In this episode…
Chinese New Year is a tricky time for importers. 2021 has seen the continuing pandemic, sea freight costs skyrocketing, and logistics systems crumbling. High material and component costs and chip shortages have added gas to the fire, too. So the last thing you need is to get stung by the annual CNY shutdown and the issues that go along with it, such as shoddy quality, disrupted supply, and disappearing suppliers, to name but a few.
As CNY is approaching, Renaud gives some great advice on how to handle the period without suffering too much trouble.
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🎧 Preparing For Chinese New Year 2022 Disruption 🎧
00:00 – Greetings & introduction
01:21 – When is Chinese New Year 2022? CNY falls on February 1st 2022 and the public holiday lasts for 7 days until the 7th. However, production and export will probably stop a little earlier, from around January 29th. Factories may be closed for as long as 3 weeks.
02:26 – To avoid the disruption of CNY, what are the first and second-best scenarios for importers getting their product manufactured in China right now? The best scenario right now is to get products developed (prototypes validated, components sourced and delivered) and your whole order ready to go into production for assembly in late December/early Jan. The second best scenario is for the factory to produce and deliver maybe a third or half of your order, and then you schedule the second delivery sometime in March. The former may be possible if your factory isn’t too busy, otherwise at the time of recording (November) you are looking at the latter.
05:04 – When do factories start ‘winding down’ and what causes this phenomenon? Chinese factories in coastal areas are filled with ‘migrant workers,’ many of whom come from very far away. In order to make it home for CNY, these workers have to leave at staggered times (due to competition for train and flight tickets) and some could be leaving a week or more before the holiday starts. This can lead to supply chain disruption by mid-January as factories and sub-suppliers simply can’t guarantee a stable level of staff.
11:42 – What causes a drop in factory staff after CNY? When migrant workers get together at CNY they swap stories about their jobs, working conditions, salaries, etc. If one friend recommends a certain factory or area, some workers decide to go there instead for the next year. Therefore, some workers simply never return to their last employer leading to disruption after CNY. This is especially true of factories who don’t look after their employees as well as others. Some factories have successfully managed to hire all local workers who provide more stability and lower overheads (no dorms).
16:17 – What happens to quality when a factory has to hire a lot of new staff post CNY? If skilled operators, managers, salespeople, etc, have to be replaced in late February and March 2022 it will naturally take some time to get them up to speed. Good factories may have a training program, others will throw them in at the deep end on the production line. Either way, this ramping up period is risky as quality is likely to be poorer until the new staff are all trained and settled.
20:44 – The effect of time pressure before CNY. Manufacturers are under a lot of pressure before the break to finish orders quickly and get them shipped, as it’s in everyone’s interest for that to happen (you get your products and they get paid before the holidays). The pressure is across the whole supply, including component and raw material suppliers. This rush, coupled with operators’ minds being more focused on the impending holidays, can lead to standards slipping and you receiving poor quality products.
24:47 – Is there an increased risk of suppliers going out of business at this time of year? Yes, some factory owners who can see that the following year is going to be very difficult will be tempted to disappear with as much cash as possible after the CNY shutdown. Maybe they have lost a key customer, maybe they owe the wrong people too much money, etc. These are reasons to shut down the business and get out of town to the countryside to live a quieter life. The risk for buyers is that if you send a payment for an order too near to CNY that it can’t be made in time, if the supplier closes their doors you may well lose that money for good. This includes your excess products they hold and tooling, too, which might be sold off by the supplier as an asset (to someone who then starts creating copies of your product) or could be used as a bargaining chip to try to extort extra money out of you in order to get them back.
Some importers choose to pull their tooling out of their supplier’s facility and store it safely elsewhere between productions. By doing so they reduce the risk of losing this valuable investment.
29:57 – Planning for inventory. The sea shipping issues are making everything more complicated, but traditionally importers will get extra quantities shipped before CNY to avoid the risky period. Working with assembly factories to make sure that they order extra materials or components in advance in order to give themselves a buffer for when these key sub-suppliers are closed.
32:57 – How can inspections protect importers around the CNY period? As suppliers are rushing to get products made and shipped before CNY this is a busy time for inspectors and some inspection companies can become quite overwhelmed and unable to offer many new product inspections. If an inspection is only available for half a day, that’s better than nothing and it’s better to do that than skip them. You may also consider doing off-site inspections without the need for sending inspectors to different areas and can confirm a lot of the details you need to understand before products are shipped.
If you are already performing, say, final inspections, the pre and post CNY periods are a good time to increase your activity and perform additional inspections like first article inspections and inspections during production, too.
35:59 – Wrapping up
- How To Handle Chinese New Year Manufacturing Disruptions?
- Be Prepared for Many Chinese Factory Closures This Coming CNY
- Chinese New Year: how to manage the disruption?
- Get help with product inspections
- Get help to keep control of your tooling
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