We’re well into December now and so if you’re importing from China you should be getting ready for the annual Chinese New Year manufacturing disruption.
CNY is an inescapable holiday that has wide-reaching effects on everyone, so how can you best handle it?
What is Chinese New Year?
Chinese New Year, or ‘Spring Festival’ to the Chinese, is the most important festival in China. It’s their version of Christmas and a particular focus is on families getting together to celebrate the coming of the new year by eating, setting off fireworks, and giving gifts (usually ‘red packages’ with a little money inside).
If you’re lucky enough to visit China during Chinese New Year, you’ll be met by pretty red lanterns and colourful lights everywhere and, if you know any locals, no doubt you’ll be invited to their home to share nice foods and snacks and join the celebratory mood.
Importantly, many factory workers only ‘go home’ this once during the year and as many people in China are migrant workers who work in big cities which are sometimes very far from their home towns we see the largest human migration in action every year.
Logistically it can be difficult for importers to plan for CNY because it’s based on the lunar calendar and can occur any time between late January through to late February. This year, 2020, for instance, Chinese New year’s Eve falls on January 25th which is considered quite an early one.
How long is the holiday?
The CNY holiday is technically 5 days, a working week and the two weekends around it. However, it really starts around a month in advance, when some workers will start going home, and ends a couple of weeks afterwards, as it’s simply not possible for everyone to get train and plane tickets to travel on the dates themself (most Chinese take trains).
So to make it clear, here are the rough dates affected this year:
- Around December 25th 2019 – a month before CNY a few factory workers will start to go home and production is affected
- Around January 8th 2020 – 2 weeks before CNY, quite a lot of factory workers start leaving now and production either stops of seriously winds down, however, you can probably still speak with sales and support staff in the office between now and CNY
- January 24th – last working day before CNY (most staff won’t be at work by now)
- January 25th to February 2nd – this is the official CNY holiday
- February 3rd to 17th – office staff will be returning during this time and you can likely speak with sales contacts
- Around February 17th onwards – migrant workers start returning to work in factories (if they return at all) and production begins to ramp up again
Workers tend to take extra days around the CNY period as it’s their only chance to go home and so they use additional leave (perhaps earnt through working overtime during the year) to extend it. It’s normal not to see a return of many blue-collar workers until around 2 weeks after the end of the CNY holiday period.
So while the official Chinese New Year holiday is technically 5 days and 2 weekends, manufacturing disruption for you will be anywhere from 15 to 40 days in total!
When will you start seeing disruptions to your production and what are the reasons for this?
At the time of writing, December 5th, this year it’s probably too late to place new orders with your Chinese suppliers and expect them to be completed and delivered to before the end of the CNY period (they should actually be placed around September/October to be safe) given that it’s an early CNY in 2020.
So you’re looking at some time into February before factories can take orders and start to work on them.
I explored Chinese New Year manufacturing disruption in this post on QualityInspection.org and will share some of the reasons here:
- Many employees leave work early, perhaps by as much as several weeks. This is enabled in part by a practice where many factories allow workers to accrue overtime during the year and take it as paid time off at yearend.
- The transportation systems are taxed by a large outgo of products, as many importers take extra inventory to cover their needs through the holiday. (Just as we will suggest that our customers do!) My clients have experienced problems with container and truck availability; in several past years, finished goods waited at the factory but could not be shipped. The ports themselves remain open for most of this time if the goods can get there.
- Factories are reluctant to accumulate inventories over this time period. In part this is due to a custom of settling trade accounts (that is, paying off accounts payable and (hopefully!) collecting accounts receivable prior to the holiday.
- Most factories close for a period of two weeks; a few close for up to four weeks. Realize that for many workers, this is their only time to visit family for the year. In many cases, this includes children, who are often raised by grandparents back in the countryside.
- Many odd contingencies occur at this time of year. Murphy’s law is fully in force.
And then, after the holiday…
- Many factories experience heavy worker turnover, as migrant employees may choose to remain home or move to other regions in search of better opportunity. This leads to slow startups, as the workforce slowly reaches full strength again.
- Because raw material inventories were diminished or totally consumed, production cannot resume at full pace until suppliers make deliveries of raw materials.
- As above, these issues ripple through all levels of the supply chain. This is particularly troublesome for more complex products; the product cannot be completed until ALL the components are ready!
What you can do to handle Chinese New Year manufacturing disruptions
There’s no avoiding the Chinese New Year holiday, it’s a fact of life in China that things wind down and go very slowly during the month or so that the holiday affects.
However, as an importer, you should take the following steps to minimize Chinese New Year manufacturing disruptions and maximise the chances of dealing with the CNY period effectively.
1. Plan ahead before CNY begins to cover the period
You should develop a tentative material plan through to May 1st of the new year before the CNY period is near and determine material requirements to cover sales through April 1st, plus a safety stock of 15 – 30 days greater than the usual safety stock expectation.
This will mean potentially increasing order quantities in the last orders that you expect to ship before CNY (September/October/November) so that you build the buffer and don’t need to rely on production that occurs straight after CNY when factories are ramping up production again and more errors can occur.
2. Apply pressure to your suppliers NOW to ensure your orders to be shipped soon are NOT shipped after CNY
This should be taking place now as factories are still operating normally, but we’re nearing CNY. If you take your eye off the ball now, your supplier may not ship your orders until after CNY and that’s a long time to wait.
3. Plan post-CNY orders
Review sales and inventory status again during mid-January, and prepare an order plan covering:
a. The highest priority material, for production and shipment immediately after work resumes. This should cover the material needed through May 1. Firm orders should be issued for these by January 15.
b. Estimated requirements through July 1, to provide the factory with raw material planning/ purchasing. You can place these as a blanket order, for example.
4. Increase product inspection stringency
Both before and after CNY, product quality can take a hit.
Before the holiday, factories are well-staffed and operating normally, but they’re scrambling to finish a lot of work before the holiday and so mistakes can occur.
After the holiday is a very different story. Many experienced factory workers simply do not return, opting to pocket their annual bonus and then find a new (perhaps better-paid position) following the holiday. This leaves factories struggling to ramp up production to contend with a fragmented workforce who are returning piecemeal on different dates, purchasing new materials and components, and also now having to train new hires, too. A recipe for quality issues.
Therefore, product inspections are very important at this time of year. Whatever the normal level you use for each supplier, step it up at least one level. At the very least, increase receiving inspection frequency/ counts; better yet, add a third-party pre-shipment inspection. This is particularly important for the first shipments after the new year, when there may be many brand new employees making your products for the first time!
If you’re working with a new supplier after CNY, conducting factory audits will also help you to assess whether they’re able to produce goods that reach your requirements in the most challenging time for factories following the holidays.
Dealing with national holidays is a normal part of doing business with China.
As an importer, your ability to handle Chinese New Year manufacturing disruptions will largely be reliant on careful planning and adequate safety stocks which ensure your continuity of supply.
At the same time, it is necessary to be flexible and take things in your stride … as mentioned above, during this period, anything can happen!
How are you getting on as we approach CNY? Are you prepared? What steps did you take? Have you encountered any problems (unexpected or otherwise)? What have you done to handle them?
Let me know by leaving a comment, and if you need urgent help, why not arrange a phone call with us to discuss your situation and see if we can help?
It’s at times like CNY that importers really benefit from having as low a risk supply chain as possible so things don’t fall apart in the tricky period before and after the holidays.
If you’d benefit from gaining control over your product’s quality, on-time shipments, long-term pricing stability, and continuity of supply, watch our FREE webinar which will empower you to transform your supply chain in China to reduce risks. You can register here now!
Ready to watch? Register by hitting the button below: