Corona Virus & Delayed shipments – who gets left holding the bag?

The news is finally connecting the dots.  China, the biggest consumer goods supplier to the United States is in a state of emergency.  Citizens are being told to stay home, transit systems are impacted for those wanting to go to work, and factories are struggling to get going after the Chinese New Year.   All of this translates to goods being delayed at the factory, which has significant implications to items intended to be on the shelves in retail stores across the USA.    Sales are in jeopardy.

For all the retailers who were considering factory level production visibility of their own branded goods, now you are realizing how valuable that would be.  Where are raw materials?  Are your goods in process? How is the supply chain looking to get them in on time? Do you have instant visibility or is your team sending emails right now to find out? This is a topic that needs its own post – (stay tuned).

And then there are the Brands who are facing this issue – production is behind, with no clear answers of when goods will be ready to ship. Retailers are now waking up and realizing there might be issues, and asking a lot of questions because they know shelves might be empty.

Here is the question on everyone’s mind – who is responsible? This will be a classic exercise in negotiating to win.  The old school approach is for the retailer to hold the vendor 100% accountable for this mess, and ask for allowances to make up for 100% of lost sales and margin.    The calls have already been made. Depending on how big the retailer is and how important they are, the supplier has to decide to either pay up to the retailer, hope to expedite (and pay a ton of freight), or do a combination of things which in the end will cost the supplier dearly.

Retailers don’t be fooled – you demand everything now, you might get it, but it will come right back to you with increased costs in other places for the supplier to make up the loss.   Some suppliers might just say no and drop you vs. facing such large losses. 

Is there a middle ground? Yes: Transparency.  Suppliers need to give fair warning now if goods are in jeopardy of being late or cancelled. Everyone needs to work on the best solution for both sides: cancellation, shared costs on expediting, accepting late goods with shorter margins for the supplier or the retailer, or a combination of things that help both sides get by. The key is to deal with it now, vs. hiding the issues hoping they will get better. Hope does not ring the register. Good partnership is what propels successful retail relationships in the long run.

This emergency is not anyone’s fault, but it has to be dealt with. It will be fascinating to see what the impact is to the consumer – as I am sure some of the costs will get passed through to the shelf. As for the retailer and suppliers out there – how you will handle this situation? Are you old school, or are you ready to truly work together?   We will all soon find out.