Context: Prices of raw materials including cotton, yarn, fabric, chemical etc. have increased a lot which hit so hard the apparel industry. According to BTMA, the cotton price has gone up by 47% from January to August 2021. Due to the increase in yarn prices, fabric prices increased drastically. Shipping costs also increased up to 700%.
Question: How are you handling the old orders those were placed before these price hikes?
The COVID-19 crisis has caused considerable damage and hardship across the global garment industry, affecting brands, manufacturers and workers in various ways. The pandemic also has exposed acute vulnerabilities in garment supply chains and the impact that sourcing decisions (by global buyers) have on supplier factories and their workers.
The base cost of the raw materials like Yarn price and shipping charges have been skyrocketing owing to the supply chain disruption. Businesses across the world are struggling to cope with the twisting and turning supply chain demands, requirements and dynamics.
Though in the past, in order to save costs and improve efficiency, many enterprises advocated zero-inventory production and tried to reduce the inventory in the production link, but we realized very early on that, the smooth operation of zero inventory production depends on the efficient global supply chain system. Once a problem occurs in the global supply chain system, it can lead to chaos in the whole supply chain system.
In order to tackle the issues raised from this unprecedented yarn price hike and global supply chain disruption, we focused on effective demand and risk forecasting, pre-commitments on materials, production and transportation capacity and delaying stock-keeping quantity decisions for as long as possible. We also appealed to our buyers to consider the overall increase in the prices of fabric, which has resulted in an increase in the cost of manufacturing of garments and requested them to revise the prices of garments to achieve a win-win situation.
Having a clean contract is mutually beneficial which we should try to have one.
In case of a unique situation, it is best to reach a mutually beneficial agreement maintaining the sanity of the contract.
Usually, in this volatile market, we don’t go for advance order booking without keeping raw materials stock, but the problem arises when a regular buyer wants to place repeat/ increased orders with us.
In those cases, we have only two options: 1st to go back and ask for price adjustment. In most of the cases, my buyers do agree to participate in it, even not fully at least partially.
But sometimes few of my buyers don’t agree to increase the required price. In those cases, we keep our offer in placed order and face losses; which is part of our business, but we always respect our commitment.
From BKMEA, we are trying to give more policy support, so ease of doing business can be better, which will help directly to manufacturers to be more competitive.
Also, BKMEA is corresponding with the supplier’s association, so an increased rate should be fair. Besides that we appeal to buyers to give us “FAIR PRICES”, But at the end of the day it’s an individual business, so each factory should have its own bargain capacity to increase the price.