Solutions for poor demanding forecast in e chem vietnam

EXECUTIVE SUMMARY Demand forecast is a critical step in Sale and all internal operation department, which ensures the supply chain for customer work smoothly, make a balance between supp

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-

NGUYEN THI HONG THU

SOLUTIONS FOR POOR DEMANDING FORECAST IN E-CHEM VIETNAM

MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City – Year 2021

UNIVERSITY OF ECONOMICS HO CHI MINH CITY

International School of Business

-

NGUYEN THI HONG THU SOLUTIONS FOR POOR DEMANDING FORECAST IN E-CHEM VIETNAM

MASTER OF BUSINESS ADMINISTRATION

SUPERVISOR: Dr Nguyen Phong Nguyen

Ho Chi Minh – Year 2021

Table of contents

1 Company introduction 5

1.1 Mission 8

1.2 Vision 8

1.3 Ethnic 8

1.4 Company organization 8

1.5 Products 10

1.6 Main customers: 11

2 Problem Identification 12

2.1 Problem Context 12

2.2 Symptoms 13

2.3 Possible Problem 17

2.3.1 Long Lead Time 19

2.3.2 Late response for customer request 21

2.3.3 High competitive price 21

2.3.4 Product Shortage 22

2.4 Identify the central potential problems 24

2.4.1 Poor Demanding forecast 24

2.4.2 Inflexible system 25

2.5 Problem Validation 28

2.5.1 Eliminating Inflexible system as the main problem 28

2.5.2 Identify Poor Demanding Forecast as the main problem 29

3 Problem Justification 30

3.1 Problem definition 30

3.2 Problem existence 31

3.3 Problem importance 31

4 Cause validation 32

4.1 Potential causes 32

4.1.1 Improper forecast method 33

4.1.2 Inaccurate input information 34

4.1.3 Ineffective internal collaboration 35

4.2 Cause validation 37

5 Suggested Solutions 40

5.1 Alternative solutions 40

5.1.1 Rent market research agency about purchasing status 40

5.1.2 Define incentive offer to explore demand information from customers 41

5.2 Solution Justification 45

5.3 Action Plan 46

6 REFERENCE 66

LIST OF TABLES

Table 1.1 Products range of E-chem in many industries 10

Table 2.1 The number of customer complaints from 8/2020 till 3/2021 14

Table 2.2 The total order from main customers by Quarter 15

Table 2.3 Number of customer complaint by each departments 16

Table 2.4 Lead time of popular products in E-chem Vietnam 20

Table 2.5 Price comparison 3140 RTV products between E-chem quotation and the current buying price of SPG – potential customers 22

Table 2.6 Top 10 South Korean forwarder is Freight & Logistics service ranking by revenue for May 2021 28

Table 3.1 Cost arising from over stock holding 31

Table 4.1 Target and actual sales from 3rd Quarter 2020 to 1st Quarter 2021 34

Table 4.2 Summary 39

Table 5.1 Cost and Benefit of renting market research agency 41

Table 5.2 Sale status from January 2021 till March 2021 42

Table 5.3 Sale Revenue by customers from January 2021 till March 2021 43

Table 5.4 Cost and Benefit calculation for incentive offer solution 44

Table 5.5 Action Plan for selected solution 48

LIST OF FIGURES

Figure 1.1 The company organization chart in December 2020 9

Figure 1.2 Products range of E-chem in many industries 11

Figure 1.3 Current manufacturing customers in E-chem Vietnam, their product usage and revenue in March, 2021 12

Figure 2.1 Customer’s complaint by month 14

Figure 2.2 The comparison of customer complaints of each department 16

Figure 2.3 Wholesale trend from September 2020 till March 2021 17

Figure 2.4 Initial Cause and Effect Map 18

Figure 2.5 E -chem Vietnam’s Sale Process 23

Figure 2.6 E-chem Vietnam’s Sale Process 24

Figure 2.7 Updated Cause and Effect map 27

Figure 4.1 Fish bond diagram of main problem and potential causes 32

Figure 4.2 The input material and information flow in the supply chain 34

Figure 4.3 SOP Process in a supply chain 36

Figure 5.4 Estimation of incentive for main current customers 44

Figure 6.1 Summary of Research Method 49

EXECUTIVE SUMMARY

Demand forecast is a critical step in Sale and all internal operation department, which ensures the supply chain for customer work smoothly, make a balance between supply and demand partners to avoid any wasting or shortage in the inventory as well as satisfy the customer experience when buying products from

a company To respond to the uncertainty of market and customer demand, the process to make demanding forecast should be careful because it is a key driver in the process to create a high demand forecast accuracy with appropriate method to recognize the demand signals (order recorded history, shipments, promotion program, and competitor information)

E-chem Vietnam is an official distributor of Dow ASEAN in the Chemical industry, which is a complicated, high competitive market with high volatility The main products of E-chem are silicone products in LED processes such as display, electronics, lighting Due to the tight production schedule of the electronics industry, it requires good demand planning from the supplier side to make sure no delay or shortage in the production side of customers E-chem has been established in the Vietnam market for more than one year, but they quickly merge on the market and gain positive sales growth in one year However, the unsuitable stock level in the warehouse is a critical issue that affects the smooth operation and long-term development

of the company

The research includes some important parts Firstly, the researcher identify the problem through interview and theories, it is found that the poor demanding forecast This main problems impacts on the competitive advantages of company such as: lead time, competitive price, shortage in product quantity for customers Secondly, through some of the in-depth, focus group interview and theoretical framework, the researcher find some potential causes: Improper forecast method, Inaccurate input information, ineffective collaboration Thirdly, there are solutions proposed and confirmed by the top managers of company and key person in making strategy and decided to choose incentive offer for customers The cost for this solution

is USD 7,074.37 including the preparation and estimated incentive amount for one month The duration to executive this plan is four months including one month for prepration, three months for implementing and evaluation the result

The presentation above supports the readers have an overview on how a new chemical company faces to the obstacle when emerging in the new market From the work has been contributed, the full name of the study is “Solutions for Poor Demanding forecast in E-chem Vietnam”

The company provides many kinds of Dow Silicone products applied for many industries Dow Performance Silicones has been a global leader in silicon-based adhesives for more than seventy years Headquartered in Michigan, USA, they maintain manufacturing sites, sales and customer service offices Research and development labs in every major geographic market worldwide to ensure customers receive fast, reliable support for their processing and application development needs

1.1 Mission

E-chem Co., Ltd is able to reach a wide range of products to provide specific solutions that will improve efficiencies, speed processing, help reduce the wasting in production sides, save cost for customers Everything involved technologies that make life prospective better It is their mission and duty to be a contributing partner

1.2 Vision:

E-chem Vietnam is supplying outstanding chemical material to the various customer of the technology industries with global makers Their vision is to be a leading chemical supplier in the Vietnam market and serve customers with the fastest time and high-quality chemicals

1.3 Ethnic

Respect legal and social norms, and never engage in unethical or unlawful conduct Strive for the happiness

of our customers and make customers believe in the company first Respect the diversity of employees, promote mutual trust and cooperation, and prevent discrimination Respect fair trade principles and value for win-win relationships As a member of society, take the social roles and responsibilities of our company

1.4 Company organization

Source: Company organization chart in 2020

Figure 1.1 The company organization chart in December 2020

Assistant

Manager

Assistant Manager

Logistics Staffs

Strategic Executive

1.5 Products

E-CHEM Co., Ltd are supplying outstanding chemical materials to the various customers of the technology industries with Global Makers

Industry categories E-chem product ranges

Smart devices (Smartphones and tablets) Adhesives and sealants

Optical bonding materials Conformal coatings Sealants, encapsulants Thermally conductive materials EMI shielding materials

Thermally conductive materials

EMI shielding materials

Conformal coatings Sealants, encapsulants Home appliance device Adhesives and sealants for bonding and gasketing

Thermal management materials

Adhesives and sealants, electrically conductive materials for grounding and EMI shielding

Source: E-chem Catalogues used to introduce for the customers

Table 1.1 Products range of E-chem in many industries

The main products are Silicone serving electronics and advanced assembly manufacturers The extensive portfolio of Silicone is applied for many industries across the value chain and end markets Many products are made from silicones for Electronics such as Adhesives and Sealants, Conformal coatings, Encapsulants, Dielectric Gels, Electrically and Thermally conductive materials and Foams The industries in which Silicone can serve its demands are Power and energy, Lamp and Luminaire, Industrial and Aero, Transportation assembly, Consumer and communications, Appliance, Sensors and actuators

Source: E-chem Catalogues used to introduce for the customers

Figure 1.2 Products range of E-chem in many industries

Silicone main purposes for Electronics are delivering reliable, long-lasting protection for electronics application, improving thermal stability and controlling better stress-relief on delicate board components during thermal cycling Although its characteristics can cover wide usage with outstanding quality, its components are considerably simple Most Silicone is non-solvent, which supports the process of electrical production simply and time-saving a lot

1.6 Main customers

Customer Name Location Product Name Estimated monthly

Dongyang E&P HCM

Vina

Source: March 2021 report – Sale department

Figure 1.3 Current manufacturing customers in E-chem Vietnam, their product usage and revenue in

In Vietnam, Chemical companies for Electronics industries are not popular The popular name for this kind

of business is Threebond, Creative Engineering, Ellsworth, Henkel Recognizing the potential markets in Vietnam, Win9 Group (mother company) decided to choose Vietnam as the priority to set up their first branch outside Korea Vietnam market is promising because:

- Many big electronics brands such as Samsung, Apple, LG are moving their factory to Vietnam, Mexico, elsewhere as the big trend of businesses shifting supply chains away from China Samsung Electronics intends to close all its sole Chinese TV factories in 2020 and shift its production

operation into Vietnam; especially, Samsung re-categorizes its manufacturing place in Ho Chi Minh as an export processing enterprise [24]

- Ms Nguyen Hoang Dung, who is former R&D director of the Ho Chi Minh City Institute of Economy and Management, stated that outside of South Korea, Vietnam could become Samsung’s largest production plant

- Currently, Vietnam set special policies to encourage EPEs (Export Processing Enterprises) to expand business inside Vietnam; EPEs receive 0% import and export duties and other tax incentives This action supports supporting enterprises to join deeper into the global value chains and push up the Vietnamese economy and enhance our reputation worldwide, drawing a new wave

of foreign investment to the country

There are many advantages big companies setting their factories in Vietnam; it is also considerable potential for E-chem to supply the raw material in Vietnam Currently, 80% of raw materials are imported from mother companies or overseas Recognize huge demand in Chemical industry but not been explored yet The first direct target of E-chem Vietnam is all manufacturing vendors of Samsung, which produces electronics components such as Printed Circuit Board (PCB), Semiconductor, Gasket, PET Silicone Tape, etc

In the venture to explore and conquer the electronics industry in Vietnam, E-chem is facing many obstacles and challenges Many reasons come from complicated chemical industry characteristics, human, supply chain, policies to import, working flow with Dow ASEAN company, customer demand, etc All of the problem mess should be put into the analysis, research to find the main problem, main cause and most suitable solution Every action plan and analysis must be suitable with current scenarios, budget ability, human resources of E-chem

2.2 Symptoms

There are plenty of Key Performance Indicators (KPIs) identified and grouped into five categories: Perceived workload, Work-related disease, Knowledge, Workplace, Financial Performance [27-28] In a trading company, taking care of customers is being more attentive because the manufacturing customers account for 83%, the dealers account for 17% Moreover, the manufacturing brings 87% revenue in 2020, 13% revenue received from the dealers Therefore, customer satisfaction affects considerably on their regular orders and the financial status of the company Recently, it often happens customer complaints and orders drop that; the reason why, in this research, the author decides the starting symptom is a high level of customer complaints

Since E-chem Vietnam was established in March 2020, the operation system and employees’ performance are in the process of improving From March 2020 to July 2020, E-chem focuses on office, warehouse,

suppliers setting up and finding promising customers The first customers are SN Hitech, Pioneer Plastics Industry, in July 2020; therefore, the author has collected since the first customer complaints (from 8/2020 till 3/2021) The customer service department received the customer complaints via email, calls, hotline, direct feedback when sales visit and send samples

Time 8/2020 9/2020 10/2020 11/2020 12/2020 01/2021 02/2021 03/2021 Total

Source: Monthly report - Customer Service Department

Table 2.1 The number of customer complaints from 8/2020 till 3/2021

Source: Monthly report - Customer Service Department

Figure 2.1 Customer’s complaint by month

The trend chart illustrates customer complaints received by the customer service department from August

2020 till March 2021 It can be seen that the trend line increases from August 2020 to September 2020, then slightly decrease one complaint in next month (from September 2020 to October 2020) However, it dramatically increases in the next three months and decreases in Feb 2021, but then it goes up again in March 2021 The trend line is increasing significantly in the reporting period between August 2020 to March 2021

Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21

Number of Customer complaints by month

Quantity Percentage

The monthly Sale report showed the numbers of purchase orders in the period from third quarter 2020 till the first quarter of 2021; it shows that most of the customers decrease numbers of orders by quarterly, except for PPI, the numbers are fluctuating Mr Dat - Senior Sale Executive, pointed out in the interview:

The customer dissatisfaction will impact the promising orders of the company monthly; we feel uncomfortable while the Sale team keeps finding potential customers and get new orders from them, while company policies and back-office departments like customer service and logistics do not improve the quality to make good relationship and build trust from previous customers

Source: Monthly report – Sale Department

Table 2.2 The total order from main customers by Quarter

The customer service is responsible for gathering all requirements, feedback, complaints, expectation from customers Customer complaints are related to many departments at E-chem, including products consultants from Sale team, technical consultants by a technician, delivery time handled by Logistics team, customer’s response by the customer service department and payment proceed by Accounting department, and other reasons come from the characteristics of Dow products The number of complaints regarding each department is presented in below table:

Table 2.3 Number of customer complaint by each departments

From Table 2.3, it can be seen that the highest complaints amount is belonging responsibility of Logistics team It accounts for around 46% comparing to the total amount; the second department received complaints from customers are Sales with 25% It happens very common complaints related Accounting and Technician department Furthermore, the overseas department is mainly controlled by Korean Headquarter,

it related to Strategic planning; E-chem Vietnam does not take responsibility for complaints regarding this department

According to Ms My – Assistant Manager of Customer service team:

The most common complaint about the Logistics team is Delivery time; it usually happens the delayed

delivery and cannot meet the production line schedule of customers

Ms Dung – Customer Service staffs also shared:

It also happens the long lead time for each product, that customer cannot wait and send purchasing order (PO) to another official distributor of Dow chemicals That the reasons why monthly PO decrease month

by month

Source: Monthly report – Customer Service department

Figure 2.2 The comparison of customer complaints of each department

The consequence of customer complaints also demonstrates on Unstable Sale Revenue of company monthly The below chart shows the Sales Revenue from September 2020 till February 2021 (period with six months) It evident that the Sales revenue fluctuates It dramatically decreased in December 2020

Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21

Complaints of Each departments

Technician Sale Customer Service Logistics Accounting Others

Although the total profit margin rate is 33.39% ($188,673.57) in 8 months which is a high rate considering

a new chemical merging on the new market, in general, the wholesale revenues are fluctuating month by month It partially shows uncertain financial statements of E-chem Vietnam

Source: February 2021 Sale report – Sale department

Figure 2.3 Wholesale trend from September 2020 till March 2021

To sum up, the fact that E-chem is facing customer dissatisfaction issues for many departments, especially problems from Logistics’ responsibility, significantly affects monthly purchase orders in the company As

a result, a high level of custom complaints is the starting point for deeper analysis of the current problem

in E-chem

2.3 Possible Problem

Besides, based on a literature review to determine the problems that cause customer complaint symptoms, some first in-depth interviews were conducted in different departments from 10th February 2021 till 25th February 2021 The face-to-face interview has proceeded, including the Manager level (Department Manager, Assistant Manager) and staff The purpose of the in-depth interview is to understand the opinion

of stakeholders regarding the customer complaint at E-chem from August 2020 up to the moment of interviews

There are five possible outstanding problems causing customer complaints: Long lead time of products, inflexible systems to respond to customers' inquiries and quotation requests, high price, product shortage, and the short expiration day Those are possible problems that the author initially gets from in-depth interviews and bases on theory review

Figure 2.4 Initial Cause and Effect Map

Customer Complaints

Drop Purchase Orders

Unstable Sale Revenue

Delay Lead Time

Late response to customer

2.3.1 Long Lead Time

Typically, the Sales team in E-chem will discuss with suppliers (Dow ASEAN Chemical Corporation) to check available stock status, production lead time, and price for each product after receiving new purchasing orders from customers Then, Sale team will calculate and inform the final lead time by adding the production lead time and delivery lead time to confirm the shipping date for customers That is how the sales team bases on confirming with clients and setting up the committed shipping date As a process, due

to production issues from plants of suppliers or unexpected shipping delays from forwarders These cases result in delayed lead time for customers of E-chem Vietnam

Furthermore, due to the limited material resource to produce specific chemicals, the production plant of each product is different The main shipping plants are from Korea, the EU, Japan, China, US The lead time of Silicone products in E-chem normally around 3-4 months; some unique products last even 5-6 months, these products are typically delivered by vessel (boat) If there is no prior preparation for stock, the customer's tight line production cannot be appropriate with this lead time Furthermore, the safety stock is necessary as a buffer to cover the unusual or unexpected customer demand [14] To be more specific, lead time (including production and delivery lead time) of common products sold in E-chem Vietnam are shown

as below chart:

GMID Dow ASEAN Material Description Production Lead

Time

Delivery Lead Time

Estimated Arrival in Echem (Months)

Productio

n Plants

6017267 3140 RTV SLNT CLR,TUB,100ML-40CTN 30 working days 15 calendar days 3 months KOREA

4015093 3-4241 DIELECTRIC TOUGH GEL KIT 29 working days 75 calendar days 5 months USA

2429594 LDC 2577D BTL,CAN,1KG-10CTN 27 working days 30 calendar days 3 months KOREA

6017389 SE 9189 L GRAY RTV,CRT,330ML-10CTN 42 working days 15 calendar days 3 months JAPANES

E

2225999 182 SIL ELASTOMER PT,KG,19.9KG-PAIL 33 working days 75 calendar days 5 months USA

1673998 182 SIL ELASTOMER KIT,KG,1.1KG-1CTN 29 working days 70 calendar days 5 months EU

2085925 184 SIL ELAST

PLST,19.9KG-1KIT/CTN-DOW 28 working days 75 calendar days 5 months USA

4006079 3-1953 BLADDER PAK,KG,18.1KG-PAIL 29 working days 75 calendar days 5 months CHINA

4076062 CN-8760 PART B,KG,25KG-PAIL 25 working days 45 calendar days 4 months CHINA

4076063 CN-8760 PART A,KG,25KG-PAIL 25 working days 45 calendar days 4 months USA

2277298 170 SIL ELASTOMER PT A,KG,20KG-PAIL 21 working days 75 calendar days 4 months USA

2277301 170 SIL ELASTOMER PT B,KG,20KG-PAIL 21 working days 76 calendar days 4 months USA

4085928 3-1944 HP RTV

COATING,CRT,305ML-24CTN 25 working days 30 calendar days 3 months KOREA

4068447 1-2577 LOW VOC CONFORMAL COATING

, 1KG Can 25 working days 30 calendar days 3 months KOREA

4017484 1-2577 LOW VOC BLADDER

PAK,KG,15KG-PAIL 20 working days 75 calendar days 4 months USA

6017266 3140 RTV FL/SL CLR,CRT,300ML-24CTN 30 working days 15 calendar days 3 months KOREA

6017269 3145 RTV ADH/SLNT

CLEAR,TUBE,90ML-12CTN 23 working days 15 calendar days 2 months USA

4018917 3-6635 DIELECTRIC GEL 3.6KG PAIL 31 working days 15 calendar days 3 months USA

4113190 TC-4605 PART A,15 KG PAIL 30 working days 45 calendar days 4 months CHINA

4113191 TC-4605 PART B,15 KG PAIL 30 working days 45 calendar days 4 months CHINA

2565129 SE 9186L CLEAR,330 ML CTD 42 working days 15 calendar days 3 months JAPANES

E

3121372 1200 OS PRIMER CLEAR 5 L CANISTER 23 working days 70 calendar days 4 months EU

3235840 DY 39-067 (UN), KG, 1KG-6CTN , CAN 80 working days 30 calendar days 5 months JAPANES

E

2756030 7091 SLNT BLACK,CRT,310ML-12CTN 80 working days 70 calendar days 6 months EU

Source: Dow ASEAN Customer Service Department

Table 2.4 Lead time of popular products in E-chem Vietnam

According to Mr Quang Minh – Logistics staff, who is in charge directly of each shipment:

Production lead time usually can be kept as a commitment, but due to logistics constraints, it frequently happens delivery delay; we signed an extended contract with CJ Logistics forwarder to make the export- import procedure, custom clearance, and trucking service The service expense of CJ Logistics is relatively

high, their issue responses are fast, but in urgent cases, they are not flexible and experienced enough to support the constrained logistics and prioritize E-chem goods The actual depart and arrival schedules normally delay comparing to their initial information to our company

2.3.2 Late response for customer request

For all information delivered to customers, the Sale and customer Service departments have to get approval from top managers like quotation, product inquiries, product consultant, etc The E-chem products are diversified but divided into 3 main categories: Adhesive, Conformal coating and Thermal conductivity If all the standards for setting quotations and product-related consultant are set up, it shortens time to respond

to customers This late response problem will be improved considerably if the company system is adjusted

to be more flexible and straightforward

In the in-depth interview, Ms Loan – Sale department expressed her opinions:

When getting requests for quotation, Sale staffs will check the purchase prices from suppliers Their response takes around 2 days to get feedback from the logistics team for all related import fees such as delivery fee, import tax, customer, etc Then sale will check the competitive price, set the margin and make the quotation It is compulsory to send our suggested quotation to Korea Assistant – Mr Lee Dong Huyn or Mr Lee Cheol-Ho, and they will send it to General Director to get the final decision about the quotation The duration of this process can take 3-4 days to finalize; sometimes, if Dow provides the purchasing price late, it can last for one week It regularly happens the complaint of customers for waiting too long, due to their demand, they quickly choose other suppliers giving fast response instead of

E-chem

Nowadays, speed, quality and flexibility are the prioritized competitiveness to respond to the unique needs

of customers and the market [1] Sanchez and Perez found a positive relationship between a superior performance in flexibility capabilities and firm performance, although flexibility dimensions are not equally important for firm performance [2] Voigt et al show that German OEMs, especially the premium OEMs, overestimate the value of change flexibility and short delivery times for their customers [3]

2.3.3 High competitive price

E-chem is a branch of a big mother company in Korea called Win9 – one of the best Silicone providers in Korea; their finance is extremely solid and prospective They are willing to spend huge investment amounts

on every branch in different countries That strength creates the unplanned spending habits of all employees

in E-chem, even top management level They do not need to spend much time researching the most reasonable suppliers in the market that suit the demand and business size of E-chem Director easily approves the suppliers that provide good services, but their prices are relatively high

Ms Nga and Mr Dat have the same idea about this problem:

Besides using high-cost agency services, they have product demand for irregular customers, but E-chem doesn’t have safety stock for their demand The product inventory range of E-chem is not diversified If it happens suddenly, E-chem will calculate all logistics costs and purchasing costs for this order Therefore, the selling price is extremely high comparing to other competitors It results in customer complaints

about the price

By ineffective cost management, it results in offering a high price for customers of E-chem Currently, the selling price is set up based on purchasing price (from Dow ASEAN supplier), logistics fee to import in Vietnam, and warehouse fee E-chem can increase customer satisfaction by managing lower supply chain costs In a bid to deal with market instability, all companies try to enhance their price competitiveness; the organization concentrates on its core activities, resulting in lower costs and better customer service [4]

Ms Nga shared a typical case that customer complained a lot about the price at E-chem:

“SPG used to complain a lot when receiving the quotation They are using 3140 RTV This product is used for coating motor components Currently, it is imported from Korea by CIP price (same as E-chem) However, their importing price is only $10.69/ Cartridge while E-chem sent the quotation with $23.90/

Cartridge.”

Price Packing Price Packing

2.23 times higher than SPG's current purchasing price

USD $10.69 CARTRIDGE $23.90 CARTRIDGE

$256.56 BOX $573.60 BOX VND VND 247,580.40 CARTRIDGE VND 553,524.00 CARTRIDGE

VND 5,941,929.60 BOX

VND 13,284,576.00 BOX

Source: Quotation record from Sale department

Table 2.5 Price comparison 3140 RTV products between E-chem quotation and the current buying price

of SPG – potential customers

2.3.4 Product Shortage

The dealer channels got 139 new purchase orders in 2020, but E-chem only finished 91 purchase orders (approx 66%) and remaining 36 sales orders are ongoing and postpone into 2021 (approx 26%) Additionally, it happens orders cancellation with 12 sale orders due to production planning and late in production

Source: Yearly report of Sale order status – Sale Department

Figure 2.5 E-chem Vietnam’s Sale Process

Ms Nga – Sale department showed her disappointment for product shortage issue as below:

“We always put effort to show E-chem advantages when approaching promising customers: competitive price, good lead time, on-time customer service Nevertheless, after receiving Purchase Order (PO) from customers, E-chem does not have enough safety stock, so we face with shortage products for urgent

orders or during the peak season (3 months’ end of the year).”

Moreover, the CEO of SN Hitech Corp – current customer of E-chem Vietnam complained about a shortage of products:

“The shortage of products makes us face big challenges to keep commitment on production plan with our customers After releasing Purchase orders to E-chem, then we get material cancellation or postpones information, we must urgently check stock of other suppliers to make sure there is no material shortage

for production, it is very risky for our production plan.”

As a result, the shortage of Silicone products in E-chem is a possible problem of dealer’s channel in 2020, leading to low performance of dealers’ channel during peak season (3 months’ end of 2020)

Sale Orders Status

Delivered Postponed Hold Moved to 2021 Cancelled

2.4 Identify the central potential problems

After an in-depth interview, it is essential to review some theoretical frameworks to approve and conceptualize the potential problem that leads to the customer complaints symptom in E-chem Vietnam

2.4.1 Poor Demanding forecast

Demand forecasting is the foundation for many decisions related to management levels in the supply chain, such as demand planning and order fulfillment [9], production planning [10], and inventory control [11] It

is tough to perform demand forecasting at a high level of precision due to underlying volatility and many uncertainties [12] Forecasting for customer demand is crucial information that can be shared and used in supply chain management Accurate and reliable demand forecasts provide vital intelligence and intensely competitive for supply chain managers to support the company’s planning and decision making

The limited visibility of actual demand is the most difficult in the most supply chain [6], the future is always uncertain, and most people do not have enough crystal ball to predict precisely about it Forecasting process, along with the supporting mechanisms for information provider and elicitation of assumptions It is a helpful way to manage the organizational conflict, the informational and procedural shortcomings that emerged from the forecasting biases of the functional areas [7]

The sale procedure in E-chem Vietnam is described as below:

Source: E-chem Sale Policies and Regulations

Figure 2.6 E-chem Vietnam’s Sale Process

As the Sale process table, E-chem can adjust and take responsibility for two main stages: Sale demand planning and inventory management In the Sale planning step, the Sales department takes responsibility

Sale’s planning

demand

Production Planning Production

E-chem’s Warehouse

Dealer’s warehouse

for combining all related information to fulfill the sale demand plan It is compulsory to consider monthly customer volume, demand possibility of promising customers, stock status, delivery time Firstly, Customer Service takes responsibility to collect estimated orders from customers to calculate the total demand Then, Sale will check any special offer for promising customers and estimate the possible quantity they may order After that, Logistics will check the stock status in the warehouse, including quantity, expired date, quality, etc Finally, Sale will combine all information and send it to Dow ASEAN for their production plan Therefore, the supplier must gather appropriate customers demand information for the forecasting process (usability), and it must be available and applied in time at the right place Corresponding the combination

of the mechanisms include agreeing on a standard frequency and format of exchanging point of sales and completion of demand information [8]

Lee Dong Huyn – Manager in Sale HCM department, stated that:

The characteristics of chemicals sold in E-chem is an extremely high price, due to the high quality Some Adhesive products have double or triple prices comparing the common products in the chemical market The demand in the South is too small; it is a big challenge for the sales team to find available demand or persuade the customers to use Dow Chemical instead of their current usage When the Sales team found promising companies, many customers (1st vendor of Samsung Electronics) such as Daeyeong Vina, Novas EZ, Dongyang E&P showed their unsatisfied attitude due to lead time of nearly 5 months not wait

so long

Demand planning is a process to build a reliable demand forecast Furthermore, an effective demand planning forecast can create a balance between supply and demand, obtain customer satisfaction, competitive advantages, and profitability improvement for a specific channel [18]

It can be achieved through two types of changes: internal system change and structural supply chain change

to enhance flexibility Internal system changes, including how information is used and the decision, are taken [20] Regarding supply chain systems, the flexible system results from advances in information technology coupled with more efficient transportation networks It enhances the communication connection between buyers and suppliers with cost-effective and time-saving ability [19]

Mr Dat – Senior Sale Staff also mentioned the importance of a flexible internal system in the interview:

In E-chem, every sharing information to customers has to get approval from whole upper managers, and this process takes several days to be completed While the production plans of customers are very tight, they do not have much time to wait for supplier responses Every manufacturing customer is required to

be flexible in problem-solving If they cannot get the information sharing on time, they will find alternative solutions from other suppliers providing similar products of E-chem with faster supports It is

a very risky situation to lose trust and loyalty from the customers

Mr Minh in the Logistics department shared his dissatisfaction with the internal system:

Currently, the production plants of Dow ASEAN are from many countries: the USA, Japan, Korea, China,

EU, etc When facing logistics constraints, I’m always eager to solve the issues by customizing the normal process such as outsourcing or requesting support from other forwarding services, specializing in the foreign market that chemical production is presenting in Due to company policy and process, in some urgent cases, but we cannot do anything except waiting for the nominated suppliers to solve the problem

We do not estimate when the problem is solved; we are just waiting to be informed until the forwarder is

informed of the results

E-chem Vietnam has been presented in Vietnam for one year; the company is in progress to explore the market and partner with promising customers in the electronics industry E-chem also has five manufacturing customers, but their orders number is unstable Product demand uncertainty leads to demand uncertainty, which requires a flexible relationship [19] It means the less E-chem applies flexible systems, and the more likely buyer will face a high-cost penalty in logistics when demand changes

Updated Cause-and-Effect Tree

Figure 2.7 Updated Cause and Effect map

Poor Demanding Forecast

Inflexible System

Delay Lead Time

Late response to customer

request

High competitive price

Product Shortage (Postpone, Cancel, Pending, etc)

Customer Complaints

Drop Purchase Orders

Unstable Sale Revenue

2.5 Problem Validation

2.5.1 Eliminating Inflexible system as the main problem

E-chem Vietnam is a trading company, which is an official distributor of Dow ASEAN All production processes belong to Dow ASEAN’s responsibility; E-chem is passive to adjust or improve the production process for chemical material E-chem can enhance profitability, make price and lead time competitive, approach promising customers in the right method, make good demand planning and forecast, control the inventory, and improve the logistics part

Firstly, structural supply chain flexibility is considered to analyze Although the most complaint from customers is about the lead time and delivery date, E-chem is outsourcing a freight service from CJ Logistics It is a very famous and high-ranking Korean Logistics service E-chem endures instead a high price comparing other forwarding suppliers, but it can provide fast response and problem-solving action E-chem Vietnam was established on COVID-19 pandemics, a tremendous challenge for companies developing and expanding the business in this period According to International Finance Corporation:

“Logistics firms, which are involved in the movement, storage, and flow of goods, have been directly affected by the COVID-19 pandemic” A recent global pandemic, known as coronavirus disease 2019 (COVID-19), affects the manufacturing supply chains most significantly [21] It means it is a problem of all imported companies in every industry, not except for E-chem in particular

Below are top ten South Korean forwarder is Freight & Logistics service ranking by revenue for May 2021, recorded by latest on South Korean supply chain 2021 [25]:

Tier Company Name Revenue Employees

Source: South Korea Ranking report in May 2020

Table 2.6 Top 10 South Korean forwarder is Freight & Logistics service ranking by revenue for May

2021

Secondly, regarding the internal system, as many employees complain about the long process that happens, the customer complains about late responses (quotation, inquiries) During the interview with Director, he expressed his reasons to set this rule:

Since E-chem was established in Vietnam just one year ago, everyone should keep in mind working in the rule; everything is set up from the bottom Top managers should know every decision from staff since we have to adjust or advise if needed During these staff reports, I can understand what obstacles they are facing to support, what appropriate process to apply, which kinds of documents need to be made to keep track of the working history and make a report I well-understand all the process now is complicated and

a bit time-consuming But E-chem is on the way to set up and improve the procedures for everything; every staff should be more patient when we successfully set up the applicable rules from top to bottom,

everything will be much easier

2.5.2 Identify Poor Demanding Forecast as the main problem

Demand forecasting has a strong influence in making the decision not only from the sellers but also from the customers An inaccurate forecast can cause unnecessary logistics and procedure fees It impacts staffing, service level, and accuracy [22] Demand forecasting is a priority for company strategy to control the inventory and volatility [23] It is the foundation step in dealing with uncertainty and volatility in the supply chain and business

According to Mr Lee Cheol-Ho – Sale Manager in HN Branch shared his opinion that:

I think E-chem should enhance the demanding forecast ability, which directly helps control the inventory status Currently, on the Sale demanding forecast, we made some estimation mistakes or wrong calculation formulas It results in quantity shortage, delayed lead time, and even loss the promising customer due to delivery competitiveness In my opinion, the best inventory should be defined and contain

a minimum amount of popular products reasonably in availability It not only helps to cover the regular orders from previous customers, but we can also suggest and consult for promising customers to use it It

is beneficial to deal with unexpected demand and make a good image regarding stock availability,

competitive lead time, and good customer service

The impact of sale demand forecast in inventory control is determined differently for each node in a supply chain management [15]; demand forecast can minimize the cost varies with inventory policies used and lead time [16] The price has a strong correlation between the price and demand The demand forecast also brings some competitive information such as special prices or promotions [13] In this way, the company can get special purchasing prices, which is one way to improve high competitive price problems

Mr Lee Jae Hoon – Director of E-chem Vietnam, also shared his concern regarding sale demanding forecast:

Although E-chem has just been established in Vietnam for more than one year, it happens many destruction cases in the last 4 months due to expired products Sometimes, it happens the complaint from

customers about the short expiration date of received products For potential customers, it always happens product shortage or unavailability to suggest for their demand It means the safety stock control has problems Safety stock is directly affected by Sale forecast demand at the beginning of the period The new companies always face several messy problems, but I am always eager to solve the demand forecast

in priority in this emerging market period in E-chem This is the shortest way to improve our

competitiveness and upgrade our position in the chemical market

The Director also have big concerns about demanding forecast problem in E-chem, he also shows his minded attitude to take action; therefore, this problem is feasible to solve In E-chem, all Korean managers usually express to fix occurring problems, but they do not know where to start For example, they always try to update and explain some obstacles that the company faces, but they do not share how all departments collaborate and solve them Being recognized the significant impacts of demanding forecast on the competitiveness of E-chem in the Chemical industry, the poor demanding forecast is the main problem that needs to be solved immediately

open-3 Problem Justification

3.1 Problem definition

Demanding forecast is an essential input that drives actions within an enterprise and the whole supply chain

To make an effective demanding forecast, each company should define the answers for these questions:

“What causes the replenishment forecast error?”, “What prediction method can improve the accuracy of the forecast?” and have to know the target “How good is good enough” [27] Each company applies the best method to forecast the demand It also happens the over-stock or stock shortage status in inventory Therefore, every company has to define the best stock rate target, proceed with an action plan, and evaluate

it

In E-chem Vietnam, Dow manufacturer sets the wholesale price first, then E-chem sets the retail price later based on the wholesale price Both players set their prices based on production cost (raw material, machine, and labor cost) and demand forecasts The make-to-order scenario shows that retailers with manufacturer benefits share the forecast unconditionally with manufacturer benefits but hurts the retailers [28] like E-chem Nevertheless, in make-to-stock scenarios, a demanding forecast can benefit both manufacturing and retail [28]; that is why all retail-like E-chem take serious responsibility to forecast the demand since it directly affects benefits and risks for retailers

3.2 Problem existence

The poor demanding forecast reflects inventory replenishment, inventory availability, inventory shortage,

or estimated sale orders Thus, understanding how demand forecast is created and limitations are important

to enhance forecast performance

Currently, the poor demanding forecast in E-chem is causing high stock levels in both warehouses: Bac Ninh and Long An, the overcapacity of each warehouse up to 120% in Bac Ninh and 105% in Long An in

2020 It means the company will lose chances to push more stock on fast-moving products and spend more money to expand storage space In the fact that the sale department always tries to release the products that have short expiration date left in the warehouse If they do not find the customers can consume these quantities These stocks must be destroyed with high costs and useless usage

Comparing the actual usage per month and the monthly target forecast of E-chem in the fourth quarter of

2020 are shown as below:

Properties Current forecast

demand

Target forecast performance

Estimated cost arising

Interest of working

Source: Internal information and authority’s own calculation

Table 3.1 Cost arising from over stock holding

As the information in the above table, the target forecast error is 10%, while the actual forecast error is 16%

on average, it is higher 6% than expected Thus, the total excessive value of the stock is USD 16,515, and this amount makes the interest of working capital also rise to USD 1,150 Since the working capital of E-chem comes from bank loans, reducing working capital helps reduce the amount for a bank loan, as shown

in the table

3.3 Problem importance

Demanding forecast affects several decision-making processes to choose suitable action plans related to sales budget, new products selling, promotion planning, etc [26] The accurate and reliable demand forecast can provide vital intelligence in the supply chain to support the management level control their planning, setting strategies, and decision-making

The long-term forecast is considered the most important for firms applying Make-To-Order (MTO) strategies, and the short-term forecast can be expected to be more crucial when applying Make-To-Stock (MTS) strategies

From the broader supply chain perspective, the demand forecast is vital for its firm and the related partners since the accuracy of the demand forecast impacts the whole supply chain, including vertical partners and horizontal competitors [29] That is the reason why the accurate demand forecast is a crucial question whether the money and resource affecting directly on demand forecast are used effectively or not

If the demand forecast is calculated inaccurately, it can cause plenty of problems in the upstream supply chain operation such as inventory control, and pose a shock on the performance of the supply chain [30]

4 Cause validation

4.1 Potential causes

Lack of competitor information

Poor Demanding Forecast Improper forecast method Inaccurate input information

Ineffective internal collaboration

Too simple forecast models

Not enough criteria in forecast evaluation Insufficient historical/ recorded data

Lack of SOP system to manage internal information

Every department is not supportive enough

Figure 4.1 Fish bond diagram of main problem and potential causes

4.1.1 Improper forecast method

The demand quantities estimate of the accuracy was found to depend on the generating process and forecasting method There are many kinds of demanding forecasts in research, but each company has to well understand their business characteristics in human, finance, property, and weaknesses to choose the most suitable framework for applying [31] Every enterprise has a simple model to proceed with forecast demand, but it is not accurate While the sophisticated models are not commonly used due to a lack of expertise and resource [32]

In E-chem, the Sales team currently takes responsibility for the demand forecast; the standard duration is

12 weeks (3 months) in advance, Week 0 is actual order quantity from customers, and sale estimation is started from Week 1 to week 12 The forecast will be sent to the supplier (DOW ASEAN), then they will make their production plan following E-chem supplied information If any adjustment, E-chem will update Dow every month

The method E-chem uses is time-series data: Sale data is recorded in real-time and continuously It expresses the sale performance monthly Besides sale performance, sales data can show useful information like buying time from customers, types of products, selling price, customers' monthly volume This data can support finding out the seasonal demand basing on sale volumes For each customer they have different peak seasons depending on the characteristics of produced products and their end-users E-chem often forecasts based on their monthly order The sale volume and margin fluctuate significantly, which means the evaluation is hard to accurate and match the actual demand It is also shared by Mr Lee Jae Hoon – Director of E-chem Vietnam:

“Currently, we mainly use recorded orders from customers to do the forecast Based on the history data,

we adjust a little bit and send the assumption to DOW ASEAN production With their information, we guest the peak season and volume for the next period Some customers want to prepare safety stocks, and they also share their estimation; we can utilize them If the buyers divorce their quantity estimation, the

responsibility for unused stocks is all taken by E-chem It is a big abundant amount.”

As above analysis, E-chem only uses a simple method which relies only on order history and estimation from customers and the sale department It is not strong enough to make a realistic forecast According to Gardner, E.S, the time series data are non-seasonal and contain no observations; it jumps shifts in levels This forecasting method is also concise, so any conclusion can be subjective and can lead to a significant sampling error [33]

4.1.2 Inaccurate input information

According to Angulo et al (2004) evaluate the accuracy of information is an important part of the supply chain through its information sharing They consider information inaccuracy can cause poor integrity and poor demand planning/forecast; they also find the considerable impact of information delay on all performance measures, beneficial effects of sharing the forecast with the supply chain [34]

Source: Manufacturing & Service Operations Management Vol 1, No 2, 1999, pp 89–11

Figure 4.2 The input material and information flow in the supply chain

In an interview with the Sales Manager – Lee Dong Huyn about the information used to forecast is only valuable to consider the upcoming trend, but the analysis is too weak According to Lee and Whang, distorted information and ineffective information usage of available data can lead to excessive inventory in each supply chain leading to the “bullwhip effect” [51] It is compulsory to create more accurate information

on the forecast demanding process to formulate flexible production and timely replenishment The below chart shows the target sales and actual sales in E-chem in recent three quarter:

Q3/2020 Q4/2020 Q1/2021

Source: Sale report of E-chem from third Quarter 2020 to first Quarter 2021

Table 4.1 Target and actual sales from 3rd Quarter 2020 to 1st Quarter 2021

Based on the estimation for customer demand, the Sale manager set the Sale target and get approval from Director; he evaluates based on the estimation number and Director’s desire After each quarter, if Sale