Inventory planning to reduce Chinese New Year disruption

Smart inventory managers plan for Chinese New Year (aka Lunar New Year) many months before the event. The more prepared you are, the greater your ability to ensure that this annual supplier shutdown causes as little disruption as possible. This post looks at the challenges brought about by Chinese New Year and how EazyStock can help.

Chinese New Year shutdowns

Every year factories in China (and other countries that celebrate the Lunar New Year, such as Indonesia, Malaysia, North Korea, Singapore, South Korea, Vietnam, and Brunei) shut down so that their workers can celebrate Chinese New Year. In 2024, this will be from February 9-15. During this time, production across China will stop, and shipping will be delayed.

Businesses in the US that import from these countries need to address this break in supply so they don’t experience stock shortages or stockouts.

In theory, this is simple: you simply get the stock into the US before the shutdown begins, right? Unfortunately, it’s not quite that easy.

The main issue is that, while the public holiday lasts only seven days, celebrations last around 16 days. Manufacturers will stop production for at least two weeks to allow their workers to go home to their families in other parts of the country and then travel back again. Some factories might close at different times or for different periods.

Typical challenges businesses face due to Chinese New Year

Other issues resulting from Chinese New Year shutdown include the following:

Supply shortages

Chinese New Year is notorious for workforce shortage issues, which can lead to further unscheduled production delays. As movement between factory jobs is relatively easy in these countries, sometimes employees don’t return to their current positions. This means it takes time to get production back to full capacity, leading to further delays.

Businesses tend to slow down production a week or so before Chinese New Year, and it can take a few weeks after the celebrations to get back to full capacity.

No contact

During Chinese New Year, ALL employees are out of the business, so you won’t be able to get hold of anyone at this time. That’s right. There won’t be anyone around to answer your urgent emails, phone calls or messages, or take rush orders.

Delayed shipping

Getting shipments out on time can be challenging as all customers look to pull their orders forward and get them shipped before the shutdown. You need to get your orders in ahead of the rest so you don’t get pushed down the priority list.

Product quality issues

If the same workers don’t return to the factories, finding new employees and training them up to the same standard take time. While everyone gets up to speed, you might experience quality issues that have been missed or ignored. If this happens, you could receive sub-standard products, which won’t impress your customers.

Dealing with CNY supply disruption

As many stock managers know, planning for CNY complex due to many moving variables. For example, how much extra stock do you order to cover your forecasts? When do you place the orders? Do you need different contingencies for different suppliers? What about different products?

Here are four top considerations to take note of:

1. Spend time on producing accurate demand forecasts

You’ll most likely need to create demand forecasts further out than usual, so make sure you put time aside to look at historical demand periods and consider aspects such as seasonal events, promotions or demand trends, which will require you to adjust your base demand for specific lines.

2. Share demand projections and communicate with your suppliers early on

The saying “the early bird catches the worm” is appropriate here. Ensure you share your demand forecasts with your suppliers as early as possible so they know precisely what items you need to cover during the CNY period and when you want them to leave the factory. Discuss any issues and work together to find solutions.

3. Account for shipping backlogs

With ongoing challenges around shipping assignments, it could be wise to bring orders a little further forward than usual in 2024, just to help mitigate any logistical issues.

4. Increase safety stock to cover all eventualities

You may decide to increase your safety stock levels to help prevent stockouts in the early half of 2024 during CNY – especially if you’re unsure of the accuracy of your forecasts or some of your stock items have erratic demand.

However, if you’re doing your forecasting and reorder planning manually, it can get pretty complicated really quickly. Then there’s the human element, where fear of stockouts can lead to over-ordering, or simply managing too many item lines can lead to errors.

How can EazyStock help?

EazyStock has a great feature called supplier calendars. All you need to do is enter your supplier shutdown dates, and, in simple terms, the system will order more stock to allow for the closure.

With the closures programmed into EazyStock, the system will start to increase safety stock and order levels around the lead time before your suppliers’ factories begin to wind down (more if you ask it to).

Instead of you and your team manually deciding how much stock to add to your order, EazyStock looks to the upcoming forecast period, considers any adjustments for seasonality, promotions, etc. and factors in the longer lead time. This data then allows it to calculate new order quantities and safety stock levels.

You’ll receive prompts to receive larger order recommendations for the affected items, which you can review and approve.

This allows you to mitigate against any risk of stockouts during the Chinese New Year period.

Go as simple or detailed as you like

Some EazyStock customers prefer to set up different calendars for each supplier. If you have the resources, it makes sense to talk to each supplier to understand their constraints during CNY and set up each calendar accordingly.

You might prefer to have one overall calendar for all suppliers. This is quicker and more straightforward, but may lead to a more considerable build-up of stock levels for a few months until it levels back out.

Use supplier calendars for any supplier shutdown

EazyStock’s supplier calendars aren’t specific to Chinese New Year, and can be set up for any supplier with a known future shutdown. This can include Italy’s national shutdown every August, Sweden’s shutdown in July, or even scheduled maintenance at large production plants.

If you’d like to know more about how EazyStock can help you manage supplier disruptions or improve your inventory management capabilities overall, please get in touch.