IMPACTS OF THE INDONESIAN GOVERNMENT POLICY IN THE FIELD OF DEFENCE INDUSTRY ON THE OPERATIONS AND SUPPLY CHAIN STRATEGIES OF PT PAL AND PT DAYA RADAR UTAMA IN PRODUCING THE INDONESIAN NAVY’S MAIN WEAPON SYSTEMS

IMPACTS OF THE INDONESIAN GOVERNMENT POLICY IN THE FIELD OF DEFENCE INDUSTRY ON THE OPERATIONS AND SUPPLY CHAIN STRATEGIES OF PT PAL AND PT DAYA RADAR UTAMA IN PRODUCING THE INDONESIAN NAVY’S MAIN WEAPON SYSTEMS DAMPAK DARI KEBIJAKAN PEMERINTAH INDONESIA DI BIDANG INDUSTRI PERTAHANAN TERHADAP STRATEGI OPERASI DAN RANTAI PASOK DARI PT PAL DAN PT DAYA RADAR UTAMA DALAM MEMPRODUKSI ALAT UTAMA SISTEM SENJATA TNI ANGKATAN LAUT

Syaiful Anwar 1

Indonesia Defence University (morolawe7760@yahoo.com.au)

Abstract – Two Indonesian companies, namely PT PAL and PT Daya Radar Utama (DRU), have been given the tasks by the Government of Indonesia to produce several warships for the Indonesian Navy. The Government has also issued a policy in the field of defence industry, which among others regulates matters related to the procurement of the TNI’s main weapon systems. This research is intended to examine the impacts of the policy on the operations and supply chain strategies of PT PAL and PT DRU in producing warships. By using descriptive qualitative analysis method, the Researcher analyzed empirical data obtained in the field research supported by several theories, namely theory of strategy, theory of operations and supply chain strategy, theory of public policy, and theory of self-sufficient. From the analysis, there are several findings. The policies have given

a certain level of positive impacts on the industries, such as: the improvement of cooperations among them, the improvement of manufacturing process due to the product’s standardization, the improvement of self-reliance level of the industries, and the capability improvement of the companies due to cooperation with foreign parties. However, the policies still give negative impacts to the companies, such as: the low level application of the supply chain management, low level use of the domestic materials and ship’s components, and the low level of fair competition among domestic defence industries.

Keywords: operation strategy, supply chain, warship, PT PAL, PT DRU, Navy, Government of Indonesia, defence industry policy.

Abstrak – Dua perusahaan Indonesia, yaitu PT PAL dan PT Daya Radar Utama (DRU), telah diberi tugas oleh Pemerintah Indonesia untuk memproduksi beberapa kapal perang untuk Angkatan Laut Indonesia. Pemerintah juga telah mengeluarkan kebijakan di bidang industri pertahanan, yang antara lain mengatur hal-hal yang berkaitan dengan pengadaan sistem senjata utama TNI. Penelitian ini bertujuan untuk mengkaji dampak kebijakan strategi operasi dan rantai pasok dari PT PAL dan PT DRU dalam memproduksi kapal perang. Dengan menggunakan metode analisis deskriptif kualitatif, Penulis menganalisis data empiris yang diperoleh dalam penelitian lapangan yang didukung oleh beberapa teori, yaitu teori strategi, teori strategi operasi dan rantai pasokan, teori kebijakan publik,

1 Major General (Ret), Doctor in Human Resource Management, Lecturer of Indonesia Defence University.

Impacts of The Indonesian Government Policy ... | Syaiful Anwar | 1 Impacts of The Indonesian Government Policy ... | Syaiful Anwar | 1

Kata Kunci: strategi operasi, rantai pasokan, kapal perang, PT PAL, PT DRU, TNI AL, Pemerintah Indonesia, kebijakan industri pertahanan

Introduction 1 the defence industry sector. The GoI has established several principles in the

he Government of Indonesia (GoI) continually develops its capacity

fulfillment of the TNI’s main weapon systems, which are mentioned in the

to defend the state. In the Law

Law No. 16/2012 on the Defence Industry, Number 3/2002 on the State Defence, it

namely: (i) the users must use equipment is mentioned that the State Defence is

all efforts to defend the sovereignty of which can be produced by the domestic industries; and (ii) the procurement of

the state, the territorial integrity of the weapon systems from abroad can be

Unitary State of the Republic of Indonesia, carried out only if the domestic industries

and the safety of the nation from threats

2 and disturbances. have not been able to produce them. In order to realize the development of its defence force, the GoI

Various efforts have been made has determined the policy of building the

by the GoI to meet the needs of the strength of the main component of the

Indonesian Navy. Some of the fulfillment State Defence Force, or TNI. The policy

of weapon systems in the last period is is named the Minimum Essential Force

conducted in various ways, namely: (i) (MEF) of the Defence Main Component.

purchasing products from abroad; (ii) This MEF is defined as a minimum standard

jointly producing with foreign industries; of the TNI’s strength which is prepared as

(iii) producing based on technology the main prerequisite and fundamental

transfer; and (iv)producing by several for the effective implementation of the

domestic shipping industries. 4 Although TNI’s main tasks and functions in handling

the procurement of the navy’s main the actual threats.

weapon systems is from domestic sources, but various parties still observe

In line with the development various problems that arise. The main

of the TNI’s strength, the GoI also

3 develops continuously the capability of Setneg RI, “Undang-Undang Republik

Indonesia Nomor 16 Tahun 2012 tentang Industri

the supporting component, particularly

Pertahanan”, 2012. Downloaded from: http:// 1

www.setneg.go.id, on 23 January 2018. 2 Dephan RI, Buku Himpunan Perundang-undangan

4 TNI AL, Alutsista Kebanggaan TNI Angkatan Laut yang Terkait dengan Penyelenggaraan dan

dari Masa ke Masa, Info Historia, Vol , No 3. 2014. Pengelolaan Pertahanan, (Jakarta: Biro Hukum

Downloaded from http://www.tnial.mil.id/Portals, Sekjen Dephan, 2007), p. 35.

on 23 January 2017.

2 | Jurnal Pertahanan & Bela Negara | April 2018, Volume 8 Nomor 1 2 | Jurnal Pertahanan & Bela Negara | April 2018, Volume 8 Nomor 1

and the suppliers or vendors; (ii) the from users, the lack of demand-side

standard of production in accordance sustainability, and the type diversity of

with the operational requirements of the main weapon systems ordered. This,

users with the appropriate completion in general, resulted in the low level of

time on request; (iii) the use of domestic capacity of these companies in improving

resources in the form of raw materials, their ability, both in the development of

materials, components, human resources, human resources and in the conduct of

and research and development results; research and development.

and (iv) cooperation with foreign parties in the manufacture of certain types of

The operations and supply chain ship. These four dimensions are important

strategyof a company is a elaboration factors which become the subject of deep

of the business strategy of the company discussion in this research and are made

concerned. The strategy is related to the as the research problem. Because of the

preparation of broad policies and plans important of the problem, the Researcher

to use the resources of the company focused on how and how far the impacts

and must be integrated with corporate

5 strategy. of the government policies on the The strategy is an important operations and supply chain strategies of

element of the company in realizing the PT PAL and PT Daya Radar Utama (DRU).

company’s policy of producing equipment ordered by the users or customers.

From the explanation of the problems mentioned above, the

The policies that will be important Researcher decidesthat the research

variables in the analysis are the Law No. formula is: “What are the Impacts of

16/2012 on Defence Industry and the Minimum Essential Force (MEF) of the Government of Indonesia’s Policies in

the Field of Defence Industry on the Defence Main Component. The policies

are government decisions that must Operations and Supply Chain Strategies of

PT PAL and PT Daya Radar Utama (DRU)

be realized by all stakeholders. The in Producing the Indonesian Navy’s Main

policies will of course have profound effects on the business strategy of the Weapon Systems?”

companies involved, and will further PT PAL is a company with the status affect the operations and the supply

of State Owned Enterprise (SOE) while PT chain strategies of them. Some of the

DRU is a national private company. Both dimensions of the GoI policies to be

companies are selected as the object of implemented by the defence industry are:

this research because the two companies

are mandated as the lead integrator in the

F. R. Jacobs and Richard B. Chase, Manajemen

Operasi dan Rantai Pasokan, (Translated) 14 th series of production of the Navy’s main

Global Edition, (Jakarta: Salemba Empat, 2015), p.

weapon systems. Based on the problem

Impacts of The Indonesian Government Policy ... | Syaiful Anwar | 3 Impacts of The Indonesian Government Policy ... | Syaiful Anwar | 3

means used should be balanced with the values and purposes of the goals. 8

1. What are the impacts of GoI’s policiesfor internal cooperation

US Army War College defines on the companies’operations and

strategy as a relationship between the supply chain strategies?

ends, ways, and means. It has also a

2. What are the impacts of definition that the art of strategy is the GoI’s policiesfor the output

intelligence in formulating, coordinating, standardization on the and applying the objective, the ways, companies’operations and supply

and the means (supporting resources) chain strategies?

to enhance and defend the national interests. 9 Meanwhile Art Lykke states

3. What are the impacts of GoI’s policies that strategy = ends + ways + means,

for the use of domestic resources which if unbalanced is assumed will pose

on the companies’operations and

a big risk. 10

supply chain strategies?

4. What are the impacts of GoI’s policies From some above opinions, it can be for cooperation with foreign parties

concluded that a strategy is a way used in on the companies’operations and

order to achieve the goals that have been supply chain strategies?

defined by utilizing all available resources. All three elements, i.e. goals, means, and resources, must be set in a balanced way

Theoretical Framework

to avoid the substantial risks posed by

Theory of Strategy

these imbalances.

According to Clausewitz, strategy is the use of combat for the purpose of war. He further says that a strategist must set a

Theory of Operations and Supply Chain Strategy

goal for the overall operation of the war that would be in accordance with the aims

According to Jacobs and Chase 11 , an of the war. 6 While Antoine Henri Jomini

operations and supply chain strategy conveys that strategy is the art of making

relates to the preparation of policies war on the map, and further applying it

and broad plan to use the resources of to the whole battlefield. 7 Basil H. Liddle

a company and must be integrated with Hart argues that strategy is the art of

the company’s strategy. Meanwhile, disseminating and applying military units

according to Rusdiana, an operations in order to meet the targets of the policy.

strategy is a derivative of corporate Goals should be balanced with the number

strategy that detailing the overall

J. B. Bartholomees, “Theory of War and 8 Ibid. Strategy”, 9 Volume 1, US Army War College Guide Ibid, p. 15. to National Security Issues. 13, 2012. 10 Ibid, p. 48-50.

Ibid, p 11 .14. F. R. Jacobs and Richard B. Chase, op.cit, p. 33. 4 | Jurnal Pertahanan & Bela Negara | April 2018, Volume 8 Nomor 1 Ibid, p 11 .14. F. R. Jacobs and Richard B. Chase, op.cit, p. 33. 4 | Jurnal Pertahanan & Bela Negara | April 2018, Volume 8 Nomor 1

states that a company can choose one of operations strategy is a shadow or vision

four production process designs, namely of the operation function, which is the

(i) focus on the process; (ii) repetitive driving force or determinant of direction

process; (iii) continuing process; and (iv) for decision-making. 13 mass customization. 16

From the above various opinions, From the above explanations, it can we can see that the strategy they convey

be concluded that a company may choose consists of several issues, namely: (i)

one option from the following operations

a complete plan of operations and the options: (i) Job-shop manufacturing; supply chain; (ii) the plan is derived

(ii) repetitive manufacturing; (iii) mass from the company’s strategy; (iii) the

manufacturing; and (iv) continuous plan regarding matters relating to the

manufacturing.

use of company’s resources; and (iv) The third element of the strategy

the objectives to be achieved by the that needs to be discussed is the resources

effectiveness of operations and the or means to be used in the production

supply chain. process. Dilworth mentions that there are

The objectives in the operations and several resources to consider in developing the supply chain strategy are intended

strategies, namely: (i) the relationship as what is to be achieved related to the

between the company and its suppliers; product to be produced. There are several

(ii) production facilities; (iii) quality of options that can be taken by a company,

human resources; (iv) technology and namely (i) price leadership; (ii) produce

equipment; and (v) information systems. 17 different products in terms of quality;

Meanwhile Kumar and Sureshmention (iii) produce products in a faster time;

that resources include: (i) men; (ii) and (iv) a mixture of the three previously

materials; (iii) machines; (iv) information; described options (trade-offs). 14

and (v) capital. 18

The second element of a strategy From these explanations, the is the way to be selected to accomplish

resources or means used by a firm in the the defined mission or goal. Dilworth

operations and supply chain strategy states that there are two choices of ways

are as follows: (i) human resources; (ii) or manufacturing processes that can be

technology and machinery; (iii) production selected by a company, namely: (i) job

facilities; (iv) information systems; (v) shop manufacturing; and (ii) repetitive

production costs; and (vi) raw materials.

12 Rusdiana, Manajemen Operasi, (Bandung: 15 J. B. Dilworth, Operations Management. 2 nd Pustaka Setia, 2014), p. 42.

Edition, (New York: McGraw-Hill, 1996), p. 52. 13 L. Sumayang, Dasar-dasar Manajemen Produksi

16 Rusdiana, op.cit, 74-8.

dan Operasi, (Jakarta: Salemba Empat, 2003), p. 17 Dilworth, J. B, op.cit, p. 53. 42.

18 S.A. Kumar and Suresh, Operations Management, 14 F. R. Jacobs and Richard B. Chase, op.cit, p. 34-7.

(New Delhi: New Age International, 2009), p.3.

Impacts of The Indonesian Government Policy ... | Syaiful Anwar | 5

The fourth element of the strategy need by using its own resources. 21 Paul is the risk factor where it can generally

C. Godfrey defines self-reliance as the occur due to a gap or a difference

possession of a person toward a resource between the objective to be achieved

that goes beyond his or her needs, and and the way to accomplish the objective

a person’s ability to acquire and hold as well as the available resources. Jacobs

that resource. Ownership is the external and Chase argue that supply chain risk

output, something that depends on the is the possibility of interference that

person’s internal ability. Self-reliance will affect the ability of a company to

contains two parts inherent in the ability, continue supplying products or services. 19 namely the ability to think, and the ability

Burtonshaw-Gunnstates that the risks

to act. 22

of the company can be: (i) technical From the above explanations, it risk; (ii) employment risk; (iii) political

can be summarized that self-reliance is risks; (iv) social and geographical risks;

ability of a country to produce its own (v) availability of resources, customs

needs, using its own human resources, its procedures, import duties, embargoes;

own economic resources, its own natural and (vi) financial risk. 20 resources, in order to obtain maximum

From the above explanations, in the gain or benefits from the activities, and context of an operations and supply chain

also to obtain maximum level of freedom strategy, the risks involved are all possible

to think and to act according to its own unforeseeable barriers and disturbances

needs and capacity.

that can stop or damage the production process. The risks may include: (i)

Theory of Public Policy

technical risks; (ii) financial risk; (iii) risk of raw material availability; (iv) the risk of

Harold Laswell and Abraham Kaplan human resource availability; and (v) the

provide the definition of public policy as risk of changing government policies.

a program projected with certain goals, certain values, and certain practices as well. 23 Meanwhile Thomas R. Dyestates

Theory of Self-reliance

that public policy is everything the According to Johan Galtung, self-reliance

government does, why they do it, and is a principle applied by a country in the

21 J. Galtung, “Towards A New Economics: On the

economy or in areas that are sub-systems

Theory and Practice of Self-Reliance”, in Paul Ekins

of the economy. The basic rule of self-

(Ed), The Living Economy: A New Economics In The

reliance is to self-produce what is self- Making, (London: Routledge, 1986), p. 100-3.

22 P. C. Godfrey, More Than Money: Five Forms of Capital to Create Wealth and Eliminate Poverty,

(Standford: Standford University Press 2014), p. 19 F. R. Jacobs and Richard B. Chase, op.cit, p. 40-1.

23-9.

20 S. A. Burtonshaw-Gunn, Alat dan Teknik Analisis 23 H. Laswell, and Abraham Kaplan, Power and Manajemen, (Translated by Peni Rachmawati),

Society, (New Heaven: Yale University Press. (Jakarta: PT Indeks, 2011), p. 234.

1970), p. 71.

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component’s strengths to the operations Nugroho concludes that public policy is a

and supply chain strategies of the defence decision made by the state as a strategy

industries, in particular the companies to realize the objectives of the country

involved in the manufacture of the navy’s concerned. 25 main weapon systems (NMWSs).

From the opinions we can see that The assessment of a policyimpact public policy contains several elements,

stated by Rossi and Freemanis intended namely:(i) public policy is a formal

to estimate whether the intervention document or practice of the state; (ii)

produces the expected effect or not. Such public policy is intended to respond the

estimates do not yield definite answers will of the public or the state; (iii) public

but only a few possible answers that policy is made or done in order to lead to

make sense. The basic purpose of impact better conditions of society or country;

assessment is to estimate the “net effect” and (iv) public policy contains the rights

of an intervention. 27

and obligations of the parties stated in By examining from the micro aspect,

the policy. in this case the operations and supply

The second issue of public policy chain strategy aspect, the Researcher will is policy analysis. According to Dunn,

obtain an answer or can conclude about policy analysis is an intellectual and

the actual impacts of the policy. The practical activity aimed at creating,

findings in this micro scope will ultimately critically appraising, and communicating

provide input to the macro aspect which knowledge about the policy process.

is the government policy in building the The procedures used in analyzing the

capability of the defence industries. With policy are: (i) definition; (ii) prediction;

reference to the above explanation, the (iii) prescriptions; (iv) description; and (v)

efforts to be taken by the Researcher Evaluation. 26 are to compare the dimensions of the

If we look at the above explanations, components (strategy, objectives, types the assessment of the consequences

of operations, resources, risks, and cost) or effects of a policy on something falls before and after the companies obtain

within the scope of the policy analysis. jobs in manufacturing the NMWSs. The object of this research to be carried

out by the Researcher is to examine the

Defence Industry Models or Practices

impacts of the Indonesian government

in Some Countries

policies on the defence industries and Brazil develops its defence industry

24 T. R. Dye, Understanding Public Policy, (New

in order to relinquish its dependence

Jersey: Prentice Hall, 1995), p. 2. 25 R. Nugroho, Public Policy, (Jakarta: Elex Media

27 P.H. Rossi and H. Freeman, Evaluation: A Komputindo, 2008), p. 55.

Systematic Approach, 2 nd Edition, (California: Sage, 26 Ibid, p. 131-2.

1993), p. 215.

Impacts of The Indonesian Government Policy ... | Syaiful Anwar | 7 Impacts of The Indonesian Government Policy ... | Syaiful Anwar | 7

missile. 30

its defence industry products. It choses to manufacture its marketable defence

The relations between the Govern-

equipment at its regional level, namely:

ment Policies on Defence Industries

Super Tucano A-29 fighter, ASTROS II

and the MEF with the Operations and

rocket launcher, EE-11 troop carrier, and

Supply Chain Strategy

light weapons. Its export products can The GoI’s objectives in developing or thrive as there is effective support from building the defence industries are:

its government. 28 (i) realizing a professional, effective,

China develops its defence industry efficient, integrated, and innovative in order to meet its military needs, and

defence industries; (ii) realizing self- at the same time maintains the status of

reliancein fulfilling the defence and its defence industry which has a certain

security equipment; and (iii) improving degree of autonomy. It still maintains

the capability to producethe defence its independence in producing military

and security equipment. The defence equipment. However, it also develops

industry is also an integral part of the cooperation with other countries, such as

state defence system that embraces the with Pakistan in designing and producing

people’s defence system. Therefore in jet combat aircraft JF-17. 29

the law is re-emphasized the function India develops its defence industry

of the defence industry, namely: (i) in order to meet its military needs. It

strengthening the defence industry; (ii) has succeeded in reducing dependence

developing technology; (iii) promoting on overseas suppliers by designing,

economic growth; (iv) establishing self- developing, installing and producing

reliance of the state defence and security its own equipment. India cooperates

systems; and (v) building and improving with the United States in the missile

human resources capability. programs, and ToT of F-16 as well as F/A-

While the GoI’s policy on the

18 fighter aircraft. It also collaborates MEF Main Component concerning the with Russiain producing BrahMos missile,

development of the sea power includes the development of remote missiles, and

the provisions on the procurement of the Glonas satellite navigation system.

warships for the Navy. Prior to entering India also cooperates with Israelin the

into a weapon system purchase contract,

28 P. Yusgiantoro, Ekonomi Pertahanan: Teori dan

the organization specifies the standard,

Praktik, (Jakarta: Gramedia Pustaka Utama, 2014), p. 202-5.

amount, and time of completion of

29 J. D. K. Boutin, “Arms and Autonomy: The Limits

each ship ordered. The number of ships

of China’s Defence-Industrial Transformation”, in Bitzinger, R. A. (Ed), The Modern Defence Industry,

30 T. D. Hoyt, Military Industry and Regional Defence (California: Praeger Security International, 2009),

Policy: India, Iraq, and Israel, (New York: Routledge, p. 218-21.

2007), p. 61-6.

8 | Jurnal Pertahanan & Bela Negara | April 2018, Volume 8 Nomor 1

Figure 1. Relation between Variables and Sub variables

ordered is aligned to the program plan chain strategy, and specifically on the and budget that has been made. While

impact of sub variables from the first the delivery time of the ship is adjusted to

variable to the sub variables of the second the plan.

variable. The relationship of these factors In this study, the main variable

is illustrated in Figure 1.

is the government policy, and the sub variables are the factors mentioned in the

Previous Relevant Researches

policy, namely: (i) inward cooperation; (ii) There are three different relevant standardization;(iii) self-reliance; and (v) researches that will be mentioned in outward cooperation. While the second this section. The first study is a study variable is the operations and supply of Ivan Yulivan in 2016 under the title chain strategy of the studied companies “Improving Corporate Performance which contains four sub variables, namely: Through Development of Competitive objective, way, resources, and risk. Strategies Driven by Corporate Resources

Analysis of impact of a policy is and Market Attractiveness: A Study in conducted by comparing the variables

Indonesia’s Defence Industries Post Law and sub variables of the research object,

No. 16 Year 2012 about Defence Industry.” with a focus on searching conditions

This study analyzes the phenomenon before and after the implementation of

of defence-based strategic industries policy. Thus, the analysis of this study will

that currently have not been able to focus on the impact of policy variables

thoroughly anticipate the existing in general on the operations and supply

business opportunities, not ready to

Impacts of The Indonesian Government Policy ... | Syaiful Anwar | 9

10 | Jurnal Pertahanan & Bela Negara | April 2018, Volume 8 Nomor 1

compete intently because of limited resources, and still difficult to access the market due to limited human resource capabilities and supporting facilities. The second research is the study of Radhana Dwi Wibowo in 2016 with the title “The Problems in Realizing Defence Industry Self-Reliance.” This study analyzes three issues that arise in realizing the self-reliance of the defence industry, namely: the defence industry actors, the continuity of ordering equipment for defence and security equipment, and the ability of the defence industry to meet the specifications desired by the TNI. The third study is the research of Andyawan Martono Putra in 2014 with the title of “Civil Military Integration in the Field of Technology and Industry in Defence Industry of Indonesia.”This research analyzes the civilians and military integration ontechnology and industry sector in the Indonesian defenceindustry.

Framework

Framework of hypotheses of this research is illustrated in Figure 2, where the Researcher explaines the sequence of effort in addressing the research problem to the expected output of this study. In order to build a strong, resilient and high deterrence power, the GoI has made efforts to strengthen the state’s sea defence component, among others by increasing the capabilities and strengths of the navy, in particular the addition of the number of the navy’s warships. At the same time, the GoI also concerns to build the capability of the defence industry in order to have better capabilities, with increasing production capacity, as well as self-reliance and independence from foreign parties. To realize these two objectives, the GoI issued a policy in the form of Law No. 16/2012 on Defence Industry and the MEF Development Plan of the Defence Main Component.

Figure 2. Framework of Hypotheses

Impacts of The Indonesian Government Policy ... | Syaiful Anwar | 11

In responding to these policies, the defence industry prepares a plan or business strategy that can accommodate what the government requests. There are several companies appointed by the GoI as the main integrator of the manufacture of the navy’s main weapon systems (NMWSs), two of them are PT PAL and PT DRU. Both companies are made by the Researcher as the research objects. Both companies in implementing the production process of the NMWSs have developed operations and supply chain strategies in accordance with the type of products made. Policy impact analysis is carried out on the variables of the operations and the supply chain strategy in general. However, in order to obtain a more detailed picture, then the strategy variables need to be spelled out into several sub variables.

Based on the determination of the relationsamong variables and among sub-variables, then the Researcher can determine the information and data needed for the analysis of this research. Based on the results of the collection of information and data, then the Researcher will conduct the analysis supported by several theories related to the policy’s impact and also the operations and supply chain strategy. The output of this analysis is the impact of GoI’s policies on the operations and supply chain strategies of PT PAL and PT DRU.

Research Method

Researcher uses qualitative research methodology with case study method. According to Robert K. Yin, case study is an empirical inquiry that investigates phenomena in the real-life context; when the boundaries between phenomena and context are not visibly apparent; and where multi-source evidence is

utilized. 31 The Researcher considers that the characteristics of this research are very suitable with the characteristics of the method of case studies stated by Robert K. Yin.Based on the explanation of the method used, the approach of this research will consist of several steps, namely: (i) conducting analysis to find and establish subvariabel of the government policy variable; (ii) analyzing the second variable of the operations and supply chainstrategy; (iii) illustrating the relations between the variables and between sub variables; (iv) collectingprimary and secondary data; (v) conducting a qualitative analysis using the case study analysis method; (vi) performing validity tests; and (vii) making a conclusion.

The primary data source in this study is the competent informants (subjects), who relate to the settings of the problems

studied. 32 Therefore, the Researcher will collect data from statements and words from officials of PT PAL and PT DRU related to the production process of the NMWSs, the MoD officials and the Indonesian Navy

31 R. K. Yin, Studi Kasus: Desain dan Metode, (Translated by M. Djauzi Mudzakir), (Jakarta: Raja

Grafindo Persada, 2009), p. 18. 32 Iskandar, Metodologi Penelitian Kualitatif,

(Jakarta: Gaung Persada, 2009), p.113.

officials. validity of data, where in this study the The field studywas conducted by the Researcher used triangulation technique. According to Moleong, triangulation is a

Researcher by visiting PT PAL and PT DRU, technique of checking the validity of data

the MoD, and the Navy Headquarters. This field study was conducted in order to carry that utilizes something else outside the

data for the purposes of checking or as a out direct interviews with informants

comparison of that data. 36 and observe the production process of

the NMWSs being undertaken by both The research was conducted in companies. The Researcher conducts

two companies, namely PT PAL and PT structured interviews by applying the

DRU located respectively in Surabaya techniques defined by Moeleong, in

and Jakarta, and the MoD and the Navy which the Researcher will establish his

Headquarters both in Jakarta. In those own problems and questions to be asked,

places, interviews were conducted by in order to find answers to the hypotheses

the Researcher to the informants. While

the survey that directly observes the questions have been strictly conceived by

that have been established. 33 The

production process of the NMWSs that making an interview protocol.

being produced was done in locations where both companies have shipyards,

The qualitative data analysis according to Bogdan and Biklen is an effort namely in Jakarta, Surabaya, and Lampung.

The time of the research and the writing done by working with data, organizing

of research report were conducted in the data, sorting it into manageable units,

synthesizing it, searching and finding period of July until October 2017. patterns, finding what is important and

what is learned, and deciding what can be

Research Result and Discussion

delivered to others. 34 Data processing as

Research Result

described above, according to Prastowo PT PAL is a State-Owned Enterprise

is similar to Miles and Huberman’s model (SOE), located in the northern area of

which divides the activities into three Surabaya, East Java, Indonesia. The

processes: (i) data reduction process (ii) main business activities of this company

data display process; and (iii) conclusion

35 and verification process. include: (i) producing warships and commercial vessels; (ii) providing ship

The validation of data was repair and maintenance services; and

conducted with the intention to test the (iii) providing general engineering

33 L. Moleong, Metode Penelitian Kualitatif. Revision

with certain specifications based on

Edition, (Bandung: Remaja Rosdakarya, 2007), p.

client needs. Currently the company is

138. 34 Ibid, p. 248.

developing products that will be marketed

35 A. Prastowo, Metode Penelitian Kualitatif dalam

domestically and abroad, especially

Perspektif Rancangan Penelitian, (Yogyakarta: Ar- Ruzz Media, 2012), p. 241-50.

36 L. Moleong, op.cit, p. 178.

12 | Jurnal Pertahanan & Bela Negara | April 2018, Volume 8 Nomor 1 12 | Jurnal Pertahanan & Bela Negara | April 2018, Volume 8 Nomor 1

materials, as stated by the PT PAL’s Head the Indonesian Police, the Ministry of

of Procurement Division: Ocean and Fishery, the Ministry of Energy

“Our strategy in procurement is and Mineral Resources, the Ministry

that we have 3 philosophies, namely on quality, on budget and on schedule. First

of Finance, and overseas institutions. on quality, we fit the design and adjust

Products that have been mastered by the new specifications followed on this company include: 125 meter Landing

budget and on schedule.” Platform Dock (LPD), 60 meter Missile

Fast Ship, 57 meter Fast Patrol Boat (FPB In terms of the employment of 57), 1200 GT Survey Ship, Fast Patrol Ship

human resources, PT PAL and PT DRU up to 38 meters, Tugboat and Anchor

also cooperate with partners who Handling Tug, Fishing Vessels up to 60

are used to working with them. Some GRT, and Ferry and Passenger Ships up to

technical workers are taken from outside 500 pax.

the companies, and also some works are PT DRU is a private company

carried out by the sub-contractors who are already partners of these companies. established in 1972 at Tanjung Priok Port, 37 The

Jakarta. The company started business as company’s strategy in dealing with the

a general trading and services company, subvariabel of risk is conducted in its own including shipbuilding business. Until

way according to the type of risk faced now at the age of nearly 50 years, the

by the companies. In relation to financial company has completed the construction

risk, PT PAL has a strategy of cooperating of hundreds of ships in various types

with third parties who can assist with funding. 38 and sizes such as Roll on Roll off (RORO) However, PT DRU in this

vessel type, cargo ship, tanker, navy’s context, does not cooperate with other patrol boat, fast patrol boat, tug boat,

parties, they manage the company’s cash and speed boat.Landing Ship Tank (LST)

flow as best as possible so that it can run is a product built in order to strengthen 39 the production smoothly. Another risk

the strength of the fleet of the Navy. The that may be faced is the risk of availability company has accomplished one unit of

of raw materials for production. PT PAL this type of vessel by mid 2015, and is now

and PT DRU have cooperated with raw producing several more for the same type

material suppliers. PT PAL uses long- subsequently ordered by the GoI.

term contracts in cooperation with the domestic industries, while PT DRU uses

PT PAL and PT DRU in producing vendors’ database in an effort to address warships orders, cooperate with the

37 Interview with PT PAL’s Head of Production

domestic defence industries. This

Division, 2017.

cooperation is conducted for the 38 Interview with PT PAL’s Head of Finance Division,

fulfillment of the main components,

39 Interview with DRU’s Head of Business Development, 2017.

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strategies of PT PAL, namely Priority, Frame Agreement, Contract Priority undertakes shipbuilding in accordance

System, Stock Level, and the Ministry with the requests from the ship users. For

example, for the navy’s ships, because of Meanwhile, PT DRU

Project Standard. 41

the functions concerned, some parts of overcomes the availability of raw materials

the ship’s body need to be thickened. 42 by fostering good trade relations with its

suppliers. This was conveyed by the DRU’s For the production of combat ships, Head of Business Development that they

there is a constraint for PT PAL, which is maintain relationships with suppliers, who

caused by the ship production method are members of the marine community,

itself. In the construction of LPD vessels so they know the names of the vendors

in cooperation with Daewoo Company and the types of goods they have.

of South Korea, it used a block system From the above description, it where the ship construction was divided into small parts, therefore it took a longer

can be concluded that the operations time for the completion. In contrast to

and supply chain strategies of PT PAL PT DRU, the navy’s ship building process

and PT DRU toward subvariabel ‘inward is in accordance with the delivery time

cooperation’ have been implemented, required by the Navy, therefore PT DRU

seen from the sub-variable ‘objective’ that use ‘mix strategy’ or trade-offs; the obtains someother ship orders.

sub-variable ‘way’ that use the Job-shop In their production activities, the manufacturing strategy; the sub-variable

defence industries shall prioritize the use of ‘resource’that use contract strategies

of domestic raw materials, materials, and for HR and raw materials; and use contract

components, including human resources strategies to deal with sub-variable ‘risks’.

and the national R & D results. In this As a company that produces combat

case PT PAL and PT DRU have used raw ships, PT PAL always prioritizes the

materials and components from inside fulfillment of operational requirements of the country. The steel for ship platform

the main weapon system. The company is supplied by PT Krakatau Steel. While is committed to use raw materials in line

other components, such as engines, and with the standards of warship safety.

cranes, are supplied by PT Pindad, and It is also stated by the PT PAL’s Head

casting is supplied by PT Barata Indonesia. of Procurement Division that in every

Other supporting products such as doors, procurement, it always adjusts the quality

pipes, steel furniture, anti-fire curtains on boats are supplied by various domestic

40 Interview with PT PAL’s Head of Procurement

companies that have become partners of

Division, 2017. 41 Interview with PT PAL’s Head of Procurement

42 Interview with PT DRU’s Head of Business Division, 2017.

Development, 2017.

14 | Jurnal Pertahanan & Bela Negara | April 2018, Volume 8 Nomor 1

PT PAL. 43 with the supervision from the MoD as the regulator in procurement of TNI’s

The DRU’s Head of Business main weapon systems. The essence

Development also states the same matters that they have used several state-

of the policy is that the fulfillment of main weapon systems can be carried

owned companies in terms of material out by implementing two strategies.

compliance. PT DRU orders cranes and anchors to PT Pindad, and orders steel

For main weapon systems that can

be manufactured in the country, it is plates to PT Krakatau Steel. In PT DRU, all

mandatory for the Indonesian users to ship production processes are conducted

procure and purchase them, while foreign in certain level of self-reliance using

procurement through import can only the Indonesian employees. However,

be conducted if the domestic industries for certain specialists, they use foreign

have not been able to produce such main workers with a short-term contract. The

weapon systems.

use of human resources from within the country is also required by the Indonesian

The Director of Domestic Industry Navy during the production of LSTs,

Technology of MoD, First Marshal where it is not allowed to use foreign

Gita Amperiawan conveyed that the employees.

supervision of the implementation of defence industry policy in general can be

In the context of foreign seen from how the progress of government

procurement, there will be cooperation priority programs.As long as the priority

between the domestic defence industries programs are well underway, it means

with foreign companies in the form that the defence industry is developed

of joint production. Opportunities for within the policy corridor. While the next

cooperation with foreign parties have supervision is how the implementation of

been taken by PT PAL and PT DRU by purchasing certain components that can

off-set rule. In terms of supply chain and production management, the success of

not be produced by domestic industries. government policy implementation can

PT PAL has cooperated several times with

be seen from how SOEs are able to act as partners from abroad such as Damen, a

lead integrators, and are capable to foster company from Netherlands and Daewoo,

the second and third tiers of the defence

a company from South Korea. This

industries. 44

cooperation opportunity is utilized to improve the ability of PT PAL in producing

Other forms of oversight of the warships.

defence industry policy were stated by The GoI’s policies, especially the Law

Major General (Ret) Jan Pieter Ate. For No. 16/2012 on Defence Industry and the

the military equipment procurement MEF Main Component are implemented programs, the oversight is conducted by

43 Interview with PT PAL’s Head of Procurement Interview with First Marshal Gita Amperiawan,

Division, 2017. Impacts of The Indonesian Government Policy ... | Syaiful Anwar | 15 Division, 2017. Impacts of The Indonesian Government Policy ... | Syaiful Anwar | 15

thing is after-sales service, which should be Oversight Agency. Meanwhile, the

paid attention by the manufacturers. An oversight for the implementation of the

example of delay in delivery experienced defence industry policies is conducted by

by the Navy is the production of LPDs that the MoD. The supervision to PT PAL and

are two years behind schedule. 47 PT DRU is carried out by the Directorate

Another issue that the Navy of Domestic Defence Industry of MoD,

complains about is that the products either directly or through a verification

of domestic industries are still in the and monitoring program, or inviting the

development phase. It is mentioned by industries to attend various meetings

the Navy’s Head of Material Division conducted by the MoD. 45

that if the navy procure ships from the As the regulator, the GoI’s role is

domestics industries, the status of the to encourage the defence industries to

products is still in the engineering phase, become lead integrators. The industries

which means they still need to be tested must be able to determine strategies

first in various operational fields. Another to achieve profit for the companies.

obstacle perceived by the Navy against the However, the government also supports

ability of the domestic defence industry is fairly all industrial development works,

the lack of maintenance capability. Not where almost all their activities are paid by

all types of maintenance can be carried the government. Therefore with the man-

out domestically, for example for gas hours are already paid the government, it

turbines. In addition, the combat vessels is expected that SOEs can make profit. 46

that are not in accordance with the The advantage possessed by the

technical specification of the Navy has also been experienced by the Navy, which

domestic defence industries is that they are geographically close to the users.

is at the time of construction of KCR 40. The company could not install the Combat

For example the Navy’s Eastern Fleet is close to PT PAL and the private shipyards

Management System (CMS) desired by the navy on the ship, because between

in Lamongan, while the Navy Western them cannot be fittedtechnically.

Fleet is close to Tanjung Priok Port. This is an advantage over imported producers

Furthermore, the ship did not meet the navy’s operational requirements, because

when there are technical problems, it will there were stiil several weaknesses,

take a long time to bring in technicians such as: ship speed that still lower than

to deal with disruptions. Regarding the product completion, stated by MG Ate

expected, CMS that did not fit with the ship space, and spare space in the engine

that the weakness of domestic industries, room that was not sufficient for the

45 Interview with MG (Ret) Jan Pieter Ate, 2017. 46 Interview with First Marshal Gita Amperiawan,

2017. 47 Interview with MG (Ret) Pieter Ate, 2017.

16 | Jurnal Pertahanan & Bela Negara | April 2018, Volume 8 Nomor 1 16 | Jurnal Pertahanan & Bela Negara | April 2018, Volume 8 Nomor 1

MG (Ret) Jan Pieter Ate also states that the reluctance of TNI in using

The government’s policy mandates domestic products causes the domestic

that both SOEs and private companies defence industries to have difficulty in

which awarded contracts or mandates as mastering technology, because their

lead integrators are required to conduct products are not used optimally by the

supply chain management. The supply TNI. Therefore, TNI is expected to be

chain is defined as a group of mutually ready to use domestic products in order

participating and interconnected to build the Indonesia’s domestic defence

companies seeking the added value of a industries. In the event of a war, all

modified input stream from their sources logistics and overseas procurement lines

to become the finished product or will be inhibited by the opposing party,

services demanded by the end customers while the domestic defence industry is

to which they are destined. 49 From the not developing, so that Indonesia will find

understanding of the supply chain, difficulties to survive.

there are several companies involved as suppliers, suppliers of suppliers, OEMs (Original Equipment Manufacturer),

Discussion

distributors, and customers. Therefore, in The Law Number 16/2012 on Defence

the context of this research, PT. PAL and Industry arranges several issues, one

PT. DRU as OEMs or lead integrators, need of them is regarding the actors of

to implement supply chain management. the production process of defence

The practice and activities of supply chain equipment. The policy regulates coverage

management consist of three major parts, of actors from the defence industries,

namely: (i) supply chain configuration; including: (i) major equipment industries;

(ii) supply chain relationships; and (iii) (ii) main component and/or supporting

supply chain coordination. 50 Companies industries; (iii) component and/or

that act as lead integrators or OEMs can supporting industries (supplies); and (iv)

build relationships among companies the raw material industries. The policy

engaged in the supply chain with the goal mandates that the conduct of defence

of achieving long-term stability, which industry in producing defence and security

is called stable network. They can also equipment is implemented through inter-

choose the way that the aim is to build defence industry cooperation in the

dynamic networks. Most of them are country. Generally, those who obtain a

short-term relationships with distributors contract from the GoI in the procurement

and suppliers to achieve operational of the NMWSs are SOEs or domestic

49 D. Lu, Fundamentals of Supply Chain Management, 48 Interview with Navy’s Head of Material Division,

2011. Downloaded from bookboon.com, p. 9-10. 2017.

50 Ibid, p. 13-4.

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companies in order to produce warships have given positive impacts to the

is realized by PT. DRU. However, the companies as the lead integrators. The

supply chains of such raw materials and cooperation among themhas produced

components should be ensured not to certain level of benefit to them in terms

affect their production strategies that prioritize the quality and delivery time

of finance, capacity building, and also self- reliance. The domestic resources, human,

appropriate to the contracts they receive. material, and also expertise, are optimally

This is evidenced by the completion of utilised by the industries the government order for the first LST, , in order to

develop the national defence industries. hereinafter named KRI Teluk Bintuni

520, which is now operationalized by the However, because of the condition Navy. 52

of the domestic industries in general and the level of order from the government