Your supply chain is an integral part of the international sales process as it impacts both the cost of the item and the time it takes to deliver a product.
Although there are several variations, this article will discuss four primary supply chain alternatives: Domestic Warehouse, China-based Warehouse, Direct Import and Foreign Warehouse. For illustrative purposes, let’s assume that your product is made in China and that your primary (or domestic) market is the U.S.
Domestic Warehouse – Factory to U.S. Warehouse
Those new to export typically begin by shipping international orders from inventory that is housed in the domestic warehouse. This may be the most cost-effective as initial orders tend to be small, and although there will be extra freight duty charges both to get the product from the factory to the U.S. and then to ship from the U.S., these costs may be less than opening a second warehouse. Another advantage is that international buyers can consolidate an order, choosing from all of the SKUs available from your company, not just a limited number that are kept in a foreign warehouse. The downside is that costs are higher due to repeat handling and shipment of the products.
- Shipment from factory to company warehouse
- Second shipment needed to retailer or distributor
- Primary use for Less than Container Loads (LCL)
- Sales draw from inventory
- Larger assortment possibilities
- Immediate supply / increased flexibility
- Greater control / product management
- Can be easier to offer payment terms
China-based Warehouse – Factory to Local Warehouse
Alternatively, select products that have been earmarked for international sale can be housed in a warehouse within China. When warehousing, appropriate product selection is key as it is simply not cost-effective to house every product that your company sells – to provide additional information, the International Business Council (IBC) has written an article, Understanding Product Selection, on this topic. The primary advantage of a Chinese-based warehouse is that handling and shipping are kept to a minimum. But, there are added costs for the storage of the product within the warehouse.
- Local shipment from factory to bonded warehouse
- Second shipment needed to retailer or distributor
- Primary use for Full Container Loads (FCL)
- If multiple products housed, mixed-product containers possible
- Added warehouse costs (usually operated by a 3rd party)
- Inventory control systems need to take into account China warehouse inventory
- Duties are not paid until imported into the foreign market
Direct Import – Factory to Retailer
The Direct Import supply chain model is when a foreign buyer purchases a product that is shipped directly from the factory, saving both transit time and transportation costs in the process. This model is also interesting in that the sales company never actually takes physical possession of the products. One downside is that the factory name and location may be disclosed through the process.
- Shipment directly from factory to customer
- Primary use for Full Container Loads (FCL)
- Reduced or no inventory or handling costs
- Reduced distributor costs (if sold to retail)
- Higher minimum quantities
- Limited product selection
- Reduced lead time possible for new product launches, seasonal, etc.
Foreign Warehouse – Factory to Warehouse in Foreign Market
Another alternative is to hold inventory in a foreign market near your retail customers. For example, this could be a warehouse located within the U.K. to sell to British retailers, or a warehouse located in a trade zone such as those found in The Netherlands, which provide the ability to pick & pack orders for further distribution throughout the European Union. There are added costs for the storage of the product within the warehouse that need to be taken into consideration.
- Shipment directly from factory to foreign warehouse
- Second (local) shipment needed to retailer or distributor
- Shipments to the warehouse are typically Full Container Loads (FCL)
- Shipments can be made in smaller quantities allowing sales to smaller retailers
- Sales draw from inventory
- Added warehouse costs (usually operated by a 3rd party)
- Immediate supply with increased flexibility
- Can be easier to offer payment terms
It is entirely possible for a product supplier to use all four of the supply chain models described above at the same time to service different customers and markets. For example:
- Domestic Warehouse – Could be used to service Canadian and Latin American customers with LCL quantities.
- China-based Warehouse – Could be used to service larger customers in Asia and Latin America with FCL quantities.
- Direct Import – Could be used to service large customers worldwide (including those in the U.S.) with FCL quantifies.
- Foreign Warehouse – Could be used to service European customers from a central distribution center with LCL quantities.
There is not one right or wrong supply chain method to use, but rather alternatives to consider to best meet your specific customer and market needs.
Brought to you by the International Business Council, a special interest group of IHA members, dedicated to helping its membership market and sell their products internationally by sharing information, providing networking opportunities and offering programs to assist, support, and educate.
