It is January and you have just returned to work after holidays when suddenly you realize that that the Chinese New Year holidays are coming.
This often comes to light when suddenly Freight Companies cannot book space on ships departing China or the Seller in China avoids accepting new orders or providing new prices for products.
When looking to reduce the impact of the Chinese holidays on your supply chain you need to look at two areas:
1. The Seller of Your Products
2. The Freight Company transporting your Products
[caption id="attachment_277" align="aligncenter" width="150"]
China Factories before Chinese New Year Holidays[/caption]
1. The Seller of Your Products
When working out a solution you need to account to two different production time periods.
A. Before the Chinese New Year Holidays commence
B. Return to work after the Chinese New Year Holidays
A. Before the Chinese New Year Holidays commence
This is often the time of year where most companies experience issues with their Sellers and Products. These issues can include:
- Sellers refusing to accept any late orders or new orders from customers.
- Poor quality of products produced during this time.
- Sellers increasing their prices due to the increased demand for their goods.
- Sellers changing the payment terms.
The reason for the above occurring is the following:
- Factories do not have any spare capacity to make more goods and have a shutdown date which cannot be changed.
- Factory employee working contracts come to an end and the employee’s know if they will be returning back to that same employment after the holidays. If they are not returning, they will not be as focused in producing good quality products.
- Sellers know that some customers will have no alternative but to accept the increased prices otherwise that will have no stock.
- Sellers need the cash in from their customers quickly as the end of the financial year for most companies occurs at this time so staff wages, bonuses, supplier bills and Chinese tax have to be settled up.
B. Return to work after the Chinese New Year Holidays
Factories in China are now struggling to replace employees who have not returned from the holidays. Currently it is taking approximately 10 weeks to hire and train in new employees.
This can affect your company in the following ways:
- Factories may not be willing to commence new production runs of product until replacement employees have been hired and trained.
- Factories required production time to make products can increase by as much as 60%. This is due to recruiting and training of new employees.
- Factories may not be providing suitable training which can cause a drop in the quality of products made. **Tip** – You should use Goodada’s Inspection services here so that your product quality is maintained.
- Factories may not be able to quickly provide your company with updated product pricing as they may not have received all the updated prices from their suppliers.
Freight costs can be reduced[/caption]
2. The Freight Company transporting your Products
It’s a simple economics principle of Supply and Demand. When Demand is high the Supply falls. This results in increased prices to reduce the Demand.
In this instance as there is an increased demand for shipping in the run up to the Chinese New Year Holidays, in turn the available Supply of space on ships falls. As a result of this Shipping Companies’ increase the prices so reduce the demand plus ensure that that they will only carry containers who have paid the highest price to get onto their ships.
In real terms to you and your company, apart from struggling to get space, your transport cost might increase by up to 50%
7 Tips – How to Reduce Costs and Avoid Stock Outs
- Have enough stocks in your company stocked for up to 12 weeks from the commencement of the Chinese New Year.
- Get a Black Marker and mark a big black line on your calendar to “black out” the 12 week China Holiday window. 5 weeks before and 5 weeks after the holidays.
- Find an alternative supplier in a different country e.g. Turkey or Vietnam. **Tip- Search for new Sellers on goodada.com, or, talk with your local Goodada partner on how to find a seller on Goodada.
- Make sure that all your goods are shipped 5 weeks prior to the commencement of the Chinese New Year so as to get better shipping rates.
- If this cannot be avoided, make sure that all the goods have left the factory 2 weeks prior to the factory closing for the Chinese New Year celebrations. This will reduce the risk of your goods not getting shipped and being stuck at a port in China.
- Avoid Product Quality issues by allocating additional funds for independent Inspection companies. **Tip – use Goodada Inspection Services on inspection.goodada.com, or, talk with your local Goodada partner about Quality Control Inspections.
- Use the inspection company to communicate with new staff who commences working in the factory after the Chinese Holidays. Often the inspector can add another voice to aid the training of new staff.
About the author
Aidan Conaty is the founder of Goodada. Aidan has spent over 15 years assisting companies to trade internationally. He founded Goodada so that it can provide the tools and services that can assist companies to trade internationally.