Automating the

Import Supply Chain

New Global Trade Management

technologies drive performance
improvement across procurement,
compliance and security

Management Dynamics, Inc.

One Meadowlands Plaza
East Rutherford, NJ 07073
(201) 935-8588
Solutions@ManagementDynamics.com
www.ManagementDynamics.com
 Executive Overview

U.S. corporations import nearly $2 trillion worth of products from more than 150 countries, a number
that is expected to triple by 2015, according to U.S. Customs & Border Protection (CBP). This tremendous
growth reflects a strategic shift in organizations’ buying behavior to seek product cost reductions with
a low-cost country sourcing (LCCS) strategy. While it has been well documented that LCCS strategies
can reduce total product cost they are also burdened with many indirect costs that, when not properly
managed, can ultimately erode the benefits of such a program. Total landed costs must be managed
with a comprehensive review of product classifications by country, standard duties and the applicability
of preferential trade programs, as well as the impact of import/export controls.
In addition to the proliferation and complexities of preferential trade agreements, Customs organizations
around the world are establishing partnership programs where trade facilitation and border security co-
exist as primary goals. The United States’ C-TPAT (Customs-Trade Partnership Against Terrorism) and the
European Union’s AEO (Authorised Economic Operators) initiatives offer benefits of greater predictability
and reduced inspections, but require an investment in self-compliance. Importers of record must have
proven controls and processes to ensure proper supply chain security and compliance requirements
are met and can withstand a comprehensive audit by Customs. The drivers for the self-compliance
initiative include knowing exactly what is being purchased at what price from which supplier in a given
country and when it will be delivered and by whom. And, while C-TPAT and AEO are voluntary initiatives,
new legislative requirements like ‘10+2’ require the importer to report to CBP on key supply chain data
elements no later than 24 hours prior to loading containers onto a vessel at the port of departure.

Primary Drivers for SC Technology Spend 2006 2007 % Change

Lowering supply chain operating cost 28% 24% -14.29%

Meet customer mandates for faster, more accurate and 23% 31% +34.78%
more unique fulfillment

Management of increasingly global supply chain 8% 17% +112.5%

Minimize supply-demand imbalances 12% 7% -41.67%

Others 29% 21% -27.59%

Source: Aberdeen Supply Chain Technology Footprint, April 2007 & May 2006

These challenges are highlighted in a recent Aberdeen Group study that identified the ‘management of
an increasingly global supply chain’ as a primary driver for supply chain technology spend in 2007, a
112.5% increase over the same study in 2006.
New Global Trade Management (GTM) technologies – software, trade content and e-commerce services
– are increasingly important to automate global operations and manage increasingly restrictive
government regulations. A GTM platform can effectively synchronize the procure-to-pay to process and
navigate the complexities of constantly emerging preferential trade agreements to deliver on the promise
of optimal LCCS strategies.
This whitepaper will explore these trends in more detail and propose a framework for GTM that can
support the complete automation of the import supply chain.

Automating the Import Supply Chain - Page 2

 Key Trends Affecting the Import Supply Chain
All industry sectors expect to increase the level The communications and high tech sector
of spending within low-cost countries. should see the greatest increase in savings.
Low-cost-country spending as a percentage of total
procurement spending
18% 15%
Automotive 32% Automotive 19%
Communications and 17% Communications and 14%
High Tech 30% High Tech 24%
15% 17%
Retail and Retail and
Consumer Products
27% Consumer Products
23%
8% 18%
Industrial 20% Industrial 25%
Resources
14% Resources
15%
24% 19%
Government and 5% Government and 13%
Public Sector 13% Public Sector 20%
Transportation and 6% Transportation and 16%
Travel Services 13% Travel Services 18%
3% 20%
Finance and Insurance 10% Finance and Insurance 21%
Pharmaceuticals and 5% Pharmaceuticals and 21%
Health Services 12% Health Services 19%

Spending today Spending in three years Savings today Savings in three years
Source: Accenture, 2007
Dramatic increase in low-cost country sourcing:
Companies are under continuous pressure to increase product differentiation while maintaining or reducing product costs. LCCS strategies
take advantage of emerging economies by sourcing from suppliers located in countries where labor, material, manufacturing and operating
costs are significantly lower than in developed economies. A 2007 Accenture report documented these continuing trends with an average of
122% planned increase in low-cost country sourcing across industries within the next three years. With the massive shift to LCCS, leading
companies are formalizing their overseas sourcing processes to achieve parity with domestic procurement practices through new GTM
technologies that help make optimal sourcing decisions and support higher levels of integration and collaboration with trading partners.
In addition, an analysis of Journal of Commerce’ trade statistics identified that the Top 100 U.S. importers showed a 56% increase in import
volume growth from 2003 and 2006. Not surprisingly, the Retail industry still has the largest share of TEU volume – increasing 71% over the
3 years period and accounting for 55% of the total 5.7 million TEUs in 2006. To manage this increasing volume, many companies are getting
more involved in managing inbound logistics. Accordingly, this shift is driving demand for new international transportation management
systems that provide visibility and help to manage contracts, optimize carrier selection and automate the freight audit and pay process.

Four key trends influencing how global enterprises manage TEUs of Top 100 Importers
their global supply chain:
6,000,000 +56%
Planned increase in low-cost country sourcing
across industries 5,000,000
4,000,000 2003
Global adoption of voluntary programs for trade +71%
which partner with Customs organizations to better 3,000,000
2006
manage security while facilitating trade growth 2,000,000 +49%
Increased legislative reporting requirements of 1,000,000 +7%
the supply chain in advance of port departure +77% +146% +7%
0
l l
Rapid proliferation of available trade preference c als rate CP
G rod Mf
g tai To
ta
i
me st
P Re
programs em lo re
Ch ng Fo
Co
Taken as a whole, it is clear that an automation strategy is
needed to properly manage the import supply chain in this
Source: JoC’s Top 100 Importers, May 31-Jun 6, 2004 and
increasingly complex environment. JoC Top 100 Importers, May 28, 2007

Automating the Import Supply Chain - Page 3

 Key Trends Affecting the Import Supply Chain

Widespread adoption of Customs-Trade partnership programs

Coinciding with the increase in low-cost country sourcing activities, Customs organizations around the
world are enacting trade partnership programs to achieve a safe supply chain through self-compliance.
The emphasis of many of these programs, such as U.S. Customs and Border Protection’s (CBP) C-TPAT
(Customs-Trade Partnership Against Terrorism) and ISA (Importers Self Assessment), is to encourage
the trade community in developing new processes and controls to support supply chain security and
“informed compliance.”
Similarly, 166 member countries in 2005 have adopted the World Customs Organization (WCO)
Framework whose goal is to standardize procedures in securing and facilitating global trade. Guided
by the WCO SAFE Framework and following the example set forth by C-TPAT, the EU is implementing its
AEO (Authorised Economics Operator) program effective January 1, 2008. The AEO program encourages
voluntary participation where members must demonstrate proven processes and controls for supply
chain safety and import management best practices.
Trade Partnership Programs Across the Globe

AEO
AEO
ISA Customs Co-operation and Mutual
ISA Customs Co-operation and Mutual
Administrative Assistance in Customs Matters
Administrative Assistance in
(EU & China)
Customs Matters (EU & China)

SEP (Secure Export Partnership

SEP (Secure Export
Partnership)

SAFE
SAFE Framework
Framework

Successfully participating in these programs (C-TPAT, ISA, AEO) require that importing organizations have
solid trade compliance processes with continuously updated trade content to ensure that they know
who they are buying from (are they on any restricted parties list?), what are they actually buying (are
the goods properly classified for Customs reporting measures and duty/valuation determination?) and
where the goods are actually made (what’s the ‘real’ country of origin – not just what’s stated on the
manifest?).
Increased Reporting Requirements
While there is much focus on those voluntary programs, there are also increased legislative reporting
requirements imposed on the importers in today’s global supply chain. The U.S. Customs and Border
Protection has mandated the 24-Hour Advance Manifest rule in which cargo release details must be
submitted in advance prior to departure.

The rewards for companies that can master these Customs-Trade Partnership programs include:
Reduced time and cost of getting cargo released by the respective Customs agencies
Reduced time and frequency of secondary cargo inspections
Improved predictability in moving goods across borders; and
Reduced penalties as the importer is actively monitoring its inbound shipments from a
supply chain flow AND compliance perspective.

Automating the Import Supply Chain - Page 4

 Key Trends Affecting the Import Supply Chain

Another CBP initiative or Security Filing known as ‘10+2’, enacted as an interim final rule in January 2008 and effective January 2010,
requires the importer to compile and report on ten sets of key supply chain data elements. Many elements must be filed 24 hours prior to
loading the goods in the foreign port for transit into the U.S and all must be filed and correct no later than 24 hours prior to arrival at the U.S.
port. Furthermore, the corresponding ocean carrier or designated agents will be required to report of two additional sets of data elements to
later than 48 hours after the departure, or prior to the first U.S. port arrival, whichever is earlier. Importers found to be in violation of the ISF
will receive a $5,000 penalty assessment for each infraction.
These new programs demand that information flows faster than the physical movement of cargo. Simply reacting to what has been shipped
days or minutes prior to the goods arriving into the port of entry will no longer suffice. In order to avoid violating Customs’ regulations,
importers must be proactive in providing information in advance of shipments leaving the country of export. Automating with a GTM platform
provides the process integration and access to detailed purchasing, logistics and compliance information from sourcing to final destination
to deliver on this objective.
Rapid Proliferation of Trade Preference Programs:
The world’s economies are furiously negotiating preferential trade agreements – either on a country specific level and more frequently, on a
regional basis. Established programs such as NAFTA are joined by a plethora of preferential trade programs such as CAFTA (Central America),
EU-MX (EU and Mexico) and AU-FTA (Australia). As LCCS expands to multiple regions around the world, a new paradigm of managing global
production as a portfolio of contract manufacturers with allocations based on preferential trade programs and demonstrated total cost of
delivery will soon become the norm. Error-prone spreadsheets and manual processes, used by 63% of global enterprises surveyed in a 2005
Aberdeen study, cannot support this level of planning and control and is driving the adoption of GTM platforms.
In short, the accountability imposed upon the importer by these global trends – whether voluntarily or required via legislations – effectively
makes having a comprehensive GTM process, across its end-to-end supply chain, a strategic pre-requisite to support continuous growth.
GTM is no longer just a nice-to-have system to support a random Customs audit. As illustrated in the figure “Spheres of Accountability,” the
importer/buyer’s scope of accountability grows as procurement moves from Domestic to the Traditional Import state.
Spheres of Accountability for the Importer

The New Global Environment: End-to-End Supply Chain Accountability

End-to-End Accountability
Advance manifest
10+2
C-TPAT
Port of Loading Carrier Freight Forwarder/Consolidator
Supply chain controls further extend to all
players in the physical flow
Traditional
Import Traditional Import
Seller
Port of Arrival
Brokers Management
Supply Chain Accountability

CBP /
Domestic Customs Classifications & Entry Filings Accuracy
Procurement
Supplier Supply chain controls extend to Port of
Loading
Domestic Carrier
Broker Domestic Procurement
Inventory Planning
Importer’s
Supply chain controls for domestic facilities
Warehouse
Buyer / Importer

Number of Supply Chain Partners to Interface With

With the proliferation of new Customs-Trade partnership programs around the world, and with new legislation requiring supply chain data
submission prior to the goods physically leaving the port of export, the “Sphere of Accountability” has increased to the point where importers
must adopt new GTM technologies to effectively manage their global supply chain.

Automating the Import Supply Chain - Page 5

 Key Trends Affecting the Import Supply Chain

GTM technologies are an evolution of traditional, domestic-focused supply chain management solutions.
As described in the framework below, GTM solutions focusing on automating the import procure-to-pay
process will accommodate key trends in the global environment as well as the business drivers that
support successful implementation of a LCCS strategy.

Global Low Cost Country Global Customs- Pre-Departure Preferential Trade

Environ- Sourcing Trade Partnerships Legislative Mandates Programs
ments

Identify sourcing Manage orders Comply with Customs

Business opportunities and deliveries requirements
Drivers

Sourcing decision support Restricted parties PO issuance and Entry preparation

screening amendments
Landed cost analysis Broker Collaboration
C-TPAT questionnaire Order collaboration
Keys Product classifications Entry audits
Functions Supplier questionnaire Origins Management
Preferential trade programs Post Entry Management
identification Invoice and ASN LSP/Broker bills audits
generation/approval

Metrics and Measures

Supply Chain Visibility and Workflow

Global Documents and Reporting

Trade
Mgmt Global Global Global Global
(GTM) Product Supplier Transactions Customs
Platform Management Management Management Management

Global Trade Content (timely and accurate updates)

Restricted Parties, Import & Export Controls, Landed Costs, HS & Duties, Rulers of Origin, Document Requirements

The Important Role of Global Trade Content

In order for a GTM platform to truly automate the process, it must be supported by a comprehensive,
timely and accurate source of global trade content such as product classifications, standard and
preferential duty rates, applicable import/export controls, and documentation requirements. For
companies importing a limited set of products from a handful of countries, this information can be
manually researched and maintained. However, for larger organizations that import tens of thousands of
products from 10 to 20 countries or more, the information requirements to support the import supply
chain are daunting. To realize the value from a GTM implementation, it must be integrated with a trade
content service that specializes in monitoring, interpreting, validating and publishing this information for
all trading economies. With tightly-coupled process integration, trade content supports ‘straight-through’
processing and allows supply chain professionals to focus on managing by exception.

Automating the Import Supply Chain - Page 6

 The Opportunities to Automate Imports with GTM

Process Automation Supports Global Import Requirements

While most ERP and legacy systems provide the foundation of an organization’s data structure for supporting global trade, such as products
and suppliers, they often do not track the product details to support multi-country sourcing in different countries or by different suppliers in
the same or different countries. Consequently, the information required to accurately determine valuation and duties and to efficiently file
an entry, or to accurately report on supply chain security, is missing. A GTM platform that is integrated with global trade content provides
the decision support to make accurate landed cost calculations, classify products and manage regulatory controls, such as dealing with
applicable Anti-dumping and Countervailing duties, as well as respond to rising regulatory requirements relating to supply chain security.
To support emerging Customs-Trade partnership programs, the GTM platform must actively screen supply chain partners against restricted
party lists in advance of initiating a purchase order transaction through them. The platform should also establish the proper procedures,
controls and audit trails to demonstrate reasonable care and support the highest levels of compliance.
Once an order is generated, the GTM platform automates the global purchasing process by centralizing information and supporting
collaboration with all supply chain partners. Brokers may now access product information including classification and other Customs
compliance details that will minimize mistakes and expedite entry preparation. More importantly, suppliers may log into a portal to receive
Purchase Orders (PO), collaborate to confirm PO details and delivery, and subsequently, generate the invoice and Advance Shipping Notice
(ASN), and deliver many of the ‘10+2’ requirements that importers need to comply. GTM solutions support supply chain integration with on-
boarding services that expertly integrate with carriers, 3PLs, brokers and other trading partners and maintain a network that reliably delivers
information with the highest levels of data quality.

Best-in-class Companies Achieve >40% Improvements

By Using Visibility and Supplier Portal Solutions

Visibility Solutions Supplier Portal Solutions

>40% Improvement Reported >40% Improvement Reported
Reduced transaction Increase in perfect orders
processing cost
Lead time reduction Reduced invoice
Increase in perfect orders discrepancies
Reduced safety stock
Decrease in data errors
Decrease in data errors
Reduced invoice
discrepancies
0 10 20 30 0 10 20 30 40
% of Companies % of Companies

All Companies All Companies

Event management / visibility users Supplier portal users

Source: Aberdeen, June 2004

Advanced GTM platforms can also help to coordinate logistics at origin and monitor delivery to the final destination. By integrating logistics
providers in the process, goods ready to ship from a factory can be scheduled for pickup, value-add consolidation processes can be
monitored, and carrier selection decisions can be optimized based on cost and service. Once in-transit, visibility to the shipment, with
milestone planning and alerting functions, supports the proactive management of delivery issues. Detailed line-level information can also
support advanced fulfillment strategies such as DC Bypass and diversions upon arrival. Aberdeen Research has a documented study that
indicated that Best-in-class companies achieved over 40% improvements in key performance metrics, such as reduction in transaction cost
and increases in ‘perfect orders’ by adopting the type of visibility and supplier portal solutions that are available in a GTM platform.

Automating the Import Supply Chain - Page 7

 The Opportunities to Automate Imports with GTM

Once the goods have arrived, the GTM platform provides the necessary entry preparation, audits and conducts post-entry management
functionalities that organizations need to complement the efforts of brokers. While brokers will continue to play a valuable role in the import
supply chain, importers need these advanced capabilities of a GTM solution to reduce the risk of non-compliance and prevent supply chain
disruptions in light of new, more stringent security initiatives.
Achieve Best Practices with Performance Management
Perhaps the greatest benefit of automating with a GTM solution is to collect and interpret the data that is critical to drive continuous
improvement programs. Metrics can be developed to measure effectiveness of your supply chain partners, as well as within your
internal departments. Since the GTM platform manages the complete global trade transaction, it provides flexibility and ease of setting
up these metrics and can become the foundation for senior management reporting and QBR (Quarterly Business Review) with your
supply chain partners. The following import metrics were derived from samples of customer feedback in 2007 by GTM software vendor
Management Dynamics:
Metrics are also often used to measure the total
Number of Days from Arrival to Clearance by Brokers
landed cost and effectiveness of sourcing decisions.
Brokers Armed with global trade content, historical data
ABC 123
Performance
(in # of days) Broker Broker can further be compared with the current trade
environment for additional business analysis.
Overall Average: 2.70 2.67 2.75
% Meeting 3 Days or Less Goal: 70.00% 66.67% 75.00% The benefit of having a comprehensive and up-
% Not Meeting 3 Days or Less Goal: 30.00% 33.33% 25.00% to-date repository of all import supply chain data
September Averages: 2.57 2.75 2.33 cannot be overstated for both senior management
% Meeting 3 Days or Less Goal: 71.43% 50.00% 100.00%
% Not Meeting 3 Days or Less Goal: 28.57% 50.00% 0.00%
and operations staff. Measuring processes,
establishing tolerances and managing exceptions,
October Averages: 3 2.5 4
% Meeting 3 Days or Less Goal: 66.67% 100.00% 0.00% establishes the foundation of a continuous
% Not Meeting 3 Days or Less Goal: 33.33% 0.00% 100.00% improvement program and a key success factor for
companies to realize the long-term potential of a
LCCS strategy. GTM is the new SCM. For companies
that need to develop competencies in managing
% of Brokers Meeting Clearance Goal (of 3 Days) global operations, new GTM technologies can
support this objective across procurement, logistics
and compliance disciplines.
All Brokers: ABC Brokers: 123 Brokers:
% Meeting Goal % Meeting Goal % Meeting Goal
Average Average Average
30.00% 33.33% 25.00%
4.50
70.00% 66.67% 75.00% 4.00
3.50

4
All Brokers: ABC Brokers: 123 Brokers: 3.00
% Meeting Goal % Meeting Goal % Meeting Goal 2.50
3

Sep 07 Sep 07 Sep 07

2.75

2.75

2.00
2.70
2.70

2.57

2.5
2.33

28.57% 50.00% 1.50

100.00%
71.43% 50.00% 1.00
0.50
All Brokers: ABC Brokers: 123 Brokers: 0.00
Average Sep 07 Oct 07
% Meeting Goal % Meeting Goal % Meeting Goal
Oct 07 Oct 07 Oct 07
33.33% 0.00% Average
100.00%
66.67% ABC Broker
123 Broker
% Met Goal % Not Met Goal

Automating the Import Supply Chain - Page 8

 About Management Dynamics, Inc.

Management Dynamics is a leading provider of global trade management solutions that improve the
performance of global supply chains for importers, exporters, logistics service providers, and carriers. The
company’s solutions synchronize the flow of information among trading partners, optimize supply chain
execution decisions, and streamline import and export processes to ensure regulatory compliance and
minimize cost and risk involved in cross-border transactions. More than 13,000 global users at some of
the world’s most successful 3PLs, carriers, manufacturers, retailers, and high technology companies use
Management Dynamics’ time-proven solutions.
Management Dynamics’ Global Trade Management (GTM) Suite provides a complete, on-demand, enterprise-
class solution for managing all facets of a global supply chain operation.
The GTM Suite is comprised of supply chain networking services to interconnect trading partners; specialized
execution applications to manage suppliers, optimize global transportation, ensure trade compliance, and
automate key aspects of trade finance; and, a supply chain visibility and performance management solution
for timely resolution of operational issues as well as a data warehouse and analytical tools for advanced
decision support.
Management Dynamics’ solutions are powered by Global Knowledge®, the industry’s most comprehensive
source of trade content and business rules data covering 99 percent of the world market, enabling companies
to automate and streamline key business processes to make better-informed operational decisions.
For more information, please contact us at Solutions@ManagementDynamics.com, visit
www.ManagementDynamics.com or call (201) 935-8588.

Management Dynamics, Inc.

One Meadowlands Plaza
East Rutherford, NJ 07073
(201) 935-8588
Solutions@ManagementDynamics.com
www.ManagementDynamics.com

©2009 Management Dynamics, Inc. All rights reserved.