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Insight: First Things First – First vs Final

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First Things First

First vs. Final

July 1st, 2022   ·   By Rob Garrison

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Every week, Mercado CEO Rob Garrison pens his latest learnings from the supply chain industry as part of an on-going series. Each article aims to share a little insight into what's going on that week, and to help foster discussion amongst industry professionals across levels, geographies, and companies.
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In the last 20 years companies have invested heavily in the final mile of their supply chains. Why haven't they invested in the first mile? After all, it's the exact same product being sold in the final mile as is being purchased in the first.

The “modern” final mile began in earnest when Amazon entered the market. They created an online-only model that required a very strong “Fulfillment Center (FC) to Home or Direct to Consumer (DTC)” game. Prior to that, most final miles were either FC to Store or FC to FC. In the intervening years, the game has grown even more challenging with features like free delivery, same day delivery, and additional permutations such as “buy online pick up in store” (BOPIS). Almost immediately after Amazon came on the scene, companies realized that sales were at stake unless they could also compete in the final mile.

These challenges necessitated a complete rethinking of how the final mile operates. For example, online ordering had to incorporate delivery, forecasting had to change to 24/7, and new processes needed to be developed to ship small quantities affordably. In turn, this led to massive investments—both in technology and fulfillment centers. Today, the final mile is virtually unrecognizable from the one that existed 20 years ago.

On the other side of the coin, during that 20-year transformation in the final mile, almost nothing changed in the first mile (still email and spreadsheets). The first mile of the global supply chain begins when the product is purchased, to its arrival in the FC. The final mile is getting that product from the FC to arrival for the customer (B2B, BTS, or DTC). The mandate for change. The last five years have buffeted and exposed the first mile of the global supply chain in every possible way. This has been well documented in my posts, and in most of the leading publications in the world. It's crazy actually given the purchasing and sales risks that this hasn't being addressed. It is in many ways as great of a threat to sales now as Amazon was back then.

What is the risk? A medium-sized importer spends approximately $250,000,000 to purchase and ship their products. These products are expected to generate roughly $750,000,000 in sales. That's a lot of money and a lot of risk to be managed via an analog, disconnected supply chain (see chart below). Especially for such an extremely complex and time consuming process as importing.

In defense of the approximately 250,000 importers in the US, until recently there weren't a lot of great options to resolve the challenges. However that's no longer the case. Technology has caught up to the challenge. So is now the time for the First Mile to become a connected and mirror image of the Final Mile? I would love to hear your comments (or the case for no).
"In an 'ideal' world, an importer would have at least one backup country, and one back up supplier for every critical product... All of this sounds good on paper, however it's actually incredibly difficult in practice."
One key reason is the dominance of China. Many importers are concerned about China as a sourcing point due to increasing tensions between the countries. However, the reality is that China dominates mfg in Asia, and they are very good at it.

As a result, quitting China is hard, as you will see in the excellent analysis below by Rita Rudnik.

A second reason is much more mundane. Most importers lack a robust database of their suppliers, and their supplier's suppliers. On the surface this sounds ridiculous, however we have gone through decades of 'predictable' supply chains where this wasn't a priority. Using the example above, most of the bike importers I spoke to were simply not aware of how reliant their suppliers were on Shimano.

My guidance to all importers is to address this database issue quickly. Beyond resiliency, knowing a lot about who makes your products, and who makes their parts, is also critical for understanding things like cost, ESG, and sales.

About the author

Rob Garrison, Mercado CEO
A highly accomplished Global Supply Chain executive with 25 years of experience, Rob Garrison has provided strategic vision and leadership to Fortune 500 companies. Rob has an impressive history of building agile, technology-enabled supply chains, and he has an established track record of forging high-growth partnerships, positioning organizations for success and launching innovative technology solutions that significantly improve end-to-end supply chain efficiencies.

Rob is currently CEO and founder of Mercado Labs.
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