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Transforming The State of Supply Chain and Logistics in Vietnam Through Warehouse Modernisation
Transforming The State of Supply Chain and Logistics in Vietnam Through Warehouse Modernisation
17 Nov 2021| News |
1200 words
By: Aleks Leitmanis, Director – Project Services

Amidst supply chain shifts in the region, Vietnam is expected to become a new global “supply chain hub.” As Vietnamese businesses start to adapt to a life with Covid, supply chain modernisation and modern logistics centres have become more important than ever to facilitate this process. To keep up with this inevitable trend, one of the key areas to address is the state of warehouses, factories, or distribution centres for better operational efficiencies and risk mitigation.

Demand for factories and warehouses in Vietnam has been steadily growing in recent years. Foreign companies are consistently investing in state-of-the-art technologies at their facilities in different industrial zones in the country, making them at par with some of the most advanced facilities in Southeast Asia, feeding the higher demand for warehouse modernisation and automation.

Some businesses argue that modernisation of warehouses will not make a big difference as they can simply hire as many workers as needed due to the low cost of labour in the country. However, it is not so much about low costs being maintained, but the efficiency and accuracy of operations that leads to higher quality production, ultimately driving business growth and broadened market opportunities.

Steady inflow of foreign investments means industrial infrastructures must keep up

Even in the face of the pandemic, the Foreign Investment Agency under the Ministry of Planning and Investment reported that foreign direct investment (FDI) inflows climbed by 4.4 percent in September 2021 as compared to last year, reaching over 22.5 billion USD. Investment inflows were mostly concentrated in processing, retail, and scientific and technology industries, accounting for 33.2 percent, 28.2 percent, and 14.9 percent, respectively[1]. This growth in foreign direct investments will feed a steady increase in industrial property development for the years to come.

Rising warehousing standards across the country

As more and more foreign groups step up plans to enter or expand in Vietnam, the country can benefit greatly from the structural change in international supply chains. Amidst disruptions to manufacturing supplies globally, businesses have turned to sourcing diversification to mitigate supply challenges. Vietnam, in particular, has grown to become a location of choice for manufacturing outside of China, transforming Vietnam into a global “supply chain hub”.

In addition, due to the disruptions caused by the pandemic in supply chains—both due to the movement of goods as well as consumer buying behaviour—conditions of stagnation, inventory, and supply shortages have become major issues for enterprises. This has consequently driven the demand for more storage and pushed enterprises to invest in large-scale warehouses that perform a variety of storage activities in a single location[2].

Modernised and automated warehouses can also solve the challenges of utilizing 4.0 technology in warehouse management. New technologies are progressively being used in warehouses to increase their capabilities, from basic inventory management systems to the most advanced automation, drones and mechanized storage, to reduce the need for human labour and increase efficiency and accuracy of operations.

These advancements have and will continue to make business owners consider investing in automated warehousing, whether that be a low, medium or fully automated solution. The determining factors for businesses when deciding on the level of automation investment are unique to each scenario and can include not only forecast cost or payback timeframes but system compatibilities, throughput limitations and ease of implementation. Given the potential for high levels of capital being required, thorough reviews of what the market can offer are required prior to committing to a strategy or solution.

Another trend that has emerged through the pandemic is the increase in demand for cold storage facilities. While this has been a slow growing trend in the country over the years due to the steady growth of imports of meat, seafood, and other agricultural products that require frozen storage upon arrival before distribution, the recent movement restrictions increasingly underscored its importance. When areas of the country went into lockdown, traditional retail consumption experienced a sudden halt and forced shopping to become digital[3]—even grocery necessities, fresh produce and meat, and other frozen perishable goods needed to be sold online.

Making the most of businesses’ investment on modernised warehouses

When compared to other countries in the region, Vietnam’s low property prices make it highly attractive for enterprises to invest in the country’s logistics and industrial sector. For leased facilities, the higher level of capital required to build a modernised warehouse leads to a question of whether average lease terms may begin to extend from 3 or 4 years out towards 5 to 10-year terms particularly for ready built warehousing (RBW) and ready built factory (RBF) facilities to ensure return profiles for developers are maintained.

In addition, given the lifespan of a warehouse will extend well beyond the initial operator’s use, it is important to consider how designs for RBW facilities would accommodate automated solutions where possible for future tenants.

In the long run, investing in modernised warehouses will lead to fewer fluctuations in the market, and will encourage further investments from overseas, which will see a more stable environment with less risks associated for both the occupiers and the property developer.

Future-proofing business with warehouse modernisation

To remain competitive in the fast-changing industrial landscape, enterprises need to recognize the importance of automation. The continued shift to e-commerce and the challenge of keeping products in stock at warehouses for businesses to fulfill the demands of customers in shorter timeframes makes the move to automation even more pressing. With the demand for logistics automation already strong prior to the pandemic, future growth in this sector underscores the need for modern warehouses including integration of multiple systems and technology adoption.

While enterprises might find it expensive to invest in automation given the potential high costs involved, those costs are being reduced each year, and with the benefits of various warehouse solutions increasing, it is certain that more and more automation technology will enter the Vietnamese industrial market.

A partner in future-proofing the business of enterprises based in Vietnam

TMX is Asia-Pacific’s leading business transformation consultancy and is now bringing its global expertise to the businesses in Vietnam. TMX creates highly tailored digital and supply chain solutions by taking the time to understand clients’ operational needs. TMX’s specialist team on ground brings its extensive industry experience to optimise both multi-national and Vietnamese enterprises’ entire value chain, from top-of-the-funnel demand generation right through to final fulfilment.

This article was recently published on Vietnam top business 

 [1] FDI attraction still increased by 4.4% despite the Covid-19 epidemic, http://www.hanoimoi.com.vn/tin-tuc/Kinh-te/1012918/thu-hut-fdi-van-tang-44-trong-boi-canh-dich-covid-19
[2] Vietnam’s Warehousing Industry Development Trend, https://nguoidothi.net.vn/xu-huong-phat-trien-nganh-cong-nghiep-kho-bai-tai-viet-27039.html
[3] Supply chain modernisation in Vietnam presents industry best practice for Southeast Asia, https://vir.com.vn/supply-chain-modernisation-in-vietnam-presents-industry-best-practice-for-southeast-asia-88213.html

This article was recently published on one of Vietnam’s top business news platform – Cafebiz  and a number of other online business media. 

Aleks Leitmanis | TMX
Aleks Leitmanis, Director – Project Services
Aleks has been a Project Manager at TMX for many years working on large scale projects in Australia, New Zealand and South East Asia. He is responsible for the project services division of Asia. Aleks has the ability to identify each client’s needs and ensure that they are met through each stage of a project from concept development through to final realisation and into live operations.
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