Inbound International Supply Chain Practices and Trends Executive

Inbound International Supply Chain Practices and Trends Executive Seminar Track 1, Session G September, 2006 1

Scope This session covers inbound international supply chain practices and trends. § International Shipments: Where do they originate, what modes of transportation work best, who controls each leg of the journey? § Roll of Global 3 PLs: What services they provide, performance measurement and strategies to improve performance satisfaction? § Contingency Planning: What strategies are being used to address significant disruptions to the supply chain? Copyright © 2006 Supply Chain Consortium. All rights reserved. 2

Inbound Shipment Origins and Customers § International inbound orders are coming primarily from China/Hong Kong and the Pacific Rim, with the trend moving to increased use of vendors outside of North America. § Primarily serving customers and stores in North America, with the trend moving to more customers and stores in North America. Copyright © 2006 Supply Chain Consortium. All rights reserved. 3

Trends in Supply Chain Management and Control § Global 3 PLs are key. § Overseas sourcing offices are gaining in influence. § More responsibilities close to vendors in origin countries. Copyright © 2006 Supply Chain Consortium. All rights reserved. 4

Incoterms Who controls each leg of an international shipment? Incoterms – Current (%) Copyright

Incoterms – Trends How is control changing? Incoterms – Forecasted Net Change (%) Copyright

Trends in Supply Chain In the past, the concern was labor unrest at West Coast ports and Katrina. As a result, contingency planning is becoming more important. International Freight Routing § Trend toward more container built at vendors. § Ocean transport is the dominant mode and continuing to replace air freight. § Routing changes are driven by costs. Transit times are also important but are likely to suffer in order to reduce costs. Copyright © 2006 Supply Chain Consortium. All rights reserved. 7

Trends in Supply Chain In the past, the concern was labor unrest at West Coast ports and Katrina. As a result, contingency planning is becoming more important. International Freight Routing § Trend toward more container built at vendors. § Ocean transport is the dominant mode and continuing to replace air freight. § Routing changes are driven by costs. Transit times are also important but are likely to suffer in order to reduce costs. Copyright © 2006 Supply Chain Consortium. All rights reserved. 8

Trends - Third Party Providers (Global 3 PLs) Global 3 PLs play a significant role in managing shipments from every international region, and their role is increasing. Although their role is increasing, 3 PL satisfaction ratings are lacking in some areas of performance. Copyright © 2006 Supply Chain Consortium. All rights reserved. 9

Trends - Third Party Providers (Global 3 PLs) Penalties and rewards do not appear to be the primary solution to more effective 3 PL relationships. Copyright © 2006 Supply Chain Consortium. All rights reserved. 10

Supply Chain Trends - Customs Brokers The trend appears to be toward more in-house customs brokerage; however, this is not a strong trend. Customs Brokers Weighted Ranking Companies Using Average Tenure (yrs) Expeditors 28 10 7 UPS Supply Chain Solutions 14 5 10 Fed. Ex Trade Network Customs Brokerage 8 3 9 Carmichael International Services 6 2 7 Barthco 5 2 6 CH Robinson The following customs brokers are used by more than one participant. Expeditors is the clear leader. 5 2 2 Customs Broker Copyright © 2006 Supply Chain Consortium. All rights reserved. 11

Theft Experience Theft losses do not appear to be a problem. Is the added

Your Expectations What would you like to discuss and learn from this session? § Important issues? § What’s working? What’s not working? § What’s changing? § Shared good and bad experiences? § Reasonable performance expectations? Copyright © 2006 Supply Chain Consortium. All rights reserved. 13

Potential Discussion Points § What are the top two or three factors in improving the international supply chain? § Who are the major role players, beyond your headquarters staff, managing your international supply chain? How are the roles changing? § How important are global 3 PLs in the international supply chain? Are they doing a good job? § What can be done to develop more effective 3 PL relationships and to improve satisfaction ratings of global 3 PLs? § Most companies use more than one global 3 PL. What is the right number? Are large 3 PLs the best choice? Copyright © 2006 Supply Chain Consortium. All rights reserved. 14

Potential Discussion Points § What is the optimal balance in allocating responsibilities to the various role players that manage the supply chain? More responsibility close to vendors in origin countries? More centralized control? § Are transit times improving (becoming faster and more reliable)? § Are expedited orders an issue in the international supply chain? Are the root causes different than orders placed with domestic vendors? § What are the most important opportunities to improve overall supply chain performance? § Do you have contingency plans in place to work around significant supply chain disruptions? Copyright © 2006 Supply Chain Consortium. All rights reserved. 15

Important Takeaways § Competitive advantage – Performance measurement and aggressive goals can create a competitive advantage. § Role of 3 PLs – The role of 3 PLs will continue to grow but will begin to shift away from managing carriers and towards value-added services. Companies will need to become more skilled in sourcing and managing carriers. § Import process – Overseas sourcing offices will play an increasingly important role in managing the import process. Vendor roles will not increase. § Best performers – Large carriers and large logistics service providers do not always turn in the best performances. Copyright © 2006 Supply Chain Consortium. All rights reserved. 16

Important Takeaways (continued) § Air freight – The role of air freight in the international supply chain is small and decreasing. This trend will place a greater burden on companies to manage the factors that impact inventory. § Contingency planning – This is becoming more important in international supply chains. Copyright © 2006 Supply Chain Consortium. All rights reserved. 17

Questions? 18