Development of efficient strategies to optimize production efficiency: Evidence from Pine chemical industry

Abstract

A pine tree, namely Pinus merkusii is an indigenous species from Indonesia which grows extensively in the Island of Java, Sumatera, and Sulawesi. This plant produces both timber and non-timber forest products (TFP and NTFP). Resin or oleum pine resin, as the main NTFP of Pinus merkusii, becomes the raw material for the gum rosin and turpentine oil industry. Globally, Indonesia is ranked 3rd as a producer of pine products after China and Brazil, in which Perhutani as a State Owned Forestry Enterprise plays a major role in this industry. On average, Perhutani manufactures 65,000 tons of gum rosin and 14,000 turpentine oil per year. Entire volume of both pine products is produced by nine factories with various maximum capacities. Therefore, this research aims to measure efficiency and/or inefficiency score of each factory using data envelopment analysis (DEA) method, which is then complemented by a single bootstrap technique with 2.000 iterations to eliminate bias scores. Cost of raw material, labour, energy, and general affairs are employed as input variables, while the output variables are total revenue and production volume. As result, 27.3% inefficiency (efficiency score = 72.7%) is generally found in all Perhutani’s pine chemical factories. To resolve this inefficiency issue, analytical hierarchy process (AHP) pairwise comparison questionnaire is distributed to 13 expert respondents to determine prioritized operational capability to focus on in optimizing efficiency of production performance. Dimensions of Cost, Quality, Flexibility, Innovation, and Sustainability are selected to construct the AHP questionnaires.