Managing Multiple Sourcing in Your Global Trade Management Solution

Posted on August 2, 2012 by Ty Bordner

Procurement, Compliance and Logistics Professionals all play Important Roles in ordering Products

Global importers simply don’t have the option of depending on a single supplier for a variety of items. Both the demands of supply chain resiliency and the reality of maintaining stock levels make it necessary to obtain the same item from multiple suppliers. Particularly if you are a global retailer or manufacturer with distributed outlets or plants, it’s neither practical nor possible to source all units from a single vendor.

This is where the concept of multiple sourcing comes in — literally buying items from more than one source. While multiple sourcing is straightforward in theory, as a practice it is more complex from a global trade management perspective, including implications for landed cost, compliance and logistics.

Consider the example of a large global retailer that is purchasing a basic white t-shirt for thousands of retail outlets located in ten countries. The retailer has four different suppliers, each in a different country, capable of fulfilling t-shirt orders. What are the implications of placing an order with each of these suppliers to ensure adequate global stock levels of the white t-shirt?

Landed cost — Each shipment of shirts will have a different landed cost associated with it since it will be coming from and to a different country. Freight, insurance, duties and taxes all play a role in determining landed cost, and there may also be preferential trade programs, countervailing or anti-dumping duties in place between some of these countries.
Compliance — Each country has different regulations in place for importation of the white t-shirt. This can include rules around fiber content, bleaches or chemicals used in the manufacturing process, labeling requirements and subtleties in product classification. Agencies other than Customs may be involved, and each government has its own set of import filing forms and rules.
Logistics — Getting the shirts from manufacturer to retail outlet is no small task. Each shipment must be rated and booked, and multiple land and sea carriers will need to be managed and tracked.

A global trade management system should inherently and intuitively approach the complexities of multiple sourcing of goods at the product level. This means that it needs to store information about the multiple sources and account for all the permutations in a single product record. It also needs to perform import cost calculations and check compliance for all the relevant country of import/country of export combinations.

Final Thoughts

Procurement, compliance and logistics professionals all play important roles in ordering products. Access to a centralized repository of sourcing information via a GTM system makes it possible for these professionals to place orders in an efficient and compliant manner.

Using a Supply Chain Control Tower to Become Your Own 4PL

Posted on July 5, 2012 by Ty Bordner

For Some Companies, it Might be the Natural Outcome of Centralizing Supply Chain Operations and Data into a Control Tower

As more organizations are moving toward heightened supply chain visibility, many are coming to realize that what they’re also doing is becoming their own fourth-party logistics (4PL) provider. What’s a 4PL? The term was coined by Accenture (when it was Andersen Consulting) and is defined as “an integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design, build and run comprehensive supply chain solutions.”

Essentially, a 4PL is like a general contractor for logistics. Typically, it is a neutral party that will help unify and reengineer supply chain processes, while coordinating the activities of 3PLs and other supply chain partners. However, companies that have embraced supply chain as a core competency are seeing value in assuming the 4PL role themselves to meet their specific supply chain goals. The activities are managed from centralized hubs of technology, people and processes – frequently called “control towers.”

The concept of a supply chain control tower has been gaining momentum over the past year. A control tower is a single command center for visibility, decision-making and action, based on real-time data. With a control tower in place, taking on the 4PL role allows organizations to accelerate collaboration and achieve higher levels of performance among their varied providers.

In addition, centralizing supply chain data and processes as a self-4PL gives companies the flexibility to plug in new logistics providers using standard interfaces and configurable processes. This eliminates lock-in with a particular 3PL or system and puts the company in a position to control interactions with trade partners. Control tower managers gain deeper visibility and can use data-driven analysis of service levels to objectively manage each provider.

Further, by collecting and analyzing data from supply chain processes, managers can measure performance according to standard metrics. With business intelligence tools, managers can perform “what-if” analyses to optimize sourcing or distribution decisions, pinpoint a process breakdown that results in excess inventory, and right-size inventory based on actual cycle times and variability.

Final Thoughts

Being a self-4PL may not be right for companies that don’t yet have the resources or expertise to manage all aspects of their logistics and supply chain. But for others, it might be the natural outcome of centralizing supply chain operations and data into a control tower.

Supply Chain Control Tower: What is Old is New Again

Posted on June 20, 2012 by Ty Bordner

The concept of a supply chain control tower has been gaining momentum over the past year. A control tower is a single command center for visibility, decision-making and action, based on real-time data. According to Capgemini Consulting “A supply chain control tower is a central hub with the required technology, organization and processes to capture and use supply chain data to provide enhanced visibility for short and long term decision making that is aligned with strategic objectives.” (Capgemini Consulting, “Global Supply Chain Control Towers” May 2011)

It’s also a new name for a concept that has been around for a while: 4PL. Companies are increasingly realizing that supply chain must become a core competency, and taking on the 4PL role offers them the ability to accelerate collaboration and achieve higher levels of performance. The control tower represents the common processes that are enabled by cloud-based technologies, such as configuring a set of services to business units and trading partners across a supply network. These services start with basic plumbing ‑ collect and aggregate all orders, shipments, inventory and status. This information is linked to other enterprise systems to provide global visibility, then transformed to become the input for supply chain execution solutions.

The control tower is a hub that must go beyond visibility to provide integrated global logistics and trade compliance services. Based on a company’s supply chain segmentation strategies, these services must be configured to support the needs of business units and the key fulfillment attributes of a product line. Control tower managers can decide how to distribute the services by determining the correct mix of centralized and decentralized execution for their supply chain design.

Having one global supply chain system and standardized processes give companies the flexibility to plug in new logistics providers as needs change or quickly assimilate new businesses. The control tower reduces the “lock in” of using an external provider’s system, and changes the balance of power in a relationship. Control tower managers now have the visibility and data-driven analysis of service levels to objectively manage each provider. Similarly, new businesses can be plugged in with standard interfaces and highly configurable processes.

By collecting the mountain of data from the daily orchestration of supply chain processes, control towers also offer unique insight into performance. With business intelligence tools, managers can perform “what-if” analyses to optimize sourcing or distribution decisions, pinpoint a process breakdown that results in inventory builds, and right size inventory based on actual cycle times and variability.

No matter what you call it ‑ a control tower or 4PL ‑ the technology is available today to enable global supply chain teams to tame complexity and control their own destiny.

Understanding the Tax Implications of Related Party Transactions and Transfer Pricing

Posted on May 2, 2012 by Ty Bordner

Supply Chain Managers need to Balance the Goals of Tax-Effective supply chain management with the Organization’s Compliance Requirements

Many multinational organizations are embracing tax-effective supply chain management to reduce costs and increase margins. Supply chain managers need to understand the ramifications of their tax-based strategies when it involves the transfer of tangible and intangible goods to their own foreign subsidiaries or parent companies. Reducing taxes is a desirable outcome, but not when it runs afoul of related party transaction regulations.

Doing cross-border business with a related party, which includes foreign subsidiaries and parent companies, can be complicated. A related party is any entity that can exercise control or significant influence over the operating policies of another entity. In global trade, it’s an individual or business that exercises a 10 percent interest in both the exporter and the ultimate consignee.

A related party transaction occurs during the transfer of resources, services, or obligations between related parties — regardless of whether a price is charged. The term “transfer price” refers to the price at which one company sells goods or services to a related affiliate in its supply chain. While the transfer price may be negligible, the obligations and reporting requirements that go along with the transaction are not.

Countries have adopted various laws and practices to ensure transferred goods and services are appropriately priced based on market conditions. The goal of this legislation is to ensure that revenue generated within a country, and thereby taxable by that country, is not inappropriately transferred to a related party outside that country to avoid taxes. Therefore, in a related party transaction, taxes are assessed on transferred goods or intangibles regardless of whether money changes hands. In any related party transaction, disclosing the relationship, reporting the transactions and conducting business “at arm’s length” are important ways to mitigate audit risks.

Supply chain managers need to balance the goals of tax-effective supply chain management with the organization’s compliance requirements. Solely focusing on reducing taxes may not result in the most efficient supply chain and could potentially result in non-compliance with related party transaction regulations. A collaborative approach that engages all parties — supply chain managers, senior executives and tax specialists – will ensure successful results.

GTM Solutions Keep Businesses Plugged In

Posted on April 15, 2012 by Ty Bordner

Q: Why is it difficult for organizations to integrate true end-to-end global trade management?

A: True end-to-end global trade management (GTM) means managing and optimizing all the functions required to move goods across international borders. Organizations may argue that they are already doing GTM, when in fact they are only undertaking disparate pieces, such as international trade compliance or global transportation management.

GTM functions may be distributed among departments such as warehousing, shipping, and legal. It can be difficult to unite business processes and establish communication channels where none exist. Adopting GTM technology helps achieve this. Each section of the organization gains an understanding that its activities tie into larger objectives and can affect outcomes outside that department.

As with adopting any technology, organizations may struggle with managing change and pushing through the initial disruptions that a system implementation can cause. Today’s Software-as-a-Service solutions minimize the need for IT support, and dramatically decrease disruption to daily activities. This makes them a good option for organizations that don’t currently have any systems in place.

Q: What do customers look for in GTM solutions?

A: Customers want GTM solutions that are flexible enough to support different supply chain segmentation strategies. These tools must address the different needs of unique product segments within a company. They must also be flexible enough to accommodate the requirements of the company’s extended supply chain partners, such as suppliers, logistics providers, and customers. In particular, systems must be able to:

Extend processes to suppliers and logistics providers.
Manage logistics and compliance activities within one solution.
Tune or configure business processes to support each segment’s needs.
Provide a centralized view of the global supply chain across all segments.
Capture all associated data to support reporting and predictive analytics.

For example, an organization may need supply chain processes specialized to goods with unpredictable demand, as well as goods with more predictable demand that require steady replenishment. Similarly, other goods may have higher import and export compliance requirements that must be carefully managed.

Q: What are the most important criteria for evaluating and selecting a GTM solution provider?

A: Look for a GTM provider that has successfully deployed its solution at a company similar to your own, within your industry, with similar segmentation requirements, equivalent number of products, global shipping volumes, and within countries or regions that map to your own.

Global trade management can be very complex, and there’s typically no better indicator of future success than finding a vendor that has been there and done that with one or more companies that mirror your own.