Logistics is the distribution of goods through each step in the supply chain to the end consumer.
Designing an International Supply Chain
Exporting often means finding partners to sell or distribute your products in a foreign country. Forming partnerships that add value to your product and not just cost is a challenge for any business embarking on exporting.
A value chain includes every step — from conception to end use — that your business takes to produce a product or service and deliver it to consumers. Designing an effective upstream supply chain by finding the right suppliers can significantly reduce your costs and make your business more reliable and flexible. Unless you’re selling directly to consumers in a foreign country, it’s just as important to get the downstream supply chain partnerships right.
When your business is selling only in the domestic market, some steps in a supply chain, such as warehousing and sales, are typically internal processes. When you start exporting, it often becomes necessary to find partners to perform some of these functions on your behalf. There are at least five ways in which a downstream supply chain can be configured and each impacts the level of control you’re able to exert on the final pricing, placement and promotion of your product.
As a first venture into exporting, it might be possible to find a domestic buyer who will export your products on your behalf. Perhaps the buyer procures products from various domestic vendors and then consolidates them into single shipments to be sold or distributed from one or multiple locations in a foreign country. The buyer assumes all the risks and handles all the exporting details. As the product is sold to the buyer early in the value chain, your influence on the product’s final pricing and distribution is likely to be limited.
Wholesalers in the country you are wanting to export to may have established distribution networks with customers you wish to sell to. You’d sell large quantities of your products to the wholesaler, who would then sell them on to their customers. You would need to negotiate with the wholesaler to make sure your products are distributed to the right kind of stores and priced in the right way. It may be difficult to exert a lot of control over this process.
Agents and Intermediaries
It might be possible to find an agent or intermediary who has access to customers you wish to sell to, who you might not have access to yourself. Agents or intermediaries can be based in your country but are more typically based in the country you wish to export to. They can give you access to well-established expertise and trade contacts, but allow you to retain considerable control over the sales process. In return for brokering deals on your behalf agents are paid either on a commission basis or on a monthly retainer.
This approach is challenging as your business will have to handle many aspects of the exporting process, from market research to planning foreign distribution and payment collection. A typical scenario might be making deliveries to a supermarket chain’s central distribution centres, from where they’ll move the products to individual stores. Though you may not have control over the final pricing of your product, you may have some influence over displays and joint promotions.
Direct Foreign investment
This is the most ambitious method of exporting as your business will set up its own distribution and sales network in the foreign country. This might be a sales office or opening your own stores. This approach is the best way to develop relationships directly with consumers and gives you the maximum amount of control over the pricing and promotion of your products. The downside of this method being that the management and financial costs, as well as the risks will be significant.
A downstream supply chain can have multiple configurations. It might be possible to have a combination of distribution methods in the same market. You might export directly with one sort of customer and also sell to a wholesaler who has access to a different type of customer.
Even when the transfer of ownership of goods takes place early in the supply chain, choosing the right partner is crucial. As an extreme example, a wholesaler could negotiate an exclusive contract for your goods without ever intending to sell your product, simply to keep it out of an already highly competitive market.
Complex supply networks are more difficult to control as information doesn’t always flow in both directions, which could result in problems predicting where inventory should be held in order to meet demand. The design of the value chain will also influence the type of transportation that will be needed. If an e-commerce business sells directly to end consumers, the goods will probably be sent in a parcel. Deliveries to a wholesalers are more likely to take place in pallet or container loads.