The Demand Chain

Without demand, there is no supply chain.

In the global supply chain the way demand is communicated is through the issuance of a purchase order (PO). The PO is what starts the supply chain engine, and it guides every subsequent step of the process.

Order management is the process of managing the order during its lifecycle, from ordered to delivered. Good management of the order is crucial because the products importers purchase are the same products they sell. In other words, it's how the company makes their sales and earns their profits. Therefore, the faster, cheaper, and better they buy it; the faster, cheaper, and better they can sell it.

If you walk into any major sporting goods store and look at the "made in" label on each product on their shelves, you would be hard-pressed to find anything in the store that is not imported. In fact, I took the challenge and looked at more than 50 products last weekend, and not one of them was made in the USA. On average, for a big retailer 10% of that product will be imported directly by the retailer. The rest of the product in-store is also imported, but the retailer will buy it domestically from the wholesaler who imported it. For example, the Callaway clubs at the sporting goods store will likely have been imported by Callaway and purchased by the retailer domestically. However, if the retailer believes they can import it more effectively than Callaway, they may buy it from Callaway "FOB," meaning the retailer is the importer of record. All of those products on the shelves began their 'life' as a PO.

A purchase order is a contract between a shipper and their supplier to buy products. This contract contains all the relevant details about the purchase, such as price, quantity, ready date, terms, and product description. It's important to note that the terms "products" and "inventory" are often used interchangeably.

There are generally two types of orders:

1. A "blanket" order is common for manufacturers. With a blanket order, a manufacturer will typically write one "big" order to their supplier for a large quantity, then decrement the order with each shipment.

2. A "discrete" order is common for retail. A discrete order is typically one-to-one, meaning one order for one set of products.

There are also generally two stages to managing an order:

1. Purchasing: A buyer places an order with a supplier and manages the process during production. On average, it takes three months for a supplier to make the products, sometimes much longer. For example, footwear and apparel normally take 6-9 months to produce. During this phase, buyers want to know the status of the product, if it's on time, if there are any changes or problems during production, etc. Many do this via Excel and email; however, most are looking to digitize it because the data collected during this process is critical to future sales, and manual processes are fraught with issues. The pandemic really exposed these weaknesses, which is why most companies are moving to digitize it more quickly.

2. Logistics: This phase begins once the product has been manufactured and is ready to ship. It typically starts when the supplier places a booking with a designated forwarder and ends when the product arrives at the DC. In this phase, what is important is that the importer knows what is inside the container. Without order management, the customer only knows the shipment status, which is nearly useless to them. With the exception of the logistics department, everyone else at the importer wants to know the status of the product, not the status of the shipment.

While every importer already does order management, few of them want to continue to do it manually. During their recent presentation at RILA, Haverty's described the order as the "lifeblood of their business." In truth, it's actually the second most important part of business behind sales, but you can't do one without the other.

Rob