(Portland, OR) - Supply chain strategy is often an afterthought for companies looking for overseas suppliers to reduce costs.
3 November 2016
Albert Saphir, principal of ABS Consulting, was contacted to help with an international sourcing effort that could serve as an illustration on how not to do it. A company based in Jacksonville had found a Chinese manufacturer via Alibaba, the Chinese e-commerce platform, and ordered a container load of goods which it paid for with a credit card.
“They had not seen the factory, they had not seen any samples, and they had never heard of U.S. import regulations,” recalls Saphir. He referred the firm to a freight forwarder to take care of the logistics.
Usually companies that look for foreign suppliers pursue a more educated strategy and start the process with a better understanding of logistics requirements. Still, supply chain issues are often an afterthought, as the decision to source in another country is usually driven by labor costs, taxes, and operating costs. Saphir notes some supply chains are so arcane that cost savings are highly improbable.
The objective should be to simplify the supply chain, says Jerry Levy, Director of Marketing at freight forwarder OIA Global. “By extension, a logistics provider should make it easy for both his clients’ suppliers and customers. Initial arrangements should allow a flexible market entry and exit, in case the supplier does not meet expectations,” Levy advises, adding that most supply chains fail during the implementation phase. To withdraw with little cost and obligation, fixed costs should be kept to a minimum.
Supply chain arrangements have to extend beyond the regular flow of products to include spare parts, which often require different logistical solutions, remarks Brian Bourke. “How can you make sure your supplies can move fast when you’re in a bind?” he asks.
Contingency plans are vital parts of a supply chain, both for importers and logistics providers. Levy points to the near paralysis at West Coast ports in the early part of 2015. “Was your cargo stuck in a port or moving over an alternative gateway?” he asks.
The company was able to move cargo to and from Europe when the eruption of an Icelandic volcano in 2010 shut down much of Europe’s airspace, Bourke recalls. By the same token, importers need to make arrangements in preparation for catastrophic events like the tsunami that hit Japan in 2011. “Manufacturers that had key elements of their supply chains tied to one geography were subject to disruption,” he says.
Importers also have to make sure they are on top of security and liability issues. “Liability is often an afterthought,” Bourke warns, adding that some companies give prospective suppliers a seven-page questionnaire on C-TPAT compliance while others’ are 200-300 pages.
Overseas suppliers may well have significantly better leverage over transportation pricing thanks to higher volumes, so it sometimes makes sense to take advantage of that, although it implies relinquishing control over logistics. Some U.S. companies insist on using their own logistics provider at source locations, assuming those companies have a presence there. In some countries legislation mandates that local providers are used for various functions, Saphir points out. For example, Saudi Arabia allows only local companies to perform customs clearance, he says.
When a supplier’s logistics provider is used, it is advisable that the importer familiarize himself with that company. “If you’re out in Jakarta seeing a manufacturer, you may as well see their forwarders,” Saphir says.
It is imperative that the logistics firms used are on the same page and can communicate without problems. Levy warns that if the supplier’s forwarder refuses to talk with the buyer’s, that’s a red flag. If the supplier handles the logistics, these elements should be clearly itemized on invoices, he stresses. “It’s OK to let the supplier pay the logistics cost, but you’ve got to stay on top of those costs.”
When it comes to the logistics provider, individual pricing elements should not distract from the overall picture. “Transaction logistics costs are only one piece of the puzzle,” Levy says. “It is important to compare transaction costs port to port or warehouse to warehouse.”
This article was originally published in Global Trade Magazine as “Building Global Supply Chains with Logistics Partners” and has been republished here with the consent of the original content owner.