Automation and Control Solutions

Bruno Fransman

May 29th 2012

Automated Trade

Compliance processes

Introduction

Why automation?

• Key findings from the report include:

– 84 percent of compliance professionals expect to handle more regulatory information in

2012

– More than a third of respondents spend an entire working day each week staying up-to-

date with regulatory changes

– 70 percent of respondents expect the cost of senior compliance staff to be higher this year

– Only 11 percent of companies expect a significant increase in their budget for compliance

this year

• While regulatory requirements continue to grow, compliance teams are showing signs of

resource constraints limiting their ability to perform vital compliance functions. More than a third

of compliance professionals say they spend more than an entire working day each week in

simply staying up to date with regulatory changes and assessing their impact on the business.

• At the same time, compliance teams report difficulty finding time to coordinate with other parts

of the company involved with managing regulatory risk. More than half of compliance

professionals surveyed said they spend less than one hour a week working together with

internal audit colleagues. One-third of respondents say they similarly spend less than one hour

a week consulting with their legal and risk teams.

• While keeping executive management informed of regulatory issues is a key part of the

compliance role, more than a quarter of respondents say they spend less than one hour a

week reporting to their boards. In the U.S., more than half of the companies surveyed spend

less than one hour a week reporting to their boards. This raises concerns about whether

executive management is being kept sufficiently informed on compliance issues

Compliance Teams Stretched to their Limits (March 13th, 2012 by Corporate Compliance Insights and Cost of Compliance Survey 2012 by Thomson Reuters ACCELUS)

• Large installed base

• Global reach

• > 2M ship to addresses

• 110 ERPs

• Sales: $15.5B • 70,000 Employees Profile

Strengths • Technology, leading brands

• Security, ECC, Life Safety

• 164 countries served

• 54 acquisitions since 2003

S&C

Speed and Position

Sensors

Pressure

Sensors

ECC

Thermostats

Gas

Valves

Water

Control

Building

Automation

HSG

CCTV/

DVR

Motion / Human

Presence Sensors

Control

Systems

HPS

Distributed

Control

Process

Controls

HBS

Buildings

Instant

Alert

HLS

ACS Today

Growth Focus

Fire/Smoke

Sensors

System

Panels

Gas Detection

36% 41%

Personal Protection

Scanning

&

Mobility

Industrial

Burners

HSM

Comprised of 93 Supply Chains, 118 Plants, 93 DC’s, 9 Integration Centers

Mobile Computing

Voice Picking

Personal Satellite

tracking

Military Sensors

219 Global Locations Distributing Product

118 Factories - 93 DC’s - 9 Integration Centers

Background

Distribution Footprint

Honeywell – Corporate Policy

“Honeywell will comply fully with all applicable export and import control laws

and regulations of the United States and of all countries in which it

conducts business.”

• Customs laws

• Requirement to declare goods accurately on importation – classification,

valuation, country of origin

• Implies that our trade data is accurate – including sourced items!

• Use free trade agreements legally and intelligently

• Export control laws

• Certain goods of strategic nature require government approval before export

• Use of military components can “infect” non-military products

• Restrictions on importing from certain countries – embargoes

• Other government agency (OGA) requirements

• ACS now faces permitting requirements in US/ MXon health/medical products

in HSP – eyewash, first aid kit elements, ibuprofen, etc.

Ensuring Compliance with International Trade Rules • Standardized Internal Controls

• HS and ECCN Classification

• Internal Risk Assessments and Remedial Action Plans

• Submissions to Government Agencies and Post-entry Audits

• Cross-functional Training

• Pre-acquisition Due Diligence and Post-acquisition Integration

Mitigating Risk of Non-compliance Government Inquiries and Audits

Government Disclosures

Productivity and Operational Support • Duty Avoidance and Incremental Duty Savings

• Broker Management and In-house Customs Brokerage

• Software and Automation

• Product-line Moves and Technology Collaboration

• Supply-chain Security

• Direct Shipments/ Cross-dock Operations

• Sourcing Decisions/ Vendor-managed Inventory

Enabling Growth •Export De-control and Licensing

•Customer Duty Preference Request

•Transaction Structuring and Approvals

•Regulatory Advice, Advocacy, and Rulings

Enabling Growth and Increasing Productivity from a Foundation of Compliance

ACS Trade Service Offerings

Team Vision: A collaborative ensemble of

professionals partnering with

Honeywell colleagues to efficiently

transact business across national

borders as advantageously as

possible for Honeywell, our

customers, and our suppliers while

obeying international trade rules.

Objective Build a global compliance

infrastructure; enable rapid trade

problem-solving; continuously

improve cross-border productivity

and operations; and eliminate

regulatory barriers to growth.

TRADE MASTER DATA MANAGEMENT

• HS and ECCN Classification

• Net weight

• Origins

CUSTOMS BROKER

MANGEMENT

• Control entries

• Measure Brokers

• Assure compliance

• Maximize duty savings

AUTHORIZED ECONOMIC

OPERATOR CERTIFICATION

• Faster border crossings

• Smoother customs operations

Driving to meet EU requirements

Components of Honeywell EU Trade Strategy

WRITTEN PROCEDURES

• Written procedures

• Develop training

• Establish accountabilities

Automated Trade

• Trade documents

• E-Filing

• Preference calculation

• De-minimis calculation

• Export control

• ….

CENTRALIZED

CUSTOMS

• Optimized trade

operations

Introduction

Automated Trade solutions

CP/S Modell for EU TRADE Solution

Master Data

Freight

Forwarder

Integration

Freight cost

calculation

Automated

Customs

Export

Documents

Delivery

creation Picking Packing Order entry Shipping

Automation and Control Solutions

Web-Order

EDI-Order

LINK-Order

G

G = GLOBAL used

Partners

Transaction

Screening

Freight Audit

& Payment EU PCT

Caclulation G

Other

SAP + Roles and Content from external source

Automated Tool

SAP

SAP GDM Trade Compliance and Solutions

SAP CP/S

XI - Gateway

Automated

Systems Specific Automated

Trade Solutions at

EU sites

Global DPL Screening EU Export Documents

ECCN Shipping License

NAFTA Calculation,,

Shipping docs , …..

EU Electronic -Customs

EU DG Documents

NA

TRADE

Docs

EU Preference Calculation

+ docs

Pref Calc.

De-minimus.

Export Documents

Landed cost calculation

ACS Intranet Trade

solutions

ACS Intranet solutions

14 HONEYWELL - CONFIDENTIAL File Number

Customs Issue Log

15 HONEYWELL - CONFIDENTIAL File Number

Metrics Web Tool

16 HONEYWELL - CONFIDENTIAL File Number

AEO

Customs Compliance Assessment

• Rolling out EU compliance self-assessment

• Assess gaps and overall readiness for AEO

• Traffic light report

• Improvement plan

Traffic light report and improvement plan

Automated Customs

Solutions

19 HONEYWELL - CONFIDENTIAL File Number

• Limited to exports (interfaced with SAP)

- Export declaration filing

• Export Trade documents

- Commercial (Customs/shipping) invoice

- EUR.1/A.TR

- COO

- LTDO (Long Term Declaration of Origin)

Electronic customs filing

Proof of Origin

Vendor Vendor

?

Proof of Origin

documentation

•Declaration of Origin on the Invoice or Packing list •European docs: EUR1, A.TR

•Long Term Declaration (LTD)

Automated Preferential Process Flow in FTA - (exporting plant point of view)

Customer Customer

Look up missing/expired VDs

Dunning/Solicitation

• Fax, E-mail •Printing •Portal

Get VD

Vendor Declaration Management

Business Task 1 Business Task 3

E3

S1 S2 S3

C11 C21 C31

E1 E2 E4 E5

………………….

BOM Sales Product XYZ

C12 C22 C32

Business Task 2

MX ? EU CN

Preference Calculation

?

…

?

Legal Rules of Origin

for Preference Calculation

Shipping

Plant

Automated Export Control

CP/S Global Design Model - Export

Global Design Model - Export: The ACS global export design model

consists of an integrated solution managed by Automated Tool with SAP

hold management.

3 TRADE APPROVED solution variants

Solution based on regional requirements and site risk profile

Export Control Function: Gold Silver Bronze

Restricted party screening via Automated Tool with soft alerts

Restricted party screening via Automated Tool with hard blocks

SAP Embargo controls with hard Blocks

SAP Embargo controls on returns with hard blocks

Foreign trade data missing with hard blocks (ECCN, HTS or COO)

Missing end user or end use results in hard blocks

Automated Tool license determination with hard blocks

Automated Tool license management and decrementing

SAP license determination with hard blocks

SAP license management and decrementing

Material master fields for ECCN, HTS and COO

SAP or automated export tool docs (C/I and SLI)

Sensitive country analysis - Origin Qualify Honeywell for sales by verifying non-US content

Automation improves visibility on flows and costs and increases compliance level and generates savings and realizes growth

What is denied party screening & why is it required?

• Export control laws make it unlawful for Honeywell US and its non-US subsidiaries to conduct business with entities that

- violate export regulations; or

- are involved in proliferating weapons of mass destruction; or

- Are involved in narcotics trafficking; or

- represent embargoed or terrorist-supporting countries.

• Honeywell is liable if it does business with an entity involved in these activities. We cannot avoid liability by saying that we did not know of their activities.

• The Tool provides several lists that includes the names, addresses and reason for denial for all restricted organizations, companies and individuals.

All end users must be screened against these denial lists

to ensure compliance!

How does this impact our job & what to expect?

• Customer and Vendor Account Creation

– When creating customer and vendor accounts – immediate transfer to

Automated Tool for denied party screening (DPL)

– If Automated Tool determines that there is a match, then order cannot be

placed using this party until the DPL hit has been resolved in Automated

Tool

• Order Entry – Party Creation at Order Level (Sales and delivery order)

– If a customer is added ad hoc at the order level, then party info transferred

to Automated Tool immediately for DPL screening

– If Automated Tool determines that there is a match, then a delivery block will

be created on the line items in the order until possible match resolved in

Automated Tool.

• The SAP user will be notified via warning messages of any DPL

matches, as well as daily summary reports e-mailed to a designated

mailbox.

– If a parties is changed after delivery, then the export docs and PGI will be

blocked and the user will receive a workflow message

26 HONEYWELL - CONFIDENTIAL File Number

• Change management

- From fully outsourced trade compliance to semi-outsourced

Business do underestimate the impact

Automation doesn’t mean that everything is automated: e.g.:

• Trade Data Management: garbage in garbage out

• Export control

» Before: no order screening only manual party

screening

» Automated Tool: order screening => increased

involvement by entities and functions: Sales, Order

Admin and purchasing

» “One time only” customers : repeated false hits

• Customs

» Stricter processes (“less” flexible): people do

complain

» PCT: discipline on trade data management up to

level of components

Lessons learned

27 HONEYWELL - CONFIDENTIAL File Number

• Increased compliance level

- Helps for AEO-certification

• Increased awareness across functions

- Better visibility: Trade compliance more then just “stamping”

documents

- Increased understanding and appreciation of our function

- Trade also means sales not just blocking or fire fighting

• Better reporting to senior management

- Metrics for senior management

- Duty savings reports

- => part of quarterly meeting reviews with CEO

• Funding to get additional resources

• Funding to get more and better automation

Benefits

Non Productivity vs. Productivity – Conclusions

Year Import Value Duty Spend Duty Saved Duty Avoided per $1 Import Value

Actual Duty Ratio

2011 $3,474,646,476

$59,807,627 $50,689,151 85 cents

1.72%

2010 $3,142,132,983

$57,035,301

$53,368,281

93 cents 1.82%

ACS would incur $110M in Annual Duty Costs If It had No Global Duty Avoidance Program

ACS Duty Spend is $51M Annually Because of its Global Duty Avoidance Program

Year Import Value Duty Spend Duty Saved Duty Liability Duty Ratio

2011 3,474,646,476 59,807,627 50,689,151 110,496,778 3.18%

2010 3,142,132,983 57,035,301 53,368,281 110,403,582 3.51%

46% Reduction in Duty Liability achieved through our Duty Avoidance Mechanism

0

5

10

15

20

25

30

US MX CN CA GB IN DE Other

Mill

ion

s

Duties paid in USD

2011 Productivity

Import Volumes in USD

Duty Rates in USD Duty Savings in USD

Country Import Value

US 1,554,275,102

MX 686,677,631

CN 402,811,856

CA 248,372,627

GB 140,055,300

IN 122,098,503

DE 75,202,161

Other 245,153,296

TOTAL 3,474,646,476

Country Duty Paid

US 25,258,564

MX 584,716

CN 4,352,089

CA 2,756,762

GB 4,452,195

IN 13,085,576

DE 426,402

Other 8,891,323

TOTAL 59,807,627

Country Import Value Duty Paid Duty %

US 1,554,275,102 25,258,564 1.63%

MX 686,677,631 584,716 0.09%

CN 402,811,856 4,352,089 1.08%

CA 248,372,627 2,756,762 1.11%

GB 140,055,300 4,452,195 3.18%

IN 122,098,503 13,085,576 10.72%

DE 75,202,161 426,402 0.57%

TOTAL 3,474,646,476 59,807,627 1.72%

Top Importing Countries

Country Import Value Duty Paid Duty %

AR 5,837,970 892,968 15.30%

BR 26,673,072 3,644,519 13.66%

VE 2,765,852 334,892 12.11%

IN 122,098,503 13,085,576 10.72%

Country Savings

US 15,383,204

MX 10,910,333

CN 9,254,410

CA 1,491,493

GB 1,640,856

IN 10,358,852

DE 855,381

Other 803,620

TOTAL 50,689,151

Program Duty Savings

Processing 19,069,415

NAFTA 17,317,626

Duty Drawback 8,814,864

FTZ/Bond 2,081,102

Other FTA/GSP 1,672,972

HTS 285,373

EU Charlton House 280,125

Other 179,680

TOTAL 50,698,151

42%

1%

7%

5% 7%

22%

15%

Highest Duty Rate %

45%

20%

12%

7%

4%3%

2%

7%

US MX CN CA GB IN DE Other

1%

30 HONEYWELL - CONFIDENTIAL File Number

• Broker Management

- Two way interface : PO’s and metrics reporting

- Import metrics

Duty savings and risk assessment tool

Reporting

• Trade data improvements

- Global HTS-classification tool

- Origin solicitation and management

• Further improve our intranet tools

Next Steps – wish list

31 HONEYWELL - CONFIDENTIAL File Number

Any Questions?

We’ll always try to answer and support the business but answer can be dependent from

support of others

Bruno Fransman

Global Customs Compliance Director

Bruno.fransman@honeywell.com

+32 2 728 20 38

Thank you for your attention.