Global Sourcing, Global Markets, Global Headaches

The supply chain impacts, on average, 75% of a company's operating results. And, by 2020, 80% of the world's gross domestic product (GDP) will be sold across international borders, says Scott Szwast, manager of international freight marketing for UPS Supply Chain Solutions. Two companies aren't waiting to realize the benefits of globalization.

South West TradingCompany(SWTC) (Tempe Arizona, www.soysilk.com) was growing rapidly, but Jonelle Raffino, president and co-founder, didn't realize how much more growth potential the company had until it improved its competency in shipping and supply chain management.

"With the ease of doing international business, there are a lot more of us who are now taking advantage of that open, global market," she says. But for a company she describes as young (founded in 2001), innovative and creative, it was a tough journey.

Pat Moffett, vice president of global logistics for consumer electronics firm Audiovox (Hauppauge, N.Y., www.audiovox.com), is a veteran of globalization. His scars may have healed, but his experience tells the same story—you need to control your supply chain and you must have quality providers.

Transportation management, logistics, freight forwarding and customs brokerage were new concepts full of unfamiliar terms and acronyms SWTC. Asked about her transportation department, Raffino says, "It was me, and I'm bad at it." A hands-on manager, she was in the thick of running a growing company and trying to coordinate a supply chain that stretched to Asia. She could see the problem and the effect it was having on the business. By her own admission, she needed help.

"We asked everyone who would listen and could help. We tried to learn from U.S. Customs and Border Protection, but when you're only doing one container a quarter as a young company, they're not going to spend a lot of time with you." The first customs broker SWTC hired was nothing short of a disaster, according to Raffino. "There was no urgency. They had bigger customers that are doing constant business and these one-time things meant they had to stop and figure out what our products were and how to clear them."

SWTC's yarns and textile products are spun from non-traditional fibers, such as milk and bamboo. Its trademarked AMAIZING fiber is made from corn and its PURE silk fiber is made from soy.

"We had a whole shipment impounded until they ran lab tests to figure out what the heck we were bringing in," Raffino recalls. That meant SWTC missed hundreds of customer shipments. Somewhat battle hardened, SWTC eventually found a firm in Los Angeles that started out well, but the company was then acquired by a larger firm and "we got lost in the shuffle," as Raffino describes it.

"We needed someone dependable and willing to educate us, bring us innovative solutions and really look out for our best interest," says Raffino. The importance of such a partnership in managing imports is an area where Audiovox's Moffett agrees.

Some of the factories that supply Audiovox are in Western China. "I want somebody that's watching out for us over there because that factory may not know how to get [goods] to a port." His experience mirrors that of other companies that have pointed to a critical shortage of logistics talent in China. Moffet's forwarders will help the factories, but they work for him.

"The forwarders are always watching out for us," says Moffett. "Many times— and it happens here too—a manufacturer is running late and they turn around and, thinking that we're not paying attention, will blame it on the forwarder. They will say, 'They never picked it up. I don't know what happened to it.' You call your forwarder and they will say, 'We still don't have it.'" A good forwarder checks in with the factory ahead of time because they know the goods are supposed to be ready on a certain date and they know what's coming, he continues.

Moffett's expectations on the destination end aren't much different. "Some forwarders will take business and they can have an agent overnight," he says. "But they don't know how [the agent] operates."

Moffett recounts the advice he gave his own son, who also works in logistics. "When you're talking to a freight forwarder and you ask, 'Who's your agent in France?' if he says, 'Hold on, let me take a look,' just hang up." It sounds dramatic, but Moffett explains. "I need a forwarder that has the experience with the country where I'm going. There are quirky things that happen and if you have a good agent and you have a good understanding, you work through it."

Language skills are critical, Moffett says. He wants a Spanish-speaking agent in a destination like Venezuela.

"Venezuela doesn't honor INCO terms," offers Moffett by way of example. "Everything is CIF (cost, insurance and freight). You can put down DDP ( delivered duty paid) or anything else, but they will turn it into CIF."

"I want to know [the goods] have been delivered, the deal is closed," Moffett adds. Forwarders who can navigate through local rules, customs and help with the letter of credit in the destination country are valuable whether he is shipping to an Audiovox affiliate or another customer, he explains.

Navigating currency issues and providing data on shipments, including track and trace, are standard fare for international freight forwarders. Szwast from UPS adds rules about disposal or return of products to the list of capabilities. "Some countries have rules about what can or can't go into a landfill or be disposed of, and as good as forwarders are at getting product into certain markets, they can also help get it out very cost effectively in compliance with prevailing regulations."

These local regulations are increasingly important as supply chains become more agile. The lessons of September 11, 2001 were not lost on other countries, says Szwast. Security rules are getting more strict in countries other than the United States. Plus, Szwast is quick to add, many countries have other restrictions or incentives to protect local markets and the local economy or to encourage certain types and flows of trade. Some of these may be in the form of tariffs and duties, but increasingly, environmental rules are major factors in international trade.

Forwarders used to be valued for their ability to control and reduce costs, Szwast continues. The old description that a forwarder was a travel agent for freight has become outdated. In addition to the bottom-line impact of cost control, forwarders increasingly have an effect on the top line. Through services such as kitting, product assembly, product preparation and reverse logistics, forwarders are helping companies develop markets and reach customer service goals.

That was certainly the case for SWTC. The company was bogged down by its supply chain during the early stages of its growth. In five years, it changed distribution center (DC) locations four times. Raffino says that when they finally thought they had plenty of space, it seemed to disappear. One problem was the quantity of inventory SWTC was keeping to buffer against the variability in its supply chain.

"We learned we were stocking way too much inventory early in our business because we were messing up every time we tried to move freight," she says. "Once we really got that branch of our business under control and learned how to move containers door to door easily, our confidence grew. Now we are able to move more containers, consolidate different factory work into one container, and the savings are astronomical."

With the more reliable network that UPS Supply Chain Solutions helped SWTC develop, Raffino was able to reduce inventory and start operating in more of a just-in-time mode. This (and some adjustments in DC layout and inventory planning) increased the capacity of its existing facility by 25%.

Such supply-chain improvements proved invaluable when SWTC introduced a new line of plush animals made from its soy silk product. The Smithsonian's National Zoo in Washington, D.C., wanted a commemorative toy panda for the first birthday of Chinese panda Tai Shan. The factory in China missed its deadline, putting pressure on the transportation network to take up the slack. With some advance work with U.S. Customs and Border Protection to get a binding ruling on the imported goods, the shipment arrived in port and was cleared and on its way to the zoo, arriving a day ahead of schedule.

Freed from some of its previous time and financial constraints, SWTC has been able to capitalize on opportunities in new markets. Its unique fiber products are currently sold in 4,000 retail locations in the United States, Canada, the United Kingdom, Australia, New Zealand, Mexico, Sweden and other countries. International shipments move directly from the source to the destination country without passing through the company's U.S. operation.

Commenting on SWTC's growth in product mix and moves into ready-towear and private label products, Raffino says, "Those projects were able to come to fruition because of our improved competency in shipping and managing our supply chain."

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