For those of you who have been sourcing for a few years, you know the effect the Chinese New Year holiday has in China. Most of the country shuts down for a couple weeks as they return home and celebrate the new year. For any business manufacturing in China, this can be a huge headache, as your production runs are now delayed.
It’s always important to plan around the Chinese New Year which typically starts in late January and can extend to February. Last year in 2017, the holiday began on January 27th, whereas, this year (2018) it begins on February 18th.
When planning production, you usually need to put orders in by November to beat the Chinese New Year holiday. If you typically reorder on a quarterly basis, you’re going to have to plan out your next order for March, as factories will be closed for two weeks or a whole month.
For a business, this usually means putting more money into inventory before the holiday break, as you definitely don’t want to run out of inventory. With proper sales forecasting, this shouldn’t be the biggest hurdle but can strain your cash flows.
To truly understand the effect of this holiday, let’s first ask ourselves:
What’s the Chinese New Year?
Also known as the Spring Festival, the Chinese New Year takes place every year between late January and early February. It is supposed to be a week-long holiday, but in reality lasts much longer. Most factories will take two weeks to a month off. If you’ve found one that claims to take only a week off, you’re in luck!
Historically, the Chinese New Year marks the end of a year of hardwork and a time where families can get back together to unite, celebrate, relax, and take their salaries home to support their families. Think of it like all the major American holidays combined.
For Chinese people that work in larger cities, this time often marks the only point in the year where they get to return to their hometown. When family ties in China are often more important when compared to the West, it’s almost considered a duty for sons and daughters to return home. Otherwise, it might be seen as a disrespect to their families.
What Makes this Impact so Dramatic?
Most of the workers in factories are migrant workers. They travel aways from home, meaning they are not local to the city that the factory is in. For this reason, it’s estimated that 340 million workers make the annual trip from their places of work to their hometown. Some historians call this the “largest human migration in the world”.
To keep things in perspective, America only has about 330 million people. Imagine what would happen if all of us decided to try and travel at the same time.
With so many travelers in China during this time of the year, many workers try to beat the rush and head home early. This is why factories start closing days before the holiday. If a factory worker tried to buy a ticket home the day before, there is no way they’d get a ticket. Same thing applies with their return.
There is a term in Chinese called “Zao Zou Wan Hui” (早走晚回), which means “Leave early and return late”. It perfectly sums up the length of the holiday.
How Does this Impact Production?
Now, when you think of how this ties into production, you can understand the dramatic effects this holiday can have on your factory. Not only will workers be out, but their raw material providers may also be closed.
For example, if you’re producing watches, you should know that the factory you’re dealing with likely has its own supply chain as well. Meaning each watch part like the hands, cases, straps, and movements, come from their own factories. There is a high likelihood that these factories also take a long holiday.
Even if your factory and it’s raw material suppliers don’t take time off, what about your logistic providers? Getting products from your factory to your warehouse during Chinese New Year is also a challenge. Even before the holiday, trucking and shipping can be a nightmare as workers are rushing to head home. We’ve had cases where the factory has finished production, but because of trucking delays, the goods will miss the closing date to be loaded into the port and as a result miss the vessel.
To cut to the point, there are a number of ways your supply chain will be affected during the Chinese New Year and you need to be planning ahead to not miss a beat.
The time after the holiday can be challenging for factories as well. Often times, workers who return home, don’t come back! They reflect and realize that they miss their families and friends in their hometown too much to return. Instead of working factory jobs faraway, they’ll seek out service oriented jobs in their hometowns. This is widely affecting the newer generation, as they may not be willing to work as hard as their parents did.
From the macro perspective, the Chinese government may be happy by this shift. They are often incentivizing ways for China to be more a service-oriented economy and while gradually moving away from its role as the “world’s factory”.
In some industries, this can cause a turnover rate of 30%, causing a massive headache for factory owners. The other balance is labor wage increases. Many factory workers expect a significant pay increase the longer they stay at a factory. If they don’t get a increase in pay, they’ll be more willing to jump ship to another factory, often bringing along trade secrets from their previous factory.
This mean they have to not only balance the hiring process of new workers, but also the training process of new employees they’ve hired to replace the ones who have left. From a manufacturing perspective, this means the productivity of a factory often decreases after the Chinese New Year and it may take a full month for them to increase back to full capacity.
Now that you know the history and impact of Chinese New Year, it’s time to understand how you can manage this from a sourcing perspective.
Place Orders Even Earlier
This might not be your first time producing through a Chinese factory during the Chinese New Year. Regardless, it’s always best to place orders no later than November so the factory will have 60+ days to get everything done before the holiday. This will drastically increase your chances of delivery before the holidays.
If your normal lead time is 30 days, be prepared for the times to increase during this time of the year, as the factory will be slammed with orders. You’ll hopefully get in front of the delays if you place your order early.
Ship Before the Rush
If you’re planning to ship via oversea freight, book a vessel a few weeks in advance to avoid the huge risk of getting your goods stuck and missing the boat. We recommend booking through our partners, Flexport or Freightos.
Don’t always trust the factory’s own cut off dates. Even if they promise they can delivery up to the official yearly start of the Chinese New Year, it’s not worth the risk of having your goods stuck.
If they aren’t able to ship before the Chinese New Year, be aware that this could add 30 to 45 days. For a business that runs out of inventory, this could result in thousands of dollars in lost sales.
Place Larger Orders
If you have the cash balances to place a larger order before Chinese New Year, go for it. This time of the year is when you should be investing more in inventory, as lead times will be longer during this holiday.
With that said, it’s not always worth straining your budget unless you know you’ll be able to sell through that inventory. This is one of the biggest dynamics in ecommerce, as you need to have money to market your product and handle the logistic costs of getting your product to your end consumer.
Going Outside of China
The Chinese New Year is what often pushes professional sourcing agents to look outside of China for factories. Having this long of a downtime is never good and is what further motivates people to source across countries like India, Pakistan, Thailand, and Vietnam.
With labor wages increasing in China and the government continuing to put new environmental restraints on factories, prices have risen significantly compared to what they once were twenty years ago.
Be Prepared Moving Forward
If you purchased your order to late, miracles unfortunately won’t happen. Expect your goods to be delayed and prepare for it. You can create hype around products that have been sold out and even process pre-orders through your site.
The worst approach is to push your supply chain stakeholders overboard. They are likely already under a lot of stress and by putting even more pressure on them, more mistakes can rise.
To wrap everything up, the best way to handle the Chinese New Year is to prepare. Don’t be single sourced and start to look outside of China for manufacturing partners. Sourcify works with factories across Asia and Mexico, helping companies like yours have smooth production runs around the world.
Here’s to an even smoother 2018!