Assignment Prof Romli

INDIVIDUAL ASSIGNMET

RESEARCH METHOD

LECTURER : PROF ROMLI

THESIS PROPOSAL :

STRATEGY FOR GREEN PRODUCTIVITY PERFORMANCE IMPROVEMENT

OF INDONESIAN LEATHER INDUSTRY

(CASE STUDY : LEATHER SMEs IN GARUT, WEST JAVA)

DWI NINGSIH / F351137071

GRADUATE PROGRAM

AGROINDUSTRIAL TECHNOLOGY DEPARTMENT

AGRICULTURAL ENGINEERING AND TECHNOLOGY FACULTY

BOGOR AGRICULTURAL UNIVERSITY

2014

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CONTENTS

CONTENTSLIST OF TABLES 3LIST OF FIGURES 4I. INTRODUCTION

I.1. BACKGROUND 5I.2. RESEARCH QUESTIONS 71.3. KEY OBJECTIVES 7I.4. SCOPE OF THE RESEARCH 7I.5. RESEARCH BENEFITS 7I.6. RESEARCH OUTCOME 8

II. LITERATURE REVIEWII.1. GREEN PRODUCTIVITY 9II.2. GP BENEFITS 10II.3. INDONESIAN LEATHER INDUSTRY AND THE ENVIRONMENT 11II.4. PROFILE OF LEATHER INDUSTRY IN GARUT, WEST JAVA 14

III. METHODOLOGYIII.1. RESEARCH DESIGN 15III.2. TYPE OF DATA RESOURCES 16III.3. DATA COLLECTION 16III.4. DATA ANALYSIS 17

III.4.1. Green Productivity Index (GPI) 17III.4.2. Green Productivity Portfolio 18III.4.3. SWOT Analysis and Strategy Formulation 18

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LIST OF TABLES

Table 1. Green Productivity Benefits 1

Table 2. List of Small and Medium Industry in Garut, West Java 2011 10

Table 3. List of Observation Location 14

Table 4. List of Experts 16

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LIST OF FIGURES

Figure 1. Green Productivity Concept 9

Figure 2. Waste Generation in Leather Tanning Process 13

Figure 3. Research Design 15

Figure 2. GP Portfolio 18

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CHAPTER IINTRODUCTION

I.1. BACKGROUND

Leather tanning industry is one of the important export sector in Indonesian industry that contributes 2.1% to Indonesian GDP. In 2012, export of leather reached 3.5 billion US Dollars and most of them were exported to USA, Germany, England, Belgium, and Italy. On other hand, leather industry has been categorized as one of the highly polluting industries. Therefore, one of the big problem which is caused by leather tanning industry in Indonesia is its impact to the environment. Leather tanning industry produce hazardous waste due to its chemical used and many water resources needed in the process. Leather products are manufactured using various processes and chemicals which may show variations depending on the desired the leather characteristics (Ozgunay et al., 2007). Leather industry pollutes through generation of huge amount of liquid and solid wastes, also emits obnoxious smell because of degradation of proteinous material of skin and generation of gases such as NH3, H2S, and CO2. Furthermore, the tannery effluents are characterized by high contents of dissolved, suspended organic, and inorganic solids rising oxygen demand and potentially toxic metal salts and chromium metal ion.

Based on Presidential Decree No. 28 Year 2008 on National Industrial Policy, industrial policy is directed to develop the industry become green manufacturing. Green manufacturing is developed to address environmental pollution as well as green barrier to trade from the customers especially in the European Union countries require environmentally friendly leather products. According to the Asian Productivity Organization (APO), with the development of global green trade, many business have adopted green procurement practices that are gradually becoming non-tariff trade barriers. Dandira (2013) stated that the company faces the green pressures of having to use new methods of manufacturing which environmental friendly for the company to remain competitive on the market and also to be a world class manufacturing organization. Furthermore, Iaconi et al. (2002) described that companies considering environment factor into the design stage of the product will be well placed to benefit from the marketing advantages of any future eco-labelling schemes. Green manufacturing is generically defined as elimination of waste by re-defining the existing production process or system (Kumar, 2013).

Nowadays, many companies manage their waste based on end of pipe treatment. But, environmental protection through pollution prevention and the meeting of environmental standards by waste treatment of the effluents in the various industries have not worked in many countries (Kwong, 2002). In developing countries, including Indonesia, environmental regulation is not strictly enforced. Environment protection is

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seen by industries as only an added cost, which reduces competitiveness and profits of the enterprises that strictly follow such environmental regulations. Therefore, Green Productivity (GP) is introduced to be the key elements of sustainable development which consider about environmental protection without sacrifice economic development.

Green productivity is still relatively new concept in Indonesian leather industry, especially to the SMEs. Findiastuti (2012) described that green productivity is more applicable in micro level performance measurements for its simple application and adjustable. It means that it can be applicable in leather small medium enterprises (SMEs) in Indonesia. APO stated that SMEs are important to the Asian economies, as more than 90 percent of all enterprises in Asia fall into this category. SMEs employ over half of the workforce, contribute nearly half of the Gross Domestic Product (GDP) and produce approximately 35 percent of the exports in many countries. According to Indonesia Tanner Association (APKI), 70-75% of Indonesian leather industries are in the form of SMEs which are located in several areas throughout Java including Jakarta, West Java (Garut), East Java (Magetan), Central Java, and Yogyakarta. In contrast with big industry which provide with good equipment and appropriate technology, SMEs have several main problems namely lack of access to new technology, lack of skills, lack of capital to invest, low profit margins, small and variable scales of operation and low productivity. Therefore, to manage their pollution problem effectively SMEs will only consider using an approach that carries a win-win formula. The strategy to address the problem should be a two-pronged approach that not only enhances productivity, but also leads to better environmeantal performance through green productivity appproach.

Kim (2003) stated that GP is a strategy and need an indicator that can be measured quantitatively to be able to see the success of the strategy using GP index. This index can be used to estimate GP performance of a product system or process. Besides GP index, there are GP portfolio that can clearly describe current position of ratio between environmental impacts and productivities. Furthermore, it make easier to see the strengths and weaknesses of a particular product or process. GP portfolio can be applied to look for a way to improve the GP performance of existing condition.

Subsequently, there is very limited empirical research that focuses on the green productivity practices in leather industry especially in Indonesia. Therefore, this study is conducted in order to examine what kind of practices that are applied in Indonesian leather industry, especially for SMEs to control its environmental effect and also formulate strategy to improve GP performance of Indonesian leather SMEs. For the initial step to address pollution problem in the leather SMEs in Indonesia, it is necessary to analyze to what extent the existing condition of the Indonesian leather industry and measure green productivity performance through GP index and GP portfolio. The next step is to formulate strategies needed to improve the green productivity performance of Indonesian leather industries, especially for Indonesian leather SMEs.

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I.2. RESEARCH QUESTIONS

RQ.1. To what extent Indonesian leather SMEs aware about sustainable development?RQ.2. What is the factors that caused the environmental problem of indonesian leather

industry?RQ.3. What kind of practices they undertake to solve the problem? Is it effective and

efficient to solve the problem?RQ.4. In which part of the Indonesian leather SMEs that can be improved to achieve

better green productivity performance?RQ.5. What strategy that can be done to improve productivity performance of Indonesian

leather SMEs?

I.3. KEY OBJECTIVES

1. To analyze existing condition of Indonesian leather SMEs related to environmental protection as well as productivity improvement practices

2. Measuring green productivity performance of Indonesian leather SMEs3. To analyze in which part of the existing condition of Indonesian leather SMEs that

can be improved by green productivity approach4. Formulate strategies to improve green productivity performance of Indonesian leather

SMEs

I.4. SCOPE OF THE RESEARCH

This research is conducted in leather’s SMEs in Garut, West Java. Leather’s SMEs in Garut is selected due to Garut is one of the biggest centre for leather tanning industry that is recognized have a problem regarding impact of their process to the environment. Therefore, analysing on the existing condition especially on productivity improvement and environmental protection practices will give insight to formulate new strategy to improve GP performance of Indonesian leather SMEs.

I.5. RESEARCH BENEFITS

The benefits of this research are :1. The innovative strategy to improve green productivity performance of the Indonesian

leather SMEs for more sustainable, effective and efficient industry2. Appropriate green productivity concept design to be applied in Indonesian leather

SMEs for better green productivity performance

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I.6. RESEARCH OUTCOME

Outcome of this study is formulation of innovative strategy to improve green productivity performance of the leather’s SME in Indonesia

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CHAPTER IILITERATURE REVIEW

II.1. GREEN PRODUCTIVITY

Green productivity was introduced by The Asian Productivity Organization (APO) in 1996. Green productivity (GP) is a strategy for enhancing productivity and environmental performance for overall socio-economic development. It is the application of appropriate productivity and environmental management tools, techniques and technologies to reduce the environmental impact of an organization’s activities, goods and services. Green productivity is a concept that not only considers about environmental protection but also economic performance of the industry. It focuses on three aspects namely productivity improvement, environmental protection and sustainability.

According to APO, productivity is how efficient and effective we use resources as input to produce products or services needed by society. Being ‘green’ in our productivity means to be productive with minimizing the environmental impact. The central element of the GP is the examination and re-evaluation of production processes to highlight ways to improve productivity, while reducing their environmental impact. Furthermore green productivity is at the heart of the concept of sustainable development (Miyai, 1997). Based on Hwa (2001), the concept of GP shows that for any development strategy to be sustainable, it needs to have a focus on environment, quality and profitability, which form the triple focus of GP. Logamuthu (2010) emphasized that GP is driven by forces both external and internal to the organization. External forces namely pressure from regulations, national and international, demands from various stakeholders such as consumers and suppliers. Logaa (2013) stressed that GP can increase product quality, reduce scrap and rework costs, reduce waste and pollution as well as reduce risk.

Green productivity concept is more acceptable for the industries because it can enhancing productivity and performance simultaneously. Therefore, companies can involved in environmental protection without sacrificing their economic performance through efficiently resource utilization and pollution prevention.

Figure 1. Green Productivity Concept

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Essentially, the implementation of green productivity is to achieve higher productivity and at the same time provide sustainable development. In addition, sustainable development is development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. This includes the use of services and products which meet our basic needs and improve the quality of life. The entire life cycle of these products and services must be based on minimizing the use of natural resources and toxic substances that result in emissions.

II.2. GREEN PRODUCTIVITY BENEFITS

According to APO, by implementing green productivity will give short term as well as long-term benefits to several stakeholders can be seen in the table 1 below :

Table 1. Green Productivity Benefits

No Stakeholders Benefits1 Enterprises Reduction of waste through efficient resource utilization

Lower operational and environmental compliance costs Reduction or elimination of long-term liabilities and

clean-up costs Increase in productivity Compliance with government regulations Better public image Increase in competitive advantage Increase in market share and profitability

2 Employees Greater workers’ participation Potential increase in employees’ share of value-added Improvement in health and safety in the workplace Better quality of work life

3 Consumers High quality products and services Reasonable pricing On time delivery

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From previous research on green productivity, many industry get the benefits from the green productivity implementation. For instance Singgih ML et al., 2010 find that by applying green productivity approach can increase around 3% and generate cost savings phenol purchases. While, Gandhi NMD et al., 2006 find that green productivity implementation in foundry manufacturing can improve GPI index up to 0.019 for the end collar castings. In addition, he stated that GPI can be used as an actinable feedback for leadership to make effective decisions.

In 2012, Sittichinnawing A and Peerapattana P that studied cayenne pepper production in Thailand find that GPI results can be used for the baseline indicator of process improvement to gain higher yield without compromising the environment. While Logaa SMJ and Zailani S, 2013 find that most of their respondents agree that GP can increase product quality, reduce scrap and rework costs, reduce waste and pollution and reduce risk. But on the other hand the respondents do not agree that GP can reduce manufacturing cycle time, reduce unit manufacturing cost, reduce absenteeism, and increase worker participation and increase healthier environments.

Subsequently, in the rubber industry in Indonesia study using green productivity approach have been conducted in 2012 by Darmawan MA et al., and he find that by the implementation of alternative strategies based on GP approach can increased green productivity to 0.690. On the other hand study about green productivity approach never been done before, especially in the field of leather industry in Indonesia. Therefore this study is conducted to gain new insight as well as fulfill the gap of knowledge in the field of green productivity in leather industry especially for SMEs in Indonesia.

II.3. INDONESIAN LEATHER INDUSTRY AND ENVIRONMENT

Ministry of Industry stated industrial sector has become a major source of economic growth that is equal to 1.6 percent in 2011. The growth of industry 6.8 percent was surpassing the target stated in Strategic Plan of Ministry of Industry in 2010-2014 of which was 6.1 percent. One of the sectors that surpassed the target is textile, leather goods and footwear industry that grew 7.5% (target 3.4%). The other sectors that also surpassed the target are food, beverages and tobacco industry, cement and non metallic mineral industry, as well as base metal, iron and steel industry. Furthermore, in 2010-2014 there are six industry groups that have good opportunities to be developed are: 1. Labor Intensive Industries2. Small and Medium Industries3. Capital Goods Industries4. Natural Resource-Based Industry5. High Growth Industry6. Special Priority Industries

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According to APKI (Asosiasi Penyamak Kulit Indonesia), 70-75% of Indonesian leather industries are in the form of SMEs which are located in several areas throughout Java including Jakarta, West Java (Garut), East Java (Magetan), Central Java, and Yogyakarta. Leather SMEs become one of the focus of the government due to its prospect in the contribution in Indonesian economic growth. On the other hand, most of the leather SMEs in Indonesia have a problem in the environmental performance that can be a barrier in the global market competition. Leather industry produce hazardous waste due to its chemicals and water used in the process. Globally, leather industry is divided into two big part namely leather manufacturing and leathing tanning processing. From both part, leather tanning industry contribute big effect to the environment due to its hazardous waste. Leather tanning process generate waste which cause pollution in each step of the process which can be seen in the figure 2.

According to Kanagaraj (2006) approximately 6.5 million tons of wet salted hides and skins are processed worldwide annually and about 3.5 million tons of various chemicals are used for leather processing. Based on Ramasami (2001) and Ludvik (1996), a considerable part of raw materials needed in process is discharged into the effluent. At an average consumption of 45-50 m3 of the waste liquor and 800 kg of solid wastes per ton of raw hide are discharged by leather industry. The composition of the wastes generated in tanneries worldwide are : COD, 1470; BOD, 619; suspended solids, 920; chromium, 30; sulphur, 60; and solid wastes (trimmings, fleshing, shaving and buffing dust), 3000 thousand tons (Ramasami, 1999). Subsequently, Kanagaraj (2006) stated that leather industry in developing countries is facing a lot of solid wastes problem and many tanneries closed for not meeting bio-chemical oxygen demand (BOD) and total dissolved solids (TDS) norms.

In addition, there are three categories of tannery industry pollutant namely waste solid, liquid and gaseous that are emitted in the form of waste water, solid wastes as well as air emissions. (Hunt, 2008). Waste water is a serious threat to the environment (Chandak, 1999). Waste water from this process can contain strong alkali, bio-wastes and high concentrations of heavy metals, such as chromium. If not treated properly, this poses a significant risk to the environment and human health. One of the big problem of tanning industry waste is the chromium content which is highly toxic and carsinogenic to human beings, animals, plants and the general environment (soil and water sediment). Based on the data from Blacksmith Institute, chromium pollution from tanning industry became one of 10 toxic pollution problem in the world since 2010-2013. Furthermore, most of the solution which is proposed to manage the tanning industry waste still based on end pipe treatment which is less effective to reduce the effect of the waste to the environment.

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Figure 2. Waste Generation in Leather Tanning Process

Source : Garg Rajiv, 2000

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II.4. PROFILE OF LEATHER INDUSTRY IN GARUT, WEST JAVA

Centre of leather tanning industry in Garut, West Java is located in Sukaregang. Area used for the leather tanning centre is around 79.75 Ha. In Garut, West Java, location of leather tanning industry are spread but tend to be close to the river namely Ciwalen and Cigulampeng due to leather tanning process need a lot of water resources. Leather industry in Sukaregang consist of small and medium industry. Medium industry are identified with the industry that have employee around 20-100 while small industry has 2-5 employees. For detail information about number of small and medium industry in Garut, West Java can be seen in the table 2 below:

Table 2. List of Small and Medium Industry in Garut, West Java (2011)

NoLocation Business

unitEmployee(persons)

Investment value (Rp. 000)

Production capacity Production valueVillage District Amount Dimension

1 Kota Wetan Garut city 290 1.285 13.391.040 114.463 Sq. Feet 44.216.3002 Suci Karang-

pawitan40 210 1.847.040 122.708

Sq. Feet6.098.800

TOTAL 330 1.495 15.238.080 237.171 50.315.100

Source : Centre of industrial and investmen of Garut city (2011)

Requirement of raw material for leather tanning processing include cow hide, sheep skin and goat skin are provided not only from Garut but also from outside Garut. For cow hide most of them ( approximately 90%) are supplied by outside Garut area such as Central java, East Java, NTT, Sumatera (Padang and Medan), Kalimantan and Sulawesi. While most of sheep skin are supplied by Garut (approximately 80%) and the rest come from Sumedang, Majalengka and Tasikmalaya.

In addition centre of leather tanning industry in Sukaregang have been provided with waste treatment plant that is built under control of centre for environment, cleanliness and landscaping of Garut. The name of the waste treatment plant is UPK SIK (Unit Pengelola Khusus Sentra Industri Kecil Kulit).

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CHAPTER IIIRESEARCH METHODOLOGY

III.1. RESEACH DESIGN

This study will be conducted through 4 steps. Firstly, from the literature study, observation and interview with SME we analyze existing condition to identify problem and causes of Indonesian leather’s small and medium industry. Then, we calculate Green Productivity Index (GPI) in each SME and combine with observation data about the existing practices they have done. In the next part, based on the data in the field, then we interview expert on green productivity, leather tanning process and waste management to generate green productivity option to be considered as well as doing SWOT analysis. Lastly, by analyzing in which part of the practices that can be improved using SWOT analysis, then we formulate strategy to enhance green productivity of Indonesian leather SMEs. For more detail of this reseach design can be seen in the figure 3 below :

Figure 3. Research Design

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III.2. TYPE OF DATA RESOURCES

1. Primary DataObservation in industry and indepth interview with the stakeholders and experts in the field of leather industry, waste management as well as green productivity.

2. Secondary DataLiterature study about the main concept of green productivity, green productivity index, previous research of GP and its aplication in industry through journals, report and other sources which related to this topic.

III.3. DATA COLLECTION

1. Literature reviewLiterature review is conducted to collect data from journals, books, reports and other related source about green productivity concept, green productivity measurement, previous research of GP and its apllication in industry through journals, report and other resources which related to this topic.

2. Observation, interview and related data collection in the leather’s SMEsObservation and interview is conducted in SMEs in Garut, West Java to analyze about existing condition as well as identify their problem and causes of the problem. Observation as well as of the SMEs will be conducted in 3 SMEs in Garut, West Java for 2 month from May - June 2014. Other related data collection needed for GPI measurement also will gained in this time. Three SMEs selected as observation location can be seen in the table 3 as follows :

Table 3. List of observation locationNo Name Location

1 PT. ELCO IndonesiaJalan Gagaklumayung No.127 Kecamatan Sukaregang, Kota Garut.

2 PT. Karya Lestari Mandiri Jendral Sudirman Km.1 No. 21 Garut.3 PD. Putra Setra jalan Jendral Sudirman No.26 kota Garut.

3. In-depth interview with the expertsIndepth interview is conducted with expert on leather tanning processing, waste management as well as green productivity. The type of the interview will be followed semi-structure interview with open ended questions. The experts of this in-depth interview can be seen in the table 4.

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Table 4. List of ExpertsNo Expertise Institution1 Leather tanning processing Akademi Teknologi Kulit (ATK), Yogyakarta

Balai Besar Kulit, Karet dan Plastik (BBKKP) Yogyakarta

2 Waste management Akademi Teknologi Kulit (ATK), Yogyakarta Balai Besar Kulit, Karet dan Plastik (BBKKP)

Yogyakarta3 Green productivity Institut Pertanian Bogor (IPB) Bogor

III.4. DATA ANALYSIS

III.4.1. Green Productivity Index (GPI)

According APO, GP is a strategy for enhancing productivity and environmental performance for overall socio-economic development. It is an application of appropriate productivity and environmental management policies, tools, techniques, and technologies in order to reduce the environment impacts of an organization activities, good and services. This concept can bring the industry to be aware about environment impact of their process and protect the environment without sacrificing their economic performance through efficient resource utilization and pollution prevention. Therefore, concept of GP is more acceptable for the industries because it can enhancing productivity and performance simultaneously. Furthermore, GPI (Green Productivity Index) is used as a measurement tool for green productivity practices in industry to analyze economic performance and environmental performance in one index.

Based on Hur et al. (2004) GP index measurement can be seen in the formulation below :

GP index = (Eq.1)

Indexing is a systematic measurement framework to define what to measure and how to measure. Furthermore, Gandhi, et al. (2006) justified the “Environmental Impact” by weighting the environment indicator of Solid Waste Generation (SWG), Gaseous Waste Generation (GWG), Water Consumption (WC). as can be seen in the formulation below :

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GP index = (Eq.2)

III.4.2. Green Productivity Portfolio

According to Ik Kim et al., 2003 after measure green productivity ratio, the value then plotted in the GP portfolio to know in which position company’s green productivity. Although there are statement that If GP ratio more than one it means that a new system is better than the existing one from the perspective of GP, but by plotted the value in GP portfolio we can clearly see in which stage the company’s GP as well as to look for in which part that have to be improved whether the productivity or the environmental performance by seeing the current position of new system applied. GP portfolio can be seen in the figure 4 below :

Figure 4. GP Portfolio

Furthermore, GP Portfolio makes it easy to see the effect of alternatives from both environmental and economic perspectives.

III.4.3. SWOT Analysis and Strategy Formulation

After measure green productivity inside organization, as well as conducted indepth interview with several experts in the field of green productivity, leather tanning process and waste treatment, SWOT analysis is conducted to analyze on strength, weaknesses, opportunity as well as threath of leather’s SME. And based on SWOT analysis, we formulate strategies to improve green productivity of Indonesian leather industry, especially for SMEs.

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REFERENCES

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