HOW BUYERS CAN SUPPORT THEIR MANUFACTURING PARTNERS DURING THE COVID-19 CRISIS.

The COVID-19 pandemic is wreaking havoc throughout the global fashion industry. A recently updated report by McKinsey and Company and the Business of Fashion, ‘The State of Fashion 2020’ states that the global fashion industry will face a 27% to 30% contraction in business due to the outbreak of the virus. These stark predictions are borne out by the latest news that UK apparel retail contracted by 34% in the month of March alone.

With global lockdowns and social distancing becoming the new norm, consumers are housebound, high street retail stores are closed and brands and retailers are faced with an ever-mounting level of inventory. Even the upturn in on-line sales is not enough to dent the shortfall in sales that the COVID-19 pandemic has caused.

As a result, companies are cancelling or delaying orders with their supply chain partners and garment manufacturers and the backward linkage supply chain of the apparel industry are struggling for financial survival. Production and payments have come to a standstill and the apparel manufacturing industry can no longer predict what the future holds.

Now, more than ever, is the time that the apparel manufacturing community needs the support from their buying partners and central to this is an open and empathetic system of communication.

Communication between retailers and brands and their apparel supply chain partners is key. Whilst apparel manufacturers globally are aware of the devastating effects of the pandemic upon immediate trade, they need to have an insight into what their business partners are planning going forward. Buyers and their sourcing and purchasing teams need to be engaging with manufacturers.

The only way for the apparel industry to survive this crisis is for all parties to unite to find a sustainable way which would mitigate the financial impact of the pandemic and to ensure that it is distributed amongst all stake holders, rather than solely impacting apparel manufacturers and their suppliers. Some suggestions that could be considered for a fairer, more equitable course of action are detailed below:

Assess the financial impact upon individual suppliers: The buying community should start by assessing the impact and financial fallout for their manufacturing partners and engage with them before taking the decision to withhold payments or cancel orders. The manufacturing process runs on different cycles. The production process of a garment can start months before it reaches the high street stores.

With a proper indication of loss of sales or business reduction, manufacturers have the ability to delay or stop orders before they have cut fabrics. Unless there is a proper discourse between a manufacturer and their customer, they face the risk of a heavier financial burden as they will be holding in process stock that is of no value to anyone apart from the buyer that the goods are destined for.

Assurance of future business and provision of moral support: Many apparel manufacturers have been working and developing relationships with their clients over a number of years. What they are now seeking, during these dark times, are assurances from their customers that they will fight this crisis together and that they will be treated in an ethical, moral manner.

A true partnership can overcome many problems and the panic that ran through the apparel manufacturing community over the last few weeks ca be overcome if manufacturers feel that their purchasing partners are not turning their backs on them.

If a manufacturer knows that the customers’ goods will be taken 1/2/3 months later or that payment will be forthcoming 1/2/3 months later – they can plan accordingly. At this present time, many among the apparel manufacturing community fear that their clients will not take ownership of finished goods or pay for completed orders. Clear, open communication regarding the strategy for the intake of production would help alleviate these concerns.

Developing a cohesive plan to restart business: A detailed business plan from all customers is a must. Through open dialogue with apparel supply chain partners, customers can develop a plan for the intake or re-phasing of production, can negotiate acceptable revisions to payment plans, can discuss ways to mitigate any financial losses and how to use, or pay for, raw materials purchased on their behalf. Lack of, or delay in, any plan or any discourse just adds fuel to the fire, spreading a feeling of uncertainty and fear amongst apparel manufacturers. 

Equitable distribution of the financial burden: The financial responsibilities and burden need to be properly distributed across customers, manufacturers, raw material producers and the associated supply chain. As most raw material suppliers used by apparel manufacturers are buyer-nominated, the buyers need to be talking with them to request the rephasing of their payment terms to relieve the financial burden on garment manufacturers. A plan to utilize raw materials that have been produced for a particular order from a buyer and are now not required, needs to be devised through interaction between customers and their manufacturing partners.

Taking finished goods on delayed payment terms: Customers should consider accepting finished product that is now waiting in manufacturers’ warehouses for delivery, on delayed payment terms.

Although this approach is far from ideal, it is considerably more preferable than customers cancelling or putting delivery of goods on indefinite hold as the manufacturer at least is safe in the knowledge that payment for the goods will be forthcoming at a later date.

Arrangement of 3rd party financing programmes: The withholding or delay in payment or delay in garment delivery results in a further delay in the manufacturer receiving payment for finished product. It is possible for buyers to arrange 3rd party finance programmes for their manufacturing partners whereby a manufacturer can choose to accept a small percentage discount in order to receive payment early. This concept of anticipation payment, or factoring, is commonplace in the apparel industry and is an approach that could be adopted by customers to support their manufacturing partners.

Using corporate social responsibility (CSR) funds for workers’ wages: Many brands and retailers have their own CSR fund established. One way of relieving the financial duress suffered by apparel manufacturers could be that customers come forward to help contribute towards the wages of workers at their manufacturing partners’ factories. This allocation of support would be proportional on wat percentage of any given manufacturer’s capacity was allocated to a specific customer.

The effects of COVID-19 will be suffered by the apparel industry for the foreseeable future. The above suggestions show some of the ways that buyers can be proactive about opening discourse with apparel manufacturers. In order to mitigate the effects of the pandemic upon the sector now is the time for customers to engage with their apparel supply chain partners to ensure that, when the crisis has passed, the industry is in a fit state to begin operating as efficiently as possible in the post-COVID-19 environment.

Mostafiz Uddin is the Managing Director of Denim Expert Limited. He is also the Founder and CEO of Bangladesh Denim Expo and Bangladesh Apparel Exchange (BAE). He can be reached at [email protected].