Chinese New Year: When the Dragon Hibernates — Keep Your Business Flame Alive

"Chinese New Year presents both a challenge and an opportunity for Western businesses to demonstrate their adaptability and foresight." - Jeff Bezos

Picture this: 80 million souls, the lifeblood of China's coastal powerhouses, embarking on an exodus of epic proportions. It's not just a holiday; it's a pilgrimage, a testament to the unbreakable bonds of family. This grand spectacle, is the fruit of visionary reforms that transformed sleepy fishing villages into titans of industry. Shenzhen, Xiamen, Shantou, Zhuhai - these aren't just cities, they're modern-day gold rushes, drawing the ambitious from every corner of rural China.

Chinese New Year will begin on January 29th (Wednesday), and will last to February 2nd. Typically, Chinese offices and factories close for about three working weeks, allowing workers to travel home and spend the holiday with their families.

To grasp the scale of the migration during the Chinese New Year holiday, we can look at recent data from China's Ministry of Transport. For the 2023 Spring Festival travel season, it was estimated that there would be about 2.1 billion passenger trips. While this number is still recovering from the impact of the COVID-19 pandemic, it demonstrates the massive scale of movement during this period.

Source: China's Ministry of Transport, 2023 data

How Does Chinese New Year Impact the West?

The Chinese New Year isn't just some far-off celebration. It's a force of nature that can make or break your business.

For three weeks, the world's factory grinds to a halt. But that's just the beginning. The real impact? It starts ten days earlier and lingers for weeks after. Millions of workers, heading home, leaving your production lines silent.

Workers don't just come back - they switch jobs, leaving factories scrambling. Your production timelines? They're not just delayed, they're rewritten.

This isn't just China's problem. It's your problem. When the dragon sneezes, the world catches a cold as we saw during Covid. Retailers, importers - anyone with a stake in the global market feels the tremors. So, what are you going to do about it?

Surviving the Dragon's Slumber

The East is about to hit the snooze button, and if you're not prepared, your business might just oversleep. So, let's talk strategy. How do we keep our ships sailing when the world's factory floor goes dark?

What can you do to keep your supply chain running smoothly when one of the world’s largest exporters shuts down for nearly a month? We’ve outlined 10 tips to proactively plan for Chinese New Year to minimize any disruptions to your supply chain:

1. What happens during CNY

In the United States, it's hard to imagine businesses shutting down for three weeks or more. Sure, some of us enjoy long holiday vacations, but offices typically remain open. China, however, is different. During Chinese New Year (CNY), the entire country grinds to a halt—nothing, absolutely nothing, leaves China during this time. Once you grasp this reality, you can plan more effectively. Your orders must ship before CNY, and you need to stock up on inventory to last through the holiday. There's no escaping CNY—it occurs annually (though on different dates) and it requires advanced planning to minimize interruptions on your end.

2. Foster a Strong Partnership with Your Manufacturer

Establishing a strong relationship with your Chinese supplier or manufacturing partner early on is invaluable. If you're new to sourcing from China and just starting to build your supplier network, forging these relationships close to CNY will be challenging. Chinese factories face enormous pressure right before the holiday, and as a new account, your orders might end up at the bottom of their priority list for completion and pre-CNY shipping.

When working with a manufacturing partner, verify their experience in handling the CNY rush. Inquire about their strategies to help customers plan for CNY. A key benefit of partnering with an experienced manufacturer is their established, trustworthy supplier network, which can help ensure your products ship on time during the holiday chaos.

3. Forecast Your Needs Through CNY and Beyond

Forecasting your product needs for the first 3 to 4 months of the next year gives you an edge in maintaining sufficient stock through CNY. Here's a simple rule to help account for CNY delays:

• For orders typically received in March, get 50% of the volume in January and the other 50% in February.

Providing a forecast to your supplier or manufacturing partner offers another significant benefit: it allows the factory to anticipate your post-CNY demand. This foresight enables them to start recruiting and training workers earlier, knowing that some staff won't return after the holiday.

4. Boost Your Inventory Ahead of Time

Knowing your product needs for the early part of next year allows you to increase your current orders strategically. This approach helps compensate for the lack of incoming orders during the CNY period. Let's consider two examples:

1. Electronics Retailer: Imagine you typically sell 1000 smartphones per month. Anticipating the CNY shutdown, you might order 1500 units in December and another 1500 in January. This increase ensures you have enough stock to cover February and early March when new shipments may be delayed.

   
   

2. Clothing Manufacturer: If you usually order 5000 yards of fabric monthly, you might increase your December and January orders to 7000 yards each. This extra inventory allows you to continue production during the CNY disruption.

By leveraging accurate forecasts and past sales data, you can maintain optimal inventory levels without over ordering. It's a delicate balance—ensuring you have enough stock to meet demand without tying up excessive capital. For instance, our electronics retailer might analyze past years' data to avoid overstocking on models that typically see reduced demand post-holiday season.

Remember, the goal is to find the sweet spot between having sufficient inventory to weather the CNY disruption and avoiding the financial strain of excess stock.

5. Deliver Cargo to the Port at Least 15 Days Before the Ship Date

If you arrange your own logistics from China, book shipments with steamship lines well in advance. These lines are notorious for exploiting the pre-CNY rush when shipments flood ports before the shutdown. They often hike freight rates significantly during this period, as demand for cargo ship space skyrockets. Those willing to pay premium prices get priority.

It's common for containers to be "rolled" to later bookings in the weeks leading up to CNY—meaning they're bumped to the next available vessel. This can result in delays ranging from days to weeks, depending on how often a container gets rolled.

This is where a trusted relationship with a freight forwarder or manufacturing partner proves invaluable. Many work with more organized shipping lines better equipped to handle CNY's peak demand.

6. Diversify Your Supply Chain

Consider partnering with a manufacturer who operates in multiple countries, not just China. This strategy diversifies your supply chain and potentially provides backup options during the Chinese holiday. Many products incorporate components from various countries, which helps distribute the workload across multiple factories.

For instance, parts could be sourced from China, then sent to Vietnam for assembly and packaging. However, be aware that Vietnam also celebrates its Lunar New Year, called Tết, which coincides with Chinese New Year. While Tết typically lasts only a week at most, it still impacts production as factories and businesses close to allow workers family time. Though Tết's effect is significantly smaller than Chinese New Year's, it's an important factor to consider in your planning.

7. Implement a Quality Management Plan

In the weeks leading up to CNY, factories are under immense pressure to complete orders. This rush can lead to corners being cut, especially in quality control processes. For instance, a clothing manufacturer might skip double-checking seam strength or button attachment, resulting in garments that fall apart after a few wears.

To mitigate these risks, consider implementing a multi-stage quality control process:

• Pre-production checks: Verify raw materials meet specifications before production begins.

  
  

• In-process inspections: Conduct random checks during manufacturing to catch issues early.

  
  

• Final quality control: Thoroughly inspect finished products before shipment.

For example, a electronics company sourcing smartphone accessories from China implemented this system. They discovered that in the rush before CNY, their supplier was using lower-quality plastic for phone cases. By catching this early, they avoided shipping 50,000 subpar cases to customers, potentially saving millions in returns and reputational damage.

Remember, the cost of prevention is always lower than the cost of correction. Investing in robust quality management now can save you from significant headaches and financial losses down the line, especially during the critical pre-CNY period.

8. Leverage Vendor-Managed Inventory

Vendor-Managed Inventory (VMI) is a strategic business model where the supplier takes responsibility for maintaining an agreed-upon inventory level for the buyer. This approach offers several benefits:

• Efficient ordering: The vendor optimizes order quantities and timing.

• Demand responsiveness: Adjustments are made for seasonal fluctuations and market changes.

• Cost reduction: Buyers often see decreased inventory-related expenses.

• Improved forecasting: Vendors use the buyer's sales history and current inventory data to predict future needs.

For example, consider a retailer selling electronic accessories. By implementing VMI with their supplier:

• The supplier maintains a constant stock of 1000 phone cases in the retailer's warehouse.

• When stock drops to 300, the supplier automatically replenishes without the retailer placing an order.

• During holiday seasons, the supplier proactively increases stock to 1500 to meet higher demand.

VMI is particularly beneficial for businesses facing long lead times, such as those sourcing from overseas. It acts as a buffer against supply chain disruptions, including those caused by events like Chinese New Year (CNY). By maintaining optimal inventory levels year-round, VMI helps ensure business continuity even when suppliers shut down for extended periods.

9. Prepare for the Aftermath of Chinese New Year

The aftermath of Chinese New Year (CNY) can be as challenging as the holiday itself. Not all factory workers return to their previous jobs after CNY, leading to potential workforce shortages and production delays. This post-holiday period requires careful planning and strategy.

For example, consider a U.S.-based electronics company that sources components from a factory in Shenzhen. In 2023, they experienced significant delays when 30% of the factory's workforce didn't return after CNY. It took the factory nearly two months to recruit and train new workers, causing a ripple effect in the company's production schedule.

To mitigate such risks:

• Maintain increased inventory: As mentioned earlier, boost your stock levels before CNY to cover potential post-holiday delays.

• Diversify suppliers: Work with multiple factories or suppliers in different regions to reduce dependency on a single source.

• Extended lead times: Factor in longer production times for orders placed immediately after CNY.

• Communication: Stay in regular contact with your suppliers to get updates on their post-CNY workforce and production capacity.

By implementing these strategies, you can better navigate the post-CNY period and minimize disruptions to your supply chain. Remember, the effects of CNY can linger for weeks or even months, so your planning should extend well beyond the official holiday dates.

10. Start Planning Early

It's crucial to start planning for China's biggest holiday well in advance. The earlier you begin, the more resilient your supply chain will be. Let's break this down with a practical example:

Imagine you're a retailer selling smart home devices. Your best-selling product is a voice-controlled thermostat, which you source from a manufacturer in Shenzhen. Here's a timeline for effective CNY planning:

• June-July (6-7 months before CNY): Analyze your sales data from the past year. You notice that thermostat sales typically spike in early spring as people prepare for summer.

• August-September (4-5 months before CNY): Start putting together a forecast. Based on your analysis, you project needing 50,000 units between January and April.

• October (3-4 months before CNY): Communicate your forecast to your Shenzhen supplier. They advise increasing your January order by 30% to cover potential post-CNY delays.

• November-December: Place larger orders to build up inventory. Instead of your usual 10,000 units per month, you order 15,000 in November and 20,000 in December.

By following this proactive approach, you ensure a steady supply of thermostats through CNY and into the spring sales season. This early planning helps you avoid stockouts and maintain customer satisfaction during a potentially disruptive period.

Remember, being well-prepared is your best defense against CNY-related supply chain disruptions. By implementing these strategies and starting your planning early, you can navigate the holiday period with confidence and keep your business running smoothly.

Prepare for Other Chinese Holidays

While Chinese New Year is the most significant holiday, several other Chinese holidays can impact your business operations. Here's an overview of the upcoming 2024 Chinese holidays and their potential effects:

Qing Ming Jie (Tomb Sweeping Day) - Thursday, April 4th

This traditional Chinese festival honors ancestors. Many businesses close for 1-3 days, potentially causing minor disruptions in production and shipping.

International Labor Day - Wednesday, May 1st

This public holiday often results in a week-long break. Expect reduced productivity and possible shipping delays.

Dragon Boat Festival - Monday, June 10th

This 1-3 day holiday can cause short-term disruptions in manufacturing and logistics.

Mid-Autumn Festival/Moon Festival - Tuesday, September 17th

This 1-3 day celebration can lead to temporary closures and reduced productivity.

Golden Week Holiday - Tuesday, October 1st - Monday, October 7th

This week-long national holiday can significantly impact production and shipping. Many factories shut down, and ports operate with reduced staff.

To minimize disruptions, communicate with your Chinese partners well in advance of these holidays. Adjust your ordering and shipping schedules accordingly, and consider building up inventory before extended holiday periods.

RedMarble Clients

For RedMarble clients, we strongly recommend communicating any forecast or Purchase Order changes to us by October 1, 2024. This early communication is crucial for implementing effective strategies to maintain your supply chain during the Chinese New Year (CNY) period. Here's why this is important:

Example: Let's say you typically order 10,000 units of a product monthly. By informing us early of an anticipated 20% increase in demand for February and March, we can:

• Increase production in November and December to build up inventory

• Negotiate with our suppliers for priority shipping before CNY

• Arrange for additional quality control measures to prevent rush-related defects

For clients utilizing RedMarble's warehoused inventory against blanket Purchase Orders, we will proactively manage inventory to minimize CNY impact. However, we kindly request an updated forecast through March to optimize our inventory management.

Example: If you typically draw 5,000 units monthly from our warehouse, but expect a 15% increase in January and February due to a promotional event, sharing this information allows us to:

• Adjust our inventory levels accordingly

• Ensure timely replenishment despite CNY disruptions

• Potentially negotiate better rates with suppliers for larger orders

We encourage you to reach out to your dedicated RedMarble Customer Account Analyst with any questions about CNY 2024 planning. Our team is ready to work closely with you to develop tailored strategies that ensure your business operations remain smooth throughout this challenging period.