Javanese Halal Food Supply Chain Performance

Transcription

1 Javanese Halal Food Supply Chain Performance Wildan Fajar Bachtiar 1*, Ravipim Chaveesuk 1, Thanit Puthpongsiriporn 1 and Adi Djoko Guritno 2 ABSTRACT This study is carried out to evaluate the supply chain performance of Indonesian halal food manufacturers on Java Island, based on their customer service level and internal operations. Javanese halal food manufacturers have 93 percent perfect order fulfillment with an average order fulfillment cycle time of 13 days. Upside supply chain flexibility by 10 percent can be achieved in 2.5 days. Transportation costs constitute 12 percent of the sales. Food manufacturers share less information with major suppliers which may lead to longer sourcing time as well as higher inventory ordering costs. An increase in joint decision-making on the promotions establishment across the manufacturers, the customers and the suppliers is recommended to improve responsiveness of the whole chain. Non-meat manufacturers should increase the information sharing on the demand forecast with the major suppliers whereas small and medium-sized firms should promote joint decision-making on the demand forecast, order quantity and promotions establishment with the major suppliers. Key Words: Food, Halal, Performances, SCOR Model, Supply Chain. *Corresponding author; address: wildan_nugrahagroup@yahoo.com 1 Department of Agro-Industrial Technology Management, Faculty of Agro-Industry, Kasetsart University, Bangkok, Department of Agro-Industrial Technology, Faculty of Agricultural Technology, Universitas Gadjah Mada, Yogyakarta, 55281

2 INTRODUCTION Indonesia is the largest muslim country in the world. In 2014, Indonesian population has been estimated to be 245 millions (Indonesian Bureau of Statistics, 2014). With this amount, a food supply of 10 million tons/year is required. To achieve this food security, food supply chain management from farming to end consumers are essential. Halal food supply chain shares similar principles with conventional supply chain but with extra compliances on religious rules along the chain. This involves the process of planning, implementing and controlling the efficient flow and storage of Halal certified product from a source to a demand point (Che Man et al., 2007). That is the process of managing the procurement, movement, storage and handling food products through the organization and the supply chain must be in compliance with the general principles of Sharia law (Tieman, 2009). Supply Chain Operation Reference Model (SCOR Model) was developed to manage the supply chain of an organization. The SCOR Model proposed supply chain performance metrics to evaluate the supply chain performance of organization in 5 attributes: reliability, responsiveness, agility, supply chain costs and asset management. First three attributes are measured of a customer service level while the last two attributes are measures of internal operations. Supply chain performance measurement can be useful in determination of proper supply chain strategies to improve the operations or determine the solution of some problems or re-align the monitored value to the defined one (Supply Chain Council, 2008). This study is carried out to preliminarily review Indonesian halal food industry on the largest economic island, Java, which contain 60% of Indonesian population. The supply chain performance of halal food manufacturers on Java Island based on their customer service level and internal operations as well as the cooperation of the halal food manufacturers in terms of information sharing and joint decision-making among stakeholders such as suppliers and customers are evaluated. Guidelines for improving the supply chain performance of the Javanese food manufacturers can thus be determined to respond to a higher competition in free flow of goods when the AEC starts in MATERIALS AND METHODS 1. Data Collection. 1.1 Collect the list of Javanese halal processed food manufacturers registered in the Directory of Halal MUI (Ditjen Bimbingan Masyarakat Islam Kementrian Agama RI, 2013). 1.2 Develop a questionnaire to analyze the halal supply chain performance of the Javanese food manufacturers as follows: Manufacturer s profile Halal certification: procedure and time, fees, effect of certification and related problems Operational patterns and supply chain performance metrics based on SCOR Model (2008).

3 1.2.4 The cooperation s between the food manufacturers and the suppliers and the relationship between the food manufacturers and customers in 2 patterns (1) Cooperation in information sharing and (2) Cooperation in joint-decision making. 1.3 Collect data using questionnaires via mailing in the Java Island. The questionnaires were mailed out to 510 manufacturers and the response rate was 3 percent or 13 firms.. 2. Data Analysis. 2.1 Profile and halal certification data were analyzed using descriptive statistics in terms of frequency, percentage, mean, median, min, max and standard deviation. 2.3 Comparison of cooperation s between the stakeholders in the chain, were analyzed using Chisquare test and cross tabulation. 3. Comparisons of the supply chain performance metrics of food manufacturers were done using t- test at 5% significance level based on the following criteria: 3.1 Types of firms i.e. 7 meat based manufacturers and 6 non-meat based manufacturers. 3.2 Firm size i.e. 5 small and medium-sized manufacturers (less than 500 millions of net assets, excluding land and buildings) and 8 large sized manufacturers (more than 500 millions of net assets, excluding land and buildings). 4. Determine guideline to improve supply chain performance of Javanese food manufacturers RESULTS AND DISCUSSION 1. Overview of Javanese Food Manufacturers Review of 13 food manufacturers on Java Island reveals that the non-meat based firms produce vegetables, fruits and other plant types (sugar cane, tea leaves, coconut, soy, brown rice, white rice, corn starch, wheat flour, coffee, dried fruits and juice products). Those meat based firms produce milk, crab, fish, shrimp, beef and chicken products which are mostly canned foods or basic processed foods. Fifty four percent of the firms are OBM, 31 percent are OEM and 15 percent are ODM. The average product shelf life is 17 months. Their products are on average 72 percent locally consumed and 28 percent exported. Local distribution channels are distributors (59 percent) and restaurants, convenience stores and modern trade (41 percent). Export markets include USA followed by EU, Australia, Japan and AEC. 2. Analysis of halal certification in Indonesia The average time required to obtain the halal certification from MUI will be 3 months and will incur Rp millions. A survey results reveal that with the halal certification, 67 percent of the

4 manufacturers can improve their sales by 30 percent on average. Fifty percent of them claim that consumers are more favorable to the halal certified products. Seventy percent of the firms also point out that the halal certification help increase the distribution channels, the value of the products and reliability on product standards. However, the major problem of halal certification is 3-months approval lead time (60 percent). 3. Supply Chain Measurements Production patterns of Javanese halal food manufacturers mostly used are make to order (41 percent) and engineering to order (35 percent). Only 24 percent fall into make to stock pattern. Overall supply chain performance measures are shown in Table 1. Table 1 Supply chain performance metrics of halal food producers in Java, Indonesia. Metrics Min Mean Median Max 1. Perfect order fulfillment Accuracy of production planning Accuracy of production queuing Order fulfillment cycle time (days) Make cycle time (days) Local delivery cycle time (days) Upside supply chain flexibility by 10 percent (days) Logistic costs (percent of sales) Supplier credit terms (days) Customer credit terms (days) = reliability measure; 2-6 = responsiveness measure; 7= agility measure; 8 = supply chain costs measure; 9-10 = asset management measure; Order fulfillment cycle time includes source, make and local delivery cycle time. Data incomplete (only 9 companies filled completed) Typically, food manufacturers have quite high ability to plan and fulfill orders from customers, i.e. 93 percent of all orders. The order fulfillment cycle time takes an average of 13 days, however, the make cycle time is only 2.5 days and the local delivery time is only 3 days. This indicates that the source cycle times are quite long. If there is an extra increase in order by 10 percent, it will take an average of 2.5 days to fulfill. The average logistic costs as percentage of sales is 12 percent and the transportation cost constitutes the major part (40 percent), followed by procurement cost (30 percent), inventory cost (14.5 percent), warehouse cost (13.5 percent) and ordering and customer service cost (8 percent).

5 Analysis of the cooperation between the manufacturers and their suppliers or customers is shown in Table 2. Table 2 Review of cooperation between manufacturers and their suppliers or customers Cooperation Information Sharing Major 1 Supplier Minor 2 Supplier Local Customers International Customers Customer order quantity Demand forecast Point of sales Selling price Inventory holding cost Inventory levels Reorder point Customer order status Delivery schedule Raw material Shortage Joint decision-making Order quantity Demand forecast Wrong forecasts Solving Product varieties planning Selling price setting Promotions establishment Inventory levels Inaccurate order correction = major raw material; 2 = packaging or food ingredients Cooperation in the supply chain of Javanese food manufacturers will be more in the forms of information sharing than joint decision making regardless of stakeholder s types. With respect to information sharing, the manufacturers place less emphasis on the major suppliers than the minor (supporting) suppliers such as packaging or ingredient suppliers. However, the manufacturers share information on raw material shortage with major suppliers than the minor ones. In addition, more emphasis are placed on local customers than international customers. One reason why they have

6 closer relationships with minor supplier is that fewer amounts of the suppliers especially packagings, are available. Customer order quantity, customer order status and delivery schedule are quite important information. Those are shared across major and minor suppliers as well as local customers. Information of point of sales, inventory holding cost and demand forecast are shared to the fewer extent with major suppliers than minor suppliers and local customers. Bullwhip effect might take place and leads to a longer source cycle time and higher sourcing and carrying costs. Joint decision on promotions establishment is practiced very small with all suppliers as well as customers. As a result, the demand increase without notice might occur and may lead to the longer sourcing time and higher inventory ordering and carrying costs. 4. Comparison of Supply Chain Performance of Javanese Halal Food Manufacturers 4.1 Supply chain performance metrics based on type and size of the firms Table 3 displays the supply chain performance of halal food manufacturers on Java Island. Table 3 Comparison of supply chain performance metrics based on the firm s type and size Metrics Type Non-meat based Meat based Large Sized Size Small and mediumsized 1. Perfect order fulfillment Accuracy of production planning Accuracy of production queuing Order fulfillment cycle time (days) Make cycle time (days) Local delivery cycle time (days) Upside supply chain flexibility by 10 percent (days) Logistic costs (percent of sales) Supplier credit terms (days) Customer credit terms (days) = reliability measure; 2-6 = responsiveness measure; 7 = agility measure; 8 = supply chain costs measure; 9-10 = asset management measure It is observed that type and size of manufacturers have no significant effect on supply chain performance (p>0.05). Non-meat based manufacturers have eight days longer order fulfillment cycle

7 time than meat based manufacturers, probably due to a seasonal effect of sourcing plant/crop materials. Order fulfillment cycle time of small and medium-sized manufacturers are five days longer than the large sized of manufacturers, since its source cycle time are longer. Limited numbers of suppliers may be the cause and thus small and medium-sized should increase their vendor list. Meat based or small and medium-sized firms show higher agility measure than non-meat and large firms. 4.2 Cooperation between manufacturers and suppliers or customers Information sharing Chi square independent test and crosstabulation of the information sharing between manufacturers and suppliers or customers are shown in the Table 4. Table 4 Crosstabulation of the information sharing between manufacturers and suppliers Information Sharing Alliance Non-meat Demand forecast Meat Major suppliers Minor suppliers Non-meat based manufacturers significantly share less information on demand forecast with major suppliers which may lead to longer sourcing cycle time and in term longer order fulfillment cycle time. Therefore, non-meat-based manufacturers should increase the information sharing in terms of demand forecast with major suppliers. Table 5 Crosstabulation of the joint decision-making between manufacturers and suppliers Practice Alliance Large Sized Small and mediumsized Order quantity Major suppliers Demand forecast Major suppliers Promotions establishment Major suppliers Considerably less joint decision of small and medium-sized firms on order quantity, demand forecast and promotions establishment with major suppliers might again lead to longer order fulfillment cycle time with respect to sourcing raw materials compare with the large sized manufacturers. Small and medium-sized manufacturers have to increase joint decision-making with major suppliers in terms of order quantity, demand forecasts and promotions establishment so that the suppliers can prepare adequate raw materials.

8 CONCLUSION Javanese Halal food manufacturers have quite a high perfect order fulfillment of 93 percent. Upside supply chain flexibility by 10 percent can be achieved in 2.5 days. Transportation costs constitute highest portion of logistics cost of 12 percent of the sales. Halal certification can help promote the sales of manufacturers. Javanese food manufacturers share less information with major suppliers than minor suppliers and might result in higher sourcing time as well as higher inventory ordering costs. Joint decision-making about promotions establishment, which will affect on increase in sales, must be encourage more between the manufacturers, the consumers and the suppliers to promote the responsiveness of the whole chain. Non-meat based manufacturers should increase more information sharing on the demand forecast with the major suppliers while small-medium firms should promote more joint decision-making in terms of order quantity, demand forecast and promotions establishment with the major supplier to increase their responsiveness performance. ACKNOWLEDGEMENTS Financial support from National Research Council of Thailand and the Thailand Research Funds were gratefully acknowledged. REFERENCES Badan Pusat Statistik Indonesia Proyeksi Penduduk tahun Available Source: January 7, Che Man, Y., Bojei, J., Sazili, A. Q. and Abdullah, A. N Malaysia Halal Hub Opportunities. In 4 th Asian Livestock & Feed Industry Conference. Council of Supply Chain Management Professionals Supply Chain Operations Reference Model (SCOR) Version 9.0. America. Ditjen Bimbingan Masyarakat Islam Kementrian Agama RI Direktori Produk Halal Direktorat Urusan Agama Islam dan Pembinaan Syariah, Indonesia Tieman, M Halal Transportation: The Building Blocks of a Halal Transportation System, in The Halal Journal. KasehDia Sdn Bhd: Kuala Lumpur. p