We live in an anywhere world, where products can be designed anywhere, made anywhere, and consumed anywhere in the world, through an increasing variety of customer channels. All of this is enabled by supply chain, and with so many choices on how to bring a product to market, those that excel at this discipline have an opportunity to differentiate.
In this Supply Chain Enabled update we take some time to explore the changing paths to customer as we enter the 2020 holiday season. We also provide an update on Brexit preparations and explore some potential opportunities to use customs simplifications post transition period to create increased certainty in cross border trade.
Navigating the route to customer – channel and portfolio strategies
Back in March – seems like a long time ago now – we completed a piece of research in conjunction with Amplify-Global and Avalara on opportunities and challenges in international commerce.
Even before the impacts of the pandemic, eCommerce and marketplaces were highlighted as the greatest areas of future growth but with that growth came additional complexity. Understanding local customer delivery expectations and managing international trade and compliance were among the top challenges. Companies placed a significant reliance on third party logistics providers and benchmarking of marketplace and local retail offerings to provide local market insights and intelligence.
The restrictions on traditional retail during the pandemic have accelerated the growth of marketplace and ecommerce channels. Fedex ground revenues in the US increased by 36% over the last few quarters, Metapack reported parcel volume increases of 60% from March to June and in Ireland DPD reported over 100% increase in parcel volumes. These increases lead to concerns over peak on peak capacity requirements in Q3 and Q4 and we have seen some of the larger freight providers introduce peak season surcharges on deliveries.
Traditional retail is also changing. It is no longer just about brick and mortar as retailers expand their online offerings and position themselves as platforms rather than just stores. They look to engage customers with content, online and in store, leveraging their physical assets as part of their delivery network. Walmart’s involvement in the TikTok purchase, Best buy’s announcement that it would be using 250 stores as ecommerce hubs as part of a pilot and Target announcing that their holiday season staffing plans would enable them to scale same day and curb-side pickup are just some of the developments we have seen over just the last month.
Marketplace and social channels also continue to evolve. With the dominance of Amazon – certainly in western economies, brands find themselves needing a specific Amazon strategy as part of their overall channel portfolio.
Each customer channel represents a growth opportunity but also comes with channel costs, unique operational requirements and implications for overall brand positioning and relationships with customers. Supply chain executives have a key role in promoting a greater understanding of these choices and cost to serve while operationally enabling growth across multiple channels.
As we prepare for the 2020 holiday season here are some of the key things to expect;
- Capacity with parcel carriers will be tight and delivery performance will need to be managed carefully. If possible, spread the risk and volume across a few providers. This may also provide customers with additional choice.
- The shift in channels will also place addition strain on fulfilment and returns operations. The infrastructure required to support the same volume of sales in business to consumer channels will be different to retail and distribution channels.
- We are seeing signals from retailers that holiday season promotions will start earlier to spread the volume more across the season
- Covid will remain a factor through this season and is likely to change how consumers want to engage in the coming months. Safety is a new factor in how customers will shop with reduced store capacity and increased requirements for store pick up and local delivery.
- Retailers are looking beyond just store sales and your engagement with them will be helped if you can support them beyond the store. For example, can your supply chain support a much greater assortment on their online channels that you could fulfil directly to their customers?
Longer term supply chain plans will need to take account not only of expected growth rates but will also need to consider the portfolio of products, channels and geographies that need to be supported. This mix will determine the operational footprint and capacity required to support the business.
Sign up below for our latest webinar with Spieckerman Retail on Aligning Brand Supply Chains to Key Retail Trajectories.
You can also view historic webinars on our PerformanSC youtube channel.
Brexit - opportunities beyond the bluster
As discussions around the potential future relationship between the UK and the EU enter a critical stage, we have also inevitably reached peak political positioning and bluster.
The rhetoric surrounding the future state negotiations has been dialled up and the publication of ‘reasonable worst-case scenarios’ in the UK prepares the groundwork to shift blame to individual companies lack of preparation if we end up with queues of up to 7,000 trucks trying to access the port of Dover. This again raises the potential for delays to critical supply chains, at least in the weeks following the transition period.
We already know that customs paperwork will be required from the 1st January 2021 and we outlined a number of actions that companies should be taking now in our August newsletter and these remain valid ahead of the end of the customs transition period.
Regardless of the political outcomes, there are a number of customs simplifications that companies can consider that may ease some of the compliance burden and costs.
- Authorised Economic Operator (AEO)
- Two forms of AEO – customs and safety and security
- Customs authorities place increased reliance on customs and security procedures for known traders – after application and audit process
- Fewer physical and document related checks
- Easier access to customs simplifications
- Priority treatment if selected for control
- Possibility to request place of control
- Mutual recognition of AEO status with third countries (CTPAT (US) and others)
2. Authorised consignor / consignee
- Regular shippers / receivers registered with customs
- Start (consignor) or end (consignee) customs movement at own premises
- Declare goods without presenting them at customs office
- Electronic authorisation to load / unload from customs
3. Comprehensive customs guarantee
- Defer customs duty and VAT payments from point of import
- Cover customs duty and VAT on transit shipments
- Requires financial guarantee to cover expected throughput
- Guarantee can be reduced for AEO certified companies
4. Customs warehousing
- Store goods in an authorised location without being subject to duties
- Cashflow benefit – duty payable only when goods released into free circulation
Duty avoidance – no duty payable if goods re-exported
5. Inward processing
- Products imported for further processing, manufacturing or repair
- No duty or VAT at the point of import – only due if subsequently released within the customs territory
- Goods tracked and discharged within a specific timeframe
6. Outward processing
- Products temporarily exported for processing or repair outside the customs territory
- Claim full or partial relief from import charges when these goods are re-imported
7. Temporary admission
- Temporarily import goods free from Customs Duties and VAT
- Must not alter the products and must be identifiable on re-export
- Defined timeframe for re-export of goods
Key to getting the benefit from these simplifications starts with an understanding of the customs opportunities in conjunction with the supply chain flows within your business – not just in relation to Brexit. Our team is well positioned to discuss and advise on these matters.
Let's start the conversation on how best we can assist you in your Supply Chain journey
AUGUST 2020 NEWSLETTER
COVID-19 – where next for supply chain?
Beyond the human tragedy of Covid-19, the first half of 2020 taught us all a lot about ‘agility’ within our supply chains. The rolling impact of manufacturing and retail shutdowns combined with travel and consumer restrictions, impacted consumer demand and disrupted the channel mix. New requirements for PPE and social distancing created sourcing and operational challenges that will remain with us in the coming quarters.
For many companies, the first half of the year is traditionally quieter and as we prepare for the ‘Holiday’ season there are several areas that may require attention:
- Assess operational capability and consider actions to manage capacity and diversify risk – particularly in areas such as eCommerce and final mile delivery. Parcel demand rose by over 60% between March and June 2020, which will put pressure on the entire chain in managing a seasonal peak on already inflated demand.
- Adding additional delivery options can improve consumer choice and create opportunities if individual partners run into difficulty
- Improvements to order status visibility can proactively manage customer communications and expectations at peak times
- With uncertainty remaining, planning will need to accommodate a range of demand scenarios
- Managing a slightly reduced product portfolio can allow for more flexibility in inventory policy without increasing overall exposure
- Reduction in range can also drive operational efficiencies and can assist in managing social distancing requirements.
- Develop Covid-19 impact scenarios on key in house and partner operations.
- Most companies have already taken precautions to minimise the risk of infection. Consider extending this to include contingencies in the event of the need to temporarily close key operations in the case of infection.
- Engage with partners to understand their policies and how decisions would be managed and communicated.
Thinking beyond the short-term impacts, companies will want to consider how their supply chain reacted to the disruptions caused by Covid-19.
- The scale of disruption to global supply chain operations from Covid-19 is beyond what many would have anticipated within previous risk planning. In many respects the scale of the pandemic tested the limits of existing risk plans and many will have been found wanting.
- Companies may need to develop a more systematic approach to risk and resilience planning within supply chain operations and there are several useful frameworks that can be considered in that approach.
- A refreshed assessment of supplier and customer risks may be required to understand the financial toll taken in many sectors from the pandemic
- There may be some capabilities, developed to deal with the uncertainty of Covid-19 that companies will want to take forward into future supply chain processes.
- 2020 has seen an acceleration in a shift towards digital channels – much of which may continue beyond the immediate impact of Covid-19.
- This will require an alignment channel strategy and operational capabilities to meet this demand.
- There have been several casualties within high street retail and a rethink of role of retail within the customer purchase experience will need to be developed.
- The changed economic landscape is likely to drive a more urgent need to accelerate transformation to improve cost to serve or to take advantage of emerging market opportunities
Lorcan Sheehan speaks to Tom Raftery of the Digital Supply Chain Podcast on how businesses are coping with risk and resilience in their supply chains.
Click HERE to access the Podcast
We participated in a number of new webinars on Brexit, Covid-19 and eCommerce strategies that are now available on the newly created PerformanSC youtube channel.
Brexit – latest status
The UK formally left the EU in January and on the 1st January 2021 the transition period which effectively maintained the status quo from a customs and trade perspective comes to an end.
From January 2021:
- Shipments between the UK and the EU will become third country shipments requiring customs formalities for all imports, exports and transit shipments.
- Special rules will apply to Northern Ireland which will allow free movement of product north and south on the island of Ireland but there will be some formalities required for shipments between Northern Ireland and the rest of the UK.
- The UK will lose the benefit of the existing free trade agreements between the EU and the rest of the world, but it is free to independently negotiate its own trade agreements.
- UK and EU materials will no longer be considered as a common origin which may impact final product origin for trade purposes
- In the absence of a UK – EU free trade agreement, shipments between these territories will be the subject of WTO tariffs and quotas. Progress on such an agreement has been stalled for some months and if an agreement is reached, it is expected to be more limited in scope than the original ambition.
Many companies have already conducted extensive preparations for the customs formalities associated with Brexit. For those that find themselves less prepared we would suggest the following minimum actions:
- Ensure that your company is registered to trade with the relevant customs authorities
- Engage with suppliers, customers and logistics providers on the impact to shipments post 1st January 2021 and ensure that there is clarity on:
- Which company will act as importer and exporter of record?
- The incoterms in place for trade which will define the responsibilities of the buyer and seller in each transaction
- Who will prepare the necessary customs paperwork and the costs associated with this administration?
- The source of information around tariff codes, origin and valuation that will be required for customs paperwork
- Potential to buffer for delays once the transition period comes to an end
- Train key supply chain, logistics and finance personnel on customs matters, company and individual responsibilities.
- We have developed a variety of courses that can be delivered online including a Brexit essentials series that can be tailored to your individual company needs
- Explore potential exposure to tariffs and consider whether the application of special customs procedures could be of benefit to mitigate against the expected changes.