Manufacturing in Difficult Times

Every day now I see the inevitable effects of a retail industry under pressure from a zero footfall situation. 

We can all relate one way or another. Covid 19 has pressed pause on all our usual progress and activities.  However I will always say, no one aspect of a product cycle can choose to isolate itself. Regardless of the social distancing measures we are all subject to. 

The production cycle is just that- a circle of events, effects and processes. Once in motion, they fall naturally into place.  Yet within this is a production food chain where retailers sit at the top. Any change in direction retailers choose to take has a huge compounding effect on those suppliers and manufacturers operating below. 

As a result there are some inevitable conversations that I know are taking place between manufacturers, suppliers and their customers. 

 Three of the most common requests

The appeals are not new. In times of recession or when a retailer hits financial difficulty the same requests and demands are thrown up.

They are often logical but in such hard times the impact cannot simply be past down. We are in this together and such camaraderie needs to be taken into business as well.  Otherwise when this blows over there will be no supply chain to fall back on.

Q1. Will the manufacturer accept a reduction in price for the current orders, or provide extended terms of credit?

Once production is underway the costs for manufacture are fixed and cannot be changed. Staff, machines, materials etc. are all purchased and priced.  To ask for re-negotiation at this point is simply asking a factory to be charitable.

If the orders are still required then a part payment / part shipment plan would be preferable.  Cash flow is key to everyone here. This lessens the financial impact for the customer but ensures the manufacturer can meet some of its overheads for producing the order. 

Q2. Can the manufacturer delay shipments thus prolonging the production lead-time?

Delaying shipments or slowing a production lead-time is possibly the most precarious of requests.  Disrupting the rhythm of a production line can often lead to errors and short shipments. All of which are often made the responsibility of the manufacturer to put right.

Best-case scenario would be to delay starting production altogether.  While the materials are in their uncut state they remain a saleable asset for future production.  This provides clients an opening to revise their P.O’s or give the manufacturer the opportunity to sell the materials to someone else.

Q3. We are cancelling our orders!

Less of a question and more of a declaration of intent. The worst of all scenarios is a cancelled order.  Most manufactures are unable to do anything with this stock except destroy it. They have limited ability to sell it on and could be liable to brand infringement if they did.

There has to be accountability by customers/ retailers to honor payment of these orders where the manufacturer has done nothing wrong.  In situations where a company is in financial difficulty, negotiations to re-coup these losses needs to happen swiftly.  Part payment or part-shipment is often the simplest lifeline.

Lose-lose situation

In every scenario there are no outright winners and these are difficult, stressful conversations.

  • Transparency
  • Respect
  • Free flowing dialogue

These are the only ways we can hope to understand each others predicaments and maintain these essential relationships for the future.

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