Are You Stocked Up For the Olympics? Have You Assessed Your Suppliers Yet? Booked Your Vessels Yet?

Friday, June 13, 2008 1:51

Last year when I announced the changes to the VAT rebate structure, and then announced that everyone better ship their container early, there were some who failed to heed my advice and ended up missing the deadline as their container was stuck in 3 days of Shanghai Port container riptide (see pictures)..

and when I began reporting a couple months ago that the Olympic Shutdown was coming, some were skeptical as well…

but… when speaking to some friends last week about the potential risk of a shutdown and what they should consider doing (asking 1000 suppliers to hold a month of safety stock was not feasible for one part), it hit me… I need to send a shot across the bow AGAIN to make sure that readers understand that the risks of this are growing, that the impacts will reach into many supply chains, and there are ways to mitigating/ manage the risk

The Risks
to date, there are three characteristics of those who are going to be found in the highest risk profiles:

(1) heavy air polluters
(2) Require high amounts of energy; and
(3) require high amounts of water

….and they are ranked in order of highest risk profile to lowest.

Shandong announced a couple of months ago (when I first wrote ) that 120 firms that were on the list, and my expectation is that as we are going into peak energy season – Beijing is already diverting power to Sichuan and Guangdong – anyone who is seen as an energy hog will surely be bumped onto the list.

So, without any shocks to the system (Force majeure or otherwise), a supplier (1st, 2nd, 3rd, or other) who is a polluter and uses a lot of energy is already red hot on the radar screen. Add another algae break out, and a resulting water shortage, and red hot goes to white.

The Impacts
At this point, and let’s assume for argument sake that no one has begun building a safety stock, supply chain disruptions could be significant. While speaking to one MNC, who had 1000+ suppliers, the risk that 5-6 would be closed was enough for him to be concerned, and my feeling is that we will see a number of firms in China who will feel the pain.

With a simple back of the envelope analysis, there are three potential impacts. first is that suppliers will be shutdown and therefore a part/ process cannot be delivered on time. If the supplier is one that is slated for a 2 months close, then the impact could be significant, and buyers should really act now to assess if they have anyone in this area. second is that the supplier will not be able to deliver the goods on time due to restrictions on trucks. shutdowns or not, Beijing has already announced a number of restrictions related to cars and trucks, and it is clear that line haul capacity will shrink (driving up costs and lengthening timelines). and finally, even if you get the parts and are able to avoid being shutdown… you may find it difficult to ship your goods yourself. Ports may be restricted for security, trucks may be off the road, crane operators may be watching the national team

Ways to Mitigate your Risk
Taking the production cycle back to its infancy in say the mobile handset market (they are a clean bunch!), this means that if you need 4-6 weeks to produce you really only have 1-2 weeks left to push out orders or build up stock… so act now.

Critical to this process, and mitigating any impacts, will be to understand which of your suppliers are at the highest risk and speaking to them about developing some measure of safety stock within their/ your warehouse. Next will be to get your sales and logistics departments together and make sure they are in sync over the capabilities of shipping department vs. customer delivery times. finally, bring this all together at the top levels to develop a clear picture of what you need to do over the next 2 weeks.

Parting thoughts

There may be 60 days until the Olympics, but there is only 4 weeks to go before the first shutdowns could occur…. and while I hope nothing happens, I also hope that you (my readers) will take the time to plan this out and prepare your contingencies. Even if nothing happens, you will be glad you did.

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3 Responses to “Are You Stocked Up For the Olympics? Have You Assessed Your Suppliers Yet? Booked Your Vessels Yet?”

  1. SourceJuice says:

    June 13th, 2008 at 3:02 am

    Very good advice. The Olympics is causing more issues than anyone originally expected whether it’s manufacturing, shipping, visas, what have you. If it’s imperative to have your goods to your destination by a certain date, better get it on the water as early as possible. All bets are off once the games start!

  2. Greg says:

    June 22nd, 2008 at 8:09 pm

    The rumor is, that the shutting down of factories will start on the beginning of July and it will last till end of September. Many factory will operate on 50% capacities, just to limit the pollution. Situation in northern Zhejiang and southern Jiangsu provinces. Anyone can confirm?

  3. Rich says:

    June 22nd, 2008 at 9:30 pm

    Greg

    this is what I have been hearing for 3 months. I would just go forward planning that heavy polluters & energy/ water consumers will all have elevated risk profiles for shut down.

    R

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