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Human Capital Development in the ASEAN Logistics Connectivity Togar M. Simatupang Chairman of the Indonesian Society of Logistics (ISL) ASEAN Plus Logistics Connectivity The Thailand International Logistics Fair 2011 Bangkok, 22-24 September 2011

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Overview• Introduction• Objectives• What is logistics?• Working approach – National Logistics System of Indonesia (2008) – The Master Plan for the Acceleration and Expansion of Indonesian Economic Development (2011) – Build ASEAN Logistics Capacity (2007) – Master Plan on ASEAN Connectivity (2010)• Ten Problems with ASEAN’s logistics connectivity development• What are root causes of the identified problems?• Human Capital• Immediate Requirements for Human Capital Development in Logistics• Two Initiatives in Indonesia• Policy Implications 2

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Introduction• ASEAN Connectivity: – People to people connectivity – Physical connectivity – Institutional connectivity• The establishment of free economy in the ASEAN Economic Community in 2015 has driven to increase of trade and Logistics involved.• Increased responsibilities on professional logisticians to participate in the developmental process.• This need gave rise to human capital development to help them in enhancing professionalism. 3

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Objectives1. Provides arguments for why developed human capital is important in ASEAN Logistics Connectivity2. Identifies problems in ASEAN’s human capital development that should be addressed3. Suggests human capital development in logistics should adopt comprehensive programs in achieving professional competence and academic standards (how to catch up the standard level of human capital) 4

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What is Logistics?• Logistics is defined as part of the supply chain process that plans, implements and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers’ requirements (the Council of Logistics Management, 1998)• A supply chain is logistics network of independent actors• Logistics connectivity refers to the needed framework, agreements, action plans and programs and projects to pursue linkages in the flow of products/services (materials), information, money, and trade facilitation. 5

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Working Approach Identification of “National Logistics System” (2008) and Identification of ASEAN Logistics “Master Plan for the Roadmap (2007) and MasterAcceleration and Expansion of Plan on ASEAN ConnectivityIndonesian Economic Growth” (2010) (MP3EI) 2011-2025 Analysis of weak points in ASEAN Connectivity Immediate Requirements for Improvements 6

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National Logistics System of Indonesia Vision 2025: “Locally Integrated, Globally Connected” Source: Blueprint of National Logistics System (2008) 7

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The Master Plan for the Acceleration andExpansion of Indonesian Economic Development Source: MP3EI (2011) 8

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Six Economic Corridors in Indonesia Banda Aceh BIMP-EAGA Medan IMT-GT 4 1 3 Manado Pekanbaru Sofifi Tj. Pinang Pontianak Samarinda Manokwari Padang Palu Gorontalo Jambi Jayapura Palangkaraya Mamuju Sorong Palembang 6 Pkl. Pinang Kendari Ambon Bengkulu Banjarmasin Lampung 2 Makassar Wamena Jakarta Semarang Surabaya 5 Serang Mataram Merauke Jogjakarta Denpasar Kupang Mega Economic Centre Economic Centre Proposed Location Proposed Location SEZ and FTZ Special Economic Zone (SEZ) 1 EC Sumatra 3 EC Borneo 5 EC Bali–Nusa Tenggara 2 EC Java 4 EC Sulawesi 6 EC Papua – Maluku 9Source: MP3EI (2011)

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The Master Plan for the Acceleration andExpansion of Indonesian Economic Development• The aim is to make Indonesia, the 17th largest economy in the world last year, one of the world’s 10 biggest economies by 2025, taking GDP to $4.5 trillion and increasing the per capita income from $3000 now to $15,000.• Strategies: – Economic Potential Development through Economic Corridors – Strengthening the National Connectivity – Strengthening National Human Resources Capability and Science and Technology• Obstacles: – slow bureaucratic processes – conflicting interests in regional government – obstructive regulations – broken promises to investors, and – “unhealthy” political factors Source: MP3EI (2011) 10

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Roadmap for the Integration of Logistics Services• Create an ASEAN single market by 2015 by strengthening ASEAN economic integration through liberalization and facilitation measures in the area of logistics services; and• Support the establishment and enhance the competitiveness of an ASEAN production base through the creation of an integrated ASEAN logistics environment.(Source: Endorsed by 39th AEM, 24 August 2007, Makati City, the Philippines) 11

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Build ASEAN Logistics Capacity (by encouraging human resource development in the sector, and an environment conducive to developing the sector)• Develop and upgrade skills and capacity building through joint trainings and workshops.• Encourage the development of national skills certification system for logistics service providers.• Encourage the development of an ASEAN common core curriculum for logistics management.• Encourage the establishment of national/sub- regional centre of excellence (training centre).(Source: Endorsed by 39th AEM, 24 August 2007, Makati City, the Philippines) 12

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Master Plan on ASEAN Connectivity 13 Source: Master Plan on ASEAN Connectivity (2010)

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Ten Problems with ASEAN’s logistics connectivity development1. Lack of logistics literacy: unproductive use of printed and written information about logistics to develop personal knowledge and potential, to increase productivity, and to make decisions.2. Logistics divide: Logistics Performance Index (LPI) in ASEAN is fragmented.3. Gaps in the stock of human capital in logistics across ASEAN’s countries: years of education, years of training, gender disparity, level of competence, level of salary, and training access and affordability.4. Health, safety, and security problems.5. Environmental degradation including carbon emissions problems.6. Hazardous material handling and toxic waste problems.7. Corruption problems: criminal prosecution for bribing a government contracting officer.8. Unethical and misconduct behavior of logisticians: fraud and embezzlement and financial mismanagement.9. Failure to meet and follow quality standards and procedures.10. Lack of reliable partners who demonstrate integrity and operate on a transparent basis. 14

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What are root causes of the identified problems? Problems Conduct Human Governance Capital System 15

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Human Capital• The stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value (en.wikipedia.org)• The set of skills which an employee acquires on the job, trough training and experience, and which increase that employee’s value in the marketplace (www.investorswords.com)• The knowledge, skills, competencies, and attributes embodied in individuals that facilitate the creation of personal, social, and economic well-being (OECD)• Human capital is composed of the education, skill levels, and problem solving abilities that will enable an individual to be a productive human being 16

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Significance of Human Capital Development (HCD)• HCD is a set of programs that have been done to improve human’s abilities to utilize their potentials for improving their well-being.• Knowledge intensive industries that demand highly skill levels to carry out innovation (product, process, technology, business models).• Characteristics of developed human capital: flexible, adaptable, quick learners, and problem solvers establishes productivity and performance• The education of workforce correlates with their labor productivity and earnings.• Investment (equipping individuals with knowledge and skills that improve their employability and productive capacities) in education and training with the expectation higher benefits will take place in the future. 17

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Constraints on Human Capital Strategy COMMUNITY GOVERNMENT Social BUSINESS ANDAND REGULATORY Responsibility ENTREPRENEURS BODIES Legal Productivity and Compliance Logisticians’ customer value Interfaces Health, Safety, Sustainability Security ECOLOGY CIVICS 18

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Immediate Requirements for Human Capital Development (1)1. Full Recognition of certificates/Degrees Awarded by selected universities/Professional Bodies/Institutes in logistics: – Encourage the development of national skills certification system for logistics service providers. – A framework that will recognize certificates-It will help in standardizing the education pattern all across the region and increasing the highly skilled professionals availability at any point of time.2. Opens up free movement of qualified and skilled professional logisticians: – Work Visas3. Establishment of the Consortium for ASEAN Logistics Education among ASEAN countries that would develop and confirm logistics graduates in ASEAN have the same skills. – Setting the content of the standards and developing the course work or curriculum to meet the standards – Implementing mutual recognition agreement amongst selected universities – Encourage the establishment of national/sub-regional centre of excellence (training centre) – Encourage the development of an ASEAN common core curriculum for logistics management – This would enhance the technical and Professional capability of the Region – Encourage joint review on logistics policies and regulations4. Recognition of the implementation of quality (ISO), safety (HACCP), environmental standards, and security measures related to logistics 19

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Immediate Requirements for Human Capital Development (2)5. Building broad based community support for academic and professional standards – Collaborating between business, third party logistics, government agencies, scholars, logisticians, and universities. – Encouraging investments in logistics – Sharing best practices6. Joint training and workshops: Personnel working in Logistics operations need to be trained as well as advance their skills – Develop and upgrade skills and capacity building – Invest in constant training of upper management, middle management, labor force – Priorities: maritime handling cargo, storage and warehouse service, custom clearance service7. Open innovation: Competitive funding for logistics innovation – Decreasing logistics costs – Increasing customer service levels – Choosing applications of high technology – Getting information for recent automations – Multinational approach, customer orientation, and standardization of product codes – Establishment of inter-industry commerce standards – The necessity of standardizing the ASEAN warehouses – Synchronizing warehousing facilities8. The implementation of a code of professional ethics for logisticians 20

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A Proposed Framework of ASEAN Human Capital Development for Logisticians Product/Service Relationship Image PerformanceHuman Capital Capabilities: (1) Logistics and supply chain processes, (2) Customer service processes, (3) Innovation processes (R&D, design, optimization), (4) Regulatory and social processes (environment, safety and health, community) Human Capital Development: (1) recognition of certificates and degrees, (2) freemovement of qualified logisticians, (3) ASEAN Consortium for logistics education, (4) standardization, (5) broad based community support, (6) Joint training and 21 workshops, (7) open innovation, and (8) code of ethics for logisticians

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Examples: two initiatives at national level1. The Indonesian Society of Logistics (ISL)2. Indonesia Logistics Community Service (ILCS) 22

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The Indonesian Society of Logistics (ISL) or Masyarakat Logistik Indonesia (MLI)3 Mission of ISL 1. Contributing Ideas EDUCATING AND ADVOCATING DISCUSSION AND DIALOGUE Progress of Logistics 2. Enhancing 3. Promoting Competence collaboration PROBLEM SOLVING AND INNOVATION 23

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The Indonesian Logistics Community Services (ILCS)• Logistics cost in Indonesia is almost 30% of product cost and at the macro level is 24% of GDP.• The signing of a memorandum of understanding (MoU) by 16 state-owned companies on 15 September 2011 to establish a joint venture to operate the ILCS: PT Pelindo II, PT Telkom Tbk, PT Pelindo I, PT Pelindo III, PT Pelindo IV, PT KAI, PT ASDP Indonesia Ferry, PT Pupuk Sriwidjaya, PT Pos Indonesia, PT Kawasan Berikat Indonesia, PT Angkasa Pura I, PT Angkasa Pura II, PT Semen Gresik, PT Varuna Tirta Prakasya, PT Bhanda Ghara Reksa, and Perum Bulog.• The aim is to form an integrated logistics system in the country and to help improve national connectivity through the use of more reliable transportation technology - especially ships and the use of the latest ICT to support cargo traffic management.• ILCS is expected to be ready to begin operations in June of 2012. 24

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Policy Implications1. ASEAN should promote the habits of logistics collaboration:  The collaboration amongst supply chain members (industrial and 3rd party logistics providers, transport and warehouse companies) is required to apply advanced tools which lead to less logistics costs and better customer service.  Information hub to provide new tools and methodologies for performance improvement and share benchmarking results.  Awards for best practice companies in logistics and supply chain management.2. Dealing with logistics problems faced by the ASEAN members require immediate programs of Human Capital Development, namely: (1) recognition of certificates and degrees, (2) free movement of qualified logisticians, (3) ASEAN Consortium for Logistics Education, (4) standardization, (5) broad based community support, (6) Joint training and workshops, (7) open innovation, and (8) code of ethics for logisticians.3. The progress of logistician development in ASEAN is evolving slowly and needs an acceleration process through a dynamic forum of communication and know how development amongst representatives to provide guidance on the programs to be carried out before 2015. 25

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Kob Khun KrapAKNOWLEDMENTSThe author is also a Professor of Operations and Supply Chain Management at the Schoolof Business and Management in Bandung Institute of Technology Indonesia. He wouldlike to thank Khairul Rizal, R. Budi Setiawan, and Setijadi for their invaluable comments.The author also would like to express his appreciation to Khaekhai Arunee for her advice 26in preparing this presentation.