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5 Steps to upgrading your compliance program.

By Suzanne Richer, President of Customs & Trade Solutions, Inc.

Upgrading import and export compliance programs can be done through a series of steps focused on cost savings, regulatory compliance, and an increased awareness of how a product is brought to market. Here's how you can make it happen.

If you're moving freight across borders you're well aware that global trade is becoming even more complicated. Expanding security data measures such as the U.S. Department of Homeland Security's new Importer Security Filing (ISF) regulation, better known as 10+2, Consumer Product Safety Commission (CPSC) updates, and the increase in penalties for export violations all continue to push the limits of customs compliance professionals strapped with limited resources.

When it comes to customs compliance, most companies fail to recognize and reward the critical work being done by a very select team. Unlike sales and marketing teams where key players are rewarded for their efforts improving a company's bottom line, compliance teams strive to be seen and, most importantly, understood.

To move product globally, successful international supply chains require the dedicated effort of individuals in multiple departments interacting at a high level. Successful interaction at this level will reduce the risk of loss of freight or funds during this transaction.

This internal "compliance group" is taxed with the responsibility of successful international transactions; but yet many groups are limited in their ability to influence other departments in the process. Worse yet, they are often unable to sell senior management on why their area is so crucial to the company's bottom line. Viewing compliance as a profit maximizing tool instead of a regulatory requirement offers the potential for organizations to increase profit through specialized training and improved communication--thereby making the compliance group the "go-to group."

Upgrading import and export compliance programs can be done through a series of steps focused on cost savings, regulatory compliance, and an increased awareness of how a product is brought to market. This focused transformation will result in regulatory compliance that is simultaneously less costly to perform and more successful in its mission.

Companies that recognize this positive impact on the bottom line tend to view the compliance groups not only as essential, but as the drivers of profit throughout the supply chain due to their impact on multiple departments. Let's walk through the steps to upgrade your compliance program.

Step 1: Realize the Compliance Team is not a Single Department

Import and export compliance, as with cargo security programs such as the Customs-Trade Partnership Against Terrorism (C-TPAT), are programs driven by Customs and Border Protection (CBP). Most companies assign the development of internal controls for moving freight globally around the import or export group without recognizing the role of associated departments.

Successful 10 + 2 implementation will absolutely require the education and cooperation of the purchasing department, since the details of the purchase order impact the compliance process. Companies that have succeeded in obtaining the coveted Tier 3 status of C-TPAT have developed a team lead by customs compliance, with team players from human resources, IT, purchasing, and related departments.

Recognizing the need for teams that extend beyond the core compliance group will provide a company with the greatest opportunity to lower costs and improve efficiency.

Step 2: Location, Location, Location

As important as location is to the art of selling real estate, so is the consideration of where a compliance team will be located within a company in terms of its reporting structure.

Mastering the art of moving product internationally requires a company to recognize the role of the compliance team and improve its internal location by aligning it with a department known for fiduciary responsibility, such as finance or legal. Locating compliance within departments subject to budget constraints--such as sales or logistics--will limit the capabilities of the compliance team to a budget constraint that no longer values accuracy, but is driven only by the compliance it can afford based off this year's budget.

To better understand this analogy, imagine placing your company's tax group under the logistics or sales department. Based on budget concerns and profit goals, would anyone be surprised if the taxes were improperly calculated before providing them to the IRS? Probably not; yet, customs compliance is routinely placed under sales or logistics departments with similar results.

Building an import or export compliance team should be aligned to the same principles that govern the creation of the tax department: accuracy, timeliness, and adherence to regulations--the sole driving force of a tax team. Also, customs compliance needs to have a goal that's tied to the company's corporate objectives and is clearly articulated for all to follow.

Step 3: Learn to Influence without Authority

Given the number and complexity of departments that directly or indirectly effect customs transactions, customs compliance professionals must develop the skills to influence others even though they don't have direct authority over those operations.

Acquiring this talent requires one to identify the stakeholders in the transaction and outline what's important to their department. For example, if purchasing is seeking to lower lead time, then provide them with guidelines that explicitly show how improving customs clearance will positively impact their lead-time. Seeking buy-in from other departments requires the ability to build and maintain relationships, work to overcome resistance, and, most importantly, offer a vision of how change could increase efficiency.

Until now, the usual practice has been to centralize the development of written controls, training programs, and risk assessment around the import or export staff with limited outreach to other departments. The requirement to develop additional controls with new programs such as 10 + 2 offers the opportunity to involve the affected departments from the very beginning rather than after the fact.

When multiple departments jointly develop written internal controls, the buy-in is practically guaranteed. To quote Steven Covey: "No involvement, no commitment."

Step 4: Improve Technical Expertise

Major drivers for any well-run global supply chain include production, inventory, location, transportation, and customs clearance--and demands real-time information throughout this process. Typically, companies work as silos, with each department focusing on a single aspect of the supply chain without understanding how their position or activities affect other functions.

Everyone may have knowledge of the product they sell, yet few understand how it's brought to market. For example, purchasing department personnel may have no idea that they are now fundamental supply chain drivers. They need to understand the new role that they play, and in order to play it well, will require increased expertise in global compliance.

Improving technical expertise requires that companies must place a priority on training based around supply chain drivers with an eye on customs compliance issues--since these factors permeate every step of a global supply chain. The end result is increased efficiency of the trade compliance operation and improved awareness of what going global really means.

Step 5: Remember, Partnerships Trump Independence

Today's global compliance professionals are facing increasing demands to improve the fluidity of shipments in the wake of stricter regulations and increased cargo security measures. Benchmarking for excellence requires this group to seek new ways to harness innovation, technology, and networks to lower risk with potential supply chain disruptions.

The latest product recalls of many global companies have emphasized the need to anticipate obstacles and align all functions within a supply chain. Understandably, managing risk within this environment requires strategic partnerships from within the organization as well as through external partnerships.

The most often overlooked partnership within the supply chain is the government-to-business relationships and a company's ability to align them on a global level. Voluntary government programs for international supply chains have emphasized two areas of mutual concern between the government and global corporations: cargo security and regulatory compliance issues.

Often, companies volunteer for one program, such as cargo security, and avoid joining the additional program geared toward customs compliance that would give them the greatest benefit for supply chain risk management.

Border issues improperly handled result in the holding of shipments, storage fees, potential compliance penalties, and even the seizure or destruction of shipments. The business case for partnership with governments is the reduction of risk associated with certain disruptions, as well as allowing a company to commit to their own core values of protecting corporate brands and reputations.

Transformational Diplomacy

Aligning government initiatives with corporate supply chain risk strategy requires a level of transformational diplomacy. This needs to be a government/private-sector approach to building partnerships that go beyond promoting best practices by strengthening information sharing for greater transparency.

The latest U.S. government approach is the 10 + 2 initiative, requiring more advanced data to be transmitted at the time the shipment moves from the foreign port inbound to the U.S. Advanced data information improves the government's ability to target and hold high-risk shipments for further inspections and allows low-risk shipments to move through.

The European answer to the 10 + 2 approach is the "single window" concept. Single window is a web-based approach for all participants within a supply chain to access a single window where real time data will be available, including Customs clearance details for every shipment. Still in an exploratory stage, the single window could provide the necessary compliance and cargo security data elements all groups are seeking.

Risk Management Focused on Compliance + Security

To achieve the benefit of a fluid international supply chain, global companies must align supply chain risk strategy across their trade networks by aligning their strategies with existing government programs.

The greatest benefit for reduced risk is obtained when a company joins a cargo security program that also has a compliance program attached--allowing the lowest risk score to be obtained. Some examples of these programs include the U.S. C-TPAT program and the Canadian FAST program.

C-TPAT importers are rated under a Tier system, with a Tier 1 level simply being certified into the program while a Tier 3, the highest status, recognizes the company's security measures as exceeding minimum requirements and demonstrating best practices.

C-TPAT importers at any level then have the ability to join a government's voluntary compliance program called Importer Self Assessment (ISA) which then takes them out of the pool of company's that can be audited under a Focused Assessment (FA). A C-TPAT/ISA participating company will be given preferential treatment in both security and compliance concerns.

Despite these benefits, only 160 companies in the U.S. currently participate in the ISA program of the approximate 12,000+ C-TPAT members. With an estimated 724,000 importers in the U.S. today, most companies are not taking advantage of a strategic approach to risk management through government to business programs.

Those same companies with Canadian divisions or Canadian suppliers could benefit from even lower risk ratings by having their Canadian counterparts join the Canadian cargo security program, or FAST (Free and Secure Trade), and then move into the voluntary compliance program, Customs Self Assessment (CSA), which has benefits similar to ISA.

Similar programs that overlap cargo security with compliance include the European Union's Authorized Economic Operator (AEO) and Sweden's StairSec. All in all, a global corporation with strong risk management strategies should align its global cargo security and customs compliance programs to achieve worldwide preferential treatment in all trade lanes in which these programs operate.

Instead, the achievement of C-TPAT rarely results in ISA participation and does not become the catalyst for joining similar programs in other countries where a company has other divisions.

Change will be a Constant

Consideration of all these steps and factors forms the foundation for a company seeking and achieving excellence in their global supply chain import and export functions. Changes in regulations will always be with us.

The past decade alone has initiated previously unseen requirements for cargo security and data sharing. This part of our global environment will remain constant--change is here to stay.

Firms focused on building the fundamental elements highlighted above will weather the storm, embrace new regulations, and adapt to change faster than competitors. This will drive supply chain excellence, and at the end of the day, the product sold will be the quickest to market. And that now requires a true global mindset.

Subaru makes compliance job #1

Suzanne Richer

Subaru of America (SOA), a well-known importer of vehicles and parts, holds the firm belief that customs compliance is an outreach of their company's core values, and as such, will only help improve supply chain efficiency. In 2000, when reassessing their corporate goals against their compliance goals, a decision was made to move the customs compliance team out of sales and out from under the wing of the finance department.

Tim Bright, director and assistant controller, oversees customs compliance with the guidance of Debra Jones, the customs compliance manager and a licensed customs broker. "We saw immediate benefits to our customs compliance program when we aligned it with our corporate goals and increased the department's visibility by overlapping the internal controls developed under Sarbanes-Oxley with trade and security programs," says Bright. "Today, we have a dedicated compliance and cargo security team that represents multiple departments and provides us with strong support when implementing and maintaining internal controls."

According to Bright, having the compliance expertise of Debra Jones on board has provided the group with a centralized resource for all employees, lending a strong sense of stability to the area. "In addition, our annual customs compliance training programs have kept the entire company informed of areas of global risk as well as how their individual positions contribute to the success of our programs," adds Bright.

Today, SOA participates in C-TPAT and is currently seeking ISA participation with assistance from their consulting group. They recognize the benefit of partnership that comes with volunteering in business-to-government programs.

-Suzanne Richer

Suzanne Richer is president of Customs & Trade Solutions Inc., a consulting firm specializing in international trade and cargo security. She can be reached at (609) 896-2210, Ext. 101, or via email at
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Publication:Logistics Management (Highlands Ranch, Co.)
Article Type:Company overview
Date:Mar 1, 2009
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