Vietnam Footwear Summit 2017 Weave Services Ltd. · Weave Services Limited Vietnam has built a very strong 2nd place in the footwear export market with double digit growth 3 China

Maintaining competitive advantage in Vietnam footwear manufacturing

Vietnam Footwear Summit 2017Weave Services Ltd.

Weave Services Limited

This presentation aims to provide a practical roadmap to

sourcing offices and Vietnam manufacturers in getting ready

for the next 5 years


Vietnam has built a very strong 2nd place in the footwear export market with double digit growth

3

China40.3%

Vietnam11.8%

Italy7.6%

Belgium4.3%

Germany4.3%

Indonesia3.1%

Hong Kong2.8%

Spain2.6%

France2.5%

Netherlands2.2%

Large exporters of Footwear 2015 (USD B, %)

Source: Footwear exporters: http://wits.worldbank.org/CountryProfile/en/Country/VNM/Year/2015/TradeFlow/Export/Partner/all/Product/64-67_Footwear, Vietnam footwear export growth trend: 2010-2015: Trade Map http://www.trademap.org/tradestat/Product_SelCountry_TS.aspx?nvpm=1|704||||64|||4|1|1|2|2|1|1|1|1 , 2016-2020, Vietnam promotion trade agency - http://www.vietrade.gov.vn/en/index.php?option=com_content&id=2399:vietnams-footwear-industry-actively-seizes-opportunities-from-tpp-part-2&Itemid=363, http://xuatnhapkhau.wimexvietnam.com/en/news/export-news/footwear-exports-are-projected-to-increase-10-in-2017-104.html

Vietnam export of Footwear forecast 2010-2020 (USD B, %)

Vietnam as 2nd footwear exporter… …and is looking to continue to grow

26%28%

12%

16%

23%

16%

8%6%

12% 12% 12%10.0%

20.0% 20.0% 20.0%

2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F

15% 20%

Key growth drivers

FTA with EU/TPP/Korea (i.e. EVFTA, TPP, KVFTA) will be in effect in 2018

Actual Projected (no TPP) Projected (with TPP)

http://wits.worldbank.org/CountryProfile/en/Country/VNM/Year/2015/TradeFlow/Export/Partner/all/Product/64-67_Footwear

http://www.vietrade.gov.vn/en/index.php?option=com_content&id=2399:vietnams-footwear-industry-actively-seizes-opportunities-from-tpp-part-2&Itemid=363

http://xuatnhapkhau.wimexvietnam.com/en/news/export-news/footwear-exports-are-projected-to-increase-10-in-2017-104.html


Source: http://wits.worldbank.org, www.customs.gov.vn, http://www.vietrade.gov.vn

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Split of product Vietnam Footwear (Synthetics vs. Leather) Vietnam Footwear Exports February 2017 (FDI vs. Local)

Limitations to go into leather products 2 major dependencies

Vietnam export markets 2015 (%)

2.8%2.9%3.3%4.3%5.1%5.5%5.6%5.7%6.2%

33.4%

ItalyKorea, Rep.

FranceNetherlands

JapanUnited Kingdom

GermanyBelgium

ChinaUnited States

84%OEM

16%ODM

There is 2 key notes on their growth – ability to grow into other markets and dependencies to customers and capabilities

48%Leather

52% Non-Leather

’Leather factories are incapable of supplying 10% of their demand and are now working with only 25% of their capacity due to lack of materials’

- Vietnam Trade Promotion Agency

http://wits.worldbank.org/

http://www.customs.gov.vn/

http://www.vietrade.gov.vn/

Weave Services Limited 5

How long can Vietnam retain its growth?


Re-shoring is a reality and the biggest threat to Vietnam

Source: Journal of Textile and Apparel Technology and Management 2016: It’s not offshoring or re-shoring but right-shoring that matters, Nike official website, New Balance official website, Digital trends: http://www.digitaltrends.com/cool-tech/adidas-speedfactory-nike-3d-printing/

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… Growing trend across all Western markets

Adidas Speedfactory -Germany and Atlanta

0

10000

20000

30000

40000

50000

60000

70000

80000

1996

2000

2004

2008

2009

2010

2011

2012

2013

2014

2015

2016

2020

2024

2028

2032

2036

2040

# of jobs

Growth of re-shoring to US…

China, 78%

Western Europe,

13%

Canada / Mexico, 8%

India / Sri lanka, 1%

Newly added manufacturing jobs in US due to re-shoring / FDI trend

Country of origin the manufacturing jobs re-shored to US 2016

Projection

Customization on performance wear

Speed to market

Nike Sport Research Lab in US

Mass customization

New Balance made in US / UK

The West is moving for experimental to growing full production


Increase in Asia labor cost and progress in automation is accelerating the trend

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Manufacturing innovationsWage increase in Asia

Knitting technology 3D printing

Robotic production technology

294

136

148

250

133

71

380

159

285

252

229

74

Minimum wage labor cost (USD / month) – 2016 to 2020

4.0%

CAGR (2016 to 2020)

6.6%

17.9%

0.1%

14.5%

1.1%

Under Armour Lighthouse produced 1st 3D printing shoe

• Cut time to createmold from 1month to 1 day

• Drop # of labor required to assemble a shoe from 300 to 30

Primeknit and Flyknit from Nike and Adidas improve manufacturing process• 0 material yield

loss – replace “additive process” with “self-contained” process

• Reduce labor, shipping, and time, by making the product in one piece

Keen Inc., developed robotic cell UNEEK to produce shoe uppers

• 25% reduction in cycle time in assembly process

• Robots in the cell interlock cords twice as fast aswhen done manually

Source: Labour wages: Trading economics projection to 2020, Under Armour official website, Linkedin article: https://www.linkedin.com/pulse/innovative-manufacturing-process-can-disrupt-footwear-gad-krogsgaard, Assembly Magazine: http://www.assemblymag.com/articles/93672-shoe-manufacturer-automates-production-in-unique-way

2016 2020

https://www.linkedin.com/pulse/innovative-manufacturing-process-can-disrupt-footwear-gad-krogsgaard

http://www.assemblymag.com/articles/93672-shoe-manufacturer-automates-production-in-unique-way


How ready is Vietnam today?


China 2016

India 2016

Vietnam 2016

Indonesia 2016

Bangladesh 2016

Mexico 2016

China 2020F

India 2020FVietnam 2020F

Indonesia 2020F

Pakistan 2020F

Bangladesh 2020F

Mexico 2020F

-

100

200

300

400

500

600

- 5,000 10,000 15,000 20,000 25,000

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Source: World Economic Forum: Global Competitiveness Report 2016-2017, https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Manufacturing/gx-global-mfg-competitiveness-index-2016.pdf,, file:///C:/Users/edmundst/Downloads/gx_2010%20Global%20Manufacturing%20Competitiveness%20Index_06_28_10.pdf

… not supported by productivity gains

GDP per capita (PPP in USD) by Monthly wage (in USD)projection

Vietnam’s forecast growth is going to be behind where some of its competitors are now

GDP per capita (PPP in USD)

Wage (USD)

Increase in labor cost and low productivity is a prime challenge for a low cost country like Vietnam

Increasing cost of labour…

Pakistan 2016

Insight

Vietnam needs to

adopt new ways of

planning

USD/Month

$138

$294

$487

$61

$148

$266

20102011201220132014201520162017201820192020

Minimum Wage in China

Minimum Wage in Vietnam

Vietnam salary will increase 4% quicker than China by 2020

China vs. Vietnam minimum wage labor cost projection (USD/month)

-4%

https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Manufacturing/gx-global-mfg-competitiveness-index-2016.pdf

C:/Users/edmundst/Downloads/gx_2010 Global Manufacturing Competitiveness Index_06_28_10.pdf


Source: Blancas - Efficient Logistics: A Key to Vietnam's Competitiveness, http://www.developingcountrysourcing.com/vietnam-country-page/vietnam-sourcing-footwear-vertical-2/vietnam-sourcing-footwear-product-features/#.WMAcF2-GPIU, http://www.just-style.com/analysis/state-of-sourcing-2017-survey-supply-chain-shifts_id121233.aspx

Dependency on raw material is a road block to Speed to Market

… raw material is a roadblock imports

% of Leather Raw Material Imported

CPOs want Speed to Market…

Insight

Access to Raw

Material is a Roadblock to Speed

2017 C-level Sourcing Survey

% of Synthetic Raw Material imported

70%Imported

30%Local

60%Imported

40%Local

34%

44%

55%

63%

65%

Take advantage of FTA's

Quality

Increased Flexibility

Speed of Delivery

Lower Costs

What do you hope to achieve from alternative

sources of supply in 2017?

% of C-level respondents who agree

http://www.developingcountrysourcing.com/vietnam-country-page/vietnam-sourcing-footwear-vertical-2/vietnam-sourcing-footwear-product-features/#.WMAcF2-GPIU

http://www.just-style.com/analysis/state-of-sourcing-2017-survey-supply-chain-shifts_id121233.aspx


Low innovation index calls out for service based innovation

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… keep Vietnam in a OEM modelVietnam Footwear Exports February 2017 (FDI vs. Local)

Decline in innovation…

Insight

Vietnam needs to

offer Service based

innovations

World Rankings for Innovation from Global Competitiveness Index (1 = best)

China

2010 2016 2020F

World Ranking

India

Vietnam

Mexico

Bangladesh

Pakistan

Indonesia

Best

Source: Weave Analysis from World Economic Forum, Global Competitiveness Reports, 2006-2017,

0

20

40

60

80

100

120

140

84%OEM

16%ODM


To stay competitive Vietnam sourcing offices and manufacturer need to consider 3 critical factors


3 critical factors

Cost

SpeedInnovation


3 critical factors

Cost

SpeedInnovation


3 pronged approach should be considered for Vietnam

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Multi-speed supply chain

Advanced value-add market services

12

3

Optimize existing

capacity through

planning

Lean out the

operation flow to

reduce waste

Automate to

counter balance

rising labour cost

Deep dive


Balanced capacity planning is the first step towards cost reduction

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Below target SCM performances

Planning issues are addressed

Capacity planning decisions are enhanced

>60% inaccuracy at 3 months to production

OTIF <80%

>20 DOI from MD ‘target setting’ & vendor compliance

Overtime used to the maximum daily

Planning tools

Planning Skills

In-meeting coaching

BEFORE AFTER

Reduction in over time

Reduction in lost sales due to lack of capacity

45%33%


3 critical factors

Cost

Innovation Speed


Advanced raw material planning facilitates speed to market for manufacturers in Vietnam

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Raw material contributes to 75% of lead time

0 50 100

Total

Order process

Raw material

Prod planning &warehousing

Production

Risk is the prime concern

Which fabric?

What is the financial impact?

How much should I buy?

We have developed a tool to facilitate raw material planning decision

Benefits

Raw material grouping

Risk evaluation

Financial driven

70%Repeat SKU applicable for RM pre-positioning

75%Overall lead time reduction opportunity


3 critical factors

Cost

SpeedInnovation


Vendors must go beyond making shoes to provide value-added services to retailers

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Vendors must go beyond making shoes

Demand management

Fabric development

Decision solutions

Value-added services86.0%

88.0%

90.0%

92.0%

94.0%

96.0%

98.0%

4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%

Sell through

In-stock Before After Trendlines

Sell through

In-stock

10.8%

91.2%

ca 10.2%

ca 90%

85.3% 85.9%Avg forecast accuracy Improve service level

Increase inventory commitment

Benefits

Vendor-Managed-Inventory (VMI) can have significant benefits to retailers


Manufacturing transformation require people and technology -both take time to embed successfully

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Vietnam should observe the challenges Chinese factories have to upgrade themselves and start planning their today

Manufacturing Transformation

Technology Organization Capability


2017 is the year you should kick-start your transformation strategy


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