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Outsourcing and Third Party Providers' Solutions

by Keith Hart

There are four salient trends that have emerged that demonstrate a new paradigm for outsourced logistics:

Not long ago, the role of the Canadian custom broker could easily be captured in one short sentence. Likewise, when it came to the activities of the motor carrier or international freight forwarder, the scope of these service offerings could also be easily be defined. But in recent years the lines delineating the activities of these service providers have become increasing blurred. In fact, it is now possible to interchange many of their roles. For example, you can find carriers, brokers and forwarders all offering a combined Less-Than-Truckload (LTL) transportation and customs clearance services to their customers.

Importers, both domestic and non-resident, have welcomed the departure from these organizations’ traditional roles. Being able to select a single provider instead of dealing with the disconnects that can occur when dealing with multiple vendors typically saves the customer a lot - particularly given the context of their likely using their own often scarce resources to manage their import or export programs.These one-stop shopping solutions have been developed as importers are continuously challenged to meet the increased and sometimes unique requirements of their customers. This demand for solutions has been conveyed to the service providers in the transborder business, and many of them have responded by quickly developing creative and effective programs. A number of these programs typically start with one client. They are then promoted to other prospective customers with similar needs and industry-specific requirements or where such niche programs have proven successful. When this occurs, the service provider, which has developed and experience in logistics for the industry, starts to add real value and benefits based on this experience for the customer.

Take the case of a U.S.-based company that supplies retailers with a combination of imported as well as domestically (U.S.) produced products. Having recently broken into the Canadian market, but without operational infrastructure and the objective of avoiding a major fixed-cost investment, they now seek a logistic service provider to work with them on their Canadian distribution. Shipping individual orders, as they are placed direct from their U.S.-based Distribution Centre (DC), is not a viable option as the cost of transportation and customs clearance makes this prohibitive. A cost-effective solution that will enable them to meet the delivery requirements of the major retailers as well as compete on the smaller orders from the smaller retailers is required.This kind of distribution problem highlights how a leading-edge transborder service provider is required. With experience involving many similar situations the leading-edge provider develops a program for the customer that includes the following.

The retailers place their orders directly with the U.S. supplier. Product is drawn daily for delivery primarily from the main inventory that sits in the U.S. DC. Orders are packed and addressed to the Canadian retailers. The service provider arranges the pick of all the Canadian orders and moves the combined consignment as a Full Load, Part Load or large Less than Truckload (LTL) shipment to their facility in Canada. The entire shipment is customs cleared while in transit as a single import entry with the U.S. shipper acting as an NRI into Canada. The delivery requirements to the retailer are then completed. This could involve appointment delivery, EDI-ASNs, store set up of displays, small parcel deliveries or even mail deliveries to remote regions of Canada. The transportation and customs clearance costs are minimized and the unique needs of the individual receivers are met. A great deal of administration is transferred from the supplier to his service provider, who can also enjoy the benefit of a more efficient dock operation as only one carrier (opposed to a multitude) arrives to pick up the Canadian orders.

The nature of the customer's business also calls for them to provide a quick replenishment of a series of fast-moving products. This is addressed with a second and much more limited inventory that is situated in Toronto and Calgary. The service provider also manages this inventory. These locations provide either same-day or next-day delivery to major centres in Canada. Replenishment of these inventories is either direct-shipped from Asia or Europe or moves in Trailer Load quantities from the U.S. DC, depending on the origin of the goods.

Larger seasonal orders are shipped directly from Asia, Europe or the United States for timed delivery to the retailers across Canada to avoid the cost of importation handling duty drawback, etc., that would be incurred when shipping directly from the U.S.-based DC.

A returns program also forms part of the service package. Returns are received, inspected and entered into a returns inventory for subsequent reshipping, returned to the United States or to a contracted refurbisher.

Special marketing and promotional requirements are addressed with the provider offering services such as ticketing, labeling and merging with other products set up prior to delivery to the retailer.

In addition to managing the physical distribution elements that include transportation by land, sea and air, the third party provider also assists the client with advice with respect to their import requirements. This includes documentation, valuation, NAFTA, tariff-treatment, duty rates as well as general compliance.

The net result is that the customer, through the selection of a very capable logistic contractor, was able to successfully penetrate and compete in a new market without a major capital investment. I believe that there are number of potential suppliers for this kind of service who should be commended for their creativity and contribution to our industry. The key is in finding one with the appropriate network, depth of expertise and financial stability. It would be good advice to ask for references from satisfied customers to make sure you don't select a vendor who over sells and under performs.

The example I've noted in this article was an excerpt from a case study covering the requirements of a U.S.-based NRI supplying the Canadian markets, a situation that has become increasingly common. Canadian distributors outsourcing to third party providers can, of course, enjoy similar advantages.

Canadian companies considering entering the United States or overseas markets may well find these import programs an excellent blue print to consider and in the process they can take advantage export opportunities.