Manufacturers and Retailers Must Collaborate to Survive Covid-19
“At such a critical stage in history, companies that want to survive cannot do so alone,” says Michael Deng.
The CEO of DNJ Fashion, a growing manufacturing company with notable clients like Asos, Showpo and Revolve, strongly believes in transparency and collaboration between manufacturers and retailers, especially in the age of the coronavirus. As the virus sweeps the globe, global manufacturing companies, like DNJ Fashion, are forced to adjust to a bleak reality.
Within just two weeks, disruptions have been felt in both demand and supply. Just when China is seeing a cautious recovery (after a month-long hiatus that delayed orders) the rest of the world fell victim to the virus’s spread. Lockdowns have forced factories in Italy and India to close, preventing workers from even leaving their homes. Soon, more countries will follow.
But for the manufacturers that are operating, such as factories in Vietnam and Bangladesh, they’re seeing a different set of challenges. In Dhaka’s manufacturing centre, more than USD 3 billion worth of orders were either cancelled or put on hold, as panic-stricken retailers in the US and Europe rushed to cut losses.
This doesn’t just impact raw material suppliers and garment workers, but it also creates a shockwave in the supply chain – one that will have a lasting impact.
Deng, who’s been in the industry for more than a decade, urges fashion manufacturers and retailers to collaborate and to beat the crisis together. In this exclusive podcast interview, he shares why the collaboration is necessary with Amanda Liu, Omnilytics’ Associate Director, along with the importance of data adoption to beat the retail gloom.
Interview: Importance of Collaboration with Michael Deng
*The interview is conducted in Mandarin. It has been translated (below) to English for international audiences.
“Data is the answer. At such a crucial time, we don’t want just any feedback, we want a clearer picture of consumer demands.”
Amanda: How has Covid-19 affected manufacturers like yourself?
Deng: Our manufacturers, especially those in China, have been hit hard twice in a row. The first strike, it was impossible to resume work because of the restrictions. The second strike hit while we gradually resumed production, but our customers from across the globe were affected by the virus. Operations have been tough in this unprecedented crisis. Our customers have already cancelled orders, including the finished products. Production lines for semi-finished products have also been suspended. The biggest impact is really, the halt in business continuity. So many of our colleagues and workers, they’re forced to take vacations, some want to resign. There’s also been a huge risk to our capital, as well as our existing inventory. This is truly, one of the most difficult periods we’ve faced.
Amanda: In the same situation, how will this impact brands?
Deng: Retailers are facing an equally detrimental impact because everything is at a standstill and that stagnancy is dangerous. Most stores are forced to shutter during this period, so that means no customers. No customers mean no sales, which impacts the bottom-line. But what’s more frightening for retailers is the uncertainty of it all. No one knows how long the pandemic will last, and what the future will look like. There’s a lot of panic going on, just like how it is for manufacturers.
Amanda: What are the short-term and long-term effects for brands and manufacturers if they don’t work closely together now?
Deng: If retailers and manufacturers do not work together now, there will be severe damage.
Short-term: The damage to a retailer’s supply chain system will be irreversible, as many suppliers risk falling into bankruptcy due to the crisis. Even if they do survive, the huge dent on capital as well as inventory makes it hard for them to recover to its full capacity.
Long term: If retailers wait for the economy to improve and don’t collaborate (with the suppliers) now, it’ll be tough for them to catch up because the landscape would have shifted greatly. Once stabilisation sets in, retailers that have cancelled all of their orders will find themselves with no stock to sell. And after Covid-19, it will be an entirely new retail landscape. Consumer behaviour would have shifted, relationships won’t be the same anymore, and the terms will be very different moving forward.
Amanda: How can brands and manufacturers work together during this critical period to ensure sustainability in the supply chain?
Deng: Communication is key here – for retailers and manufacturers to have an honest conversation and work together towards a solution. Because right now, it’s already a lose-lose situation. Newness is disrupted once retailers delay or cancel orders, and cancellations will cause pressure on the suppliers’ manufacturing process, which is a huge capital risk.
At such a critical stage in history, companies that want to survive cannot do so alone.
But retailers and manufacturers aren’t collaborating because they’re more worried about their own problems. But what if both parties go through the difficulties together? Perhaps manufacturers can extend the payment deadline for retailers. Can retailers strike a deal with manufacturers and absorb the cancelled orders once the market recovers? At such a critical stage in history, companies that want to survive cannot do so alone. Each party has to support one another with constant communication and cooperation.
Amanda: What are the ways a manufacturer can help both small and big brands during this period?
Deng: There are a few ways manufacturers can help retailers. The first, from our end, is to actively optimise internal management. How can we improve our processes? Is there a way to reduce costs? How do we speed up communication with the other parties? With the knowledge at hand, it’ll be useful to guide and advise retailers on what to purchase.
Next, manufacturers can help by reducing the risks of ordering for retailers. This is especially beneficial for smaller retailers as they don’t have the capital nor capacity to order a huge bulk of inventory. One way is to lower MOQs (minimum order quantities) – a little goes a long way here.
Manufacturers can also support retailers by being flexible with payment terms and conditions. Manufacturers can either extend the payment deadline (while seeking external funds) or engage factoring companies to enable retailers and manufacturers to find a middle ground.
Amanda: With this outbreak, it has shifted how retail operates. Historical data will no longer be useful for future demand prediction. What is your advice for manufacturers and retailers to understand consumer demands?
Deng: The outbreak, if it hasn’t already, will radically change retail. While no one knows what the future holds, it will have a profound impact – one that cannot be ignored by retailers and manufacturers. In other words, they cannot rely on the old ways anymore – in product development, pricing, and marketing strategy – these must change as well, especially since speed is of the essence in this shift.
In a risk-filled environment like right now, it’s important to have validation.
Data is the answer. At such a crucial time, we don’t want just any feedback, we want a clearer picture of consumer demands. With this information, you can move at a much quicker speed, and even in production, you’ll have a clear idea of what your customers are asking for. In a world where your competitors are frantic about their next move, you’d be one step ahead as you already know what’s the best prices, launch frequency and categories for your market. All in real-time. You see, the market will continue to shift, and to understand the changes in consumer demand, pricing and trends, data gets you the answer in the shortest amount of time. With so much uncertainty in the current market, data cuts through the noise.
Even before the coronavirus, data is important. In the past, retailers have a tendency to overproduce – and they’re often the wrong styles for their market. But back then, the stakes weren’t as high as they are now. In a risk-filled environment like right now, it’s important to have validation.
For manufacturers, we use data constantly. For us specifically, we rely on Omnilytics to make decisions. It’s important because it not only allows us to review how retailers are performing, it also helps us to gauge the current market conditions. With data, we’re able to have a clearer direction. Our buyers are able to reduce the risks of investing in an underperforming category, and we’re able to be more competitive because we know what the market is stocking up on.
In the current crisis situation, we can obtain sales data in time, which helps us to prepare for returning orders in advance to meet current demands – instead of preparing a large number of goods and waiting for sales.
It’s truly a missed opportunity and a huge risk if retailers or manufacturers don’t rely on data.
Amanda: Lastly, being in the manufacturing business for over 10 years, what are your best practices for retailers and manufacturers to adopt?
Deng: I strongly urge retailers and manufacturers to adopt data. Having validation in all that you do, from inventory to the number of SKUs, it will save a lot of your time and resources. This not only helps me as a manufacturer but also for my retailers because our business model is C2M (customer to manufacturing). What we do impacts them. We don’t want the buyers to develop a huge number of styles that they cannot sell. We don’t want a situation, especially right now, for retailers to buy more than they need.
Fashion is an interconnected system if we succeed, the retailers succeed as well.
Having data helps us, which in return, helps them. Working together will be more effective, as we can speed up the production lifecycle together. This is because, in traditional production, the process of approving a product is extremely time-consuming and costly. We drill down to the measurements, get the right material, and finalise the sizes. Then, we send the samples over to the retailers for confirmation. Most of the retailers are based overseas, so there are logistics-related hurdles as well.
Ever since shifting to using the latest 3D technology supported by the current data on market performance, we have managed to shorten the process considerably. We know exactly what the consumers are looking for, which is what the retailers will appreciate being informed. The key here is speed and accuracy. If the manufacturers already have accurate data, this will help the retailers to place better buys, which increase their competitiveness and improve inventory cover.
I would advise manufacturers to think from the perspective of a retailer. Break down every decision of theirs. Are they buying too much? Is development accurate? Will there be pressure monetarily-wise? Fashion is an interconnected system if we succeed, the retailers succeed as well. It’s a win-win.
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