Critical source
By Alexandra Leonards	 5th May 2009 No Comments
Global sourcing has become a critical part of the supply chain mix, but with trade slowing having a clear understanding of supply chain costs is a top priority.
Itmay feel as though the wheels have come off the global economy, dramatically illustrated by the collapse in world demand for Chinese goods – falling 17.5 per cent in January 2009 compared with January 2008 – but the desire to source goods from regions of low-cost manufacture will undoubtedly continue, albeit in amoremeasured way.
However, whatmay well change is corporate attitude to supply chain costs, and with it, a drive for greater visibility and control over data and trademovements. Only through analysing this data can cost issues be addressed.
Many companies are developing strategies to build top-line growth through sourcing goods from distant low-cost regions. In a cold economic climate thismight well be critical for companies wishing to improve their financial performance. However, from an operational standpoint there is a disconnect. "The business strategy may be 'let's double our exports and change our supply chain to start sourcing fromall these countries' but operationally companies today simply don't have the systems to support that," says Nathan Pieri, senior vice president of marketing and productmanagement atManagement Dynamics. "They can't grow with the volumes and can'tmeet the demands of the business and that's where, even with a blip in the global economy, we are still seeing strong demand fromcompanies that are interested in automating global trademanagement."
The speed with whichmany companies havemoved to global sourcing over the past ten years has resulted in a great number failing to attain the necessary levels of visibility and control over their network.When it comes to performance improvement they don't always have the data aggregated in one place to enable themto see the complete picture, a prerequisite for devising a plan to improve performance. As Pieri puts it, "if you don't have the data, you don't know where you are going."
"We've seen a lot of companies looking at supply chain visibility as theymove away fromrelying on their logistics providers, to going in house," he says. "Apart fromthe shorttermbenefits, delivery issues, etc, the real strategic benefits are in collecting all that operational data and putting it into a data warehouse, then analysing it, creating score cards, and measuring your trading partners. Only by doing this do you truly understand the opportunities around supply chain for taking cost out."
In the US, importers' security filing, or Customs 10+2 as it's known, makes the importer responsible for ten data elements that have to be filed in advance of shipment and the carrier is responsible for providing two additional data elements. This information is fed into customs and used to target suspect shipments. The data elements include such questions as:Who's the buyer?Who's the seller? What's the product? What are the HS codes? But the more difficult elements revolve around recording where the containers were stuffed and by whom? Pieri points out that providing this information is a challenge formany companies that either buy through distributors or don't have a very good handle on their origin of operation – theymight be buying through an international procurement office.
"We are seeing companies looking towards automation of the process by implementing a supplier portal to send compliant purchase orders to suppliers, to have thembuild their export documents fromthe compliant purchase orders and then to communicate when it's ready to pick up. Having collected the information that's required to file for security in a fully automated process, the data sheet can be taken and used in an automated entry process on the other side, working with your brokers electronically so they don't have to re-key data. That way you can achieve a higher pre-clearance rate."
A number of importers are looking at changing their terms of sale and aremoving to direct procurement, so avoiding the visibility and control issues that surround buying through distributors.
"After all, if you are accountable then you probably want to have full control through your own IT systems," says Pieri, "by shipping to direct procurement you can savemoney as well as gain control – it'smuchmore strategic."
The amount of global trademay have slowed but, according to Evan Puzey, chiefmarketing officer at Kewill: "From our perspective, while volumes may be going down, we're not necessarily seeing less transactions. If anything the number of transactions is going up. Because people are less likely to want to invest significant sums for the longer-term, they are buying smaller quantities on a more regular basis. People are playing it a little more cautiously."v Puzey remains optimistic. "One of the key indicators, the Baltic Dry Index, turned up in the last couple of weeks, which most people read as a starting point for an upturn in global trade." His perception is that "themarket hasn't died, just slowed down".
Although somemay be looking at pulling away fromthe Far East to source a little closer to home, managing trademovements on a regional level still presents a number of challenges.
Europe talks a good game on standards but country-by-country, it has different rules and regulations in customs and compliance, which creates similar circumstances to sourcing out of the Far East.
Sourcing fromwithin Europemay shorten your leadtime but you are still going to have to deal with cross-border requirements, export and import declarations and duties. Puzey sees that there has been a strong upswing in demand for systems to help with compliance. The US Sarbanes-Oxley act of 2002 has placed a pressure on US importers and companies exporting there to provide greater detail on goods. "US companies or divisions of US companies in Europe are looking for things like 'denied parties screening', to ensure that they are not shipping products they shouldn't to parties they shouldn't," he says. "However, Europe has exactly the same legislation in place today as the US, the only real difference is in Europe we haven't been sending people to jail for not complying, which tends to get senior people in a business more focused on complying."
Another area where Kewill is experiencing an upswing is in the customsmarket aroundmulti-national businesses or logistics service providers serving organisations across multiple countries.
"Companies tend to have solutions that have been bought on a country-specific basis by local people and they don't really understand the true cost of offering that customs and compliance service acrossmultiple locations because it is somewhat hidden fromtheir global operations due to the fact that it's paid for on a country-by-country basis."
Kewill has just introduced its CustomsXchange product which Puzey describes as "a single point of entry solution that gets you tomulti-country customs authorities, providing one point of feedback to the business, and so offering full control and visibility".
This gives the finance director – who tends to own the compliance and customs requirements in a business – the ability to look at what the true cost is. Of course this is particularly pertinent to logistics service providers whomay be selling on – according to Puzey,many today have no idea what the true costs are, even though they are selling the service on to the customer.
He describes the lengthy and highlymanual processes undertaken by onemid-tier forwarder with seven offices around the world, where different applications for forwarding are used in each. The Europe-based office gets two-thirds of their business fromtheir Hong Kong location, with HK typing data into their system, creating a PDF format document and then e-mailing it to the European office. It is then printed out andmanually typed into their local system.
"Having just one systemwould give two-thirds of their time back to their staff – and in addition, there would be fewer errors," says Puzey. One consideration is that the client loses visibility when data is rewritten to different systems.
"By having a single point of entry for themajority of data," he says, "the order that comes in to create the forwarding shipment can be used to automatically process through the compliance solution and progress into the customs applications. Therefore, instead of three people dealing with three separate pieces of data entry, and three separate systems, that one electronic integrated piece of data can now start all three processes."
Kewill has brought a new forwarding solution tomarket for air and sea forwarders. One top-ten forwarder has already signed up. The global application has a central hub, which is a single point of access for the customer base, and is connected tomultiple independent country applications, which are developed by local country experts that have the connectivity with the local country customs authorities.
"Inmany countries you need certification fromthe local customs authority to get connected and that's where having people on the ground talking to local customs on a daily basis really counts," says Puzey.
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