Administrating Secure Global Supply Chains

International trade has grown 9.3 percent over the last twenty years according to a United Nations’ study, but many companies still push piles of papers and engage in time-consuming phone calls and cumbersome facsimiles. Inefficient process and outdated technology cost global companies some 420 billion US-Dollar per year.
For the last two years, SAP has worked on a composite application to tackle the specifics of international trade, SAP Global Trade Services (SAP GTS). Today, SAP GTS has been adopted by about hundred companies with global supply chains. It can automate import-export processes, cut costs out of supply chains and generally help companies become more efficient. It also provides them the flexibility to expand into new products, customers, and markets, while ensuring compliance with tight international regulations.
“Today, cross-border trade processes are absolutely fragmented,” says Neetin Datar, director, product marketing, SAP Trade and Compliance Applications. “When they choose to automate with SAP GTS, companies have the opportunity to include brokers, freight forwarders, regulatory agencies and other trading partners into their extended enterprise.”

Sell-side and buy-side integration

SAP GTS is powered by the SAP NetWeaver integration and application platform, which allows it to work with both SAP and non-SAP systems. Its architecture lets companies easily collaborate with the external partners and government agencies involved in trade regulation. SAP NetWeaver employs the most commonly used Internet standards such as Java, Hypertext Transfer Protocol, (HTTP) and Extensible Markup Language (XML), which allow it to interoperate with systems in use in business, including Microsoft .NET and IBM WebSphere.
SAP GTS offers seamless integration with SAP R/3 (Releases 4.0B and up) and mySAP ERP. The solution also offers integration into mySAP Customer Relationship Management (mySAP CRM) and mySAP Supplier Relationship Management (mySAP SRM) solutions for the sell-side and buy-side processes. Besides providing the system-to-system and process integration for order-to-cash and procure-to-pay processes, SAP GTS also leverages open XML interfaces to bring in data from external sources, such as Denied Persons lists, maintained by the U.S. government to identify those denied export and import privileges, or Harmonized Tariff System codes. That are standardized classifications for trade products, used by customs officials around the world to determine duties, taxes and regulations.

Real-time audit trails

This enables SAP GTS to provide the latest data which is critical to drive successful global trade transactions and maintain an audit trail. The integration (both synchronous with audits done in real-time and asynchronous with audits done at the user’s convenience) is achieved through SAP Web Application Server, a component of SAP NetWeaver. By leveraging the interoperability of SAP NetWeaver, SAP GTS is able to provide one view into global trade across an extended enterprise. It utilizes SAP Enterprise Portal, also a component of SAP NetWeaver, for a trade self-service scenario where an employee having a compliance query can send that request directly to SAP GTS and get an automated reply, rather than engage a trade compliance manager. This helps eliminate costly wait-times and increases white-collar employee productivity, which every business seeks.
The next release of SAP GTS, due in the fourth quarter of 2004, will also include integration with SAP Business Intelligence, another component of SAP NetWeaver. This will bring added flexibility to customers from a reporting perspective. The managers will be able to make informed decisions, execute appropriate actions and improve overall business operations. “SAP GTS is the only composite application in the global trade software segment that is based on a powerful platform like SAP NetWeaver. This means SAP can bring new and innovative processes quickly to our customers,” Datar says.

Drilling down into SAP GTS components

SAP Global Trade Services consists of three modular components: Compliance Management, Customs Management and Risk Management. Each component facilitates a different aspect of the cross-border trade process. “If you look at the SAP GTS composite, all the functions are very modular. Customers decide which modules they want to automate and when. They have flexibility,” Datar says.
The Compliance Management module’s Sanctioned Party List (SPL) checking functionality uses an XML interface. XML is a commonly accepted Web standard that allows for real-time updates of the SPL data. As orders are processed, SPL screens each potential trading partner and blocks transactions with those that are on the prohibited lists.
Companies need to be absolutely sure their trade processes are in compliance with international regulations. Non-compliance can be extremely costly and in some cases export/import privileges can be revoked by governments. “Risk mitigation is a key value proposition that SAP GTS brings to businesses,” Datar says.
SPL functionality includes synchronous business partner checking, asynchronous business partner checking, and periodical business partner checking. They use phonetic algorithms and user-defined criteria to screen and block sanctioned parties when necessary. SPL’s audit trail enables regulatory authorities to have a transparent view into trade processes. Additionally, such an audit trail makes it simpler for companies to comply with certain internal control requirements within the Sarbanes-Oxley Act of 2002.

Export and import control

Two other functions within the Compliance Management component are export control and import control. They ensure that companies have legal control during both importing and exporting processes. License management, license determination, license monitoring and embargo checking functions let companies track appropriate classifications for materials that must be licensed differently from country to country. They record potential quantity limits for each license and alert users to necessary updates. The result is a streamlined supply chain, with no costly delays from licensing errors.
Customs Management is the second component within SAP GTS. It’s comprised of product classification, duty calculation, trade document service and customs communication service functionality. The product classification function includes the maintenance and upload of external data, such as tariff figures. And it includes the all-important master classification of product data. Because products can be classified in so many different ways, it’s critical that master classification be standardized.

Driving costs down

In SAP GTS, product classification information can be accessed in conjunction with corresponding duty and tax data. Companies can save money by using the service to easily select the lowest-priced vendor, which SAP GTS then calculates automatically. Users can find what they are looking for by searching using specific classification data. They can also reclassify data on a mass basis when certain classifications become obsolete.
Another function of the Customs Management component, the customs communication service, uses electronic data interchange (EDI) to handle communications for both imported and exported goods. It provides a direct communication link between a company and the customs agencies in the different countries with which it interacts. “Data is shared between all necessary parties to really expedite the customs clearance process, drive down costs and ultimately gain higher customer service levels,” Datar says. A communication dashboard provides a real-time view into customs systems so that managers can monitor and track them.
The third component of SAP GTS is SAP Risk Management, which consists of restitution and trade preference functionality. “This component lets companies avoid risks and financial liabilities from contract errors,” Datar says. Specifically, the restitution functionality ensures that the proper export licenses are in place and that the proper restitution rates are used. The overall goal is to provide companies with the capability to ensure that global partners meet contractual obligations, therefore mitigating financial risks inherent to the trading process.

SAP GTS enables regulatory compliance

The biggest challenge companies may face when they implement SAP GTS, Datar says, is not likely to come from the IT or from process integration. Often, SAP GTS can be integrated in a matter of just a few weeks. The toughest job, he explains, is likely to come from the creation of a correct master data list, since much data from the many trading partners involved in any transaction can be outdated.
“Everything starts with the right classification of goods,” he says. “A single global product master list with correct classification is the first step. Correct classification has a direct impact on the duty and taxes that have to be paid.” Because of the product classification functionality in the Customs Management component, that task is simplified and standardized.
SAP Global Trade Services makes standardization of global trade processes easier to achieve across the entire enterprise and this has a huge impact on companies’ bottom lines. Whether integrated with SAP R/3 or any other system, SAP GTS’s powerful components and modular functionality replace error-ridden manual processes with secure, modern and standardized cross-border trade processes – imperatives for successful enterprise today.

Sarah Z. Sleeper
Sarah Z. Sleeper