Big changes are on the cards for Thailand’s transportation infrastructure, assuming the government’s plans to upgrade road and rail networks between now and 2022 come to fruition.
No doubt if you rely on a distribution network to supply customers in Thailand, you have been keeping an interested eye on developments, as at some point, they may provide opportunities to reduce logistics costs for your business.
Statistic: Thailand’s planned infrastructure upgrade is worth US$25.2 billion and includes 36 projects, covering roads, railways, airports and sea-ports around the country.
SOURCE: Logistics Insight Asia
But what if your Thailand distribution network has never been previously optimised, or even reviewed, as is commonly the case with companies for which logistics is not a core business function. Should you wait for the highway improvements and new dual track railway lines to be completed, or go ahead and review your network design anyway?
Thailand Distribution Network Challenges
Thailand can be a challenging country in which to move materials and goods efficiently between production facilities, warehouses, and end-customers. At the one extreme, you have Bangkok, a sprawling urban conurbation. The city is notorious for its poor connections between primary transport routes and the myriad “soi” in which many homes and businesses are located.
Severe congestion and the ban on trucks between certain hours of the day serve only to exacerbate the problem of distribution here.
At the other extreme, outside of Bangkok and away from the string of smaller towns and cities along the country’s coastlines, the population is largely dispersed among small settlements scattered across the hinterland, with a poorly maintained road and (mostly single-track) rail network linking them haphazardly together.
Statistic: Only 2% of Thailand’s freight is currently transported by rail, even though road transportation costs almost twice as much.
Distances across country are long, but the lack of rail transportation makes it impossible to save money by transporting large shipments between hubs, as is possible in many more developed nations.
Because of these challenges, it’s common for domestic enterprises to operate large numbers of small warehouses located close to (or even on the same site as) production facilities. The problem with this is that it’s an expensive design, because outbound distribution utilizes smaller vehicles, and the stem distances tend to be long.
Network Optimization Mini-case-study: Building Products Supplier
Redesigning a distribution network is a considerable undertaking; at least once the implementation phase is reached. So despite the challenges of distribution in Thailand, some of which were mentioned above, it’s understandable why you might consider it sensible to hold off on changes while the transport infrastructure projects are in progress.
Statistic: Businesses undertaking distribution network optimisation, typically save between 4% and 14% of total distribution costs.
SOURCE: Logistics Bureau internal research
After all, the upgrade is slated for completion by 2022 at the latest. However, with a little intelligence about how companies are already saving money through distribution network redesigns, waiting may not appear so wise.
For example, One Thai enterprise, a supplier of cement and building materials, had a network design similar to that mentioned in the previous section of this article.
The company conducted a network analysis and as a result, was able to close three of its 22 warehouses. In doing so, it reduced outbound transport mileage, increased inbound mileage, and generated net savings of more than 40 million Baht on its logistics costs, all without the need for expensive warehouse relocations.
The optimisation involved:
- Mixing products in the different warehouses, whereas the company previously stored only one type of product in each warehouse;
- Eliminating distribution overlaps between warehouses that were close together;
- Spreading inventory across the warehouses to ensure all products were located closer to the company’s customers.
This example illustrates that by waiting for infrastructure development to improve, your company could be needlessly wasting money and constraining service performance. Of course the trade-off involved in optimising now, could consist of missed opportunities to attain an even more efficient network after the government’s infrastructure projects are completed.
Perhaps the best approach right now, would be to…
1) Undertake a review of your current distribution network in Thailand;
2) Explore some optimisation scenarios, taking the current infrastructure (and if available, details of the future improved infrastructure);
3) Evaluate savings and other benefits of redesigning now, versus waiting for the infrastructure improvements.
However, you should also consider the possibility that some of the proposed improvements will not be completed on schedule—or perhaps not at all, given the history of frequent change in the country’s governance.
Is Now the Time to Review your Thailand Distribution Network?
The decision whether to redesign your network now, or to wait and see how the government’s plans pan out, is not an easy one to arrive at, but if you take the first step and conduct a network design review, the results should give you some insight into what might be gained from optimisation.
At Logistics Bureau, we have helped hundreds of businesses in Australia, Thailand, and throughout the ASEAN region to review, model, and redesign distribution networks for improved efficiency and cost-performance. To find out if we can help you assess your network effectiveness, contact our Bangkok office at +66 2 207 2680.