Sometimes provenance is essential to establishing value, enhancing reputation, and building confidence. But tracing the path of an object can be incredibly complex, document-heavy work. Just one misstep makes the difference between real and fake, legal and fraudulent.
For businesses that have international trade and supply chain management concerns, knowing exactly where every component of every product originates, and being able to verify and validate that source, has become critical as customs authorities around the world implement punitive tariffs based on origin and increase enforcement of preferential trade programs as new trade agreements take shape. It also has become more challenging and complicated for companies to assess eligibility under proposed trade agreements as the customs authorities are making new demands — such as higher regional content value (RCV) to restrict supply chains and higher labor value content (LVC) to support high-paying jobs — as well as signaling an appetite for greater transparency to foster regulatory enforcement.
Moreover, as a result of the economic disruption caused by the COVID-19 pandemic, companies need to gain a keener, more real-time situational awareness of supply chains, especially those affecting critical materials and components. Companies must be able to identify potentially weak links in the supply chain—especially in geographies now affected and those that are likely to be impacted by COVID-19. Many businesses are pivoting their supply chains and identifying alternative suppliers in new locations.
To begin with, companies need bills of material (BOM) that identify all the components used to manufacture the product, along with the tariff classification, origin, and value of each component. As part of that process, companies should collect certificates of origin to validate the origin of each component on an annual basis. Then, the company needs to look up the specific rule of origin and perform the analysis under a tariff shift and/or a value (e.g., RVC, Net Cost) test based on the specific rule of origin.
Now multiply this exercise many times over for all the products the company sells. And if the company is a large global business, it will want to qualify thousands of products under different FTAs in different jurisdictions while making sure it is screening these transactions for international trade compliance with sanctioned party rules, import and export license requirements, and tariff classifications.
Even when the trade environment was less complex, this often was a manual, resource-intensive exercise. Now, companies have to manage margins despite new tariffs and remain competitive in the face of higher costs to meet global trade compliance requirements and keep up with new regulatory developments.
That’s why we’re talking to clients about the importance of integrating automation solutions into their trade strategy. Technology can reduce manual effort, provide companies above -the-line duty savings, help de-risk the supply chain, and provide visibility and insight into data to drive strategic sourcing decisions. PwC’s supply chain analytics platform is an example of solutions that can help identify opportunities to improve operations across international trade and supply chain management processes.
Only 15% of participants in our webcast on global trade issues have reported that they deployed an integrated global trade solution across multiple locations. Now is the time to move forward with technology. Here’s what you need to know about trade automation solutions:
Twenty-nine percent of those we polled said they use only the basic customs and trade capabilities embedded in the business processes of their core ERP systems, such as procurement, sales, manufacturing, and warehousing. There’s a lot more you can do.
While many companies find it challenging to choose among the many vendors offering integrated global trade automation solutions, companies should first evaluate their functional needs, their process inefficiencies, and their strategic priorities. The key requirements that companies identify typically include sanctioned party list screening, embargo checks, license management, preferential and non-preferential origin management, import and export declaration preparation, direct filing capability with customs authorities and/or integration with customs brokers.
Once you’ve established the high-level functional business requirements, then assess different vendor solutions. Don’t underestimate the benefits of choosing one that fits within your existing IT landscape. Your trade automation solutions need to integrate with your technology infrastructure today and in the future.
As companies embark on their digital transformations, they are implementing next-generation enterprise technologies such as cloud-based ERPs and deploying spot solutions using emerging technologies, including Robotic Process Automation, Machine Learning, and Natural Language Processing. More than ever, it is critical that a company’s trade strategy be included as part of these initiatives. Technology deployments that do not consider trade strategy can adversely impact existing trade operations and compliance.
Moreover, with many of the key stakeholders already assembled to support the broader transformation initiatives, this is an effective time to deploy a trade automation solution given the need to address interdependencies — and secure corporate buy-in. We typically see that inclusion of trade automation within ongoing and planned digital transformation initiatives as an accelerated path to deploying these solutions.
We are seeing not only new trade regulations in the US and other countries, but also increased enforcement. So first and foremost, any trade automation solution must address the complexity of global trade compliance given the regulatory disparities across jurisdictions. There’s a lot more to trade compliance than sanctioned party screenings. Trade automation solutions allow companies to build out business rules to address systemic areas of risk within the supply chain, for example, how to deal with the customs implications of returned goods or set specific rules for regulated products, like hazardous material in specific jurisdictions.
With a strong foundation for international trade compliance, it becomes easier to focus on the opportunities for above-the-line duty savings. These tools also can help to optimize FTA programs, or programs like First Sale For Export or duty drawback. Integrated trade automation solutions harness data analytics for KPI measurements, to draw insights in order to change business processes and to support with risk management. Trade automation solutions also can be applied toward projecting tariff impacts across a range of scenarios and be used to calculate the costs of different supply chain configurations.
Companies must execute changing trade strategies in today’s fast-moving, uncertain environment. So it’s just as important to keep in mind that trade automation solutions will streamline and speed up cross-border activities. Keep lingering and the fast movers will run away with the prize.