Inbound International Supply Chain Practices and Trends Executive Seminar Track 1, Session G September, 2006

Scope This session covers inbound international supply chain practices and trends. International Shipments: Where do they originate, what modes of transportation work best, who controls each leg of the journey? Roll of Global 3PLs: What services they provide, performance measurement and strategies to improve performance satisfaction? Contingency Planning: What strategies are being used to address significant disruptions to the supply chain?

Inbound Shipment Origins and Customers International inbound orders are coming primarily from China/Hong Kong and the Pacific Rim, with the trend moving to increased use of vendors outside of North America. Primarily serving customers and stores in North America, with the trend moving to more customers and stores in North America.

Trends in Supply Chain Management and Control Global 3PLs are key. Overseas sourcing offices are gaining in influence. More responsibilities close to vendors in origin countries.

Incoterms – Current (%) Who controls each leg of an international shipment? Incoterms – Current (%)

Incoterms – Forecasted Net Change (%) Incoterms – Trends How is control changing? Incoterms – Forecasted Net Change (%)

Trends in Supply Chain International Freight Routing In the past, the concern was labor unrest at West Coast ports and Katrina. As a result, contingency planning is becoming more important. International Freight Routing Trend toward more container built at vendors. Ocean transport is the dominant mode and continuing to replace air freight. Routing changes are driven by costs. Transit times are also important but are likely to suffer in order to reduce costs.

Trends in Supply Chain International Freight Routing In the past, the concern was labor unrest at West Coast ports and Katrina. As a result, contingency planning is becoming more important. International Freight Routing Trend toward more container built at vendors. Ocean transport is the dominant mode and continuing to replace air freight. Routing changes are driven by costs. Transit times are also important but are likely to suffer in order to reduce costs.

Trends - Third Party Providers (Global 3PLs) Global 3PLs play a significant role in managing shipments from every international region, and their role is increasing. Although their role is increasing, 3PL satisfaction ratings are lacking in some areas of performance.

Trends - Third Party Providers (Global 3PLs) Penalties and rewards do not appear to be the primary solution to more effective 3PL relationships.

Supply Chain Trends - Customs Brokers The trend appears to be toward more in-house customs brokerage; however, this is not a strong trend. Weighted Companies Average Customs Broker Ranking Using Tenure (yrs) Expeditors 28 10 7 UPS Supply Chain Solutions 14 5 FedEx Trade Network Customs Brokerage 8 3 9 Carmichael International Services 6 2 Barthco CH Robinson Customs Brokers The following customs brokers are used by more than one participant. Expeditors is the clear leader.

Theft Experience Theft losses do not appear to be a problem. Is the added emphasis on international security helping to reduce theft?

Your Expectations What would you like to discuss and learn from this session? Important issues? What’s working? What’s not working? What’s changing? Shared good and bad experiences? Reasonable performance expectations?

Potential Discussion Points What are the top two or three factors in improving the international supply chain? Who are the major role players, beyond your headquarters staff, managing your international supply chain? How are the roles changing? How important are global 3PLs in the international supply chain? Are they doing a good job? What can be done to develop more effective 3PL relationships and to improve satisfaction ratings of global 3PLs? Most companies use more than one global 3PL. What is the right number? Are large 3PLs the best choice?

Potential Discussion Points What is the optimal balance in allocating responsibilities to the various role players that manage the supply chain? More responsibility close to vendors in origin countries? More centralized control? Are transit times improving (becoming faster and more reliable)? Are expedited orders an issue in the international supply chain? Are the root causes different than orders placed with domestic vendors? What are the most important opportunities to improve overall supply chain performance? Do you have contingency plans in place to work around significant supply chain disruptions?

Important Takeaways Competitive advantage – Performance measurement and aggressive goals can create a competitive advantage. Role of 3PLs – The role of 3PLs will continue to grow but will begin to shift away from managing carriers and towards value-added services. Companies will need to become more skilled in sourcing and managing carriers. Import process – Overseas sourcing offices will play an increasingly important role in managing the import process. Vendor roles will not increase. Best performers – Large carriers and large logistics service providers do not always turn in the best performances.

Important Takeaways (continued) Air freight – The role of air freight in the international supply chain is small and decreasing. This trend will place a greater burden on companies to manage the factors that impact inventory. Contingency planning – This is becoming more important in international supply chains.

Questions?

Benchmarking & Best Practices References Information on international supply chains can be found in the following references: