News January 16, 2023
2023 Supplier Outlook: What Distributors Can Expect on Service, Inventory & Pricing
Suppliers report encouraging improvements in a number of areas, though issues such as COVID-driven supply chain headwinds from China still persist.
Like many distributors, Linda Milano has felt the strain.
“I’ve been in the industry since 1998 and the past two and a half years have been the most difficult and stressful,” says Milano, an authorized dealer with Top 40 distributorship Kaeser & Blair (asi/238600).
In 2021 and at times in 2022, the aggravation was, in part, a direct outgrowth of what Milano and other distributors say were breakdowns in service from suppliers. Poor communication, inventory shortfalls, incorrect orders, delays in production and fulfillment – all that amounted to a maelstrom of frustration that included lost sales, embarrassing, apologetic calls to end-clients, and more work than ever before, distributors report.
“Projects took four and five times the effort to have successful delivery,” Milano shares. “As soon as you catch your breath from one thing, it’s followed by another problem. You can’t get any relief.”
In exclusive interviews with ASI Media, many suppliers admitted their service levels fell below standards amid fallout from the COVID-19 pandemic. Challenges with supply chain, restocking, hiring enough staff and establishing processes to handle an order volume avalanche ignited and fueled the issues.
Which raises important questions: Will service levels improve in 2023? Where do suppliers stand on inventory? What’s going on with inflation, and will prices on promo items hold steady, increase or decrease? While issues like potential supply chain problems from COVID-caused disruption in China persist, this report shows suppliers have a lot of positives to share as the new year heats up.
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Suppliers: Service Will Be Better This Year
Topline Takeaway: Leading suppliers and contract apparel decorators say that robust investments in staffing, training, technology and process advancements are empowering them to provide improved service in 2023.
“We’re servicing dramatically better today than we were and we continue to get better every day,” says Jeremy Lott, president/CEO of Top 40 supplier SanMar (asi/84863) and number one on Counselor’s Power 50 list of promo’s most influential people. “Are we where we were in 2019? The answer to that is still no. But are we a lot closer than where we were six months ago? Yes. Will we be even closer three months from now? The answer is yes.”
Lott’s assessment was a common refrain among supplier executives ASI Media interviewed. They say service improved as 2022 went on – and they believe the gains will accelerate further in 2023.
Through 2022, Top 40 supplier Polyconcept North America (PCNA, asi/78897) bolstered customer service teams, working hard to retain, attract, hire and train the best talent. On the back end of the year, the New Kensington, PA-headquartered firm says it was providing its highest service levels since before COVID-19. PCNA advanced that effort by also expanding production capacity and production staff. The company plans to build on service enhancements in 2023.
“This year will be all about making technology investments in digitizing our customer experience and optimizing our operations,” says Holly Brown, chief revenue officer at PCNA. “We plan to enhance our contact center operations, providing us with a better capability to serve customers seamlessly across all support channels – voice, email, chat and online. We’re also planning significant investment in our order management technology and digitization of our art processing, which will enable an expedited time between purchase order receipt and production, resulting in a much easier and efficient delivery of our services.”
83%
of orders suppliers serviced arrived on time in 2021 – the lowest percentage for the 2017 through 2021 period and down from a high of 93% for that stretch.
(ASI Research)
Top 40 supplier alphabroder (asi/34063) is leveraging technology to drive service upgrades, too. While the firm has beefed up staffing, executives say securing adequate labor has remained a challenge – something they don’t expect to change. The Trevose, PA-headquartered company is working to bridge the gap with automation technology and other tech-spurred improvements.
“To address labor challenges, we partnered with Locus Automation to add robot technology to our distribution centers to create bandwidth and provide consistency/predictability to our distribution center team members,” says alphabroder CEO Dan Pantano, a member of Counselor’s Power 50. “The result has been improved on-time and accurate production/fulfillment and improved work-life balance for our distribution center team members.”
“Our 2023 investment in technology will be huge to improve internal processes through proprietary solutions. We’re pouring money into talent and programming to automate processes.” Brandon Mackay, SnugZ USA
Houston-based Hirsch (asi/61005), a Top 40 supplier, says it’s combining improvements in technology and machinery with staffing expansion to service customers well. Initiatives include upgrading proprietary software to enhance user experience and transparency, thereby allowing distributors to more easily track orders, for instance. Hirsch has also bought new, efficient machinery to power the imprinting it does, and expanded its management team.
“We’ve created new manager positions and that, combined with hiring, training and retaining good people at the right levels, has enabled us to improve service,” says company President Peter Hirsch. “In 2022, we were better organized in terms of staff, and improved production flow resulted. It’s something we expect to continue building on in 2023.”
Top 40 supplier SnugZ USA (asi/88060) admits service levels suffered. That was mainly a result of integrating fully with former Top 40 supplier Sweda, which SnugZ acquired in early 2022, and because of a flood of incomplete orders from distributors (see box below) that snarled order flow. Even so, SnugZ maintains that it has cleared the biggest integration roadblocks and hired aggressively, while also focusing on propelling internal process efficiencies. That should all make for a better 2023.
“Our investment in both personnel and technology was massive in 2022 and will continue,” says SnugZ CEO Brandon Mackay, a Power 50 member. “We’re constantly looking for ways to speed orders through manufacturing and printing to offset the heavy lifting on the front end. Our 2023 investment in technology will be huge to improve internal processes through proprietary solutions. We’re pouring money into talent and programming to automate processes for things like incomplete orders and artwork.”
“This year will be all about making technology investments in digitizing our customer experience and optimizing our operations.” Holly Brown, PCNA
By the end of 2022, Top 40 supplier Bag Makers (asi/37940) had increased employee head count in the range of 10% to 15% relative to the start of the year. The staffing ramp up, combined with effective quality control processes on the production floor, helped the Illinois-based firm post a strong 98% on-time shipping performance record for getting orders to customers on or before their in-hands date, executives say. Expect more of that this year. “Customer service and quality control operations are always the backbone of our business, so these efforts will continue in 2023,” says CEO Maribeth Sandford.
When it comes to service in 2023, Top 40 supplier Hit Promotional Products (asi/61125) is bullish.
Amid the labor challenges of recent years, the Florida-based firm took a harder look at its systems, processes and equipment with a view toward finding ways to leverage technology to provide better service. Executives say the exercise has borne fruit. And, along with boosting employee headcount, the result is that “our overall service and quality performance are at pre-COVID levels…even better in many areas,” asserts Shannon Sylva, Hit’s vice president of customer experience.
“We’ve purchased additional equipment in our factories that has added more capacity, streamlined processes to improve the ease of use when working with us, continued to look for opportunities to improve our overall communication and awareness if/when order-related issues arise, and are implementing new and improved business controls and tools that will help us further improve the customer experience,” says Sylva. “There are still areas for us to continue to improve to achieve our goal of providing a best-in-class experience, but we have high expectations for ourselves in 2023 and beyond.”
Distributor Action Item: Submit Complete, Accurate Orders
Distributors will receive better service from suppliers if they provide complete and accurate order information upon submission, supply-side executives say.
Giving incomplete and/or inaccurate order information to suppliers can significantly hamper their ability to service an order efficiently and correctly. The pandemic has exacerbated the problem of incomplete orders, some supplier executives maintain.
“Reflecting on the data, COVID started a trend of incomplete orders, as stock was an issue and our distributor partners wanted to secure inventory as they worked on completing order details,” explains Brandon Mackay, CEO of Top 40 supplier SnugZ USA (asi/88060). “Over the past couple years, the issues haven’t improved.”
Supplier executives say it’s time to reverse the trend – something that will benefit not only them and distributors, but also, most importantly, end-buyers.
“What comes in good, goes out good, but what comes in bad goes out bad,” says Peter Hirsch, president of Top 40 supplier Hirsch (asi/61005). “The more we can standardize orders and give distributors a proper understanding of what to input – and then actually get that input – the quicker and more accurate the industry can be in fulfilling orders.”
Decorators Are Upping Their Service Game, Too
Topline Takeaway: Apparel decorators say distributors can expect ameliorated service in 2023.
As with suppliers, securing adequate labor proved a challenge for contractor decorators in 2021 and part of 2022. That was a big deal for contract (remove word ‘contract’ here) decorators, who simply require the right number of hands to produce properly.
“Our service levels have definitely had their ups and downs since the onslaught of COVID,” admits Rob Dubow, CEO of Saint Cloud, MN-based decorator Dubow Textile (asi/700107). “We need staff in our building to produce, and when the staff can’t come in, or we don’t have enough, it makes it tough.”
But Dubow, like other decorator executives ASI Media spoke with, says things are looking up for 2023. In recent months, Dubow Textile has found much more success hiring and, critically, retaining employees. That’s helped elevate service. Investments in technology, equipment and process management are also paying off.
“We’ve been extraordinarily fortunate in recent months to hire great people who are doing a fantastic job.” Andy Shuman, Rockland Embroidery
“Because we have our own proprietary software, we’ve been able to build a lot of logic into the system to overcome certain supply chain challenges,” Dubow explains. “This includes plant-wide scanning and automated receiving – which conquered the persistent pandemic-era challenge of multiple product deliveries for single orders – and most important, tighter controls on the entire production process.”
An increased focus on training has helped with retention, better preparing new staffers for their roles as well as company culture, standards and vision. “We worked with our local university and were awarded a $280,000 grant to further develop this training program for all positions in 2023,” shares Dubow. “We’re really excited about the grant award because we’ll be able to further develop training for all aspects of our business and give all of our staff an opportunity to train in ways never before imagined and have the opportunity to grow with our company. That’s all positive for our customers.”
The service outlook is brightening at Rockland Embroidery (asi/83089) too. The Topton, PA-based contract decorator has upgraded software, implemented better order documentation, and integrated customer service more tightly with production, which helps facilitate order tracking and accuracy – and thus quality production and fulfillment.
The biggest boon to Rockland’s ability to serve customers exemplarily is that the firm has been “extraordinarily fortunate in recent months to hire great people who are doing a fantastic job,” says company General Manager Andy Shuman. “It’s really down to having people in place who are excellent at their jobs and committed.”
Inventory Levels Have Improved Greatly, But There Are New Threats
Topline Takeaway: At the start of 2023, suppliers say they’re vastly better stocked than they were at the onset of 2022, with especially good depth among their top sellers. Nonetheless, renewed inventory issues may be ahead because of COVID’s lightning-quick spread through China.
COVID-related supply chain disruption led to sizeable stock gaps at supplier firms across the promo industry in 2021 and part of 2022, which contributed to ills like an inability to provide end-clients with their first-choice products and lost orders for distributors. But as the COVID era nears its third anniversary, suppliers have much deeper inventory levels than they did a year ago.
One reason for that is proactive, strategic sourcing. Suppliers have ordered greater quantities of product, farther in advance, and thus have much more product at the ready. An easing of supply chain pressures as 2022 went on also helped the big restock. Such relief included far less port congestion overseas and domestically, greater availability of transport containers and space on cargo ships, and foreign factory partners being able to produce more efficiently than earlier in the COVID period.
“Most large manufacturers, including us, are now carrying higher levels of inventories than in the past to manage through near-term supply chain disruption,” says Kevin Walsh, a Power 50 member and president of Top 40 supplier Showdown Displays (asi/87188).
Other suppliers give a similar assessment.
“Our inventory position is strong entering 2023,” says PCNA’s Brown. “We monitor our top-performing SKUs with in-stock rates to make certain we can support our distributors with the items that matter most to them. We have a robust balance between our top performers and our new products.”
Bag Makers put a lot of elbow grease into returning inventory nearly to pre-COVID levels of approximately 35 million bags in stock. “We have a strong inventory position at the outset of 2023 as a result,” says CEO Sandford.
Alphabroder continues to work to fill stock on tertiary styles, but “overall we’re in great shape,” says Pantano, company CEO. “We believe we have the right inventory mix and are in a very good position.”
Sylva, from Hit, says the supplier has made a significant business commitment to inventory. “And, we’re continuing to invest in our ongoing product development efforts to expand our overall portfolio,” Sylva notes. “We view our investment in inventory, new products and additional equipment as investments in our customers.”
“We believe we have the right inventory mix and are in a very good position.” Dan Pantano, alphabroder
Mackay reports that SnugZ is well-stocked for 2023. “On paper, we might look slightly heavy, but we feel confident that’s the right move for the more turbulent days ahead,” he says.
The turbulence could include renewed challenges getting product manufactured in China and exported out of the nation due to its COVID situation. China accounts for about 30% of global manufacturing output and the majority of promo products sold in North America continue to be made there.
In December, China’s government ended its zero-tolerance policy on COVID, which saw widespread shutdowns of cities, factories and ports to control the advance of the virus.
After the restrictions lifted, COVID began spreading rampantly through the country of 1.4 billion people, sparking fears from sourcing professionals that factory slowdowns and exporting delays will result. Some of it is already coming to pass and that could, according to some executives, hurt promo’s inventory levels later in 2023.
250 million
people, or 18% of China’s population, were infected with COVID-19 in the first 20 days of December 2022.
(Chinese Center for Disease Control and Prevention)
“Factories have informed us that they are closing earlier due to staff shortages and COVID outbreaks in their factories,” says Trevor Gnesin, CEO of California-based Top 40 supplier Logomark (asi/67866) and a member of Counselor’s Power 50.
Gnesin continues: “Many shipments have been pushed out for later deliveries in 2023. I do believe this is going to impact our industry in the second quarter with product shortages.”
Teresa Fang, vice president of supply chain at alphabroder, says overseas factory partners are experiencing labor shortages and disruptions. So far, however, the impacts to alphabroder have been minimal, as the firm prepared larger orders well in advance of this month’s Chinese New Year celebration (a typical slowdown time for production in China) and orders have shipped or are shipping.
While it appears there will be continued challenges up the supply stream in China, how significantly they’ll affect inventory and operations in the North American promo products market is an open question, Fang and other executives say.
“I would expect to see continued disruptions that should peak in the spring,” says Fang, adding a positive note: “Many suppliers in the industry have also diversified supply chains outside of China so we’re able to leverage other supply chains for some product categories, which should also help to mitigate some of the disruptions.”
Product Price Decreases Are Unlikely
Topline Takeaway: There are signs that inflation has peaked in the U.S. and western Europe, but don’t expect that to lead suppliers to drop prices in 2023.
Prices on promo products aren’t about to fall.
For one thing, suppliers often purchased current inventory at inflationary heights and have to sell through that stock at a price point that allows them to make a profit and run a viable business based on what they paid for the goods. Plus, the cost of labor – both domestically and abroad – has increased relative to what it was before the inflationary period set in. Due to those and other factors, the prices promo suppliers charge distributors will, broadly speaking, either hold steady or increase in 2023.
6.5%
is how much the Consumer Price Index, a key inflation measure, rose year over year in December 2022. While up, it was the smallest annual increase since October 2021, suggesting, along with other indicators, that inflation may have peaked.
(U.S. Labor Department)
“The worst of inflation is behind us, but it will still be a factor in 2023, generally driving 4-6% year-over-year price increases,” says Walsh. “While we may all hear reports of reductions in supply chain areas such as transportation or raw materials, those savings will be more than offset by labor rate increases to maintain a professional team that can deliver the experience distributors have come to expect.”
Sylva says “some upward price movement is still possible in 2023, but we wouldn’t expect it to be as drastic as in 2022.” Pantano asserts that no immediate price increases or decreases are on the horizon at alphabroder. Mackay says dropping prices now could lead to margin reductions that would be “financially devastating for most suppliers, as they’re just returning to slight profitability following the mountain of unforeseen costs that they’ve endured the past couple years.”
Mackay also has some good news on pricing for distributors. “Price increases will cool by mid-2023,” he says, “and we’ll enter a more stabilized pricing environment.”
One potential outlier to keep an eye on is end-buyer demand. Should a recession or other factors trigger a sharp decline in demand for promo items, some suppliers could be tempted to drop prices in an effort to move the large quantities of inventory they’ve brought in, as retailers did during the final third or so of 2022. Still, there’s no indication yet from top executives that such a move would be in the cards.