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Playing catch up

Burrell
Burrell

By: Staff Journalist, Singapore
Published: Mar 12, 2010
TRANSPORT    LOGISTICS

Indonesia - The supply chain industry in Indonesia is rapidly developing, but there are still many challenges standing in the way of it achieving the standards its neighbours enjoy, says Kevin Burrell, president director of CEVA Logistics in Indonesia. We find out exactly what it’s like to operate your supply chain in the land with over 17,000 islands in this Q&A.

Where does the Indonesian supply chain industry stand compared to the rest of Asia?

If you look at the supply chain of Indonesia, it’s actually a rapidly developing supply chain. It’s come from so far behind some of the more modern logistics and supply chain countries like China, Thailand, Singapore and Malaysia.

It’s fair to say that if you take a look at some of the components of the industry, some of the infrastructural aspects have key challenges to them. Road infrastructure is and will continue to be a key challenge in Indonesia in that the road infrastructure is developed for a volume of traffic that is far lower than it is currently operating. And because of that the knock on effects on logistics and transportation and the congestion levels can be quite a challenge.

How has congested roads affected supply chains in Indonesia?

Because of the relative uncertainty in the ability to move products from one location to another location in an efficient manner, there has been the need to put in buffer inventory in and around Indonesia.

If you look at large corporations, some of them have as many as 80-90 warehouses that sit throughout the number of the islands in Indonesia. Primarily because they need to have that supply certainty.

Higher inventory levels means you can operate more efficient transportation networks, so you can move larger volumes of goods into the warehouse networks, but it does increase supply chain costs.

Interestingly however, there is still a focus around logistics costs as opposed to supply chain costs in Indonesia. The more developed companies or conglomerates have a very good understanding of supply chain costs and inventory costs, how that affects the balancesheet of an organization and how they should address that by looking at the most efficient overall supply chain; but there still tends to be a focus on logistics costs and inventory separately in Indonesia.

There is a move to understand true supply chain cost, but it certainly isn’t all the way there yet.

What has been done to ease congestion on the roads?

The Indonesian government has provided fuel subsidy to a number of the transport operators and the mass populace, but the fuel subsidy has a knock on effect on the logistics industry in Indonesia.

Whilst it enables relatively low-cost transport, it also resulted, unfortunately, in more old vehicles that have very poor maintenance being used for transport because of the fact that old vehicles are capable to be operated at very low cost. This then affects the quality driven through the logistics industry.

Another problem is rail: The rail has been developed and will continue to be developed but it still provides relatively poor service in comparison to road in relation to the transit time. At the moment, it still isn’t a good cost alternative. Again, the suggestion is if the fuel subsidy is removed, it may actually provide a good alternative to road.

Apart from transportation, what are some of the key challenges for supply chains operating in Indonesia today?

One of it is communications. The ability to provide a logistics or supply chain process in Indonesia is limited by the ability to communicate. For example, organisations like ourselves tend to enjoy the benefits of including regional data centres so that we can leverage the scale of our total network into a systems portfolio which we can then [drill] down into the country.

Indonesia has certain challenges in that regard because of the fact that the local communications network sometimes fails. We would, for example, probably need to put in four or five backup lines to ensure that we provide that level of communication capability to ensure our services are truly provided.

A second challenge is the lack of having good second tier suppliers providing good quality warehousing and at the moment, sad to say, a number of international players that provide this global warehousing across the world actually aren’t present here.

We currently have to deal with a number of local landlords, which isn’t a major concern, but we do not have the international standards developed by those large-scale international companies. In this case, the availability to provide good quality warehousing doesn’t really exist and our approach is that we have to go and build warehouses to our specification instead of working with good international providers or local providers who can provide that type of quality of services.

Finally, supply chains are driven by the quality of the people that operate within those industries. And it’s fair to say that if you look at the Indonesian education system, there has been a lack of focus around the supply chain industry.

This is a problem that happens everywhere but if you look at the Singapore and Australia government, they’ve done some work on it. In Indonesia, this is starting to happen and some universities here are starting to offer those types of courses, but because it’s only happened over the past three or four years, it will take time for us to get good talent that’s also experienced.

I was to be honest, that is going to be the greatest driver of logistics and supply chain changes in this country over the coming years. As education levels in this area grow and you see people coming into Indonesia with the capability to deliver it across the entirety of the workforce, you’ll see a significant benefit in the way logistics and supply chains are operated here.

Companies featured:

  • CEVA Logistics

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