A SURVEY STUDY OF AUTOMOBILE AND HEALTH CARE INDUSTRIES SUPPLY CHAIN MANAGEMENT AND EFFECTIVENESS AMIDST ASEAN ECONOMIC COMMUNITY INTEGRATION IN 2015

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1 A SURVEY STUDY OF AUTOMOBILE AND HEALTH CARE INDUSTRIES SUPPLY CHAIN MANAGEMENT AND EFFECTIVENESS AMIDST ASEAN ECONOMIC COMMUNITY INTEGRATION IN 2015 Nattawat Chantanapokul, Krit Phooriphokhai Tanakom Viphavaphanich, Piraya Jirathornkul, and Pornpimol Chongphaisal School of Management Technology, Sirindhorn International Institute of Technology, Thammasat University 131 Moo 5, Tiwanont Rd., Bangkadi, Muang, Pathumthani 12000, THAILAND , ABSTRACT One of the key factors that accounts for business success is its supply chain management. In 2015, Thailand and other 9 ASEAN countries will establish ASEAN Economic community. Thailand is located in the focal point among the 10 nations. Therefore, there is a chance Thailand could have a logistics advantage once the integration takes place. However, whether a firm could really take advantage of its geography and logistics or not, depends largely on its supply chain management. The research aimed at surveying the readiness of the supply chain management of the automobile and parts industry and health care industry. 2 sets of different questionnaire have been developed targeting each respective industry. 500 sets of questionnaires have been distributed to a selected list of firms important to its industry. SCOR model is used to examine the supply chain of automobile industry while the diamond model has been adopted to investigate the supply-chain and competitiveness of the health care industry. Questions, along with their scales utilized have been appraised by professional experts in each industry by means of interview. Findings from the survey reflected the realities of both industries supply chain systems. As for automobile industry, the analysis focuses around metrics at strategic level: reliability, responsiveness, agility, costs and assets. Simultaneously, metrics of operational level such as plan, source, make, deliver, and return has been explored. Additionally, the findings from the health care industry indicated performance in the 6 main factors from Diamond model namely: factor condition, demand condition, related and supporting industries, firm strategy, structure and rivalry, government and chance. Keywords: HealthCare industry, Automobile industry, Supply Chain Effectiveness, Diamond Model, SCOR model, ASEAN Economic Community 600

2 1. INTRODUCTION Since AEC 2015 brings great opportunity for Thailand to become a center hub on variety of industry, but it also became a two-edge sword if Thailand is not prepared for it. This research purposes to choose automobile and healthcare industry to be our object of study. Thailand already has benefits in many fields such as geographical, infrastructure, or technology. However in order to maximize these benefits, we must consider many factors that AEC would impact these two industries. Supply chain and logistic is what we will mainly focus on. The result from the project will tell if the supply chain system in Thailand is ready to support both industries for incoming AEC 2015 or not. 2. LITERATURE REVIEW There are 3 major parts related to the project. First part will be about SCOR model, Diamond model and AEC. These are the concepts that reader might need to know in order to understand the topic. It starts with supply chain management; it is management of a network of connected businesses involved in the provision of product and service packages required by the end customers. We have used 2 models for describing and measure it. First, the SCOR model was developed by the Supply Chain Council to assist firms in increasing the supply chain effectiveness in factors of plan, source, make, deliver, return, while another one, Diamond model; it was proposed by Michael Porter. It represented a substantially different paradigm to assess the competitiveness of a country by 6 factors. For the terms of AEC, It is known as ASEAN Economic Community, It comprises 10 ASEAN countries. The purpose is to integrate one competitive single market among ASEAN countries with free movement of goods, services, investment, skilled labor, and free flow of capital. Followed by the historical background of two industries, Automobile industry is one of the leading industry in Thailand with great export contribution to GDP. For the view of hospital industry, Thailand is the market leader in medical tourism in terms of the number of international patients, but is not so well received by ASEAN patients. 2.1 SCOR Model The supply chain operations reference model (SCOR) is a management tool used to address, improve, and communicate supply chain management decisions within a company and with suppliers and customers of a company. SCOR helps manage a common set of business problems through a standardized language, standardized metrics, and common business practices which leads to business change and improve performance. There are 4 levels of SCOR model but in this report we are focusing on level 1 which consists of strategy level and operational level metric. As for strategy level, they consist of plan, source, make, deliver and return. Planning includes supply chain assessment, allocation of resources, meeting unexpected orders from customers, and distribution planning. Sources includes cooperation with supplier on production planning, offering trustable resources from suppliers, brining in spare suppliers in case resources are scared. Make encompasses consideration about time for sending products, having a good production planning each month, and having spare parts and machines, and also planning for unexpected changes of orders which might be made by customers. Deliver includes the use of third party to deliver products, and tracking 601

3 order systems. Return involves scheduling for product return, and the return policy. As for the operational-level, they consist of reliability, responsiveness, flexibility, costs, and assets. Reliability refers to perfect order fulfillment. Responsiveness means order fulfillment cycle time. Flexibility means supply chain flexibility and adaptability. Lastly, costs refer to supply chain costs. Assets means supply chain asset management. 2.2 Diamond Model Diamond Model is a competitive model developed by Michael Porter. It consists of 6 factors. Diamond model stated that in order to create a condition where competitiveness increased, these 6 factors must interact with each other. After high competitiveness occurred, it will encourage industry to be more innovative. These xix factors include factor condition, demand condition, related and supporting industries, firm strategy, structure and rivalry, role of government and role of chance. According to Michael E. Porter, factor conditions are believed to be created, not inherited. It required a lot of investment to generate this competitive advantage. They are human resources, physical resources, knowledge resources, capital resources and infrastructure. Demand conditions is termed as domestic demand that can help companies create a competitive advantage. Related and supporting industries are the performance of upstream and downstream industries that facilitate the exchange of idea and innovation. Firm strategy, structure and rivalry refers to the way in which companies are created, how goals are set and are managed. Role of government is believed to be acting as a challenger to encourage or push the company to the higher level of competitiveness. Whereas, the role of chance refers to an opportunity that occurred beyond the control of the firm. 3. METHODOLOGY The research aimed at surveying the readiness of the supply chain management of the automobile and parts industry and health care industry. First, the research team searched information about AEC, automotive industry and health care industry in Thailand at current situation then we develop questionnaires based on experts opinion and research. After that we distributed questionnaires to both industries with 500 sets for automobile and 460 sets for hospital industry via post mail and on-line survey. After a month, 62 responses were returned from automotive industry and 139 from hospital industry. 4. FINDINGS This section illustrates the results from the surveyed questionnaire and interview by means of statistics. Overall rating for automotive industry s strategy level is 0-3 and for operational level is from 0-5 where 5 is the highest score and 0 is the lowest score. While for hospital industry, the rating is only from indicates the highest score and 0 indicates the lowest score. Graph represents the result from each factor. 4.1 Automotive Industry 602

4 Figure 1: Result of score from strategy level metric by size of company Figure 2: Result of operational level metric by size of company Thailand has approximately 690 tier 1 auto parts suppliers and 1,700 tier 2 and 3 suppliers. More than half of the tier 1 suppliers are companies that are partly owned by foreign firms. Among the top 100 auto parts manufacturers in the world, 50% have factories in Thailand. The country s manufacturing base is strong enough to supply all of the necessary parts, from engine parts to interior and body parts. Our research team has been researching on how well and how ready the automobile industry is to go against other competitors during opening of ASEAN economic community. The results we have collected from samples of 60 companies illustrate how Thai automobile industry is doing currently. As such, SCOR model metric was chosen as an analytical tool for measuring how well automobile industry is. The result derived from surveys can be interpreted along two metrices. The first metric is strategy level and the second one is operational level. For strategy level, there are 4 factors which are reliability, flexibility, costs and asset management. We had erased one factor of which is responsiveness. The reason is because of the nature of automobile industry which makes it hard and almost nearly impossible to use SCOR metric to measure cycle time. Each product has different cycle time and therefore there are no standard cycle time for it. The implications for each factor are drawn as followed. 603

5 Firstly, in view of reliability, Thailand automobile industry has shown good reliability. The result shows that Thailand automotive industry gives high priority to their customers in order to make customers trust them and place continuous order from them in the long run. Secondly, as for flexibility, the results show significant differences between large company and small company. Large companies are more flexible to customer s order than smaller companies. The reasons might be large companies might have more capital and investment in its process of making products to customer. They can accommodate most of the customer s order with diverse capability from small to large orders. As a result, most of the mediumsized company and large company are able to response to changing of orders at approximately 20% more or less from the normal amount per month. This illustrates that Thailand automotive industry is flexible and will be able to receive more orders from AEC countries. However, given the difference, small companies are up and coming as shown by their score which are not too far behind those larger firms. Costs The results illustrates cost of supply chain including costs of planning, making, sourcing, delivering and returning. Survey results confirmed that Thailand automobile industry has low cost on supply chain due to having low labor cost and full of resources comparing to other countries. However if there is a change in government policy related to labor cost, the supply chain cost might be increased and therefore will affect the overall GDP of automobile industry. Asset management Thailand automobile industry has good planning about asset management. It means that they have organized well on transforming costs of supply chain into profits. The result shows that most of automobile companies are able to save some money which means they have good cash flow. For operational level, there are 5+1 factors which are plan, source, make, deliver, return. Our research team has added up one more factor which is chance. The reason is because we would like to know how ready the firms are to prepare for the opening of AEC based on languages, logistics and plan. The results indicated the followings. Plan Thailand automobile industry mostly have plan on many issues such as customer orders, production plan, distribution plan and so on. In view of planning, Thailand is able to deal with new environment of competing because they give priority to planning. With a good planning system, they are able to deal with challenging issues such as complex distribution, customized products from different countries. Source The results show that most of the companies have worked together with their suppliers in order to do sourcing for raw materials. They also trust each other. Each company has its own stocks of materials for urgent occasion. This illustrated that Thailand auto industry has potential in ability to source out for raw materials. The reason might be because there are a lot of companies as tier 2 or 3. So there are many types of raw materials to select from. However for some smaller companies, they have not worked well on sourcing. They are just small SMEs and therefore do not have good network for material sourcing. Make Most of Thai auto companies have plans on making products well. They have considered the cycle time, customer s order due date, reserving of machine for instant damage, recycling error products, and so on. According to the result, we could say Thailand auto industry has a well organized system for making products. As such, Thailand is able to handle different types of orders from customers and cope with unexpected machine breakdown. 604

6 Delivery The analysis showed Thai auto industry still have problem on delivery products to customers. They have little use of outsourcing to third parties on delivering products to customers. Large company can only do as well as the smaller ones. The reason might be because Thailand has not used high technology vehicles like other countries. For example, Thai firms still use small trucks to deliver products. On the contrary, western countries use big truck with navigator to deliver product. So Thailand should improve these issue as fast as possible. Once AEC started, logistics will be one of the critical success factor for Thai auto industry. Return Most of the large and medium-sized company have policy related to returning the errorneous products or surplus products. However, just a few smaller firms have return policy. The reason might be because larger companies have more capital to invest in recycling the products than that of smaller companies. Chance Unskilled to semi-skilled labors still have problem using second language in communicating with foreigners. However according to the result, it shows that high level management have concerned about this point and continuously establishes a policy for employee to get training regarding the use of second language. Particularly, in the case of small companies, they do not have many employees who could speak the second language. 1.2 Healthcare industry Figure 3: Overall Diamond model for hospital with 6 factors Health care industry in Thailand is looking forward to playing an important role in the opening of ASEAN economic community or AEC Hospital industry in Thailand has 605

7 been improving a lot. The GDP for the industry increased more than 40 percent over the last few years. From our research data, fully functional hospitals that operate in Thailand have approximately 600 places. We chose only 460 places by cutting down the smallest size hospitals because we believed it will give similar results which might overwhelmed the results of other two sizes. From 460 hospitals we distributed the survey, approximately 160 had responded. The result of the survey indicated the readiness for Thai health care industry in 6 different dimensions based on Porter s Diamond model. The result will be analyzed and interpreted into 6 categories. They are factor condition, demand condition, related and supporting industry, firm s strategy, role of government and chance. From six categories, the most important dimension is role of government which will be the major factor in driving this industry forward. Factor Condition From the result we obtained, we can see that Thai hospital in every size give priority in managing their inventory and equipment. They are well prepared in term of infrastructure. However, small hospitals are struggling with finding capital to help them developed. Unlike secondary care hospital and tertiary care hospital, they are far better with respect to the capital. Technology is not a problem for both types of hospitals but for primary-care hospital, the chance to grow is limited. The real problem from this dimension is numbers of nurses. Primary hospital which most of them are small-sized has the highest problem of nurse shortages. High capital hospital such as tertiary and secondary care still have problems with the nurse shortage since wages are too little and workloads are too much, people are losing interest in nursing job. Demand Condition This section we try to see if demand in domestic market will create a competitive environment such as innovation. From the survey, it appeared that the number of domestic patients is high which created a competitive environment. In addition, all types of hospital are putting their concern in satisfying customer by continuously studying patient behavior and implementing these knowledge to their strategy. This competitive market also motivated innovation, mostly for tertiary and secondary care hospital. Even though the number of foreign patients is very low but if hospital could keep on improving and developing, this number will certainly increase. Related and supporting industry Thailand fared well in dimension on related and supporting industry. The healthcare industry has enough number of medical producers and distributors and an effective transportation system. Those enabled industry to remove supply shortage. Despite those advantages, Thai hospital ignored or did not put enough effort in research and development. The R&D program can benefit a society as a whole in many ways. As for Thai hospital, in order to be a medical hub of ASEAN, Thailand need to improve her R&D. In addition, the more praising problem is tourism. Thailand s tourism business has been a major income for the country. However, from this survey, the result indicates that it does not support health care industry s growth as much as we hope. Firm s strategy Regarding the diamond model s dimension, Thai health care industry put the most priority and importance to firm s strategy. Most of the hospitals in Thailand have both short term and long term plan. They also often assess and analyze themselves through 606

8 periodic performance appraisal. Most hospitals in the industry also have human resource strategic plan. These are the benefits for the industry. Hospital do concern and have plans for themselves however analyzing competitor is not as high as self-assessment. Only half of the respondent says they have competitor s analysis. Role of government Among the six dimensions, the result indicates that government does not play enough role in helping health care industry. The government has low financial support, low taxes benefits for hospitals. The government does not help promote Thai healthcare industry through international market. Especially for private hospital, they have received very limited support from government. However, the survey illustrates that government has plans or intention to support and develop the industry. Chance Both tertiary and secondary care hospital appear to be ready to expand their market through AEC They prepare for the increase in patient number. They have plans to develop their hospital into multinational hospitals. However, it seems primary hospital are not yet well prepared and ready to render service at the international level. In conclusion, as shown in figure 8, the graph illustrates the overall result in 6 factors according to diamond model which are factor condition, demand condition, related and supporting industry, firm s strategy and rivalry, role of government and chance. The green line indicates Tertiary Care and excellent center, orange indicates secondary hospitals and blue indicates primary hospitals. The result shows that Tertiary Care and Excellent Center has the best overall score followed by secondary and primary hospitals respectively. Most of the hospitals in Thailand have a high score in Firm s strategy and rivalry which indicates that Thai hospitals have done well in planning. They are well aware of themselves and continually have self-assessment periodically. On the other hand, role of government are the least influence to all Thai hospitals. So we can see that Thai hospitals are still lacking of government support. It showed low government concern on health care industry. Even primary hospitals that have highest relationship with government still have low support. Therefore government should be more concerned in supporting health care industry. Government should support the hospitals in order to be able to raise the standard of Thai health care industry into international level. Overall results indicated that Thailand healthcare industry will be ready for the upcoming ASEAN economic community if the government put more support and strategy into the industry. 607

9 5. CONCLUSION SWOT Analysis From the survey received we developed a SWOT analysis. SWOT analysis includes controllable and uncontrollable factors. Controllable factor consists of strengths and weaknesses. Uncontrollable factors consist of opportunities and threats. Table 1: SWOT analysis for automotive industry. Strengths Weaknesses Most of Thai automotive industries located Most of Thai automotive industries located in in same area which make lower cost in same area which make lower cost in transportation transportation Industry has been continuously supported Industry has been continuously supported by by the governments the governments Most of the world's leading car companies Most of the world's leading car companies use Thailand to be the center of export use Thailand to be the center of export production to all over the world. production to all over the world. Most of Thai automobile industry are Most of Thai automobile industry are flexible flexible and be able to customize orders and be able to customize orders from from customers customers Opportunities Threats The geographic location of Thailand is appropriate to be the automotive industrial hub of the region. There are clear objectives to continue and support Thailand to be Detroit of Asia from Thai government. Thai political instability makes foreign investors fade off due to high risks. AEC may allow automobile manufacturers in Thailand to import more automotive components from ASEAN member countries. Table 2: SWOT analysis for health care industry. Strength Weaknesses Strong in equipment and technology to attract international patients. Developed and well prepare infrastructure. Well planned firm strategy and selfassessment. High demand in domestic patient. Have skilled doctor and nurses, in addition with second language skills. Opportunities Threats Transportation of patient and medical supply are well prepared to support the industry. Chance in expand the market and reduce or remove taxes through AEC Government has a development plan for the industry. Not enough number of nurses. Low capital for small hospital to grow. Few numbers of international patients. Government lack of support in the area of financial taxes and advertisement. Tourism does not contribute to the increase of demand in health care industry as expected. Lacking of research and development policy. 608

10 5.2 IMPLICATION Table 3: Implication for automobile industry for government and corporate sector. GOVERNMENT SECTOR - should put more support in capital funds for SME in order to stimulate their competitiveness. - continue reducing tax barrier to attract and inspire investors to come and invest more in automobile industry. - promote Thai automobile industry to go international by provide knowledge from minister of foreign affairs to make investors see the opportunities from AEC. CORPORATE SECTOR - improve labor skill and knowledge, especially English language skill in order to communicate with AEC customers. - encourage employees in the area of research and development. R&D plays an important role in terms of competitiveness. Therefore company should give incentive to motivate employees in this area. -develop new strategy and structure in order to satisfy AEC customer. Especially for logistic management because there will have to be more routes and ways of delivering products and resources. Table 4: Implication for healthcare industry for government and corporate sector. GOVERNMENT SECTOR - Put more support in private hospital in terms of financial aids and tax benefits since they have a high potential in growing after AEC. - Increase wages for nurses or establish a policy to encourage people to choose nurse as their profession. - Aids small or low capital hospital in financial means to allow them to operate and continue growing to meet the standard. - Promoting and educating industry about AEC 2015, Since industry familiar with the benefits of AEC 2015, therefore the industry will be more active in preparation. - Develop a training program to aid hospitals in training nurses or doctor with second language skill. - Enforce and encourage research and development program CORPORATE SECTOR - Seeking more aids from government sector. Requesting financial aids or public infrastructure can help increase ability and standard of a hospital. - Set a higher standard in recruiting doctor or nurse to be ready on international stage such as English skill or second language needed for some positions. - Encourage more innovation and research. Reputation is important in this industry, create or contribute to the society will help increase country s reputation for this industry. - Establish a combined package that links tourism with health such as tourism as an incentive for people to come to using Thai s hospital. 609

11 ACKNOWLEDGEMENT This work was made possible by the sponsorship of Bangchak Petroleum Research Grant year 2012 in conjunction with Sirindhorn International Institute of Technology, Thammasat university s research support year The authors would like to thank these institutes for the kind support and assistance without which this study would not have been possible. Reference [1] Ball, D.A. (1971). Permanent Tourism., A New Export Diversification for Less Developed Countries. International Development Review, pp [2] Derek T, DeScioli (2005). Differentiating the Hospital Supply Chain ForEnhanced Performance. B.S Industrial Engineering. [3] Chaoprasert, C. (2004). Service Marketing. Bangkok. Se-Education Publisher. Connelly, Frank (2004). Industry Surveys: Healthcare Facilities. Standard & Poor s, Vol 172,No 13. [4] P. Gary, Jarrett (1998). Logistics in healthcare industry. International Journal of Physical Distribution & Logistics Management, Vol 28, pp [5] [TECHAKANONT, Kriengkrai 2011 Thailand Automotive Parts Industry in intermediate Goods Trade in east Asia: Economic Deepening Through FTAs/EPAs, edited by Mitsuhiro Kagami, BRC Research Report No.5, Bangkok Research Center, IDE-JETRO, Bangkok, Thailand [6] The Cosmics Group of Companies, Thailand Automotive Industry Directory 20011, pg , [7] Arokhaya, (2005). Thailand a Hub of Asia s Health Services. Thaiways, pp [8] [9] [10] [11] [12] [13] CHAI-RATTANANONT, Sariya et al. (2008) The Study on Comparative Advantage of Thailand and Vietnam Economic and Trade: Vehicle Industry [accessed 15/9/2012] [14] Department of Trade Negotiations (2012) ASEAN ECONOMIC COMMUNITY BLUEPRINT [accessed 7/8/2012] [15] Department of Trade Negotiations (2012) Summary report to brainstorm ideas in preparation for the capabilities of the business and support of the government. [accessed 20/9/2012] [16] Khaemasunun Pravit, Yampaka Pratthana. (2010) THE MANUFACTURING STRATEGIES AND FIRM S PERFORMANCE IN THE AUTO PART INDUSTRY. ABAC Magazine, Vol 30, No 3, pp

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