Successfully Negotiating Production 101 For Your Line

The major question you need to ask yourself when you sit down to broker a deal is: Is it worth it? A good deal for you is going to be one that moves the business needle for both sides of the table. Even more important than money and time is knowing why you’re doing this in the first place. Last week we talked about why people do things, and it’s to meet long- and short-term needs. This applies not only to you, but to the person you’re doing business with. When working out deals, you need to address people’s core values so you can serve the person across the table. Sometimes this may result in recommending someone else in the business to serve their current needs. Remember in any deal, you have the right to walk away. You deserve to be treated with respect.

You can generally find out core values by asking. Sit down for coffee and ask questions that allow the person to explain who they are and what they value.  People  normally have three primary needs that drive them. For example, my husband and I inherited core values of respect, community stewardship, and sharing  joy. We grew up in the needle trades and win_20170227_13_14_00_proproduct development shops, so we express our core values in the  thousands of different designs we create. Once you’ve established a relationship with your production source, it’s down to the details. Details will vary from one deal to the next, but here are some rules of thumb I’ve noticed in the apparel trade. I have to thank Charlie Burgwyn and Steve Pena at Stitch Golf here.

  1. People like to do deals with people they like and who treat them with respect.
  2. If you can sell 100, you can sell 100,000.
  3. If you can’t sell 100, your idea isn’t good enough yet.
  4. Ideas are easy; execution is hard.
  5. Not all things are equal. There are big quality clothing production jumps around 100, 300, and again at 1,000. Industry standard minimum is generally 250-300 pieces 4 colorways, 4 sizes or styles. It’s driven by mill trim minimums. More sizes or styles are easier than more colorways.
  6. Shops like production orders over $5,000-6,000. They generally have a minimum of $2,000-3,000. However, minimum orders can vary because more expensive items like coats or dresses require less volume to reach this threshold compared to something like leather wallets.
  7. Production orders below $1,000-3,000 are difficult for a manufacturer as you’re competing against their product development, personal brand retail, and made-to-measure markets.
  8. 4-6 colorways and 4-6 styles beats 1,000 options all day long.
  9. Cashflow is material runway, if you run out, you’re out. Without physical material for large jobs you are dead in the water. Be it a quick or slow death.  
  10. Opportunities come in two sizes: small day-to-day under $125 and game changers. Good deals are always about game changers that move the business needle.
  11. Business needles are moved by changing the nature of the work itself, not throwing more money or time at a problem.
  12. Payment once a deal is established should be as quick and painless as possible on both sides.

Alright, I hope that helps. I have one extra aside, more like a reader request, from one of my friends, Ashley Popio, who wanted me to talk about dealing with why discrimination exists in the industry. This is a bit of a minefield topic because a lot of us don’t want to talk about the fact that deals require both sides treating the other with respect. And sometimes people don’t. If one of the two parties involved doesn’t respect the other side, you’re wasting your time trying to get a fair deal.

Many traditional systems discriminate by default against women and minorities. A lot of it is leftover from production engineers who are long since dead and gone, but set policies back in the 1950s-1970s. These policies were geared to help factories and corporations compete against shops by maximizing profits, and they’re  still in effect today. For example, as we discussed last week, most traditional shops will naturally give employees raises over time to retain them, acknowledging the value of skills that increase every year. Conversely, Bertrand Frank, who was a production engineer, pioneered many techniques to use automation to compete against skilled shops or traditionally higher paid staff. His goal was to not pay more than 10% above the going local rate. By tradition, women weren’t paid as much as men, making them easy prey for a system that thrived on cheap labor..

win_20170227_12_59_44_proA lot of his thoughts were captured in his book, Progressive Apparel Production, which is worth reading if you want to understand some of the potential red flags you may run across in negotiating deals. Nash believes that while deals may have many elements, straightforward ones are generally the most honest. He prefers to give people a package, so that  clients trade money for product directly. A painful personal read is Frank had an active system in place to discriminate against women because he viewed them as less valuable than men because of childcare demands. Frank advocated a policy of filling lower ranks with women as cheap, replaceable cannon fodder, and placing a couple of skilled men on top to run the show. People still use elements of Frank’s math today. I’ve often thought that this thought process was a key driver for many firms who chose to start plants overseas in the 1980s as an attempt to capture lower local wage rates.

This desire to use industrial methods to marginalize workers for personal profit is the exact opposite of someone like say Henry Ford, who believed automation existed to give his workers a better pay and life.  It is a hard thing to tell you that, like money, both systems work in the short term.Longer-term, being an asshole is not a winning life strategy and society won’t thank you for it. The millennial generation is currently living through the consequences of this thought process that sees people as static parts of limited potential instead of dynamic humans capable of unlimited capacity for growth.

Most people in America today can tell you who Henry Ford was. Many people own Fords, and the company he built is still in operation today as one of the top five automakers. Bertrand Frank has a couple of copies of the book he wrote on Amazon, but is otherwise largely forgotten. And let’s not  even talk about how much more money Ford made. By every social metric, I doubt either of these people were perfect or never made mistakes. Ford is known for hiring women, blacks, and minorities in the Depression, which was almost unheard of. However, he also made a major misstep in the 1970s with a paper he ran speaking out against Jews (he later shut it down when it came to his attention). Still, the people they became and the way history remembers them is vastly different. I don’t know who you want to be, but I will tell you as someone who’s looked at the books for our industry that  a lot of different companies manufacturing overseas generally make $3-4 less profit per item compared to  the same item manufactured domestically. Over a decade, treating staff right really adds up.

As someone in my mid-30s, I’ve seen NC State (where we went to college) turn out a lot of win_20170227_13_18_11_prodesign students over the years. Throw in working in the industry for two decades, and it provides an interesting snapshot. I have a number of friends who took $5,000 or $10,000 they saved up in their 20s or 30s and started businesses around core values of treating people and the community they knew with respect. A decade later, they’re running   multi-million dollar apparel companies they bootstrapped together. I’m waiting on my friends who used overseas manufacturing to catch up.

Harvard has done a lot of studies on this and we’re seeing an industry trend towards reshoring following the money. Maybe I haven’t been the only one looking at the books. I don’t know if telling you this will help you or not, but I do wish you all the best in your deals in the business. And lest you think Nash and I have never made a mistake in business, I will tell you we have. No one is perfect in life or business. However, we want you to know most people you meet in the business are pretty great, men included. As human beings, we always have the oppertunity to change our bad systems for better ones.

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