Q: If a domestic fabric (or leather or other cover material) supplier goes out of business, and an upholstery manufacturer has committed to offering that supplier's fabrics to its customers, how can the manufacturer secure access to those designs or find alternative sources with similar designs?
A: There's no "if" to it anymore. Leather and fabric vendors going out of business, or departing the United States for other countries, are almost a monthly happening. Perhaps your company made a major mistake.
Normally, you'd check a new customer for credit worthiness. A key element in the credit check is its potential to remain in business. In like manner, you must check each new supplier, and even recheck the old suppliers, to see if they are financially and physically able to provide product continuously. Many suppliers, beaten down over the years by customers whose only focus is on cost reduction, are holding on only by a thin strand of yarn, particularly if they are in the United States. Your marketing geniuses will fight hard to keep a marginal supplier if they believe that supplier has a fabric or leather that will produce a buying frenzy.
If you must use a mill or tannery that is shaky, you must then get an agreement that the vendor company will allow your company to have the pattern reproduced should the vendor be unable to supply the materials for any reason. The same applies to leather. However, I haven't had the experience of seeing a leather copied correctly and obtain anything like the original product. There's too much tribal knowledge within a tannery to reproduce a given look and hand.
Get it in writing
Please understand that I'm not a lawyer, do not practice law or intend to offer legal advice. I would think, however, if you don't have this agreement in writing, and the vendor goes into bankruptcy, the assets of the vendor, which would include the patterns in fabric and methods of production in leather, would belong to the estate of the vendor.
If someone copied without legal permission, it would be the same if it were copied from an ongoing company. Check with your legal advisor to verify.
The only possible "out" to this is if the mill was purchasing the design from a third party, paying by the yard produced, and the designer retained ownership of the design. In this case you could negotiate with the designer for the rights to produce the fabric.
Your company must develop a strategy to continue to be able to obtain consistent, marketable covering for your products. If most of the fabric mills depart the United States., you will be at the mercy of your foreign vendors, the decline of the dollar and the policies of foreign governments.
In most countries, the United States being an exception, the policy is to protect their country's businesses which provide jobs for their people. Potentially, it could be in the best interest of a country with fabric mills and upholstery manufacturers to prevent you from obtaining a certain fabric, or to stop shipping to you if a certain fabric "takes off." It's certain that a foreign country's upholstery manufacturers don't want competition and loss of jobs any more than you do.
In addition, all covering will continue to increase in cost as the fabric mills and yarn manufacturers reside in monopolistic countries. The chemical suppliers for polyurethane have moved offshore, and the plywood suppliers are moving offshore. This will also drive up the cost of raw materials in the United States because of the dollar exchange rate. If you don't understand this, take a trip to Europe or even Canada and buy a T-shirt. This alone means that if your business plan is to make and sell on price, you're hosed now and might as well close the doors and go to work for Homeland Security.
Not only will the coverings increase in cost, but your liability for a recall is also much greater than before. What if several people from different parts of the country bought your product, used it and developed a skin problem because the chemicals used in the dye or finish weren't properly fixed, or better yet, illegal chemicals were improperly used in the manufacturing of the cover? Is there any chromium residue remaining on the surface of the cheap leather? Are you testing continuously for these chemical problems? Do you have explicit specifications as to what can be used to make your fabric, to dye the fabric and to finish the fabric?
I understand we graduate more lawyers than engineers today, and these poor souls need jobs, so be prepared.
Playing by the rules
So what is a manufacturer to do? First, I'd suggest you plan to purchase all possible materials from vendors manufacturing in the United States. They know and play by the rules. Your liability for disruption, given the fact you have checked them out, is substantially reduced.
Second, there are good upholstery fabrics woven in Mexico, also a low-cost labor market.
Europe, as well as Turkey, also supplies excellent upholstery fabrics, and Medellin, Colombia, has been known for superb woven fabrics for 100 years or so. Medellin's labor cost is on par with China. You'll have to go find them; no one will knock on your door.
Understand, the cost of a raw material is much more than the initial cost. Over and above waste and poor quality, the final cost also includes the potential legal and product liability cost, and potential disruption in the supply of the raw material. This disruption could be caused by an action by our government in retaliation for another country's action. Taiwan comes to mind.
If you think for a moment the cover made in the United States is expensive, check the cost after you receive the notice from the Consumer Protection Agency or a plaintiff attorney regarding a foreign vendor problem. What's the cost when you sold a fabric you can no longer get? Also, like Mattel, what will be your personal cost, when you've made the recall, and then have to apologize to your vendor's country for buying defective products from them so they'll continue to ship materials to you?
John F. Kennedy, in a speech made in South Africa, quoted a supposedly old Chinese curse, "May you live in interesting times." I think we would all agree these are interesting times!
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