Promotional Material Central Sourcing

PROMOTIONAL MATERIAL CENTRAL SOURCING: Is it better to collate the Promotional Material in a central hub prior to distributing to your global markets?

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:-

  • Freight and Import costs
  • Management and Administration
  • Quality Control

Freight and Import Costs

Freight Costs

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
Total Cost £353.66
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.

Import Costs
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.

Management and Administration

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:-

  • Each factory would have to integrate with the POS website
    If this were possible ie the factory’s had the ability, language skills and know how, it would require all the factories to take part otherwise the system would not work without human intervention which would detract from any savings.  The factories may not be willing to make the investment, requiring you to pay and manage multiple integrations.  The cost of changing a supplier will also increase and become much more difficult as a result of the integration necessity.
  • Each factory would have to hold stock and manage the stock
    Each factory would have to be willing to hold stock and invest in such systems to manage the stock and process orders.  The factories may not have space to, nor the inclination to change their business model.  If they did not want to hold stock they would have to produce the products to order which would greatly increase the costs and remove any advantage of central buying.
  • Each factory would have to administer the orders
    A person at each factory would be required to process the orders and complete the despatch with tracking reference as well as answer multiple delivery queries from the clients.  From our experience this level of customer service can be time consuming and the cost of it will ultimately end up being reflected in the price of the goods.
  • Each factory would have to change their way of despatch
    The factories would have to pack the orders in packing material suitable for delivery on a pallet or loose boxes, rather than larger deliveries that would be containerised.  As a general rule Chinese factories only send out goods FOB, they would have to change and adapt this to take care of door to door requirements including taking on the import duty risk.  If the factory was unwilling or unable then it would be up to each region to organise its freight.
  • Each region is likely to have to administer and control multiple factories as well as multiple import procedures for each order
    Rather than dealing with one organisation, each region would have to control and communicate with multiple factories, causing an increase in admin and probably head count.

Quality Control

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.

Conclusion

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.

Case Study

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.