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Wednesday, September 3, 2014

Cutting Cross-Border Supply Costs

The globalization of supply chains makes it imperative that chief procurement officers re-evaluate cross-border shipping strategies with an eye toward cost breakdown and optimization.

According to researcher Aberdeen Group, CPOs additionally need to develop and apply analytics to sourcing, purchasing, and supply chain networks in order re-engineer them; make use of dynamic optimization tools — including automation — to synchronize collaborative execution; and establish or renew formal strategic inbound optimization programs (IOPs) that cover applicable costs and assure compliance with trade regulations.

Credit: jscreationzs at FreeDigitalPhotos.net

Credit: jscreationzs at FreeDigitalPhotos.net

In a recent Analyst Insight paper titled Strategic Inbound Optimization: Foreign Trade Zones and Reshoring Increase, Aberdeen Group notes that while more than 88 percent of companies it surveyed engage in cross-border shipping, only 34 percent include customs and other duties in landed cost calculations. Only 37 percent have programs that manage their global trade.

Moreover, 71 percent of respondents are considering nearshoring, and 63 percent are looking at reshoring.

Unless shippers develop meaningful IOPs, companies run the risk of overspending on transportation and related areas, Aberdeen Group reports.

In evaluating the best-in-class performers (the top 20 percent) among companies it surveyed, as well as the laggards (the bottom 30 percent), Aberdeen Group finds that the leaders are achieving an 8.71 percent reduction this year in transportation costs over 2012, while laggards are posting a 5.03 percent gain??. Best-in-class companies also are reporting a 2.71 percent reduction in total landed cost per unit compared with a 5.03 percent increase for laggards; they also are getting a 69 percent reduction in global trade spend versus 21 percent for the remaining one-half of respondents. Significantly, 97.2 percent of best-in-class companies state that deliveries are on time and complete, as opposed to 81 percent of laggards.

Aberdeen Group reports that the top 20 percent of companies do a better job than others in developing and applying cost and service metrics. These include “properly evaluating all related cost/service drivers that go into total landed costs, including trade duties/tariffs, as well as transportation, labor and other logistics costs,” the Boston-based analyst finds.

Progressive companies are also aware of benefits that accrue from deferred duty operations such as free trade zones (FTZs). Aberdeen Group notes that more than half (57 percent) report lower import fees through effective use of FTZs, as well as “more optimal total landed costs per unit.”

Best-in-class companies outperform all others by a wide margin in what Aberdeen Group terms key inbound strategic optimization events.  Sixty-five percent of them optimally select inbound and outbound modes and carriers, while only 42 percent of other companies do; 56 percent include customs expenses in landed cost calculations, compared with 35 percent of other companies; 55 percent do basic shipment consolidation and pooling versus 34 percent; 45 percent select multi-leg and multimode optimizations as opposed to 24 percent; and 44 percent conduct periodic optimization reviews versus 18 percent of others.

The ability to apply these and other strategies to IOPs will be critical as ever more companies participate in cross-border supply. Aberdeen Group’s study confirms that most CPOs leave dollars on the table by not improving the efficiency of their operations or failing to realize that such reviews are necessary. CPOs should devote the remainder of the year to figure out ways in which procurement revenues can increase in 2014 and beyond. This Analyst Insight from Aberdeen Group might be a good starting point.

 

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