Once again, Rick over at All Roads Lead To China offers up sound advice for buyers with suppliers and supply nodes in China.
Last year, ARLTC warned of the impending dilemma buyers and sourcing pros faced from the elimination of the VAT rebates, warning them to get their shipments out before gridlock hit the ports. (The photo below shows the gridlock in Shanghai last June, as suppliers rushed to ship product before the VAT reabates were discontinued in July.)
Over at MFG.com, coverage was also extensive around the VAT reductions and their impact.
Unfortunately, many failed to listen to Rick's warnings from on the ground in China. And now he's back, playing Paul Revere with a message that's critical for buyers in the near term, and excellent intelligence for suppliers in the U.S. and other markets:
When I began reporting a couple months ago that the Olympic Shutdown was coming, some were skeptical ... but (you should) understand that the risks of this are growing, that the impacts will reach into many supply chains, and there are ways to mitigat(e)/manage the risk.Folks, time is short to act on these issues, and a word to the wise is sufficient.
Rick lists 3 characteristics of suppliers in China that make them susceptible to shutdown (in order of importance):
- Heavy air polluters
- Require high amounts of energy
- Require high amounts of water
Rick also identifies 3 potential scenarios that could affect buyers that rely on Chinese sources:
- Suppliers will be shutdown and therefore a part/ process cannot be delivered on time
- Suppliers will not be able to deliver the goods on time due to restrictions on trucks
- 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, (or) crane operators may be watching the national team
True to form, Rick offers sound suggestions on ways to mitigate the pending risks. He advises:
- If you need 4-6 weeks to produce (parts or deliverables) you really only have 1-2 weeks left to push out orders or build up stock... so act now
- 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
- Get your sales and logistics departments together and make sure they are in sync over the capabilities of shipping department vs. customer delivery (requirements)
Rick points out that there's about 2 months until the Beijing Olympics begin, but he believes only about 4 weeks before the first shutdowns commence. That doesn't leave much time for buyers to react and plan, but forewarned is forearmed.
