Chinese New Year Supply Chain Disruption: Is Your Business Ready?
My blog post, also published on Forbes, is about Chinese New Year (CNY). CNY is also referred to as Lunar New Year or Spring Festival, and it is one of the most significant Chinese celebrations and creates the biggest annual mass migration in the world. As a result, CNY is a ferocious disruptor of the Chinese and global supply chains—just like the tiger, “king of all beasts” and this year’s Chinese Zodiac.
Even if CNY is only a seven-day public holiday in China, the break in production for Chinese based suppliers, contract manufacturers and partners, can last an agonizing four weeks. During this time, almost everything shuts down including the government and factories, while ports and customs usually operate with a minimum staff focusing on perishable and priority items.
However, planning around this year`s Chinese New Year may be even more of a challenge than usual. It comes with the distraction of the Winter Olympic Games in Beijing (starting Feb 3rd), and the well reported shortage of shipping space and container availability. As a result, it is expected that there will be few or limited shipments coming out of China in the first months of the year.
The impact on the internal Chinese supply chain
Like Christmas or Thanksgiving in many parts of the world, Chinese New Year is the family reunion event of the year. People around the country travel to visit parents, who often live in rural villages, while they work in the industrial cities. This mass migration means that seats on trains and busses are sold out months before and getting a train ticket only a few days before is nearly impossible. (Believe me, I have tried!)
This exodus has a huge impact on the logistics infrastructure for the planning and distribution of goods, products, food and drinks within the country, not to forget all the fireworks and firecrackers that are set off on CNY Eve and First New Year.
The impact on the global supply chain
Chinese New Year has always been a big disrupter in the global supply chain as many factories and businesses will shut down up to 10 days or longer to allow the employees to return to their families and to celebrate.
This year though might be special because ever since the outbreak of the pandemic the global supply chain has been in a state of turmoil, and having the Olympic Games starting at the same time, will not make it easier.
As China has been the leader in the global exporting industry, the effects of CNY will continue to disrupt supply chains worldwide.
Plan ahead and think of alternatives for Chinese New Year
Like Christmas, Chinese New Year occurs every year and there is no way to avoid it. But unlike Christmas, the date varies from year to year, hence advanced planning is required to make sure you have the right products, materials, and components in place.
To prepare your business for the upcoming Chinese New Year, here are a few suggestions:
Plan ahead: It is recommended to not only plan for the time before CNY but also for the time after the feast, as the repercussions of the CNY might be last until spring. Therefore, build a strong picture of demand that incorporates both structured data (orders) and unstructured data (sentiment analysis, weather patterns, events). This can help you to ensure your company has enough stock.
Build strong relationships: Invest additional time and resources to build strong relationships across the business network with your suppliers and contract manufacturers. This could help you to better collaborate and get better visibility into the status of the orders in process.
Optimize your inventory: Build up your inventory in the right locations around the world and leverage the inventory optimization planning logic to map projected demand with projected supply.
Check for alternatives: For urgent deliveries, it could make sense to check for alternative transportation modes, e.g. from ship to rail or to consider an alternate see-air combination. Additionally, it will be wise to minimize or mitigate risk altogether with alternate sourcing strategies that tap vendors outside China.
Monitor production levels: Plan to keep a close eye on production in your own and contract manufacturers for the rest of the quarter after CNY, as it will take a while until the production capacity is back in full swing.
Don’t wait until the last minute: It is recommended not to wait until the last minute to place your order ahead of CNY and hope to receive your order in a timely manner. But if you do get your order in time, it could be that the quality has been downgraded due to rushed orders and high demand.
The next Chinese New Year is ahead and the year of the “Tiger” starts, “Water-Tiger” to be exact. It is said that it will handle imminent changes well and see them as chances, not troubles. With that said, in the upcoming CNY break season there is a good chance that the disruption in the supply chain will calm down again.
Chinese New Year is February 1st, 2022.
Xin nian kuaile! (新年快乐! )
Gong xi fa cai! (恭喜發財! )
To learn more about how you can put processes in place to enable a resilient supply chain, download this recent Oxford Economics study.