Manage Your Dairy Export Supply Chain as a Strategic Asset

One study showed companies that effectively manage their global supply chains double their profit margins. 

Editor’s Note: This is the first post of a three-part series on successful export supply chain management.

It seems simple enough: Smart warehousing, shipping and documentation will get products delivered on time and in good condition, keeping customers happy.

But research by the U.S. Dairy Export Council finds that while some companies manage their export supply chains in a strategic and proactive manner, others don't. For companies that do invest wisely in the export supply chain, it can be a rewarding proposition that boosts bottom-line profits and provides a competitive edge.  

"The U.S. dairy industry has a competitive supply chain proposition," says Ross Christieson, senior vice president of market research and analysis at the U.S. Dairy Export Council. "It is located in proximity to key markets; its farmers are engaged in year-round production, the country has a great reputation for food safety and there is a well-developed infrastructure consisting of efficient manufacturing facilities, rail lines and shipping ports."

While infrastructure is critical, a company is still responsible for putting the right people, technology and processes in place to deliver its products to customers in an effective and efficient manner. 

One example is in-market warehousing.

"Because warehouses are a prime asset in the export supply chain, dairy companies might consider locating warehouses in the foreign countries where they ship," said Christieson. "Having in-market warehouses will allow them to react sooner to customer needs and ensure on-time delivery. It will also allow for repackaging and specialized handling to meet customer specifications."

Better supply chains, bigger profit margins

Studies show clear economic advantages for companies that manage their supply chains efficiently. 

For example, a 2013 Global Supply Chain Survey by PwC found that companies that excel in supply chain management (identified as “leaders”) across a range of industries had an impressive 15.3 inventory turns per year compared to just 3.8 inventory turns per year for companies that consistently underperform (identified as “laggards”).

A high turnover rate suggests greater efficiency and the ability to turn stock into more revenue.

Indeed, leaders enjoy an average earnings-before-interest-and-taxes margin of 15.6 percent versus 7.3 percent for laggards. (EBIT margin is a measure of a company’s profitability and is calculated as EBIT ÷ net revenue.)

"It should be extremely motivating for USDEC members to know that leading ESC companies have more than double the profit margin of the laggards in their respective industries," said Christieson. 

Three reasons supply chain management pays off

In order to achieve supply chain success, a company must first have buy-in from its ownership and senior management, said Rob Davenport, manager of international business for the C.F. Sauer Co., the United States’ second-biggest spice company and third-largest domestic mayonnaise maker. As this previous blog post explains, over three years, C.F. Sauer’s exports have grown from 10 percent to 16 percent of overall sales, which are just over $400 million.

Speaking at a USDEC Export Supply Chain Best Practices Forum, Davenport offered three reasons why exporting and strategic use of the supply chain can lead to bottom-line success:

• Re-investment. A company can invest the profits from international sales back into its domestic operations.
• Brand growth. The C.F. Sauer Co. bought a brand of mayonnaise in 1995 that was mainly sold in and around Alabama, and within the next 20 years turned it into one of the leading imported edible consumer products in the continent of Africa.
• A hedge against uncertainty. “If you have your operations concentrated in the United States and you’re not exporting and something happens to your sales—whether it be through competitive pressures or environmentally—you have nowhere to turn to try to offset those issues in sales. If you are exporting, you can probably offset some of those though international sales,” Davenport said.

“While it does require an investment, U.S. companies will find that optimizing their supply chain will bring returns in profitability and customer relationships,” said Tom Suber, president of USDEC.

Adds USDEC's Christieson: "When markets are tough, you have to be even better to keep your customers. In a highly competitive market, the export supply chain becomes even more important."

Our series on export supply chain management consists of these installments:

• Manage Your Supply Chain as a Strategic Asset
• Focus on Customers to Improve Your Dairy Supply Chain
• Outsource, But Don’t Lose Control of Your Dairy Export Supply Chain

Learn more: 

• Supply Chain Tips from an Award-Winning Exporter
• Editor’s Advice to U.S. Dairy Exporters: “Be There”
• California Dairies Etches Bold Vision in Crystal Globe

The U.S. Dairy Export Council fosters collaborative industry partnerships with processors, trading companies and others to enhance global demand for U.S. dairy products and ingredients. USDEC is primarily supported by Dairy Management Inc. through the dairy farmer checkoff. How to republish this post.