The one thing importers must do now to dramatically improve their supply chains for improved transparency and sales*

*Buy products the same way they sell them: online.
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Executive Summary.

Mercado | Whitepaper - The one thing importers must do now to dramatically improve their supply chains for improved transparency and sales
The supply chain has become infinitely more complex in recent years. In the final mile (covering from when a product arrives in the distribution center to a customer’s front door), companies must now compete based on their ability to sell anywhere at any time—known as omnichannel. Many have created sophisticated demand responsive networks (DRN) which are perpetually developed as companies seek ways to deliver goods faster, more effectively, and cheaper.

On the other side of the supply chain equation however, the first mile (from the moment an order is placed with a supplier to when it arrives at the distribution center) has also become infinitely more complex and unpredictable.

As the last four years have been marred with one disruption after another—from trade wars to pandemic and inflation—the market has become irreversibly altered. Unlike in the final mile, companies have severely underinvested in their first mile and the subsequent chasm between up and downstream operations has been widening at an unnerving rate. Industry leaders like Amazon, progressive traditional sellers, and digital-native direct-to-consumer (DTC) brands are pushing towards a technological utopia on the demand side, without the corresponding supply responsive network (SRN) innovation and investment.

THE IRONY IS THAT IT’S ALL THE SAME PRODUCT. AROUND $2.5 TRILLION WORTH OF GOODS ARE IMPORTED INTO THE US EVERY YEAR, YET GLOBAL PURCHASING PROCESSES ARE STILL GOVERNED AND MANAGED BY TOOLS FOUNDED IN 1985 (THE YEAR MICROSOFT RELEASED EXCEL).

An industry-wide overhaul is desperately needed in order to rebalance the equation and resolve other endemic issues such as greater collaboration, transparency, and resilience for improved sales and brand protection. If there is a silver lining to the lack of investment, it’s that the solution can easily be implemented at scale. Unlike the final mile, there is nothing to “rip and replace” in the first mile. Simply, moving from 1985 analog to 2022 digital will create the necessary foundation for a supply responsive network to be successful.

This paper explores why we’ve reached this precipice and how brands that import can shift their focus onto the first mile and in doing so, reap the rewards of realigning operations across the end-to-end supply chain.
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A brief history of importing.

Capitalism and consumerism are ingrained in the bedrock of Western economies. Virtually every cultural festival is observed with the giving of gifts and Hallmark cards; times of sorrow and loss are marked with the presentation of flowers; whilst success is celebrated with the receipt of hampers and balloons.

LOVE IT OR HATE IT, OUR ENTIRE POLITICAL, CORPORATE, AND SOCIO ECONOMIC ECOSYSTEMS ARE DESIGNED TO SUPPORT THE FUNCTIONING, RUNNING, AND—MOST IMPORTANTLY, PROFIT—OF COMMERCIAL ENTERPRISES. ALL OF WHICH ARE FOUNDED ON THE UTILITY OF THE PRODUCTS AND SERVICES THEY OFFER.

Globalization has been an enabler of these trends in two important ways. Developing economies contributed to production with low cost labor, and as their economies developed, their rising middle class became consumers as well. Adam Smith observed in The Wealth of Nations that no one should be 'making' for themselves, something which can be produced more affordably by others.

A quick jaunt through history reveals how global trade has been a pivotal cornerstone for the expansion of both empire building autocracies and sovereign state formations for thousands of years.

From the partnerships of Assyria in 2000 BC to the incorporation of American multinationals four thousand years later, the moving of goods between countries and principalities gave birth to the industry of importing and continues to govern much of the foundations of global trade that are still in place today, and they are essential in the further progression of economies.

Modern importing as we now know it, however, really took off in the late 1960s with the advent of the shipping container. At the time, companies were looking to ship products over long distances and expand transoceanic trade routes in the most efficient and economical way possible. Flash forward to today and the global trade numbers and statistics are staggering.

Every year, some 225,000 companies in the US alone purchase around $2.5 trillion worth of goods (Figure 1) from abroad (the EU is roughly the same) and load them onto vast container ships bound for the West. Coupled with global population forecasts projecting our planet will house some 8 billion people by the end of 2022, it’s not surprising that global trade is anticipated to trend upwards in an even steeper trajectory for the foreseeable future.
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2018 Annual Trade Highlights:
Percent Change from Prior Year

Mercado | Whitepaper | 2018 Annual Trade Highlights: Percent Change from Prior Year

Figure 1

Source: Census.gov

Naturally with expansion, however, comes growing pains. For the world of importing, its future now rests squarely on the shoulders of the very foundations it was built upon: namely, whether the systems and tools it has relied on for decades are sufficient to support the huge market opportunity, or whether they will simply crumble under its unbearable weight. Whichever way you look at it, things are looking unnervingly shaky. The solution however, lies further from home than you might think and begins with one simple change.
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Mercado | Whitepaper - The one thing importers must do now to dramatically improve their supply chains for improved transparency and sales

Today's final mile focus.

To understand how we’ve got to this point, we need to take another step back in history—this time, to the early ‘90s.

The creation of the world wide web propelled businesses into the future, now armed with a transparent and frictionless way to transact business around the globe, and enabled a whole new way to conduct commerce. This gave rise to the launch of scrappy start-ups including one by the name of Amazon, who reportedly set up shop in Jeff Bezos’ garage in Bellevue, Washington. In a matter of months, it had turned the industry upside down.

Up until that point, most supply chains were considered back-room functions with a primary focus on efficiency and cost. When Amazon launched in 1994, it was built on the understanding that the internet offered a powerful opportunity to fundamentally shift how consumers bought products and their entire end-to-end buying experience. Three years later, the brand took another giant step towards market domination and filed a patent on “one-click ordering.” The notion was simple: by storing their shipping and payment information, a customer could buy a product in a single click rather than having to re-enter the same information time and time again. The results propelled the brand to become the largest retail seller outside of China.

To this day, Amazon continues to focus on leveraging technology and advanced algorithms to improve the customer experience and increase sales—centered around the latter stages of the supply chain known as the “final mile” or “direct-to-consumer” (D2C). Same day delivery; Prime; Dash; recommendation engines. As one of the largest eCommerce platforms around (with forecasted $730 billion in annual ecommerce sales worldwide in 2022), the online conglomerate continues to set the industry benchmark with nearly every other modern retailer offering customers similar methods to buy products, with most positioning online purchasing as the cornerstone of their business.

Meanwhile, as eCommerce grew and became the new darling of Silicon Valley and brands continued to try and emulate Amazon’s success, the first mile (the lesser-known cousin of the final mile, covering the five months-long process of ordering and delivering products from abroad) was being left behind.

And the consequences have been catastrophic.
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The missing link in the chain.

While improved customer service and sales has certainly been a massive boon for companies and their consumers, it has also resulted in an expanding chasm between how companies purchase products from suppliers and how customers purchase products from them. Whereas it initially made sense to focus first on driving sales and remaining competitive, this gap is no longer sustainable.

The process of sourcing, buying, and moving goods across thousands of miles is incredibly complex (Figure 2). A typical purchase takes months to complete and is littered with challenges at every step of the first mile. Companies must contend with multiple changes to a single order, shifts in material and supplier availability and capacity, varying partners working on a single Purchase Order, complex documentation and filings, in addition to the myriad of discrepancies, disruptions, delays, and forecasting errors—all of which are considered “normal” in the import supply chain.

So much so, that many companies hire employees who have years of experience navigating such complexities and putting out the proverbial fires that arise.

Typical import retail supply chain end-to-end process flow.

Mercado | Whitepaper | Typical Import Retail Supply Chain End -to-End Process Flow.

Figure 2(a)

Source: Global Trade Specialists
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Typical import retail supply chain end -to-end metrics.

Mercado | Whitepaper | Typical import retail supply chain end -to-end metrics

Figure 2(b)

Source: Global Trade Specialists

Let’s say a typical medium-sized importer purchases on average $150 million dollars of products each year. Assuming a standard markup, that equates to around $300 million in potential sales revenue at stake. Even the smallest error or change during the first mile can have monumental repercussions on downstream operations caused by a ripple effect across each link in the chain, culminating in impacts on overall profit. Negative sales means reduced margin and loss of earnings—not something boardrooms like to hear.

This boils down simply to the crux of the issue: suppliers do not have the ability to receive digital POs placed by importers. With no platform in place or system of engagement to retain the DNA of an order throughout its lifecycle, there’s very little brands can do to maintain control over their purchasing processes.

To compound things further, the last four years have only added to the fragility of international product supply. Supply chain risks stem from exposure to shocks and vulnerabilities in supplier networks and business practices (Figure 3). From trade wars, to tariffs, to the global pandemic, companies now estimate they lose $184 million per year due to supply chain disruptions. That’s over 50% of the average annual sales revenue for a medium-size business. And with increasing shocks expected, McKinsey & Company estimate that companies can expect to lose approximately 45% of a year’s earnings to shocks over the course of a decade. Organizations that are predicted to be able to manage such fluctuations will be those that embrace digital transformation.
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Value chain risks stem from exposure to shocks and vulnerabilities in supplier networks and business practices.

Mercado | Whitepaper | Value chain risks stem from exposure to shocks and vulnerabilities in supplier networks and business practices

Figure 3

Source: McKinsey Global Institute analysis.

To offset against potential complications, companies have looked to production diversification and concentration to manage and spread the risk. Where suppliers are concentrated in a single geography due to a country’s specialization for example, a natural disaster or localized conflict in that part of the world can cause critical shortages that snarl the entire network (Figure 4). Companies who have mitigation strategies in place to manage fluctuations in supply however, can quickly pivot to weather the storm. The World Economic Forum found only 12% of leading global companies sufficiently protected against future disruptions in supply chain and operations however, with the remaining 88% urgently requiring additional measures to build resilience.
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Globalization has led to production diversification across countries in some sectors, but others have grown more concentrated.

Mercado | Whitepaper | Globalization has led to production diversification across countries in some sectors, but others have grown more concentrated

Figure 4

Source: UN Comtrade & McKinsey Global Institute analysis

Beyond the operational uncertainty, most companies now also face increasing consumer scrutiny, investor ESG (Environmental, Social, and Governance) activism, and geopolitics. A recent study found that 93% of supply chain leaders are planning to increase resilience, however such measures must also extend beyond the point of initial purchase from suppliers. Vendors have their own supply chains which rely on an extensive web of raw material components and a network of the T1-Tn suppliers that supply them (an example of tier comparison is shown in Figure 5). As many companies move to consolidate their tier one suppliers, their subsequent networks can expand exponentially—companies are estimated to have seven to 17 times as many total suppliers as in tier one. Factory conditions, labor laws, and workers rights now factor into the survival and longevity of a brand through factors like market reputation and consumer advocacy. Evidently, it’s no longer only damaged or delayed products that can have a detrimental impact on the bottom line.
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Median of simple average of tier-1 suppliers for each manufacturing industry considered.

Mercado | Whitepaper | Beyond the first tier, companies rely on a network of thousands of suppliers.

Figure 5

Source: Bloomberg Supply Chain database

Innovating like it’s 1985.

1985 was a big year of change. It saw the first mobile phone call made in Britain, Reagan unveiled a new tax program, and Bill Gates and Paul Allen celebrated the 10th anniversary of Microsoft with the release of Microsoft Excel—a spreadsheet software program that was widely adopted by many industries, including for the creation and management of purchase orders by importers.

Nearly 40 years on however, arguably little has changed—specifically in the first mile—as sourcing, purchasing, and logistics teams continue to manage trillions of dollars’ worth of goods in much the same way. In 1985, Excel and email were a technological revolution, but the same can hardly be said today. Few would consider them bleeding-edge solutions compared to the capabilities of modern applications and advanced technologies such as AI, machine learning, and blockchain developments.

Given the advancement in business-based technology over the past decade alone, and in particular the blending of consumer and business applications, it remains astounding that an industry that makes up 15% of US GDP can still be reliant on homegrown spreadsheets and inbox automation rules to function.
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First things first.

In simpler times, the supply engine ran relatively smoothly and companies were heavily focused on their demand engine. Given the shifting macro and micro landscape in recent times however, this trend has almost completely reversed. Just as many enterprises have deployed an arsenal of technology to manage the final mile of the supply chain—you’ve likely heard of a WMS, DPS, and TMS—brands must now move to a model that supports buying products the same way they sell them: online.

A recent study found that supply chains won’t naturally develop to become relevant, resilient, and responsible on their own. Companies need catalysts for change which is led by two critical ingredients: attention by senior leaders and investment in key technologies. With 60% of supply chain leaders running supply chains designed for cost efficiency, not resiliency however, change has been slow.

This is evidenced by the fact many executives continue to believe they can effectively manage orders using their existing Enterprise Resource Planning (ERP) system. While companies may create and send their orders digitally using an ERP however, most suppliers don’t have a corresponding system through which to receive and manage them. As such, PDFs and email attachments have become commonplace, creating an immediate disconnect from the outset.

Beyond receipt of a PO, the rest of the process is also manual. Importers and suppliers rely heavily on spreadsheets and email to manage and collaborate on orders over their average five month lifespan. With so much capital outlay and sales tied to their success, this is not a good option. While process is critical to ensuring an aligned end result, the solution to delivering an improved first mile experience lies in the adoption and implementation of an import order management platform.

For a number of years, logistics teams have been utilizing systems under the same name, however have been focused solely on the movement of products from source to destination, missing the crucial stages that occur before goods are even ready to be shipped.
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Mercado | Whitepaper - The one thing importers must do now to dramatically improve their supply chains for improved transparency and sales

Today’s leading import order management platforms enable businesses in three key areas.

Enhanced operational excellence.

Resilience has become an industry buzzword over the past few years as countless businesses have experienced the perils of not having an adequate mitigation plan in place for when times get tough. With so much change, enterprises are in desperate need of scaling cloud investments to support digital supply chains and build ecosystem relationships.

The pandemic actually helped accelerate the latter; new research found 39% of companies found the pandemic pushed their organizations to focus more on partner relationships.

A cloud-based order management platform digitally connects buyers with suppliers, providing full operational visibility into sourcing, production, and logistics functions with advanced business intelligence and insights to enhance operations across the first mile, and improve the hand-off to final mile processes.

Increased sales.

Virtually every brand that imports products is looking to profit from its sales. Impacts that occur during the first mile but are not spotted or rectified until further downstream can have big consequences on a company’s bottom line.

The recent pandemic has brought this into perspective, with 60% of CFOs stating that this year’s sales have either been reduced or will be by the end of the year as a result of supply chain disruptions.

Platforms designed specifically to manage the first mile deliver real-time visibility and product disposition across orders and suppliers—not only helping to deliver goods on-time and to-specification, but also helping to identify and alert relevant teams to issues the moment they occur.

Total brand protection.

As consumers, investors, and employees are shifting towards greater scrutiny over a brand’s impact on people and the planet, companies can no longer afford to place minimal effort in ensuring the way they make and move their products marries with their business ethos and values. 83% or importers reported reputational damage due to supply chain disruptions—a clear yet difficult-to-calculate impact to revenue as companies lost customers and struggled to acquire new business.

The push for purpose was gaining momentum before COVID-19 reshaped consumer preferences and behaviors. The pandemic has simply made the need for purpose more widespread and more urgent. Order management platforms provide complete transparency across every step of the supply chain, helping brands to implement, certify, and validate supplier compliance measures leading to greater transparency and visibility into the supply networks that govern the first mile.
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Mercado | Whitepaper - The one thing importers must do now to dramatically improve their supply chains for improved transparency and sales

Creating remarkable outcomes.

The impacts of a digitized supply network extend beyond the macro business benefits, however. While C-Suites look to sure-up their business units and create greater cross-organizational collaboration and engagement across their import supply chain, departmental functions can also reap the benefits of greater alignment, collaboration, and the notion of a single, unified order.

The outcomes are purpose-designed to help businesses dramatically improve end-to-end operations and impact both up and downstream operations.

These include:

  • Increased sales due to the ability to track changes, variances, quality, and delays.
  • Improved operational efficiencies from automated processes and an in-built ability to enforce procedures, processes, and SOPs.
  • Enhanced collaboration through a single, cloud-based platform accessible by all necessary parties, helping to consistently manage the sourcing, production, and movement of goods from beginning to end.
  • Ability to measure impacts on the environment and social justice due to increased connectivity to the people who make and move products.
  • Enhanced resilience and mitigation through critical structured data regarding supplier capabilities.
  • Real-time data-driven insights enabling strategic decision making, helping to enforce contracts, measure quality control, on time in full, supplier performance, and conduct empirical supplier assessments.
  • High employee satisfaction through structured communication, reduced overwork, and modern technology to perform tasks.
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    Mercado | Whitepaper - Case Stud: Accelerating digital connection across the first mile of the global supply chain
    Case Study

    Accelerating digital connection across the first mile of the global supply chain.

    The Challenge
    With a break-down in relationships between all parties across the first mile (the initial 120 days of the supply chain process), a leading global auto parts manufacturer wanted to address fundamental issues in how it placed and managed orders with vendors in order to get greater visibility, transparency, and resiliency into its end-to-end supply chain operations.
    Key challenges include:
    Supply-side issues
    From panic purchases of screwdriver sets, to backlogged vendors, supply-side issues were affecting the entire downstream operations. And with existing commitments to fulfill for domestic retailers, there was virtually no ability to pivot or reforecast to mitigate delays.
    No True Order Visibility
    Irrespective of global fluctuations in supply and demand, a lack of visibility across the entire sourcing, buying, production, and logistics phases meant changes to an order couldn’t be tracked or managed in real-time. So, it really came as no surprise when incorrect orders popped up five months later in the Distribution Center.
    Disconnection Across Network
    With business units each focusing on their own area, cross-department collaboration was at an all-time low. Order data was rarely communicated accurately, resulting in incorrect customs filings, non-validated commercial invoicing, and products loaded incorrectly onto containers.
    Solution
    Implementing a first- to-final mile solution to improve operations.

    With 80% (the first mile) of their global supply chain “offline,” the retailer needed to move away from the spreadsheet-based solutions they were using to manage how they bought and moved products from abroad. By investing in a data-neutral import order management platform, the brand was able to maintain data ownership while creating a real-time connected network across internal business units and 3rd parties—including vendors and those offering point-solutions such as inspection companies—with flexibility to “plug-and-play” with the right players by leveraging an extensive marketplace ecosystem.

    The solution provided enhanced supplier collaboration, real-time production management, and production controls, enabling the enterprise to re-prioritize supply chain convergence and harness the benefits of a unified business, including enhanced operational excellence, increased sales, and brand protection.

    Outcomes
    Realizing the value of a digital and connected supply chain.

    Heavily reliant on a handful of suppliers, this retailer was unaware that one vendor was delaying production due to their raw materials provider only ordering goods once a PO was confirmed. The result was an additional 2-3 week lead time costing the business $1.8million per day in inventory costs.

    By maximizing the power of analytics, the import team were able to identify the outlying supplier and introduce them to alternative raw material suppliers. Cutting the total inventory time by three days and saving $5.4million in hidden costs.
    In-built resilience
    End-to-end visibility and analytics across the entire supply chain, from the moment an order was placed until it arrived in the DC.
    Targeted ESG
    Clear ways to meet Environmental, Social, and Governance goals across the organization and third parties through full transparency and supplier validation.
    Final mile connection
    Aligned first and final mile with real-time updates to demand network tools, including ERP, WMS, TMS, and DPS, creating a fully connected, digitized supply chain.
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    It’s now no longer a question of how businesses can develop greater visibility, transparency, resilience, and alignment across their operations, but when.

    Mercado | Whitepaper - The one thing importers must do now to dramatically improve their supply chains for improved transparency and sales
    In a time of great uncertainty, change can seem overwhelming. As an industry, we’ve seen large swaths of investment and technological advancement dramatically change the way consumers interact with a brand across the final mile. The next big step will be for the first mile to play catch-up.

    It’s time to rebalance the supply and demand equation. Contrary to industry beliefs however, resolving this imbalance will require relatively low levels of change and effort as most businesses simply don’t have anything in place to manage the first mile today. Email and Excel tools do not need to be removed to make room, nor do they require complex migrations and integrations as data entry can occur as part of the order management platform user interface.

    The subsequent benefits and rewards for businesses who look to invest in their upstream operations will be transformative and impact beyond the first mile itself. Greater collaboration, enhanced transparency, and improved efficiency and sales are just the tip of the proverbial iceberg.
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