B, USML, ECCN), PGA registration codes, Account profiles, and PGA registration codes, Denied Party Screening status of Accounts and Contacts, License Control and Management).
It is imperative for timely and accurate entry preparation (Consumption, FTZ, PGA, etc.), reports, analytics, and alerts.
It supports the immediate acquisition, storage and access to supporting digital information: Purchase Orders, Commercial Invoices, Packing Lists, and Bills of Lading - documents, specification, pictures Unfortunately, most ERP systems do not have the requisite data fields for all Trade Compliance data in their core solutions. Therefore, the master data is managed in (multiple, disassociated) spreadsheets or lightweight databases (e.g. Access). ERP solutions that do support Trade Compliance solutions supplement the central master data with a specific Trade Compliance module - but usually at a very high cost.
Contextualization of Information:
Digitization is the foundation for providing context to data.
Digitization enables data to be manipulated so that it accurately portrays what is happening in the real/physical world.
With digitization, data can be visualized from different perspectives providing Trade Compliance real-time understanding of what is happening across the supply chain as it affects Trade Compliance.
It allows for controlled management of product and account data. It supports the provisioning, management, and visibility of 3rd party trade data (i.e. ISF, Invoices, Packing lists, Bills of Lading, Specifications, Documents, Pictures).
Standardizing Trade Compliance processes is a real challenge regardless of business size, whether you have single or multiple locations in one or more customs regions. When information is maintained in non-digitized formats standardization of processes is extremely difficult.
Digitization supports the implementation of standardized processes by acquiring, controlling, and managing data in formats that are easily accessible, usable, verifiable, and auditable. Digitization normalizes information which is then standardized and usable in repeatable and controlled system processes.
Standardization simplifies Trade Compliance processes by seamless electronic data interchange eliminating or greatly reducing manual data entry, improving data timeliness and availability, increasing information accuracy.
Process standardization improves Trade Compliance administration, oversight, and control.
The level of streamlined workflow is directly dependent on the integration of digitized information, standardized processes, and system design.
System design is an important variable in streamlining workflow because the solution's user interface (UI) is the point where the system, human, and digital information interact. The better the UI, the more natural and logical the workflow. The more intuitive the UI, and the more complete the integration of the supporting digital information with standardized processes, the more streamlined the workflow.
Streamlined workflow is visible and persistent throughout the entire digitized solution. Streamlined workflow manifests itself in:
Automated acquisition and cleansing of Trade Compliance Master Data,
Automated alerting of missing data elements in the Trade Compliance Master Data,
Automated digital acquisition and auditing of all operations data required to support the Trade Compliance activity - i.e. Purchase Orders, Advance Ship Notices, ISF detail, Packing List, Bills of Lading, Commercial Invoices, supporting documents, etc.),
Automated auditing of all imported operations data to ensure all Trade Compliance data elements are complete - with workflow alerts when data elements are missing and in-line support for corrective action,
Automated preparation and pre-auditing of all regulatory entries and electronic transmission to Customs or Customs Broker,
Comprehensive user-defined reports to run against regulatory agency reports for filing auditing
Extensive analytic capabilities
Communication and Collaboration:
Effective communication and collaboration are rooted in complete and accurate information presented in a manner that is meaningful for its intended use. The information must be timely and easily shared between consumers of the information.
Trade compliance maintains and manages information that is required across the organization for planning and execution purposes. The ability to share that information with different internal actors and external suppliers and service providers is proven to reduce errors and costs. Trade Compliance data is an important input supporting:
Product design and engineering - to take advantage of beneficial tariff rates
Sourcing - taking advantage of Trade Agreements, optimized total landed cost
Purchasing and Sales - Denied or Sanctioned Party screening, product cost budgeting
Transportation, Sales, and Marketing - clearance of product at the border point of entry
Being able to share that communicate the Trade Compliance information when and where it is needed is critical to improving collaboration.ConclusionDigitization of Trade Compliance is more than automating single or multiple functional activities like HS classification, Denied Party Screening, FTA qualification, or License Management. Digitization of Trade Compliance requires a comprehensive makeover of the Trade Compliance activity from Master Data Management to Process Control to Workflow Design in support of all the specific functional activities and actual daily workWhile digitizing Trade Compliance might appear daunting, it really doesn't have to be. Most Trade Compliance activities are seen and managed as discrete functions. For example, HS classification is seen as a separate and different activity from ECCN/USML classification or PGA classification, which in turn is separate from license control. Most Trade Compliance solutions are built around these discrete activities, but in practice, all these activities are part of a holistic process. Digitizing Trade Compliance processes require a holistic perspective and a comprehensive and integrated work processes. In order to implement a digitized Trade Compliance program, it is necessary to reorient from a discrete to a holistic view of the Trade Compliance activities.This is the most significant challenge to digitizing Trade Compliance. The actual conversion to Trade Compliance digitization is surprisingly simple. At 3rdwave, our solution is designed with a comprehensive orientation to Trade Compliance processes supported by deep functional master data control and complete transactional data management. This holistic perspective in a comprehensive Trade Compliance solution totally supports and simplifies the transition from the traditional analog practice to a fully digitized Trade Compliance capability.