Insights for Procure-to-Pay and Finance Leaders

InternationalTrade

Who is steering international trade?

This guest post by Tim McGrath,  Co-chair of the OASIS Universal Language Technical Committee (UBL), explains where common governance and standards are missing along the supply chain. 

International trade requires a set of collaborative business processes based on common agreements. This has been true from the Roman Empire to the Hanseatic League and today’s global environment.

The legacy and lessons of these historic agreements are seen in the standards they introduced for trade laws, currencies, movement of goods, measurement systems, etc.

The Romans knew that to enable proper expansion and protection of the empire, their road infrastructure had to allow for the transport of supplies, war chariots, armies, and other goods. Even after the demise of the empire, humans continued to build streets that had standard Roman dimensions, which has impacted the size of carriages and, later on, cars and trains.

Many trade standards and processes derive from the Hanseatic League. The legacy of the Hansa, as it’s also known, lives on in the principles of free trade as well as in the idea of nations that cooperate in matters of trade and economics, such as within the European Union.

Today, the World Trade Organization (WTO) provides a forum for negotiating agreements aimed at reducing obstacles to international trade and ensuring a level playing field for all, thus contributing to economic growth and development. One of the instruments to support these agreements is the use of common standards.

But what is “common” about international trade? “Trade” itself not only covers goods and services, but also intangible products such as intellectual property. Clearly, there are a wide variety of processes to support the supply chains for these different types of products. This variety makes common agreements and standardization challenging.

As there are different dimensions of different trades there are also different dimensions related to the domain of the players involved. Based on the different functions, we can view any supply chain (especially international ones) following four parallel processes:

  1. Commercial processes relating to contracts, catalogues, and procurement. These processes cover the contractual agreements between the buyer and seller of the product.
  2. Logistical processes defining the booking, scheduling and movement of cargoes and transportation equipment. These processes are directed at the transport and logistics providers who will deliver the products.
  3. Regulatory processes such as permits, approvals, declarations and certificates.  These processes are required by government agencies for security, safety and taxation.
  4. Financial processes defining the insurances, guarantees and monetary exchanges. These processes engage financial institutions and control the transfer of funds.
The four parallel processes of a supply chain.
The four parallel processes of a supply chain.

The processes executed within each of these domains need to operate effectively and in unison for an efficient supply chain. Information not only flows along each domain, but also between domains. Product information created in the commercial domain is needed by logistical and regulatory processes. Regulatory clearances are need by the logistical domain, and transportation details are used in commercial documents. Coordinating this is generally a complex, and, at times, fragile process that may involve manual validation of paper documents and/or the use of a variety of coded identification schemes and/or frequent data conversions to suit internal systems.