The US financial market is in turmoil. Stocks are down, industry icons like Bear Stearns are folding, and banks are tightening lending. The effects of this crisis aren’t limited to returns on your retirement portfolio; they also effect the way business is conducted in today’s global economy.

The monetary requirement to source gloves has increased for three primary reasons: 1) costs have increased, 2) stricter purchasing terms, and 3) supply shortages, forcing suppliers to maintain higher levels of safety stock. Demand for lending therefore has increased, while the willingness on the part of banks to lend money has decreased.

Needless to say, maintaining adequate cash flow for inventory purposes has become a challenge as a result. We have occasional reports in recent weeks of product being quoted below market prices. The reason–these suppliers lack the cash to purchase future inventory (the purchasing process now takes as long as 120 days), forcing them to sell product at or below cost to stimulate cash flow. Obviously, this practice is not sustainable over time.

The reality is that most suppliers rely on lending to maintain cash flow, but lending practices will continue to tighten as the financial market becomes bleaker. Tomorrow, I’ll discuss how manufacturers overseas are reacting to the economic crisis in America.