Coping with the Foreign Technology Gap
RIS, June 2000 - By Michelle Schoenung, Contributing Editor

For George Koegler, vice president and manager of operations for the JC Penney Purchasing Corporation, one the biggest headaches in sourcing merchandise from countries such as Sri Lanka, Egypt, Guatemala, China, and Thailand, is that people at each link in the chain must manually key in information about products as they make their way to US warehouses.

"The problem was that there are so many different players, everyone was doing keying," he says. "That included the office overseas, the consolidators, the brokers, and then someone in the US office. Everyone was keying in information about his piece--size, style, and color, for example."

To remedy the problem, Koegler implemented an e-commerce system from Rockport Trade Systems (now owned by QRS Corporation ) that will give suppliers the necessary hardware and software to make bar-coded labels for each carton shipped. This will eliminate the need to have each item keyed in at each checkpoint because now packing lists can be quickly scanned with a handheld device.

Koegler foresees that this will save the company "millions and millions and millions of dollars" in reduced paperwork and labor, and will ensure SKU integrity.

"By having SKU integrity, we can ensure that a shipment contains what it's really supposed to contain," he says, "that things are not all one size or one color. If, for example, we send all green sweatshirts and no red to Alabama, they won't sell. If we send all red sweatshirts to Green Bay, Wisconsin, they won't sell."

Far From the Cutting Edge

JCPenney is not alone in the challenges it faces when using foreign suppliers. The reality is that many foreign suppliers barely have a fax machine, much less Web-enabled computers.

"The Internet is not as omnipresent in some countries, and there can be problems with electricity and infrastructure, especially if you are talking about a 'Third World' country," comments Ned Blinick, vice president of sales and marketing for Blinco Systems Inc. "One of the issues -- one of the greatest a retailer faces -- is the ability to see that the inventory arrives on time, particularly for a seasonal business. Too many times, an order is not shipped on time, and a retailer doesn't even know it. There is this huge void of information." Blinco offers the 3rdwave product, which allows retailers to manage global sourcing from pre-production to invoice shipping through customs and delivery to the DC.

Sue Welch, senior vice president of applications services for QRS Corporation and former president of Rockport Trade Systems, agrees heartily.

"This is the old 80/20 rule," she says. "Twenty percent of what you don't get is 80% of your problem."

Welch says that with basic Web access, a foreign manufacturer can supply valuable information that will give retailers a real-time picture of what is happening on the factory floor -- and this can mean huge savings.

"A retailer can make decisions much later in the cycle," making it possible to react quickly as trends change, she notes.

Blinick adds, "The retailer may be able to buy less inventory in advance of the season, creating faster turns at the warehouse, enabling them to carry less inventory. And this is certainly a reduction in cost of operation."

Finding the Best Solution

There are different approaches to coping with technology-challenged suppliers. For example, Blinick says the onus may be on the retailer to supply its foreign vendors with newer technologies if it wants to reap the benefits.

"For the supplier, they may not have the same need for technology. The costs of investing in new technology may not be relative to the benefit," he says.

Steve Cole, vice president of marketing for Syntra, does not believe the foreign supplier has to be technologically sophisticated as long as it can keep its commitments to the retailer. A retailer can measure how well its supply chain is functioning, he says, by looking at such things as the number of markdowns caused by late delivery of goods, the number of rain checks issued, instances of oversupply, and the number of turns of inventory from the warehouse.

He says that some larger foreign suppliers are beginning to embrace technology to better communicate with their large retail customers.

When that occurs, he says, "the retailer is better able to forecast what they will have in-house. They have the benefit of being able to set the best price and promote the goods. You don't put something on promotion if you don't have enough on hand." Syntra has a variety of online services that help retailers manage the financial, logistics, and regulatory issues associated with global procurement and fulfillment.

Larry Christensen, vice president of international trade content for Vastera, says that though it isn't necessary that foreign suppliers have technology beyond a fax machine, the use of the latest technologies can expedite the customs process. Vastera has a variety of client/server and Web-based applications for helping communicate information required to move goods across international borders.

"New technologies allow for effective movement of goods and can reduce delays at customs," he says.

Christensen says the benefits of these new technologies can be measured through reduced clearance costs at the border, reduced carrying costs, and fewer out-of-stocks.
He adds that logistics costs can range from 12% to 25% of retail sales.

"Savings in logistics costs can go to the bottom line very quickly," he notes.

Identifying Costs

Many retailers don't take into account the complications and the costs of sourcing products from foreign countries, according to Steve Cole of Syntra. "A retailer needs to take into account, how much is it going to cost? What documents do I need to fill out? It is a lot harder than it looks on paper," he says. "There are costs that people tend to miss. You need to figure out the total cost to have the merchandise delivered to the store, including logistics, customs, taxes, and tariffs. "The big mistake a lot of retailers make is making the assumption that you can source from a foreign country the same way you can source from the next state. There are a lot of factors to take into account, such as time of year, what country you are sourcing from, and geopolitical concerns."

© Retail Info Systems News, June 2000.

For related information, please go to:
3rdwave Retail
3rdwave Fashion
3rdwave CGD (for consumer goods distributors)
Rothco Case Study