WHITE PAPER: A New Supply Chain
The global trade industry is changing at a faster
pace than ever before. But contrary to what
many think, the driving force behind these
changes is not only the threat of terrorism: the
driving force behind the changes our industry is
experiencing is the ever-increasing ability of
importers large and small to leverage the power
of the Internet and computers.
Technology has
allowed greater supply chain visibility, and this
possibility is creating demand for even more
innovation. Never before has so much
information been available at the touch of a
button. Never before have there been so many
ways to send and receive information. Never
before have there been so many choices.
This revolution has prompted changes in every
part of the global trade industry.
One of the
most obvious of those changes is in the
relationship between freight forwarders/3PL
providers, Customs House brokers, and their
importer customers. In today’s world, the ability
to provide information about shipments is nearly
as important as being able to move goods. That
is only the case because the desktop PC and the
ability to access the Internet has become
ubiquitous in even the smallest importers’
organizations. The importer’s ability to collect
and manipulate the information has driven the
need for the forwarders/3PLs/brokers to provide
timely and accurate information. This synergy
has demanded ever more powerful software
solutions from developers with importer-specific
industry knowledge.
The ability send, receive,
and understand information is
nearly as important today as the
ability to move goods.
It is now possible for importers to have a level of
visibility of their business that was impossible
just a few years ago. Importers realize the
profound effect access to this information will
have on their ability to be profitable, and they are
eager to implement a solution, which begs the
question: What’s the best solution? The answer
is both simple and stunningly complex.
This
paper will discuss the importer’s unique supply
chain challenges in detail, including what makes
the industry unique; the most common methods
importers are using to deal with these issues; the
most common mistakes; and what the future
holds for the industry.
Importers’ Specifics
Importing is unlike any other business. While
there are undoubtedly benefits to the off-shore
sourcing of goods, there are very real challenges
and risks. The basic challenge is to mitigate the
risk with a repeatable process to ensure your
company is able to reap the benefits of
international sourcing. To accomplish this, it is
essential to ensure that you have all pertinent
information about each transaction your
company makes at the click of a mouse.
Distributors and manufacturers sourcing goods
only in the US can count on receiving their
shipments with relative ease and speed. In his
book, America the Vulnerable, Dr. Stephen
Flynn describes a typical container shipment into
the United States as involving more than 20
transfers of custody of the container, in more
than 5 different countries, on more than three
ships, and in 5 trucks; all over the course of just
under 45 days.
First, let’s examine the basic processes of the
three main types of US-based importers:
1. Straight Traders – These companies purchase
only to fulfill orders they have taken from their
own customers. They carry no inventory and all
their inbound goods are sent directly to the
customer. This is sometimes referred to as dropshipping,
door-to-door, just-in-time, and back-toback.
Their supply chain visibility can be as
simple as using their shipper’s tracking system to
understand where their goods are.
2. Importer-Distributors – These companies often
use a combination of back-to-back, and
fulfillment from inventory held at one or more
distribution centers. Their needs are greater than
the straight trader since they must be concerned
with on-hand inventory. These companies are
also often placing blanket orders to be shipped
by their vendor over the course of weeks or
months. They often have complex consignment
arrangements. It is essential that importerdistributors
have a view of goods “at source”,
“in-transit”, and in any warehouses they might
own or rent.
3. Importer-Manufacturers – These companies
are importing goods (often raw materials) to be
used in their own manufacturing processes.
They are extremely at risk from a supply chain
failure because a shortage of raw materials could
force costly changes in production schedules,
staff down-time, and missed ship dates.
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Quotes and Offers
For many importers, the process begins with the
offer of a product by foreign vendors. Usually,
this is managed by the importer’s foreign agent.
While there are undoubtedly benefits
to the off-shore sourcing of goods,
there are very real risks.
(often a contractor rather than an employee).
These agents also manage customer RFQs
(request for quote) that are funneled to them
from the importer’s US-based sales force. Some
companies can expect to convert a high
percentage of these quotes into sales, while
others will convert only a few. The trick is to
manage this information in a way that allows
efficient conversion into a sale without requiring
excessive data entry which would be wasted if
the sale is not won.
Sales and Purchases
The next step in the process is the creation of
sales orders and purchase orders. A sales order
is sent to the importer’s customer, confirming the
order which has been quoted verbally. Sales
orders are also used to acknowledge a customer’s
purchase order. Either way, the sales order is
just one more link in what is becoming the
foundation of the supply chain.
Purchase orders are used to place an order for
goods with your foreign vendor. In some cases,
POs are issued to replenish goods that are being
sold off from a warehouse. In others, the
importer’s PO is issued to fulfill a customer’s
specific PO. This is an example of a back-toback
shipment.
No matter the case, it is vitally important to be
able to connect these documents in some way to
allow for easy cross-reference.
Documents, Documents, Documents
Quotes, Offers, POs, SOs, Bills of Lading,
Letters of Credit, Certificates of Analysis,
Invoices associated with the shipments (freight,
etc.), Container Instruction Sheets, FDA
Declarations, Delivery Orders, Manifest, Packing
Lists, Certificates of Origin, Credit Memos, End
Use Certificates, and many, many more
documents are a necessary part of the importer’s
supply chain.
Again, it is vitally important to be
able to create a relationship between these pieces
of paper and the information they contain.
Why? The ability to cross-reference these
documents in order to facilitate the clearance of
goods is one reason. Another is that the puzzle
presented by these documents must be unraveled
if the importer is to have any hope of
determining profit and loss.
A third reason involves US Customs and Border
Protection’s (CBP) role as an arm of the
Department of Homeland Security. As such,
CBP can require an importer to produce all
documents associated with a shipment within a
time certain. It is the responsibility of the
importer of record (not the broker, not the
shipping company) to maintain these documents
in a way that ensures the ability to comply with
these requests. And the list of reasons goes on
and on.
Some companies can expect to convert a high percentage of quotes
into sales, while others will convert only a few.
Dollars and Sense
One aspect of importing is exactly like every
other business the world over: Importers are in
business to make money. But the nature of the
importing business is such that it is extremely
difficult to determine profit/loss. Think of the
documents above. It is daunting enough to
imagine being able to manage the pieces of paper
(even images of them), without trying to imagine
Importers are in business to make
money. But the nature of the importing
business is such that it is extremely
difficult to determine profit/loss.
how you might bring together all the information
those documents contain. But that’s exactly
what importers have to do.
The term “landed cost” refers to the total cost of
goods including things like: materials, freight,
insurance, shipping, demurrage, duty,
loading/unloading, inland freight, and any
number of additional costs that need to be
associated with an inbound shipment.
It’s not
difficult to appreciate the importance of
understanding landed costs; without a true
understanding of this number, it is impossible to
set your selling price. Set your price too low and
you are literally subsidizing your customer’s
purchase.
But doesn’t there always seem to be an
exception? Some importing verticals, electronic
components is one, operate on such high margins
that landed costs are irrelevant. Importers who
run these margins should know that history
shows all verticals eventually become
commoditized, so the relevance of exact landed
cost is ultimately universal despite what one
might hope. It is industry best practice.
Our experience shows that ninety to ninety-five
percent of importers are using a standard
accounting application, supplemented by
spreadsheets, to track their inbound shipments,
including the costs we’re discussing now. At
best, this hodgepodge produces an average
landed cost. Yes, some segments of the
importing industry are not known for supplying
high-quality goods, but others, like food and
chemical importers, are expected to do exactly
that. In either case, an importer’s exact
understanding of costs is essential to long-term
profitability.
Supply Chain vs. Logistics
Traditionally, importers have viewed “logistics”
and “supply chain” as synonymous. The most
successful importers know that they’re not the
same at all. The most successful importers
understand that their supply chain really begins
with a quote or offer; includes terms, costs,
transportation, documentation, etc.; and most
often ends with a delivery to warehouse or
customer (but returns are definitely part of the
mix as well).
Logistics, the planning for, physical transport,
and documentation of goods from foreign vendor
to importer/customer, is only one aspect of the
supply chain. Logistics presents one of the
greatest challenges because the entire process is
beyond the importer’s direct control. Logistics
management can only be successful when timely
and accurate information from the foreign
vendor and carriers is leveraged with an effective
internal process.
There is a lot of talk about the promise of RFID
and other emerging technologies. Even if this
technology were fully mature, and even if your
company were in a financial position to
implement this kind of equipment, it would be
putting the cart before the horse for the vast
majority of organizations. What we see most
often is inaccurate information (arriving too late
to be of use anyway), managed with a
hodgepodge of spreadsheets, hard copies and
emails; none of which can be easily crossreferenced
to each other. The result is overselling,
missed opportunities, late delivery
penalties, inadequate customer service, wasted
person-hours, and more. That all adds up to lost
revenue.
Look into the Future
You don’t need a crystal ball to be a successful
importer. You need products and service from
vendors and carriers who understand and fulfill
their role in your success. And you need a
seamless system to connect all the links in your
unique supply chain. The technology is here,
and the import industry experts to develop and
implement the solution are here too. At VISCO,
we are committed to bringing supply chain
solutions to small and medium size importers,
for whom this technology has been out of reach.
Please call us to discuss your unique situation.
Ninety-Ninety Five percent of importers are using a standard accounting
application, supplemented by spreadsheets, to track their inbound shipments.
At best, this hodgepodge produces only an average landed cost.