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When renovating spaces in Jakarta, always be aware of the flood season risks!

Despite the onset of banality of the term ‘world class’ (which, in Southeast Asia, seems to signify that something functions adequately without posing gross health and financial risks) my team and I sought to reinvigorate the term when setting up an ecommerce warehouse in Indonesia. What ‘world class’ meant for us was to design an ecommerce warehouse that could sustainably handle a 200% uptake in order growth. Our hot startup ecommerce client has been enjoying an intense surge of ecommerce success and needed long-term scalability, fast and not rely on sloppy patch-work processes typical of fast-growing startups everywhere.

When setting up an ecommerce warehouse in Indonesia, the targets were the following:

  1. Exceed our competitors in terms of magnitude (400+ employees)
  2. Scalability (operational capacity triple initial capacity)
  3. Innovation (semi-automated conveyor system and technology)
  4.  Customer experience (detailed project updates and account management).

With my seven years of solution design and project management experience with notable German global logistics providers, my obsession with efficiency and quality (not only a German stereotype) and a scrappy and clever team, I didn’t think it was out of our reach. But by no means would it be easy.

Our learnings for industrial engineers & logistics PMs in emerging market ecommerce

My advice to young solution designers, industrial engineers or logistics project managers in the ecommerce market, the devil is in the details –critical information gathering is what differentiates one solution designer from the other. A successful implementation depends primarily on the level of details the solution entails.

Here is a recap of our trials and tribulations to setting up said world class fulfillment center in Indonesia.  While not totally comprehensive, you will learn about the key considerations and parameters in crafting or implementing your next ecommerce fulfillment solution or project.

So what was in store for us? First we had to build a complete new warehouse, redesign all existing processes and hire manpower, all within a six months’ timeframe. The challenge was not just in pure size of the project but the tight deadline we were working within.

1.Sizing up the problem – order volume projections

The first thing we did was get our Solutions Design Team assembled to start analyzing historical data against projected volumes. Using detailed solution templates and tools, we submitted a proposal simulating the required warehouse space, storage solution, resource requirement and process maps for the operation.

The expected growth calls for a warehouse design that meets both storage-picking optimization and long term scalability requirements. The projected sharp increase in handling volumes also meant that we had to reassess the current technology and operational processes that could no longer support the projected growth in transactional volume.

2. Choosing the right warehouse & location

There weren’t many options from a real estate perspective as we needed to find a ready space of approximately 7,000 sqm in the heart of Jakarta within two weeks. Fortunately for us, there was an old carpet manufacturing factory in Cawang (East Jakarta) that was winding up and looking to rent out the space immediately.

It was the perfect site based on its location, size, availability and price; it even had a mezzanine floor which could be transformed into offices for our client.

setting up an ecommerce warehouse in Indonesia

Interior of the factory.

3. Redesigning the space to be ecommerce optimized

However, it being a factory, the specifications of the building structure were not meeting our initial warehouse design. Some key areas that we needed to fix asap included the low height of the factory, damaged flooring, excessive interior configurations, poor network and electrical systems etc. The factory was also positioned on a lower ground right next to a river bend making it highly vulnerable for floods.

Often mistaken, the key criteria in designing an optimized storage solution lies in the pick profile of the operation instead of its inventory profile.  

The solutions team started plotting the space requirements based on the blueprint of the factory. The proposed design included a 2500sqm 4 level mezzanine storage structure equipped with 2 cargo lifts, a semi-automated conveyor system, an office space to accommodate up to 150 office staff as well as a state-of-the-art studio room for photoshoot.

The proposal also highlighted the required renovation to the original state of the factory such as roof elevation and demolition of existing columns and rooms.

setting up an ecommerce warehouse in Indonesia

Before beginning, we developed layout design and work flow simulation.

The main focus for the warehouse setup was the roof elevation since nothing can be done until the roof is up. Unfortunately, a considerable amount of waiting time was invested to governmental approval and regulatory certification. The actual roof reconstruction works were then impeded by rain- each time it rained the project paused and when the rain stopped, had to wait for drainage drills to kick in before continuing the construction.

4. Selecting the contractors & sticking to timelines

With the approval from the customer, we proceeded to seek quotations from warehouse vendors. The vendor management process included our assessment and recommendation based on the solution designed as well as the customer’s budget. After almost a month of negotiations, three vendors were selected to participate in 8 key areas of this mega build out.

setting up an ecommerce warehouse in Indonesia

Warehouse setup deliverables

With the sign off on the overall solution, proposal and investment budget, the project implementation timeline started. All in all, we had 3 months to transform the old factory into a “world class” facility. As most activities were interdependent; for example, activities within the factory needed to hold up until the roof elevation was completed, the mezzanine buildout could only start after the required floor repair and site demolition were completed – timeline management was particularly challenging.  

Once the project timeline was set, weekly meetings were held with all vendors as well as key project stakeholders to make sure the timelines were met and that all potential risks raised were mitigated.  

Fortunately, it didn’t rain much during the construction phase and the skeleton of the warehouse was completed on schedule.

setting up an ecommerce warehouse in Indonesia

Before and after the roof construction. This was one of the toughest parts due to weather.

5. Building the inside

The setup proceeded with parallel work on mezzanine installation, workstation setup, office buildout, roadworks and electrical setup. It was a good learning experience for the team as we participated in electrical distribution layout design, network cabling blueprints as well as water reservation and supply including the number of toilets required.

Just when we thought the rain could no longer serve as a threat to the project, a heavy downpour in the middle of the night coupled with a broken dam leading to the river resulted in a flood in the warehouse through the overflowing reservoir at the back of the warehouse.

setting up an ecommerce warehouse in Indonesia - jakarta floods

When renovating spaces in Jakarta, always be aware of the flood season risks!

6. How we dealt with the Jakarta floods

This led to an additional project milestone on enhancing flood preventive measures. Corrective action plans were immediately put in place. A response team was formed to drain the water out of the warehouse – sandbags and temporary floodgates were installed in preparation for the next heavy down pour while deliverable items such as enlarging reservoirs, renovating the walls as well as installing additional drainage facilities were carried out in phases.

Fortunately, no assets were damaged during the process but the overall timeline definitely took a hit; since then, a rain-phobia was developed throughout the project.

Other challenges such as the overall safety of the mezzanine as well as the levelness of the conveyor led to several assessments and trial and error to achieve the most optimal setup for the operations. By mid May, the warehouse was completed.

setting up an ecommerce warehouse in Indonesia

Cawang fulfillment center completed.

7. Operating the warehouse – hiring the manpower

Using productivity numbers collected from existing process cycle timings and calculated assumptions made on new operation processes, we simulated how many people we would need to handle the projected volumes.

The resource modelling tool allowed us to define clearly the number of manpower required by positions, functional roles as well as shifts – making it easy for hiring. The challenge however was to have all 408 headcounts qualified, interviewed and hired on time for training, migration as well as Go live.

We overcame this by engaging with local established headhunting firms and manpower agencies and successfully hired 80% of the required manpower with the outstanding positions filled out by the existing team to add experience and stability to the run operation. Unfortunately, the hiring process was not all straightforward, replacement or rehiring processes was an ongoing procedure due to natural attrition and absentees.

It is important to note that an influential warehouse manager is the key to staff retention. An effective warehouse manager creates strong family-like bonds within the team, develops a team of trusted leaders and is respected by all.

Two key responsibilities of a warehouse manager are 1) Ensuring the team’s commitment towards go live and 2) Sustain operation excellence after Go live.

8. Training & knowledge transfer to local management

There will come a stage in the project where the project manager will start transferring ownership and controls to the warehouse manager. The warehouse manager will take over on training deliverables, shift planning and overall discipline of the team.

The team sat down to plan out the rotational training schedules and deliverables targeting to get all 408 employees ready for the launch- Go live. The topics covered product knowledge, system processes as well as hands on operations in the existing and new warehouse. Each employee was assessed on what the topics covered at the end of each day to ensure that we have everyone in sync before we moved forward.

Workstations readiness and network connectivity were stress tested during the User Acceptance Test (UAT) exercise to ensure all potential risk were managed prior to go live. To curb with the intensive operational requirement, we had installed a backup line for network as well as power distribution.

The last week of training was held in the new warehouse where dummy orders were created to simulate end to end operational process in the new warehouse. There, situational tests were created to assess the employees’ response and rectification initiative.

9. Migration challenges & Jakarta’s travel ban

The lead-time given for migration from old to new location was five days.  Using the same solution templates and tools, we were able to define the targeted letdown and the number of trips required per day. These targets were translated to the team to ensure we stay on track for each day.

The main challenge during migration was the travel ban that only allows vehicle movements after 9pm. As such, coordination between the operations and transport team were crucial to ensure we optimize the letdown and loading process effectively before the travel ban is lifted.  

Other considerations such as inventory accuracy, quality assurance and system management were key to the successful migration. All in all, approximately 1.4 million units over 90 trips were transferred.   

Setting up an ecommerce warehouse in Indonesia

Migration process of 1.4 million items to the completed center

While there is no perfect project where all factors can be foreseen when setting up an ecommerce warehouse in Indonesia; experience and dedication are what minimizes that inadequacy and in order to get there, it takes no less than pure focus, passion, structure, top management commitment and hard work and maybe some luck with mother nature.

By Mitch Bittermann, Group CLO and Kenneth Thean, Regional Director of Solution Design at aCommerce

 

jeff-bezos, Amazon Quietly Eliminates List Prices

Jeff Bezoa, Founder and CEO of Amazon, Source: businessinsider.com.au

In a major shift for online commerce, Amazon has quietly dropped any mention of a list price, changing how it entices people to buy. There is just one price. Take it or leave it.

The retailer built a reputation and hit $100 billion in annual revenue by offering deals. The first thing a potential customer saw was a bargain: how much an item was reduced from its list price.

For example, Amazon originally promoted the Rave Turbo Chute as being discounted by 36%. Then, all mention of a discount was dropped and the 60-foot water slide was simply listed at $1,573.58, with an explanation that it used to be $1,573.59 — one penny more. Then, it dropped the old/new price comparison. Then, it dropped the price to $1,532.01 and put the comparison back.

Larry Compeau, a Clarkson University professor of consumer studies, comments

“When Amazon began 21 years ago, the strategy was to lose on every sale but make it up on volume. It was building for the future, and the future has arrived. Amazon doesn’t have to seduce customers with a deal because they’re going to buy anyway.”

That is why stores love big discounts: they work. In studies by Mr. Compeau and others, the perception of a deal is often what makes the purchase happen.

Big brands slapped with fake-discount suits

J.Crew, Macy’s have been slapped with law suits for displaying bargains online and offline that are not real bargains and are breeding “fake-discounts suits”, much of it using a tough California law against deceptive advertising. Amazon itself was the target of a fake-discounts suit — an unexpected development, because all Amazon customers agree to go to arbitration instead of court. A judge dismissed the complaint but the plaintiffs are now appealing, saying the arbitration clause is “unconscionable” and should be invalidated. Amazon declined to comment on the suit.

In Amazon’s third decade, with its complete domination of the ecommerce landscape, there are signs it is beginning to emphasize the value each customer brings. Amazon also appears to have stepped up its monitoring of a vendor system that allowed some sellers to insert data that listed their products as 99% or even 100% off.

Mr. Kovarik of Rout said his analysis indicated that Amazon was regularly eliminating more list prices. “In early May, about 29% of the products we saw were missing list prices, but now the number is up to about 70%,” he said.

As Amazon prepares to enter Indonesia, it is vital the ecommerce behemoth takes the necessary steps to sway Southeast Asian shoppers who have recorded one of the lowest interpersonal trust indexes in the world.

A version of this appeared in New York Times on June 29. Read the full article here.

Indonesia's manufacturing employment hits record

Source: BBC

Employment growth in Indonesia’s manufacturing industry hit a record high in June according to Nikkei Indonesia Manufacturing purchasing managers’ index survey. Companies scaled up to match higher order books caused by the shifting of global Manufacturing landscape beyond BRIC to other emerging countries, including Indonesia and the rest of ASEAN members reports the latest DHL research.

The PMI — a composite of manufacturing output, new orders, exports and employment measures — increased to 51.9 in June, compared to 50.6 a month earlier.

The rate of increase in new orders and output both reached a 23 month high. Output growth resumed in June after suffering from stagnation a month earlier as the improving domestic demand matched the slower decrease of new orders from abroad.

Both pre-and post-production inventories also increased in the period, while the manufacturing employment rose to the fourth successive months in June — the sharpest pace on record since 2011. The survey-record rise suggests that businesses expect the upturn in incoming new work to be sustained as we move to the second half of the year.

Indonesia's manufacturing employment hits record

“A stronger increase in costs combined with better demand conditions is likely to lead goods producers to further increase their own charges in the near term,” Pollyanna De Lima, an economist at Markit, said in a note.

The country’s global share of manufacturing has remained at around 0.6 percent over the last 15 years. “Now is a critical moment for Indonesia to implement further reforms that will enhance the competitiveness of its manufacturing and services sectors, especially tourism.” said Ndiame Diop, the World Bank’s Lead Economist for Indonesia.

A version of this appeared in Jakarta Globe on July 1. Read the full article here

Chinese-investors-eye-Indonesia

There are several factors drawing Chinese investors to look into the Indonesian market, e27 reported at the Convergence Ventures event.

Multi-Racial Background

According to Horizon-China & Feimalv Capital Founder Victor Yuan Yuan, Indonesia’s multiracial background makes it easier for foreign investors to bridge-the-gap between their own culture and that of locals. The country also has a “stronger Chinese connection” compared to other emerging markets. He also saw some similarities between Indonesian and Chinese technopreneurs.

Younger Demographics 

“The big innovation is done by people who are even younger [than most Asian markets]. If I look at the average age of innovators [in Indonesia] are younger than in China, so it’s even more promising,” Yuan said. When it comes to focus, Yuan believed that the service sector will remain popular in the next years. The investors will also focus on pre-Series A and Series A rounds of investments.

The big innovation is done by people who are even younger [than most Asian markets]. If I look at the average age of innovators [in Indonesia] are younger than in China, so it’s even more promising.”

The Gold Rush of Southeast Asia

The past year has seen China big players make their presence known in Indonesian tech startup scene. Alibaba had tried to expand its coverage in the country by launching Aliexpress before changing its strategy by acquiring Lazada in Southeast Asia. Alibaba’s competitor, JD, also has launched quietly last October. This article on Tech Crunch, urges business to “forget China because there is an ecommerce gold rush in Southeast Asia.”

“What we are going to do is set up a club, then probably an incubator, a multidimensional mechanism to support local startups,” he said. “Our own organisations will also invest in here, especially since this is a scalable market with [a] rising economy,” he added.

Likening today’s Indonesia to China seven years ago, he also called for local investors and businesses to collaborate together. As investments and attention has been turning to Southeast Asia, Indonesia in particular, there are factors that indicate how the region can be seen as China’s younger sister. However, the region is slowly catching up and showing a lot of potential, which explains why Chinese investors are looking in.

 

A version of this appeared in e27 on June 22. Read the full article here.

 Southeast Asian Stocks Rise As Brexit Concerns Drop

Source: finance.yahoo.com

Stocks across Southeast Asia in four countries rose as possibility of Britain remaining in the European Union increased, reducing market risks.

  • Singapore stocks closed more than 1%, led by oil and gas stocks
  • Philippines closed 0.6% higher with consumer cyclical such as Bloomberry Resorts Corp leading the market
  • Vietnam was up more than 1%, as oil and gas stocks such as Petrovietnam Gas Joint Stock Corp rose
  • Indonesia ended higher, helped by energy shares

Britons will cast their votes on June 23 in a referendum on whether to leave the EU. The probability of Britain remaining in the union rose to 72%, up from 60% in the previous week.

“Perception is that the British public is likely to vote in favour of remaining in the EU. If that is the case, it would remove the overhang of risk in the markets,” said Nirgunan Tiruchelvam, an analyst with Religare Capital Markets in Singapore.

Southeast Asian optimism in the context of Brexit

Initially, panic was spreading across markets in fear of Britain exiting the European Union but now it serves as an important reminder to protect the global market.

Countries such as Philippines has expressed optimism about the new President-elect, Rodrigo Duterte, who is beginning his six-year term on June 30.  Duterte’s economic team will be committed to boosting infrastructure, fixing traffic congestion and improve investment frameworks. Not only will this serve to improve ecommerce infrastructure and transportation roadblocks, it will also improve Philippines’ economic growth as a whole.

A version of this appeared in Jakarta Globe on June 21. Read the full article here.

Go-Jek's Insurance Model

Source: insightasia.com

Allianz Life Indonesia, the local unit of Munich-based multinational financial services company, will provide low cost health insurance for drivers  in motorcycle hailing service Go-Jek and their immediate family members. This is a part of the company’s efforts to deliver health services to low income families. This policy will allow Go-Jek drivers to have insurance coverage during in-patient hospital stays, consultation visits with general practitioners, surgery and other hospitalization benefits. Allianz will also pay for doctor bills, medication and diagnostic tests.

Go-Jek drivers in Jakarta typically make $375 dollars a month, about a third of the capital’s average income per capita. Service registration and payment of premiums of the insurance are done online, making it easier for Go-Jek drivers since they are always mobile. Allianz Life Indonesia is based on digitization, which aligns with the company’s effort to transform its services.

Go-Jek’s Insurance Model, A Blueprint For Other Companies?

Go-Jek’s new insurance policy adds a layer of visibility to the company’s conduct and also establishes a system currently lacking in other crowd sourcing startups.

Despite the fact that companies such as Uber have been quoted saying they create jobs and provide drivers with freedom, most of their drivers are covered by health insurance and do not receive benefits. In Thailand, Uber and GrabTaxi are constantly on the government’s watch as the applications are cited as illegal making it difficult for their drivers to be protected or on the government’s plans. A sharing economy leaves many drivers unprotected and vulnerable to exploitation.

Go-Jek’s implementation of health insurance to its riders raises the issue of insurance in the ecommerce marketplace models. By regulating these practices, the company protects employees’ interests and safety enhancing the drivers’ loyalty and in turn, produce better service for customers. Push for insurance reforms is seen strongly in the US but not yet in Southeast Asia, Go-Jek is taking a proactive step forward.

A version of this appeared in Jakarta Globe on June 18 . Read the full article here.