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Preface: This is a nerdy discussion about supply issues and logistics, but without the jargon. This is a discussion of the matter from a retailer/store owner perspective. So while this may shed some light on things you’ve experienced, please take note of the fact that things will be a little different for both of us in this situation.
This is an investigation and speculation about the possible causes of some of the problems we’ve seen on the supply end during first quarter 2017.
- One prominent product line pushed their spring collection launch date back by two weeks only for all of the items in that collection to go on an extensive, six-week backorder after finally coming to market.
- Another prominent product line pushed their spring launch date back by a week and, when the launch date arrived, only had about one third of the colors offered available for sale, resulting in extensive backorders. They are still waiting for the rest of the colors to be delivered to their warehouse as of the date of this blog post.
- Yet another of our suppliers sold out of their spring collections in one week and has been on back order in most styles and colors from that collection now for about two months.
- A common problem for all of our suppliers is that regardless of demand or willingness of the customer to pay premium prices for the products, the supply is chronically low for almost every supplier in almost every style and they are not replenishing stocks rapidly enough to match consumption.
All of this creates massive headaches – and near existential crises — for ecommerce retailers like me, who require high volume sales in order to stay in business.
I am convinced that all of these are related and due to problems with production and/or trade. Clear answers are hard to come by, so I am just going to regurgitate some data for you so we can try to explain some of these issues.
Location, location, location: I think the first rule of business is also the first part of the problem.
Most of our products are made in Malaysia due to their strong trade policies, weak currency (a Ringgit is worth $0.23 USD as of the time of this article), and the strategic importance its location along the Strait of Malacca, which is a major sea-route connecting the Far East to Asia, Europe, and the Middle East. The currency issue is one of particular importance because it has recently fallen quite a bit and, though it has always been somewhat unstable, the recent downturn is very worrying to many Malays because it is part of a continuing trend in their country of rising costs and rampant inflation.
Compounding the issues that are problematic within Malaysia, we also have to take into consideration a gigantic elephant in the room that has a pretty profound influence on global trade: UNCERTAINTY.
For example, more Malaysian women are entering the workforce as the country on the whole attempts to raise to the ranks of a wealthier industrialized nation. There is also a lot of fundamentalist push back from religious groups who want this to stop. This causes a lot of uncertainty and tension economically and politically inside Malaysia.
As interesting as this dynamic is, the uncertainty involving macroscopic global trade may be making these matters even more difficult.
You have my sincere apologies and maybe even a potential political trigger warning right now.
Regardless of your personal opinion of the Trans Pacific Partnership (TPP), the fact that we no longer have a clearly defined trade agreement that positions us in a key role ahead of China in this region makes all Asian markets kind of uneasy. It’s difficult to nail down pricing and stabilize production costs, particularly in the case of global trade, when your trade agreement is nullified without adequate replacement. Many economists speculate that the major role of the TPP was to position us as the main trade partner for most of the countries on the pacific rim. Without that agreement, China will now replace this dead-in-the-water trade deal with one of their own, resulting in a massive shift in global trade.
If this happens, this will have a negative impact on everything we sell. All of our suppliers will have to raise prices, relocate or find new outsourcing for their factories, or other major changes. No matter what, the end result will potentially be a massive restructuring of their entire supply chain that ripples all the way down to the consumer end.
All of this is speculation. That is my point.
The UNCERTAINTY is the problem. Markets like it when things are nice and stable. It makes trade and production so much simpler. Uncertainty keeps you on your toes and always involves a certain amount of added risk.
So, my theory for why my suppliers are always so shallow is fairly simple. They are not willing to bet that the cost of production will be higher today than it is tomorrow. They are only making things in small production cycles to minimize risk. This results in long backorders and wait lists, delayed launch dates, and lots of headaches all around.
It’s shamelessly practical, though, and makes perfect sense.
That is why I am fairly certain it’s true.
Thank you for reading my little exploration on what the heck is up with all these backorders. 🙂