Supply Chain Management - PT GAJAH

TUNGGAL TBK.

Antonius Fentonius Salim 1506772542

Grace Yudistira 1506699661
Arief Akhdan 1506699301
Awad Okbah 1506772593
Riska Junita 1506773381
Fenny P. Chandra 1506772782
Lolyta Rosmelina 1506772971
Hadjare Zerrad 1606950440
I. COMPANY PROFILE
Company at a Glance
PT Gajah Tunggal Tbk. (GT) owns and operates the largest integrated tire
manufacturing facility in Indonesia. GT was initially established in 1951 as bicycle
tire manufacturer and over the years, expanded its production capacity and
diversified into the manufacture of motorcycle tires and tubes and eventually into
the manufacture of passenger and commercial vehicle tires.
The Company started producing motorcycle tires in 1973 and began manufacturing
bias tires for passenger and commercial vehicles in 1981. In 1993, the Company
started producing and selling radial tires for passenger cars and light trucks. The
Company has developed its capabilities to extend its production. In 2010, the
Company initiated the development of TBR tire production capability.
Today, GT is the largest tire producer in South-East Asia, and manufactures tires for
passenger car, SUVs, commercial, off-the-road, industrial and motorcycles. Since its
product diversification, the company also sells other rubber related products such
as synthetic rubber, tire cords, inner tube, flap or o-ring.

Business Activity
The Companys primary business activity is to engage in the industry of rubber and
to develop a rubber production plant to manufacture, sell, trade and distribute:
a. Inner tube and tire for cars, motorcycles, bicycles and other vehicles;
b. Other goods made from rubber; and
c. Other goods related to tire raw materials.

Products
The products of GT are as follows:
GT Radial which is currently used by various new vehicles assembled or
manufactured in Indonesia by several brand owners agent from Japan, Korea
and China.
Gajah Tunggal, a brand of bias tire targeted for commercial vehicles, which
remain as the leading brand used in several transportation, plantation and
mining companies.
IRC Tire, a motorcycle tire, through various product innovations as the result of
cooperation with Inoue Rubber Company from Japan.
Zeneos, a motorcycle tire product that is developed through continuous
research, combines the aspect of security and comfort with the current lifestyle
of Indonesian young bikers.

Manufacturing Facilities
The Company operates several plants in Indonesia to manufacture passenger car
radial tires, truck and bus bias (TBB) tires, truck and bus radial (TBR) tires,
motorcycle tires, and inner tubes (both for motorcycles and commercial vehicles),
as well as tire accessories such as flaps, rim tapes, and O-rings. The Company also
operates two plants that manufacture tire cord and synthetic rubber products
located in Tangerang and Serang. In addition, the Company also owns
approximately 100 hectares of land in Karawang, which is partly used for a proving
ground for the testing of its tire designs and the expansion of its plants in the
future.

Operational Overview
Tire Production
The Company operates 5 (five) integrated tire plants producing a full product
range, which are passenger car radial tires, truck and bus bias tires, motorcycle
tires, truck and bus radial (TBR) tires, inner tubes (both for motorcycle and
automotive) and tire accessories such as flaps, rim tape and O-rings. The plants are
also equipped with supporting facilities that process reclaimed rubber. The
Company is vertically integrated as it also operates two tire related plants that
manufacture tire cord and synthetic rubber which are the upstream components in
the tire manufacturing process.

Quality assurance controls are incorporated into every stage of the manufacturing
process at all plants in compliance with international standards, such as ISO/TS
16949, which is highly regarded by the global automotive industry, and ISO 14001
under which it was certified in 2009. The Company has procedures for testing
incoming raw materials and component parts, as well as for testing its finished
goods. Standard quality measurement reports are conducted to maintain a history
of quality control at its plants. To sell its tire products in the export market, the
Company also maintains various international certifications, such as those from
certifying bodies in Europe and the United States. To minimize interruption to the
manufacturing process and to reduce the risk of equipment failure, the Company
practices a complete maintenance and loss prevention program at its production
facilities, where on-site maintenance and repair facilities are available and
inventory of machinery spareparts are kept.

Production Performance
Utilization rates are calculated as the actual average daily output divided by
installed machine capacity at the end of the relevant period. Due to factors such as
routine machinery maintenance and change in product mix, the Company
estimates that the maximum achievable utilization rate for the Companys tire
plants is approximately 85% to 90%. The Company reviews production schedules at
its various facilities periodically in order to align production capacity with demand
for its products to minimize inventory carrying costs and capital expenditure

Production Cost
The majority of the Companys production costs consist of raw materials, that
contributed 65.3% to total production costs. The other components in the
Companys production cost structure are labor (12.1%), energy (10.3%),
depreciation (5.1%) and other overhead cost (7.2%). GT adopted the vertically
integrated production of synthetic rubber and tire cord to ensure constant supply
and enhances cost control. The key raw materials required in the tire
manufacturing process are natural rubber, synthetic rubber, tire cord, carbon black,
steel cord and other rubber processing chemicals. The remainder of the tire
divisions raw material costs comprised mainly of tire chemicals, steel cord and
bead wire with a total contribution of 21.7% to the tire divisions total raw material
 costs. Tire cord and synthetic rubber are produced internally and the production
process relies on chemical supplies, such as butadiene, styrene and nylon yarn.

The Company sustainably seeks to maintain a balance between longer term raw
materials supply arrangements, which ensures supply continuity but is subject to
pre-agreed off take and price commitments and ongoing purchases of raw
materials from the spot market, to take advantage of periodic shifts in the market
prices of raw materials and to respond more quickly to sudden changes in demand.

Production and Sales of Products

The sales are divided as follow (see graph). The majority of the production is made
for the replacement market, as it concerns a regular source of purchases compared
to new vehicles which are highly influenced by the drop of sales worldwide and the
economy crack.

Repartition of selling goods:

Passenger Car tires : tires for everyday use, but also for winter or trucks
Commercial tires : Range from van, light truck, bus, off the road and industrial
application
Motorcycle tires: Tires for common use, scooter to motor-cross application.
II. Supply Chain Management Conditions
Raw material: connexion from the factory to the supplier (they have the system).
Approach B: follow the demand. 65% of cost goes from purchasing the raw material.
Domestic & export market. The product is based on customer specifications. Some
products can be sold in both markets, but not all of them.
2 segments: OEM (B2B) for new cars. And replacement (retail market)
3 products segmentations: Cars, motorcycle, commercial.
2 or 3 month contracts for purchasing the raw material (natural rubber) in commodities
market + Carbon black.

Gajah Tunggal as one of the local tire manufacturing in Indonesia is aiming to reach
vertical integration in production and distribution.
This has proven by several strategic acquisitions done by Gajah Tunggal (GT) in order to
streamline its production and maximize output. We will discuss this separately below.
a. Production
As seen in picture below, we can understand that tire is not made only from rubber,
but also some steel belts embedded into it. To specify, what needed to build a tire
are:
- Natural rubber
- Synthetic rubber
- Tire cord
- Carbon black
- Steel belts
- Other rubber processing chemical

Analysis from Gajah Tunggal annual reports and several sources implied that in terms of
supply for component to build tire, we can conclude as below.

Material Status
 Natural rubber Supplied by partners
Synthetic rubber Supplied by subsidiary company
Tire cord Supplied by subsidiary company
Carbon black Supplied by partners
Steel belts Supplied by partners
Other rubber processing chemical Supplied by partners

In terms of quick outlook, this is certainly still pretty far from vertical integration. But
data from internet show that the big worldwide player like Michelin or Pirelli still
sourcing at least natural rubber, steel belts and chemical needed to build tire.
Important note mentioned on the Gajah Tunggal annual report is for the material
supplied by its subsidiary company, which is synthetic rubber and tire cord. The
material supplied help Gajah Tunggal to self-sufficiency on the 2 material mentioned.
With excess production from its subsidiary, around 25% of capacity is sold to third
party.
b. Sales & Distributions

Gajah Tunggal depends on its distributor and retail outlet to distribute the tire in
Indonesia. However the main highlight here is of course Gajah Tunggal Tirezone.
Tirezone is official tire outlet for Gajah Tunggal tire. The shops are usually joint venture
between company and third party investor. The store provide customer with tire
replacement service, tire check & Spooring Balancing service. Currently around 100
outlet are operating daily across Indonesia.
Tirezone also shows the company spirit to push vertical integration as its promising
better service for customer who visits Tirezone for service related to tire.

Source:
http://www.slideshare.net/ThayaleesparakumarSanjeevan/tyre-technology
III. Supply Chain Capabilities evaluation and analysis
SWOT Analysis
Internal Factors
Strength:
1. Market leader in passenger car and motorcycle tires
2. Long-term collaboration with distribution companies
3. Leading technologies in production and Lean capabilities exist
4. Skilled workforce as a valuable human capital of the company
5. Vertical integration is already done partially
6. Strong network with suppliers and distributors in the country

Weaknesses:
1. Lack of comprehensive supply chain organization as supply chain functions
are put in different divisions
2. Too many stock-keeping units
3. Production capacity can be improved

External Factors
Opportunities:
1. Income level is at a constant increase
2. Research and development to develop new products and services
3. New acquisitions
4. Global markets (many foreign companies are interested to cooperate)

Threats:
1. Increase in labor costs
2. Increase of commodity price of rubber as its raw materials
3. Uncertain foreign exchange rate (Rupiahs against other major currencies)
4. Government regulations
5. Growing competition and lower profitability

Supply Chain Management Organization

Currently, the supply chain management fuctions are still put in different divisions.
Please refer to the Organizational Structure on the next page.

Raw material purchases and machineries under Procurement;

Tire production, logistic, and engineering under Manufacturing;
Tire cord and SBR under Non Tires Industries;
Compound and material under Research & Development; and
SCM under Sales & Marketing

Organizational Structure
IV. This segregated supply chain functions require a solid sales and operations
planning (S&OP) process to align the various corporate functions around a
plan that matches supply capabilities with demand requirements. Successful
internal collaboration occurs when sales, marketing, and the supply chain
function are able to align and focus on serving the customer in a way that
maximizes product availability while minimizing cost and asset investment.
V. The company also needs to have the very best supply chain talent, especially
as it aims at more and more global expansion. Supply chain is a complex
profession, and supply chain managers need both extensive training and
experience in the field if they are to be effective. To address this need of
professional development, the company need to partner with a third-party
training provider to design a customized education program for its supply
chain managers.
VI. Product Complexity
VII. As shown on a screen shot from the companys web site below, Gajah Tunggal
has a total of 109 products in all four segments (GT Radial, Gajah Tunggal
Bias, IRC Tire and Zeneos).
 4 product
segments

VIII.
 Each segment
has multiple
categories

IX. In comparison, Gajah Tunggal competitors such as Bridgestone and Michelin

only has 43 and 12 products, respectively.
X. The company needs better process for eliminating underperforming products
as this will also ease up the production capacity, giving more priority for top
products which bring most profit to the company and to fulfill the
commitment stated in the contracts for the export markets. Currently, in the
busy season, the company has to do trade-off of production (stopping the
production for local market to maximize the production for export markets).
XI. The current production capacity is as follows:
XII.

XIII.
XIV.
XV.
XVI.
XVII. External collaboration
 XVIII. Based on our assessment, the company is already quite good in this area,
with several examples of win/win collaborations with its vendors. It committed
to continuing to build on this strength. Whats needed to be improved is the
information system with its suppliers and distributors for better planning,
forecasting, and replenishment of products.

XIX. Brief suggestions to improve Supply chain

XX. Nowadays some says that the world become flat. It is because the globe
doesnt need time to be traveled as long as before. Moreover,
telecommunication technology make people communicate at different places
a lot easier. Whether you like it or not, the market where a firm compete each
other to satisfy customers needs become a global arena. In a global arena
your competitor is coming from all over the corner, as it is for PT ABC. In order
to continue competitiveness of PT ABC, they should keep improving. In supply
chain area, here are some of our suggestions:

1. Establish new plants in areas/region where it could minimize transportation cost

and barrier to entry of the new region.

XXI. Although almost all countries in the world promotes globalization, the
economic trend tend to become regionalization. Just say European Union (EU),
NAFTA (North American Free Trade Agreement) which consist of Canada,
Mexico, and the United States, and so on.
XXII. For example EU. EU is a regional organization which give benefit among the
member of EU. EU become the largest single market. By establishing a new
plant at one of the EU member, PT ABC will be able to sell its products a lot
easier, because there is free trade among member countries of the EU. So
what PT ABC need to do is finding the cheapest cost to establish the new
plant among EU member countries, in term of labor cost, investment cost,
and etc. Furthermore, in serving EU region, by establishing new plant in the
region, it will reduce transportation cost significantly, just as we know that
recently the price of fuel could cause major problem.
XXIII. Besides those benefit, establishing new manufacturing close to market will
allow PT ABC supply chains react quickly to response the market changes.
XXIV.

2. Start integrating information system between PT ABC and its distributor as its
direct customer.

XXV. By integrating the system between PT ABC and its distributors, it will make PT
ABC know what kind of product that well sold to the end customer. It will
 enable PT ABC to make a lot better planning regarding its production
forecasting. It also could increase PT ABC working capital because it will make
the inventory at minimum level.
XXVI.

3. Start integrating information system between PT ABC and its major suppliers.

XXVII. By integrating the system between PT ABC and its major suppliers, it will
reduce possibility of stock-out, reduce the lead times, and also PT ABC will not
need to buy the raw material in a lot number so in turn it will increase PT ABC
working capital.
XXVIII.

4. .

XXIX.