By Cam Tran, Director, Global Trade Advisory, Ernst & Young
Supply chains continue to depend on antiquated paper-based documents and processes to facilitate the physical flow of goods between buyers and sellers. A reliance on paper trade documents exposes supply chains to a range of risks and inefficiencies that can delay transactions. Paperless trade offers a promising resolution to these process deficiencies and risks.
In our previous article on paperless trade in Australia,1 we highlighted the growing adoption of the UN Model Law on Electronic Transferrable Records (MLETR) as a landmark framework in the transition toward digitalization by giving electronic documents the same legal status as paper equivalents. The adoption of the MLETR domestically in various countries and its increasing presence in free trade agreements will help to spur the development of digital solutions for trade finance, supply chain management and digital platforms for shipment management and documentation.
The shift from traditional paper methods to digital is set to improve the efficiency, agility and innovation of global trade. The benefits of paperless trade have been made evident in numerous cases. For example,the UN estimates a 44% reduction in the transaction time of trade, resulting from the elimination of manual processes, and a 31% reduction in costs overall.2 Considering these compelling benefits, a variety of solutions have emerged to facilitate the journey toward digitalization. However, it’s important to recognize that the journey toward full digital adoption in global trade presents its own challenges that need to be navigated carefully — and the solution landscape is still evolving.
Solution landscape
The current solution landscape can be grouped into three broad categories:
- Enterprise solutions are designed to optimize internal operations, data management and data exchange within a single organization and with its supply chain partners. Enterprise solutions typically seek to leverage and integrate with existing enterprise resource planning systems and offer software-as-a-service-based solutions to automate traditional document exchange processes, which allow a company to exchange trade document data equivalents of purchase orders, bills of lading or invoices electronically with supply chain partners, streamlining the trade process and reducing errors.
- Industry solutions apply to a whole sector, aiming to modernize and transform traditional practices through widespread adoption of digital technology, such as distributed ledger technology (blockchain), to create trusted end-to-end supply chains that boost productivity and foster transparency across an entire industry.
- Ecosystem solutions (whether open or closed) establish a digital framework that enables a whole range of ecosystem players, including buyers, sellers and supply chain partners to interact and transact within a shared digital environment. Open ecosystems, such as national single windows, seek to simplify and digitalize the trade process for exporters and importers and encourage wide participation and collaboration. Closed ecosystems are exclusive to members.
Despite the promising potential of these solutions, transitioning to digitalization comes with challenges. Early adopters have faced challenges with overcoming problems ranging from high up-front and ongoing solution costs, to securing commitments from supply chain partners to adopt solutions, to regulators who are unable to participate in enterprise or industry solutions. It is essential to identify and implement fit-for-purpose solutions that meet the individual organization’s context and key business needs.
Taking theory into reality
To accurately ascertain business needs, it is crucial to have a clear vision and objectives, and a thorough understanding of the distinct needs and pain points across all departments and stakeholders. A focus on understanding the current and future user journey is critical.
We recommend a structured four-step approach to the digitalization of an international supply chain. It begins with a critical first deep dive into the existing landscape to uncover the most impactful opportunities for change — effectively prioritizing the delivery of high-value digitalization use cases first.
- Discover
This phase requires clear identification of the current business priorities and needs. A thorough evaluation of existing trade processes is typically necessary to establish a foundation for identifying which paper-based procedures can be digitalized. The breadth of operations is a vital consideration, as it informs the regulatory and legal requirements that they are subject to and informs the next stage of the solution.
- Diagnose
Once priorities and needs have been clearly identified, a gap analysis finds areas that require improvement, whether in technology, processes or people. A roadmap can then be developed that outlines the steps required to transition from paper-based trade to digital trade, within the requirements specified. A critical part of this phase involves a thorough risk assessment and the development of strategies to address potential vulnerabilities, such as cybersecurity threats inherent in digital trade. Additionally, it is imperative to evaluate how these changes might affect current contracts, legal agreements and supply chain structures to ensure a smooth and compliant transition.
- Decide
Identify a vendor that offers the right balance of functionality, support and cost-effectiveness. Once the preferred digital solution is identified, plan the implementation with clear timelines, resources and costs associated with the transition to digital trade. It is vitally important to engage with stakeholders to ensure their buy-in and support for the transition.
- Deliver
The move to paperless trade, which includes technical implementation, also requires comprehensive training and change programs to ensure that all stakeholders understand the new processes and can use the digital solution. Regular monitoring and evaluation of the solution’s performance is needed to ensure functionality and discern opportunities for continuous improvement. This requires further engagement with stakeholders to ensure their ongoing support and to address any issues that arise during the transition to paperless trade.
Implications for business
Each step of the journey to digital trade, from the initial discovery of opportunities to the solution delivery and ongoing support, is integral to ensuring a successful digital transformation. The aim should be not only to modernize operations but also to position the business for future growth and resilience as fully digital international supply chains begin to emerge. Embarking on this journey is an exciting undertaking, but risks must be managed. In the past, businesses have not reaped the promised benefits of trade digitalization, but with a structured approach focused on business needs, organizations can move closer to harnessing those promised benefits and more.
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