Order cancellations cost
US-based trade newsletter Tropical Topics, recently featured comments from a major producer of young plants on the trickle-down effects of order cancellations.
Last minute cancellations of orders and unpredictable fluctuations in demand often mean that young plant producers are left with large amounts of unsellable product. Not only does this result in high levels of wasted resources such as land, energy, labour and fuel, but it also means that future availability of product will be significantly affected.
Like many other industries, financial risk is transferred down the supply chain to reduce one’s exposure. The trickle-down effect in our industry starts with retailers cancelling orders on growers, growers then cancelling on young plant producers, who in turn cancel their orders with the tissue culture labs and stock producers. This escalation down the supply chain could have multi-year consequences on the future availability of product.
Future availability is based on expected demand and orders in the system, to operate stock farms as efficiently as possible. Once cancellations start, young plant producers and tissue culture labs take this as a signal of market weakness and start reducing supply. This is an issue because due to the nature of the foliage industry, it takes years to build stock for increased demand. Never have we felt this more than during the pandemic when we had customers screaming for anything tropical. We would have loved to fulfill the demand, but it simply was not possible to increase production in such a short window of time.
This leads to two questions as we continue to experience unpredictable times. Where does this lead and how do we end this cycle of production and demand curves not lining up? If there are clear signs market demand will recover next year, then stock producers may refrain from reducing their production. If there is no clear end to this slow down, the obvious next step is for stock growers to reduce their production, which will affect availability for years.