The Case for a Global Trading Partner Network
America's appetite for imports continues to grow—in 2006, the United States imported a record $1.6 trillion of goods, according to U.S. Customs.
But today's global trade practices are highly fragmented. A typical overseas purchase, for example, requires the various parties in the logistics process to trade more than 60 different documents across partners, countries, languages, and time zones.
With edits, updates, and status changes, a typical shipment can require hundreds of document exchanges. Most of the information is re-keyed over and over into each partner's proprietary systems and transferred by fax, mail, and e-mail. This delays the movement of information and payments, and limits visibility across the trading community.
As U.S. companies rely more heavily on imports, the pressure to synchronize the fragmented parties in the global supply chain continues to grow.
Managing today's fragmented global trade processes is analogous to the internal integration challenges corporations faced prior to the adoption of enterprise resource planning (ERP) systems. What the world needs today is a common platform that all trading partners can use to tighten the linkages and hand-offs between one another.
In doing so, the platform would improve each partner's operational efficiency and overall supply chain cycle times by streamlining document creation, trading, and invoicing.
The Power of 3
Much like an ERP system, which provides companies with a common platform for departments to manage their business across organizational silos, a global trading partner network acts as a platform to connect participants across global trading silos.
A global trading partner network can function on the following three levels to synchronize operations:
As a community management tool, it brings together all stakeholders in the fragmented supply chain and enables them to communicate electronically with one another.
As a communication tool, it delivers information directly to the parties that need the information to keep shipments moving.
As an information tool, managers can reach into their supply chains and drive performance or manage by exception.
A successful global trading partner system comprises three critical elements: connectivity, visibility, and metrics.
Connectivity. In order to communicate successfully, a trading community's infrastructure requires a data transmission network that can receive, translate, and send data files electronically. As a common platform to trade documents and files among partners, this network becomes the global trade system of record—a common data repository.
Visibility. A global trade system of record provides visibility to everyone within the trading community. Importers, for example, gain real-time visibility into their orders at a more granular and accurate level, across all supply chain participants. This process reduces excess delivery times, thus driving down working capital.
Importers also gain visibility into the supply chain to redirect inventory to another destination that may command a higher price or a location that has greater demand, increasing margins or driving down all participants' cycle times. Importers can also ensure that information is getting to the parties who need it in order to keep deliveries from being delayed.
Metrics. Once shipping information for all trading partners is collected in a common data repository, they can manage their own performance or importers can manage the aggregate information across partners. Service levels can be monitored and performance bottlenecks can be identified, further streamlining processes and supporting continual process improvements across supply chain networks.
In implementing a global trading partner network, the opportunities for hard-dollar savings are real. A typical $1-billion company can free $10 million to $40 million in cash through basic automation and process improvements, according to Aberdeen Group.
The top 100 importers into the United States account for approximately 31 percent of the annual $1.6 trillion in U.S. imports. Assuming the trading partner hub reduces purchase-to-pay cycle times by four days, this represents an annual savings of $5.4 billion in working capital and $60 million in carrying costs.
Some additional benefits include:
- Synchronizing financial transactions in order to drive down trade financing costs.
- Building a more agile logistics network that can respond to unplanned changes in demand and supply and help avoid logistics bottlenecks.
- More aggressively managing inventory in transit and redirecting it to take advantage of market opportunities.
- Improving accuracy of regulatory compliance, thereby reducing the risk of fines, penalties, and audits.
Global sourcing continues to grow. Today's fragmented supply chains, which support trillions of dollars in trade, are fraught with inefficiencies stemming from traditional, silo practices.
By implementing global trading partner networks, all participants can streamline operations and recognize both hard- and soft-dollar savings.