Incoterms and Sourcing

What others have done

There is much evidence to support that the changes detailed above are worthwhile as shown by the following three case studies.

(1) A major food retailer had spending of £1200 million on imports via third party wholesalers and £500 million on direct imports. For example, home and leisure products were ordered through UK agents who arranged everything to DDP. Meanwhile, beers, wines and spirits were bought EXW works or FOB with freight arranged through various forwarders. A change in management identified that they had:

[list][item icon=”fa-th-list” ]no systems;[/item][/list]

[list][item icon=”fa-th-list” ]no cost visibility;[/item][/list]

[list][item icon=”fa-th-list” ]no economy of scale;[/item][/list]

[list][item icon=”fa-th-list” ]poor product availability;[/item][/list]

[list][item icon=”fa-th-list” ]an internal fragmented structure; for example, Trading on product selection, negotiations, selection of suppliers, and ordering; Finance on letters of credit, payments; Logistics on order quantity and phasing into supply chain.[/item][/list]

The company tendered and then outsourced to one forwarder but maintained and determined carrier selection when appropriate. The reported results were:

[list][item icon=”fa-th-list” ]Freight costs fell by 8 per cent;[/item][/list]

[list][item icon=”fa-th-list” ]Duty charges reduced by 10 per cent;[/item][/list]

[list][item icon=”fa-th-list” ]Fuller visibility of supply chain;[/item][/list]

[list][item icon=”fa-th-list” ]Reduced stock levels;[/item][/list]

[list][item icon=”fa-th-list” ]Centralised the previous fragmented internal control as a new structure followed the new strategy.[/item][/list]

(2) A major clothes retailer with nearly 200 stores had 70% of products imported, mainly from Far East. They identified that they had the following problems:

[list][item icon=”fa-th-list” ]No accurate data therefore no visibility;[/item][/list]

[list][item icon=”fa-th-list” ]Orders arrive “unexpectedly”;[/item][/list]

[list][item icon=”fa-th-list” ]40% time spent of phoning/checking;[/item][/list]

[list][item icon=”fa-th-list” ]Paid high demurrage/rent port costs;[/item][/list]

[list][item icon=”fa-th-list” ]Restricted on buying currency forward;[/item][/list]

[list][item icon=”fa-th-list” ]Poor QC.[/item][/list]

The solution was to:

[list][item icon=”fa-th-list” ]Change from C&F to FOB and use one UK forwarder;[/item][/list]

[list][item icon=”fa-th-list” ]Set up a simple database tracking on transfer points. PO, confirmed, tariff heading, cargo booked, authorise shipment, confirm shipment, documents banked, documents received, arrival time, clearance time, arrival at DC., QC checked, released/available;[/item][/list]

[list][item icon=”fa-th-list” ]Integrated all their internal systems.[/item][/list]

The benefits reported were:

[list][item icon=”fa-th-list” ]Lower demurrage costs;[/item][/list]

[list][item icon=”fa-th-list” ]Improved warehouse efficiency due to scheduled arrival’s;[/item][/list]

[list][item icon=”fa-th-list” ]Improved finance due to forward currency buying;[/item][/list]

[list][item icon=”fa-th-list” ]Quicker customs clearances;[/item][/list]

[list][item icon=”fa-th-list” ]Better product availability.[/item][/list]

3) A supplier of branded and own label cleaning products to major retailers

Cost-cutting initiatives had become a way of life in the face of major supply chain challenges. The company’s supply chain manager noted that: “In the past four or five years we have had to work hard at controlling our costs at a time when there have been no price increases from our customers”.

The operation therefore changed to buying products ex-works. The challenge of bringing in consignments cost-effectively is made more difficult by the low-value nature of the products, many of which are very light and use up large quantities of space. The companies’ continued success is seen as directly related to its freight cost management and arrangements.