As supply chains have been stretched thin thanks to the pandemic, manufacturers are adjusting their strategies to respond to the current constraints.
|Transparency and reviewing risk management processes can go some way to shoring up supply chains and logistical strains. VIR Photo: Le Toan|
Intel Products Vietnam in Saigon Hi-Tech Park (SHTP) is seeking approval from Ho Chi Minh City authorities to ease the stay-at-work requirements by allowing its employees to work and go home. The SHTP Business Association has proposed piloting this solution for Intel Products Vietnam and Datalogic Vietnam Co., Ltd in the park for 14 days.
Accordingly, highly-skilled employees with at least one vaccine jab would be allowed to go home. However, they must commit to only travelling between their houses and factory sites while abiding by pandemic prevention regulations. Their housemates and family members must stay at home and take coronavirus tests once a week, sponsored by the employers.
According to Nguyen Van Be, chairman of the HEPZA Business Association, Intel has spent a great deal providing accommodations for its workers either at factories or hotels during the social distancing period. This proposal will help Intel to alleviate the expenses and more importantly avoid disruptions to its global supply chain.
Besides the “stay at work” and “one route for two locations”, Ho Chi Minh City last week added another model for local businesses to help them resume and maintain production. The new model is “four greens” for workers, routes, workplaces, and accommodations, implying areas free from infection.
Under this model, “green” workers will commute between their accommodation and workplaces through a designated route, without stopping at or going through areas at high risk of COVID-19.
He noted that the city already has policies to support rental fees for workers. Companies can collaborate with local authorities to develop green zones near industrial parks. In the zones, there will be rented motels and houses for their workers to live with their families.
“As the Delta variant is quick to spread, it will be difficult to isolate F0 cases like in 2020. Thus, manufacturers should think of ways to maintain production if they detect infections. One initiative is to develop a field hospital inside industrial parks to treat coronavirus patients. Meanwhile, manufacturers can maintain operations without closing all production lines,” he added.
The ongoing pandemic has placed more pressure on businesses to keep supply chains flowing. The Japanese lens maker Hoya now plans to increase its workforce at its Vietnamese plant by up to 20 per cent. The company said that if a worker becomes infected, others who work the same shift are required to isolate at home. This has caused Hoya’s activities in Vietnam to decline by about 10 per cent on average. The company is striving to maintain a larger staff to offset the absentees, as reported by Nikkei Asia.
Mizushima Kozo, head of the Japanese Chamber of Commerce and Industry in Ho Chi Minh City, said many Japanese people chose to stay in Vietnam to avoid complications with global supply chains. However, some of them could repatriate if the situation worsens, and this could also affect the operations of manufacturers globally.
The pandemic has significantly changed the intensity of trade. McKinsey & Company’s analysis shows that historically, trade as a multiplier of GDP has been growing up to 150 per cent globally over the past two decades. Last year, however, trade slowed down again and for some economies that are heavily dependent on trade, such as Japan and Thailand, the change was even more pronounced.
The digitalisation age
In 2020, Vietnam’s economy experienced a relatively limited impact – with a slight drop in trade in comparison to GDP – but given the recent escalation of COVID-19 cases in Vietnam, the situation is rapidly changing, and there may be additional disruptions in the latter half of 2021, according to Patti Wang, engagement manager of McKinsey & Company.
“The economic disruption associated with the pandemic is likely to accelerate existing shifts in regional supply chains and drive an increased focus on building resilience. COVID-19 has also accelerated digitalisation in both business-to-customer applications and traditionally less-digitalised areas of the economy that require physical interactions,” she added.
Andrew Harker, economics director at IHS Markit said, “The current wave of the pandemic has a severe impact on Vietnamese manufacturers, according to the latest data, with company closures and social distancing contributing to a steep drop in production. Rules are also limiting how many staff members can be on-site at any time, further disrupting production lines.”
Added to issues with new orders and production, manufacturers are also facing severe supply chain disruption. “Supplier lead times are lengthened to an even greater extent than after the initial outbreak of the pandemic last year, and price pressures surged. The sector is likely to remain under pressure and struggle to generate growth until the outbreak can be brought under control,” Harker said.
To minimise the level of supply chain disruptions, McKinsey’s Wang suggested business leaders should be focusing on building more resilience across their supply chains. There are a couple of core dimensions they need to consider. First, they need to strengthen the supply chain risk management process and improve end-to-end transparency.
In doing so, supply chain leaders can build strategic redundancies in supplier and transportation networks, hold more inventory, reduce product complexity, and create capacity to flex production across sites. To improve transparency and identify vulnerability, they can create a comprehensive view of the supply chain through detailed sub-tier mapping.
“Next, they can implement a laser-focused Industry 4.0 and digital transformation strategy. Companies that had not implemented Industry 4.0 prior to COVID-19 have had a wake-up call. Our latest survey indicates that not only did they find themselves struggling, they also had trouble catching up due to the absence of experience, lagging IT technology, and pandemic-driven cash constraints,” Wang explained.
She said that companies would need to build a robust and strategic roadmap for their Industry 4.0 ambitions, pick a handful of digital use cases that target their top one or two strategic objectives, and pursue a rapid, agile process to refine, roll out, and aggressively scale these technologies.
To transition from the initial crisis response, the expert shared that manufacturers and plant leaders could consider the following points. They should protect the workforce by formalising and standardising operating procedures, processes, and tools that help keep staff safe. Also, they can build workforce confidence through effective, two-way communication that responds to employees’ concerns.
Another priority is to manage risks, ensuring business continuity. Manufacturers should anticipate changes and model the way the plant should react well ahead of fluctuations to enable rapid actions. “At the same time, they should drive productivity at a distance by continuing to effectively manage performance at the plant while physical distancing and remote working policies remain in place,” Wang noted.
As exports formed a key component of local economic development, maintaining production chains was crucial for Vietnam.
Minister of Planning and Investment Nguyen Chi Dung said that Vietnamese enterprises’ participation in the global value chain is very modest in both quantity and quality.