Before peak season fully hits, most brands will have already submitted their purchase orders and manufacturing plan for Q4. But seasoned brands who rely on Chinese manufacturing know that they will quickly need to forecast and order for Q1 as well.
This is because all Chinese manufacturing shuts down for two to four weeks due to Chinese New Year celebrations. For ecommerce businesses who manufacture products or components in China, they need to plan for this gap in production.
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What is Chinese New Year and How Does it Affect Ecommerce?
Chinese New Year (CNY), also known as the Lunar New Year, is China’s most significant holiday, typically lasting 15 days, with many factories and businesses closing for two to four weeks. Workers often travel long distances to celebrate, leading to widespread shutdowns across the country.
For ecommerce businesses, this can mean major disruptions in manufacturing, shipping, and supply chains. Brands may face delays in production, order backlogs, increased shipping costs, and inventory shortages.
It is imperative to plan for this interruption to avoid stockouts, delayed orders, and supply chain bottlenecks, as operations in China take time to fully resume post-holiday.
The businesses that are the most affected are those who rely solely on Chinese manufacturing. Generally speaking, this includes the following materials, chips, parts for electronic equipment, automotive parts and vehicles, some plastics, iron and steel, some apparel. This affects brands in many verticals including consumer electronics, toys, lighting, automotive, cameras, technology equipment, and more.
Tips on Accurate Inventory Forecasting Leading up to Chinese New Year
Is it better to order more or less before Chinese New Year?
Of course, the right answer is always you need to get your forecast exactly right, each time. But while that’s nearly impossible, there are pros and cons to over or under estimating while leading up to Chinese New Year manufacturing shutdowns.
With overstock you will be able to keep customers happy, they will always get the products they desire, but you may pay extra for added storage, slow-moving inventory.
If you sell more products than expected, you’ll have created demand for your products but missed out on potential sales and added revenue.
Here are few ways to help mitigate any forecasting issues to follow when thinking about your Q1 inventory and how to plan accordingly.
- Plan in advance. The best line of defense is a high-quality inventory forecasting method that remains flexible to changes in the economy, consumer habits, or other outlying factors. Brands can mitigate many issues by planning months in advance, building extra lead time into their production schedules, and ordering extra inventory to cover the shutdown period.
- Diversify your supply chain. Look for quality production across other countries or suppliers outside of China. This reduces your dependence on a single market and may help you if import fees from China go up or other supply chain disruptions happen.
- Clearly communicate with suppliers. If you have a proactive and positive relationship with your supplier, you’ll be much more likely to get in an extra order before CNY, or be the first products out the door once manufacturing resumes. Setting clear expectations with Chinese suppliers about your production schedules, lead times, and potential delays can help alleviate some of the uncertainty.
- Work with quality supply chain partners. With experienced logistics companies working with you—freight forwarder, third-party logistics provider—you’ll be able to lean on their support to help mitigate issues or shipping challenges.
Pain Points and Hurdles of Inaccurate Forecasting
Here are some pain points and solutions when looking ahead to Q1.
1. Inventory Management
The most obvious issues that can occur are stock-outs, overstock, or deadstock.
With too few units brands risk running out of products and losing sales (and long-term customers) while waiting for new shipments. Conversely, with overstock, items may not sell which ties up working capital and can lead to increased storage costs.
2. Production Lead Times
There are two things to consider when factoring in the lead times of inbound products from your manufacturer.
Pre-holiday sales rush. In the weeks leading up to CNY, there is a rush of orders from businesses trying to get their products manufactured and shipped before the holiday. This often leads to bottlenecks in production, where factories are overwhelmed with orders, potentially leading to quality control issues or delayed shipments.
Post-holiday delays. The backlog of orders continues after the holidays, creating longer lead times. Some suppliers prioritize larger clients post-holiday, which can negatively affect smaller ecommerce brands.
3. Financial Disruptions
Payments to Chinese suppliers and invoicing processes may be delayed during the Chinese New Year, as many businesses take time off or pause operations, impacting cash flow and financial planning for the brand.
4. Increased Costs Due to Last-Minute Solutions
To make up for lost time, some brands resort to expedited shipping options, like expensive air freight, which can drastically increase their shipping costs.
They may also pay premiums or additional costs to suppliers or logistics providers if they need to prioritize their orders during high-demand periods.
5. Quality Control
During the rush before CNY, manufacturers may push their production lines to the limit, potentially resulting in lower quality products or skipped quality control checks to meet deadlines. For products that require very specific quality checks (medical devices, etc) keep this in mind as you forecast.
How a 3PL Can Help Smooth Out CNY Delays
If you outsource fulfillment to a 3PL, they may be able to help offset some of the pains that come with planning around Chinese New Year production delays.
Help Even Out Amazon Sales
If you are an Amazon seller, using the Fulfillment by Amazon (FBA) service, there are big potential issues that can arise due to strict storage limitations by Amazon.
Brands want to capitalize on big sales for Amazon Prime Day and peak season. If you’ve had the great experience of selling out of your FBA inventory, you may not be able to quickly replenish it if you can’t get more products from your manufacturer quickly.
If you work with a 3PL you can re-route your products through them and switch to Amazon Fulfilled by Merchant (FBM), and have your 3PL ship Amazon orders. The benefit here is that your 3PL will likely be able to store and process a higher volume of inventory for, you with less cost implications.
Assist with Just-in-Time Inventory and Dropshipping
Similar to the Amazon example above, if you are a brand relying on dropshipping or just-in-time inventory, working with a reputable 3PL can help smooth out any gaps in production during CNY.
You 3PL can store additional inventory before the holiday, ensuring products are available for timely shipping even when manufacturers are closed. They also have access to diversified suppliers, helping brands source products from alternate locations to avoid disruption.
Additionally, as the last mile provider, a 3PL can help you plan your shipping and customer service strategies to ensure your brand looks great to customers during this period—reducing delays is the best way to improve customer satisfaction.
Bottom Line: How to Plan Around CNY
If your brand relies heavily on Chinese manufacturers, you’ll need to plan accordingly for the Chinese New Year break.
Communicate clearly with your suppliers. Make your purchase orders very clear and order early. Your manufacturer needs to know exact product quantities and timelines. Don’t leave a shipping strategy out of the equation, ensure you can ship all your products cost-effectively before you need them.
Make a plan for post-CNY ordering. Many factories have labor shortages after Chinese New Year ends because many workers decide not to return to factory life. Be aware that after Chinese New Year production will be slower to ramp up. Factory this into your pre-CNY purchases.
Understand potential delays. There may be bottlenecks before and after Chinese New Year. Carrier bookings and port volumes (especially in Asia) can be severely impacted by the rush of orders before and after the holiday.
Source from DCL Logistics
Disclaimer: The information set forth above is provided by dclcorp.com independently of Alibaba.com. Alibaba.com makes no representation and warranties as to the quality and reliability of the seller and products. Alibaba.com expressly disclaims any liability for breaches pertaining to the copyright of content.
