Trade Compliance

3 Keys to Managing Change in Trade Compliance

For any company that trades internationally, large or small, change is a constant that requires organizational flexibility. This has never been more true.

Ned Blinick

July 24, 2019

For any company that trades internationally, large or small, change is a constant that requires organizational flexibility. This has never been more true. Today it’s the trade conflict with China and the EU or the uncertainty with the NAFTA/USMCA, tomorrow - well that’s anybody's guess.For trade compliance teams, change is a given and it carries a unique burden. While managing change is its own challenge, the acceleration and magnitude of change increases regulatory risk and places additional stress on the trade compliance team(s).Every day, trade compliance is interacting with and responding to multiple regulatory agencies. Each one of those agencies is driven by its own unique mandates. Each agency is, in turn, responsible to political regimes that create regulations without concern for how it is enacted and implemented. This environment is fluid and creates pressures and stresses on the organization at large and trade compliance in particular.

5 Challenges of Managing Change in Trade Compliance

How a company applies and manages trade compliance is dependent on the organization. Many trade compliance departments still operate in manual mode supported by spreadsheets and word processing software. Other companies have a trade compliance program that is a combination of manual processes and some limited automation. A very small minority of companies, and these are usually larger organizations, are running mostly on automated trade management solutions.Interestingly, managing change manually provides much greater flexibility than automated systems. Manual systems are not constrained by the systemic limitations of automation. The lack of constraints allows trade compliance to quickly implement required changes without concern for system outcomes. The advantage of manual processes is speed and flexibility however, its lack of process standardization and control has significant downside for scalability and exposes the organization to greater risk.In the regulatory world, controlled processes and documented policies are a fundamental requirement of reasonable care. It is notoriously difficult to impose, document, and then manage the manual processes. Manual systems are a significant problem for managing trade compliance because of:

  1. Regulatory Mandates: Regulatory agency over-site of an organization’s import or export trade compliance practices is based on the accuracy of its compliance filings (principle) and audits/review of the processes and information control of the supporting trade compliance activity (secondary). As regulatory requirements change, maintaining control over required process change is its own challenge. Documenting regulatory-driven process change in a fluid environment is highly labor-intensive and time-consuming.
  2. Data Inaccuracy and Availability (Timeliness): Manual systems (supported by word documents and spreadsheets) have a much lower level of data integrity than automated processes. Integrating information in unstructured formats into spreadsheets or word documents requires manual interventions. Manually capturing, validating, synchronizing, and sharing information across trade compliance teams and external associates with appropriate oversight is time consuming resulting in information delays and questions with respect to information reliability.
  3. Reporting and Analytic Requirements: Analysis and Reports are the lifeblood for management and “C-level” executives. Ensuring accuracy and timeliness of reports for internal purposes and external regulatory reporting in a manual system is often a major challenge. Manual processes, most often supported by spreadsheets and word processing tools are problematic for both report accuracy and timeliness. Managing spreadsheets and documents require manpower and time. Maintaining the underlying field level algorithms, synchronization, and validation of the data inputs, and the generation of the reports is labor-intensive.
  4. Time and People Resources: In a manual process the only way to effectively manage ever-increasing Regulatory Mandates, Data Inaccuracy, and Timeliness limitations, and Reporting requirements is providing additional people and/or time. In a changing regulatory environment failure to keep up with process change results in degrading the regulatory compliance oversight and resulting outcomes.
  5. Affordability: Convincing management of the value of trade compliance automation is a challenge. However, because of the increase in trade regulations by CBP and the PGAs the need to allocate additional resources is also increasing. With configurable, cloud solutions a company can get the level of automation they need and can afford. The configurability and scalability of the solution is key to affordability.

3 Key Elements for Managing Change in Trade Compliance: Flexibility, Responsiveness, Control

Effective trade compliance management requires flexibility, responsiveness, and control. The volume of trade compliance change is increasing daily, by tweet. This rapidly changing environment significantly increases the variability and risk in managing trade compliance. In order to be effective in practicing reasonable care, trade compliance teams must quickly adjust their systems to accommodate the changing regulatory mandates while controlling and documenting processes and managing supporting information.Since responding to mandated regulatory change is not an option, there are several ways change can be accomplished - manually, through automation, or a combination of manual and automated processes. The 3 key elements to managing ever-changing trade compliance requirements are:

  1. Flexibility: susceptible to modification; capable of being bent - usually without breaking
  2. Responsiveness: the ability to adjust quickly to suddenly altered external conditions
  3. Control: the ability to dominate or command a situation

As mentioned above, manual systems (supported by spreadsheets and word processing) are flexible, agile, and responsive. But, and this is a big but, they are extremely difficult to control. On the other hand, well designed automated trade compliance solutions provide very strong elements of control, but too often they are inflexible and unresponsive.The difficult question for trade compliance is how to adequately respond to regulatory and process change within the constraints of the organization? The answer to the question is simple, but not easy to accomplish.

Flexible Automation - the Necessary Solution for Regulatory Change and Control

The simple solution for managing trade compliance change is a flexible, responsive, automated, and affordable solution. So how does the simple solution square with the fact that most automated systems are inflexible and unresponsive?A flexible and responsive automated trade compliance solution is more than trade compliance functionality. Solution flexibility and responsiveness are based on less tangible, but very important underlying criteria.

  • Solution functionality is fundamental to any trade compliance solution. If the solution does not have a comprehensive capability to manage the current customs, security, and PGA (Partner Government Agencies) requirements it cannot be supportive of any future change. Current and complete functionality is a basic requirement for any trade compliance solution. While a solution might not have all the functionality as part of its core applications it must be designed to seamlessly deliver the required functionality on its trade compliance platform.
  • Solution design is a critical underlying requirement for a solution to support flexible and responsive regulatory trade compliance operations. Good design is important for current trade compliance conformity, but it is essential for future system change management execution. Without a flexible solution architecture, it is extremely difficult for the solution provider to economically support future change management and this slows response time to incorporate change and pushes costs into the overall cost of ownership
  • Solution User Interface/User Experience (UI/UX) is a key feature that allows trade compliance change management to be effectively implemented and sustained. A major failure of solutions is its lack of simplification. Solution simplicity is a direct result of solution design but not necessarily an outcome. Simplified solution design increases both the flexibility and responsiveness of the solution to incorporate change and adjust to change. Simple design should not be confused with shallow solution capability. Simplicity in design is key to the User Interface and Experience.
  • Solution Implementation Execution determines how well a solution is incorporated into the organization and taken up by the users. Studies have shown that over 70% of enterprise software implementations fail. The reasons for failure are not always related to the final uptake of the software, but that is often the case. Implementation execution success is very much a result of the software design and the implementation teams skill working with the client to easily configure the software to the business processes of the organization.
  • On-going support is often overlooked in its importance to managing trade compliance change. Because trade compliance is dealing with constant regulatory and process change, on-going responsive support is a necessity in ensuring that the software adapts quickly and appropriately to the change.

Conclusion

The international trading environment is in a constant state of change. However, the current speed and intensity in the rate of change puts additional pressure on trade compliance teams to constantly adjust.For trade compliance change can be a nightmare. Rapid and constant change is difficult to implement and control. Manual systems enable trade compliance to rapidly adjust to change but lack the necessary system controls to ensure process integrity scalability. Poor systems and weak process controls lead to constantly deteriorating ‘reasonable care’ capabilities.Controlling trade compliance through automation requires solutions that are open, highly configurable, support process and functional flexibility, are easy to use, are well implemented and supported.