The global trade of manufactured goods increases, on average, 6 percent per year, yet most global trade activity is underautomated. Global trade management is a fragmented, rapidly evolving emerging market, with multiple solutions needed to assemble a complete GTM portfolio.

Supply chain globalization will force changes to product-centric Global 2000 company application portfolios. Although companies have deep experience in domestic supply chain management (SCM), many lack experience and expertise in global trade. As a result, they are faced with developing processes and evaluating applications in areas in which they have little or no experience. Even sophisticated companies that have more global trade management (GTM) experience and were early GTM adopters have only automated a small fraction of their global trade operations. As more holistic, packaged and robust GTM solutions emerge and mature, companies with high volumes of global trade will automate portions of their global trade processes; however, through 2007, even the most sophisticated companies will not automate all aspects of their global trade operations (0.7 probability).

Some early-to-market vendors tried to brand their typically narrowly focused solutions as the “be all” solutions for GTM. However, GTM encompasses more than a single vendor or technology, regardless of how well a vendor supports a particular trade activity. It includes all of the processes, management strategies and disciplines inherent in running a global supply chain. Although select GTM technology components will perform specific trade activities (for example, trade compliance and customs clearance), GTM concepts and actions will permeate many other business areas and applications. For example, global trade compliance solutions house detailed trade compliance and cost content (such as duties, taxes, licensing requirements and free trade zone information) that could provide valuable data needed to make more-effective sourcing decisions (such as whether to source from the Far East or Mexico, which is part of the North American Free Trade Agreement Zone). Consequently, companies must address GTM as a portfolio management exercise where they evaluate how GTM activities will affect their application stacks, and identify new components that will be needed to address specific GTM requirements.

Trade compliance is fundamental to the execution of cross-border transactions. In addition, it must play a key role in sourcing strategies (for example, consideration of duties, drawbacks, licensing and free trade zones). Growing security considerations have also increased the importance of screening customers, suppliers, trading partners and countries for trade restrictions (for example, restricted party screening).Most companies depend on third parties (for example, brokers and freight forwarders) to manage compliance; however, in light of security concerns and increased scrutiny of global transactions, a growing number of companies are considering bringing compliance activities in-house. The trade compliance process varies based on the:

1. Regulations of the importing and exporting countries
2. Parties involved in the transaction
3. Categorization of goods
4. Intended use and state of the goods
5. Source and destination of the goods, considering issues such as licensing and free trade zones
6. Process activity (such as restricted party screening at customer entry, order and shipment)
7. Growing security considerations have also increased the importance of screening customers, suppliers, trading partners and countries for trade restrictions (for example, restricted party screening).

Fundamental to trade compliance solutions are the richness and flexibility of the content databases that codify trade regulatory rules, tariffs and trade restrictions. Trade compliance application logic provides the rules and workflows that consume the compliance content, which determines what is required for each transaction. Some compliance vendors (for example, NextLinx, Precision Software, TradeBeam and Vastera) have built standardized content libraries, while others, (for example, SAP) allow customers to source content on their own or build content through consulting services during the implementation. Regulatory content is a critical element in these solutions, and it takes effort to build and maintain the knowledge base in the dynamic international trade environment. As other enterprise application vendors follow SAP’s lead in adding trade compliance business logic to their application suites, we anticipate the emergence of content-only providers that invest heavily in building comprehensive trade compliance content libraries and then sell subscriptions to this content, much like payroll tax content is sold today.

Historically, transportation management solutions were aimed exclusively at domestic transportation, focusing on a minimum number of transportation modes (for example, truck, rail and parcel). International trade logistics applications help automate the movement of goods on a global basis by ensuring that processes are synchronized with all the parties involved in an international shipment. International shipments are typically complex, multi-leg movements where goods and information flow among many constituencies (such as supplier, land transportation, port operations, government of country of origin, ocean carrier, destination government, destination port and domestic carrier). We see more-robust solutions emerging (for example, from i2 Technologies and G-Log) that better support International trade logistics operations and international shipping modes, such as ocean and air. Some vendors (for example, GT Nexus) solely focus on international shipping and look to leverage established relationships with ocean carriers, for example, as a value add to their clients.

Global visibility of orders, shipments, inventories and events has emerged as a fundamental characteristic of next-generation SCM. Improved visibility across facilities, multiple transportation modes, transportation providers, trading partners, suppliers, customers and, eventually, governments will serve as a prerequisite for event-driven, synchronized global SCM (for example, notification that a delayed shipment might lead to a projected material shortage). In particular, global transportation and logistics visibility has become a high-priority application, driven in large part by longer lead times (for example, time and distance) caused by international sourcing, which increases the need to monitor global shipments over extended periods of time. Global supply chain visibility specialists (such as Management Dynamics and GT Nexus) have built the foundations needed to capture and manage global logistics information, and are now including more value-added functional capabilities (such as document management).

Although often purchased separately, we believe that visibility will become a key component of broader international trade logistics solutions. Thus, future solutions will provide better closed-loop support for planning, executing, monitoring and analyzing the performance of international shipments.

This area is more fragmented and less mature than compliance and global logistics, and includes such capabilities as determining:

1. Total landed costs for imports
2. Calculation of duties, tariffs, fees and taxes
3. Compliance with free trade zone regulations (for example, percentage of materials sourced in free trade zones)
4. Duty drawback (for example, recapturing of tariffs paid for imported components when finished goods are exported)
5. Collaboration with financial institutions for documents such as letters of credit

Many companies have made outsourcing decisions primarily based on per-unit manufacturing costs and with little if any consideration for the total landed cost, including duties, taxes, fees, transportation costs and inventory-carrying costs. Although leveraging the financial data captured in trade compliance solutions offers potential savings for many companies, this is a complex area where internal domain expertise is sparse and solutions are evolving. Automation of processing letters of credit, although important to some companies, will hinge on volume and the comparative cost of executing this manually or with limited point solutions. As broader and more-comprehensive GTM solutions emerge, some of the above capabilities will become features within these broad GTM suites, and solution prices will adjust accordingly. More likely in the near term is that organizations will begin to selectively extract financial data from their GTM solutions to help improve decision making, most notably strategic sourcing decisions.

Although not a GTM portfolio consideration per se, data quality remains a barrier to fully exploiting GTM technologies. Achieving value from GTM solutions is predicated on having access to quality information. Early adopters of solutions such as global visibility have found that data quality remains an impediment to fully exploiting these solutions.

Movement to emerging markets often means that literacy and technology sophistication are minimal. Because of the number of constituencies involved, there are numerous touchpoints for data quality to degrade. Some constituencies are sophisticated, and these companies typically have robust systems (for example, global ocean carriers and third-party logistics). However, many other supply chain participants lack sophisticated processes, systems or skilled users, which can be a source of data quality issues.

Radio frequency identification (RFID) has been proposed as one solution, but this presupposes that RFID can be exploited across GTM networks composed of numerous constituencies of varied levels of sophistication. This makes RFID, although promising, a longer-term proposition. Before companies leap to RFID, they must fully understand the true sources of data quality problems and not assume that the most technically elegant approach is the best.

In this research, we’ve outlined some of the broad building blocks and considerations that companies should understand as they develop GTM portfolio strategies. Each company must assess its environment and consider:

1. How it supports aspects of global trade (for example, in-house, outsourced to third parties)
2. How it plans to manage trade in the future
3. Where it sees its short-, medium- and long-term needs

From this analysis, companies can prioritize automation investments based on the value and importance of each initiative. For example, one company’s greatest initial need might be inbound transportation visibility, while another might find compliance most important.

Today, few Global 2000 companies have well-articulated and comprehensive GTM strategies or mature, well-functioning GTM business processes. Consequently, most companies should build initial GTM portfolio strategies based on current, obvious needs, while clearly communicating and structuring the importance of portfolio flexibility and adaptability into its business case. Although companies might determine that they need a number of GTM components to support their longer-term goals, we recommend that they view these as individual, although related, initiatives and buy tactically, focusing on one component at a time.

Given the need for near-term results and the immaturity and rapid evolution of the GTM application market, companies should view GTM initiatives as potentially interim solutions, building business cases around a planned useful life of approximately three to five years. This is not to say that the life span of solutions will not extend beyond five years; however, given the volatility of an emerging market such as GTM, companies should design the option of changing solutions into their business case and plans if better alternatives become available. Yet, companies must not overlook the cost/value proposition if the solution’s useful life exceeds five years. This is particularly important given the prevalence of on-demand (for example, subscription and hosted) pricing models in GTM, where the cost beyond five years might exceed license alternatives.

Source: Gartner

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