April 2004 | Commentary | 3PL Line

Penetrating the U.S. Market With No Warehousing Investment

Tags: 3PL

Warehousing just got a major facelift in the global supply chain world. Companies are starting to globally expand their product markets without the added weight of materials management, warehousing and distribution costs—and without adding staff in new markets.

An excellent example of this new logistics trend is a Middle East manufacturer of ready-to-assemble consumer PVC storage sheds and buildings. With these products growing in popularity in the home improvement industry, the company wanted to penetrate the U.S. market and quickly expand its presence and market share. In order to have the lowest possible overhead it had to eliminate its warehouse inventory and its own distribution to name-brand U.S. retailers. It also had to eliminate direct involvement in overseas shipping.

To leverage this new supply chain business model, the manufacturer took the following steps:

  • Outsourced certain steps of the supply chain from production in the Middle East through distribution in the United States.
  • Hired a logistics provider to manage the entire process.
  • Eliminated product warehousing, resulting in considerable savings.

This innovative process can work for any foreign company that wants to penetrate the U.S. market with virtually no warehousing investment. In fact, companies can initiate a test project for a year, or several months, to see if the U.S. market presents a profitable opportunity for their specific product.

For the portable building manufacturer, the logistics provider set up a national logistics/distribution process with five strategically located warehouses. Upon stateside delivery of each shipment, the logistics provider clears each container through customs, bar codes, and downloads the data to its warehouse management system.

Twice daily, that information is uploaded so the retailer can see inventory levels to determine needed replenishment. In this case, as many as 10 to 20 containers are typically needed to feed the re-supply requirements of more than 1,000 store locations nationwide. This end-to-end reshaping of the supply chain allows the Middle East company to focus exclusively on its core competencies: manufacturing and sales.

Within this newly emerging business model, the logistics provider has certain distribution hub flexibility. Although distribution is currently optimized at the five central locations, it can readily expand to include many more national locations.

For practical purposes, the manufacturer is tapping into the provider's carrier network, facilities and infrastructure, including the information technology (IT) component. With virtually the entire supply chain operation conducted via the Internet, thus dramatically reducing the cost, the manufacturer has total visibility of all products in transit.

The IT component, although not the magic bullet envisioned by many, is critical. The key is a keen understanding of the physical flow and processes, then layering the information and financial requirements.

In the new supply chain business model, the ultimate goal is not necessarily to see how much warehouse space a logistics provider can acquire in order to "spin" it for stocking more customer inventory. Instead, the goal should be to continually bring in inventory, keep it constantly in motion, and get it as close to the customer as quickly and efficiently as possible for final delivery just-in-time, while squeezing out every last ounce of cost in the process.

So, how is the portable building manufacturer doing since the first shipment in January 2003? Its business has increased by double digits. And what about the logistics provider? It went from delivering product to each store every two months to delivering to the major retailer's chain once a week.