For years, tanning industry entrepreneur Thomas Schneider dreamed of building his ideal tannery from scratch. When a plot of land became available just north of Ho Chi Minh City in Vietnam, he took the chance to turn his dream into reality.

Thomas Schneider takes his time. His first ISA Tan Tec tannery in China was in a building he acquired in a part of Guangzhou that quickly became a busy industrial location, making expansion difficult. But he kept imagining what his ideal tannery would look like and what technology and workflow practices he would set up in it. A number of factors came together towards the end of the last decade and he set up a new tannery in Vietnam, establishing the business in 2008 and running it through contract tanners until his own facility, Saigon Tan Tec, was ready to start production in 2010.

The right plot of land became available in Binh Duong, just across the provincial boundary from Ho Chi Minh City in the south of Vietnam. The authorities there are working hard to take advantage of Binh Duong’s proximity to the big city and its infrastructure advantages, and are developing industrial parks such as Viet Huong Two, the one that houses the Tan Tec tannery. Good people became available at more or less the same time because a plant that a major automotive seat manufacturer ran in the area closed down just as the tannery was opening and 60 of the first complement of employees, including human resources and health and safety manager, Le Minh Nhat, came from there, bringing their knowledge of lean manufacturing principles and a degree of familiarity with leather.

Technical director, Tiago Horn, originally from Rio Grande do Sul in Brazil but an important member of the Tan Tec team for 16 years, points to walls made from two layers of bamboo and a 15-metre-high ceiling (designed to let a maximum amount of air flow through the building so that conditions are cool and comfortable enough, without the need to consume energy for widespread air conditioning) as examples of successful transitions from Mr Schneider’s imagination to the working tannery. Everything has been carefully planned; Tiago Horn says the building, the layout of the machinery, the flow of material and so on were thought through first and executed later.

Now 380 people work there and the company is preparing to recruit between 80 and 100 more in the weeks following the Lunar New Year holiday to enable it to cope with increases in orders. These increases are likely to take its March production targets to between 3.5 million and 4 million square-feet of finished leather. Even in the peak season (from March to June) output in 2013 remained under 3 million square-feet per month. Increased demand for its leather means Saigon Tan Tec is also investing in new machinery, including one new soaking drum, four new milling drums and three new staking machines (full details follow at the end of this report).

Wet blue from the US and Brazil

Key qualities suppliers must have

Flexibility and reliability are the key qualities he looks for in all suppliers. Almost all (around 98%) of Saigon Tan Tec’s finished leather, with around half the total output waterproof leather, goes into shoes made by  European and North American outdoor footwear brands, including various Wolverine Worldwide brands and several for Deckers Corporation, as well as Timberland, The North Face, Danner, Dr Marten’s and Clarks. “We work closely with them,” Tiago Horn says. “Sometimes they come to us with requests, asking for new ideas and, for that, we often need the help of our suppliers, too, and it’s here that flexibility becomes important. We need suppliers who will accept new ideas and try things out, or least be open to talking about them.”

One recent example of the benefits of supplier flexibility came directly from a Saigon Tan Tec request rather than from any of the shoe brands. The company wanted its retanning drums to rotate at a slower speed when possible to save energy and consulted with European drum manufacturers, from whom Tan Tec had bought in the past, about the possibility of carrying out this change to the rotation speed. In the end, a rival company from China, Yuto, was more responsive, Mr Horn recalls, and more willing to help find a solution. Yuto, Mr Horn says, was “delighted to help” and to adapt its technology to the tanner’s needs.

Saigon Tan Tec says it is not the only operator in this part of the world to have noticed this and claims that many large producers in Asia of the American-style leathers outdoor footwear brands love have begun to look at Yuto drums. It imports wood from Africa and constructs the vessels in China. The ones Saigon Tan Tec owns have been running practically non-stop for four years and the company is happy with the way the Yuto drums are withstanding the pressure. The Lunar New Year holiday at the end of January 2014 presented an opportunity to clean them thoroughly and relacquer them and the company is confident the drums will continue to perform well.

Strong relationships with wet blue suppliers is one of the main reasons why neither of the Tan Tec tanneries (the one in China has left Guangzhou for another part of the Pearl River Delta, Heshan) runs its own beamhouse. Purists still argue that you have to tan from raw to be able to control fully the quality of the finished leather, but more and more tanners seem to argue that if you choose the right wet blue partners and maintain a positive dialogue with them at all times, you can overcome many of the disadvantages.

Customer demand

The growth in production at Saigon Tan Tec in the early part of 2014 is real, but gauging demand among footwear brands for traditional, oily leathers such as those produced by the tannery and its immediate competitors is usually tricky, Tiago Horn admits. It’s traditionally a very demanding market for suppliers (although brands are often admirably uninhibited when it comes to setting consumer prices for their shoes). “There are a lot of players making similar types of articles,” the technical director says. “There are maybe ten tanneries in Asia doing this, and we can guess their capacities. From that, we can say that our market share can still increase. It’s easy for brands to change suppliers and we would like to grow our share of this market.” At the moment, there seem to be various reasons for what he calls “unrest” in the global tanning industry. Some tanneries are closing down, for a variety of reasons, others are scaling down their production. “Only a few tanneries are investing in increased capacity,” he says.

With this group of competing tanners making similar articles, Saigon Tan Tec’s conviction is that it can win a larger share of the overall outdoor footwear market in the short term by doing after-sales well and by making sure it has its certification and audit status complete and up to date. But, even with all of this in place, customers can move on quite quickly. “All of a sudden, your price is too high,” Mr Horn continues. “In theory, tanners will make money back from the audit and certification programmes they take part in thanks to increased efficiency, consuming less energy and water and so on. And, yes, if you do it seriously, studying the numbers, measuring, improving, you see a benefit. But to do this, you have to live it; you really have to go for it. And it’s possible to go through all of that only for your customer suddenly to find a cheaper price somewhere else.”

Another possibility for growth is for the entire market for leather for outdoor footwear to increase, for the cake to get bigger. “Some brands are growing,” Mr Horn insists. “Others have been steady for the last two or three years and are, at least, not going down.” He would like brands to take to consumers the message that defects in leather are natural and beautiful. “They don’t push that,” he points out. “They seem afraid of consumers sending in claims for refunds. I’m not saying consumers should accept a brand mark on the toe of a shoe, but it’s time for footwear brands to tell the story of real leather.”

Worker wellbeing

Employee turnover was 1.2% in 2013, which would be a commendably low rate in any business in any country in the world. But at a time of sharply rising wages in many parts of Vietnam as the country’s consumer products manufacturing revolution continues, it’s a source of great pride for human resources and health and safety manager, Le Minh Nhat, and for the whole company. By way of comparison, he believes most companies in the immediate environs of the tannery are likely to have experienced a turnover rate in excess of 10% in 2013.

He believes a strong focus on people rather than on output and output alone helps make a difference to Saigon Tan Tec’s ability to keep its employees. Investment in automation on the tannery floor is high, which means fewer injuries and a more contented workforce, Mr Nhat says, with higher productivity as an important spin-off. The phenomenon of large numbers of workers living in on-site dormitories is far less prevalent in Vietnam than in China, so the situation at Saigon Tan Tec is that people travel by bus and scooter through heavy traffic to and from work before and after each shift. In addition, a subsidised bus shuttles back and forth between the tannery and the centre of the city. Travel and living allowances are part of the salary package.

On site, a canteen serves breakfast, lunch and dinner every working day, completely free of charge for the workers. An outside catering company is contracted to prepare and serve the food. There are monthly meetings at which the workers provide feed back  of their impressions of the quality and quantity of the meals on offer, with perhaps the biggest talking point being how spicy the food should be. “We have many regional variations in Vietnamese cooking,” Mr Nhat explains, “and workers from the different regions of the country naturally sometimes find it difficult to adjust to an unusual taste. We do the best we can to please everybody.” There are health-checks at least once a year for all workers,  and these are more frequent for all employees who come into regular contact with chemicals. There is a full complement of qualified first-aiders on site and a contract in place with a nearby hospital for nurses to provide any necessary professional healthcare.

Children in need

Away from work, inspired by founder Tom Schneider, Saigon Tan Tec is supporting 50 Vietnamese children from low-income families in their studies, through a charity called World Vision. Drawings and cards from the children adorn the company’s offices. Another project is to support Operation Smile, a charity that works to give affected children in all parts of the world free surgery to repair cleft lip, cleft palate and other facial deformities. The company’s method of raising money, which helps to fly surgeons into Vietnam to carry out the operations, includes an annual charity barbecue in the tannery grounds, with entertainment provided by a band of Cuban musicians, who are usually the resident entertainers at a swish hotel in downtown Ho Chi Minh City. Guests give generously for token gifts such as little leather elephants, ornaments made by Saigon Tan Tec employees from its own trimmings.

The company’s relations with the local authorities are strong, Tiago Horn says. The fact is that Binh Duong’s provincial authorities have held Saigon Tan Tec up as an example of how it wants manufacturing companies to operate. Other industrial park project leaders and other companies have been brought to the site to see how things should be done. Of course, when operations began there in 2010, inspections were frequent, but Mr Horn says the powers that be now seem confident that the tanning company is doing things well and will continue to do so.

New ideas

He knows there is plenty of work still to do. For example, he is very keen to achieve further reductions in water and energy use. He is also keen to work with chemical manufacturers to establish “less environmentally hostile” ways of producing leather and says they will find a willing volunteer in Saigon Tan Tec when they have new products and new ideas to try out. The layout of the tannery is testament to the company’s commitment to trying out ideas because, as mentioned above, all the planning took place first. “Even then, we know we made some mistakes,” Tiago Horn says. “Some of these, we could rectify, others we couldn’t because construction had already taken place, but we made sure we didn’t repeat them when we built the new Tan Tec tannery in Heshan.”

He also pays tribute to the enthusiasm with which Saigon Tan Tec workers have taken change on board, saying they have thought carefully about how to make life easier, how to use less resource, trying to make a difference. There is a strong culture of ideas coming up from the factory floor. They are not all workable, but there are monetary rewards and other prizes for those that are. As is often the case, simple ideas often turn out to be among the best and one example Mr Horn points to is a case in point. “We spray water on the felt of the setting out machines,” he explains, “as is standard practice. The workers on the machines worked out that they were spraying between seven and nine cubic-metres of water on the felt of each machine every day, and their idea was to collect that water and use it to wash the floor. This is the mentality we have here, and it means things happen easily in Saigon Tan Tec.”

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