Chinese Holidays Impact Supply Chain: Case in point

[Bradley A Feuling]

I have a written a bit and posted polls on the impact of Chinese holidays for procurement, demand, production and planning schedules. A great example recently came to my attention that I thought I would share.

One company based in the UK sources from China. They were told only days ago that their manufacturer here will be taking 14-17 days for the Spring Festival holiday. The nationally recognized days are Feb. 7-13. As their minimum lead time is roughly 4 weeks including production and shipping, this means the company now has to place orders immediately or face a lengthened delay as a result of the downtime. Considering the manufacturers planned holiday, this means the delays could be upwards of 10 weeks depending when the order is placed.

To manage these challenges, companies can do a lot more when it comes to supplier management and what we term demand-production synchronization with ther downstream Chinese supply chain. Inventory could be built up to offset the downtime or the batch size could be focused on more closely from a cost analysis perspective. In this particular case, the company does not manage inventory and rather places orders on an as needed basis. Again, a common problem. Foreign companies work in a make-to-order model similar to JIT, local companies are rooted in make-to-stock, traditional MRP. If the two systems don't link up, guess what, the foreign company isn't going to write wishing the manufacturer a happy new year. Instead it will be something like, "Are you kidding me?" It happens far too often.

Understanding the downstream is critical. We talk about this a lot, but it cannot be overemphasized for a number of reasons. If payment doesn't occur for potentially 90 days after receipt of product, a company is possibly looking at over 22 weeks from the time an order is placed until cash is received. Over half a year. Any company with this kind of cash flow will not be able to sustainably grow.

Another consideration is the effect on the rest of the year. Everything gets pushed back when delays occur. The demand-production schedule can be considerably altered based on earlier mismanagement, as many already are. If you are currently experiencing delays, you are feeling this. Hence peak times toward the end of summer in preparing for the western holidays, which just passed (hope you all had great holidays by the way!), will be impacted. Throughout the year this means higher costs as a result of stock-out and lost profit earning potential.

Just some food for thought. I'd be interested in furthering the discussion. Always happy to share these cases and Happy New Year to everyone. Hope your supply chains are moving efficiently and effectively.

[Starbucks Junkie]

Bradley,

Once again another highly informative post.

And a Happy New Year to you also.

SJ