Factories in China Are Slowly Returning to Production

There is cautious optimism in China from a supply chain perspective as the number of coronavirus infections continues to fall there. China reported 206 new cases of COVID-19 on March 2, 10 of which were outside the epicenter of the contagion in Hubei province, according to the World Health Organization. That's the lowest figure since Jan. 22. While the updates outside of China are less encouraging, the WHO also said in a statement Monday that containment of the virus is feasible. Factories in China outside Hubei province, in the meantime, continued to make progress in ramping up production, a source who works directly with Chinese manufacturers told Adweek. Many factories reopened last week, according to Adeela Hussain Johnson, president of travel accessory brand Beis. But restarting production depends on the availability of materials. Adweek's source, who gets daily updates from factory operators, said factories are now two to three weeks behind schedule. The expectation is that many production facilities will either be close to or at full capacity in another three weeks, so as long as new cases continue to decline. Indeed, the factories in China that produce Beis products are at about 25% production capacity, Johnson said. Production of the company's accessories is currently slated to begin the second week of March with delivery expected in April, a month behind schedule. There is still some concern, however, about employees being able to return to work. The Chinese government is erring on the side of caution in terms of clearing factories to reopen, the manufacturing source said, and multiple checkpoints continue to delay some employees' return. In fact, regulations dictate that if a single worker is diagnosed with coronavirus, the entire factory is shuttered and quarantined, according to information provided to Johnson's company. [article_summary section="3"]Many companies were prepared to address the current delays in production and deliveries, according to Andrea Weiss, CEO of retail consulting network The O Alliance. But if those delays were prolonged due to workers not returning to factories for another month or two, that would push back summer deliveries, presenting a challenge previously unanticipated, Weiss said. Johnson noted that her company has already postponed the release of its summer collection from the end of May to July. If the slowdown continues two to three months beyond what her company has planned for, it will become increasingly difficult to bridge the financial gap. In a typical year, Chinese factories would have been up and running for three weeks at this point following the Chinese New Year. Adweek's manufacturing source said it usually takes three to four weeks before a factory is near full production capacity, adding that March is usually one of the slowest months of the year under normal circumstances. [article_summary section="2"] As factories come back online, offices have largely been up and running. The source's team, for example, has been back to work for two weeks at this point, though workers are required to wear face masks. The Caixin China General Manufacturing PMI (purchasing managers’ index), which measures production, new work and staffing levels in China, has fallen at its quickest rate since the survey began some 16 years ago, according to IHS Markit, which compiles the index. The survey fell to 40.3 in February from 51.1 at the beginning of the year. That’s even weaker than the 40.9 clocked in November 2008 amid the global financial crisis. Above 50 on the index indicates expansion, while below 50 indicates contraction. Meanwhile, the Dow Jones Industrial Average closed down 758 points Tuesday after regaining lost ground Monday with its largest one-day gain in history (nearly 1,300 points).