The case for central sourcing is very clear when you consider the maintenance of your global brand image and the buying power of combining all your global markets. However there is a supposition that the savings made by sourcing goods centrally is lost by distributing the goods from a central hub to the local markets globally. The theory is that it might be better to carry on sourcing the goods centrally, but ask the vendors/factories to fulfil the orders for each market as required.
A typical global brand that sells its products in local markets via retailers will source its promotional materials in bulk from a number of manufacturers in China while also using other specialist manufacturers globally. In total there could be as many as 15 to 20 factories being used to create a global marketing promotional range.
The case for sourcing marketing materials centrally and then holding them and sending out from a central location to the local markets is discussed as follows:-
The cost of shipping goods is far more cost effective when sent in bulk as opposed to smaller shipments. For example:
|Shanghai to Felixstowe||Cost||No. Pallets||Cost per Pallet||Cost per Pallet
$-£ rate 1.6
|40 foot container||$2,325.00||46||$50.54||£32|
|20 foot container||$1,250.00||23||$54.35||£34|
|1 x Pallet (1200 x 900 x 1400mm)||£162.00||1||£162||£162|
* port to port pricing information correct as December 2012
It is therefore 5 times more expensive on a per pallet ratio, to send a single pallet from China to the UK than a bulk shipment. If the order is under a pallet in size then taking in to account the various charges such as security, handling, packing, unpacking then airfreight becomes necessary and these costs as a proportion to size/value are even higher.
If we assumed an average order to a local market will contain 4 separate skus which under the supposition could be sent out from 4 separate factories and each sku is are packed on to a separate pallet then the comparable freight costs for an order placed in the US would be as follows:-
|Central Distribution from the UK|
|From China to UK 4 pallets @ £32 each||£128.00|
|From UK to US 4 pallets @ £225.66 consignment||£225.66|
|Distribution from Chinese Factory|
|From China to US 4 pallets @ £164 each||£656.00|
|Cost Variance||£302.34 or 46%|
On a straight comparison of freight costs port to port there is a saving as shown above. Similarly the cost of sending 4 separate pallets from Port to Door is considerably more expensive than sending 4 pallets together as a consignment Port to Door.
If the consignments were small and therefore airfreighted from China to the destination then the cost variance is likely to be even greater.
Local taxes such as VAT are able to be reclaimed and offset against VAT on any income so generally have no impact. There is however always an administration cost for handling the import and taxes and duties for each consignment, these costs are usually fixed (£30 approx per consignment) and apply to each consignment no matter the size.
There would therefore be an additional cost of the direct shipment of £120 ( 4 x £30) as opposed to only £30.65 (1 x £30 + £30/46 (number of pallets in a container)) for the central distribution.
One further point to consider is that the costs for administrating the customs and duty charges on airfreight are also considerably higher than those for ocean freight and are in the hundreds of pounds sterling per consignment.
To move away from the central storage and fulfilment would require each local market to place their orders with each factory. Most POS websites could be configured so that each product is associated with a particular factory and when an order is placed an email could be sent to each factory. However to give the customer service, the product information and the cost saving in financial management, the following would have to be achieved:-
Most good fulfilment and warehousing companies will quality check the merchandise they receive on behalf of their clients. In doing so they act as a final check on the quality of goods going out to the global markets and reflecting the clients brand image. In a recent case PMSG spotted a spelling mistake on a promotional item that had passed the manufacturers QC and the sourcing companies checks. If these goods had found themselves in to the market place it would have cause our client huge embarrassment.
In this era of global brands, the case for centralised sourcing of promotional materials to be used by local markets is clear. As shown above it is also clear that centralising the storage and distribution of all the promotional material prior to despatch to the local markets is the right way forward both financially and administratively. In addition centralised distribution is easier for the local markets and also helps maintain quality throughout the system.
PMSG has experience centralising the buying and distribution of marketing material in EMEA for a FT100 pharmaceutical company.
Prior to PMSG taking over the distribution, each market and region sourced and organised its own marketing material. This lead to a number of issues including dilution of the brand image, poor buying, excessive administration.
PMSG set up a branded website, set up online, real-time reporting and took delivery of the promotional stock that had been centrally bought by the corporate marketing team. Each region had its own access to the website and could place orders for delivery where they wished. Central marketing could restrict access to certain products and manage the stock with the real-time reports. The regions had peace of mind by receiving emails on order receipt and despatch as well as having direct access to client support at PMSG.
The result was a reduction in head count in each region that more than paid for PMSG’s costs, a saving on the purchase of the promotional items and control of the companies brand image.