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Roth Industries automates Export Control and Preference Management

The EU has concluded a large number of customs agreements with third countries offering exporting companies notable advantages. However, to benefit from these tariff concessions the preference regulations must be adhered to precisely, and that involves a great deal of processing effort. The mid-sized company Roth Industries has significantly simplified and extensively automated its manual export processing with preference authorizations and supplier declarations.

The mid-sized, family-run enterprise Roth Industries from Dautphetal, Germany is represented around the world with some 1,300 employees and 28 production and sales companies. Customs requirements represent a particular problem for mid-sized companies like Roth. A written preference certificate confirming the EU origins of the goods to be exported is required in order to take advantage of the benefits of preference agreements. The certificate must also calculate and document the percentage of all articles acquired from third countries in a comprehensible fashion, with (long-term) supplier declarations (LTSD) serving as verification.

The documents must be requested by the supplier, and the declarations must be monitored and the supplier must be notified where irregularities are evident. Additionally, it is necessary to check the formal validity of the declarations, for example regarding whether the required language is used. The reported data must then be analyzed and fed into the ERP system. Depending on the specific customs agreement, other regulations may apply for the calculation of the product origin and the preference declarations.

“Customs regulations are often very complex. It takes an average of 50 minutes simply to check and process a supplier declaration. With several hundred declarations each year, that really adds up”, explains Ulrich Meyer, Customs and Export Representative at Roth Industries.

Automating preferential calculations and preference management

“We process both the export requirements for complex mechanical engineering products and for a large mass of several hundred-thousand building services technology articles. Without IT support our employees can’t manage that anymore. But there was no suitable solution for this for mid-sized companies”, says Ulrich Meyer in explaining the initial dilemma faced by the company.

For Roth’s customs and export representatives, the existing IT solutions were lacking important performance traits such as a reliable, legally sound preferential calculation or automated preference management processing. “We turned to Mercoline. Our experience with their SAP add-ons for export processing was very positive, and their solutions for the sanction lists check and export control are extremely efficient”, according to Mr. Meyer.

Mercoline specializes in IT solutions along the supply chain and provides process consultation and add-ons in the SAP environment. Together with Roth Industries and Schneider Optik, the existing export processing solution was to be expanded to automate the receipt and administration of supplier declarations and preference authorization calculation.

A preference management IT solution designed for mid-sized companies

Mercoline’s “M.SecureTrade Preference Management” solution, integrated in SAP-ERP, extensively automates determination of the preferential origin of sales materials. The solution is already initiated in the sales team’s sales discussions with a customer. Based on the specific delivery country, the article and the customs tariff number, the sales team can already recognize during negotiations whether the export preference is valid or not. This allows the sales team to secure important competitive advantages.

The solution ensures that with each new SAP sales document such as an invoice, the preference calculation of all material items listed in the document is conducted automatically. The process calculates the value share of the EU-origin and non-EU-origin of the preliminary materials, and can include different parts list types and value determination procedures. The software takes this info and generates a Preference Calculation Document (PCD) with of all of the calculation results for the material in question. Finally, a sophisticated monitoring function keeps an eye on the calculated materials and SAP documents and maintains an overview of all the preference-authorized and non-preference-authorized materials. Another advantage is that all of the preference agreements the EU has concluded can be imported in the form of XML files, eliminating the effort and expense of manually feeding them into the system. Furthermore, along with the “most affordable” regulation, alternative regulations (e.g., in the combination of third country shares and item changes) can be used for the preference calculation.

One very important function of the Mercoline solution is the electronic exchange of long-term supplier declarations via a web portal and their automatic processing in the SAP system. If there is a change in the origin of preliminary materials, for example as a result of purchasing from a different supplier, these changes are updated in the SAP system and can be used quickly in the preference calculation.

Challenges of an automated IT solution

When a new SAP sales document is created, the software checks all of the materials in that document in regard to whether all of the requirements related to the preference agreement in question are fulfilled. This has to include determining the parts lists for the materials manufactured by the company itself and breaking them down to the lowest level of the hierarchy. The implementation of the new solution revealed a significant need for dealing primarily with the quality of the master data, because the breakdown of the parts lists is only permitted to consider the materials actually used and the origin must be clarified clearly. It was discovered that the master data was repeatedly missing data on the land of origin, contact persons, email addresses, material masters or customs tariff numbers. “We reacted by running a few hundred invoices through the process to see where holes or errors were found in the material master and whether supplier declarations were missing. We could see that the quality of the master data is constantly improving”, Mr. Meyer says.

One particular challenge is the issue of the legal security of preference management , especially since incomplete or incorrect verifications can conceal significant risks. They can be classified as tax violations, which can then lead to the subsequent collection of customs duties and penalties from customers as well. Companies are reporting that customs checks are becoming more meticulous and random on-site checks are on the increase. “Not so long ago when customs would conduct a check we had to compile a seemingly endless collection of documentation. Today, customs can simply log in and have access to all of the original documents”, enthuses Roth Customs and Export Representative Ulrich Meyer in citing yet another of the IT solution’s benefits.

Good experience with automated preference management

The preference management solution is part of the modular “M.SecureTradeSuite” with individual add-ons that can be used for a variety of customs and foreign trade processes in SAP ERP and SAP S/4HANA. They provide support for goods origins and preferences (supplier declarations, preference calculation), for export management (ATLAS customs processing, sanction lists check, export control) and for deliveries within the EU (Entry Certificate, VAT-ID check).

“I check the sanction list reports in the morning using the SAP add-on’s monitoring function. I then see whether there are any documents requiring clarification in relation to articles that are relevant for export control, and I either clear them or forward them for further consultation. And in the Mercoline customs module I can see whether there have been problems with shipment preparations or inquiries from customs in the last few days. I can also provide direct support for problems in the individual companies. The add-ons are well coordinated with one another and all of the processes, including archiving, are digitalized”, says Mr. Meyer with an insight into using the new solution. He cites the most important advantages of the digitalized process as the legal security it provides, the process streamlining without paper and the reduced administrative effort and expense. The benefits of this IT solution are obvious for him: “The preference calculation is conducted automatically in the background, it is legally sound and we have time savings of 90 percent. Where before a supplier declaration required an average of 50 minutes, now the whole process only takes a few seconds”.

About Roth Industries

Roth Industries is a mid-sized, family-run company from Dautphetal, Germany specializing in building and industrial solutions. The building solutions branch includes the company divisions responsible for energy systems, sanitary systems, and environmental systems. Roth’s industrial solutions branch is made up of the composites, plastics, and hydraulics divisions. Roth Industries maintains a worldwide presence with some 1,300 employees and 28 production and sales firms. The Roth family owns 100% of the company’s holdings.

Roth is one of the world’s market leaders in the segments of surface heating and cooling systems, energy storage systems and composite technologies.