Featured Author - Bill McBeath
- December 9, 2003
Winning Retailers' Philosophy of Business
Winning
retailers' philosophy of business is that every product not sitting in front
of a customer is an inefficient use of capital. They are increasing
the velocity between factory and shelf, and improving in-store service levels
using mechanisms such as cross-docks, continuous replenishment, and VMI. Because
the retail supply chain is so distribution and logistics-intensive, it is not
an exaggeration to say that the effectiveness of logistics between the supplier
and retailer can make the difference between growing market share vs. declining
literally into bankruptcy—for both the retailer and supplier. If products aren't
on the shelf, both retailer and supplier lose customers. If it costs too much
to get them on the shelf, you can't compete.
International
Trade and Logistics
Figure 1 - Global Logistics Complexity
This
complexity of global logistics and trade realities makes ITL (International
Trade and Logistics) competence and technology increasingly critical to the
success of the supplier-retailer link. The wholesale movement of manufacturing
overseas, especially to the Far East, is accelerating. The US balance of trade
numbers make painfully clear the high percentage of US-consumed goods manufactured
overseas. There is also a boom in private labeling, with some retailers dealing
directly with overseas manufacturers. There has been an onslaught of security-related
regulations and requirements. And competition to make supply chains leaner and
quicker has increased the pressure to minimize delays in international shipments.
All of these factors are propelling the adoption of ITL.
Figure 2 - ITL Adoption
Survey Results
The results of our survey earlier this year of 130 retailers and their suppliers indicate significant growth in ITL adoption among large retailers and suppliers as they deal more and more with global sources of supply. ITL adoption has the highest disparity between retailer and supplier adoption among the four areas. Suppliers generally have more direct responsibility for moving goods across borders. ITL adoption is much higher with larger corporations who are more likely to have a global supply/customer base than smaller firms. ITL is crucial to help companies deal with the daunting complexities of global logitics:
- Get
a handle on total landed cost, which is critical to making intelligent sourcing
and network design decisions.
- Deal
with the Security Regulations deluge 24 hour rule, CSI and other regulations
severely penalize and delay those without advanced systems and processes in
place. ITL helps automate the customs documentation and compliance process.
- Create
leaner inbound distribution Visibility and predictable total transportation
times are required.
- Shrinkage
and IP protection ITL can provide item and serial number tracking.
-
Inbound Coordination between multiple parties.
International
trade includes a complex exchange of information between multiple entities,
including suppliers, carriers, freight forwarders, customs brokers, banking
institutions, and other third party transportation and storage providers. A
true global trade management system is, in effect, an inter-enterprise
resource management system, and requires a data model that takes into
account the breadth and depth of information exchanged between these interrelated
entities. ITL systems support export and import processes, documentation and
compliance, accounting, and financial reporting in a multi-currency, multi-language
environment. Suppliers will want integration with their order management systems,
and retailers will want integration with their sourcing and procurement systems.
Alternatively, these functions may be embedded in the ITL solution.
To
know true total landed costs, ensure compliance with customs regulations and
denied parties restrictions, and properly record the relationship between buyer
and seller, source of supply and product related restrictions; the ITL system
should track activities and incremental costs as the shipment is processed from
point of origin to final point of receipt. Customs duties and tariffs, as well
as associated rates of exchange and transportation costs should be available
to accurately calculate total cost of goods. This requires a data model and
integration at the product and item level between the ITL system and the order
management, warehouse management, and transportation systems. Much rides on
the selection of an ITL system, so all of these issues and requirements should
be taken into account.
The importance of ITL systems will only continue to increase as companies and supply chains become increasingly globalized.
About the Author
ChainLink Research's mission is to deliver research that helps executives improve business performance and competitiveness. The company's research and framework provides manufacturers, suppliers, retailers and distributors a thorough understanding of real-world implications, obstacles, and results for supply chain and customer relationship practices, processes, and technologies.