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Exports: The mysterious case of automation versus outsourcing
The facts of the case are as follows:
Mr. X has been successfully exporting for a number of years. His knowledgeable staff has always been able to negotiate, process export transactions as well as interact with service providers. Lately though, he is experiencing declining profits and also losing some of his traditional markets to competitors. Some of his trusted staff has left the company and his record keeping are in a mess. The company has been late with several orders, resulting in competitors stepping in. There are also some very lucrative export opportunities, but he has not got the experience in dealing with Letters of Credit. Vat is a complicated issue and he is in the dark with many requirements. Furthermore, he found that they have paid a large amount on the new ERP/Financial package, but it does not provide for exports, and he is duplicating a number of processes with a resulting higher error rate…
In evaluating this case, the following had to be considered:
Exports are an intricate process that requires experience and skilled knowledge.
Many exporting companies either rely on expert staff or an outsource partner or combination of both, to successfully export.
Without the presentation of information to the involved parties in the form of documentation, goods will not be delivered to the international customer. Most of the participants involved in the delivery process do not actually see the goods, but carry out their functions based on the receipt of documents.
Two areas of greatest pain and inefficiency for exporters are:
- Trade process management, and
- Trade documentation.
Trade process management includes interacting with all parties in the transaction cycle, often several times. All of these processes require the exchange of documentation and a high degree of process knowledge due to numerous variable processes. Many of the documentation have a high accuracy requirement. This results in many discrepancies and repeated processes. The result could be an estimate to final invoice that varies by 10% or more and numerous discrepancies on the L/C and other shipping documentation. The cost of these processes has been reported at around 7% of transaction value. South African Banks have now also reported an extremely high rate in handling discrepant documents.
Today even the smallest global trader needs internet and electronic documentation technology as a very minimum. South African exporters are facing increasing demands from foreign buyers for greater efficiencies and faster response times, including landed-cost quotations (DDP).
Exporting is a regulatory and logistics nightmare. Multimodal transport, multicurrency transactions, language issues, documents and constantly changing regulatory and compliance requirements make it nearly impossible to standardise any transaction.
There is a varying degree of risk based on the accuracy of your processing, knowledge and transaction management. Much of this risk has to do with the management of information and documentation.
- Service providers such as freight forwarders or agents play a vital role in providing expert service to handle cargo and transport it to various destinations.
- It is rare to have a single service provider who can assist effectively in all aspects of your transactions and international destinations. One should be in a position to compare and only utilize those that are effective in your particular market, which is not always possible.
- Freight forwarding companies sometimes act as trading companies; there could be a conflict of interest / confidentiality issue.
- Costs are associated with a service offering, if the requirements increase so will costs.
- An exporter is reliant on the feedback and or reports generated by its service provider to do management reports.
- It is important to know that even though a service provider may provide certain functions, the exporter is still the responsible party in law. The exporter should therefore still ensure that the necessary procedures and controls are in place.
- It is often the best decision to use a combination of both, i.e. best practice – identify those services that are best done by external service providers and those that are best kept internally.
- Will reduce the likelihood of an export violation occurring through improved compliance; Standardisation and centralised control of all documents and knowledge.
- Provide a consistent process for the handling of all exports, along with uniform procedures and internal controls;
- Efficient distribution of data and information, empowering exporters and improve processes, especially when integrated with ERP / Financial software packages
- Improve your negotiating position when dealing with third parties' logistics / service providers; Significant savings in transaction costs for both the exporters and service providers,
- Provide a platform for additional improvements in business processes and systems;
- Help reduce errors associated with matching to the Letter of Credit (L/C). This allows for documentation to be aligned with the letter of credit without affecting the source data by importing the L/C directly into the software and generating the documents according to the L/C.
- Latest technology platform with integrated EDI functionality directly with SARS (Electronic Customs Clearance of documents),
- Export VAT compliance module: The intricate requirements of the VAT legislation, and its growing complexity especially relating to exports, make accurate and reliable VAT requirements tracking, imperative to Exporters. Streamlining workflows and eliminating the re-entering of information.
- Providing access to export information /reports for operations, management analysis and executive reporting,
- Costs are usually per transaction and could easily be the most cost effective solution employed.
The merits of the case are quite clear:
This article was submitted by:
Siyakhanda International Trade Concepts (Pty) Ltd
sales@sitcsa.net
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