Sustainable Supply Chain and Current Development Trends
In the context of globalization and complex climate change, supply chain sustainability has become a key factor for the sustainable development of businesses. The supply chain is not only the system of manufacturing and supplying products, but also the complex network of many companies and stakeholders. Integrating transparent, environmentally responsible processes helps optimize operations, maintain social values and protect the environment. In this article, RX Tradex will delve into the concept of sustainable supply chain, factors impacting Vietnam’s supply chain, methods to achieve sustainability, and current development trends.
1. What is a sustainable supply chain?
A supply chain is a complex system of activities related to the development, production, and supply of a business’s products, including companies, facilities, and stakeholders. Supply chain management focuses on coordinating activities such as sourcing, production management, inventory, and transportation to ensure efficiency and customer satisfaction.
Sustainable supply chains extend this concept by integrating transparent and environmentally responsible processes. In particular, transparency in all stages of the supply chain is crucial, from sourcing raw materials to logistics processes and even product recycling.
Sustainable supply chain management not only focuses on optimizing speed, cost, and reliability, but also sets goals to uphold social and environmental values. This requires addressing global issues such as climate change, protecting water resources, reducing emissions, and ensuring fair practices and combating corruption at every stage of the supply chain.
2. Factors affecting Vietnam’s sustainable supply chain
Due to the trade war between the United States and China, the rise of trade protectionism, the conflict between Russia and Ukraine, fluctuations in financial markets, the rise of international currencies, inflationary pressures, and the increase in the prices of raw materials, gasoline and other basic commodities have been having a serious impact on the economy global economy. These factors are disrupting the international trade supply chain, affecting the supply and demand of goods. In particular, the COVID-19 epidemic has highlighted the risks when the supply chain of essential products is broken rapidly. The epidemic has affected the source of raw materials and components from foreign suppliers, especially from Asian countries.
It is easy to see that the COVID-19 epidemic has shed light on the risks when the supply chain of essential products is disrupted. All economic, trade and investment activities cannot run smoothly, and many supply chains are too dependent on a large number of manufacturing centers and markets such as China. This high concentration has made the global supply chain vulnerable to disruption, significantly affecting Vietnam’s trade supply chain, which is reflected in the following aspects:
2.1. Stalled production and business activities
Many of Vietnam’s production and business sectors are heavily dependent on imported raw materials, supplies and spare parts from China. When the COVID-19 epidemic broke out, weakening China’s economy, production and business activities in Vietnam also stalled. In particular, the electronics industry (including computers, electronic products, components, phones) is seriously affected. Other industries such as leather and footwear, textiles and garments also face difficulties with supply disruptions and a decrease in market purchasing power. In 2021, the number of newly established enterprises in Vietnam was 116,839, down 13.4% compared to 2020 and 8.9% compared to the average in the period 2016-2020.
The conflict between Russia and Ukraine has also had a major impact on Vietnam’s supply chain. When the conflict occurred, the prices of products such as wheat, fertilizers, coal, steel, and base metals all soared. Russia and Ukraine are two major suppliers of important raw materials for the production of electronic components. Any restrictions or disruptions in supply from these two countries could disrupt the global electronics supply chain, affecting Vietnamese businesses. Difficulties in supplying raw materials and fuel for production lead to an increase in fuel prices and production costs, which in turn increases consumer prices, affecting both businesses and consumers.
2.2. Production activities of processing and manufacturing industries decline
Businesses in this field face many challenges when the COVID-19 epidemic strongly affects the export, import and consumption of raw materials. Many foreign partners stopped trading or canceled signed orders, forcing businesses to reorganize production and find ways to solve difficulties. Export turnover of processed and manufactured goods decreased in the first six months of 2020 and continued the downward trend after that.
Although the Government has issued policies to maintain and stabilize production and prevent supply chain disruptions, the complicated development of the epidemic has caused many processing and manufacturing enterprises to withdraw from the market. In the first six months of 2021, the number of processing and manufacturing enterprises temporarily suspended business was 4,225, an increase of 18.5% over the same period in 2020. Enterprises that completed dissolution procedures were 1,138, up 29.8%.
Supply chain disruptions also reveal the limitations of long supply chains. This reduces the ability of businesses to respond quickly to crises, leading to increased inventory. In 2022, the inventory index of the whole processing and manufacturing industry is estimated to increase by 13.9% compared to the same time in 2021 (the same time in 2021 increased by 21.3%). The average inventory ratio in 2022 is 78.1% (in 2021 it is 79.2%). Some industries with high inventory rates include rubber product manufacturing, wood processing, textiles, food processing, chemical production and chemical products.
2.3. Increased logistics and transportation costs
The Russia-Ukraine conflict has led to a sharp increase in the prices of many fuel and raw materials essential for production and consumption, such as gas and oil, due to the huge share of Russian and Ukrainian exports. Russia, one of the world’s largest oil exporters, supplies about 5 million barrels of crude oil per day, accounting for 12 percent of total global trade, with about 2.5 million barrels per day devoted to crude oil products. This conflict, along with sanctions from the US and Europe, has pushed oil and gas prices higher.
In the period 2017-2021, Vietnam’s net imports of oil and petroleum products amounted to nearly 6 billion USD/year. As oil prices rise, so do net import costs, increasing shipping costs and forcing Vietnamese importers to stop trading with Russia, turning to new suppliers from Australia, South America, and Africa, leading to more complicated payment processes.
Many shipping lines have refused to accept freight from Vietnam to Russia, leading to high freight rates and delays in transportation, seriously affecting the commercial value of goods. In addition, the air embargo between countries related to the conflict forces airlines to choose other routes, increasing costs and putting pressure on the global shipping system.
2.4. Increase in unemployment rate
Not only is there a risk of breaking the supply chain of raw materials, but the impacts of the new situation also bring the risk of labor disruption. Nearly 30 million Vietnamese workers (equivalent to half of the workforce) were severely affected during the peak of the COVID-19 pandemic in April 2020. The urban unemployment rate increased by 33% in the second quarter of 2020, and the average income of workers fell by 5%. Labor in industrial enterprises also decreased by 1.4% in June 2021 compared to May 2021, and decreased by 1% compared to the same period in 2020 (5).
At the beginning of 2021, the rapid and more uncontrollable outbreak of the COVID-19 epidemic sharply increased the unemployment rate and underemployment in the second quarter of 2021. The unemployment rate and underemployment increased, and businesses also had difficulty finding enough workers, showing clear signs of a disruption in labor supply and demand. This directly affects the output of goods production and service provision, leading to the risk of disruption of the supply chain of products and services to the market.
3. Methods to help supply chains become sustainable
3.1. Effective collaboration
In fact, large corporations often choose raw materials from suppliers that comply with social and environmental standards. This puts global pressure to improve transparency and sustainability, although the implementation of this standard is still challenging.
3.2. Application of modern technology
To address the complexity and fragmentation in the supply chain, the use of advanced digital technologies is an essential step. This improves the ability to manage and monitor directly, thereby ensuring the achievement of sustainability goals.
3.3. Establishing common standards
To ensure the efficiency of supply chain operations, it is necessary to clearly establish and share standards and goals. This helps synchronize actions between stakeholders and suppliers across the entire chain, supported by information-integrated applications to provide critical data for evaluation and improvement.
3.4. Share achievements and positive news
When achieving achievements in building a sustainable supply chain, sharing positive information is extremely important to improve reputation and create connections with customers.
4. Some benefits from supply chain sustainability
Sustainability in the supply chain not only benefits the business itself and its stakeholders, but also has a positive impact on society and the global environment. Many companies have realized that climate change could threaten their business continuity due to extreme weather and increasing scarcity of resources.
4.1. Cost control and optimization
Cost savings and increased operational efficiency are still the main drivers driving businesses towards sustainable supply chains. According to PwC’s survey of more than 6,000 senior supply chain executives from 2019 to 2020, supply chain operating costs have decreased by nearly 7% thanks to the adoption of digital technology. Businesses when implementing green supply chains have significantly saved costs and increased operational efficiency.
4.2. Build brand trust and reputation
According to Forbes statistics, consumers tend to be loyal to companies that show social and environmental responsibility up to 88% higher. Consumer awareness and preference for sustainable businesses has steadily increased, especially in the context of the pandemic. Currently, the public demand for transparent supply chains and sustainable business practices is at its highest. A reputation for sustainable supply chain practices can give businesses a competitive advantage during difficult times.
4.3. Risk mitigation
Every few years, we hear about a case of a contaminated or dangerous product entering the supply chain. These incidents not only have serious consequences but can also lead to significant damage to the company’s costs and reputation. With transparent supply chains and digital security solutions, unscrupulous suppliers and manufacturers will have no place to hide. These measures not only protect businesses from unethical and environmentally responsible partners, but also allow for the tracking and documentation of all labor, handling, and raw material elements from source to destination.
5. Sustainable development trends of the supply chain
In the context of the Covid-19 pandemic, the global supply chain has experienced serious disruptions. As businesses begin to redesign and rebuild their systems, this is an opportunity to align supply chains with future values such as sustainability and socio-economic equality. This process requires a shift from market-oriented to purpose-oriented, from vendor to customer, and from problem-solving to exploiting opportunities.
The goal of the circular economy is to remove pollution and waste from products and supply chain systems. In this model, the products are designed to minimize environmental impact, extend their lifespan, and be easily reused. Innovation and application of technology will be the key to promoting the sustainability of the supply chain in the future.
Besides, implementing a data-driven supply chain ERP solution can improve a company’s operational efficiency and optimize processes. ERP systems provide the ability to manage, analyze, and visualize big data through smart dashboards, helping businesses make more accurate decisions about adjusting, improving, or eliminating stages in the supply chain.
In addition, the application of technology not only helps manage information but also provides tools to support decision-making, thereby promoting the sustainability of the supply chain. Technology and innovation will play a key role in redesigning supply chains to align with sustainability values and circular economy goals.
6. Conclusion
In conclusion, building a sustainable supply chain not only helps businesses control costs, build trust and brand reputation, but also minimize risks and enhance competitiveness. In the post-Covid-19 context, this will be an opportunity for businesses to redesign their supply chains with sustainable values and circular economy goals.
To stay up-to-date with the latest trends and connect with industry partners, businesses can register to attend the Vietnam Manufacturing Expo organized by RX Tradex Vietnam. This event will be a great opportunity for businesses to explore cutting-edge solutions and technologies that will help drive sustainability and efficiency in their supply chains. Register right here.
