Mercado | Insights | Import DNA: Creating a digitized, networked, and automated import supply chain

Insight: First Things First – Import DNA: Creating a digitized, networked, and automated import supply chain

First Things First

Import DNA: Creating a digitized, networked, and automated import supply chain

November 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.
At a high level, there are three supply chain models for imports:

  1. D2DC – Direct to Distribution Center
  2. DTS – Direct to Store
  3. DTC - Direct to Consumer
The dominant model is #1: D2DC. This is the primary method used by all top 5 importers in the United States, and the vast majority of the top 100 importers.

The D2DC method takes anywhere from 4-12 months to complete -from order placed to order received. This long lead time can negatively impacts sales as it's difficult to forecast so far in advance. The consequences can be extreme as we saw in the Spring when many importers had huge inventory misses. For example Target had to write down $1 billion dollars in inventory. The market was hot when they placed their orders in October, and not when they received their products in March. The longer it takes, the harder it is to forecast, which can also result in massive waste. For example, a lot of apparel takes 12 months, and a high percentage goes straight to landfill.

Model #2: DTS was popularized by Zara . The Spanish retailer developed an integrated network they call The Cube (Figure 1) that allowed them to leverage their store point of sale direct to designers, on to suppliers, 'the cube', air freight. This process allows ZARA SA to turn their entire store inventory every six weeks. This method led to massive sales gains and profits as they rarely have to deal with obsolete inventory or even markdowns. While Zara is the OG, they now have competition from companies such as H&M and Uniqlo. Here is a great article by Brandon Levey that explains the advantages of this model. In my view, this eventually will be the way of the future for most importers, not just fashion.
Mercado | Insights | Figure 1 - Zara Global Distribution Center The Cube
Figure 1: Zara Global Distribution Center, "The Cube"
Model #3 is DTC. This method also takes approximately six weeks and has been in place on a small scale for years with very small importers (i.e. Alibaba resellers). More recently companies have been trying to figure out how to do this at scale - aka Amazon for the first mile. Some big retailers such as Williams-Sonoma, Inc. and AMERICAN EAGLE OUTFITTERS INC. are also starting to explore this method for select categories.

The bottom line? After 5 years of supply chain turmoil, and an impending economic downturn, I recommend that importers take a close look at models 2&3. Simply, the ability to buy their products in the first mile just as they sell them in the last mile. Digitization, process automation, and connected networks (DNA) to enable this are now achievable and affordable. For all three models, I believe embedding DNA into imports is the key to unlocking significantly reduced costs and exposure, as well as improved sales.
"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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