Tag Archive: Vietnam

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.