Cross-border trade: Redefining high performance

By Patrick M. Byrne -- Logistics Management, 3/1/2005

From a supply chain perspective, the promise of cross-border trade is immense. For many companies, international trade represents an opportunity to more cost-effectively source goods and services, enter new markets, and implement higher-margin, high-performance business models. Plus, most businesses that excel at managing their global supply chains are also better positioned to reduce inventory requirements and logistics costs while moving products from source to customer with greater speed and precision.

The challenge, of course, is to actually design and implement global supply chains that can help companies achieve high performance. With more manufacturing and distribution occurring overseas, the volume of cross-border trade and the overall complexity of supply chains are rising significantly. Nowadays, a single global shipment may require 35 documents, be touched by 15 parties, and involve 200 or more data elements that are keyed in multiple times. In addition to increased complexity, international traders face a slew of new security initiatives that often are accompanied by swiftly evolving, highly idiosyncratic customs rules and regulations.

Small wonder, then, that so many manufacturers are—by their own admission—falling short in the global trade arena. In fact, a 2003 study by Logistics Management and the Aberdeen Group determined that only 7 percent of executives are fully satisfied with their global trade programs. Moreover, 65 percent described their satisfaction levels as "neutral" at best. These findings speak of missed opportunities, operational shortcomings, and technological, regulatory, and cultural barriers. And because overseas opportunities generally come without instructions, few companies know how to get on track.

Naturally, there's no stock answer to the question, "What to do?" It is possible, however, to quickly identify a company's basic cross-border trade capabilities and capability gaps. The following self-assessment is a simplified version of one that Accenture typically applies with clients. Use it to obtain a rudimentary picture of your company's current competence in trade compliance and operational efficiency, as well as to help you identify starting points for improvement.

To complete this assessment, rate your level of risk (1 = low risk and 4 = high risk) and efficiency (1 = low efficiency and 4 = high efficiency) for each of the five areas shown at left on the chart on page 25. After rating the risk and efficiency for each area, add up the figures in both columns to create a risk total and an efficiency total. Then use the adjacent chart to plot the risk total on the X axis and the efficiency total on the Y axis, thus determining the quadrant in which your operations reside.

A company with risk and efficiency totals of 11 to 20 falls into Quadrant 1: "Highly efficient operations but also great risk of not being able to consistently comply with trade regulations." Our experience is that most companies fall into the lower-left portion of Quadrant 4, which indicates good positioning tempered by significant room for improvement. Thus it is imperative that all companies (even those in Quadrant 4) continually work to drive out costs, meet customer needs more effectively, and capitalize on the growth opportunities presented by cross-border markets.

Today's global business quests are intriguingly interconnected: More and more companies are seeking new sources of work and materials while positioning those sources as future markets for their products. In effect, they're hoping to lift their revenue boats with a rising tide of globally sourced labor and goods.

Confirming this observation, a survey by the Aberdeen Group found that by 2008, the number of North American companies with half or more of their supply base located offshore will rise from 37 percent to 60 percent. About 25 percent of respondents to that survey said that half or more of their customer base was already located offshore. By 2008, that number will rise to just under 40 percent.

The capabilities needed to manage cross-border trade are far more complex than those needed for domestic trade. Some important first steps toward success include establishing corporate ownership and responsibility for trade compliance; developing new trade strategies and business processes; and investigating technologies that automate and integrate key areas of cross-border trade. Even before you take those steps, though, it's necessary to understand the strengths and weaknesses your company is taking into battle. Having read this column, you've just taken one step forward on your journey to achieving high-level, cross-border performance.