Direct Imports - where next?

One of the biggest changes in the UK supply chains over the last ten years has been the increase in the volume of direct imports.  This is the process whereby, rather than working through importers, agents or wholesalers, companies go to manufacturers in China and other parts of the Far East and buy merchandise directly.  The benefit to the customer is that all of the (considerable) margins made those intermediaries are saved and the customer has the opportunity to exercise more control over the end to end supply chain.  In fact it is in large part thanks to direct importing that we consumers have been able to enjoy many years of low priced goods.

However this may now be about to change.  Not overnight but the trend towards increased direct importing is definitely slowing and may even be reversed.  Why should that be the case if it has been so beneficial?

There are two forces at work.  As China’s economy grows, costs are rising and it is absorbing more of its own products, eroding some of the cost advantage over the West or other parts of the Far East.  And this trend is certain to continue.  In addition, like anything in life, the size of the reward is usually matched by a correspondingly sized risk and the recent economic downturn has highlighted some of those risks :-

• Lack of agility - part of the reason why China has been so cheap is by being efficient.  By manufacturing in large batch sizes with long lead times.  This means order have to be placed months in advance, cannot be charged at short notice and so cannot be flexed to meet changing economic circumstances
• Distance - adding to the above problem is simply the time it takes to get product from the Far East to Europe
• Supplier stability - direct sourcing often goes hand in hand with single supplier sourcing.  This means that if the supplier has problems, and many have in recent months, you too have problems.  Direct sourcing removes the buffer that sourcing from wholesalers, etc provides.

There are numerous examples of this in recent months. There is considerable evidence that retailers, anticipating a significant drop in sales prior to last Christmas, cut order early only to discover that sales proved remarkably resilient leaving many without stock of important lines and with no opportunity to replenish at short notice.  Other have had suppliers go bust or have funding withdrawn leaving them short of product and without the support network of agents and importers to find new sources of supply.

So what is likely to happen over the next few years?  As has already been suggested it is highly likely that the growth in direct sourcing from the Far East will slow and eventually reverse.  Some of that sourcing will switch to other emerging economies such as South American and, as political stability improves, Africa.  But it is this writer’s belief that there will be new opportunities for some sort of wholesale model to re-emerge.  Perhaps not in the same form as in the past and it will probably have a different name but the principles will be similar.  An intermediate third party, specialising in buying product from a number of sources, possibly holding stock, supplying numerous customers and in so doing spreading and therefore reducing the risks referred to.  They will not be able to enjoy the margins of the past and will have to work more closely with their customers.  However with so much more willingness now for, in some cases, competing organisations to collaborate, wholesalers, or whatever we choose to call them, have a real opportunity to add value to the supply chain by improving agility and reducing risk.

If you feel this article has given you some food for thought and highlights areas of your business / projects THE LOGISTICS BUSINESS could assist you with please contact Simon Tomlinson the writer on 01527 889 060 or email info@logistics.co.uk

THE LOGISTICS BUSINESS, a leading specialist supply chain and logistics consultancy, has experience in planning and developing supply chain, distribution and warehousing operations throughout the world. From supply chain and distribution strategy, to development of distribution operations, warehouse design and layout, as well as manufacturing logistics and IT systems design, its clients include many blue chip companies.

We have also worked on government initiatives on sustainable transport and waste minimisation.For further information please call:Helen Morris, THE LOGISTICS BUSINESS on +44(0)1527 889 060, email helen.morris@logistics.co.uk