Secure Your Global Supply Chain Post-9/11

Regulatory Compliance ... It's Not an Option

By Edward Blinick

The events of September 11, 2001 changed the global trading landscape of the United States forever for American importers and global suppliers exporting to the United States. The current regulatory initiatives and proposed legislation by Customs and the Food and Drug Administration send a clear message to the global trading community of what to expect in future dealings with the United States.

Failure to put physical procedures and systems in place that will monitor and proactively control one's supply chain will result in regulatory agencies barring admission or grossly delaying the release of product for distribution. Failure to execute will result in exceptional additional costs due to clearance delays, the need to carry larger inventory of safety stock, rejected merchandise, a weakened competitive position and reduced customer service levels. Failure to comply with regulations can literally put a company out of business.

The importer has ultimate responsibility for the validity, accuracy and timeliness of the filings made on its behalf to the U.S. regulatory agencies. Many companies have outsourced their non-core global logistics activities to third parties: lead logistics providers, 3PL's, ocean, air, truck and rail carriers, consolidators, freight forwarders, Customs brokers, etc. While this often makes commercial sense, it is the importer that must ensure its suppliers and third-party providers are all operating within a secure environment and are providing information that is accurate and meets the compliance requirements.

Import values, as reported by U.S. Customs, have grown 52% between 1996 and 2001. Entries filed with Customs in support of the imports have increased by 48% in the same period. The number of importers in the United States over that time has increased 35% from 389,158 to 526,084 reporting firms. Between 1996 and 2001 the top 100 importers represented 32-35% of the value of imports, the top 1,000 represented 59-61% of imports and the top 3,000 importers 71-73% of the value of imports.

In 2001, the top 3,000 importers imported $846 billion worth of product (72% of the value by Customs). The remaining 523,084 imported $329 billion.

However, those raw statistics don't tell the real story. The real issue that underlies these statistics for Customs and the importing community is the ability - or inability - of companies to be compliant. For it is in the ability to comply that Customs and FDA will measure each company on its ability to secure its supply chain. It is clear from the pending regulations that greater adherence to compliance is to be forced on industry to ensure importers can demonstrate that their supply chains are secure.

What is the state of compliance today? The top 1,000 importers comply 93.2% of the time. The top 3,000 importers comply 92.9% of the time. But all importers comply only 90.5% of the time when measured by "Major Transaction Discrepancies." However, all importers are just over 84% accurate when measured by "Letter of the Law Discrepancies." Larger importers are improving their compliance capabilities more quickly than smaller companies.

Will the regulatory agencies accept the current 84-90% level of filing accuracy? Or will they require greater levels of accuracy on filing?

While the required minimum level of filing accuracy has not been established, what is clear is that the importer will be required to have appropriate and documented procedures in place, provide accurate, timely and complete filings and maintain records for regulatory audits. It is imperative that importers have the ability to manage the information and demonstrate the integrity of the processes around all filings with Customs and other government agencies.

Cost of Implementing and Maintaining a Secure Supply Chain

Clearly, imposing procedures and reporting requirements on the import community to ensure a secure supply chain removes a degree of flexibility in the importer's supply chain design and increases costs associated with importing products.

Cost as a determining purchasing factor will be reduced in importance in the importer's choice of supplier, service provider and logistics modes and routes. Security confidence with suppliers, service providers and logistics providers will increase in importance and will be as much a part of the purchase equation as cost and quality.

To get a glimpse into the future, one need only review the "Proposed Regulation: Prior Notice of Imported Food Shipments," published by FDA. In summary, this proposed legislation requires importers of foods and beverages to file a great deal of information with FDA by noon prior to the arrival of a shipment:

While most of this information is already being collected and submitted to Customs, there are certain elements in this proposed rule that are not normally collected by the importer or its agents. If those requirements remain in place when the final rule is published, having this information easily accessible for filing with Customs and other regulatory agencies will not be easily done. Having the flexibility to capture additional information will be costly and difficult without well-designed, integrated solutions that access common data across multiple business activities.

Importers already have systems and procedures in place for filing with the required government agencies. However, whether they file directly or through Customs brokers, the challenge for many importers will ot be who will do the filing on their behalf, but where will the information come from and how will its accuracy be assured? The reasons for such low compliance capabilities today, even among the largest filers, is the inability to quickly and accurately capture the information from the suppliers and related service providers and accurately process it for the required filings. This problem extends to the internal organization that may have important information related to a product (i.e., compliance rulings by a regulatory agency held within a Compliance Department) that is not easily accessible at the time of the filing and causes the goods to be held at the point of entry until the right information is filed.

In most instances, information resides in multiple systems and data repositories, often not controlled by the importer or import department. The data is not easily retrieved and its accuracy is difficult and costly to validate with a high degree of accuracy. As more companies outsource their non-core global logistics, the information related to an import shipment is more difficult to retrieve, consolidate and report accurately.

The ability of capture, validate and report on the import data is quickly becoming a core business competency. Costs related to compliance will escalate quickly if the correct procedures and systems are not in place to capture, validate and report the information. Coordinating and monitoring the capture of the information from all the participants in the supply chain, validating it and reporting it in formats that are accurate and acceptable will be required.

What further complicates the matter is that the future required data elements for each agency have not been fully defined nor standardized. It is very much a work in process and the importer or its agents will be required to respond to the changes in information requirements quickly and with accuracy.

The Solution Options

Traditional channels for filing will continue to be in place. Customs brokers will continue to file and will be charged by their clients with obtaining more information and transferring it accurately to Customs and other government agencies. The costs related to filings will, in all probability, escalate as additional forms will be required and the timeliness of filings becomes an increasing burden.

The vast majority of companies do not have the in-house ability to easily capture the information residing across its disparate members of its supply chain. Most of their agents do not have the ability to capture all the information related to a shipment across the entire life cycle of a shipment. There is almost no ERP, Supply Chain or Global Trade Management system designed to provide a single repository that will support the quick, efficient capture, validation and reporting of all the information required to insure supply chain security. They simply were not designed to provide one true view of the global supply chain from the "supplier's supplier to the customer's customer." This fundamental lack of a total and integrated global supply chain technology infrastructure means information in the traditional solutions cannot be easily retrieved - if it can be captured at all.

The optimal solution ultimately resides in providing a data repository to collect, monitor and validate the information related to a product and its associated shipment. Companies should use systems or third-party providers with systems that can record all logistics information related to the international moves across multiple legs and lanes and provide total visibility when products are in-transit or at rest within its supply chain. What's needed is a complete audit trail for a product from the origin of its purchase through delivery to its destination.

Benefits of 3rdwave, which was inherently designed to capture, validate and report all information for flawless supply chain security, include:

• 100 percent track and trace of inventory and logistics information across the global supply chain for security monitoring of all participants;
• Event monitoring and exception reporting to ensure vendor and service provider execution and compliance;
• Imbedded work flow, ensuring corrective action for activities in non-compliance;
• Complete integrity of information required for regulatory filing for any government agency;
• Instantaneous generation of filings in a format acceptable to the regulatory department without any increase in manpower;
• The ability to provide suppliers with U.S. Customs and other regulatory agency-compliant documentation to meet filing requirements with web-based services or traditional hard copy submissions; and
• 100 percent product origin and logistics history for compliance audit reporting.

As an enterprise or divisional solution for companies that source products globally and distribute them locally, 3rdwave's core data tables and records are designed to capture all the relevant details of a product, whether in its raw or finished state, or in various sates of development and transformation. Coupled with highly detailed product information, 3rdwave records all logistics information related to international moves across multiple legs and lanes and provides total visibility when products are in transit or at rest within its supply chain. 3rdwave also provides a complete audit trail for a product -- from the origin of its purchase through delivery to its destination.

3rdwave's ability to easily capture all product and logistics information from source through to delivery, from all supply chain participants, store it in 3rdwave's universal database and make the information absolutely visible throughout the system, provides the necessary assurances that your supply chain is secure. With collaborative J2EE web services, EDI messaging or old-fashioned, easy-to-use manual entry capabilities, 3rdwave automates the capture of information easily in real or batch time.

Global sourcing capabilities range from highly sophisticated to very rudimentary. Most of the overseas factories that have low cost of production and inexpensive labor have not invested in sophisticated electronic data communications equipment because the cost is not warranted. Therefore, the ability to capture the information manually and efficiently has been engineered into 3rdwave along with web-based and electronic capture capabilities.

Regardless of the method of information capture, 3rdwave automatically generates accurate and complete filings at the push of a button and transmits them, in any acceptable format, to the regulatory department or filing agent. 3rdwave's unique component-based design supports quick tailoring so new data fields can be added as required against a product or its logistics' routings, as regulations change, or more information is required.

With 3rdwave, importers are virtually assured that all documentation required to meet the strictest government reporting requirements can be met without additional operational cost. This cross-referencing of the information elements within 3rdwave assures the highest levels of accuracy in regulatory filings and results in virtually no delays in clearing goods through government regulatory agencies because of filing non-compliance issues.

The results of using 3rdwave as your global sourcing and distribution solution will give you the ability to:

• Meet the strictest government requirements for global supply chain security;
• Eliminate inaccurate filings with Customs and other regulatory agencies;
• Increase speed in physically moving product through Customs and other regulatory agencies;
• Allow for the virtual elimination of demurrage at the port of entry due to inaccurate or late filings;
• Reduce inventory across the entire global supply chain - the building of a virtual and real global warehouse (stationary and moving) network with full lot visibility and allocation capabilities;
• Increase available-to-promise, available-to-ship fill rates;
• Increase customer responsiveness; and
• Not increase operating overhead.

September 11, 2001 changed the sense of security in the United States forever. With the establishment of the Department of Homeland Security, the US signalled the imperative of security and safety. Insuring your company's global supply chain is secure and complies with regulatory agency requirements is a core competency and competitive imperative.

A critical element in global supply chain security is that that information technology that supports absolute visibility of the entire suply chain insuring that all supply chain partners are in compliance. A comprehensive information technology solution, such as 3rdwave, provides the ability to successfully monitor, accurately report and quickly respond regarding all products and activities in the supply chain. 3rdwave insures that your company has ultimate control. A complete information technology allows your company to meet the highest levels of compliance, auditing and reporting with all the regulatory agencies responsible for the security of the United States.

3rdwave provides that capability ... today.

Edward (Ned) Blinick is VP, Sales and Marketing of Blinco Systems Inc. and 3rdwave Global Sourcing Solutions, and can be reached at 416-510-8800 x 234 or eblinick@blinco.com for more detailed information or comments.