HIGH POINT — The tight labor market in Vietnam caused by competition for workers is creating a relatively new wrinkle for importers sourcing product in factories: the need to place larger cuttings to secure a space on the assembly line.
According to companies that source product in Vietnam, many factories experiencing higher employee turnover have increased Minimum Order Quantities (MOQs), not only to become more efficient, but also to ship goods out on time. This, in turn, is requiring importers to secure larger orders from their retail base to place a first or second cutting on collections.
“They have gotten ridiculous,” said Kelly Hahn, chief creative officer of Design Works Furniture of the higher MOQs. “This has been a major problem.”
In the past, for instance, Hahn might have had a major buyer for a particular group, which was enough to drive a first cutting. Second and third tier customers then would then help support future cuttings.
“Now you need every single one of those guys to get a cutting,” he said, noting that an order of six containers of a particular bedroom would be sufficient to support a cutting in the past. Now it can be more like 12 containers. Citing dining chairs as an example, the MOQ might now be 600 up from 250 previously.
“We have to get more commitments; it’s a good thing and a bad thing,” he said that the factories are pushing for more orders. Thus, the communication from the factory ends up being, “Sorry these six containers aren’t enough. Get four more.”
Sources say the situation has gotten more noticeable in the past several months as Vietnam factories not only face worker turnover, but also have to pay more to recruit and to keep the workers they already have.
This labor issue has arisen due to the shift in product from China, which faces high tariffs not only on furniture but other consumer goods, too. And a host of industries are competing for skilled — and even unskilled — workers.
“All these things are putting pressure on factories to operate at peak efficiency,” said Michael Lawrence, executive vice president at Najarian Furniture. “Part of that is having larger piece minimums or larger container minimums. That has been some of the challenge. All the factories are looking to increase their margins and are trying to get more efficient. When times get tough, you want to run as much (product) as you can.”
Lawrence and others have said this becomes tricky for newer unproven groups launched at a market, particularly when dealers don’t commit or place orders right away.
In recent years, many importers and manufacturers have already lamented the increasing amount of time it takes to get an order after market. The longer that stretch, the longer it potentially takes to justify a cutting, particularly in an environment of higher MOQs.
“It is not just the first cutting, it is the second cutting you have to order for,” Lawrence said. “You want to be more selective in what you produce. You may decide to wait for a particular group or collection until you show it a second time.”
This was the case at the January Las Vegas Market where some case goods resources that said they planned to reintroduce certain product in April before putting it into production.
Lawrence said the demand for higher MOQs out of Vietnam has been taking place since around the middle of 2019, but it has gotten progressively worse since last fall and heading into this year.
“It is a moving target,” Lawrence said. “We evaluate our factories and our MOQs every so often, and it changes almost month to month depending on the capacity of the factory.”
For many, the situation demands a higher buy in from a few majors, or casting a wider net among both larger and smaller dealers alike.
Bill Dominquez, vice president of research, development and international operations for New Classic Furniture, said that MOQs have been fairly stable at its source factories in Vietnam. But deciding to cut a group or collection is still a balancing act.
“When we run a group … we make sure there are a lot of majors on board to support it,” he said. “If a group doesn’t do well at market, we know it is going to be a problem with MOQs. If we only sell one or two containers and there are no majors for that group, we don’t cut it. When we make it a go, we know there are a lot of majors and that every month we can meet the MOQ.”
Industry observers say that the situation is not necessarily limited to Vietnamese factories. One source noted that MOQs have also increased from mills in China that produce PU and fabrics.
But Vietnam is where much of the finished product — in both case goods and upholstery — has shifted due largely to China tariffs.
“It is obvious that they will do that because they are lacking skilled workers,” said Crystal Nguyen, vice president, merchandising for Coaster Co. of America, of Chinese, Taiwanese and Vietnamese-owned plants in Vietnam. “They have to become more efficient on their production capacity so they can meet your needs on shipments.
“To be honest, we have nine warehouses, so the increase on MOQs for best sellers is not a big deal to us,” she said. “Some factories have to do it because it allows them to be more efficient with each cutting. … They want to be able to ship more out on time, and it is one of the solutions to have more timely shipments. Do you want higher MOQs or late shipments? I don’t think there is a choice.”
John Iasiello, vice president of strategic planning and business development for Riverside Furniture, said the increase in MOQs has not been a problem for Riverside. More pressing is the issue of factories not as willing as they were in the past to produce home office, a still important part of its line.
“It slows down their line, it is more SKU intensive, and there are more components,” he said. “From what we have heard, it doesn’t run down the line as efficiently as a bedroom would. … The home office category is something that factories aren’t as willing to take on as they once were.”
Yet, as with the MOQs, some industry observers view this as a sign that Vietnamese factories are in the driver’s seat when it comes to dictating terms of what or how much they’ll agree to produce.
“The pendulum will swing,” said Hahn at Design Works. “Right now it’s a seller’s market, but it will become a buyer’s market.”
A key to success and avoiding disruptions in the supply chain, he noted, is choosing partners that will be able to work together for the long haul.
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Pressure building: Are higher MOQs at Vietnam factories forcing importers to aggregate orders? - Furniture Today
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