Global Trade Management 2007

Aberdeen recently released a research brief on Global Trade Management in 2007 Benchmarking Trade Compliance, Global Supply Chain Visibility and Risk Management Practices in advance of their forthcoming study on Global Trade Management (with a scheduled release date of May 31) that highlighted this years focus in Global Trade Management (GTM): improving agility, trade compliance, and risk management.

This brief highlighted the alarming statistic that 90% of participants in the 2006 Global Supply Chain Benchmark study reported that their global supply chain technology was inadequate to provide the corporate finance organization with the timely information it required for budget and cash flow management. Thus, the importance of Supply Chain Finance (SCF), as highlighted in yesterday's post should not be overlooked.

The brief outlines their Best-In-Class PACE (Pressures, Actions, Capabilities, and Enablers) hypothesis which they outlined as follows:

Pressures Actions Capabilities Enablers
  • Lack of critical supply chain process visibility
  • Move to a paperless GTM process
  • Implement new processes that enhance agility
  • A centralized global supply chain management organization
  • A cross-functional purchasing, supply chain, and finance team to oversee GTM strategies
  • Online visibility into international order and supplier event status
  • Online visibility into in-transit shipment status
  • Supply Chain Visibility Platform
  • Import Compliance Automation Platform
  • Export Compliance Automation Platform
  • Preferential Trade Agreement Automation
  • Risk Management Tools

Not a bad start, but I would hypothesize the following:

Pressures Actions Capabilities Enablers
  • Lack of critical supply chain process visibility
  • Lack of insight into supply chain risks
  • move to a paperless GTM process
  • implement new processes that enhance agility
  • implement end-to-end e-Sourcing, e-Procurement, & e-Logistics Management systems to simplify and enable the GTM process, including relevant SCF solutions
  • Center-led supply chain organization
  • Cross-fucntional purchasing, logistics, finance, and engineering team to oversee GTM strategies
  • Online visibility into international order & supplier event status (including in-transit shipment status)
  • Online visibility into status of 3PL carriers and international ports (of entry)
  • Online visibility into risk mitigation efforts
  • Online visibility into alternate supplier status
  • Supply Chain Visibility Platform
  • Import & Export Compliance Automation Platform
  • Non-Preferential & Preferential Trade Agreement Automation
  • Risk Management Tools
  • Enhanced Spend Analysis Tools

My rationale for this is the following:

Pressures Actions Capabilities Enablers
Process visibility is good, as this allows you to improve your processes, but if you overlook key risks, your supply chain could still be brought to a grinding halt no matter how efficient your processes are A good GTM process is enabled by the proper SCM systems, and these will need to adequately cover e-Sourcing, e-Procurement, and e-Logistics, as well as the appropriate areas of Supply Chain Finance and International Trade Management if an organization is to achieve efficient, paperless processes Center-Led is better than centralization. As indicated in my weekend series over on eSourcing Forum last summer (Part I, Part II, and Part III) and in the Center Led Wiki, not everything is appropriate to centralized sourcing or management. A Center-Led organization allows you to centralize where it makes sense, and decentralize where it does not.

Don't overlook engineering when evaluating key suppliers and supply risks - they will often know more from a product standpoint than the rest of the organization combined!

It's important to not only track the status of the carriers you're using, but the inbound ports (of entry) you'll be using as well. For example, if you are shipping ocean freight and the planned port of entry is expected to be hit by a hurricane, you need to be able to re-route the shipment. Also, if you have a choice between ports, sometimes its best to use the port with the fastest turn-around time if the items are perishable or the valuation is dependent on how fast you get the product to market.
Don't overlook spend analysis - it lets you know who you are spending with, how much, and when. This will help you identify key suppliers, carriers, ports, etc. that need to be addressed in your global trade and risk management plans.

 

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  • 5/17/2007 8:40 AM Dick Locke wrote:
    Good one, but I'd like to get more explicit on "trade finance" and "risk mitigation" issues.

    One of the biggest and unsystematized risks I see is exchange rate risk management. Most companies who do that use forward contracts, but there is a real risk involved there when purchases (and sales) don't match forecasts. (Do they ever?).

    There will be an unexpected profit or loss roughly equal to the size of the hedge contract times the percent the forecast was wrong times the percent the buyer's currency strengthened or weakened against the pricing currency.

    When the Thai baht collapsed in the late '90s, Seagate disk drive reported a loss of $35 million because of this effect. This isn't just a theoretical construct.

    A good system would require knowledge of the pricing currency (or currencies) of each item number-supplier combination. It would integrate with sales systems so a company could offset currency flows internally and manage only the differences externally. It would query latest sales and purchasing forecasts against existing hedge contracts, point out discrepancies and suggest actions.

    I'm not aware of any package that does this. If someone else is, please let us know. If there isn't one, there's an opportunity there.
  • 6/1/2007 12:50 AM infodriveindia wrote:
    Hi,

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  • 6/6/2007 7:46 AM Melissa Irmen wrote:
    The benchmark report is now available, and there were some interesting results.

    Study participants reported the following priorities in trade compliance improvements in 2007:


    Improving total landed cost calculations: 57 %
    Strengthening C-TPAT compliance: 53 %
    Using preferential trade agreements more effectively: 48 %

    You can download the entire report, for free, at: http://www.aberdeen.com/link/sponsor.asp?spid=30410772&cid=3995

    Melissa Irmen
    www.IntegrationPoint.net
  • 6/6/2007 1:11 PM Dick Locke wrote:
    Good article and paper from Aberdeen.

    Landed cost calculations are one of my hot buttons.

    A couple of observations:

    1. Context matters.
    I advocate using a landed cost calculator/estimator as a supplier selection tool. There is another use which is to calculate landed costs as a metric for improving logistics operations with existing suppliers. Both are valid uses but the models will look different.

    2. If you use a landed cost model as a supplier selection tool and want to make a fair comparison, you need to have an optimized shipping method and frequency for each supplier. This would take into account both shipping costs and inventory costs and find the lowest total cost.

    3. I'm against building issues like quality costs into these calculations. If you can predict there will be a cost of poor quality from a suppler, that supplier shouldn't even get to participate. (I come from the electronics industry. YMMV.)

    4. Landed cost doesn't tell the whole story. You need to consider risk of issues like exchange rate changes or need for premium freight. While a model
    won't say "do it" or "don't do it" it will get risks out on the table so contingency plans can be considered that would enable using the lowest cost supplier.

    I include a spreadsheet-based combined freight optimizer/landed cost calculator/risk analysis tool in my Global Supply Management seminars. I'll email a copy and instructions for using it to the first five people who send a note to dick at globalpg dot com. In return I'd appreciate some comments on the model.
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