Supply Chain

Trade Compliance: Potential to drive real Corporate Value

Ned Blinick

September 9, 2016

Process control, at a high level, is about systematizing work activity in the production of a good or delivery of a service. The importance of process control is dependent on whether it delivers value at the point of the activity and to those areas that are impacted by the activity. Theoretically, process control should improve the way the work activity is performed (efficiency) and improve the outcome of the work (effectiveness). Today, when we talk about process control we generally are referring to the way automation affects the systematization of work and improves the outcomes.Trade Compliance is an area where processes and the level of control can definitely be improved. In many companies, I would say most medium and large companies; there is a level of formalized procedures in place for trade compliance. But, in many of those companies, processes are done manually, inconsistently, ad hoc, or not at all. This lack of process control impacts the way trade compliance is executed in the business and limits the value the trade compliance can deliver.This lack of process control in trade compliance occurs, I believe, because of several factors:

  1. The sheer volume, complexity and information diversity make it very difficult for trade compliance to standardize processes and impose control.
  2. Poor understanding of the options that exist for trade compliance process control.
  3. The feeling that process driven trade compliance solutions are too expensive.
  4. The inability to trade compliance to get the recognition from their superiors of the role they play in ensuring the company's supply chains operate optimally.
  5. The lack of understanding of the value that trade compliance can deliver to the greater supply chain through solid process control.

Let's look a little deeper at each factor.

  1. The sheer volume, complexity and information diversity make it very difficult for trade compliance to standardize processes and impose control
  2. Depending on the size, structure, geographic reach of the organization, and product mix, the demands on trade compliance's can be over-whelming. In a relatively simple organization, trade compliance is responsible for product classification for imports or exports (HS, ECCN), documentation preparation and auditing, broker relations, government agency interaction, and communicating with internal stakeholders. In more complex organizations trade compliance can layer in FTA determination, License determination and management, and restricted party screening. In large organizations there is the added complexity of multiple companies or divisions running multiple ERP systems across multiple geographies and different regulatory regimes. OK, let's add to all that different time-zones which affect the timing of the flow of information.But wait, there's more. There are suppliers and service providers that have critical information on different systems in different formats.With all that, it is not too difficult to see why process is often hard to define and almost impossible to control.The great thing is that today there are solutions that take all that disparate information, synthesize it, present it simply...all in an easy to use, process driven solution.
  3. Poor understanding of the options that exist for trade compliance process control.
  4. There is a real sense of what tools are available to help trade compliance professionals do the specific tasks such as Product Classification (HS and ECCN), FTA determinations, License determination, Restricted Party Screening and even ABI self-filing tools. While all these specific tasks are important and deserve to have automated tools, they remain silos of activity within the greater process. The real value comes when you can take all the specific tasks and put them into a cohesive, standardized process that they really deliver value. The reality is that there are solutions currently available on the market that enable trade compliance to standardize processes and simplify the work dramatically. And when I say dramatically simplify I am talking about degrees of magnitude of 3 - 5 times.
  5. The feeling that process driven trade compliance solutions are too expensive.
  6. There is no doubt that the cost of some process driven trade compliance solution are expensive. If you are looking at a trade compliance solution that is offered by a large ERP solution provider the costs can very quickly escalate into the mid to high six figures. But, there are great alternatives for trade compliance solutions that provide the overarching infrastructure that allows even smaller organizations to afford them. Not everyone needs to automate all the processes, such as restricted party screening, product HS classification and FTA determination. Solutions are available that allow for the full automation of the trade compliance process without the additional overheads of un-needed modules.
  7. Lack of recognition of the potential roll for trade compliance in ensuring the company's supply chains operate optimally.
  8. The under appreciation of the value that trade compliance can deliver to the greater supply chain through solid process control.
  9. Factors 4 and 5 are closely associated. The recognition that trade compliance receives from within the organization is directly linked to the perceived value they bring to the organization. To one who understands the incredible positive impact that trade compliance can have across the organization, it may seem somewhat strange that there is such little understanding of the value that trade compliance can deliver. The perceived value of trade compliance to the organization is dependent on the way that trade compliance presents itself. If the trade compliance group limits its perspective and major activities to the interface with regulatory agencies (classifying products , screening accounts, determining whether products are FTA compliant, etc.) then its value with be viewed in those terms. However, if the trade compliance team has a broader capability as a cross-functional resource to enhance optimal total landed cost determination by the organizational silos (i.e the product development team (HS classification), sourcing and purchasing (Trade Agreements and duty mitigation strategies), logistics (frictionless border activity), finance (invoice validation), and legal (increased trade compliance)) its real and perceived value to the organization will be seen through a different and more positive lens.

This is a daunting challenge and one that many trade compliance people will not feel confident to champion. To confidently make the case the team need to execute its day-to-day functional work effectively and efficiently. To accomplish this there needs to be a powerful process engine that knits together all the trade compliance factors so that the team can simply focus on doing its work and communicate effectively across the organization, with its trade partners and regulatory agencies, and evaluate where trade compliance can deliver savings and real value delivered.Ned Blinick is Chief Product Officer of 3rdwave.co. He has been involved in global trade for too many decades and he loves making the global supply chain simpler for everyone. If you would like to engage with Ned he would really enjoy the opportunity of communicating with you or your boss. He can be reached at (416) 510 8800 ext 234 or at eblinick@3rdwave.co