The Chinese New Year (CNY) normally represents the largest annual mass migration on the planet. You would certainly know this already if you outsource any product from China. Generally, CNY creates two to four weeks of complete silence from an entire country, including your suppliers, contract manufacturers, and partners. Almost everything shuts down, including the government and factories, while ports and customs usually operate with a limited number of staff focusing on perishable and priority items. Planning is one of the best ways to save your supply chain from the negative effects of chaos. Let us see how the CNY affects the internal Chinese supply chain, and the global supply chain.
How is internal Chinese supply chain affected?
The movement of people is so great because family gatherings are an essential part of CNY. Most elderly parents live in rural villages, while their children work in the cities. This definitely has a huge impact on the logistics infrastructure. Making the impact bigger are the increased movements of goods including food and drink that has to be distributed to the rural areas to handle the unbelievable increase in demand. Besides all that, we should not forget the supply chain to plan, manufacture and deliver all the fireworks and firecrackers for CYN Eve, First New Year Day, and the Lantern Festival.
The effect on global supply chain
The question is: how is the global supply chain impacted when 1.3+ billion people go on vacation at the same time?
CNY is celebrated for one week but many factories and businesses shut down up to 10 days before and several days after to allow time for the mass exodus of workers.
The fact that China is the leader in the global exporting industry, means that the effects of CNY are felt around the world. Not planning for it would cause turmoil within your organization. In fact, China is currently the USA’s largest goods trading partner with $635.4 billion in total (two-way) goods trade during 2017.
Here are some common effects in case of no planning:
- Longer production and quotation times: Production time will be delayed and quotation requests will be processed slower.
- Decreased staff: Some factory workers decide not to return to their workplace after the holidays. This high turnover means that previously estimated production times may need to be extended.
- Production queues: The later that orders are submitted, the further back in the production queue they will placed. With one month worth of orders backed up, factories will first process orders from their preferred partners.
Useful tips to plan and manage around Chinese New Year:
- Consider building strong relationships: Having strong relationships with your Chinese suppliers and contract manufacturers leads to collaboration and information sharing. That can give you visibility into the status of orders in process.
- Place your order well in advance: Waiting until the last minute to place your order ahead of CNY is not a good idea! Doing so will prevent you from receiving your order in a timely manner. In case you do get your order, there is a chance of reduced quality due to rushed orders and high demand.
- Plan ahead: It is essential to build a strong picture of demand that includes both structured data (orders) and unstructured data (sentiment analysis, weather patterns, events). In this way, you can ensure your company has enough stock to see you through CNY and beyond.
- Optimize your inventory: A wise thing to do during this period is to build up inventory in the right locations around the world.
- Get the logistics right: It is a good idea to manage logistics from your Chinese manufacturers to your door by planning, booking, and confirming transportation shipments well in advance of CNY. In fact, the closer you get to CNY, shipping costs rise, while available shipping space shrinks.
- Plan for other options: You can also minimize or even minimize risk altogether with substitute sourcing strategies that tap vendors outside of China. This will surely help during CNY and year-round as well.
- Monitor production levels: You can also plan to keep a close eye on production for the rest of the quarter after CNY, as it normally takes a while until production is back in full swing. Surveys has shown that 30% of workers will not return after the new year.
Every company needs to understand that the CNY shutdown happens every year and can’t be avoided. Hence, they should do what’s necessary to keep their supply chains on track during this period. Advanced planning is vital to ensure you have enough inventory to last a few extra weeks because it is next to impossible to get any product out of China during this time.