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A Well-designed Supply Chain is No Accident
By: Simon Kaye
Posted: October 9, 2008, from the October 2008 issue of GCI Magazine.
Global sourcing for the cosmetics industry is more than a search for the lowest cost. It’s a long-term systemic trend that necessitates structuring supply chain logistics from the ground up. Designing a logistics system for cosmetics producers’ sourcing needs today requires a quantum leap from past shipping practices, which evolved during decades of relatively stable sourcing and supply trends. The logistics paradigm is constantly changing, and producers must integrate constant awareness of those changes into their product planning process.
Who tracks logistics?
There is too often a notable lack of communication within major manufacturers in all industries, including cosmetics, on concerns that relate to transportation. When a new product idea is conceptualized, researched and tested, the process involved is detailed and standardized. And when the point of commercializing a new product is reached, producers consider and evaluate the packaging, the marketing, distribution and sales, public relations and advertising. The wants and needs of a purchaser reflect age and income characteristics that the industry spends nearly $1 billion a year to research in the U.S. alone, according to marketing specialists Kline and Company. The necessity of tracking current and future consumer trends is accepted as a given.
But what about logistics? How much does the industry analyze the supply chain that is the foundation for nearly $300 billion in annual revenue worldwide? Too often, transportation and the logistics of the supply chain are taken into account late in the game—if they are considered at all. Yet failing to investigate and consider the details in vital logistics factors—for example, insurance coverage and security requirements—can dramatically increase supply difficulties and overall costs for any product, no matter how great its potential demand.
Insurance Fine Print
Fine print can cause big problems. For example, no globally sourced material can be shipped without a bill of lading, which shows where and from whom the goods were received, describes the shipment and defines the liability of the carrier. It is not unusual for carrier bill of lading agreements to be voluminous, containing myriad terms and conditions. Typically buried in these agreements are exoneration clauses, benefit of insurance clauses and limitation of liability clauses that, in effect, mean that the bill of lading does not adequately cover insurance, as most people assume. That’s particularly true if the goods are shipped using CIF (cost-insurance-freight) international commercial terms, where the seller arranges and pays for carriage without assuming its risk.
Here is an example of how insurance coverage is limited: For U.S. importers, the Carriage of Goods by Sea Act (COGSA) governs the rights and responsibilities between shippers of cargo and ship operators regarding ocean shipments to and from the United States. COGSA sets the amount that ship owners must pay cargo owners for damage in transit at $500 per package or, for goods not shipped in packages, per customary freight unit. This “package limitation” has spawned much cargo damage litigation, because when the COGSA was enacted, most cargo was shipped in boxes, crates and bags. Today, most shipments are made in ocean shipping containers up to 45 feet long, supplied by the carrier. Such containers can hold huge amounts of components or goods valued at many hundreds of thousands or even several million dollars—yet carriers often contend that one container is a “package” with a $500 insurance limitation.