If you’ve ever worked with chickens and gathered eggs, the old phrase “Don’t put all your eggs in one basket” probably didn’t make much sense to you. When gathering eggs, one basket is all one can handle. One hand collects the eggs, one hand totes the basket. That’s how it works.
The old adage isn’t really about gathering eggs, of course; it’s about the level of risk one accepts when all one’s assets are lumped into one accident-prone container.
As I’m writing this, the world is about a month into the gripping drama of the coronavirus, and the death toll has just passed the 2,000 mark. I’ve been thinking about how many baskets our store has been using to tote our eggs.
With so many products being made in China today, our supply chain is bound to be disrupted. Many Chinese factories are closed, and travel (and product transport) from one Chinese city to another is severely restricted. This means, even if a factory is operating, it may not be able to get its products to a seaport. Even if they arrive at a seaport, the buyer in America has to pay a premium for container space, since so few containers are moving. These factors, and others, are creating distribution bottlenecks that may disrupt our supply chain for months or years. Since we’re barely a month into this crisis, it’s hard to predict the outcome.
One thing’s for certain, though: Many of the MI companies that produce exclusively in China or some other single country are already scrambling to find alternative manufacturing sources for the here and now, as well as for the future. Diversifying a production map is expensive, but nowhere near as expensive as being out of inventory and not being able to get product made or transported across the sea.
So, while we may not know exactly how this is going to impact our own stores, we know it will impact us to some extent. Perhaps, by the time this article appears in print, we’ll be heaving a sigh of relief that the worst is over, and things are returning to normal. If we are getting that relief, let’s not forget that all of this could (and probably will) happen again, and we don’t know what form the disruption might take next time.
The good news is, we can take steps right now to limit the impact of a future supply-chain disruption. Perhaps the biggest barrier to protecting our stores’ supply line is our own complacency and satisfaction with the status quo. Maybe you’ve got a brand of cables that have worked well for you for years, and you stock that one brand exclusively. What happens if/when that brand is suddenly unable to deliver? It can happen for a lot of reasons other than a worldwide contagion outbreak. Say their factory burns, or their labor force goes on strike, or their country of origin is hit with high tariffs, or their labor force is taken over by an alien life force. OK, that last one is unlikely, but now that I have your attention, let’s see what we can do to limit the damage these disruptions can cause for us.
Have multiple sources for your products. You can still stick with your old, reliable-so-far brand of cables, but have at least some offerings from a couple of other sources. Maybe you sell a lot of drumsticks and heads. If so, look for small, boutique-level brands that produce in smaller quantities, but that produce here in the U.S. Yes, these will probably be sold at a higher price point, but you’ll
at least have your foot in the door when the next disruption occurs. Most strings are made in the U.S. as well, but remember, there are more potential causes for disruptions than just international concerns.
Keeping your eggs in more than one basket can also require some real soul searching about your current product lines. I looked into picking up a really large brand recently, and I figured out pretty quick that the significant annual commitment was not something I wanted to take on. The sales rep told me that another dealer who also thought it was a large commitment realized if he lumped everything he spent last year on electric guitars, acoustic guitars, amps and related gear into one pile, he had more than the big company’s annual commitment, and that made him comfortable with taking on the line.
Wow. Think about that for a moment. The rep’s suggestion was to total up everything we spent last year on large stock, and then, this year, put all our eggs (inventory money) into one basket (the big company). Gosh, what could go wrong with a plan like that? Needless to say, we passed on that idea. We have long-standing relationships with many good companies that have stuck with us through fat years and lean years, and many of them have solid margins and great people working for them. Putting all of our eggs into one basket like the one proposed would be a risky venture indeed. Any ripple in that company’s sea could upend our ability to stock our shelves. Your store probably has similar longstanding relationships, and those have genuine value that’s hard to calculate in terms of dollars.
Diversification in product lines, just like diversification in finance, spreads thin the risk. Even the smallest of stores can diversify with a little planning. Maybe you’ve got 30 SKUs from one string company. You could trim back to 20 SKUs and pick up five SKUs each from two other companies, or 10 SKUs from a brand you’ve never stocked. If you won’t be buying enough to go direct, get them from a distributor. If you want to limit the amount of grey matter you have to invest in diversifying, ask the distributor’s rep what’s selling most often. She’ll be glad to give you a suggestion on new product to buy.
Whatever you do, remember that the next product supply disruption isn’t a question of if it will happen, it’s a question of when it will happen. Go ahead and start adding to your supply roster now. Halfway through the next disruption is the wrong time to be making a new supply relationship. Spread your eggs out enough that one basket failure is, at worst, a mild inconvenience.
To read more columns from the Music & Sound Retailer, click here.