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Supply Chain: Don’t Lose Your Company’s Future En Route

Simon Kaye

With global sales of nearly $300 billion, cosmetics and toiletries presents one of the most complex global sourcing challenges. Much of the sourcing for the industry involves a fragile web of small, fragmented suppliers that must be linked together using a sophisticated and effective logistics technology.

What’s the Challenge?

Fragrance essences must not spoil or degrade before production because of delayed shipment or having been shipped without proper protection. Regulatory concerns are substantial, because some cosmetic products with therapeutic effects are also considered to be drugs and must therefore comply with both the cosmetic and drug provisions of FDA regulations—including special storage needs that present one of the greatest challenges for both suppliers and third-party logistics partners. Add the special handling requirements of products that increasingly use revolutionary nanotechnology for greater absorption, and the cosmetics supply chain’s concerns go far beyond ensuring the availability of boxes and bottles. The shipping status of all these products cannot be left to chance. Competitive demands require that cosmetics producers know at all times where their products are and when they will arrive.

Cosmetics manufacturers and suppliers simply cannot afford to have their sourcing shipments lost, misdirected or stolen. The result of such shipment problems is missed deadlines, production runs, product launches and promotions that may destroy a company’s reputation. And in today’s hypercompetitive luxury goods market, lost reputations and customers are hard to regain.

What’s the Solution?

A supplier must always know the status of mission critical factors in its supply chain, even as it leaves the nuts and bolts of freight management to outside interests. That means knowing what has been shipped, what is in transit, what is due to be shipped, where freight is in the cycle and how the shipment is performing against the stated timetable. For this reason, electronic tracking protocols are essential to avoid losing shipments and a company’s future along with them. When a company knows where its goods are and why they are there, it adds much needed transparency to a process that can quickly become opaque and convoluted as materials and packaging shuttle back and forth between multitiered markets. This is particularly the case where the temptation toward misconduct and fraud, created by the rising prices of luxury goods at the consumer end, too often produces delayed or “missing” shipments.

Online electronic tracking reflects best practices in transportation, stocking and compliance. An effective computerized tracking system will offer a common language for businesses along the supply chain to capture essential product information and shipment status. The ideal program will show what has been shipped, what is in transit, what is due to be shipped, where goods are in the cycle and how the shipment is performing against the customer’s timetable. Via links to the freight shipper’s own information, customers should be able to cross-check and validate the progress and timings of shipments. The entire system should be password-protected and encrypted for added security. Finally, the system should be interactive, allowing the customer to authorize and initiate both the original transaction and any subsequent amendments, with the system providing written confirmation of such authorization.

The system will also:

  • Automatically alert manufacturers and suppliers that certain key milestones have occurred—such as loading, sailing, arrival and delivery—and, more importantly, warn about exceptions that are causing delays;
  • Transmit specific customized reports via e-mail at certain convenient times and intervals according to a producer’s request;
  • Provide online and real time updates on where a shipment is and what it consists of—right down to individual item descriptions, quantities and SKU codes;
  • Enable users to employ “real world” search criteria such as vendor or consignee identities, country of origin and destination;
  • Work with and display both estimated and actual departure and arrival dates.

What’s the Extra Edge?

Use of electronic tracking also gives cosmetics suppliers an extra edge when using Incoterms 2000, the internationally accepted definitions of trade terms. Structuring contracts of sale to use Incoterms under Group F (under which they pay for import shipping) allows importers to control, manage and track their shipments themselves—while separately allowing them to delay the point at which they record the goods into their inventory. In contrast to newer and smaller importers that generally specify Group C Incoterms (seller arranges and pays for shipping without assuming its risk), sophisticated importers prefer to use Group F terms (such as FOB, “Free on Board”).

Increased supply chain visibility and the control of import shipments are critical FOB benefits. By taking control as cargo crosses the ship’s rail at the port of origin, importers get better shipment management from their third-party logistics provider. Moreover, since Incoterms do not cover goods ownership or title transfer or other considerations necessary for a complete contract of sale, transfer of title can be separately agreed upon between the parties in the contract of sale under applicable law.

Importers can thus specify in their contract that title to the goods does not transfer from the seller until the importer takes possession at a specified point, even when paying the cost of freight for the imports being sourced. Deferring ownership can delay accounting for costly shipments as inventory, thus lowering expenses and boosting reported income. The sales contract can provide for supplier invoicing upon confirmed arrival at the destination port. An online tracking system allows for real time cross-checking and timing of shipments, a huge advantage in making such arrangements work.

What’s the Result?

Electronic tracking protocols are the ideal way to always know the status of mission critical factors within a supply chain—with no lost information, shipments or production. Cutting-edge electronic systems ensure that supplies are delivered on time and with proper quality. This means that cosmetics suppliers and manufacturers are able to track freight as it moves across the world, reducing the pressure on a company’s traffic department and improving both efficiency and cost-effectiveness.

The end result will go right to any bottom line. Missing shipments—or even incomplete knowledge of active shipments—are unacceptable by today’s global business standards. Use of electronic tracking to integrate supplier and shipper provides a company firm control over the direction of its own future. “Lost” may be a good concept for television entertainment, but “in control” is the only formula for global business success.