I’ve written before about the potential disruption to the supply chains that you and your clients depend on, due to the Coronavirus scare.
But that reference was mostly to what could happen to orders you have already placed.
Here, I want to deal with the question of whether you should feel comfortable placing new orders.
The question sent to me by a member of The Edge was this:
As I mentioned to you some time ago, my partner and I are very fortunate to have our own bonafide “whale”. I’ve been in the business for almost 30 years and this is by far the largest, most rewarding project ever!
My question to you is regarding deposits for product. We’re receiving deposit checks from the client as we are in the midst of presenting our designs. Do you think that it’s a good idea to place orders through our vendors even though the future is a bit uncertain?
Please let me know your thoughts.
And here is my answer:
Good to hear about your whale and I hope that will offer you some protection during the current uncertainties. It will be a learning experience for us all.
Let me start with the worst case and that would be that you received deposits from your client, submit them to vendors, and the vendors encounter some unexpected delays or in a real worst case, file bankruptcy.
Your clients would expect their deposits to be returned, but you would no longer have their money.
Which means that the relative health of the vendors you are ordering from is the key. If they are vendors you trust, have worked with before and can assure you that they anticipate no delays are problems, then you could probably move ahead with minimal risk.
If you’ve never used them before, they’re not well known, or they’re small, I would not be sending them full deposits. I’d negotiate with them (and in these times you may find yourself in a position of strength) for a smaller deposit, or a series of deposits based on progress reports from the vendor.
If there are just a few very large deposits, you might consider having your client make the deposit directly with the vendor. You could explain your concern to the client…or not. Hopefully everything will go well, but in a worst case…even if it harmed the client relationship…the financial risk would not be yours.
If you’re purchasing items that are in inventory, especially in the US, that’s an entirely different and much safer scenario. They may be desperate to sell and you could ask for even better pricing, terms, free shipping, etc.
If items have to be manufactured…and if overseas… be cautious.
Wayfair is sort of a poster child for the risk right now. You may not be buying upscale goods from them, but they have become a big online retailer. (Even though they mostly drop ship, rather than hold inventory.) Their stock is down from 174 a year ago to 25 today, they’ve laid off over 500, and some analysts think there’s a very real chance they’ll file bankruptcy.
What this tells us about the health of other vendors…well, that’s a question that I think can only be answered on a vendor-by-vendor basis. I have members of The Edge who have reported calling every key vendor and giving them the “5th degree” on their sources (China? Italy?) their backlogs, their financial health, etc.
I’m not sure why this thought came to me, but I’m reminded of a scene from The Godfather. Two mobsters have just conducted a roadside hit of a man who was in the backseat of a car with a Cannoli, the Italian cheese-filled pastry. After the hit, the senior mobster tells the young one, “Leave the gun…take the Canolli!”
That’s my advice: “Keep the whale…reduce your risk!”
Let me know how it goes and stay well!