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Supply Chain Visibility: Sourcing and Transportation

by Mike Brown VP, Business Development

May 25, 2021

 

Exploring Supply Chain Visibility further, we can see that scoping out and modeling alternative sourcing and transportation options may lead to not only the mitigation of negative one-time events but also potentially improve stability for the mid to long term.

Global vs Domestic Sourcing:

  • In 2020 Asia exports performed well and even grew despite the pandemic effects happening in other continents. In 2021 however, there are early signs that exports will be affected as Covid has become devastating, particularly in India.
  • An additional area to watch is sourcing affected by manufacturing based in the Xinjiang Uyghur Autonomous Region (Xinjiang). Many alleged violations, including forced labour, have been identified within that region, causing vendors to avoid/relocate.
  • For retailers, the most significant benefit to global sourcing is the higher margin rates as compared to domestic production. That benefit has diminishing returns for every missed sales opportunity caused by delayed or canceled orders. Sourcing domestically or in countries with less risk could ultimately be more beneficial.
  • A robust vendor matrix can be a valuable tool to ensure objective and subjective vendor qualities can be understood and compared. Include current makers and country of origin, additional offshore vendor options, and domestic makers where viable.
  • Financial modeling of purchase scenarios can help understand if lost margin dollars can be matched by alternate sourcing options. Of course, transportation costs need to be included for a complete view.
  • Probably the best example of a corporate approach to this issue is Walmart. Over the next decade, Walmart said it will spend $350 billion on merchandise made, grown or assembled in the U.S. sourcing products closer to where customers live.

Transportation and Routing

  • One ripple effect from the Suez Canal blockage is that ocean lanes that were already taxed became more so. Transportation such as airfreight became a logical, albeit expensive option. It remains a bit of a juggling act to get products to their intended destination. Port congestion is still a critical issue both outbound and inbound.
  • Container availability. NRF (National Retail Federation) provided insights through its Port Tracker report showing the first half of 2021 demand for containers up 33.9%
  • Ocean Freight Services. Continue to be very challenging, specifically the Transpacific Eastbound cargo routes due to ocean vessel space limitation and allocations as well as schedules with extremely low reliability.
  • Air Freight Services. Air cargo demand is substantially up while capacity is less, causing cost increases. SupplyChainDive on May 10 published that “airfreight rates from China/Hong Kong to the U.S. ticked up steadily throughout April and have risen nearly 75%, according to figures from the TAC Index”. Increases in passenger travel may ultimately help ease some capacity constraints.
  • Early booking of space and transport is more important than ever and should be included as part of a longer-term financial and inventory planning view.
  • Tools that assist in the visibility of end-to-end freight tracking are essential for managing purchase orders and determining action plans as required.
  • Many North American companies are still in “reaction mode” vs having a view to strategic supply chain planning. For example, adding in planned inventory to compensate for longer lead times. When Nike published its 3rd, Q Results 3/18/2021, “North America reported revenue declined 10 percent due to supply chain challenges, including global container shortages and U.S. port congestion, impacting the flow of inventory and timing of wholesale shipments. Inventories for NIKE, Inc. were $6.7 billion, up 15 percent compared to the prior-year period, largely driven by higher in-transit inventory in North America due to U.S. port congestion and temporary store closures in EMEA.”

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