As the Chinese New Year 2021 approaches, and COVID-19 waves are still working their way around the world, workers across China will return to their families and celebrate the New Year, with all production remaining closed for the duration of the shutdown. This can be a considerable challenge for cannabis companies importing products like vaping hardware from China.
Planning and preparation are key to efficiently tackling challenges that may arise during the Chinese New Year. Implementing some critical steps in the run-up to the holiday will allow cannabis companies to avoid unnecessary bottlenecks and continue their business with little or no disruption.
Within a few weeks to go before CNY, factories will accelerate production, leading to an increase in freight volumes and potential quality problems. During CNY they will be completely closed. Production will return to normal one or two weeks after the holiday.
There are two festivals that take place during this period, the official holiday and the traditional holiday. As such, some factories will close earlier than others and take longer vacations and some raw material suppliers are off for more than a month.
Finally, being in the middle of a pandemic, although China is blessed with more inherent success in battling the virus, many changes and adjustments need to be made with logistics. Shipping routes have been reduced and/or modified and air freight is slim with space left in cargo holds becoming a rarity. Blinc is fortunate enough to have established relationships with multiple logistics providers ranging from “express” to dedicated containers through our supply chain manager in Shenzhen.
How CNY in a COVID-19 world can affect your business?
When it comes to managing your cannabis vaping business, CNY and COVID can impact it in multiple ways. We’ve put together the main issues that can occur below but keep in mind this isn’t an exhaustive list, there are multiple ways your business can be affected.
Longer production times
This is a combination of some workers who leave before CNY and the uptick in last minute orders from other companies or industries. Don’t think about this solely in terms of you vaping hardware: you need to anticipate downstream, with the raw material suppliers. These “causes” have an exponential effect on production.
Longer quotation times
This seems counterintuitive yet due to the demand for raw materials before Chinese New Year, suppliers take longer to secure the commodities and often struggle to provide availability and delivery timelines. This forces our team to work with multiple suppliers, thus making it longer to get all the timelines and costs to put quotes together.
Increase in cost of raw materials
The same as previously, the demand being higher, suppliers tend to provide raw materials in priority to key clients and/or clients who are willing to pay extra to be pushed to the front of the line. Additionally, the exchange rates have decreased by 7% due to COVID, but also increasing trade tensions between the US and China.
Increase in cost of labor
Trained and experienced workers are leaving early, some others are being asked to work overtime and some are being recruited before and after CNY. When you factor in the pandemic as well, this has caused the cost of labor increase up to 33% in Q4 2020.
Shipping delays and costs
As much as CNY has some impact in shipping delays, mainly due to the rush of products going out beforehand, COVID-19 causes almost all shipping delays. Many ports have reduced capacity, sea shipping routes have decreased, and flights (freight and commercial) have been heavily impacted by current restrictions. This can cause delays in the logistical process.
How can your cannabis vaping supply chain be prepared?
Build up sufficient inventory
Keeping a cushion or safety net of products in your facilities or in Blinc’s facilities is an excellent mitigation strategy. We usually advise our clients to have a safety net of around 30% of their demand ready for CNY. Keep in mind that 4/20 is just around the corner after CNY and production won’t be back to 100% capacity until mid-March.
Create a comprehensive forecast
This is probably the one most important thing you can do for your company. Having a demand planning “person” or an internal “task-force” to realistically understand what you need for cannabis vaping hardware will be for the initial four months of the year is crucial to making sure you are never out of stock.
Over the years, we have helped most our clients work through their demand planning by taking a look at historical data but also trends. It’s important here to fact-check what the “business plan” is and keep it real, ie: if you’ve sold 10k cartridges monthly for the past 6 months, then there's no need to order 200k cartridges before CNY “just to be sure”. This is especially important when you’re ordering disposables or batteries, as Li-Ion batteries tend to discharge by 6% to 10% monthly when in storage (as opposed to being in use).
Build in potential shipping delays
Keeping in mind the logistical issues due to COVID-19, it’s important to factor in shipping delays. We’re not talking months here but a few days of buffer. Our relationships with freight forwarders and carriers are solid, but as the recent news has shown us, we’re never too far away from further outbreaks and lockdowns.
We do everything in our power to help you navigate any and all hardware related challenges. Please refer to this calendar and place any orders by the specified dates in order to ensure a smooth supply chain.