Dear Vietnam, here's what's about to happen

The disruptions we are currently experiencing in the global supply chain provide some very strong indicators about what to expect in the days and weeks following the reopening of Vietnam’s production base in the south of the country.  Using the experiences in the west to predict and prepare for that gives us a chance to mitigate any challenges and even turn them into opportunities.

But let’s step back and describe what those experiences in the west have been.  After the long COVID shutdowns in the US and Europe in late 2020 and early 2021, those economies were able to open back up once vaccination rates hit an “acceptable level,” and people and businesses were buoyed with relief, optimism and the desire to “get back to normal.”  This led businesses to switch quickly to re-supplying their store shelves and filling raw material pipelines in order to meet that demand.  

But problems soon started presenting themselves:  shortages of containers to move the products, shortages of labor to work the equipment required to move the products, logjams at ports trying to get huge volumes in, shutdowns at major supply chain junctures for any of a variety of reasons (see:  suez canal, Ningbo port, Chicago rail yards, hurricanes).  Shipping rates from China to the US quadrupled (or more).  All of this is where the west finds itself leading into the critical Holiday selling season.   

So when one of the world’s largest production areas - South Vietnam – eventually opens up, we can look to those experiences and use them to predict what the scene will be there.  Set to happen on September 15th, 2021 (but having already been pushed back several times, it’s possible that it could be pushed back again) – Vietnam’s factories will eventually open back up.   And when they do, those factories and the country will experience very similar challenges.  

Locally, people will have been tired of being in the extreme lockdown conditions  they have suffered through for the past months.  They will quickly move to replenish the food on their shelves and replace anything that may need replacing or repairing.  Demand will shoot up, but many will have burned through their savings during the lockdown, so it will be critical to focus on the core needs of food, shelter, and clothing.  These things will be in high demand.

Industrially, as factories re-open, there will be a flood of demand to refill raw material inventories.  Customers in the west are seeing high demand for many goods built in Vietnam – footwear and apparel especially are showing some of the highest demand in a long time – and those brands will work with their factories to start back up as quickly as possible.  That demand alone – from local consumers and from foreign brands, will be enough to flood local infrastructure and especially already crowded roadways and ports.  But like in the west (and as also exemplified in labor return rates following Lunar New Year), labor will be very slow to respond, and episodic COVID outbreaks will cause small neighborhood lock downs as well as bigger factory/port closures.  Trucks to transport goods will be in extremely high demand, and rates will go up steeply.  Even if companies can get raw materials and labor into their facilities, getting finished goods out to customers will be difficult.  And none of this takes into account the shaky electrical power infrastructure in Vietnam and the possibility of rolling black outs to support the surge in demand for power.  

So how can companies prepare and get ahead of this?  I think there are a few key things everyone should be doing right now:

·      Contact your employees and start talking with them now about returning to work.  Nothing will slow your return to productivity more than having to retrain new employees.  Those teammates you have already invested time and training in are your most valuable asset.

·      Encourage them – and even help them – to get vaccinations as soon as possible.  The sooner they are protected, the better off your business will be.

·      If you don’t have your own delivery trucks already, hire or even purchase a few of your own for the next several months.  Having a reliable, dedicated source of transportation for raw materials and finished goods could make or break you.  As rates being charged to trucking companies skyrocket, having existing contracts might keep you from suffering these fluctuations (though it’s likely that transportation providers will ditch these contracts as soon as rates double or triple, so that’s why purchasing might be better).

·      Contact your raw material suppliers and make sure they are doing the above as well so that you can ensure your raw materials will be available.

·      Contact your customers and let them know that you are doing everything possible to be ready to go, as well as any likely problem areas you might encounter.

Of course, we don’t have a crystal ball, and it’s hard to predict what will come to pass, but learning from what’s happened elsewhere and applying those lessons to come out of these challenging times as well prepared as possible is just smart business.  

Contact us at Zefyr Consulting (www.zefyrconsulting.com) and let’s talk about how you can prepare your business for the future too, regardless of where you’re located.