( This article is excerpted from the complimentary report:
Using Global Trade Data-as-a-Service for Competitive Advantage, available for download here. )
Part One of this series defines Trade DaaS, how it enables cross-functional collaboration, and the challenges of DIY trade data. Here in Part Two, we look at applications of Trade Daas.
Applications of Trade DaaS
The largest value for Trade DaaS is realized when the trade data and capabilities are integrated into various systems and functions across the enterprise. Some of these are described below.
Major ERP systems have GTM (Global Trade Management) modules1 that centralize storage and management of legal, compliance, and regulatory data, reporting and visibility, and workflow process automation. Keeping that data accurate and up-to-date can be arduous. With Trade DaaS, data preparation and quality control is done outside the GTM and then the content is directly integrated into the ERP systems and processes. Some Trade DaaS offerings are pre-integrated with the major ERP systems, such as Descartes’ integration with SAP GTS and Oracle GTM. Trade DaaS data may be delivered regularly in automated bulk uploads or via API to get the data in real-time. For example, when a classification analyst is analyzing a specific product the system can automatically ensure that the correct up-to-date classification data and rulings are being used, or when a service logistician is arranging international service it can ensure that the most up-to-date denied parties and export control lists are being checked.
Supply Chain Risk Management
Global trade compliance is a critical part of any comprehensive supply chain risk program.2 Non-compliance and violations can lead to major disruptions such as delayed or seized shipments, loss of import or export privileges, damage to the company’s reputation, and significant civil and/or criminal penalties. Trade data can also be used to find new suppliers and regions of supply being used by others, thereby increasing supplier and source diversification and hence reducing risk.
Cleansed and enriched import/export data with good searching, filtering, and analytic tools can be used by a sourcing professional to discover new suppliers and regions of supply based on where other companies are sourcing their materials and components. They can see the duties and tariffs to better understand what the total cost from those regions will be. Denied and sanctioned party screening can highlight potential issues early in the process. An attractive looking new source might not be feasible if the country you are shipping to is blocking imports of that specific commodity from that country or supplier. With Trade DaaS, these steps can be integrated into the procurement professional’s sourcing workflow.
A related use case is when the sourcing professional is asked to provide input into where a new manufacturing plant should be located. In that case, trade data can show the density and output of the supply base in different locations, to find out where there are concentrations of suppliers, capabilities, and capacity that might make an attractive location for a plant.
For products originating from or destined to Latin America, the price paid is typically included in the public data; thereby, the sourcing professional can discover pricing for those markets and check if the price they are paying is in line. Outside of Latin America, trade data is largely based on the bill of lading, with no price data.3
Total Landed Cost Analysis and Compliant Duty Optimization
Sophisticated sourcing organizations may do total landed cost analysis of all costs such as first cost (ex- factory), transportation, duties and tariffs, insurance, shrinkage, and so forth, to make an apples-to-apples comparison between two or more potential bids. Total landed cost calculations can also be used to do compliant duty optimization by playing ‘what if’ modeling, not just with different sources and suppliers, but with different permutations of where things are assembled or packaged. These require having the right, up-to-date harmonization codes, and duties and tariffs (which Trade DaaS provides) to ensure compliant optimization.
Should-cost analysis involves modeling all elements of cost for a specific item or component that you buy, such as the cost of all the raw materials and parts that go into it, the labor to assemble it, packaging and shipping, overhead, and profit margin. These can be used in negotiations with a supplier to find opportunities for lowering costs. Duty optimization may end up playing a critical role in helping your supplier lower their costs and passing on some of those savings to you.
Demonstrating Reasonable Care
While duty optimization can lower total costs considerably, it is critical to demonstrate reasonable care. Using accurate, up-to-date data is critical (Trade DaaS can help with this), along with clearly documenting the rational.
Using a Statistical Approach to Providing Duties, Tariffs, and Taxes in Realtime
Many shoppers do price comparisons online. If they buy an item with the expectation of a certain cost, and later find out there is a hefty unexpected tariff, it can be a major turn-off, possibly losing a customer for life. Showing accurate duties, tariffs, taxes, and transportation costs before the purchase, is vital to a great customer experience. However, this can be challenging because of the prohibitive expense of fully classifying all items for all countries across a large catalog. Descartes provides a statistical approach that makes reliable ‘most likely’ estimates for each 6-digit harmonized code,4 using an algorithm based on the likelihood (frequency) of the various tariffs, duties, and taxes within the 6-digit code. Once the customer places the order, a full code classification is done.5 The full code can be saved and used for future sales to look up the exact duties and tariffs6 in real-time using a web service call.
Real-time Denied Party Screening
Ecommerce systems should do denied party screening at the time a user creates an account and again each time an order is placed. A real-time web call ensures that the latest up-to-date lists are being checked.
Sales & Marketing, CRM, Competitive Intelligence
Lead Generation, Denied Party Screening, KYC7
Import/Export data can be used to see which companies are buying specific products, including the volume of sales (usually number of shipments, not value) over specific trade lanes, to identify prospects there.8 This can be integrated into a CRM system via the Trade DaaS provider’s web service APIs. Denied and sanctioned party screening can be automatically done at the time of the search, to ensure that only legitimate allowed target accounts are being pursued. Since these lists are constantly changing, the screening should be done again at the time a new customer is onboarded9 and each time they place an order. An even more proactive approach is to use a dynamic screening service, where the Trade DaaS provider maintains a list of all your customers and proactively notifies you as soon as any of them are put on a denied parties list.
Import/export data can provide visibility into suppliers that competitors are using and where competitors are selling by region, down to specific customers they are selling to.10 This includes getting an understanding of the flow of commodities from and to different markets to get a feel for the current market and spot any trends (e.g. changing demand patterns). This same data can be used to ensure that competitors are not misclassifying goods to gain an unfair advantage.11
The Third and Final installment of this series gives some tips on evaluating Trade DaaS providers and ways to get started.
1 Some ERP systems do not have a GTM module. In that case, custom fields can be used to import Trade DaaS data and provide some of the same functionality. — Return to article text above
2 In addition, a good supply chain risk management program maps the multi-tier supply network down to each factory to monitor natural disaster and political risks, as well as viability, reputational, capacity, security, and logistical risks. — Return to article text above
3 For homogeneous shipments, price can be derived from census data. Descartes does this kind of price derivation which they call value matching. However, bulk chemicals are about the only product category for which value matching can be done effectively. — Return to article text above
4 6-Digit classification can be done much more economically than full code classification. — Return to article text above
5 Once the full code is known, the exact charge may differ from the estimated charge given before finalizing the order. The company may choose to absorb the cost difference or they may charge the new amount. The differences between estimate and actual should balance out over many orders. If the net difference between estimate and actual across all purchases is out of balance, the estimation algorithm could be adjusted. — Return to article text above
6 This includes lookup of the de minimis level for that HS code and origin-destination pair to determine whether duties and taxes should be assessed. — Return to article text above
7 KYC = Know Your Customer, the process of identifying and vetting customers, chiefly to meet regulatory requirements. — Return to article text above
8 These kinds of tools are especially useful for providers of services related to international trade. For example, a forwarder, NVOCC, or drayage provider could search by zip code range to see all the importers/exporters in their territory. — Return to article text above
9 In an acquisition or merger, the acquirer inherits the compliance history of the acquired firm. Customer screening should be done at the time of acquisition. After that the ongoing checking described above should be done. — Return to article text above
10 Some hedge fund managers use this same trade data to vet a prospective investment, to check if they are doing as much business as they say they are doing. Or to correlate cross-border trade to see if a higher stock price is warranted. — Return to article text above
11 A ski gloves manufacturer discovered one of their competitors was classifying their ski gloves as hospital gloves to avoid duties. By reporting this discrepancy, they leveled the playing field, assuring that everyone was playing by the same rules. — Return to article text above
To view other articles from this issue of the brief, click here.