Why procurement planning is critical ahead of Chinese New Year

While the United States is just emerging from its holiday season, China and many other Asian countries are days away from theirs. Between Chinese New Year and Lunar New Year, entire countries will just about shut down for a period of several days to more than a week to celebrate.

For organizations with supply chains heavily tied to this region of the world, planning is in order to avoid major disruption.

This year, the Chinese New Year (CNY) will mean closed offices in mainland China from Jan. 24 to 30. Hong Kong’s dates are slightly shorter, from Jan. 25-28. Indonesia, Korea, Malaysia, Singapore, Taiwan and Vietnam are preparing for their own work stoppages over some combination of days during that time period as well.

What does that look like? Delayed production during and after the shutdowns, slowed shipping as the countries play catch up and limited space for last-minute cargo until everything returns to normal. Smart U.S. companies have plans in place to accommodate the disruptions.

Planning is everything

China will be essentially closed during this time period, said Guido Gries, managing director of Dachser Americas. “Procurement managers should know this is coming and understand that the majority of cargo takes 30 days to travel by sea from Asia,” he told Supply Chain Dive. “Capacities will be tight and prices will go up. Capacity management is important.”

Gries said Chinese manufacturers produce extra products ahead of the new year, anticipating the slow down. “Companies should have imported more in November to hold them over until about March,” Gries said. “They need a buffer stock at the end of the calendar year in order to be ready.”

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“The only way to eliminate the supply chain constraint is to purchase early and have the products on ships or planes before the slow down/shut down of production.”

Joe Walden

Assistant area director, analytics, information and operations management, University of Kansas School of Business

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Because most U.S. companies understand that planning is essential for the holidays at home, they should be well skilled at prepping for CNY fall out, said Joe Walden, assistant area director, analytics, information and operations management at the University of Kansas School of Business. He recommended procurement managers conduct “backward scheduling” to ensure products arrive in a timely fashion.

“The only way to eliminate the supply chain constraint is to purchase early and have the products on ships or planes before the slow down/shut down of production,” he told Supply Chain Dive.

The costs of poor planning

If managers haven’t prepared for the slowdown and tightened capacity, the result will likely be higher prices as they switch to air freight instead of sea.

“Companies should know how much inventory they need to have on hand, how much is en route in the ocean, and what they might need to short ship,” Gries said. “They need to understand which items they can’t be without and make sure they have them in the quantities they will need.”

Even with good planning, companies may run up against events they didn’t foresee. “Things happen,” said Gries, “and you can’t be ready for everything. This is when it becomes necessary to invest in air at a higher cost to expedite shipments.”

Walden said properly preparing can alleviate the potential disruptions brought on by CNY. “This requires additional temporary storage of products, not unlike the build up for the busy holiday season here,” he said. Once the CNY period is over, it will still take some time before production flows as normal.

Building in resilience

Walden said contingency plans should be part of the equation as well, and points to his time with the U.S. Army as an example. “We had to develop plans for any contingency that may interrupt the supply chain and flow of products to customers,” he said. “In many cases, we never had to execute those plans, but nonetheless, they existed to mitigate or eliminate interruptions.”

He said the same approach can be used in the commercial world. “It is critical to success that companies be proactive rather than reactive with procurement.”