Businesses 'Feel the Pain' of Offshore Buying

By Jacqueline Emigh  |  Posted 04-08-2005
To try to cut costs, enterprises of all sizes are moving more and more to "offshoring," buying their finished goods and raw materials from China and other overseas countries. But to keep these globalization efforts from backfiring, businesses need to adopt new IT systems in areas ranging from trade documentation to container security, according to new research from the Aberdeen Group.

The reality of global trading is exceeding the hype, said Beth Enslow, an Aberdeen analyst, during a Webcast on Friday. Many large enterprises with revenues of $50 million or more plan to be doing 20 percent of all their purchasing from China by the end of this year, according to the analyst.

"Even small to midsized [companies] are moving very aggressively," Enslow said. "Supply chains are growing longer and longer."

On the other hand, global trade can turn out to be extremely inefficient, according to Enslow. "There is a tremendous amount of pain today," the analyst told the audience.

In the recent study by the Aberdeen Group, 91 percent of the 170 surveyed companies said they feel pressured to make changes to their global trade process, for the following two reasons.

First, "lead times"—or the time it takes to gain possession of purchased goods—are "inhibiting their ability to respond to market demands."

Second, expected product-cost savings are being "eroded by unanticipated global supply chain costs."

Other problems cited by the respondents included global security requirements and threats, delays and fines caused by compliance and documentation errors, and "slower cash flow, greater working capital, and higher financial settlement costs than anticipated."

Aberdeen's survey also pinpointed two main reasons for inefficiencies in global trading: insufficient automation and a lack of trading "cross-functionality," with too many purchases being performed at the departmental level, Enslow said.

More than 50 percent of large enterprises and over 60 percent of small and midsize enterprises admitted they're still using paper and spreadsheets for some or all purchasing transactions.

Yet also according to the study, more than half of large enterprises are using online forwarder/broker/3PL systems; over half are using ERP (enterprise resource planning) systems; and more than 40 percent have homegrown or custom-built software in place.

Another 30 percent of the large enterprises are implementing specialized packaged software, and almost 20 percent have deployed an on-demand global trade system.

In addition, among all respondents, more than 75 percent are either already using trade documentation and compliance, or expressed plans to do so.

Nearly as many have either already deployed global visibility and alerts, or intend to in the future.

About 60 percent either have an integration hub in place, or are eyeing one for down the road. More than 45 percent are implementing container-security or product-traceability systems, or will do so in the future.

Yet on the question of which of these technologies are perceived as "most impactful," respondents answered somewhat differently.

Global visibility systems landed in first place, followed in consecutive order by e-commerce systems with compliance documentation; integration hubs; electronic trade compliance and documentation systems; and multimodal transportation management.

Thanks to the emergence of online trade exchanges and government electronic document initiatives, "the foundations are there for even more automation in the [global trade] area," Enslow said during the Webcast on Friday.

Also in the study—"New Strategies For Global Trade Management"—Aberdeen takes a look at how the IT activities of "best-in-class" companies differ from those of the rest.

According to the results, some of these leading-edge firms have managed to cut shipment delays by more than 25 percent—and to reduce documentation issues by over 40 percent—through their IT initiatives.

Right now, financial supply chains are also starting to come into their own, according to Enslow. Aberdeen expects to see the emergence of new IT systems for "better collaborative financing across the supply chain," the analyst said during the Webcast.