Supply Chain Risk Management Study of the Indonesian Seaweed Industry

Abstract

Seaweed supply chains in Indonesia, especially carrageenan and agar products are subject to disruptions from both inside their companies and in their external networks, such as yield, quality, price, and infrastructures. If there is a disturbance in one part of the supply chain, it can affect the whole chain. To ensure a sustainable seaweed industry, long-term planning is needed. Here, supply chain risk management (SCRM) can help. There are four critical steps in SCRM: identifying seaweed supply chains, identifying and categorizing risks, assessing risks, and mitigating risks. To identify seaweed supply chains, I conducted research field, in-depth interviews, and literature studies. The field survey conducted in the Province of South Sulawesi, West Java, East Java, Banten, and West Nusa Tenggara. Afterwards, the seaweed supply chains are modeled by the software Umberto NXT Universal 7.0 to get a better understanding of material and energy flow between the key members. Identification and categorization of the risks were obtained from literature studies. Afterwards, the Delphi method was used to analyze the potential risk sources, their causes, and their impacts. To assess risks, I used a semi-quantitative approach through the face-to-face interviews to generate a risk map showing the likelihood and impact of adverse events. Afterwards, the risk intensity was categorized based on the value of the response classified into five categories: negligible, marginal, critical, most critical, and catastrophic risks. The mitigation strategies considered sustainability (environment, economy, and social) and risks criteria. Three proposed alternative strategies of risk mitigation based on risk assessment are: building a small seaweed plant, large seaweed manufacturing, and seaweed industrial cluster which close to seaweed farming operations. Preference Ranking Organization Method for Enrichment Evaluation (PROMETHEE) belongs to the Multi-Criteria Decision Analysis (MCDA) was used to evaluate these strategies. Seaweed supply chains having vertical collaboration consists of seaweed suppliers (farmers, local traders, large traders or exporters) and seaweed manufacturers, carrageenan and agar companies. Most seaweed farmers are independent farmers who have the flexibility to sell their seaweed to a local trader or wherever else they may want to sell it. Local traders play an essential role in the financial support of the farmers, as well as being critical for technical information and market access. Carrageenan and agar manufacturers have been steadily growing in Indonesia due to family business. Seaweed supply chain risks are classified into two main categories: the internal and external risks. The internal risks are further classified into two groups: internal company risks consisting of process and control risks; and external risks of the firm, which are internal risks of the supply chain covering supply and demand risks. The external risks associated with risks arising from the external network chains are risks concerning regulatory issues, financing and infrastructure, and also social and environmental risks. The most critical risk for the carrageenan supply chain is poor quality of E.c ottonii raw dried seaweed. Critical risks for the agar supply chain are yield uncertainty and scarcity of Gracilaria raw dried seaweed as well as the negative impact of wastewater to environment. Based on case study of semi-refined carrageenan, clustering seaweed processing plants is the best mitigation strategy for either large or small companies. Clustering, however, can adversely affect the local environment.