How companies can prepare for the supply chain disruptions caused by the Chinese New Year

Understanding the impact of the Chinese New Year

As the Chinese New Year (CNY) approaches, businesses around the world are preparing for the inevitable disruption that this major holiday causes in global supply chains. This period, also known as the Spring Festival, is not only a cultural and traditional celebration in China, but also a time when most businesses and factories close, causing significant disruption to production and logistics.

Why does the Chinese New Year affect supply chains?

The impact of the CNY on supply chains is profound and multi-faceted. Factories across China, the world’s manufacturing centre, shut down for at least a week, often longer. Workers are travelling back to their hometowns, leading to a temporary but significant shutdown in the industry. This pause in production impacts global supply chains and causes delays that affect businesses worldwide.

Preparing for the disruption

1. Early planning and forecasting

Start early: Start preparing months in advance. Understand your inventory needs and forecast demand for the CNY period and beyond.
Communicate with suppliers: Maintain transparent communication with your Chinese suppliers. Receive their CNY schedule and plan accordingly.

2. Supplier diversification

Global supplier network: Do not rely exclusively on Chinese suppliers. Develop relationships with suppliers in other countries to mitigate risk.
Local sources of supply: Explore local or regional suppliers that can fill supply gaps during this time.

3. Build up stock levels

Safety stock: Build up safety stock to bridge the period of disruption. This requires a careful balance to avoid overstocking.
Just-in-time vs. just-in-case: Rethink your inventory strategy. A shift from Just-In-Time to Just-In-Case can be beneficial during the CNY.

4. Use of technology

Supply Chain Management Software: Utilise advanced software for better inventory management and demand forecasting.
Real-time tracking: Implement real-time tracking systems for better visibility and to anticipate delays.

5. Understanding cultural significance

Respect and adapt: Recognise the cultural significance of CNY. Adapt your business practices to respect this time instead of fighting it.

When is the best time to buy goods?

Chinese New Year typically falls between late January and mid-February, so it’s wise to adjust your shopping strategy accordingly:

• Shop before the rush (September to November): Start shopping for your required goods between September and November. This will give you enough time to get the products before the factories in China close for the festive season.
• Consider production and shipping times (December to January): Note that production in China can slow down as early as December to early January as many workers start to prepare to go home. Shipping may also take longer during this time.
• Avoiding the last moment (end of January): Avoid shopping just before the Chinese New Year as most factories will already be closed and those that are still open will be working under high pressure, which can affect quality.
• Plan for the period after the festival (March to April): Also consider the restart period after the festive period when production will slowly resume. It makes sense to plan stocks for March and April to bridge possible delays in the resumption of full production capacity.

By planning your orders in these more specific periods, you can minimise the risk of delivery delays and ensure smoother operations during and after the Chinese New Year.

Conclusion

The disruption caused by the Chinese New Year is a recurring challenge, but with strategic planning and proactive measures, companies can successfully overcome it. By understanding the impact, diversifying suppliers, building inventory, utilising technology and respecting cultural nuances, businesses can ensure a smoother period during CNY. Remember, preparation is key and the best time to start is now.