Customs as a Strategic Capability: A Prerequisite for a Resilient Supply Chain

BY JENS DREMO AND MATS NILSSON
This article was originally published in Supply Chain Effect 4-26 (read the full magazine here).

What does it really mean to have a resilient supply chain? What determines how well a company can manage and adapt to changing circumstances?

The rapid changes in global trade in recent years have made these questions increasingly relevant. Wars, pandemics, natural disasters, changing trade relations, new tariffs and regulatory requirements can quickly alter the conditions for both purchasing and sales.

Real alternatives for action?

In response, many companies have worked to reduce vulnerabilities in their supply chains. Supplier bases are being broadened, production and sourcing are being moved closer to home, and alternative supply routes are being established. But having alternatives on paper is not the same as being able to use them. If a supplier needs to be replaced quickly, more questions arise than simply who can deliver the right product at the right price. What does the change mean for customs duties, origin, permits and documentation? How will it affect lead times and the actual cost? An alternative only becomes a genuine option when the company can answer these questions.

Customs is a strategic, cross-functional issue

Customs has traditionally tended to sit at the operational end of the process. Goods must be declared correctly, documentation must be in place, and applicable regulations must be followed. But customs management is about much more than the customs declaration itself. A component or material that is purchased serves a purpose somewhere further along the supply chain. If the goods do not arrive as planned, a customs issue can quickly become a production issue. This can, in turn, affect deliveries, costs and ultimately the company’s customers. Customs is therefore a cross-functional issue. Purchasing decisions and the choice of suppliers have implications for logistics and customs, which can then affect production and finance. At a time when margins are under pressure and trading conditions can change rapidly, understanding these connections is also a matter of competitiveness. This means that the customs perspective needs to be brought into the decision-making process much earlier and, in many cases, higher up in the organization.

Resilience is about the ability to act

Building a resilient supply chain may involve working with more suppliers across more geographical regions, or moving parts of the supply chain closer to the company’s own operations. Companies may also want to reduce their dependence on markets where trade policy conditions are uncertain. But alternatives do not create resilience in themselves. What matters is the company’s ability to understand the consequences and act when something changes.

Imagine that a disruption means a component can no longer be purchased from the regular supplier, but two alternative suppliers have been identified. From a purchasing perspective, the choice may appear straightforward. But once customs duty rates, origin, documentation requirements, lead times and other costs are taken into account, the picture may change. A company with a good understanding of its customs flows and access to the right data can compare the alternatives more quickly and make a well-informed decision. Without that overview, there is a risk that the consequences will only become apparent after the change has already been implemented or when the goods are already in transit. This is where customs expertise becomes part of a company’s resilience and its ability to adapt.

Customs as part of risk management

To be able to act quickly, customs also needs to be part of the company’s ongoing supply chain and risk management. Such work begins with an understanding of the company’s own flows. Which goods and components are critical to the business? Where do they come from? Which flows are particularly sensitive to changes in trade conditions or regulations? And does the company have the product, supplier and origin data required to quickly assess the consequences of a new alternative?

This requires a cross-functional perspective. Purchasing, logistics, finance and customs may each hold information that is needed to understand the bigger picture. When this knowledge is brought together and the customs perspective is included from the outset when different scenarios are being discussed, the ability to act proactively rather than reactively increases. Monitoring changes in trade policy and regulations is therefore not solely a matter of compliance. It also provides an opportunity to understand earlier how the business may be affected and what alternatives are available if circumstances change.

Jens Dremo, CEO, PipeChain SCM and Mats Nilsson, Senior Key Account Manager, PipeChain SCM Tyringe. Photo: Robert Lipic and Ida Altinius.

Technology enhances expertise, it does not replace it

At the same time, digitalization and AI are creating new opportunities in customs management. Technology can streamline processes, process large volumes of information and help make the right decision-making data available more quickly. But technology needs to be used alongside expertise. In a complex and highly regulated field such as customs, people need to understand the context, ask the right questions and assess the information provided by technology. Using AI without sufficient subject-matter expertise risks creating a false sense of security: an answer may sound convincing without necessarily being correct in the specific situation.

The question, therefore, is less about humans versus AI and more about how the two can complement each other. AI can streamline and support the work, while customs expertise is needed to evaluate the results and understand how a decision may affect the rest of the supply chain.

The ability to use new technology in the right way therefore becomes another part of a company’s resilience.

Customs expertise protects and enables

Strategic customs management is, of course, still about getting things right. But in today’s supply chain, it is also about something bigger. When the external environment changes, companies need to know which alternatives are actually viable. This requires knowledge of their own customs flows, access to the right information, and systems that make it possible to turn that knowledge into action. Customs therefore needs to be part of discussions about suppliers, markets, risks and future supply strategies – not simply an administrative process at the end of a goods flow.

Ultimately, resilience is about understanding changing circumstances, assessing the consequences and having the ability to act. A company with access to strong customs expertise and modern customs management technology is better equipped to withstand change than one without them.