Is there a single U.S. merchant who hasn’t at least thought of importing goods from Asia? It’s cheaper than manufacturing at home, and the quality is just as good. Right?
Well, maybe. Yes, the manufacturing costs are lower. And Asian products usually pass muster with Yankee consumers. But make the slightest mistake and you will have serious operational problems. Worse yet, hidden costs can cause that profit you penciled in to evaporate overnight.
Here are some things to consider before you book that first trip to China.
Add all the costs
Take a look at the fully loaded costs for imports. You may find that they are “stripping the gross margin advantage that many imported products gave multichannel companies,” says Curt Barry, president of consulting firm F. Curtis Barry & Co.
It’s expensive to make product in one place and deliver it to another, and that doesn’t even include the cost of supply chain management, according to APL Logistics, the Oakland, CA-based subsidiary of Singapore’s NOL Group.
First, you can expect to pay for transportation, duties, taxes, documentation, warehousing and inventory carrying.
And are you looking for headaches? You’ll find them in the form of swollen inventory, shipping congestion, heightened security and supply chain disruption, says Michael Zampa, spokesperson for APL Logistics.
You’ll also face longer transit times and insurance exposure for product loss or damage. Finally, you’ll have to cope with government regulations and customs in multiple countries. The bottom line: Your supply chain will cost more to manage.
But there’s no reason to guess — Zampa urges merchants to do a landed cost analysis. “The greater the detail, the more accurate the calculation will turn out to be,” he says.
Beware lengthy lead times
Measure your lead times, too. “If your sourcing cost is lower but lead times force your customers to make commitments 30 days before your competitors, are you really more competitive in these uncertain times?” asks Hernan Vera, group director of marketing supply chain services for Ryder System.
Most firms find that sourcing in Asia saves them money on labor, Vera notes. But he warns that “the added costs of lead-time and shipping are adding to the overhead, whether you’re contracting for manufacture or buying.”
Barry agrees that Asian imports come with real negatives. “Product lead times are lengthening,” he notes. “Many are now 18 to 24 weeks — or more.”
Getting goods here
In the end, everything depends on the shipping method you use. “If a company is predominantly using air transportation, it may only need to tack several days of transit time to its supply chain, depending on how many days it takes the air carrier to put together a bulk shipment,” Zampa says.
Air shipments cost eight to 10 times more than ocean transport. On the other hand, shipping by sea can take weeks. “Companies need to factor in anywhere from 10 to 30 days for an Asia-to-West Coast U.S. sailing — and anywhere from 18 to 42 days for an Asia-to-East Coast sailing via the Panama Canal,” Zampa says.
And don’t forget that it takes time for freight to clear U.S. Customs. For air freight, this can take from one to three days. For ocean shipments, it can mean five days.
Another downside is that vendor minimums are high. This forces small businesses to continue promoting items for two or more seasons, Barry says. “If it’s a new product, that can be very risky,” he notes. “What if it doesn’t sell well?”
The Asian importing boom began during the 1990s. But several merchants had by 2002 moved part of their sourcing to Mexico and the Caribbean. Why? The reasons differed, but some were influenced by the 2001 terrorist attacks. They saw less risk in closer geographic proximity.
Others found that they couldn’t cope with the logistics. Case in point: some still have warehouses in the South or Midwest left over from their manufacturing days. “The result is that they now have product coming in on the West Coast, which they’re trucking to DCs in the Midwest — and then shipping back to customers on the West Coast,” Vera points out.
The initial move to outsource to Asia meant stuffing everything into the same distribution system, “and that was fine because everybody was doing that,” Vera says. But this caused problems, and logistics people realized that there was more to it than simply getting the freight to the warehouse.
In addition to the cost of trucking, “there’s the added time,” Vera says. That includes the “time I don’t have to talk to my customers.”
He adds: “If my competitor is smart enough to put a deconsolidation facility on the West Coast or even in Asia, they’re reducing that time.”
Yes, you can save money by manufacturing in Asia. But this depends on the product. “A lot of companies that had established networks are finding they had to rethink them,” Vera continues. “Companies that are actually manufacturing are really struggling with this right now. Companies relying on third parties, less so.”
Possible price pitfalls
Then there’s this: Have you ever tried to deal with a vendor who is not in your own back yard? You need an especially strong focus on vendor management, Zampa points out. And if you lack it? You might consider outsourcing the responsibility.
“You’ll need to pay close attention to purchase order management, making sure vendors are providing the right size, quantity and quality, and that shipments make the designated shipping window — not too soon or too late,” Zampa says.
You’ll also have to monitor the vendor’s documentation delivery. If the documents are wrong or missing, “there will be a problem with the international shipment,” he adds.
Barry makes a similar observation: “The complexity of the supply chain is greatly increased. The point is that multichannel companies need the people resources in place, whether internal or outsourced, to deal with the ever-changing production and supply chain.”
Jeff Morris is a freelance writer based in South Salem, NY.