How ZF benefits from the new EU-UK Trade and Cooperation Agreement from the start

Customer Case | Origin Calculation | 12 April 2021

MIC worked closely with German technology company ZF to ensure the company was prepared for the new realities of post-Brexit trading


ZF Group

ZF is a global technology company suppling systems for passenger cars, commercial vehicles and industrial technology, enabling the next generation of mobility.

ZF allows vehicles to see, think and act. In the four technology domains of Vehicle Motion Control, Integrated Safety, Automated Driving, and Electric Mobility, ZF offers comprehensive product and software solutions for established vehicle manufacturers and newly emerging transport and mobility service providers. ZF electrifies a wide range of vehicle types. With its products, the company contributes to reducing emissions, protecting the climate and enhancing safe mobility.

In fiscal year 2020 ZF reported sales of €32.6 billion. The company employs more than 150,000 associates at approximately 270 locations in 42 countries.

Source: www.zf.com

 

ZF’s partnership with MIC

This partnership was initiated in 2014 with a pilot project in Germany to implement MIC’s Origin Calculation System (MIC OCS) and Central Classification System (MIC CCS). This was the first time ZF and MIC collaborated and it marked the beginning of a partnership that has since significantly streamlined ZF's Global Trade Management (GTM) operations.

ZF's Head of Global Customs Management Harald Boes explained that before this partnership, the company was using up to nine different ERP systems for calculating the origin of its goods. This approach required far too much time and effort to maintain, so the firm decided to procure a single solution for all ZF’s GTM operations.

Mr. Boes said: "We trusted MIC that they could do it and we were right. We started and implemented a pilot in Germany in a very short time - 3 months - which was fantastic. Now we are at the point where the MIC software is a strategic piece of software within ZF, as you can imagine, when you look through how many locations we've installed."

After the successful pilot project, ZF executed a very quick rollout first to its German subsidiaries and then to its international locations. Today, ZF has MIC’s OCS and CCS running at 42 subsidiaries located in 11 countries which includes 32 subsidiaries in the EU, 7 in the US and Mexico, 2 in China, and 1 in Serbia. All of which are deeply integrated with ZF’s existing SAP and QAD systems.

ZF has also implemented other MIC GTM software modules such as MIC-CUST® for customs filing, MIC ECM for export control management and MIC-DPS for denied party screening.

Mr. Boes explained: "We go through China with the MIC software, we implement it further in the US and Mexico, and we roll it out within the EU, so the benefits for us are really laying on the table. As we use the MIC software more, the more rollouts we do, the more synergies we have." So, for example, if ZF does the setup of a new free trade agreement (FTA) within MIC OCS, they need to do it only one time for all of its currently installed locations. This is one of the key benefits of having a centrally installed global customs and trade compliance solution.

Mr. Boes highlighted: "When I look at the MIC OCS, there we have that kind of advantage calculation. This really makes it exciting because a mixture of a top-down and bottom-up calculation is really a game changer and brings up a lot more positive origin calculation results for our goods within the leading framework. This optimized calculation approach is a unique selling point and one of the reasons why we decided on MIC. I think we’ve seen 15-20% more positive results, which is really fantastic."

Looking at the entire picture, the following MIC modules have been implemented at ZF since 2014:

  • MIC OCS (Origin Calculation System):
    The OCS module is executed for preferential origin calculation to comply with several complex preferential rules of origin for numerous free trade agreements (EU, US, MX, CN, etc.) and optimizes these processes through automation. Moreover, it enables the automated solicitation of supplier declarations by using MIC’s innovative supplier web portal.
  • MIC CCS (Central Classification System):
    The CCS module provides ZF an increased degree of automation for assignment of customs tariff & export control classification to products by leveraging rule-based and intelligent algorithms that utilize artificial intelligence and machine learning (AI/ML).
  • MIC-CUST® (Customs Filing): 
    MIC-CUST® enables the company to efficiently manage customs declarations by leveraging direct data exchange with the electronic customs declaration system of Germany (ATLAS): MIC-CUST® rollouts within ZF are ongoing.
  • MIC ECM (Export Control Management)
    MIC ECM supports the central management of all export-relevant company transactions. This enables ZF to perform embargo checks as well as end-use and/or end-user screening including the use of configurable red flag questionnaires.
  • MIC DPS (Denied Party Screening): 
    MIC’s denied party screening module is a sub-module of MIC ECM and allows ZF to automate screening against sanctions lists based on a configurable screening algorithm and configurable screening profiles. MIC DPS also allows for screening against ZF specific black lists and white lists.

This solution is automated via interfaces between the MIC system and ZF’s SAP ERP system landscape, which includes return interfaces to SAP. 

As in every partnership, not every moment was a shining situation, which is to be expected. Mr. Boes indicated: "We had some hard discussions and decisions along the way, but that eventually built a rewarding relationship. I think this is a really good point that we can have different opinions along the way, but in the end we come together for the realization of both companies. I think this is one of the reasons why we are so successful. It's a true team approach: MIC, ZF IT, and ZF customs operations all working closely together with the support of the executive sponsorship team from both organizations."

 

How ZF & MIC overcame the uncertainty of Brexit

Managing international customs and trade compliance is always a complex process, and one that's always ongoing. However, the run-up to the end of the Brexit transition period in 2020 was a particularly stressful and confusing time for businesses all over the continent, especially those with global operations that depend heavily on imports and exports.

Right up until the last days of 2020, no-one was sure whether a deal would be reached or not. Even after a trade agreement was announced, there remained huge uncertainty about how it would be implemented and what changes would be required. One particular area of concern was the new rules of origin requirements, which have an especially big impact for multinational manufacturers such as ZF. A challenge in which ZF would need to respond to quickly.

Like many others in the automotive sector, ZF prepared for a difficult Brexit without any FTA in place. They soon recognized that a final state was not evident and that they needed to plan for all eventualities. Mr. Boes said. “In the last quarter of 2020, I was thinking a bit different. It could be that they reach an agreement at the end and then we are the foolish ones because then we need to implement it immediately with very little time to do so. Whenever an FTA is announced, or is negotiated and is ready to start, every one of our customers immediately wants to have the benefits.”

So how to overcome this uncertainty?

ZF had an advantage over many other firms because of the benefits from its solid partnership with MIC in the provision of advanced customs software solutions to help navigate the uncertain waters of Brexit as smoothly as possible.

One key preparation for the uncertainty of having an FTA between the EU and the UK in place or not was to address the commercial part before it happened. ZF purchased a new FTA bundle from MIC especially for this situation to allow for as much flexibility as possible for an immediate implementation of any agreement.

And then it really happened. Mr. Boes vividly stated: “UK & EU negotiated until the very end, then on the 24th of December they brought out a new FTA.”

But neither the late announcement of the EU-UK trade agreement nor the Christmas holidays stopped ZF and MIC from implementing the new rules of origin of the agreement from a technical perspective before the FTA even came into effect.

"We had three days to put all the rules of origin on the test system in order to prepare the system to correctly calculate in the first week of January, and that's what we did. ZF and the MIC support team worked through the New Year and ZF was probably the first company in Europe which had the possibility to calculate the requirements of the new free trade agreement”, Mr. Boes explained and then continued, “In plain figures, this means that we calculated all bill of materials (BOMs) directed to the UK, which was about 250,000 of them. All were calculated in the MIC system for 11 FTA bundles. So, 250,000 times 11 bundles. Then from the second week on, we were already able to issue certificates of origins directed to the UK. All of this was really a huge success."

 

Looking to the future

Of course, international customs and trade compliance is a constantly evolving environment, and so the work is never finished.

After the successful implementation of the calculation portion of the EU-UK agreement, a key focus for MIC and ZF in 2021 will be implementing the supplier solicitation portion, which is to include tier 2, 3 and 4 suppliers.

Mr. Boes explained: “We have within the EU-UK FTA one topic that is not finished right now. What came up on the 29th December was that there is a transitional period for the use of supplier declarations for the EU-UK agreement until 31.01.2022. So before then, we need to find a good way to get that solicitation done in order to keep proof of origin under that new FTA.”

Without any doubt, MIC will work hard and will be fully engaged as it was over the past few years to ensure that all the required functionalities to enable this are in place by the end of 2021.

Furthermore, in 2020 ZF started using MIC-CUST® for customs declaration management including direct customs filing with the German customs authorities’ system (ATLAS) at one of its subsidiaries. In 2021, ZF plans to roll this out to all its other subsidiaries across Germany.

Moving forward, ZF is also looking to expand its implementation of MIC’s OCS and CCS software, as well as addressing other issues such as new export control laws in China. Ultimately, the goal is to have a single system that covers every aspect of ZF's international customs management.

Mr. Boes finally stated: “It's all about ‘do I want to have one system or several systems (one in each country)?’ It is sometimes the case that a local IT system fits better to the local requirements than a global one, but in the end, if you are a global player, you need to have a single global system. The dream and goal of anyone who's in charge of international customs is to have one single GTM system. So if you have a global customs management strategy across countries and regions you try to find a solution where you only have one single system for everything, because then you can have the synergies and the benefits of common automated and harmonized processes. This is usually the goal of all those who have an any idea about international customs and trade compliance."


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