How to Plan for Chinese New Year Supply Chain Disruptions

By Elsa Souchet | Dec 21, 2020 | 2 minutes to read

How to Plan for Chinese New Year Supply Chain Disruptions

The last two decades have been marked by the rise of the Chinese manufacturing sector, and more broadly, the rapid economic growth of several Asian economies. Companies from Western nations have displaced en masse their manufacturing operations to some of these countries to benefit from lower workforce costs. By expanding their supply chains on a global scale, these firms expose themselves to novel risks. Differences in calendar years are particularly contrasted on both ends of the Pacific Ocean, giving room to potential delays and misunderstandings. Lunar New Year, also known as Chinese New Year, is observed by many East Asian countries. Manufacturing shuts down during this holiday, as factory workers typically get a week off sometime in January or February. For supply chains that have strict delays, a week’s break can throw a wrench into an importer’s planning. Because Western societies do not observe Chinese New Year, it’s up to firms that deal with Asian suppliers to put strategies into place to limit the impact of a week-long production stop. This article will outline a few tips for companies that have supply chains with a back-end sourced in China.

Ramping up inventory for Q1 demand

Effective demand planning is essentially the biggest difficulty encountered in limiting shortages during Chinese New Year. Because a one-week holiday can realistically mean two weeks in lost production output, companies that are frequently supplied could lose business if their forecasts under evaluate demand. It’s important to ramp up inventory before Christmas to be able to respond to demand throughout the first quarter. For companies receiving stock monthly, a simple yet effective way to account for the two-week break is to receive one half of March’s demand in January’s shipment and the other in February’s. This method bears a slight risk of over forecasting ahead of time but prevents the chance of having big delays for larger quantities of product.

Communicating a plan

An important step in planning for supply chain disruption during Chinese New Year is to integrate the week in which operations are stopped into a firm’s annual planning activities. Because couriers, shippers and customs are bogged down by traffic directly before and after the break, it’s important to share the company’s planning with these stakeholders ahead of time, allowing them to implement logistics that answer the firm’s needs. Communication between the firm and these stakeholders is particularly important to know who will be the contact person during the holiday in case something goes wrong. Creating a more meaningful connection with the designated point person in China will go a long way if mistakes are made and delays are incurred.

Implementing a quality management system

Making sure thorough quality management is in place on the manufacturing end can reduce the chances of encountering delays. The looming Chinese New Year holiday can put undue pressure on employees and supervisors, driving them to forgo quality in place of reduced delays. Not only is this counterproductive, since the discovery of quality faults will ultimately lead to longer delays, but it also undermines most firms’ strategic objectives in providing the customer with a good product. Monitoring and improving quality at the source in real-time will inevitably improve production outcomes.

Seeking local supplier alternatives

The age-old adage of “not keeping all your eggs in one basket” is especially relevant to firms navigating Chinese New Year difficulties. Many companies have sought to create the most time-efficient and costless supply chains they could by shifting production to Asia. Most of the time, this proves to offer a significant competitive advantage. However, when taking into account the unpredictability of a two-week-long production stump, it is necessary to seek other supply arrangements that are not subject to the same calendar conditions. Opting for a local supplier to shore up demand during Chinese New Year can be a good way to control risk.

Are you ready for 2021?

2020 was marked by excruciatingly long Chinese New Year delays due to the COVID-19 pandemic. While firms couldn’t predict the pandemic, they certainly would have been able to forecast Chinese New Year. The ones who had contingency plans and domestic suppliers were able to better weather the supply chain storm that arose. 2021 will assuredly still be under the fog of the global pandemic, but companies will probably be better prepared for the delays ahead. Will you?

Originally published on Medium.

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