Reports last week that some Vietnamese factories were coming back up to speed was good news, particularly in light of the continuing spread of the COVID-19 virus, which at this writing is now on every continent except Antarctica and has infected more than 82,000 people in 50 countries.
Despite the improved labor situation in Vietnam, which has become a key short-term alternative to China following the U.S. imposition of tariffs on China in 2018, there is mounting evidence that inventories could soon be strained regardless of where finished goods are produced. The holdup, according to a number of companies, is components and materials, many of which simply are not available elsewhere.
As a result, the industry is likely to see supply disruptions in the first half and possibly beyond. It also appears increasingly likely that price increases may soon become necessary, as companies are forced to take extraordinary measures to get timely access to these critical components once manufacturing in China begins ramping up again.
Another potential alternative, one we saw early in the tariff tussle, is the use of alternative materials and components, a solution that could have an impact on both product styles and costs as at least some of these are likely to come at a higher cost.
Overall, it seems highly unlikely that manufacturers, already burdened by tariff costs, will be in any position to eat another round of cost increases, regardless of whether they are caused by competition for supply or the need to rush key materials or the effort to find alternative sources.
At present most furniture manufacturers are expressing confidence in their ability to manage the situation in the short term. However, with inventories continuing to deplete and the impending likelihood of competition for timely access to components, the situation could soon turn on who has the fastest and most efficient supply chain.
Always a key differentiator in the furniture business, the ability to find cost and time savings throughout the supply chain is very likely to take on increasing significance as the year wears on. Those who find creative solutions in an environment of uncertainty and heightened competition are likely to have a critical advantage.
Conversely, those who cannot are very likely to find themselves challenged to remain competitive and perhaps even viable.
The general conditions of business, from the need to meet rising consumer expectations to the already heightened price competition, are likely to become more pronounced in the weeks and months ahead.
In the long term, the situation will resolve itself, manufacturing will return to something resembling previous levels, and there will be new things to worry about. The key, however, comes in remaining competitive until that “long term” arrives.
And that is going to turn on who has the goods and who can get them where they need to be.
