Sara Ireton, a supply chain management consultant with JPMorgan Chase Vastera , offers 10 basic points manufacturers should focus on when looking to source internationally:
- Total Landed Cost. "It is easy to focus on the lowest unit cost and assume that's the best way to go. However, unit cost is just one of the pieces completing the total cost equation," Ireton notes. Other factors include transportation, customs and duties, brokerage services (both at origin and destination), banking fees, financing, and insurance. Additionally, "any delays in the supply chain could result in expedited freight charges in order to meet the target delivery date."
- Product Quality. According to Ireton, "quality needs to be defined so that both the supplier and buyer understand and are in agreement. If there are issues with the quality of the product, it is much harder to address with a vendor through cultures, time zones and geographies, than if you are meeting with a local supplier." Defective products lead to unhappy customers, and have to be sold at a discount or written off entirely, further eroding your brand identity in that part of the world. "A key part of an efficient supply chain is having quality product all the way through it," she emphasizes.
- Logistics Capability. Just having great products and quality won't mean a thing if you can't get your goods to market, Ireton observes. You also need transportation, both domestically and internationally, which will require reliable transportation infrastructure in the country. "Is there a sound transportation infrastructure from the sourcing/manufacturing origin point to the port? Once the freight is ready for international transport, is there space or lift available?" Make sure your logistics service providers can quickly implement alternate plans if your primary plan or transportation lanes become unavailable, she suggests.
- Location. The close proximity of a country may make it a more attractive source, Ireton notes, which can lead to benefits like doing business in the same, or close, time zones. An awareness of the common cultural differences and similarities, including language, can minimize the likelihood of misunderstandings due to unfamiliarity with the other country's people.
- Trade Regulations. "Before any sourcing decision is made, it is imperative all trade incentives or restrictions are carefully evaluated," she says. "It is also essential to be familiar with documentation requirements for U.S. customs clearance. There are many government sponsored publications, brokers or consulting organizations available to help educate an importer in the legal requirements of international trade."
- Finances. Ireton recommends manufacturers ask the following questions related to the financial aspects of the deal: What terms can be negotiated? What is the risk with a given manufacturer? How much insurance is required? Can your excellent credit terms with your domestic bank be leveraged to benefit the suppliers' financial picture, resulting in less risk and cost to the buyer? How will the increased transport time -- resulting in tied up inventory -- affect your cash-to-cash cycle?
- Time To Market/Responsiveness Of Supplier. If your competitor has product available more quickly, the result could be lost market share and lost revenue. That's why Ireton points out it is important your supplier is receptive to, and able to accommodate, change. "Perhaps the product needs to be tweaked slightly, or sales are exceeding expectations and production needs to be ramped up. Is the supplier in a position to do this?"
- Value Added Services. "Are there additional services available at origin to add value to the product?" Ireton asks. For instance, for an apparel manufacturer, would it be less expensive and more efficient to have garment hang-tags attached at the factory or consolidation site prior to shipping? These types of postponement services can expedite deliveries to the U.S. by bypassing a facility to do the same work, most likely at a higher labor cost than if it was done at origin.
- Communication/IT Capabilities. Open dialogue and communication are imperative between the supplier and buyer, she points out. "Late, missing or inaccurate documents can cause delays of customs clearance and ultimately, delivery to destination. E-mail and the Internet, and good old phone calls, can go a long way to supply chain efficiency."
- Human Toll. Lastly, Ireton urges companies to keep in mind that there is a real human effort to visit and work with suppliers overseas, particularly the cost of time away from the office and family. "If someone is spending a day or more traveling, that is time away from the office and presumably the work that would be done there. Fatigue comes into play as the traveler works to get over jet lag and be prepared for meetings. In addition, cultural differences need to be thought of ahead of time in order to avoid inadvertently insulting the hosts."