This report will examine the challenges and the capabilities that automated companies have in place, as they move out from behind the firewall and convert ‘once manual’ processes to cloud-based solutions for trade and visibility. Top performers are delivering superior results and are more operationally ready for globalization, building a culture that embeds true organizational intelligence into their corporate DNA.

ORGANIZATIONAL INTELLIGENCE: CLOUD-BASED GLOBAL TRADE SOLUTIONS REPLACE THE FIREWALL October, 2014 Bob Heaney, Research Director, Supply Chain and Retail Practices

Bryan Ball, Vice President and Group Director, Supply Chain and Operations Practices

Report Highlights

77% of automation Leaders (companies with some to high levels of automation) embed supply chain metrics for risk and global trade into top management goals / compensation

Leaders convert ‘once manual’ processes to cloud-based solutions for trade and visibility - building a culture that embeds true organizational intelligence into their corporate DNA

Leaders are 2.43x as likely to provide daily cross-function cost/metric reporting to management or to involve Finance / executives in trade compliance initiatives

By following 6 Key Process Steps for Operational Intelligence, companies can tie objectives and compensation to the key cross-functional metrics and instill readiness

p2 p2 p6 p10

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Organizational Intelligence: Cloud-Based Global Trade Solutions Replace the Firewall

In our recent visibility report, Supply Chain Visibility and Segmentation: Control Tower Approach, 85% of companies indicate that they plan to increase their current level of end-to-end supply chain visibility. The research also reveals that the increase in the number of suppliers, customers, carriers, and countries of trade is changing the importance of collaborative synchronization between all parties in the multi-tiered global supply chain. As a result, as Aberdeen’s research indicates, there is a growing shift in focus towards collaboration, Global Trade Management (GTM), and Global Trade Compliance (GTC) with suppliers and trading partners. One key area of focus (and continuing evolution in supply chain intelligence) is on embedding risk and global trade metrics into the events/cost data. This, in turn, is fostering a culture of operational readiness and organizational intelligence. For years, companies have confined all global trade systems to operate behind the corporate firewall. Today, new secure, cloud-based global trade solutions have been adopted by top performing companies to embed balanced metrics at the executive level and foster organizational intelligence. Organizational Intelligence is Enabled by Automation

Aberdeen has been researching the relative levels of automation that are employed by companies for the last 5 plus years. During this time, solutions have not only become more automated, but they have also become more collaborative and dynamic. 55% of all companies have or will implement cloud-based GTM solutions within the next 12 months (up from 37% only 3 years ago).

Additionally, we are seeing that the complexity and global nature of today’s trade/transport landscape drives a need to

77% of leading companies, with some to high levels of automation, embed supply chain metrics for risk and global trade into top management goals/compensation.

Organizational Intelligence

Defined by Aberdeen as, the intellectual capacity of an entire organization to act effectively and proactively. It is the application of supply chain intelligence concepts, including learning mechanisms, analytics, and the control tower, or the balanced scorecard, approach. It fosters and incents cross-functional alignment between executive management and individual/teams/departments embedding intelligent organizational cultures and workflows into corporate DNA.

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Organizational Intelligence: Cloud-Based Global Trade Solutions Replace the Firewall

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collaborate with partners and share data and intelligence from the original source to final delivery.

Figure 1: Automation Enables Organizational Intelligence

Automated Companies Move Away from ‘Once Manual’ Processes - Become Organizationally Intelligent

With figures ranging from 1.75x to 2.25x as likely, it is clear that automation Leaders are more capable compared to the mostly manual organizations, as shown in Figure 1 above.

32%

40%

32%

41%

38%

48%

72%

76%

77%

78%

84%

84%

0% 25% 50% 75%

Event Management with better KeyPerformance Indicators (KPI) - 2.25x

Online visibility into international order andsupplier event status - 1.90x

GTM Risk Management metrics or KPIs areincluded in management objectives and

compensation - 2.41x

Online visibility into the status of globalsupply chain events (e.g. customs clearance

events, trade document status) - 1.90x

Online visibility into in-transit shipmentstatus - 2.21x

Safeguards are in place with screening forkey risk factors embedded into daily process

- 1.75x

Percent of Respondents, n = 95 . Source: Aberdeen October, 2014

Some to High Automation, n=40 Mostly Manual, n=35

Classes Defined: Automation Leaders (40 companies that claim ‘some to high’ automation levels) • 96.4% of orders delivered to

customers complete and on time - outbound

• 0.5% Decrease in total landed per unit costs in the past year

Automation Followers (35 companies that claim ‘mostly manual‘ automation levels) • 86.4% of orders delivered to

customers complete and on time - outbound

• 0.8% increase in total landed per unit costs in the past year

Note: 20 additional companies claim ‘low to fragmented’ automation

Supply Chain Visibility and Segmentation: Control Tower Approach; August 2014, n=95

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Organizational Intelligence: Cloud-Based Global Trade Solutions Replace the Firewall

84% have safeguards in place, with daily screenings for key risk factors. This is up 30 percentage points and is now equal to online visibility, also now at 84%. Three years ago, safeguards were only at 54% (for companies with some to high levels of automation), while online visibility into in-transit status was at 58%. This is important since today’s supply chain is more global and complex and the trade environment is unforgiving. Lack of trade compliance can mean delays and fines in customs and even the loss of import/export licenses.

77% have online visibility and KPIs/compensation linked via automation. Online visibility into status, including customs status and trade documentation, is now at 77%, up from 45% in 2011. This is further enhanced today by correlated increases in the automated linkage of metrics and KPI with management objectives and compensation. Of special note: with respect to organizational intelligence, we see a definite correlation between level of automation and the capability to incorporate GTM Risk Management KPIs into compensation -with automated companies being 2.41 times as likely to link these KPIs into compensation. Aligning KPIs to compensation instills awareness and accountability into systemic and out-of-tolerance conditions. Better focus from management on balanced metrics, drives and incentives improved workflows and processes.

76% have online visibility into international order and event status. Now 76% of companies have automation in place, versus 48% in 2011. Indeed now 72% of automated companies are capable of “Event Management with KPI integration,” and are 2.25x as likely

Automation Leaders Coordinate Externally It is not surprising that when it comes to strategic actions, the 40 automation Leaders exhibit higher levels of control and coordination with the external parties that they are dependent on. Automation Leaders are: • 1.65x more likely "to

consolidate or redesign sourcing geographies across multi-tier points"

• 1.69x more likely to outsource, optimize, and manage logistics services providers

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as their mostly manual counterparts to integrate events and KPIs.

The general trend in the statistics we recap above is the uptick in automation, not just of statuses but also in the linkage of KPIs and organizational intelligence across risk and cost metrics. The linkage of event data to these added risk and cost metrics, builds intelligence into the process. Events by themselves are just data, but when we attach costs and risks, particularly those that stray from typical norms, we can perform corrective actions and deliver improvements in daily and periodic metrics. Overall, the automation Leaders outpace their peers in both cost and service metrics. Automation Advantage- Linking Events and Organizational Groups/Disciplines

We now look at some of the specific advantages of automation, related to how to use the intelligent linkages of event, KPI, risk, and financial data to support much higher levels of collaboration and integration throughout the organization (see Figure 2 on page 7). We see that automation Leaders are:

2.43x as likely to provide daily cross-function cost/metric reporting to management and, likewise, to involve finance/executives in trade compliance initiatives. Linkage to the finance/executive organization, now at 90% up from the 50% we saw three years ago, is also 2.43x as likely to be automated by automation Leaders than the mostly manual Followers. Here we see the strengthening of automated linkage of risk/financial metrics to management compensation. This constitutes a shift from risk assessment that was manually audited (after the fact), to key risk factors embedded into the daily process. This level of automation at the daily level is

Deploy a solution that provides integrated workflows and collaboration with all parties in your demand-to-fulfill network and across each inventory and fulfill/deliver stream. A best practice is to provide internal as well as "outside in" orchestration.

Read the full report, “The Outside-in Approach to Order Fulfillment"

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Organizational Intelligence: Cloud-Based Global Trade Solutions Replace the Firewall

a key enabler for enhanced organizational intelligence and operational readiness.

98% link and classify SKUs and document filings to certify internal management processes. While this is a very basic capability, the sheer volume of shipment and event statuses is massive and automation is needed to alert personnel to trends and out-of-tolerance situations. This is discussed in more detail in the related report Supply Chain Visibility and Segmentation: Control Tower Approach.

Linkage to the cross-functional strategy teams is now at 86%, up from just 43% three years ago. Automated companies are 2.15x as likely to utilize cross-functional teams across purchasing, supply chain, and finance into GTM oversight/strategy. It is important that all key stakeholders have visibility into event data and are accountable to the aligned metrics that their behaviors provide.

Linkage of cross-functional cost/metric reporting in the form of regular/automated intelligence to management, up to 73% from just 37% three years ago. The advanced levels of organizational intelligence that this provides is further enhanced by the increased linkage/automation of cost and risk data, along with status information on a regular daily basis, which we commented on regarding Figure 1. These advanced capabilities are further enablers for the superior cost and service metrics of the automation Leaders.

Areas of potential benefits are trade and lane consolidations and rate negotiations, foreign trade zones (FTZs), backhauls, continuous moves, and prepaid-to-collect conversion /convergence

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Figure 2: Organizational and Cross-Functional Management Advantages of Automation

And finally, Leaders are:

1.54x as likely to cite compliance shared and centralized at the enterprise. This is one statistic that has not seen quite as much change, as it is now automated at 63% of companies, up from 55% three years ago. However, now up to 55% of all companies are considering the advantages of moving out from behind the company firewall for global trade solutions. This, in turn, will serve to increase the level of centralized, yet

41%

30%

38%

40%

37%

68%

63%

73%

76%

86%

90%

98%

0% 25% 50% 75% 100%

Trade compliance management data is shared orcentralized at the enterprise level - 1.54x

Cross-functional cost and metrics and reportingprovided to management on a regular basis -

2.43x

Ability to provide up-to-date staff training andcertifications on critical compliance / management

processes or procedures - 2.00x

Cross-functional team of purchasing, supply chain,and finance overseeing GTM strategies - 2.15x

Finance/Executive organization involved in tradecompliance initiatives - 2.43x

Ability to efficiently and properly classify SKUs /regulations and document filings to certify internaltrade compliance / management processes - 1.44x

Percent of Respondents, n = 95 .Source: Aberdeen October, 2014

Some to High Automation, n=40 Mostly Manual, n=35

Companies face a growing challenge posed by any Cost-to-Serve (CTS) or segmentation strategy - how to link financial costs and logistics activities together, in order to enable proper allocations to products, customers, and channels. This challenge is further compounded as these metrics drive new requirements for operational intelligence.

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Organizational Intelligence: Cloud-Based Global Trade Solutions Replace the Firewall

secure, data sharing and collaboration for enhanced organizational intelligence.

Summary and Recommendations

Across the broad spectrum of key capabilities found in Figures 1 and 2, we see that the likelihood of a company utilizing each capability is highest once the organization links the intelligence it is harvesting and embeds it into the very fiber of people and process throughout the organization. At this level, we are looking beyond just collecting big data and are moving to focus on how to automate and internalize it into supply chain organizational intelligence.

We have discussed in several recent reports, the need to harness the big data we are all collecting today at the shipment, customer, and event level and turn it into actionable intelligence. Top performers are using this intelligence to perform cost-to-serve analysis and segmentation (see side bar page 7), or to calculate landed cost advantages under trade and transport lane restructuring.

6 Key Steps to Building Organizational Intelligence in Your Company

Taking the concept a step further, beyond rate, cost, and event intelligence, there is the requirement to evolve our people and organization and develop supply chain organizational intelligence. In the section that follows, we summarize recommendations and key learnings in 6 key process steps:

Read the full report, “Supply Chain Visibility and Segmentation: Control Tower Approach”

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Step 1: Understand the need to collaborate for supply chain data and intelligence

This should work together with the goal of developing key metrics and intelligence across the entire organization and the extended multi-party supply chain.

Step 2: Use new technologies and the control tower approach to harness big data and develop operational intelligence and readiness

We define the control tower approach, which allows one to analyze big data and manage by exception, in our related report.

Step 3: Understand the value of automation and cloud-based solutions for multi-party data and process interoperability

For too long, companies have relegated GTM/GTC processes to only operate behind the company firewall. Over the past 3 years, leading companies have moved beyond the limitations of the firewall and found secure cloud-based solutions to address their GTM/GTC requirements. By using automation and cloud-based solutions, they are gaining supply chain and organization intelligence. Benefits include rate and lane consolidations and trade and tariff reductions though duty deferral provisions like FTZs.

Step 4: Use new technologies, analytics, and the control tower approach to harness big data and develop operational intelligence and readiness

The automation Leaders are 1.54x as likely to have the capability to track actual total landed costs as shipment progresses. For segmentation/modeling, this capability accumulates costs at the product level plus aggregates logistic, trade and transport costs as they occur on the inbound and outbound side. These costs would be direct product and shipment costs, indirect variable

Cost Components for Accrued Total Landed Cost:

• Direct product cost -

inclusive of material and manufacturing

• Variable transaction level costs - direct and indirect trade/transport and logistics costs attributable to each product and inbound plus outbound shipment.

• Fixed indirect and overhead costs - allocated by virtue of allocated overhead costing. Costs of order selection, fulfillment, inventory holding, and storage, as well as general and administrative costs.

• Accrued total costs - Aggregated from each of the above cost categories by applying costs attributed to each product and shipment, as orders are tendered for specific customers and channels and flow outbound for final delivery.

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Organizational Intelligence: Cloud-Based Global Trade Solutions Replace the Firewall

costs, and various fixed overhead and carrying costs (see sidebar).

Step 5: Develop supply chain organizational intelligence and embed new process and automation tools into the daily cross-functional fabric

Develop these by role and employee across purchasing, finance, compliance, supply chain, and other functions. Leading companies are up to 2.43x as likely to demonstrate heightened levels of organizational intelligence (Figures 1 and 2). This, in turn, leads to superior cost and service performance in today’s competitive landscape and has resulted in double digit savings in total landed cost per unit shipped.

Step 6: Top performing companies are embedding operational intelligence into the very DNA of the executive organization

By tying objectives and compensation to the key cross-functional metrics these Leaders incent and reward behaviors consistent with a balanced set of goals and strategies. Make sure that you incorporate GTC/GTM risk and other key metrics (such as sustainability goals) into your incentive/compensation formulas and ensure alignment to overall corporate scorecards and balanced strategies.

In conclusion, although most companies and supply chain leaders recognize the importance of effective trade compliance to reduce fines, penalties, and overall risk, few have understood the true value of GTM and GTC in reducing end-to-end costs. Fewer still have taken the steps to develop a level of operational intelligence within their organizations. 77% of automation Leaders embed supply chain metrics for risk and global trade into top management goals/compensation - further embedding

Key Optimization Features: Automation Leaders versus Followers

• 9.67x as likely to

automate Trade planning or Supply chain redesign tool automation (optimize sourcing / distribution decisions)

• 4.29x as likely to automate Communication / document exchange with other government agencies (FDA, Consumer Safety)

• 2.24x as likely to automate Item level updates and validations to-from HS Classifications and global Harmonization Code Matrix database

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these concepts into their corporate DNA. The 6 key process steps we recommend above should help all companies on their journey toward operational intelligence, and to achieve Leader status.

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Organizational Intelligence: Cloud-Based Global Trade Solutions Replace the Firewall

For more information on this or other research topics, please visit www.aberdeen.com.

Related Research Supply Chain Visibility and Segmentation: Control Tower Approach; August 2014

Answering the Call: 5 Best Practice Process Steps for B2B and B2C Demand-to-Fulfillment Convergence; August 2014

Advancing Global Trade: Foreign Trade Zone Solutions; August 2014

China Trade Operations: Trends and Advancements; May 2014

Authors: Bob Heaney, Research Director, Retail and Supply Chain Execution, (bob.heaney@aberdeen.com) Bryan Ball, Vice President and Group Director, Supply Chain and Operations, (bryan.ball@aberdeen.com)

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