There is one thing that gathers us all these days: we are all impacted by the CODIV-19: our businesses, our cash flow, our families, the way we live, everything is changing.
On the supply chain, battles are fierce. Between brands and their manufacturers, this is about who will win in this war. Still, everybody shares the same 2 key goals here: surviving the crisis and keep customers happy: collaborations and true partnerships must therefore more than even be at the center of todays’ purchasing tactics. Indeed, as brands and buyers, you should know that your current actions and reactions to the crisis will deeply shape your supply chain quality and resilience for tomorrow.
Here are a few key good practices, non-exhaustive, shared with us by partners and factories, to tackle this huge “bullwhip effect” and make common interests converge.
Short-term wrong decisions, catastrophic impacts
Canceling orders without notice, asking for sharp price decreases on current collections, imposing new payment terms or delayed payments, leaving suppliers stranded with raw materials, here is precisely what to avoid in these times of crisis.
“Our client canceled all our orders, the issue is: as manufacturers, we have already paid materials, workers and production is already well on its way, it truly is a catastrophe for us.” Manufacturer in China
We are aware that pressure on P&L and buyers is massive these days but the impacts on the supply chain must be considered, and here’s just a few:
- Cash flow issues >> bankruptcies: as some brands are postponing to open Letters of Credit or trying to impose new payment terms, manufacturers are reluctant to pay materials deposit, leading to a big impact on materials supply and prices. High dependency patterns to particular clients may lead to bankruptcies, if caution is not applied. At the end of the day, workers pay a high price: lay-offs and salary cuts for permanent workers, not to mention the catastrophic situations of contractors and informal workers in India, who are already struggling to afford the very basics for food and medical.
- Production disruption >> health and safety issues: production lines which were dedicated to some clients are stopped, products not shipped are piling up in the factories, making it hard to circulate and endangering the overall safety of the premises and the workers. It is also very hard for manufacturers to readjust their production schemes.
Short term fair actions, smart impact
- Communicate, communicate, communicate!
Take quality time to communicate with your vendors, through wechat, zoom, whereby or other visio-conference tools where you can see each other (the previous 3 work great in China!). Like we previously said, we are all impacted so qualitative communication has never been more important.
“I have sent an email to all the suppliers explaining the situation and asking for support on payment terms, for the sake of our collaboration, present and future. 80% of them replied positively.” Head of a French group sourcing office in Shanghai
For key issues to deal with, drop the emails and take the time to “e-meet” your partners. This is the first step to think and co-build constructive solutions for the present and the future.
“I received a direct call from the CEO of my clients’ company, who took 2 hours to explain the situation (to me and my teams and asked me about mine. His requests are challenging but we appreciated the call and the straightforward communication.” A textile supplier in Shanghai
- Fair negotiations to secure partners financial situation.
Make sure (with step 1) that you understand your partners situation: deposit made to secure materials, money already invested for orders, salary payments, workers situation, incentives of local governments – if they exist, etc., to find solutions that do not put your partner’s business at risk.
Here are a few examples of our partners’ solutions:
- Assessing already purchased materials and accessories and brainstorm for a solution to compensate them, re-use, store, re-sell them for later collections (in textile), etc.
- Defining tailor-made payment terms strategy: some key suppliers may be weaker financially, they might therefore need deposit or preferable payment terms. A decoration supplier explained to us they accepted delayed payment against clients’ commitment to increase collaboration for next year.
- Loosening penalty policies and cancelling penalties: shipment delays are becoming a new norm and suppliers are not the only ones accountable.
- Rationalising current assortment plans and reconfiguring orders to continue producing viable products.
- Designing storage plans solutions, if not at suppliers’ site or clients’, through external partners to declutter and prepare future orders.
“For brands with strong identities and style, we find similar traits to all collections, we can therefore reuse some of current accessories and materials for later, it will not be at loss. “ Textile manufacturer in India.
“Our factory understands our issue and while we agreed not to cancel current orders, they agreed to make payment terms more flexible for us” French SME sharing about their experience with one of their major vendors in China.
Mid-term: Reset fundamentals for recovery and future orders
Although it seems a tough time to “strategize” for the future, there has, paradoxically, never been a better time to rethink your supply chain stakes and put up. If not done yet, strongly consider developing a more sustainable purchasing and sourcing strategy for the future.
Here are few examples, there are more and we are delighted to see strong and fair actions being taken worldwide to tackle current issues:
- Dialogue & communication to understand who your suppliers are: the bases of any partnerships is to know who you deal with. Looking at the business and the capacity situation is one thing, but understanding in depth the challenges of your partner, the governance and culture, the social practices in place, their workers typology and situations, the quality organisation, etc. This is the safeguard for long-term business and the key to open traceability projects.
- Purchasing and costs strategy: take the opportunity to re-think, if not done yet, the price structure of your key items, to start with. Product price reflects material costs, labor costs, suppliers’ margins, but it also reflects the overall quality of your partners organisation. Now is also a good time to rethink suppliers’ portfolio structure and define key sourcing and performance criteria to strengthen current good practices and prepare for the future.
- Forecasting and internal purchasing processes: take the time to review your current internal processes and products forecasting, product development schemes, and so forth. Surely there are practices to improve and while you improve productivity internally, your supply chain will also be able to better prepare for future orders: capacity will definitely be a crucial issue in the near future, one to fight for!
- Support-oriented compliance/sustainable solutions: your suppliers are nowadays facing crucial labor issues and workers themselves must cope with critical situations. Use current data and situation to re-assess your key suppliers’ solidity and lever solutions to support them instead of sanction them. Upon their future depends your supplies and products quality.
In a nutshell, your purchasing actions and decisions will deeply impact your supply chain survival but also its future: manufacturers who will survive this crisis will be the most resilient and solid ones and they will also choose who are the best clients for their own future. They will also surely remember what happened in times of crisis and what client’s “partnerships” and “ethical codes” truly meant, so let’s look back at our key values and make this crisis an opportunity!