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Nguyen Ngoc Phuong Uyen – s3818137

WAREHOUSE AND DISTRIBUTION CHANNELS – OMGT2196 INDIVIDUAL RESEARCH ESSAY Name: Nguyen Ngoc Phuong Uyen ID: s3818137 Lecturer: Dr. Scott "I declare that in submitting all work for this assessment I have read, understood and agree to the content and expectations of the Assessment Declaration."

3. The Modernization of Warehouses in Vietnam LIST OF ABBREVIATIONS ABBREVIATION AS/RS FHWA FTA MECJ MH&L OSHA ROI WMS

MEANING Automated storage and retrieval system Federal Highway Administration Free Trade Agreement Malaysian E Commerce Journal Material Handling and Logistics Occupational Safety and Health Administration Return on investment Warehouse Management System

ABSTRACT In Vietnam, logistics costs are very high compared to other regions, accounting for 25% of GDP, demonstrating logistics inefficiency. Distribution infrastructure and the use of technology in warehouse management and operation are still underutilized, resulting in enterprises outsourcing, engaging in unethical behavior, and inhibiting national growth. The Ministry of International Trade and Industry should employ a system of logistics statistics and analysis of commercial activities to focus on establishing warehouses near the location of new ports and airports in the most efficient way of distribution, the State Bank must give financial support for developing enterprises to invest in a warehouse system according to the modernization process.

INTRODUCTION It is widely believed that the logistics industry in Vietnam is growing at a rapid pace. Warehouses and distribution centers have been expanding in industrial zones such as Hai Phong, Dong Nai and Binh Duong over the past few years. In addition, the size of the facilities, the equipment, and the operational quality are all gradually improving (Vietnam News 2021). However, Vietnam still lacks logistics efficiency due to weak infrastructure and burdensome regulations, resulting in high logistics costs that accounted for approximately 25% of GDP, greater than the global average and developed countries (Appendix 1).

Nguyen Ngoc Phuong Uyen – s3818137

This article is primarily aimed at analyzing the issue caused by logistic inefficiencies in the warehouse industry in Vietnam as well as offering appropriate remedies based on the deployment of automated systems and the hazards to be aware of after applying this sophisticated technology.

EXTEND OF RESEARCH Vietnam has negotiated more FTAs than any other country in the region over the last two decades, making it one of the world's most linked economies. However, logistics costs remain above average, particularly in ASEAN, making Vietnam less likely to participate in the global value chain (Dang & Yeo 2018). As a result, costs, services, and logistics infrastructure are seen as critical aspects in the growth of Vietnam's logistics system. Warehouse and distribution efficiency, according to the FHWA (2020), is a crucial aspect in reducing logistical costs and improving customer service. This is due to the fact that Blancas et al. (2014) found that most warehouses in the South, North, and Central of Vietnam were inadequate (Appendix 2), as well as problems with infrastructure and inconsistencies in import and export procedures. Regulations and storage, warehousing infrastructure, and technological elements that contributed to high logistics costs and inadequate logistics services in Vietnam will be examined in this paper.

QUALITY OF ANALYSIS 

Challenges faced by warehouses and distributors when not applying the modernization of technology

Product damage due to improper storage of warehouses:

Figure 1: Comparison table between warehouse models in Vietnam E-commerce is booming, making Vietnam a fertile ground for the need for warehouses that can serve the last-mile delivery (Van 2020). According to a recent case study, TikiNow Smart Logistics has entered a trajectory of rapid

Nguyen Ngoc Phuong Uyen – s3818137

digital commerce growth in the Vietnamese economy along with a digital shopping journey. The rise of online grocery stores, particularly for essential agricultural commodities that need to be stocked in response to the COVID19 lockdown (Huu 2021), boosts demand for cold chain warehouses (Tran 2020). Therefore, increasing demand for fresh and high-quality food is the underlying cause why Anh (2021) raised concerns about inadequate infrastructure and the current shortage of cold storage in Vietnam. Tan Son Nhat and Noi Bai international airports are regarded as the two largest aviation logistics facilities in the country. The majority of the technology at the airport is, however, said to be small, outdated, forcing Vietnam to hire third-party warehouses near the airport to wait for departure (Figure 1). Moreover, the lack of cold storage and support for logistical distribution centers leads to higher inventory costs and longer idle transport vehicles (Nguyen 2017). As logistical services for the movement of the sea such as the port of Cat Lai are regularly inundated during the rainy season (McElwee 2010), the volume of goods that arrive in Saigon increases (Pham & Nguyen 2020), causing congestion while the quality of infrastructure remains at a low level of development (Nguyen 2020). If a good inventory localization system is not established over time, there can be hazardous for product preservation which is directly connected to the operational costs of the warehouse. Recommendations: With the goal of modernizing the warehouse system and providing superior logistics services, it is the responsibility of all business and management stakeholders to overcome these challenges comprehensively (Villegas 2019). The government should consider the capital investment as a long-term solution for warehouses and distributors in the area around vital ports and airports by upgrading the warehouse with automatically cooling equipment and integrating the carton flow racking. The key advantage of the solution is to ensure that supplies always meet orders and reduce the time required to fill orders, therefore utilizing better floor space in the warehouse (Appendix 3). Furthermore, companies may also adopt automatic storage and retrieval systems (AS/RS) to save labor (Appendix 4) and to maximize warehouse performance through improved order picking, which means a considerable reduction in manual handling time (Kardex Remstar n.d). In warehouses equipped with automatic conveying systems, the AS/RS approach eliminates the need for human operators. Harsh working environments such as cold storage in Vietnam, for example, benefits greatly from this mechanical method. When a pallet is entered into a warehouse, the AS/RS system controls all pertinent information, including the warehouse's shelf life and shipment plan through the identifier (CNC-VINA n.d). Upon exiting the warehouse, the pallet is automatically located by its code (Appendix 5 & 6).

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Challenges faced by warehouses and distributors after applying the modernization of technology

Equipment failure leading to seamless production: Most logistics companies in Vietnam are foreign-invested, thus the machinery line in the warehouse relies on a seamless production process. The perception is that the warehouse management system (WMS) in Vietnam is at a disadvantage in applying effective incident management when unforeseen machinery and equipment failures occur. According to the National Safety Council, the average work-related injury such as forklift, electrical system and guarding floor accounts for $38,000 in direct costs and $150,000 in indirect costs (MH&L 2017). Also, it is a fact in

Nguyen Ngoc Phuong Uyen – s3818137

the last decades, smart warehouses of third parties have been a prominent target of cyber terrorists to acquire detailed information about payments from customers (American Warehouses 2020). Recommendations: Although firms cannot prevent data infringement fully, they should aim to limit this cybersecurity risk by outlining the protocols being used by warehouses to respond to malware. Effective prevention solutions that warehouse business owners need to do before the stage of network security incidents are to install the latest version updates on the system, audit the system annually, and thoroughly remove the virus withdrawal intrusive data theft (The Hilb Group 2018). Besides, warehousing operations are believed to create many health and safety risks unless tightly supervised (Burton 2018). Therefore, it is necessary to supply qualified and trained staff with extensive training courses in conformity with OSHA rules to prevent workforce turnover and guarantee warehousing and financial efficiency (Muha, Skerlic & Erculj 2019). While several benefits of AS/RS technology positively impact many of the bottom lines of fulfillment operations in the warehouse, the cost is a major consideration with a purchase as large as this. Deploying AS/RS is a huge investment (Figure 2) and costly effort for businesses looking to own their private and modern warehouse model, but an investment that pays off tremendous ROI by increasing operational efficiency in order fulfillment (Soper 2019).

Figure 2: Starting cost associated with implementing AS/RS (Dube n.d; Kardex Remstar n.d)

CONCLUSION In conclusion, Vietnam has high logistics costs due to weak distribution infrastructure, a lack of technology application, human resources, and complex regulatory requirements. The government should prioritize the use of existing logistics assets and provide monetary support to enterprises in terms of growth.

REFERENCE LIST American Warehouses 2020, Cyber Security Measures Every Warehouse Should Take, American Warehouses, viewed 15 July 2021, .

Nguyen Ngoc Phuong Uyen – s3818137

Anh, D 2021, ‘Vietnam faces shortage of cold storage warehouses’, Vietnamnet GLOBAL, 9 June, viewed 14 July 2021, . Blancas, L, John, I, Monica, I, Hua, T & Wendy, T 2014, Efficient Logistics: A Key to Vietnam’s Competitiveness, World Bank, Washington, DC. Burton, L 2018, 40 Warehouse Safety Tips, High Speed Training, viewed 15 July 2021, . Dang, L & Yeo, T 2018, ‘Weighing the Key Factors to Improve Vietnam’s Logistics System’, Asian Journal of Shipping and Logistics, vol. 34, no. 4, pp. 308-316. Dube, C n.d, ‘Calculating the Cost of ASRS: 5 Contributing Factors’, Kardex Remstar, blog, viewed 30 July 2021, . Federal Highway Administration 2020, Overview of Logistics and Industry Re-Organization, Federal Highway Administration, viewed 30 July 2021, . Huu, C 2021, ‘HCMC says prepared for 15-day lockdown’, VnExpress International, 9 July, viewed 14 July 2021, . Kardex Remstar n.d, A Deep Dive Into Six Benefits of Automation, viewed 15 July 2021, . McElwee, P 2010, ‘The Social Dimensions of Adaptation to Climate Change in Vietnam’, The World Bank, no. 17, pp. 1-108. MH&L 2017, The Dangers of Modern Warehouses and How to Prevent Them, MH&L, viewed 15 July 2021, . Muha, R, Skerlic, S & Erculj, V 2019, ‘The Importance Of Risk Management For The Introduction Of Modern Warehouse Technologies’, Promet – Traffic & Transportation, vol. 32, no. 3, pp. 321-333. Nguyen, D 2017, ‘The Development Strategy of Logistics to 2020 and Lesson for Vietnam’, Proceedings of the International Conference on Human Resources & Talent Management, vol. 21, pp. 1-12. Nguyen, P 2019, ‘Current Status And Solutions To Reduce Logistics Costs In Vietnam’, Malaysian E Commerce Journal, vol. 3, no. 3, pp. 1-4.

Nguyen Ngoc Phuong Uyen – s3818137

Pham, L & Nguyen, H 2020, ‘The Supply Chain and Logistics of Vietnam in the Context of International Economic Integration’, International Business Research, vol. 13, no. 7, pp. 27-40. Soper, K 2018, 5 Cost Factors For Automated Storage and Retrieval Systems (AS/RS), Conveyco, viewed 30 July 2021, . The Hilb Group 2018, What Warehouse Management Systems Need for Good Cybersecurity, The Hilb Group, viewed 15 July 2021, . Tran, N 2020, ‘Vietnam sees strong demand for cold storage facilities’, Vietnamnet GLOBAL, 26 December, viewed 14 July 2021, < https://vietnamnet.vn/en/business/vietnam-sees-strong-demand-for-cold-storage-facilities700460.html>. Van, T 2020, Last-mile delivery services battle over market share, Vietnam Investment Review, viewed 14 July 2021, . Vietnam News 2021, Logistics sector must develop rapidly: expert, Vietnam News, viewed 30 July 2021, . Villegas, G 2019, ‘The Relevance of Stakeholders in an International Context’, Managerial Competencies for Multinational Businesses, vol. 10, pp. 197-211.

APPENDICES

Appendix 1: Logistics cost in Vietnam and regions – Reproduced from MECJ (2019)

Nguyen Ngoc Phuong Uyen – s3818137

Appendix 2: Adequacy of Warehouse Facilities – Reproduced from The World Bank (2014)

Appendix 3: The cube space within AS/RS storage system – Reproduced from Kardex Remstar (n.d)

Nguyen Ngoc Phuong Uyen – s3818137

Appendix 4: Before and After when applying AS/RS – Reproduced from Kardex Remstar (n.d)

Nguyen Ngoc Phuong Uyen – s3818137

Appendix 5: AS/RS technology undergoes rapid evolution throughout the course of years – Reproduced from CNCVINA (n.d)

Nguyen Ngoc Phuong Uyen – s3818137

Appendix 6: One of the models in AS/RS method uses a vertical stand – Reproduced from CNC-VINA (n.d)...