Pandemic. How can we wordsmith it into a four letter word? Because that is ultimately the bottom line.
What happened? Fortunately the coronavirus occurred during Chinese New Year. Typically factories in China don’t produce timely immediately after CNY for a lot of reasons, not the least of which is workers not returning, soon, if at all. So other than the “panic” and unpredictable government (quarantine) policies, this current delay is not out of the ordinary.
For example, in emblematic jewelry, four to five weeks is the norm for overseas production. With CNY, add at a minimum one to two weeks for this temporary period. It also depends upon which workers return. Without toolmakers, nothing can be produced.
However, couple this with the panic and unknown, production requirements also exacerbated limited domestic capabilities. Too much hit domestic resources too soon, whether they were truly in hand dates or customers trying to move to the front of the line. What is typically a three to ten day production for a printed pin became almost thirty days.
Then this is all compounded by the entire supply chain. For example, we purchase our tangential supplies, such as clutches, magnets, adhesive tape and the like, on an as needed basis. We need those vendors to be prepared to ship immediately, which now is not the case.
(Just look at Apple’s announcement on the 17th of February. They will miss their March financial forecasts, all most likely due to the coronavirus.)
Even for our domestic production, many of the basic supplies come from China. It is akin to saying in the air travel industry that when O’Hare or Hartsfield get a cough, the airline industry gets the flu.
Without the coronavirus, most of the immediate events could have been handled by rush production overseas and/or domestic resources.
Now we have encountered both problems. Missed in hand dates meant lost profits and possibly lost customers. The only similar experience for us was 9/11. Fortunately the business community (with limited exceptions) managed its way through the process.
In the short term, there are added costs. Switching from overseas to domestic production is not cost neutral. Most of our products are flown in, but those suppliers who ship via boat will have meaningful cost increases if air is the only option.
As much as we grieve the problems, none of us should lose sight of the fact that thousands of people have lost their lives. Our financial problems pale in comparison.
What can we learn for the future?
We need to continue to develop our domestic and other country sources. This takes time. The history of the emblematic production – decades ago it was produced in Taiwan and Korea. When labor and real estate costs became too high, Mainland China was the obvious solution. But that did not happen overnight, particularly with the ancillary supply chain requirements.
Sadly, China is still faster, better quality and less expensive.
A 1975 graduate of the Wharton School at the University of Pennsylvania, Harvey enjoyed a 20+ year career in commercial banking, exercising his “golden parachute” in 1996. In his volunteer life, he is a past chair of the Small Business Banking Unit of the American Bankers Association, Easter Seal Society of New Jersey, the SAAGNY Foundation, PPAF EXPO, and Supplier Committee of PPAI. He is also a past President of PPAF. PPAI awarded him the H. Ted Olson Humanitarian Award in 2013.