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A Winning Combination: Software-as-Services Plus Business Consulting and Process Services
By Laurie McCabe
January 30, 2004

Global trade is a complex process, involving a complicated system of rules and regulations which can change at a moment’s notice, coordination between materials sources, manufacturers, distributors, shippers and multiple government agencies. It’s also a marketplace that has been built on manual processes, with many companies involved that are slow to adopt new technology.

This is exactly the marketplace that Open Harbor is addressing head-on with its hosted, Web services-based global trade management solutions, Global Security and Compliance and Global Brokerage.

“We believe it is a huge market. There are very few purely domestic companies,” explains Beth Peterson, VP of Solutions at Open Harbor. “Out of the multi-hundred-trillion-dollar global trade business, the estimates are that about 7 cents on every dollar spent to fulfill and deliver a product is spent on logistics and trade costs. Even if we can only get a portion of that market, we think there’s a tremendous opportunity for us to save our customers a lot of money. We think there’s an opportunity for us to build a successful company as a result of that.”

In a typical scenario, what you would see is a multinational company sourcing its raw materials from a number of different places, many in different countries, and then going through a manufacturing process, which is again split into many geographically dispersed stages, adds Mahipal Lunia, Open Harbor’s Director of Solutions.

“Our contention is that there’s no such thing as a local supply chain. Every supply chain by its very nature is a global supply chain. In this new paradigm, new methods of delivering these services are absolutely critical,” Lunia says.

In this whole equation, the company deals with suppliers, partners, various warehousing technologies and the end customer. But you also have two other key players who enter this ecosystem — transportation and logistic providers, and customs brokers, he says.

Global Brokerage
One of the key problem sets Open Harbor looked at when developing its Global Brokerage solution is how the clearance process happens — how to make sure that when goods are shipped from one country to another, the right valuation, the right description, the right electronic connections are set in place so that these goods can be seamlessly and painlessly cleared with the customs agencies in various countries and other government bodies that may be involved in the trade.

“We saw that this is a key piece that has not been addressed by any technology so far,” Lunia says.

Historically, customers and their brokers communicated predominantly via phone and paper, which often resulted in discrepancies, delays and incomplete data. Add to that the fact that each country has a unique customs-clearance process with separate systems, creating massive inefficiencies.

Open Harbor’s Global Brokerage solution enables corporations to remove these inefficiencies by streamlining interactions between brokers and corporations. Customers can check compliance, classify goods, generate relevant trade documents and file them electronically with government agencies. Additionally, brokers are able to clear customs automatically through a country’s local customs authority.

Global Brokerage was developed with transportation and logistics giant DHL, a key development partners and one of Open Harbor’s first customers. As opposed to being U.S.-centric and then building out, Open Harbor went out to the world and then started building in, with the first implementation in Malaysia, and the second in Ireland.

“We did this to go to two very different countries, on different continents, with totally different processes, and then rolling them into a single unified platform,” Lunia says. “At the end of two or three years, we’ll have an electronic clearance network spanning 60 countries. These 60 countries represent between 95- and 98-percent of the total volume of global trade. This network by itself is unique, there is no other company building a network for customs clearances like we have started building and implementing.”

Global Security & Compliance
Global Security and Compliance is a solution that automates the global trade process — facilitating the flow of information, ensuring compliance with import and export laws of all countries involved, and handling exception management. Key features include restricted party screening (screening transaction parties against government restricted party, embargo and sanction lists); product compliance screening (checking products against export and import country rules); global product catalog containing online product classification data; and a real-time customer database with over 8,000,000 rules and regulations of global trade.

“We really focus on complying with the federal and international laws. People are afforded the privilege of being able to ship internationally, and one thing that governments are pretty good at doing is threatening to take away that privilege if people don’t follow the letter of the law. We focus on ensuring that companies have the right processes in place to do that,” Peterson explains.

In a post-September 11 world, security concerns have reached new heights. Preventing terrorism and creating a secure organization without hindering global trade are top priorities for global companies, Lunia says.

“This is a key problem that we decided to address head-on, because our platform allowed us to do certain things in the area of security that existing technologies could not do as effectively.” he says.

Lunia describes four kinds of security relevant to mitigating risk and corporate exposure for doing business internationally — people security, product security, procedural security and physical security. Open Harbor addresses the first three, while leaving the physical security of ports and containers to other specialists.

People security is addressed by a service that sources the lists of unlawful entities from around the world, such as known terrorists, and distributes the lists to customers within 24 hours. Product security is maintained in a similar way by providing customers with the latest information about banned and restricted trade items.

To continually monitor procedural security, Open Harbor provides updated checklists which break down the entire supply chain into processes. In order to ensure the security of each step the company and its trading partners go through to import or export goods, a questionnaire is created, with a checklist for each partner to follow in order to make sure all products were stored and shipped securely throughout the process.

“The company can answer these questions on a regular basis, perhaps 3 or 4 times a year. With partners who are new to their supply chain, they could do it every month to ensure they are following processes. Instead of using a paper-based approach, what we’ve done is use a web services approach, where partners and suppliers are all connected into this grid in real time,” Lunia says.

The type of companies that OpenHarbor sells to are multinational companies that have a global presence, ones which have high-velocity shipments that have a degree of perishability. High-tech consumer goods like digital cameras, for example, will lose value or cause the manufacturer to lose market share if the product gets to the market too late.

Other perishable products include textiles, apparel, and consumer goods — things that have a season associated with them — where any delays in the supply chain could result in missing the season, missing opportunities with a retailer or even paying penalties to the retailer.

“We focus on companies that have goods that need to get to a place in a predictable and timely manner. We also focus on the transportation and logistics service companies, like DHL, FedEx and Eagle Logistics,” Peterson says. With those types of companies, Open Harbor’s goal is to give them tools to provide value added services to their customers, and then also sell its security and compliance solutions to them so that they also are compliant, since they are under the same degree of regulation as multinational shippers, she says.

Streamlining Manual Processes
What’s the value that customers will derive? According to Peterson, “Most customers are looking to take costs out of their administrative trade processes. By doing so, they can really reduce their costs, but gain market share. By having the right global trade information available, they can actually improve their logistics performance, get their goods cleared through customs sooner, and provide better customer service to their customers.”

Many of these companies have very efficiently figured out manual ways to handle their trade processes, she says. One customer in the past had a very thorough operation where they’d check the government postings on the various web sites, manually go through 30 different government lists, type up a Word document with the commercial invoice and then call the carrier to pick up the shipment and fax paperwork over to the customs broker.

“What that customer ended up finding out was that when their volume doubled, they couldn’t put enough people on the process to keep the goods moving as efficiently as they had been. They actually were getting an extra day of delay because they just didn’t have the throughput with the manual process. There are other ways of doing it, but they’re not scalable,” Peterson says.

The next step up from manual processes was client-server software, Lunia explains. “People started automating silos of functionality at the department level. What this did was offer the local optimization without giving you visibility or global optimization.”

When Open Harbor started, they knew we had to solve problems at a global scale, and not be a U.S.-centric or U.K.-centric company. “The key question we asked was ‘How do we enable trade from any country to any country?’ That’s when we started building the whole platform on web services, because rules and regulations change on a very frequent basis. It’s impossible, especially if you have a large global-scale operation, to keep up with these rules if you’re just adding people to the process or if you’re using client-server software,” Lunia said.

As an example, Lunia describes a company with operations in 20 countries, who would go through the same process every time a country’s rules changed — burning CDs, sending them to their various locations, loading it onto the servers, then making copies for their clients.

“At one point it was the right solution, but now with web services and the ASP delivery mechanism, what we’re seeing is that customers do not have to do that — it’s not their core competency,” Lunia says. “So what we bring to the table is this rich global trade content on top of which runs our IP, our technology. And this is funneled via an ASP/web services model out to the end customer. We are bringing a fundamental shift in the industry by making it a lot leaner and a lot more efficient. That’s only possible via the web services and ASP model, especially in this industry.”

The idea for Open Harbor was born in November 1999 after one of its founders ordered a camera from Japan and it took 5 months to get to him — at least that’s how the corporate legend goes. Open Harbor provides a software application, delivered through Web services, that focuses on ensuring global trade works as efficiently as a highly regulated business can work, Peterson says. The company is based in San Carlos, Calif., with operations in Europe, and some outsourced development in China and India. It has raised more than $49 million over three rounds, led by investors New Enterprise Associates, Alloy Ventures, Deutsche Post Ventures Gmbh and Menlo Ventures.


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