Global Dialogue on Customs Capacity Building 04 April 2007 © 2007 IBM Corporation Benefits of Supply Chain Security and Trade Facilitation: The IBM Experience Theo Fletcher VP, Import Compliance & Supply Chain Security

Global Dialogue on Customs Capacity Building Theo Fletcher © 2007 IBM Corporation Global Import Compliance and Supply Chain Security IBM’s Import compliance office mission Enable a globally integrated world class import process - Attributes of a world class importer; Compliant, Secure, Efficient  Responsibilities –Identify and interpret regulations –Establish policies –Assess internal compliance –Educate import network –Develop government relationships  IBM is a globally integrated enterprise –60% of revenue from non-US operations –65% of our employees are in non-US operations  Daily Scope –Operating in 170 countries –2500 Customs Declarations –$68M in value –5.5M pounds shipped

Global Dialogue on Customs Capacity Building Theo Fletcher © 2007 IBM Corporation IBM’s Objective Goals  Implement a more secure supply chain that yields greater trade efficiencies  Create Industry/Government Partnerships in the development of security and trade initiatives  Achieve Global Commonality of Supply Chain Security Criteria, Customs Declarations Data and Processes  Promote voluntary industry participation that provides collateral benefits Drive Industry Leadership in shaping the future of Supply Chain Security and Trade Facilitation

Global Dialogue on Customs Capacity Building © 2007 IBM Corporation Theo Fletcher Supply Chain Security and Trade Facilitation Supply chain security protects products, facilities, equipment, information, and personnel from theft, damage, or terrorism and prevents the introduction of unauthorized contraband, people, or weapons of mass destruction/effect into the supply chain Trade facilitation enhances supply chain efficiency, predictability, and reduces industry costs due to reduced customs clearance and release times, fewer inspections, and common processes.

Global Dialogue on Customs Capacity Building © 2007 IBM Corporation Theo Fletcher Globalization:  Technology innovation is enabling businesses to expand their operations internationally, fueling the global economy  Globalization is fundamentally changing business –Business, governments, and institutions need to adapt to the changing environment  Globally integrated enterprises locate their operations and functions anywhere in the world based on: –the right cost –the right skills, and –the right business environment  Countries that align their strategies can grow their economies –Develop skills –Provide a secure environment –Create efficiencies / opportunities for business to lower costs Countries with efficient governance encourage industry investment

Global Dialogue on Customs Capacity Building Theo Fletcher © 2007 IBM Corporation World Customs Organization (WCO) Initiatives  SAFE Framework of Standards to Secure and Facilitate Global Trade –Member of the Private Sector Consultative Group (PSCG) –Provide input regarding SAFE Framework and Authorized Economic Operator (AEO) program –Benefits for industry participation –Mutual Recognition –Participation by Small and Medium Enterprises –Voluntary partnership versus regulations –Adoption of common data formats and partnership programs will prevent conflicting requirements and unnecessary inefficiencies in a global supply chain  Simplify procedures to move goods across borders –Reduces administrative barriers –Encourages small and medium sized enterprises to become involved in international trade –Attracts foreign investment –Provides opportunity for greater economic development Common global standards will drive supply chain efficiencies

Global Dialogue on Customs Capacity Building © 2007 IBM Corporation Theo Fletcher Measurable business benefits will encourage AEO participation 1) Mutual recognition of AEO status –Harmonized partnership programs will prevent conflicting requirements and unnecessary inefficiencies in a global supply chain 2) Trade resumption consideration –Consideration of AEO status at port resumption following an incident represents a significant competitive advantage 3) Minimize the potential for significant negative customer and Brand impact from a security incident –Business Week estimated IBM’s Brand value at US $53.8M 1 (3 rd most valuable in the study) 4) Security improves efficiency that supports customers and Brand –Fewer inspections –Reduced clearance times 5) Trade facilitation measures to consider for AEOs –Customs treatment of Container Security Device as Container Accessory –Single Portal to the Government 1 Business Week, “The Top 100 Brands”, August 2004

Global Dialogue on Customs Capacity Building © 2007 IBM Corporation Theo Fletcher Efficiency ResiliencyInventory Management & Customer Relations  Reduced inspections  Increased automated handling  Less process deviation  Shorter transit time  Shorter problem resolution time  Quicker response to a problem  Reduced time to identify a problem  Reduced theft/loss/pilferage  Decreased tampering  Less Customer attrition  Reduced excess inventory Supply Chain Security – Collateral Benefits Source: Investing in Supply Chain Security: Collateral Benefits - Massachusetts Institute of Technology (MIT) White Paper, May 2005 Visibility  Improved asset visibility  More timely shipping information  Reduced inaccurate shipping data Companies may receive numerous collateral benefits from SCS investments, including:

Global Dialogue on Customs Capacity Building © 2007 IBM Corporation Theo Fletcher Average Percent Improvement Reported by Manufacturers from SCS Investments Percent Reduced Inspections Increased Automated Handling Less Process Deviation Shorter Transit Time Efficiency Percent Improved Asset Visibility More Timely Shipping Information Reduced Inaccurate Shipping Data Visibility Reduced Time to Identify Percent Shorter Problem Resolution Time Quicker Response to a Problem a Problem Resiliency Percent Reduced Theft/Loss/Pilferage Decreased Tampering Less Customer Attrition Reduced Excess Inventory Inventory Management & Customer Relations Source: Innovators in Supply Chain Security: Better Security Drives Business Value – Stanford University White Paper, June 2006

Global Dialogue on Customs Capacity Building © 2007 IBM Corporation Theo Fletcher Security has to be applied across the entire value chain, across borders, and integrate an ongoing awareness in every single point of interaction with the goods. Distribution Center Port Authority “A” Custom Port Authority “B” Custom Carrier Manufacturer Distributor Freight Forwarder A Chain is Only as Strong as its Weakest Link Stakeholder Security Linked with its Predecessor and Successor

Global Dialogue on Customs Capacity Building © 2007 IBM Corporation Theo Fletcher Recommendations  Pursue common standards and processes –Streamline processes to keep cost down  Track and promote benefits of investing in supply chain security –ROI/Collateral benefits –Efficiency and productivity  Be industry leaders –Be outspoken –Be a part of the process –Be an influencer Industry – this is your supply chain … Governments – this is an opportunity for valuable partnerships …  Accelerate implementation of common WCO SAFE Framework  Establish Government – Industry consultation groups to drive Authorized Economic Operator (AEO) aspects of framework  Begin pilot programs with trusted industry partners and major trading countries

Global Dialogue on Customs Capacity Building © 2007 IBM Corporation Theo Fletcher