[Editorial note: image removed/no longer available] | For the foreseeable future, the U.S. will continue to be the world’s biggest consumer market. However, the source of products sold in stores continues to change. Despite recent quality concerns in some product categories, China continues to be the largest primary source point for retailers. Meanwhile, retailers recognize the need to be fast, nimble and well-positioned to change. And the speed at which retailers secure products worldwide is paramount to a nimble import program. Speed, however, does not negate the need to manage supply partners closely, and decision-making becomes more challenging with changes in the supply base. |
Below are 10 points that retailers should consider when deciding where to source their products.
1. Select proper origin-country Incoterms.
Understand the implication and value of ex-works (EXW) versus free carrier (f.c.a.) versus free onboard (f.o.b.) and other shipping options. From a control perspective, EXW makes the most sense, but it also requires more management because the retailer needs to manage the freight from the vendors’ docks. Free onboard is the most commonly used Incoterm today, but retailers lose some control in the process because f.o.b. leaves origin logistics responsibilities in the hands of vendors.
2. Maximize equipment utilization at the loading port.
The majority of retail products “cube-out,” hence, the use of 45- and 40-foot cubes should be the norm to minimize total container usage. In addition, consolidation activity at the loading port is recommended for smaller vendors with less-than-containerload shipment quantities.
3. Select optimal load ports.
Vendor location(s) within the origin country should drive the selection of the most cost- and time–effective load port(s). For example, Hong Kong is still the most common load port out of southern China, but Yantian is more cost-effective, and often, more time-sensitive.
4. Control “speed to market.”
Requirements for speed shouldn’t encumber optimal decision-making. Develop a routing guide that provides multi-mode alternatives. From Asia to the U.S. East Coast, consider next-flight-out, deferred-air, transload via West Coast, landbridge intermodal, premium all-water or slow-boat all-water services. Understand the lead-time and cost differences between options, and optimize routings based on actual (not hedged) lead-time requirements. Work with merchants to understand options and make optimized decisions to minimize cost and risk.
5. Maintain flexible warehouse capacity.
With ever-changing product-origin source points, retailers need to be able to flex their distribution center capacities and locations as fast as merchants change source countries. Maintaining a flexible network allows retailers to optimize their flow and reduce costs.
6. Continuously evaluate the DC-bypass option.
Store allocation can just as easily occur overseas and, in most cases, at a reduced cost. Consider making product deliveries store-ready before arriving to the U.S., to improve speed to market and simplify domestic distribution.
7. Leverage Provider(s).
Consider utilizing a partner for more than one mode to leverage pricing and potentially increase service. Additionally, don’t be afraid to leverage non-vessel-operating common carriers against vessel-operating common carriers.
8. Ensure that the import network is secure.
Ensure integrity and security of the supply chain through compliance with the Customs-Trade Partnership Against Terrorism. Ultimately, time wasted in Customs translates to lost sales and higher costs.
9. Utilize technology to maximize visibility.
Utilize global-visibility software to track movements from factory to shelf, driving down inventory and transportation costs. At the same time, try to stay independent of provider systems, in order to maintain carrier flexibility and data ownership.
10. Don’t dwell on the past.
Past service issues with certain modes or providers is not indicative of future capabilities. Don’t limit network options based on service challenges from years ago. Consolidation of the carrier base and growth of new alternatives should encourage retailers to maintain an open mind to current and future capabilities of both new and legacy providers.