Lean manufacturing in Vietnam: opportunities and challenges

Businesses around the world are switching to lean manufacturing in favor of maximum efficiency. Here's why companies in Vietnam should, too.

Lean manufacturing is a production model based on the idea of increasing productivity and reducing waste while manufacturing. If there’s anything that doesn’t augment the worth of the product in terms of cost, it is considered a waste as per the lean manufacturing principle. The lean manufacturing methodology currently implemented encompasses various manufacturing principles that have influenced production systems in Vietnam, covering industries like healthcare, software, and various other service industries.

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Vietnam’s growing manufacturing sector 

As of May 2022, Vietnam’s Manufacturing Purchasing Managers Index (PMI) rose to 54.7 from a six-month slump of 51.7 in April. It represents the eighth straight month of growth and the most potent expansion since April 2021. Moreover, as the COVID-19 scenario improved, export orders witnessed a spike. There was also a surge in employment, not seen since April 2021.

Costs, both input as well as output, have risen at a very slow rate in the last few months despite the hike in the oil and gas charges. Customers’ confidence has risen to its highest level since January, with optimistic forecasts for production. This kind of financial scenario presents an opportunity to explore the viability of lean manufacturing in Vietnam. 

Read more about Vietnam’s opportunities in the manufacturing sector

Benefits of Lean manufacturing

Manufacturers have never been more concerned with efficiency than they are today. Those in many developed countries suffer from a competitive disadvantage in comparison with their global counterparts in places like China, India, and Indonesia due to higher costs of doing business. Lean manufacturing is one such solution that can maximize productivity and reduce waste. Some other advantages of lean manufacturing are as follows:

1. Cost-effective Structure

Cost-cutting is one of the greatest advantages of lean manufacturing. There can be a better allocation of resources, workflows, storage as well as production which will help businesses in the long run, irrespective of output or size. As a result, increased depth in workforce specialization can directly induce cost reduction. 

2. Environmentally Conscious Methodologies

Reduction of wastage in time and resources helps in leaving unnecessary processes out. It controls the costs of energy and fuel use. This leads to an evident environmental benefit, as does the use of more energy-efficient types of equipment, which can also offer cost savings.

3. Improved Customer Satisfaction

By upgrading the standard of product delivery and service, you can deliver greater customer satisfaction. A satisfied customer will give you recurring sales as well as recommend your services to others.

Lean manufacturing and Vietnamese SMEs

After close examination of 122 SMEs in Vietnam by Huong Thu Pham, it was found that a higher adoption rate in the lean model creates an increasingly adjusting organizational framework. This in turn leads to more coordination across departments which creates a favorable space for more innovation. Although, longer engagement with lean culture might also inflict a negative impact on innovation, according to the study.

As per the results of this study, lean management works well with lesser streamlined, more lateral, and lesser hierarchical structures. Radical innovation is possible in this kind of management model owing to the organizational flexibility permitted by this model.

RELATED: Shifting your Contract Manufacturing from China to Vietnam

Why Lean manufacturing has yet to succeed in Vietnam 

After substantial research by Nguyen Dang Minh and Nguyen Thi Van Ha, it was found that there are several hurdles in the application of lean manufacturing in the country due to Vietnam’s socio-economic environment. For several firms, it can be very challenging to sustain a consistent mindset for self-improvement with the efficient application of lean manufacturing. According to the authors, “Tam The” was identified as the key concept after several investigations done on lean management in Vietnam for the last fourteen years. This can be thought of as a thorough understanding of the implications of the lean approach for the workflow, formed inside the employees as well as employers.

Many companies do not have an appropriate understanding of the lean management framework such as the set standards for executing 5S (Sort, Set in Order, Shine, Standardize and Sustain). In other words, not all companies have the mechanisms or the tools to gauge the success of lean management. Thus, they are not in a position to analyze either the efficacy or suggest better ways to make the business a success. Although many business owners, as well as entrepreneurs, have understood the importance of lean manufacturing they have not created the business infrastructure to include 5S and Kaizen to develop corporate culture. 

The role of Human Resources Management in Lean manufacturing 

HR has a pivotal role to play in adopting lean management policies. Some factors that can help support businesses going lean are as follows:

1. Building teams as a support system

Any commercial organization will eventually find it necessary to work as a team to engage and understand the nuances of the new approach together. The team members would require standard tools, common language, and ideology. 

2. Creation and explanation of metrics

Metrics help evaluate the progress made by the organization in the implementation of the lean approach. If you are a company aiming for lean management, you will have to specify several criteria such as ownership, decision-making, payments, customer service, etc. to make use of the framework successfully.

3. Creating a proper channel of communication

First and foremost, the employees need to be briefed about their roles. This has to be done in a clear and comprehensive manner to ensure efficiency. Secondly, there needs to be appropriate channels of communication to ensure that there is interdepartmental collaboration and knowledge transfer.

4. Appreciate success

Initially, there might be a lot of problems before implementation goes into full swing. With time and sincere acknowledgment of improvements being made consistently, the goal of fully embracing lean management can be successful.  

How Cekindo can help

Cekindo is a leading provider of global market entry services in Southeast Asia. We are part of InCorp Group, a regional leader in corporate solutions, encompassing 8 countries across Asia while headquartered in Singapore. With over 500 legal experts serving over 12,000 Corporate clients across the region, our expertise speaks for itself. We provide transparent legal consulting, setup and advice based on local requirements to help your business fully integrate into the market with healthy growth.

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Verified by:​

Thanh (Tim) Ta

Tim Ta is the Head of the Business Consulting Department of Incorp Vietnam. He is a seasoned professional with more than 6 years of consulting experience in Vietnam for market entry, incorporation, and real estate investment.