Creating an efficient supply chain is the bedrock of any successful manufacturing company. Just ask Apple CEO Tim Cook, who reportedly won the top job at the tech company (after founder Steve Jobs passed away) because of his success building up a smooth running supply chain, focused on Chinese suppliers.
So supply chains are always in focus. But right now, they are absorbing more management time than usual because they have been under so much pressure on many fronts.
We have all heard about the global cost of living crisis. And Vietnam has not immune to it despite the fact that our GDP growth remains strong and our living standards are rising.
The Asian Development Bank (ADB) recently downgraded its 2023 forecast for the country from 6.7% to 6.3%. It cited potential weaknesses in export growth as European and US consumers cut back on their spending due to squeezed living standards.
Prices are rising here in Vietnam too, causing inflationary pressures.
As many commentators have noted, the Covid-19 pandemic and shifting geopolitics have created the perfect storm for manufacturing companies. The former prompted rapid supply/demand shifts that have been difficult to predict or plan for, while the latter is leading to wholesale shifts in where supply chains are located.
The result dislocation means rising prices for many raw materials. However, while our input costs have been going up, we have remained determined not to increase output costs for consumers.
There are numerous areas where we have made savings to achieve this. We have cut marketing budgets and are making continuous savings through our digital transformation program. We estimate that this latter factor alone is reducing our production costs by about 3% to 5%.
But one of the biggest areas of all remains the supply chain: optimizing our processes and also our planning for known demand peaks such as the holiday season around Tết Nguyên Đán, the Vietnamese lunar new year.
This is the time of year when there is always a huge spike in demand for Dr Thanh Herbal Tea. Its cooling and refreshing properties are the yin that balances the yang feasting habits we indulge in for a few days as we celebrate with friends and family.
The drink has nine core herbal ingredients and we need to ensure our ability to source all of them: honeysuckle, chrysanthemum, monk fruit, spruce, liquorice, grass jelly, rosemary and cucumber.
One thing that helps us is the fact that we source our ingredients from Vietnam. We do not have to fear supply chain disruptions because we have fragmented suppliers all over the world.
We also lock in prices early. This year, we completed all the preparations for the production of Dr Thanh Herbal Tea by the end of September ready for Tet in late January. All the raw ingredients had been delivered to our warehouses.
Take chrysanthemums as an example of the kind of price pressures a tardy company would face. This beautiful flower is not just a key ingredient of Dr Thanh Herbal Tea because it’s full of healthy flavonoids, which fight off toxins, lower inflammation and improve blood cholesterol levels.
It is also an important part of Vietnam’s Tết celebrations because it symbolizes happiness and prosperity. The price of bunch of 10 typically rockets up to 30% in the run up to the Lunar New Year.
Then there are rising inflationary pressures to take into consideration. In 2022, a bunch cost about VND 25,000 to VND27,000 close to Tết . In 2023, it is more like VND30,000 to VND35,000.