Point of View

Facing the COVID-19 crisis with numbers: performance metrics for business continuity

By Valentina Ferraro and Maka Khvedelidze, WCO Secretariat

The effort undertaken by the WCO in building a comprehensive Performance Measurement mechanism (PMM) to measure the performance of Customs administrations aims at strengthening a measurement culture among the WCO Membership, and at enabling them to develop metrics for strategic planning and evidence-based decision making. This, in turn, is going to help Customs in building its resilience and optimizing its organizational performance under disruptive scenarios, by providing the foundations for business continuity planning.

The development of global networks of communication as well as travel and trade routes has generated highly interdependent social, technical, economic, and biological systems. In such an ecosystem, successful strategies require more intense interactions as it is no longer a simple matter of positioning a fixed set of activities in the right place of a linear value chain. Increasingly, the strategic focus is the system itself, where value is created through fluid interactions of different economic actors – suppliers, business partners, allies, customers – whose role and relationships are subject to a constant reconfiguration in order to mobilize the co-creation of value in new forms, and by new players.[1]

International supply chains and new “constellations” rely on solid and flexible manufacturing capacities as well as an efficient international transport system, especially in sectors based on outsourcing and just-in-time inventory. By imposing lockdowns to avoid the spread of the COVID-19 pandemic, which forced plants to shut down or slow down, starting with those producing parts that many industries worldwide depend on, governments put a stop to many supply chains and logistics operations.

The degree of interdependence and specialization of the current economic and value-adding systems is a known source of vulnerability, and this is not the first time that the trade community has faced disruptions in the last decade. Such events include the volcanic eruption in Iceland, the earthquake and tsunami in Japan, floods in Thailand, and hurricanes Maria and Harvey, to name a few.

However, supply chain experts have observed that only a small minority of companies have invested in mapping their supply networks and are, therefore, able to secure constrained inventory and capacity at alternative sites when facing disruption. The results of the fortnightly survey published by the Business Continuity Institute (BCI) on 3 April 2020, in the midst of the COVID-19 crisis, revealed that only two-thirds (68.9%) of organizations had reviewed their business continuity plans of key suppliers, and just over three-quarters (76.3%) had identified a list of critical suppliers in response to COVID-19[2].

As for governments, some also seemed to have very little knowledge of how the supply chain works with some coming up with sub-optimal decisions based on limited information and lacking evidences, in some cases imposing export restrictions that further limited their access to key supplies. “No country is self-sufficient, no matter how powerful or advanced it may be,” said Roberto Azevêdo, the WTO Director-General, in a video posted to the Organization’s website in March 2020, adding that “Keeping trade open and investments flowing will be critical to keep shelves plentiful, and prices affordable.”

This lack of understanding is not new. Back in 2011, Pascal Lamy, the then WTO Director-General, pointed out the need to shift the way trade is most commonly perceived in policy debates, a shift that requires changing the way trade statistics are currently conceived so that they reflect the reality of trade interactions between nations. He was calling for a new measurement system, which would allow one to follow the value-add at each step of the production chain in order to get a real picture of trade flows by weighting them according to what each trade partner really brings in terms of value.

What about Customs? Can we assess how well it performed during this crisis and what can we learn from it in terms of strategic planning and measurement capacities? Such an evaluation exercise requires access to indicators developed as part of a performance measurement policy. The WCO began reflecting on how to develop a new mechanism to measure Customs performance in 2019, and its Secretariat would like, in this article, to highlight the importance of having performance metrics to develop sound strategies and operational responses in case of disruptions and crisis.

From business continuity to the overall organizational performance

The COVID-19 pandemic, like other exogenous events, provides a unique opportunity to test and update Business Continuity Plans (BCP) that are aimed at ensuring that processes are in place in times of a crisis to maintain critical functions and avoid any disruption for industry and the community at large that could damage a national or regional economy. For Customs this is translated into the need to take action to minimize the time that trade is disrupted, not restricting law enforcement capabilities and ensuring the availability of essential goods to the public.

According to ISO22301 (2012:2)[3], ‘’A business continuity exercise is a holistic management process that identifies potential impacts that threaten an organization, and provides a framework for building resilience with the capability for an effective response that safeguards the interests of its key stakeholders, reputation, brand, and value-creating activities.’’

Business continuity is addressed in several WCO instruments. The Revised Kyoto Convention Guidelines call for business continuity planning, which is defined as “the overall process of developing an action plan to ensure the continuation of business in the event of unexpected unavailability of a crucial system or facility. For Customs it means the ability of the administration to maintain the collection of duties and taxes, the control of goods and people crossing the border, and the uninterrupted and speedy clearance of goods and people in international trade and travel.”

Business continuity in the Kyoto Convention General Annex Guidelines: Chapter 7 – Application of Information and Communication Technology

A business continuity plan will require a set of contingency plans for each core business process and infrastructure component. Each plan should provide a description of the resources required, staff roles, procedures and timetables needed for its implementation. The process covers four key stages.

Stage 1: Initiation

– Obtain commitment from senior management

– Set policy and scope for business continuity management

– Establish a Business Continuity Planning project work group

– Develop a master schedule and milestones

Stage 2: Business impact and risk analysis

– Define possible failure scenarios

– Define the minimum acceptable levels of outputs for each core business process

– Assess potential business impacts and risks of these scenarios

– Identify and evaluate options

Stage 3: Develop individual plans

– Identify and document contingency plans, and implementation modes

– Define triggers for activating the plans

– Assign resources for each core business process

– Obtain management approval, and allocation of resources

Stage 4: Management of the plans

– Distribute the plans to all relevant stakeholders

– Maintain strategy, plans, and procedures

– Look at education and awareness, review plans and risks, test the plans and control changes to the strategy and the plans so that they remain consistent with each other

– Train staff to produce the strategy and plans as well as to undertake the actions embodied within the plans

– Assure the quality and applicability of the plans in respect of adaptability, completeness, data quality, efficiency, friendliness/usability (very important as the plan will only be used in a time of chaos or disaster), maintainability, portability, reliability, resilience, security, testability, timeliness, and management approval.

One of the main risks that Customs face during times of crisis is an IT system shutdown, as highlighted in the WCO Single Window Compendium: “when systems become unavailable and manual clearance is resorted to, this causes not just a disruption in services, but could also pose a risk in terms of weakening targeting, screening, profiling, and communication facilities.”

Further guidance on how to develop plans and protocols to facilitate and resume trade flows after incidents that results in major disruption of the movement of goods internationally can be found in the WCO Trade Recovery Guidelines, published as part of the SAFE Package that aims to enhance supply chain security and efficiency.

Trade recovery procedures are focused on coordinating the international response to quickly resume the flow of international trade, and may operate concurrently with domestic incident responses or emergency management procedures that concentrate on consequence management, containment, and protection of critical infrastructure in the aftermath of an incident.

The Guidelines provide information on three critical components: a plan of action listing the steps taken prior to and following a disruption; a list of appropriate actions that Customs administrations could take that are consistent with industry best practices; and communication mechanisms to ensure the exchange of information between Customs administrations and businesses in order to facilitate trade recovery activities.

Although it is difficult to foresee all types of risks, especially systemic risk[4], building different scenarios and measuring the key resilience metrics would enable Customs to identify any gaps, as well as make the necessary preparations, to enable timely responses based on the identification of precursor signals of change and necessary action flows[5].

Additionally developing and maintaining business continuity plans, can also substantially contribute the optimization of organizational performance, ensuring a control on Customs performance in terms of efficiency and security of the trade system under alternative scenarios.

A number of studies[6] show that practices related to continuity planning such as creating awareness, increasing commitment, integrating the continuity practices into organizational processes and learning from incidents can contribute to embedding the continuity practices into organizations and increase resilience as well as day-to-day operational efficiency. As a result, business continuity should be seen as a holistic process, having a strategic value that goes beyond the enhancement of organizational resilience while reaching out to overall organizational performance.

In order to ensure its business continuity, Customs might need to reassess their strategic priorities in striving to produce certain outcomes more than others, and find a new balance between the control and facilitation functions under different scenarios.

Given that regulatory complexity makes the supply chain more vulnerable in time of crisis like COVID-19, Customs administrations are expected to guarantee simplified and harmonized procedures and the rapid clearance of relief consignments and essential goods [7] while ensuring that health and safety risks are appropriately addressed.

In this respect, as pointed out by Grainger et al. (2019), effective communication is essential as careful and timely information about ad-hoc customs measures are essential to avoid unintended consequences of confusion, tensions, and indecisions”[8] for all the stakeholders involved.

Reflections on indicators

At the country level, several Customs administrations globally have developed methods and metrics to measure the performance of their services and processes.

At the international level, existing performance measurement tools take very different approaches with regards to how they are designed, the scope of the assessment and their methodologies.  While the WCO Time Release Study (TRS) has been growing in importance internationally, other international organizations maintain tools that are frequently used to measure certain aspects of Customs performance. Some examples are the World Bank Group’s Doing Business and Logistics Performance Index (LPI), the IMF’s Tax Administration Diagnostic Assessment Tool (TADAT), the Global Express Association’s (GEA) “Customs Capability Report”, the OECD’s Trade Facilitation Indicators (TFI) and Global Forum on Transparency and Exchange of Information for Tax Purposes peer review, the WTO’s Trade Policy Review Mechanism (TPRM), and the WEF’s Global Competitiveness Index.

Many administration have expressed their dissatisfaction with respect to the limitations of these tools for a comprehensive performance measurement of Customs administrations, including the methodology used to rank border processes worldwide in the World Bank Ease of Doing Business Index. The issue has been addressed by several articles published in the magazine: “A method for measuring trade facilitation” (February 2018), “Revisiting the “Trading Across Borders” category of the World Bank’s Doing Business index” (February 2018), “Reviewing the OECD method to assess trade facilitation policies” (October 2018).

In 2019, WCO Members collectively decided to set up a working group with the aim of developing a comprehensive WCO Performance Measurement Mechanism (PMM) incorporating all Customs competencies. The establishment of the WCO PMM, a recognized, evidence-based, scored assessment mechanism, aims to enable strategic and evidence-based policy-making processes in Customs administrations, and assist countries with revenue mobilization and the safe and smooth movement of goods.

To identify the areas where the PMM needs to be developed, the Working Group on Performance Measurement (WGPM) entrusted the WCO Secretariat to conduct a survey among its Members to collect their experience in performance measurement at the national level. Preliminary results show that there is an interest and need to measure various expected outcomes such as increased efficiency in the fight against counterfeit goods and piracy, paperless trade, effective application of ICT solutions and data analytics, strengthened interinstitutional collaboration, efficiency of clearance and delivery in digital trade, smoother movement of goods and people, efficiency in safeguarding public health, increased trust in the relationship with trade, and evidence-based strategic management.

More information is available on the WCO website under the agenda of the 2nd meeting of the Working Group on Performance Measurement (access restricted to Members).

What is the link with business continuity plans?

Measuring some of the above-mentioned performance areas might highlight the need for appropriate continuity plans and for the formulation of a Customs emergency response in times of crisis. We believe that the process of developing a performance measurement mechanism, such as the one that the WCO is currently undertaking, will have positive effects on the capability to elaborate such plans for continuity and better resilience.

Reliable and trusted metrics will not only enable Customs to  better design their plans, but also to better enforce them, participating in the design of cohesive national border policies, even if that entails compliance with temporary restrictions on freedom, as in the case of COVID-19 for travel and the trade in goods. This appears to be even more relevant in case of emergency responses, where citizens need to trust their government capability to take evidence-based decisions in order to accelerate systemic action and address questions of safety and security.

While undertaking business continuity planning, administrations could come across operations for which no performance measurement system exists, and for which indicators should be created. Administrations would also have to identify key relationships and dependencies with internal and external organizations, and there might be a need to discuss with those actors how they address performance measurement, which data they collect, and whether they have developed their own metrics.

In this respect, harmonized performance and risk indicators should be designed to assist business continuity planning and management. The first step is to understand the resilience metrics that matter in business continuity and disaster recovery planning for the supply chain continuity and the organizational performance of the regulatory agencies at the border. Once the key business processes that are threatened by a potential disaster are identified, metrics could also be used to measure the efficiency of business continuity plan, including the recovery time or the fluctuations in the level of performance.

Coordinated preparedness

If we look at what business continuity means at the border, it is clear that a sound business continuity planning requires to take a system perspective. That implies assessing risks that might fall beyond the organizational perimeter of Customs but directly impact other Government Agencies cooperating with Customs at the border[9].

In this context it is crucial to understand that any decision taken by Customs for business continuity not only impacts on Customs performance but might also have effects on the performance of other agencies as well as the overall performance of the supply chain.

Coordinated responses need to be developed to ensure  a systemic resilience, acknowledging the existing interdependences of Customs and other stakeholders’ expected outcomes and perceived risks. Building up Customs resilience and good performance calls for a joint preparedness and a co-orchestrated planning at the border.

More information
Communication@wcoomd.org

[1] Normann, R., & Ramirez, R. (1993). From value chain to value constellation. Harvard Business Review, 65-77, (July-August).

[2] https://www.thebci.org/news/coronavirus-organizational-preparedness-learnings-from-our-fortnightly-survey.html.

[3] Revised by ISO 22301:2019 https://www.iso.org/standard/50038.html

[4] Systemic risk is defined as “a risk that is endogenous to, or embedded in, a system that is not itself considered to be a risk and is, therefore, not generally tracked or managed, but which is understood through systems analysis to have a latent or cumulative risk potential to negatively impact overall system performance when some characteristics of the system change.” In GAR – the Global Assessment Report on disaster risk reduction: 2019, Inter-Agency Secretariat of the ISDR, ISDR(02)/G56/2019.

[5]Idem: https://digitallibrary.un.org/record/3825375.

[6] Business continuity management factors and organizational performance: a study on the moderating role of it capability, Zahari Abu Bakar, Noorulsadiqin Azbiya Yaacob, Zulkifli Mohamed Udin, Journal of Management Info Vol. 2, No. 3 (2015) 5-12.

[7]Guidelines to Chapter 5 of Specific Annex J to the International Convention on the Simplification and Harmonization of Customs Procedures, as amended (Revised Kyoto Convention), Annex B.9 to the Convention on Temporary Admission (Istanbul Convention)

[8] Customs and Humanitarian Logistics, Andrew Grainger, Jamie M. Rundle & Saad Raafay Ahsen, Global Trade and Customs Journal, Volume 14, Issue 4 © 2019 Kluwer Law International BV, The Netherlands

[9] Grainger, Shaw and Achuthan (2018) “Port Resilience: a perspective from UK ports” in Port Management, S. Pettit and A. Beresford, Chapter 5, pp.117-138, Kogan