2008 October |

Are Your Factories on the Brink of Folding?

Josh Green | October 31, 2008
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I’m hearing a lot of anxiety from our customers about the possibility that their factories might fold. This anxiety is justified. The economic slowdown is causing lots of buyers to reduce and delay orders. For suppliers with high fixed costs, this behavior could prove fatal. How do you find out if your supplier falls into this category — before the supplier goes under and leaves you hanging? Some ideas:

1) Buy a credit report on your supplier

Credit reports will tell you if your supplier is paying *its* suppliers on time. If it’s not, chances are good that your supplier is in trouble. D&B is a good place to start for this kind of information.

2) Look at your supplier’s export activity

Is your supplier’s export activity dropping precipitously? Definitely a sign that you should be preparing a back-up plan. (Full disclosure — Panjiva sells this kind of data, so obviously I think this is a particularly effective approach.)

3) Ask your supplier contact

Simple enough, but most people overlook this approach. Ask your supplier contact if he or she is worried. Chances are good that your contact will put a positive spin on trouble at the supplier — but you never know what you might learn until you ask.

Figuring out if your suppliers are about to fold is really important… Gives you a bit of time to come up with a back-up plan, and minimize the disruption to your business. Have other ideas on how to figure out if your suppliers are about to fold? I’d love to read about your ideas here — and of course via email (josh@panjiva.com).

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Welcome to Panjiva’s Blog!

Josh Green | October 29, 2008
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Just want to take a moment to welcome those of you who are new to Panjiva’s blog. Panjiva’s mission is to make it easier for companies of all sizes to do business across borders. With this in mind, we’ll be discussing issues affecting the global trade community — those of us doing business across borders. This is a HUGE topic, so we’ll cover a lot of ground. Here, though, are a few themes you can expect to see popping up on a regular basis:

  • Risk

Choosing to do business across borders opens up a world of opportunity, but it also comes with quite a bit of risk. What are these risks, and how can you mitigate them? This is a favorite topic of discussion within Panjiva, and in conversations with our customers. We’ll share what we’ve learned — and are learning.

  • Transparency

“Transparent” is not a word we’ve heard used to describe global trade. This is too bad, because transparency promotes cost savings and helps mitigate risk. In the course of Panjiva’s work, we seek to provide a new level of transparency to those doing business globally. On this blog, we’ll highlight other efforts to promote transparency, and point to areas where more transparency is urgently needed.

  • Simplicity

Doing business across borders is an incredibly complicated activity. We’ll do our best to help you cut through the complexity — and identify ways to simplify the process of doing business across borders.

Members of the Panjiva team will be regulars, and we’ll also feature a variety of guest contributors. If you’re interested in guest-contributing — or just want to vent — e-mail blog@panjiva.com.

Thanks for joining us!

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The Consumer Product Safety Improvement Act — and You

Josh Green | October 28, 2008
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If 2007 was the Year of the Recall, 2008 was the Year of Regulation. This past year, some of the nation’s biggest industries pushed for new federal regulations to cope with consumer concerns about product safety — breaking from a tendency to block regulatory measures. They got what they wanted. This August, the U.S. enacted the Consumer Product Safety Improvement Act of 2008 (CPSIA), one of the most comprehensive overhauls of consumer-product safety regulations since the 1970s. The Act aims to provide “new safety safeguards that emphasize resources, accountability, disclosure and testing…from the factory floor to the store shelves.” What does this mean for those of us in the manufacturing world? First, it means that there are new hoops to jump through. Second, it means that it’s really important to jump through these hoops – because the CPSIA provides for increased civil and criminal penalties for those who fail to abide by the new regulations.

Clearly, familiarizing yourself with the CPSIA and its implications is essential. Some suggestions on how to go about this:

  • * Sandler Travis, one of the leading law firms focused on trade, provides a very nice overview of the new requirements. Visit their site, and click on the link entitled “New Mandatory CPSC Import Documentation Requirements Effective November 12.” At the bottom of the summary, you’ll also find the names of a few different lawyers you can call to get more info.
  • * The big inspection agencies are very focused on the CPSIA and can provide a lot of helpful information. SGS has a bunch of web-based seminars; check out the schedule here. You’ll see that there’s a seminar on toy safety tomorrow (Wednesday, 10/29) at 1 pm Eastern.
  • * And, if you’re feeling really ambitious, you can read the entire CPSIA. (Have fun.)

What’s Panjiva’s take on efforts to improve the safety of consumer products through regulation? Some thoughts:

First, there’s no doubt that more needs to be done to improve the safety of consumer products. Last year, we advised President Bush’s Working Group on Import Safety that much more could be done with existing resources. Specifically, the government could be using data it’s already collecting to more effectively focus inspection resources on goods that are potentially unsafe.

But there’s more to the story than just using data to effectively allocate scarce government inspection resources – undoubtedly, new regulations were needed to protect American consumers and the businesses that will fail in the absence of consumer confidence in product safety. The CPSIA would seem to be a step in the right direction then. Nevertheless, there are some in the business community who worry the CPSIA will simply create another set of bureaucratic hurdles that increase the cost of doing business, without actually helping consumers and the businesses that sell to them.

So will the CPSIA succeed in protecting consumers or simply create more bureaucracy? At this point, it’s hard to know – because much depends on implementation. Our take is that the CPSIA will succeed if those implementing it put particular emphasis on two concepts: harmonization and transparency. More on this in future posts.

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Sourcing During Uncertain Times

Josh Green | October 15, 2008
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The past week has been an historic one in the financial markets, and this morning’s retail sales results are just a reminder that we’re not out of the woods yet – and probably won’t be any time soon. The Federal Reserve warns that we face “one of the most challenging economic and policy environments in memory”, and the IMF says the recent events constitute “the largest financial shock since the Great Depression.” Unfortunately, no one can say how much worse things will get – and how long a recovery might take. This uncertainty poses a unique challenge for the manufacturing community. We’re hearing from our customers that they’re cutting their order sizes and, when possible, delaying their orders until they have more visibility into what the future holds. Beyond taking prudent steps such as these, is there anything you can do in the face of uncertainty? Yes. Presume that things will settle down (they will), and plan for the moment when they do. Here’s how:

Position yourself to have maximum leverage once things settle down

As you and your peers delay orders – and cut order sizes – factories that have been living on the edge will go under. Once things do settle down, everyone will be making urgent requests of those factories that are still standing. (Delayed orders will turn into orders that need to be filled asap!) These factories will not be able to make everyone happy. Make sure you’re a priority at that critical moment. The more orders you place during the lean times – and the bigger your order is at the moment things settle down – the more important you’ll be to your factory when it counts. If you’re spreading your orders over a large number of factories, consider consolidating your orders with a smaller number of factories in the months ahead.

Identify backup factories

If a key factory goes under – or can’t meet your needs when everyone jumps back in with urgent requests – you need a back-up plan. Look within and outside your network for factories that have the same capabilities as your existing factories. For each and every factory that you use, you can and should have a back-up factory in mind.

Bottom line: planning now will save lots of headaches later.

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The Great Squeeze

Josh Green | October 10, 2008
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More bad news for those who are in the business of selling to consumers: September Retail Sales Reflect the Slowdown.  Unfortunately, declining consumer spending is just one of the three alarming trends that, together, constitute “The Great Squeeze.”  What’s The Great Squeeze, and how can you survive it?  Here are our thoughts…

One of our customers basically predicted The Great Squeeze several months ago.  He argued that consumer spending was destined to slow down (clearly, he was right).  That’s bad in and of itself, of course, but — even worse — he predicted that this slowdown in consumer spending would occur just when the cost of inputs was on the rise.  Indeed, we’re hearing this from lots of our customers these days: the cost of manufacturing is going up, particularly if you’re manufacturing in China (as most are).  Why are manufacturing costs going up, even as the global economy cools down?  First, wage rates are going up, particularly in Southern China, as more and more companies choose to manufacture there and the competition for labor goes up.  Second, Chinese authorities are putting in place new regulations — and enforcing old regulations — that increase the cost of doing business in China.  (These regulations are valuable, because they protect workers and the environment.  However, that doesn’t change the fact that they increase the cost of doing business.)  Declining consumer spending and rising cost of goods — this is a recipe for a sharp decline in profitability for those caught in the middle.

Of course, there’s more to the story.  Evan Clark, in Thursday’s Women’s Wear Daily, highlighted the impact that the credit crunch is having on retail.  Indeed, just as companies are facing declining profitability, they are going to have an incredibly difficult time getting the credit they need to pull through.  Lower consumer spending, rising cost of goods, and limited availability of credit — this is The Great Squeeze.

The key to surviving The Great Squeeze is narrowing your focus.  If you are trying to serve a broad set of customers with a broad set of products, you are going to struggle.  You are going to struggle to stay close enough to your customers to know exactly what they’re going to spend money on.  And you are going to struggle to stay on top of your supply chain and keep costs down.  On the other hand, if you focus on a narrow range of customers, you will know better than anyone else what they will spend money on.  And, if you narrow your product range, you can put all of your efforts into keeping costs down on a manageable number of products — either by improving your manufacturing processes, or by finding lower cost suppliers in new regions.

Narrowing your focus is scary, because you’re putting all your eggs in one basket.  However, today, the only alternative to narrowing your focus is conducting business as usual — in other words, surrendering to The Great Squeeze.

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Separated at Birth: China’s Manufacturing Crisis and America’s Financial Crisis

Josh Green | October 6, 2008
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Yet another product safety scandal in China.  This time, it’s melamine.  Not surprisingly, many are claiming that there is something unique to Chinese business practices that is the cause of China’s many product safety scandals.  Bee Wilson, in Tuesday’s New York Times, goes a long way toward debunking this notion by pointing out that product safety scandals are not unique to China; in fact, America had its own milk scandal a century and a half ago. The Washington Post a year ago also provided an interesting perspective on the safety of exports leaving the United States.  For those who remain convinced that there’s just something wrong with China, consider this:

Today, not just one — but two great powers are struggling; each facing a crisis of confidence in a key industry.  For China, it’s the manufacturing sector that’s in turmoil.  For America, it’s the financial sector that’s in turmoil.   Though there are of course real differences between these twin crises, it’s the similarities that are most striking.

* In both cases, the troubled sectors had recently experienced rapid growth.
* In both cases, questionable business practices were largely left unregulated.
* In both cases, greed is being blamed, and heads are going to roll.

Interestingly, the remedies being discussed are similar as well: new codes of conduct, increased regulation, stiffer penalties.  While it’s beyond the scope of this blog to discuss how to remedy America’s financial sector, it is clear that the remedies being discussed for China’s manufacturing sector must be supplemented with a push for transparency.  The profit motive is incredibly powerful — historically far more powerful than the most stringent codes of conduct, regulation, and penalties.  The best way to promote safe practices is to make them profitable.  And the best way to make them profitable is to focus, intensely, on providing transparency about who is engaging in safe practices and who is not.  More on this in future posts.

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