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Abstract. The fine gemstones and jewelry industries are one of Thailand's export industries that create high revenues to the country. Nevertheless, the industries ...
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Dec. 14-16, Kitakyushu

Re-engineering of Business Processes in the Integrated Supply Chain of Fine Gemstones and Jewelry Industries in Thailand †

Tuanjai Somboonwiwat King Mongkut’s University of Technology Thonburi Bangkok 10140 Tel. 66-2470-9171, 66-2470-9176, E-mail: [email protected] Walailak Atthirawong King Mongkut’s Insttutue of Technology Ladkrabang 10520 Tel. 66-2326-4111 (6172), E-mail: [email protected]

Abstract. The fine gemstones and jewelry industries are one of Thailand’s export industries that create high revenues to the country. Nevertheless, the industries have still been uncompetitive due to some major problems in the supply-chain planning process, which result in long lead times and late product deliveries. This research seeks to enhance the competitive advantage to the industries by re-engineering the business processes of the integrated supply chain with emphasis on production planning process. The methodology approach proposed in this paper is divided into three stages, i.e. Process Framing, (As-is) Process Understanding, and (To-be) Process Improving. In the first stage, the integrated supply-chain structures are addressed including the internal gemstones industry supply chain, the internal jewelry industry supply chain, and the supply chain between the gemstones and the jewelry industries, or the linkage between these two industries. In the second stage, as-is-business process mapping of the integrated supply chain is drawn by the use of the IDEF0 Diagram. The study reveals that there is a missing link in the information flow with the setting of due dates from the jewelry industry to the gemstones industry. This is due to a lack of planning in the integrated supply chain. Finally, a re engineering of the business process for the to-be-supply chain together with the integrated planning framework is recom mended. Keywords: Integrated Supply Chain, Re-engineering of Business Processes, Fine Gemstones Industry, Jewelry Industry

1. INTRODUCTION Thailand’s fine gemstones and jewelry industries are attached very great importance to the national econo mic system in quite a lot of aspects. For instances, in 2007 Thailand had gained revenues from the export of jewelry and ornaments greater than THB 199,766 million, over 66 per cent of these values being the genuine jewels and ornaments, more than one million labors having been in employment in the industries. Thailand’s major export markets are i.e. U.S.A., Australia, Hong Kong, and Israel, with the growth ratio of the industries averaging 14.20 per cent (Customs Department, 2008). In addition, fine gemstones and jewelry industries have also played important parts to maintenance of the national prolonged inherited wisdom and cultures as a result of

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the structures of the industries, of which production processes are to be carried out in the upstream, midstream, and downstream industries. In connection with this, in the upstream industry, major production processes are mining of raw materials, i.e. diamondrocks, gemstones, and precious metals like gold, silver, etc. In the meantime, the midstream industries relate to value rising to jewels and precious metals through quality upgrading processes, e.g. faceting diamonds, burning/cooking, molding, tumbling and cutting gems, or seeking gold co mposition that could be molded into beautiful settings. As for the downstream industry, the business involves the jewelry production process. Furthermore, the Government is giving priority to the export industries at the mo ment. With reference to this, it is generally known that the execution of the Free Trade Areas (FTA) Agreements

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will significantly influence the industrial sector to necessarily adjust itself to the fluctuating global trade circumstances. Anyhow, as the fine gemstones and jewelry industries still lack the links of all systems together, total costs of the industries have grown high. Accordingly, it is essential that Thailand’s fine gemstones and jewelry industries seriously require competitive competence development and enhancement via logistics and supply chain management, the practice of which will facilitate the linking of entire business operation rightly from raw materials origins up to consumers. If all supply chain be developed into unity, every member in those supply chain will get more profits too. This will cause the data exchange among members as well as the surplus removal throughout the supply chain resulting in the better and closer responses to the customers’ requirements. Thailand’s fine gemstones and jewelry business structures are divided into 2 major parts, i.e. the first one, the fine gemstones industry, consisting of diamonds and gems cutting industries, and the other, the genuine and the artificial jewelry industries. In relation to the genuine jewelry, they are also separated into those with gold and silver settings as shown in Figure 1. Thailand ’s Ge ms and Jewelry Ind ustries

Fine Ge ms

Jewelry

Ind ustry

Ind ustry

Ge ms

Diam o nd s

Go ld

Genuin e

Artificial

Jewelry

Jewelry

Moreover, the business has encountered several challenging problems, i.e. high competition, trade barriers, and difficulties in the supply chain planning process. One of the key problems in linking the jewelries and the gems industries is related to the delayed delivery of the gems into the jewelry industry finally resulting in the late transfer of the products to the customers. The causes of the problems are due to the lack of the systematic production planning in the business, and the lack of the information flow. This entails a failure to meet actual requirements of the two industries, production period becoming shorter due to the jewelry industry taking long time in raw materials procurement, and lower efficiency in products transfer. Besides, it was found that gems, which are the main component or raw materials of the industry, often encounter the problems related to non-responding qualities to the customers’ requirements, e.g. wrong colors or wrong sizes, for example. This is because gems are jewels with variety in sizes, forms, colors, and kinds. Therefore, a key factor that will allow Thailand to still maintain its competitive competency in the jewelry global markets is to upgrade its production processes through improvement of the supply chain of the industry. The objective of this research is to propose the frameworks for production planning systems design for both internal industry and inter-industries to give rise to the production linkage that will enhance the competitive advantages to the industries. The remaining parts of this paper to be presented below have been organized into 3 sections, i.e. firstly, the research framework as employed in this study in section 2, secondly, discussions of the study results in section 3, and lastly, the re-engineering process of the business for the prospective supply chain together with the integrated planning framework.

Silver

Figure 1: Thailand’s gemstone and jewelry Business Structure The fine gemstones and jewelry industries have also created job op portunities in other associated businesses, e.g. designing, packa ging, gems-cutting machinery manufacturing, etc, for instance. At present, Thailand’s gems and jewelry export has been adversely slumped as a result of the world economy crisis.

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2. RELEVANT THEORIES AND RESEARCHES 2.1 Relevant Theories 2.1.1 Business Process The business process has been studied through Business Process Mapping (BPM), the methodology that has been applied to improve the

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process subject to the effectiveness of the supply chain. The BPM can illustrate linkage in different ranges of both internal and inter-organizations. For instance, the BPM with a target to improve the internal logistics of the organization is a business process showing relation of logistics activities, i.e. orders taking and planning, raw materials procurement and storage, products storage and transfer, to the production activities inside an organization.

2.1.2 IDEFO (Integration Function Modeling)

Definition

for

Business Process Mapping is established by using IDEFO, an instrument used for showing function modeling, process activities as well as information and materials flow. Effective IDEFO models help understand the business process as currently studied and then to analyze and develop into the soon-to-be business process later. The IDEFO diagram comprises simple box and arrow graphics, which show the function as a box and the interfaces to or from the function as arrows entering or leaving the box. The box shows activities, while the arrow shows inputs, outputs, controls and mechanisms.

2.1.3 Production Planning At the early stage of production process, decision makers are necessary to prepare an aggregate plan for productivity assessment as well as to procure the right equipment for the production process and to evaluate the manpower and total costs required for the entire production. The aggregate plan is a plan for designating workforce and production under the productivities given. The plans will be considered from those that can chiefly respond to the production requirements at the lowest costs. The aggregate plan has been developed with an aim to relate all productivities of the company at that time in line with the expected product demands to be arisen at different periods with neither kinds of goods nor production resources to be used for those productivities having been specified. The aggregate plan will then be disaggregated for further preparation of Master Production Schedule (MPS) and Material Requirement Planning (MRP), respectively.

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2.2 Relevant Researches As regards the study of Thailand’s fine gemstones and jewelry industries supply chain, since it is a new subject matter, relevant researches are still quite a few. Such example of relevant researches in this area are Overall Image of Thailand’s fine gemstones and jewelry Industries by Khaosa-ad et al. (2002), Fine Gemstones and Jewelry Industries Master Plan Preparation by Waiwanitchakul et al. (2002), and Marketing Potential Improvement Project for Medium and Small Fine Gemstones and Jewelry Industries in accordance with Business Reorganization Plan Phase II. A study to develop the Performence Assessment Forms in the Supply Chain of the fine gemstones and jewelry industries conducted by Wongwaisayawan (2006). Somboonwiwat et al. (2008) did a research on Thailand’s Gemstones and Jewelry Industry Supply Chain making conclusions on all problems found in the industries studied, major one of which was related to the production planning in the industries. In addition, there are some researches on sample industrial plants improvement cases, i.e. Rapid Response in Jewelry Industry by Iampuang and Somboonwiwat (2004); Sriphanit (2006) found major problems in the jewelry factories case study e.g. production planning and scheduling mostly dependent on experiences, without designating exact production procedures, for instance. Nevertheless, Thailand still requires several more developments of researches on fine gemstones and jewelry industries in various aspects. At the mo ment, there are still no studies on reengineering of the business process in the sup ply chain, which will point out the issues of problems and the entities’ parts where restructuring has been required. The study of business process is important to the organization’s efficiency increase. According to the sample research by Kumar and Harms (2004) on The Influence of Business Re-Engineering on Work Efficiencies, the study revealed that after re-designing of the purchase order fill-in processing, the timing used in the process starting from having order to purchase to issuing a purchase order has been 10% declined. Besides, the lacking raw materials in the course of production process in each week became 50% lowered, late delivery of raw materials 20-25%

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decreased.

3. RESEARCH FRAMEWORK In the study and application of the supply chain management to the fine gemstones and jewelry industries, it is necessary to understand the business process of information and material flows in the sup ply chain in response to the customers’ requirements. The research framework of the business process study is consisted of 3 steps, i.e. Process Framing, Current (Asis) Process Understanding, and (To-be) Process Improve as shown in Figure 2. Process Framing - Gems industry supply chains structures jewelry industry structure and inter-industries linkage -----------------------------------------------------------Current (as-is) Process Understanding - Preparing Business Process Mapping in gems and jewelry industries and inter-industries linkage - Analyzing causes of problems occurred in the industries to find out solutions -----------------------------------------------------------Business Process Improving

Scope of study of the integrated supply chain of the fine gemstones and jewelry industries as designated in this paper comprises the internal supply chain in the fine gemstones and jewelry industries as well as the supply chain from the gems industry to the jewelry industries.

3.2 Current (As-is) Process Understanding This is the stage of formulation of the Business Process Mapping (BPM) in order to reflect the business process as currently studied, to study in details the links of all activities, and to show the flows of the materials, the information and the lead time. The tool that is used for analysis and formulation of the BPM is the IDEFO diagram (Integrated Definition for Function Modeling). It is an instrument used for showing models of activities and resources of the organizations, or as the systems facilitating the understanding of the (As-is) business process and the improvement of the (To-be) business process in the future. IDEFO is an easy communication tool with symbols of boxes and arrows, i.e. boxes showing activities and arrows showing inputs, mechanism, controls, and outputs as shown in Figure 3. IDEF0 is a model that consists of a hierarchical series of diagrams, text, and glossary cross-referenced to each other (Figure 4.)

- Designing and preparing business process planning linking between the gems and the jewelry industries - Designing production planning system Figure 2:Research framework of the business process study

3.1 Process Framing Process framing is intended to formulate structures of the supply chain and the business process to be studied including the process ranges and improvement targets. Process framing is a crucial step as it is the part that will be used to improve the business process in line with the objectives and the process efficiency. Furthermore, in case of finding any problems in the course of working on the next step, it is still possible to revise and review the framework earlier designated. Also, overall process maps may be applied to this framing process.

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Figure 3: Symbols used in the IDEFO diagram

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information or materials in the supply chain.

4. RESULTS

4.1 Integrated Supply-Chain Process Framing

Figure 4: Decomposition structure This step is to study the business process of the supply chain both in the gems and the jewelry industries and inter-industries by making understanding of the current business process, the overall images of the business, the activities links and the situations both internal organizations and interorganizations as well as by studying the details of each activity, the materials and information flows relevant to the efficiencies requiring improvement in the supply chain, and also by making understanding of the causes of the problems why the efficiency targeted could not be reached.

3.3 Business Process Improving This step is to improve the business process in the supply chain after complete understanding and thorough studying of the as-is process; the soon-to-b e process is to be developed then. A newly developed business process, which will involve the sup ply chain efficiency, is to be presented. In this step, there is no hypothesis pointing out what specific part of the business process to be improved. However, this will be dependent on the natures of the problems and the causes of the relevant processes as a result of the BPM application. Anyhow, major cause of the problems is always resulted from the unconnected flows of either

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The study has designated the process range covering from the supply chain of the genuine gems industry to the genuine silver and gold jewelry industries, or so called “the Integrated Supply Chain”. For the study of the supply chain structures, details of the supply chain in the genuine gems and jewelry industries as well as the sup ply chain between the two industries are as follows.

4.1.1 Supply Chain in the Genuine Gems Industry Supply chain of the genuine gems is composed of raw-material origins, gemstones agents, factories/gems cutters, polished gems and customers as shown in Figure 5. In connection with raw-material sources of the hard gemstones e.g. ruby, emerald, and sapphire, almost all of which are now to be imported from foreign countries: Brazil, Myanmar, Madagascar, India, Tanzania, Sri Lanka, Africa, and etc., while partial sources are from local mining in Chanthaburi, Kanchanaburi, Tak, etc. However, the latter sources in Thailand have now become substantially depleted. As regards the import of the gems from overseas by agents, the agents will sort colors of the gemstones before sending to factories/gems cutters. Then the gemstones will be processed as fine gems and transferred to jewelers, traders, and retailers. Certain parts of the polished gems will be exported to overseas customers, while the rest will be sent to jewelry factories for making jewelry settings later.

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Figure 5: Supply chain of the genuine gems industry

4.1.2 Supply Chain in the Genuine Jewelry Industry Supply chain in the jewelry industry (Figure 6) start from raw materials i.e. gold, silver, and compound metals, which have been obtained from local agents or imported from such foreign countries as Australia, Switzerland, and Hong Kong. These raw materials are of 99.999% fineness type with the jewelry settings made of 8K – 24K gold, or 92.5% silver by weight. With regard to the compound metals, they will count on the expertise of each company, production of which will contain different admixtures. As for faceted diamonds or polished gems, the polished gems will be purchased directly from either jewelers or gems-cutting factories.

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Meanwhile, the diamonds will be obtained from diamonds jewelers or agents, who will prepare the polished jewels, or acquired through jewel-cutting factories’ delivery or via agent hiring production as per designs. Then the diamonds, both of basic and jewelstudded types, will be produced by the jewelry industry. Finally, the finished jewelry will be further distributed through different channels to the customers.

4.1.3 Supply Chain between Genuine Gems and Jewelry Industries With reference to the structures of the supply chain of the genuine gems and the genuine jewelry

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industries, there are the links of the supply chain of the gems industry to those of the studded jewelry industry. Figure 7 illustrates the raw material flows of the genuine gems from the jewelry to the jewelry industries.

Figure 6: Supply chain of the genuine jewelry industry

Figure 7: Gemstones requirements linkage from genuine gems industry to genuine jewelry industry

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4.2 Current (As-is) Process Understanding 4.2.1 IDEFO of Genuine Gems Business Process Genuine gems business process is shown in Figure 8 starting from taking orders from customers and then informing sales department of the gems kinds and quantities required. Next, the purchase orders will be forwarded to gemstones procurement department to check whether there are enough raw materials for

still no production planning in the industry. In addition, there is still the follow-up process of the gems purchase to assure timely production and production. In case of lacking or insufficient gemstones for production, procurement department will be informed to purchase the raw materials. Production planning department will then set up the production plans, produce the products, and finally transfer the products to the customers. By the way, there are also several entities producing gemstones prior to receipt of purchase orders. This causes readyprocessed gems as goods reserves, which do not meet

Figure 8: Gems industry business process map

4.2.2 IDEFO of Genuine Jewelry Business Process The business process begins from taking purchase orders to products transfer as shown in Figure 9. In the jewelry industry, there is only production follow-up process on account of the great values of the raw materials of pure gold and fine silver; however, there is

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the customers’ requirements. transfer of the products. This part of the business process will be studied on the next step of work follow-up for business process design (Figure 9). Production planning officers after receiving customer data from sales department will enter the data into the company’s database for further checking and filing as selling and designing data. A summary of

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Work Follow-up

A7

Purchasing

Inspected Raw Materials

Storing Raw Materials

Raw Materials

A3 Computer

Finished Ornaments

Products Data

Work Procedure

Officer Work Procedure

Products Data

Raw Materials to Order

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Computer

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Officer Work Procedure

Products Data

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Products Data

Gems Receiving Date

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Raw Materials Status Data

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Products Data Work Status Data

Lists of Products Taking Orders

Machinery

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gems requirement. The goods will be called for with Work Procedure

Products Data

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Work Procedure

the items to be produced will be made for work

Invoice Finished Ornaments

Storing Finished Goods

Finished Ornaments

Transferring Finished Ornaments Computer

Officer

A6

Computer

Officer

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Figure 9: Jewelry industry business process follow-up in each procedure to assure that the products will be timely transferred to the customers. In case of failure to keep the due date of delivery, the company may engage subcontractors to complete the work and also inform the customers of the delay as well as request for the postponement of the due transfer date.

no raw materials call-for plan from production department. Consequently, the information sent to the jewelry industry is not that on the date required by the production department of the jewelry industry (Figure 10). The lack of production planning and Material Requirement Planning (MRP) has affected the industry unable to keep the due date of products transfer.

4.2.3 Business Process Link between the Gems and the Jewelry Industries through Functional Flow

4.3 Business Process Improving

The jewelry industry will communicate with the gems industry by procurement department in jewelry industry communicating with the gems industry via sale department. The work will be followed up by procurement department based on the due date of the

Business Process Re-engineering has been undertaken by setting up production planning activities in the integrated supply chain of the jewelry and the gems industries to originate the information flows of the gems requirements from the jewelry

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4.3.1 Business Process Re-engineering

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industry to the gems industry instigating the gems cutting and transferring in response to requirements of both the jewelry industry and the customers. To-be business process is shown in Figure 11.

4.3.2 Production Planning System Design in the Integrated Supply Chain of the Genuine Gems and Genuine Jewelry Production

planning

system

starts

from

Figure 10: Business processes between the gems and the jewelry industries with no production planning and material require ment planning production planning design process in the genuine

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Figure 11: Business process re-engineering by adding production planning to the integrated supply chain of the industries

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jewelry industry by formulating an aggregate plan, which is a medium-term plan (6 months – 1 year) for productivity arrangement through such policies as over-time working, subcontractors engagement, etc. in accordance with product requirements and categories without classification of product specifics. The completed aggregate plan will then be disaggregated to allow the formulation of the Master Production Scheduling (MPS) in the jewelry industry by putting together all productivity data from the aggregate plan, which contains product details classified according to the jewelry lists. Production in each step, remaining productivities, and the day requiring the gems for studding will be set up. After that, the Material Requirement Planning (MRP), which is the gems purchasing plan for assembling in due course, will be made. The MRP include the products specifics and the

Aggregate planning in the jewelry industry will be used in sections involving skilled workers like tumbling section, jewels studding and hand polishing section. In these sections, various production policies i.e. manpower, overtime working, subcontractors hiring, will be employed. Such policies are to be used as constraints in formulation of the MPS of the sections as aforesaid. As for formulation of the MPS for the processes of setting molding, tumbling, machinepolishing, jewels studding, hand-polishing, and transferring goods to customers, production schedules in each process as well as jewels studding schedules will be fixed to enable the gems requirement planning. Then the MPS in the gems industry will be prepared based on the MRP to assure that the goods will meet the setting jewelry schedule as shown in Figure 13.

dates requiring gems for studding that will be linked to the Master Production Scheduling (MPS) of the gems industry (Figure 12).

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Figure 12: Production planning system in the integrated supply chain of the jewelry and the gems industries

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Figure 13: Production planning system in the jewelry industry related to the gems industry

5. CONCLUSIONS

ACKNOWLEDGMENT

Re-engineering of business process of the integrated sup ply chain in the fine gemstone and the jewelry industries as presented in this paper has been fallen into 3 steps, i.e. Process Framing, Current (As-is) Process Understanding, and (To-be) Process Improving. This paper has also studied the structures of the supply chain of the gems and the jewelry industries. Based on the study of the business processes, it is recommended that production planning be improved to link the information on the gems demand. Such planning will be very important to the efficiency enhancement of the sup ply chain. This concept corresponds with the principle of the supply chain that the information flow must come first before the material flow. The result of the aggregate planning, MPS and MRP activate the flow of accurate and updated information that will not only link both industries together but also effectively respond to the customers’ needs. Finally, this research has also proposed the methodology that may be used for further studies and improvement of business process of other activities in the sup ply chain of the industries as well.

The researchers would like to take this op portunity to express the gratitude to the Office of the Higher Education Commission for their financial support to fulfill this research.

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REFERENCES Clarence G.F. (1998) The Practical Guide to Business Process Reengineering Using IDEF0, Dorset House Publishing, New York. Coyle, J.J., Bardi, E.J. and Langley Jr. C. (2002) The Management of Business Logistics: A Supply Chain th Perspective. 7 ed. Thomson South-Western, USA. Customs Department (2008) Exports Data, Available:www.trf.go.th6. Gemstones and Jewelries Database (2008), Available:http://www.git.or.th/thai/gem_and_jewelry_da tabase/gem_and_jewelry_database_index.htm [24 April 2008]. Hurtubise, S., Olivier, C., and Gharbi, A. (2004) Planning tools for managing the supply chain, Computers & Industrial Engineering, 46, 763-779. Iampuang B. and Somboonwiwat, T. (2004) Rapid Responses in Jewelry and Jewels Industries, The Proceeding of Industrial Engineering Network Conference, 753-760. Khaosa-ad, M. et al. (2002) (Jewels and Jewelrys) Branch Industry Master Plan Preparation Project. Chiengmai University.

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Kumar, S. and Harms, R. (2004) Improving business process for increased operational efficiency: a case study, Journal of Manufacturing Technology Management, 15(7), 667-674. Porter M. E. and Schwab K. (2008) The Global Competitiveness Report 2008-2009, Geneva, Switzerland: World Economic Forum. Sharp A. and MCDermott, P. (2001) Workflow Modeling Tools for Process Improvement and Application Development, Artech House, Boston, London. Somboonwiwat, T. et al. (2008) Logistics and Supply Chain Management in Gemstone and Jewelry Industries Project. Bangkok: Office of the Higher Education Com mission. Sriphanich, N. (2006) Planning and Production Scheduling in Response to Customers’ Requirements Case Study: Jewelry Factories, Master’s Degree of Engineering Science Thesis, Graduates College, King Mongkut’s University of Technology North Bangkok. Waiwanitchkul, N. et al. (2006) Comparative Studies on Thailand’s Competitive Competency on Gems and Jewelry in Global Markets, Bangkok: The Gems and Jewelry Institute of Thailand (Public Organization). Wisner, J.D., Leong, G.K. and Tan, K. (2005) Principles of Supply Chain Management: A Balanced Approach, Thomson South-Western, USA. Wongwaisayawan, G. (2006) Development of supply chain performance evaluation model of gems and jewelry industry in Chiang Mai and Lamphun Provinces. Degree of Engineering Science Thesis, Graduates College, Chiangmai University. AUTHOR BIOGRAPHIES Tuanjai Somboonwiwat is an Assistant Professor in the Industrial Management section, Department of Production Engineering, Faculty of Engineering, King’s Mongkut University of Technology Thonburi, Thailand. She received her M.Eng. in Industrial Engineering from Chulalongkhorn University,Thailand and Ph.D. in Industrial Engineering from Corvallis, Oregon State University, USA. Her research interests include logistics and supply chain management, business process and applications of operations research. Her e-mail address is < [email protected]>. Walailak Atthirawong is an Associate Professor in Department of Applied Statistics, Faculty of Science, King Mongkut’s Institute of Technology Ladkrabang,

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Thailand. She received a Ph.D. in Manufacturing Engineering and Operations Management at the University of Nottingham in 2002. Her teaching and research interests include ap plied operations research, supply chain management, forecasting and location decision. Her email address is < [email protected]>.

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