Introduction
Decathlon is a French sporting goods retailer, they are the largest sporting good retailer in the word. The company's business model is opening wide range of sporting goods at low price to gain mass market. They have 1352 stores located globally in 39 countries as of Dec 2017.
The company has several distribution centers in each area i.e. North Europe, South Europe, EMEA, Asia, America; however retail countries can consider to ship direct from sourcing countries instead of distribution center. As same as strategy of retailer, the company need to expand global sourcing destination, hence there are many sourcing countries in particular Asia.
In South East Asia, the company has presented in Vietnam, Cambodia, Thailand, Indonesia, Malaysia, Myanmar as sourcing countries. How the South East Asia region can manage cargoes to word wide especially to small and new opening retail countries?
In South East Asia, the company has presented in Vietnam, Cambodia, Thailand, Indonesia, Malaysia, Myanmar as sourcing countries. How the South East Asia region can manage cargoes to word wide especially to small and new opening retail countries?
What is MCC?
Multi-Country Consolidation is a cost effective solution by combining cargoes from different origin countries (sourcing countries) to build a big volume of shipment (Full-Container-Load, FCL) to destination. Goods from origin countries are shipped to hub (MCC Hub) that is located in Free Trade Zone (FTZ), de-consolidated then consolidated to full load.
Why MCC? A case study at Decathlon
Optimizing container loads across multiple origins and destinations, also providing opportunity to open new sourcing countries and sell to more customers that are the purpose of implementing MCC Hub for Decathlon. A tailor-made MCC concept has been selected for Decathlon in South East Asia; as mentioned in introduction part, customers (retail countries) place purchasing order (PO) direct from sourcing countries; thus the MCC concept is to combine both origins and customers.
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| The tailor-made MCC concept for Decathlon |
At the origin, the first leg shipment is contained POs from many customers. At the destination, customer receives only one shipment from many origins.
- Origins: Thailand, Malaysia, Cambodia, Indonesia (Jakarta), Indonesia (Surabaya), Myanmar
- Destinations: Russia, Turkey, Morocco, Colombia
There are Free Trade Agreements between Europe and Cambodia, Indonesia, Myanmar (FORM A); Malaysia and Turkey (FORM MTFTA); thus does the company still gain benefit of tax exemption? Decathlon doesn't need to change the owner of cargoes at MCC Hub, duty exemption is still applicable by direct CO from each origins to each destinations. In other word, customer Turkey can use the direct CO from suppliers in Cambodia, Indonesia, Malaysia; no need to apply for Back to Back CO.
Result
After a few months of running MCC Hub, the result is given with the significant logistics cost saving. The ocean freight of LCL and destination charge plus customs clearance and trucking cost to the project's customers are extremely expensive. By the original shipping method total logistics cost is above 200 USD/CBM, it is reduced roughly 40% in which mostly from saving freight cost and destination cost (DTHC, D/O, Customs, Trucking). The below figure shows where saving cost is come from.
Other benefit
At the Free Trade Zone, the owner of cargoes can be changed; hence it may be an advantage for hiring the real owner of cargoes (third party trading) as well as price while final customer still receives tax exemption if there is Free Trade Agreement (FTA) between origin and destination countries. The below example shows how does it work:
- Supplier A in Vietnam sells goods to a Trading company B and price is X (USD/unit).
- The Trading company B sells these goods to Customer C in Europe and price is X+1 (USD/unit).
- There is FTA between Vietnam and EU, then tax exemption is applicable.
- The Trading company B does not want to disclose the Supplier A and unit price X.
In FTZ, the owner of cargoes can be changed and the new CO is applied
- Shipper: Trading company B
- Price: X+1 (USD/unit)
- Certificated that the origin country of goods is Vietnam
Then Customer C can gain benefit of tax exemption and all trading information is non-disclosed.
- Supplier A in Vietnam sells goods to a Trading company B and price is X (USD/unit).
- The Trading company B sells these goods to Customer C in Europe and price is X+1 (USD/unit).
- There is FTA between Vietnam and EU, then tax exemption is applicable.
- The Trading company B does not want to disclose the Supplier A and unit price X.
In FTZ, the owner of cargoes can be changed and the new CO is applied
- Shipper: Trading company B
- Price: X+1 (USD/unit)
- Certificated that the origin country of goods is Vietnam
Then Customer C can gain benefit of tax exemption and all trading information is non-disclosed.
Challenges
The frequency challenge of operating MCC is dynamic optimization because the volume from each origin is changing. All stakeholders need to collaborate, make shipment schedule at the same time (cargoes from all origins to all customers should been arrived MCC Hub same time in case less frequency of shipment) and share shipping volume in advance.
Freight market is fluctuating, then the company should review MCC costing analysis when changing to new freight tender.
About the author
Hieu Nguyen had over 2 year-professional-experience in Decathlon as Logistics Manager for out-bound of Thailand, Malaysia, Indonesia and Myanmar. He released the necessary of MCC Hub then convinced customers to using this project. In overall, he had 5+ year working experience in Logistics and Supply Chain Management and hold master degree in Business Engineering.
Disclaimer: Data shown in the case study is both Decathlon's public information and fictitious that used only to demonstrate the approach and results.
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