Columbia Sportswear 2013 Annual Report Download - page 11

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As a branded consumer products company, inventory represents one of the largest and riskiest capital commitments
in our business model. We begin designing and developing our seasonal product lines approximately 12 months prior to
soliciting advance orders from our wholesale customers and approximately 18 months prior to the products' availability to
consumers in retail stores. As a result, our ability to forecast and produce an assortment of product styles that matches
ultimate seasonal wholesale customer and end-consumer demand and to deliver products to our customers in a timely and
cost-effective manner can significantly affect our sales, gross margins and profitability. For this reason, we maintain and
continue to make substantial investments in information systems, processes and personnel that support our ongoing demand
planning efforts. The goals of our demand planning efforts are to develop a collaborative forecast that drives the timely
purchase of an adequate amount of inventory to satisfy demand, to minimize transportation and expediting costs necessary
to deliver products to customers by their requested delivery dates, and to minimize excess inventory to avoid liquidating
excess, end-of-season goods at discounted prices. Failure to achieve our demand planning goals could reduce our revenues
and/or increase our costs, which would negatively affect our gross margins, profitability and brand strength.
In order to manage inventory risk, we use incentive discounts to encourage our wholesale customers and independent
distributors to place orders at least six months in advance of scheduled delivery. We generally solicit advance orders from
wholesale customers and independent distributors for the fall and spring seasons based on seasonal ordering deadlines that
we establish to aid our efforts to plan manufacturing volumes to meet demand for each of our selling seasons.
We use those advance orders, together with forecasted demand from our direct-to-consumer operations, market trends,
historical data, customer and sales feedback and other important factors to estimate the volumes of each product to purchase
from our suppliers around the world. From the time of initial order through production, receipt and delivery, we attempt
to manage our inventory to reduce risk. We typically ship the majority of our advance fall season orders to wholesale
customers and independent distributors beginning in July and continuing through December. Similarly, the majority of our
advance spring season orders ship to wholesale customers and independent distributors beginning in January and continuing
through June. Generally, orders are subject to cancellation prior to the date of shipment.
Our inventory management efforts cannot entirely eliminate inventory risk due to the inherently unpredictable nature
of unseasonable weather, consumer demand, the ability of customers to cancel their advance orders prior to shipment, and
other variables that affect our customers’ ability to take delivery of their advance orders when originally scheduled. To
minimize our purchasing costs, the time necessary to fill customer orders and the risk of non-delivery, we place a significant
amount of orders for our products with independent factories prior to receiving our customers’ advance orders and we
maintain an inventory of select products that we anticipate will be in greatest demand. In addition, we build calculated
amounts of inventory to support estimated at-once orders from customers and auto-replenishment orders on certain long-
lived styles.
Credit and Collection
We extend credit to our customers based on an assessment of each customer’s financial condition, generally without
requiring collateral. To assist us in scheduling production with our suppliers and delivering seasonal products to our customers
on time, we offer customers discounts for placing advance orders and extended payment terms for taking delivery before
peak seasonal shipping periods. These extended payment terms increase our exposure to the risk of uncollectable receivables.
In order to manage the inherent risks of customer receivables, we maintain and continue to invest in information systems,
processes and personnel skilled in credit and collections. In some markets and with some customers we use credit insurance
or standby letters of credit to minimize our risk of credit loss.
Sourcing and Manufacturing
We do not own or operate manufacturing facilities and virtually all of our products are manufactured to our
specifications by independent factories located outside the United States. We generally do not maintain long-term
manufacturing commitments. We believe that the use of independent factories enables us to substantially limit our capital
expenditures and avoid the costs and risks associated with owning and operating large production facilities and managing
large labor forces. We also believe that the use of independent factories greatly increases our production capacity, maximizes
our flexibility and improves our product pricing. We manage our supply chain from a global and regional perspective and
adjust as needed to changes in the global production environment, including political risks, factory capacity, import
limitations and costs, raw material costs, availability and cost of labor and transportation costs. However, without long-