What Brands to Need to Know to Enter and Establish in the Americas, Part 3
Brands entering the American market typically prioritize sales and marketing, allocating significant investments in time, energy, and resources to these efforts. An often overlooked, perhaps less exciting, but equally—if not more—important aspect of market expansion is the establishment and maintenance of an efficient supply chain. Order fulfillment and logistics management are complex functions tied to quantifiable brand performance, metrics, and customer service, thereby warranting a deeper understanding.
Engaging a third-party logistics (3PL) provider is an option international brands may take to manage elements of their warehousing and fulfillment services remotely. Some brands see value in paying the premium to outsource this operation.
At a minimum, the 3PL provider must offer basic services such as storage and fulfillment, operate a commercial facility that conforms to building codes, comply with labor and safety requirements, and carry adequate insurance. Ideally, the 3PL provider should have the capability to meet supply chain requirements unique to each retail channel and provide other value-added services. Some key considerations to assess during 3PL selection are service-level metrics, leverage with carriers, degree of automation, investment in technology, and output of data for analytics.
Overseeing entire distribution networks and supply chains in a new market via a 3PL provider is not easy as sending shipments to the designated warehouse and gathering insights from piecemeal inventory and shipment data shared by the 3PL provider. While we live in a faster, more connected world, communication issues across time zones remains and logistics is a time-sensitive industry with constant manual touchpoints despite all the automation. Brands need a specialist (or team of specialists) on the ground to analyze inbounds against outbounds to move stale inventory, handle special packing requirements, relay shipping information or delays to customers, and mitigate errors in case of mishandling.
The sheer size of the U.S. is a logistics challenge in and of itself; it takes at least seven days to deliver to remote parts of Texas, which is the size of France. Fast-growing larger brands may opt for a nodal approach to warehousing—i.e., more than one warehouse to cover the region served—but this requires technology spend to manage inventory by channel and to maximize efficiency in fulfillment.
Brands can usually make the top line work. After all, brands come to market with new or improved products. Pricing the product correctly for the local market and controlling inbound shipping costs can result in a positive gross margin. Expenses, such as payroll and marketing, can grow organically to match revenues. However, operating expenses related to warehousing and logistics have to be fully covered to achieve a positive operating margin. Right-sizing the inventory is key to managing fixed costs at the warehouse. Once brands grasp the velocity of sales and inventory turnover by products, they can then scale up operations.
Administrative functions, such as customer service and receivables management, need to be established upfront while planning entry into the U.S. market. Partnerships with industry professionals is recommended for local guidance, to allay costs related to a possible steep learning curve, and importantly, to reduce legal and financial exposure.
With a lot of moving parts, there is much to unpack in American warehousing and logistics. Oftentimes, the right partner makes all the difference.