Supply Chain Indonesia: The Challenges
Nova Ulaila Dewi, Marketing Assistant Manager, PT SystemEver, Indonesia
Despite a slight decrease in car sales, Indonesia still has a higher car ownership rate compared to neighboring countries like Singapore, the Philippines, and Vietnam. This highlights the importance of the automotive sector in supporting Indonesia’s manufacturing industry and national economy. The free trade agreement with Australia has opened new opportunities, allowing Indonesian automotive products to enter the Australian market and benefit from import tax reliefs. Indonesia aims to produce 600,000 electric vehicles by 2030, a significant increase from the modest sales in early 2023, showing its commitment to the global automotive market.
The COVID-19 pandemic significantly impacted the automotive industry, causing economic instability and affecting demand and sales. It also exposed the vulnerability of supply chains, which involve suppliers, manufacturers, shipping, warehousing, and customers. Disruptions like lockdowns highlighted the need for resilient supply chain systems. Supply Chain Resilience (SCR) is essential for the industry to withstand and recover from such disruptions. For Indonesia’s automotive sector, enhancing SCR capabilities is crucial for strengthening the supply chain and ensuring its robustness against future challenges.
As we know Supply Chain Resilience (SCR) is vital for addressing the challenge of Supply Chain in Indonesia. SCR refers to the ability of a supply chain to survive, adapt, and overcome operational disruptions, ultimately recovering quickly and emerging stronger. To achieve this, it is crucial for the Indonesian automotive industry to identify and quantify the capabilities that enhance SCR. This involves evaluating factors such as flexibility, efficiency, anticipation, recovery, collaboration, and organization.
But how can a company build an effective SCR?
The answer is by implementing effective SCM. Effective SCM is foundational to building SCR. A well-managed supply chain that is optimized for efficiency, visibility, and flexibility provides the groundwork for resilience. Efficient SCM practices help streamline operations, reduce redundancies, and ensure smooth flow of materials, all of which contribute to a more resilient supply chain.
Supply Chain Indonesia Overview
Supply chains in Indonesia’s industrial sector face complex dynamics amid economic growth and global changes. These challenges include limited infrastructure, complex regulations, and the need to adapt to new technologies. However, within these difficulties lie significant opportunities for transformation to optimize supply chains and support sustainable industrial growth.
Challenges in the Supply Chain
- Limited Infrastructure: Transportation and logistics infrastructure in Indonesia are far from optimal, with limited access to modern ports and adequate road networks. This results in delays in goods delivery and increased operational costs for companies.
- Complex Regulations: Uncertainty in licensing and tax regulations often hampers business operations. Lengthy and uncoordinated bureaucratic processes impede overall supply chain efficiency.
- Limited Technology Adoption: Despite advancements in digitalization, many companies lag in adopting technologies to effectively manage supply chains. Insufficient investment in integrated management information systems (ERP) and other technological solutions hinders efficiency and visibility in the supply chain.
Opportunities for Improvement
- Infrastructure Investment: Increased investment in transportation infrastructure, such as developing modern ports and expanding road networks, will enhance interregional connectivity and reduce logistics costs. This will facilitate more efficient and timely distribution of goods.
- Regulatory Harmonization: The government needs to undertake reforms to simplify licensing processes and reduce bureaucratic barriers to business growth. Coordination between central and regional governments in regulatory implementation is crucial to creating a more business-friendly and stable environment.
- Digitalization and Technology Integration: Companies need to increase investment in digitalizing their supply chains, including adopting ERP systems and integrated inventory management platforms. This will improve transparency, accelerate responsiveness to market demand, and optimize inventory.
- Industry-Government Collaboration: Collaborative initiatives between industry and government to develop industry standards, workforce training, and facilitate technological innovation will strengthen Indonesia’s global competitiveness. Supporting startups and young entrepreneurs in leveraging new technologies is also crucial to driving innovation in the supply chain.
In conclusion, overcoming the challenges faced by the supply chain in Indonesia involves addressing infrastructure limitations, simplifying regulations, adopting advanced technologies, and fostering collaboration between industry and government. By focusing on these areas, Indonesia can optimize its supply chains, support sustainable industrial growth, and enhance its position in the global market.
SCM in Indonesia Study Case
One of our customer is a leading manufacturer specializing in automotive lamps for various vehicle categories, faces several complex supply chain challenges. These challenges include managing disruptions in raw material supply, addressing demand fluctuations, ensuring quality control, and optimizing distribution processes. To mitigate these issues, they has adopted SystemEver Manufacturing, which helps reduce dependency on single sources and spreads the risk associated with raw material shortages and enabling better alignment of inventory levels with market needs and reducing the risk of overstocking or stockouts.
Our client sources various spare parts, assembles components, and ensures finished products meet high-quality standards. To prevent production delays, they maintain a diverse supplier base and use strong inventory management to keep essential parts in stock. They focus on quality control and standardize procedures to ensure each automotive lamp meets the required specifications.
Operator and Equipment Management:
In their assembly lines, our client prioritizes well-trained operators who understand the equipment and components. They provide detailed installation standards and training on tool usage, including precise torque settings. This emphasis on operator skills ensures high-quality and consistent lamp assembly.
Availability of Production Parts:
Our client manages a wide range of spare parts for different vehicle models. To ensure these parts are always available, they use advanced logistics, demand forecasting, and an ERP system. This system helps them accurately predict demand, coordinate with suppliers, and manage inventory, reducing the risk of supply chain disruptions.
By implementing SystemEver Manufacturing, our client has significantly improved visibility and coordination across its supply chain. The ERP system facilitates real-time monitoring of inventory levels, supplier performance, and production schedules, allowing for more informed decision-making and quicker response to potential issues. These improvements have led to greater operational efficiency, reduced costs, and higher customer satisfaction, demonstrating the effectiveness and comprehensive supply chain management and resilience strategies.
