Globalisation has opened the doors for businesses to reach more customers and access greater opportunities than ever before. But for every benefit to global trade lies a challenge for the supply chain. These challenges have been compounded by the COVID-19 pandemic, but the virus was not catalyst of these issues. Fragmented regulatory standards, shifting customs protocols and tariffs, and fluctuating manufacturing capacity all contribute to disruption, and have all been obstacles organisations faced long before lockdown.
What is Global Trade Management?
These challenges are not going away, and sooner or later organisation’s of all sizes will find they are bottlenecked by a lack of information somewhere in their global supply chain. Global trade management (GTM) is the process of solving that quandary by gaining comprehensive visibility and control over trade activities around the world.
GTM practices help organisations streamline their activities and deliver new efficiencies and cost savings. It extends to regulatory compliance, customs and border management, logistics, procurement, and all associated financing. Good GTM simplifies resource allocation, the flow of information and real-time data, strengthening the position of every stakeholder.
Clint Reiser, Director, Supply Chain Research at ARC Advisory Group, says the strategy also gives organisations the ability to mitigate or protect against disruption and better plan for the ‘hidden’ intricacies of international business that are “compounded by each global trade participant’s unique position in the field”.
“As compared with domestic distribution management, global trade management introduces the complexities of multiple languages, time zones, currencies, and modes of transport,” he added. “Further, there can be more than a dozen parties involved in a single international shipment. The laws governing global trade are numerous, highly complex, and ever-changing.”
The average end-to-end shipment can routinely involve up to 25 distinct organisations, around 100 people, and hundreds of interactions and data exchanges. In complex global trade, where flexibility and agility is key, minimising or eliminating errors is critical. Just a small miscalculation or disruption can upset this delicate balance, Ed Jennings, CEO of Quickbase says: “When there’s any kind of disruption to a supply chain – big or small – it’s critical to have access to all data in real-time to make decisions.”
Key Benefits of Good Global Trade Management
- Eliminating customs delays - Delays at customs are routinely caused by incomplete or erroneous documentation. The result can cause organisations to run out of stock or to hold excess inventory - both disrupting the flow of goods and reducing cost efficiency. FMCG and perishables are particularly vulnerable.
- Minimising order processing delays - Filling out paperwork and ensuring documentation is handled accurately and on deadline can be time consuming and costly where errors persist. GTM systems reduce missteps, reduce the amount of manual work and human oversight, and streamlines document handling.
- Streamlining sales screening - Automating international sales order screening through a global trade management platform instantly boosts efficiency, removing the need to manually check whether customers are on sanctioned party lists or are associated with compliance issues. Orders are automatically cleared or flagged, reducing the payment process and increasing cash flow.
- Accuracy and visibility in landed costs - Another time-consuming administrative task where errors can cause leakage and unexpected outlay is landed costs. Actual costs can often be higher than expected, with associated costs, including discounts and rebates, accidentally left out through manual input. The result can leave organisations with goods that put the transaction in the red.
GTM and the Semiconductor Shortage
The disrupted global flow and shortage of semiconductor chips has come to epitomise the need for GTM. One of the world’s most valuable and sought-after manufacturing components, used in everything from mobile devices to cancer research equipment and military hardware, it is a truly global commodity - designed on one continent, manufactured on another, installed in an assembly line 1000 miles away, and distributed around the world - and as such encapsulates each and every one of these challenges.
Supplyframe’s latest Commodity Intelligence Quarterly report indicates that shortages are expected to persist well into the first quarter of 2023, at a minimum. Lead times have grown to 52 weeks-plus in extreme cases, according to the report placing the greatest strain on automotive and consumer electronics sectors, with ripple effects reverberating throughout their supply chains.
While shifts in demand caused by the pandemic is cited as the main catalyst of chip shortages, Sundar Kamak, Head of Manufacturing Solutions at Ivalua, says manufacturers were already heading towards a potential crisis before the outbreak.
“The demand and supply is simply directly proportional to consumer expectations,” he says. “If you look at the automotive industry, consumers don’t want a key, they want a button. So now every organisation is changing in line with that expectation. But what you soon realise is that you cannot introduce digital in some areas of the vehicle, and not in others.
“If you look at the screen in a new Tesla, for example, it is much higher quality and resolution than the screen I use for work everyday,” he adds. “Suddenly you are introducing more technology than was anticipated. The demand for semiconductors for this technology goes up, but the supply cannot keep pace with it.”
The long-term solution is to solve the supply chains and involve departments within a business that understand the wider landscape.
“You need supply chain and procurement professionals in the conversation earlier, and more involved. The traditional system of negotiation between manufacturer and supplier no longer works,” Kamak says. “Suppliers have choices, they have more customers because of innovation and more competitors in the market. So you ned to include supply chain sooner. You need to treat them like partners, earn their trust and give them trust so they can participate very early on in the product design and product development process.
"I wouldn't say organisations and manufacturing companies are not doing it,” Kumak adds. But it's not done consistently. And these are not concepts which are revolutionary.”
Traditionally a standalone concept, global trade management has become homogenised to a degree, along with the digital transformation of all operations and processes in the supply chain. It is a concept now bound to ERP systems, spend management and sourcing solutions, and will only become more important as the world begins to recover from the pandemic. COVID-19 has cast the world into an uncertain future, and the balance between risk and reward in International business is as complex as ever. To survive and thrive in the post-pandemic world, GTM will be key.
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