Setting Priorities for 2014
The underlying economic premise for importing and exporting is “specialization and trade.”
Simply put, specialization means some region, country, or people have a “comparable advantage” for making certain products over another region, country, or people. The myriad of reasons ranges greatly and generally include proximity to raw materials, cost of raw materials, cost of labor, favorable regulatory environment, education or training required to make the product, and easy access to the consumer of the product, among others. If there was no advantage to making products in one place over another, there would be no need for trade. We would simply make the product where it is needed or consumed.
International Trade exists because there are advantages in some regions or countries compared to another. Understanding these variables as they apply to your product is a key ingredient to setting priorities. So is understanding transportation costs. As an example, it is not value added to save 5% on your production cost if your transportation cost is 6%. Reliability of transportation and labor, stability of the government, technology, and even weather patterns can also change the paradigm from profit to loss very quickly. With all these variables, you may wonder how to set priorities and may even wonder if you can manage or control your supply chain at all. Fortunately, the answer is yes!
First, some good news this year.
The delivery of new ships is expected to be big and demand is expected to improve as we rebound from the recession, but demand will not exceed supply. That means freight rates will be stable for the first time in several years. While there will be some volatility in a few trade lanes, the major trade lanes (Asia-EU & Asia-US) will be relatively calm and stable rates will be more the pattern than the exception.
With that being said, let us look at just three areas where savings can be big and return on investment can be ongoing over a period of years:
1. Streamlining the Procurement Process
Whether through technology or improved process, integrating purchasing AND getting the product into the supply chain is wrought with inefficiency, pitfalls, and lack of continuity. Managing purchasing for timeliness, reliability, quality, and price is commonly handled by commodity managers or purchasing agents, while getting the product into the supply chain is left to the supplier, handled by material planners, or handed off without any overall management.
Purchase order management means many different things to different companies,
yet it is often over-looked or poorly coordinated.
A poorly managed vendor performance results in early shipments, increasing cash flow and inventory to undesired levels, or unforeseen late shipments that cause late order delivery or shut down manufacturing. Either way, Scarbrough can be your expert in P.O. Management, no matter what your definitions. We have technology to give you full visibility, and process to gain early warning of problems and accurate comprehensive vendor performance measurement.
2. Improve the Efficiency of Your Supply Chain
Despite the best freight rates, there are many other costs associated with the supply chain, whether import or export. Many of these costs are not anticipated or are unknown. Expedited freight, chassis per diem charges, storage fees, commonly called demurrage at railroads or terminals, unloading of containers, palletizing, or overflow warehousing are some examples. If you have any of these, spend some time to plan for them before they occur. If anything is causing a problem or bottleneck, identify it and spend some time to see if it can be outsourced or otherwise mitigated. Just taking the time to analyze the situation and plan for it will save you time, anxiety, and money. Flexibility and nimbleness are trademarks at Scarbrough. Give us a call and we will help you plan.
3. Understand Compliance Responsibilities
Whether you are exporting or importing, there are many new rules and regulations with which you must comply. The cost of not complying with the rules and regulations can be large and is growing all the time. While there are too many to discuss here, planning before you are found to be in violation will save money and make you a better international trader. Scarbrough has experts in both export and import compliance.
As the year goes on, we will continue to discuss new ideas to help you improve and make your company better too. We are committed to making you the best you can be. We are here to assist so do not hesitate to ask your account representative or their manager for help. Even though 2014 is going to be a great year, we cannot read your mind, so communicated your ideal outcome and let us help you to achieve it!