As the 2023 U.S. holiday season rolls into full gear, it’s impossible not to also think about the 2024 Chinese New Year (CNY). Maybe it’s because the U.S. holidays are busy not only at work but personally as well, for many of us, and by the time we catch our breath, the CNY is already on top of us.
While the last 4 years have proved that you can never be too prepared for a CNY shutdown, there are common lessons we have learned from years past that make us more effective in planning for each year.
Fireworks over Hong Kong during Chinese New Year celebration.
The biggest keys to successfully navigating the CNY’s challenges are planning early and communication. The earlier you start to prepare, the more likely you are to make sure you have your production and shipping capacity booked in advance. The more open communication you have within your supply chain should validate that your planning is working.
Plan Ahead
Let’s start with planning early. In 2024, the CNY is Saturday, Feb. 10, 2024. The holiday will officially last a minimum of 7 days. And when they say the country shuts down, they mean it. Every part of the country will be shut down anywhere from 7 days to up to 3 weeks. But you can count on production being shut down at least from Feb. 10, 2024, through Feb. 17, 2024, which is why planning early is important.
Because manufacturing doesn’t just “shut down” on Feb. 10, 2024. The shutdown of production will start at least a week or two prior to that. Most production, especially printed circuit board (PCB) manufacturing, will stop releasing new production to the floor around Feb. 1, 2024, to prevent quality issues during the shutdown.
In addition to holding new orders from production, two other factors play into the plan's early philosophy.
- As the shutdown approaches, manufacturers will stop ordering raw materials that they will not use until after the shutdown. No one wants to have raw material inventory heading into a multiweek shutdown, as so many base materials have limited shelf life. This means that the closer to the holiday we get, the less material options we will have. High-speed, heavy copper materials for PCBs are always difficult to get firm lead times on right before the holiday.
- The other factor in the early shutdown is that most factories will allow their employees to start leaving up to three weeks before the actual holiday. As the CNY is also called the Great Migration, there is a tax on the public transit infrastructure. Many manufacturers will be leaving early for the holiday as a perk for their staff, allowing them smoother transit home. The prediction for the number of people traveling home during the 2024 CNY is high, as the COVID-19 restrictions in China over the last 4 years have kept many city factory workers from being able to travel home at all.
The Shutdown
This scheduled shutdown before the holiday, with workers leaving, tends to lead to an increase in quality issues, and short shipments prior to the holiday. In the rush to get all goods on the floor shipped prior to shutting down, we inevitably see an increase in quality issues. Planning early can minimize this by either having your orders shipped before shutdowns start to impact production or giving yourself enough time to react to quality issues.
Lastly, in terms of planning early, production doesn’t just turn back on after the holiday. There is a significant ramp-up to getting these production facilities running to 100% capacity, mostly due to the choices made before the shutdown: not purchasing raw materials and sending employees’ home. When it comes to the post-holiday ramp-up, one of the biggest time delays is getting raw materials back into the facility. As every level of manufacturing has been shut down, they are all ramping back up at the same time, causing log jams in every part of the supply chain for usually 3-4 weeks post-holiday.
Staying in close communication with your suppliers at this time is critical, as making sure they are restocking their raw materials inventory will impact production for the rest of the first quarter. It’s good practice to prepare to have all your Q1 inventory on hand, either your site or your manufacturing partners in the U.S., prior to the start of the CNY.
Potential Turnover
The other challenge in getting ramped back up to pre-holiday volume is that an estimated 30% of all manufacturing workers do not come back to their jobs after the holiday. Many factory workers live in other parts of the country than where they go for work. Often, they are working to support their families, and if they can find something closer for the same amount of money, they will jump jobs quickly.
This turnover can be detrimental to the production cycle. For many products within the electronics supply chain, much of the manufacturing process is still very manual, skilled labor. When you have to retrain up to 30% of your workforce at once, that is a daunting task, and if not done correctly will be costly in OTD and quality of product. Fortunately, in the PCB area of production, many Chinese factories have invested very heavily in automation equipment, which has reduced headcounts in the manufacturing process. This has shortened the training cycle and reduced the quality impact.
The reason I say communication is the second biggest piece of this puzzle is that the more you communicate, the more you will know about all of these challenges and have a chance to react to them before they shut down your production line. It’s never too early to talk to your suppliers about the CNY, and what their plan is to handle it. The stronger your partnerships and production relationships are, the more likely you are to have a smooth CNY. As you start your planning, talk to your suppliers not only about their plans, and how they are verifying them but also about what you can do together. Do they offer inventory programs, either on an annual, or even quarterly basis? Can you leverage your partners' supply chain relationships to expedite shipping, or book in advance? Can you get consistent production updates to make sure your product will clear customs prior to the shipment? Do they have a strong enough partnership to secure raw material on-site at production to reduce ramp-up? Do they have extra QC plans to make sure they are ahead of any quality issues that could pop up? Do they have alternate manufacturing outside of China if there is a problem ramping back into production?
Summary
Navigating the Chinese New Year is a crucial period for businesses, requiring early planning and robust communication. As the CNY approaches, typically shutting down manufacturing sectors for a minimum of seven days, proactive measures become imperative.
In 2024, the anticipated halt in production begins even before the official holiday starts. To mitigate disruptions, businesses should ensure they have their first-quarter inventory secured well in advance, engage in continuous dialogue with suppliers, leverage partnership benefits, and possibly consider diversification of manufacturing locations.
