The furniture industry provides employment and livelihoods to millions of people. However, insecurity of raw material and power imbalance throughout the value chain impoverishes small-scale producers and results in an unsustainable furniture industry. In this presentation, CIFOR scientist Herry Purnomo uses a system dynamics approach to describe the long value chain of the Indonesian furniture industry, taking Jepara, Indonesia as a case study. He concludes with some recommendations for plausible actions to sustain wood-based industries and improve the livelihood of local communities. He gave this presentation at the MODSIM International Congress on Model and Simulations held on 12–16 December 2011 in Perth. The conference took the theme ‘Sustaining Our Future: understanding and living with uncertainty’.

1. A System Dynamics Approach to
Balancing Wood Supply and Demand for
Sustaining the Furniture Industry
Herry Purnomo, Lutfy Abdullah and Rika Harini Irawati
Perth, 12–16 December 2011

2. Structure
I. Introduction
II. Methods
III. Results
IV. Discussion
V. Conclusion

3. I. INTRODUCTION
Global furniture trade
Other emerging
• The global
Mexico
countries
16%
Italy
13% furniture trade is
2%
Indonesia Germany worth US$130
8%
2%
Canada
billion
• Indonesia’s
Malaysia 6%
3% USA
Poland 4%
7% Denmark share is 1.5% of
China
3%
the furniture
16% France
Austria
Other developed 2%
3% trade
countries
15%

4. Furniture in Indonesia
• Small and medium-
sized enterprises
(SMEs) account for
95% of production.
• Livelihoods of ≈ 5
million people in
Java depend on
furniture industry and
its chains.

5. Status of the furniture industry in
Jepara District (the study area)
• 12,000 business units
• 0.8 million m3 wood
processed yearly
• 27% of Jepara’s economy
• Wood supply scarcity
• Fierce competition with
China and Vietnam

6. Scale of Mean of wood Number of Total wood
industry consumption workshops consumption
(m3/year) (m3/year)
Small-scale 99 8,118 803,682
Wood
Medium-scale 269 158 42,502
Demand
Large-scale 1,155 13 15,015
Total 104 8,289 862,056

7. Potential wood Area (ha) Wood supplies Inside
suppliers (m3/year) Jepara
PERHUTANI Java 1,100,534 450,000 x
PERHUTANI Central
Java 300,000 298,410 x
PERHUTANI Jepara 23,627 20,000 v
Community forests,
Jepara 1,265 2,272 v
Community forests,
Indonesia 265,708 400,000 x
Wood Supply

8. Problems
• Wood demand exceeds supply
– There is a regulation for each district to be self sufficient
• China-ASEAN Free Trade Agreement (CHAFTA)
can decrease the furniture demand.
• Forest certification and chain of custody can
increase the furniture price

9. II. METHOD
• System dynamics modelling offers a dynamic
concept of process-based orientation (Forrester
1961).
• The method comprises (Grant et al. 1997)
– Conceptual model development
– Specification and execution of the model
– Evaluation of the model
– Use of the model

10. III. RESULTS
Conceptual model
Certification CHAFTA
Planting
InternationalDemandTrend
DomesticDemandTrend
CommunityLogHarvesting
FurnitureProcessing FurnitureInMarket FurnitureInUse
CommunityForest
Logs
PerhutaniForest LogIntake Delivering Supplying Decaying
PerhutaniLogHarvesting
ForestOutJeparaHarvesting
PerhutaniPlanting
ForestOusideJepara

11. Wood Demand and Supply (m3)
3,000,000
2,500,000
2,000,000
1,500,000 BAU Demand
1,000,000 BAU Supply
500,000
0
Note: BAU = Business as usual

12. Wood supply and demand under CHAFTA
and certification scenario (m3)
Demand
2,500,000 decreases
compared
2,000,000 to BAU
1,500,000
CAFTA Demand
1,000,000
CAFTA Supply
500,000
0

13. IV. DISCUSSION
• The current Jepara wood demand was fulfilled
by wood from outside Jepara and projected to
continue happening in the future.
• Incentive to grow trees did not occur in Jepara,
because the profit margin for growing teak is
very low.

14. • CHAFTA and certification decrease wood
demand, but will not affect wood supply.
– The decrease in demand will decrease the wood
demand.
– The wood supply is insensitive to this decrease,
because the market share of wood in Jepara is still
low.
• Increasing furniture prices is the right way to
increase wood prices and in turn to increase
incentive to grow trees.

15. Actions
• Training on how to plant teak
• Benefit-sharing agreement

16. • Planting super teak by furniture producers
• Collaboration with wood retailers
• Efficiency of wood uses

17. V. CONCLUSION
• The sustainability of furniture industry is challenged
because of the imbalance of wood supply and
demand.
• CHAFTA and certification are not the answer to the
problem.
• Increasing furniture prices is a must, in order to
encourage people to grow trees.

18. Thank YOU