INTRODUCTION
Background
The story of Vietnam's rise to prosperity is one of remarkable achievement Vietnamese economic reforms and global trends have helped drive the country from one of the world's poorest countries to a middle-income economy in just one generation GDP per capita grew 3.6 times between 2002 and 2021, reaching about $3,700 Over the course of 2011, the percentage of people living on less than $1.90 per day (the US poverty threshold) dropped to less than 2%.
Thanks to strong foundations, the economy has shown itself to be strong through a number of different crises, the most recent of which was COVID-19 In 2020, Vietnam was one of only a few countries that saw growth in GDP When the Delta variant came out, GDP growth fell to 2.58 percent in 2021 It is expected to rise back up again, though, to 5.5 percent in 2022.
The availability of infrastructure services has increased considerably in recent years The population of the United States relied on electricity as their primary source of lighting in 2019, an increase from only 14 percent in 1993 It has also been easier to obtain clean water in rural regions, with access increasing from 17 percent in 1993 to 51 percent in 2020.
Vietnam's growth objectives have grown bolder in recent years, with the government seeking to become a high-income country by 2045 It would be necessary for the economy to reach at a yearly average rate of approximately five percent per capita for the next 25 years in order to achieve this Vietnam likewise aspires to expand in a more environmentally friendly and inclusive manner and has pledged to becoming carbon neutral by 2050.
Vietnam's future is being shaped by a handful of megatrends The country's population is quickly aging, and the country's contribution to global trade is shrinking Increased environmental degradation, climate change, and the rise of automation are all factors to be considered The current COVID-19 problem has hastened the progression of these developments.
According to the World Bank's most recent Systematic Country Diagnostic Update, in order to meet these challenges and achieve its development objectives, Vietnam must significantly improve its performance in implementing policies, particularly in finance, the environment, digital transformation, poverty/social protection, and infrastructure, among other areas of concern.
According to the Viet Nam General Statistics Office's 2020 Statistical Yearbook, we have statistics for the following categories of Vietnamese enterprises:
By enterprise size, micro and small-scale enterprises account for most businesses As of December 31, 2018, there were 382,444 micro enterprises, accounting for 62.6 percent of all enterprises nationwide; 189,879 small-scale enterprises, accounting for 31.1 percent, increased
13 percent; 21,306 medium-sized enterprises, accounting for 3.5 percent, increased 6.1 percent; and 17,008 large-scale enterprises, accounting for only 2.8 percent, increased 5.0 percent compared to the same period in 2017.
By business size: On average, between 2016 and 2018, the micro-enterprise sector hired 1.29 million people per year, a 43.2 percent increase over the average period of 2011 to 2015; the small-scale enterprise sector hired 2.85 million people, a 15.1 percent increase; and medium- sized enterprises hired 1.38 million people, a 14.3 percent increase.
Although the large-scale enterprise sector has the fewest enterprises relative to the total number of enterprises in the country, it employs the most people with 8.93 million, accounting for 61.8 percent of total employment This figure increased to 26.6 percent when compared to the average umber of large-scale enterprises from 2011 to 2015.
Techtronic Industries Company Limited (the "Company," the "Group," or "TTI") is a rapidly growing global leader in Power Tools, Accessories, Hand Tools, Outdoor Power Equipment, and Floorcare for Do-It-Yourself (DIY), professional, and industrial users in the home improvement, repair, maintenance, construction, and infrastructure industries Through outstanding environmentally friendly cordless technology, the Company is devoted to speeding the transition of these industries TTI brands like as MILWAUKEE, RYOBI, and HOOVER are renowned globally for their rich legacy and cordless product platforms that excel in terms of quality, performance, safety, productivity, and innovation.
TTI was founded in 1985 and listed on the Component Exchange of Hong Kong ("SEHK") in
1990 It is a constituent stock of the Hang Seng Index The Company has a strong brand portfolio, a global production and product development presence, and a strong financial position, with record global sales of US$9.8 billion in 2020 and more than 48,000 workers.
Industrial power tools, accessories, hand tools, storage, layout, and measuring instruments,outdoor items, and professional, consumer, and trade power tools comprise the Power EquipmentDivision This division's extensive product line provides a comprehensive range of items for household, building, and infrastructure applications.
The Floorcare and Cleaning Division offers upright vacuum cleaners, canister vacuum cleaners, bagged and bagless vacuum cleaners, stick vacuum cleaners, and broom vacuum cleaners, as well as a complete line of carpet and floor cleaners Each product line features distinct designs for both residential and business applications.
In addition to our own brand names, TTI designs, manufactures, and supplies items for other major brands, renowned distributors, and retailers globally via contract manufacturing.
Figure 2 1 TTI 2020 Annual Sales & Key Milestones
Figure 2 2 Global PT Total Market Share 2021
1.1.1 TTI Viet Nam sourcing overview
Figure 2 3 Direct spending opportunities by Commodity
(Source: Sourcing report at TTI Vietnam) Supplier on-board process
Cost breakdown Payment term Delivery term
PPM in quality Delivery LT
NDA, MSA Business License Investment License Bank info
Table 1 Supplier on-board process
The process can be drawn with four stages as below:
Stage Department in charge TasksSupplier scanning Sourcing Seeking for suppliers who match with commodities
Spending opportunities sharing KPIs, payment term, annual rebate explanation RFQ (cost, lead time)
Scoring by checklist based on ISO9001 standard & IATF 16949 standard
Conduct different type of tests based on each commodity requirement
Release SER if test result pass, or return a failure result to supplier & request for improvement plan, improved sample
Mass production and delivery SQE Incoming check, line check
Handling failed lot, ensure no line down
Table 2 four-stage of supplier on-board process
With the company's goal of achieving an 80 percent localization rate, an ideal supplier will satisfy the following criteria:
1) Ideally, in the south of Vietnam
2) A long-term relationship with the purpose of collaborating on investment opportunities
3) Additionally, that local supplier adheres to the following firm KPIs:
- Unit price: has % savings compared to China unit price
- Payment terms: 3% rebate net 120 DPO
- Productivity: 3% net annual volume rebate
- 500 PPM in terms of quality
Problem statement
TTI Viet Nam was founded in 2018 in Binh Duong Province, South Vietnam with three Business Units: MIL (Milwaukee), OP (outdoor product) & CPT (consumer power tool) and have quickly grown to become one of the leading supporting industries firms in cordless and non-adhesive cordless products TTI Group continued to invest $130 million in 2019 to modernize its operations in Vietnam and establish a research and development center in Ho Chi Minh City's Sai Gon High Tech Park TTI Viet Nam would invest an additional $650 million between 2021 and 2022 to attract 180-200 local suppliers, with the goal of reaching an 80 percent localization rate.
Below is localization rate results by spending in January 2022 and 2023 of TTI Viet Nam
Total VN spending holded by number of suppliers, detail as below
Commodity Import Local Transfer Import Local Transfer
Transfer supplier: suppliers who are already TTI’s suppliers in China, moved to Viet Nam
It can be seen that in one year, local qualified supplier quantity increase is 67 in total but localized impact spend increased only 7,8 percent which makes author a motivation to conduct this exploratory research to answer the question: “What are the challenges and opportunities of local suppliers that affect TTI localization rate in Viet Nam?”
LITERATURE REVIEW
Definition of key words
The method for locating, acquiring goods and services It encompasses sourcing, procurement, as well as all actions ranging from discovering possible suppliers through delivering goods from the provider to consumers or beneficiaries It is advantageous if the goods/services are adequate and are acquired at most competitive cost to meet right quality, right quantity, on-time delivery, and location (John Mangan & Chandra Lalwani, 2018)
In November 2001, Government Decree 90/2001/ND-CP was signed into law, marking the first time a legal instrument supporting SME development had been issued in the 20 years since Doi moi's inception According to the Decree, a small and medium-sized enterprise (SME) is defined as "a commercial establishment with registered capital of no more than Vietnam dong (VND) 10 billion (equal to USD 630,000) or with a workforce of no more than 300 regular employees."
The following criteria for (SMEs) were in place prior to 1998 in several provinces: (1) a regular labor force of less than 500 people; (2) fixed assets of less than VND10 billion; or (3) mobilized capital or monthly revenue of less than VND20 billion SMEs were the subject of Public Letter 681/CP-KCN, published by the government in June 1998, which outlined the policy and strategic directions for the development of SMEs (SMEs) are businesses with a registered capital of less than VND 5 billion and a regular workforce of fewer than 200 employees This law decree had established the first legal foundation for the implementation of supportive measures for the development of SMEs Recognizing that the SME grouping established by Decree 90/2001/ND-
CP is too broad to provide useful data for policy formulation, the Agency for SME Development (ASMED) introduced a further size segmentation in its SME Development Plan for the period 2006-2010, which was implemented in June of that same year According to the new segmentation, small and medium-sized firms (SMEs) are split into three categories: micro (less than ten employees), small (ten to 49 employees), and medium (50 or more employees) (50 to
Price, quality, service, and other short-term criteria are terms of performance.
It is the supplier's potential that can be used to the buyer's advantage The performance and capability factors discovered by Choi and Hartley (1996), Katsikaes et al (2004), Swift (1995), and Weber et al (1991) are provided in the table below.
Figure 3.14 Performance and capability factors
Sourcing criteria and the difficulties managing the suppliers in developing countries.13 2.3 The SME’s role in Economic development: challenges and opportunities
Supplier selection is a main point of the purchasing function Based on the work of Dickson
(1966), Weber et al (1991) and came up with the top four are cost, delivery, quality, and production facilities and capacity were cited by at least 30% of those researches.
Long-term relationship, technical sophistication, design capabilities and less on cost were highlighted to be the key criteria for supplier selection in developing countries (Cusumano and Takeishi, 1991; Choi and Hartley, 1996) On contrary, for global sourcing, lower cost is typically the most frequently cited driver (Bozarth et al., 1998) Cost was also identified by Carter and Narasimhan (1990) and Handfield (1994) and also (Oke et al., 2009) cost (including labor wages, logistics costs and/or transactions costs) as a primary driver of global sourcing, and cost reduction continues to be a key consideration in choosing suppliers from developing countries because it enhanced the competitiveness of the buying firms However, the fact is in some cases, using low cost as the only criterion did not produce the desired results same as Goddard and Ajami’s (2008) argument that the need to pursue labor cost advantages must be balanced by the need to pursue sustainable competitive advantage Besides cost as a key criterion used for sourcing from developing countries, quality and reliability are concerned following (Oke, A., Maltz, A., & Erik Christiansen, P 2009) Choosing a location/supplier based on cost raising the potential issues including the inexperience in sourcing, poor work ethic, delivery challenges and national and organizational cultural issues Besides, Quality and reliability are key differentiators for selecting amongst prospective suppliers in a chosen developing country Reliability may be affected by some factors that impact the on time delivery or as promised including quality issues, political instability, border issues, work culture or attitudes, certifications and the like These criteria are used for selecting potential suppliers because they help to minimize the learning curve that a new supplier may have to go through startup transaction costs and, for their potential impact on competitiveness.
In 2014, a report published by Michael Musanzikwa, a lecturer at Chinhoyi University'sDepartment of Supply Chain Management, offered an overview of the challenges that purchasing organizations and SMEs face in the Zimbabwean supply chain Numerous difficulties with SMEs suppliers' performance have been noted, including failure to meet delivery dates, low-quality materials, low-quality work, and uncompetitive costs.
Their primary challenges have been failure to meet lead times, particularly for imported items, and poor-quality materials: for example, the correct quality material was used for the sample but the wrong poor-quality material was used for the remainder of the order, resulting in SMEs suppliers bribing the purchasing department.
They only deal with well-established and reputable organizations when it comes to high-value items, as SMEs are considered high-risk suppliers Allow SMEs to handle only low-value transactions; medium-high-value items must be accompanied by a bank guarantee.
The State Procurement Board of Zimbabwe, which oversees regulating all public spending by all government departments and parastatals, has received testimony about SMEs vendors who have failed to deliver on contracts after they have been awarded contracts The installation and repair of elevators in one of the government buildings has reportedly been outsourced out to a small to medium-sized enterprise.
A senior project manager appointed a project as sold provider for a US$26 million contract As a result, the project fell behind schedule due to the inability of basic materials such as bricks,cement, and termite poison to be delivered on time, and the few components that were delivered did not meet the contract's quality criteria.
2.3 The SME’s role in Economic development: challenges and opportunities
Small and medium enterprises (SMEs) play a significant role in the economic development sector worldwide in both developed and developing economies on the subject of the creation of new jobs, the expansion of production and exports, the reduction of poverty, the expansion of economic opportunity, and the broadening of the distribution of wealth (Harvie, 2002, 2008; Harvie and Lee, 2002, 2005; and Asasen et al., 2003) For many SMEs, however, their potential is often not fully realized due to a number of factors relating to the small scale of their businesses: a lack of resources (finance, technology, skilled labour, market access and market information); a lack of economies of scale and scope; higher transaction costs relative to large enterprises; a lack of networks that can contribute to a lack of information, know-how and experience of domestic and international markets; increased market competition and concentration from large multinational enterprises from globalization and economic integration; an inability to compete against larger firms in terms of R&D expenditure and innovation (product, process and organization) which are critical for competitiveness; instability; and they lack entrepreneurial zeal, capacity, and know-how Geographic isolation hurts many small enterprises' competitiveness Despite these barriers, South-east Asia relies heavily on SMEs, especially for employment generation.
Among Organization specific challenges, the main problem SMEs are facing is the size Due to small size series of problems are encountered As per the study conducted by Hussain, Farooq and Akhtar (2011) it is noted that main constraints faced by small entrepreneurs are lack of finance, low human resource capabilities, and technological capabilities Apart from this, poor management competences, lack of skilled manpower, deficiencies in marketing strategies, low efforts on R&D and lack of innovative technology are also prominent factors responsible for unstable growth of SMEs (Grimsholm & Poblete, 2010) As noted by Mahmood (2008), another important factor responsible for SMEs is lack of corporate governance structure in firm
As a trend recorded recently, a large part of the world's manufacturing will be in Southeast Asia. This would open up numerous opportunities in this region of the world.
The outbreak of globalization and regional economic integration in South-east Asia have increased competitive pressures on SMEs in domestic and international markets SMEs have not been swept away with the process of globalization and regional integration, but, rather, their role and contribution has evolved enabling many to remain internationally competitive. Globalization has brought about many new problems, such as increased competition, rapidly cha nging market demand, changes in technology, and the importance of knowledge, creativity, and i nnovation However, it has also brought about new market opportunities for businesses that can r espond quickly and flexibly to changes in regional and global demand (OECD, 1997)
In recent years the globalization of procurement activities has been strengthened to benefit from a wider supplier base and to realize an advantage in competition In the course of this, many firms have focused on the procurement in developing countries (DCs), especially because of the low cost levels in those regions (Straube et al 2007) Therefore, many international companies aim to increase local sourcing in Southeast Asia (Humphreys et al., 2004) Krause and Ellram
(1997) defined supplier development as “any effort of a buying firm with its supplier(s) to increase the performance and/or capabilities of the supplier and meet the buying firm's short- and/or long-term supply needs” Buying firms make use of the external market to motivate suppliers to realize performance improvement On the other hand, supplier development strategies through direct involvement are those activities where the buying firm involves itself in performance improvement activities of the supplier, e.g., through training or mutual site visits. Krause et al (2000) found that supplier assessment and supplier incentives were key enablers of supplier development Still, this affected performance improvement only indirectly, and direct involvement activities played a direct and critical role in achieving significant performance improvement Recently, Modi and Mabert (2007) found that direct involvement affected supplier performance directly, as well as mediated through collaborative communication.
Two kinds of supplier development strategies can be distinguished (Krause, 1999; Krause et al.,
2000) External supplier development strategies are competitive pressure (using several suppliers for a purchased item), supplier assessment (in-depth evaluations of suppliers’ performance and providing feedback), and supplier incentives (promises of future business conditional upon current supplier performance) Buying firms make use of the external market to motivate suppliers to realize performance improvement On the other hand, supplier development strategies through direct involvement are those activities where the buying firm involves itself in performance improvement activities of the supplier, e.g., through training or mutual site visits(Marc Wouters, Ewout van Jarwaarde and Bianca Groen, 2007).
Literature review discussion
Low cost continues to be a key consideration in choosing suppliers from developing countries,but in some cases using low cost as the only criterion did not produce the desired results which raising the potential issues including the inexperience in sourcing, poor work ethic, delivery challenges and national and organizational cultural issues Besides, Quality and reliability are key differentiators for selecting amongst prospective suppliers in a chosen developing country. Otherwise, Viet Nam is a developing country in Southeast Asia which is more than 90 percent covered by SMEs Beside a new market opportunity from the globalization outbreak as well as
“supplier development” to enhance the supplier capabilities from buying companies which aim to increase local sourcing in Southeast Asia, it can also be seen that the main constraints faced by small entrepreneurs are lack of finance, low human resource capabilities, and technological capabilities.
There are very few studies conducted on local supplier in Viet Nam, especially almost no previous research on local suppliers in power tools manufacturing company located in Vietnam.Apart from identifying the challenges and opportunities, this research also contributes by offering solutions and recommendations
METHODOLOGY
RESULTS AND DISCUSSION
Summary of answers
The answers of all interviewees were summarized in below table:
Questions Summary of the answer
What are the reasons to set up sourcing in Vietnam?
- Low labor cost, young population with high labor workforce
What are your company sourcing strategy or KPIs applied to suppliers?
- Competitive price compared to China’s suppliers
- Suppliers located in the South, near TTI factories (it’s a must for JIT items)
- Payment term 90 days net 3% or 120 days
- Productivity: 3% net annual volume rebate
- 500 PPM in terms of quality
- SQE: quality system, HSPM, SER & Factory audit; 500 PPM in terms of quality
PMC: ensure local supplier can meet PO delivery on time which no quality issue
Finance: payment term 90days net 3% or 120days, savings compared with China price
What are the key criteria to select suppliers?
What are the challenges that you think Vietnamese suppliers are facing with?
Financial: payment term is a barrier; cost is tough to compete with China suppliers
Raw material, tooling dependence on China cause long lead time
ISO Certificate: cannot provide evidence for detail internal and third-party evaluation
Technical: don’t have much learning curve compared to China suppliers in power tools, lack of qualified technicians, outsource some processes and cannot well control quality Management: unclear organization chart, duplicated function
Quality system management: data is not storage; lack of PPAP; quality control staff are not qualified enough Quality goal is unclear (qualitative not quantitative) and not followed periodically
Measurement equipment is not calibrated, not enough equipment as TTI requests
Warehouse: not control quantity, type; not follow FIFO (important to some materials such as paper, steel), not control temperature
Manufacturing: don’t have specific manufacturing instruction for each category; worker is working by experienced and taught by other experienced staff, not educated professionally
Power tools parts are new with Viet Nam suppliers, suppliers consider investing new machines based on demand & experiences sharing from TTI Sampling process will be longer than normal and demand is not stable, not committed by TTI and suppliers bear the investment cost.
What are the opportunities Take the spending from China that you think Vietnamese suppliers can get?
How you deal with these challenges? And any recommendation for the company?
Company experts (operational excellence, Supplier development, supplier quality engineers) provide all requirements needed and conduct preaudit before official audit to improve suppliers
Periodically onsite visit suppliers Ask for periodically training, experience sharing Information sharing
How the government help with these challenges?
CSID supports to connect potential suppliers Hold workshops to gather potential suppliers
Vietnam Banks (Vietinbank & Agribank) support with special loan programs for TTI suppliers
Supplier selection criteria
The criteria are same with theory in section 3.4 but competitive price, supplier willingness and their experience in commodity are first priority TTI will assign professionals on consulting suppliers how to improve to meet TTI requirements
Supplier challenges & opportunities
The challenges and opportunities concerned at each stage of full process, detailed as following
Finance is the barrier at this stage
At scanning stage, Commodity buyers contact potential suppliers for each commodity to talk about KPIs Suppliers often show their very first concerns and refuse to cooperate with TTI such as:
- Payment term: suppliers normally offer 30 days or 45 days payment term but TTI requires 90 days net 3% or 120 days It means that suppliers have to pay more bank interest which affect to their cash flow
- 3% net annual volume rebate: suppliers must commit to pay back 3% net annual volume to TTI, so besides competitive unit price compared to China suppliers, local suppliers’ price must be additional 3-6 percent lower
- Suppliers must invest tooling cost and free sample
These request helps TTI a strong CCC strategy but transfer a part of financial responsibility to suppliers which are mostly SMEs All buyers said that this step perhaps their most challenges with the local suppliers while a large part of customers is offering them only 30 or at least 45 days payment, TTI prefers double This also made TTI is not an attractive customer to start cooperation.
Paying tooling and sample cost also a big concern to suppliers, they may choose to distribute that cost into the unit cost but there are risks below:
- Demand from TTI fluctuates: if demand decreased, their unit price offered must be changed to adapt with new volume but as a customer, TTI won’t agree with price changes in a short term
- Higher unit cost compared to China suppliers
The spending will be transferred to Viet Nam suppliers if they agree to cooperate Being a qualified supplier of TTI mean you have more chances with other customers
Commodity buyers, NPI and SQE are participants in this audit stage after suppliers agree with KPIs and have a competitive RFQ package Via their experienced in verbal interviewed suppliers on audit process, their answer points out below limitations from Vietnam local suppliers which requires a lot of time and effort to improve Main challenge at this stage is Quality management system
ISO9001 certificat e is a minimum requirement for all TTI suppliers, and while our suppliers may provide the certificate, there is no evidence of self-evaluation or third-party evaluation;additionally, through commodity buyers' observation of the supplier's actual quality management activities during the initial factory line walk, some limitations in the supplier's actual quality management activities were discovered which did not meet ISO expectations It raised concerns regarding the authentication of provided ISO certification.
Material: Warehouse is not using FIFO, no temperature control, no quantity and type control for raw material which causes under quality materials
Machine: Manufacturing orders are not shown in detail for BOM, manufacturing process is not tailored for each type of part but applied same for all There is no PPAP or very lack of information if yes
Man: Production workers were not educated professionally but taught verbally by other experienced ones.
Quality control staff are not qualified enough, they cannot understand the job instruction, drawings or cannot use testing equipment proficiently or don’t maintain daily checklist They are in charge for manufacturing and quality control at the same time which cannot assure for the real quality outcome.
Measurement: Quality goals are not periodically followed, and they are qualitative target not a quantitative one which can be measured and improved For example: supplier sets a goal that 98 percent PO are delivered on time, 1 percent PPM in terms of quality, no customer complaint in one month Then they can list out what to do to reach the target and can find out how much they fail with the reasons why and know if they are performing good enough or not.
Measurement equipment is not calibrated and managed carefully; even they don’t meet TTI andPower tool sector requirement.
To improve all above limitation, it seems take a lot of supplier time and resource This may lead them to focus on current customers and ignore TTI.
Review supplier quality management level then propose a plan to improve Suppliers meet US or Europe standards
Material: Leadtime of sample is long due to raw materials and molds mostly come from China and others market It causes risk for sample and mass production delayed when VN-CN border is closed due to “Zero Covid” from China
At the sample stage, TTI will test and require submission of PPAP and HSF documents to fulfill SER released tasks, but suppliers always delay on submission They explained that no customers asked them before, and it takes their time to collect all documents.
Machine: A concern raised is that sample requested for each part is too small compared to one lot production in each machine It also takes supplier’s time to operate the machine when changing part to part.
Man: Other challenge in this stage mentioned is that there are many sample of many parts from each suppliers, so supplier doesn’t provide enough resource to be in charge caused misunderstanding and samples delayed due to no one push TTI’s team to take the test.
Commodity team answers shown a result that suppliers did not understand TTI’s drawing requirement, they assumed what they think is what TTI needs and make samples without verifying before
Method: Suppliers have capability on main processes, other processes such as heat treatment and surface treatment will be outsourced The cost maybe cheaper and suppliers can mainly focus on the main production process but it’s tough for them to control quality of their outsourced suppliers
CONCLUSION AND LIMITATION
Conclusion
The study revealed the importance and criticality of the relationship between the buying organizations and the SMEs suppliers The SME supplier organizations have become major players in the economic mainstream of Vietnam They create a reasonable level of employment and contribute to the economic growth of the country Consequently, they have become critical partners in the buying organizations as they have become part of the production processes in the provisioning of the much-needed materials
Firstly, from the qualitative analysis with the survey of 9 respondents who are managers and from the observations of the author, the interview result, it can be seen that the main supplier selection criteria in TTI are low cost and high willingness from suppliers TTI committed to build strategic suppliers in Vietnam market to serve their sourcing strategy that reach 80 percent of localization, so they find potential ones, develop them to meet other TTI requirements with their highest willingness to cooperate.
Secondly, challenges in the interview result is aligned with challenges listed out in literature review, it’s mainly lack finance, low human resource capabilities, and technological capabilities.
Furthermore, mapping the challenges in TTI context, suppliers are facing with unclear requirement from TTI VN specifically there are conflicts in drawing requirements with real production The opportunities found out are spending transferred to Viet Nam local suppliers and enhancing the experience in new technologies besides “supplier development”.
Limitations of research
Although the research has been undertaken aims to achieve results of the utmost validity and reliability, it is acknowledged that the research methods used may have some limitations Such limitations may be a result of the small sample size used in the collection of primary data.
This research relied on interviews with leaders across the organization and suppliers they may offer a biased or limited perspective of supplier challenges facing It needs to go through with more suppliers of the company instead of three suppliers and this research is also not deep diving into each commodity to see what kinds of issues are seen the most based on commodity characteristic, Researchers note that this research focuses on only one organization, so the results may not be pertinent to other companies or businesses
Otherwise, SMEs occupied over 90 percent of Vietnam market and this research is pointing out normal challenges based on TTI own data experienced with suppliers, so the result does not stand for all suppliers in Vietnam.
Contributions
There are very few studies conducted on local supplier in Viet Nam, especially almost no previous research on local suppliers in power tools manufacturing company located in Vietnam. Apart from identifying the challenges and opportunities, this research also contributes by offering solutions and recommendations
TTI should improve themselves in drawing standard, demand forecasting, long-term commitment with suppliers, centralize working channel instead of dividing by 3 BUs which hard to suppliers to follow up.
TTI is a bridge between Government, Banks and suppliers Delivery issue and stable delivery schedule can be standardized by running a milk run project with weekly deliver.
TTI should not develop many suppliers for one commodity, it’s better to find out suppliers with highest willingness to focus on and easy to control.
More detail can be seen in 6.4
The interview should be conducted with all TTI suppliers with each commodity characteristic and analysis their revenue impact before and after working with TTI.
Recommendations
Through challenges found from Vietnam local suppliers, researcher would like to give recommendations to improve local supplier development process
Under long payment term, TTI has worked with Vietnam Bank (Vietinbank and Agribank) to Support with special loan programs for TTI suppliers Commodity buyers should understand the process and introduce this program to suppliers.
Besides, consider accepting shorter payment term (30-45 days) in the beginning period with the condition that suppliers offer a very competitive cost After stable mass production, supplier can see how potential annual revenue is and apply common payment term.
About percent rebate annually, TTI should sign a commitment to award an amount of volume in one year to supplier Suppliers also have the responsibility to rebate back The concept is, the more TTI gives, the more rebate TTI receives.
For purpose of efficiency in official audit, TTI should have a team to visit and check the overall status of supplier, to see how much they match with TTI requirements; a timeline and detail tasks should be given for supplier improvements.
Even that team should visit suppliers periodically to see how they maintain the quality system management.
Supplier must set up a quality control system consists of three components: incoming, in-process and outgoing and apply the same for samples producing and mass production.
- Incoming Quality Control Processes: Testers must inspect incoming parts and materials visually and test them dimensionally and functionally
- In-Process Quality Control Processes: This step is designed to catch defects in manufacturing, particularly where labor is added directly to the part or assembly Data should be collected on every test point and the data continually used to evaluate and improve the manufacturing process.
- Final Quality Control Processes: the last step before the factory packs and ships completed parts or assemblies is critical
Raw materials which TTI’s suppliers using are packaging and metal, which are mainly imported from China and other market; and it takes at least 30 days for materials to arrive at supplier side. Otherwise, the cost also fluctuates at each ordering period, not stable for all the time It will be a big risk with high impact level not only on suppliers but also affect TTI sample and mass production lead time
Besides supplier planning capability which is concerned as their competitive advantages (people, technics) must be enhanced themselves to adapt with market requirement, some supports from TTI should help as below:
- TTI well prepares a localization part list which included detail plan – desired time, quantity of parts to be mass production and share with suppliers at beginning of each year so that suppliers can proactively work with their raw material suppliers to catch up with that plan This help reduces waiting time and then expedite sample and production lead time
- TTI sourcing team can help suppliers on contacting raw material suppliers with gathering all company demand to deal with lower cost.
To avoid sample failed that affect localization schedule, both suppliers and TTI should make all drawing requirements are clear, apply same testing method.
For very new supplier, TTI can send them sample to study For every 1 st failure, involve Supplier development experts to support on technical.
TTI Engineers review and update drawings; suppliers should raise their concerns when analyzing drawings
To avoid one quality issue repeat, SQE should make sure supplier can build an improvement plan with root cause defined Recommend 3 BU’ NPI team:
Implement periodic audit the mass production line to make sure:
- The process follows strictly the SPMP, the critical specifications are controlled well follow drawing, standards, requirement (Method)
- Equipment, machine is maintained, calibrated on time, properly (Machine)
- Material of mass production are prepared properly, with the right quality (Material)
- Operators/Technician are well trained, certified for their jobs (Man)
Regularly check the supplier's quality management system:
- Request quality report for every production batch: FPY (First Pass Yield), Quality issue, Improvement plan.
- Conduct onsite audit to maintain and ensure the effectiveness of the quality management system.
- Participate immediately if there is any quality issue of either on TTI material or at supplier site.
Penalty terms should work in this case for supplier.
APPENDICES
Appendix I – Face to face interview
Almost interview sessions also included some personal talks, as it came naturally between interviewer and respondent, so below quoted conversations have been cut out from full conversations as I removed some non-relevant topics already.
1 Interview with Interviewee 1 – CPT NPI Principal Engineer
Full name: Nguyen Ngoc Hai
I: Good morning Thank you for accepting my invitation to be here today As shared before, this interview is to understand the challenges that local suppliers are facing with So first please introduce yourself & tell me your role and overall structure of your team & describe how you cooperate with sourcing team in the company.
R: Yes, I already saw the email you sent to me So well, let’s start!
I’m Hai from AVD team (Advance Vendor Development) My role is technically qualifying new suppliers: technical audit, review process, evaluate prototype samples Also develop exist suppliers: provide technical support & monitor supplier’s continuous improvement plan And certify new part number, re-certify part number if there is changing in drawing, design, supplier
I also provide technical information for the sourcing team to find suppliers: Drawing, test plan, test condition Monitor projects to certify new part number as per sourcing’s demand and work with sourcing team to provide technically supplier’s audit, supplier capability review.
I: What are the reasons to set up sourcing in Vietnam?
R: Well, there are many reasons for it But Trade war, I think To be certified as “Made in Vietnam” product, a certain number of components to build up the TTI products need to be manufactured by Vietnamese suppliers, that’s why we need sourcing team to develop Vietnam suppliers
I: I see What are your company sourcing strategy or KPIs applied to suppliers?
R: Uhm…I guest their KPI should be the percentage (80%) of completed localization projects out of total assigned projects per year and the cost deduction.
I: Oh, good to hear that So, do you know what are the criteria in choosing a supplier of TTI?
R: low cost, as our team works with commodity buyers to verify unit cost for each part on BOM to see how much savings we can get to localize a model in Viet Nam Then work with the suppliers for next steps.
Even a very outstanding suppliers but high cost we won’t choose, of course after negotiation I: What are the challenges that you think Vietnamese suppliers are facing with?
R: Lack of sub suppliers, low technical manufacturing, insufficient raw material, low labor skills, not strong in designing, low adaptability.
I: How you deal with these challenges? And any recommendation for the company?
R: Regularly check the supplier's quality management system:
- Often onsite audit to maintain and ensure the effectiveness of the quality management system.
- Participate and involve immediately if there is any quality issue of either on TTI material or at supplier site.
- Involve to the samples producing process of supplier to make sure the samples are produced meet TTI requirement, drawing, SPMP, TTI standards…
- Have clear communication to make sure all technical points, drawing, specifications, standards, measurement method, measurement equipment are applied properly.
- Supplier must have quality control system consists of three components: incoming, in- process and outgoing and apply the same for samples producing and mass production.
- Samples are randomly selected among the passed samples for the qualifications.
I: So many challenges! So, what is the reason to motivate suppliers cooperate with TTI?
R: After providing us a competitive price, TTI has expert team to come support suppliers to meet the world quality It’s all for free!
Suppliers can also broaden the customer types, to alive through Covid touch time
I: How the government help with these challenges?
R: I saw CSID guys coming usually (laugh)
2 Interview with Interviewee 2 – SQE Engineer
Full name: Huynh Minh Duy
I: Hello Duy Thank you for accepting my invitation to be here today As shared before, this interview is to understand the challenges that local suppliers are facing with So first please introduce yourself & tell me your role and overall structure of your team & describe how you cooperate with sourcing team in the company.
R: I’m Duy, in charge of supplier audit, deal with quality issue related to incoming materials & transfer to production for customers
My duty is assured quality product for TTI
I: What are the reasons to set up sourcing in Vietnam?
R: Labor cost in Viet Nam is low, young labor workforce
I: I see What are your company sourcing strategy or KPIs applied to suppliers?
I: So, do you know what are the criteria in choosing a supplier of TTI?
R: Cost, I think But I’m facing a lot of issue dealing with suppliers because they are impatient to improve their current quality management system So, willingness is most important after cost
Of course, as a quality guy I will choose suppliers with stable quality management
I: What are the challenges that you think Vietnamese suppliers are facing with?
R: ISO Certificate: cannot provide evidence for detail internal and third-party evaluation
Technical: don’t have much experience especially in power tools compared to China suppliers, lack of qualified technicians, outsource some processes and cannot well control quality
Management: unclear organization chart, duplicated function
Quality system management: data is not storage; lack of PPAP; quality control staff are not qualified enough Quality goal is unclear (qualitative not quantitative) and not followed periodically
Warehouse: not control quantity, type; not follow FIFO (important to some materials such as paper, steel), not control temperature
Measurement equipment is not calibrated, not enough equipment as TTI requests
Manufacturing: don’t have specific manufacturing instruction for each category; worker is working by experienced and taught by other experienced staff, not educated professionally I: How you deal with these challenges? And any recommendation for the company?
R: Conduct audit quarterly, apply penalty, visit onsite to check and suport
I: How the government help with these challenges?
R: I saw some sourcing fair hold by HCMC Department of Industry and Trade where TTI and others buyer enterprises can meet the potential suppliers
I: So many challenges! So, what is the reason to motivate suppliers cooperate with TTI?
R: This is a good chance for local suppliers to enhance their capabilities and their products can be exported to high quality market for example US and Europe
3 Interview with Interviewee 3 – Commodity (Machining) Assistant Manager (Sourcing)
Full name: Pham Thi Ngoc Quyen
I: Hello Quyen Thank you for accepting my invitation to be here today As shared before, this interview is to understand the challenges that local suppliers are facing with So first please introduce yourself & tell me your role and overall structure of your team & describe how you cooperate with sourcing team in the company.
R: Yes, I’m Quyen taking the position of Commodity assistant manager at TTI and in charge of Machining Commodity
My majority duties are taking lead for:
- Localization in Vietnam for Machining
- Support and amend in-completed procedure in VN
I: What are the reasons to set up sourcing in Vietnam?
R: Reason to set up factory in VN instead of other countries:
- Tariff due to trade war between US and China
- VN is new developing country with low labor cost and hungry to raise SME
- VN apply preferential tax rate to FDI
I: I see What are your company sourcing strategy or KPIs applied to suppliers?
I: So, what are the criteria in choosing a supplier of TTI?
R: To choose potential suppliers, will follow below order:
- Capacity but we have an expert team to upgrade supplier quality, all we need is they really want it
I: What are the challenges that you think Vietnamese suppliers are facing with?
R: Suppliers need to adjust their plan based on TTI’s demand and schedule since it’s not stable, sometimes it’s costly.
- Finance: long payment term, suppliers need to invest facility make sure it’s available without any commitment from TTI
- Competitive price: lack of experience and import raw material lead to high price
- Quality control: VN suppliers are familiar with quality control without organized and not strictly, there is not much supplier pay attention on quality system
- Time of delivery: VN depends a lot of imported material, then they couldn’t control L/T.
In addition, transportation in VN is not convenient
- Flexibility and speed to change designs/production: It’s complicated and long procedure to change anything from TTI, so suppliers need to wait for long time to supply the best product with the best price
- Ability to design parts and components: no capable to design
- Long-term commitment: no commitment from TTI, suppliers need to study TTI’s growth path to make decision for investment if any
I: How you deal with these challenges? And any recommendation for the company?
R: There are 2 points of view to help suppliers make decision: a Objective: o Analyze TTI growth trend o Analyze TTI’s competitor o Analyze similar/substitute TTI’s industry o Analyze VN market growth trend and other things related to their manufacturing’s field b Subjective: o Fully understand their financial capability o Comprehend themselves and their competitive in VN and even globally o Carefully analyze SWOT
I would recommend the company to support supplier on Technical/manufacturing process and build a quality system
I: How the government help with these challenges?
R: Tax reduction & Loan interest supporting for machine and technology investment
I: So many challenges! So, what is the reason to motivate suppliers cooperate with TTI?
R: TTI brings up billion spending opportunity to Viet Nam local suppliers
4 Interview with Interviewee 4 – Planning Material Control Supervisor
Full name: Vo Tuan Thanh
I: Hello Thanh Thank you for accepting my invitation to be here today As shared before, this interview is to understand the challenges that local suppliers are facing with So first please introduce yourself & tell me your role and overall structure of your team & describe how you cooperate with sourcing team in the company.
R: I’m Thanh, in charge of supplier stock delivery, also deal with quality issue related to incoming materials by charge back and take back stock with suppliers
I: What are the reasons to set up sourcing in Vietnam?
R: Lower cost compared to China
I: I see What are your company sourcing strategy or KPIs applied to suppliers?
I: So, do you know what are the criteria in choosing a supplier of TTI?
R: Low cost compared to current price from China
I: What are the challenges that you think Vietnamese suppliers are facing with?
R: Raw material, tooling dependence on China cause long lead time When I switch one item with done testing to local supplier, I must wait suppliers to order material It makes the lead time double Supplier also fail to deliver on time due to raw material and tooling issue
I: How you deal with these challenges? And any recommendation for the company?
R: I check with import suppliers who previously is our supplier if they can provide urgently or not
I also try to switch production plan but it’s tough
I: How the government help with these challenges?
R: I didn’t hear about it I think they can support on tax
I: So many challenges! So, what is the reason to motivate suppliers cooperate with TTI?
R: Instead of buying from China suppliers, that demand switch to the local ones
5 Interview with Interviewee – Supplier Development Manager
Full name: Tran Duy Hung
I: Hello Hung Thank you for accepting my invitation to be here today As shared before, this interview is to understand the challenges that local suppliers are facing with So first please introduce yourself & tell me your role and overall structure of your team & describe how you cooperate with sourcing team in the company.
R: I’m Hung, Supplier Development Manage and I am expertise on heat treatment, materials science
My duty is technical support to the suppliers on sample and mass production issue by working closely with Commodity team & Supplier
I: What are the reasons to set up sourcing in Vietnam?
R: Reason to set up factory in VN instead of other countries:
- Tariff due to trade war between US and China
- VN is new developing country with low labor cost
I: I see What are your company sourcing strategy or KPIs applied to suppliers?
I: So, do you know what are the criteria in choosing a supplier of TTI?
R: To choose potential suppliers, will follow below order:
- Willingness: improving supplier quality management takes time, a lot of suppliers are impatient to finalize it
- Capability & Capacity are supported by our team
I: What are the challenges that you think Vietnamese suppliers are facing with?
R: Financial: payment term is a barrier; cost is tough to compete with China suppliers
Raw material, tooling dependence on China cause long lead time
ISO Certificate: cannot provide evidence for detail internal and third-party evaluation
Technical: don’t have much learning curve compared to China suppliers in power tools, lack of qualified technicians, outsource some processes and cannot well control quality
Management: unclear organization chart, duplicated function
Quality system management: data is not storage; lack of PPAP; quality control staff are not qualified enough Quality goal is unclear (qualitative not quantitative) and not followed periodically
Measurement equipment is not calibrated, not enough equipment as TTI requests
Warehouse: not control quantity, type; not follow FIFO (important to some materials such as paper, steel), not control temperature
Manufacturing: don’t have specific manufacturing instruction for each category; worker is working by experienced and taught by other experienced staff, not educated professionally Attitude of supplier’s staff
Power tools parts are new with Viet Nam suppliers, suppliers consider investing new machines based on demand & experiences sharing from TTI Sampling process will be longer than normal and demand is not stable, not committed by TTI and suppliers bear the investment cost.
I: How you deal with these challenges? And any recommendation for the company?