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Report Finds Most Supply Chain Departments Unequipped to Digitize

Companies may be coming to term with the concepts of digitization and automation, but many aren’t equipped to execute on the now needed shifts.

The majority of trade and supply chain departments don’t have the systems and processes required to take advantage of incentives, reduce complexity or automate tasks, the 2016 Thomson Reuters and KPMG International Global Trade Management survey found.

“This reveals a serious disconnect between what trade professionals have and what they need to do their jobs effectively,” said Taneli Ruda, SVP and managing director for Thomson Reuters OneSource Global Trade.

Trade has been the center of attention in 2016, from Brexit to the lack of support from the United States presidential candidates for the Trans-Pacific Partnership (TPP), bringing on ongoing debate about the pros and cons of international trade.

Either way, however, companies appear ill-prepared to adjust to the changes and added demands in today’s global world, and there are six key reasons why.

Manual process still tie up resources and make way for risk

Trade teams are still largely doing the documentation and classification for product import and export the old, manual way, and the time drain weighs on teams.

Product import classification, export documentation and licensing take up the most time and pose the greatest burden on resources. Naturally, the volume of those imports and exports affect the time and resources spent.

“The global trade function has evolved,” Ruda said. “The manual processes trade teams have grown accustomed to, which are expensive and error-prone, are no longer necessary. Leveraging technology to automate these processes enables trade teams to work on strategy.”

According to the report, opportunities that yield direct duty savings, like the use of free trade agreements and zones, are fit for automation in today’s trade environment.

Lack of automation still a top challenge

It isn’t that trade teams don’t see the value of automating some of those time-excessive processes, most just aren’t leveraging the necessary technology to get them there.

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The single biggest problem respondents cited as affecting their management of trade activities is interpreting and communicating requirements across sites and countries. And as such, only 34 percent of respondents are currently using a global trade management (GTM) system to aid in automating their import and export activities, though 53 percent acknowledged that type of technology would help improve their trade compliance.

In some cases, companies just don’t know these types of systems are available that can help with things like product import classification, import valuation and even connect to broker systems for those that don’t self file to reduce brokerage management and workload. Just 58 percent of U.S. respondents said they’ve learned about GTM systems in a conference or elsewhere, and only 27 percent of respondents in Asia said so.

“Trade professionals are increasingly viewing their GTM implementations as an evolution,” said Heidi Mustonen, managing director of trade and customs practice for KPMG in the U.S. “Developing a flexible roadmap that prioritizes the modules, countries, and configurations that fit the organization and corporate objectives is as important as the system that is selected.”

Free trade agreements are underutilized

Despite the massive potential for duty savings, a meager 23 percent of respondents said their companies are fully utilizing the free trade agreements available to them.

This could largely be owed to the complexity surrounding rules of origin, the challenges in gathering required documentation, lack of internal expertise and the time it takes to deal with all of those things. Technology, however, could help automate the standard tasks so trade teams only have to solve the exceptions, which essentially eliminates the most hindering challenges in taking up FTAs.

“Automation can cut through the complexity of FTA compliance,” Hoon Sung, head of FTA for Thomson Reuters OneSource Global Trade, said. “It can improve accuracy in FTA qualification determinations and increase the total duty free savings captured.”

Classification is exceedingly complex

Classifying products correctly is one of the major components of moving product across borders—and 91 percent of respondents reported challenges with it.

The biggest problems trade teams have are with product descriptions, differing classifications among importing countries and frequent changes to the rules for classification.

But, according to the report, all of these issues have a solution. That solution is automating classification workflow to save time and resources, increase accuracy and improve collaboration.

“When trade educates other departments on the importance of improved quality and specificity of product descriptions, the resulting consistency and clarity make classification easier,” the report noted. “Equally important is the ability to share information supporting the classification decision to ensure consistency throughout the organization and defend classifications during a customs audit.”

Lack of clear decision-making authority

More companies are using a centralized trade process (53 percent)—meaning they handle things in one team within the company—and 47 percent decentralize, or have trade processes handled remotely or by a third party.

This lack of a standard process makes following consistent policies challenging, according to the report.

“Process centralization can drive process efficiencies, which means staff spends less time on repetitive, time consuming tasks and more time on services that add value,” Ruda said. “The benefits of centralizing the classification process is a practical example of what centralization does for trade teams. The outcome is increased auditability and tracking of trade compliance levels avoiding unplanned cost and risk.”

Need better alignment of pricing and valuation

Another major challenge trade teams have is aligning transfer pricing policies and customs valuation. Transfer pricing policy is what drives prices for related-party transactions included and invoices and later used for customs import declarations.

The biggest challenges companies have here are monitoring transfer pricing throughout the year and staying compliant with transfer pricing and customs policies, according to the survey.

“The proactive alignment and predictive coordination of customs values and transfer pricing may be the most significant opportunity that companies have, in their own hands, to increase organizational value with trade,” said Lou Abad, partner for trade and customs practice at KPMG in the U.S.

Related-party transactions tend to fluctuate and transfer pricing activities are often carries out in departments outside of trade and supply chain, the report said. Technology can help drive the monitoring process and centralization can streamline how the process is carried out.

Whatever the hindrance, companies are at least united in the need for greater technology to accommodate modern global trade and the means to be more efficient in a supply chain that demands it.

“Respondents were aligned to our predictions that trade regulation will continue to increase in number, scope and complexity,” said Doug Zuvich, partner and global practice leader for trade and customs at KPMG in the U.S. “The opportunity lies in improving the tools and methods that will enable efficiency gains in their global trade and supply chain management.”