As China’s economy matures and their infrastructures get better, some severe production challenges are not going away. They are actually getting more acute!
This article is not about the challenges of dealing with Chinese suppliers & factories, but rather about the 4 main issues they have to deal with in their operating environment.
1. Sudden changes in rule enforcement, resulting in factory closures
A client told me about serious issues in Nanchang city. The two main fabric mills located there had serious issues with the government because of poor waste management. It is not clear whether they had to close or seriously reduce production, but it is affecting all the downstream garment manufacturers that kept taking orders and told their customers about a 4 months backlog when the extent of the problem became obvious to all.
Most of the issues we hear about are related to paint — another highly polluting process. The local governments have shut down thousands of facilities applying liquid paint and/or powder coating. It had a serious impact in some industries, for example white goods (home appliances), as the brand assemblers see many of their suppliers disappear.
A perverse effect of the stricter controls is that many ‘dirty’ productions take place at night, when there is no government inspection. In some districts of Shenzhen some irritative smells only come out at night — when underground operations are at work.
Cartons can also be hard to procure locally. A client tells me the government recently shut down all suppliers (except for two) in Guangzhou city. So they sometimes have to be shipped from another city.
Two things are particularly irritating to buyers:
- Chinese suppliers do nothing proactive. They don’t have a plan B. And of course they never warn about the risk. When sh*t happens, customers are expected to understand it is a case of ‘force majeure’.
- The government seems to be inspecting and shutting down, in an effort to scare offenders and drive compliance. There seems to be no warning & advising phase. (I can understand why they do this way, as most factory owners would try to bribe the ‘nice advisers’ into writing good things. Bribing a team of inspectors that comes in for the first time is harder.)
What can you do about that? Know your tier-1, tier-2, and if necessary tier-3 suppliers, and evaluate risks. That might be difficult or even impossible, but in some cases it is quite doable.
2. Chinese New Year
Once a year, every supply chain gets disrupted:
- Materials and component suppliers stop producing
- Assembly factories stop working
- Before the break, quality suffers because of intense timing pressure, and some orders are bumped by more than a month (to me made and shipped out after the break)
- After the break, worker turnover is sometimes higher than 50%, which again causes quality issues
To read more about this, including how to mitigate those issues, read Chinese New Year: how to manage the disruption?. It is not clear to me whether this is getting better or worse. Those factories in inland provinces, or paying good salaries, are obviously less impacted.
(I was told it is relatively similar to the Mexican ‘maquiladoras’ along the US border at Christmas time. But in China it is probably more far-reaching, since all the local production of all components also stops, and since Chinese manufacturers tend to make to order rather than make to stock.)
3. Rainy season
This is definitely not unique to China, of course. Humidity goes up for a few months every year in many areas of the country. This is a source of endless quality issues, as products are packed in humid packaging or simply with humid air and develop mold, rust, etc. during transportation.
It is compounded by several bad habits shared by most manufacturers:
- Shipping cartons are relatively low quality and suck humidity like sponges, and they are kept in inventory for months at a time.
- There are no measures to control air humidity, for example simple actions such as closing the doors of the warehouse when it is raining or starting a dehumidifier when the condition becomes serious.
The same type of issues seem to pop up. I haven’t seen any improvement here in the 10+ years I have spent in China.
This issue calls for different solutions depending on the exact situation. You might have to redesign your packaging to contain less air, redesign production processes to reduce risks of rusting, or even change materials on your product (e.g. make sure the factory is not using screws that will rust easily).
4. Excessive demand for energy
This one is also not unique to China. And it is much more pronounced in other countries such as Bangladesh — at least in the Middle Kingdom they are planned and announced, and they are not as frequent.
Your Chinese suppliers probably told you several times that power was cut for a day and it pushed production timelines back. Again, it is presented as an external factor that couldn’t be taken into account in their planning.
It is even used as an excuse to explain an unexpected delay that occurred for other reasons. If the buyer doesn’t have other suppliers in the same immediate area, it is hard for them to check if it’s true!
As China develops nuclear energy sources, I would expect these power cuts to become less frequent. Let’s wait and see!