5 Tips for Managing a Global Supply Chain
If you browse the international websites of Edible Arrangements, the online fruit-bouquet company, it's hard not to notice the incredible consistency in the products. A customer shopping in Turkey has almost the same options as a customer thousands of miles away in Italy or Saudi Arabia or even New York City, with little to no impact on delivery time.
So how does the company manage an international supply chain that consists of mostly perishable goods, such as fruits and chocolates?
"We try to control all costs by sourcing as much as possible at the local level," says COO and co-founder Kamran Farid. "On items that cannot be sourced locally, we send many items in bulk to try to minimize the cost of transportation. So if a store is opening a few locations in the market we will bulk as much product as possible for all locations in one shipment."
Sounds simple enough, right? Not so fast.
"When you add an international element to your supply chain, you're adding a huge level of complexity to the process," says logistics expert Thomas Phelps of Alloquor Supply Chain Consulting.
Though the folks at Edible Arrangements found a system that works for them (and has taken them from a humble East Haven, Connecticut start-up to an empire of over 1,000 stores, spanning 10 countries), there are a few basic tips to note when it comes to managing a global supply chain.
Full Team Ahead
"If you've got the guys working on operations on the first floor and on the second floor you've got the CFO and treasurer looking at the books, shocked that they are paying 'x' million dollars on duty costs, that's a failure," says Jim Tompkins, CEO and founder of supply chain consulting firm, Tompkins Associates. "First step is to get these two groups together so that you are getting the whole picture."
Tompkins adds that managing a global supply chain affects not one or two departments, but the whole company.
Go to the Experts First
From the beginning, managing the supply chain requires retaining someone with expertise in the international locations.
For Farid, this means finding local, reputable producers that can consistently deliver the fruits for the arrangements.
"This is by far the biggest challenge," he says. "We need a partner that is a master in that market, because it's very important to have someone that can help further develop the brand. We say no to a lot of deals, but I'm okay with that. It's about quality."
For other small businesses, find a business consultant that specializes in that location, who can help you navigate everything from cost-saving transit options to taxes.
"Find someone who is very familiar with the location, someone who spends most of their time in that country," says Phelps. "This person should be well versed in the local business world, know companies and contractors, and know how to vet them."
Need more convincing on just how significant a good consultant can be to your company?
"Say you have a factory in China and Poland, and you sell your product in the U.K.," says Tompkins. "How you transfer the product from Poland to the U.K. could have a 25 percent difference from your bottom line just because of something like taxes. The right consultant knows how to avoid those extra costs."
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Timing Affects Everything
To successfully manage your supply chain, timing is an all important element.
Phelps gives a small business scenario: A company makes and sells speakers. If it sources all the parts and manufactures the speakers domestically, and a U.S. customer orders 1,000 of them, a two-week delivery is within the realm of possibility.
"If you switch the sourcing to China, you have no chance of making that two-week delivery here in the U.S. It would be more like two months," he adds.
And managing timing goes hand in hand with the next tip...
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Good Sales Forecasting Is Paramount
Because of the timing issue, sales forecasting becomes a huge part of successfully managing your supply chain and keeping costs down.
It boils down to this: Because moving the goods will take longer in an international scale, a company has to have a pretty spot on idea of how much of that bulk inventory is going to sell—otherwise, you're stuck with products you can't move.
"For example, take a sporting goods company in San Diego that sources from China," says Phelps. "They have to carry a very large inventory in the U.S. to meet the delivery times the customers' demand. But for the owner, there's suddenly a bunch of costs: inventory carrying costs, or maybe you need a bigger warehouse."
So Phelps asks his clients a simple question, "How much inventory do you have to carry here to fulfill expectations here?"
Dig Deeper: How to Budget and Manage Inventory for 2011
Don't Assume Too Much
Phelps says that one of the biggest mistakes he sees small businesses considering international expansion make is, well, too much guessing.
"We assume that the culture and operations of another culture are similar to ours here in the U.S. and that is not always the case," he adds.
Things like electrical power or internet access, which American businesses have easy access to, might not be so easily accessed in another country.
For the Edible Arrangement team, vetting the companies and farms (how much they produce, when they produce it, how it's sold) has become a crucial part of assessing whether their supply chain as a whole can handle one more link.
"We actually go to the locations. We have to make sure our partners can sustain the business," says Farid.
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