(Illustrated by Randy Dwicaksana)
Driving Innovation and Digital Transformation in Indonesia’s Logistics Sector
BY :ANDREE SUSANTO
JANUARY 20, 2021
Indonesia’s logistics sector is facing an era of unprecedented change. Earlier in the year, the world saw how Covid-19 induced lockdowns had impacted transport operations, leading to the disruption of supply chains and trade flows. However, the silver lining is that the pandemic has also served as a catalyst for much needed innovation in the industry.
Unsurprisingly, Covid has created shifts in consumer behavior. Many physical stores were forced to close, causing people to flock online to buy their daily necessities. Indonesia’s e-commerce boom is only just beginning, and the habits developed during the pandemic will increasingly become entrenched as the ‘new normal’ for consumers going forward.
The sudden growth of the e-commerce market has added pressure on the already strained supply chain.This has highlighted existing challenges in the logistics ecosystem, such as poor infrastructure, a lack of reliable technology, and limited communication networks.
Consequently, industry players have been forced to look at reconfiguring their supply chains and accelerating their digital transformation. Many companies have already begun to adopt technologies which enable the fulfillment of orders within a shorter time, and at lower costs, to meet the rising customer demand.
As the industry aims for recovery and growth post-Covid, technology will increasingly play a major role. It will enable all stakeholders, including shippers, transporters, warehouse owners and vendors, to become more efficient in responding to changing market realities.
Although logistics is the heart of domestic and international trade, uncertainty remains a huge problem in Indonesia’s supply chain. This problem is exacerbated by the country’s unique archipelagic makeup of 17,000 islands, which means goods cannot be transported using trucks on land alone. A multimodal system, using land and sea transport as well as warehouses, is needed to reach remote areas of each island.
As a result, Indonesia has the highest logistics costs in Asia, accounting for nearly one-quarter (24 percent) of the country’s Gross Domestic Product (GDP). This is in contrast to developed economies, where it is below 5 percent.
The industry is also fragmented, with a lack of transparency and real time information. 80 percent of trucks are owned by small and mid-sized industry players, while 90 percent of orders and matching are done offline. Furthermore, 80 percent of deliveries are done manually, with slow verification and lack of instructions. Contracts are usually handwritten; communication is done through ad hoc channels such as WhatsApp, and sometimes drivers only receive payment months after they complete a delivery.
The end result is chaotic, and resulting in the inefficient utilization of resources such as trucks and warehouses, and long waiting times for drivers.
These problems are not new, but the pandemic has created urgency for both existing players and new entrants to develop and implement solutions that drive efficiency and lower costs for the industry.
We see technology as a means to eliminate uncertainty in the supply chain. By using technology to match demand and supply through a curated marketplace platform, shippers and businesses can be easily connected to readily available warehouses and trucks.
The idea of a curated platform is especially important in improving the efficiency of the supply chain, as it matches shippers and businesses based on their needs and existing capabilities. This is in contrast to an open marketplace, where matching is generally done based on prices, without considering the various parties’ business processes and different transportation requirements.
The benefits of such technologies are numerous. Platforms and solutions such as mobile apps can help businesses to improve data management, monitoring and communication. This leads to lower and more predictable supply chain costs, as businesses no longer need to invest in their own infrastructure across various islands. Instead, they can draw on economies of scale by using existing warehouse networks for the consolidation or deconsolidation of goods, ensuring flexibility and faster access to markets.
The use of technology also offers businesses the ability to track their inventories, helping to reduce uncertainty in their operations as they no longer need to unnecessarily stock up on goods.
For transporters and their drivers, technology has led to reduced verification time and better processes. This has in turn improved truck utilisation, created more jobs, and improved the income of drivers.
Logistics technology has been touted to be the next emerging sector in Indonesia’s quest to develop its digital economy. The Ministry of Industry has continually called for the digital transformation of the supply chain and logistic sectors as part of its ‘Making Indonesia 4.0’ roadmap. Some of the technologies highlighted by the ministry include the‘Internet of Things’, IT standards, data analytics, cloud, blockchain, robotics, and automation.
In September this year, the government announced the National Logistics Ecosystem (NLE) reform plan, which aims to cut logistics costs to 17 percent of GDP. Through this initiative, it is hoped that logistics costs and price disparities will be lower due to the integration of digital platforms across the government andprivate sectors. We are optimistic about the prospects of the NLE plan and have already registered as a logistics business player.
Logistics businesses should be supportive of the government’s plans to create a safe, reliable and efficient logistics sector to drive economic development in Indonesia. By adopting the right tools at the right time, we see technology as a means to create value for all industry stakeholders.
Andree Susanto is the CEO and Co-Founder of logistics technology platform Waresix.