Logistics and Distribution Are More Complicated Than You Think
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Global supply chains are complicated and involve relationships between multiple supply chain partners. Each relationship requires some kind of agreement or contract between the parties that is often the source of conflict that result in law suits.
Just imagine for a moment that you manufacture a product in America that has quickly become a hot selling item. You decide to expand distribution of your product to China because you know China is a very fast-growing consumer market. But where do you begin? How do you find distributors, retailers, logistics providers, warehouses, and how are you going to control your inventory and oversee the supply chain? How do you export products from the U.S. and import products into China? Is there some kind of service that can help? You don’t speak the language and you don’t have any contacts there. Okay, forget that crazy idea, it’s too complicated! And yet, so many companies try this with little or no expertise.
Complexity of Supply Chains
Thinking about the complexity of a market in this way should give you some idea about global supply chain management and the distribution of products anywhere in the world. Supply Chain complexity exists if you are moving goods inside the U.S., or to/from any place in the world. Product logistics and distribution is far more complicated than we think about when we grab an item off a grocery shelf or a dress off the hangar at the department store.
Behind the scenes, supply chains should be frictionless, with supply chain partners handing off to one another, all the while maintaining control. This way, goods get to market or to industrial customers on time and in perfect condition. But it is rarely this way, because each link in the supply chain has a different function to perform, is measured differently, and is independently operated and managed.
Agreements Between Each Step
As you can imagine, there is some sort of agreement or contract between each step, such as a purchase order, bill of lading, or written/verbal contract. There is also logistics and transportation between each step, even if that means moving goods from the port to the nearby warehouse. Each of these agreements is likely to be different and subject to interpretation. In addition, performance by each supply chain partner is most likely measured and tracked differently. Some supply chain partners may be measured on cycle time, while others are measured on fulfillment rates, on-time-time performance, cost control, optimization, and responsiveness. Manufacturing quality measurements are different from all other partners in the supply chain. Manufacturing measurements may be based on international standards for design and testing, but the contract between the buyer and seller are not. Standards are notably absent in many of the agreements between supply chain partners.
There is an enormous amount of complexity between partners and facilitators in every supply chain. Along the way there are likely to be breakdowns in expectations, performance, and communications. The best way to avoid these breakdowns is to clearly communicate and memorialize terms, conditions, and expectations, and then closely monitor the performance of your supply chains.
Ms. Coates is the President of Blue Silk Consulting, Global Supply Chain consulting firm, and the Executive Director of the Reshoring Institute. She is a best-selling author of: 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith - How to Avoid and Defend Supply Chain Disputes Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.