Barcelona, July 28, 2020.- Authors of this Analysis: Sharada Prahladrao and Steve Banker.
Dr. John Wassick, Sr. Integrated Supply Chain Technology Fellow, Dow Inc., was on a supply chain panel at the ARC Industry Forum in Orlando. Dr. Wassick leads research and development that focuses on “competitively advantageous technology” for Dow’s supply chain operations. In this context he referred to the company’s Digital Fulfilment Center (DFC) – an idea incubator and proof-of-concept center for Dow’s supply chain. Dow has a global manufacturing footprint and a complex international supply chain, as it produces and ships products worldwide.
Trade Classification at Dow
For Dow, international trade is a “huge, complex opportunity” for Dow to excel and beat the competition.
Dow manages hundreds of thousands cross border shipments a year. Out of these, many must be analyzed by trade experts to ensure the classification is correct. At the heart of international trade is the assignment of a harmonized tariff code to any material that crosses a border. Goods need to be correctly classified so that the right tariffs are paid. Underpayment of duties can lead to huge fines and bad publicity. Incorrect classifications can also lead to goods being held up at customers, impacting customer services.
This is not a simple task; human judgement is often required. To do the tariff classification, there has to be an understanding of the components in the material, the properties of the materials, who the end users are, and what free trade agreements apply. Proper classification can be insidiously difficult, as often different government trade officials would also classify a stock keeping unit differently. Because of these difficulties, governments look for “good faith” efforts by importers and exporters.
Further, the information needed for classification may not be available on the company’s ERP system or in other company systems, said Dr. Wassick. There are also different philosophical approaches to trade classification. Some companies take the approach that if there is a gray area, choose the classification that will result in lower taxes. Other companies have a limited appetite are risk averse and work hard to choose the “correct” classification. Dr. Wassick said that Dow is rather risk averse and classification is done after careful verification. Also, to prove good faith, if they are challenged at any stage, there’s a paper trail to prove how the decision was arrived at.
Dow has dealt with this problem for years and has developed subject matter expertise, which has evolved into intellectual property. The next step is to use digitalization to monetize this intellectual property to address the specific problem of classification of cross-border shipments.
Dow has been doing and recording this classification for many years and has now captured this expertise through machine learning. The process: extract the important features of the pre-classified materials and train a machine learning algorithm to classify those materials; and once the machine learning algorithm is trained, it can classify new materials as they come in, explained Dr. Wassick. Dow has already been approached to sell this technology to off-the-shelf software companies. For some products classification is easy, but for others such as chemicals, it is rather nebulous because of the nature of the material. Dow’s Digital Fulfilment Center has applied for a patent for this actual algorithm.
Dow, Logistics Digitization, and the Future
Dow is looking beyond international trade operations; they are thinking about edge computing and IoT, how to better utilize analytics, and provide new decision support tools. “Ultimately, where we’re headed is the use of multi-agent systems, where you have intelligent software agents working in concert,” said Dr. Wassick.
In a global supply chain, the order-delivery process is not as simple as it seems, explained Dr. Wassick. Processing an order is not always smooth – the customer may have defaulted on payments, or there’s a change of delivery destination, or transport problems. However, from a customer experience perspective, Dow wants to instill confidence that their order will be delivered on time; and to be able to do that after all the barriers, clutter, and exceptions have been dealt with.
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