September 2006 | Case Studies | I.T. Toolkit

Relieving Global Trade Aches and Pains

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SAP's global trade solution is the right medicine for Bayer, helping it centralize, standardize, and further automate international trade activities.

As the company that introduced aspirin to the world, Bayer knows a lot about pain relief. It is no wonder the multinational firm found a way to ease many of the headaches associated with global trade.

Since 2004, Bayer has used SAP's Global Trade Services (GTS) to manage customs transactions and automate compliance with international trade regulations. This year, Bayer was one of the first companies to upgrade to the latest version of GTS, which added software for managing letters of credit and customs warehousing.

Based in Leverkusen, Germany, Bayer comprises three business units:

  • Bayer HealthCare produces and markets products for disease prevention, diagnosis, and treatment.
  • Bayer CropScience provides insecticides, fungicides, herbicides, and seed treatments.
  • Bayer MaterialScience provides coatings, adhesives, polyurethane, chemicals, and other materials.

With operations in Europe, North America, Latin America, Africa, the Middle East, and Asia Pacific, Bayer serves customers through a complex international supply chain.

A Collaborative Approach

Bayer has a long history of working with SAP on global trade applications, explains Engelbert Uhrmann, head of the information technology team for foreign trade services at Bayer Business Services, Bayer's international competence center for IT-based services.

In the 1990s, Bayer collaborated with the Waldorf, Germany-based software firm to develop foreign trade functions that it found lacking in SAP's ERP solution, R/3. SAP first incorporated those functions into an R/3 enhancement; later, SAP moved those capabilities to GTS, a separate system.

The software provider chose that route largely for the sake of companies that use ERP systems from other developers, says Matthias Weber, marketing manager for GTS.

"We realized companies using non-SAP systems were looking for help connecting their different solutions to one application," says Weber. GTS lets them do exactly that - connect ERP, logistics, and other systems to a single foreign trade application, which interfaces with those systems as needed.

Bayer is one of more than 250 companies currently using GTS. U.S.-based users include 3Com, Applied Biosystems, Halliburton, Hewlett-Packard, and Microsoft.

Meeting Goals

Bayer had three main reasons for using SAP's foreign trade software. First, it needed to replace several legacy systems used by its business units around the world.

"GTS provides us with one platform for centralized customs processes," Uhrmann explains. With a standard technology in one location, Bayer can eliminate the work and expense involved in maintaining multiple systems.

Another goal for Bayer was to improve processes so it could speed goods across borders. The company also needed to meet the deadline for using the New Computerized Transit System (NCTS), a Europe-wide electronic customs transaction solution. As of April 1, 2004, shippers were no longer allowed to use paper-based procedures for clearing customs in the European Union (EU).

Bayer went live with the GTS Customs Management module just in time to meet the NCTS deadline.

GTS draws data from sales, purchasing, logistics management, and other applications, then performs a variety of functions. GTS notifies users when a transaction requires electronic documents such as licenses or letters of credit, produces and transmits the documents, flags transactions that risk violating trade regulations, and returns information to the original application.

"The GTS Customs Management module uses information available in the feeder system, creates required forms - such as the shipper's export declaration - and communicates directly with the authorities," Weber says. "It also helps calculate duties and classify products."

In the United States, the module helps shippers make customs declarations via the Automated Export System (AES). In a move similar to the EU's, the U.S. government eventually plans to eliminate paper-based export declarations and make the AES mandatory.

Sanctioned Parties

In July 2004, Bayer implemented a second GTS module, Compliance Management, to perform sanctioned-party screening. This function ensures that the company doesn't establish business relationships with, or even ship goods to, parties that appear on sanctioned party lists (SPLs).

Governments around the world publish these lists of people, businesses, and organizations with whom they don't allow anyone under their jurisdiction to conduct business. An exporter or importer has to check every transaction against those SPLs, which may be updated daily.

"It is impossible for companies with large volumes of import/export transactions to do this manually," Weber says.

SAP obtains these lists and receives updates from third-party providers. When Bayer issues a purchase order or sales order, GTS automatically checks the business partner against the latest version of the relevant SPL. The checks are performed all along the supply chain.

Get a Job

Some shippers use the compliance screening function outside the trade arena as well, to screen job applicants or check visitors entering their facilities.

All of Bayer's European business groups currently use the Customs Management and Compliance Management modules. Also, its subgroups have distribution centers throughout the world that also take advantage of the software.

Bayer's GTS system became more global in scope in January 2006, when the company implemented the Preference Management module for trade covered by the North American Free Trade Agreement (NAFTA). This module helps shippers reduce duty expenses when a transaction qualifies for preferential treatment under a trade agreement.

Under NAFTA, for example, goods in certain categories whose components come largely from North America can be shipped from the United States into Canada or Mexico at a reduced duty rate.

To prove that a product has enough content from the qualified countries, however, shippers must ask their vendors to submit documents declaring where their products are made. Because declarations are good for only one year, shippers must solicit them over and over.

"This is a huge pain for manufacturers who must move tons of paperwork back and forth," Weber explains. Put off by the complexity, many shippers don't bother to apply for the lower duties, he says.

GTS automates the process of soliciting, receiving, and maintaining vendor declarations. For each shipment, it calculates whether the product qualifies for preferential treatment and, if so, issues a certificate of origin. GTS also provides an audit trail for these transactions. When the system detects a declaration that is about to expire, it automatically sends an e-mail to the supplier asking for an update.

Automatic Updates

"We provide a web interface where suppliers can maintain all vendor declarations," Weber says. "As vendors provide fresh information, it is automatically updated in GTS."

In the past, Bayer handled these trade preference management tasks through the foreign trade functions within its SAP R/3 enhancement. Now, it is migrating to the GTS Trade Preference module - which automates the process of complying with applicable regional trade agreements - phasing the application in by business unit.

"The first go-live is scheduled for July 2007. Go-lives for additional users will follow consecutively," Uhrmann says.

Bayer was one of the first companies to start using the latest version of GTS, which SAP announced in June. The upgrade introduced features for managing both letters of credit and customs warehouses - key issues for global importers.

When an importer brings goods into a country, keeps them in a customs warehouse, then re-exports them, the company does not owe duties for the imports.

"When companies re-export goods, they should check first whether they have any duty-unpaid goods before picking up something for which they have already paid duties," Weber says. GTS performs this tracking automatically, and also allows importers to electronically file the necessary documents with customs authorities.

Though Bayer had already automated its customs management processes, the new functions in GTS provide superior integration with the ERP system, increasing efficiency, Uhrmann says. "The old system required more effort than the process does today," he explains.

The new feature for managing letters of credit identifies whether a purchase requires this document and, if so, prevents the transaction from going through until the letter of credit is obtained. GTS then maintains that letter of credit in the system and automatically applies it to every transaction where it is required.

Besides helping Bayer with customs declarations and trade preferences, GTS has automated compliance checks along its entire shipping process. Those checks include quantity tracking for limited export licenses, the aforementioned checks against sanctioned party lists, and other procedures mandated by international shipping regulations.

"Overall, GTS helped us meet our goals of centralizing and standardizing customs processes," says Uhrmann.

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