With an already disrupted supply chain, compliance shouldn’t be another factor to delay global trade operations. In this QAD Precision Report, we explore the risks of non-compliance and how to mitigate them in the year ahead.
The global supply chain is surprisingly brittle for such a strong-sounding name. In a 2017 study by the University of Tennessee, it was reported that as many as 90 percent of the participating firms did not quantify supply chain risk and trade compliance as a threat to their business.
Yet according to one metric, global economic policy uncertainty has risen sharply since the beginning of 2018. It doesn’t have to take a once-in-a-lifetime event like COVID-19 or Brexit to see a huge impact on a company’s performance and bottom line. Take the life sciences industry for example: regulations, guidelines, and procedures are constantly changing and violations of global trade compliance can stain a company’s reputation—and they risk severely falling behind competitors.
To mitigate disruption, it is best to first understand what global trade compliance is.
International trade compliance is complex. As the supply chain becomes increasingly global, there are countless rules and regulations for how this cross-border activity must be handled. These regulations are a means to have companies comply with international trade, export, and financial laws involving the import and export of technology, products, and services. If a company is considered “compliant,” they are not only deemed accommodating on a global scale, the demands of customers and suppliers are met with long-term growth and sustainability.
To be deemed “non-compliant” will not only eat into the company’s financials, but there are a myriad of consequences depending on the situation. Look no further than a recent case involving a globally known multinational conglomerate for alleged violations of the Cuban Assets Control Regulations. By accepting payment from The Cobalt Refinery Company (“Cobalt”), a company that had been on the Specially Designated Nationals and Blocked Persons (SDN) list, they allegedly violated the regulations between 2010-2014. This resulted in a settlement that cost them over $2.7 million. The company self-disclosed the alleged violations. Had they not, the fine would have been much higher.
Here’s another example. A cookware coating manufacturer agreed to pay a penalty of $824,000 for entering into business dealings with the sanctioned country of Iran. The company was under the misapprehension that it was within the letter of the law as there was no direct connection between it and Iran. The manufacturer eventually had to self-disclose the violations (which occurred between 2012 and 2015) and has since instituted remedial export control measures to ensure similar breaches do not occur in future.
No matter the industry or company size, the parties found in violation could have mitigated these costly mistakes and disruptions with proper planning and knowledge of global trade compliance regulations.
While avoiding monstrous fees like this is reason enough to automate global trade compliance, it can also be labor-intensive—and downright confusing—to keep up with changing regulations. Luckily, there are some steps that you can take to mitigate such disruptions, optimize trade strategies, and maintain your customer reputation. All of them, though, are about getting and being prepared to be compliant:
Have the right tech tools: Automated tools are your friend. Global trade management software that is quick and capable can help a company avoid surprise fees and pitfalls in a fast-changing environment.
Focus on what you know: Such software can provide accurate and trusted data that not only paints a picture of the current situation, but can forecast the impact of tariffs on a company’s bottom line.
Take a proactive approach: Most companies are concerned with just getting the product out. It’s important to keep the product moving, too. By having up-to-date data and high visibility over the products that they’re shipping, they can manage aspects like the raw materials that go into the products and any subsequent costs.
Have an optimization plan: With accurate data from the automated tools, you can come up with a plan to take advantage of free trade agreements or foreign-trade zone benefits. Any savings made here can be put right back into the company.
Have a mitigation plan: There will naturally be bumps in the road, so it is best to be able to quantify risk and to work through different scenarios. Being able to know how much a proposed tariff would cost the company, for example, would help the company know what next steps to take, how much money to put in, and decide how to best execute, be it by changing the country of origin or using a duty-saving strategy. After all, a surprise set-back can even result in a sale falling through altogether.
Stay informed: An experienced logistics provider knows import and export management, free trade agreements, which vendors are restricted, and how to best make use of foreign-trade zones. With requirements constantly emerging and potential disruption following closely behind, look ahead and position yourself for success.
To make sure your company is trade compliant on a global scale, the best step is to stay ahead of the constantly changing regulations. Find a partner who is not only aware of the regulatory changes, but one that provides you with the automated tools to save time, control costs, and mitigate risks. With easy-to-read charts and tables that provide real-time information about recent compliance processing, QAD Precision is the ideal solution. Don’t wait until disaster strikes, schedule a demo of our software today.
To subscribe to our blog, or to receive notifications about QAD Precision events, webinars and news, please click here.
KEY CHANGES IN THE HARMONIZED SYSTEM 2022
IMPORT MANAGEMENT: THE IMPORTANCE OF CORRECT CLASSIFICATION
THE BENEFITS OF INTEGRATING COMPLIANCE AND MULTI CARRIER SHIPPING SOLUTIONS