Delivery Systems and Processes
It’s plain good sense to explore all the options you
have for delivering your product or service.
THE NATURE OF DELIVERING goods and services in our ever-growing global marketplace is very dynamic. It wasn’t too long ago that products would simply be manufactured, packaged, palletized, shipped, warehoused and inventoried. Or you’d set up a foreign office and start delivering your service. Boom. Done. Back then, the sales and marketing team of an organization would go about promoting and selling products to their target market and the inventory levels would be monitored. When reorders or restocks took place, the supply chain warehouse team or service provider team would facilitate those needs, using KANBAN or SAP technology, and that was it. But now we live in a world where most of the products and services that are designed, developed, produced and sold are sourced from all corners of the globe in an effort to compete and stay profitable against competitors.
By doing some very basic research and analysis, an entrepreneur can identify certain competitive advantages that exist based on geographic areas, economic strengths or weaknesses, distances from other parts of their supply chain, etc. These types of advantages help businesses create operational efficiencies in regard to labor, materials, costs and timelines. However, making strategic maneuvers in these areas can bring on the need for additional resources not found in the traditional production and distribution model.
Trading companies
For example, let’s consider trading companies. Their purpose is to help identify needs in a local country, communicate effectively with the resources being utilized there for producing, shipping, handling logistics and managing any other necessary paperwork that may be unique to a country or area of the world. Their advantages far outweigh their expense, in my humble opinion. It would take me hours if not days and weeks to fully research and brief myself on every nuance of doing business in another country.
Unfortunately, there are a few common disadvantages and costs that come along with trading companies’ services. Sometimes the trading company isn’t the most ethical. You may find that they are not necessarily working in a fiduciary capacity for you and your organization (looking out for your best interests), but are actually steering you and the business you bring to certain providers, based on other arrangements they have with them—referral fees, bribes and other perks. Consider for example the concierge at a hotel. You would hope that she is sending you to restaurants that are truly the best choice for you, based on the parameters you give (say, a cozy local bistro). However I’ve seen too often that these individuals send people to certain places in exchange for gift cards, cash, and other perks.
To be fair, this is unfortunate only if the concierge’s suggestions are not great. Recently, the people I was traveling with really wanted to have an Italian dinner. So naturally we asked the concierge for help. We were quickly directed to a particular restaurant. There we were served some of the worst Italian food I’ve ever eaten. Needless to say, that restaurant is no longer in business. But at other times, I’ve been wildly impressed by a concierge’s choice. Then I go out of my way to find her and offer an appropriate gratuity. Anyway, my point is that a reputable, ethical trading company will provide a ton of valuable insight and perform countless tasks to expedite your needs for between 3 and 7 per cent of your bill, depending on the country, the size of the workload given them and whether or not you represent repeat business for them. For a one-time project, expect to pay more.
Since trading companies tend to specialize in goods, you may not find them engaged in facilitating services you need to deliver the services you in turn sell. However, in that case, you might find a retired professional, a consultant, a person who was recently laid off or someone else who can advise you or actually handle your activity in the target market. The same caution about ethical practices applies, however.
Drop shipping and consignment
Another popular method of delivering products to the marketplace is to drop ship.
Drop shipping means the products leave directly from the manufacturer’s or distributor’s warehouse and go straight to the end user. Often this is the case with web-based, e-commerce businesses that run virtually and with very little overhead. This is why they can survive on nominal margins, and why consumers typically find the lowest prices for the goods they are seeking online.
Consignment is another interesting concept, in that it requires you to hold inventory on behalf of a client at your cost, or to be prepared to accept unsold goods returned for full credit. This type of arrangement is most common in large-scale distribution relationships such as with manufacturers and “big-box” retailers or hypermarkets. These retailers often represent such huge volumes of business that they can control the terms of product placement, availability and distribution. That is why many big-box operations rely on tens of thousands of manufactures and distributors at all times. It’s a way for them to ensure that they are getting the best pricing, purchasing requirements, payment terms, etc.
Orders from these giants are very exciting and appealing to a small business because they do often represent significant top-line revenue and volume. And that usually allows for expansion of facilities and staff for the small business. However, you have to be careful. Just remember, revenue doesn’t necessarily mean profit. Often, the competitiveness of these buyers will drive prices down to the point where you are making such narrow margins that you can only justify it in terms of exposing your product or brand and to move volume to gain larger-scale production runs of a product or product line. It’s still with the smaller retailers and direct selling activities where you will make the majority of your profit. The last thing you want is to expand your infrastructure and inventory, only to accommodate one customer who can leave at any time or dump the majority of stock you shipped originally back on you. Believe me, sometimes they do, and that can bankrupt a business almost immediately. Just to be clear, these types of relationships aren’t necessarily bad. As an entrepreneur and small business owner, you just need to understand all facets of the deal and make decisions based on your own particular read on the situation.
Crystal ball gazing
As we roll further into the 21st century, it’s becoming more and more common for the things consumers are buying to be delivered electronically, especially with cloud-based storage capabilities, high-speed data delivery, Content Delivery Networks (CDNs) and free Wi-Fi almost everywhere. These types of businesses can be fun because they often carry extremely low costs of goods. Therefore you can do much better financially on a lot less revenue than with a traditional brick and mortar business saddled with serious fixed overhead expenses. The next wave of cost savings is already coming from the ever-growing use of robotics and 3-D printing. It seems that in the not too distant future, most of the consumer goods we buy will be delivered on the same day we order. So keep pushing the envelope, at home and in your target markets abroad, and try to identify where you and your business can benefit.