To successfully launch manufacturing operations in this fast growing country, take advantage of the private and government assistance that's available, advises consultant Kurt Binh.
Long overshadowed by its giant neighbor, China, Vietnam is becoming a manufacturing hot spot in its own right. In fact, this small Southeast Asian country is one of the fastest growing locations for manufacturing in the world. According to Vietnam's General Statistics Office, foreign direct investment in that sector rose 13.3 percent from 2008 to 2009 and 19.7 percent from 2009 to 2010.
With labor and production costs rising in China and companies wanting to spread their supply chain risk rather than depend on a single manufacturing source, Vietnam has successfully positioned itself as a nearby, lower-cost alternative. Any business that shifts production to Vietnam, however, should be prepared for some challenges in such areas as transportation infrastructure and relationships with local companies and government agencies.
As the owner of SCM Vietnam, a supply chain and logistics consulting company, and chief editor of the magazine Vietnam Supply Chain Insight, Kurt Binh understands those challenges. In a recent interview with Editor James Cooke, the enterprising and energetic Binh offered his insights and advice on what foreign companies should do to succeed in his country.
Have you seen increased interest by foreign companies in opening manufacturing operations in Vietnam in the past year?
Yes, Vietnam is another "rising dragon" in Asia; it is really a most attractive country for foreign direct investment. Since Vietnam increasingly is an integral part of the ASEAN (Association of Southeast Asian Nations) market rather than a single market, manufacturing companies investing in Vietnam should really consider themselves to be taking part in the ASEAN market.
Moving manufacturing operations to Vietnam is one of the smart strategies that many foreign companies adopted to minimize a high-risk dependence on China. [Some of the] big players we see in Vietnam include Intel, Samsung, Coca-Cola, Canon, Formosa, Pepsi, Nestlé, Procter & Gamble, Unilever, and Honda.
The most interesting and booming sectors in Vietnam are real estate, retail and distribution, high-tech, heavy industry, and processing.
If a foreign company wanted to begin manufacturing in Vietnam, should it contract with a local company or form its own operation? What are the pros and cons of each approach?
There is no optimal solution that works in each case. We see many international retailers sourcing products in Vietnam. Wal-Mart, Kmart, Nike, and Gap already have Vietnam-based sourcing representatives. But we also have seen many foreign high-tech companies establish their own production facilities in Vietnam. The best advice, then, is: If you want to set up labor-intensive manufacturing, you should partner with local companies, but for capital and technology-intensive businesses, it's better to set up your own operations in Vietnam.
Name: Kurt Binh Title: Owner and vice director Organization: SCM Vietnam, a supply chain and logistics consulting company
Chief editor of the monthly magazine Vietnam Supply Chain Insight
SCM consultant and Infor Supply Chain Partner in Vietnam
Education: Truòng Dai hoc Ngoai Thuong (Foreign Trade University)
CSCMP member since 2009
What are some of the supply chain challenges companies will encounter when establishing a manufacturing operation in Vietnam?
There are many challenges for foreign companies that want to set up a production operation in Vietnam.
The first and most important thing is to understand how to think globally and act locally in Vietnam. Vietnam's culture is somewhat different from Western countries; I have seen many companies face culture shocks when they set up manufacturing in Vietnam. My advice is to try to utilize local experts to help during implementation.
The second important challenge is labor skill and expertise. If you want to build high-tech products and operate sophisticated facilities, then you can face a shortage of well-skilled workers. Intel is an example of [a company that encountered this problem]. When it started a chip factory in Vietnam, Intel tried to overcome the challenges by partnering with a Vietnamese technical university to develop well-trained and skilled workers. Anyway, Vietnam's population is very young and has the capability to learn fast, so a company can quickly fill up any "hole."
The third challenge is the legal and regulatory environment. Although Vietnam joined the World Trade Organization in 2007, the legal environment is still in development. This means that a company can face a sudden change in laws and regulations, especially in the import-export area.
The fourth challenge is logistics infrastructure. Over the years, Vietnam has spent a large amount of ODA (Official Development Assistance) in upgrading its logistics infrastructure, but the infrastructure still does not meet the needs of economic growth and foreign investment.
Vietnam is still many years behind China's infrastructure level. Power blackouts, traffic jams, and port congestion are common bottlenecks that have recently been seen in Vietnam. But Vietnam is still an attractive country for investment because of its high number of young workers, advanced telecommunications, increasing transparency in law and economic policy (thanks especially to electronic sharing of government information), and well-educated students.
Are there third-party logistics companies (3PLs) that can assist foreign companies with distribution in Vietnam?
Vietnam is increasingly deregulating its transport and logistics industry. Ten years ago, there were few foreign logistics and shipping companies with official operations in Vietnam. But now a number of them have set up a long-term business in Vietnam in the form of either a joint venture or 100-percent foreign-owned business.
There are a lot of foreign 3PLs that have invested in Vietnam. You can see the presence of 25 of the world's biggest 3PLs, including such companies as DHL, Kuehne + Nagel, Damco, APL Logistics, FedEx, DB Schenker, and Agility. These companies have strong positions in Vietnam, especially in container shipping, freight forwarding, warehousing, and distribution as well as express services.
Recently I observed that many international 3PLs have invested many millions of U.S. dollars in first-class and multipurpose warehouses and distribution centers in parallel with an expansion of their local presence.
But besides that, you also see the significant rise of local 3PLs with strong ambitions, such as Sai Gon New Port, ICD Song Than, ICD Long Binh, Sotrans, and ITL-Kepple. They have strong investments in service capability, facilities, and management. Some of them have deployed complicated information technology solutions, such as warehouse management systems and transportation management systems, which can provide better visibility and decision support for customers.
What is the best transportation option—truck, rail, or barge—for moving products from the factory to a port for export?
It depends on the location of your manufacturing sites, but most moves are done by trucking. This is due to the limited convenience of barge and rail services. The rail mode only provides transportation between the North and South, while barge transportation only serves the Mekong Delta.
In Vietnam we have strong economic clusters located in the South in such places as Ho Chi Minh City, Dong Nai, and Binh Duong, and in such Northern places as Ha Noi, Hai Phong, Bac Ninh, and Hai Duong. Those clusters account for the majority of foreign investment.
Does the government set transportation rates?
In Vietnam, the transportation rates are controlled by the market and not by the government. So shippers can easily deal with providers to get the best rate to meet their logistics requirements. Besides that, we also have the Vietnam Shipper Council [a government agency], which can help shippers to deal with a transport provider on rate stabilization.
Are there state agencies that assist foreign companies that want to initiate production in Vietnam?
There are three sources of information and help whenever you want to set up production in Vietnam.
The first and official source is FIA (Foreign Investment Agency). This organization belongs to the Ministry of Planning and Investment. You can find more information on their official website, www.fia.mpi.gov.vn. Under the FIA, we have many local agencies that can help foreign companies that want to invest in their locations.
The second source—a very important one for foreign companies—is Amcham, or the American Chamber of Commerce, and Eurocham, the European Chamber of Commerce. The organizations in Vietnam are very dynamic and widely connected with foreign and local companies. So they can help foreign companies with up-to-date and useful information on Vietnam's investment climate.
The third source is private, local investment consulting firms. These companies have close relationships with government agencies and have in-depth expertise in investment setup and implementation.
J.B. Hunt President and CEO Shelley Simpson answers a question from the audience at the Tuesday afternoon keynote session at CSCMP's EDGE Conference. CSCMP President and CEO Mark Baxa listens attentively to her response.
Most of the time when CEOs present at an industry conference, they like to talk about their companies’ success stories. Not J.B. Hunt’s Shelley Simpson. Speaking today at the Council of Supply Chain Management Professionals’ (CSCMP) annual EDGE Conference, the trucking company’s president and CEO led with a story about a time that the company lost a major customer.
According to Simpson, the company had a customer of their dedicated contract business in 2001 that was consistently making late shipments with no lead time. “We were working like crazy to try to satisfy them, and lost their business,” Simpson said.
When the team at J.B. Hunt later met with the customer’s chief supply chain officer, they related all they had been doing for the company. “We told him that we were literally sitting our drivers and our trucks just for you, just to cover your shipments,” Simpson said. “And he said to us, ‘You never shared everything you were doing for us.’”
Out of that experience, came J.B. Hunt’s Customer Value Delivery framework. This framework, according to Simpson, provides a roadmap for creating value and anticipating customer needs.
Framework for Excellence
J.B. Hunt created the above framework to help them formulate better relationships with customers.
The framework consists of five steps:
Understand customer needs: It all starts, according to Simpson, with building a strong relationship with the customer and then using the information gained from those discussions to build a custom plan for the customer.
Deliver expectations: This step involves delivering on the promises made in that custom plan.
Measure results: J.B. Hunt believes that they are not done when freight makes it to the destination. They also need to measure how successful they were versus what the customer expected from them.
Communicate performance: This step involves a two-way exchange, where J.B. Hunt walks the customer through their performance and gets verbal agreement on whether or not they have met the customer’s needs.
Anticipate new value: Here J.B. Hunt looks at what they are hearing from their customer today and then uses that information to derive what the customer may be looking for in the future.
Simpson said the most important part of the process is the fourth step, communicating performance (perhaps reflecting the piece that went wrong in that initial failed customer relationship).
Not only can this framework be used to drive excellence in a company, but it can also be adapted as a model for driving personal excellence, Simpson said. Instead of understanding the customer needs, the process starts with understanding yourself: what your strengths and interests are. This understanding helps drive a personal development plan and personal goals for the year, which can be measured and assessed. For example, each year, Simpson gives herself a letter grade on each of her personal goals and communicates her assessment back to her boss. She has also found it helpful to anticipate where opportunities lie beyond what she is personally doing.
Confronted with the closed ports, most companies can either route their imports to standard East Coast destinations and wait for the strike to clear, or else re-route those containers to West Coast sites, incurring a three week delay for extra sailing time plus another week required to truck those goods back east, Ron said in an interview at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
However, Uber Freight says its latest platform updates offer a series of mitigation options, including alternative routings, pre-booked allocation and volume during peak season, and providing daily visibility reports on shipments impacted by routings via U.S. east and gulf coast ports. And Ron said the company can also leverage its pool of some 2.3 million truck drivers who have downloaded its smartphone app, targeting them with freight hauling opportunities in the affected regions by pricing those loads “appropriately” through its surge-pricing model.
“If this [strike] continues a month, we will see severe disruptions,” Ron said. “So we can offer them alternatives. We say, if one door is closed, we can open another door? But even with that, there are no magic solutions.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.