Inside Global Trade, Compliance, and Logistics

[Transcript]

[00:00:00] Jan Griffiths: This is the Auto Supply Chain Prophets Podcast, where you'll hear from experts of all facets of supply chain in the auto industry to help you prepare for the future. I'm Jan Griffiths, your co-host and producer.

[00:00:17] Terry Onica: I'm Terry Onica, your podcast co-host. Let's dive in.

[00:00:23] Jan Griffiths: Hello, and welcome to another episode of the Auto Supply Chain Prophets Podcast. Let's check in with my co-host, Terry Onica. Terry, what have you been up to?

[00:00:31] Terry Onica: Well, I'm really excited. AIAG is asking me to develop an MMOG/LE implementation level two class. So, the level one class always talked about MMOG/LE in general, how to approach it, and how to manage it. So, we are going to go deeper into level two and talk about doing a workshop and really getting into the details with the team so they can get more hands-on experience with the criteria.

So, I've been talking to Ford yesterday to review the course material that I'm coming up with and also TS Tech, who was a guest on our show a little while ago, from a tier one perspective, making sure that we really nail it for this next course. So, I'm super excited to start developing it. Hopefully, it'll be available in the September timeframe.

[00:01:20] Jan Griffiths: You're so committed. You are just so committed to the industry, the standards; I just absolutely love it.

[00:01:27] Terry Onica: MMOG/LE is my passion, too.

[00:01:29] Jan Griffiths: It is, isn't it? Right? It's the thing that, you know, I've said many times, I'd rather have an ice pick in the forehead than have to tear through MMOG/LE. But today, I want to talk to you a little bit about my addiction. Are you ready? I know there's a few of them, but this one is my Amazon addiction. Oh my gosh. You know what, Terry? I've been ordering like a crazy person. It has to stop. It has to stop. I've been setting up my outdoor patio. So, it's, oh, a lantern. Oh, a light. Oh, a pillow and a cushion. But Terry, it is insane how fast these things come to your home.

[00:02:11] Terry Onica: It's unbelievable.

[00:02:12] Jan Griffiths: I'm preparing for a workshop in Germany. I'm doing an offsite leadership meeting for a tier one in Germany next week. And I tell you what I do love about my addiction, as I'm thinking through the workshop and I'm thinking about props that I need, right? I needed to order some cuddly toys for the workshop, right? This is a senior, high-level, VP-level workshop, but yeah, there'll be cuddly toys. Amazon, oh my gosh. Next day. So, I search, I find the one I want, and there it is. So, it makes me think about the supply chain, and we often make a comparison between automotive and Amazon and how we really have to rethink some of the paradigms. And I can't believe that we're this far into the podcast, and we really haven't talked to an expert in logistics and compliance because we know these products from Amazon; they come from all over the world. Yes. I mean, there's warehousing and there's distribution, but they've got that system down to a fine art. And I remember from my supply chain days, customs, trade compliance, such a specialized field, an area that's ripe for technology, particularly now with the advent of AI. So, today, I am thrilled that our guest on the show is very much a thought leader in the area of global trade and logistics. He has significant experience in the fields of warehousing, container management, packaging engineering, and inventory management, and as if that isn't enough, he is also dedicated to professional development. He's all about organization, design, and talent development. So, I am thrilled today to bring on the show Jeff Peterson, who is the Director of Global Trade and Logistics at DRiV, which is a Tenneco company focused on our aftermarket. Jeff, welcome to the show.

[00:04:21] Jeff Peterson: Great. Thank you for having me. I appreciate it.

[00:04:23] Terry Onica: Jeff, like Jan, I'm super excited to have you on the show. You're our first guest in this area, and it's a key area in the supply chain and everybody's got to face it. And at the plant level, too, you know, even back to MMOG/LE, we talk about transportation and managing transportation. And so I share with Jan I'm excited to have you on the show. So, with that said, can you give our listeners, what's going on and some of the challenges that are being faced now with customs and trade?

[00:04:54] Jeff Peterson: Yeah. So, I think the biggest thing that I'm dealing with right this moment, and I think it's unfortunately going to get worse, is the ocean shipping container shortage. We're facing high demands and low capacity, and that's starting to come down the pipeline right now. So, it's not necessarily a trade compliance issue. It's a global trade impact, and it's going to get progressively worse. So, if you're talking about one thing that I'm dealing with right now, that's it. We're going to expect higher container costs. We're going to expect delays at the moment. If you're looking at Intra-Asia, all the ports are backed up; we're having challenges. We've had Red Sea challenges. We've had the Panama Canal challenges. We've had the issue that happened with Baltimore just in the past couple of months. And all this is putting ocean containers out of the cycle, which means prices go up, capacity isn't there, demand doesn't get met, and it just keeps having a perpetual issue. So, I expect this to get even worse in the coming days and weeks. Oh, and just on top of that, I mean, we in the trade compliance, nothing's necessarily getting easier. We have new tariffs that are coming in place. So what we're seeing is some of the things we're talking about in 2017-2018, they're starting to come back to life. So, now from a compliance perspective, we're looking at that. We still have forced labor. We still have a lot of things that are going on and they're just compounding issues that are just stacking on top of each other.

[00:06:12] Jan Griffiths: Jeff, how do you stay on top of these issues? These things that happen in the world that you know are going to have an impact on your life, from trade compliance to logistics. I mean, if something happens in the Panama Canal, something happens in the world. I remember in my supply chain days, if I hadn't watched the news or seen it, I would feel totally blindsided the next day when people would say, 'Oh, well, you know, that happened, and what are we going to do? They shut down the canal and you know, how's that impact us, Jan? And I would be, 'I don't know.' How do you stay on top of that, Jeff? So, you get that information like quickly.

[00:06:47] Jeff Peterson: We rely on our 3PLs, our brokers, and people who are closer to the situation at hand. I mean, we can't be everywhere. So, we have a high reliance on our third parties, our suppliers to be able to help us. So, whether it's a freight forwarder, customs broker, or anybody else within a warehouse operator, wherever the case may be, they bring issues to light. And then sometimes, you can't necessarily trust just a newscast, like, you get a flash message and say, okay, this is happening, the border shut down, there's a technical issue with Ace, you can't cross the border. Does that affect me? I don't know, but we rely on our 3PLs, our partners, to be able to tell us what that actual impact is to us. And then we have, that's on the kind of the tactical level, then on the strategic level, we work with them to shape strategy to help avoid the issues at hand.

[00:07:31] Terry Onica: What would you recommend to Tier One and other Tier Two suppliers to really stay on top of this? I mean, you mentioned a few things, but what are some of the key things they should really be focusing on to stay on top of all these issues that you face?

[00:07:46] Jeff Peterson: I think knowing the business, there's a lot of software opportunities out there that you can rely on, so you could put your supply chain in a software application that'll analyze risk for you. So, we rely heavily on that. That's beyond basic restrictive party screening, where you're actually looking at your suppliers for a risk base, or you're actually looking at your supply chain environment. So, we have labor disputes, you have natural disasters, you have things like that, and they can actually put your supply chain into software and detect where risks might be to kind of put you into that challenge at hand. So, that would be probably one of the other areas that I would concentrate on.

[00:08:19] Terry Onica: What other areas in automation do you use at DRiV to help you with the customs and trade process? Now that you mentioned the risk tools, I was wondering what other things that you use as far as automation? Because we talk a lot about automation on this show.

[00:08:33] Jeff Peterson: Okay. So, a lot of what we use, there's some predictive, I guess it would be Predictive Logistics Applications out there that we utilize for arrivals. When we look at material that we're trying to fulfill for an order, that material is on the ocean somewhere and we know how long it takes to get from A to B. But when we have a supply chain disruption, who really knows what you're going to do for the predictive dwell time? We don't necessarily know what we can predict from basically a delay, so your port backup, customs clearance time, and things like that. So, we do utilize some predictive AI and algorithms, too, and we use a third-party provider to do that, to kind of predict. We know transit time. Transit time is pretty easy to predict, but when you start getting to backups and things like that, feeder vessels, one feeder vessel moving to another, blank sailings, missing shipments, things like that, it'll help you predict that. So, that's one of the things that we use more on the logistics front. On the customs front, we use a standard bill of material analytics for free trade agreements. We use restricted party screening, like we said, which is based upon algorithms, name, and character recognition to look for where there might be issues, whether it's with a customer or with a supplier, or a bank. So, there's a lot of software that we use and hopefully progressively using more and more.

[00:09:45] Terry Onica: So, I have to imagine, too, when you're speaking of risk, as you mentioned, that customs audits are a huge risk in making sure things always are getting through the borders. So how do you prepare for that? Do you have some examples?

[00:09:58] Jeff Peterson: Yeah. So, I think if you take customs audits, there's really two types of audits, or I guess audits in general in global trade. I put them in security and compliance, and in compliance, I would put tax audits. There's a lot of trade implications on untaxed, but I would take tax and put that into the compliance bucket. But really, those are like the two hearts. If you take every different governing agency, it generally would fall into a security audit or a compliance audit. I was just speaking at the Gartner conference three weeks ago at Disney World with Siemens, and that speaking engagement was about shifting left.

And so, with audits and risks, always shift left. So, that means you're doing the work upfront. You're doing the work while it's happening, not in an audit. So, we don't wait for audits. We don't want to prepare for an audit. We want to avoid an audit. And by doing so, it's developing that risk analysis, doing our own internal audit. So, if a governing agency came to you and presented you, we can say, 'Okay, here's our audit results. We've done most of the work for you. Show us where you think we've done right or where you think there's holes in it, and if you ask us to validate it, we have a proper audit trail to do it.' So, on the compliance front, it's doing the work when you're setting up a supplier, doing the work when you're choosing your logistics providers. Doing that all up front, shifting that supply chain left, auditing it along the way as it's happening while it's building that routine, that cadence. And then on the backend audit, look for continuous improvement opportunities to improve it along the way, and you should be good for compliance.

On security, really, we need to make sure that we've designed a secure supply chain from end-to-end. Any vulnerability built into a supply chain is a risk to your business, and honestly, it's a risk to national security as well. When we look at security, we want to build it from end-to-end and make sure there's no vulnerabilities, no risks, no holes within that. And that's choosing the right suppliers, screening the right suppliers, it's both on the material and on the logistics selection of those suppliers, making sure they have the right accreditations, and if they don't have the right accreditations, analyzing it, putting questionnaires, doing site audits, making sure that they're doing the things that they need to make sure that our supply chain is secure because it's a risk to us and it's a risk to our national security as well.

[00:12:01] Jan Griffiths: Jeff, over the years, I've seen customs and compliance sit in a couple of different places, and it always seems to be a little bit of a hot potato. Should it be in the supply chain, or should it be in finance? Any thoughts?

[00:12:18] Jeff Peterson: I'm an advocate of supply chain. I think the supply chain touches every area of it. I do know that there's some arguments in the finance front. Also, with legal, you see a lot, especially on the export control, sometimes going through legal, but I'm an advocate for the supply chain. I think in supply chain, you have that visibility, that end-to-end on the inbound from the suppliers, on the outbound to the customers, and everything in between. That connection with purchasing, corrective actions on suppliers that are challenged, and getting data on the back end in countries that have indirect tax implications: Europe and Mexico. A lot of times, you'll see more of an argument to go that direction, but generally, that's where I would say is the rub. I would always go with the supply chain. I like it better in the supply chain. I've had engagements where I've reported through finance, but generally, my entire career has been supply chain-focused.

[00:13:04] Jan Griffiths: Or legal, right? You mentioned legal. I've seen it under legal as well.

[00:13:08] Jeff Peterson: Particularly export controls, you can see a strong connection through legal.

[00:13:11] Jan Griffiths: Yeah. But with you, with your role, you really brought it all together because you have trade compliance and logistics all together.

[00:13:19] Jeff Peterson: That's correct. Yep.

[00:13:20] Terry Onica: Jeff, it sounds like you're an expert at breaking down silos, and on this show, we are all about breaking silos between departments. How have you done that in your career with trade and customs? How do you break down these silos? You're talking about shifting left. How do you get everybody on board?

[00:13:39] Jeff Peterson: So, I would say business, in general, has changed and made that easier over the recent years. I would say prior to like 2016-2017, we were a forgotten piece of the business. And in that time, I was focused a little bit more on the customs piece of it. We were there. Some people didn't even know that we existed. We were just doing work. Nobody necessarily knew what we were doing or why we were doing it. When they come up to us and say, 'Oh, that's interesting. I didn't even know somebody did that. I didn't know how we got material into the country.' And then, we'd have to kind of educate them and get them up to speed. With the trade wars, with a lot of things that are going on that's put us in the forefront, it's gotten easier and easier. And now people are looking at us as a strategic competitive advantage. We collaborate with the multifunctional areas, but before, it was like we were there; maybe some days we'll get a seat at the table. Now there's always a seat at the table for us, and we can bring that competitive advantage to our business.

[00:14:30] Jan Griffiths: Yeah, that's what COVID did for us, right? Before, nobody knew what a supply chain was. Most of my life I would go to a party or something, and somebody would say, 'What do you do?' And I'd say, 'Supply chain.' They'd go, 'Huh?' And then move right along because they didn't even want to know what it was. And now everybody in the world knows what a supply chain is.

[00:14:47] Jeff Peterson: Very diverse, very complex.

[00:14:50] Terry Onica: And it all started with the toilet paper shortage. That was so funny.

[00:14:55] Jan Griffiths: Yeah. Touch people's lives. Touch people's day-to-day lives.

[00:15:01] Terry Onica: Absolutely. Jeff, another thing that's going on that I'm sure is impacting a lot of people is the US-Mexico border. I'm sure there's got to be challenges right now. Can you talk about that a little bit?

[00:15:13] Jeff Peterson: Yeah, particularly between the US and Mexico, it's obviously the biggest challenge that we have as far as just a neighbor where it's a challenge to move things back and forth. In the preparation for audits, I discuss security. Security is really where the major focus is when we talk about the US and Mexican border. So, to prepare for that, in there, what we do is utilize a program called the CTPAT program. It's the Customs-Trade Prevention Against Terrorism Program, and that is really the program that allows us to have ease between borders. And within there is an add-on program or a process that we use called the FAST program. It's called Free and Secure Trade. And essentially, we can book quick access, it's almost like a TSA pre-check for your cargo moving across. So, there are two spots within the border crossings on your standard drayage. You're going to have the Mexican side, and then you're going to have the US side, where you have the multi checkpoints.

On the Mexico side, the system is called OEA, and it's technically the Spanish pronunciation of Authorized Economic Operator. And so, when you put those two programs, those two security programs together, you essentially have end-to-end access of the border, where you're pre-checking to get in, and then that material and that truck moves in pretty good cadence across the border. So, that's how we execute. But how do we get there? We get there through doing security checks on all of our trailers, putting in systems to be able to do that, and when I say systems, I'm talking about physical security procedures with the people who are looking at our trucks before they leave. Choosing the right carriers, making sure our carriers have the proper designation, and putting CCTVs in place so that if anything goes awry, you can take a look at it. We're also looking at agriculture now. Four or five years ago, we never really thought about we have a seed in one of our trucks. Is that seed a big deal to cross in the United States? It actually didn't really cross our mind, but the answer is yes, those seeds, bugs, anything like that. So, we do container cleaning, different things like that. And we put these procedures in place to make sure that we can prepare for when we say a security audit. We get the security audit. The next phase is we get to use the benefits of that, and that's the fast lane.

[00:17:17] Terry Onica: Wow, interesting. And again, it's so enlightening to everybody out there and the whole spectrum of the impact of customs and trade and bringing things in, things you would never think about like a seed. That's just really super fascinating.

[00:17:30] Jeff Peterson: And I give it up to customs kind of some anecdotal things that I've experienced in my career. I was in a security audit with a US customs agent in my car. We're in Juarez, and we're crossing over to the United States. We were in our personal car, one of my employees was crossing us over, and I had customs in my backseat. We got to the border, and they got a call. And they said, 'Excuse me, I need to get out.' We're on the bridge, crossing over from Juarez to El Paso. And they say, 'We have to get out.' The car in front of us had cocaine in the gas tank. We just happened to have customs agents in our car. The customs agents just happened to know that this, I don't even know what kind of car it was, a small SUV, had that, and the customs agent brought the dog around, smelled the car, pulled off the panel, and this is all right in front of me. A half-hour earlier, I had a custom agent in my backseat pull it off, and there was, it was either cocaine or heroin; I don't know what it was, but there was a powder substance. The woman got arrested, and I saw it all break down right in front of me. And Customs has that know-how that was there. I was there, I stood behind this car for 30 minutes trying to cross that bridge, had no idea about it. That's what was happening.

[00:18:37] Jan Griffiths: Was your heart thumping through your chest just a little bit?

[00:18:39] Jeff Peterson: Yeah. You know, it was actually kind of fun watching the dog work. That was something I'd never experienced. You see it in the airports and things like that, but you never actually see it go down where there's the actual credible threat, and that was happening. So, it was kind of eye-opening and kind of like a professional checklist of, 'Oh yeah, I've seen this. I've seen this in real life. It happens.'

[00:18:57] Jan Griffiths: Yeah. Well, I tell you what though, it's great that the customs agent got distracted; he's no longer thinking about you.

[00:19:03] Jeff Peterson: Yeah, exactly. They have their hands full.

[00:19:05] Jan Griffiths: Tell us about people. You're a big believer in people development and talent development. How'd you do that?

[00:19:12] Jeff Peterson: I think it starts with designing a program. So, having something that everybody believes in, putting the proper organizational design in place, and then working those people up through that organizational design. So, it's very difficult to bring somebody if you don't have a career path for them to achieve. So, you have to do everything. You have to have a program that everybody subscribes to and says, 'Yes, this is how I want my program. This is something that I believe in, that I'll work to, that if I have an extra half hour that I can help contribute to developing and growing and continuously improving this program.'

Then, the organizational design. If you work people up through the business or you work people up wide through the business, you present opportunities for the next people coming up through the line. But then you have to develop them, get them access, things like this, just learning those anecdotal things of what could happen, why you're doing what you're doing, not just doing what you're doing, trade shows, different things like that, networking, seeing things. We talked about those getting out of silos; understand what are the trade and logistics implications on finance? What are the trade and logistics implications on IT? That's how you learn, and you grow people. It's not necessarily always up. It's getting that wider perspective of what's going on.

[00:20:22] Jan Griffiths: Why'd you care so much?

[00:20:24] Jeff Peterson: Oh, it's just, we only have one career. There's going to be somebody else coming up behind us, and it's just fun watching them grow. I mean, I have kids. I'm a coach. I coach a lot of kids, soccer, baseball, football, basketball, all that. And sometimes you get very routine. Like if you're focused on yourself, it's a long 40-plus-year career, and things can become routine, but when you're developing people, you see people working through their life cycle, their career, the professional life cycle and learning like, 'Oh yeah, that makes sense.' and you see them growing. So, that's very rewarding.

[00:20:56] Terry Onica: What has been your success in your development programs? Have you been able to in a shorter timeframe, be able to get people up to speed? It sounds absolutely amazing. I was wondering if you could share the success that you've had and getting people up to speed with this method.

[00:21:12] Jeff Peterson: Yeah, I think, Terry, we had other conversations about a program that I had when I used to work for Livingston International. It was about maybe 15 years ago, maybe a little bit less, where on top of my day-to-day job, I had five candidates out of college, and they came into our organization. We hired them almost as a Management Trainee Program. We didn't necessarily call it a Management Trainee Program, but that's essentially what it was. And so, we brought people in. We had them do a job rotation. So, they got that wide perspective of customs and trade, got them rotated on hands-on experience. Then we had an academic piece of it where throughout all the different areas, the key areas of trading compliance, we worked them through it, had to take tests, learn where they were right, learn where they were wrong, and then give them feedback so that they could eventually learn what they were doing. And then, on top of that, some physical hands-on. I'd physically take them down to the border. I'd have them talk with customs agents, talk with customs brokers that are actually there. So, we went out to Ambassador Bridge, spent time there, and got everybody hands-on, and really, from that group, there's been a lot of success. There's directors of trade. There's people that are on their own business now. So, we've had a lot of success in that program.

[00:22:20] Terry Onica: That's fascinating because customs and trade are very complex, and to be able to do that, your program, kudos to you, Jeff, great job.

[00:22:30] Jeff Peterson: And the retention in the industry was very high from that program; I think everybody from that original program is still in the industry, whether it's logistics or trade.

[00:22:38] Terry Onica: Jan, I think Jeff is one of your authentic leaders that you always talk about in your book.

[00:22:43] Jan Griffiths: Yeah, I think so. Trade and compliance is an area that doesn't sound too exciting. Sorry, Jeff. It just doesn't. So, it's hard. It's hard to get people in and you have a program to do that. That's great. But, Jeff, as you look at the environment that we're in today, as you look at the application for technology, and really your field is ripe for it, and I know it's happening, but it's ripe for it. Looking at organization design, looking at where the automotive industry is going, the level of transformation, and the need to operate at speed. What advice would you give to Tier One or Tier Two leaders out there in the supply chain as they look forward into the future? What's one thing that they could start doing right now to prepare themselves in the area of trade, compliance, and logistics?

[00:23:40] Jeff Peterson: Yeah. So, obviously, technology is the answer to that. But I want to take a step back, not to forget the people element of it. I mean, it takes people to operate. It takes people to be committed to it. So, I really feel that the real answer is people, but outside of people, it's technology. Particularly, as you get down the tiers, there's less and less access to capital. So, you need to make sure that you're pre-planning that capital. And does that mean that you want to go boutique and, for each issue that you have, get the best in-class solution to fit that niche? Or do you want to look broadly and get in each tier? You're going to have a little bit more of a challenge to get there. So, you have to develop a plan. So, that five-year roadmap is critical, and you have to know that that 5-year roadmap is going to change.

So, I've launched a lot of technology and I've put in objectives and saying, 'I want to achieve this and this,' and I've never been fully successful in executing every use case in an initial launch. Now, I may be able to massage it to get it there and get to the place where I've met all my objectives, but from the launch, you're going to have challenges.

So, you have to be prepared for that when building that 5-year plan on getting there and being able to pivot. Businesses changes. You have acquisitions, divestitures, you have change in ownership, you have all sorts of things that may take place. But you just have to be able to plan for it and be ready for any of those challenges that happen.

But the other piece is data. One thing everybody wants to say: I want to commit to a software provider, and I'm going to revolutionize my business. Well, generally, you're not going to do that if you don't have good data. So, at the ERP level, at the material master level, at the supplier and customer level, all your master data, you need to make sure that it's clean and it's proper, or else anything that you're looking to gain out of a system isn't going to happen. So, that's where I would focus. Make sure that the fundamentals are there. Make sure that the plan is there. And then as you execute, be prepared for having to move and pivot on your original objectives.

[00:25:39] Jan Griffiths: Okay. If I were to summarize that, here we go. You ready?

[00:25:43] Jeff Peterson: All right.

[00:25:44] Jan Griffiths: People first. Plan ahead. Pivot when you need to. Pristine data.

[00:25:52] Jeff Peterson: Got it.

[00:25:53] Jan Griffiths: That's it. Those are the bullet points from Jeff Peterson. Jeff, thank you so much for joining us today.

[00:25:59] Jeff Peterson: You got it.

[00:26:00] Terry Onica: Thank you, Jeff.

[00:26:01] Jeff Peterson: Thank you very much. It was a pleasure to be here.

[00:26:07] Jan Griffiths: Are you ready to find the money in your supply chain? Visit www.autosupplychainprophets.com to learn how or click the link in the show notes below.