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April 6, 2020

Can the fractured supplier-buyer relationship be repaired?

Clothing retailers and brands around the world face dwindling sales, store closures and mounting stock inventory due to the coronavirus pandemic. In Bangladesh, millions of dollars worth of clothing orders have been cancelled and some factories are just a step away from shutting down their operations. But what happens when it all blows over? Can the fractured buyer-supplier relationship – until now based significantly on trust – be repaired?

Clothing retailers and brands around the world face dwindling sales, store closures and mounting stock inventory due to the coronavirus pandemic. In Bangladesh, millions of dollars worth of clothing orders have been cancelled and some factories are just a step away from shutting down their operations. But what happens when it all blows over? Can the fractured buyer-supplier relationship – until now based significantly on trust – be repaired?

The building of trust – meaningful relationships between manufacturers and buyers – has played a vital role in the success of the global apparel industry.

But this trust has been shattered by the actions taken by some brands and retailers in the face of the Covid-19 pandemic, with a significant divide emerging between those companies that are prepared to work closely with their supply partners to mitigate the effects of the downturn in trade, and those whose immediate reaction is to cancel orders, seemingly regardless of the impact that this course of action will have.

The cancellation, the scaling back of, or delay to current production orders with suppliers has been further compounded by many companies withholding payment for goods that have been shipped – or insisting upon longer payment terms than were originally agreed when orders were placed. These actions have put many garment manufacturers worldwide in a precarious financial situation.

The importance of trust in establishing meaningful relationships between those of us involved in the apparel manufacturing industry and our customers is paramount. I view it is as the single most important factor in building any successful business or relationship.

A customer that trusts its supplier should listen to that company’s issues. Likewise, a supplier that trusts its customers will strive to do its very best, even in the toughest of trading conditions. It is this apparent abuse of the element of trust by certain brands and retailers since the Covid-19 pandemic reared its ugly head that galls me the most.

Payment methods

Over recent years the apparel manufacturing industry has forged relationships with the leading clothing brands and retailers around the globe. Due to the very nature of the business, where speed-to-market is a major contributing factor to the success of an apparel line in-store, many manufacturers have foregone the traditional payment methods that take time and hinder the speed of the production process.

Gone is the heavy reliance on payment in advance or letters of credit (basically a guarantee from a bank that a particular seller will receive a payment due from a particular buyer) between manufacturers and their customers. Instead, orders are often processed by many manufacturers (sometimes even without an official purchase order) at the bequest of a customer, because that customer has earned the trust of their supplier over the years.

The manufacturer will undertake to procure the necessary fabrics and sundries for the production of the required goods, and will complete the production to the required standards demanded by the buyer – all at his own expense. The manufacturer will then ship the ordered product and await payment from the customer, bearing the expense of overheads, workers’ salaries, business rates and amenity charges in the knowledge that payment will be forthcoming.

This was a simple system, commonplace in the apparel industry and one founded on the strength of the relationship and the trust emanating from, quite often, many years of working together.

The Covid-19 pandemic has, unfortunately, laid bare the fragility of these relationships. We have shared success together but, in this time of crisis, it appears that manufacturers are being left to fend for themselves.

The long-term impact

Once the cloud of the Covid-19 pandemic has been lifted we will have to see what long-term damage has been inflicted to these customer/supplier relationships. But one thing is for sure, the wounds will take time to heal and manufacturers will be wary in the business that they develop in the future with their clients.

One of the most precious things in the world of business is trust. It can take years to earn and only a matter of seconds to lose. The ever-evolving events of the last few weeks have damaged the trust that existed between apparel brands and retailers and their suppliers. Together the apparel community can overcome these difficult times – but it will require understanding, the rebuilding of relationships, and support from all sides for many months to come.

To restore some semblance of a trusted working relationship, customers that value their relationship with their manufacturing partners need to acknowledge the predicament facing garment factories in the supply chain. By entering into discourse and planning the months ahead from a production and compensation viewpoint, customers will be able to preserve their relationships with their supply chain partners, allowing them to survive financially during this crisis and earning their respect as a worthy business partner.

Apparel manufacturers around the globe are fully aware of the devastating effects that Covid-19 has had across all areas of life. They should also be cooperative to support their customers during these difficult times. Even if quantities are reduced in future orders, it is the responsibility of all apparel manufacturers to support and work with their customers to ensure that business can move forward when this crisis is finally averted.

About the author: Mostafiz Uddin is the managing director of manufacturer Denim Expert Limited. He is also the founder and CEO of Bangladesh Denim Expo and Bangladesh Apparel Exchange (BAE). 

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