Henrik Pontoppidan, Director of S2U Design, talks about the importance of regular factory tours in Vietnam, and narrowing factories down to engage with the right one.
In past letters I have talked a lot about strategies, techniques and methods to achieve better results from your sourcing from Vietnam, from the ground level perspective. However, the most common question I get from importers around the world is a much simpler and straight-to-the-point one:
“Do you know a good factory making XYZ?”
I usually do. But the factories I happen to know well – or anyone else happens to know – is likely not the best fit for YOUR specific current project. Yet, the critical process of funnelling factories to find the right match is often skipped, despite the fact that the factory you choose can make or break your project, and casting a wider net always improves your final choice.
Perhaps the funnelling process is often neglected by importers for this reason: Carrying out a thorough funnelling process is super difficult without being in Vietnam full-time. If you delegate this, you can only hope that the person doing it is qualified, thorough and acting in your best interests. Alternatively, flying over means dealing with tight schedules and factory-driven timelines. Consequently, many rely on recommendations alone, but this gamble rarely leads to outperforming the competition. Indeed, I regularly come across ongoing production, making me wish – on behalf of the buyer – that they’d chosen the factory I know, just down the road, because it is clearly much more suitable for the products being made.
When your deposit is paid, you are hooked
Once a factory wins your business and production starts, you’re locked in. If quality, price, or lead times fail, switching is a nightmare, so if/when things don’t go to plan you are likely to accept compromises in your chosen factory rather than switching, taking the loss on the chin and going back to square one. Most importers have been there – for sure, I have! That’s why I dedicate an intensive period – a day, a week or a month, to the funnelling process for a project. It is heartbreaking if a project fails purely because the funnelling process wasn’t properly done, and the right factory wasn’t found.
Last Friday, I took another motor bike tour through Binh Duong province visiting 5 new-to-me factories. – One of my many funnelling trips. I thoroughly enjoy this activity and would happily do it every day. On my motorbike, I can cover up to twice the amount of ground in one day, compared to car transport, so my funnelling is twice as productive as my ‘colleagues’ nearly all of which travel by car. Every time I go on a tour like that, I am reminded how insightful and inspirational this is. I would guess you come to the same realisation each time you go on an occasional trip to Vietnam to visit factories. Factories considered for your project, but failing on a particular criterion, might reveal otherwise hidden opportunities for other projects – or reveal insightful information on competitor activities – or both. They also provide new knowledge of manufacturing techniques. And at the end of the day, knowledge is power.
Here’s an example: When I ran OAKEA in the UK, I bought fast-selling, made-in-Vietnam oak dining chairs from a UK wholesaler. They were competitively priced, readily available, and I secured a great deal with an MOQ of 50 chairs per model.
I’d received quotes for similar chairs from many Vietnamese factories, all within 1-2 USD of each other, so I thought I had a solid idea of the right FOB price level. But my wholesaler’s low prices left me wondering how they made a profit.
During one of my ‘shopping trips’ in Vietnam, looking for cabinets, I accidentally stumbled across my wholesaler’s chair factory. To my surprise, their chair prices were 10 USD cheaper than any quotes I had seen. The reason? This was THE right factory for these specific chairs. They ran a highly efficient, specialized operation tailored for them. The quality was also superior.
Although I didn’t act initially, not wanting to harm my relationship with the wholesaler, I was ready when they hit trouble and supply from them was compromised. I transitioned to direct buying and enjoyed a very profitable few years retailing top-notch oak dining sets.
Reward from my last field trip – a Teak Treasure
On my 5-factory trip last Friday, I achieved a similar prize – this time for beautiful outdoor Teak Furniture. A completely specialised, factory only making outdoor solid teak furniture, and solid teak cutting boards. The super competitive prices are almost an insignificant feature, against all the other strengths: This factory is equipped with new and modern CNC machinery perfect for the purpose, their production is set up to accommodate low MOQ – and the timber is bought directly from the sawmill in Brazil, with full control and documentation for the new EUDR regulation and FSC.
This factory is both cheaper, supplies better quality, manufactures quicker, without any worries of timber source regulation. They even outperform Teak supplies from Indonesia – one might say the ‘Teak Mekka’. But… as is the case for most of the gems in Vietnam, you can only find it through a systematic, focussed funnelling process – or by a lucky dip.
If you need any help on the ground in Vietnam do get in touch.
Tel +84 (0)82 7600 171
email: henrik@s2udesign.com
