Mitigating Supply Chain Risk in the Oil and Gas Sector

Background

Procuring industrial equipment such as generators, pumps, and compressors essential for operational facilities often involves sourcing from Southeast Asian manufacturing hubs. Variations in logistics capabilities and customs performance between countries such as Malaysia and Indonesia can influence the efficiency and reliability of the supply chain. A supply chain risk study is essential to determine the best strategy to mitigate risk and enhance resilience.

Logistics Performance Index (LPI) Comparison (2023)

Metric	Malaysia	Indonesia
LPI Rank	26	61
Customs Score	3.3	2.8
Infrastructure Score	3.6	2.9
International Shipments Score	3.7	3.0
Logistics Quailty & Competence	Higher	Moderate
Average Lead Time (days)	8-11	12-16

Risk Profile

• Indonesia faces challenges including:
  • Customs clearance delays and bureaucratic hurdles.
  • Port congestion at Jakarta, Surabaya, and other major hubs.
  • Complex logistics due to archipelagic geography impacting transport of heavy equipment.
• Malaysia benefits from:
  • Efficient and streamlined customs processes.
  • Well-developed port infrastructure (Port Klang, Kuantan) and logistics networks.
  • Lower average lead times and better reliability.

Indonesia’s 2023 Logistics Performance Index (LPI) results are below. Indonesia has weaker scores across all LPI dimensions, with particularly notable moderate scores in the efficiency of the clearance process, in the quality of trade and transport-related infrastructure, and in competence and quality of logistics services. Indonesia has a less healthy LPI profile when compared to Malaysia.

Malaysia’s 2023 Logistics Performance Index (LPI) results are below. Malaysia has a customs score of 3.3, contributing to a more efficient clearance process than Indonesia. Additionally, Malaysia has a more robust infrastructure score of 3.6. Malaysia has an overall healthier LPI profile when compared to Indonesia

 

Mitigation and Resilience Strategy

To manage supply chain risks and maintain project timelines, the following strategies were suggested:

1. Safety Stock Buffer

• Maintain additional inventory of critical generators, pumps, and compressors from Indonesian suppliers in regional warehouses to cover 6–8 weeks of demand.

2. Supplier Diversification

• Increase sourcing volumes from Malaysian suppliers by 35–40%, prioritizing projects with tight schedules or high penalty risks.

3. Optimized Transport and Customs Handling

• For Indonesian shipments, coordinate closely with customs brokers and employ multimodal transport solutions (sea and land) to alleviate port congestion impacts.
• Leverage Malaysia’s efficient logistics corridors and customs facilitation programs to ensure timely delivery.

4. Supply Chain Visibility and Analytics

• Implement real-time shipment tracking and analytics tools to monitor cargo status and customs clearance, enabling rapid contingency measures such as freight mode changes or alternate sourcing.

Expected Outcomes

• Overall delivery reliability improvement by 28% year-over-year.
• Logistics cost increase by approximately 12%, but avoid delays and penalties resulting in significant net savings.
• Risk management and resilience metrics to show marked improvement due to dual sourcing and proactive inventory strategies.

Conclusion

This study highlights how comparing Malaysia and Indonesia based on logistics performance and customs efficiency can guide risk mitigation in oil and gas equipment sourcing. By combining safety inventory and supplier diversification, companies can enhance supply chain resilience and safeguard critical project timelines.

Contributor: April Kader

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About Allyn International

Allyn International is dedicated to providing high quality, customer centric services and solutions for the global marketplace. Allyn's core products include transportation management, logistics sourcing, freight forwarding, supply chain consulting, tax management and global trade compliance. Allyn clients range from small local businesses to Fortune 500 firms. Allyn conducts business in more than 20 languages and has extensive experience in both developed and emerging markets. Highly trained experts are positioned throughout North and South America, Europe and Asia. Allyn’s regional headquarters are strategically located in Fort Myers, Florida, U.S.A., Shanghai, P.R. China, Prague, Czech Republic, and Dubai, U.A.E. For more information, visit www.allynintl.com.