Global trade management in the modern supply chain
These days, having real-time visibility in the supply chain is essential.
Due to the speed in which technology is being adopted in the industry, organisations without global trade management systems are few and far between. A company that utilises a global trade management system can expect to cut costs, risks and delays associated with manual compliance and tracking efforts. This includes the efforts that are generated by such a system that can easily pass the audit of a government or external agency.
Josh Nelson, Associate Principal, Strategy & Transformation at The Hackett Group, believes that any organisation with a global supply base can benefit from global trade management systems due to the number of permutations between the global supply chain and tariff laws. “Global trade management provides an organisation with consistency and is incredibly valuable,” explains Nelson. “For example, in the produce industry, produce is grown in one area and then shipped worldwide based on the seasonality. If mistakes in documentation begin to be made, the regulators start to slow down shipments and it takes longer to get things through the border to the point where a company that is successful at a cross border and global trade management system can fly through. If you want a fast supply chain that is efficient and consistent, having an error free process is vital. This is where a global trade management system really excels.”
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What is global trade management?
Global trade management is the practice of streamlining the entire lifecycle of global trade. This is across order, logistics, and settlement activities to significantly improve operating efficiencies and cash flow.
This makes it easier to facilitate the flow of information, money and goods in global trade supply chains that include buyers, sellers and intermediaries, including customs agencies, banks and freight forwarders. Compared with domestic distribution management, global trade management introduces the complexities of multiple languages, time zones, currencies and models of transport.
Despite it now being a vital requirement, some companies still operate legacy systems which see employees manually analyse spreadsheets packed full of data. Due to the complex nature of the modern day supply chain, a lack of automation leaves room for human error and interpretation that could potentially mean severe consequences.
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Due to the global disruption caused by COVID-19, speed is an increasingly key component in the supply chain. Nelson adds that the ability to transport goods across borders quickly and efficiently and provide an edge over competition is vital. “Getting goods from one place to another quickly and efficiently is a huge advantage, particularly in the current times,” he explains. “In the new environment, with disruptions across the entire supply chain, you end up having a lot of variations in sourcing. 10 years ago, you could have had one point of supply in China that was consistent, however, now, you can hedge against that disruption from pandemics and other disasters that could be out there. It’s wise to have two or three supply points that creates more complexity in the supply chain and enables you to do business with more than one country at a time to mitigate against unprecedented situations occurring.” Oscar Sanchez Duran, Senior Principal Research Analyst, Gartner Supply Chain Practice, believes that global trade management is essential to help navigate the current ‘new normal’ climate. “We’ve seen how countries in different regions have closed their borders at different times, and now while some parts have relatively come back to normal others are still on that journey, affecting how shippers source products and raw materials from their suppliers or how businesses transform their products to supply increasing demand for products like PPE, hand sanitisers, etc., or to simply capitalise on market instability,” he explains. “Global trade management technology provides shippers with greater agility and reaction speed to find new suppliers, check if it is compliant to trade with them, classify the products and document to meet all legal requirements for customs regulations or calculate the landed costs of their products.”
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Five key advantages of global trade management
- Streamlined screening of export orders
Firms without a global trade management software system must manually screen every sales order from an international customer to ensure that the customer and associated parties aren’t on the sanctioned party list published by various government agencies. Delays such as this can add days to an organisation’s order-to-cash cycle time, affect cash flow and impact revenue. Through a global trade management system, as soon as a sales order comes through, it instantly clears the sales order for shipment or flags it for export compliance issues.
- Elimination of order processing delays
Once the export order is ready to be shipped, the organisation must ensure that all export documentation is completed and that any filing, like Shipper’s Export Declaration, is done correctly. A global trade management system allows all activities to be done correctly, so all shipments can be delivered on time.
- Visibility into landed costs
Without a global trade management system, landed costs must be inputted manually. This means that actual costs, such as product pricing, rebates and discounts don’t always get factored into decision-making. Without that visibility, companies could be losing money on a product they think is profitable.
- Reduction of inbound delays
An import shipment that lacks accurate paperwork can be significantly delayed at customs. If a company experiences such delays frequently, it is forced to either carry excess inventory or incur more stock-outs. Delays in inbound shipments are particularly expensive for companies in industries where product life cycles are short.
- Streamlining financial trade
Letters of credit are vital to conducting business with an international customer. Delays from collecting cash from international shipments due to incorrect documentation can be expensive. Through a global trade management system, this streamlines the process for collecting and filing the documentation and ensuring the paperwork is correct.
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Despite the clear benefits, Ashutosh Dekhne, Partner in McKinsey’s Operations Practice, highlights that there are still challenges due to the quantity of steps required to create products and move them from their origin to their end consumer. “Managing this complexity requires detailed knowledge of international trade policies, agreements, and tariffs, along with the ability to effectively coordinate the physical distribution of products and the flow of information needed to track the delivery,” says Dekhne. “Most companies have fragmented systems and limited visibility into end-to-end flows, which can create challenges for managing supply chains effectively and efficiently.” Nelson adds there has been significant evolution about the definition of global trade management over the last few years. “It was traditionally a standalone capability. Companies would have an ERP system, a planning system and one of those full time capabilities was global trade management,” he explains. “However, now, we’re seeing integrated supply chain software companies harness more supply chain visibility and global trade management capabilities. It’s becoming more core and integrated with business planning processes and that ultimately improves visibility into the supply chain.”