SUPPLY CHAIN OF THAILAND PRODUCT CHAMPION: CASE STUDY OF PASSENGER CAR TIRE INDUSTRY

by

Duangpun KritchanchaiDepartment of Industrial Engineering, Mahidol University

25/25 Phuttamonthon 4 Rd, Phuttamonthon, Salaya, Nakhonpathom, Thailand

E-mail: egdkc@mahidol.ac.th

Tuanjai SomboonwiwatDepartment of Industrial Engineering,

King Mongkut’s University of Technology Thonburi126 Pracha-utid Rd, Bangmod, Toongkru, Bangkok, Thailand

E-mail: tuanjai.som@kmutt.ac.th

and

Wirachchaya ChanpuypetchCentre of Logistics Management, Mahidol University25/25 Phuttamonthon 4 Rd, Phuttamonthon, Salaya,

Nakhonpathom, ThailandE-mail: wirachchaya@gmail.com

ABSTRACT

The direction of Thailand logistics research is geared toward enhancing the country’s competitiveness. To achieve that, logistics research must be conducted under the perspective of supply chain. In this paper, supply chain of Thailand product champion is determined. We found that passenger car tire industry is one of the product champions of Thailand. It is one of the highest exporting values with high demand in the world market. We then analyze the flow from upstream to downstream. The proportion of rubber products flow in each area from upstream to midstream and midstream to downstream are exhibited. Forecasting for future productivity is also taken into account. It is found that capacity balance in the chain is the major problem. Future location and capacity needed for passenger car tire production is proposed. The direction of industry’s competitiveness is also presented in this paper.

KEYWORDSSupply Chain, Product Champion, Tire, Forecasting, Productivity

INTRODUCTION

The direction of Thailand logistics research has been geared toward enhancing country’s competitiveness. Three performance indicators are considered namely; cost reduction, efficiency improvement, and value creation. The logistics system improvement should help costs reduction and enable Thailand to compete effectively. It has been recommended that the potential industry of Thailand must be determined in order to identify the champion. Then, the concept oflogistics and supply chain management must be applied.

This paper is a part of the project of “The Supply Chain Champion in Thailand”. The main purpose is to identify the product champion for Thailand’s competitiveness. The study begins with selecting the potential industry in Thailand. It is found that rubber industry is one of the potential industry groups in Thailand Competitiveness Matrix (TCM). TCMwas created by National Economic and Social Development Board of Thailand for comparing the international competitiveness of various industrial sectors and the attractiveness of different business types in the global market. According to the TCM, Thai industries can be classified into three categories: potential industries, improving industries, and survival industries, illustrated in Figure 1. All industries are considered by exporting value, government support, and value creation. Within the potential industry groups, rubber products, fish and seafood, and canning are more attractive and competitive than other groups.

FIGURE 1 THAILAND COMPETITIVENESS MATRIX 2005: INDUSTRIAL SECTOR

Source: Office of National Economic and Social Development Board, Thailand

From the authors’ previous work (Kritchanchai et al.,2010), it has been proofed that rubber is the most potential sector selected as one of the champions. The focus of this paper is to explore the supply chain of this product champion. Passenger car tire has been selected as the represented product (Kritchanchai et al., 2010).

The paper is structured as follows. The product champion selection for rubber industry in Thailand is depicted in section 2. The criteria are determined and the product champion is identified. In section 3, supply chain of passenger car tire industry is analyzed. The problem is defined from upstream to downstream. The direction for passenger car tire industry’s competitiveness will be proposed in section 4 and conclusions are shown in section 5.

THE PRODUCT CHAMPION SELECTION FOR RUBBER INDUSTRY IN THAILAND

Rubber production has been one of the country’s major industries contributing to the growth of Thai economy. It is found that rubber industry is one of the highest exporting values with high demand in the global market. The major rubber exporting products of Thailand are tire and gloves. Exporting value are 31,642.62 million THB and 9,262.80 million THB in year 2009 respectively (The Office of Industrial Economics, Thailand, 2010). Then we list down the top five products from these 2 groups. This will be considered as the alternatives for product champion evaluation. The top five rubber products are selected for the alternatives for further identifying the product champion. The alternatives are passenger car tire, gloves, motorcycle tire, motorcycle inner tube, and bus/truck inner tube. Then, we rank the alternatives for identify the product champion in rubber industry by using Analytic Hierarchy Process (AHP).

AHP is an approach that is suitable for dealing with complex systems. It is to provide choices from among several alternatives which provide comparison for the considered options. It is firstly proposed by Thomas L. Saaty in the 1970s (Bhushan and Rai, 2004). The AHP is based on the subdivision of the problem in a hierarchy form. The AHP helps organizing the rational analysis of the problem by dividing it into part. The analysis then provides the decision makers to make several pair-wise comparisons. The AHP can be used for analyzing different problems. It uses both qualitative and quantitative variables. The fundamental principle of the analysis is the possibility of connecting information based on knowledge to make decisions. In applying AHP, three steps are processed, the description of a complex decision problem as a hierarchy, the prioritization procedure and the calculation of result (Chauhan et al., 2008).

The first step in developing the AHP is to identify and then define the criteria. In this study, the criteria which has been used in Thailand Competitiveness Matrix are adopted. Group of criteria can be devided to five catagories namely factor inputs and production, global demand, domestic importance, degree of competition, and external effect. Then, thirteen criteria are selected from TCM and used for product champion selection. The criteria for Thailand product champion selection are shown in Table 1.

g

TABLE 1 THE CRITERIA FOR THAILAND PRODUCT CHAMPION SELECTION

Group of criteria Criteria Definition of criteria

% of local contentPercentage of local content usage for production

Value added Opportunity for value creation Value chain linkage Opportunity for value chain linkage

Factor inputs and production

No. of Employment Number of employment in the industryWorld market share Share of the product in world marketWorld market size Market size of the product in world market

Global demand

World market growth The growth rate in world marketLocal demand growth The growth rate in local marketDomestic

importance Local demand size Demand in local marketnumber of competitors Number of competitors in the marketProduct Differentiation the uniqueness of products

Degree of competition

Free Trade Agreement (FTA)

Benefit from Free Trade Agreement (FTA)

External effect Environmental impact Impact of industry on environment

The relative importance of criteria are determined through the pair-wise comparison method in AHP. We use the nine-point (1-9) numerical scale of AHP. The importance of the criteria were evaluated by group of expert. The relative weights of the criteria were next used to assess the alternatives of rubber product. The analysis aims to identify the ranking of the criteria. Based on the responses on the evaluation, the finding shows that the top three criteria are value added, world market, and world market share. Value added is given the highest weight of 0.2229 while world market and world market share is 0.1783 and 0.1309, respectively. Then, the results in rank of rubber products order are: passenger car tire (0.3393), gloves (0.2430), motorcycle tire (0.1829), motorcycle inner tube (0.1257), and bus/truck inner tube (0.1092). As a result from AHP model, passenger car tire is identified as the product champion of Thailand. Criteria rankings and the evaluation for product champion in rubber industry is illustrated in Figure 2.

FIGURE 2THE EVALUATION FOR PRODUCT CHAMPION

SELECTION PASSENGER CAR TIRE INDUSTRY IN THAILAND

0.1092

0.1257

0.1829

0.2430

0.3393

Bus/truck inner tube

Motorcycle inner tube

Motorcycle tire

Gloves

Passenger car tire

Evaluation for product champion selection

Product champion for Thailand rubber industry

0.0120

0.0169

0.0201

0.0230

0.0328

0.0399

0.0535

0.0665

0.0859

0.1172

0.1309

0.1783

0.2229

FTA

Environment impact

No. of employment

Product …

Value chain linkage

Local demand …

Local demand size

World market size

No. of competitors

% of local content

World market share

World market …

Value added

Weights for factor

*C.R. = 0.06

The following sections will depict a review of passenger car tire industry in Thailand and analyze problem of rubber products flow from upstream to downstream.

Passenger car tire

CURRENT SITUATIONS

According to the AHP model, passenger car tire industry was selected as the product champion of rubber industry in Thailand. The result accords with experts’ opinion in the field of rubber industry. They consider that tire is one of the highest potential industries and should be supported. A structure of passenger car tire industry supply chain is illustrated in Figure 3.

FIGURE 3A STRUCTURE OF TIRE INDUSTRY SUPPLY CHAIN

In Thailand, rubber planting areas are located in Southern, Eastern, and Northeastern region. Mostly, rubbers are supplied to midstream firms nearby the planting areas. Then, natural rubber products from midstream manufacturing (such as ribbed smoked sheet and block rubber) are sent to local tire manufacturing. Passenger car tire manufacturers are mostly located in the Central and the East of Thailand.

From focus group and in-depth interview with midstream and downstream manufacturers in Thailand, we found that midstream manufacturers use raw materials in their own area. Except for Eastern region, 10 and 30 percent of midstream products are produced by using raw material from Southern and Northeastern areas, respectively. Then, midstream products (ribbed smoked sheet and block rubber) are sent to passenger car tire plant in Eastern and Central areas. The proportion of rubber products flow from upstream to downstream are shown in Table 2.

TABLE 2THE PROPORTION OF RUBBER PRODUCTS FROM RAW MATERIAL LOCATION

Location Upstream Midstream Downstream*

Northeastern region

Eastern region

Southern region

* Mostly, downstream plants (passenger car tire manufacturers) locate in the East and Central of Thailand.Source: in-depth interview (2010)

60%

10%

100%

100%

30% 20%

80%

PROBLEM DESCRIPTION

The Flow from Upstream to Midstream

From previous section, mostly, midstream manufacturers use raw materials within their area. Except for Eastern region, this area consumes more raw materials from Northeastern and Southern areas. It can be seen that 30% of raw material fed into Eastern part are from Northeastern part. As a new growing area, there are still few midstream manufacturing plants in the Northeastern part.

Moreover, rubbers in Northeastern area are increasing as a result of the government’s “The One Million RaiRubber Plantation Project phase I” program in 2003 which can be harvested in 2010. We realize that the capacity of midstream plants in this area may not be adequate for support the rapid increase of rubber growth. This situation will affect the capacity balance and transportation cost in the passenger car tire supply chain in the near future.From the problem stated above, we realize that to improve the passenger car tire supply chain, the product flows from upstream need to be managed. From the authors’ previous work (Kritchanchai et al, 2009), it is found that there is no policy support and manage the product in this new growing area - Northeastern.

Most of rubber in Northeastern region flow to the Eastern part for midstream manufacturing. This results in over flown capacity at midstream plant together with high transportation cost. This urges us to consider about adding up capacity for midstream process in Northeastern region. That means number of midstream manufacturing must be increased in Northeastern region in order to consume its own area’s raw material. We then investigate the current situation capacity in each region in Table 3.

TABLE 3THE CURRENT SITUATION CAPACITY IN EACH REGION

LocationUpstream dry rubber and cup-lump

(tons)1Midstream capacity available

(tons)2Midstream capacity

statusNortheastern 104,601.43 13,980 Over capacityEastern 263,307.08 288,420Upper Southern 37,964.98

Slightly over capacity3

Southern 2,330,378.25 3,162,936.00 Under capacity1 92% of all upstream rubbers flow in the form of rubber latex and 8% is in the form of cup-lump.90% of rubber latex supply to dry rubber industry and 10% supply to concentrated latex industry. (Department of Trade Negotiations, 2004)2 Capacity of Midstream plant (block rubber and ribbed smoked sheet) in 2006 (based on data from Department of Industrial Work (2009))3 For Upper Southern, upstream dry rubber and cup-lump are sent to midstream plants in Eastern area.

From Table 3, it can be seen that the midstream manufacturing in Northeastern is inadequate. Furthermore the rubber from the government project on “The One Million Rai Rubber Plantation Project” (1 rai=1,600 m2) will be harvested in year 2016. Here we consider the production rate in year 2016 in comparison with the capacity available. The Northeastern production rate in year 2016 comes from 2 sources.

Firstly, we use trend analysis method to forecast the Northeastern outcomes in year 2016 which results in 327,910.90 tons. The forecasting of rubber production in year 2016 is shown in Table 4.

TABLE 4THE FORECASTING OF UPSTREAM RUBBER PRODUCTION IN YEAR 2016

Region Province Equation MAPEProduction 2016 (tons)

Region Province Equation MAPEProduction 2016 (tons)

LoeiYt = 7669.5 + 935.2*t

1 18,891.90 Prachinburi Yt = 66.0 + 165*t 11.69 2,046.00

NongbualumphuYt = 1076.5 + 241.5*t

3.31 3,974.50 ChachoengsaoYt = 8697 + 2683*t

2 40,893.00

UdonThaniYt = 9624 + 1465.1*t

5 27,205.20 Srakao Yt = 2230.0 + 15.8*t

1.18 2,419.60

Nong Khai Yt = 16931.5 + 4795.2*t

3 74,473.90 ChantaburiYt = 69707 + 4996*t

1 129,659.00

SakonnakhonYt = 2199.5 + 615.1*t

4.8 9,580.70 TradYt = 40090 + 1704*t

2 60,538.00

Nakhon PanomYt = 4619 + 930.9*t

3.2 15,789.80 RayongYt = 109615 + 9306*t

1 221,287.00

MukdahanYt = 3627.5 + 859.1*t

4.8 13,936.70 ChonburiYt = 25348 + 2515*t

2 55,528.00

YasothonYt = 4619 + 930.9*t

3.2 15,789.80

Eas

tern

Total 512,370.60

AmnatcharoenYt = -71 + 241.7*t

7.78 2,829.40 ChumpornYt = 102543 + 1181*t

2 116,715.00

UbonRatchathaniYt = 4541.5 + 1085.8*t

4 17,571.10 RanongYt = 27846 -1357.00*t

4 11,562.00

SisaketYt = 7444.5 + 1517.4*t

0.9 25,653.30 SuratThaniYt = 446671 -7989.50*t

4 350,797.00

SurinYt = 2513 + 1925.5*t

12 25,619.00 PhangNgaYt = 166861 -6315.40*t

3 91,076.20

BuriramYt = 5086 + 4091.2*t

8 54,180.40 PukhetYt = 29413 -1332.10*t

2 13,427.80

MahasarakamYt = 152.5 + 75*t

3.34 1,052.50 KrabiYt = 134529 + 893*t

0.2 145,245.00

RoietYt = 1760 + 154.9*t

1.89 3,618.80 TrangYt = 335984 -1610.60*t

1 316,656.80

KalasinYt = 2538.5 + 586.8*t

1.65 9,580.10 PattalungYt = 130099 + 3171*t

2 168,151.00

KhonkeanYt = 1360.5 + 129.1*t

2.41 2,909.70 SongkhlaYt = 355711 + 3113*t

0 393,067.00

ChaiyaphumYt = 923 + 154.8*t

4.68 2,780.60 SatunYt = 59902 + 1638*t

2 79,558.00

NakhonratchasimaYt = 325.5 + 179*t

5.71 2,473.50 PattaniYt = 53539 + 3587*t

2 96,583.00

Nor

thea

ster

n

Total 327,910.90 YalaYt = 201412 + 12085*t

2 346,432.00

NarathiwatYt = 218471 + 9634*t

1 334,079.00

Nakhon SiThammarat

Yt = 321634 -9091.40*t

2 212,537.20

Sou

ther

n

Total 2,675,887.00Source: Final report “The Implementation of Logistics and Supply Chain Management in Thailand” (2010)

Secondly, the additional of 146,565.65 tons of rubber products from One Million Rai Project are included in the consideration (Rubber Research Institute of Thailand of Nong Khai province, 2010). Thus, the Northeastern production rate in year 2016 will be 474,476.55 tons. This again compares to the overall capacity shown in Table 5.

TABLE 5THE RUBBER PRODUCTION RATE IN YEAR 2016

LocationUpstream production in

2016 (tons)Upstream dry rubber andcup-lump in 2016 (tons)1

Midstream capacity for dry rubber

(if not increasing) (tons)Northeastern 474,476.55 423,100.23 13,980Eastern 512,370.60 456,891.11 288,420Upper Southern

48,133.30 42,921.43

Southern 2,664,325.00 2,375,831.89 3,162,936Overall 3,699,305.45 3,298,744.66 3,465,3361 92% of all upstream rubbers flow in the form of rubber latex and 8% is in the form of cup-lump. 90% of rubber latex supply to dry rubber industry and 10% supply to concentrated latex industry. (Department of Trade Negotiations, 2004)

It can be seen that when the outcomes from One Million Rai Project in new growing areas bloom, the midstream capacity for dry rubber and cup-lump, which are the main raw material for tire industry, will be shortage. This convinces the idea of adding up midstream plant in the new growing area - Northeastern region.

THE FLOW FROM MIDSTREAM TO DOWNSTREAM

In this section, the supply chain of the passenger car tire shows the flow of midstream products to downstream processing plants. We have viewed at the direction of the passenger car tire industry in Thailand by studying industrial growth trends to determine the natural rubber production volumes consumed.

According to the data from factories in the year 2008, it was found that there were passenger car tires entrepreneurs totaling 10 establishments. We also carried out questionnaires and interviews with those entrepreneurs in order to know the production quantities of the passenger car tires of the country to assess the situation of the passenger car tire production as well as to indicate the natural rubber production volumes in the industry. From the interviews with the car tire manufacturers, we learnt that to manufacture one passenger car tire needs natural rubber products about 3.5 kilograms or about 22 percent by weight (average weight equals 16 kg per tire). This was used to calculate the natural rubber production quantities used for passenger car tire industry in Thailand in 2008, which were approximately 73,878 tons/year as shown in Table 6.

TABLE 6PASSENGER CAR TIRE PRODUCTION AND USAGE

QUANTITIES OF MIDSTREAM PRODUCTS IN YEAR 2008

Region ProvincePassenger car tire production

(tires/year)1Midstream products for passenger car tire

industry (ton/year)2

Nakhonpathom 578,028 2,023Samutsakorn 1,187,481 4,156Saraburi 1,486,896 5,204Patumthani 4,648,668 16,270

Central

Samutprakarn 2,503,359 8,762Chonburi 4,071,364 14,250

EasternRayong 6,632,123 23,212

Total 21,107,920 73,8781 Questionnaires and In-depth interviews with passenger car tire manufacturers2 22% by weight of passenger car tires are natural rubber product (in-depth interviews with passenger car tire manufacturers)

According to the study of the flow patterns and quantities of the rubber products in the supply chain, it was found that the flow of the rubber products into the midstream processing plants varied directly with the product quantities in the area. Hence, this may conclude that the midstream products that flow into the automobile tire industry have comefrom different areas with proportions according to the quantities of the production occurred as in Table 7, which shows the flow quantity of the natural rubber products from different areas.

TABLE 7QUANTITY OF BLOCK RUBBER AND RIBBED SMOKED SHEET

FOR PASSENGER CAR TIRE INDUSTRY IN YEAR 2008

LocationUpstream dry rubber

andcup-lump in 2008 (tons)1

Proportion (%)Quantity of block rubber and ribbed smoked sheet for passenger car tire industry in 2008

(tons)Northeastern 138,142.59 4.90 3,618.23Eastern 306,005.31 10.85 8,014.90Upper Southern 39,585.23 1.40 1,036.82Southern 2,336,895.83 82.85 61,208.05Overall 2,820,628.96 100.00 73,878.00

1 92% of all upstream rubbers flow in the form of rubber latex and 8% is in the form of cup-lump. 90% of rubber latex supply to dry rubber industry and 10% supply to concentrated latex industry. (Department ofTrade Negotiations, 2004)

To encourage the use of the midstream products in processing within the country, an increase of the production of the passenger car tires of the country, which is considered the national product champion, is regarded as one way to meet both the enhancement of the use of the natural rubber for domestic industry and the promotion of the growth of Thailand product champion industry. Therefore, the quantities of the rubber to be used in the future have been predicted to design the supply chain of the passenger car tires through a study that by the year 2016, the year that the One Million Rai of Rubber Plantation Project in the Northeast will have been expected the most productive year.

Because of this, we use trend analysis method to forecast passenger car tire outcomes in year 2016 by using the quantity of passenger car tire production in year 2003 to 2008 (The Office of Industrial Economics, 2009). In trend analysis, time in year is one independent variable (t) while annual passenger car tire production (At) trend can be calculated by using the forecasting model At= 15,469,229 + 874,031*t (Mean absolute percentage error; MAPE = 5.4). Results of the modeling predicted that passenger car tire production increase from 21,107,920 to 27,705,663 tires in year 2016. Thus, midstream rubber products must be served to passenger car tire industry in Thailand about 96,970 tons. The passenger car tire production forecast in year 2009 to 2016 is shown in Table 8.

TABLE 8THE FORECAST OF PASSENGER CAR TIRE PRODUCTION

AND USAGE QUANTITY OF MIDSTREAM PRODUCTS IN YEAR 2009 TO 2016

YearPassenger car tire

(tires)1Midstream products for passenger car tire industry

(tons)2

2009 21,587,446 75,5562010 22,461,477 78,6152011 23,335,508 81,6742012 24,209,539 84,7332013 25,083,570 87,7922014 25,957,601 90,8522015 26,831,632 93,9112016 27,705,663 96,970

1 MAPE = 5.42 22% by weight of passenger car tire are natural rubber product (in-depth interviews with passenger car tire

manufacturers)

In year 2016, the forecast value shows the passenger car tire production increasing around 6,597,743 tires from year 2008. This volume consumes the midstream products around 23,092 tons.

TABLE 9EXPECTED QUANTITY OF BLOCK RUBBER AND RIBBED

SMOKED SHEET TO PASSENGER CAR TIRE INDUSTRY IN YEAR 2016

LocationUpstream dry rubber

andcup-lump in 2016 (tons)1

Proportion (%)

Expected quantity of block rubber and ribbed smoked sheet for passenger car tire industry in

2016 (tons)Northeastern 423,100.23 12.83 12,437.47 Eastern 456,891.11 13.85 13,430.79 Upper Southern 42,921.43 1.30 1,261.72 Southern 2,375,831.89 72.02 69,840.03 Overall 3,298,744.66 100.00 96,970.00

1 92% of all upstream rubbers flow in the form of rubber latex and 8% is in the form of cup-lump. 90% of rubber latex supply to dry rubber industry and 10% supply to concentrated latex industry. (Department of Trade Negotiations, 2004)

From Table 9, it can be seen that the quantity of the midstream products for the passenger car tire industry will increase especially in the Northeastern area. For this reason, capacity of the downstream manufacturing should be added.

THE DIRECTION FOR PASSENGER CAR TIRE INDUSTRY’S COMPETITIVENESS

After we analyze the flow from upstream to downstream of the passenger car tire industry in Thailand, the proportions of raw material flows in each area both from upstream to midstream and midstream to downstream are exhibited. It is found that capacity balance in the chain will be a major problem. In this section, future location and capacity needed for the passenger car tire production is recommended. The direction for the industry’s competitiveness is also proposed by redesigning the supply chain.

CAPACITY AND LOCATION PLANNING

Midstream Plants for Block Rubber and Ribbed Smoked Sheet Production

We determine the location of the cluster for allocating the midstream manufacturing. It is expected that investment and supports from the government should be encouraged.

Northeastern region is divided into group of provinces. In each group, collecting stations are determined. First, the break-even point distance for transportation from upstream to midstream is calculated based on the break-even point of the transportation cost for farmers in the Northeastern area which is 5,299.33 THB/tons. Then, variable cost and fixed cost are considered. The distance of the break-even point is resulted in 132 kilometers (at fuel price of 28 THB/ litre) (Maersuntea and Wongsawat, 2006). This can be interpreted that the provinces within the radius of less than 132 kilometers should be grouped as a cluster. The rubber volume in the cluster is then consolidated at a representative province which has the largest volumes of rubber in the group. After that, seven locations are selected as locations of the midstream plants in this region namely; Nong Khai, Leoi, Udon Thani, Mukdahan, Kalasin, Si Saket, and Burirum provinces. Locations of the midstream plants in the Northeastern region are illustrated in Figure 4.

FIGURE 4 LOCATIONS OF MIDSTREAM PLANTS IN NORTHEASTERN REGION

These seven locations should be able to absorb the production from upstream to midstream processes. The recommended capacities in each location are calculated based on the rubber plantation area in each cluster. This is shown in Table 10.

TABLE 10RECOMMENDED CAPACITY OF MIDSTREAM PLANTS IN EACH LOCATION

LocationProduction in year

2016(tons)1

Proportion(%)

Production from One Million Rai Project (tons)

Expected capacity in year 2016(tons)2

Nong Khai 66,409.87 22.71 29,683.08 96,092.95Leoi 16,846.29 5.76 7,529.75 24,376.03Udon Thani 30,398.20 10.40 13,587.02 43,985.22Mukdahan 35,051.02 11.99 15,666.68 50,717.70Kalasin 12,708.26 4.35 5,680.18 18,388.44Si Saket 55,147.17 18.86 24,649.02 79,796.19Burirum 75,843.91 25.94 33,899.79 109,743.70Total 292,404.71 100.00 130,695.52 423,100.23

1 92% of all upstream rubbers flow in the form of rubber latex and 8% is in the form of cup-lump. 90% of rubber latex supply to dry rubber industry and 10% supply to concentrated latex industry. (Department of Trade Negotiations, 2004)2 Capacity for block rubber and ribbed smoked sheet production in 2016

When the flows from the Northeastern upstream have been redesigned to midstream within the region, while midstream capacity is provided, it is expected that the transportation cost will be reduced.

DOWNSTREAM PLANT FOR PASSENGER CAR TIRE PRODUCTION

In this section, the new location of the downstream plant is determined by using the center of gravity (CG) method. Expected quantities of the passenger car tires which increase from 21,107,920 in 2008 to 27,705,663 tires in 2016 will be considered. It means that the new downstream plant should provide capacities about 6,597,743 tires/year. This volume of the tires consumes the midstream products of 23,092 tons. We then consider that the total expected quantity of the midstream products for the tire industry from the Northeastern area in year 2016 to be fed for the new downstream plant will be 12,437.47 tons. This flow can support some outcomes from the One Million Rai Project in the new growing area. Therefore, some of the midstream products from the Eastern area will be served to this new plant. Moreover, location of port, passenger car industry, and tire suppliers are taken into consideration. Formula for calculating the center of gravity (CG) is as follow:

X =

n

i

n

i

Wi

XiWi

1

1 , Y =

n

i

n

i

Wi

YiWi

1

1

By X, Y = The most appropriate location for downstream plant (center of gravity; CG)Xi, Yi = The location of rubber plantation area, port, passenger car industry, and tire suppliers iWi = Quantity of rubber product in each area (tons)

FIGURE 5 INPUT AND OUTPUT FOR DETERMINING

THE NEW LOCATION OF PASSENGER CAR TIRE PLANT

INPUT(by location)

NEW LOCATION OF PASSENGER CAR TIRE PLANT

OUTPUT

Northeastern region

Eastern region

Southern region

Passenger car industry

Laem Chabang Port(LCB)

Tire suppliers

After the calculation, the result represents the area of the new downstream plant at location (X,Y) is (815466.3881, 1554153.226). Then, we add an X,Y coordinates to the map of Thailand by using ArcGIS. It is located at Prachinburi province in the Eastern region. The new location of the passenger car tire plant is illustrated in Figure 6.

FIGURE 6THE NEW LOCATION OF PASSENGER CAR TIRE PLANT

SUPPLY CHAIN REDESIGN

After the future location and capacity were recommended, material flow in the chain should be designed to improve the efficiency of the passenger car tire supply chain. It is expected that in the new growing area – the Northeastern region, upstream - midstream connection within the same region will result in lower transportation cost. Capacity of the downstream manufacturing should be added to encourage the growth of the local tire industry.

Consequently, at this stage, we compare three scenarios of raw material flow in the chain of the passenger car tire industry. Those three scenarios are as follows.

1,080.96 tons

Center-of-Gravity 5,588.98 tons

16,422.16 tons12,437.47 tons

10,654.54 tons

- ton

Northeastern12,437.47 tons

Eastern10,654.54 tons

Southern 0 ton

Passenger car industry16,422.16 tons

Tire suppliers1,080.96 tons

LCB port5,588.98 tons

Scenario 0 (AS-IS in 2008) The current flow for passenger car tire industry with quantity of rubber products in year 2008

Scenario I (AS-IS in 2016) The current flow for passenger car tire industry with quantity of rubber products in year 2016

Scenario II (TO-BE) The new flow for passenger car tire industry with quantity of rubber products in year 2016

The raw material quantity and the transportation cost in each scenario are presented in Table 11.

TABLE 11PRODUCTION FLOW FOR PASSENGER CAR TIRE INDUSTRY AND TRANSPORTATION COST

FlowProduction flow for passenger car tire industry (tons)1

Transportation cost (THB/kg)2

Transportation cost (THB)Scenar

ioUpstream

Midstream

Downstream

Up- MidMid -Down

Up-Mid

Mid -Down

Up- MidMid -Down

Total

Northeastern

3,618.23 0.9 3,256,411

Eastern 8,014.90 0.5 4,007,450Upper Southern

Eastern

1,036.82

12,669.95

0.8

0.34

829,454

4,307,784

Southern Southern

Eastern and Central

61,208.05

61,208.05 0.5 0.65 30,604,024 39,785,230

0

(AS-IS in

2008)

Overall 73,878.00 38,697,339 44,093,014

82,790,353

Northeastern

12,437.47

0.5 11,193,721

Eastern

13,430.79

0.5 6,715,393

Upper Southern

Eastern

1,261.72

27,129.97

0.8

0.34

1,009,376

9,224,191

Southern Southern

Eastern and Central

69,840.0

3 69,840.03 0.5 0.65 34,920,014 45,396,018

I

(AS-ISin

2016)

Overall 96,970.00 53,838,504 54,620,209

108,458,713

Northeastern

Northeastern

12,437.47

12,437.47 0.5 0.5 6,218,734 6,218,735

Eastern Eastern (2)

Eastern(new location)

13,430.7

910,654.54 0.5 0.34 6,715,393 3,622,544

Upper Southern

Eastern (1)

1,261.72

4,037.97 0.8 0.34 1,009,376 1,372,910

Southern Southern

Eastern and Central 69,840.0

369,840.03 0.5 0.65 34,920,014 45,396,020

II

(TO-BE)

Overall 96,970.00 48,863,517 56,610,209

105,473,726

The expected situation of the new flows is then compared with the current situation where midstream plants are located in the Eastern area (AS-IS). It is found that the transportation cost will be decreased from 108,458,713 to 105,473,726 THB/year.

From Table 11, scenario II can be illustrated in the Table 12 with the future proportion of the rubber product flow from upstream to downstream.

TABLE 12 PASSENGER CAR TIRE SUPPLY CHAIN AND RUBBER FLOW

Location Upstream Midstream Downstream

Northeastern region

Eastern region

Southern region

CONCLUSION

Passenger car tire industry is identified as one of the product champions in Thailand. It is one of the highest exporting values with high demand in the global market.

By using the supply chain concept, we found that capacity of the midstream plants in the Northeast of Thailand may not be adequate for supporting the rapid increase of the rubber growth. This problem convinces that the midstream plants in the Northeastern area must be increased. For this industrial sector, strong development and increasing of the plants in this new growing area is a must.

Although, the current situation capacity could still absorb the upstream productivity, the outcomes from the government’s project (The One Million Rai Project) will overflow the available capacity midstream. The locations for the midstream manufacturing plants in the Northeastern region are recommended. It is expected that in this new growing area, the linkage of upstream - midstream within the same region will result in supply chain cost reduction.

In addition, the rubber flow from midstream to passenger car tire plants was analyzed. The results reveal that the midstream products which flow into the passenger car tire industry came from different areas with proportions according to the quantities of the upstream rubber production. To reduce the transportation cost, the passenger tire industry shouldincrease in consumption the raw material from the new growing area – Northeastern area. The new location of passenger car tire industry is recommended for the capacity expansion. Finally, the rubber flow in this supply chain is redesigned for connecting and balancing the upstream rubber production to midstream plants and downstream passenger car tire plants along the chain.

ACKNOWLEDGEMENTS

The authors are grateful to the generous support from Thailand Research Fund (TRF).

91.41%

8.59%

100%

69,840.03 tons

13,430.79 tons

1,261.72 tons

69,840.03 tons

73,878 tons(21,107,920 tires)

4037.97 tons

12,437.47 tons100%

23,092 tons(6,597,743 tires)

New location

12,437.47 tons

10654.54 tons

53.86%

46.14%

5.47%

94.53%

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