Your supply chain is the lifeblood of your company. So when it’s disrupted, the consequences can be financially and operationally painful. That’s why the annual onset of Chinese New Year (CNY) is such a challenging time – and one that demands careful planning and preparation.
This year, CNY begins on February 5, but even in the days preceding the official start of the holiday, production at manufacturing facilities across China will begin to slow to a complete stop. Typically, factories and offices in mainland China and Hong Kong will close for three working weeks, allowing employees to travel home to be with their families for the holiday. In some cases, closures may extend for additional days, lasting all the way to March. In Thailand, Cambodia, Japan and the Philippines, the Chinese New Year is also a major event, though not a public holiday.
With global trade on the rise and supply chains increasingly reliant on international manufacturing and sourcing strategies, there is a good chance that your company might be affected by production shutdowns in China. If you import goods or parts manufactured there, do business with companies based in China or are reliant on Chinese production, you need to be ready for CNY with plans for alternate manufacturing, advance ordering and dynamic shipping.
This year, increased tariffs and trade tensions with China are adding to the concerns that U.S. businesses face as CNY approaches. While the U.S. has announced its intention to ease tariffs, talks to resolve the disputes are still ongoing between trade representatives. In the meantime, U.S. companies that import from China are attempting to calculate the long-term effects of the ongoing trade dispute on their balance sheets. Although there are uncertainties around what the future will hold for tariffs, it does not impact the fact that companies that order goods in advance due to CNY closures will have to factor in today’s costs.
With this in mind, here are some key production and logistics considerations to get your company prepared for the impact of Chinese New Year:
Determine the Need for Advance Ordering: To make sure you can meet customer demand during the disruption period, it is critical to be as accurate as possible in determining what that demand will be. Based on careful estimates, your company should place orders for goods well in advance to allow for production and transportation times. Accurate forecasting of customer demand will require a careful analysis of past sales. Remember, your competitors will also be ramping up orders and looking for logistics support, which means that delays might occur.
Coordinate Carefully: Manufacturing facilities in China will close at different times, and they will stop accepting orders in advance of their shutdown times. So it’s critical to communicate carefully with your suppliers, pinpointing exactly when they will close and re-open. Keep in mind that some manufacturers might miss their back-to-business deadlines, since workers often use the holiday as a time to move on to new jobs. This means that facilities can be short-staffed when they begin to ramp up operations again after the holiday.
Focus on Shipping: The Chinese New Year break impacts more than just production. It also has far-reaching implications on border clearance processes, as well as on related transportation and shipping schedules. Again, it is critical to place orders as early as possible, to ensure timely clearance. At the same time, companies should be working with international logistics experts who understand border requirements and can expedite delivery, knowing how important it is to get your products ready to ship from China early.
Make Your Supply Chain Resilient: A flexible supply chain can help your organization overcome a variety of disruptions, from natural disasters and political upheaval to yearly holiday closings. What does a flexible supply chain look like? It includes multiple manufacturing points, resilient shipping options and well-planned warehousing. Since the Chinese New Year obviously comes around annually (on different dates, according to the lunar calendar), consider planning your supply chain to be more adaptable in the years ahead.
Be Prepared for Ongoing Disruptions: Even after CNY celebrations end, manufacturers in China often face challenges in resuming operations. Be prepared for extended disruptions by forecasting correctly and searching for alternative suppliers.
What is your company doing to mitigate slowdowns during the Chinese New Year? Let us know on Twitter at @DHLUS.