Inventory planning to reduce Chinese New Year disruption

Smart inventory managers start planning for Chinese New Year (aka Lunar New Year) many months prior to 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 2022 this will be from January 31 until February 6, and during this time, production across China will stop, and shipping will be delayed.

Businesses in the US who import from these countries need to address how to deal with this break in supply without it causing stock shortages or stockouts.

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

First, while the public holiday is only seven days long, US businesses should also expect their suppliers to 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. Different factories also tend to close at different times, for different periods.

Second, Chinese New Year is notorious for workforce shortages issues, which can lead to further unscheduled production delays. As movement between factory jobs is fairly easy in these countries, sometimes employees don’t return to their current jobs at all, meaning it takes time to get production back to full capacity, leading to further delays.

Typical challenges businesses face due to Chinese New Year

Supply shortages

Businesses tend to slow down production a week or so before Chinese New Year and, for the reasons above, 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 don’t expect to get hold of anyone at this time.

Delayed shipping

With all customers looking to pull their orders forward and get them shipped before the shutdown, getting shipments out on time can be challenging.

Product quality issues

When the same workers don’t return to the factories, new employees need to be found and trained. There may be quality issues that are not identified or ignored during this time. This leads to you receiving a sub-standard product.

Dealing with CNY supply disruption

As many stock managers know, planning for CNY can be a complex task due to so 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? And for 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 produce demand forecasts further out than normal, 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 well-known saying “the early bird catches the worm” is appropriate here. Make sure you share your demand forecasts with your suppliers as early as possible, so they know exactly what items you need to cover the CNY period and on what date 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 2021, just to help mitigate any logistical issues.

4. Increase safety stock to cover all eventualities

CNY is a time when you may decide to increase your safety stock levels to help prevent stockouts in the early half of 2022. Especially if you’re unsure of the accuracy of your forecasts or if the demand for some of your stock items is very erratic.

However, if you’re doing your forecasting and reorder planning manually, it can get pretty complicated really quickly. And then there’s the human element where a 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. Users simply enter the dates that their suppliers will be shut down, 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 about a 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 out 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.

This prompts you to receive larger order recommendations for the affected items, which you can then review and approve.

The outcome is that you can 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.

Other customers choose to have one overall calendar for all suppliers. This is a quicker and more straightforward option 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 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 when large production plants have scheduled maintenance.

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.