Published On: November 10th, 2021 / Last Updated: November 10th, 2021 / Categories: Sourcing from China / 1489 words / 7.4 min read /
Since the beginning of covid, raw material shortages, longer lead-times, delayed shipping/air freight, and increased pricing have all become normalised. So much so that the old system of purchasing JIT (just in time), or said another way. Ordering goods to fit with the normal time slots of say 3-4 weeks, or 10-12 weeks (examples only) is “in my and other peoples experience” no longer viable.
Company after company, buyer after buyer, seller after seller conveys the same story. That is, the reality is such that supply chain is no longer as smooth as it once was, yet to tackle the future, and to keep a smooth supply chain going (which contrary to popular opinions, is still relatively easy to achieve), though changes need to be made.
Again this is my experience, and it may be different for different buyer and clients, yet the general gist is that for one to continue with a smooth or smoothest as possible supply chain, forward planning, forward ordering, and buffer stocks need to be put into place.
Forward planning – The age old problem for any buyer has been gauging how much stock (quantity) and when is the best time to order (lead-times), which in my 20+ years has always been achievable via a very delicate, yet logically managed act of balancing. Though going forward and this is merely my opinion based on past, present and predictive future market knowledge. Forward planning ought to take prime position when buying from China (explanation below).
Forward ordering – Not the same as planning, whereby planning does not require one to commit to ordering, though post covid, the luxury of planning without committing has long faded (at least for many). Gone are the days of verbally or tentatively placing orders, today now more than ever, which due to raw material shortages resulting in delayed or lost allocations, commercial factory power restrictions (many factories are now restricted to 4 hours of electricity usage per day – with some limited to operations for only 3-4 days per week) thus, forward ordering has become a major priority. In fact so much so, it’s become a real pecking order, with first come first served given preference over others. In other words, the buyer who places their order and pays their bills upfront and or onetime, is given preference over all others – this also applies to long standing client/supplier relationships.
Buffer stock – Naturally no business likes to keep more stock than it needs, though post covid and what was once considered dead money (shelf stock) has in many cases become a money spinner. As prices have risen, continue to rise, and forecasted to rise even further, purchasing buffer stock not only keeps the supply chain moving, it can significantly increase the bottom line. As an example only; during the past five years or so, one small stainless steel installation item has been very stable in both price and supply. However post covid the price has increased by over 30%, with both manufacturing and delivery delayed, and furthermore – the forecast for 2022 set at – uncertain. As this is an ongoing item, pre-covid normal ordering would be scheduled every 12 weeks, maintaining a constant stock of 4 weeks. Post covid, and to maintain the smoothness of the supply chain, as well as keeping the pricing down. Forward orders have been placed for the entire annual usage, with a buffer stock held locally for the client ranging between 3 and 6 months (3 months minimum – 6 months maximum). This way, the end user (a telecommunications operator) can maintain a smooth, and uninterrupted roll-out program.
First Come First Served
China has always been a first come first served country, “that’s just the nature of how things are” and to a large extent this has worked out very well. Especially for people and other buyers like myself who have built long standing relationships with repetitive ordering over several decades. The first come first served and knowledge of it’s application has worked well – Yet, and this is just the reality, yet today (post covid) the first come first served has notched up into overdrive. It is now first come first served which really means placing a live order and paying one’s bills.
Shortages with raw materials (from previous covid lockdowns), with the potential of already manufactured goods being left on the shelf (due to possible future lockdowns) and power shortages has created great uncertainty, which for the average factory planner is naturally very difficult to work around. Though one tried and tested solution is the default position of first come first served, which for the immediate future is not a bad thing, it just means adding an extra layer of forward planning, hence forward ordering.
2022 Forecast Conclusion
Changes – Do I see things changing? Yes and no. I mean, things always change but from all the suppliers that I have come across, they don’t anticipate a return to what was. That is, prices are unlikely to go down – long term they may, yet in reality this is highly, highly unlikely.
Power – Outages and electricity restrictions may improve, yet again and it’s to convey a reality here – If you’re planning to purchase from China during the next one or two years, plan on getting your order in as soon possible because many factories are having and currently have power limitations upon them.
Price – Stability for the short term (0-3 months) can be achieved, that is, one can easily lock in a price, though for mid/long term (3 months and over) there needs to be flexibility (rarely will any factory agree price fixing – and if they do, build into your plan that could change in an instant). With limited access to certain raw materials, prices are set to rise with other price increases coming from shippers, couriers, and imposed unavoidable charges such as emergency taxes, HS code changes, and other unannounced changes etc. That’s just the new reality which behind the scenes we all have to live with and work to.
Deliveries – Chinese shipping ports may continue to experience disruptions and temporary closures (i.e COVID cases). As China take a serious stance with covid, hence when one positive PCR case is detected, the entire place, city, region can go into shut-down. As general rule there is no way around this other than forward order, carry buffer stock. That said, in the case of a port closure, one can resort to air-freighting small emergency amounts (dependant upon factory availability) though do bear in mind, air-freight can be extremely expensive and closures can happen there too, which has happened on several occasions.
Often I am asked by others to share my experience which is solely related to sourcing and buying from China. In my 20+ years of experience, the times we are experiencing now are like no other, and if we take the the pain from the experience covid brought to many businesses – my advice is to forward order as much as possible, and maintain enough buffer stock.
While this appears counter intuitive, it is what my own clients have adjusted and refocused towards and are now getting by with. Albeit initially reluctant, they come to premise of exchanging pain for pleasure so to speak. As an example; A client has a rolling contract, and it’s one where the buyer/client knows that they will eventually use the product. As they know their products are going to be used, and to ensure being at the front of the queue, and to obtain an allocated slot, and to ensure an on-time delivery – They placed a froward order as soon as it was humanly possible. It’s a counter intuitive action, that’s yielding positive results (i.e. pricing and delivery)
As already mentioned and during these turbulent times, in applying something sillier like above, not only will is keep the/your supply line moving, it’s most likely you will save a great deal of money in doing so.
Know that China need not a mine-field and with a few minor tweaks, clients can obtain obtain good quality goods, delivered on time, and at the best market price.
Also please know that during these times of change, it’s equally uncertain for the average Chinese, as it is for you guys right now. Yet they, we, you are all doing and will continue to apply our best and eventually smooth times will return. In the meantime, I’m up for the challenge and know a great deal of suppliers who are also approaching things positively. In China there are many sayings, but one I like is the bamboo quote – The bamboo that bends, is stronger that the oak that resists. I like that one 🙂 and I hope and trust some, and if I am lucky, all of the information above is of some use to you 🙂