Before China Shuts Down, Prepare Your Supply Chain for Chinese New Year So You Can Celebrate Instead of Stress

Year Date of Chinese New year
2013 Sunday, February 10
2014 Friday, January 31
2015 Thursday, February 19
2016 Monday, February 8
2017 Saturday, January 28
2018 Friday, February 16
2019 Tuesday, February 5
2020 Saturday, January 25

The December holidays’ spike in consumer purchases often stretches the operations of small and large businesses. However, just a month afterward, Chinese New Year has a mammoth impact on Asian suppliers and customers. Consequently, any supply chain that involves Asian links, especially Chinese links, should prepare for the disruption in supply and the possible increase in demand.

Chinese New Year Length and Timing

Beginning on the first day of the traditional Chinese Lunar calendar, Chinese New Year (CNY) usually lands between January 22 and February 19. However, in order to give employees time to return home to their families, most Chinese companies close one to two weeks prior to the actual date. In addition to closing early, they often remain closed for an additional two weeks after the specific CNY date. Even after they open, factories rarely have enough employees return in time to produce at full capacity. Sometimes factories resume production with as much as two-thirds of the workforce not yet returned. Depending on the labor market, some of those employees may never return to their former job.

Chinese New Year for Chinese Employees

For employees, CNY is a welcome vacation that tops those offered by most US companies. The entire country begins to shut down one to two weeks before the big day. Travelling home can be quite difficult, often taking 3 to 7 days by train to arrive at hometowns with waiting families. Fortunately, many factories pay their workers an addition month’s pay as a bonus right before the holiday. This benefit is why some Chinese companies will ask for payment of all upcoming invoices before the CNY holiday. The managers and business owners usually do not need to return to a distant home, since their families often live nearby. Nevertheless, they will often take at least a week away from work, which essentially means email silence for at least a week, if not more, with your Chinese associates.

Supply Chains at a Stand Still

Imagine an abandoned airport with FedEx and Cargo planes scattered around the tarmac. Pilots have shut down, locked up, and exited their planes. They join their crews and head home for CNY. In a week or two, the pilots and support staff will return, and the planes will simply turn back on and continue with their deliveries. No matter how much you beg, freight simply cannot move for the week around CNY. FedEx, UPS, and DHL usually post the expected delays on their websites, so be sure to utilize that information.

In addition to airfreight delays, sea freight can get even more congested if you don’t plan well in advance. Shipments must be at port at least 10 days before CNY to ensure shipment before the break starts. Shipments must also be booked at least two weeks in advance because space will quickly fill up. If you ship a large amount around that time, then congestion will likely bump at least one of your shipments to a later ship date, often a week after CNY. Most ports open again for normal shipping about one week after CNY. Check with your freight forwarder on what advice it has to minimize disruptions and plan for the delays.

How to Prepare Your Supply Chain for Chinese New Year

Increase Inventory

Unfortunately, if you rely solely on Chinese vendors for your inventory, you will likely need to increase your inventory for the CNY season. This is the least desirable option, but often the one most companies take. Instead of shipping a huge amount of product right before CNY, consider increasing stocks slightly, and have your factory prepare a shipment to leave immediately after CNY. This can smooth out the bump and minimize the needed investment.

Consider Other Sources

Instead of buying additional inventory, look at other possible suppliers to help bridge the gap. Dual sourcing in different geographic locations, as previously covered in an article on how to avoid supply chain disruptions, is the benchmark for a robust sourcing strategy. Whether you develop a domestic vendor, or just a non-Asian option, switching to your second source for the month China shuts down may help prepare your supply chain for additional future disruptions.

Explore Other Creative Solutions

Depending on your market, you may be able to minimize disruptions from CNY by creatively approaching the problem. Later January and Early February are not traditional peak seasons for most industries. Accordingly, you may be able to offer incentives to clear out older inventory, or focus on another aspect of the business, to help mitigate CNY’s impact.

Open up the Chinese Market

As the Chinese market expands to imports, CNY may actually come to be a boost, rather than a burden, to your business. While most traditional gifts are food items, CNY spending is similar to the holiday spending in the US, and thus presents opportunities to grow sales of your product. China Daily reported that luxury import purchases in 2012 reached $7.2 billion, a number expected to grow significantly in the future. Getting your products into the Chinese market in time for CNY shipping may be just what’s needed to boost your company’s first quarter sales.

What experiences has your company had with the Chinese New Year? What other advice can you add? Share your comment below, and subscribe here to future articles.

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    3 thoughts on “Before China Shuts Down, Prepare Your Supply Chain for Chinese New Year So You Can Celebrate Instead of Stress

    1. Pingback: The domino effect of the Chinese New Year - Inventory & Supply Chain Blog

    2. Michelle Lee

      Reading your blog post about the supply chain issues that come with Chinese New Year was eye-opening to a student, such as myself, who does not learn about the effects of these yearly disruptions in supply chain until they are on the job. To expand on the problems you mentioned about logistics delays, production issues and quality errors increase amongst Chinese suppliers around Chinese New Year. Because Chinese workers are paid a bonus right before Chinese New Year, suppliers find other ways to cut costs by reducing their inventory as much as possible going into the new year. However, in the process of cutting order and holding costs, suppliers are trying to produce as many finished goods as possible to ship out. This inevitably leads to orders with substandard quality, late orders, and unfilled orders. Furthermore, in the weeks following Chinese New Year, there can be up to 30-40% employee turnover in migrant factories. The process of training newly hired employees can lead to more quality issues in the weeks after Chinese New Year.

      In addition to the actions you mentioned, businesses should increase supervision of suppliers by around 50%. Support staff can be sent to China or businesses can hire third party vendor management companies to oversea quality. This relatively small cost can prevent larger additional costs in quality. Businesses should also look to plan ahead even more by booking shipments early. Accounting for double the lead time of a product can help appease the shipping delays. The Lunar New Year is a celebration that affects so many global suppliers, not just in China but in other parts of Asia as well. It is important that businesses go into the New Year with a plan to avoid inefficiencies in their supply chains.

      Reply
      1. Alex Fuller Post author

        Good thoughts Michelle. I think it also depends on the long-term relationship with your suppliers. If you’ve worked with them for some time, and plan on working with them in the future, then they are usually pretty good at fulfilling their commitments without problems. However, if you work with suppliers on a more one-time transactional basis, then increasing supervision is a great idea.

        Thanks for sharing!

        Reply

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