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Insight: First Things First – The hard truth about imports

First Things First

The hard truth about imports

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.

A couple weeks ago I wrote two posts about huge inventory misses from large retailers like Target and Walmart (and many others).

This week it's Nike turn to just do it.

Why does this keep happening? How is it possible that companies like Walmart, Target, and Nike have such huge misses? They have very sophisticated supply chain teams, demand planning systems, and massive leverage.

There are three reasons. The first is the delta between when imported products are ordered and when they arrive is ***6 months*** on average. Many people mistakenly believe imports only take 1-2 months because they are only thinking about import logistics, not the import supply chain. Logistics for imports is actually the middle mile. Roughly it takes 4-8 weeks to complete the middle mile (sail from overseas, get offloaded, and arrive at their final destination).

The longest and most complex portion of importing is not the middle mile, however. It’s the first mile. Before the product gets onto a boat, it must be manufactured. This takes on average 3 months. Add in the 1-2 months that it takes to plan an order, and the international supply chain takes on average 6 months. Some products take less and some—like apparel and footwear—take far longer…up to a year, in fact.

Right now it's June. Orders for products sailing in May were typically planned in January and placed in February. They arrive in DC in June.

What was happening in January when these orders were being planned? The war with Russia had not broken out, gas prices were $2.99 a gallon, inflation was being described as transitory at 7.5%, and interest rates from the federal reserve were 0.15%.

Despite the obvious challenge of forecasting six months in advance in such a volatile world, there are two other fundamental and critical challenges for importers big and small.
  1. The import purchasing process is done manually. Unlike the final mile (DC to customer), in the first mile (supplier to DC) orders are not placed online, and production is managed via emails and spreadsheets. Beyond the inefficiency this means the ERP and demand planning systems are deprived of real-time updates to the status of the orders or products. This makes it difficult—if not impossible—to make necessary adjustments.
  2. None of the parties are connected. The import supply chain is a linear supply chain, where information is passed from one entity or department to the next via the modern equivalent of the telephone game. This isn't trivial…an average import order touches 12 entities, 9 departments, and 35 people.

So no matter how sophisticated these companies are in general, most import supply chains are still being managed circa 1985, the year Excel was released.

It's time for importers to do for their first mile what they did for their final miles. Create a connected digital supply network, so they can buy products the same way they sell them.
"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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