By Bill McBeath

Winning retailers’ philosophy of business is that every product not sitting in front of a customer is an inefficient use of capital. They are increasing the velocity between factory and shelf, and improving in-store service levels using mechanisms such as cross-docks, continuous replenishment, and VMI. Because the retail supply chain is so distribution and logistics-intensive, it is not an exaggeration to say that the effectiveness of logistics between the supplier and retailer can make the difference between growing market share vs. declining literally into bankruptcy—for both the retailer and supplier. If products aren't on the shelf, both retailer and supplier lose customers. If it costs too much to get them on the shelf, you can't compete.

International Trade and Logistics


Figure 1 - Global Logistics Complexity

This complexity of global logistics and trade realities makes ITL (International Trade and Logistics) competence and technology increasingly critical to the success of the supplier-retailer link. The wholesale movement of manufacturing overseas, especially to the Far East, is accelerating. The US balance of trade numbers make painfully clear the high percentage of US-consumed goods manufactured overseas. There is also a boom in private labeling, with some retailers dealing directly with overseas manufacturers. There has been an onslaught of security-related regulations and requirements. And competition to make supply chains leaner and quicker has increased the pressure to minimize delays in international shipments. All of these factors are propelling the adoption of ITL.

Figure 2 - ITL Adoption

The results of our survey earlier this year of 130 retailers and their suppliers indicate significant growth in ITL adoption among large retailers and suppliers as they deal more and more with global sources of supply. ITL adoption has the highest disparity between retailer and supplier adoption among the four areas. Suppliers generally have more direct responsibility for moving goods across borders. ITL adoption is much higher with larger corporations who are more likely to have a global supply/customer base than smaller firms. ITL is crucial to help companies deal with the daunting complexities of global logitics:

• Get a handle on total landed cost, which is critical to making intelligent sourcing and network design decisions.
• Deal with the Security Regulations deluge – 24 hour rule, CSI and other regulations severely penalize and delay those without advanced systems and processes in place. ITL helps automate the customs documentation and compliance process.
• Create leaner inbound distribution – Visibility and predictable total transportation times are required.
• Shrinkage and IP protection – ITL can provide item and serial number tracking.
• Inbound Coordination between multiple parties.

International trade includes a complex exchange of information between multiple entities, including suppliers, carriers, freight forwarders, customs brokers, banking institutions, and other third party transportation and storage providers. A true global trade management system is, in effect, an inter-enterprise resource management system, and requires a data model that takes into account the breadth and depth of information exchanged between these interrelated entities. ITL systems support export and import processes, documentation and compliance, accounting, and financial reporting in a multi-currency, multi-language environment. Suppliers will want integration with their order management systems, and retailers will want integration with their sourcing and procurement systems. Alternatively, these functions may be embedded in the ITL solution.

To know true total landed costs, ensure compliance with customs regulations and denied parties restrictions, and properly record the relationship between buyer and seller, source of supply and product related restrictions; the ITL system should track activities and incremental costs as the shipment is processed from point of origin to final point of receipt. Customs duties and tariffs, as well as associated rates of exchange and transportation costs should be available to accurately calculate total cost of goods. This requires a data model and integration at the product and item level between the ITL system and the order management, warehouse management, and transportation systems. Much rides on the selection of an ITL system, so all of these issues and requirements should be taken into account.

The importance of ITL systems will only continue to increase as companies and supply chains become increasingly globalized.

©2005 ChainLink Research, Inc.