Tag Archive: Vietnam

What’s Going On with Asia Supply Chains

June 25th, 2020

 

Supply chains are quite tenuous, and China drives the most volume:

  1. Coronavirus: Beijing is under a soft lockdown with a surge of virus cases. Although Beijing doesn’t impact trade, it is another sign that China vastly under reported previously and it is likely to have a new surge of coronavirus and plant closures.
  2. Manufacturers in China: Small and medium size manufacturers are not doing well. They are struggling to keep up since they had to continue paying people even when they weren’t producing. Are you watching your quality and cash?
  3. Vietnam: so far, they are faring pretty well and companies that moved prior to coronavirus and quite happy with service; if they hadn’t yet moved prior to coronavirus, it is likely on hold due to the disruption.
  4. Global transportation: Volume has picked up at all 3 ports in China (although they are dealing with a short-lived vessel shortage) and we aren’t seeing goods movement issues.

International rates are rising: they are up a hefty 12% from Asia to Northern Europe & 32% on the Transpacific route. They have taken capacity out and are slow to add it back. We’ll have to stay tuned to see what will happen.

 

 

Are you taking the continued disruption into account in your supply chain plans?

 

What Should We Consider and/or What Impacts Could Arise?

Undoubtedly, you should be thinking about how to proactively manage your global footprint:

  1. Re-evaluate your sourcing strategy: as many are already doing, the least you should do is re-evaluate your sourcing strategy. Generally speaking, the total landed cost for non-commodity products is less expensive in the U.S. than in China. Check your total cost and review multiple sourcing alternatives.
  2. Review your customers’ needs: Undoubtedly, consumer and business buying behaviors are changing during these unprecedented times. What is happening with your customer base? What can you do to get in front of the changes and see opportunities for expansion?
  3. Review your customers’ requirements: Understanding where your customers are located is a good start. It can have a profound impact on your supply chain, where you should produce and how you should set up your supply chain infrastructure. In addition, what expectations do they have? Are they expecting immediate delivery? Are their preferences changing to deliver at home? These questions will have a profound impact on your supply chain setup.
  4. Understand your transportation options: Clearly, understanding the speed, cost and effectiveness of your transportation options will be integral to your supply chain infrastructure.
  5. Understand likely disruption: Do a risk assessment to understand the likely disruption and risk associated with your options. You certainly have a different situation in China vs. Europe vs. Brazil.

Read more about this topic as well as your strategy, priorities, key trends, and your restart recipe for success in my eBook,  Future-Proofing Manufacturing & Supply Chain Post COVID-19 . If you are interested in a rapid assessment, please contact us.



The Future of Manufacturing

May 30th, 2020

 

I was on a panel of a webinar, The Future of Manufacturing with Andrew Zanelli, president of VCC, Michael Knight, president TTI Semiconductor Group, and Seth Denson, co-founder of GDP Advisors. It was a lot of fun, and we talked about the coronavirus, reshoring, cost leadership, innovation, and other topics. Are you interested in what the future might look like and how you can position your company and career successfully?                                         

What Should We Consider and/or What Impacts Could Arise?

There is no doubt there is a renewed interest in reshoring and sourcing manufacturing closer to the customer. All panelists agreed that labor cost has reduced significantly in terms of relevant factors to consider in evaluating manufacturing and supply chain strategy.

  1. China’s labor costs have continually risen, leading progressive companies to move to Vietnam and other Asian countries to chase lower labor costs if labor is a significant factor in total cost of their products. Mexico is gaining steam as well as the latest statistics show their fully burdened labor costs are often lower than China.
  2. Advances in technology have reduced the labor component in the total cost of products, sped up the turnaround time and enabled greater customization on demand. Robotics, additive manufacturing, automated equipment, autonomous vehicles are just a few of the advances.
  3. The time component is increasing in importance in today’s environment where Amazon-like customer service is the norm. Lengthy lead times will lead to a loss in customer demand.
  4. Although cash is always king, during the pandemic, it has risen in importance. Product tied up in the supply chain which is typically 3 months minimum for Asian supply to the U.S. equates to dollars tied up that cannot be invested elsewhere.
  5. There is a higher likelihood of disruption the further away production is from customer demand and the more steps to the supply chain (such as ports, trucks, sailing through unfriendly waters).

Whatever was true last quarter or last month is no longer true. Continually reevaluate your end-to-end supply chain requirements. I’ve addressed this topic as well as your strategy, priorities, key trends, and your restart recipe for success in my eBook,  Future-Proofing Manufacturing & Supply Chain Post COVID-19. If you are interested in a rapid assessment, please contact us.

 



Are You Waiting Too Long to Future-Proof?

February 10th, 2020

Although most economists do not see an immediate recession, there are plenty of concerning signs along with global volatility. Unfortunately, concern alone can create a recession unrelated to underlying factors. Meaning, we could have terrific fundamentals and results yet still go into a recession if fear takes over! I wouldn’t want to be dependent on avoiding fear in the marketplace. Would you?  This is why it’s important to future-proof manufacturing operations and the extended supply chain!

The worst thing you can do is wait for a recession to act. It is similar to a natural disaster. For example, when my house burned down in a fire, I was fortunate that it was an isolated incident. I was able to find alternate housing nearby while the house was rebuilt. I was also able to gain priority with a builder, etc. Instead, if I was caught in one of the devastating California fires, I would be one of many people struggling with the aftermath. Of course, I would be a pebble in a sand quarry in that case. The same is true would be true with a recession, global unrest or a natural disaster. Have you thought through how you will continue operations to satisfy customer demand?

One Tip to Implement This Week:
We’ll make this quite simple: Stop and determine if you have backup plans at a minimum.

Think through the following:

  1. Sources of supply
  2. Resources, skills and trusted advisors who support the business
  3. Operations
  4. Logistics infrastructure
  5. IT and ERP system infrastructure

What are you going to do about it? Are you willing to invest in future-proofing? I’d be willing to bet that any executive willing to make prudent investments in future-proofing might have to take a temporary ‘hit’ with the initial investment but will surpass the competition by a minimum of 10 fold in the future.

For example, one of our clients thought about what they should do to get ahead – not just survive. When the competition was increasing capacity in China, our client was moving out of China and into Vietnam. They were ahead of the curve and had far less roadblocks and bottlenecks along the way to overcome. There is definitely something to be said about being early to the party and leading the way.

Think about taking a calculated risk to lead instead of follow. In today’s Amazon-impacted world, you cannot afford to be a follower!

 



Made in Vietnam?

January 19th, 2020

Vietnam has been the hot topic lately. After a visit recently, I saw first-hand the potential along with the challenges. Clients are definitely evaluating changing the source of supply to Vietnam. And the question is: should they? Or, alternatively, the question is: Are they moving fast enough?

Although there are infrastructure issues, the most successful clients are already ahead of the curve and seriously considering Vietnam. Of course, it is not best for all products and situations, just as China wasn’t best for all situations previously. If you are starting to see price increases in China and are concerned about the quality and reliability as China is struggling, it is definitely something to consider. Consider this fact – many Chinese companies are moving production to Vietnam.  Obviously there is something to be said for evaluating this source of supply.

Vietnam likes manufacturing and the United States. One of my proactive clients has been moving a significant portion of their supply from China to Vietnam over the last year. They started the process before the tariffs because they expected to save significantly with Vietnam production.  However, they really looked like heroes to their Board when they also beat the Chinese tariffs with the move.

This does NOT mean it will always make sense. We also have clients who outsourced to China a long time ago when it was the latest “fad”. In fact, the tide turned over the last several years.  The total cost of the product as well as the gains in customer satisfaction of sourcing closer to customer demand (typically in N.A.) makes a lot more sense.  Unfortunately for them, most of the companies in this situation haven’t changed supply yet due to capital and infrastructure costs and related efforts to move the source of supply. Yet it can be done. Our client reevaluated and started the transition to Vietnam. Recently, the tariffs are forcing several to re-think the China strategy, but is it “too late”? Are you going to wait for the next tariff scenario where you are on the defensive or are you gong to proactively reevaluate your entire strategy?

Certainly part of what you’ll need to evaluate is your working capital requirements. How does China compare with Vietnam? Both require an extended supply chain. Generally speaking, the longer lead times to cross the ocean carry working capital requirements. As customers become more demanding, you’ll need to consider inventory as a key component to your sourcing decisions. Pick up some tips and strategies in our recent article ” Inventory Management as Fashionable as Automated Intelligence for Distributors” for ACHR News.

Getting ahead of the curve might be the only avenue to success. When looking at China vs. Vietnam, it is quite clear that China is significantly larger and has far more manufacturing capability.  Yet, those early to Vietnam won’t have to worry about this particular issue.  And, of course Vietnam is racing to catch up.

Whether you have sourcing in China, Vietnam or neither, the underlying point is essential. Are you constantly revisiting your supply chain strategy? If not, you’ll likely be left following your competitors. Instead, consider future-proofing your manufacturing and supply chain business. Stay tuned and read more about it.

If you are interested in discussing a supply chain assessment, please contact us.

Did you like this article?  Continue reading on this topic:

Is Vietnam the New China?

What’s Ahead for Supply Chain?

The Strongest Link in Your Supply Chain



Is Vietnam the New China?

December 23rd, 2019

Possibly, and “it depends”! China has been moving factories to Vietnam since the early 2000’s, so it is certainly a place to consider. With the tariffs, global uncertainty, rising wages in China and social/political implications, Vietnam can provide a viable alternative especially for certain industries. Vietnam has lower wages, multiple ports, is friendly and has a growing and advancing manufacturing base. Of course, there are always challenges to navigate as well such as a lesser developed infrastructure and less high skilled resources available. The bottom line is that you should at least have Vietnam on your radar.

Some of our clients are sourcing from Vietnam in addition to other countries including China, Mexico and N.A. Similar to China, there is a stark difference between those with money and those working diligently to get by. The picture of the nice looking building is part of the Sofitel Legend Metropole is a fabulous hotel (and happens to be where Donald Trump & Kim Jung-un met), and the other picture is one of Hanoi’s city streets. The vast majority of people cannot afford a car (which is quite expensive in Vietnam, $25,000 for the smallest hatchback) , so there are motorbikes all over the place, driving in seemingly organized chaos. In comparison to China’s wages of $27.50 per day, wages in Vietnam are $6.70 per day. Yes, a stark difference for labor-intensive industries. While Vietnam may not be right for everyone, you should at least be aware of what the country has to offer in terms of sourcing opportunities.

What Should We Consider and/or What Impacts Could Arise?
Countless numbers of organizations outsourced to China 20 years ago.  Many have discovered it wasn’t the smartest decision. Perhaps labor intensity wasn’t high. Perhaps lead time requirements were quick and critical. Perhaps product was delayed at ports or the risks associated with the South China Sea are too great. Perhaps it never came out much ahead when looking at the total cost or perhaps it has evolved to more of a parity. In non-labor intensive industries, I’ve heard several executives re-think the decision. At larger companies with global business, they reoriented the China facilities to supply the Asian markets. In smaller companies, they were stuck for a period of time because they invested heavily including in capital intensive machinery and equipment. And in some cases, it was a brilliant decision.

Whether you have outsourced to China, Vietnam or anywhere else is not relevant. The key question to think about is the impact your decisions have on your customer, your skills requirements, your cost structure, your risk profile and more. So long as you are going into these decisions with your eyes wide open, you’ll be successful.

Perhaps you should also be thinking about backup plans and deliberately creating redundancy and diversifying your manufacturing base. Even if you don’t consider switching part of your base because you aren’t prepared to make this transition successfully, you should at least think about how you are sourcing growth and expansion. Should you build skills close to your customers? If you are in a labor-intensive industry such as apparel and home textiles (which are #1 and #2 in Vietnam), perhaps you should consider Vietnam. And, why not get ahead of the curve? Samsung is producing several phones in Vietnam.  There may be something to be said about being first to the party of using higher-skilled talent.

At a minimum, re-evaluate your end-to-end supply chain in order to future-proof your manufacturing operations and related supply chain components. Check out our new LMA-i, LMA-Intelligence series including Future-Proofing and contact us if you’d like an assessment path-forward plan to accelerate your bottom line and customer performance.