MAKING SENSE OF SUPPLY & DEMAND IMBALANCES IN THE MUSICAL INSTRUMENT TRADE
For the past several months, you haven’t been able to avoid the headlines. “Container ship stuck in the Suez Canal”, “Chip shortage worsens due to factory fire” or “China’s third largest port closed due to COVID lock-down.” Chances are, if you’re reading this blog the issues surrounding the supply chain have directly or indirectly affected your livelihood, complicated your business, or otherwise been a thorn in your side. And at least for now and the foreseeable future, the delivery delays and price hikes from factories and shippers have become the “new normal.” How does a Musical Instrument and Pro Audio industry participant make sense of all this madness?
False Sense of Security?
Prices at many levels of the supply chain have gone up, but so have backorders. It’s not uncommon that when supply is scarce, purchasing agents order more than required, hoping to stack the allocation deck in their favor. This is understandable but may mask an underlying waning of demand. At some point, the end user will become tapped out, or feel satisfied with what they have in the face of significant cost increases. Inflation is ultimately passed on to the consumer, who inevitably votes with their pocketbook as to the revised price/value relationship of whatever product they are considering. This sets the stage for an equally upsetting supply glut at some point in the future, and today’s situation may have lulled some notable vendors into a false sense of security.
Avoiding a Hard Landing
On the highway recently I noticed a sign warning “accident ahead,” and I see flashing lights as it pertains to this topic. Manufacturers today may be getting a false read on true demand, and there will be a tipping point in this equation when the containers finally start arriving en masse. Without product on the shelf, speculation takes over as to the longevity of any rally, especially the current one happening in the guitar arena. The optimist can buy into a scenario where stretched factory capacity itself may mitigate the equivalent of an economic hard landing, with continuing scarcity of goods avoiding an abundance of gear and a rapid reversal of the supply imbalance. But the pessimist, or perhaps the realist in me has seen this movie before and is bracing for the consequences to an industry that has been whipsawed by these and other serious challenges over the past 18 months.
Staying Engaged with all Constituents
John F. Kennedy is quoted as saying, “The time to repair the roof is when the sun is shining.” This holds true now more than ever among manufacturers of fretted instruments that have seen their backorders balloon. If circumstances are good in that regard for you, slow deliveries notwithstanding, it’s a great time to address any weaknesses or inefficiencies in your organization. Put more effort into working with your dealers and rep firms, arming them with the tools to succeed in any environment. Seize the opportunity and double-down on creating awareness and brand affinity among the buying public, so that when demand eventually weakens (trust me it will), you’ll be better positioned to weather that storm. No matter what happens, expect to get wet, and rest assured there’s always a rainbow after that for our wonderful industry, regardless of when the tide turns on supply and demand. Hopefully those of us old enough to remember the past won’t repeat the same mistakes.