Changing retail logistics in vietnam

Changing retail logistics in vietnam

Retail has been at the forefront of economic development in Vietnam in recent years. According to AT Kearney's Global Retail Development Index (GRDI), Vietnam ranked 30th last year, down from ninth in 2009, reflecting the impact of the global economic slowdown. Despite that setback, the potential for growth is still there based on the high ratio of affluent young professionals and a steady increase of new middle-class consumers, especially in urban areas.

The Vietnamese retail logistics sector has been following that of Thailand by 5-10 years but the rate of catch-up is starting to accelerate more than most people realise.

Balancing supply and demand: Two of the main drivers of the retail sector in Vietnam are the establishment of end-to-end supply chain awareness and a serious investment in multi-modal logistics infrastructure as a backbone to support development at controllable costs. This has elevated the importance of logistics within retail organisations, which can now focus on improving their sourcing effectiveness (supply side). This in turn allows for responsive adaptation to the increasing complexity and changing requirements from consumers (demand side).

Retail network optimisation and SCM simulation tools: Retail logistics performance depends heavily on a supplier's ability to adapt to the changing requirements across all its trading channels. In Vietnam, local availability of products throughout the country is a key issue as most manufacturing is concentrated around the two main cities, Ho Chi Minh and Hanoi.

More importantly, the trade flow from South to North is still much higher than in the opposite direction, which results in utilisation inefficiencies, high transport costs and long lead-time pressure. Smart retailers are now turning to network optimisation and cost simulation tools to find the right balance between sourcing, stock-holding locations and selecting the optimal mix of transport and distribution methods. They need to service outlets nationwide in the most cost-effective way while achieving highest in-store availability.

Establishing the correct assortment and service levels is essential to be able to supply an entire market properly, but it may increase the "cost to serve" or result in high inventory carrying costs. Successful use of optimisation tools helps retailers match the most efficient sourcing strategy with an optimised distribution network.

Measuring the value of service providers: Logistics service providers (LSPs) are primarily driven by logistics KPIs (Key Performance Indicators) i.e. "Deliver the right quantity at the right quality at the right time at the right cost". The best LSPs are those able to offer a wide range of value-added services that contribute to the efficiency of the entire supply chain.

Retail logistics is highly dependent on developing tailor-made solutions that can embrace different levels of complexity. As an example, when items are picked in a warehouse they can be either dispatched in individual pieces, as part of a bundle, or in a full carton or case. Added complexity is faced when a warehouse is required to dispatch multiple items in different quantities to multiple destinations, and at the same time bundle promotional items with products.

There are many regulations controlling the labelling of imported goods, and often pre-packing of food items can alter the original labelling. All these value-added services provided by an LSP should also come with the correct IT system that can follow and match huge volumes of retail store orders.

Advice for newcomers: The retail market in Vietnam is evolving rapidly. New outlets, alternate concepts and modern formats are appearing as many regional operators (particularly from Thailand) open up in Vietnam and in turn challenge the retail logistics capabilities in place.

The growth of convenience shopping and quick-service restaurants with multiple outlets in cities is also challenging in terms of supply chain efficiency, as the back-end logistics needs are quite different. New business models focusing on fast food or impulse consumption concepts are also highly demanding in terms of quick-response supply at controllable cost. As well, emerging requirements for food safety across the supply chain will continue to be a very interesting development to follow.

New games, new rules: In parallel, new delivery models are directly affecting Vietnam as a country where "door to door", highly personalised delivery services have been a common practice in traditional trade. Retailers that can successfully emulate this highly personalised traditional delivery service will also gain a key advantage in the market, enhancing their reputations and building trust in their brands.

Retail logistics is mainly about two main supply chain essentials: cost to serve and inventory management. Retailers who take these key factors seriously and restore the supply chain to the heart of their commercial decision-making will gain a strategic advantage that can pay off in the consumers' share of wallet.

Although lagging in many areas compared to Thailand, the retail logistics market in Vietnam is fast catching up, has vastly lower cost structures and an eager, hard-working labour force. The future is bright.

Mathilde Tran Van ( is a retail supply chain manager and in 2012 received the Vietnam Supply Chain Professional of the Year award. The Link is coordinated by Barry Elliott and Chris Catto-Smith CMC of the Institute of Management Consultants Thailand. We welcome all input, questions, feedback and news at:

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