synnex (thailand) - nanyang technopreneurship … version/21. synnex (thaila… · synnex...

SYNNEX (THAILAND) AUTOMATED STORAGE AND RETRIEVAL SYSTEM (ASRS)

S/N 88-16-021

1 | P a g e Nanyang Technopreneurship Case Centre (NTCC)

Synnex (Thailand) ‒ Automated Storage and Retrieval System (ASRS)

Synnex (Thailand) Public Company Limited is one of the leading distributors of computers, computer

peripherals, software products, information technology system products, computer consumables,

and communication devices in Thailand. Synnex (Thailand) is partly owned by Synnex Technology

International Corporation based in Taipei, Taiwan which had channels reaching 30 countries and

regions in the world such as the United States, China, Hong Kong, Macau, Australia, New Zealand,

Thailand, India, the Middle East and Africa. Synnex (Thailand) had been in operation since 1988 and

became a listed firm on the Stock Exchange of Thailand (SET) in 2007. Synnex (Thailand) distributed

more than 50 product brands to 5,000 dealers – both retailers and wholesalers – across the country.

The prompt distribution across all regions of Thailand was achieved through six branch offices in

Thailand’s main cities outside of Bangkok, functioning as after-sales service centres, sales offices,

and warehouses.

In 2006, executives in Synnex (Thailand) considered whether to either construct a conventional or

automated warehouse for expansion purposes. They ultimately made a choice to build an

automated warehouse which was completed in 2007. Looking back nine years later, the executives

were wondering if their decision to undertake the automated warehouse was the best option out of

all the available options.

Thailand IT distribution industry

The main local competitors for Synnex (Thailand) were SiS Distribution Thailand PCL, The Value

Systems Co., Ltd and Ingram Micro (Thailand) Ltd. SiS Distribution Thailand PCL was founded in 1998

and was listed on the SET as a public company in 2004. The Value Systems Co., Ltd was a member of

the ECS Group and VST Group, both of which had a network of channel partners across the Asia

Pacific region (e.g. China, Thailand, Malaysia, Singapore, Indonesia, the Philippines, Cambodia,

Myanmar and Laos PDR). The VST Group was listed on the Hong Kong Stock Exchange. Ingram Micro

(Thailand) Ltd was a subsidiary of Ingram Micro Inc. which was listed on the New York Stock

Exchange (NYSE) and had a distribution network throughout North America, Europe, Middle East and

Africa, Latin America and Asia Pacific. Yet, Ingram Micro (Thailand) Ltd had a smaller presence in

Thailand compared to SiS Distribution Thailand PCL and The Value Systems Co., Ltd.

Synnex (Thailand) Public Company Limited performance

During the period from 2003 to 2006, Thailand’s economy grew at the highest rate since the

financial crisis of 1997. The GDP growth and inflation rates were approximately four to seven per

cent and two to five per cent respectively. By 2006, Synnex (Thailand) had grown to 559 full-time

employees and generated approximately THB nine billion in revenue (approximately four per cent

growth from previous year) and approximately THB 327 million of gross profit.1 More than half of

the revenue in 2006 was from selling goods rather than providing services. The main contributors to

the revenue were the “component product group” with THB 2,892 million (30.8 per cent) and

“consumables & supply group”, THB 2,132 million (22.7 per cent).2

1 The conversion rate is SGD 1 = approximately THB 25 Thai as at 29 October 2015. 2 The total income from selling and service was approximately THB 9 billion. However, the main revenue in 2014 was the component product group THB 3,030 million (15.87 per cent) and consumables & supply group THB 2,217 million (11.61 per cent) – with a new group of product, communication devices group of THB 3,359 million (17.59 per cent) The total income from selling and services was THB 19,092 million.

S/N 88-16-021



Revenue rose with a two-digit growth rate from 2007 to 2011 and slowed down from 2012 onwards

(see Table 1). The rising trend in revenue and significantly greater volumes of product sale in the IT

business were a result of a rapid fall in average selling prices and margins in the technology industry.

This in turn put pressure on the infrastructure and labour of Synnex (Thailand). Greater volumes of

product sales meant more orders, more picking and packing, and more invoicing and administration.

Table 1: Synnex (Thailand) revenue and growth rates

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014

Revenue

9389.1 10494.6 11586.7 13427.4 15599.8 20237.6 20576.4 18758.9 19092.0 (million Bath)

Growth Over Prior Year 11.8% 10.4% 15.9% 16.2% 29.7% 1.7% -8.8% 1.8% Source: Bloomberg

Business problem

One of the key roles of the IT distributor was to break bulk shipments; i.e. receive bulk shipment e.g.

truckloads and pallets of product and break them down into quantities that were closer to the

requirements of dealers (dealers usually bought in the smaller quantities required by individual end-

customers). The existing warehouse was used to store both bulk and smaller items. The size of the

warehouse of Synnex (Thailand) in 2006 (Warehouse “A”) was 938 sqm, located on 2,000 sqm of

land. It had three storeys with the capacity to store 1,000 pallets of goods. It was still considered

labour intensive to operate a warehouse of that size. To operate Warehouse A at its full capacity,

five forklifts and 50 staff were required. Operational staff included pickers who printed picking slips

and picked items using forklifts for large items, as well as packers who packed items and printed

labels, invoices and delivery dockets.3

While the labour force participation rate was higher than the demand for labour in the past, the

surplus labour gap declined over time as labour demand grew faster than the labour force

participation rate. The executives of Synnex (Thailand) anticipated that Thailand might experience a

labour shortage problem due to an excess demand that kept growing, which resulted in a rise in

labour costs and a decrease in the availability of labour. The average salary package for warehouse

workers in the Synnex (Thailand) warehouse was THB 240,000 and THB 360,000 per year per head in

2006 and 2014 respectively (equivalent to a 50 per cent increase in eight years).

The capacity of Warehouse A was insufficient for the storage needs of Synnex (Thailand) in 2006.

External warehouses were rented to store inventories. Furthermore, the amount of storage capacity

required in terms of pallets was an increasing trend. The additional storage needed in 2007 was

3,000 pallets. The expected increase in storage needs from 2008 to 2009 was 3,300 pallets.

3 The location of Synnex Thailand office and warehouse is at 433 Sukontasawat Road, Khwang/Khet Lardprao, Bangkok 10230 as of 2015.

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Thereafter, it was expected to be constant at 3,400 pallets from 2010 to 2014. Due to these

predictions, there was an urgent need for an expansion of the existing warehouse in 2006.

Table 2: Synnex (Thailand) additional storage usage from 2007 to 2014

The proposed warehouse expansion

Warehouses were considered the key component of the supply chain of distribution companies like

Synnex (Thailand). From the figures of additional storage needs from 2007 to 2014 (Table 2), the

executives of Synnex (Thailand) were confronted with a decision to expand the existing warehouse.

The choice was either to build a new automated storage and retrieval system (ASRS) or non-

automated conventional warehouse on a piece of existing land (3,278 sqm), which had been

acquired earlier. No IT distribution player in Thailand had employed an ASRS and integrated it into

the supply chain before. The construction for both options would take one year to complete, and the

new warehouse would be ready for use in 2007.

An ASRS is an automatic, computer-controlled warehouse management system which optimises

floor space by utilising the full height of the warehouse, with minimal aisle space. An investment in

an ASRS was an attractive option for the executives given the potential improvements related to

operational efficiency and accurate and timely order fulfilment. It would help to improve customer

the retention rate and improve competition in the market. In addition, the ease of operation and

maintenance of the ASRS system was attractive. The main quantifiable benefit of the ASRS was the

reduction in labour costs and workforce requirements. In general, conventional manually operated

forklifts handle an average of 50 pallets per day (eight hours). Based on the requirements of Synnex

(Thailand) with total throughput rates of 700 pallets per day, an ASRS utilising storage and retrieval

machine (SRM) and automatic movement system (AMS), handling an average of 1,440 pallets per

day, did the work of approximately 29 forklifts.

The operational aspect of a conventional warehouse was labour intensive with a limited use of

machines – five forklifts for Warehouse A. The ASRS was heavily reliant on both software (including

the warehouse management system) and hardware (storage and retrieval machine, and automatic

movement system) to operate.

Year Additional storage usage (pallets)

2007 3000

2008 3300

2009 3300

2010 3400

2011 3400

2012 3400

2013 3400

2014 3400

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Option 1 – Build an Automated Storage and Retrieval System (ASRS)

To ensure sufficient capacity to meet customer requirements and growth projection, the executives

in Synnex (Thailand) considered implementing the ASRS and the technology was to be transferred

from Synnex Taiwan. The incremental staff requirement for the ASRS was zero as existing staff who

worked in Warehouse A could be used in both Warehouse A and the ASRS. As labour costs in

Thailand were increasing while the availability of labour was simultaneously decreasing, the

containment in the number of staff given a warehouse expansion would not only benefit Synnex

(Thailand) in terms of cost reduction per unit of revenue, but also solve the potential future problem

associated with recruitment of staff during a labour market shortage or adjustment of minimum

basic salary, which was anticipated in 2006 by the executives to increase in the next few years.

ASRS costs

The ASRS would require an up-front capital investment in physical assets. Site preparation and

construction of the building was expected to cost THB 80 million, the warehouse machine and

software would cost THB 81 million (including the assembly costs), the development of the

warehouse management system by Synnex Taiwan would cost another THB 10 million (see

Table 3). The cost of construction and warehouse machines and software were to be paid in

two instalments of equal amounts in 2006 and 2007, while the cost of development of the

warehouse management system was to be paid in three instalments – THB 3.3 million, THB

3.3 million and THB 3.4 million, in 2007, 2008 and 2009 respectively (Table 3). The sum of THB

171 million did not include the salary of the existing operational employees.

Table 3: ASRS capital investments

Capital investments THB million

Building 80

Machines and software 81

Development of warehouse management system 10

Payment instalments 2006 2007 2008 2009

Building 40 40 Machines and software 40.5 40.5 Development of warehouse management system

3.3 3.3 3.4

Source: Synnex (Thailand) Annual Report and case writer estimates

The investments would become fixed costs that would initially be extremely high and would

only be reduced (per unit) as volumes/revenues increased. To achieve that, the proposed

warehouse would have a capacity of 3,500 pallets of storage. The new warehouse building

with 1,600 sqm of space would be constructed on the 4,000 sqm piece of land owned by

Synnex. The ASRS would be used concurrently with Warehouse A and store an additional

inventory of 3,000 pallets (refer to Table 2) from the old warehouse in 2007 on the

completion of the ASRS. Synnex (Thailand) would require an ASRS inspection for

maintenance from Daifuku Thailand yearly which would cost THB 190,000. The cost did not

include parts which were required in the event of repairs.

S/N 88-16-021



Option 2 – Build additional conventional warehouses

With the capacity of 1,000 pallets at the old warehouse, an alternative option for the executives was

to expand the warehouse in 2006 when the inventory requirement exceeded the capacity at that

time. The limitation of the non-automated warehouse compared to an ASRS was less storage of

product in the same given space. Advanced storage and retrieval mechanisms, which were storage

and retrieval machines (SRM) and an automatic movement system (AMS), could be used to increase

the height and density of storage. While an ASRS warehouse could be eight storeys high, the normal

warehouse could only be three storeys high due to the limitations of the forklift used to retrieve

products.

An alternative use of the 4,000 sqm piece of land that Synnex (Thailand) owned was an expansion of

a three-storey warehouse (Warehouse “B”) building of 1,600 sqm, at a construction cost of THB 57.6

million. Construction costs were approximately THB 12,000 baht per sqm for the conventional

warehouse with three storeys, and 1,600 sqm of space per storey shown in Table 4.

Table 4: Capital expenditure on buildings

Buildings THB/sqm

Construction cost per sqm 12,000

Size of building (3 storeys X 1,600 sqm) 4,800 Source: Case writer estimates

Interestingly, the cost of construction for a conventional warehouse was much higher than the cost

of building an ASRS. The rack-supported building was much more economical due to the specialised

design of the ASRS construction, which did not require conventional structural columns to support

the walls and roof – they were fixed directly on to the racking structure to complete the building.

Hence, huge savings could be realised in both construction time and cost.

However, the specification of Warehouse B with storage capacity of 3,000 pallets would still fall

short of the inventory requirement. Therefore, another warehouse of the same specification

(Warehouse “C”) would need to be built on another piece of land of equal size of approximately

4,000 sqm. The market price for the land in the same area was THB 25,000 per sqm (see Table 5). All

the costs involved with Option 2 could be paid in instalments, with 50 per cent of the total cost in

2006 and the remaining 50 per cent in 2007. However, the main challenge for Synnex (Thailand) was

to find a piece of land to build Warehouse C, in close proximity to its office and Warehouses A and B

to avoid additional costs of transportation to combine the orders from different warehouses.

Table 5: Capital expenditure on land

Land THB/sqm

Price per square meter of land 25,000

Size of land in square meter 4,000 Source: Case writer estimates

Furthermore, there would be 50 operational staff required for each warehouse, B and C. Upon the

completion of the new warehouses, both bulk items/pallets of products and smaller items were to

S/N 88-16-021



be stored at Warehouses A, B and C. The costs involved with Warehouses B and C operations were a

maintenance fee of THB 10,000 per forklift per year and a replacement of forklift batteries every two

years, which cost THB 100,000 per forklift.

Other warehouse related costs and benefits

Synnex (Thailand) warehouse costs were divided into two main categories – warehouse costs

and dispatch costs. The total costs for the warehouses were estimated by period for six

categories, including employee-related expenses, department expenses, selling/logistic

expenses, company-level expenses, depreciation and amortisation, and allocation

administration expenses. The net warehouse costs figure is total warehouse costs minus the

warehouse revenue. Synnex (Thailand) earned warehouse revenue from renting out

warehouse space to vendors/dealers as well as claims on handling vendors’ faulty product (in

the circumstance that Synnex (Thailand) needed to return the goods to vendors). The total

costs for dispatch were estimated by period for seven categories, including employee-related

expenses, department expenses, selling/logistic expenses, company-level expenses,

depreciation and amortisation, allocation administration expenses and courier expenses. The

net dispatch costs figure is total dispatch costs minus the dispatch revenue.4

When considering investment in an ASRS in comparison to the conventional warehouse, the

quantifiable benefit was the reduction in warehouse and dispatch costs. Primarily, cost saving

was in employee-related expenses by avoiding an increase in headcount, which contained or

reduced warehouse cost per unit of revenue. Another less obvious benefit was the improved

levels of on-time delivery and accuracy which could be a factor that would drive the sales and

revenue of the company (see Table 6).

Table 6: ASRS Expected Cost Saving Ratios (Per cent)

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014

Warehouse cost/revenue 0.49 0.66 0.62 0.49 0.43 0.35 0.34 0.35 0.35

Dispatch cost/revenue 0.61 0.51 0.52 0.35 0.34 0.36 0.33 0.32 0.29

Total cost/revenue 1.10 1.18 1.14 0.84 0.76 0.72 0.67 0.67 0.64

To operate the ASRS, Synnex (Thailand) planned to use some of the existing staff. The number

of people and their fully loaded costs are shown in Table 7. These costs were not included in

Synnex (Thailand)’s initial outlays. The operational personnel needed were considered

“corporate” resources and were certainly available to work on the project.

4 Company-level expenses and allocation administration expenses are assigned to each department as a percentage from total company’s expenses.

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Table 7: Operational Personnel Cost

Number Salary (THB) per person per year

Operational personnel cost 50 240,000

Synnex (Thailand) used a ‘straight-line’ depreciation method. Building would be depreciated

on a straight-line basis over 20 years. Machines, forklift, software and warehouse

management system would be depreciated on a straight-line basis over 10 years (see Table 8).

Table 8: Fixed Assets Depreciation

Fixed Assets Depreciation (Years)

Building 20

Machines and software 10

Development of warehouse management system 10 Forklift 10

Source: Synnex (Thailand) Annual Report Year?

The weighted average cost of capital for Synnex (Thailand) from 2006 to 2014 is shown in

Table 9. The weighted average cost of capital includes the cost of equity and cost of debt. In

2008, Synnex (Thailand) became a listed company on the SET and increased its registered

capital from THB 500 million to THB 705 million.

The corporate tax rate in Thailand was 30 per cent from 2006 until 2012. In 2013 and 2014,

the tax rate was decreased to 23 per cent and 20 per cent respectively (see Table 9) to spur

consumption and aid economic growth.

Table 9: Thailand corporate tax rate and Synnex (Thailand) weighted average cost of capital

(WACC)

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014

Corporate tax 30% 30% 30% 30% 30% 30% 30% 23% 20%

WACC - 0.065 0.059 0.067 0.095 0.11 0.1 0.11 0.066

Source: Bloomberg

Synnex (Thailand) expected a steady increase in working capital to manage the accounts

receivable and inventory as sales increased in the following years. The working capital had

been funded by the use of short-term loans from financial institutions for liquidity. Synnex

(Thailand)’s days in inventory were expected to be 33 days, while the average collection

period was expected to be 50 days as the company supported well-rated customers by

extending the payment period of their accounts receivable. Its average payment period was

30 days. Whether Synnex (Thailand) opted for Option 1 (build an ASRS) or Option 2 (build

additional conventional warehouses), the net working capital requirements (inventory,

accounts receivable and accounts payable) were expected to be the same for both options.

The ASRS and conventional warehouses were assumed to create value indefinitely, given

continuing maintenance, and to be treated as ongoing concerns with a perpetual life. For Net

S/N 88-16-021



Present Value (NPV) calculation, the cash flow after 2014 was assumed to grow at zero per

cent (to preserve an element of conservatism, there will be no growth rate).

Concluding remarks

In 2006, Synnex (Thailand) chose the first option out of the two alternatives, which guaranteed the

smooth supply chain and a decrease in headcount and payroll in the expected future shortage of

labour. From that perspective, although it was the most attractive option, the ASRS also required the

largest capital outlay.

Synnex (Thailand) had pondered over the key issues – what were the considerations for an

authorisation of the project and the financial impact of its investment in the ASRS? What was the

consequential incremental profit or reduction in costs to undertake the ASRS? Did it offer an

adequate return on investment?

End-of-Case Questions

Question 1

Analyse the business case for Option 1 (ASRS warehouse expansion). How would you compare

Option 1 to Option 2 (building additional conventional warehouses)?

Question 2

Use the projections provided in the case to compute incremental cash flows for the Synnex

(Thailand) project, as well as its NPV. Does Option 1, building an ASRS, create more value for Synnex

(Thailand)?

Question 3

Based on your analysis, did Synnex (Thailand) make the right decision funding the ASRS project?

Why, or why not?

S/N 88-16-021



References

Bloomberg L.P. (2016). Synnex (Thailand) revenue from 2006 to 2014. Retrieved 2 October 2015.

Bloomberg L.P. (2016). Thailand corporate tax rate from 2006 to 2014. Retrieved 2 October 2015.

Synnex Thailand. (2016). Annual Report. Retrieved 30 September 2015 from

http://www.synnex.co.th/investor/en/report.aspx

About Nanyang Technopreneurship Case Centre

With funding from both the National Research Foundation of Singapore and Nanyang Technological

University, the Nanyang Technopreneurship Case Centre (NTCC) was one of the initiatives of the

Nanyang Technopreneurship Centre (NTC) to enhance the quality of entrepreneurship education

through the case pedagogy. These are part of NTC’s efforts to foster, promote and nurture

enterprising mind-sets, skills and knowledge in entrepreneurship education.

There is a plethora of business cases but a general paucity of cases highlighting the specific problems

faced by technopreneurs in growing their ventures. NTCC adds value to Technopreneurship

education by developing a pool of cases on technology-based local and international enterprises.

Through the cases, NTCC hopes to share the experiences, success stories and challenges faced by

entrepreneurs/intrapreneurs in growing their organisations and how they overcome their problems

to sustain growth.

The theme of this first compendium is “innovation through technology”. It features Singapore-based

and global companies confronting issues and challenges due to technological shifts in the industry

and changing market and competitive dynamics; when introducing new products in the marketplace;

and in using technology to drive organizational change.

Online versions of these cases are available for complimentary downloads at

www.ntc.ntu.edu.sg/ntcc .

Teaching notes are also available to faculty members for use as reference, reading and/or teaching

materials in various academic and professional programs. For further information, please contact

Ms. Denise Lee ([email protected]) and Mr. Wu Chong Chuan ([email protected]).

Acknowledgment

The Nanyang Technopreneurship Case Centre (NTCC) was supported by the National Research

Foundation (NRF) and the Nanyang Technological University (NTU). We would like to thank NRF and

NTU for their funding support.

We would also like to show our gratitude to all the writers, reviewers and anyone who have

contributed to the accomplishment of the NTCC.

http://www.ntc.ntu.edu.sg/ntcc

mailto:[email protected]

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