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Indonesia: Supply Chain inefficiency is a business threat.… but a competitive advantage for those who lift their game.

The issue:

Indonesian manufacturers know that supply chain performance undermines growth. They just don’t have a solution for it!

Increasingly recognized as one of the world’s high potential markets, Indonesia continues to suffer from one of the world’s highest logistics cost – estimated to be as high as 27% of GDP (World Bank, “State of Logistics in Indonesia” 2013).

Worse still, most manufacturers fail to achieve product availability of even 80% at distributors who serve the General Trade – fundamentally undermining both the brand and growth.

But it’s not all bad news!

Our contention, developed over 15 continuous years working in Indonesia, is that the inefficiency of the current environment creates an opportunity for individual businesses to gain serious competitive advantage through supply chain transformation.

A leading Indonesian beverage producer overcame erratic product availability through upgrading performance in two key areas:
  • Introducing preventative maintenance on their production lines to maintain a stable supply
  • Automating demand planning that integrated factory off-take by time-slotting collection vehicles

The combined impact massively reduced ‘noise’, freeing up the production and logistics teams to focus on maximizing daily throughput and lifting product availability – growing sales by 30% over a 15 month period.

Unexpected benefits included a massive improvement in the work environment, improving staff morale and germinating a ‘can-do’ attitude amongst staff.

Once the solution becomes apparent, most Indonesian based companies display an eagerness to grasp such opportunities.  The best Indonesian managers are acutely aware of how supply chain underperformance is constraining their growth potential.  They understand that they are missing revenue because they can’t cost-effectively place their products within reach of more consumers.

The key phrase in that last paragraph is, “Once the solution becomes apparent”.

Most businesses have solutions available to them.  They just don’t see them because they are hidden by two factors:

1. The breadth and complexity of the supply chain

Supply chain development, by its nature, crosses departmental and company lines, involving many stakeholders with potentially conflicting interests.  Many of the obstacles to an efficient supply chain appear to be beyond their control.

Extracts from a 2016 RFQ for transport services:

  • “ Loading at the central warehouse will be completed within 1 hour for small vehicles, 2 hours for large vehicles.”
  • “Unloading at distributor sites will take place within 24 hours of arrival”
  • “Transporters should indicate whether they expect compensation if and when unloading takes more than 24 hours”

The extracts above demonstrate the challenge of driving down transport costs when you are unable to reassure the transporter that his vehicle will not waste time and money, waiting idly for goods unloading to complete.  Furthermore, how can we expect transporters to invest in better vehicles when they are going to be used as ‘overflow storage’ by distributors who aren’t even direct customers?

2. The absence of the right people

Continuous restructuring and cost-cutting to improve profits has become the norm, but it has also starved organizations of people with the skill, breadth of experience and bandwidth to identify opportunities, design solutions and execute the change.

Experience has shown that even when solutions are identified, execution is more likely to fail than to succeed. Driving change is always hard, but in Indonesia we see this amplified by a cultural unwillingness to push one’s peers to change, risking friction amongst the people you share the workplace with.

One of our Indonesian clients possessed one of the best data analysts we ever worked with. He had a magical ability to turn raw data into meaningful information laid out for easy comprehension.
The drawback was, once he had completed these tabular masterpieces, he would only pass them to us under duress. When pushed on this he admitted that he loved creating such materials, but he felt dismay if the output might result in any pressure on his colleagues. So, it was easier for him to hide the results away and hope that the consultants would forget what they’ve asked for.

The solution?

Naturally, consultants will present themselves as being the source of the solution. In this instance, it’s actually true.

Transformational opportunities that will deliver competitive advantage are available to most medium-large manufacturing companies operating in Indonesia.

The Big Wins are usually:

  • Reliable product availability
  • Deeper market penetration
  • Reduced pipeline inventory
  • Enhanced visibility, analysis and control
  • Increased stakeholder accountabilities
  • Achieving the above at the same (or lower) overall logistics cost

The key questions remains: “How to make the solution apparent?”

We have a demonstrable track record in unearthing opportunities, developing practical solutions and then effective execution.  No single individual can bring the required breadth, so we deploy a team that covers the range of disciplines required:

  • The Indonesian business environment
  • Manufacturer operations
  • Distributor operations
  • Logistics and transport service providers
  • Inventory, forecasting & planning
  • Network optimization
  • Transport development
  • Supply chain enabling software
  • Project management
  • Change management
  • Team dynamics and enrolment

We are unique in bringing all of the above to the table, but it does not need to be a big investment in consulting resources.  We’ve previously been able to offer solutions that require zero investment but still, deliver the six Big Wins above.

Talking costs nothing, so please connect with our Indonesian team.

John Talbot
Email: john.talbot@lca.asia
Phone: +62 811 110 0965
Anwar Tedjamulja
Email: anwar.tedjamulja@lca.asia
Phone: +62 811 110 785

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