We are once again at the busiest time of the year for us (December-January), when our clients and potential clients speed up their decision making due to the approaching Chinese New Year holiday. Some even panic when they ask us the dates and realize it’s just around the corner… so we thought we’d write an article about why is it a stress factor and what really happens during Chinese New Year and how to cruise through it without too much disruption in your supply chain.
What is Chinese New Year?
“Chinese New Year (CNY)”, or “Spring Festival” is considered the Thanksgiving or Diwali of China only on a much larger scale. Just to give you an idea of the scale, the largest human migration in the world occurs during the month of CNY with 2.98 billion trips taken in 2017. It is the time of the year when gifts & “Red envelopes” containing money are exchanged within families. This holiday is especially important to factory workers, as often this is the only time of the year when they can see their families, due to the location of the factories mostly on the east coast of China while traditionally they come from inner provinces. They sometimes must leave their young children with grandparents so there is a high emotional context to CNY.
Chinese New Year Timing & Length
Because CNY’s date is based on the lunar calendar, the exact date changes every year but normally falls between January 22nd and February 19th. The variable date does add to the confusion & planning complexities.
Below is a list with the CNY dates for the coming 10 years:
- 2018: February 16
- 2019: February 5
- 2020: January 25
- 2021: February 12
- 2022: February 1
- 2023: January 22
- 2024: February 10
- 2025: January 29
- 2026: February 17
- 2027: February 6
The official government holiday is only one week, however that is not relevant.
As an acceptable rule of thumb, most service oriented companies in international trade industry like sourcing, quality control, logistics, etc. would close for roughly 2 weeks.
Why does CNY affect manufacturing so much?
1. Length of Factory Closures
Concerning factories, to give their employees time to return home to their families, most close one to two weeks before the actual date. China is a large country and travelling home (usually by train for most) can be quite difficult, often taking 3 to 7 days and getting a hold of tickets can be a nightmare. Additionally, they often remain closed for an additional two weeks after the specific CNY date for the reverse commute. A total of 4 weeks the production is stopped! They can take 4 weeks as factory workers normally “accumulate” holidays during other important holidays such as the National Day (a week-long holiday) by working overtime. The first workers start to return after the “Lantern Festival” just 15 days after CNY, with others following within the next few weeks.
Admin, Sales, Managers and factory owners usually do not need to travel far, since their families often live close. However, they will still take at least a week away from work, which essentially means “radio silence”. Sometimes the heavily incentivized salespeople still answer emails not to lose any opportunities. They might be the ones that over promise under deliver though so something to keep in mind.
2. Payment Requests before CNY
Right before CNY, to help workers pay for the trip home and gifts, many factories pay their workers a bonus the equivalent of an additional month’s pay. Therefore, factories will ask their clients for payment of all upcoming invoices before the CNY holiday. Indeed, this is the time, when factories and their subcontractors settle their accounts to start the New Year fresh.
3. Production Length & Quality issues after CNY
Even after factories reopen, they rarely can produce at full capacity as they still might be missing quite a few workers on the floor. Sometimes factories resume production with only 35% of the workforce back. Unfortunately for factories, depending on the labor market, some of those workers may never return. This uncertainty is one of the issues Chinese factories face after CNY. Indeed, it is very much a workers’ market in right now, and many do not return as they find opportunities closer to home or more lucrative ones. This means, each year the factory loses much of its workforce and needs to replace it but more importantly train it to avoid potential quality issues. This, coupled with the abundance of back-orders received during CNY, increases production times. Something worth mentioning here might be that suppliers, even those who are not as busy, also just use CNY as an excuse for being slow. Some large factories, which are pushed to maximum capacity, however, might subcontract to smaller factories to meet demand. Quality issues may arise from that as the smaller factories do not usually have the same quality assurance processes to match the quality of the larger factories.
Another important factor that may delay production times is the shortage of raw materials as raw material suppliers have their own backlog and hence factories cannot proceed with the production until they get these materials.
What happens 1-2 months before CNY?
The timeline before CNY depends on the factory’s capacity but also factors like the client size, complexity of the production process, raw materials/components needed and the professionalism of everyone involved.
Factories are usually under pressure to meet clients’ needs and ship before the holiday. To do so, workers as heavily incentivized to work over-time to ensure orders are completed on time. This pressurized situation is a perfect recipe for quality issues. Thus, it is the responsibility of the factory to implement strong quality assurance processes as well as that of the client to remind them that their quality inspection procedures should be stricter than usual. Often, we hear of quality problems even with simple repeat orders during this special time.
Conclusion: What to do to minimize the impact of CNY?
1. Work with trusted manufacturers
If you just started just started doing business with your supplier during this time of year, it will be difficult to get any attention especially for small quantities. If you are the newest account at the factory, your order will not be their priority when it comes to completing production and shipping before CNY. If you’re working with a manufacturing partner, ensure that they have experience handling the CNY rush. Ask them what processes they have to help their customers plan for CNY. One of the advantages of working with a manufacturing partner is that they usually have years of experience building a trustworthy supplier network and can help you navigate during this stressful time of year.
2. Plan Inventory
By September or October, well organized factories would send their (larger) clients a note asking them to place orders that need to be shipped before CNY, also warning them that orders received later would not make the cut before CNY. If not, then you need to plan this yourself; here is how:
Analyze your sales history from the previous year to forecasting what your inventory needs will be and work with your suppliers and manufacturing partners in September-October to start planning for the upcoming CNY. That includes planning inventory needs for the months of March and April; as discussed earlier it takes a while to recover from CNY with their employee loss and training time. Having a forecast or increased inventory on hand should help dodge the bullet.
3. Stay on top of production
Stay on top of production so that you are aware of production status and if schedules are slipping. Highlight and work aggressively with suppliers to keep them on schedule, in our experience, often the customer with the loudest voice gets priority.
4. Have a Quality Plan
We have many times heard of nightmares like receiving orders of goods essentially defective or of poor quality right before CNY and they needed to wait until after CNY to have anything done about it. This is when working with a trusted supplier or manufacturer will avoid this terrible situation. We cannot stress enough that creating early on a quality standard with the manufacturer and establishing a thorough inspection plan will considerably reduce the risks of shipment delays caused by quality problems.
5. Plan ahead for Shipment
With the large amount of orders needed to be shipped before CNY, sea freight can get really expensive with peak pricing during that time. That is why planning and shipping ahead of time is crucial to save cost but also to avoid delays. Shipments must be at port at least 10 days before CNY and must be booked minimum two weeks in advance to ensure a spot on the ship. Please note that, if you ship a large amount during that time, it is likely that at least one of your shipments might be pushed to a later date, often a week or more after CNY which might be more or less of an issue depending on your planning. Most ports resume normal shipping roughly one week after CNY. Check with your freight forwarding company what they recommend to minimize the impact of CNY on your shipments.
Working with a trusted freight forwarder or manufacturing partner will be helpful here as they usually work with shipping companies that are well organized and better versed to deal with high demand caused by CNY.
6. Rough CNY 2018 Timeline
- February 2nd 2018: Some suppliers and subcontractors stop production, causing disruption in the supply chain
- February 9th 2018: Many workers have already left the factories. Sales reps, engineers and management may still be around for a couple of days more.
- February 13th 2018: All personnel has left the factory
- February 16th 2018: Chinese New Year’s Eve
- March 6th 2018: Employees, mostly sales reps and some engineers, start to come back. Some may have extended holidays.
- March 13th 2018: Most employees, including assembly line workers, are back in the factories.
- March 28th 2018: Operations are getting back to normal after the Post-CNY disruption.
7. How to pan for 2019?
- October 2018: Confirm when your supplier is closing and reopening for the CNY
- November is optimal time for placing pre-CNY order
- December 10th 2018: Last day to place an order before the CNY
- December is optimal time for placing orders set to ship 30 days post CNY
8. Other important Chinese Holidays
Chinese New Year may be the biggest but there are actually a few more Chinese holidays that could affect your manufacturing. Too busy to add these to your calendar right now? Here are the holiday dates you’ll need to know:
- Qing Ming Jie (Tomb Sweeping Day) – April 5th -7th
- International Labor Day – May 1st – 3rd
- Dragon Boat Festival – June 18th
- Mid-Autumn Festival/Moon Festival – September 24th
- Golden Week Holiday – October 1st – 7t
- New year’s day – January 1st 2019
What experiences has your company had with the Chinese New Year? What other advice can you add? Share your comment below, and sign-up to our newsletter for future articles.
