The Era of {Low Wages} = {Low Costs} Is Over
Manufacturing is becoming more globalized and its supply chain is becoming more complex. Prior to 2002, when PRONICS entered Vietnam, the main purpose of Japanese companies to procure and produce overseas was to “reduce manufacturing costs.” Raw materials are sent from Japan, processed and assembled in areas where wages are low, and finished products and semi-finished products are exported to Japan and developed countries overseas. The consumer market was outside Southeast Asia. Even considering the transportation cost, it is an era when the wages are low and the change comes, so I think that production in Southeast Asia, where the wages are low, is directly linked to the cost reduction. Of course, there is no doubt that “cost reduction” is still the most important task even nowadays. However, now Southeast Asian countries are becoming factories in the world and at the same time becoming huge markets, there are many factors in the complex supply chain that “cheap wages” cannot be “cost reduction” at all.
Unless you are a professional in supply chain construction in the purchasing / procurement department, it is difficult to consider what factors to consider. Here, we will briefly introduce the factors to be aware of when building a global supply chain.
Factors To Be Aware When Building A Global Supply Chain
Where do you procure raw materials for production?
Is it possible to procure materials in local that are planned to be procured overseas? Or do you need to import from abroad? It is necessary to calculate procurement costs not only for raw materials but also for embedded materials such as metal fittings, parts, semi-finished products, processing machines, automatic assembly machines, printing machines for post-processes, etc. The management cost will change greatly depend on whether or not you can do it.
Can it be procured locally? Will it be procured from overseas?
Can the supplier handle it? Will it be provided free of charge or for a fee?
Will you procure equipment? Will you lend it?
For suppliers who are unfamiliar with trade, it may not be possible to respond flexibly. Please note that bad suppliers may use fake materials.
Where is the destination?
It is necessary to consider the optimal transportation network for finished products to the market and semi-finished products to the assembly site.
If it is put into the local market or local factory, local production for local consumption is smooth and the commercial flow is simple. However, as a matter of course, the farther the delivery destination is, the more transportation cost will change. If the commercial distribution is decided, it is necessary to select a supplier that can handle it, and if it is necessary to consider the commercial distribution, consider multiple transportation methods, transportation costs, and transportation time for the packing specifications at the time of shipment. There is a need for a supplier who can flexibly consult and respond to the optimal transportation route.
What is the packaging for transportation? How often?
The packaging of procured items has a huge influence on transportation and transportation costs.
What is the weight and volume? Is it pallet or crate? And how often?
If it’s a small size product, the transportation cost will not be high even it’s shipped by air in cardboard packaging, and it is also possible to procure amount in bulk and reduce the transportation frequency. However, if we choose to reduce the frequency and procure by increasing the LOT volume, the warehouse cost for inventory storage would have been incurred.
In order to prevent such a situation of overturning, it is necessary to consider the commercial distribution to procure efficiently in just the time possible.
What is the transaction currency for procurement?
In the case of overseas transactions, it may not be possible to trade in Japanese yen. It is necessary to confirm the transaction currency that the supplier can handle. In addition, the transaction price will change depending on who bears the risk of exchange fluctuations. If the supplier bears the price, the estimated price will be decided in consideration of exchange fluctuations.
Since the currency Vietnam dong is weak, US dollar trading is preferred for overseas transactions. In Japan-Vietnam trade using US dollar, both parties bear foreign exchange risk. If you have a local company, please set them as the ordering party. There are many customers choosing domestic trading by ordering from branch of Pronics Japan.
How do you deal with trade operations?
The more complex your supply chain, the more you need to be responsive to trade operations. In the case of local suppliers, there are some supplier that they are unfamiliar with such a response. For example, “three side trading”. In some cases, some inquiries to the PRONICS Group may select three side trading in which cargo does not go through the seller to reduce transportation costs and delivery times. Since the declared price different between export and import, INVOCE replacement will be required before the import and after export. For suppliers who have no practical experience in this Switching Invoice business, there are disadvantages such as the purchase price being discovered by the buyer and the import declaration being made at the export price and the tax declaration being amended later.
It is also important to deal with preferential tariffs. As many countries, including Japan, deepen their economic partnerships such as EPAs and FTAs, they must be able to apply for preferential tariffs as an exporter. Of course, the tariff rate also changes depending on the HS code (import / export statistical item number). In some cases, traders do not choose the right HS code for their trading products resulting in high tariffs.
The PRONICS Group, which has branches in Japan, Vietnam, Thailand, and China that can manufactures in each company, we offer flexible commercial distribution options that meet the needs of business partners, not just bilateral transactions. You can choose. Please contact PRONICS to find out what kind of commercial distribution and support is possible may depending on the procured items.
