CHAPTER 1 INTRODUCTION

Transcription

1 CHAPTER 1 INTRODUCTION 1.1 Background of the Problem In recent years, globalization has become a major issue affecting all countries in many ways, especially in economy field. It moves the world toward an integrated world with easier transfer of capital, goods, and service around the world. This phenomenon leads to the development of international business and international trade. It helps providing new access to the new market, distribution channel, capitals, supply network, and others. As the result, company can have broad supply network, large capitals, and large market. Company can easily do export and import when needed, which resulted in high value of export and import. Indonesia, for example, has quite high export-import value. This can be seen in the data from the Badan Pusat Statistik Indonesia (Central Bureau of Statistic in Indonesia) Table 1.1 Export & Import Value Non-Oil & Gas Oil & Gas Total Year Export Import Export Import Export Import Source: Higher export and import value and volume means that company has to have great supply chain network to accommodate the export import activity. Supply chain is a network which links the activities, people, and resource, which are involved directly or indirectly in producing, handling and delivering products or services to fulfill customer request. It includes a lot of function and activities in transforming the raw material into finished products which are delivered to the end customer. It is really crucial for companies to have good supply chain management because optimized supply chain will lead to lower cost for the company and give a competitive advantage. In facing the ever-increasingly competitive and quickly changing environment, the companies required to reorganize and harmonize their 1

2 2 supply chain management strategy with external environments, by integrating the organizational resources, data, and activities to maintain competitive advantages. (Lang et al., 2009, Cited by Karmaker & Saha, 2015: p.315) One of the challenges in supply chain management is how to optimize its supply network. Sukati et all (2012) has cited in their journal that the company who are responsive to the customer needs and wants will get the competitive advantages (Williamson, 1991; Martin and Grbac, 2003; Ellinger, 2000, all cited by Sukati et all., 2012). Companies with higher supply chain responsiveness will be more adaptive to demand fluctuation and therefore can overcome the environment uncertainty at a lower cost due to the shorter lead-time (Randall et al., 2003, cited by Sukati et all 2012: p.2). A good supply network can give supply chain competitive advantages in term of cost, responsiveness, or even both, and therefore will help the company to become more adaptive, flexible, and overcame uncertainty. Having a good supply network design in a global supply chain environment also help company to improve quality, adjust schedule requirements, reduce cost and broadening the supply base. However, due to the globalization, the supply network design can become even more challenging, as company sourced its supply & demand points in multiple countries. As an international company that located all around the world, it is very important for PT XYZ to have a good global supply chain management in order to gain the mentioned competitive advantage above. In this thesis, author will focus the supply network of the company at APAC (Asia Pacific), as one of the fastest growing region within their market. To fulfill the demands within APAC region, PT XYZ has partnership with many CMO (Contract Manufacturer Organization). CMO is organization that serves the pharmaceuticals industry with service in drug and medicine development and manufactures. Sometime the manufacturing processes become hard and complex, while the company does not have enough labor or technology to support it. New technology and adding the labor means adding the overhead cost, and there is high possibility that it will need long time of adaptation for the new labor or using the technology. Other than that, regulatory requirement can become burdensome for the companies. Therefore, CMO can become a much more beneficial strategic idea. By using CMO s services, company can produce goods without increasing their overhead cost by adding machine, employee, etc. Therefore, PT XYZ does not produce and stores their products in one location.

3 3 Each subsidiaries and CMO has produced some specific products and exported it to different countries from their warehouse. There are several CMOs and subsidiaries helping PT XYZ to fulfill the APAC regional demand. However, author will not disclose the name of subsidiaries to maintain the confidentiality of the company. The large number of the subsidiaries and CMO means that PT XYZ have a complex supply network design, which could lead to ineffective supply chain. Other than that, Asia has a high degree of complexity. Author has found out about the supply chain of company s international market, the CMO, market destination, and products, for example as stated in the table below. Table 1.2 PT XYZ Product Assessment CMO China Vendor Name Market Global Material Code Product Description Formula Code CMO China Malaysia MY16093B Gummies Blackcurrant SVC-BL012 CMO China Malaysia MY16094B Gummies Orange SCaS-O013 CMO China Malaysia MY16092B Gummies Strawberry SMV-S025 CMO China Philippine PH1P BLACKCURRANT GUMMIES SVC-BL012 CMO China Philippine PH1P ORANGE GUMMIES SCaS-O013 CMO China Philippine PH1P STRAWBERRY GUMMIES SMV-S025 CMO China Singapore SG16093B Gummy Blackcurrant SVC-BL012 CMO China Singapore SG16094B Gummy Orange SCaS-O013 CMO China Singapore SG16092B Gummy Strawberry SMV-S025 CMO China Thailand Fruit Blackcurrant Gummy SVC-BL012 CMO China Thailand Fruit Orange Gummy SCaS-O013 CMO China Thailand Fruit Strawberry Gummy SMV-S025 Source: PT. XYZ If we take a close look on the table, CMO China actually only produce certain brand with the products being Gummies/Gummy with three kinds of flavors, Blackcurrant, Orange, and Strawberry. They only produce three kinds of good with the formula SVC BL012, SCaS-o013, and SMV-S025. However, due to the different market destination (Malaysia, Philippine, Singapore, and Thailand), these products have very different material code even though it actually has the same formula. Furthermore, other than CMO China, there are other CMO and subsidiaries having the same destination in Asia, as we can see in the figures 1.

4 4 As we can see in the figure, these CMO and subsidiaries send products toward some countries. Different CMO actually send the products to the same countries. Each country has different regulation, and each CMO or subsidiaries must handle the regulation on their own because they send the products separately. It causes the supply chain to be ineffective for PT XYZ globally. There is some other problem such as the production capacity and Minimum Order Quantity (MOQ). To minimize cost, company would produce large amount of goods in one run. Therefore, company set the MOQ to a certain amount. However, the actual demand from customer (from other countries) is usually lower than the MOQ, which means that the manufacturer company must send the goods in small amount periodically. The company do not export a full amount of the goods produced in one run. It means that the manufacturer companies have high inventory cost and must also focus in distributing the goods in small amount to many different countries. Figure 1.1 Market Destination Source: Decision Maker of PT XYZ

5 5 If we sum it up, there are several problems in some sectors for the supply chain in APAC region: Infrastructure Some countries have poor infrastructure that lead to high supply chain complexity. The subsidiaries or CMOs are located in different countries, with different infrastructure condition. Long planning lead times (most sources planning over 90 days in advance) Inefficient loading / deployment to markets because one kind of products can have different source. Different source lead to SKU complexity due to the different product code, which has adverse impact on supply chain management. Different source lead to high variation of KPI Processes/System Complexity in calculating the KPI Less agile response to the market demand due to the decentralized approach Complex process and high cost for multiple deliveries due to the difference in MOQ and production capacity (Even though company can produce large amount, customer want small amount or partial delivery due to their warehouse capacity) Organization Deployment of resources less optimal because driven by decentralized approach Capability divergence across markets Inhibits effectiveness of regional training / capability enhancement and benchmarking programs Organization s service level negatively impacted with the ineffective supply chain From these problems, PT XYZ has proposed new project of making a new Regional Redressing and Consolidation Center (RRCC). It is a project of getting a Regional Distribution Center with a capability to redress and consolidate the company s products from the subsidiaries and the CMO in APAC region. Therefore, the CMO or subsidiaries can send full amount of the products to the distribution

6 6 center as Bulk or Semi-Finished Goods. The Distribution Center will consolidate the bulk and store them at their warehouse. When there are demands from particular country, the Distribution Center will redress them or pack them in correspondence with the packing regulation of the customer (country). 1.2 Problem Identification With the previous mentioned background, this research project identifies the following problems to be solved: a. What factors should be considered in deciding the best country as the RRCC location? b. What sub factors should be considered in deciding the best country as the RRCC location? c. Which country within APAC should the RRCC be located? 1.3 Research Scope This thesis will discuss about the importance of the Regional Redressing and Consolidation Center (RRCC) and where it should be located. The best location will be discussed and decided based on the analysis of the given qualitative data. 1.4 Research Objectives a. To analyze the factors that should be considered in deciding the best location for the RRCC using PESTLE Analysis b. To analyze the sub-factors that should be considered in deciding the best location for the RRCC using PESTLE Analysis c. To analyze where is the best location for the RRCC using the AHP TOPSIS method 1.5 Research Benefit a. For Author o As a media to increase author s knowledge and insight in operation management, especially in supply chain network a result from the implementation and application of theories which have been learned by the author from both university and company (internship) o As a requirement to complete the undergraduate program of International Business and Management major, School of Business, Bina Nusantara University.

7 7 b. For PT XYZ o As additional information for the company in making decision regarding the Redressing and Consolidation Center Project o As a helper for PT XYZ in analyzing the internal and external factor c. For Public affecting the project o As a media to increase public s knowledge and insight in operation management, especially in supply chain network o As an information for public about the advantage of Redressing and Consolidation Center o As a reference for other research in the future 1.6 State of Art No. 1 Journal Title & Author Journal of Strategic Innovation and Sustainability Vol. 6(4) 2010 Supply Chain Management Systems: Architecture, Design and Vision Vikas Misra, M.I. Khan, U.K. Singh Research Method Table 1.3 State of Art Research Result reviews about supply chain management, which has become a major concern in many industries since the companies realize the importance of creating an integrated relationship, which is the supply chain, with their suppliers and customers. There are several companies that provided conventional supply chain software. However, now industries and companies facing a dynamic environment and to face it, company must have a new supply chain management with high flexibility, integrated, distributed, agile, etc. Companies must strive to integrated and globalized supply chain management. Adaptation give information and insight about the supply chain management and its importance, and thus help author understanding the supply chian mangement and doing literature review.

8 8 Cont. No. 2 3 Journal Title & Author Focus Topic Paper, Camelot Management Consultant (2011) Strategic Network Design Dr. David Francas, Zsolt Simon OR Insight (2010) Vol. 23, P Multiple Criteria Optimization Of Contemporary Logistic Distribution Network Problem William Ho, Carman K.M. Lee, George To Sum Ho Research Method Quantitative & Research Result In response for the companies which has recognize the importance of efficient and agile supply chain design to the company's success, this paper want to provides insights of the current state of strategic network design and explain how to create supply chains that efficiently support strategic business models, by doing network optimization. This journal provide information about the importance of strategic network design, key point in how to make a strategic network design, and even the tools. In customer-driven supply chain, maximization of customer service has equally important role as minimization of costs for company to increase its competitiveness This journal develops a multiplecriteria optimization approach by combining the AHP method and ILP model, to aid the design of optimal logistics distribution network. The proposed approach outperforms traditional cost-based optimization techniques because it considers quantitative and qualitative factors and aims at maximizing the benefits of deliverer and customers. Adaptation give insight about the importance of supply chain design or supply network design, and how to create the effective and efficient network design to the author in writing this thesis, especially in literature review. give information of AHP and ILP methodology in aiding the design of optimal logistic distribution network to minimize cost in order to increase its competitiveness. It help author understand about AHP method

9 9 Cont. No. 4 5 Journal Title & Author IOSR Journal of Engineering Vol. 2, Issue 10 (October 2012), P "Application of ahp and topsis method for supplier selection problem" Pema Wangchen Bhutia, Ruben Phipon 15th International Research/Expert Conference "Trends in teh Development of Machinery and Associated Technology" TMT 2011 "Choosing Concrete Production Facility Location using AHP and TOPSIS methodologies" Betul Ozkan, Huseyin Bashgil, Onur Ozen Research Method Quantitative & Quantitative & Research Result explains about the need of having a better supply chain management because of the competition in global environment. Supplier selection is one of the key factors in improving the supply chain. In this journal, the author explains about the application of AHP and TOPSIS method in solving the supplier selection problem, which involves the quantitative and qualitative factors. They explain the benefit of the method and the steps of searching the best alternatives (supplier) in improving the supply chain using the given methodology. In a business, the raw material is one of the most important factors. In this journal, as a construction industry, the important material is concrete. The quality of concrete can depends on the location of the production facility. Therefore, to determine the best location for the concrete production facility, the author used AHP - TOPSIS methodology. After determining the main and sub - criteria, the author applied the technique on the problem, and compare the two techniques to decide on the best location. Adaptation give insight of the importance of having good supply chain management and supplier selection as one of the key factor. Author learns many information about the AHP- TOPSIS methodology give insight of the importance of having good supply chain management and location decision as one of the key factor. Author learns many information about the AHP- TOPSIS methodology