MANAGING RISKS WITH GLOBAL SUPPLY CHAINS

Transcription

1 20122 Supply Chain Leadership Forum Denver, CO MANAGING RISKS WITH GLOBAL SUPPLY CHAINS Gene Tyndall, EVP, Tompkins International Alain Poirier, VP, Business Development, Tompkins International

2 Topics Global Trade Risk Management (GTRM): A Growing Concern Strategic Considerations of GTRM Top Four Strategic Priorities for Importers & Exporters: 1. Excel at the Basics of Tariff and Trade Compliance 2. Employ Sourcing Strategies that Optimize Total Landed Cost 3. Leverage Existing Technologies andadd New Ones that Improve GTRM Related Processes 4. Capitalize on the Business Benefits of Global Risk Management Initiatives i i Discussion 2

3 Why Are We All Concerned about Supply Chain Risk? Could it cause financial loss or undermine the competitive position of a company? Timely delivery of products and services to customers, at reasonable prices, and with acceptable quality, is the mission of any business. Supply chain disruptions occur regularly. Causes include: Competitive initiatives Labor actions The economy Weather Capacity limits Missed shipments Errors in documentation Communication problems Technology failure Logistics or sourcing delays Constant/last minute changes Customer losses Plain human errors 3

4 Why Are We All Concerned about Supply Chain Risk? The rapid growth of global sourcing and distribution has increased the risks and heightened the severity erit of such choccurrences. More and more companies are appointing a chief risk officer, or a corporate risk committee, to focus on these business challenges. Disruption in today s economy gets more visibility with the potential to negatively affect the brand, thereby magnifying the impact. Protectingand preserving customer loyalty drives our concern. 4

5 But, The Facts Are That Most Companies Do Not Take Supply Chain Risk Seriously Enough 47% of companies say they need to pay more attention to risk mitigation. Only 38% rate their supply chain resilience above average. 42% say that expansion of their higlobal lsupply chains hi has outpaced their ability to manage risks. 65% of those companies that do take it seriously cannot get past the first steps identify, assess, and map risks. All companies lack standards, benchmarks and processes for planning, mitigating, executing during, and recovering from disruptions. Survey results from Tompkins Supply Chain Consortium 5

6 Effective GTRM PLAN, BUY, MAKE, MOVE, STORE, and SELL are the supply chain processes. Balancing supply and demand is the holy grail of supply chains. Risk is the disruptor of value creation. Using this framework, we must rethink business models, global networks, sourcing distribution locations, and total delivered costs. Effective GTRM practices result in more than a passing grade from government customs and other regulatory agencies responsible for monitoring compliance. These effective GTRM practices offer significant business benefits: Reduced total landed cost of goods procured or sold. Improved cross border process cycle times and overall transit times. Increased levels of customers, suppliers and other trading partners satisfaction. 6

7 Leaders Perpetually Rethink Global Strategy The top 25 supply chain companies (AMR) represent the best global strategies. These leaders in rethinking include: 7

8 Driving Business Benefits: Strategic Issues Although the economic downturn slowed global trade, the long range forecast remains for globalization to continue to diversify and grow. Accordingly, GTRM is increasingly strategic to business success. Top four strategic priorities for importers and exporters: 1. Excel at the basics of tariff and trade compliance meeting and exceeding regulatory import/export requirements, capitalizing on voluntary initiatives. 2. Employ sourcing strategies that take into account total landed cost, sourcing flexibility, l emerging markets and trading blocs. 3. Leverage existing technologies and add new ones that improve GTRM related processes. 4. Capitalize on the business benefits of global lrisk ikmanagement initiatives. i i i 8

9 Driving Business Benefits: Strategic Issues One sure way to improve productivity and increase efficiency is to think beyond the domestic sphere and optimize your supply chain for cross border transactions. Companies that depend on parts or goods sourced from outside their home country should consider an improved GTRM capability that will generate benefits such as: Leveraging free trade agreements across your supply base to reduce cost of goods sold (COGS) by 2 3% Providing supply chain visibility that can improve cash cash cycles by 4 5 days Automating import compliance to reduce entry costs by 30% or more and better manage risk Managing global logistics to reduce landed costs by 5% or more Source: Gartner Study 9

10 Strategic Priority #1: Excel at the Basics of Tariff and Trade Compliance 10

11 Tariff and Trade Compliance: The Basics Admissibility Controls & Licensing Document requirements ADD/CVD Quota/visa Valuation Appraisement Related party transactions First sale Commodity Classification Other governmental agency (OGA) Duty Tariff preference Preferential Trade Programs Qualification Origin determination Supplier information Administration & Entry Management Contract management Payments Audit and verification Government interventions 11

12 Unlock Hidden Costs In Import Processes Identify and minimize all costs incurred at the time ofimportation. These costs may include import duty, excessive customs brokerage fees, merchandise processing fees, demurrage or harbor maintenance fees. Often importers do not have transparency into the components of their total landed costs, thereby minimizing the ability to manage these costs. As an example, a client importing product, which h is virtually it duty free into the US, was able to save in excess of $2 million annually on one trade flow by avoiding merchandise processing fees. 12

13 Optimizing Trade Resources Effective trade management processes and resources should be balanced between in house and outsourcing. Current State Future State Customs Activities In House Outsourced In House Outsourced Product classification 73% 27% 72% 28% Import documentation 60% 40% 57% 43% Automated entry with customs ABI 98% 2% 85% 15% Duty computations 80% 20% 69% 31% Duty payment 66% 34% 52% 48% Delivery orders to drayage carriers 92% 8% 88% 12% Shipment tracking including customs releases 71% 29% 66% 34% Classification and duty audit 65% 35% 63% 37% 13

14 Strategic Priority #2: Employ Sourcing Strategies that Optimize Total Landed Cost 14

15 Early Sourcing Options Importers can realize substantial import cost savings by analyzing international sourcing options and possible benefits from places of assembly locations in the earliest stages of the product design and development. Importers can benefit by designing products to achieve the lowest rate of duty available at import or to take advantage of preference programsthrough tariff engineering and product design. Importers benefit from a strategic view of customsvaluationby maximizingallowable allowable deductions (foreign inland freight costs, markups from middlemen and brokerage fees), and reducing customs value and duty exposure. 15

16 Leverage Free Trade Agreements Leveraging free trade agreements and free trading areas that support the company s model result in reduced exposure to duties and fees. Example Initiatives Free trade agreement qualification Impact and results of changes to: Rule of origin Harmonized tariff code Material transformation Value Record keeping Refund processes Current Trade Programs ASEAN Free Trade Area (AFTA) CEFTA Central European Free Trade Agreement EFTA European Free Trade Agree NAFTA North American Free Trade Agreement SADC Southern African Development Community 16

17 Strategic Priority #3: Leverage Existing Technologies and Add New Ones that Improve GTRM Related Processes 17

18 GTRM Technology With the ever increasing complexity involved in international trade, GTRM technologyoffers offers greater visibility and integration to the international supply chain. It allows more effective use of staff by managing more labor intensive tasks, such as document retention and handling, while highlighting both potential areas of savings and compliance oversight. For example, a recent study found that multinational companies were foregoing morethan 50% of the freetrade agreement benefits to which they were entitled. Automation of the supplier solicitation and qualification processes can greatly increase an importer s utilization of these FTAs, while improving their compliance and productivity. 18

19 Value Drivers of GTRM Technology AMR & American Shipper magazine 19

20 Benefits of GTRM Technology Trade compliance is more than just a cost of doing business. An effective GTRM technology strategy allows companies to gain efficiencies and visibility in complex processes in addition to facilitating compliance. GTRM functionality can be a component of existing system capabilities, or an easy add on, such as a SaaS solution. Export processes managed by global trade management software include: Screening against sanctioned party lists Managing export licenses Performing embargo checks Sending electronic communications to customs Maintaining export classification Driving outbound trade finance services, such as letters of credit Import processes managed by global trade management software include: Managing classification codes Producing import documents Calculating landed costs Managing open letters of credit Ensuring import controls 20

21 Supply Chain Visibility & Risk Management Devices GPS and RFID: the latest tracking technology Role in Risk and Security Ensure on time delivery, product integrity, with the degree of security and quality control Monitor location and environmental conditions of product Operations Efficiency More effective decisions regarding real time tactical issues Long term strategic options At High Risk Not Container and Trailer Processes Always Facilities Sometimes Currently Have a documented seal control program 85% 4% 12% 0% Require seal numbers to be verified in writing prior to breaking 84% 8% 4% 4% Utilize seals to secure container verified asempty 28% 4% 4% 64% 21

22 Strategic Priority #4: Capitalize on the Business Benefits of Global Risk Management Initiatives 22

23 Strategic Risk Agenda What are leading companies doing about risk management? Adopt a strategic risk agenda that includes these important steps: 1. Identify and assess your risks 2. Quantify your risk exposure 3. Develop scenarios and contingency plans 4. Develop risk mitigation and business resumption action plans 23

24 Customs Related Initiatives Examples World Customs Organization SAFE Framework of Standards USA Container Security Initiative USA Centralized Import Compliance Communications COM 452 EU Security Management Model EU Authorized European Operators Canada Free and Secure Trade (FAST) Australia Frontline New Zealand Secure Export Partnership 24

25 Summary Effective GTRM practices result in more than a passing grade from government regulatory agencies responsible for monitoring compliance. Effective GTRM: Is the framework for processes, technologies, and organization that t enable effective cross border trade Drives efficiency in business processes in addition to musthave trade compliance Leverages technology that automates and simplifies complex supply chain processes to meet trade compliance requirements Reduces the total landed cost of goods procured or sold and improves financial results Increases customer satisfaction and trading partner satisfaction 25

26 Summary Key Takeaways No matter its priority it on the corporate agenda, risk ikneeds to be high h on your list. It takes a statement, a policy, a strategy, contingency plans, time to recover plans, and playbooks for all who need to know and guidelines on what to do. Start with adapting the risk management agenda. Raise awareness among your internal teams. Raise awareness among senior management. Plantogether with your tradingpartners logistics, production, suppliers, customers, service providers, technology, and others. Develop and simulate possible disruptions to test your assumptions, early warning methods and recovery plans. 26

27 Discussion