The situation with the coronavirus in China continues to deteriorate. As of the time of this writing, over 8,100 cases have been confirmed in nearly every province and 60 million people are under partial or full lockdown.
Thankfully, the Chinese government is responding quickly. Field hospitals are being set up and assistance from the international community is on the way. The national government is extending Chinese New Year until February 2nd and many provinces (such as Jiangxi, Zhejiang, and Guangdong) are extending the holiday to February 9th or 10th. No one should be surprised if the holiday is extended further.
While this is good for China and should help contain the virus more effectively, it will wreak havoc for businesses that rely on China for parts or finished goods. Delays will cause not only the delay of products (that’s a given) but also a costly fall in quality from understaffed factories frantically working to make production goals and deadlines.
How the Virus Lockdown Affects Chinese Manufacturers
Delays will not only be from starting later. There is a very strong possibility that factories will be severely understaffed (workforce down by 40% to 60%) and that key people will not be there. Why is that? As you may or may not know, many workers in China return to their rural homes for the New Year and then go back to work at the factories.
The disruption will likely cause many to stay at home, at least in the short term. Gradually, the numbers will return but it is hard to know how long that will take. A shortage of labor will hurt delivery and quality as well since there will be fewer people to do more work in less time.
What is a business to do? There are a couple of options which can be divided into two categories:
- Mitigate the problem in China; or
- Set up operations in another country (at least partially).
I’ll cover the advantages and disadvantages of offshoring contingency plans in the next blog. Let’s focus on mitigating the problem in China.
3 Ways to Mitigate Production Delays
To mitigate the risk of condensed schedules and the low number of workers, factories need to implement efficiency improvements that are most likely needed anyway. There is little room for slack in this situation.
Factories have a strong incentive, even if they don’t realize it at first, to improve their efficiencies to avoid hiring new workers at a higher wage rate (due to the scarcity of labor), missing deadlines (which could cost business to other factories or countries), and dealing with excessive rework from poor quality (which would further strain their production).
I recommend that factories take this chance to do the following:
1. Create standardized work instructions
It may not be a surprise to many of you that have worked in China for years, but most factories do not have standard work instructions meaning that it more difficult to onboard new operators or switch existing operators to new jobs.
2. Implement a sustainable and rigorous preventative maintenance system
Chinese factories often do no perform regular maintenance, meaning machines are more likely to break down and produce products with defects. Preventative maintenance is controllable and improves quality and cost while breakdown maintenance is unpredictable and extremely costly.
3. Streamline your processes
Notice I did not say “automate your process”. Automation is a great tool, but it is just that: a tool. Making your processes more efficient does not necessarily require automation. Chinese factories are typically over-staffed and so poorly organized that many operators are either doing unnecessary and unprofitable tasks (e.g. physically carrying work-in-progress to new stations rather than moving them on a line), or spending time waiting to do their job.
Reorganizing the workflow and eliminating as many non-value-added tasks can save a significant amount of expense on labor. It is not uncommon for CMC to help our clients bring down labor costs 30% or more.
These are a few of the initiatives you can take with your supplier or factory during this difficult time to mitigate the delays and costs and emerge better and stronger.
More Information & Support for Chinese Manufacturers
CMC will remain on the ground and provide regular updates to the situation. We are continuing to work in all accessible areas of China, working with factories to find solutions for manpower or supply chain shortages as long as there is no credible threat to them or our clients. Operations need not stop unless under extreme circumstances dictate otherwise. Our current operations will not slow.
Next week, I’ll discuss how to make a contingency plan to diversify your supply chain to lower your risk if another event like this occurs. Be sure to subscribe to our blog for updates!
In the meantime, Renaud Anjoran, President of CMC, is in China right now and has provided some useful insight into the situation (specifically for manufacturers and importers) in these 2 posts from his blog:
As the coronavirus spreads rapidly in China, I want to make sure importers know what the situation is and how it might affect their suppliers.
What's the truth about the Wuhan Coronavirus outbreak in China in early 2020? Renaud provide a balanced view & some helpful advice for protecting yourself here.
If you have any questions or would like to learn more, please don’t hesitate to reach out to us.