Indonesia: Building partnerships with suppliers

Building partnerships with suppliers in Indonesia

We have been operating in Indonesia since 1933. The nature of the Unilever Indonesia (UI) business has been through many changes since then, but throughout we have developed as a strong local business, deeply rooted in the country's economy and society. In 1981 the company went public and listed 15% of its stock on the Jakarta Stock Exchange.

Developing SME capacity

In 1982 Unilever Indonesia began a series of long-term investments to identify, work with and foster the growth of local entrepreneurs and small and medium-sized enterprises (SMEs). 

The aim was to develop the capacity of third-party partner companies that could deliver to our standards. In 2003 we bought the great majority (84%) of our goods and services through a local supply chain and our top ten suppliers (by value) were all Indonesian companies, accounting for 34% of all UI purchases that year.

In recognition of Unilever Indonesia's efforts, in 1988 the government presented us with the prestigious Upakarti Award, the highest award for corporate contributions to the development of SMEs.

Understanding our impact

In 2003 our joint research project with Oxfam found that about 1 800 people were employed by Unilever Indonesia's third-party producers. In addition about 24 000 people make their livelihoods among companies supplying us, of which about 8 000 work for direct suppliers and about 16 000 for indirect suppliers. (These numbers all represent 'full-time equivalent' estimates.)

Quality standards in our supply chain

All UI suppliers are required to sign up to the standards set out in Unilever's Business Partner Code, as well as complying with national labour laws. 

In addition, UI suppliers are required to adopt a remuneration system that is at least 10% above the minimum wage set by the government. In practice, many of the suppliers pay rates higher than this in order to attract and retain the best staff.

All suppliers are audited on a 3-yearly rotation to make sure they meet environmental, health and safety standards. UI works in partnership and invests in updates or improvements in production systems at its SME partners, providing training, technical assistance and close supervisory support to those who need to improve to meet our minimum standards.

Unilever Indonesia has developed sophisticated methods for managing supplier relationships. This includes the Suppliers Quality Management and Assessment Programme (SQMP), launched in 2000 as part of our international drive to build a world-class supply chain. It measures suppliers' ability to achieve consistent quality in meeting our specifications: 

• on time and in-full delivery;
• cost competitiveness;
• reliability and flexibility.    

In 2001, 15 companies were invited to take part in the SQMP.  Having successfully met the criteria, nine achieved 'preferred supplier' status, with a further 12 reaching our standards in 2002. The benefits of preferred supplier status include a close working relationship where both parties have the opportunity to optimise the total process.

By 2005, 41 companies representing 60% of production item spending (ie spending on the materials needed to make our products), were involved in our SQMP. Thirty three of them became preferred suppliers. We modified the criteria for SQMP in 2005 to encourage our suppliers to further improve their business practices.

Encouraging new businesses

We also encourage the development of new SMEs. In 2000, UI and the Department of Industry and Trade signed a Memorandum of Understanding to create start-up SME businesses. Under the agreement, named Project Small, three pilot business projects were run. In six months these created around 90 first-generation SME entrepreneurs. 

The project gives ordinary Indonesians access to skills, finance and a marketplace – making it far more likely that their businesses will succeed. With Indonesia suffering the aftermath of natural disasters, political and economic crises, such projects offer hope for the future.

In 2003 we expanded Project Small into Project Partner to develop the businesses of black soybean farmers. Black soybeans are the key raw material for Kecap Bango, our sweet soy sauce. Working with a local university, this direct-sourcing scheme provides farmers with technical assistance, credit and a secure market for their produce and now extends to about 5 000 farmers spread across Central and East Java.