Logistics and Supply-Chain Management

Transcription

185
TOPIC:
Logistics and Supply-Chain
Management
The 3rd International Conference on Technology and Operations Management (ICTOM)
Conference Proceedings © 2012 – ISBN: 978-979-15458-4-6
186
Available at www.ictom.info
www.sbm.itb.ac.id
www.cob.uum.edu.my
The 3rd International Conference on Technology and Operations Management
“Sustaining Competitiveness through Green Technology Management”
Bandung – Indonesia, July 4-6, 2012
Applying System Dynamics Approach to the Fast Fashion Supply
Chain: Case Study of an SME in Indonesia
Mariany W. Lidia1,2,*, Takeshi Arai1, Aya Ishigaki1, Gatot Yudoko2
1
Department of Industrial Administration (IA) - Tokyo University of Science (TUS),
1-3 Kagurazaka, Shinjyuku-ku, Tokyo 162-8601, Japan
2
School of Business and Management (SBM) - Institut Teknologi Bandung (ITB),
Jl. Ganesha 10 (Gedung SBM-ITB), Bandung 40132, Indonesia
Abstract. The fashion industry is the biggest contributor among the 14 creative industries in Indonesia. Its industrial
contribution to the Gross Domestic Product was 7.74 percent on average recently. In addition the industry has grown rapidly
as evidenced by the proliferation of boutiques and factory outlets. Nowadays many apparel companies are shifting toward the
vertical integration and accordingly their production processes range from raw material to ready-to-wear clothes. Fast fashion
is a concept whereby retailers orientate their business strategies to reduce the time taken to get fashion product into store,
working on a system of in-season buying so product ranges are consistently updated throughout the season (Barnes et al.,
2009). Since speed is everything to be successful in the apparel industry, fast fashion retailers must quickly respond to the
market demand. Defining the target market is essential to running a successful fashion business and without taking the time
to define it, a company is likely to waste precious time and money by marketing to the wrong customers, namely by trying to
communicate to those who are not interested in its products. Supply chain activities transform natural resources, raw
materials and components into a finished product that is delivered to the end customer. Therefore, supply chain management
has important roles of coordinating processes along the supply chain in order to reduce the time taken to deliver finished
goods to meet consumer demand (Christopher et al., 2004). One of the toughest challenges those SME face is the learning
about how to manage their financial performance without expense of redundant costs for attaining high profit. Defining the
target market and planning the optimum supply chain are the critical issues to fast fashion company, and therefore this
research aims to develop a model of the supply chain of an SME apparel company in Indonesia and to propose a decision
support system which applies System Dynamics (SD) and helps the management to identify the best business strategy. SD
facilitates the formalization and visualization of the customer behavior by structuring the decision making process and by
linking that, afterwards, to the financial variables. Understanding customer behavior, the marketing investment alternatives
can be leveraged using financial suitable metrics. Simulated scenarios can help the management to identify the most
appropriate policy to be applied in the future. Also, case study method was used in this research. Data were collected from a
typical fast fashion firm in Indonesia that produces its own wares ranging from raw materials to be ready-to-wear clothes, has
three stores, a warehouse and is running online sales system. We analyses the result of many simulations in a fashion
company from an operational point of view and from them we derive suggestions about the future business strategy in a small
and medium fashion company in Indonesia.
Keywords: System dynamics, fast fashion, supply chain management, SME, Indonesia
* Corresponding author. Tel.: +81-090-6000-9610
E-mail address: [email protected]
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M.W. Lidia, T. Arai, A. Ishigaki, and G. Yudoko – Applying System Dynamics Approach ...
1. Introduction
During this time, Indonesia was only became a home for original equipment manufacturer (OEM) for
branded products from another countries such as Zara, Gap, Esprit, Uniqlo and so on. Fashion industry in
Indonesia basically has the potential evolved essentially very well. Since Indonesia has potential of natural and
human resources, it could produce qualified products fashion. Ironically, none of the original Indonesia brand
garments are sold in Factory Outlets (FO). Therefore the domestic apparel firms must quickly improve
themselves to face this challenge. Learn from the fast fashion industries that has been successful can be a
reference and basis for improvisation. Their success is no incident.
The typical fast fashion brands gain their success is strong supply chain management, scarce value creation,
low costs on promotions and flexible brand positioning strategy (Zhenxiang and Lijie, 2011). One thing that
cannot be denied is the fashion world is highly perishable, influenced by the latest thing seen on the catwalk or
on the back of a celebrity. Firms should improving quality, creating unique design, and also applying a proper
supply chain to their business strategy.
Fig. 1: Domestic products position in Indonesia
Fast fashion is a contemporarily term used by fashion retailers to acknowledge that designs move from
catwalk to the store in the fastest time to capture current trends in the market (Zhenxiang and Lijie, 2011). Fast
fashion has developed from a product-driven concept based on a manufacturing model referred to as “quick
response”, it also represent about creating new, fresh product while also drawing consumers back to the retail
experience for consecutive visits. Quick Response (QR) was a phrase coined in 1985 by Alan Hunter and moved
to a market based model of “fast fashion” in the late
1990s and first part of the 21st century (Hines & Bruce, 2007). Fast fashion is a term refers to affordable
basics and disposable trends. It also used to describe the production of clothing collections based on the most
recent fashion trends (Dillon, 2012). Fast fashion is a concept whereby retailers orientate their business strategies
to reduce the time taken to get fashion product into store, working on a system of in-season buying so product
ranges are consistently updated throughout the season (Barnes, et al., 2009). This type of fashion is considered
seasonal, mostly trend-focused and mass produced.
Zara is the first word that comes to mind when we thinking about fast fashion. The company’s history began
with a small shop in La Coruna back in 1975, and turned into a global retailer today expanding in tremendous
pace. There are several advantages relating to fast fashion. Firstly, consumers perceive that ranges in the shops
are changing more regularly. This makes consumers want to visit the stores on more frequent basis, and that
speed of refreshing the ranges is very important (Barry, 2004).
Today many of the apparel industries shift towards vertical integration starting do full supply chain flows
such as starting from selecting raw materials, dyeing, designing, cutting pattern, sewing, packing and sell to
allotted retail shop and ended to the customers. This to meets the dynamic world mainly due to the growing
complexity such as demand uncertainty and also trends changing every four to six weeks. Supply chain is crucial
issue to integrate from initial design stage through the early raw material and cash flow also information flow
between customer and manufacturer (Hines, 2007). It consists of a series of activities that an organization uses to
deliver value, either in the form of a product, service, or a combination of both, to its customers (Samaranayake,
2005). Due to the improve responsiveness of supply chain in the fast fashion the concept of supply chain can be
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concluded to such as just-in-time (Bruce, et al., 2004), agile supply chain (Christopher et al., 2004; Bruce, et al.,
2004) and quick response strategy (Patil, et al., 2010). Supply chain strategies are either based on reducing cost
and improving efficiencies and focus on doing things differently to become more effective in serving the
customer and creating added value. In other words, not only efficiency goals can be pursued by supply chain
management but also the impact can be seen on such product quality, product availability, customization
delivery lead time (Brun & Castelli, 2008).
2. The SD Approach
In this study, we considered a system dynamics (SD) model to be appropriate research tools. The purpose
use SD is to improving the understanding and identification of the causal relationship in the system. SD was
introduced by Jay Forrester in his book, Industrial Dynamics in the early 1960s. In several areas of management
research, computer simulators based on SD model are used as a means to explore the subjects’ understanding
and behaviour in complex situation. SD is a methodology for studying and managing complex feedback system,
such as one finds in business and other social systems. In fact it has been used to address practically every sort of
feedback system, problem solving and policy design. The purpose of SD modeling is to improve our
understanding of the ways in which an organization’s performance is related to its internal structure and
operating policies and then to use that understanding to design high leverage policies for success (Sterman,
2000). John D. Sterman defines SD as follows: “System dynamics is a perspective and set of conceptual tools
that enable us to understand the structure and dynamics of complex system. System dynamics is also a rigorous
modeling method that enables us to build formal computer simulations of complex system and use them to
design more effective policies and organizations.”
3. The Case Study
The application of the proposed system is illustrated and verified through a case study. A brief description of
the case company and data is given, and the proposed model is then estimated and evaluated. The case company
is a typical fast fashion firm in Bandung, Indonesia that produces its own wares ranging from raw material to be
ready-to-wear clothes, has three stores, a warehouse and running online sales system. This company is the
founder of boudist or boutique distro community. Boutique represents the meaning of fashion for female and
distro symbolize the “do it yourself” community. This company started since early 2004, has tag line for their
product “Hot new and limited product everyday”. The target markets of this company were women in range age
are 15-30 years. This company had opened branches in Jakarta and Surabaya, but closed at the end of 2010. The
company possesses data on production processes, price of product, sales, marketing strategy, product
characteristic, and the number of worker in each section. Due to confidentiality, all of the actual data are
concealed.
3.1. Customer as demand perspective
Fig. 2: From enhancing customer buying product
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Since Bandung is destination of tourist visitor, many of visitors came and go to Bandung. So in potential
customer point of view, visitor and population of Bandung have great effect to demand increment. Some of them
will shopping in the store (Buying Product) and remain of them will shopping on the street or another stores. The
number of customers who buy product can be considered as sales. These numbers can be used by companies to
estimate demand. The ability to buy product is also determined by income per capita of population. Customers
derived from frequent customer and new customer. Intentions to buy are also influenced by intensify the
advertising and promotion undertaken by company. And also product attractiveness would be able to attract
customers to come to the store. The frequent customer will contribute to WOM effect. After bought product they
will tell to their friends about their impression or when they wear the product, their acquaintance will see and
asking where they buy the product.
3.2. Product attractiveness
Product attractiveness (in terms of design, quality, product availability, and assortment) is the main stimulus
influencing customers to buy product (Brun & Castelli, 2008; Chan, 2011; Rajaram, 2001; Vaagen & Wallace,
2008). A recent study recognizes the importance of assortment rotation in a competitive setting (Caro, et al.,
2009). For any retailer with variety-seeking customers, some degree of assortment rotation is desirable, and it
pays off significantly to develop capabilities that allow variety to be managed efficiently. And it needn’t just be
trendy items that rotate frequently, as happens with Zara and H&M. This also shows the importance of the
change itself, rather than specific type of product being replaced. The price factors also contribute to product
attractiveness. It is difficult to say which component of pricing is more important than another. Prices also level
where the consumer perceives the price to be fair with value. When customers come in and find out what makes
them look younger, thinner, and sexier, they are not as apt to look at the price tag. They know that no matter
what the cost, they’ve found their own best value (Flynn and Foster, 2009).
Fig. 3: From enhancing product attractiveness
3.3. Improving innovation and production
Labor is one of vital input for overall production process. Skilled labor will produce high productivity thus
merchandise produced have high quality and quantity of production increased. Based on interviews the most
difficult part to do is in making pattern (Cutting) and sewing the accordance the pattern. Excessively defective
goods produced in the production process. This can be reduced if the company enhancing labor quality (the skill
of worker).
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Fig. 4: From enhancing production lead time
3.4. Total cost
Total cost is the total cost to run a business, such as raw material costs, fixed costs (building and machines),
employee salaries, advertising costs, production costs and training costs. Inflated production cost can also be
caused by excessively defective goods. The company should manage the expenses due to the purpose of an
organization running a business is to gain optimal wealth. To optimal profit, the company must optimize the
operational cost. Any inefficient costs should be eliminated. For example for advertising the company could use
the social media to promote their products, make promotion, announcement, and create an events. Total cost can
be used as the foundation for management to determine the revenue targets and from this revenue target can
specify how many sales targets are to be obtained.
Fig. 5: From total cost
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3.5. Causal relationship
The purpose of an organization is to create more wealth for its owners. This is refers to how to create more
profit. A financial measure involves some measurement of the overall profitability of the organization
(McGarvey, et al., 2001). Based on the goal of an organization running a business, we will illustrate a causal
relationship model that provides a framework for developing model to provide decision support to run the
business strategies. We analyses the result of many simulations in a fashion company from an operational point
of view and from them we derive suggestions about the future business strategy in a small and medium fashion
company in Indonesia. This section presents an overview of the causal relationship variables. Red arrow lines
indicate the flow of material, the blue lines shows the flow of information between the factors, and the green
lines indicate the financial flows in the system.
Fig. 6: Causal relationship general supply chain perspective
4. The SD model
Based on causal relationship model, initial input parameters for the proposed model are shown in this table:
Table 1: Parameters input in the proposed model
Parameter
Bandung population
Target population
Target rate
Display
Display level
Display change
Workers
Definition
Number of population in Bandung
Number of target market age
Number of percentage target market
Number of cloths in the stores
Number of new arrival item
Number of rotation cloths display
Number of operator assigned in production
Unit
People
People
Percentage
Item
Item
/weeks
People
Price
Total cost
The price of product
Cost of employee salaries
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Rp
Rp
Fig. 7: System Dynamic model
5. Result and Discussion
To gain more profit the company must keep frequent customer and increase new customer (sometimes
customer) to purchase the merchandise. The product attractiveness such as affordable price, products variety, and
also the quality greatly influence to a sometimes customer to be a frequent customer. Based on interview results
can be deduced the purchasing power parity of target market for clothing purchases. Rely on this data; the
company can set up the level of clothing prices. The second factor is service quality. Service qualities in this
point are shop attractiveness and the staff attractiveness. The shop attractiveness supported by the product
assortment, rotation of clothing in a display area, and how company define the amount of clothing with a new
design for display at the new arrival area (display level). Within one month, the average customer to buy or
windows shopping into store as much as 1-2 times. This is an indication of management in producing the new
design and strategy product replacements in the store are very important. It is intended that customers will
finding something new and fresh every time comes into the store. Despite these factor are met, but when the
availability of goods (display) in the store are low or empty, this will make the customer go to another store and
the store will lose the opportunity to gain sales. With sales increment it means the management has resources to
open a new retail store. With the additional number of shop it will effect on shop level. The time taken to
replenish store will be lead if the defect clothes decrease. The defect could be minimizing by increase the skill of
worker. With the skilled worker the production processing time can be lead. Worker’s skills can be improved
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with training. The target training also can be defined by unskilled workers and skilled workers. Conduct training
is not easy, because the company have to budgeted substantial funds such as the need to hire a professional. But
these factors are trade off when the company want to preserve the value of long-term business (customer lifetime
value). In recent years, many companies have focused on how to enter markets and meet customer requirements
to boost their market share and profit and pretermit the customer loyalty and generate greater profits in the long
term. These highlight the keys factors that ought to be considered in making policy decisions.
6. Conclusions and Future Research
The proposed model focuses on the modelling generally fast fashion supply chain an SME in Indonesia.
However this study has limitations that result applications of this study are only eligible to the same scale of fast
fashion companies, and due to different situation in every country, the result of this study are only relevant if
implemented in the same country. This study only considers the company’s point of views such as production
process, marketing strategy, and human resources. We also state that for providing insight, we are not optimal
defining the individual variables such as variety planning under uncertainty, assortment planning under shelf
space constraints and consumer behaviour it could be extended in the future research. As conclusion, we believe
this model provides a useful framework to understand and analyse several factor to make decision policies
problem.
Acknowledgements
We would like to express our sincere gratitude to Mrs Sherly, Alifia Meta, and Agus who provided
assistance and information during site visits and interviews. We would also like to thank the anonymous
respondent for giving their opinion in the questionnaire.
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Cite this paper
Lidia, M.W., Arai, T., Ishigaki, A., and Yudoko, G. (2012). “Applying System Dynamics Approach to the Fast Fashion
Supply Chain: Case Study of an SME in Indonesia,” Proceedings of The 3rd International Conference on Technology
and Operations Management: Sustaining Competitiveness through Green Technology Management, Bandung–Indonesia
(July 4-6), pp. 187-195. ISBN: 978-979-15458-4-6.
196
www.sbm.itb.ac.id
www.cob.uum.edu.my
Requirement Model of Mobile Supply-Chain for Petrol
Transportation in Malaysia
Kamal Imran M Sharif1,*, Zulkifli Mohamed Udin1,*, Jafni Azhan Ibrahim1,*,
Mazni Omar2,*
1
School of Technology Management and Logistics (STML) - College of Business (CoB) - Universiti Utara Malaysia (UUM),
Sintok 06010, Kedah Darul Aman, Malaysia
2
School of Computing (COMP) - College of Arts and Sciences (CAS) - Universiti Utara Malaysia (UUM),
Abstract. The demand of mobile technology in Malaysia has been more than expected and continues to expand greatly.
Mobile supply chain management is one of the systems that provide managing petrol transportation efficiently. The
application of mobile technology, allow the information of petrol transportation to retrieve ubiquitously and ordering process
can be done immediately. It will help the sales executive from the oil and gas company to closely monitor and ensure good
delivery of petrol to customers. Thus, this study aims to design a requirement model for mobile supply chain management
system for petrol transportation in one of the oil and gas company in Malaysia. The model will provide a better guideline for
the mobile system developer to design and develop the system accordingly. There are three main phases involved in the study
which are defining, analyzing, and validating requirements. Nevertheless the study only focused on capturing the functional
requirements using Unified Modeling Language (UML) and concluded the constraints arose during the course of producing
the model.
Keywords: Mobile supply-chain, technology management, unified modelling language
1. Introduction
Nowadays, fleet management system, become one of the elements that contribute to current fleet’s
productivity and reduce working capital requirements by lowering operational expenses. In addition, the fleet
management had become the business challenge in order to find the right alliance of technologies and services to
unleash the full management potential. In order for the fleet management company to stay in touch with their
marketing and sales information, mobile communication become the component that provide specialized needs
to them (Salkintzis, 1999). Silva and Mateus (2003) stated that a lot of opportunities can be created with the
combination of three technologies which are Internet, mobile communication and location technologies. Thus, to
* Corresponding author.
E-mail address: [email protected] ; [email protected] ; [email protected] ; [email protected]
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K.I.M. Sharif, Z.M. Udin, J.A. Ibrahim, and M. Omar – Requirement Model of Mobile Supply-Chain ...
exhibit the usefulness of mobile fleet management system, petrol transportation is one the services that employed
the application of information technologies which can provide the return on investment to the company. In order
to establish a well-defined mobile fleet management system, analysts or developers of the system need to
understand all the requirements needed to build the system. According toSilva and Paton (2000), analyst used
requirement model as a data flow model to represent the functional requirement and operational concept as the
basis of the design guidelines. Pertaining to this, Unified Modeling Language (UML) has various uses in many
different applications and become the industrial standard language for object oriented analysis and designs
(Nunes, 2000). Therefore, this study is aimed to design the requirements model using UML model. Petronas
Dagangan Berhad (PDB) has been chosen as the case study since the oil and gas multinational company provide
petrol supply services for the petrol station in Malaysia.
1.1. Problem Statement
In PDB, sales information is one of the important element that gives an overview of sales executive to
achieve immediate and 100% market penetration. Marketing covers a wide range of distinct activity that requires
different skills to perform and provides greater support to user interface design. However, due to the factor that
working nature of the sales executive that they are mobile, the sales executive unable to stay in touch with their
sales information such as to keep track the delivery of petrol and sales strength. Currently, the information is
only available in the stand alone database which only can be accessed from the office. The existing systems only
cater for scheduling of the transportation internally and no mechanism exist to update the sales executive on the
status of the delivery information. As far as productivity is concerned, the power of accessing up to date
information on sales is highly desirable for all the sales executives. The scope of the study will be focusing on
development of requirement model of (Mobile Fleet of PDB) M-FLEP. The requirement model consists of use
case diagram, use case specification, class diagram, activity diagram and interaction diagram. Besides, a
prototype of M-FLEP is also developed as a proof of concept of the requirement model. The prototype will be
using the desktop PC Emulation as an instrument to demonstrate the M-FLEP.
2. Literature Review
2.1. Requirements
The description of what a system should do in software engineering is defined as requirement. In addition
the collection of requirements defines the characteristics or features of the required system but did not state how
the system implements the requirements. In the other hand, user requirement is interpret as high level abstract
requirement while system requirement is the detailed design of what the system should do (Sommerville, 2007).
Whitten et al. (2001) divided requirement into two major types, which are functional requirement and nonfunctional requirement. Bennet et al. (2006) divided requirement into three categories, which are, functional
requirement, non-functional requirement and usability requirement. Functional requirement is a system service
which is expected by the user of the system and will present the functional or feature that must be included in
certain system to satisfy the business need and be acceptable to the users (Sommerville, 2007). According to
(Whitten, 2001) the description of other features, characteristics and constraints that define a satisfactory system
can be called as non-functional requirement. Non-functional requirement are those that describes aspect of the
system that are concerned with how well it provides the functional requirement.
2.2. Requirement Model
All requirements that have been obtained should be documented after the system analyst has found the
requirement. This will help the system analyst to obtain the required document. Requirement model should be
presented in an understandable way such as modeling the requirement. Requirement is aims to capture the
functional requirement from user perspective and give a complete view of the requirement needed from the
system (Bennet, et al., 2006; Booch, Rumbaugh, & Jacobson, 1998). A requirement that use UML, will consist
of a use case model, use case diagrams, use case description, prototype of some use cases and initial Architecture
Model of showing sub-systems. A subsystem is a part of a system that consist related elements and a model is an
abstraction of a system or sub-system from a particular perspective or view.
2.3. Unified Modeling Languange (UML)
The Unified Modeling Language (UML) is a visual modeling language that can be used to specify, visualize,
construct and document the artifacts of software system (Booch, et al., 1998). According toSilva and Paton
(2000), UML has been widely accepted by application developers and provide greater support to user interface
design.According to Eriksson(1998), UML can be applied in different phases of system development, from the
requirement specification to the test of finished system. In addition, UML can also be used for business modeling,
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software modeling in all phases of development and for all types of system, and general modeling of any
construction that has both a static structure and dynamic behavior. Furthermore, UML has become the formal
and de facto standard for creating software models. There are many types of diagrams in UML. Each diagram in
UML has a specific purpose. The following defines the types of UML models for the specific domains:






The User Interaction or Use Case Model - describes the boundary and interaction between the system
and users.
The Interaction or Communication Model - describes how objects in the system will interact with each
other to get the work done.
The State or Dynamic Model - State charts describe the states or conditions that classes assume over
time. Activity graphs describe the workflows the system will implement.
The Logical or Class Model - describes the classes and objects that will make up the system
The Physical Component Model - describes the software (and sometimes hardware) components that
make up the system.
The Physical Deployment Model - describes the physical architecture and the deployment of
components on that hardware architecture.
2.4. Mobile Location Services
Mobile world has become the rapid development and fast adaptation of new technologies. The convergence
of three technologies, the Internet, wireless communication and location technologies is creating new
opportunities for mobile services (A. P. Silva & Mateus, 2003). On top of that, recent technological
developments have led to the availability of mobile environments for the implementation of fleet management
application (Riccardo Bozzo, 2001). Therefore, in order to improve effectiveness of the transportation system,
mobile location information services can be utilized. According to (Jagoe, 2003), mobile location services are
subset of larger set of new capabilities enabled by advanced personalization technologies which is context based
services. Application that are context-enabled not only are able to customize themselves based on where a user is
but also on who the user is and the user might be playing at a given time. Therefore, mobile location services
have a great deal of attention because of the opportunity that they present service providers. Swedberg (1999)has
suggested Ericsson’s mobile location solution to customize personnel communication services through the
mobile phone or other mobile devices. The location-based services are categorized by type of application, which
are information services, tracing services, resource management, navigation and also map services. Multimedia
networking has become widely used in 1990 and there is an increasing demand in supporting the usage in
wireless in environment (Biswas & Hopper, 1995). Wireless networks have utilized a client-server approach to
the development of wireless network location services. The location services client is representative of location
service applications that either reside within the wireless network including mobile station or may reside outside
the wireless network. These clients are capable of requesting location information or network positioning
assistance information from the wireless network.
2.5. Mobile Fleet Management Application
Fleet management is a discipline of tracking, maintaining, and otherwise managing a fleet of vehicles in an
organized manner. These include organize all contact information on drivers, employees and customers, track all
details on each accident, claim or traffic violation, manage parts inventory and automatically generate and print
work orders.
Huiberts (1989) claims that mobile communication has been increasingly important to Truck Company as
more companies get the maximum profit from the communication system. In addition, McLellanet. al.,(1992)
stated that the mobile operation can help to:
i) minimize response time;
ii) increase the capacity of goods delivered;
iii) improve the service to the customer in the form of information on where the response vehicle is at any
given moment; and
iv) maximize the use of resources (vehicles and personnel) available.
Silva and Mateus(2003)has work on modeling a mobile location-based services (LBS) application using
wireless communication network infrastructure. The objective of this application is to assign a taxi to each
mobile user based on optimization and simulation. On the other hand, the application can enable the fleet
managers to view and interact with their entire mobile fleet using the Web or wireless Internet, where they can
track mobile user’s location and movement on map.Prasad et. al.(2002)has developed a mobile fleet application
system that runs on different workstations and hand-held devices as a distributed mobile system on a wireless
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network. This system has three major components, which are the Web and Data Center (WDC), depots and
trucks. A user may connect to the WDC to request delivery of a package and give information pertaining to the
package such as where the package can be picked up and where it should be delivered. The WDC passes the
information to the depot, which schedules the pick-up. Using the wireless communication, the truck will arrive
according to the schedule and take the package to its destination.
McLellanet. al.,(1992)has introduced the NavTrax system which is a dispatch type Automatic Vehicle
Location and Navigation (AVLN) system. This paper describes that the NavTrax has three main subsystems,
namely, the in-vehicle subsystem, the communication subsystem and the dispatch center subsystem. The invehicle subsystem performs specific functions such as position and location computation, status determination
and reporting to dispatch office and receipt message from central dispatch. The communication subsystem has
employed UHF/VHF technology. However, they planned to implement cellular technology. The main functions
of dispatch centre subsystem are to collate and display information of controlling the fleet.
3. Methodology
The methodology of the system consists of three phases namely, define requirements, analyze requirements
and validate requirements. There are as follows:
3.1. Define Requirements
This phase is the initial phase on development of requirement model that emphasize on gathering data
requirements. There are two types of fact-finding used which are informal interview and background reading.
Informal interview has been conducted with the main owner of the system which is PDB sales executive. The
background reading technique has been obtained by referring to the user manual from the working procedure. In
addition, the informal interview has been supported with a set of questionnaires that has been given to the
identified users.
3.2. Analyze Requirements
In this phase, the requirements of the M-FLEP have been transformed into UML model. There are many
ways to document the requirements for an information system. UML created by Booch et al. (1998)is a language
for specifying, visualizing, constructing and documenting the deliverables of software product. It enables
stakeholders that are involved in software development document and describe the software in standard way.
The UML diagrams involved are as follows:
i.
ii.
iii.
iv.
v.
Use Case Diagram
Activity Diagram
Sequence Diagram
Collaboration Diagram
Class Diagram
Besides, list of requirements to show the functionalities of the system was also identified. All the diagrams
constructed were assumes syntactically correct. This has been ensured by the UML Computer Aided Software
Engineering (CASE) tool which is Rational Rose.
3.3. Validate Requirements
The horizontal prototype was used to validate functionalities of mobile fleet management system for petrol
transportation. The horizontal prototype is a high level prototype that specifies the basic functionality of the
system (Jozo Dujmovic 1999). The functionality will be specified in graphical user interface screens, interfacing
of modules, order of execution and works with sample data. The goal of horizontal prototype is to refine unclear
requirements from the system. The prototype has been developed for mobile fleet management system is using
Microsoft Front Page 2000, Active Server Pages (ASP) and Desktop Pocket PC Emulation. The aim of
validation is to identify and correct all errors occurred regarding the incorrect or inconsistency information.
4. Results and Findings
4.1. UML Diagrams
The result of the research which is the requirement model was represented using UML notation. The
following diagrams have been modeled. There are:
4.1.1. Use Case Diagram
The use case diagram has three (3) primary actors, namely customer, clerk and sales executive. There is one
(1) secondary actor which is PDB Profile Database. There are eight (8) use cases which are request petrol,
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view order list, manage delivery, view schedule, arrange schedule, manage stock,
generate invoice, and authenticate user. The use cases identified has been packaged to show the
modules involved. There are three (4) packages which are user authentication, order management,
delivery arrangement, and stock management. Figure 1 and 2 shows the use case diagram and
packages involved.
customer
request petrol
<<include>>
manage delivery
<<include>>
<<include>>
sales executive
search order
<<include>>
authenticate user
<<include>>
PDB Profile
Database
view schedule
<<include>>
<<include>>
arrange schedule
clerk
manage stock
generate invoice
Fig. 1: Use Case Diagram for M-FLEP
4.1.2. Use Case Specification
Use case descriptions provide detail descriptions of the interaction between the actors and the system. There
are eight (8) use case descriptions based on each use case identified. The use case specification includes the basic
description of normal flow, exceptional flow, and alternative flow. The use case specification also defined the
pre-condition, post-condition and constraints of the use cases.
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4.1.3. Activity Diagram
Activity diagram is important to define the workflow of the business activity. There are four (4) activity
diagram has been modeled reflecting the four (4) modules that has been defined, which are user authentication,
order management, stock management and delivery management.
4.1.4. Class Diagram
There are fifteen (15) classes have been defined for M-FLEP. The classes have been grouped into three (3)
stereotypes, which are boundary, controller and entity. Figure 3 shows the M-FLEP Class Diagram.
Boundary
Controller
CustomerMenu
(from Boundary)
1
OrderManager
(from Control ler)
11
1
1
1
ExecMenu
(from Boundary)
1..*
1..*
1
DeliveryManager
(from Controller)
1
Order
(from Enti ty)
1
1
1..*
1..*
Schedule
(from Entity)
1..*
1
1
1
1
1
1
1
LoginMenu
(from Boundary)
Entity
1
1
PrintManager
(from Controller)
1
1
LorryInfo
(from Entity)
1
ClerkMenu
(from Boundary)
1
1
1
LoginManager
(from Control ler)
1
1..*
Invoice
(from Entity)
1..*
InvoiceManager
(from Controller)
1
1
1
StockManager
(from Controller)
1
1..*
1..*
Stock
(from Entity)
Fig. 3: Class Diagram for M-FLEP
4.1.5. Interaction Diagram
Interaction Diagram consists of sequence and collaboration diagram. There are twenty (20) sequence
diagrams and twenty (20) collaboration diagrams have been modeled for M-FLEP which is considering the
normal flow, exceptional flow and alternative flow of each use cases identified.Besides, the list of functional
requirements also has been constructed. There are twenty five (25) functional requirements documented for MFLEP. There are as Table 1. In Priority column, M refers to mandatory requirements that the system must be
fulfilled. O is refers to optional requirements that the system may do and D is refers to desirable requirements
that the system is preferably should do.
5. M-FLEP Prototype
M-FLEP prototype has been developed using HTML and ASP scripting language. In order to validate the
requirements, testing script has been constructed based on the use case identified to the user. Changes have been
made iteratively based on the user comments. Figure 4 shows the sample interface using Desktop PC Emulator.
In this study, the following guidelines were considered in designing the user interface for mobile application.
There are:







Design for small screen
Avoid scrolling too much
Use thumbnail or navigation links
Design for speed
Put the right content on page
Present the most important information first at the top
Optimize the reading process
This research has been adopted as the guidelines in designing the interface of M-FLEP.
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Fig. 4: Sample of M-FLEP Interface
Table 1: List of functional requirements for M-FLEP
No.
1.
2.
3.
Requirement ID
M-FLEP_REQ_01
M-FLEP_REQ_01_01
M-FLEP_REQ_01_02
M-FLEP _REQ_01_03
Requirement Description
Priority
AUTHENTICATE USER
User can enter their unique user name and password to log into the system.
M
User can select Reset option to reset the user name and password field.
O
An error message will be displayed if the user enters wrong or invalid password.
D
4.
5.
6.
M-FLEP_REQ_02
M-FLEP_REQ_02_01
M-FLEP_REQ_02_02
M-FLEP_REQ_02_03
REQUEST PETROL
Customer can make request by entering request petrol information.
Customer can view request that has been made.
A confirmation message will be displayed when the order is successfully raised.
7.
8.
9.
10.
11.
M-FLEP_REQ_03
M-FLEP_REQ_03_01
M-FLEP_REQ_03_02
M-FLEP_REQ_03_03
M-FLEP_REQ_03_04
M-FLEP_REQ_03_05
MANAGE DELIVERY
Sales executive can view list of order request from customer.
Sales executive can select customer name to view details.
Sales executive can enter status information to manage delivery.
Sales executive can delete customer order.
A confirmation message will be displayed to confirm deleting the customer
order.
12.
13.
M-FLEP_REQ_04
M-FLEP_REQ_04_01
M-FLEP_REQ_04_02
SEARCH ORDER
Sales executive can search order request from customer by customer number.
Sales executive can view particular customer request details.
M
M
14.
15.
M-FLEP_REQ_05
M-FLEP_REQ_05_01
M-FLEP_REQ_05_02
VIEW SCHEDULE
Sales executive can view delivery schedule.
Sales executive can print delivery schedule.
M
D
M
M
D
M
M
M
D
D
204
16.
17.
18.
19.
M-FLEM_REQ_06
M-FLEP_REQ_06_01
M-FLEP_REQ_06_02
M-FLEP_REQ_06_03
M-FLEP_REQ_06_04
ARRANGE SCHEDULE
Clerk can view list of customer order.
Clerk can select customer name to view details.
Clerk can search available lorry status by plat number.
Clerk can view available lorry by specific plat number.
M
M
M
M
20.
21.
22.
M-FLEP_REQ_07
M-FLEP_REQ_07_01
M-FLEP_REQ_07_02
M-FLEP_REQ_07_03
MANAGE STOCK
Clerk can search fuel stock by date.
Clerk can view stock available by specific date.
Clerk can enter new stock.
M
M
M
M-FLEP_REQ_08 GENERATE INVOICE
23. M-FLEP_REQ_08_01 Clerk can search by order number.
24. M-FLEP_REQ_08_02 Clerk can view customer invoice.
25. M-FLEP_REQ_08_03 Clerk can print the customer invoice.
M
M
D
6. Conclusions
6.1. Research Summary
The objectives of the research are to design, test and validate a requirement model for mobile fleet
management system that includes diagrammatic and textual description using UML that meets the requirement
of user of PDB’s fleet management system. The prototyping of the system and the test script was adopted for
requirement model validation. The requirement model that produced in the study will become as a guideline for
the interested system developers to produce mobile fleet management system in the future. Moreover the
requirements can be referred not only to mobile application developer, but it can also be referred to web based
application developer in order to develop a well-established system.
6.2. Constraints and Limitations
There are several problems encountered during development of M-FLEP. Although the objective of
designing the requirement model is achieved, some limitation still occurred. The constraints and limitations in
developing of M-FLEP are:



The prototype system is not fully function, due to time constraints in developing the prototype.
However the research manages to cover the horizontal prototype.
The scripting limitation of Hypertext Markup Language (HTML) cannot support the mobile technology
in the development of user interface. The system developer has to define the appropriate mobile
technology language such as Wireless Markup Language (WML) in order to ensure the smoothness
development of mobile user interface.
This study only conducting interviews and prototype validation among respective sales executive of
PDB. Due its focus to provide generalized functions for PDB’s executive and stakeholder it should
include other party that involve in the business.
6.3. Recommendations for Future Research
The following recommendations are forwarded to facilitate the constraints and limitation of the study.



It is hoped that a complete requirements of mobile fleet management system can provide the tracking of
the transportation of tanker using GPRS technology. This scope can be enhanced by future developer.
The development of mobile fleet management system should be developing using the appropriate
development tools such as WML, in order to ensure the smoothness development of mobile user
interface.
It also suggested that the future research should use brainstorming technique apart from interviews. A
lot of participants can be involved in the discussion by using the brainstorming technique.
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Cite this paper
Sharif, K.I.M., Udin, Z.M., Ibrahim, J.A., and Omar, M. (2012). “Requirement Model of Mobile Supply-Chain for Petrol
Transportation in Malaysia,” Proceedings of The 3rd International Conference on Technology and Operations
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206
www.sbm.itb.ac.id
www.cob.uum.edu.my
Green Supply Chain Management at PT. Biomethagreen
Winda Haryati Utami1,*, Ina Primiana1, Budi Harsanto1
1
Faculty of Management and Business - Universitas Padjadjaran (Unpad),
Jl. Dipati Ukur no.35, Bandung 40132, Indonesia
Abstract. Every industry’s business process would have environmental impacts. One of environmental impact that we can
see is the disposal of the final product that has been used by consumers such as packaging, or the product itself which we call
the garbage or solid waste. With the application of green supply chain, companies can reduce resource use in the production
process, especially in the procurement of raw materials The purpose of this study is to determine the impact of the
implementation of green supply chain to the company’s performance in terms of time and cost. In this study, researchers used
a qualitative descriptive research method to create a description in systematic, factual and accurate information about the
facts, properties and relationships among phenomena investigated. This study using tools in the form of SCOR (Supply Chain
Operating Reference) level one to assess green supply chain performance is applied by the company. The result is that the
performance of PT Biomethagreen is on the average, so as to achieve best in class is like, needs to improve performance on
some aspects.
Keywords: Supply chain management (SCM), green SCM, SCOR, logistics, environment
1. Introduction
In this era, international businesses are growing rapidly. This condition made such a tough competition.
Everything should be done by companies in order to have take advantages in efficient and effective way. In order
to achieve efficiency and competitive advantages, one of the most important thing is to develop a proper supply
chain in a business process.
In thi globalization era, the number of industry is growing higher. Every industry do the business which
have environmental impacts. We can see some of environmental impact as the disposal of the final product that
has been used by consumer such as packaging. The product it self, we call it “garbage” or “solid waste”.
In response engaging to this matter, companies must be proactive in order to keep the environment.
Company need to reduce the pollution and do the business processes in efficient way. The concept of “green
supply chain management” is presented as a manifestation of the world worrying about the environmental
pollution issue which is mostly done by the industry. By applying this concept, companies have to reduce and
eliminate such production waste as a result of the production process. (Kushwaha, 201, p.2)
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W.H. Utami, I. Primiana, and B. Harsanto – Green Supply Chain Management at ...
The application proccess of the concept “green supply chain management” is to reduce environmental
pollution base on the concept of “zero waste” and might be able to increase the efficiency of the company in the
supply chain (Kuswaha, 2011, p.3). With the method of green supply chain, companies could reduce the uses of
resource in the production process, especially in the procurement of raw materials. This can be done because
procurement of raw materials derived from recycled of finish good which are marketed to consumers. Certainly,
in the long run, this will increase the company’s profit either directly or indirectly because of the cost of
procurement of raw materials can be minimized. In addition, the application of this concept will result a great
image for companies.
PT Biomethagreen is one of the companies that applied the concept of green supply chain management on
their operation. This company used organic waste (solid waste) as the main raw material in the production
process. Besides, the company does not produce any waste in the production process and use environmentally
friendly packaging that can be refilled as efforts to reduce environmental impact.
Based on that background, this paper will examine and measure the performance of the implementation of
green supply chain management which has been done over a year period backward. Assessment of green supply
chain performance is seen through the company performance in general. The Performance Analysis Tool used to
determine the performance of green supply chain in PT Biomethagreen is called SCOR level 1.
2.1.
Definition of Green Supply Chain Management
According to Alan McKinnon, et al. (2010), the definition of green supply chain is:
“The alignment and integration of environmental management within supply chain management.”
Another concept of green supply chain management (Srivasta, 2007, p.5) is a concept that integrates
environmental thought into supply chain management, which includes production design, procurement and
selection of raw materials, manufacturing processes, deliver of the final product to the consumer, even manage
the product which had been used by consumers.
2.2.
Model of Green Supply Chain Management
Green supply chain is based on green innovation process which is applied throughout the supply chain,
which is also based on two stages in organization, design and realization. The following is an overview of the
concept of green supply chain management.
Picture 1. Green Supply Chain Management Model
Souces: Hervani, Helms, Sarkis, 2005
209
Fig. 1 shows a difference betwen the concept of the green supply chain management and supply chain
management. In the above model of green supply chain, the selection of resources determined by three sources
such raw materials, supporting materials, and recycled materials. The difference is that company also used
resources from the final product that has been consumed by the consumers. Besides, other features is in
production process is a close-loop method so that no waste during the production process (the concept of zero
waste), because the production process has a cycle form. Last, one of the most important features is the concept
of reverse logistics, that the material flow coming from the consumer. In this case, a residual material
consumption which then being circulated back to the company’s supply chain to then be reused in the process
production.
3. Methodhology
3.1.
SCOR (Supply-Chain Operating Reference)
SCOR is a global measurement method which can be understood by almost every language. Every type of
company SCOR can be implemented and used as a reference. SCOR combines elements of business processes,
benchmarking and application in a single frame work. SCOR divides the process of supply chain into five core
processes such plan, make, deliver and return.
3.2.
SCOR Process
SCOR consists of 4 levels of processing. This paper uses SCOR in level 1. Level 1 is the top level that
consists of 5 key processes are plan, source, make, deliver and return.
3.3.
SCOR Metrics
Table 1. Metrics SCOR measurement
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4.1.
Company Over View
PT. Biomethagreen was built on December 8, 2009, but the company recently began operation in early
February 2010. The new company established less than 2 years is engaged in natural fertilizers and industrial
waste management services. Biomethagreen concept was born from a strong desire in tackling the waste problem
with the process, especially when issues of this waste, started sticking in Bandung late 2008. In addition, the
concept is also directed to another advantage is generate new sources of energy in the form of biogas and also
deal with the availability of fertilizer.
4.2.
Implementation of Green Supply Chain Management
PT Biomethagreen has applied the concept of green supply chain business processes. Application of the
principles of green supply chain management is especially seen in the procurement of raw materials, production
processes and the use of packaging which can be recharged. The company uses raw materials that are organic
wastes obtained from the public. As noted earlier, the uniqueness of this production process is to use recycled
raw material is public waste. The company also improves production efficiency so that no waste is generated in
the production process meaning that all the results in the production process can be utilized. In addition, the
packaging used can be recharged thereby minimizing the use of excessive packaging. Here’s more detailed
picture of the implementation of green supply chain at all stages of business.
Picture 2. Flowchart of green supply chain management at PT Biomethagreen
Sources: Interview and observation at PT Biomethagreen
4.3.
Raw Material Procurement
To produce liquid fertilizer Biomethagreen, the company uses main raw materials, mid raw material and
auxiliary materials and also packaging that used in production processes.
4.4.
Main raw Material Procurement
Raw material for this fertilizer is in the form or organic waste, animal or human feces. Organic waste is
obtained by sorting the result performed by employees of PT Biomethagreen, but form some target areas, waste
is divides by each community based on organic or inorganic. For once the digester production capacity of 200 kg
of organic waste takes 95 % of the total production of materials that will go into digester.
4.5.
Mid-raw Material Procurement
Procurement of raw materials obtained from partners companies who have been doing PT Biomethagreen
digester installation at certain location so as to produce slurry (mid materials).
4.6.
211
Auxiliary Material Procurement
Procurement of auxiliary materials (starter) was also carried out by PT Biomethagreen before making the
production process. Among these auxiliary, urea and sugar are used to support production of fertilizer. Starter
that is required is 5% of the total capacity of the material that goes into the digester.
4.7.
Production
After conducting the procurement process both the procurement of raw materials, auxiliary materials and
packaging, of course, the company will conduct the production process.
In the production process, the company uses 2 (two) ways, namely by producing of raw materials and the
manufacture of mid-raw materials. The terms of the raw material here is the process of making fertilizer
Biomethagreen starting from organic waste processing and auxiliary materials into the digester, after 30 days or
1 (one) month, 60% of the total input will be output, called slurry. This slurry can then be processed in the final
stages of along process Fertilizer Biomethagreen with ± 60 days/2 (two) months. While the mid-raw materials
are semi-finished materials produced by an external company in terms of PT. Biomethagreen is a companion, but
for the final stage of the production process be submitted to PT. Biomethagreen.
4.8.
Distribution
After Biomethagreen fertilizers are produced in the factory PT Biomethagreen, subsequent processes or
stages that are not less important is the distribution of fertilizer to the company warehouse to consumer /
authorized agent. PT Biomethagreen has 5 (five) agents spread across multiple locations around Bandung and
Sumedang. These five agents do Biomethagreen fertilizer distribution to local farmers.
4.9.
Reverse Logistics
Reverse Logistics that applied PT Biomethagreen are returning empty containers which have been used by
consumers, so PT Biomethagreen can recycle packaging to be reused for Biomethagreen fertilizer. Consumers
who have used Biomethagreen Fertilizers, can refill Biomethagreen fertilizer with lower prices in a way to
exchange empty packaging with new packaging that has been filled by Biomethagreen fertilizer. This concept is
a manifestation of the implementation of green supply chain management at PT Biomethagreen business
processes. With this concept, the company helped reduce waste from the product packaging.
4.10. SCOR Measurement
SCOR measurement is used to determine the performance of the implementation of green supply chain
management that has been implemented by PT Biomethagreen for one year backward. SCOR (supply chain
operating reference) are assessed at level 1 is the metric measurement of performance which refers to the
literature book entitled “Handbook for Dramatic Improvement Using SCOR Model (Rosenbaum, 2003, p.78)”.
In that book shown all metrics for determine performance that classified by supply chain reliability, supply chain
flexibility, supply chain responsiveness and supply chain cost. The Benchamrking or the default value of each
metric is derived from the average performance of similar companies and the company's best in class
performance at similar companies. Categorizing the performance of PT Biomethagreen is obtained by comparing
PT Biomethagreen performance with an average value at similar companies. Data in the Table 2 shows values
for PT. Biomethagreen SCOR each metric along with its category. Below is an explanation for those values
based on SCOR level 1 metrics.
a.
Delivery Perfomance
Delivery performance is one of the metrics which include the supply chain reliability. Delivery performance
is a value that indicates the percentage of orders delivered in accordance with the schedule required/ specified by
the customer or company. To get the value of the Delivery Performance, authors should obtain all the data
records of shipments of goods. Based on the delivery of data records is got amount of delivery order amount that
on schedule and the total order of each month that incoming or the number of overall shipments each month.
According to the table 2, the delivery performance of PT Biomethagren about the delivery of fertilizer to the
agents officially is 84%. When compared with the delivery performance in best in class which is 93% and the
average category which is 69% then the companies is categorized in the average class. So in order to achieve
best in class company needs to improve corporate performance.
b. Fill rates
Fill rates also one of the supply chain metrics in supply chain reliability. Fill rates indicate the percentage of
orders delivered on schedule without waiting for each type of product. This metric is similar to delivery
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performance, the difference is when delivery orders are calculated according to the schedule as a whole or in
varying product dimensions, then fill rates specific of each type of product.
In this study assessed only 1 (one) type of product that Biomethagreen Fertilizer. So, delivery performance
and fill rates have the same value. But because of the standard value for best in class and average class of fill
rates different from delivery performance, so, the comparation value is different to. Base on table 2, indicate that
PT Biomethagreen neither in best in class or average class category. So in order to achieve average class,
company has to improve their performance about 4 % and for achieve best in class about 13 %.
c.
Perfect Order Fulfillment
Perfect order-fulfilment also one of metrics which include supply chain reliability. Perfect order fulfillment
is a metric that indicates the percentage of orders delivered complete and on schedule. On this calculation, the
company is more rigorous in assessing the performance delivery of goods. This means that the order is sent no
less and no defects, both in terms of quantity and quality of goods
Table 2 shows that the perfect order fulfillment PT. Fertilizer Biomethagreen for delivery to the official
agencies was 74%. This percentage is certainly lower than the performance delivery and fills rates. When
compared with the value of perfect order fulfillment in the category best in class in the amount of 92.4% and the
category average of 65.7%, the companies included in the average category. So as to achieve best in class needs
to improve corporate performance.
d. Order Fulfillment Lead Time
Order fulfillment lead time is one of the metrics which include the supply chain responsiveness. Order
fulfillment lead time is a metric that indicates the time between customer order until the order they are received,
with units of days or months.
In order to get the fulfillment order lead time, the difference between the time when the order form is
received and the time when the order is delivered to consumers must be known. Based on Table 2, order
fulfillment values obtained for 3 days. When compared with the fulfillment order lead time in the category that
best in class for 2-7 days and the category average of 8-21 days the company is included in the category of best
in class. This occurs due to the location of delivery of orders that are still within reach of the company so it does
not find a significant constraint on the delivery of goods.
e.
Production Flexibility
Production flexibility is the metrics of supply chain flexibility. Production flexibility shows number of days
to obtain a 20% increase or decrease unplanned orders. Thus, this factor indicates the number of days required
by the company to meet demand if there is an unexpected increase in demand of 20% of the estimated number of
previous requests.
For the case of PT. Biomethagreen to produce biomethagreen fertilizer, have not found any surge in demand
by 20% from the previous estimate. That’s why increase in demand can be met from inventory by the company.
However, based on interviews, the company estimates that the Production Flexibility to meet the demand for
Biomethagreen fertilizer is worth the time required in the production process that is ± 90 days/ 3 (three) months.
When compared with the Production Flexibility on the category average of 1-2 weeks, the company that is
well below the category average. So as to achieve the performance according to the grade average required
increase in corporate management. The length of time it takes the company to meet demand if there is an
unexpected increase in demand by 20% from previous estimates of demand due to several factors related to
company operations.
f.
Total Supply chain Management Cost
Total supply chain cost management is one of the metrics used to measure supply chain costs or expenses,
Relating to the supply chain. Total supply chain cost management is the direct and indirect costs used in the plan,
source, and delivery of goods or services each company has different considerations for determining the budget
cost for supply chain management business processes.
In the case of PT. Biomethagreen, the calculation of total supply chain cost management based on the costs
incurred in order to improve the performance of supply chain companies in order to meet consumer demand.
Data obtained through interviews, observation and examination of company documents during the production
period.
Based on Table 2 is seen that the total supply chain cost management biomethagreen fertilizer was 18.7%.
When compared with the total supply chain cost management in the average category that is 23-29%, the
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companies included in the category of best in class. It is enough to prove that the implementation of green
supply-chain management in a company is able to minimize costs.
Table 2. Recapitulation of SCOR measurement at PT Biomethagreen
214
g.
SG & A Cost
SG & A Cost is one metric used to measure supply chain costs or expenses relating to the supply chain. SG
& A cost is the cost of marketing, administrative and general expenses used to support the production of a good
or service. Every company has a standard for determine each budget of sales, general and administrative (SG &
A cost). In the case of fertilizer production biomethagreen, this budget fluctuates depending on the needs and
conditions of the company each month.
Based on the Table 2, it was found that the average SG & A costs to support fertilizer production activities
at PT. Biomethagreen amounted to 20% of the production budget. When compared with the SG & A cost in the
category Best in Class at 15% and the category average is 29% of the companies included in the average
category. So as to achieve best in class category PT.Biomethagreen need to cut the costs associated with selling,
administrative and general expenses incurred as a result of fertilizer production activities.
h. Waranty Cost as % of Revenue
Cost warranty is also one of the metrics used to measure supply chain costs or expenses relating to the
supply chain. Warranty cost is the percentage of expenditure for the warranty to the value of sales (turnover).
Warranty cost is incurred as a result of defective products returned by consumer to the company, so the company
must pay to replace the defective product.
In the case of PT. Biomethagreen, warranty costs incurred as a result of a defective product returns by
customers due to the quality of products that do not fit the specifications or damaged packaging. Incurred cost
warranty each month varies depending on the number of defective products which must be replaced by the
company
Based on table2 the average values obtained warranty cost for the period November 2010 to July 2011 is 3%.
When compared with the warranty Cost in the category best in class in the amount of 1.2% and the category
average is 2.94%, the company cannot be categorized either average class or best in class. So in order to achieve
the average category and best in class, companies need to improve the performance of quality control and lower
the defect rate of products so that cost can be lowered warranty.
i.
Inventory days of Supply
Inventory days of supply are on the classification of assets, supply chain management efficiency inventory
days of supply measures the adequacy of supply to the units of time (days). Thus, inventory days of supply is the
average duration (in days) of a company can survive with the amount of inventory on hand (if there is no further
supply)
Supply chain performance said to be good if the asset is able to play fast (in other words have a high asset
turnover). Thus, the shorter the inventory days of supply, the better the performance of a supply chain assets
To be able to calculate or know Inventory days of supply required data on the average inventory, and
demand components per year. For the case of PT Biomethagreen, the data required is the average number of
available inventory in the warehouse company and fertilizer requirements Biomethagreen per year.
After making observations and interviews to the PT Biomethagreen, author got the data as follows:
1.
The average company save Biomethagreen fertilizer in warehouse is
(Σ final inventory / 10 months) = 6591 units
2.
Needs of Biomethagreen fertilizer per year is 71.910 pcs
3.
Amount of workdays per year is 250 days
4.
So,
5.
So, inventory days of supply
(71910 / 250) = 288
(6591 / 288) = 23 days
Based on the above calculation obtained inventory days of supply that is 23 days. When compared with the
value of inventory days of supply in the category that best in class for 55 days and the category average is 84
days, the company included in the category of best in class. So the company is considered to have reasonably
good performance. So it is not necessary to have any improvement for this category.
j.
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Cash to Cash Cycle Time
Cash to cash cycle time is the time between the companies to pay material suppliers and receive payments
from customers for products made from these materials. This metric measures the speed of changing the supply
chain inventory into cash. The shorter the time required, the better the supply chain. Good companies normally
have the cash to cash cycle short
There are 3 (three) components in the calculation of cash to cash cycle time, namely:
 The average accounts receivable (in days) which is a measure of how quickly customers pay for goods
already received.
 Average account payable (in days) that measures the speed of the company to pay to the supplier for
material component accepted.
 The average inventory (in days, the inventory days of supply).
Formula to measure cash to cash cycle time is:
Cash to cash Cycle time = inv’tory of supply + avg of accounts receivable – avg of accounts payable [days]
In the case of Biomethagreen fertilizer, based on interview and observation in field, obtained the data as
follows:
1. Company inventory days of supply
2. Average days of account receivable
3. Average days of account payable
= 23 days
= 90 days
= 60 days
So, cash to cash cycle time Biomethagreen fertilizer is = 23 + 90 – 60 = 53 days
Based on these values, if compared with the cash to cash cycle time in the category best in class in the
amount of 35.6 days and the category average of 99.4 days, the company is included in the average category. So
as to arrive at the class best in class, companies need to improve corporate performance, particularly in attracting
funds in the consumer.
k. Asset Turns
Asset turns is a metric that there is also the category of asset management supply chain efficiency. Asset
turn is how many times assets can be used to obtain revenue and profit. To obtain the value of the asset turn
required data about the current amount of assets owned by the company and the revenue obtained by the
company for one year
Value of the assets turn for PT. Biomethagreen is 24 times, if compared with the value of assets turns on the
category that best in class 4.7 times and category of the average at 1.7 times then the companies included in the
category of best in class. So companies only have to maintain its performance. Value of assets turn is higher than
average because of the company, implementing the green supply chain management, which is use of raw
materials which are recycled materials, so the efficiency is very high and the company's profit is high enough.
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Cite this paper
Utami, W.H., Primiana, I., and Harsanto, B. (2012). “Green Supply Chain Management at PT. Biomethagreen,”
Proceedings of The 3rd International Conference on Technology and Operations Management: Sustaining
Competitiveness through Green Technology Management, Bandung–Indonesia (July 4-6), pp. 207-216. ISBN: 978-97915458-4-6.
www.sbm.itb.ac.id
www.cob.uum.edu.my
Supply-Chain Strategy and Performance:
Mediating Effect of Supply-Chain Practices
Abdul Aziz Othman1,*, Rushami Zien Yusoff1, Mohd Azril Ismail1, Rohana Husin1
1
College of Business (CoB) - Universiti Utara Malaysia (UUM),
Abstract. This article reports a study designed to explore the state of supply chain practices in Malaysian Automotive
industry by examining the mediating effect of supply-chain practices between supply-chain strategy and supply-chain
performance. This study is accomplished by using survey questionnaire that was answered by 65 respondents from Malaysian
automotive components manufacturing firms. The study found that supply-chain strategy had no direct relationship with
supply-chain performance, but was mediated by supply-chain practices. This also found that the supply-chain practices act as
full mediator towards relationship between supply-chain strategy and performance.
Keywords: Supply-chain strategy, supply-chain practices, supply-chain performance
1. Introduction
The level of competition in the business world today has changed from the national to the global level. The
same scenario can be seen in the automotive industry in Malaysia where the major manufacturers and
automotive component manufacturers need to become more competitive to absorb pressure from multinational
companies are significantly increasing. As recommended by the Malaysian Automotive Institute (MAI), the
automotive industry had to respond to a number of major developments, including the development of
automotive technology, liberalization, and trends of restructuring and rationalization among international
automotive companies. These developments have a clear impact on the policies and strategies on domestic and
regional markets. Thus, supplier companies and automotive companies themselves must understand these
developments, and take appropriate measures in terms of technology, product quality improvements and cost
savings. (MAI, 2002). One of the alternatives to overcome this issue is by increasing the efficiency and
effectiveness of supply chain management.
Many challenges and problems will arise in making this supply chain management as an efficient and
effective alternative. Among them is the alignment of supply chain strategies which is translated into practice the
exact impact on organizational performance. For example, organizations that want to improve organizational
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A.A. Othman, R.Z. Yusoff, M.A. Ismail, and R. Husin – Supply-Chain Strategy and Performance ...
performance through cost-efficient practices, need to operate at a location that offers low cost and to develop
strategies that more closely to the Lean Supply Chain (Gunasekaran, 2008). Conversely, organizations that want
to be competitive through innovation need to use strategies more closely to the agile supply chain (Gunasekaran,
2008). This is supported by a study conducted by Gunasekaran, Lai and Cheng (2008) which state the nature of
supply chain strategy, aimed at an efficient cost is a lean supply chain. Furthermore, Groote (1994), Fisher
(1997), Randall and Ulrich (2001) stated in their study that generally profit in the supply chain investments will
only be available if there are alignment between supply chain strategy with form of process or product requests.
Directly, this request form should be adapted to the practices involved in the supply chain for which the outcome
of the strategy can be translated accurately. Finally, to have the effective supply chain, organizations need to
adapt the appropriate supply chain strategy and supply chain practices (Sufian, 2010).
Therefore, this study designed to examine the mediation effect of supply chain practice towards relationship
between supply chain strategy and supply chain performance in the automotive industry in Malaysia.
Council of Supply Chain Management Professionals (2004), previously known as the Council of Logistics
Management (CLM) is a professional body that promotes the practice, development and education of supply
chain practices, defines supply chain management as “SCM encompasses the planning and management of all
activities involved in sourcing and procurement, conversion, and all logistics management activities, including
coordination and collaboration with suppliers, intermediaries, third-party service providers, and customers”.
Therefore, supply chain encompasses all activities involved in the production and delivery of the product or
service, from initial supplier to end customer. Meanwhile, Cooper et al. (1997) defines supply chain management
as the management and integration of the entire set of business processes which provide products, services and
information that can add value to our customers.
Some authors previously, Christopher (1998), New and Payne (1995), and Simchi-Levi et al. (2000) has
defined supply chain management as “the integration of key business processes among a network of suppliers,
manufacturers, distribution centers and vendors to improve the flow of products, services and information from
the original suppliers to end customers, with the objective of reducing overall costs while maintaining service
levels.”
The basic objective of supply chain management is to optimize supply chain performance with value-added
as much as possible for the costs as low as possible “. In other words, it aims to connect all supply chain entities
to jointly work together as an organization which is as a way to maximize productivity in the supply chain and
provide benefits to all parties concerned (Finch 2006). Furthermore, according to Mentzer (2001), the
importance of a supply chain management is a “coordination of traditional business functions in a systematic,
strategic in certain companies and the whole business in the chain, to improve the performance of long-term
individual companies and companies in the supply chain as a whole”
Lambert et al. (1998) view that the supply chain is not the business chain relationship between a single
organization with other single organization but a variety of business networking. Thus, supply chain
management is the process of business excellence as a whole (total business process excellence) and it also
became a new way to manage the business and relationships with other business entities in the chain. This aspect
becomes particularly relevant to the automotive industry and supply chain management is said to be the basis for
good performance and competition in the automotive industry. This is because the automotive industry involves
various sources of materials, products and components in which each require their own production process also
its means that this industry involves multiple suppliers.
Supply chain strategy refers to the nature of procurement of raw materials, transportation of materials to and
from the company, product or manufacture of the operation to provide the service, and distribution of the product
to the customer, along with any follow-up service and a specification of whether these processes will be
performed in-house or outsourced (Chopra & Meindl, 2007). Naylor et al (1999), Towill and Christopher (2002)
suggest three types of supply chain strategy which are agile supply chain, lean supply chain and hybrid supply
chain. Their case studies show how the lean and agile supply chains have successfully merged to form a strategy
referred to as a hybrid supply chain. However, Naylor et al (1999) use the term of leagile that refers to the
integration between these lean and agile supply chain.
Based on previous studies, no single set of common supply chain practices can be concluded. Even set of
supply chain practices determine from different perspectives, but having the same goal of improving supply
chain performance (Sufian, 2010). Therefore, this study identified the dimensions of supply chain practices
proposed by Li et al (2006) to study its influence on the performance of supply chain which are strategic supplier
partnership, customer relationships, level of information sharing and quality of information sharing.
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Most organizations less focused on developing an effective performance measurement and performance
metrics for supply chain management (Gunasekaran et al., 2001). According to Holmberg (2000) states a of
problems in measuring the performance of supply chain management is the lack of relationship between strategy
and performance measurement, too dependent on the financial figures as key performance indicators, too much
isolation and measurements that are not compatible and finally, using the single-firm management style when
measuring supply chain. Therefore, measurement of supply chain performance in this study was based on the
organization’s strategic goals of the lean, agile or hybrid supply chain. The focus of lean is the elimination of
waste and non-value activities, while the focus of agile is meeting customer needs quickly, efficiently
(Gunasekaran et al 2008) and the uniqueness of the product (Argawal et al, 2001). Thus, the dimensions of
supply chain performance measurement are cost-effective, lead time, innovation, time to market and flexibility to
customers.
3. Research Methodology
A set of questionnaire was developed to collect data for this study. In order to achieve the objectives of the
study, the Malaysian automotive suppliers firms were selected as the population. The database was obtained
from lists of suppliers given by automotive makers in Malaysia such as Proton, Perodua, Honda, Isuzu and
Suzuki. This list of the suppliers consists of electrical, electronic, metal, plastic, rubber and other automotive
components. The supplier firms involved in this study were ranged from medium to big companies, with more
than 50 employees. The personnel involved in the survey were those from managing directors, senior managers
and senior executives. The questionnaire was consist of four parts; (a) the general information of the organisation
(ownership, number of employees, types of product produced and quality system certification), (b) supply chain
strategy, (c) supply chain practices and (d) supply chain performance. A questionnaire using a six-point Likert
scale was used to gather data for each construct of research model.
The prime consideration of the design in this survey instrument was to keep it short and focused in order to
obtain an adequate response rate. Questionnaires were designed based on a multiple item adapted from previous
study namely Huang et al. (2002), Wang et al. (2004), Vonderembse et al. (2006), Towill and Christopher (2002),
Christopher and Towill (2000). The process of developing the questionnaire also included a q-sort procedure.
This q-sort procedure was used to improve the items construct placement and also rephrase statement based on
the actual respondents. Experts from industries and academics were also consulted. The comments and feedback
were analyzed and a few modifications were made.
Table 1: Reliability Test Results – all variables
Variables
Supply Chain Strategy
Supply Chain Practices
Supply Chain
Performance
No of Items
18
29
20
Cronbach’s Alpha
0.938
0.969
0.955
In the case of reliability test, Cronbach’s alpha was employed to measure the internal consistency of the
research instrument. According to Sekaran (2005), reliability measurement is an indication of the stability and
consistency of the instrument. The summaries of the reliability analysis are given in the Table 1. As can be seen
from Table 1, all alpha values are above 0.6 as suggested by Nunally and Bernstein. As such we can conclude
that the measurements are reliable.
4. Results and Discussions
The total numbers of 275 questionnaires were posted in two waves during the months of December 2011 to
January 2012 and from February 2012 to March 2012. A total of 67 questionnaires were received. In the first
period, the number of questionnaires received back was very low at the response rate of 11.6% only. Increase the
number of questionnaires posted in the second period, a total of 45 questionnaires received. Response rate
increased to 24.36%. This makes all of their forms can be collected 67 questionnaires. However, 2
questionnaires were rejected due to not valid for analysis. So the final questionnaire can be used for further
analysis is 65. This response rate is low but can be adopted based on previous studies in the manufacturing
industry in Malaysia, the acceptable range of response rate is 18-26% (Rajagopal, 2006; Thi, 2006; Norani,
2011). Furhermore, non-response bias test was conducted where the results shows in the table 2. These test
results confirm that the data were free from non-response bias. In other words, this study not only shows the
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results of the study sample, but can be used to generalize the entire population of automotive industry in
Malaysia.
Table 2: Result of Non-Response Bias Test
Variables
Supply-Chain Strategy
Supply-Chain Practices
Supply-Chain
Performance
Wave 1 Wave 2
Mean
Mean
Levene’s test
(N=21) (N=44)
4.72
4.93 F = 0.003 p = 0 .954
4.59
4.60 F = 0.947 p = 0 .334
F = 2.247 p = 0 .139
4.49
4.52
t value
t = -1.108 p = 0.272
t = -0.032 p = 0.974
t = -0.152 p = 0.880
4.1. Respondents’ Profile
The first aspects to be investigated were the respondents and organizational profile involved in this study.
Table 3 shows the respondents profile such as the job position and working experiences in the automotive
industry. It was found that the respondents were mainly holding the post manager or higher. Most of them
(49.2%) have been involved more than 10 years in the automotive industry. This figure shows they have
sufficient knowledge and experience to response the supply chain issues in their company.
Table 3: Respondent Profile
1 Position
Executive
Senior Executive
Engineer
Assistant Manager
Manager
Senior Manager
Senior Expert
Coordinator
General Manager
Managing Director
Director
2 Years of Experiences
Less than 5 years
Between 5 to 10 years
More than 10 years
Frequency (%)
11 (16.9)
10 (15.4)
1 (1.5)
4 (6.2)
25 (38.5)
2 (3.1)
1 (1.5)
1 (1.5)
2 (3.1)
2 (3.1)
4 (6.2)
Frequency (%)
11 (16.9)
22 (33.8)
32 (49.2)
Table 4: Organization Profile
1 Organization Ownership
100% Foreign
100% Local
Joint Venture
2 Organization Size
Less than 50 employees
Between 51 - 150 employees
More than 151 employees
3 Types of Products Produced
Assembly
Metal Component
Electronic Component
Plastic Component
Electrical Component
Rubber Component
Frequency (%)
10 (15.4)
41 (63.1)
13 (20.0)
Frequency (%)
10 (15.4)
15 (23.1)
40 (61.5)
Frequency (%)
32 (49.2)
13 (20.0)
4 (6.2)
16 (24.6)
15 (23.1)
13 (20.0)
Table 4 shows the profile of organizations involved in the study. It was found that most of the organizations
involved in this study is local ownership of 63.1%. Organization with the status of the joint venture is 20% and
the rest is completely foreign ownership. Size of the organization referred to the number of employees in the
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organization. According to Ying (2006), organizations need to have more than 100 employees to effectively
involve in the supply chain activities. It was found that 61.5% of the organizations have more than 150
employees and only 15.4% of the organizations that have less than 50 employees. In terms of products produced,
most organizations involved in the assembly of products 49.2%. In addition, the percentage of organizations that
produce of plastic components, rubber products, electrical / electronic and metal are respectively 24.6%, 20%,
29.3% and 20%.
4.2. Mediating Effect of Supply Chain Practice towards relationship between Supply Chain
Strategy and Supply Chain Performance
This test describes the effect of mediation on the relationship between independent variables and dependent
variable. Mediating variables in this study is the practice of supply chain, while the independent variables
studied were the supply chain strategy. Dependent variable of this study is the performance of the supply chain.
This test is performed by using the Enter method of hierarchical regression analysis and according to the rules
proposed by Baron and Kenny (1986).
1. Test the influence of independent variables (X) on the mediating variables (M)
M = β3 + aX + e3
2.
(1)
Test the influence of independent variables (X) on the dependent variable (Y),
Y = β1 + cX + e1
3.
(2)
Test the influence of both independent and mediating variables on the dependent variables
simultaneously.
Y = β2 + c’X + bM + e2
(3)
For the above equations, β (beta) is the intercepts (which are ignored), the e represent the model fit errors
(which are also largely ignored) while a, b, c and c’ are the regression coefficients show the strength of the
relationship between the three types of variables.
Evidence for mediation is said to be likely if:
a.
b.
c.
d.
The term a in equation 1 is significant; there is evidence of a linear relationship between the
independent variable (X) and the mediator (M)
The regression coefficient c in equation 2 is significant; there is a linear relationship between the
independent variable (X) and the dependent variable (Y)
The term b in equation 3 is significant, indicating that the mediator (M) helps predict the dependent
variable (Y), and;
The c’, effect of the independent variable (X) directly on the dependent variable (Y), becomes
significantly smaller in size relative to c in equation 2.
Based on the hypotesis developed that is “there is a significant mediating effect of supply chain practice on
relationship between supply chain strategy, and supply chain performance”. Table 5, 6 and 7 present the results.
Table 5: Test result of the influence of independent variables (X) on the mediating variables (M)
Unstandardized Coefficients
Β
SEB
Step 1
Standardized Coefficients
B
t
Sig.
.825
11.578
.000
M: Supply-Chain Practices
X: Supply-Chain Strategy
R²
.795
.680
Adjusted R2
.675
F
Significant F Change
.069
134.054
.000
The unstandardized regression coefficient (β = .795) associated with the effect of supply chain practices on
supply chain strategy was significant (p < 0.01). Thus, there was an evidence of a linear relationship between
supply chain strategy (independent variable) and supply chain practices (mediator variable). Hence the
requirement for mediation in step 1 was fulfilled.
222
Table 6: Test result of the influence of independent variables (X) on the dependent variable (Y)
Β
SEB
Step 2
B
t
Sig.
.679
7.346
.000
Y: Supply-Chain Performance
R²
.644
.461
Adjusted R2
.088
.453
F
53.964
.000
The unstandardized regression coefficient (β = .644) associated with the effect of supply chain strategy on
supply chain performance was significant (p<0.01). Thus, there was an evidence of linear relationship between
supply chain strategy (independent variable) and supply chain performance (dependent variable). Hence, the
requirement for mediation in step 2 was fulfilled.
Table 7: Test the influence of both independent and mediating variables on the dependent variables simultaneously
Β
SEB
Step 3
B
t
Sig.
Y: Supply-Chain Performance
.171
.138
.181
1.238
.220
M: Supply-Chain Practices
R²
.594
.578
.143
.605
4.145
.000
Adjusted R2
.565
F
17.178
.000
The unstandardized regression coefficient (β = .594) associated with the effect of supply chain practices on
supply chain performance was significant (p<0.01). Thus, there was an evidence of a linear relationship between
supply chain practices (mediator variable) and supply chain performance (dependent variable). Hence, the
requirement for mediation in step 3 was fulfilled. Step 4 required the beta value for supply chain strategy
(independent variable) in step 3 (equation 3) to become significantly smaller in size relative to beta value for
supply chain strategy (independent variable) in step 2 (equation 2). Hence the requirement for step 4 also held.
Since, supply chain strategy (independent variables) in step 3 has no significant relationship (p = 0.220 >
0.05) on the supply chain performance (dependent variable) when the supply chain practices (mediator) was
controlled, then there is evidence that the effect of full mediation of supply chain practices on the relationship
between the supply chain strategy and supply chain performance. Summary of the regression test results can be
shown in table 8 below.
Table 8: Summary of the result before and after mediation
Supply-Chain Strategy
Supply-Chain Practices
Dependent Variables:
Supply Chain Performance
Before Mediation
After Mediation
0.679**
0.181
0.605**
Conclusion
(full mediation)
5. Conclusions
This section discusses the results of the hypothesis tested. It was found support for a significant mediating
effect of supply chain practice on relationship between supply chain strategy and supply chain performance. This
result shows that supply chain strategy had no direct relationship with supply chain performance, but was full
mediated by supply chain practices. More specifically, full mediation of supply chain practices have contributed
223
to the increasing influence of supply chain strategy on the supply chain performance from 46.1% to 57.8%.It
was in line with the study by Groote (1994), Fisher (1997), Randall and Ulrich (2001) that found generally profit
in the supply chain investments will only be available if there are alignment between supply chain strategy with
form of practices. This finding has empirically proved the needs of alignment the strategy with practices in order
to improve the supply chain performance. The management should understand and emphasis the important for
practice supply chain activities align with the strategy developed before.
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Cite this paper
Othman, A.A., Yusoff, R.Z., Ismail, M.A., and Husin, R. (2012). “Supply-Chain Strategy and Performance: Mediating
Effect of Supply-Chain Practices,” Proceedings of The 3rd International Conference on Technology and Operations
217-224. ISBN: 978-979-15458-4-6.
www.sbm.itb.ac.id
www.cob.uum.edu.my
Supply Chain Performance Design for an Integrated Solid Waste
Management in Bandung City: A Triple Bottom Line Perspective
Rucita Cahyawati1,*, Gatot Yudoko1
1
Abstract. The City of Bandung, one of big cities in Indonesia, has currently generated 1,800.14 tons of waste per day in
2011. The increasing complexity of solid waste management calls for an Integrated Solid Waste Management (ISWM), an
approach that considers activities, aspects, as well as available technological options to deal with the increasing waste
generation in a situation of increasing difficulty in finding final disposal sites. As part of the planning process, objectives and
their associated performance indicators of solid waste management need to be defined. These objectives can be used for the
controlling process later. The purpose of this paper is to design performance indicators for the ISWM in Bandung City. In
this paper, we adopt a supply chain system perspective to map the existing practices or activities of solid waste management
in the city. Specifically, we will outline these objectives from a triple bottom line perspective to adopt sustainability
development vision, which consists of economic viability, social responsibility, and environmental sustainability
perspectives. These three perspectives will be explored in each stage of solid waste management activities. In addition, in
each stage, we will identify the relevance and importance of each perspective based on any stakeholder’s interest.
Keywords: Supply chain, performance, integrated solid waste management, triple bottom line, Bandung city
1. Introduction
The most challenging tasks faced by urban government in developing country are planning and management
process of municipal solid waste [1]. This condition also happened in Indonesia. Bandung City is one of big city
in Indonesia. Bandung city solid waste management process is managed by institutional Bandung PD Kebersihan
(Regional Hygiene Company) of Bandung City which organizational structure is one implementing unit of
government under the city of Bandung. According to report from PDK,2011 the city of Bandung each day
produce as much as 7,500.58 m3 or 1.800,14 tons of waste every day and can only be served around 65% and the
rest can’t be processed [8]. Waste that can’t be processed will be accumulated and will cause a serious problem
in the future.
226
R.C. Putri and G. Yudoko – Supply Chain Performance Design ...
Supply chain process will be adopted in this study, to mapping the existing practices or activities of solid
waste management in Bandung city. The supply chain will be started from the household level until the final
disposal level. This process will help us to understand the flow of solid waste management system in Bandung
city. This study also will be provided the supply chain process from solid waste management in Bandung city
with a triple bottom line perspective. Triple bottom line perspective divided into three different aspects: the
environmental, social and economic as the “three legs of sustainability [2].
Nowadays, Bandung City government still tries to solve the waste problem that occurred. By knowing the
supply chain process in which can be determined the process and the activity related to solid waste management
in Bandung city, it can help to provide solutions to overcome the problem of waste that still occurs currently. By
applied the triple bottom line while mapping the supply chain process related to waste management in Bandung
city, will give us a broader perspective about solid waste management condition in Bandung city nowadays. This
study aims to give a broader perspective about solid waste management condition in Bandung city by using a
triple bottom line perspective.
Process of supply chain is occurring in waste management system. Stages of the ISWM chain include source
separation, collection and transportation, transfer stations and material recovery, treatment and resource recovery,
and fi nal disposal [3]. According to PD Kebersihan the supply chain process start from the source of waste
(household, industry, etc) then go to temporary waste disposal and the last transport into final disposal. While do
the supply chain process in waste management system there were an actor and also several activities there. The
actor and also the activities can be different in each level (neither in level of source, temporary disposal until
final disposal level).
During the last decade the term of triple bottom line has been used as a paradigm to appraise the success of
an organization. It is defined as the balance of sustainability for three different aspects: the environmental, social
and economic as the “three legs of sustainability” [2]. Triple bottom line also well known as non-financial
reporting, which aims to present the economic, environmental and social performance of an organization in a
balanced and comprehensive way, this is a term coined by Elkington (1997) [4]. Nowadays, more than half of
the global Fortune 500 companies and almost half of Standard & Poor’s 100 companies issue TBL reports [5].
Based on the principle of triple bottom line, enterprises around the globe (due to globalization) have started to be
concerned about the degree of their company’s success defined as sustainable development and have associated
progress with implications on quality of life[6]. By focusing on comprehensive investment results that is, with
respect to performance along the interrelated dimensions of profits, people and the planet, triple bottom line
reporting can be an important tool to support sustainability goals [7].
This study used, both of primary and secondary sources of information are used. Primary data sources
include an interview with Junior Researcher at PD Kebersihan, various heads of the Regional Area, staff of PD
Kebersihan. Field observation also held at a various regional area (West and North area). For the secondary data
sources include reports from the PD Kebersihan and also from local government.
4. Operational Research
Basically supply chain process in waste management system in Bandung city, divided into three stages, first
stage is source of waste, second is temporary waste disposal and the last one is final disposal. Sources of waste
in Bandung city divided into five different source, resident or household, commercial areas, industrial zone,
street sweeper, and other facilities and office. Resident or household in Bandung city have the biggest amounts
rather than other sources of waste, household can produces waste around 1,188.48 ton for each day. Waste
management system in Bandung city was hold by PD Kebersihan Bandung City. PD Kebersihan Bandung city
only have a responsibility in collecting and transport the waste from temporary disposal into final disposal.
Figure 1 will show the operational supply chain system and also actor and activities in each level of supply chain
process related to waste management system in Bandung city.
227
Figure 1. Supply chain system diagram of municipal solid waste management in Bandung city
We can see according to Figure 1. there were a different actor and also activities in each level of supply
chain system in waste management in Bandung city. At level of source of waste, process of waste transport from
the source of waste into the temporary disposal, sometimes not became a PD Kebersihan responsibility. For
household, process of collecting and also transport into temporary disposal became residents responsibility, PD
Kebersihan only have a responsibility to pick up the waste from temporary disposal into final disposal. This is
also happened in street sweeper, the process to collecting the waste being held by the street sweeper crew, then
the process to transport it into temporary disposal also held by street sweeper crew and then PD Kebersihan will
pick up it and transport it into final disposal. Different condition with other source from commercial areas,
industrial zones, and other facilities, sometimes PD Kebersihan directly pick up the waste in their area and
transport it into final disposal, this is according to the agreement between PD Kebersihan Bandung city with
them.
The operational research related with each supply chain process in waste management system in Bandung
City can be different in each stage. First stage in supply chain system for municipal solid waste management in
Bandung city is waste generation activity. Table 1 will explain about the operational research for waste
generation activity.
228
Table 1 Operational research for waste generation activity
Activity :
Waste generation
Stakeholder/Actor
Household/Resident
Triple Bottom Line Perspective
Economic

people sold it to the informal
sector; making compost
manure from organic waste
Commercial Area /hotel,
restaurant, market, stores

Composting from organic
waste
Industrial
zones/Industrial areas
-
Street sweeper/Street
sweeper crew
-
Other facilities and
offices/hospital
-
Social

Campaigns among the
general people about
cleanliness, public health
and about 3R process

Education and socialization
regarding about organic
waste treatment

regarding about hazardous
and non-hazardous waste
from industrial zones and
how to treat it

Good aesthetics aspect for
the main street

Education and Socialization
about hazardous waste that
can produced from hospital
and how to treat it
Environment

Implemented the 3R process
(reduce, reuse, recycling)

Centre to do the composting
process by using the waste
from traditional market;
Implemented the 3R process

Separation between
hazardous and nonhazardous waste and also
special treatment for
hazardous waste

Street sweeper help to keep
the main street in clean and
also reduce possibility main
street flooded when rainy
season

Separation between
hazardous waste
Next stage in supply chain system for municipal solid waste management in Bandung city is waste
collection activity. This activity was being held by individual indirect and also by PD Kebersihan Bandung city.
Table 2 will explain about operational research for waste collection activity.
Table 2 Operational research for waste collection activity
Activity : Waste Collection
(from Source to Temporary
disposal site)
Stakeholder/Actor
Individual indirect
collection
PD. Kebersihan (Regional
Hygine Company)
Bandung City
Economic

Selling buying process with
informal sector

cooperation with related
parties who use the services
of PD. Kebersihan
Social

Access for informal sector

about procedure related
with waste distribution
Environment

Awareness to do separation
of waste

Implemented of waste
separation process
Aesthetics aspect related
with transport vehicles
Table 3 will explain about the last stage in supply chain system for municipal solid waste management in
Bandung city is waste distribution activity.
229
Table 3 Operational research for waste distribution activity
Activity : Waste Distribution
(from Temporary disposal
site to Final Disposal site)
Stakeholder/Actor
Hygine Company) Bandung
City
Economic

Access for private
company to provide
transport vehicles
Social

Education and socialization to
crew about procedure related
Aesthetics aspect related with
transport vehicles
Private company

Opportunity to have a
cooperation agreement
with PD. Kebersihan to
provide transport vehicles

Education and socialization to
crew about procedure related
Environment

Separate process between
hazardous waste
distribution and nonhazardous waste
distribution

Separate process between
hazardous waste
distribution and nonhazardous waste
distribution
The real condition related with municipal solid waste management in Bandung city will be showed in this
part. Table 4 will explain the real condition for waste generation activity.
Table 4 Real condition for waste generation activity in Bandung City
Activity :
Waste generation
Stakeholder/Actor
Household/Resident
Commercial Area /hotel,
restaurant, market, stores
Industrial
zones/Industrial areas
Street sweeper/Street
sweeper crew
Economic

Citizen usually sold some
inorganic waste to the
informal sector, but
awareness to make compost
still low
Social

PD.Kebersihan and Bandung
city government already
make some campaign related
with waste
Environment

Awareness from citizen to
do 3R and waste separation
still low.

Some of traditional market
in Bandung city already did
composting from organic
waste (Gedebage traditional
market)
-

PD.Kebersihan and Bandung
city government already give
socialization regarding about
organic waste treatment

In Gedebage traditional
market already did the 3R
process

regarding about hazardous
and non-hazardous waste
from industrial zones and
how to treat it
-

Good aesthetics aspect for
the main street

Industrial zones in Bandung
city already implemented the
separation process between
hazardous waste

Street sweeper in Bandung
city already keep the main
street in clean and also help
to reduce possibility main
street flooded when rainy
season
230
Table 4 Real condition for waste generation activity in Bandung City
Activity :
Waste generation
Stakeholder/Actor
Other facilities and
offices/hospital
Economic
-
Social

Education and socialization already
implemented and also there were
different final disposal between
hazardous and non-hazardous waste
treat it
Environment

Hospital in Bandung city already
implemented the separation process
between hazardous and nonhazardous waste and also special
treatment for hazardous waste
According to Table 4 the problem is occurred in household level where the awareness from citizen to do a
3R and waste separation process still low. There were no information about economic perspectives related with
waste from industrial zones and other facilities. For street sweeper there was no economic perspective. Specific
treatment for hazardous and non-hazardous waste form industrial zones or hospital already implemented. There
were a different final disposal for hazardous and non-hazardous waste, and industrial and hospital already did a
separation process between types of waste.
Next activity is waste collection. Table 5 will explain the result of real condition for waste collection activity
in Bandung city.
Table 5 Real condition for waste collection activity in Bandung City
Activity : Waste Collection
(from Source to Temporary
disposal site)
Stakeholder/Actor
Individual indirect
collection
City
Economic

Informal sector can do a
buying and selling process
Social

Access for informal sector to
take a part in collection
process
Environment

Still lack of awareness to
do separation of waste

cooperation with related
parties (company, hospital)
who use the services of PD.
Kebersihan

PD. Kebersihan already give
some education and
socialization to their crew
related with good procedure
for waste collection process

waste separation process
already held in some areas
(like hospital, hazardous
and non-hazardous waste)
Aesthetics aspect related
with transport vehicles
(truck), the condition of
truck mostly has no cover
We can see the real condition for waste collection activity in Bandung City in Table 5. Activity of waste
collection held by individual indirect collection and by PD. Kebersihan Bandung city. The process that being
held by individual indirect collection mostly for household waste. From resident waste collection held by
themselves, PD. Kebersihan Bandung city did not take responsibility for that. The process that being held by PD.
Kebersihan in waste collection activity is waste that source from commercial area, industrial zone. According to
Table 5 there were some problem that still occur in this activities, such as in individual indirect collection actor
there was still lack of awareness to do separation of waste, citizen mostly only store their household waste into a
plastic bag and then put it into in front of their door. In PD. Kebersihan (Regional Hygiene Company) Bandung
City, the problem that still occur are related with the aesthetics aspect, condition of transport vehicles in
Bandung city to transport the waste mostly has no cover and it will cause the waste can be splattered around the
road.
231
Table 6 Real condition for waste distribution activity in Bandung City
Activity : Waste Distribution
(from Temporary disposal
site to Final Disposal site)
Stakeholder/Actor
City
Economic

There was cooperation
agreement with private
company to provide
transport vehicles
Social

PD. Kebersihan already give
an education and socialization
to crew about procedure
related with waste distribution
Environment

The separation process
between hazardous waste
distribution and nonhazardous waste distribution
already held
Aesthetics aspect related with
transport vehicles (truck), the
condition of truck mostly has
no cover
Private company

Access for private
company to provide
transport vehicles

Private company with PD.
Kebersihan give an education
and socialization to crew
about procedure related with
waste distribution

The separation process
between hazardous waste
distribution and nonhazardous waste distribution
already held
According to Table 6 we can see that there was an opportunity to hold a cooperation agreement between PD.
Kebersihan and private company to provide transport vehicles (truck). The problem still occurred in social
perspective, condition of transport vehicles (truck) mostly has no cover, and it will cause waste can be splattered
around the road. Since 1995, the government of Indonesia has regulated hazardous waste landfill criteria, and
according to Table 6 we can see that both PD. Kebersihan and also private company already held a process
separation between hazardous waste distribution and non-hazardous waste distribution it was divided into
different final disposal.
6. Conclusions
This study aims to give a broader perspective related with solid waste management in Bandung city by used
a trile bottom line perspective in each stage of supply chain in solid waste management. There were still lack of
information about a few of triple bottom line perspective in each stage. Some problem still occurred in each
stage. In waste generation activity the problem is still lack of awareness from citizen to do 3R and also waste
separation, this will gave a bad impact in environment. In second activity, waste collection we still see a same
problem related with waste generation activity, lack of awareness to do a separation process. Government must
take a serious consideration related with the condition of transportation vehicles, mostly it is already old and not
used some cover. This will give a bad impact not only for aesthetics but also for health.
Process of solid waste management process in Bandung city if seen by triple bottom line perspective still
have some weakness such as, lack of awareness to do a 3R and separation waste process, condition of the
transport vehicles. Bandung city government must take a serious attention related with this.
Solid waste management problem will give a bad impact, not only for health but also for environment. The
effect can be some contagious diseases (i.e., diarrhea, typhus), beside that solid waste management problem also
can caused a disaster (i.e., flood, landslide). Well defined strategy related with solid waste management is
needed.
7. Further Research
Further works are needed to find a well-defined solid waste management in Bandung city based on the triple
bottom line perspective. There a few parts in triple bottom line perspective still not explore. A depth exploration
will help to improve the perspective and give a broader perspective in the future. There is an urgent need for a
well-defined strategic waste management plan and a strong implementation of the same. Not only a well-defined
solid waste management but also applicable.
232
Acknowledgements
We would like to express our grateful to all of the OPM team members and also PD. Kebersihan Bandung
city for helping and supporting us while did this research.
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Cite this paper
Putri, R.C., and Yudoko, G. (2012). “Supply Chain Performance Design for an Integrated Solid Waste Management in
Bandung City: A Triple Bottom Line Perspective,” Proceedings of The 3rd International Conference on Technology and
Operations Management: Sustaining Competitiveness through Green Technology Management, Bandung–Indonesia
(July 4-6), pp. 225-232. ISBN: 978-979-15458-4-6.
www.sbm.itb.ac.id
www.cob.uum.edu.my
Relationship Orientation of Supplier-Manufacturer and Sourcing
Project Success: Partial Least Squares Analysis
Mohamad Ghozali Bin Hassan1,*, Asmat Nizam Bin Abdul Talib1,
Mohd. Rizal Bin Razalli1, Noor Aziani Binti Harun1
1
Abstract. The purpose of the current study was to investigate the relationship between relational-oriented exchange and
outsourcing success of supplier-manufacturer relationship within Malaysia. This study used the partial least squares (PLS)
and structural equation modeling (SEM) tool to test the hypotheses. The data was gathered from a postal survey of 865
electrical & electronics sub-sector, of which 216 respondents participated in this study. The result indicated that relationaloriented exchange was positively related to the outsourcing success. Implications of the findings are further elaborated.
Keywords: Strategic relationship, supplier-manufacturer relationship, performance, outsourcing success, Malaysia
1. Introduction
The focus of this research is on the relationships of strategic, outsourcing success, and the performance of
the relationship. A questionnaire survey is used to identify how suppliers deal with manufacturers. Data is
collected by a postal survey from the electrical & electronics sub-sector (E&E). Therefore, the main goal of the
study is identified as: To determine the positive relationship between supplier-manufacturer relationship with
the sourcing project success in terms of strategic performance.
Evidence suggests that firm performance is affected by its abilities to integrate, build, and reconfigure
resources. This process is referred to as dynamic capabilities [1]. In particular, dynamic capabilities have been
used to explain why firms in the same industry perform differently. For example, [2] suggest that dynamic
capabilities are embedded within firms and consist as a set of specific and identifiable strategic and
organizational routines. [3] found that firms with a dedicated capability to manage inter firm relationships
generated substantially higher market value than firms without such capability. Stated differently, companies
that systematically invest in developing the ability to manage supplier-manufacturer relationship consistently
perform better than others that choose not to make such investments. Accordingly, it can be expected that
* Corresponding author. Tel.: + 60-13-405-6721; Fax: +60-4-928-6860
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M.G. Hassan, A.N. Abdul Talib, M.R. Razalli, and N.A. Harun – Relationship Orientation of Supplier-Manufacturer ...
investments in development of relational-oriented exchange will reduce coordination and integration costs, and
improve the synergistic benefits available through outsourcing success.
2. Research Context and Research Model
2.1. Outsourcing Success
Outsourcing should have a specific goal as an objective with a measurable outcome. Successful outsourcing
refers to what implementation factors the company undertakes in order to achieve its objectives, goals and
expectations [4]. Organizations would be asked to identify their most specific goals or projected benefits to
indicate improvement achieved as a result of the out-sourcing effect. The present research choices included:
financial performance and strategic performance of outsourcing efforts, which were suggested by several authors
[5] [6] [7]. Traditionally, financial data has been considered as the basis for organizational decision-making for a
long time; however, managers have no idea of the utility of non-financial data for improving decision making [8].
This research will introduce Kaplan and Norton’s balanced scorecard, the mixed method of assessing
outsourcing success using both financial and non-financial data.
2.2. Relational-Oriented Exchange
In this study, relational exchange refers to durable relationships in terms of principles and norms which
govern the behavior of two parties. Following previous scholars [9] [10], this study defines relational-oriented
exchange as “the extent of long-term supplier-manufacturer relationship of electrical and electronic industry that
are managed primarily by relational norms and ethical principles”. The norms and principles are as means of
relationship control and coordination. The definition differs from other types of relationships like vertical
integration, power hegemony or a market relationship. This is because of the co-existence of understood
continuity agreements, cooperation norms and action procedures. Figure 1 shows the research model.
H1: Relational-oriented exchange has a significant positive impact on outsourcing success
Fig. 1: Research model
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3. Research Method
A survey method is commonly used in majority of empirical studies. [11] explained that survey method
encompasses broader population study on larger sample size. It is relatively easy to be administrated and incurs
moderate cost. Internet survey, phone interview, e-mail survey and postal survey have been considered to be
employed to the targeted respondents in this study. Given such advantage, researcher can study more variables.
Survey findings can be statistically tested to generalize real world environment. The disadvantages of a survey
include the potential lack of response from respondents; instruments for testing variables are largely based on
perception and only cross sectional studies can be conducted at one point in time. Based on the advantage and
disadvantage analysis, the survey method was used in this study in the researcher attempts to understand a broad
population of Malaysia’s electrical and electronic industries.
3.1. Data Collection
A total postal survey is sent out to 865 respondents in two waves during the months of September to
November 2011 and from December 2011 to January 2012. A total of 218 were received and used to analysis
which translates to about 25.2% response rate. The first wave yields 147 responses and the second wave yielded
71 responses.
3.2. Measures and Assessment of Goodness of Measures
Overall the questionnaire has been categorized into three sections: general information about the
organization, the relational orientation of the exchange in that it enhances the relational orientation by supplier,
and respondent’s profile. A questionnaire using a seven-point Likert scale was used to gather data for each
construct of the research model. All instruments were adapted from previous literatures and were modified to
measure the performance. Questionnaires were designed based on a multiple item measurement scale adapted
from previous research namely [12] [13] [14] and [15].
3.3. Goodness of Measures
Validity and reliability are the two main criteria used for testing goodness of measures. Validity is a test of
how well a developed instrument measures the particular concept it is intended to measure while reliability is a
test of how consistently a measuring instrument measures whatever concept it is measuring whereas.
3.4. Measurement Model
Table 1: Measurement Model: Convergent Validity
Construct
Outsourcing Success
Relational-Oriented Exchange
Item
Loading
AVE a
CRb
PF47
PF48
PS49
PS50
PS51
PS52
PS53
PS54
PS55
PS56
PS57
PS58
PS59
PS60
PS61
PS62
0.701
0.705
0.816
0.872
0.857
0.895
0.921
0.907
0.925
0.928
0.925
0.918
0.853
0.850
0.873
0.884
0.752
0.980
RO63
RO64
RO65
RO66
RO67
RO68
RO69
RO70
0.936
0.910
0.901
0.938
0.934
0.921
0.905
0.896
0.842
0.977
a
Average Variance Extracted (AVE) = (summation of the square of the factor loadings)/{( summation of the square of the factor loadings) +
(summation of the error variances)}
b
Composite Reliability (CR) = (square of the summation of the factor loadings)/{(square of the summation of the factor loadings) + (square
of the summation of the error variances)}
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First we tested for convergent validity which is the degree to which multiple items used to measure the same
concept are in agreement. This was assessed through factor loadings, composite reliability and average variance
extracted [16]. As seen in Table 1, all item loadings exceeded the recommended value of 0.6 [17]. Composite
reliability (CR) values, which depict the degree to which the construct indicators indicate the latent construct,
exceeded the recommended value of 0.7 [16] while average variance extracted (AVE) which reflects the overall
amount of variance in the indicators accounted for by the latent construct, exceeded the recommended value of
0.5 [16].
Next we proceeded to test for discriminant validity - the extent to which the measures are not a reflection of
some other variables and it is indicated by the low correlations between the measure of interest and the measures
of other constructs [18]. As shown in Table 2, the correlations for each construct is less than the square root of
the AVE by the indicators measuring that construct indicating adequate discriminant validity [19]. In total, the
measurement model demonstrates adequate convergent validity and discriminant validity.
Table 2: Measurement Model; Discriminant Validity
Outsourcing Success
ROE
Outsourcing Success
ROE
0.867
0.618
0.918
Diagonals (in bold) represent the square root of the AVE while the
other entries represent the correlations.
3.5. Structural Model
Fig. 2: Results of PLS analysis
237
Overall, the results of the correlation analysis revealed that dimension between ROE and outsourcing
success was significant. The results of the correlation analysis suggest that high level of ROE attributes are
related to high level of outsourcing success. This study hypothesized that ROE has a significant positive
relationship with outsourcing success (hypothesis 4). The variance in the outsourcing success is explained by
relational-oriented exchange. Specifically, this study found that outsourcing performance in terms of
implementation factors the company undertakes in order to achieve its objectives, goals and expectations may be
enhanced through strategic relationships.
Following the assessment of the measurement model, the hypothesized relationships in the structural model
are tested. The results of the analysis are depicted in Figure 1 and Table 3. The results indicated that Strategic
Relationship (β = 0.618, p< 0.05) are positively related to Performance, explaining 38.2% of the variance present
in Performance. The results provide sufficient evidence to support the hypotheses H1 tested in this study.
Table 3: Path coefficients and Hypothesis Testing
β
Hypothesis
H1
ROE –> Outsorcing Success
0.618
Std. Error
0.050
t value
12.311
Decision
Supported
4. Discussion and Conclusion
This study contributes to the identification of supplier-manufacturer relationship dimensions on whether that
relationship impacts upon organizations’ outsourcing success. The dimensions include process and
structure. Specifically, first, this study suggests that improvement in the supplier revenue may be achieved
through relationship quality between supplier and manufacturer. Second, the improvement in the strategic
perspective or internal process performance may be achieved through relationship quality between suppliermanufacturer. These findings would help managers to develop effective strategies or practices and decide the
appropriate level of investment in outsourcing management.
Therefore, the significant results on the relationship of relational-oriented exchange and outsourcing success
variable in the Malaysia electric and electronic industry sample are consistent with relational view theory and
confirm previous study that relational-oriented exchanges enhance outsourcing performance. An extensive of
inter-organizational relationship performance literature agrees that relational-oriented exchange reduce the level
of conflict, refrain from relationship-damaging behaviour and increase consistency in financial result and
cooperative behaviour. The researchers argue that strategic relationship can contribute to improving
economically efficient exchange relationships under conditions of uncertainty and ambiguity and therefore
should lead to outsourcing success.
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Cite this paper
Hassan, M.G., Abdul Talib, A.N., Razalli, M.R., and Harun, N.A. (2012). “Relationship Orientation of SupplierManufacturer and Sourcing Project Success: Partial Least Squares Analysis,” Proceedings of The 3rd International
Conference on Technology and Operations Management: Sustaining Competitiveness through Green Technology
Management, Bandung–Indonesia (July 4-6), pp. 233-238. ISBN: 978-979-15458-4-6.
www.sbm.itb.ac.id
www.cob.uum.edu.my
Humanitarian Logistics in the Merapi Volcanic Eruption 2010:
A case study on MER-C Yogyakarta
Thontowi A. Suhada1,*, Boyke R. Purnomo2,*
1
Center for Economic and Public Policy Studies (CEPPS/PSEKP) - Universitas Gadjah Mada (UGM),
Jl. Teknika Utara, Bulaksumur, Yogyakarta 55281, Indonesia
2
Faculty of Economics and Business (FEB) - Universitas Gadjah Mada (UGM),
Jl. Sosio Humaniora no. I, Bulaksumur, Yogyakarta 55281, Indonesia
Abstract. The eruption of Mount Merapi in Yogyakarta in 2010, causing 34 people dead, 58 injured and more than 40.000
people were evacuated. The total losses incurred more than 3,5 trillion rupiah (BNPB, 2010). This study aims to explore the
practices of humanitarian logistics during the eruption of Mount Merapi in 2010. The focus of analysis is to map out
strategies, processes, flows and the parties involved in the humanitarian logistic during the eruption. Further, the study
examine the management of supply chain drivers such as facility, inventory, transportation, information, and sourcing. This
study was conducted at the humanitarian organization named MER-C Yogyakarta. Interviews were conducted to the key
personnel involved in humanitarian logistics management, both in administrative and operational side. Observations and
documents reviews were used as a supporting method as well as triangulation in this study. The findings is the use of
responsiveness as a core strategy in humanitarian logistics management. Facilities and inventory locations be placed close to
the beneficiaries. Inventory was managed by anticipatory buying in bulk at the beginning, although on some items turned
over supply. Flexibility used to manage transportation modes and routes, and information was managed using a reactive-pull
system and anticipatory-push system. Further, decisions about sourcing medical logistic was conducted using an integrated
approach. Even though responsiveness is becoming main strategy, but some activities carried out in-house to improve the
cost effectiveness. Finally, the logistics and supply chain drivers management has been in line with organizational goals.
Keywords: humanitarian logistics, supply chain drivers, supply chain management, Mount Merapi eruption 2010
1. Introduction
The disaster of Mount Merapi eruption is one typical incident with the level of highly repeated accident. On
average, eruption of Merapi commonly take place four yearly (Surono, 2011 in Solopos team and Harian Jogya,
2011). Mount Merapi is one of the most active volcanoes in Indonesia and is located in one of the most densely
populated region in the world (Smithsonian Institution Global Volcanism Program, 2011).
* Corresponding author. Tel.: +62-81-227-286-334
E-mail address: [email protected] and [email protected]
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T.A. Suhada and B.R. Purnomo – Humanitarian Logistics in the Merapi Volcanic ...
The Mount Merapi eruption 2010 was causing the sufferings of the victims and loss of ability to selfsuffice their own needs. The flow of humanitarian aid to the casualties created a course of goods and services
from the original location (inventory locations) to the targeted location (beneficiary location). To distribute the
humanitarian aid effectively and efficiently, humanitarian organizations require a better logistics management.
However, although management science has been systematically studied since the middle of the 20th century, the
application of coordinating disaster and emergencies is rarely found (Alexander, 2002). Emerges an approach of
supply chain management to face the disaster and emergencies that is called Humanitarian Logistics (HL).
In many cases of disaster occurrence, the contribution of humanitarian organizations is very significant.
During the implementation of HL, logistics cost contributes 80% of the total humanitarian organization costs.
That is why, it is not surprising if humanitarian organization is interested to apply the principle of supply chain
management in its operation (Tomasini and Van Wassenhove, 2009). As a humanitarian organization located in
Yogyakarta, Medical Emergency Rescue Committee (MER-C) runs HL in distributing its aids to some
beneficiaries that are related to Merapi eruption. MER-C is a humanitarian organization that works on the field
of medical emergencies and which has six principles; trustworthy, professional, neutral, independent, voluntary,
and highly mobile. Since the period of emergency responses, MER-C has actively given aids to casualties of
Merapi eruption. MER-C distributed its medical aids in the form of health aid (medicine, medical service, and
medical stuff) and non-medical aids (rice, foods, used clothes, and blankets) to beneficiaries’ locations
throughout Yogyakarta province.
Considering the potential of the disastrous repetition, HL becomes important, not only on the conceptual
level but also on its application. This research is also aimed at exploring the practice of HL drivers upon the
eruption of Merapi through the perspective of supply chain management.
2. Literature Overview
2.1. Supply Chain Management
Supply chain is dynamic and involves the constant flow of information, product, and funds between
different stages (Chopra and Meindl, 2004). The performance of the supply chain depends on the interaction of
each supply chain drivers. Those drivers can also be used to elaborate and support specific supply chain
objectives. That is way formulation and arrangement of every driver will determine the effectiveness of supply
chain strategy. According to Chopra and Meindl (2004), there are six drivers which play a significant role in the
supply chain management:
 Facilities. Defined as physical form of location in supply chain where goods are managed or stored.
Facilities can also mean location where to or from where a supply is distributed. Facilities can be place
for production or storehouse.
 Inventory. Defined as all raw materials, a semi-finished goods or finished goods that will pass through
the supply chain.
 Transportation. Defined as modes and routes. Mode is where product moves from one location to
another. Modes are land, sea or air. While route is a decision whether goods are directly distributed to
the beneficiary locations or through consolidation point first.
 Sourcing. Defined as an option of who will carry out one activity of supply chain. The activity includes
production, storage, transportation and information.
 Information. Defined as the relation between parties or the stages of supply chain that allows them to
coordinate each other.
 Pricing. Defined as how much cost should be spent out by the customers to obtain the good. For HL
context, this driver probably not relevant, because the aids (inventory and services) that are distributed
through HL do not charge any cost to the beneficiaries.
To achieve organization objective during uncertainty environment, an organization requires a appropriate
strategy to be able to distribute products and services from one place to another, for many type of customers,
while at the same time creating profit or restraining the persistency of the company’s operation. Chopra and
Meindl (2004) state that there are two types of supply chain strategy, responsiveness and cost effectiveness.
Responsiveness defined as the ability to serve the demand in quantity, uncertainty level, and large area, by
attempting to reach short lead times but with high level of service. Usually, the increasing level of
responsiveness will come along with the increase in operation cost. Whereas, cost effectiveness is defined as an
effort to make and deliver product to customer using minimum cost as possible. To select an appropriate strategy,
organization may consider some issues, such as the scope of operation, organization vision and mission,
241
characteristic of targeted consumers, level of environment uncertainty, regulation, etc. This strategic choice will
influence the design of the supply chain driver.
2.2. Humanitarian Logistics (HL)
Gupta and Mahadevan (2005) defines HL as the process of planning, executing, and arranging efficiency,
effective cash flow, provision of material goods in accordance with information from the inventory location to
the consumption/ beneficiaries location at the aim of helping the suffering people. The function of HL includes
the range of activities including preparing, planning, reserving, transporting, storing, tracing and cleaning
(Thomas, 2004). Federal Emergency Agency as quoted by Aslanzadeh et al., (2009), classifies aspects of
logistics activity into some assignments: (1) fulfilling the casualties’ need rapidly; (2) giving aids, services,
equipments, transportation and facility support for responder; (3) integrating federal politic system in where the
disaster takes place; (4) controlling and making inventory of property; (5) maintaining logistic full readiness
upon the period of disaster and non-disaster.
2.3. The Differences of Commercial Supply Chain and HL
Based on its purpose, commercial supply-chain used by business organization that encourages participants
to give product or services with a certain quality, time, and cost to obtain benefits in the form of profit. In HL,
the purposes are to provide aids to casualities effectively and efficiently (Thomasini and Wassenhove, 2009).
Based on that purposes, there are different parties involve in the supply chain, as shown in figure 1 below.
Fig. 1: The flow of commercial supply chain and Humanitarian Logistics
Source: Adopted from Chandra (2005) in Aslanzadeh et all. (2009)
On commercial supply chain, suppliers usually consist of companies that provide raw material, component
or semi-finished good to be used by the commercial organization to provide product or services to the customers.
Commercial organization may use some distributor to reach the customers. Customers will pay to get product or
service from commercial organization. While on HL, humanitarian organization may deal with organization that
supply items related to disaster and also donors that provide donation in term of money, goods, and skills.
Humanitarian organization will arrange the input from supplier and donator, and then distribute to the
beneficiaries based on the beneficiaries needs. There will be no earned income from that process.
Based on the demand pattern, HL has specific characteristic that differentiate it from commercial supply
chain. HL has more uncertain demand pattern rather than comercial supply chain. As stated by Beamon (2004),
“in commercial supply chain, the demand of product is relatively stable and can be predicted based on its
location and frequency. In HL, the demand of product emerges randomly and the location cannot be identified
before the demand emerges.”
3. Method
To conduct this research we used exploratory study through single case study. The object of study is MER-C
Yogyakarta. The selection is based on several reasons, such as: the operational region of MER-C of Yogyakarta
and its surroundings where the impact of Mount Merapi eruption were mostly felt; the organization competences
242
in humanitarian activities and emergencies, including the distribution of logistic to the domestic or foreign
beneficiaries; and the presence of special division to handle logistic in this organization.
The focus of analysis is to map-out strategies, processes, flows and the parties involved in the humanitarian
logistic during the eruption. To have more detail comprehension, the study will also to examine the management
of supply chain drivers such as facility, inventory, transportation, information, and sourcing. To do so, we use
literature study, in depth-interviews, as well as observation, to have triangulation to provide adequate quality in
data collection. The data consist of logistical flow, process, management, logistics, location, and supply chain
drivers.
The choice of participants of the in depth-interview was carried out through chain referral method. At
the beginning, the researcher conducts an in depth-interview with the MER-C Secretary, which afterward refers
to the Medical team coordinator, and then with the Logistic aid division coordinator. The observation is expected
to be the supporting resources and to make it easy in understanding and interpreting the interview results or
literature analysis. The technical documents are used to compliment the lack of observation in this research that
cannot give historical comprehension. The technical documents are activities reports, evaluation report,
communication book, and status reports. Those documents will complement the general information, such as:
organization vision, mission, objective, history, and other activities which already collected before in deptinterview from various kinds of mass media files, i.e. news, newspapers, and electronic mass media.
We analyze using descriptive, qualitative analysis. It is start with data reduction, coding, arranging it
into category (memoing), and summarizing it into a simple arrangement and pattern. Qualitative analysis also
has something to do with the interpretation, namely, obtaining meaning and insight from word and action of the
research participants by exposing concepts and theories that explain the findings (Daymon and Holloway, 2008).
Such data will be managed using content analysis.
4. Findings
4.1. Humanitarian Logistic Process
Based on the organization mission, MER-C defined as, “social humanitarian organization that has a high
mobility characteristic”. It clearly indicate that MER-C tend to use responsiveness strategy in managing their
supply chain. In implementing responsiveness strategy MER-C involved participant as shown in figure 2.
Fig. 2: Humanitarian Logistics of MER-C Yogyakarta
Parties involved in HL are donators, suppliers, MER-C headquarter, MER-C Yogyakarta, and beneficiaries.
Donators consist of those of individual and institutional. Upon giving the donation, it is followed by transaction,
which usually states the purpose and allocation of the donation. Institutional donators occasionally request an
accountability report, which contains aid distribution report, location, beneficiaries, and list of beneficiaries. HL
243
suppliers of MER-C Yogyakarta consist of logistic, medical, and non-medical suppliers. Suppliers are required
when the need of medical, non-medical demand cannot be fulfilled by the donators only.
MER-C headquarter is the worldwide central MER-C. The role of MER-C headquarter in HL is the fund
collectors from donators. Donation that originates from the local Yogyakarta province and its surrounding cities
is usually put directly in the MER-C Yogyakarta. However, donation from other regions should go into MER-C
Headquarters’ account. MER-C Yogyakarta serves as point of local distribution that runs the function of HL like
logistic procurement, temporary warehouse, and the distribution. Beneficiaries are the benefits recipients of HL
of MER-C, which are at once as the casualties of the eruption of Merapi 2010. The beneficiary locations are
spread out across the 4 regencies and towns in DIY and its surroundings, like Sleman, Bantul, Yogyakarta and
Magelang. The beneficiary locations are usually posts of refugee camps and shelters.
The flow of HL of MER-C consists of these flows of goods, information, fund and people. The flow is
divided into two, namely, medical and non-medical logistics. Medical logistics distributed are medicines, masks,
bandage, and vitamin supplements. Non-medical logistics distributed are among others mat, blanket, emergency
lamp, toiletries, clothes, baby’s food, diapers, bottled mineral water, rice, sugar, baby’s diapers, milk and
detergent. Medicines and goods from donators upon their arrival will be inventoried in term of types, amount,
and the expiry date before stored in the warehouse. In the warehouse, the medicines are arranged along with
types and functions.
The aid delivery process starts from the submission of proposal for aid request from casualties or from
where the beneficiary locations are found suitable/appropriate.
“…. Casualties hand in aid proposal, then we do the survey of location to ensure whether the
casualties truly need the aid or not, then we affirmed the amount of aid that will be distributed.”
(Secretary, August 5, 2011)
Proposal then is clarified through survey process to ensure the properness of beneficiaries and the amount
required. After all the processes are done, only then the aid will be distributed directly to the beneficiary
locations.
Other than through proposal, MER-C also actively searched for the prospective beneficiaries. It
searched through the locations that possibly require aids, meanwhile doing survey on the necessity.
“Besides, MER-C also actively searched for casualties or refugees, who needed help.”
After the location of targeted beneficiaries was identified, the delivery process was done. The delivery of
non-medical logistics has done directly to the beneficiaries through a coordinator of beneficiary location. Nonmedical logistics has usually packed in a form of package that contains different goods suitable to their need.
The package is given to the beneficiary in a unit of KK (family head) or suited to their need.
4.2.
Drivers
Fig. 3: Humanitarian Logistics’s Driver MER-C
244
Usually in commercial supply chain, there are six drivers which are facilities, inventory,
sourcing,transportation, information, and pricing (Chopra and Meindl, 2004). In HL case on MER-C, the five
main drivers that are shown in Figure 3.
4.2.1. Facilities
The supply chain facility owned by MER-C covers three sub-warehouse and mobile local distribution point
that is called health post (“pos kesehatan”). The warehouse is located right out of the dangerous zone 25
kilometers away from Merapi whereas the health post is located right in refugee location to make it reachable for
the beneficiaries. The objective is to enhance the level of responsiveness of MER-C. MER-C cover a quite large
area which are Sleman, Magelang, Bantul, and Yogyakarta (shown by red circle in Figure 4). To meet demand
and accommodate more logistics, MER-C expanded the warehouse with fourth sub-warehouse. Three subwarehouse used MER-C is chartered building, while the fourth is made with a tent in a open space near the other.
Fig. 4: Coverage area and location of MER-C facilities
Map Source: BNPB (2011) with modification
4.2.2. Inventory
Soon after the first eruption, reservations of medicine in large quantity were done. Reservation for type of
medicine is based on the prediction on the cripple or disease that will be suffered by casualties after Mount
Merapi eruption.
“....most casualties suffer burns or suffocation; the related medicines and equipment will be kept
in large stock.”
(Logictics Coordinator, September 8, 2011)
In term of quantity, reservation is based the prediction of the scale and area of Merapi disaster. Somehow, it
was found out a too much reservation for type of medicine for burn and mask, which turned out by fact to be
much smaller in numbers than predicted.
“...apparently, the reservation for medicine went over to ***….the real need of it in reality only
reached one tenth of the predicted amount.”
245
Some supplies were over abundant. They were returned to the drugstore. The first reservation of medicine
supply was quite large so that for the following five months, MER-C no longer needed to restock in large
quantity.
Along with time passing by, the types of demand increased. The non-medical logistics like blanket,
diapers, and mineral water were at first, required by the casualties. MER-C reacted against this demand by
purchasing the mentioned logistics. The purchase is based on the prediction on the amount of logistics required
during the period of two deliveries or in a week period. The prediction is not based on systematic forecasting
method. In some cases, in which casualties were really in bad need of something, MER-C directly reacted by
purchasing the required goods. Each of the incoming logistic then recorded and grouped by type and the expiry
date. Management of inventory was based on FIFO (first in first out) method.
4.2.3. Transportation
The distribution routes usually are multipoint that is continued to point-to-point. Logistic delivery
mechanism mostly used rather than the pick-up mechanism. This is done to cover the large, widespread
distribution location and the limited amount of means of transportation. In commercial supply chain, the
determination of capital is based on trade-off, between the fast but expensive means of transportation and the
slow but inefficient means of transportation.
In HL of MER-C another consideration emerges, namely, the ability of means of transportation to reach the
destination location. Under disastrous condition, infrastructure damages like street and bridges hinder the means
of transportation like truck or cars to reach the location.
“Sometimes, some locations are out of reach, so that it required us to ride motorcycles for its
flexibility.”
(Logistics Coordinator, September 8, 2011)
Under such circumstance, means of transportation that are rarely used for logistic transportation like
motorcycles are used. Motorcycles relatively can go through narrow, damaged lanes that cannot be passed by
truck or cars.
4.2.4. Information
In HL of MER-C, information plays a very important role. As humanitarian organization, that owns
characteristic of trustworthy, every single of information on the reception and distribution of donation must be
informed to the donators right away.
“There must a daily report on the reception, so every time we receive donation we will confirm the
donators, other than that, a report must be sent to the MER-C headquarter to be publicized in the
MER-C’s web.”
Information on the reception of donation is usually confirmed through SMS (short message service) by
MER-C to the donators. Information on reception and distribution of the donation will also be publicized through
website of either MER-C Headquarter or Branch of Yogyakarta.
MER-C uses either pull or push information system. These two processes require different types of
information (Chopra and Meindl, 2004). The anticipative push system requires information to make planning
and predictions (historical information). While pull system requires information of the current demand (actual
demand) and can be immediately distributed to the next phase to process.
The management of these two systems of information results in distinct problem for MER-C. Information of
push system in MER-C is not yet managed well, which can be proved by taking decision on purchasing supplies
based on common sense. The previously unmanaged historical data on the demand of Merapi casualties’ aid is
the major constraint for a systematic prediction on demand. The low level of knowledge transfer that results
from the volunteer’s short lasting status worsened the management of information.
While for pull system, there is not any actual problem internally. Nevertheless, actual information on
demand has been managed quite well. Problems even come out form external parties. The presence of multiple
aids, namely, a logistic demand that is responded by two or more institutions that do not make good coordination
(Gupta and Mahadevan, 2005). It is a common problem, experienced by humanitarian organization, so is it for
MER-C. Although, actual information was obtained, it is difficult to anticipate the possibility of multiple aids. A
disaster draws so much public attention that the flow of information becomes uncontrollable. In the case of
multiple aids, MER-C chose to divert the aid to another location if upon the arrival of donation in a location;
other institutions turn out to allocate their aid to the same location.
246
4.2.5. Sourcing
All activites of sourcing, is self managed, or conducted inhouse. In this case, there is no delegation for the
different supplier. Transportation, warehouse, packaging, and other various processes were handled by MER-C
itself. It was even outsourced by other parties to run the distribution and the service of health. In this case, a
decision to do in-house sourcing is quite an appropriate decision because by doing its activity and run the phases
of supply chain itself, the supply chain will be more responsive in facing the demand.
According to Chopra and Meindl (2004), delegating one activity to other parties (outsourcing) will give
benefits on the enhancement of efficiency of supply chain. In this case, delegating activity or phases of supply
chain to other parties even will lower the level of efficiency of the supply chain. This is due to the fact that
MER-C is an organization whose members are voluntary so that processes, activities or the phases of supply
chain incurred almost no cost for labor. While doing outsourcing even will incur more cost because other parties
are usually commercial company or organization.
5. Discussion
To reach strategic fit, companies must ensure the capability of supply chain to satisfy the segmented
customers (Chopra and Meindl, 2004). In context of HL, strategic fit can mean the abilities of the supply chain
drivers to achieve the organizational goals to give highest benefit to the beneficiaries. Referring to MER-C
mission statement, ”to help the most vulnerable people and the most neglected people”, and referring to MERC’s characteristic of high mobility, it shows that the purpose of this organization is to help vulnerable people
rapidly. To do so choosing responsiveness strategy as a part of organization strategic decision making is relevant.
To be responsive, MER-C manage facilities drivers, allocating the warehouse right out of the dangerous
zone 25 kilometers away from Merapi and the health post is located right in refugee location. It is help MER-C
to be more close to beneficiaries. In inventory side, despite the unsystematic prediction on demand, the provision
of logistics in large quantity in the early of period of disaster shows the conservatism approach of the
management to be as responsive as possible. MER-C has primary suppliers to fulfill its logistic demand.
However in certain conditions, MER-C can purchase wherever it is. The flexibility in doing this sourcing will
play role, as well as in enhancing its responsiveness in fulfilling the uncertainty of demand and environment. The
choice of transportation mode and routes is also quite suitable and relevan to suport the organization objective.
The management of facilities drivers, supply, information, transportation, and sourcing has been in line with
the responsiveness strategy. Somehow, there are several cost effectiveness strategic practices to enhance
usefulness of the aid fund. Efficiency found out is the use of pull information system where purchasing is only
done upon the emergence of order/ reservation. Efficiency is also carried out when MER-C chose to do
postponement when a demand of certain logistics is not urgent. However, for the emergent and urgent demand,
MER-C remains to respond well. From the elaboration above, it can be drawn a conclusion that generally, the
management of driver is able to encourage the achievement of supply chain strategy of MER-C Yogyakarta.
6. Conclusion
HL management carried by MER-C is consistent with the mission of organization. Responsiveness strategy
derived in many aspects of drivers, such as facilities, transportation, sourcing, and inventory, but in many aspects
MER-C try to be quite use cost effectiveness strategy. This research also has succeeded in describing how
management of driver supply chain of HL was carried out by MER-C. Facilities and supply was allocated near
the beneficiary location. The supply was managed anticipatively by purchasing in large quantity at the early time,
although several supply items turned out to be over-supplied. Modes and routes of transportation were managed
flexibly. Information was managed using reactive-pull system and anticipative-push system. Medical logistic
sourcing is integrated to encourage responsiveness of MER-C. Almost all activities carried out in-house by
MER-C are to enhance efficiency without crippling responsiveness. The management of the five drivers has
already been in line with the strategy of responsiveness of MER-C and is able to achieve the goals of MER-C. In
future humanitarian organization need put more attention in demand forecasting. They may use some more
objective approach, suported by quantitavie tools so that the logistic demand prediction in disasters will be more
accurate.
247
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Cite this paper
Suhada, T.A., and Purnomo, B.R. (2012). “Humanitarian Logistics in the Merapi Volcanic Eruption 2010: A case study on
MER-C Yogyakarta,” Proceedings of The 3rd International Conference on Technology and Operations Management:
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ISBN: 978-979-15458-4-6.
www.sbm.itb.ac.id
www.cob.uum.edu.my
The relationships between supplier and customer involvements
towards broiler business performance: An empirical investigation
on Malaysian poultry industry
Ahmad Shabudin Ariffin1,*, Hendrik Lamsali1,*, Shahimi Mohtar1,*
1
Abstract. Agriculture is one of the key sectors for international trade that supply foods to the world population. The major
contribution of broiler consumption in improving per capita nutrients level is well documented. In the meantime, the
importance of supplier and customer involvement within supply chain operations are also well acknowledged. Nonetheless,
empirical evidence linking broiler business performance and the aforementioned involvements remains elusive. Hence, this
study proposes an investigation over potential relationships between supplier and customer involvements towards broiler
business performance. The potential moderating effect of managerial skill levels on the abovementioned relationships is also
proposed. A research framework and six hypotheses are then forwarded to further gauge the issues. Plugging the information
gap in Malaysian poultry industry and examining the inclusion of customer involvement and managerial skill levels into the
model are the focal contribution of this study. Upon completion, the study is expected to be beneficial to relevant authorities,
practitioners and interested parties alike.
Keywords: Broiler industry, supplier involvements, customer involvements, skill levels, producers, integrators, business performance
1. Introduction
At the moment poultry industry in Malaysia has three types of producers. It comprises commercial farms
and conventional farms. Commercial farms that run business on contract farming basis with integrator and
conventional farms that are belong to independent entrepreneurs. The contracting scheme is therefore more
likely to be sustained by its ability to support entrepreneurs than it is by its ability to produce highly competitive.
In 2009 there were 3,300 farms in operation carrying a standing population of nearly 186 million broiler
chickens. Of these, 4,300 farms 22.9% are large farms with more than 50,000 broilers per cycle while 26.2% are
medium scale farms carrying 20,000-50,000 broilers per cycle, and the rest are small farms with 20,000 broilers
per cycle. Malaysia is 121.8% self-sufficient in the supply of poultry meat. Most were consumed fresh. It is the
main meat type consumed in the country accounting for 70% of the total meat consumed. Only 9% of local
* Corresponding authors.
E-mail address: [email protected] ; [email protected] ; [email protected]
250
A.S. Ariffin, H. Lamsali, and S. Mohtar – The relationships between supplier ...
production was used for further processing. However, processers were increasingly getting supplies from
cheaper imported poultry meat for value added processing. In fact, most of poultry supplied for processing were
from imports. The main challenge facing the industry is its competiveness, where prior to WTO and AFTA, the
broiler industry was highly protected through import bans and quantitative restrictions. Currently some products
are under tariff rate quotas. In this respect, transforming the small scale farms to a more capital intensive
medium and large scale farms is the major initiative that is needed by the industry to enhance productivity and
competitiveness to sustain the industry in a more liberalized market. Another challenge for the industry is to
cope with the environmental and pollution issues associated with its production system. In this respect, the
government has provided incentives for producers to upgrade their production system from the open to the more
efficient and environmentally friendly closed house system of production. Within a relatively short period of
time the poultry industry has been able to transform itself from backyard subsistence levels to highly modern,
commercial and efficient production systems.
In the meantime, empirical information on broiler business performance in Malaysia is still in infancy stage.
The potential impact of supplier and customer involvement towards local broiler business performance also
remains debatable due to lack of relevant empirical evidence. Hence, the aim of this study is to propose an
investigation over the potential relationships between supplier and customer involvement towards local broiler
business performance. The remaining part of this paper is organized as follows: Section 2 reveals relevant
literature review, section 3 depicts the conceptualization of research hypotheses and section 4 briefly addresses
proposed research methodology and relevant constructs measurements. Expected contribution from the research
is stated in section 5 and finally conclusion of the research is presented in section 6.
2.1. The Supply Chain Management (SCM) Perspective
Supply chain management (SCM) recently has become popular within practitioners and academician
(Burgess, 2006). Supply chain management practices are chartered to deliver the right product, place, time,
quantity, quality and condition to the customers at the lowest possible cost (Coyle, et al., 2003; Lumnus, 2003;
Li, 2006). Recent business environment has been driven by constant changes, market unpredictability (Swafford
et al., 2006; Yusuf, Gunasekaran, Adeleye and Sivayoganathan, 2004; Kim, 2005), rapid technology changes
(Lau, 1996) and shorter product life cycle (Hyun and Ann, 1992). This has resulted in diversification of product
varieties (Fischer, 1997) and inconsistent global demand (Porter, 1991; Lee, 2004; Ketchen et.al., 2008).
Successful organizations remained competitive through various supply chain channel collaborations (Porter,
1990; Speakmanet. Al., 1998; Van Hoek, 2001) while adapting to change market place condition
(Reichhart&Holweg, 2000; Kumar et. al., 2006).
2.2. Supply Chain in Poultry Industry
Figure 1. The vertically integrated Poultry Production Supply Chain
The main company has a vertically integrated supply chain, it operates as an integrated producer, owning the
majority of all breeding, feed, slaughtering and processing facilities (see figure 1). It uses state of the art
technology and a strict hygiene control in all its processes. The company operation counts with rural producers
251
as integrator and direct collaborators. It operates with a wide variety of distribution channels, ranging from
supermarkets to distributors and groceries. It also delivers its products directly to restaurants. The company
believes its favorable position in the national and foreign markets is the result of a long-term work that the whole
team has been developing along with the strategy of the company in granting service and personalized products.
2.3. Contract Farming
The term “contract farming” generally refers to situations in which a farmer raises or grows an agricultural
product for a vertically integrated corporation. For example, thousands of farmers nationwide are growing
broilers under contract farming arrangements for major poultry-producing companies. Contract farming
arrangements are also becoming common in other kinds of poultry production. There are two parties in a typical
contract farming arrangement: the grower and the company (Integrator). Generally, the grower provides the land,
the buildings, the equipment, and the labour. The company provides the broiler, the feed, the medicine, and
management directions and services. Broiler contracts consist of contracting out the growing stage. Integrators
(i.e. the firm that controls or contracts out each stage of production) recruit large farms (growers) to rear broiler
chickens for meat according to contractual guidelines. From the growers’ perspective, contracts with integrators
provide them access to many facets of production that may otherwise be unavailable including credit, production
technology, and the world market. Farming contracts can also help growers mitigate risks posed by fluctuations
of input prices and provide a secure market outlet for their product. The latter is especially important because of
the limited facilities that process chickens raised by independent farmers. While current trends are moving
producers toward vertical integration, there remain many farms currently under contract or with unused
infrastructure from past contracts. These contracts cover four main elements; price, quality, quantity, and time.
The first type, procurement contracts, only specifies the conditions of input purchases and the conditions of
output sale. Most integrators in Malaysia participated contract farming with growers for broiler production.
Consequently, the integrators are always involved in every stage of production. Growers receive chicks from the
firm hatcheries, feed from the firm feed company, veterinary services from the company veterinarians, etc.
Therefore, while there are key differences between contract farming and complete vertical integration (e.g. who
supervises over important growth stages), most aspects of the supply chain are the same. Total contract
arrangements dictate that the growers retain ownership of the broilers during the growing stage because the
growers receive all inputs (including chicks) free of charge. Similar to completely integrated production systems,
all scheduling in contract production systems is controlled by the integrator. The integrator thereby gathers the
benefits of efficient scheduling and decreased transaction costs.
3. Conceptualization of Research Hypotheses
3.1. Product Modularity (PM)
According to (Schilling, 2000) PM as a continuum of describing separateness, specificity (Ulrich, 1995) and
transferability of product components in a product system (Lau, Yam, & Tang, 2010). A product is
transferrable if the product components in a product system can be reused by another system (Starr, 1965). It can
be separated as it can be disassembled and recombined into new product configurations without loss of
functionality (Schilling, 2000), and specified as the product component has a clear, unique and definite product
function with its interfaces in the product system Ulrich (1995). If a product has high PM (i.e. modular product
design), the product system has separate modules with well-specified interfaces across the modules, such as
those found in personal computers. The product modules can be transferred to different product lines and
progressive development projects. On the contrary, if a product has low PM (i.e. integrated product design), the
product components are highly interlinked without well-specified interfaces across the components, like those
found in fine art. It is very difficult for these components to be transferred to other product lines. Product
modularity is a multi-faceted construct and little consensus of definition has emerged (Gershenson, Prasad, &
Zhang, 2003). The literature relates modularity and standardization through commonality and product
architecture. In this research, we define product modularity as the use of standardized and interchangeable parts
or components that enable the configuration of a wide variety of end products. This definition pre-supposes the
concepts of loose combination, ease of disaggregation, dissimilar outputs, and a one-to-one matching of function
to module.
Hence, the abovementioned issue is hypothesized as follow:
H1. PM has positive significant relationship with BP
252
3.2. Internal Coordination (IC)
Recent literature have stated that successful product development can only be achieved if the organization
can effectively integrate internal functional units, including marketing, manufacturing, R&D, and purchasing
(Gerwin & Barrowman, 2002); (Clark & Fujimoto, 1991). Diverse internal integration mechanisms (e.g. crossfunctional teams, overlapping, employee involvement, concurrent engineering, connections, dedicated teams,
empowered teams) have been recommended in different phases of NPD (Griffin, 2002); (Hargadon & Eisenhardt,
2000); (Zirger & Hartley, 1994). Thus, this study defines IC as the degree of the coordination among sales and
marketing, research and development, and production to inventory management throughout the product
development process.
H2. IC has positive significant relationship with BP
3.3. Product Innovativeness (PI)
An important part of the research within the new product literature focuses on the effect of PI on product
performance (Cooper, 1979); (Zirger & Maidique, 1990); (Kleinschmidt & Cooper, 1991); (Cooper & Brentani,
1991); (M. X. Song & M.E. Parry, 1997); (M. X. Song & Montoya-Weiss, 1998). Even with the widely varying
conceptualizations and operationalization of the PI construct (Danneels & Kleinschmidt, 2001), there are
prevailing views arguing that both higher and lower PI increases product performance while the opposite holds
true for moderate PI. In particular, more innovative products require greater efforts and resource commitments
from the firm but are likely to have positive performance effects because they gain significant comparative
advantages that secure adoption by customers. Likewise, less innovative products reduce the efforts required,
because of their familiarity with the core products of the firm. Since they benefit from firm-specific experiences,
competencies and resources, they are likely to become more successful, thus leading to higher performance.
Based on the above, this study seeks to provide new evidence concerning PI as a phenomenon and extend the
empirical literature to the relation between PI and performance. In particular, it classifies firms according to
three dimensions of PI and looks for differences in product- and firm-based performance, while directs the
attention to the context of industry. Indeed, there is still a major question as to whether smaller as compared to
larger firms are more active and successful in product innovation. Despite the persistent, ongoing controversy on
this issue (Fritz, 1989), smaller firms are thought to be more innovative than larger firms for many reasons (e.g.
respond faster to market shifts and needs, accept and implement change easier). Following this reasoning, many
studies refer to attempts of categorising small firms’ innovative behaviour (e.g. (Hadjimanolis & Dickson, 2000);
(Raymond, Julien, Carriere, & Lachance, 1996); (Rizzoni, 1991). The proposed alternative typology schemes
usually contrast two polarised innovation strategies (i.e. strategies behind innovation), such as proactive
innovators vs non-innovators or considering intermediate situations, such as reactive innovators. However, the
literature as regards typologies according to PI and their relation to business performance within a small firm
context lacks evidence. So, in the absence of such evidence it is useful to resort to qualitative evidence from the
Malaysia context. Given the above considerations, the research questions that this empirical study raises, attempt
to identify differences, if any, in performance measures at both the product level.
H3. PI has positive significant relationship with BP
3.4. Supplier Involvement (SI)
According to (X. M. Song & Benedetto, 2008); (van-Echtelt, Wynstra, Weele, & Duysters, 2008)SI is
recognized as an important way for new product success. In this study, SI is defined as the direct participation of
the supplier during the product development processes (Ragatz, Handfield, & Scannell, 1997). Suggested by
(Fliess & Becker, 2006); (Takeishi, 2001) it involves joint product design, process engineering and production
operations with key suppliers. SI helps secure resources and capabilities, which the manufacturers do not have
but essential for product innovation(Grant, 1996). It helps the supplier learn new technology applications while
the buyer can actively shape product performance (Athaide & Klink, 2009).
H4. SI has positive significant relationship with BP
3.5. Customer Involvement (CI)
Suggested by (Feng, L. Sun, & Zhang, 2010); (Brown & Eisenhardt, 1995)CI is defined as the direct
participation of the customer in the design and development stages of New Product Development (NPD), in
which the customer engages in problem solving activities and co-develop the final forms of the product with the
manufacturers. It involves joint product design, process engineering, and production operations with key
customer. According to (Brown and Eisenhardt, 1995; (Clark & Fujimoto, 1991) the early involvement of
customers or early customer inputs is essential to develop new products. It facilitates the project teams to
253
recognize new ideas and opportunities while avoiding development delays due to a mismatch of the ideas and the
customer needs(Ittner & Larcker, 1997).
H5. CI has positive significant relationship with BP
3.6. Business Performance
If organizations cannot measure performance, they cannot manage their business (Kaplan & Norton, 1992).
If organizations are to survive and prosper in information age competition, they must use measurement and
management systems derived from their strategies and capabilities. This statement summarizes the necessity of
performance to measure, and asdirect consequence, and to evaluate their performance (O'Raily, Wathey, &
Gelber, 2000). Summarizing the ideas of many authors, it can be said that the roles of business performance
evaluation are to ensure compliance with crucial minimum standards, to check how well organization are doing,
to test strategic assumptions, and to provide a reliable basis for communicating with interested parties (Coelho,
Yivisaker, & Turkstra, 2005). The business performance extends the eras of measurements to the three
perspectives (Maluenda, 2006).There are innovation, rate of new product development, customer satisfaction,
customer retention and operating costs (Zack, McKeen, & Singh, 2009). Business performance is defined as
measurable result of the level of attainment of organizations goals (Daft & Marcic, 2001) or measurable result of
the organization's management of its aspects (ISO 1999), or mechanism for improving the likelihood of the
organization successfully implementing a strategy. Business performance evaluation is the process to help
management decisions regarding an organization's performance by selecting indicators, collecting and analyzing
data, assessing information against performance criteria, reporting and communicating and periodically
reviewing and improving this process (Coelho et al., 2005).
H6. All variable has significantly influence with BP
3.7. Skill Level
Economic theory recognizes several processes by means of which skill is created and contributes to business
performance. Despite skill significance in economic theory (Loasby, 1999), it seems that insufficient attention
has been paid so far to skill creation in the division of labour in the Agri-Food sector. It recognises that
characteriseAgri-Food systems, at the level of both whole chains and groups of agents(Fritz & Schiefer, 2008);
(Sporleder & Wu, 2006), and maintains that organisationalskill is a effective source of competitive
advantage(Teece, G.Pisano, & Shuen, 1997); (Schroeder, Bates, & Junttila, 2002). It seems that a specific
characteristic of the Agri-Food sector, which offers important examples on how organisational choices positively
influence skill level, is related to the peculiar distribution of the sources of codified and tacit knowledge (Nonaka
and Takeuchi, 1995), with farms mainly involved in the tacit knowledge creation. Researchers are paying
increasing attention to food supply systems(Lindgreen, Hingley, & Trienekens, 2008); (Omta, Trienekens, &
Beers, 2001); (Menard & Clein, 2004); (Sonnino & Marsden, 2006), and this reflects both the complexity of the
sector’s organizational arrangements and the growth of analytical interest in Networks Analysis (Borgatti, Mehra,
Brass, & Labianca, 2009). Today, this industry is against the severe economic practices of governments and the
most difficulties from governments are certain attention to management preparations in poultry production in
order to increase the efficiency(Oknkow & Akubuo, 2001). In addition to three factors of labour force, capital
and land, management is introduced as the fourth factor of production which have important role in the three first
factors. What is important theoretically is that in each production, due to being quality of management, it must
turn to quantity for using some indexes until it can use in production function (Hamidi, 2005). Hence, the
managers of agriculture production and producers are considered as the most efficient agent to control efficiency
and productivity of business. So, assessment of their performance and efficiency and also their role in realizing
farm management goals play important role, So that, (Amini & Ramezani, 2007) had been introduced managers
capacity and proficiency as one of the important inter organizational component in success of poultry
cooperation's. These managerial skills help them to perform correct selection due to financial levels, workforce,
land resources and risk escaping. These skills help the producers for access to income possible levels about what
thing must be product, in which part of farm, by what method, when and how much, take informed decision
(A.Sh. Al-Rimawi, Karablieh, Al-Qadi, & Al-Qudah, 2006) and (A.S. Al-Rimawi, Emad, & Abdullah, 2004). In
this study, the potential role of managers’ skill levels as moderating variable between the aforementioned
independent and the dependant variables will be discussed and depicted by the following hypothesis.
H7: SL has significantly moderate relationship between IV and D
254
4. Proposed Research Methodology
This study will involve all broiler producers in Malaysia. General approach of this research is quantitative.
With regard to the research problem which is try to study the relationship between Supplier Customer
Involvement towards Business Performance and moderating of managerial skills in broiler production, it
performed based on survey strategy and it is enjoying of descriptive-analytical method. Statistical population of
this research consisted of whole industrial boiler production (producers) that registered at Department Veterinary
Services (DVS) of Malaysia. The main instrument for data collection was a questionnaire including background
of the company, supplier and customer involvement specification and managerial questions about broiler
production and individual/professional characteristic.
4.1. Research Design
The objective of the research is to determine the relationship of supplier involvement, customer involvement,
product modularity, product innovativeness, internal coordination and business performance. Skill level is a
moderating variable between independent variables and dependent variable. Suggested by (Pinsonneault &
Kreamer, 1993) that survey research is best to answer questions on what, how much, how many and lesser extent
to answer how and why. Literature review also showed survey is appropriate to examine the all variables and the
need of higher number sample size to cover the field in different location in Malaysia. Survey method is the best
option as it is cost efficient. It does not involved significant amount of time and also need have statistically tested
validation to close previous research gaps identified from other researchers. Finally, based on the preliminary
interview with experienced industry practitioners, the probability of obtaining commitment from firms to
participate in case study are relatively low making this option not advantageous. This research considers case
study to triangulate areas of research questions which need more contextual confirmation on how and the level of
supplier-customer involvement towards business performance. Based on the literature reviews and problem
statement illustrated, there are not many research instrument to measure relationship Supplier-customer
involvement towards business performance in agriculture product such as broiler. Hence, specially crafted test
instruments through structured questionnaire are used to study the research framework.
4.2. Instrument Development
Variables
Supplier Involvement (SI)
Customer Involvement in
Product Development (CPD)
Managerial Skill Level (ML)
Business Performance (BP)
Independent Variables
Dimension
Product Modularity (PM)
Product Innovativeness (PI)
Internal Coordination (IC)
Customer Involvement in Product
Development (CPD)
Moderating Variables
Planning and Goal Setting (PGS)
Accounting and Financial Skills (AFMS)
Marketing Management Skills (MMS)
Dependent Variables
Business Performance (BP)
Sources
A.K.W Lau (2011)
Wynstra & Ten Pierick(2000)
Vonderembse & Tracey (1999)
van-Echtelt et al.(2008)
Takeishi (2001)
Salavou (2005)
Stjenstrom & Bengtsson (2004)
X. M. Song & Benedetto (2008)
Salavou (2004)
Ryu, Min, & Zushi (2008)
Peter (1996)
Avlonitis & Salavou (2007)
Danneels & Kleinschmidt (2001)
M.F.Svendsen, et. al. (2011)
Ragatz et al (1997)
Peterson, Handfield, & Ragatz (2005)
Athaide & Klink (2009)
Brown & Eisenhardt (1995)
Chen, Damanpour, & Reilly (2010)
Feng et al (2010)
M.S.Allahyari et. al (2011)
G.Martino & P. Polinori (2011)
S. Roll (2010)
R.Bhagwat & M.K.Sharma (2007)
A.Agus (2010)
A.Agus (2011)
(Sanchez & Perez (2005)
Zelbst, Green, & Sower (2009)
255
Zailani & Rajagopal (2005)
Zack et al (2009)
Yaaghubi, Chizari, Pezshkirad, & Foeli
(2009)
Worren, Moore, & Cardona (2002)
Webster (2002)
Threranuphattana & Tang (2008)
Tan, Kannan, & Handfield (1998)
Sezen(2008)
Saad & Patel (2006)
Rosenzweig, Roth, & Jr-Dean (2003)
4.3. Population and Sampling Frame
Malaysia’s agriculture sector accounted for 14 percent of GDP in 1995, down from 38 percent in 1960
(Asian Development Bank. Asian Development Outlook 1996 and 1997, 1996). During the past three decades,
the Malaysian poultry industry has evolved from small back-yard operations into relatively modern, large-scale
commercial operations. One of the factors contributing to the growth of the poultry sector is the replacement of
local breeds with high-quality poultry breeds from the United States, Europe, Canada, and Australia. A second
factor is the growth of highly efficient integrated production systems. Six of the largest broiler operations are
now fully integrated with breeder farms, feed mills, processing plants, and in some cases, retail outlets. The
integrated firms account for two-thirds of broiler production in Malaysia and are steadily increasing their market
share (Fuglie, 1996). Hence, this sector is logical consideration as the population used for the research. The
Malaysia Department of Veterinary Services (DVS) has been commonly used by various researchers as a data
base to select population and sampling frame. Based on literature reviews, quality of respondents is an important
factor and is expected to have best knowledge about the operation and management of supply chain in their
organization. Hence the survey targets managers in operation, materials planning, marketing, general managers
or directors. Based on these past experiences, it has been decided to include the entire listed contract broiler
producers. The objective is to involve all the producers and to ensure sufficient data collected to meet the criteria
of good sampling frame and sufficient data to run the statistical analysis (Bryman & Bell, 2003).
5. Discussion and Expected Result
The contact farming literature reminds us that these arrangements often fail because of opportunistic
behavior. The poultry example shows that contracting is a useful institution when processor interests are closely
aligned to that of the grower. This paper describes the situations under which this orientation is obtained. First, it
enhances to the small and growing body of work that explained the performance contract growers. Second this
paper also addresses benefits from contract scheme between suppliers and growers. The potential moderating
effect of managerial skill levels on the abovementioned relationships is also proposed. Plugging the information
gap in Malaysian poultry industry and examining the inclusion of customer involvement and managerial skill
levels into the model are the focal contribution of this study.
6. Conclusion
Almost everyone knows that agriculture seems to have a certain element of poultry farming. This research is
expected to identify the factors that involved integrators and growers towards business performance. The
information gathered from farm operation management and supply chain system will compile during this study
hopefully will give us some indicator and suggestions on how to improve the existing system. The suggestion
generated hopefully will become a new innovation initiative to be further germinated and deliberated among the
broilers producers suited according to the market requirement. Hence, this study proposes an investigation over
potential relationships between supplier and customer involvements towards broiler business performance. Upon
completion, the study is expected to be beneficial to relevant authorities, practitioners and interested parties alike.
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Cite this paper
Ariffin, A.S., Lamsali, H., and Mohtar, S. (2012). “The relationships between supplier and customer involvements towards
broiler business performance: An empirical investigation on Malaysian poultry industry,” Proceedings of The 3rd
International Conference on Technology and Operations Management: Sustaining Competitiveness through Green
Technology Management, Bandung–Indonesia (July 4-6), pp. 249-258. ISBN: 978-979-15458-4-6.
www.sbm.itb.ac.id
www.cob.uum.edu.my
The History of Logistics and Supply Chain
Santi Setyaningsih1,*, Yuri Bulandari2
1
2
English Literatures - Faculty of Letters - Universitas Padjadjaran (Unpad),
Jl. Raya Bandung-Sumedang Km 21, Jatinangor 45363, Indonesia
Abstract. History is very important to learn because of the history people can learn things that can be developed in the
future. History helps one understand the source of contemporary problems, how they arise and how their characteristics
viewed through time. The purpose of this research was to map the history of the logistics from time to time. It can provide the
knowledge to the reader about how to change the methods or the logistics from the beginning until today. Compare the
differences with the supply chain so it will show the obvious differences between each other. Research on the history is
offering distinctive perspective on the phenomenon that is compared with other research methodologies. It can display the
cultural and ideological assumptions of the phenomenon that can affect the economic, social, and political in the long time.
The research was conducted using historical research consist of heuristic, criticism and interpretation method. Heuristic
method referred to the secondary data that was the summary of information derived from the data source then used internal
criticism as verification of the data and after that did the interpretation method by data synthesis from heuristic and criticism
method which has been done before. The aim was to allow the reader to understand the history of logistic and supply chain.
Using heuristic methods, criticism and interpretation for this research, give the result of logistics and supply chain historical
flow. The presence of differences in definitions of logistics and supply chain are based on the development, although logistics
is the origin knowledge of the supply chain, but the coverage and the difference between the two of them was quite visible.
The similarity between logistics and supply chain was equally taking care of the planning, design, implementation and
management of product stream in the company. This study will interest them who want to see the development of logistics
and supply chain, and also to understand the future potential scientific development for both of it and also its application in
Indonesia.
Keywords: History, Logistics, Supply Chain
1. Introduction
Logistics is currently considered to be such a relief for many organizations that were previously seen as a
burden. Logistics has played an important role in global development for nearly 5,000 years ago until now.
260
S. Setyaningsih and Y. Bulandari – The History of Logistics ...
Many argue said that the source of supply chain knowledge derived from the logistic, but not a lot of articles that
described the development of logistics and supply chain since the first time that that knowledge has been born.
Logistics involves planning, designing, implementing and managing the flow of products in a supply chain
that aims to support the function of the system of procurement, distribution, packaging and manufacturing
(Pokharel, 2005 in Pokharel and Xiong, 2007). Logistics is also recognized as an important factor for
competitive advantage (Bowersox and Closs, 1996; Bowersox and Daugherty, 1995; Christopher, 1993 in
Pokharel and Xiong, 2007) and it can be an important success factor of the company (Simchi-Levi et al., 2003 in
Pokharel and Xiong, 2007).
The development of logistics started since the construction of the pyramids in ancient Egypt around 2,700
BC which is an extraordinary step. Logistics is the basic form of a new historical era that can improve people's
economy. One implication is the development of marine cargo containers and the creation of the service delivery
system in the 20th century. Those explanations were an integral part of this globalization.
Meanwhile for the supply chain, various definitions have been spread in recent years. The concept of supply
chain began to be popular in the developments of the company today. APICS (American Production and
Inventory Control Society) (Cox, et al., 1998 in Lummus et al., 2001) described that the supply chain as the
processes that take place from the beginning of raw materials to the final consumption which is the final product,
this system connects to all of the suppliers and users of the company. Other definition came from the Council of
Supply Chain Management Professionals (2008) described that the current supply chain is only the integration of
several supply chain operations within the company (internal integration) and across the company (external
integration) (Talavera, 2008). The early development of the supply chain begins with a rapid response system
that evolved into the ECR (Efficient Consumer Response) in the food industry. Until nowadays, the development
of the supply chain is very fast and many industries have begun to look at and apply this process.
The development until nowadays, explain that there are several opinions among practitioners and academics
about the differences in definitions of logistics and supply chain. In this present study will be discussed in
advance about the history of logistics and supply chain which will be further discussions regarding the definition,
scope, diversity, similarity between the logistics and supply chain. A study of history offers valuable
perspectives that can be used to view the current situation. We will see the background of the factors that affect
and differentiate the current situation compared to the past. History helps people to understand the source of
contemporary problems, how they arise and how their characteristics viewed through time (Mason, et al., 1997).
Looking at the past can help a person to imagine the future (Neustadt and May, 1986 in Richard, et al., 1997).
There are some researchers who have conducted researches on the history of logistics and supply chain, such
as Cattani and Mabert (2009) which discusses the insights gained from their investigation about a new
contribution to the design of supply chains in a historical context. In other than that, they provide a historical
perspective by highlighting some of the past development of the supply chain, discuss ideas and concepts that
exist today and show the direction of supply chain design in the future. Explanation of the history of logistics is
divided into sections such as inventory systems, supply systems, and others, but it does not refer to the
development from the beginning until now.
Research of Lummus, et al. (2001) describes the relationship between logistics and supply chain
management is the development of a common industry definition. Elaboration done by looking at the early
history of logistics and definitions from decade to decade, so did the supply chain. With these explanations, the
study concludes with the known differences between the two of them is in terms of implementation has been
done by several companies. Presented only to explain the history of the beginning logistics and supply chain, on
its development to date is described and only a change of definitions from several sources.
Bowersox, et al. (2009) in his book, Supply Chain Logistics Management describes the “Supply Chain
Logistics Management” is an interesting and promising to improve the program and strengthen the traditional
logistics supply chain management program, conducted by examining traditional logistics issues within the
context of the supply chain. “Supply Chain Logistics Management” integrates technology and provides a solid
foundation that clearly describes the role of logistics in supply chains, describing the full view of this further by
showing how to maximize the results to be obtained when using all parts of the supply chain. The book describes
the latest trends in process integration, relationship management, security and sustainable use of the supply chain,
globalization, and economic impacts for consumers and companies on supply chain management.
Based on these studies, the presence of a study outlining the history from time to time on logistics and
supply chain which is in turn can be concluded about the differences in definitions, coverage and differences in
261
activity between them and the similarities between the two. Departing from this thing then it formed an idea in
this article that history is an important thing to set out, and the history that followed the history of the
international community, because that is where all of the logistics and supply chain continues to grow up into the
system are known and applied in various companies in the world today.
This research was the study of history with emphasis on the history of logistics and supply chain. In general,
historians have examined the systematic research of past events to give a historic value. Research may involve
the interpretation to recapture the feel, personality, and ideas that are affected by an event and the results are
expected to communicate an understanding of past events (Elena, 2010).
The study of history offering distinctive perspective on the phenomenon that compared with other research
methodologies. It can show the cultural and ideological assumptions of the phenomenon that can affect the
economic, social, and political side in the long term (Mason, et al, 1997). This study used three measures that
usually used in the other study of the history. Those were the system of heuristics, criticism and interpretation.
Heuristic was the first step in the study of history to hunt, gather and share data sources related to the problem
that being studied, and in the present study used secondary data which is a summary of information derived from
historical data. Criticism was done internally by looking at the contents of the exposure if it can be proved that
history is correct, while the interpretation was done by synthesizing the data that has been researched, clearly
written as it is not only to explain to the individual but also to the other readers should understand the flow of
history (the Garraghan and Delanglez, 1946). Processed data can be seen in the table.
Table 1 : Research Methodology
Action
Heuristics
Input
The Materials about the history
of the activity flow logistics and
supply chain
Journals related to the development of
logistics and supply chain from decade
One explanation of the flow activities
to decade and it is often referred as a
of logistics and supply chain
reference journal, the journal has been
published in the International
Activity
Search for materials to obtain
sources of information
Formal statement of cristicism findings
Assessment of sources on the basis of and heuristics that support the writing
evidence point of view
of historical new data flow and
presentation.
Method
Search to the website search
journals, books, and supporting
data on the flow of activities of
logistics and supply chain
history. Document review and
make notes based on primary
sources or secondary sources
Search the journal associated with
the flow of history. Classification of
journals that are divided into history,
the semantics of the journal,
applications, etc. Supporting the
existence of truth in the phrase
historical journal. Benchmarking
statements on the course of history
with other journals.
Classification the year of the journal.
The comparison between the data flow
statements logistics and supply chain
activities and other data sources.
Writing materials.
One explanation of the flow
activities of logistics and supply
chain
Journals related to the development
of logistics and supply chain from
decade to decade and it is often
referred as a reference journal, the
journal has been published in the
International
Writing articles the flow of history and
the explanation of the definition in a
structured way and the supporting
statement refers to the previous data,
so that the data flow will become a
new history flow.
Output
Critic
Interpretation
4. Data Process and Analysis
After the research methodology then it followed with the data processing and data analysis. The third stage
consists of heuristics, criticism and interpretation are a proper simple procedures for the achievement of
historical truth. The following table will explain the data needed for overall stages:
262
Table 2 : Research Supporting Data
Author
Classification
Lummus, R.R,
et al .
Larson, Paul
D., et al .
Year
2001
Semantic
Research
2007
Title
The Relationship of
Logistics to Supply Chain
Management: Developing
a Common Industry
Definition
Perspectives on Logistics
vs SCM: A Survey of SCM
Professionals
Talavera,
M.G.V.
2008
Supply Chain
Collaboration in The
Philippines
Foxton, P D
1994
Powering War: Modern
Land Force Logistics
Source
Explanation
Industrial
Differences in definitions between
Management and
the logistics and supply chain and the
Data Systems
coverage
Journal
Journal of
Business
Logistics
Journal of
International
Business
Research
4 Perspective of the difference
between logistics and supply chain in
terms of its scope
Penjelasan mengenai tingkat
kolaborasi rantai pasok di Filipina
dalam bidang manufaktur dan jasa
perusahaan
Book
Comparison of American and
Japanese logistics in World War II
Management of
Infrastructures: What can
Management
the Developers Learn
Decision Journal
from the History of
Railways?
Sherwood's buccaneering
style runs aground Robert
Wright traces the
Newspaper
chequered history of Sea
Containers, built upon a
strong individual's whims
Comparison of the development of
the railroad with the Internet
Suomi, Reima
2005
Wright, Robert
2006
Bistričić, Ante
2007
Shipbuilding Projects from
a Shipyard’s Perspective
Management
and the Role of the Bank Journal
in the Project Lifetime
De Zoysa,
Anura
2007
Standard Costing in
Japanese Firms
Reexamination of its
Significance in the New
Manufacturing
Environment
Liggio, Lenard
P.
2007
The Hanseatic League and Journal of Private History of the Hanseatic League
Freedom of Trade
Enterprise
formed
2007
Al Andalus in Andalusia :
History of the Andalusian region in
Negotiating Moorish
ProQuest Science
which there are explanations the
History and Regional
Journal
formation Mezquita Mosque
Identity in Southern Spain
2009
Production and
Supply Chain Design: Past, Inventory
Present and Future
Management
Journal
2009
RFID in the Healthcare
Supply Chain : Usage and
Application
International
Journal of
Healthcare
Quality
Assurance
2010
Supply Chain
Management Strategy,
Planning and Operation
Book
Logistics History
RozogenSoltar,
Mikaela.
Cattani, K.D
and Mabert,
V.A
Kumar, S., et
al .
Chopra, Sunil
and Meindl,
Peter
Supply Chain
History
BizDevelopment
2011
BizDevelopment
2011
Supply Chain
Management: Historical
Development
Supply Chain
Management: Traditional
and Modern View to
Supply Chain
An explanation of the logistics
system for moving containers as a
form of evolution of world trade
Greek Revolution in the presence of
inter-continental trade with ships
Testing the changes of Japan's
Industrial
manufacturing environment that has
Management and
reduced the importance of standards
Data Systems
in the cost of Japanese companies
Journal
related to JIT and Kanban
Share some insights that gained from
investigations into recent
contribution to the design of supply
chains in the context of a long history
in the design of supply chains
Determination of efficiency and cost
effectiveness of healthcare supply
chain in which the implementation
of radio frequency identification
devices (RFID).
Explanation of the history of the
beginning the supply chain and the
details of activities undertaken in the
supply chain
Website
Stages of development of the supply
chain from the 70s
Website
Implementation the differences
between the two decades os supply
chain
263
5. Findings
Over these years, there are so many arguments between the practitioners and the professional field operation
and that is about the difference and also the development between the two terms of “logistic” and “supply chain”.
The utilization both of the terms are different for each company by looking first to the history from each of the
terms which can help to differentiate the definitions, scopes, and also the similarity between the terms.
5.1.
History of Logistics
A growing globalization is where the efficient logistic becoming an important matter for a superiority on its
competitive globalization. According to common understanding, logistic is an activity which concerns a
physically goods movement from one location to another, and to find out more, this is the logistic activity from
time to time:
Fig. 1: History of Logistics
a) The Pyramid Construction (2700 BC)
The technology system on handling the pyramid construction in the ancient egypt was done by the tons
of rock blocks movement which were carried from a place with a considerable distance to a specific site
where the pyramid would be built. Building the Great Pyramid of Giza, with a 146 metre height and 6
tons weigh, Egypt needed a sophisticated transportation which could carry the large equipment like
blocks or other tool carriers. Although until today the researches still find the difficulties to explain how
it could be happened, but it can be confirmed that there were good logistic activities on the ancient era
to finish the pyramid (Cattani and Mabert, 2009).
b) Trading Between Continental (200 BC)
The Greek revolution can be seen on the establishment of a boat which was an early transcontinental
trade system. A revolutioner invention of this boat made a foundation of a rapidly occurence of travel
across the open ocean, this matter pointed on a huge logistic supply invention. This system was needed
by the soldiers on that era. Alexander the Great used this logistic for his campaign with his troops,
family and war weapons which expanded to India (Bistričić, 2007).
c) Mezquita Mosque (700 C)
In the South of Spain, Andalusia, there were founded some remnants of Islamic civilization which once
ruled, for example at Córdoba. In the eight century, The Great Mosque Córdoba (the Mezquita), which
was known as The Roman Catholic Cathedral became a pride of moslem architecture in the west at that
time. The mosque was built over the land of the church of St. Vincent which was bought from the local
Christian community before it was destroyed. The procurement of logistics for building Mezquita
Mosque came from all part of the Islamic empire. The construction of the mosque which covered
23,400 m2 area was lasted for two centuries and carried out several stages. The construction of Mezquita
Mosque in Córdoba, Spain was began on 756 C under the leadership of Caliph of Cordoba in the
Umayyah Dinasty. In this case shows that the logistic was very important in that era (Rozogen-Soltar,
2007).
264
d) Hanseatic League ( 1200 C)
The International Network was known as Hanseatic League, in this matter was the cooperation system
for a combined transportation and international sea transportation. In 1199, a centre of north sea
transportation was built for Hanseatic League. The purpose was to make the sea journey safer and
present the business importance internationally. More than 200.000 feathers was carried by Hanseatic
ship. Hanseatic commerce expanded from the Dark Sea to Ravel. In a modern point of view, the crossborder trading is identical with Europe commerce. With the existence of international commerce, the
development on logistic system is more visible to develop throughout the world (Liggio, 2007).
e) The Railroad (1800 C)
The discovery of the new road for the transporting goods and train expanded the logistic duty through
the new technology and new transportation vehicle. The usage of steam machine, vehicle invention,
train, ship, and also the crude oil discovery were significant toward the new economic era and also
discover a new mission on the transportation system, new equipment and chance for the logistic (Suomi,
2005).
f) Military Logistics (1949 C)
During the World War II (1939-1945), the logistic developed rapidly. The United State army and
partners proved to be better in handling the logistic than the Germany army. The supply location of the
Gemany army was having a serious damage and Germany could not force that same thing to an
opponent. United States military ensured that the system operation and supply was available at the right
time and right place. They also tried to provide the system operation whenever and wherever it was
needed, with the most optimal and economical way. The improvement of performance was constantly
being developed. It was also spawned several techniques of the logistic military that were still used in a
modern way (Foxton, 1994).
g) Sea Container (1956 C)
The discovery of transportation which used a container in the sea was a world trade structural evolution
and one of the world commodity flow explosion. This invention was done by Malcolm Mclean P.
Which impacted the condition of hamper production in all of world industry and for the other impact
was a change of habituality consumptioon. Moreover, the big impact these days are a harbour can get
the big contracts and their territories are very popular, many new markets are emerging, and also
products from all parts of the world can be bought and sold with a reasonable price. With this way, the
container gives a significant contribution in globalization in which it is the part of the logistics (Wright,
2006).
h) Kanban-JIT (1970-1980 C)
Kanban and Just In Time were a particular logistic concept which emphasized on procurement goods
system or products. This system was introduced in Japan on Toyota Motor Company by Taiichi Ohno
with an effective purpose which was connecting the logistic outside the company to the operasional
function of the company. The system was in the company operational, which was a part of the logistics
(De Zosya and Herath, 2007).
i) QR and ECR (1990 C)
QR (Quick Response) and ECR (Efficient Consumer Response) are a logistic concept which emphasizes
in a specific distribution. This technology was developed in 1990s and has been implied in many retails
and wholesale company. It has a huge impact on the logistics. The result of this concept is the centre
distribution works in moving goods and not saving it. This matter will faster the logistics rotation. It
also will accelerate the company to faster their action on the development of efficiency supply market
products (Lummus, et al. 2001).
j) Supply Chain (2000 C)
The logistics these days are becoming more develope to be a supply chain management. The
management of supply chain is overall looking to the supliers or vendors until it gets unto the customer
hand. This term has already developed on a significant usage since the last 1980s. Today, the
management of supply chain is being considered as a holistic matter and a business key in a company,
and a very interactive system, complex, and needs a monitoring which is related to the purpose of
expediting the products or goods flow from a producer to the consumers. From the development,
therefore, the logistics are a part of the supply chain management. The supply chain is not only a
nickname for the logistics, but also included in the definiton of logistics, like an intergration of
information system and a coordination of planning and controlling activities (Lummus, et al. 2001).
5.2.
265
History of Supply Chain
The supply chain has been developed for the last 50 years. A decade difference gives a change, so until now
the supply chain have an important thing in a company. The supply chain produces a half of company cost
because the width and complexity of company function (manufacture, warehouse, and distribution). These
matters are not efficiently giving an extraordinary negative impact for the company. On the other side, a good
supply chain can take a great benefit and become a competitive superiority for the company.
Fig. 2: History of Supply Chain
a) Supply Chain in 1970s
In 1970s companies was focusing on their internal change. This change focused on the reduction of
supply and distribution cost with the decreasing of inventory level and the lead time reduction target
and focused on safety stock decreasing. There were external side of company pressure which were the
increasing of fuel oil price and 20% rate of interest, this matter was pushing more the company to focus
on transportation and supply management (Biz Development, 2011).
b) Supply Chain in 1980s
In 1980s there were 3 big changes in the supply chain. The first change was produser focused on supply
chain structure with highlighted the cost operation and assets. The second change was the shift from
cost reduction in the supply chain which became a repair service for customer, whereas the third change
was internal logistic integration in the company.
The beginning of supply chain can be traced in a small industry by a QR (Quick Response) and also
ECR (Efficient Consumer Response) program. In foodstuff company, a supply chain can result a great
loss for the industry, because it is a big possibility there will be lack of products at the right place and a
right time. QR is a partnership where the retailers and the suppliers works together to make a quick
respond on the customers needs by sharing information. Besides, a group of grocery industry leaders
make a shared industry called ECR working group. This group have a duty to check the foodstuff
supply chain to identify a chance for making a more competitive supply chain (Lummus, et al. 2001).
c) Supply Chain in 1990s
Customer service still becomes the focal point of a company. The company is doing a new covenant
with the partners, and also doing a description with flow details on company distribution. A company
begins to realize the importance of forming an external partnership, so that emerges the logistic
intergration. For about 60% from all of the companies has made a very significant progress towards an
intergrated logistic, either on the company or with partners of company. An emphasize in the integrated
supply chain appeared in the last 1990s. A model of this integrated supply chain between one company
with another is devided into 5 sections (Chopra and Meindl, 2010).
266
Fig. 3: Supply Chain in 90’s
d) Supply Chain System 2000s
The establishment of a new technology in supply chain, like RFID (Radio Frequency Identification) and
the other technologies are continued to show up and innovate. A small change in technology is required
to improve its performance, beside RFID (Radio Frequency Identification) there is also a further about
the EDI (Electronic Data Interchange) and POS (Point of Sale). If the system is applied, substantially
will increase the whole performance of supply chain (Kumar, et al., 2009), an increase in demand from
both of the products and the cooperation between the members of the supply chain is emerged. As a
result, there is a strategic growth in both of the national supply and the international chain. Meanwhile,
the globalization has increased, the enviromental, social and security consideration continues to play a
large role in the supply chain decision.
A modern concept from the supply chain more progresive than the traditional. Based on the old model
is often happened a contradiction from one section with the other section because of the conflicting
goals. This situation is causing the unefficient supply chain and unresponsiveness to the customer needs.
Therefore, a company has improve the integration level in the whole supply chain. The following
graphic is the representation of the new layout organization.
Fig. 4: Supply Chain in 2000
267
The new layout increases relations and opens the key which is the power of supply chain. A modern
concept about supply chain becomes a tool to a creation and also increases an improvement of the
company value. The companies these days are broadly using a sophisticated information technology,
clarifying the supply chain condition which is covering the structure, supplying a new segment of
customers, and expanding the portfolio of customer service (Biz Development, 2011).
6. Discussion
Based on the developments of the origin science of logistics and supply chain said that logistics begun first
appear and after that produce supply chain knowledge. It can also be said that logistics was the parent of the
supply chain. However, the situation that happens now is the scope of supply chain logistics that more extensive
than even the logistics part of the supply chain.
Starting at the age of the pyramids in Egypt which making the use of logistics that is in the context of the
rocks provision which has not seen an efficiency in that logistics. The development of logistics nowadays,
emphasizing the efficiency and responsiveness, the first development is QR (Quick Response) and ECR
(Efficient Consumer Response) as a benchmark the logistics. Until now logistics evolved to the present direction
of the supply chain RFID (Radio Frequency Identification) so that the exchange of information between the
parties involved in the supply chain run smoothly and its effects can to the acceleration of the flow of goods.
Growing interest in the supply chain, several authors have discussed the differences between the two of it.
Cooper, et al. (1997) in Lummus, et al. (2001) stated that “the contemporary understanding of the supply chain is
not too different from the understanding of the integrated logistics management”. However, there are other
authors who suggest that a broader understanding of the supply chain, where the supply chain “includes the
integration of business processes from the original suppliers who provides products, services, and information
that have added value to customers through to the end user. Supply chain is not just another name of the logistics,
but it has integration with information and coordination of planning and control activities. “
Giunipero and Brand (1996) in Lummus, et al. (2001) stated, “In a broader context, the supply chain is a
strategic tool that is used to improve overall customer satisfaction that is intended to enhance corporate
competitiveness and profitability.” They added that “the CEO led the company to implement leading supply
chain, to visualize the needs and focus on creating business processes in order to make more effective and
efficient.”
Based on the description of history of logistics and supply chain, logistics was the movement of the flow of
goods in one of the activities of the project which includes the procurement of goods, warehousing,
transportation within the project and this has not been associated with other entities such as suppliers and
customers, it was seen from the construction of the pyramids to the Kanban and JIT. Unlike the case of supply
chains, that has started to relate to other entities such as distributors, customers and suppliers as well as in it
focuses on efficiency and also the exchange of information between these entities. It can be seen from the
application of the inventory and distribution efficiencies through the use of RFID, EDI or POS in companies that
implement supply chain.
Larson, et al. (2007) conducted a study that there are four perspectives in logistics system compared to the
supply chain, i.e.: supply chain in the logistics, supply chain has the same area with logistics, the logistics are in
the supply chain and logistics, and supply chain has the relationships with logistics but not a part of each other,
there is a 3PL (Third Party Logistics) which is a liaison between logistics and supply chain in a company that
makes both of them have comparable coverage.
Based on its development from the beginning of logistics until the emergence of supply chain, it is more
suitable concluded that supply chain is part of the logistics. However this is a conclusion with which only a
superficial perspective that focuses on strategic and integrative aspects of logistics. Not just superficially, but
also narrow, as to position the supply chain into a single function, namely logistics, but nowadays it has been
developed in the direction of information flow. After rapid development in the supply chain up to this time, it
can be concluded again that the appropriate perspective is applied that the logistics is part of the supply chain,
where the perspective is deeper and wider in its implementation in the supply chain, because it includes the
relationship with other parties such as distributors, customers and suppliers and not just think about the flow of
products, but also understand the flow of information that can improve the efficiency and effectiveness of the
logistics and supply chain. Johnson and Wood (1996) in Lummus, et al. (2001) also concluded that “the
coverage of supply chain is greater than logistics”.
Based on the translation, the logistics and supply chain have similarities and differences in the activity. The
similarity of logistics and supply chain are equally taking care of the planning, designing, implementing and
managing the product flow within the system. While the difference is logistics include of planning, design,
268
implementation, management, control and storage of goods and services from the starting point of an external
company to the point of consumption for the purpose of customer needs within the company. Meanwhile the
supply chain includes logistics flow, procurement management, production processes and the flow of
information systems to monitor all activities at each point of the supply chain. The important thing in the supply
chain is another company that starts to become partners and start working together to improve overall supply
chain performance.
7. Conclusion
The term of “supply chain” and “logistics” can be misleading and it has been seen as overlapping activities,
it actually depends on the definition used by personnel or by an organization. The purpose of this article is to
elaborate of the history of each activity that can be inferred about the difference between one another. From the
explanation of the history, it will clarify the differences in scope, clarify the function of each and see the
relationships between one another.
This research used heuristic methods, criticism and interpretation to get the historical flow of logistics and
supply chain. Stems from the emergence of logistics in the manufacture of the pyramids in Egypt are viewed
from the aspect of the removal of rocks from one place to another, followed by the emergence of a continental
flow of product in terms of continental trade, then the creation of railroads and with this thing, it can make the
acceleration of the shift of product from one city to another. Furthermore, the presence of military logistics
brings the faster development of logistics to the industries that eventually evolved into the supply chain. Actually
the evolution of supply chain, begun from the logistics and it begun with a view to reducing the level of
inventory and distribution costs with a target reduction in lead time and also a decrease in safety stock. Supply
chain has changed and then it has QR and ECR systems, until finally there was a path to the information system
by using RFID, EDI or POS which can improve the efficiency and effectiveness of such activities.
Judging from history, logistics was the movement of product from one group to another group and then
evolve to the supplies until the transportation of a project, it was not associated with other parties such as
customers and suppliers. While the supply chain is not very different activity in the product stream from logistics,
but this is already associated with outside parties such as customers, suppliers, distributors and others as well as
the presence of the flow of information systems in the supply chain. The fundamental similarity of both of them
was that logistics and supply chain take care of planning, designing, implementing and managing the product
flow within the system while the difference lies in the participation information system in the supply chain and
also the coverage of a supply chain is wider by involving other systems outside of its own compared to the
logistics system.
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Dynamic Supply Chain: A Study in Oil and Gas Industry
Shatina Saad1,*, Zulkifli Mohamed Udin2
1
Faculty of Business Management - Universiti Teknologi MARA (UiTM),
Shah Alam 40450, Selangor Darul Ehsan, Malaysia
2
Abstract. The motivation of this study is to understand the environment of dynamic supply chain on oil and gas industry in
Malaysia by looking into the dynamic supply chain capabilities and dynamic supply chain performance. Oil and gas
enterprise-wide optimization span a large spectrum in a supply chain, from the strategic to the tactical to the operational level
and other various functions in the supply chain network, from purchasing of the raw materials through the refinery activities
to the distribution and sales. Integrated and coordinated decision making across various geographically distributed refinery
activities and storage sites also offers additional challenges to refinery operations optimization. While refinery facilities
management is an integral part of enterprise-wide optimization, transportation logistics and finished product distribution
management remain important parts of the oil and gas supply chain. Although, technical advancement and time were the core
values aiming only for fast exploration and higher production of oil and gas, supply chain in the oil and gas industry can
either make or break the project if careful attention and precautions are not taken seriously by players in an industry.
Increasing economic volatility has severely disrupted the supply chains of companies across industries. Rapid swings in the
availability and price of key commodities, major currency fluctuations, disturbance in financial markets, disruptive
geopolitical events and continued development of customer channels on a global basis have conspired to place unique
pressure on the way these companies source, manufacture and distribute products. Therefore, this study is to identify and
understand the dynamic supply chain capabilities and dynamic supply chain performance as a whole perspective of dynamic
supply chain on the oil and gas industry practices. Specifically, the dynamic supply chain capabilities and dynamic supply
chain performance will be discussed in this study are the firm’s capabilities in the dynamic supply chain of oil and gas
industry.
Keywords: Dynamic capabilities, dynamic supply chain, oil and gas industry, supply chain management
1. Introduction
Supply chain management (SCM) has received in recent years a great deal of attention by researchers and
practitioners. Effective SCM will lead to a lowering of the total amount of resources required to provide the
necessary level of customer service to a specific segment and improving customer service through increased
* Corresponding author. Tel.: + 60-12-491-9521; fax: + 60-4-928-6860
272
S. Saad and Z.M. Udin – Dynamic Supply Chain ...
product availability and reduced order cycle time [1]; engage in information exchange (forecasting techniques,
inventory management, delivery) and structural collaboration (just-in-time system, outsourcing, vendor-managed
inventory and co-locating plants) [2, 3]; relationships with downstream supply chain partners to create endcustomer value [4] and maximize benefits and minimize costs along the supply chain [5]. Thus, the nature of
SCM becomes visible to participating companies with successful implementation in the ever changing global
environment of the business world, risks abound and it greatly affects the decision making processes of the
business management.
According to Jain, Wadhwa and Deshmukh [6], a supply chain is a dynamic process and involves the
constant flow of information, materials, and funds across multiple functional areas both within and between
chain members. Members in the chain need to cooperate with their business partners in order to meet customer’s
needs and to maximize their profit. However, it is a very difficult task in managing the multiple collaborations
in a supply chain because there are so many firms involved in the supply chain operations with its own resources
and objectives. The interdependence of multistage processes also requires real-time operation and decision
making across different tasks, functional areas, and organizational boundaries in order to deal with problems and
uncertainties. The strategic move of focus for mass customization, quick response, and high quality service
cannot be achieved without more complex cooperation and dynamic structure of supply chains.
Teece, Pisano and Shuen [7] identified a dynamic collaboration capability should help a company access,
shift and leverage supply chain resources to rapidly respond to a changing competitive environment. A dynamic
process also involves the simultaneous acquisition and continuous re-evaluation of partners, technologies, and
organizational structures. Firms may encounter the same problems but they may have different awareness and
potential solutions due to differences in their engagement of stakeholders. The more flexible and open of the
firms to the issues there is more likely for them to explore, create, and invest in the dynamic capabilities [8, 9].
Therefore, firms that possess a dynamic collaboration capability should be able to sustain high performance
levels over time.
Uncertainty arises in realistic decision making processes and has a huge impact on the dynamic supply chain
activities [10]. Environmental uncertainties in oil and gas industry lead to a need for higher reliability and
flexibility within the production systems and the planning and control systems in the supply chain. Reducing
these uncertainties will be achieved by understanding the root causes and how they interact with each other.
Change in markets, products, technology, and competitors are occurring at an increasingly rapid pace [4, 11]. As
a result, managers must make decisions on shorter notice, with less information, and with higher penalty costs.
Therefore, a reliable yet flexible system is fundamentally needed to assist the management in making decisions
that might prove to be the make-or-break decision for their companies.
The purpose of this study is to understand the environment of dynamic supply chain on oil and gas (O&G)
industry in Malaysia by looking into the dynamic supply chain capabilities and dynamic supply chain
performance. O&G industry span a large scale in a supply chain, from the strategic to the tactical to the
operational level and other various functions in the supply chain network, from the purchasing of the raw
materials through the refinery manufacturing to the distribution and sales [10, 12]. Integrated and coordinated
decision making across various geographically distributed refinery manufacturing and storage sites also offers
additional challenges to refinery operations optimization. While refinery manufacturing facilities management is
an integral part of enterprise-wide optimization, transportation logistics and finished product distribution
management remain important parts of the O&G supply chain. Hence, this study is to identify and understand the
dynamic supply chain capabilities and dynamic supply chain performance as a whole perspective of dynamic
supply chain on the O&G industry in Malaysia practices. Specifically, the dynamic supply chain capabilities and
dynamic supply chain performance will be discussed in this study are the internal firm’s and external firm’s
capabilities and controlled by the environmental uncertainty in the dynamic supply chain of O&G industry. The
internal firm’s capabilities representing the focal organization meanwhile the external firm’s capabilities
representing the upstream and the downstream organization in the O&G industry.
1.1. Problem Statement
Supply chain in the O&G industry for quite some time was not taken seriously by players in an industry
where technical advancement and time were the core values aiming only for fast exploration and high production
of O&G. Mohammad [13] stated that it was initially considered a “soft issue” in the industry until players
beginning to realize that 80% of all operating expenses were spent on the supply chain system. They also noticed
that they can either make or break the project if careful attention and precautions on the procurement or supply
chain system were not taken seriously especially when the business environment was demanding while
exploration and production were challenging and pushing them to their limit.
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There are many ways to look at the O&G industry. From a personal perspective, O&G provide the world’s
6.9 billion people with 60 percents of their daily energy needs [14]. As fuels and as petrochemical feedstock,
O&G are the raw materials used to manufacture fertilizers, fabrics, synthetic rubber and the plastics that go into
almost everything people use these days, from toys to personal and household items to heavy industrial goods.
From a business perspective, O&G represent global trade on a massive scale. Over 200 countries have
invited companies to negotiate for the right to explore their lands or territorial waters, hoping that they will find
and produce O&G, create local jobs and provide billions of dollars in national revenues [14].
Finally, from a health, safety and environmental perspective, there is a continuous concern for safety in
O&G operations, the impact that new projects have on surface environments, the possibility of oil spills and the
effect of pollutants such as CO2 (carbon dioxide, a product of hydrocarbon combustion) on global climate
change and air quality [14]. The O&G business is clearly a multifaceted, global industry that impacts all aspects
of one’s lives. And yet it is one that tends to take for granted until a crisis emerges-a tanker runs aground, a
hurricane damages a refinery, a country changes political leaders or revises its energy policies.
It was therefore not surprising that not many articles are published on dynamic supply chain specifically in
an O&G industry to the related journals. Many of the articles found in the supply chain in journals or other
publications prior to this have done research on the dynamic supply chains referring to the manufacturing,
retailing and using modelling techniques as a method in deliberating the decision [2, 15-17].
Based on the previous studies conducted in Malaysia, several studies on the supply chain issues includes:
value changes and multicultural complexity [13]; collaborative supply chain [18]; outsourcing [3] sustainability
and environmental control [19]. Although there are many new technological breakthroughs in exploration and
production [10, 20, 21], there has been insufficient development in dynamic supply chain strategies and methods.
Many ideas have simply been taken on those used in other sectors or industry rather than considering the specific
need of the O&G industry. Thus, this study will be focusing on exploring the dynamic supply chain capabilities
and dynamic supply chain performance on the O&G companies in Malaysia.
1.2. Research Objectives
Generally, the research objective is to examine and understand the dynamic supply chain capabilities and
dynamic supply chain performance in the organizations specifically for O&G industry in Malaysia environment.
The focus will be at the internal firm’s (focal) and external firm’s (upstream and downstream) capabilities of
dynamic supply chain capabilities and dynamic supply chain performance and controls by the environmental
uncertainty of the O&G industry.
The research specific objectives are as follows: 1) To identify any association of internal firm’s capabilities
and dynamic supply chain capabilities in the O&G industry in Malaysia. 2) To identify any association of
external firm’s capabilities and dynamic supply chain capabilities in the O&G industry in Malaysia. 3) To
explore environmental uncertainty factor control the internal firm’s and external firm’s capabilities and dynamic
supply chain capabilities in the O&G industry in Malaysia. 4) To explore dynamic supply chain capabilities
associate to dynamic supply chain performance of the O&G industry in Malaysia.
1.3. Significance Of Research
From the theoretical perspectives, this study utilizes dynamic capabilities, industrial system, resource-based
view and organizational learning theory. These theories discuss the importance of information and materials as
unique resources in SCM for the competitive advantage. It will represent an exploratory study on dynamic
supply chain capabilities and performance of the O&G industry in Malaysia. Furthermore, it will provide
information to develop a better understanding of dynamic supply chain capabilities and dynamic supply
performance towards strategies and decision made in the internal and external firm’s capabilities.
From the managerial point of view, this study will benefit them in several ways. The results of this study
will be expected to show the performance of dynamic supply chain on O&G industry. This will help the players
in the industry to understand the progress and future actions that could improve the SCM competitiveness in of
Malaysia.
The petroleum industry can be characterized as a typical supply chain where all levels of decisions (strategic,
tactical, and operational) may arise in it. Management of the petroleum supply chain is a complex task due to the
large size of the physical supply network which dispersed over vast geography, complex refinery production
operations, and inherent uncertainty. Shah, Li, and Ierapetritou [10] identify that uncertainty arises in rational
decision making processes and has a vast impact on the refinery planning activities. Three major uncertainties
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that should be considered in refinery production planning include: market demand for products; prices of crude
oil and the saleable products; and product or production yields of crude oil from chemical reactions in the
primary crude distillation unit
Gattorna [22] identifies the dynamic supply chain as a concept of supply chain agility and flexibility. The
two concepts define people is the most important in delivering the value. One need to change way of thinking
from one functional specialism to the belief that the principles and practices embodied in supply chain and value
networks type thinking. It should become a philosophy that permeates the enterprise owned and contributed to
all functions.
The dynamic capability viewpoint has had a significant impact on strategic management research in general
and in research regarding organizations and the natural situation in particular. It offers the potential to extend and
complement the Resource-based view (RBV) to create a more thorough understanding of the process by which
firms undertake sustainable development strategies. The dynamic capabilities perspective, with its emphasis on
variation within uncertain and dynamic markets, is particularly well suited to the study of supply chain
management strategies. This is because the perspective in which firms develop capabilities to deal with these
issues is highly complex and unclear [9].
2.1. Oil and Gas Supply Chain Management
Petroleum companies, also known as Oil and Gas (O&G) companies have formed a key part of the global
economy for the last decade since petroleum or crude oil has become the main fuel source. By 2020, Malaysia
will have a more diversified oil, gas and energy sector that remains vital to the nation development, and that
builds on the nation’s competitive advantages. A key thrust not only to intensify exploration and enhance
production from domestic reserves but also to develop a strong regional oilfield services and equipment hub and
a stronger presence in the regional midstream logistics and downstream markets [23].
Malaysia’s national O&G Company, Petroleum Nasional Berhad (Petronas), holds exclusive ownership
rights to all O&G exploration and production project in Malaysia. As Malaysia’s oil fields are maturing, the
government is focused on enhancing output from existing fields and from new offshore developments of both
O&G, which are expected to increase aggregate production capacity in the near- to midterm [24]. Among other
major players in Malaysia O&G industry are Esso Malaysia Berhad and Shell Malaysia Limited.
The majority of the country’s reserves are located off the east coast of Peninsular Malaysia and tend to be of
high quality. Several new oil production projects have come online during the last few years, although
Malaysia’s oil output declined somewhat in 2006. Average production for 2006 stood at 798,000 barrels per day
(bbl/d), down 7% from 2005 levels. In 2006, Malaysia consumed an estimated 515,000 bbl/d of oil, with net
exports about 283,000 bbl/d. According to Oil and Gas Journal, Malaysia had about 545,000 bbl/d of reﬁning
capacity at six facilities as of January 2007. Malaysia’s state-owned national oil company, Petronas, dominates
upstream and downstream activities in the country’s oil sector. Petronas operates three reﬁneries (259,000 bbl/d
total capacity), while Shell operates two plants (200,000 bbl/d), and ExxonMobil one (86,000 bbl/d) [25, 26].
Shah, Li, and Ierapetritou [10] state that, a typical petroleum industry supply chain is composed of an
exploration phase at the wellhead, crude procurement and storage logistics, transportation to the oil refineries,
refinery operations, and distribution and transportation of the final products. The upstream activities
(exploration, development and production of crude oil or natural gas) and downstream activities (tankers,
pipelines, retailers and consumers) are two important activities in the petroleum industry [19]. SCM in O&G
industry requires the company to integrate its decisions with those made within its chain of customers and
suppliers. This process involves relationship management of the company to their customers and suppliers. A
firm can create long-term strategic relationships with their suppliers and in most cases there is a collaborative
process between the oil and gas company with its suppliers [5]. Generally, O&G companies view their supply
chain configuration and coordination systems as worthy of improvement. Making necessary improvements over
time allows the firm to gain competitive advantages in the marketplace.
In the oil refinery industry, the supply-chain network is composed of shipping via vessel, oil tankers, and
pipelines that may run across multiple countries. This network is used to transport crude from wellhead to
refinery for processing, to transport intermediates between multi-site refining facilities, and to transport finished
products from product storage tanks to distribution centers and finally to the customers. Any disruptions arising
in the global supply chain can have tremendous adverse effects in achieving operational efficiency, maintaining
quality, profitability, and customer satisfaction. The adverse events may happen due to uncertainty in supply of
crude, demand, transportation, market volatility, and political climate. Hence, Shah, et al. [10] identify that to
effectively model a supply-chain design problem, the dynamics of the supply chain ought to be considered and
data aggregation techniques for the extensive data set should be employed.
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2.2. Scope and Limitation of Research
This study will be focusing on exploring issues on dynamic supply chain capabilities and dynamic supply
chain performance on O&G industry only, thus the generalization cannot be done in other organizations and
industry throughout Malaysia.
The assumption of this study is that the major players in the O&G industry are doing the similar practices in
managing their supply chain. In the exploration and production sectors of the oil and gas industry, the product is
exactly the same for all competing firms with very narrow product differentiation. Thus, exploration and
production companies can only differentiate themselves based on the ability to economically find and produce
O&G more efficiently than their competitors. Even though exploration and production companies are unique in
many fields, a differentiating factor can lie in the ability to adapt an SCM program.
This study will be an exploratory since not much is known about the situation of dynamic supply chain
capabilities and performance in oil and gas industry in Malaysia environment. An in-depth study will be
undertaken to better comprehend the nature of the problem, since very few studies have been conducted in the
dynamic supply chain capabilities and performance [27-29].
In addition, when the phenomenon of interest is new, dynamic or complex, relevant variables are not easily
identified and extant theories are not available to explain the phenomena. In this situation, a qualitative approach
is often preferred in order to build understanding grounded in a detailed description of the phenomenon
generated by collecting field data. It provides researchers with access to a deeper level of understanding of new
or complex phenomena by yielding a high level of details [30, 31].
Yin [32] and Eisenhardt [31] give useful insights into the case study as a research strategy, but leaves most
of the design decisions for further discussion for both the strengths and the weaknesses. It’s because it allows
tailoring the design and data collection procedures to the research questions. On the other hand, this approach
has resulted in many poor case studies, leaving it open to criticism, especially from the quantitative field of
research. The fact that the case study is a rather loose design implies that there are a number of choices that need
to be addressed in a principled way [33].
3.1. Research Sample
The concept purposive sampling will be employed for the study because the researcher will selects
individuals and sites for the study. The decision need to be made about who and what will be sampled, what
form the sampling will take and how many people or sites need to be sampled [28, 30, 34]. Since this study will
be conducted in the O&G industry, gaining an in-depth insight into advanced practices which will later set the
ground for the generation of proposition [35]. The snowball or chain case selection technique will be employed
with the procurement and supply chain function in the focal organization as the unit of analysis [30].
3.2. Case study Protocol
Giminez [36] identifies the case study protocol as follows. The first step in the case methodology is to define
the research questions. As stated before, the research objectives of this exploratory phase were: (1) To identify
any association of internal firm’s capabilities and dynamic supply chain capabilities in the O&G industry in
Malaysia, (2) To identify any association of external firm’s capabilities and dynamic supply chain capabilities in
the O&G industry in Malaysia, (3) To explore environmental uncertainty factor control the internal firm’s and
external firm’s capabilities and dynamic supply chain capabilities in the O&G industry in Malaysia and (4) To
explore dynamic supply chain capabilities associate to dynamic supply chain performance of O&G industry in
Malaysia.
The following steps refer to the process of determining the unit of analysis. As supply chain management
involves the integration along the supply chain, the most appropriate approach in the study would have been
considering all elements in those chains such as retailers, third party logistics providers, refiners, purchasing
centers, etc. But, due to the need of limiting the scope of the study, the study will focus on the upstream and
downstream from the oil and gas industry in Malaysia. The most appropriate approach to analyzing these
relationships will be to analyze particular upstream-focal-downstream organizations triad, but this approach was
not possible due to the discretion of the interviewees to identify the supply chain partner they were talking about.
In order to increase the reliability of the case study, an interview protocol and a case study database will be
developed. With respect to how to link the data to the research questions, a chain of evidence will be
established in order to allow any external observer to follow the derivation of any evidence from initial research
questions to ultimate case study conclusions.
276
After establishing the interview protocol and how to link the data to the research questions, interviews with
five companies (two upstream, one focal and two downstream companies) will be conducted. Companies among
the leaders in different product categories, and selected upstream and downstream companies will be selected
among the top supply chain in O&G industry.
Data collected will be introduced in the case database, which will be analyzed to obtain the conclusions.
Other sources of evidence such as newspaper clippings and articles also will be used to corroborate and augment
evidence.
4. Conclusions
As a summary, since this is a conceptual paper, studies on dynamic supply chain capabilities and
performance of O&G industry will be identified in several elements such as internal firm’s capabilities, external
firm’s capabilities and environmental uncertainty. As previous studies looked at the variables separately few
attempts were made to link between dynamic supply chain capabilities and dynamic supply chain performance.
This study also will integrate the internal firm’s and external firm’s capabilities as they are considered crucial in
ensuring the dynamic supply chain capabilities are well practiced. Having the environmental uncertainty as
control to build dynamic supply chain capabilities as it will modifies dynamic supply chain performance and
helps in any competitive advantage in the O&G industry in Malaysia.
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Cite this paper
Saad, S., and Udin, Z.M. (2012). “Dynamic Supply Chain: A Study in Oil and Gas Industry,” Proceedings of The 3rd
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Supplier Selection for Food Industry: A Combination of Taguchi
Loss Function and Fuzzy Analytical Hierarchy Process
Renna Magdalena1,*
1
Department of Accounting - Faculty of Economics - Universitas Pelita Harapan (UPH) Surabaya,
Jl. Jend. A. Yani no.288, Surabaya 60234, Indonesia
Abstract. Supplier selection is an important part of supply-chain management process by which firms identify, evaluate,
and establish contracts with suppliers. Deciding the right supplier can be a complex task. As such, various criteria must be
taken into account to choose the best supplier. This study focused on the supply in the packaging division of a food industry
in Denpasar-Bali. A combination of Taguchi Loss Function and fuzzy-AHP (Analytical Hierarchy Process Fuzzy Linear
Programming) was used to determine the best supplier. In this analysis, several suppliers’ criteria were considered, namely
quality, delivery, completeness, quality loss and environmental management. By maximizing the suppliers’ performances
based on each criterion and aggregating the suppliers’ performances based on the overall criteria, the best supplier was
determined.
Keywords: Supplier selection, Taguchi Loss Function, AHP, Fuzzy Linear Programming, Environment
1. Introduction
Nowadays, supply chain management has received renewed interest in the industrial world. In particular,
supplier selection problem is of great importance because it has a significant influence on the quality of the
goods produced. Therefore, it is necessary to consider the essential parameters before arriving at the right
decision for the supplier.
Previously, supplier selection process has been based solely on price criterion, which resulted in companies
engaging many short-term agreements with suppliers with the lowest price quotation. As time progresses,
however, more emphasis has been put on several additional criteria other than the price.
According to Sarkis and Talluri (2002), the buyer-supplier relationships based solely on price criterion are
no longer applicable. The importance of supplier selection requires re-thinking of its procurement strategy and
careful evaluation of the procurement decisions in order to be able to select the right supplier. The evaluation and
* Corresponding author. Tel.: +62-31-5825-1007; fax: +62-31-5825-1020
4
R. Magdalena – Supplier Selection for Food Industry ...
selection of suppliers in the modern context needs to incorporate more criteria, such as supplier quality, the risk
of rejection of goods, and delivery time.
This study examines the problems encountered by a food industry in Denpasar, Bali which currently selects
a packaging supplier based solely on price criterion. The company management deems it necessary to assess
other criteria in the supplier selection process. This research refers to the works by Indrapriyatna et.al. (2010),
Sevkli et al. (2008) and Pi and Low (2005). The proposed method is an integration of fuzzy-AHP method and
the Taguchi Loss Function for the process of selecting suppliers in a packaging division of this food industry in
Denpasar. AHP is used to determine the relative importance of selection criteria. Taguchi loss function is used to
determine the potential losses that occur as a consequence of the allocation of goods to each supplier based on
predefined selection criteria. Fuzzy theory is used due to the fact that the characteristics of supplier selection
problems tend to be fuzzy. The often encountered fuzziness (vagueness) in the selection process is a result of
uncertainty and incomplete information from the selection criteria (Amid and O 'Brien, 2006).
2.1. Analytical Hierarchy Process
Analytical Hierarchy Process (AHP) is a method discovered by Saaty (1994) (Nydick and Hill, 1992). It is a
method for ranking several decision alternatives and selecting the best one when the decision maker has multiple
objectives, or criteria, on which to base the decision (Taylor, 2010). The decision maker makes a decision based
on how the alternatives compare according to several criteria.
The decision maker will select the alternative that best meets the decision criteria. Numerical scores are
assigned to rank each decision alternative based on how well the alternative meets the decision maker’s criteria.
Guller (2008) said that AHP is very useful for managers to formulate the desired decision-making criteria,
provide a guideline to determine the level of importance of different decision-making criteria, and then obtain
the best decision.
2.2. Taguchi Loss Function
Taguchi loss function (Quality loss function) is a method of measuring loss as a result of the product not
meeting the standard specifications (Taguchi, 1989). The purpose of calculating loss is to quantitatively evaluate
the quality loss caused by the variation. Loss Function considers the willingness of consumers to obtain a more
consistent product and the company’s desire to produce products with low cost. Minimization of losses suffered
by consumers is a strategy that encourages uniformity of the products and reduces costs of production and
consumption. Taguchi loss is useful for the company to identify not only the rejected and reworked scrap but
also the possibility of environmental pollution, the use of not long-lasting products, or other negative effects.
Loss for the company is the cost due to deviation from the target value.
The concept behind the Taguchi's Quadratic Loss Function (QLF) is to calculate the amount of loss for the
company. QLF is a mathematical model that links quality loss to the value of money resulting from the deviation
of the quality of the specification from the desired target. Loss in question is the cost of maintenance, the cost of
failure, adverse effects to the environment such as pollution or excessive production cost. Based on the loss
function approach, the quality characteristics measured by Taguchi can be divided into three categories, namely:



Nominal the best: It is a quality characteristics value which can be positive or negative. Values are
measured by predetermined target value. The closer it gets to the target value, the better the quality.
Lower the better: It is a non-negative measurable characteristics with respect to the ideal value of zero.
The nearer it gets to zero, the better the quality.
Higher the better: It is a non-negative measurable characteristics value with respect to the ideal value of
infinity. The closer it approaches infinity, the better the quality.
Formulation for the loss function is as follows:
k (S2 +[y- m]2] )
(1)
k (S 2  y 2 )
(2)
 1  3 S 2 
k  2 1  2 
y 
 y 
(3)
a.
Nominal the best (L)
=
b.
Lower the better (L) =
c.
Higher the better (L) =
5
where:
k=
A0
20
L = loss
y = measured value
k = loss constant
m = target
S2 = variance of distribution
y = average distribution
A0 = cost due to loss
∆0 = tolerance
2.3. Taguchi Loss Function
Fuzzy Linear Programming is a method of linear programming using the consideration of human thinking in
distinguishing qualitative information. By using this method, the conditions arising from the dominant
subjectivity and intuition can be resolved, not only based on the assumption of certainty as in the typical linear
programming. Bellman and Zadeh (1970) suggested a fuzzy programming model for decision making in a fuzzy
environment. Later, their method was first used by Zimmermann (1978) to solve fuzzy multi-objective linear
programming problems. In addition to Zimmermann, there are also other studies which used fuzzy-AHP
approach, such as Sevkli et al. (2008) and Indrapriyatna et al. (2010). In this sub-section, the general fuzzy
multi-objective model for supplier selection for m criteria is described in the following equation:
n
max Z K   Cki . X I Z k0 , where k  1,2,3,...., m
i 1
and constraints:
n
X
i 1
i
(4)
1
(5)
where:
Zk
= objective function for criteria k
Cki
= supplier value for criteria k
Xi
= the i-th supplier
min
max
Every objective function value, Zk, changes linearly from Z k to Z k . So it may be considered as a
min
max
fuzzy number with the linear membership function  zk as shown in Figure 1. Z k and Z k are obtained
through solving the multi-objective problem as a single objective.
Fig.1: Fuzzy linear membership function
If Equation (4) is added to the value of non-negativity of the Xi suppliers, it will be the following linear
Program (Zimmermann, 1978):
m
Max Z   wk  k
(6)
k 1
subject to:
λk ≤ μZk
Xi ≥ 0
(7)
6
m
w
k 1
k
 1, wk  0
(8)
Where wk and  Zk represent the solution of membership function, weighting coefficients that present the
relative importance among the fuzzy goals and membership function of the objective function. λk is the
minimization of the objective function μZk.
AHP method is often combined with Fuzzy Linear Programming in the decision-making process. Fuzzy
objective and fuzzy constraint used in the optimization of Fuzzy Programming vagueness serve to accommodate
the information that occurs in the supplier selection problem with no precise criteria (Zimmerman, 1978).
The combination of AHP-Fuzzy Linear Programs has been demonstrated by Sevkli et al. (2008). Pi and Low
(2005) combined the AHP with the Taguchi Loss Function in the selection of suppliers. Indrapriyatna, et al.
(2010) utilized AHP-Fuzzy-Taguchi combination in his works. This study adds another criterion (environmental
management) and utilize Taguchi Loss Function (Zimmerman, 1978), which will then be integrated with the
AHP and resolved by fuzzy linear programming.
The steps to find a good supplier for the company by integrating the Taguchi Loss Function with Fuzzy
AHP are schematically described as follows (workflow of this research is shown in figure 2 ):
Fig. 2: Diagrammatic representation of the research workflow
7
1) Determine the suppliers and select the criteria for the supplier selection. This step can be done by
interviewing the purchasing Head, the QC head, and the head of production.
2) Develop hierarchical structure of the supplier selection. Perform pairwise comparison of each of the
selection criteria and pairwise comparison of the supplier (for each criterion) that can later be used to
calculate the weight of the criteria and the weight of the suppliers for each criterion. From the pairwise
comparison, Consistency Ratio (CR) can be calculated. If CR ≤ 0.1, then the results of the evaluation
criteria correspond to acceptable suppliers.
3) Calculate the value of loss by looking for data from the last three months by using equation (1), (2) or
(3) based on predetermined criteria. Subsequently, the weighted Taguchi loss for each supplier is
calculated. The value of weighted Taguchi loss is the sum of the multiplication of the weight criteria
with the loss criteria. Normalized value of the weighted Taguchi loss is obtained by dividing the value
of the total loss weighed Taguchi with the Taguchi loss weighted value of each supplier
4) Construct the supplier selection model according to the criteria, weighted Taguchi loss, constraint and
min
max
suppliers. Find the lower bound Z 0 and upper bound Z 0 to solve the multi-objective supplier
selection problem as a single-objective linear programming model. Use lower bound and upper bound
of the objective functions to find the membership function for each criterion in equation (4) and
equation (5).
5) Based on AHP-Taguchi Loss weighted model, formulate the equivalent crisp model of the fuzzy
optimization problem according to equations (6), (7) and (8). Solve problem using Scilab software.
6) Find the optimal solution of the original multi-objective supplier selection problem.
Based on interviews with the Head of Purchasing, Head of QC Section and Head of Production, it was found
that all packaging suppliers offer similar prices. This implies that the price criterion is no longer relevant to be
used as a basis in selecting suppliers. Based on some historical data, it is agreed that there are four criteria to be
used in the selection of suppliers, i.e. quality, delivery, completeness and environmental management.
Quality is measured from how close the goods are to the manufacturer's specifications. Delivery is measured
from the ability of suppliers to deliver the goods on time according to the agreed arrangement. Completeness is
measured from the degree of matching between the amount of goods provided by the suppliers and the amount
ordered by the company. Finally, environmental management is measured from the physical condition of the
supplier’s workplace with respect to the company standards. In our case, the company has three possible
suppliers for packaging: Supplier1, Supplier2 and Supplier3.
Calculation of weights was carried out using the AHP supplier. After selected the suppliers and established
the suppliers’ criteria, pairwise comparisons were carried out to find out the normalized weighted value of each
supplier and each criterion. Pairwise comparison for each supplier for each criterion can be seen in Table 1.
Pairwise comparison for each criterion can be seen in Table 2.
Table 1. Pairwise comparison for suppliers
Quality
Supplier
1
2
3
1
1.00
2.00
3.00
5.00
Completeness
Supplier
1
1
1.00
2
4.00
3
2.00
7.00
2
0.50
1.00
2.00
4.50
2
0.25
1.00
0.25
1.50
3
0.33
0.50
1.00
1.83
3
0.50
4.00
1.00
5.50
weight
CI=0.003
0.163
0.297
0.539
1.000 CR = 0.005
weight
0.133
0.655
0.211
1.000
CI=0.027
CR=0.047
Delivery
Supplier
1
2
3
1
1.00
3.00
0.33
4.33
2
0.33
1.00
0.25
1.58
3
3.00
4.00
1.00
8.00
weight
0.272
0.608
0.120
1.000
CI=0.037
Environmental Management
Supplier
1
2
3
1
1.00
0.25
0.33
2
4.00
1.00
2.00
3
3.00
0.50
1.00
8.00
1.75
3.33
weight
0.123
0.557
0.320
1.000
CI=0.009
CR=0.064
CR=0.016
8
Table 2. Pairwise comparison for criteria
Criteria
Quality
Delivery
Completeness
Environmental
Quality
1.000
0.500
0.500
0.333
Delivery
2.000
1.000
0.500
0.500
Completeness
2.000
2.000
1.000
1.000
Environmental
3.000
2.000
1.000
1.000
weighted
0.423
0.271
0.162
0.144
CI= 0.015
CR =0.017
For quality criteria, the normalized weighted value of Supplier1, Supplier2, and Supplier3 are 0.163, 0.297,
and 0.539, respectively, and the Consistency Index (CI) is 0.003. For delivery criteria, the normalized weighted
value of Supplier1, Supplier2, and Supplier3 are 0.272, 0.608, and 0.120, respectively, and the CI value is 0.037.
For completeness criteria, the normalized weighted value of Supplier1, Supplier2, and Supplier3 are 0.133,
0.655, and 0.211, respectively, and the CI value is 0.027. For environmental management criteria, the normalized
weighted value of Supplier1, Supplier2, and Supplier3 are 0.123, 0.557, and 0.320, respectively, and the CI value
is 0.009. The value of Consistency Ratio (CR) is obtained by dividing CI with Random Index (0.58). If CR <
0.1, it means the degree of consistency is satisfactory. Since CR for all of our results it means that the
management evaluation for all criteria is acceptable or consistent. The normalized weighted value for each
criterion, i.e. quality, delivery, completeness, and environmental management, are 0,423; 0,271; 0.162; and
0,144, respectively.
Based on the January-March 2012 records in the Purchasing Department, the following data for goods
deficit, amount of defective products as received from suppliers, suppliers’ performance based on delivery
criteria and environmental management data were obtained as shown in Table 3. Historical data for defective
products were used for the Quality criteria. If supplier delivers a product matching the specification, the assigned
value is 0, and 1 if otherwise. Delivery historical data were used for delivery criteria. If supplier delivers ontime, the assigned value is 0 and if the delivery is late, the assigned value is 1, with unit of weeks as the
reference. Goods deficit data were used for the completeness criteria. If supplier deliver goods precisely as
ordered, 0 is assigned, and 1 if the amount is less than that in the purchase order. For these four criteria, the loss
calculation used the-lower-the-better method. Historical data for supplier environmental management criteria
were obtained from the auditing process on the suppliers’ working environment. This assessment was carried out
by a professional in the field of environmental audit. If the suppliers’ physical condition meets the company
standards, 0 is assigned, and 1 if otherwise.
Criteria specification limits and the corresponding penalties imposed on the suppliers should there be
violations against the rules are shown in Table 4. The specification limits and the penalties were determined by
the company according to the contract agreed upon with the supplier, based on the memo from the Head of
Purchasing Department.
Table 3. Historical data
Goods Deficit Data
Supplier
Month
A
January
1
February
0
March
0
Late Delivery Data
Supplier
Month
A
January
0
February
0
March
1
B
1
0
0
B
0
0
0
C
0
0
0
Defective Products Data
Supplier
Month
A
B
January
1
0
February
0
1
March
1
0
C
0
0
1
C
0
1
0
Non-recyclable Products Data
Supplier
Month
A
B
January
1
1
February
0
1
March
0
1
C
1
1
0
Table 4. Criteria specification limits and costs due to violations
Criteria
Quality
Delivery
Completeness
Environmental
management
Target
0 (no defective products)
0 (punctual)
0 (amount of goods as ordered)
Tolerance
max 3
at most 4 days
max 3
Loss calculation
lower the better
lower the better
lower the better
Cost
85000
75000
85000
0 (meets the standard)
1 (sub-standard)
lower the better
60000
9
The loss values of each criterion were calculated from equation (2), while the weighted Taguchi value is the
loss value multiplied by the weight value of each criterion. The calculation of loss, weighted Taguchi, and
normalized values are summarized in Table 5.
Table 5. Loss value calculation for each criterion
quality
delivery
completeness
environmental
management
weighted
Taguchi
normalized
1
52469
10417
20988
133333
47617
0.231
2
20988
0
20988
600000
98678
0.479
3
20988
10417
0
333333
59701
0.290
Based on pairwise comparison of suppliers for each criterion and calculated normalized loss, a multiobjective fuzzy linear programming model to select packaging supplier was developed. This stage involves
construction of multi-objective linear programming model as a single-objective supplier selection problem using
only one objective each time. The multi-objective linear programming of our application is presented as max Z1
to Z5.
Max Z1 = 0.163 X1 + 0.297 X2 + 0.539 X3
Max Z2 = 0.272 X1 + 0.608 X2 + 0.120 X3
Max Z3 = 0.133 X1 + 0.655 X2 + 0.211 X3
Max Z4 = 0.123 X1 + 0.557 X2 + 0.320 X3
Max Z5 = 0.231 X1 + 0.479 X2 + 0.290 X3
S/T
X1 + X2 + X3 = 1
X1, X2, X3 ≥ 0
Then, the linear membership function is used for fuzzifying the objective functions and the constraints for
min
max
the above problem. The data set for the values of the lower bounds Z k and upper bounds Z k
of the
objective functions are provided in Table 6.
Table 6. Data set for the membership functions
Z1-Quality
Z2-Delivery
Z3-Completeness
Z4-Environmental Management
Z5- Loss
Z kmax (μ=1)
Z kmin (μ=0)
0.539
0.608
0.655
0.557
0.479
0.163
0.120
0.133
0.123
0.231
In this stage, the membership functions for five objective functions and the constraints are provided to
maximize the performance of suppliers related to each main supplier selection criterion. To exemplify, we take
the performance assessment criteria to show the membership function of Z1. The objective of each membership
function is to maximize the supplier criteria and minimize the loss value. The membership functions are
formulated as shown earlier in Figure 1. The membership functions of supplier selection model for food industry
are formulated as shown in Figure 3.
10
Fig. 3: The membership function of supplier selection model for food industry
The fuzzy multi-objective formulation of the application as in equations (4) and (5) is shown below.
Max Z1 = 0.163 X1 + 0.297 X2 + 0.539 X3
Max Z2 = 0.272 X1 + 0.608 X2 + 0.120 X3
Max Z3 = 0.133 X1 + 0.655 X2 + 0.211 X3
Max Z4 = 0.123 X1 + 0.557 X2 + 0.320 X3
Max Z5 = 0.231 X1 + 0.479 X2 + 0.290 X3
S/T
X1 + X2 + X3 = 1
X1, X2, X3 ≥ 0
≥
≥
≥
≥
≥
Z10
Z 20
Z 30
Z 40
Z 50
After the membership functions were obtained, with the help of equations (6), (7), and (8), the single
Taguchi Loss Function-Fuzzy-AHP can be constructed as follows:
Max w1
S/T
λi ≥
(0.423 λ1 + 0.271 λ2 + 0.162 λ3 + 0.144 λ4) + w2 (λ5)
Z kmax  Z k ( x )
Z kmax  Z kmin
Xi = 1
Xi ≥ 0
0 ≥ λ1, λ2, λ3, λ4, λ5 ≥ 1
11
w1 is weight for criteria and w2 is weight for the loss, where w1 + w2 = 1. Based on discussions with the head
of purchasing and production, the obtained value for w1 is 0.8 and the value for w2 is 0.2, such that:
Max 0.3384 λ1
S/T
+ 0.2168 λ2 + 0.1296 λ3 + 0.1152 λ4 + 0.2 λ5
0.539  (0.163X1  0.297 X 2  0.539 X 3 )
0.539  0.163
λ2 ≥
0.608  (0.272 X 1  0.608 X 2  0.120 X 3 )
0.608  0.120
λ3 ≥
0.655  (0.133 X1  0.655 X 2  0.211X 3 )
0.655  0.133
λ4 ≥
0.557  (0.123 X 1  0.557 X 2  0.320 X 3 )
0.557  0.123
λ1 ≥
λ5 ≥
0.479  (0.231X1  0.479 X 2  0.290 X 3 )
0.479  0.231
X1 + X2 + X3 = 1
X1, X2, X3 ≥ 0
0 ≥ λ1, λ2, λ3, λ4, λ5 ≥ 1
After the model of Taguchi loss function is created, the problem is solved using Scilab software to obtain X1
= 1, X2 = 0 and X3 = 0, meaning that the selected supplier is Supplier 1. When each value of Xi is substituted
into the objective function, Zi values are obtained.
Z1 = 0.163, Z2 = 0.272, Z3 = 0.133, Z4 = 0.123, Z5 = 0.231
λ1 =  Z 1 = 1
λ2 =  Z 2 =0.689
λ3 =  Z 3 =1
λ4 =  Z 4 =1
λ5 =  Z 1 =1
The obtained values for each membership function show that the achievement levels of Z1– quality criteria,
Z3 – completeness criteria, Z4 – environmental management criteria and Z5 – loss are higher than Z2 – delivery
criteria. In other words, the achievement level of the objective functions corresponds to the priority of supplier
selection criteria (based on decision maker’s preferences) and indicates that Supplier 1 is selected as the
optimum supplier.
5. Conclusion and Recommendation
The aim of this study was to perform supplier selection to choose the best supplier by integrating the
Taguchi Loss Function with Fuzzy-AHP with respect to several criteria, namely the quality, delivery,
completeness, and environmental management.
Based on the results of data processing, it can be concluded that by integrating the Taguchi loss function
with Fuzzy-AHP, Supplier 1 was found to be the best packaging supplier alternative.
Future studies are expected to add other criteria, such as risk factors and uncertainty factors. In addition,
further research can use other methods such as combining fuzzy-AHP method with a utility function.
References
[1]
Amid, A., Ghodsypour, S. H., and O’Brien, C. (2006), “Fuzzy Multiobjective Linear Model for Supplier Selection in
a Supply Chain”, International Journal Production Economics, Vol. 104, pp. 394–407.
12
Bellman, R.G. and Zadeh, L.A. (1970), “Decision making in a fuzzy environment”, Management Science, Vol. 17 No.
2, pp. 141-64.
[3] Guller, M. E. (2008), “Incorporating Multi-Criteria Considerations into Supplier Selection Problem Using Analytical
Hierarchy Process: A Case Study”, Journal of Yasar University,Vol. 3 No. 12, pp. 1787-1810.
[4] Indrapriyatna, A. S., Meuthia, Y., Fatrias, D, Gusti, Monalisa, G. (2011), “ Integrasi Taguchi Loss Function dengan
Fuzzy Analytical Hierarchy Process dalam Pemilihan Pemasok”, Jurnal Teknik Industri, Vol. 13, No. 2, pp.65-73.
[5] Nydick R., and Hill R. P. (1992), “Using the Analytic Hierarchy Process to Structure the Supplier Selection
Procedure”, International Journal of Purchasing and Materials Management, Vol. 28 No. 2, pp. 31-36.
[6] Pi, W. N., and Low, C. (2005), “Supplier Evaluation and Selection Using Taguchi Loss Functions”, The International
Journal of Advanced Manufacturing Technology, Vol. 26, pp. 155–160.
[7] Saaty, T. L. (1994), “Fundamentals of Decision Making and Priority Theory”, RWS Publications, Pittsburgh.
[8] Sarkis, J., and Talluri, S. (2002), “A Model for Strategic Supplier Selection”, Journal of Supply Chain Management,
Vol. 38 No.1, pp. 18-29.
[9] Sevkli, M., Koh, S. C., Lenny, Zaim, S., Demirbag, M., and Tatoglu, E. (2008), “Hybrid Analytical Hierarchy
Process Model for Supplier Selection”, Journal of Industrial Management and Data Systems, Vol. 108 No.1, pp. 122142
[10] Taguchi, G., Elsayed A. E., and Thomas C. S. (1989), “Quality Engineering In Production System”, Mc-Graw Hill
Book Company.
[11] Taylor, B. W. (2010), “Introduction to Management Science”, 10th ed, Prentice Hall, New Jersey.
[12] Zimmermann, H. J. (1978), “Fuzzy Programming and Linear Programming with Several Objective Functions”,
Journal of Fuzzy Sets and Systems, Vol. 1, pp. 45-55.
[2]
Cite this paper
Magdalena, R. (2012). “Supplier Selection for Food Industry: A Combination of Taguchi Loss Function and Fuzzy
Analytical Hierarchy Process,” Proceedings of The 3rd International Conference on Technology and Operations
3-12. ISBN: 978-979-15458-4-6.
www.sbm.itb.ac.id
www.cob.uum.edu.my
Comparison of Environment Impact between Conventional and
Cold Chain Management System in Paprika Distribution Process
Eidelweijs A. Putri1,2,*, Kiyoshi Dowaki1, Gatot Yudoko2, Kenji Koido1
1
Department of Industrial Administration (IA) - Tokyo University of Science (TUS),
1-3 Kagurazaka, Shinjyuku-ku, Tokyo 162-8601, Japan
2
School of Business and Management (SBM) – Institut Teknologi Bandung (ITB),
Abstract. Pasir Langu village in Cisarua, West Java is the largest central production area of paprika in Indonesia. In
agriculture sector, the boycott of product including for paprika commonly occurs and would become a major problem.
Through the behavior, the paprika is unfit for market in retailer side finally. In average, for every 200 kg of paprika the
rejection number is 3 kg. This situation caused money loss for wholesalers and waste. In one year they can lose
approximately IDR 11,700,000 because of paprika’s boycott. The cold chain is a logistic system that provides a series of
facilities for maintaining ideal storage conditions for perishables from point of origin to the point of consumption in the food
supply chain. The cold chain refers to the transportation system which is managed by the temperature sensitively. That is, we
consider the supply chain due to cold energy and refrigerated packaging and the logistics to secure the integrity of the product
shipment. Therefore, the paprika wholesalers in Pasir Langu village recently are developing cold chain management system
to maintain quality of paprika so that number of rejection can be reduced. The objective of this study is to compare
environmental impact between conventional and cold chain management system in paprika distribution process using Life
Cycle Assessment (LCA) methodology and propose Photovoltaic (PV) system in paprika distribution process, and we
propose the environmentally friendly distribution system so as to secure the quality of products. The result implies that the
cold chain system produces more CO2 emission compared to conventional system. However, due to the promotion of PV
system, the emission would be reduced. For future research, it is necessary to reduce CO2 emission from transportation
process since this process is biggest contributor of CO2 emission at whole distribution process.
Keywords: LCA, Environmentally friendly distribution, Paprika, Cold chain, PV system
1. Introduction
The demand pull created by an agro-industrial enterprise stimulates businesses well beyond the closest links
with its direct input suppliers and product buyers; a whole range of ancillary services and supporting activities in
the secondary and tertiary sectors of the economy are also positively impacted. Because of the generally
* Corresponding author. Tel.: +81-906-0100-499; fax: +81-4-7122-4566
14
E.A. Putri, K. Dowaki, G. Yudoko, and K. Koido – Comparison of Environment Impact ...
perishable and bulky characteristics of agricultural products, many agro-industrial plants and smaller-scale agroprocessing enterprises tend to be located close to their major sources of raw materials [1]. In addition, the
boycott due to poor quality of agriculture products such as rotten and overripe one, etc commonly occurs and
becomes a major problem in distribution process of agriculture products.
This condition also happens for paprika. In Indonesia, paprika is categorized as valuable vegetable. Pasir
Langu village in West Java province is the largest central production of paprika in Indonesia. The boycott of
paprika is occurring in a retailer side because of rotten one. In average, for every 200 kg paprika the rejection
number is 3 kg and it is likely to be equal to IDR 45,000. That is, the paprika wholesalers would lose their
money of approximately IDR 11,700,000. The aspects due to paprika not only caused the financial loss for both
farmers and wholesalers but also produce the waste.
Therefore, the paprika wholesalers in Pasir Langu village develop the cold chain management system to
maintain paprika quality recently. Cold chain is a logistic system that provides a series of facilities for
maintaining ideal storage conditions for perishables from point of origin to the point of consumption in the food
supply chain [2]. The cold chain refers to the transportation system which is managed by the temperature
sensitively. That is, we consider the supply chain due to cold energy and refrigerated packaging and the logistics
to secure the integrity of the product shipment [3]. A cooling process of fresh fruit and vegetables before
processing them removes heat around them, and that would inhibit decay and help maintain moisture content,
sugars, vitamins, and starches, while the quick freezing of processed fresh fruit and vegetable maintain the
quality, nutritional value, and physical properties for extended periods [4].
On the other hand, due to the promotion of cold chain management system, that is, the system, which
requires electricity for pre-cooling and storage in cold circumstance and fossil fuel for refrigerated transportation,
would generate more CO2 emission compared to the conventional one. The impact of agriculture on the
environment is an extremely important issue since the ecological influence for natural resources is already
overstrained. In general, the agricultural impact on nature is well known and the agricultural environmental
indicators have been developed for national monitoring systems. Thus, the efficient methods to comprehend the
agricultural impacts on the environment indicators with sustainable factors are significantly required [5].
Therefore, the objectives of this study are to propose the cold chain management system and estimate CO2
emission against the conventional one by using LCA methodology. In addition, in order to abate its impact, we
propose the advanced system of paprika distribution process with PV system. The result from this study would
be contributed to the development of cold chain management system so as to keep environmentally friendly
condition and to maintain the paprika quality.
2. Method
2.1. LCA Methodology
LCA is a technique that aims at addressing the environmental aspects of a product and their potential
environmental impacts throughout that product’s life cycle. The term product refers to both goods and services.
A product’s life cycle includes all stages of a product system, from raw material acquisition or natural resource
production to the disposal of the product at the end of its life, including extracting and processing of raw
materials; manufacturing; distribution; use; re-use; maintenance; recycling; and final disposal (i.e., cradle-tograve) [6].
The most well-known application of LCA can compare the total environment impact of a product or service
with an alternative (comparable) product or service. LCA is often considered as a tool that provides the answer
to the question of which product has least environmental impact [7].
The tasks with suppliers and supply chain issues are rapidly increasing as an important strategic
consideration. Traditionally, enterprises manage suppliers in order to optimize the supply chain, the flow of
information, the materials and funds, and the logistics of supply and distribution, minimize cycle times and costs
in order to integrate processes and functions for the supply chain. A life cycle management framework is for the
improvement which is continuous and based on a full system or a life cycle perspective; thus, the supply chain
management practices are an entry gate for a life cycle management [8].
A LCA methodology was used to analyse distribution process of paprika in Pasir Langu village. The system
boundary of paprika distribution process in Pasir Langu village is shown in Fig. 1. In the distribution process,
there are four main processes such as cultivation, transportation from greenhouse to wholesaler, packaging, and
transportation from wholesaler to retailer. Based on these conditions, the CO2 emissions from our proposed
systems were estimated and the environmental impact was argued.
15
Fig. 1: System Boundary of Paprika Distribution Process in Pasir Langu Village
2.2. Scenarios and Data Collection
In this study, there are three scenarios of calculating CO2 emission both for conventional and cold chain
management system. These scenarios are based on the differences of distance from greenhouse to wholesaler and
from wholesaler to retailer. First scenario is calculating the farthest distance, second scenario is calculating the
nearest distance and third scenario is calculating the average distance.
The data collection was conducted through an interview, a field observation, and a review of secondary data.
The interviews in Pasir Langu village were conducted with key workers from paprika business such as farmers
and wholesaler in order to clarify the factors on paprika distribution process in the life cycle stage. The field
work regarding paprika distribution process in Pasir Langu village was implemented in April to September 2011.
The observations include the site visits to paprika’s greenhouse and wholesaler. Secondary data was collected by
websites, books, national and international journal.
3.1. LCA Conventional System
A LCA methodology in this study was used to calculate the CO2 emission from four main processes at
paprika distribution system in Pasir Langu village (see Fig. 2). Eq. (1) was used to calculate CO2 emission.
ECO2 j = ∑ Ai x FEi
(1)
where, Ai is the direct or indirect energy input of i-th energy source (electricity, fertilizers, and fuel), FEi is the ith specific emission factor. The suffix of j is represented as the elements of cultivation, transportation from
greenhouse to wholesaler, packaging, and transportation from wholesaler to retailer, respectively. There are three
scenarios for estimating CO2 emission based on the differences of distance both in transportation from
greenhouse to wholesaler and transportation from wholesaler to retailer.
Fig. 2: Paprika Distribution Process: Conventional System
(1) Cultivation
According to the farmers’ interview, the greenhouse area was assumed to be 1000 m2, in which 4,000
paprika plants can be plant. A cultivation period of paprika per one cycle would require 8 months or 32 weeks.
Every paprika plant consists of 5 step harvesting processes and 3 pieces of paprika with average weight of 150 g
16
would be yielded in each process. That is, the annual average yields for every 1000 m2 greenhouse would be
9,000 kg.
A cultivation process consists of two main processes, seedling and planting. Both seedling and planting
processes was done in the same greenhouse, so for electricity and fertilizers usage was calculated as one unit for
both processes. In the paprika cultivation process, the following factors are necessary; charcoal husk as a media
planting, poly bags which are made by plastics, water, seed, pesticides, fertilizers, and electricity which uses for
some equipment of a pump and a lamp operation. From those inputs, the indirect CO2 emissions of fertilizers and
electricity should be considered and the rests are ignored.
The farmers in Pasir Langu village generally use “AB Mix fertilizers” which consists of N, P, and K in
cultivation process and the annual consumption is 960 kg/yr. Also, they have to pay IDR 200,000 in average on
electricity fee of 5 greenhouses to government electricity company (PLN). Using the data from the government
electricity company, we estimated the average electricity consumption of 87.91 kWh/yr for each greenhouse.
Here, note that the price per kWh is IDR 455 and the annual electricity consumption is 703.297 kWh in the total.
Table 1 is shown factor emission for each variable.
Based on those data, the CO2 emissions of both consumption of electricity and fertilizers are 2.098 gCO2 per
paprika and 3.2 gCO2 per paprika, respectively. Using Eq. (1), the total CO2 emission from cultivation process is
5.298 gCO2 per paprika.
Table 1: Factor Emission
No
1
2
3
4
Variable
Electricity
Fertilizers (N,P,K)
Gasoline
Diesel
Factor Emission
0.179 kgCO2 / kWh
0.2 kgCO2 / kg fertilizer
2.31 kgCO2 / L
2.68 kgCO2 / L
Source
[9]
[10]
[11]
[11]
(2) Transportation from greenhouse to wholesaler
In average, a truck with 1 ton capacity goes to 10 greenhouses for collecting paprika every day. The load
capacity is 50 kg due to the limitation of space. The farthest distance is 1.5 km, the nearest is 0.5 km, and the
average from greenhouse to wholesaler is 0.95 km, and it is assumed that the frequency of truck is 4 operations
of 0.5 km case, 3 ones of 1 km case and 3 ones of 1.5 km case every day. The fuel consumption of the truck is 15
km/L. Using Eq. (1), the CO2 emissions of transportation from greenhouse to wholesaler for the farthest, the
nearest, and the average distance are 0.693 gCO2 per paprika, 0.231 gCO2 per paprika, and 0.439 gCO2 per
paprika, respectively.
(3) Packaging
The packaging process is doing at wholesaler in Pasir Langu village. The packaging house, in average, has
to pay IDR 150,000 per a month for electricity. Therefore, assuming that price per kWh is IDR 455, the average
electricity consumption per a month for packing and sorting them is 329.67 kWh per a month, that is, 10.989
kWh per a day. In one day, the packaging house can receive around 500 kg paprika in order to be sorted and
packed. Thus, using Eq. (1), the total CO2 emission from packaging process is 0.590 gCO2 per paprika.
(4) Transportation from wholesaler to retailer
The wholesaler distributes paprika for export and local market through retailer and directly to the traditional
market. For the export market, there is the case that paprika from Pasir Langu village is export to Singapore. The
paprika for local market is distributed through local distributors who distribute to restaurants and/or
supermarkets. The wholesaler has to send paprika three times per a week for each market. The distance from
Pasir Langu village to exporter is 60 km, and that of local distributor is 20.4 km and that to the traditional market
has 29 km. Thus, the total distance from wholesaler to retailer is 36.467 km in average.
The Wholesaler sends the products of 100 kg to 400 kg to exporter. Those of 200 kg to 500 kg for local
distributor, and of 100 kg for traditional market are delivered. In the distributing paprika to retailer, a truck is
required 15 km/L of gasoline. This 1 ton’s truck has an average load weight of 233.3 kg paprika for each trip. As
we mentioned before, there are three scenarios to calculate CO2 emission based on the distance from wholesaler
to retailer. Using Eq. (1), the CO2 emissions from transportation process from wholesaler to retailer for each
scenario are 5.940 gCO2 per paprika, 2.020 gCO2 per paprika, and 3.610 gCO2 per paprika, respectively. As a
result, the total CO2 emissions at paprika distribution process for each scenario are shown in Table 2.
17
Table 2: CO2 Emission in gCO2 per paprika at Paprika Distribution Process: Conventional System
Process
Cultivation (Seedling and Planting)
Transportation (from greenhouse to wholesaler)
Packaging
Transportation (from wholesaler to retailer)
TOTAL CO2 Emission from whole system
Farthest
Distance
5.298
0.693
0.590
5.940
12.521
Nearest
Distance
5.298
0.231
0.590
2.020
8.139
Average
Distance
5.298
0.439
0.590
3.610
9.937
Fig. 3: Percentage CO2 Emission of the farthest distance at Each Process: Conventional System.
Fig. 4: Percentage CO2 Emission of the nearest distance at Each Process: Conventional System.
Fig. 5: Percentage CO2 Emission of the average distance at Each Process: Conventional System.
The percentage of CO2 emission from the farthest distance (see Fig. 3) shows that transportation from
wholesaler to retailer is the highest CO2 emission (47.4%), while that of CO2 emission from the nearest distance
and the average distance (see Figs. 4 and 5) shows that cultivation process is highest CO2 emission (65.1% and
53.5%). The emissions of gasoline and fertilizers usage are attributed to the highest CO2 emission.
18
3.2. LCA Cold Chain Management System
Next, the cold chain management system (see Fig. 6) is assumed to be implemented in Pasir Langu village
in order to maintain the quality of paprika and reduce the boycott products. Since December 2011, the cold
storage was built in Pasir Langu village. The cold storage is equipment in cold chain. The cold storage is a box
made of insulated walls, ceiling and floor that fitted with an insulated door. It is kept at a pre-set temperature by
refrigeration machinery. In this system, the refrigerated transportation will be used to carry paprika from
wholesaler to retailer.
In the cold chain management system, pre-cooling and storage are required to be done in cold storage. This
process is done at wholesaler after packaging process. The facility area of cold storage in Pasir Langu village is
24 m3 and that is able to store 2,700 kg of paprika for 7 days. At that time, the electricity consumption to operate
the cold storage is 54.601 kWh per a day, that is, 382.204 kWh per a year. Using Eq. (1), the CO2 emission from
pre-cooling and storage is 3.801 gCO2 per paprika.
Fig. 6: Paprika Distribution Process: Cold Chain Management System.
On the other hand, since the refrigerated transportation is also required to carry paprika from wholesaler to
retailer in order to keep temperature condition of paprika, the quality of paprika can be maintained. Based on
interview, the fuel consumption for refrigerated transportation is 4 km/L or 0.25 L/km, so total fuel consumption
for one trip from wholesaler to retailer is 10.05 L. Using Eq. (1), the CO2 emission of the farthest, the nearest,
and the average distance are 25.843 gCO2 per paprika, 8.787 gCO2 per paprika, and 15.707 gCO2 per paprika,
respectively.
Table 3: CO2 Emission in gCO2 per paprika at Paprika Distribution Process: Cold Chain Management System
Process
Transportation 1 (from greenhouse to wholesaler)
Packaging
Pre-cooling and storage
Refrigerated transportation (from wholesaler to retailer)
Farthest
Distance
5.298
0.693
0.590
3.801
25.843
36.225
Nearest
Distance
5.298
0.231
0.590
3.801
8.787
18.707
Average
Distance
5.298
0.439
0.590
3.801
15.707
25.835
Thus, the total CO2 emissions at paprika distribution process for cold chain management system for each
scenario are shown in Table 3. The percentage of CO2 emission from three scenarios (see Figs. 7, 8, and 9)
shows that of transportation from wholesaler to retailer would be the highest CO2 emission in the total process
due to the high amount fuel of refrigerated transportation.
19
Fig. 7: Percentage CO2 Emission of the farthest distance at Each Process: Cold Chain Management System.
Fig. 8: Percentage CO2 Emission of the nearest distance at Each Process: Cold Chain Management System.
Fig. 9: Percentage CO2 Emission of the average distance at Each Process: Cold Chain Management System.
3.3. PV System for Paprika Distribution Process
Next, it is an extremely important purpose to reduce CO2 emission for the whole system. Here, the specific
CO2 emission of electricity in our target area (Indonesia) is very large due to much of fossil fuel consumption.
However, there would be plenty of solar resource in Indonesia. Recently, the PV (photovoltaic) system would be
generalized as one of countermeasure of CO2 emission reduction. Also, this is one of promising system in the
renewable energy ones. In the near future, the number of environmentally friendly system will be increased in
any countries.
The PV system can convert directly sunlight dissociation energy to electric energy. The electric energy
yielded by PV would be little influenced by the sunlight intensity, so that PV can produce electric energy which
is equivalent to the received sunlight [12]. The daily solar radiation data from NASA Surface Meteorology
20
and/or Solar Energy website was used in this study. The average daily solar radiation in Pasir Langu village,
Cisaura is 4.81 kWh/m2/day.
The objective in this scenario is to promote PV system installation in greenhouse, packaging house, and cold
storage in order to mitigate CO2 emission by decreasing electricity usage. This PV hybrid system with electrical
grid of PLN without battery equipment is assumed to yield continuously so as to meet the supply of electric
energy [13]. Here, the PV system would supply the electricity of 30% and the rest electricity of 70% would be
compensated by PLN. Eq. (2) was used to calculate the electricity demand (EB) which would be supplied by PV
system (EA). Eq. (3) was used to calculate the total energy system (ET). Due to Eq. (4), the capacity of PV system
(CPV) whose factor adjustment is 1.1 was estimated, and the total number of PV module which should be
installed to be supplied for energy demand in each process was estimated due to Eq. (5) [12]. In this study, the
capacity of PV module has 100 Wp at 24 V. Table 7 shows the performance results of PV module in the subprocess of cultivation, packaging, pre-cooling and storage, respectively.
EA = 30% x EB
(2)
ET = EA + (15% x EA)
(3)
(4)
(5)
Table 4: Performance Results of PV System Calculation
Data
Energy Demand (EB)
Energy from PV (EA)
Total Energy (ET)
Capacity of PV (CPV)
Total PV module
Cultivation
2,930 Wh/day
879 Wh
1,010 Wh
231W
3
Packaging
10,989 Wh/day
3,296 Wh
3,791 Wh
867 W
9
Cold Storage
54,601 Wh/day
16,380 Wh
18,837 Wh
4,307 W
44
The utilization of solar energy by PV system causes very little environmental problem and provides no
greenhouse effect [14]. The solar energy supply due to a clean energy source does not emit pollutant substances
including CO2 gas during its operation. On the other hand, in LCA, the environmental load (ex. indirect factors
of manufacturing and materials and so on) from another viewpoint might have to be considered [15]. However,
we referred to the operation only, that is, assuming that PV system produces electricity, we treated the specific
CO2 emission of PV system as zero emission. As a result (see Table 5), the promotion of PV system in
greenhouse, packaging house, and cold storage, will be able to reduce 1.947 gCO2 per paprika from whole
distribution process, that is, the percentage of 11.9 % from cultivation , 30% from packaging, and 30% from cold
storage, respectively.
Table 5: CO2 Emission in gCO2 per paprika at Paprika Distribution Process: PV system
Process
Transportation 1 (from greenhouse to wholesaler)
Packaging
Pre-cooling and storage
Refrigerated transportation (from wholesaler to retailer)
Farthest
Distance
4.669
0.693
0.413
2.661
25.843
34.278
Nearest
Distance
4.669
0.231
0.413
2.661
8.787
16.760
Average
Distance
4.669
0.439
0.413
2.661
15.707
23.888
4. Conclusions and Future Research
This paper has shown the calculation of CO2 emission on paprika cold chain model using LCA methodology.
Based on the result above, the CO2 emissions from cold chain management system are approximately 2-3 times
higher than a conventional system. In general, that would emit higher CO2 gas; however, the advanced system
with PV system would contribute environment aspect. Simultaneously, we would be able to secure the quality of
paprika quality.
21
Therefore, it is important to make optimization model in cold chain management system to mitigate CO2
emission. Proposing PV system for greenhouse, packaging house, and cold storage reduce CO2 emission and/or
probably maintain paprika quality.
As other system candidates for paprika cultivation system, Blue-Tower (BT) system also can be used in
order to reduce the CO2 emission. This is due to the biomass resources. In the previous research [16], it was
shown that in Japan, paprika was cultivated in greenhouse which requires electricity, thermal energy and CO2
gas as growth agents. The CO2 emissions from paprika conventional cultivation system of 2 ha to 4 ha were
582.4 to 573.9 gCO2 per paprika, respectively. Inversely, due to promotion of BT-CGS (Blue-Towercogeneration) or BT-CGS (SOFC-HP) case in the paprika cultivation facility, it enables to mitigate CO2
emission as shown in Tables 6 and 7.
Table 6: CO2 Emission and Reduction (BT-GE)
Case name (Cultivation
scale, BT-plant scale)
GE-Case1 (2ha 15t)
GE-Case1 (2ha 30t)
GE-Case1 (2ha 60t)
GE-Case1 (4ha 15t)
GE-Case1 (4ha 30t)
GE-Case1 (4ha 60t)
CO2 Emission per a paprika
(gCO2 per paprika)
104.6
68.6
98.9
257.8
93.2
67.4
Rate of CO2
Reduction (%)
82.0%
88.2%
83.0%
55.1%
83.8%
88.3%
Table 7: CO2 Emission and Reduction (BT-SOFC-HP)
Case name (Cultivation
scale, BT-plant scale)
SOFC-Case1 (2ha 15t)
CO2 Emission per a paprika
(gCO2 per paprika)
60.6
68.5
98.9
92.1
58.4
66.9
Rate of CO2
Reduction (%)
89.6%
88.2%
83.0%
84.0%
89.9%
88.4%
For future research, it is necessary to reduce CO2 emission from transportation process since transportation
is the biggest contributor of CO2 emission in cold chain management system. The CO2 emission reduction from
transportation process can be done by switching solar system for refrigerated transportation. Also, we need to
consider the scale merit, that is, we have to refer to the relationship between the scale of renewable energy
system and that of cultivation from the viewpoints of environmental impact and/or the cost.
References
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Global Agrisystem. (2005), “Cold Chain”, Project Profiles, MP Agros.
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Baldwin, C. J. (2009), “Sustainability in the Food Industry”, Wiley-Blackwell and the Institute of Food Technology.
Haas, et al. (2000), “Life Cycle Assessment Framework in Agriculture on the Farm Level”, International Journal
LCA, Vol. 5 No. 6, pp 345-348.
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Paris.
[7] Horne, et al. (2009), “Life Cycle Assessment: Principles, Practice and Prospects”, CSIRO, Australia.
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Products”, United Nations Environment Programme, Paris.
[9] Suhedi, F. (2005), “Emisi CO2 dari Konsumsi Energi Domestik”, Pusat Litbang Permukiman.
[10] Asisten Deputi Urusan Data dan Informasi Lingkungan. (2009), “Emisi Gas Rumah Kaca dalam Angka”, Kementrian
Negara Lingkungan Hidup Republik Indonesia.
[11] Gratimah, R. (2009), “Analisis Kebutuhan Hutan Kota sebagai Penyerap Gas CO2 Antropogenik di Pusat Kota
Medan”, Fakultas Matematika dan Ilmu Pengetahuan Alam, Universitas Sumatera Utara Medan.
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22
[12] Bien, et al. (2008), “ Perancangan Sistem Hibrid Pembangkit Listrik Tenaga Surya Dengan Jala-Jala Listrik PLN
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[13] Strong, et al. (1993), “The Solar Electric House”, Chelsea Green ISBN 0-963783-2-1.
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Cite this paper
Putri, E.A., Dowaki, K., Yudoko, G., and Koido, K. (2012). “Comparison of Environment Impact between Conventional
and Cold Chain Management System in Paprika Distribution Process,” Proceedings of The 3rd International Conference
on Technology and Operations Management: Sustaining Competitiveness through Green Technology Management,
Bandung–Indonesia (July 4-6), pp. 13-22. ISBN: 978-979-15458-4-6.
www.sbm.itb.ac.id
www.cob.uum.edu.my
Is Halal certification process “green”?
Mohd Rizal Razalli1,*, Suzzaini Abdullah1, Rushami Zien Yusoff1
1
Universiti Utara Malaysia (UUM),
Abstract. These days, the environmental perspective on operations is becoming more common. In fact, any effort in
improving efficiency in the organization is closely related to sustainability of our environment. The Environmental
Management System (EMS) certification such as ISO 14001 has been accepted as the world standard. In addition to these
ISO standards, there are other certifications such as Halal certification. There is no research that investigates the relationship
between Halal Certification process and its effect on our environment. Hence, our main research question is that is Halal
Certification process can be considered as environmental friendly? In this paper, we argue that Halal Certification also
contributes towards green initiatives. We used EDC-UUM as our case study. EDC-UUM is actively seeking the Halal
certification from Malaysian authority agency or JAKIM. In this study, we assessed the perception of the EDC-UUM staff on
the issue of going green. The findings and implications are discussed in the paper.
Keywords: Halal certification, hotel operations, Sustainability, Green
1. Introduction
Environmental perspective on operations is becoming one of the main concerns of many organizations these
days. This fact has driven the growth of research related to green management [1, 2]. The concept, however, is
still relatively new and that has resulted to simple to complex interpretations by practiced organizations [3].
Moreover, the terms may come in different forms such as green technology, going green, sustainable
development, and environmental and eco-friendly. Even though the terms may differ, they have one common
mission that is to protect the earth from wrongdoing of human behaviour for our future generations.
The negative impact of human behaviour is the central issue in green management. All human activities
must be managed carefully without taking for granted about their consequences and to the welfare of the
environment. Despite the challenges to define green management, many previous scholars have attempted to
provide an exact definition for green management. For instance, after a comprehensive review of literature, the
following definition of green management was proposed.
* Corresponding author. Tel.: + 60-4-928-4595
24
M.R. Razalli, S. Abdullah, and R.Z. Yusoff – Is Halal certification process ...
“Green management is the organization-wide process of applying innovation to achieve
sustainability, waste reduction, social responsibility and a competitive advantage via continuous
learning and development and by embracing environmental goals and strategies that are fully
integrated with the goals and strategies of the organizations” [3].
In the context of Malaysia, the Ministry of Energy, Green Technology and Water defines green technology
as “the development and application of products, equipment and systems used to conserve the natural
environment and resources, which minimizes and reduces the negative impact of human activities” [4]. The four
pillars of green technology policy include:
 Energy - seek to attain energy independence and promote efficient utilization;
 Environment - conserve and minimize the impact on the environment;
 Economy - enhance the national economic development through the use of technology; and
 Social - improve the quality of life for all.
One of the current established accreditations specifically for green or environmental management (EMS) is
ISO 14001: 2004. This is a management tool that can be used by organizations to identify and control the
environmental impact, to continuously improve environmental performance, and to implement a systematic
approach for assessing the environmental objectives and their implementation [5].
Besides this accreditation, less is known about the Halal certification and its relations to protect the
environment. In fact, there is no such study that has been carried out to see how Halal certification could also
relate to the green management. Hence, this paper aims to answer whether or not halal certification process can
be considered as part of the green management practices. In the quest of finding the answer, we have engaged in
a case study approach. We chose one hotel in the northern part of Malaysia as our case. However, we also
carried out a survey to seek their staffs’ perception quantitatively. The case is described in the later section.
2. Green Management and Halal Certification in the Hotel Industry
2.1. “Green” Hotels
The concept of green management is also embraced by the hotel industry. In fact, the Green Hotel
Association (GHA) has been established since 1993 to bring together hotels interested in environmental issues
[6]. According to the GHA, “green” hotels implement environmental programs that save water, energy, and
reduce solid waste to help protect the one and only earth. The implementation of green management in the hotel
industry is critical. The industry is the most environmentally harmful in the hospitality sector to contribute
substantial impact to the environment [7]. These impacts are associated to the waste production, water, and
energy consumption by hoteliers [8].
In addition to conserve the environment, green hotels would also enjoy various economic benefits from
being green. They can benefits from bigger savings and better efficiency through the adoption of environmental
practice in the area of operating cost reduction and operational efficiency [9]. However, a proper strategy and
implementation should be carried out. Some companies may find the green initiatives to result in lower profit
[10]. In terms of the customers, the green hotels would have a substantial potential market [11]. A study
conducted in Malaysia has found that the hotels’ customers associated being green to product quality, price, and
social responsibility [11]. Because of these benefits, more and more hotels are practicing green and would like
their properties to be recognized as the “green” hotels. For example, hotels that have received ASEAN Green
Hotel Award in 2010 increased from 5 to 10. Those hotels were the Andaman Langkawi, Shangri-La’s Tanjung
Aru Resort and Spa, Mines Wellness Hotel, Shangri-La’s Rasa Ria Resort, Renaissance Kuala Lumpur Hotel,
Hotel Melia Kuala Lumpur, Nexus Resort Karambunai, Shangri-La’s Rasa Sayang Resort and Spa, Shangri-La
Hotel Kuala Lumpur and the Frangipani Langkawi resort and Spa [12].
2.2. Halal and Its Certification Process
In order to answer our research question, we need to understand the meaning of halal and the halal
certification process. The Halal certification is a complex assessment on food and beverages, consumer goods,
food premises, and slaughter houses. It is a document given to the applicant that guarantee that the items (either
food and beverages, consumer goods, food premises, or slaughter houses) are halal certified or meet the Islamic
principles and can be consumed by Muslim [13]. In Malaysia, the recognized authority by the Malaysian
government for Halal includes Jabatan Kemajuan Islam Malaysia/Department of Islamic Development Malaysia
(JAKIM), Jabatan Agama Islam Negeri/State Islamic Religious Department (JAIN) or Majlis Agama Islam
Negeri/State Islamic Religious Council (MAIN). Now, the Halal Industry Development Corporation (HDC) has
been appointed by the government to serve as a one stop center to manage the issue of Halal certification for
25
Malaysia. In this study, we focus on Halal certification for the hotel industry which is the food and beverages
produced by the hotel’s kitchen.
What is Halal? According to Halal Malaysia [14], the definition of Halal as stated in the Trade Description
Order (Usage of the Term “Halal”) 1975 is as follows:
When the term is used in relation to food in any form whatsoever, in the process of trade or commerce as an
aspect of trading or part of an aspect of trading for the referred to food, the terms ‘Halal’, ‘Guaranteed Halal’ or
‘Muslim Food’ or any other terms that may be used to indicate or may be understood as meaning to indicate as
permissible to be consumed by Muslims and allowed in their religion for the referred to food to be consumed,
must therefore mean the following, that is, the food for which such terms are being used:
a)
does not stem from or consists of any part of or item from animals that are forbidden to Muslims by
Islamic law, or animals that have not been slaughtered according to Islamic law;
b) does not contain any substance that is considered impure in Islamic law;
c) is not prepared, processed or manufactured using equipment or utensils that are not free from impurities
as defined by Islamic law ; and
d) that, in the preparation, processing or storage stage, does not come in contact with or is stored near any
kind of food that does not meet the requirements of para(s) (a), (b) or (c) or any substances that are
considered impure by Islamic law.
From the above definition, we can conclude that Halal certification would not just include the food itself but
also other areas as well. These three main areas are namely (1) the food and the source of the food, (2) the
process of preparation of the food, and (3) the process and handling the storage of the food. The halal
certification process also includes five processes namely the application/document approval, premise inspection,
panel committee/appeal committee, issuance of Halal certification, and monitoring and assessment [15].
The economic benefits of Halal certification are huge. The industry is estimated to worth around US 632
billion per year [16]. This is due to the increasing demand of Halal food around the globe [15].
2.3. Halal certification and green management: The similarities
Figure 1: Halal certification aspects
26
The halal certification process would include auditing on various aspects such as items depicted in Figure 1,
while green practices would include aspects such as in Figure 2. From the two figures we can see there are some
aspects that would be related between Halal certification process and green management. Among similarities
identified are (1) waste management, (2) education, (3) water (water supply & drainage), and (4) energy (ceiling,
lighting, ventilation, & temperature).
Figure 2: Green management aspects
3. Methodology
This was a quantitative case study that analysed from the perspective of individual personnel of EDC-UUM.
Almost all staff of EDC-UUM answered our questionnaire related to green and halal certification process. Due to
the scarcity of research on the topic and probably this was the first attempt to relate halal certification and green,
the questionnaire was self-constructed based on the Halal certification audit criteria. The perceived effects of
green and halal certification to performance are measured using various sources particularly from the
Environmental Management System studies [17] [18]. The scale of 1-5 was used ranging from improved
significantly (5) to worse significantly (1). For the level of agreement questions, the scale was ranged from
strongly agree (5) to strongly disagree (1). The questionnaires were also self-distributed and self-collected from
the EDC staff. The quantitative findings would be discussed in relation to the literatures available in the field.
4.1. EDC-UUM
EDC-UUM is an 8-storey hotel, located near the main entrance of the Universiti Utara Malaysia (UUM)
campus in Sintok. With a capacity of 88 spacious and comfortable guess rooms, EDC-UUM emphasizes value
for money and comfort. It is an ideal venue for business and leisure travelers with modern accommodation and
traditionally warm hospitality. Guest can look forward to affordable accommodation highlights such as a prayer
room, a meeting room, a laundry service, a restaurant and a small convenience store. The EDC-UUM, was
established as a cost centre but later on operating as a strategic business unit (SBU). It commenced its operation
on September 2006. The concept of the hotel is to provide hotel standard products and services and move
27
forward to fulfill its market needs. EDC-UUM is committed to providing the highest standards in hotel services
and facilities in keeping with its tagline: "Your Smile, Our Joy".
Since EDC-UUM is rather newly established and given as a strategic business unit (SBU) status, the
management decided to maintain its growth. In 2007 the total revenue was RM 1.8 million. The amount has
increased to RM 3.4 million and RM 3.5 million in 2008 and 2009 respectively. Apparently room and food and
beverage are the two major contributors to the EDC-UUM earnings. Hence, to stay competitive, EDC-UUM
should have the right business strategies in the years to come. One of the strategies is to obtain Halal certification
from JAKIM. Throughout the year of 2011 until the beginning of 2012, EDC-UUM has been aggressively
preparing the required documents for Halal certification for its kitchen. The standards of procedures for the hotel
have also been practiced to comply with the Halal certification.
4.2.
Survey Results
Table 1 below shows the respondents’ background in terms of their role and tenure at EDC-UUM and total
years of experience in the hospitality industry. Most of the respondents of the study were not in the managerial
positions, had less than 1 year working experience at EDC-UUM but had 5-10 years working experience in the
hospitality industry. Note that the EDC-UUM has just been established for only 5 years during the time of the
study.
Table 1: Respondents’ Background
Respondents’ Background
%
Role in the organization
Senior Management
Junior Management
Middle Line
Others
Total
10.9
7.3
27.3
54.5
100
Years of working in the organization
5 years
4 years
3 years
2 years
1 year or less
Total
18.2
5.5
14.5
9.1
52.7
100
Years of working experience
> than 20 years
15-20 years
10-15 years
5-10 years
< 5 years
Total
1.8
1.8
5.5
16.4
74.5
100
Next, we asked the respondents to indicate their agreement on the relationship between green and halal
certification. The result showed that 57.5% of the respondents agreed that Halal certification contributes towards
green. Another 27.3% even strongly agreed to the statement which made a total of 84.8% of the respondents to
perceive that Halal certification had a relationship with green. The specific result is shown in Figure 1.
Further, we investigated the perceived effect of Halal certification on the green performance. Figure 2 shows
the result. We found that majority (more than 50%) of the respondents indicated that Halal certification would
also be beneficial to EDC-UUM in terms of the following items:
 Energy saving
 Environmentally conscious
 Environment accident
 Society
 Waste management
 Coordination activities
 Efficiency
 Cost saving
 Interaction buyers and customers
28
 Personnel qualification
 Employee motivation
 Multi-skillness of employees
 Tenders
Note that some of the respondents also perceived that Halal certification would have negative effects on
green performance. However, this was a small group that represented only less than 10% of the respondents as
stated in Table 2.
Fig 1: Level of agreement on Halal and green
Fig 2: Perceived effect of Halal certification on green performance
29
Table 2: Total Percentage of level of Halal certification effects on green performance
Green performance
Energy saving
Worse (%)
Improve (%)
9
62
Environmentally conscious
9
78
Environment accident
9
65
Society
7
76
Waste management
7
76
Coordination activities
7
73
Efficiency
9
80
Cost saving
9
78
Interaction buyer/customer
9
76
Complaint
7
69
Personnel qualification
9
82
Employee motivation
7
80
Multi-skillness of employees
7
80
Tenders
*moderate effect was uncounted
7
75
5. Discussion and Conclusion
Our findings provide evidence for future work in the area of Halal certification. Based on our initial attempt,
we have found that halal certification has somehow related to green. Most of the respondents have indicated their
agreement about the relationship. The top effects of Halal certification that they perceived related to green would
be namely (1) Personnel qualification, (2) employee motivation, (3) Multi-skillness of employees, (4) Efficiency,
(5) Environmentally conscious, and (6) cost saving. From this finding we can conclude that the Halal
certification is closely related to the human resource issue particularly on their training about the Halal
certification. It is interesting to note that halal certification is perceived to have effects on environmental aspect
as well.
As discussed earlier this findings could be associated with the existence of similarities between Halal
certification and green management. The Halal certification, in general, focuses more on the hygienic, quality,
and safety [15] aspects of the food and its preparation, while green management focuses on reducing the
negative impact of human activities towards the environment. Based on this small scale data, we can carefully
conclude that by being hygienic would also protect the environment. After all, Islam teaches us to protect the
environment. And it does not mean we can only do that by having ISO 14000 certification.
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management: An exploratory analysis,” Management Decision, 47(7): pp. 1041-1055.
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Cite this paper
Razalli, M.R., Abdullah, S., and Yusoff, R.Z. (2012). “Is Halal certification process ‘green’?,” Proceedings of The 3rd

Logistics and Supply-Chain Management

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