Introduction

For the manufacturing industry to maintain and strengthen its international competitiveness, procurement strategy is the most critical factor, influencing 60-70% of product costs. The way a procurement network is constructed significantly impacts not only raw material costs but also lead times, inventory levels, cash flow, and even the carbon footprint. With global geopolitical risks and logistical disruptions becoming the norm, there is an accelerating movement to reassess procurement strategy not merely as a cost center, but as a strategic investment area for enhancing corporate value.

This article is primarily intended for managers in charge of purchasing, supply chains, and overseeing local factories in Vietnam. As Vietnam’s industrial structure shifts from labor-intensive to technology-intensive, and while policies to foster supporting industries provide a tailwind, challenges such as quality assurance and variations in supplier capabilities remain. Within this context, the decision of “which parts to source locally and which to procure from overseas” is becoming increasingly complex.

This article clearly defines two approaches: 1) “Local Sourcing,” which involves purchasing materials locally, and 2) “Global Sourcing,” which pursues optimal prices and technologies across borders. We will compare the merits and risks of both. Furthermore, we will present a framework for a hybrid utilization that considers product life cycles, exchange rate trends, and sustainability requirements, providing readers with perspectives to build an optimal procurement portfolio for their own companies.

Overall Picture of Procurement Strategy and Latest Trends

As supply chains are exposed to rapid changes in geopolitics, the environment, and markets, procurement managers are required to design strategies that achieve a balance between cost minimization, resilience, and sustainability. In Vietnam, in particular, moves to restructure procurement networks are prominent, driven by the need to break away from dependence on China and optimize within the ASEAN region.

Supply Chain Resilience and TCO Optimization

• The Trend Towards Resilience: External shocks such as the COVID-19 pandemic, the Suez Canal obstruction, and US-China friction have highlighted the risks of depending on a single region. Major manufacturing companies, both Japanese and Western, are accelerating the dispersion of their bases to multiple locations, including Vietnam, as part of a “China Plus One” strategy.
• Redefining TCO (Total Cost of Ownership): An increasing number of companies are evaluating suppliers based on the Total Cost of Ownership, which includes not only the unit price of parts but also logistics costs, inventory holding costs, quality defect costs, and carbon pricing. For example, in response to the EU’s CBAM (Carbon Border Adjustment Mechanism) and corporate obligations to calculate Scope 3 emissions, supplier selection that even considers CO₂ emission factors is becoming standard.
• Utilization of Digital and IoT: By combining cloud ERP with a supply chain control tower, companies can visualize production and inventory data from each base in real-time. When demand changes suddenly, they can instantly simulate “where, at what cost, and how much” to produce, enabling operations that seek the minimum solution for TCO and risk.

Point: Resilience does not necessarily mean increased costs. When comparing TCO including inventory reduction through shorter lead times and yield improvement, there are many reported cases where a combination of distributed production and local sourcing proves to be more cost-effective in the medium to long term.

Restructuring Around Vietnam Procurement and the ASEAN Shift

• Geographical Advantage and FTA Network: Vietnam is located at the center of Southeast Asia and has more than 15 Free Trade Agreements (FTAs) in effect, including RCEP, CPTPP, and EVFTA. Because it can simultaneously enjoy duty-free access within the ASEAN region and tariff reductions for exports to Europe, it is highly regarded as a trade hub for both finished products and parts.
• Evolution of Industrial Clusters: Suppliers, including those from China and Taiwan, in sectors like textiles, electronics, and automotive parts are advancing into the areas around Ho Chi Minh City and Hanoi, forming vertically integrated supply chains.
• Policies to Strengthen Supporting Industries: The Vietnamese government has set an industrial policy to raise the manufacturing sector’s share of GDP to 30% by 2030, expanding infrastructure for industrial parks and incentives for technology transfer. The number of local companies obtaining ISO/IATF 16949 certification is also increasing, expanding the options for local sourcing in terms of both quality and cost.

Practical Tips: To ride the wave of the ASEAN shift, setting up FTA Certificates of Origin and HS Code optimization is essential. Collaborating with logistics providers and customs brokers from the initial procurement stage to visualize tariff and CO₂ costs during the simulation phase allows for strategic planning without backtracking.

Merits and Risks of Local Sourcing in Vietnam

Merits of Local Sourcing: Short Lead Times, Flexible Production, Local Costs

The greatest strength of utilizing local suppliers lies in the ability to make the supply chain “shorter and leaner.” By reducing transport distances from hundreds of kilometers to tens of kilometers, lead times are shortened by an average of 3-5 days, and inventory turnover also improves. Furthermore, Vietnam’s well-developed port and airport infrastructure as a logistics hub in Southeast Asia facilitates easy transport to neighboring ASEAN countries and southern China.

The specific merits are as follows:

• Short Lead Times & Low Inventory: Enables just-in-time procurement locally, leading to expected cash flow improvements through inventory compression.
• Adaptability to Flexible Production: Since transport costs do not escalate even with small-lot, high-mix production, it is particularly effective during the product launch phase.
• Low-Cost Structure: In addition to manufacturing costs, centered on labor, being at a level of 1/3 to 1/5 of Japan’s, transport costs can also be significantly reduced.
• FTA Incentives: By meeting the rules of origin for agreements like EVFTA and RCEP, it is possible to achieve zero tariffs on finished product exports and reduce carbon costs.

Tip: An increasing number of companies are sharing operational status and quality data using IoT sensors to visualize the processes of local suppliers. This creates a virtuous cycle where yield improvement leads to cost optimization.

Demerits of Local Sourcing: Quality Fluctuation, Technology Gaps, Lack of Scale

On the other hand, local sourcing comes with the following risks:

• Variability in Quality Control: Many factories have not obtained international certification, and there is a risk of high defect rates persisting.
• Technology and Standards Gaps: There are opinions that for high-precision processing and special materials, the options are limited compared to suppliers in China and Taiwan.
• Insufficient Production Scale: There are cases where capacity cannot keep up during the mass production ramp-up, resulting in a switch to global sourcing.
• Stagnation of Local Procurement Rate: The local procurement rate for Japanese companies has remained flat at around 37%, with procurement from local Vietnamese companies, in particular, staying at about 15%.

Risk Mitigation Measures: Supplier audits, the introduction of PPAP (Production Part Approval Process), establishing a backup system through multiple sourcing, and joint investment in technology transfer and education programs are effective.

Case Study: Improving Local Procurement Rate through Business Matching in Dong Nai Province

In Dong Nai Province in southern Vietnam, the People’s Committee and the Japan Chamber of Commerce and Industry in Ho Chi Minh City (JCCH) have been holding business matching events for the manufacturing industry since 2017. At the event in November 2024, 42 Vietnamese companies with strengths in metal processing and plating participated. A method was adopted where the needs of Japanese companies were heard in detail from the exhibitor selection stage.

• About 80% of participating Japanese companies responded that they “felt positive about expanding business,” and on average, started new business with 2-3 local companies.
• It is reported that the local procurement rate of the host province, Dong Nai, is expected to improve from 37% to the 40% range.
• The Kinki Bureau of Economy, Trade and Industry and regional banks also signed memorandums of cooperation, strengthening the support system for fostering supporting industries in terms of finance, human resources, and technology.

This case demonstrates that by resolving the fundamental problem that “the issue is a lack of matching opportunities,” the local procurement rate can be steadily increased. For our readers, clarifying your own company’s needs and actively utilizing the support schemes of industry associations and government agencies will be a shortcut to success.

Global Sourcing’s Price Competitiveness and Geopolitical Risks

Merits of Global Sourcing: Price Competitiveness, Mass Production, Multi-location Diversification

Utilizing large-scale overseas suppliers, it is not uncommon for part unit prices to be compressed by 10-30% due to economies of scale. Mega-suppliers in China, India, and Mexico have state-of-the-art automated lines and 24-hour operational systems to supply large lots in a short period, making them ideal for stable procurement in the mass production phase.

• Price Competitiveness: Through bulk purchasing of raw materials and the depreciation effect of their own equipment, they can offer some of the lowest prices on the global market.
• Quality Stability through Mass Production: They minimize variability through Statistical Process Control (SPC) and automated inspection machines, meeting the quality requirements of global OEMs.
• Multi-location Diversification: An increasing number of suppliers have factories in multiple countries within the same group. “Inter-factory BCP” is implemented, allowing production bases to be switched in case of sudden demand changes or disasters.
• Expansion of Technology Portfolio: By incorporating suppliers strong in emerging fields such as EVs, 5G, and semiconductor equipment, companies can accelerate their own product development speed.

Tip: Assessing the factory layout and automation rate of a procurement source in advance makes it easier to gauge the potential for future cost reduction (experience curve effect).

Demerits of Global Sourcing: Logistics, Currency, and Geopolitical Risks

• Long Lead Times and High Logistics Costs: Sea freight has a lead time of 30-45 days, with the risk of further delays due to container shortages and port congestion. Switching to air freight can cause costs to jump 8-10 times.
• Currency Fluctuation Risk: As transactions are mainly in US dollars, part costs can be pushed up by several to tens of percent during periods of yen or dong depreciation. Hedging through forward exchange contracts or CPI clauses is essential.
• Geopolitical Risk and Regulatory Strengthening: Due to US-China friction and economic security-related laws, sudden export restrictions or additional tariffs can occur. Parts that cross sanctioned countries/regions require special attention.
• Heightened Sustainability Requirements: Due to the externalization of carbon costs, represented by Europe’s CBAM, and corporate obligations to disclose Scope 3 emissions, long-distance transport itself can become a cost and brand risk.

Risk Mitigation Measures: The impact can be mitigated by combining multi-region sourcing (dual/triple sourcing), reviewing Incoterms, using currency basket settlements, and CO₂ offset contracts.

“China Plus One” Strategy and the Latest Cases of the Vietnam Shift

China, the world’s largest supplier base, is at the center of the “China Plus One” strategy, where companies are diversifying their production and procurement bases due to recent rises in labor costs (annual average of 5-7%) and increased tariff and sanction risks. Vietnam is attracting the most attention as the recipient of this shift.

• Electronics: Mass production of key components for Apple’s AirPods and Google’s Pixel series has begun in Vietnam. EMS giants Foxconn and Luxshare have made successive additional investments in the north.
• Automotive Parts: In 2024, Toyota transferred part of its wire harness supply to a Japanese Tier 1 supplier in the north-central region to supplement European production lines disrupted by the situation in Ukraine.
• Apparel & Footwear: Nike and Lululemon have increased their production ratio in Vietnam by 5-8 percentage points to avoid delay risks.
• Investment Statistics: In 2024, the approved FDI amount for Vietnam’s manufacturing industry increased by 42% year-on-year (approx. 25 billion USD), marking a record high. Semiconductor packaging and electric mobility-related investments were the driving force.

Implication: Positioning Vietnam as a “second mother plant” and adopting a “relay-style” procurement model—starting mass production in Vietnam and then diversifying to global giants during the demand expansion phase—is effective.

Framework for Balancing Procurement Strategies

Evaluation Method Based on Cost, Quality, Delivery, and Risk

1. Create a Scoring Table: Score cost (unit price, logistics, tariffs), quality (defect rate, certification), delivery (average lead time, delay rate), and risk (currency, disaster, political) on a scale of 1-5.
2. Set Weights: Change the weighting according to the phase, such as prioritizing delivery for prototypes and cost for mass production.
3. Calculate Overall Score: Rank candidates by the sum of (Score × Weight).
4. Conduct Scenario Analysis: Assume scenarios such as a 10% currency fluctuation or a 20% increase in freight charges to check sensitivity.

Point: Quantifying in this way facilitates consensus-building among related departments such as purchasing, quality, and development.

Product Lifecycle × Procurement Scope Matrix

Phase	Parts Suitable for Local Sourcing	Parts Suitable for Global Sourcing
Prototype/Small Lot	Jigs, prototype parts, general-purpose screws	High-value single parts, special materials
Mass Production Ramp-up	Parts requiring customization	Standardized mass-produced items
Mature Stage	Small-lot parts for after-sales service	High-volume standard items (cost-focused)
Obsolescence/EOL	Parts for local repair	Special parts that are difficult to replace

By updating this map as phases transition and reviewing “when, what, and from where” to procure, you can prevent the strategy from becoming obsolete.

Real-time Decision Making with IoT and Data Utilization

• Control Tower: Integrates with cloud ERP to manage supplier operating rates, inventory, and transport status on a single dashboard.
• Digital Twin: Automatically simulates demand forecasts and production plans daily to propose optimal order lots and transport modes.
• Mobile Field Reporting: Instantly shares inspection data and photos of defects to contain quality problems early.

Tip: A “small start” beginning with sensors, the cloud, and existing spreadsheet software is the classic pattern that makes it easy to visualize ROI (Return on Investment).

[Practical Guide] Supplier Selection and Tariff Optimization in Vietnam

Selection and Quality Management of Local Suppliers (Audit, Prototype, PPAP)

When partnering with local companies, it is crucial to build in quality through a 4-step process: “Audit → Prototype → PPAP (Production Part Approval Process) → Mass Production Monitoring.”

1. Pre-assessment Audit (Supplier Audit)
   • Check equipment capability, measuring instrument calibration, and ISO/IATF 16949 certification status.
   • Confirm similar parts with mass production records and list items requiring correction (NC/NR).
2. Prototype Build
   • Share drawings and specifications, and evaluate processing accuracy, surface treatment, and packaging condition with a small prototype batch.
   • For defect analysis, use methods like “5 Whys” and “8D Reports” to clarify recurrence prevention measures.
3. PPAP (Production Part Approval Process)
   • Have them submit a set of documents including a control plan, MSA, FMEA, and first article inspection report.
   • Sharing history management on the cloud facilitates tracking after mass production begins.
4. Mass Production Monitoring (SQM)
   • Review PPM (parts per million defects) indicators monthly, and conduct on-site audits if thresholds are exceeded.
   • Visualize process capability (Cpk) in real-time with SPC or IoT sensors and immediately alert for abnormalities.

Practical Tip: Standardizing forms like the QC seven tools used by the supplier side in a bilingual Japanese-Vietnamese format can minimize information transmission loss.

Utilization of FTA/EVFTA and Tariff Optimization

Vietnam has more than 15 Free Trade Agreements (FTAs) in effect, including RCEP, CPTPP, and EVFTA. By utilizing certificates of origin, it is possible to reduce average tariffs of 5-10% to zero.

• HS Code Optimization: For items like screws (HS 7318), tariffs will be 0% by 2025 under the EVFTA. As applicable rates differ by destination country and item, first estimate the reduction amount with a tariff simulator.
• Rules of Origin Cumulation: Using ASEAN cumulation rules, materials originating from Thailand or Malaysia can also be certified as originating from within the region.
• Issuance Flow for Form E / EUR.1: Prepare the necessary documents (invoice, packing list, BOM) and apply electronically to the Chamber of Commerce to obtain it in 1-2 days.
• Triangle Trade: When reselling via Hong Kong or Singapore, pay attention to the consistency of documentary evidence for triangular trade (e.g., consistency of the issuing entity for the BL, CO, and invoice).
• Minimizing Tariff + CO₂ Costs: Calculate the TCO by combining the tariff reduction from EVFTA with the purchase cost of EU CBAM credits to determine the optimal transport route.

Practical Tip: Collaborating with the finance department to set KPIs for the amount of FTA utilization versus non-utilization will increase persuasiveness when reporting to management.

Case Study: Ohta Vietnam’s Fastener Procurement Support

Ohta Vietnam provided specialized procurement support for fasteners such as screws, bolts, and nuts, helping Japanese automated machine manufacturer Company A improve its cost competitiveness.

Item	Before Introduction	After Introduction (Ohta Intervention)
Main Procurement Source	2 companies in coastal China	3 companies in northern Vietnam + 1 emergency source in China
Purchase Unit Price	100%	85% (15% reduction)
Lead Time	35 days by sea	7 days by land (80% shortening)
Quality Index (PPM)	1,200	50
CO₂ Emissions (t-CO₂/year)	120	45

Introduction Process

1. Requirement Definition: Standardized specifications for 120 types of M8-M16 hexagon bolts based on the mechanical properties of JIS B 1180 / ISO 898-1.
2. Supplier Screening: Selected 3 companies from 28 domestic firms based on equipment, certification, and price.
3. Prototype & PPAP: Ohta engineers conducted on-site jig and torque measurements to guarantee 24 characteristic values.
4. VMI (Vendor-Managed Inventory): Placed a two-week safety stock in the Ohta warehouse, with domestic delivery for urgent cases within 24 hours.
5. Continuous Improvement: Achieved a zero-defect line by collecting fastening data through IoT integration of torque drivers.

Results: Achieved a 15% cost reduction, an 80% shortening of lead time, and a significant improvement in PPM to 50. Furthermore, it reduced CO₂ emissions by 75 tons annually, contributing to the client’s Scope 3 report.

Conclusion

Achieving Competitive Advantage with Hybrid Procurement

Local sourcing and global sourcing are not an either-or choice. A hybrid strategy that flexibly combines them according to the product lifecycle and market fluctuations is what creates the highest competitive advantage. By securing short lead times, low inventory, and sustainability through local sourcing, while capturing price competitiveness and technological superiority through global sourcing, the following synergies can be expected:

• TCO Optimization: Comprehensively suppresses transport costs, inventory costs, and tariff costs, boosting the CFO metric EBITA.
• Risk Diversification: Creates multi-axis redundancy in terms of regions and suppliers against geopolitical risks and logistics delays.
• Market Responsiveness: Allows for flexible use, such as rapid supply from local suppliers during sudden demand surges and large-volume supply from global sources during normal demand.
• Promotion of Carbon Neutrality: Reduces Scope 3 emissions through the use of short-distance transport and rules of origin.

Conclusion: For the modern manufacturing industry that must simultaneously pursue multiple important goals—cost, quality, delivery, and sustainability—hybrid procurement is the most effective strategic option.

Practical Checklist and Next Actions

#	Checkpoint	Specific Action	Responsible Department
1	Grasp Current Supply Chain Status	Visualize local/overseas ratio & key KPIs (lead time, PPM, CO₂)	Purchasing + SCM
2	Score Risks & Costs	Quantify currency, logistics, & political risks and conduct scenario analysis	Finance + Purchasing
3	Map Suppliers	Update the lifecycle × procurement scope matrix	Development + Purchasing
4	Optimize FTAs & Tariffs	Review HS codes and establish a flow for obtaining certificates of origin	Tax + Logistics
5	Consider Digital Twin Introduction	Plan for IoT sensor installation and trial operation of a dashboard	IT + Factory Management
6	Create Continuous Improvement Roadmap	Set annual KPIs (e.g., 5% TCO reduction, 50% PPM improvement)	Corporate Planning

Next Steps

1. Use this checklist to identify current gaps.
2. Test hybrid procurement on a pilot line (e.g., fasteners) within three months.
3. Visualize the results with KPIs and expand to all lines within a year.
4. Link IoT data to EU CBAM and Scope 3 reporting and reflect it in sustainability reports.
5. Update the matrix and weights in an annual review to maintain the strategy’s relevance.

The time to act is now. Use this article as a roadmap to build a sustainable competitive advantage with hybrid procurement.