This article was originally published to Linkedin here.
In only a few weeks there has been a global shift in the supply & demand curve for COVID-19 related medical supplies. China is slowing down domestic demand and a ramp up in manufacturing has created excess capacity from an overnight industry that sprung up to meet demand. Over the last week, a global drive to purchase bulk 3-ply, N95, KN95, FFP2, & FFP3 Masks has emerged. These are often coupled with additional orders for gowns, gloves, shields, and now ventilators. This is a 4 billion person demand and China seems to be the only country that has supply. Domestic manufacturing in the U.S. is slowly coming online, but the next 3-6 weeks will likely be dominated by Chinese products. We have sourced deals for the United States, U.K, Eastern Europe, and India. With multiple request coming in by the hour.
Due to the nature of our global consulting work, my China team and partners at FAO Global, has jumped into high gear to source, vet, and facilitate large scale purchases of supplies. In less than a week we have fielded bulk requests from more than 10 large organizations for hospitals & government related purchases. Below is what we see so far in the market.
A breakdown of Supply Chain & Procurement Processes
We were shocked to hear horror stories from established hospitals and suppliers who are stuck with purchase orders outstanding and unable to fill demand. Our understanding is that primary contractors have sold out and the excess capacity is now in the hands of the new mid-market and small manufacturers that were set up rapidly to meet domestic demand. This means that traditional suppliers do not have established relationships creating a free-for-all in the purchasing space. Chinese Manufacturers are reaching out to build connections with foreign customers who, until a few weeks ago, did not have a need to buy so much supply.
Payment Terms: 50% to produce, 50% before shipping…or nothing
This is a sellers market and the Chinese manufacturers know that. Cash in hand is the only thing that talks. Manufacturers will not even provide invoiced quotes unless you provide them with an official purchase order on company letter head. Many companies aren’t even sending samples. Conducting due-diligence can be tough. One way our firm is addressing due-diligence is to work directly with established relationships and only use manufacturers that are referred in high standards. We are also making sure that certifications meet buyer requirements and expectations prior to purchase.
A 24 to 48 Hour Decision Cycle
Due to the global demand, procurement of supplies direct from manufacturers is on a 24-48 hour decision cycle. Sometimes 72 if you are lucky. This means from the time of invoice you have up to 48 hours to submit payment and sign any accompanying contracts less the price is subject to change and everything starts over. Finally, take this time to coordinate shipping and finish all other arrangements. These are unique times and a lot of moving pieces, make sure you are covering all your bases.
About Brandon Hughes
Brandon is the CEO & Founder of FAO Global, a boutique international consulting firm that enables organizations to execute and expand operations in international markets. Brandon Hughes is former Active Duty Army Officer who specializes in building international partnerships. He has previously served in two global think tanks and has briefed policy and business leaders on the impacts of geopolitical events. Brandon is also a masters graduate from China’s prestigious Tsinghua University holding an LLM in International Relations, a B.S. in International Business, and is completing an Executive MBA from Columbia University in New York.
