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PRESS COVERAGE It's a hit – Automated customs at Sony Materials Management and Distribution Perhaps the most popular name in the highly competitive electronics field, Sony products have been available in Canada for almost 40 years. However, it was 20 years ago that Sony of Canada Ltd. was established as a joint venture between Sony Corporation of Tokyo and Winnipeg-based General Distributors Ltd., later to become Gendis Inc. Today, Sony of Canada employs over 1,000 people, has 79 Sony stores across Canada, some 10 Canadian branch offices, a comprehensive network of factory service centers, and two major distribution centers. Sony now handles all of its own customs transactions, centralizing the function at its Whitby, Ontario, distribution center. Imports were handled by a customs broker. Internal customs monitoring was decentralized, with east and west distribution centers handling the imports within their own regions. The move toward an in-house customs system began years ago, at a conference hosted by the Canadian Importer's Association. There, Philip Choi, Sony's manager of customs and international trade, met Alex Chepovetsky, national sales manager for MSR Inc., a Toronto-based software firm that specializes in automating customs clearance. Although struck by the viability of MSR's systems, Choi wasn't convinced that all the necessary pieces were in place for Sony to make the change. One of those pieces fell into place in when Canada Customs introduced its CADEX (Customs Automated Data Exchange) program. Rather than presenting customs accounting documents at the border, CADEX meant companies like Sony could send the information directly to Ottawa from their own offices, through a modem and phone line provided and paid for by the federal government. At the same time, Customs implemented the GATT international standard system for tariff classification. This move sent customs brokers scrambling to reclassify millions of products under a system that demanded in-depth product knowledge. While impressed with CADEX, Choi didn't believe Sony was ready to take advantage of it. He was waiting for completion of Sony's internal electronic data interchange (EDI) link with Tokyo. With some invoices running upwards of 1,000 lines, Choi felt the ED! link had to be in place to make centralized in-house clearance feasible. As well, he wanted to make sure Customs would continue to support EDI communications. That assurance came when Revenue Canada unveiled Customs 2000. This was a sweeping blueprint for change, which mapped out new systems for customs clearance including EDI initiatives and defined a new business relationship between Revenue Canada and importers. Choi recognized it would clearly be in Sony's best interests to take full advantage of the upcoming changes, starting with getting on board the CADEX program, and thereby forming a closer working relationship with Customs. At a major internal logistics meetings, Choi presented his ideas for restructuring Sony's customs operations. Over the next two years, the company centralized customs activities at Whitby, and began communicating electronically with both Tokyo and the federal government. STEP BY STEP Seizing the momentum from the May meeting, a project team was set up, consisting of Choi, Harry Yenovkian, senior systems analyst with information services, and Mark Trylinski, supervisor of import/export. Choi worked on the preliminary study, while Yenovkian completed the EDI link with Tokyo. One month later, Choi presented a concept paper and the preliminary study results. The team set several goals for the project:
The project initiation study was approved by Sony's project board. "The key to gaining the board's confidence," says Trylinksi, "was doing our homework, anticipating the questions and providing substantiated responses." Yenovkian adds that "the fact EDI was high on the corporate agenda, with Tokyo pressing for the elimination of hard copy, helped, although approvals are first and foremost granted based on a project's standalone merits." The next step, the initiation study, "confirmed that bringing the customs clearance function in-house would be both feasible and advantageous," says Trylinski. These findings were presented to the board, and both the recommended approach and solution were accepted. By year end, MSR, with an install base of about 600 companies, was formally approved as the vendor. The new year started with the hardware and software installation for what would come to be known as the ICCS, for Integrated Customs Clearance System. Staff were in place by April, and the training program began. The download interface between the mainframe and the ICCS network was completed in May, along with programming designs for a mainframe enhancement that would assign and track reference numbers against shipment information. Refund claim production was started and product databases were all compiled by August, in time for the CADEX line installation and acceptance testing. By September, the reference numbering system was ready, and in October, all customs functions had been centralized in Whitby. "CADEX acceptance was completed in November," says Choi. "Customs' CADEX staff were helpful, very easy to work with. We really felt they were there to assist and that we were welcome." Electronic communication with Ottawa now in place, phase one of the project drew to a close. While phase two has been fully defined it will deal with the upload of duty information from the ICCS system to the mainframe it has yet to be executed, due to other corporate projects affecting Yenovkian's availability. The last remaining obstacle to the elimination of virtually all remaining data entry is that not all vendors are participating in EDI with Sony. While there are plans to bring most of the remaining major suppliers on-line, no firm timelines have been established. THE PAYOFF The results of the project, categorized by the team's original objectives, are extremely positive:
Compliance with customs regulations was the project's top priority. Sony's livelihood depends on its import privilege. Safeguarding those interests means maintaining a good working relationship with Canada Customs. "Our reputation with Customs is extremely important," says Choi, "it's a relationship near and dear to us. As an importer, we depend on getting our goods in quickly, and accounting for them to Customs accurately and on time. We saw that bringing the customs clearance process in-house was a way to give ourselves control over the release of our goods, our compliance status, and our ability to withstand the scrutiny of a full audit. Now, we welcome Canada Customs' new, self-assessment policies." By meeting the compliance objective, measurable benefits have included: an increase in data accuracy; a substantial increase in tariff classification accuracy (particularly with respect to repair parts); greater control over documentation and accounting due dates; and on-line access to Customs changes. According to Trylinski, since bringing the process in-house, there's been a 75 percent drop in the number of refund claims filed due to errors in documentation.
One of the team's main goals here was to provide immediate access to importing information. The preparation of refund and drawback claims, used to recover overpayments and claim entitlements under special concessionary provisions, are notoriously time-consuming tasks without on-line access to importing data. The centralized electronic system was seen as the solution. Trylinski was most impressed with the system's ability to make better use of available employees. He notes that with centralized on-line access to all importing records, claims processing time has been significantly reduced and a greater percentage of entitlements recovered. The system retains all of Sony's classification and historical records, which in turn simplifies training and makes the assignment of new responsibilities easier. Clearance operations are now fully centralized at the Whitby plant. Each day, the Whitby mainframe receives an EDI feed from Tokyo of invoices for shipments destined for Canada. A unique reference number is automatically inserted into each shipment's data. An RMD (Release on Minimum Documentation) agent is then faxed a list of the shipments, including the reference number. The agent simply applies a bar code label on the release documents, and presents them to Customs under Sony's account number. Once the routine release is complete, that's the limit of the agent's involvement. The rest of the work is done in-house, efficiently and cost-effectively. For shipments from the US, Sony's customs department provides a range of shipment numbers to suppliers. Suppliers print the appropriate number on the invoice that accompanies the shipment. At the border, an RMD agent then applies a matching bar coded label on the document, and the goods are released by Customs.
Since goods are not available until costed, efficiency in the customs function is closely tied to customer satisfaction and corporate competitiveness. Controlling the reference number assigned to shipments and automating the costing process has been instrumental in furthering efficiency. By using a reference number that accompanies the shipment through the whole cycle, complete costing, accounting, receipt and customs control have been achieved. Trylinski says this has eliminated the manual logs and checking, which were "a nightmare. Before we had the ICCS system, we were doing most of the work anyway, in one form or another. As we suspected, it's far more efficient to ensure the entries are accurate to start with than to review entries after they've been submitted, detect the errors, and process and track the claims that correct them."
Fourth on the list of the project's objectives, this is one of its most tangible successes. Saving estimates are equal to about 80 percent of previous years' brokerage expenses. Over and above this, there are modest benefits to the company's cash flow through the payment of import duties and taxes directly to Customs monthly, rather than through a broker weekly. In addition to dollar savings, Trylinski points out that since Sony has in-house expertise, it made good business sense to use it. "As the importer, we know our product best, or if we don't, we certainly know where to get the information we need to get the correct tariff classification. We are also legally ultimately responsible, so we're inclined to put in the extra effort." Examining several of the time-saving components, Trylinski sees some excellent results. As well, the system has boosted Sony's competitive position, particularly in the industrial and professional sales areas, says Choi. "In a competitive bid ding situation, a one or two percent difference in duty rates can mean the difference between winning or losing a contract," he says. "Tariff classification is that important."
Sony's growing import and sales volumes are being handled without incremental costs. Better service is being provided in delivery times, tracing and reporting. Lower costs are increasing over all competitiveness. The mechanisms for bringing other vendors on-line are in place. And Sony is well positioned to benefit from forthcoming new procedures at Revenue Canada. The system also provided a range of "bonus" benefits, notes Trylinski. "It gave us statistics and data we hadn't even thought of asking for. It allowed us to identify and cut out functions that were redundant. And it opened up new opportunities for analysis and improvement above and beyond the scope we had originally defined." |
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