At the end of the year, we were commiserating with Curt, the primary supplier of our products’ most critical component, about the state of business. Retailers had been particularly ruthless, and we were wondering how that felt throughout our value stream.
“Honestly, I’m surprised you guys didn’t try to take a price increase,” I told Curt. His eyes bugged out like a cartoon rabbit as he choked on his Bud Light.
“I had planned to,” he said in his good ol’ boy drawl, “when I came to visit in March. But before I could make my pitch, we went out for drinks.”
JR, our president, laughed and asked, “What happened over drinks?”
Curt pointed at me. “He told that story.”
“What story is that?”
“You know, the fable… the fable of the fabric!”
My turn to laugh. “You mean ‘The Parable of the Holiday Plaid’!”
As ashen-faced as any spooked camper listening to ghost stories, Curt nodded.
“I’ll bite,” JR said. “What’s ‘The Parable of the Holiday Plaid’?”
The Parable of the Holiday Plaid
Hudson Valley Mills had been one of our suppliers since the early 1950’s, when JR’s grandfather and “Pops” Steinman made handshake deals. For five decades, we (JR’s granddad, JR, then I) would take the train into New York’s Penn Station and hop over to their Fashion District showroom to meet with Pops and later his son, Artie. No matter what swatches and samples the Steinmans showed us, we always had a nice order for our custom design, the signature “Holiday Plaid”.
With a bright red background and a subtle line of gold thread running through the warp, our Holiday Plaid draping over banisters, adorning wreathes, or neatly tying presents made every Christmas nearly like a picture print by Currier and Ives.
As a supplier, Artie was a pain in the ass – but the good kind, torn straight from the pages of Damon Runyon. Always chewing on an unlit cigar, pants pulled to his sternum, he treated every concession as if it would bankrupt his extended family and every on-time delivery as a personal favor. He was a pain, sure, but a known quantity.
Our annual volume wouldn’t put anyone in the Fortune 500 – low six-figures – but it mattered, particularly in a dying industry.
When Artie retired at the age of 137, our account passed to “Don”. We knew Don – he always sat next to Artie with the order book and a calculator – but we didn’t know Don.
We prepared our order as usual, but before we even had our first face-to-face with Don, he informed us of a price increase (along with scheduling concerns). It wasn’t tremendous – around ten percent – but we had already quoted our product line to retailers, so that would come straight from our margin.
His made a decent case – American textiles were cratering, so component costs were increasing as capacity collapsed. Art hadn’t “reviewed” the file in years, we had been taking advantage of that, etc. But we couldn’t make it work. And we told him so.
Don held firm. In fact, he issued an ultimatum – “Sign next week or you don’t go on the schedule.”
So I went shopping.
At a Lean conference, we had met someone who made the canvas used in automotive airbags – which turns out to be a seasonal business that ran contra to ours. So while our Taiwanese and Sri Lankan suppliers were hastily weaving samples, we sent our specs to the New England airbag fabric mill.
- They could not exactly match the terms and quality of Hudson Valley’s contract. For starters, they were about seven cents more per yard – from last year’s price. Also:
- They used a slightly higher-denier yarn, which gave their fabric a stronger, “richer” feel;
- They wove on wider looms, which meant each yard of fabric would yield about 27 percent more end product;
- They had also read The Machine That Changed the World, and were willing to weave in line with our demand schedule;
- They gave us payment terms and production guarantees that could not be beat.
Even with the nickel price increase, we were receiving a better product with a lower inventory cost at about a 26 percent discount, once the yield was factored in.
Our business had been, basically, an annuity for Hudson Valley; we never had any reason to question our relationship, until Don gave us reasons to question it. And once we did, boy were our eyes opened.
As a Man of Action, I had no choice: we pulled the business.
Don was absolutely aghast. He was on the next train to Philadelphia to plead his case. It was too late – even if he matched price and terms, it was still a now-inferior product.
And the thing about it is – the moral of the story, if you will – if he hadn’t pushed an increase, none of this would have happened. We were happy with their product and service. Dumb, but happy. Once we were forced into the market, we realized just how dumb we were.