WSDR Trade Solutions – From Source To Marketplace

Giving strategic advice regarding the efficiency of a supply chain of import companies starts with comparing the ‘pre calculated’ margin versus the ‘after calculated’ margin of orders. The ‘pre calculated margin’ is the margin you expect to earn before your quotation becomes an order and the ‘after calculation margin’ is the realised margin after receiving the payment of your invoice by your customer.
Most of the times a correct (pre-)calculation sheet is present, but the ‘after calculation’ of orders is not specifically done. The costs are ‘booked’ in the financial administration in a general way and not specifically ‘tagged’ to a specific order or product. Assigning costs to a specific order or product seems difficult or even impossible for bookkeeping. So the general P&L sheet is the only thing to measure.
In times of prosperity and good P&L, the management does not care about in-efficiencies. But in times we see now (2010/11/12) you can only earn money by innovating your product and improving your supply chain to become as cost efficient as possible.
To know where to cut cost and improve your supply chain you need to be able to compare your ‘pre calculation’ with your ‘after calculation’. It will show specifically where you have miscalculated or who is not performing well.
So beginning with a quick scan of the supply chain, I most of the time end-up by advising ‘how to’ manage the bookkeeping in order to measure the performance of the supply chain. New procedures and processes for the organisation will follow automatically. And implementing of this is the toughest part (like always..)!
And yes, after taking care of this implementation, it is easy to advice about strategical improvements of your supply chain.

Working as an Interim Manager for an European garments importer with a focus on the mass & discount market. My focus is on the purchase side of the business, while purchase prices fuel selling prices. The primary trend at importers is to source in low cost countries like India, China and Bangladesh. In these countries you look for a factory which offers the lowest price in order to meet the the customer’s price pressure. The question is; does the supplier with the lowest price also give the highest margin?

Most of the times these ‘low pricing’ factories are not well organized; the quality of staff and equipment is poor and they depend on many subcontractors. That means that the whole production process is cut into pieces and subcontracted to several suppliers. So two main risks occur immediately:

1. Quality Assurance is not centralized coordinated and interpretation of the a quality standard is different at each subcontrator.

2. Delivery Assurance is depending on the efficiency & production planning of the subcontractors and the exposure to external factors is high, while the goods are transported from subcontractor to subcontractor.

As always; for quality you pay! If you do not want your order to be exposed to these risks, you search for a factory which is vertically organized. This means that all production processes take place at one factory compound/building.  To establish a vertical organized factories requires serious capital investments in machinery; construction; staff and workers.  These costs will be calculated in your purchase price. In return you will get less risks. Of course you have many quality grades in vertical organized factories as well, but that is a next choose to be made. Attached movie I made in a A-grade vertical organized factory in Bangladesh. 

The reality tells us that the low purchase price brings the higher risks. Unless you are a gambler, high risks asks for more attention. So either you are willing to accept quality claims or air shipment costs, or you are facilitating all involved parties in the order process in order to supply in time and in the ordered quality. Facilitating means costs for travelling, agent fees, more staff to follow-up etc.

So vertical- or non vertical organized factory. Choose your margin!