Meeting the regulatory challenge

July 11, 2005 by admin

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Each year, KLA-Tencor must make 30,000 to 35,000 shipments correctly and on time. It’s extremely important for the enterprise to drive customer satisfaction and avoid delays. The technology advances rapidly – as do the customers to realize the best return for their semiconductor manufacturing plants.
International business in this post 9/11 world has become more complex with more stringent homeland security and export compliance regulations requiring specialized government documentation and electronic reporting. So KLA-Tencor faces not only global pressure from international competitors, but also regulatory pressures; sanctions lists and complex embargo scenarios must be adhered to. Companies like KLA-Tencor must be compliant or risk costly consequences.
In the past, KLA-Tencor ran its own legacy compliance system with a complicated user interface to a non-SAP enterprise resource planning (ERP) system. Operating and administering the systems required three third-party providers. It was expensive to maintain and there was a lack of automation. Most data blocks required manual intervention, and the audit trail was fragmented, leading to high total cost of ownership (TCO). KLA-Tencor was also unable to extract important data for reports, and sanctioned party data had to be archived manually. Making mistakes is human. But missing just one thing on the sanctioned party lists, will lead to serious consequences.
KLA-Tencor needed a new solution for global trade, one that is adaptive, flexible, and scaleable. The decision to select SAP Global Trade Services (SAP GTS) came after a comparison of the legacy system and two other providers: SAP GTS offered the broadest functionality and promised the lowest TCO. Also, in order to automate processes the enterprise needed full integration between the compliance solution and the ERP back-office solution. Since KLA-Tencor had decided to replace our existing ERP system with SAP R/3, it made sense also to opt for SAP GTS as it allowed for easy product and customer master data management as well.

Concurrent implementation

The decision was made in late 2003, and 14 months later, SAP R/3 and SAP GTS went live. The normal implementation time of SAP GTS is just three or four months but KLA-Tencor implemented concurrently with SAP R/3. This took more time but allowed to do extensive system testing of both solutions and their interaction to create an optimum system with streamlined process flow.
The project implementation at KLA-Tencor includes SAP R/3 4.7, SAP GTS 2.0 Compliance Management, SAP GTS 2.0 Customs Management, and the Seeburger EDI (Electronic Data Interchange) system supporting electronic AES (Automated Export System) reporting.
The project team implemented four different forms: the commercial invoice, the packing list, the shipper´s letter of instruction and the certificate of origin. Most of the functionality was configured based on standard SAP GTS capabilities with limited customization in areas such as outputs, form changes, and interfaces with third-party applications. This makes maintenance and upgrades very easy.

Lessons learned

For successful implementation of SAP GTS it was very important that the data in the ERP system be stable. Successful implementation of SAP R/3 Sales and Distribution was critical. Among other lessons learned the following rank prominently:

  • <sum> Establishing a strong project team including both business and IT experts from all parties involved, i.e. KLA-Tencor, BearingPoint, and SAP, in order to have a cross-functional understanding is essential. GTS interfaces with multiple functional areas and it is extremely important to understand the overall flow of your company’s business.
  • <sum> Business processes as well as technical and output requirements have to be completed and approved prior to blueprinting in order to ensure tight integration
  • <sum> Knowledge sharing must be initiated as early as possible
  • <sum> Relationships with partners that provide compliance-related data have to be in place before you start the implementation
  • <sum> Using both, SmartForms and ABAP, is essential for the customs module
  • <sum> Testing in a granular way targeting all functionality using real-world scenarios pays. It´s important not to forget to test exceptions as well as the norm.

KLA-Tencor shut down the previous system on a Friday in February 2005, flipped the switch the following Monday, turned on SAP, and everything went smoothly. The system covers 18 countries, with 1,200 to 1,400 users working with SAP R/3 and SAP GTS.

How it works

Based on SAP Web Application Server, SAP GTS uses open standards like XML and Web Services. Being fully integrated with SAP R/3 the current SAP GTS system at KLA-Tencor provides the means for paperless transactions. All transactions are traceable to SAP R/3. SAP GTS is able to handle transactions in the U.S., Europe and Asia.
At KLA-Tencor, three peripheral systems are connected to SAP GTS: The previously mentioned EDI system from Seeburger, the databases of MK Technologies and FedEx Trade Networks. Whereas Seeburger enables document exchange in regard to reporting requirements, the database of MK Technologies allocates the denied and restricted party lists as published by governments across the world and the database of FedEx Trade Networks offers global duty and tax content for 118 countries. The data is uploaded to SAP GTS. This single, streamlined process flow eliminates the cost of third party providers, for example for AES and Sanctioned Party List (SPL) and License Determination (LD) screening. Other processes supported include:

  • <sum> Export documentation processing
  • <sum> Capture of Integrated Transport Network (ITN) data
  • <sum> Optional AES reporting via freight forwarders
  • <sum> Harmonized Tariff Schedule (HTS) and Export Control Classification Number (ECCN) maintenance through an HTS classification tool with FedEx Trade Network
  • <sum> Interface for data push from freight forwarders.

Minimized risk

Using SAP GTS, the compliance workflow at KLA-Tencor is now fully automated. A single, completely integrated system between SAP R/3 and GTS enables bi-directional data flow. And the solution can be implemented across multiple regions and serve future import capabilities. The implementation is a real success. Manual intervention is reduced by real-time transaction, screening, and blocking in SAP R/3. New SAP-based forms have been readily accepted by regional offices and customs authorities.
With SAP GTS, the complicated regulatory process that is so critical for KLA-Tencor success now runs automatically. This minimizes our risk of penalties and fines – and maximizes the return on our global sourcing and selling initiatives.

The next steps

KLA-Tencor will further improve its compliance management in regard to imported parts and services by upgrading to SAP GTS 3.0 which offers the required functionality. With SAP GTS 3.0 the enterprise will be able to better calculate important figures such as duty and transaction, deductive and computed value. In addition, SAP GTS 3.0 enables KLA-Tencor to improve the handling of commissions, packing costs, and royalties. KLA-Tencor will also be able to better manage manufacturers’ affidavits (AGR) and import documents such as 3461 (Prefiling) and 7501 (Filing).

Johanna Avery

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