Logistics Strategy for Agricultural Products in Thailand; Case Study: Hub and Spoke System Applied within the Shrimp Industry

Transportation costs are typically constitute the largest percentages of the total costin the production process of agricultural industries. This study aims to apply the hub-andspokesystem to the agricultural transportation and distribution networks of Thai agriculturalproducts in order to reduce transportation costs and to investigate the location of facilitieswithin the shrimp industry by varying parameters. Hubs serve as collection and switchingpoints in the system and transportation flows will be consolidated in the hub links. Theconcentration in the hub network leads to economies of scale, and for this reason thetransportation cost rate will be reduced. In the study, central markets for shrimp are referredto as hubs. The hub location models are divided in uncapacitated hub location models andhub location models with minimal capacity. These models are stated as an integer linearprogramming models. The objective functions of both models are identical. They include thecosts of direct and indirect transportation as well as the construction costs of hubs. Whileevaluating transportation costs, the opportunity cost reflected in the perishable nature of theagricultural products is accounted for as well. The rates of the opportunity cost are calculatedas the difference between averaging shrimp prices of direct trade with the factory and tradewithin shrimp markets. The difference of the two models lies in the constraints of minimalcapacity. To solve the hub location problems, the sum of the costs is optimized through agenetic algorithm. This research employs secondary data from 2006 until 2008 based oninformation of the Department of Internal Trade and the Department of Fisheries of Thailand.The computational results reveal that the central markets are more likely to be established inpotential locations if the saving rate of transportation costs is increased, according to theefficiency of management and vehicles within the network. Furthermore, the change of theopportunity costs has no effect on the locations of the shrimp central markets. It only hasimpact on the total costs of transportation. Finally, the results reveal the conflict between theofficial supporting policy for the shrimp central markets and the efficiency of shrimp centralmarkets. In summary, the hub and spoke system is an important tool for distributionimprovement, thus reducing the transportation costs for Thai agricultural products. Therefore,establishing more central markets in Thailand helps to improve the competiveness ofThailand's agricultural sector. Nowadays, however there are not enough shrimp centralmarkets, thus the central markets should be more expanded within Thailand.