Many of the best practices in business emerge during difficult years. Why? Because it’s during tough times that companies must be laser focused on how they operate, diligent in driving efficiencies and vigilant about maintaining a competitive advantage.

The current recession-by most accounts the worst economic period since the Great Depression-offers many examples. Companies have responded by adopting new supply chain strategies that include sourcing from new locations, shifting transportation modes and/or using intermodal transportation to get products to market more efficiently and managing inventory to avoid unnecessary storage and product purchasing or production costs. Another supply chain process that has seen increased attention during the recession is compliance. Trade compliance has emerged as a critical area for reducing or avoiding costs and opening doors to new market opportunities. If managed correctly, compliance can become a competitive advantage for companies during the hard times and after the economy turns around.

A recent Aberdeen study indicates “best-in-class” companies experience 50 percent fewer orders executed with compliance errors, 35 percent fewer import delays and nearly 60 percent fewer export delays. All this translates into these “best-in-class” companies being four times more likely to have lower annual compliance costs per international shipment than the average company. Needless to say, compliance is giving these “best-in-class” companies a strong basis for competitive advantage.

Why comply?

New security and compliance initiatives, trade agreements, customs regulations, duty rates, and import and export processes can make it more difficult than ever to conduct international trade. And, non-compliance with government regulations can bring potential fines, penalties, and even legal action. 

More and more companies have focused on compliance over the past year. This is a positive trend likely driven by the desire to avoid what can become very costly penalties for companies that get it wrong. Beyond monetary fees, the cost of non-compliance can also include shipments that are delayed or never arrive-resulting in unsatisfied customers who flee to a competitor.

But compliance isn’t just about avoiding fines or incurring costs. Compliance is also a business enabler. Compliance-focused companies are positioned to expand into new territories and reach more customers in more geographies, creating more growth opportunities. Second, compliance can sharpen a company’s competitive edge. Companies that understand compliance and have the right processes in place to ensure compliance are positioned to get products to market faster than those that don’t, often meaning the difference between being first to market versus the “also ran.”

Overcoming the challenges

While most companies understand the importance of compliance to their business, many have not yet mastered the process of becoming a compliance-focused company. This is in part because compliance is more complex than ever today. Security and trade regulations are continuously changing, free trade agreements and programs proliferate the landscape, and new rules and regulations are coming down the pipeline-all resulting in increased government scrutiny on imports and exports.

The key to getting compliance right is to get-and stay-ahead of the game. Companies must first understand that compliance is not a one-time initiative that can be checked off the list and then forgotten. Instead, compliance takes a dedicated focus, a company-wide effort and a series of ongoing initiatives to stay ahead. Companies that are serious about compliance will designate a team-internal, external or a combination of the two-whose job function is to stay abreast of industry regulations and put processes and procedures in place to keep the company on target.

As is true for many other areas of business, technology can play a significant role in compliance, but it’s important to remember that technology alone is not the solution. While technology can be used to determine whether a product is eligible for duty free treatment when sourced and shipped from a particular country, this alone is not sufficient. Rather than relying on technology to solve compliance issues, companies should combine technology with diligence in recordkeeping and attention to detail to come out ahead, because eligibility does not necessarily equate to qualification if the required document trail doesn’t exist.

A new wave initiatives

Since 9/11, there has been a steady push for companies to participate in voluntary initiatives such as the Customs-Trade Partnership Against Terrorism (C-TPAT), a government-business initiative designed to strengthen and improve global supply chain and U.S. border security. Two industries leading this charge are retail and automotive, which are increasingly requiring their suppliers to become certified. The certification process can be daunting and is not something companies have to undertake alone. Some third-party logistics (3PL) providers can manage the certification processes, including collecting all the needed information from suppliers and handling government submissions of materials.

Then there are the non-voluntary initiatives such as Importer Security Filing (ISF), also known as 10+2, the Customs and Border Protection (CBP) regulation requiring importers to provide additional advance trade data on products before they enter the U.S. This is a much more complex process than many companies realize, often requiring a massive effort to collect information from numerous sources in multiple countries.

As with C-TPAT certification, some 3PLs can also handle 10+2 filings for companies, acting as their carrier, broker, supplier management solution or all of the above. Some 3PLs can also help companies create a master file of classification data on all products to meet ISF requirements and help with the process of calculating total landed costs.

Charting the right course

Perhaps the most significant “best practice” a company can initiate when it comes to compliance is being PROACTIVE. A company that waits until an error or an audit forces a focus on compliance has certainly waited too late. It’s critical to be proactive in order to get ahead and stay ahead of the compliance curve. The good news is that more companies seem to be getting this message.

UPS has seen a dramatic increase in recent months of the number of customers requesting import and export compliance assessments to help them determine their level of compliance with government regulations. These import and export assessments identify areas of weakness and help companies map out improvement initiatives accordingly to improve compliance and be prepared. wt



Bill Ansley is vice president of Trade Management Services for UPS.