{"id":4842,"date":"2025-11-07T10:00:44","date_gmt":"2025-11-07T01:00:44","guid":{"rendered":"https:\/\/ohtavn.com\/?post_type=media&p=4842"},"modified":"2025-11-21T13:09:41","modified_gmt":"2025-11-21T04:09:41","slug":"differentiation-between-local-and-global-procurement","status":"publish","type":"media","link":"https:\/\/ohtavn.com\/en\/media\/differentiation-between-local-and-global-procurement\/","title":{"rendered":"Differentiation between local and global procurement: Optimal manufacturing strategy"},"content":{"rendered":"
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Introduction<\/span><\/h3>\n

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.<\/span><\/p>\n

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.<\/span><\/p>\n

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.<\/span><\/p>\n

Overall Picture of Procurement Strategy and Latest Trends<\/span><\/h3>\n

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, <\/span>resilience<\/span><\/strong>, and <\/span>sustainability<\/span><\/strong>. 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.<\/span><\/p>\n

Supply Chain Resilience and TCO Optimization<\/span><\/h4>\n
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  • The Trend Towards Resilience<\/span><\/strong>: 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.<\/span><\/li>\n
  • Redefining TCO (Total Cost of Ownership)<\/span><\/strong>: 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 <\/span>logistics costs<\/span><\/em>, <\/span>inventory holding costs<\/span><\/em>, <\/span>quality defect costs<\/span><\/em>, and <\/span>carbon pricing<\/span><\/em>. 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 <\/span>CO\u2082 emission factors<\/span><\/em> is becoming standard.<\/span><\/li>\n
  • Utilization of Digital and IoT<\/span><\/strong>: 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.<\/span><\/li>\n<\/ul>\n

    Point<\/span><\/strong>: Resilience does not necessarily mean increased costs. When comparing TCO including <\/span>inventory reduction through shorter lead times<\/span><\/em> and <\/span>yield improvement<\/span><\/em>, 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.<\/span><\/p><\/blockquote>\n

    Restructuring Around Vietnam Procurement and the ASEAN Shift<\/span><\/h4>\n
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    • Geographical Advantage and FTA Network<\/span><\/strong>: 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.<\/span><\/li>\n
    • Evolution of Industrial Clusters<\/span><\/strong>: 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.<\/span><\/li>\n
    • Policies to Strengthen Supporting Industries<\/span><\/strong>: 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.<\/span><\/li>\n<\/ul>\n

      Practical Tips<\/span><\/strong>: To ride the wave of the ASEAN shift, setting up <\/span>FTA Certificates of Origin<\/span><\/em> and <\/span>HS Code optimization<\/span><\/em> is essential. Collaborating with logistics providers and customs brokers from the initial procurement stage to visualize tariff and CO\u2082 costs during the simulation phase allows for strategic planning without backtracking.<\/span><\/p><\/blockquote>\n

      Merits and Risks of Local Sourcing in Vietnam<\/span><\/h3>\n

      Merits of Local Sourcing: Short Lead Times, Flexible Production, Local Costs<\/span><\/h4>\n

      The greatest strength of utilizing local suppliers lies in the ability to make the <\/span>supply chain “shorter and leaner.”<\/span><\/strong> 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.<\/span><\/p>\n

      The specific merits are as follows:<\/span><\/p>\n

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      • Short Lead Times & Low Inventory<\/span><\/strong>: Enables just-in-time procurement locally, leading to expected cash flow improvements through inventory compression.<\/span><\/li>\n
      • Adaptability to Flexible Production<\/span><\/strong>: Since transport costs do not escalate even with small-lot, high-mix production, it is particularly effective during the product launch phase.<\/span><\/li>\n
      • Low-Cost Structure<\/span><\/strong>: 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.<\/span><\/li>\n
      • FTA Incentives<\/span><\/strong>: 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.<\/span><\/li>\n<\/ul>\n

        Tip<\/span><\/strong>: 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.<\/span><\/p><\/blockquote>\n

        Demerits of Local Sourcing: Quality Fluctuation, Technology Gaps, Lack of Scale<\/span><\/h4>\n

        On the other hand, local sourcing comes with the following risks:<\/span><\/p>\n

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        • Variability in Quality Control<\/span><\/strong>: Many factories have not obtained international certification, and there is a risk of high defect rates persisting.<\/span><\/li>\n
        • Technology and Standards Gaps<\/span><\/strong>: There are opinions that for high-precision processing and special materials, the options are limited compared to suppliers in China and Taiwan.<\/span><\/li>\n
        • Insufficient Production Scale<\/span><\/strong>: There are cases where capacity cannot keep up during the mass production ramp-up, resulting in a switch to global sourcing.<\/span><\/li>\n
        • Stagnation of Local Procurement Rate<\/span><\/strong>: 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%.<\/span><\/li>\n<\/ul>\n

          Risk Mitigation Measures<\/span><\/strong>: 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.<\/span><\/p><\/blockquote>\n

          Case Study: Improving Local Procurement Rate through Business Matching in Dong Nai Province<\/span><\/h4>\n

          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.<\/span><\/p>\n

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          • 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.<\/span><\/li>\n
          • It is reported that the local procurement rate of the host province, Dong Nai, is expected to improve from 37% to the 40% range.<\/span><\/li>\n
          • 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.<\/span><\/li>\n<\/ul>\n

            This case demonstrates that by <\/span>resolving the fundamental problem that “the issue is a lack of matching opportunities,”<\/span><\/strong> 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.<\/span><\/p>\n

            Global Sourcing’s Price Competitiveness and Geopolitical Risks<\/span><\/h3>\n

            Merits of Global Sourcing: Price Competitiveness, Mass Production, Multi-location Diversification<\/span><\/h4>\n

            Utilizing large-scale overseas suppliers, it is not uncommon for part unit prices to be compressed by 10-30% due to <\/span>economies of scale<\/span><\/strong>. 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.<\/span><\/p>\n

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            • Price Competitiveness<\/span><\/strong>: 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.<\/span><\/li>\n
            • Quality Stability through Mass Production<\/span><\/strong>: They minimize variability through Statistical Process Control (SPC) and automated inspection machines, meeting the quality requirements of global OEMs.<\/span><\/li>\n
            • Multi-location Diversification<\/span><\/strong>: 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.<\/span><\/li>\n
            • Expansion of Technology Portfolio<\/span><\/strong>: By incorporating suppliers strong in emerging fields such as EVs, 5G, and semiconductor equipment, companies can accelerate their own product development speed.<\/span><\/li>\n<\/ul>\n

              Tip<\/span><\/strong>: 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).<\/span><\/p><\/blockquote>\n

              Demerits of Global Sourcing: Logistics, Currency, and Geopolitical Risks<\/span><\/h4>\n
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              • Long Lead Times and High Logistics Costs<\/span><\/strong>: 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.<\/span><\/li>\n
              • Currency Fluctuation Risk<\/span><\/strong>: 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.<\/span><\/li>\n
              • Geopolitical Risk and Regulatory Strengthening<\/span><\/strong>: 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.<\/span><\/li>\n
              • Heightened Sustainability Requirements<\/span><\/strong>: 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.<\/span><\/li>\n<\/ul>\n

                Risk Mitigation Measures<\/span><\/strong>: The impact can be mitigated by combining multi-region sourcing (dual\/triple sourcing), reviewing Incoterms, using currency basket settlements, and CO\u2082 offset contracts.<\/span><\/p><\/blockquote>\n

                “China Plus One” Strategy and the Latest Cases of the Vietnam Shift<\/span><\/h4>\n

                China, the world’s largest supplier base, is at the center of the <\/span>“China Plus One”<\/span><\/strong> 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.<\/span><\/p>\n

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                • Electronics<\/span><\/strong>: 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.<\/span><\/li>\n
                • Automotive Parts<\/span><\/strong>: 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.<\/span><\/li>\n
                • Apparel & Footwear<\/span><\/strong>: Nike and Lululemon have increased their production ratio in Vietnam by 5-8 percentage points to avoid delay risks.<\/span><\/li>\n
                • Investment Statistics<\/span><\/strong>: 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.<\/span><\/li>\n<\/ul>\n

                  Implication<\/span><\/strong>: Positioning Vietnam as a “second mother plant” and adopting a “relay-style” procurement model\u2014starting mass production in Vietnam and then diversifying to global giants during the demand expansion phase\u2014is effective.<\/span><\/p><\/blockquote>\n

                  Framework for Balancing Procurement Strategies<\/span><\/h3>\n

                  Evaluation Method Based on Cost, Quality, Delivery, and Risk<\/span><\/h4>\n
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                  1. Create a Scoring Table<\/span><\/strong>: 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.<\/span><\/li>\n
                  2. Set Weights<\/span><\/strong>: Change the weighting according to the phase, such as prioritizing delivery for prototypes and cost for mass production.<\/span><\/li>\n
                  3. Calculate Overall Score<\/span><\/strong>: Rank candidates by the sum of (Score \u00d7 Weight).<\/span><\/li>\n
                  4. Conduct Scenario Analysis<\/span><\/strong>: Assume scenarios such as a 10% currency fluctuation or a 20% increase in freight charges to check sensitivity.<\/span><\/li>\n<\/ol>\n

                    Point<\/span><\/strong>: Quantifying in this way facilitates consensus-building among related departments such as purchasing, quality, and development.<\/span><\/p><\/blockquote>\n

                    Product Lifecycle \u00d7 Procurement Scope Matrix<\/span><\/h4>\n\n\n\n\n\n\n\n
                    Phase<\/strong><\/td>\nParts Suitable for Local Sourcing<\/strong><\/td>\nParts Suitable for Global Sourcing<\/strong><\/td>\n<\/tr>\n
                    Prototype\/Small Lot<\/span><\/strong><\/td>\nJigs, prototype parts, general-purpose screws<\/span><\/td>\nHigh-value single parts, special materials<\/span><\/td>\n<\/tr>\n
                    Mass Production Ramp-up<\/span><\/strong><\/td>\nParts requiring customization<\/span><\/td>\nStandardized mass-produced items<\/span><\/td>\n<\/tr>\n
                    Mature Stage<\/span><\/strong><\/td>\nSmall-lot parts for after-sales service<\/span><\/td>\nHigh-volume standard items (cost-focused)<\/span><\/td>\n<\/tr>\n
                    Obsolescence\/EOL<\/span><\/strong><\/td>\nParts for local repair<\/span><\/td>\nSpecial parts that are difficult to replace<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

                    By updating this map as phases transition and reviewing “when, what, and from where” to procure, you can prevent the strategy from becoming obsolete.<\/span><\/p>\n

                    Real-time Decision Making with IoT and Data Utilization<\/span><\/h4>\n