GTS_Whitepaper_v18

7/28/2019 GTS_Whitepaper_v18

http://slidepdf.com/reader/full/gtswhitepaperv18 1/16

Global Trade ServicesMastering the Challenges o Globalization

by Andreas Müller and Marc Gilomen

“Global trade leaders are succeedingin automating and controlling thiscomplex environment, driving out cost,time and risk rom their business.”

New Strategies or Global Trade Management, Aberdeen Group



2

Table o Contents

Executive Summary

Challenges o Global Trade

How SAP Technology can Help

SAP Alone is Not the Solution

Conclusion

3

4

8

1

13



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Executive SummaryToday’s companies increasingly buy, sell and outsource around the world. The opportunities are immense. Butwithout proper workow and eective IT, leveraging these opportunities is ar rom easy.

Why? Because the increasing level o complexity associated with moving goods across borders has made global

trade business difcult and risky. New trade agreements are being put in place in one part o the world, orinstance, as protectionism increases in another.

Companies are orced to comply with ever-expanding and increasingly automated regulatory flings, including thoseor security and customs. I you ail to manage this complex environment properly, you could ace higher costs andgreater risk in an already pressured supply chain – and that can put you at a signifcant competitive disadvantage.

Lodestone enables your company to ace these challenges and get your organization prepared or the uture byholistically handling your international trade tasks and risks.

We provide you with a globally integrated approach to international trade, covering all local customs and exportcompliance aspects. This includes an accurate and efcient solution to control and comply with all applicablenational and international regulations.



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Challenges o Global TradeCompanies which trade at a global level need to be aware o – and comply with – legal regulations, and mustadapt to customs changes, communicating electronically with customers, suppliers, logistics partners andcustoms authorities. Furthermore, they need to be aware o customs procedures in order to proactively beneftrom customs concessions, and not to get trapped by restrictions.

Addressing the global trade properly will not only minimize the risk or companies to get sanctioned but will alsoincrease the competitiveness by taking advantage o the benefts that are oered in that area.

There are three global trading subjects on which proper assessment and adequate IT structure can bring acompetitive advantage over other companies.

§ Customs management: A proper handling and monitoring o import and export processes is an essentialpart o most companies’ daily business. Inefciency and errors in that area generate great unknown andunmonitored costs in many companies which can very simply be addressed and put out o the way.

§ Processing under customs control: Companies can avoid paying import duties on goods that are to enteranother customs territory or a given time by taking advantage o tax suspension using inward or outwardprocessing or putting the goods into a bonded warehouse.

§ Proftability management: Take advantage o the commercial benefts given by customs decreasing orsuspending import taxes and with this lower the market price o a product. This, by benefting rom preerentialtrade agreement import tax reduction. Furthermore, ood industries can beneft rom grants rom the EU orSwitzerland when exporting goods under the Common Agricultural Policy (CAP).

§ Compliance: Important in order to ensure that the company does not break any law and as a result gets trappedinto sanctions. This includes SPL (Sanctioned Party List) screening and export/import license handling.

Most companies outsource the creation o the import or export declarations to the carrier. These costs areusually very high and usually hidden in the transportation oreit. The alternative is to introduce an integratedtool which will automatically transorm your logistics documents into the appropriate orm, add the missing data,and communicate automatically with customs. This enables efcient communication and awless monitoringwhich will drastically reduce transportation bills.

Customs management

As cross-border trafc and the sharing o inormation increases, customs authorities are tending to migrateto paperless communication in order to reduce costs and enable better sharing o inormation. By doing this,they orce companies to connect to their systems via technologies such as EDI. This implies that importing andexporting companies are orced to have a validated system in order to communicate with customs.

The ollowing diagram illustrates the evolution rom paper to paperless orm in the western countries’ customsofces. The increased will to transparently exchange inormation between countries (especially in the samecommunity) and to reducing internal costs, have orced countries to introduce the electronic declaration. Eventhough 2009 seems to have been the peak in terms o integration, many more countries will ollow and soon nocustoms will accept the paper or simplifed orm o the declaration.

eCustomsinitiative

launched in EU

Mandatory AESin US

Nfe regulationin Brazil

US 10 + 2enforcement

Fullcompliance

for 24-hours-rule in EU

2003 2005 2008 2009 2010 2011 2013

NCTSmandatory

in EU

ICS went livein Australia

Mandatory e-declarationof export in most

EU countries

EMCSmandatory

in EU

Paperlesscustoms and

trade in EU



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Creating import and export declarations is the frst and most basic required step or global trading, and mostcompanies are amiliar with what has to be done. But there are many other customs procedures o whichcompanies should take advantage o, since they provide fnancial advantages as described in the sections below.

Processing under customs controlMost companies import and export their goods using defnitive import / export procedures even when the goodsare not meant to stay in the country they where just imported to. This implies that import duties, which are notreundable, were paid even though that would not have been necessary. As such, losses brought on by taxesor goods that stay in a certain customs territory or only a given timerame can easily be addressed. Customsoers many ways to lower or even avoid customs duties. To beneft rom these, one must make use o customs-controlled processes such as:

§ Inward / outward process relie § Storage in a bonded warehouse

These customs procedures are to be used or goods that enter a customs territory or a certain time and then

leave it again. The dierence between the two is that the goods in inward / outward relie are meant to be eitherreworked or built into another item and then shipped out o the territory again, as explained in detail in thesection below.

Inward / Outward Processing RelieIn- and outward processing relie enables companies to bring a oreign product into their company or value-addingurther processing, and then re-export it – without needing to pay import duties, as explained in the diagram below.

Bonded WarehouseA bonded warehouse enables companies to store goods coming rom abroad without having to pay any importduties and VAT until the goods are sold on the local market. There are two major advantages o the bondedwarehouse: frst, it enables companies to ree-up capital that would otherwise be tied up in customs ees payableon unsold goods; and second, their use avoids the need or companies to be obliged to pay import duties orgoods that are simply transiting through a warehouse, and that will ultimately be shipped abroad again.

In addition, bonded warehouses enable the owner o goods to avoid losses due to ination rom the time thegoods enter the country to the time they are sold, and they minimize the risk o paying taxes or products thatmay not be sold at all.

The challenge is to monitor and dierentiate between goods or which duties have been paid, and those or whichduties have not been paid. Furthermore, in a sales context, those specifc goods with unpaid duties are thosethat should be exported, while it is those items where the duty has been paid that are selected or sale in thelocal market.

Inward Process Relief

Community customs territory

Transfer

goods intoinward

processing

Processingof the goods

Non communitygoods

Non communitygoods

Re-export

Communitygoods

Enrol into another customs procedure

for example

Release into free circulation



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Proftability management

For several years, the optimizing o the supply chain has been in the oreground o companies in order to increaseproftability, but many have neglected the potential savings that can be achieved by taking advantage o customs-related tax reduction, or even restitution. The present chapter describes the possibilities oered by customsauthorities to reduce the import tax or goods that are to be permanently imported to another customs union by

taking advantage o trade preerence agreements. In some cases, the export o agricultural goods can even givethe right to receive money rom the exporting countries’ authorities.

Trade preerence

Trade preerence agreements enable customers or afliates to import goods with reduced tax and duties beingpayable. Examples are the bilateral agreements o the European Union, the European Free Trade Association(EFTA) or the North American Free Trade Agreement (NAFTA). As such, they allow companies to oer morecompetitive end-consumer pricing.

But to enable their customers to ully beneft rom those opportunities, companies have to demonstrate thattheir exports are in act eligible or preerential treatment. This represents a signifcant challenge, since itrequires up-to-date declarations rom multiple suppliers and a complex calculation to determine the ‘origin’ o

the goods rom a trade perspective. The complexity o the trade preerence rules and the size o a product’s billo materials, together with the high amount o suppliers or each part o the product, make trade preerencevery difcult to manage without proper and simple tools. In addition to that, ailure in calculation can result insanctions and high penalties.

Restitutions

In order to increase the export o some agricultural goods, Switzerland and the European Union provide grantsto incentivize companies to export these products as part o the Common Agricultural Policy (CAP). As thereunded sums can quickly go into six digit fgures, any company that exports agricultural goods in raw orreworked orm should pay special attention to these regulations.

In order to claim these reunds, companies must track the amount o agricultural goods contained in exported

products and apply or the appropriate licenses at the right time. This might seem a simple task, even to behandled manually, but the monitoring and reordering o these licenses, including o all the amounts o CAPcomponents in the production bill o material or recipe, can quickly become very complex.

As described in the sections above, customs can bring many benefts in terms o process optimizations andcommercial benefts. Companies that urther want to optimize their supply chain need to extend their ocus andinclude customs-related topics in strategic decisions.

But not only is there an optimization potential, there are also a big amount o rules and obligations related to theglobal trading o goods. Companies have to make sure to comply with the legal regulations o the countries, whichsometimes are not even directly concerned in the sales or purchase process. The ollowing section explains whycompliance is getting more and more important and what risks companies that do not address this issue incur.

Compliance

Companies are not always aware that export controls may apply to theirgoods. Indeed, even civilian products can be subject to such controls andrequire a license. More conusingly still, non-U.S. companies may have tocomply with some U.S. export regulations, especially in cases involving there-export o U.S.-sourced goods – such as technology or sotware – evenwhen these serve as a component o a non-U.S. product.

In addition, companies need to check or compliance with possibleembargoes, and observe the relevant prohibitions against individuals,companies or organizations listed on “denied parties”, “sanctioned parties”

or “black list” prohibitions.

In short, ailure to consider export regulation compliance and / or tradingwith any party listed under such a prohibition may entail signifcant penalties– as well as the risk o being named on a denied party list.

www.bis.doc.gov/

complianceandenorcement/dontletthishappentoyou-2008.pd



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To avoid the penal, administrative and economic consequences o export non-compliance along with the damageto their reputation, companies need the right technology with the latest up-to-date inormation in order to:

§

Check and manage import & export licenses § Monitor Sanctioned Party Lists (SPL) § Comply with embargo regulations

Summary

The chapters above describe the potential advantages that can help an importing and exporting company tocut down costs and, with that, optimize the supply chain efciency and margin.

Furthermore, it describes constraints linked to it and the potential risks o not properly addressing cross-boarder trade issues. Having recognized and understood these risks and opportunities, one then needs propertools to manage the related tasks in an efcient integrated and perennial manner. Companies thereore need atool that adapts to the ast-changing requirements o international trade, but does not require new integration

to the static environment o the ERP system.



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How SAP Technology can HelpIn order to proft rom these customs advantages – and to be able to comply with ast-changing legal andcompliance requirements – companies must be able to monitor and manipulate their trade data with regards toprevailing customs guidelines. In short, companies must ensure that their system is adapted to today’s oreigntrade requirements, and that it constantly adapts to changes in regulations.

SAP Global Trade Services (SAP GTS) not only automates trade processes, but also enables companies tomanage large numbers o business partners and high volumes o documents – while also helping to ensurecompliance with changing legal regulations. It urther acilitates global trade by providing the required toolsto respond to governments’ trade modernization initiatives, by or example including technology to enableelectronic communication with customs authorities.

In short, SAP GTS helps you to avoid costly delays in your import and export processes, respond quickly to globalbusiness opportunities, and mitigate fnancial and compliance risks.

SAP GTS ulfls the requirements

As a oreign trade solution, SAP GTS enables companies to handle the increasing demands and challenges in

trans-border goods trafc. This chapter summarizes the unctionalities included in the SAP GTS solution, whichaddress all o the business issues explained above.

SAP GTS Customs Management enables the electronic exchange o customs documents with the customsauthorities or import, export and transit processes. It also contains advanced bonded warehouse and inward andoutward processing management, together with the appropriate electronic communication to customs authorities.

SAP GTS Preerence Handling supports the monitoring and optimizing o value ows in international trade.It monitors and manages requests or long-term vendor declarations, computes the eligibility or preerenceor each sales transaction, and marks it accordingly. It also enables companies to consider preerential originissues in their purchasing strategies.

SAP GTS Restitution Claim handles the complex gathering o amounts o products eligible or restitution in theexport process, assigns it to a license in order to provide the necessary data, and handles the appropriate reportingto the relevant authorities. Furthermore, it helps companies to apply or new licenses at the correct time in orderto avoid any loss o claim.

SAP GTS Letter o Credit provides support or calculating and handling fnancial commitments such as letterso credit and bank guarantees, thus enabling companies to handle multiple letter o credit processes in inboundand outbound ows.

SAP GTS Compliance Management acilitates compliance checks against applicable regulations and statutoryrequirements. Goods import and export processes are monitored, with export and import control unctionalitiescombined with boycott and embargo lists.

Benefts and value o the solutionDue to new laws and business requirements, most customs systems are a growing and evolving solution. SAPGTS is the only one that oers a steady integration point to the ERP. Upgrades o the GTS solution do not involveany changes in the ERP system or in the interace between it and GTS. The integration, which is the biggest parto the work in a customs solution implementation, remains unaected by the upgrades that need to be done toGTS.

Furthermore, due to the large variety o customers using GTS, almost all industrial sectors are covered andnew legislations that may apply to a specifc branch are taken into consideration and the solution enhanced tocomply with it.

In contrast to most other customs solutions, SAP GTS oers a global solution which covers the global traderequirements o most countries, and is not a one country specifc solution. This means, that once it has been setup to work with the ERP system, it can easily be rolled out with minimum eort, in order to cope with all otherafliate’s global trade issues. Furthermore, the aim o companies is to address local customs issues centrally inorder to build a pool o customs competences. SAP GTS allows companies to do so, as all ERP systems can beconnected to the GTS as a central platorm that can handle the customs topics o all countries.



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Support content

§ Adaptation to new schemes (NCTS, Atlas, Delta, E-Dec, etc.) § General error solving § Adaptation to potential new demands and challenges rom customs authorities § Support package upgrades or GTS § SAP Global Trade Service is the leading solution in the market or oreign trade platorms

SAP GTS as an integrated solution or global trade processes

Global trade and its agreements and regulations have become an important ocus o many countries, and itkeeps growing. With that, the rate o new regulations that one company has to comply with keeps growing, andcompanies need to make sure that the tool they choose to address these maintains that pace. Most providershave recognized that, in order to remain compliant, the customs tool needs to adapt requently, and thereoreneeds many upgrades. But most o the tools need to be connected to the ERP via a manually built interace.

However, because o the ollowing reasons, it is crucial that the chosen tool is not interaced, but integrated toyour ERP system:

§ National and international laws require compliance with denied party lists or embargoes

§ Items such as dual-use products and ITAR goods need export permissions § International just-in-time supply chains require ast and cost-eective customs handling § Reduction o fnancial risk through inbuilt letter o credit capabilities § Inbuilt preerence agreements capabilities linked to other relevant business systems § Inbuilt capabilities with respect to CAP restitution, again linked to other relevant business systems § The ability to drive process efciencies through integration, automation and standardization § Cutting the costs, time and risks associated with compliance and international trade laws

Yesterday – single solution per county

Multi installations of trading- and customs

systems, different programming language andoperating systems / databases

Data distributed in many different systems

No centralized tracking of foreign trade

data possible Different processes results of different systems

Higher IT costs

Today – central customs system

One centralized SAP GTS implementation

Holistic data availability over the whole company(Tariffs, SPL lists, contracts)

Continuous enhancements and adaptations

according to new customs demands for all counties

Compliant processes for the whole company withconsistent processes

One interface to a certified adaptor (SEEBURGER)

Lower IT costs

USA UK FR

DENL

CH

Internal systems External systems

Carriers

Customs

Broker

GTS

USA UK FR

DE NL CH

CustomFrance

CustomUS

CustomCH

CustomDE

CustomUK

CustomNL

“Global trade leaders are succeeding in automating and controlling this

complex environment, driving out cost, time and risk rom their business.“



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Technical integration

SAP GTS is based on SAP NetWeaver technology and can be connected to both SAP and non-SAP eeder systems.

All modules o SAP GTS are ully integrated with other relevant SAP modules and can gather and process data sothat logistics, customs, IT and compliance teams have all the data and management tools they need.

Even though SAP GTS is an integrated tool, some implementation work needs to be done in order to integratethe ERP, that was adapted to the business’ needs and to the GTS solution. Furthermore, the company’s specifc

requirements with regards to the global trade need to be considered in the building o the GTS solution. Forthat, a company must choose an integrator that brings both knowledge o global trade, SD, MM and, o course,technical SAP GTS knowledge.

Increasedproductivity and

business insight

Adaptablebusiness

processes

based on flexible

technologyplatform

Integratesystems, data,

and business

partnersERP

SCM/SRM

CRM Legacy

Applications

HTSECCN,

etc.

Dutyrates

SPLData

Rulesof

origin

Data

Customer and

supplier Banks

Freightforwarder

Customsagencies

Business partners

SAP NetWeaver

Exportmanagement

Importmanagement

Trade preferencemanagement

Restitutionmanagement

SAP Global Trade Services

Logistics /trade team

Import /export officer

IT team Legal / SOXcompliance team



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SAP Alone is Not the SolutionA solid oundation ensures that your SAP technology will deliver maximum impact. However, IT systems aloneare not the solution.

Benefts identifcation and the technology “road map”

When contemplating the adoption o a global trade solution, organizations must frst analyze their currentsituation, and defne their business priorities going orward. Only then will a ull understanding o the attainablebenefts be possible. Questions to ask regarding any proposed global trade solution include:

§ Does it acilitate the dierentiation o sites, systems, major import and export hubs, and major distribution centers? § Does it leverage the current SAP landscape within the business, and does it support the organization’stechnology road map?

§

Does it meet the latest regulatory requirements and will it continue to do so? § Will it increase the efciency o the organization? § Will it help ree-up working capital and boost margins through restitutions and other “clawbacks”?

Beyond building a business case or investment approval, this activity provides the business with undamentalinsights into the global trade process, promotes a change in current thinking, and provides a reerence point orstakeholders throughout the lie cycle o the project.

The business case must clearly identiy the benefts o any proposed solution, and must establish relatedperormance measures. Importantly, in establishing these perormance measures, the organization creates thebasis or monitoring continuous improvement.

Finally, it will be likely – in any organization o size – that the business case and associated project cannot be

delivered in one phase, as the transormational change may be too dramatic. A project plan clearly highlightingthe benefts o a phased realization will be critical to the success o a project throughout the implementation.

LeverageGlobal Trade

best practiceknowledge

Benefitsidentification &

road mapping

Global Tradegovernance

model



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Leverage global trade best practice knowledge

The project’s initial activities need to be careully planned. As the dierent sites and systems involved will havedierent imperatives, there are very rarely “o-the-shel” solutions available or the integration o global trademanagement into existing business and system processes.

Thereore, a proo-o-concept phase is generally the preerred approach. One should not conuse a “prototyping”approach with a “proo-o-concept” approach.

A prototype is oten a system prepared with master data by technical experts, with the associated userpresentation tending to ocus on isolated aspects o inormation processing or automation. The result? Businesspeople struggle to understand the process, and ail to see its intended best practices.

A proo-o-concept, on the other hand, starts rom a holistic view o the global trade solution. End-to-endprocesses are presented by demonstrating pre-confgured solutions o the corresponding modules supportedby a presentation to clariy any missing (or custom-built) sotware components.

This approach increases business “buy-in”, and allows technical development departments to understand andrealize the integrative impact the solution places on the existing system landscape.

The reinorcement and understanding o global trade best practices needs to be a coordinated eort throughoutthe project, especially during the process defnition phase. People must also be clear on the best practice conceptso a “globally harmonized” and “integrated system” environment, which in the very largest organizations mightpotentially cover dozens o ERP systems, as well as their corresponding transactional and master data volumes.A thorough understanding o the new process and its benefts will help to ensure a successul implementation,as well as increasing the prospects or user acceptance.

Global trade governance model

The implementation o a new global trade solution may – depending on the approach taken – have a signifcantimpact on current business governance models and processes related to global trade management.

It is imperative that these new processes are ormalized as written procedures, including clearly-defned rolesand responsibilities. This inormation must then be clearly communicated to the organization, and accompaniedby training to highlight new responsibilities and procedures.

The planning and execution o learning activities integrated with these design tasks is critical to both the projectand the end-user community that is transitioning into the new global trade vision. Organizations’ needs will dier,but an appropriate governance model or an implemented global trade solution could look as ollows:

SupportOrganizationManager

Confirm adherence of

changes with Global Trade

solution for thecorresponding module

Align changes across all

modules

Balance priorities of changes

across all modules

Prepare recommendation for

implementation of change

Local Users

Master DataManagement

Identify requirements which are not covered by the current process model due to new

business process or a redesign of a existing process with or without system impact

triggered by either business or the local authorities

Compile a list of all requested changes with specification / justification of requirements

BusinessProcessOwner

Assess and challenge the proposed changes, based on recommendation from

Business Process Manager

Present changes to Global Trade Steering Committee

BusinessProcessManagers

Assess changes and

align across

workstreams. Inform Business

Process Owner

Prepare business case

together with the

requesting users /departments / sites and

define priorities for

implementation



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Conclusion

Global trade solutions are essential or any modern business seeking to combine trade law compliancewith the smooth enactment o international trade transactions. In our view, any company already using

SAP as an enterprise platorm will beneft rom implementing SAP GTS because the integration isdone through a SAP standard plug-in which ensures awless cohabitation o the systems, as well asminimum setup and maintenance eort.

SAP GTS is an all-in-one solution that will enable companies to single-handedly address all globaltrade related issues and high efciency or all afliates centrally.



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Authors

Andreas Müller, Director, Switzerland

Andreas has 10 years o consulting experience or multinational companies, mainly in the areao lie sciences. He is an experienced project manager and integration manager, specialized insales and distribution, and global trade-related topics. He has signifcant expertise in systemintegration as part o SAP GTS implementations, as well as ERP-related third party integration.Andreas is managing the Global Trade Initiative within Lodestone Management Consultants.

Marc Gilomen, Senior Consultant, Switzerland

Marc has proound knowledge o both oreign trade and SAP GTS, which he has implementedin various industries (machinery, automotive, construction, retail, chemical, pharmaceutical– in both discrete and batch processing). He brings experience in both the business ointernational trade and the application o SAP GTS to the felds o preerence and restitutionhandling, compliance, customs, procedures under customs control and Intrastat.



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About LodestoneLodestone Management Consulting was ounded in Switzerland in 2005 and is headquartered in Zurich.Lodestone is a global management consultancy, committed to developing strategies that enable companies to

thrive in today’s complex business environment. Lodestone has a proven track record in designing and deliveringsolutions to global lie sciences companies. Lodestone has developed signifcant experience and expertise inglobal trade management, rom strategy to implementation, mainly within the lie science sector, but also theautomotive and industrial sectors.



Headquarters:Lodestone Management Consultants AGOb t t t 27 Kl t | P t h 201 | CH 8058 Zü i h l d t h

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