SWOT Matrix of Vinfast LLC 57 LIST OF DIAGRAM Diagram 1: Brigde to effective SCM 9 Diagram 2: Demand- Supply Chain Management – Pull Model 11 Dỉagiram 2.1.. In the framework of th
The urgency of the subject
The industrial revolution has provided Western countries with substantial advantages, significantly influencing the global economy As Vietnam embarks on its journey of industrialization and modernization, it is crucial for all economic sectors to enhance their technical capabilities and production processes Special emphasis should be placed on industries that utilize modern technology, such as the automobile manufacturing sector, which requires synchronized investment and development.
Over the past two decades, the automobile industry in our country has matured, achieving stable domestic car production and decreasing reliance on imports, which significantly boosts the state budget Additionally, we have begun to integrate into the international value chain by establishing assembly plants in Vietnam for regional exports This growth in automobile manufacturing has attracted substantial foreign investment, bringing in capital, advanced technology, and valuable management expertise.
The Vietnamese domestic market, with a capacity of tens of millions of vehicles, is predominantly controlled by joint-venture enterprises, particularly industry leaders like Honda and Toyota These companies have achieved significant success in the international arena, bringing advanced technology, management expertise, and operational practices to Vietnam Their presence has been instrumental in the robust growth of the Vietnamese transport vehicle market since the 1990s.
Despite the presence of several dominant manufacturers, there are no brands in the vehicle market that are entirely funded by domestic capital Annually, Vietnam consumes around 4 million new vehicles, representing a market worth billions of dollars Unfortunately, local enterprises hold minimal market share in this substantial industry, with auxiliary businesses accounting for only about 10% of the total value in the entire value chain.
Vinaxuki, a company aspiring to establish a standardized supply chain for Vietnamese vehicles, has experienced significant growth by adopting production models from Japan and Korea Initially, they invested in learning advanced production technologies, paving the way for future investments in modern manufacturing lines to enhance localization However, challenges arose as the company faced difficulties in mass-producing materials, leading to an accumulation of unsold finished products and rising costs Ultimately, Vinaxuki's localization efforts faltered due to missteps in their supply chain decisions.
By 2016, a Vietnamese enterprise, VinFast, began to emulate the successful path of Vinaxuki by boldly enhancing its production processes and gradually developing its supply chain To ensure long-term growth, VinFast can benefit from the valuable lessons learned by other successful companies in Vietnam, particularly Honda Vietnam This article aims to highlight the significance of supply chain management and the insights gained from Honda's development, ultimately proposing targeted strategies for VinFast to strengthen its supply chain for sustainable success.
The thesis aims to analyze the supply chain of a successful business to offer actionable solutions for new market entrants Key research issues will be addressed to achieve this objective.
- Overview of supply chain, role, and supply chain models
- Analysis of Honda Vietnam supply chain
- Evaluate operational efficiency and draw experience of sustainable supply chain development
- Suggest the development strategies needed for new businesses to enter the market.
Literature review
Previous researches
2.1.1 Stanley E Fawcett, Gregory M Magnan, Matthew W McCarter, (2008),
"Benefits, barriers, and bridges to effective supply chain management"
Firms face several significant hurdles when implementing integrated supply chain (SC) practices, as identified by Fawcett et al (2008), who categorized these barriers into inter-firm rivalry and managerial complexity Key barriers under inter-firm rivalry include internal and external turf wars, poor SCM planning, lack of vision, trust issues, insufficient executive commitment, and a poor understanding of SCM Among these, turf wars demand urgent attention due to their rapid and severe disruption of the supply chain Although poor planning and lack of vision may have delayed effects, they ultimately lead to catastrophic outcomes Managerial complexity encompasses misaligned SC processes, organizational structures, and cultural differences among supply chain partners Notable barriers in this category include information systems deficiencies, organizational culture misalignment, inadequate SC measurement, and absence of alliance guidelines Addressing these challenges is crucial at both the enterprise and supply chain levels, as IS/IT deficiencies can result in a significant loss of competitive advantage for the entire supply chain.
Diagram 1: Brigde to effective SCM
Source: Stanley E Fawcett, Gregory M Magnan, Matthew W McCarter, (2008), "Benefits, barriers, and bridges to effective supply chain management"
Fawcett et al (2008) identified key solutions to supply chain management (SCM) barriers, emphasizing the importance of information transparency and collaboration They highlighted collaborative planning and robust IT architecture as essential components, along with formal performance tracking and the adoption of strategic SCM visions Additionally, addressing human factors, implementing supplier certification and reduction strategies, targeting segmented customers, and fostering shared investments and benefits were also noted as vital for overcoming SCM challenges.
Fawcett et al (2008) identified several key benefits of Supply Chain Management (SCM) from existing literature, ranking them by significance These benefits include increased inventory turnover, enhanced revenues, reduced SCM costs, improved product availability, shorter order cycle times, greater responsiveness, added economic value, better capital utilization, decreased time to market, and lowered logistics costs.
In conclusion, the effectiveness of a supply chain is influenced by various factors, and managers recognize its significant impact on business operations However, identifying and addressing barriers to supply chain efficiency can present additional challenges The ultimate goal for every business is to strategically allocate resources, including human resources and information systems, to overcome these obstacles and maximize benefits.
2.1.2 Satyendra Kumar Sharma and Anil Bhat, 2013, Supply chain risk management dimensions in Indian automobile industry
Supply chains are inherently fraught with risks, both internal and external, especially in an era of global integration where product and service lifecycles are continually shortening Businesses must constantly adapt to evolving circumstances while striving to meet market demands effectively The primary objective of supply chain management is to maximize value for the business, and any issues within the supply chain can significantly hinder this goal Therefore, identifying potential risks and implementing proactive prevention strategies are essential for ensuring the success and sustainability of the business.
According to the two researchers, there are two ways to reduce risk in the supply chain of businesses, that is:
Active prevention involves implementing decisions and activities to reduce potential risks, such as anticipating market demand and stockpiling resources to mitigate input risks This proactive approach can be categorized into three main strategies: avoidance, where companies refrain from operating in high-risk markets; investments in supplier development, which enhance supply performance by fostering strong supplier relationships; and control strategies, where contract enforcement establishes clear parameters for buyer-supplier interactions.
Reactive strategies in supply chain management are essential for mitigating the impact of disruptions after they occur These strategies focus on minimizing damage through increased flexibility, allowing organizations to better respond to unexpected events Additionally, maintaining redundant resources, such as excess inventory in the form of safety stocks, can effectively address supply and demand uncertainties without disrupting normal supply chain operations.
In the vehicle manufacturing industry, enterprises face significant risks that could potentially lead to bankruptcy Research indicates that implementing diverse risk management strategies can foster both the growth and quality of these companies However, it is crucial for businesses to tailor these strategies to align with their size and production approach, whether outsourced or self-produced, to ensure effective application.
2.1.3 Hilletofth, P (2011) Demand‐supply chain management: industrial survival recipe for new decade
Demand-supply chain management is an innovative approach designed to address the evolving needs of businesses today As multinational corporations penetrate smaller markets, emerging companies face increased challenges in competition and sustainability To navigate this landscape, optimizing production and operational efficiency becomes crucial for business success and growth.
To achieve a competitive advantage, businesses must optimize their supply chains to satisfy customer needs while minimizing costs This involves enhancing revenue through efficiency by delivering suitable products and managing demand-driven supply chains effectively Prioritizing coordination between internal and external departments is essential, as is aligning market orientation with customer requirements and production management Ultimately, enterprises should be structured to maximize value for their customers.
Diagram 2: Demand- Supply Chain Management – Pull Model
Source: Hilletofth, P (2011) Demand‐supply chain management: industrial survival recipe for new decade
The DSCM model presents significant risks for businesses, primarily due to the high costs associated with its development and implementation, necessitating substantial capital investment This strategy demands a deep understanding of consumer behavior and the creation of tailored products, which can extend the deployment time compared to traditional supply chains Furthermore, it requires a more active involvement from all departments within the company, leading to increased resource demands Consequently, the adoption of the DSCM model remains a challenging endeavor, particularly for companies rooted in traditional business practices.
In summary, businesses must effectively balance demand creation with fulfilling customer needs Demand-Supply Chain Management (DSCM) serves as a superior alternative to traditional business models, particularly for new market entrants.
Research gaps
Research highlights the significant influence of supply chain management on business performance, yet existing studies remain largely theoretical and lack application to specific company models, especially in developing economies like Vietnam Many enterprises aspiring to enter the market struggle with proper strategic orientation This thesis aims to comprehensively illustrate the impact of supply chain models on the sustainability and success of businesses in this context.
Methodology
To carry out the theory research, I have used desk – study methods, meta- analysis, statistics analysis, combined with reference and comparison aiming to highlight the research concerns.
Overview of Supply Chain Management
Introduction about Supply Chain Management
1.1 The concept of supply chain and supply chain management
Supply Chain Management (SCM) has been defined in various ways by researchers, reflecting ongoing debates in the field Ganeshan and Harrison (1995) describe SCM as a network of facilities and distribution options responsible for procuring materials, transforming them into products, and delivering these products to customers Christopher (1998) expands on this by defining the supply chain as a network of organizations linked through various processes that create value in the form of products and services for the ultimate customer Furthermore, Mentzer et al (2001) emphasize that SCM involves the strategic and systematic coordination of business functions within a firm and across the supply chain, aimed at enhancing the long-term performance of both individual companies and the overall supply chain.
Supply Chain Management (SCM) is a comprehensive network that encompasses the production of raw materials, their transformation into intermediate and final products, and the delivery of these products to customers via a distribution system It involves key processes such as procurement, manufacturing, and distribution, with the primary goal of optimizing the performance of the entire supply chain to maximize value while minimizing costs By fostering cooperation among all supply chain participants, SCM seeks to enhance productivity and deliver significant benefits to all stakeholders involved.
Various connotations of supply chain management by others researchers will be given in the table below:
Authors Definition of Supply Chain Management Key ideas
The chain linking each element of the manufacturing and supply process from raw materials to the end user, encompassing several organizational boundaries
Highlights the significance of coordination among constituent members
The integration of the processes, systems, and organizations that control the movement of goods from the supplier to a satisfied customer without waste
Highlights the necessity of integration among the organizations, physical
\movement and the waste reduction principal of JIT Lee and
Networks of manufacturing and distribution sites that procure raw materials, transform them into intermediate and finished products, and distribute them to customers
Attempts to show conventional functions of supply chain
A supply chain is a comprehensive network that encompasses facilities and distribution channels, facilitating the procurement of materials, the transformation of these materials into intermediate and finished products, and the distribution of these final products to customers.
Network of firms interacting to deliver product or service to the end customer, linking flows from raw material supply to final delivery
The management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole
Signifies the importance of relationships, customer focus and cost reduction
Effective business performance relies on the strategic coordination of traditional business functions and their tactics, both within a company and throughout the supply chain This systemic approach aims to enhance the long-term performance of individual businesses by fostering collaboration and alignment across various operational areas.
Emphasize the systematic nature of organizing the functions of the business, concentrating resources to operate effectively companies and the supply chain as a whole Chopra and
“A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request
The only goal is to meet the needs of customers
Table 1.1 : SCM Definitions and key ideas
Supply chain management encompasses the entire value chain, integrating input materials, management processes, production, and delivery to the final customer It involves a coordinated effort among production, inventory, location, and transportation to effectively respond to market demands This network includes manufacturers, suppliers, transporters, warehouses, retailers, and customers, working together to procure supplies, transform them into finished products, and distribute them efficiently.
Supply chain management is crucial for corporate operations and requires focused attention Our exploration of this field highlights its vital role in the functioning of manufacturing and business enterprises However, supply chain management is frequently confused with logistics, despite their distinct differences To clarify, it is essential to define each area accurately.
Logistics involves the strategic management of raw materials, services, information, and capital flows throughout the production process, ultimately ensuring that both business objectives and customer satisfaction are met.
Range Concerning activities that occur within a single business
Relating to the system of organizations and individuals working together to bring products to consumers
Function Focus on production, purchasing, distributing activities of enterprises
Including Logistics and other activities such as marketing, new product development, corporate financial services as well as customer relations
Table 1.2 Compare Logistics and supply chain
1.2 The role of supply chain management
Effective supply chain management is crucial for the success of modern enterprises, as it directly impacts market performance and revenue generation Ensuring product availability at points of sale is vital for attracting consumer interest When products are introduced and marketed, it is essential that they reach both domestic and international markets to meet consumer demand Even minor errors in the supply chain can hinder product accessibility, diminishing customer interest and demand Therefore, optimizing supply chain management presents a significant opportunity to facilitate seamless business operations.
Efficient supply chain management offers significant internal advantages for companies, including optimized storage costs through effective inventory management that balances location, volume, and preservation of goods Implementing a strategic warehouse management system can streamline operations and reduce expenses Additionally, utilizing a diverse range of suppliers mitigates risks, fosters competition, and enhances input pricing and delivery times, while also preventing production delays Ensuring swift internal transportation of raw materials and finished products minimizes inventory stagnation, promoting a smoother business process Furthermore, optimizing the order process by balancing order frequency, volume, and timing is essential to control costs and improve efficiency Ultimately, meeting customer needs is paramount; accurately predicting customer demands is vital for maximizing revenue and refining the overall supply chain process.
1.3 The development of supply chain management
Over the past century, supply chain management has evolved into a sophisticated science that plays a critical role in business operations Significant advancements have occurred over the last 60 years, beginning in the 1940s and 1950s with the introduction of modern machinery like pallets and cranes to enhance logistics and storage The mid-1950s saw the expansion of transport management with the rise of large ships, trains, and trucks, alongside the introduction of key terms such as warehousing and material handling By the 1960s, supply chain management became essential for business success, and a decade later, the sea transport revolution, coupled with computer technology for planning and route management, further transformed the supply chain landscape Additionally, the expansion of large corporations into developing countries has continuously reshaped supply chain dynamics, benefiting even seemingly unrelated sectors like health and education.
Supply chain management has evolved significantly, transitioning from basic transport operations to a comprehensive system that encompasses the entire process from input to output of products The integration of advanced technologies, including ERP and cloud computing, has led to the development of a modern and efficient supply chain management framework.
The operations of supply chain management
A typical supply chain consists of three fundamental elements: suppliers, production units, and customers However, with advancements in functionality and specialization, the supply chain now comprises five essential components, each responsible for distinct functional groups.
Suppliers are crucial to the supply chain, often having limited control over their circumstances They provide essential components that businesses need to create finished products Typically, companies procure raw materials, manage inventory, and oversee production processes The strength of the relationship with suppliers significantly impacts overall business performance.
Production is the backbone of an enterprise engaged in production and business activities It is the ability that the wire provides to create and store products
Administrators must strike a balance between fulfilling the needs of production efficiency and satisfying business demands The manufacturing department plays a crucial role in the supply chain, focusing on optimizing processes to enhance productivity and meet operational goals.
Conducting comprehensive market research is essential for understanding consumer preferences and identifying key criteria for product development By analyzing competitors' strategies and market trends, businesses can formulate a well-informed overall strategy that aligns with customer demands.
Production planning is a crucial aspect of supply chain management that requires businesses to establish a clear strategy before initiating operations Key elements such as market demand, cost analysis, expected profit, and resource allocation must be thoroughly researched and understood A well-defined plan is essential for achieving high and sustainable business performance, as it facilitates market development and identifies customer needs, ultimately leading to a more efficient supply chain.
Production is a critical component of the supply chain, relying heavily on the successful completion of tasks by other departments To ensure optimal efficiency, production planning, raw material procurement, warehousing, and distribution must be well-coordinated Additionally, manufacturing involves essential processes such as final quality inspection, packaging, and preparation before goods are distributed to agents.
The distribution department is crucial for managing inventory and transporting goods within the supply chain, ensuring timely delivery of raw materials to production and finished products to retail outlets Effective transportation is essential to meet customer needs and maintain factory production capacity; any mismanagement can lead to lost business opportunities Additionally, inventory management plays a significant role in influencing revenue and profit, requiring a balance between maintaining optimal stock levels and minimizing costs Businesses must regularly control the flow of goods in their warehouses and utilize technologies like ERP and inventory management models to streamline operations Finally, the strategic location of warehouses and production facilities is vital for operational efficiency, with proximity to seaports and essential resources enhancing sustainable business development.
Retailers serve as the vital link between customers and businesses, often stocking limited quantities to meet immediate consumer needs They play a crucial role in reflecting the genuine demands of users Key business activities, including advertising, product valuation, supply management, and warranty services, are assessed within the retail chain Leveraging the full potential of retailers can provide significant advantages for companies.
Customers, or consumers, are entities that buy and utilize products These can be organizations that acquire products to integrate them into their own offerings for resale, or they may be individual end users who purchase products for personal consumption.
Today's supply chains are significantly impacted by the genuine needs of consumers Retailers, distributors, and producers must adopt the most profitable strategies available This leads to two primary approaches: active manufacturing with inventory and production based on actual customer orders Each of these approaches has its own unique and independent objectives.
2.2.1 Push model and pull model
Many companies are using this market access strategy The supply chain process takes place as follows:
- Enterprises forecast sales and inventory needed
- Plan production and purchase of input materials
- Distribution to the final consumer
The push strategy relies on long-term forecasts of consumer demand, making it ideal for seasonal businesses Under this approach, products are produced based on predetermined plans and distributed accordingly Effective inventory management is essential for this strategy, as it ensures that the market is adequately covered and products are delivered promptly at all times.
The primary challenge with long-term forecasting strategies is the presence of inherent errors, as consumer needs are constantly changing These inaccurate predictions fail to enhance the predictability of consumer demand, resulting in scattered investments and diminished profits Additionally, incorrect sales forecasts can lead to increased storage costs, unsold inventory, and ultimately a decline in customer loyalty.
The supply chain model is often applied to new market players, or in the process of reducing inventory This model is as follows:
- Enterprises receive orders from agents and retail stores
- Planning production, ordering raw materials
- Planning for distribution and inventory of materials,
The key distinction between the pull and push models lies in the reliance on actual consumer needs rather than predictions In the pull model, businesses depend on real-time commodity orders from the distribution system, facilitating short-term inventory management This approach enhances supply chain effectiveness by minimizing costs and maximizing operational efficiency.
Insufficient inventory can severely impact businesses during unforeseen events, such as natural disasters that damage finished products or disrupt order fulfillment This lack of preparedness can result in significant consequences, including contract penalties and diminished competitiveness Often overlooked by inexperienced businesses, these hidden risks can lead to substantial long-term challenges.
No single business model guarantees long-term success; instead, integrating the strengths of various models is crucial The modern supply chain is intricate and evolves through diverse methods, emphasizing the need for a multifaceted approach to ensure sustainable development.
Analytics of Honda Vietnam’s Supply chain management
Overview of Honda Vietnam
1 History of formation and development
Founded in 1996, Honda Vietnam emerged from Vietnam's economic opening policies, following the establishment of a representative office by the Japan Honda Group in 1993 This venture was a collaboration between the Vietnam Engineering and Agricultural Machinery Corporation, Honda Motor, and Asian Honda Motor Over 23 years, Honda Vietnam has grown to employ around 11,000 individuals, operating three branches and four assembly factories nationwide With the slogan "The Power of Dreams," Honda is committed to providing high-quality, durable products that resonate with Vietnamese consumers The brand's simple message, "I love Vietnam," has firmly established Honda as a trusted companion, making it synonymous with motorcycles in the minds of Vietnamese customers.
In its early development, Honda Vietnam concentrated on the motorcycle market, recognizing that during the 1990s, motorbikes were the primary mode of transportation in Vietnam's underdeveloped economy Committed to providing high-quality motorcycles at reasonable prices from environmentally friendly factories, Honda Vietnam has invested significantly in production infrastructure to meet the growing demand, as motorbikes account for nearly 90% of vehicles in major cities Today, with six factories dedicated to manufacturing and assembling motorcycles and parts, Honda remains the preferred brand for consumers seeking motorbikes in Vietnam.
Over the past decade, the demand for cars among Vietnamese consumers has surged, prompting Honda Vietnam to expand its automobile market presence The company recently received a production and assembly license from the Ministry of Planning and Investment, marking a significant milestone in its development Since launching its automobile business in 2006, Honda Vietnam has established a factory, a dealer network, and training programs for sales, services, and safe driving, culminating in the release of the first Honda Civic model in August 2006 Currently, Honda Vietnam offers a diverse range of vehicles in the market, including sedans of various sizes, SUVs, and MPVs, catering to the varying needs of customers.
Honda Vietnam has established itself as a leading motorcycle and automobile manufacturer in the Vietnamese market In 2018, the company expanded its network by opening 30 additional Honda Engine Authorized Dealers (HEAD), increasing the total to 788 Over two decades, Honda has consistently dominated Vietnam's vehicle market, boasting the highest total vehicle sales, including both cars and motorcycles Despite facing stiff competition from imported vehicles, Honda Vietnam continues to generate strong revenue in the automobile sector In the motorcycle segment, Honda maintains a commanding market share of over 60%, recently surpassing 70%, solidifying its position as the motorcycle king in Vietnam.
2 Honda Vietnam's supply chain model
Dỉagiram 2.1 Honda Vietnam supply chain model
Honda Vietnam's supply chain operates on a hybrid model that integrates both pulling and pushing strategies This unique approach involves a seamless collaboration among various departments, including suppliers, manufacturers, distributors, retailers, and customers, ensuring efficient flow and responsiveness throughout the supply chain.
Honda Vietnam’s Push and pull supply chain model is proactive in its operation process The company's supply chain process takes place in two dimensions with continuous information exchange:
- The retail chain collects customer information
- HEADS proactively predict sales and place orders for the next period
- Production department conducts market research based on information collected, research, and product development
- Production department forecasts total market demand and preliminary production planning
- Ordering materials and putting them into production
- Plan for storage and distribution of finished products
2.1 Participants in Honda Vietnam’s supply chain
Honda Vietnam has developed a robust supplier system that evolves alongside its growth To integrate into this supply chain, businesses must enhance their product quality management, ensuring compliance with both general production standards for spare parts and the specific criteria set by each automotive and motorcycle manufacturer Key factors include effective production management, skilled personnel, timely delivery, and consistent product quality Currently, Honda Vietnam sources materials from a diverse range of suppliers, including both external and internal sources.
Honda Vietnam dominates the domestic motorcycle market with over 70% market share and holds 9.8% of the automobile market The company has established a robust supply chain with more than 120 component and accessory suppliers across Asia, predominantly foreign-invested companies from Japan, Taiwan, Korea, and Thailand, while only 20 suppliers are based in Vietnam Despite significant advancements in Vietnam's motorcycle manufacturing industry over the past two decades, foreign investors still control most of the market for components and spare parts Many domestic suppliers are small businesses facing challenges in managing quality for production To qualify as a supplier, these businesses must consistently invest in technological innovations to enhance product quality However, Vietnamese suppliers often struggle to remain in the supply chain due to a lack of qualified personnel meeting the stringent requirements of manufacturers like Honda.
Importing raw materials from foreign suppliers guarantees high quality and timely delivery for Honda Vietnam These suppliers are accountable for the components they provide, which primarily include highly standardized parts like brakes and chassis Additionally, Honda collaborates with these suppliers to innovate new product lines while gradually enhancing their inspection and quality control processes.
About domestic suppliers, Honda Vietnam mainly uses materials supplied from two joint-venture companies in Vietnam (VIET NAM AUTO PARTS COMPANY
LIMITED and VIETNAM MOTOCYCLE AUTO PARTS COMPANY) MAP and
Honda has established a strong and loyal relationship with VAP, relying on them for essential materials, which indicates a significant engagement level that makes switching suppliers costly To further reduce expenses, Honda also sources various components like brake pads, bolts, and tires from local suppliers, particularly for parts that do not demand high technical standards This strategy of utilizing domestic enterprises helps Honda Vietnam minimize costs while maintaining operational efficiency.
Honda Vietnam's competitive edge lies in its high-quality, well-designed products and proprietary technologies Relying on external suppliers for critical components like engines poses significant risks, as it may lead to the sharing of sensitive specifications with competitors Additionally, these core components require rigorous testing, underscoring the importance of maintaining autonomy over proprietary knowledge in Honda's product development.
On March 20, 2014, Honda Vietnam inaugurated its first piston plant in Phuc Yen, Vinh Phuc, enhancing the localization rate to offer competitively priced products This new facility, covering over 3,000 m² and with an investment of nearly VND 230 billion, is designed to produce up to 2.4 million pistons annually and officially commenced operations on April 1, 2014 The piston plant complements existing facilities, including a motor casting foundry with a capacity of 2 million sets per year and a gear production factory capable of producing 2.3 million units annually This strategic addition strengthens Honda Vietnam's infrastructure, supporting both domestic production and export growth.
Honda Vietnam applies a number of rules to implement effective supplier relationship management:
- Quality assurance is the primary criteria
Honda Company produces approximately 2 million motorcycles annually, resulting in an extensive inventory of spare parts that cannot be individually inspected Instead, Honda relies on probabilistic checks and evaluations of the supplier management systems It is crucial for suppliers to take full responsibility for the quality of their products delivered to Honda Vietnam Furthermore, companies involved in the production and assembly of motorcycles and automobiles highly value skilled personnel and the leadership of product suppliers, emphasizing the need for enterprise innovation to meet quality standards The awareness and commitment of senior management are essential for maintaining these quality requirements.
- The communication process takes place regularly and continuously
The exchange of information between suppliers and businesses is a complex process that requires mutual communication before implementation Honda Vietnam shares essential details such as design specifications, data, and specific order requirements, while suppliers provide feedback on product design, necessary changes, and their responsiveness This collaborative effort enhances the performance of both parties, fostering a more effective partnership.
- Priority for long-term cooperation
Changing or adding suppliers can be costly and time-consuming for businesses Influenced by Japanese culture, Honda emphasizes long-term cooperation by requiring suppliers to sign contracts, which fosters trust and enhances information management and security Additionally, adhering to standard quality management criteria helps Honda lower inspection and supervision costs Ultimately, this approach enables Honda to establish a stable supply chain that can withstand market fluctuations and supports long-term collaborative development.
In light of current policies aimed at protecting domestic production, the demand for motorbikes is facing challenges, exacerbated by rising product prices To navigate this difficult landscape, Honda has established win-win agreements with its suppliers, typically placing orders three months in advance When raw material prices surge, Honda engages in negotiations with suppliers, and if market prices increase by more than 5%, both parties convene to discuss pricing adjustments and strategies to mitigate the impact of these challenges.
- Continuously evaluate the supplier's performance
Evaluate supply chain effectiveness
Since 2016, storage costs have been excessively high, approaching the total costs of management and sales This indicates that the strategy aimed at market dominance has led to an overabundance of retained products.
By the end of 2016, Honda introduced over ten new motorbikes and three entirely new product lines, leading to increased storage costs The management and sales processes became less efficient due to the overwhelming number of items, resulting in a complicated management system Additionally, the burden of managing excessive inventory further escalated costs and hindered effectiveness.
Chart 2.1 Costs structure of Honda Vietnam
After using the pull and push model, the supply chain's performance has undergone significant changes:
The increase in the cost of goods sold (COGS) can be attributed to several factors, including the rising purchase prices of raw materials, shipping expenses, and production costs This rise is further exacerbated by the production of smaller quantities, which leads to higher per-unit costs due to multiple small orders Additionally, the intangible costs of maintaining empty warehouses, necessitated by insufficient raw materials, result in lost business opportunities for Honda, requiring compensation through discounts or cash Furthermore, the research and development (R&D) process also contributes to these increased costs.
Researching products that better serve consumer needs also boosts sales
- Research and development costs are also higher, about 20% However, to compare absolute numbers, it is not a very large number In the previous period,
The sales cost, R&D expenses, inventory costs, and cost of goods sold highlight the need for a more focused approach to supply chain management By optimizing these areas, businesses can better meet the growing volume of goods and effectively address the actual needs of customers.
A supply chain is assessed not only by costs but also by its efficiency in circulating and supplying goods for consumption Agents must meticulously calculate both the cost and time for each order to optimize sales effectiveness, as prolonged idle time can hinder the retail process Honda Vietnam places significant emphasis on the capabilities of its retail chain, ensuring that the supply of goods to retailers is a primary focus.
Table 2.1 Retailers avarage order time
The increased order time for HEAD can be attributed to two primary factors Firstly, Honda Vietnam has adopted a Just-In-Time (JIT) inventory strategy, resulting in minimal stockpiling of materials This means that each order necessitates starting production from scratch rather than relying on existing inventory for rapid fulfillment Secondly, the company maintains only 10% of finished products as a buffer for emergency orders, rather than stocking up to meet agent demands promptly Consequently, this approach has led to a 20% increase in waiting time for the retail chain.
Despite longer waiting times, Honda's sales remain strong, as the company is proactively implementing business strategies and sales promotions This approach has contributed to Honda's increasing market share in Vietnam.
Chart 2.3 Market share on quantity
Focusing on the genuine needs of customers has led to positive growth in Honda's market share By concentrating on a select group of customers rather than expanding product lines excessively, Honda can allocate resources more efficiently Additionally, the establishment of independent and proactive processes enables Honda Vietnam to effectively address emerging challenges.
Effective inventory management is crucial for optimizing business operations within the supply chain To maintain a balance between product availability and supply capabilities, Honda Vietnam has revamped its management process The company has minimized proactive storage levels and shifted responsibility to its agency system for active planning of storage and sales deployment.
Table 2.3 Finished products average inventory
Since 2016, Honda has significantly reduced its average stock of finished products by half, allowing the company to lower inventory management costs instead of investing in specialized warehouses This strategic shift not only enhances Honda's profit margins but also reallocates resources to better meet customer needs, strengthening its competitive advantage in Vietnam The implementation of a Just-In-Time (JIT) supply strategy has yielded impressive results, mitigating risks associated with empty warehouses By avoiding excessive inventory, Honda prevents the pressure to reduce prices, as evidenced by the price drop of the Honda CR-V in 2016 due to overstock.
2 Lessons from the case of Honda Vietnam
After analyzing Honda Vietnam's supply chain, the author summarizes the lessons learned from this case:
During its new investment phase in the Vietnam market, Honda Vietnam focuses on producing and distributing products in limited quantities Building customer trust in the brand is crucial for new businesses Once product quality is established, Honda plans to further invest in its supply chain in Vietnam, providing a solid foundation for stronger and more effective market development.
Honda, as a major corporation, minimizes reliance on foreign suppliers, enabling a faster development of its distribution system compared to new market entrants While the company may utilize foreign raw material suppliers, it actively encourages collaboration with domestic businesses This strategic approach aims to reduce production costs and streamline ordering times, ultimately enhancing operational efficiency.
Despite Honda Vietnam's strong financial position, enhancing operational efficiency remains crucial The implementation of a push strategy has led to increased costs, while supply chain participants struggle to meet their potential To boost consumption efficiency, Honda Vietnam needs to implement essential changes Consequently, the company's market share has been on the rise following a period of stagnation.
Honda's brand development is deeply intertwined with the Vietnamese market, where its high-quality products resonate with consumer needs This strong brand presence in Vietnam serves as a solid foundation for expanding into neighboring markets such as Malaysia and Laos.
- Develop an active supply chain to improve supply chain efficiency For certain stages of the initiative, it will make the purchase and production plan of the enterprise more productive
Expanding supply chains within the country can significantly lower operating and product costs while enhancing brand value in the market Additionally, businesses benefit from various government support policies, including tax incentives for imports and exports and streamlined customs procedures.
Some suggestion for developing an efficient supply chain for
Introduction of Vinfast LLC
VinFast (or VinFast LLC), the full name is VinFast Production and Trading Company Limited is a Vietnamese automobile manufacturer founded in 2017, based in Hanoi by
Mr James Benjamin DeLuca serves as the executive director of a company that is part of the Vingroup construction and real estate group, founded by Pham Nhat Vuong The company's name embodies the values of "Vietnam - Style - Safe - Creative - Pioneer."
VinFast operates a 335-hectare factory in Hai Phong City, North Vietnam, representing a significant $3.5 billion investment in the country’s industrial landscape The company collaborates with leading European automobile manufacturers, including BMW, Siemens AG, and Robert Bosch GmbH, as well as Austria's Magna Steyr and Italy's Pininfarina for design Additionally, VinFast has formed a joint venture with Thailand's Aapico Hitech to produce tire bodies To enhance its presence in the European market, VinFast established a representative office, VinFast GmbH, in Frankfurt and is also setting up offices in Shanghai and Seoul The company unveiled its first design prototypes, including an SUV and a sedan, at the 2018 Paris Mondial Auto Show, with the initial models tailored for the Vietnamese market anticipated for release in September 2019 VinFast's operational strategy focuses on the production of electric motor vehicles.
In the beginning, Vinfast products used many imported components The company has plans to gradually increase the localization rate of parts after production is conducted over a specified period
2 The first steps of Vinfast:
GM Vietnam has officially been operating since 2002 with the decision to acquire South Korea's Daewoo Motor and become a member of the global GM Group
By the end of 2017, GM Vietnam achieved sales of 10,576 vehicles, representing 4% of the Vietnamese automobile market The company serves as the exclusive distributor for locally assembled Chevrolet-branded cars, including models such as the Spark and Cruze, as well as several imported vehicles from Thailand.
In Vietnam, GM operates a factory with over 300 employees and a production capacity of 30,000 vehicles per year, supported by 22 dealers nationwide The opportunity for GM to divest from Asian markets has significantly benefited VinFast, allowing the new entrant to leverage an established network With the acquisition of GM's extensive dealer system, technology transfer, and supplier relationships, VinFast has effectively addressed its initial challenges Additionally, the company has secured exclusive rights to distribute the Chevrolet brand in Vietnam, enabling it to offer products that combine innovative technologies from both GM and VinFast.
Collaboration with big brand constitutes an international standard R&D block
VinFast has engaged Vietnamese consumers early in the design process by conducting public polls to gauge market reactions and preferences Renowned Italian design studios ItalDesign and Pininfarina have collaborated to create vehicle designs that blend modern aesthetics with Vietnamese cultural elements This partnership ensures a balanced and harmonious approach, reflecting both the sophistication of Italian style and the unique spirit of Vietnam.
VinFast has partnered with Magna Steyr, a top automotive technical consultancy, to ensure the delivery of high-standard vehicles Prior to their market launch, extensive testing was conducted on over [insert number] vehicles to guarantee quality and performance.
VinFast has launched 300 prototype cars in both the European and Vietnamese markets to gather consumer feedback and enhance these models In comparison to other Vietnamese automobile manufacturers, VinFast has made remarkable strides in its product research and development, effectively aligning consumer needs with international standards.
VinFast has established key partnerships with top global suppliers to secure essential components that cannot be produced in-house Notably, the company has collaborated with Austria's AVL, a leader in engine design, to not only import engines but also leverage their patents and expertise for future motor development This strategic alliance supports VinFast's comprehensive localization strategy while meeting the demands of international customers.
VinFast aims to collaborate with major suppliers in the automotive industry, including ZF, Lear, and APPICO, to enhance its production capabilities The company plans to import all necessary materials and components initially, while focusing on a long-term strategy that invites these suppliers to partner in establishing a manufacturing complex in Hai Phong.
VinFast is developing a state-of-the-art production complex spanning 335 hectares in Hai Phong, strategically positioned to enhance its supply chain with a flexible port system for efficient large-load transportation The factory will utilize cutting-edge technology, featuring a cloud data management system from Siemens to streamline operations, alongside advanced machinery and automation provided by ABB, FFT, and EBZ Additionally, the assembly line, capable of producing 200,000 vehicles annually, is supplied by Eisenmann, ensuring that VinFast's products reflect both national pride and international standards.
3 The SWOT Analysis of Vinfast LLC
- Has an independent distribution system
Entering the automotive market often requires businesses to begin with a minimal distribution system, necessitating significant investments in small shops and maintenance centers The barriers to establishing a Greenfield operation in automobile manufacturing are substantial, with a high risk of bankruptcy due to previous financial setbacks Following its new investment strategy, GM had to divest from several inefficient markets In a strategic move, VinFast acquired GM Vietnam, gaining access to over 20 distribution centers and service providers This acquisition allowed VinFast LLC to penetrate the Vietnamese automotive industry at a much lower cost without the need for new investments.
- Available factory and production complex projects
VinFast has successfully acquired an assembly plant in Vietnam, thanks to an agreement with GM This strategic move allows VinFast to operate as a car assembly enterprise in Vietnam, benefiting from various incentives while minimizing investment costs and time The company can quickly commence production and focus on enhancing its facilities for new production lines With a comprehensive production complex that spans from raw materials to finished products, VinFast LLC aims to establish itself as a leading production and assembly company, rivaling THACO Truong Hai.
VinFast is committed to serving not only Vietnamese customers but also a global audience By partnering with renowned suppliers like Bosch and AVL, the company enhances its focus on quality and timely delivery Utilizing high-quality raw materials will bolster VinFast's reputation, alleviate consumer concerns, and drive purchasing decisions.
- The process of product research and development follows world standards
Cars undergo rigorous testing in various countries, including major automotive hubs like Germany, Italy, Austria, and Vietnam Collaborating with leading global corporations, every research initiative and enhancement leverages advanced technologies and is extensively documented This approach attracts the attention of both industry professionals and consumers, establishing a competitive edge for the Vietnamese automotive brand.
VinFast, supported by Vingroup, Vietnam's largest corporation, has strong financial backing, ensuring capital security for its operations Additionally, international investment funds are eager to invest in VinFast's growth, exemplified by a recent $950 million grant with low interest and a 12-year term, facilitated by Euler Hermes on behalf of the German government.
- Support from Vingroup and its subsidiaries like VinTech in information technology
Some proposals to improve the supply chain efficiency of Vinfast LLC
Using pull supply chain model
VinFast should prioritize improving its supply chain rather than focusing on inventory and stockpiling, as overproduction can lead to increased operating and input costs while sales remain low Even established companies like Honda Vietnam face challenges with excess inventory For a young brand like VinFast, which relies on loans, this approach could jeopardize investment and lead to business failure Therefore, adopting a made-to-order production strategy is a prudent choice during the branding phase By minimizing unnecessary costs such as storage, VinFast can build customer trust in product quality, allowing for larger production runs once demand increases.
Looking for domestic supply chain development partners
To ensure quality and timely delivery, VinFast must enhance its supply chain management This improvement will lead to significant reductions in input costs, transportation expenses, and delivery times By decreasing reliance on foreign suppliers, VinFast can regain control over its operations Additionally, the company can utilize domestic materials for its electric motorcycles, maintaining quality standards while lowering production costs This strategy will ultimately provide VinFast with a competitive edge in the market for future products.
Many new businesses often err by overproducing in an attempt to gain market presence, which can ultimately lead to bankruptcy Instead, they should focus on consumption efficiency A prime example is Honda, a long-established company in Vietnam, which initially implemented effective supply chains emphasizing thorough product research and development By prioritizing efficiency, Honda ensured that its storage and production planning processes were both specific and adaptable.
To improve consumption efficiency, VinFast must align its products with consumer expectations by focusing on quality and features that meet market demands The company should leverage technology and labor resources to lower production costs, thereby increasing sales Additionally, enhancing the supply chain will strengthen market presence and boost customer confidence in VinFast products.
Building inventory management system, purchasing management using modern technology
Vingroup is leveraging cutting-edge technologies through its Vintech initiative to enhance its technology platform By utilizing Big Data, the company gains insights into market trends and customer preferences, while cloud computing streamlines internal information processes and optimizes inventory management These technological advancements not only minimize operational risks and ordering costs but also provide VinFast a competitive edge in Vietnam Additionally, the implementation of ERP solutions fosters cohesive management across business processes, strengthening the supply chain and enabling the company to adapt swiftly to market fluctuations.
The current automotive industry in Vietnam faces challenges due to an underdeveloped supporting industry and a lack of technological ownership among businesses To establish an efficient supply chain similar to industry leaders like Honda and Toyota, it is crucial for Vietnamese companies to strengthen their supporting industries VinFast has successfully mastered its technology and can enhance its strategy by supporting auxiliary businesses This initiative will not only foster relationships with domestic suppliers but also promote corporate social responsibility, benefiting the overall industry landscape.
The localization rate, which reflects the use of domestic materials and spare parts in production, is a significant concern for the Government and economists, particularly in the automobile industry Achieving a localization rate of 40% allows finished products to be exempt from export tax, while a higher localization rate leads to lower tax rates and enhanced business efficiency Companies like THACO and Honda Vietnam benefit from government incentives tied to high localization rates In the long run, increasing localization will provide substantial advantages for VinFast.
To enhance its localization rate, VinFast must focus on increasing the domestic value of its products by utilizing more materials sourced from local manufacturers This can be achieved through strategic partnerships with key domestic suppliers and investing in small manufacturing enterprises to gradually standardize product quality By implementing these strategies, VinFast can effectively boost its localization efforts.
Establishing distribution network in foreign countries
VinFast is poised to enter international markets, including Italy, Japan, Korea, Germany, and the United States, necessitating the development of an overseas distribution system The company has various options for this endeavor, with the retail franchise system being a cost-effective choice, similar to strategies employed by established foreign car manufacturers like Ford, Buick, and Honda Initially, VinFast plans to deploy completely built units (CBU) to Southeast Asia and other Asian countries as part of its market entry strategy.
VinFast is strategically expanding its presence by opening representative stores in high-demand markets like Europe and America to enhance brand visibility The company plans to gradually export its vehicles through an efficient supply chain model in international markets Once order volumes stabilize and grow consistently, VinFast aims to partner with local car distribution companies to ensure a steady supply of vehicles in these regions.
Research on the production and business sector in Vietnam, particularly focusing on Honda Vietnam and VinFast LLC, highlights the automobile industry's crucial role in the country's modernization The Vietnamese market has historically been dominated by foreign-invested enterprises, with Honda Vietnam standing out as a prime example Established as a joint venture with a local company in the early 2000s, Honda has significantly impacted Vietnam over the past two decades The brand is recognized for its durable and practical products, modern manufacturing facilities, and substantial share of the domestic market, marking its success in the Vietnamese automotive landscape.
Over the past two decades, Honda Vietnam has emerged as one of the country's largest enterprises, significantly contributing to the Vietnamese economy and enhancing community activities in transportation The company has established an effective supply chain with a high localization rate, successfully balancing the quality and reliability of foreign suppliers with the competitive pricing and timely delivery of domestic firms This strategic approach has allowed Honda to penetrate every market segment and maintain strong support from the Vietnamese population Despite its dominant market position, Honda faces challenges within its supply chain, making it a valuable case study for businesses aspiring to enter the market.
Honda Vietnam's supply chain faced significant challenges, particularly by 2016, when the company risked mass stocking due to an excess of unsold finished products Poorly calculated production plans resulted in oversupply, leading to escalating storage costs and diminished profits compared to previous years Consequently, Honda's market share in Vietnam did not grow as anticipated, serving as a crucial lesson for new brands entering the market.
Despite government initiatives since the 2000s to boost the domestic automobile industry, Vietnam lacks a prominent national brand Several factors contribute to the struggles of Vietnamese businesses in product development Firstly, inadequate long-term capital hinders investment in essential infrastructure like factories and distribution systems Secondly, the uneven growth of supporting industries leads to an ineffective supply chain, while high costs associated with importing and storing foreign goods limit production expansion Lastly, early-stage producers face significant barriers, including income and import taxes on materials, further complicating their development efforts.
Domestic firms struggle to compete with joint ventures of large foreign corporations due to several underlying challenges Significant changes in the automobile industry occurred after the Government's 2017 Decree on tax exemptions for materials used in local assembly VinFast, a subsidiary of Vingroup, emerged as a fully Vietnamese enterprise, marking the beginning of its journey in this competitive market New entrants in the automobile sector face numerous obstacles, including the need for substantial investment, intense competition, and the challenge of establishing a strong brand presence.