Date: Wednesday, January 18, 2023
Source: Supply Chain Dive
For nearly three years, one of the most dreaded possibilities among China-based manufacturers was if workers contracted COVID-19. Under the country’s stringent zero-COVID policy, even a few positive cases in or around a factory could shut down an entire operation for days.
But in the last several weeks, the script has flipped. The Chinese government began lifting its zero-COVID policy last month, easing travel restrictions and ending mandatory quarantine measures for those infected.
The change led to a sharp spike in cases. Between the week of Dec.19 and the week of Dec. 26, cases rose more than 67% in the country, with more than 251,000 confirmed cases that week alone, according to the World Health Organization.
With so many people falling ill so quickly, many factories throughout the country found themselves short staffed and struggling to maintain normal operations.
In the sudden absence of control measures, not only are workers out sick, others have also been staying home to avoid infection, or in some cases, working while infected, said Renaud Anjoran, partner and CFO of Sofeast Limited, a supply chain management and quality assurance firm that holds offices in China.
“The pressure can be pretty tight,” Anjoran said. “And then suddenly you have not only [some] 40% of the operators that are down, but also maybe the production manager, the GM, everybody gets sick.”
Some companies have had to prioritize or shift orders as a lack of workers impacted the ability to maintain normal factory production schedules, Anjoran added.
Others, like David Alexander, founder and CEO of sourcing and procurement firm Baysource Global, are seeing factories work on more of an ad hoc basis, filling roles as needed in real time. The contracting firm works with factories across China, particularly around Shanghai and southeastern China.
As companies contend with the challenge of absent workers, many are also facing the issue of falling input orders, causing them to cut production ahead of Chinese New Year. China’s manufacturing PMI declined in December down to 47.0%, the lowest level since the onset of the pandemic in February 2020, according to the National Bureau of Statistics.
The upcoming Chinese New Year also creates the possibility of a new wave of cases as millions of migrant workers travel from the country’s manufacturing hubs to their hometowns.
While at some of the factories Baysource works with the worst of infections seem to have lulled, Alexander worries that the massive movement of people will lead to a new wave of cases or variants, creating even more upheaval.
This uncertainty over what could be next is a major concern to both Alexander and Anjoran. Alexander noted it’s hard to predict for how long production interruptions could continue amid a still rapidly changing situation.
“The problem is nobody knows,” Alexander said. “This abrupt shift in policy means that we’re all facing this at the same time with China. So we don’t know yet.”
Anjoran meanwhile said he thinks production interruptions could continue for at least the next six months, possibly longer if a new variant emerges.
The White House has said it is closely monitoring the rising cases and possibility of a new variant in China, as well as possible implications on the global supply chain and economy, Reuters reported Dec. 20.
In the meantime, the Sofeast CFO said it is critical for companies that source or produce in China maintain heightened communication with their local teams in the country. He suggested supply chain executives get updates on day-to-day production plans, so they’re aware of updates or changes to accommodate for worker absences.
Ahead of Chinese New Year closures, Anjoran also encouraged companies to prioritize which orders must be completed before the holiday versus which could wait, and to create contingency plans if not all orders can be completed in time.
“The situation is so volatile,” he said. “China production is going to be impacted for some time to come.”