Planning Supply Chain around Chinese New Year
Each year supply chains around the world must plan around Chinese New Year, which falls somewhere in either January or February each year. The varying date is due to CNY being based on the lunar calendar, which in itself adds confusion to production planning. Furthermore, there is no real rule of thumb on how long factories or other service orientated companies will be closed. The official government holiday is only one week; however, it is safe to say that production operations will be affected for up to 4-6 weeks each year. Unfortunately for buyers, it will affect your supply chain for much longer.
This year CNY is Saturday, February 16th. There are many variables that have buyers and supply chain personnel nursing headaches already. Our goal is to help minimize the complexities of product planning and offer a guideline to help navigate through the holiday this year and years to come.Here are basic tips to help minimize the impact of CNY:
1) Work with trusted manufacturers – suppliers that are well organized will inform you of any impacts in advance. That’s exactly how we managed to provide you with this information, by working in close collaboration with experienced and trusted manufacturers. However, we take it a step further with the 889 QA Program which goes much deeper as a hands-on approach. As some may know, even suppliers that are not as busy just use CNY as an excuse for being slow. But this isn’t the only reason to be hands on – larger factories that are approaching capacity may subcontract to smaller factories to meet demand. Quality issues may arise as these factories do not have the same quality assurance programs. One of the advantages of working with a manufacturing partner is that they usually have years of experience building a trustworthy supplier network and can help you navigate during this stressful time of year.
2) Plan inventory – By the end of 3Q factories should notify their valued customers to place orders that need to be shipped before CNY. Here is what you will need to do to plan inventory:
– Analyze sales from previous years to forecast inventory needs during January – April
– In October, confirm when your supplier is closing and reopening for the CNY
– By November discuss the optimal time for placing a pre-CNY order considering capacity and lead time
– Based on your supplier’s response to the above, place your order before the CNY (usually in first two weeks of December)
This year more factories are reaching capacity sooner. We have found that many clients are looking to place orders in August and September to get ahead of the production capacity concerns as well as lack of freight availability. In July there were not enough carts for rail freight.
3) Stay on top of production – Stay on top of production so that you are aware of production status and if schedules are slipping. Highlight and work aggressively with suppliers to keep them on schedule, in our experience, often the customer with the loudest voice gets priority.
a. Factory Closing Date – have products ready for shipment 1.5 – 2 weeks before the factory closing date. This include a couple days of cushion in case you need to get the goods sorted or reworked before shipping. Also, makes sure with the competitive shipping industry that your goods will get out.
b. Factory Opening Date – any inventory needed for March and April should be shipped prior to CNY. It is critical to specifically confirm the deadline to place an order for a shipment directly after CNY and the first shipment date after CNY. Most factories resume production with only about a third of their workforce. Not to mention the back-orders received during CNY.
c. Deadline to place an order for a shipment before CNY – depends on the supplier’s production capacity, complexity and size of the order. Make sure you know your supplier’s production lead time minimum and maximum days.
4) Have a quality plan – create a quality standard (sooner the better) with the manufacturer and establish a thorough inspection plan. This will reduce the risk of shipment delays caused by quality issues. If you work with a third-party QC partner based in China like 889, you probably have better chances of avoiding quality driven delays. Either way, pre-plan your inspection services ahead during the holiday as you are not the only one in a rush and workload is high. For more concrete quality and inspection planning feel free to contact anybody on the 889 Team.
5) Plan for shipment – sea freight can get expensive with peak pricing during that time. Plan and ship ahead of time to save cost and avoid delays. Smaller shipments should be at the port 2-3 weeks before CNY and booked a minimum of two weeks in advance to ensure a spot on the ship. Larger shipments should be booked 5-6 weeks in advance. These seem like aggressive timelines, but with unpredictable variables like weather they are necessary. Working with a trusted freight forwarder or manufacturing partner will be helpful here as they usually work with shipping companies that are well organized and better versed to deal with high demand caused by CNY.
6) Forward plan for future CNY and other important Chinese holidays
– CNY 2019: February 5
– CNY 2020: January 25
– CNY 2021: February 12
– CNY 2022: February 1
– CNY 2023: January 22