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Abstract - This research has several purposes. First, identify the metrics on each perspectives in the balanced supply chain management scorecard. Second, develop the scale of measurement of each metric. Third, utilize the analytical hierarchy process to measure the relative importance of each metric and perspective, and fourth, measure the current performance of each metric and give some feedback. As a pilot testing, the object of this research was represented by the relationship between the individual dairy farmers and two selected dairy cooperatives located in Semarang District and also by the relationship between two selected dairy cooperatives and the industrial milk processing which is where the cooperative sells its milk. There were 28 metrics used in this research and the result of measurement indicated that the performance of the relationship between farmers, dairy cooperatives, and industrial processing milk had total score 2.82. The total score was subject to improve since the highest total score could be achieved was 5. Then, among 22 metrics, 10 metrics should be improved since those metrics have high importance but low performance. Keywords - balanced supply chain management scorecard, dairy supply chain, cooperative, dairy farmers, industrial milk processing I. INTRODUCTION There were several definitions of supply chain management (SCM). According to reference [1], SCM is a concept, whose primary objective is to integrate and manage the sourcing, flow, and control of materials using a total systems perspective across multiple functions and multiple tiers of suppliers. According to reference [2], SCM refers to as a set of methods used to effectively coordinate suppliers, producers, depots, and stores, so that commodity is produced and distributed in the correct quantities, to the correct locations, and at the correct time, in order to reduce system costs while satisfying service level requirements. The fundamental notion of these definitions is that a Supply Chain must be controlled in order to be fast and trustworthy, cost-effective, and flexible enough to meet customers’ requirements. Then, according to reference [3], SCM refers to corporate business process integration from end users through suppliers that provide information, goods, and services that add value for customers. Given several definitions of SCM, Mentzer et al [4] classify the definition of SCM into three categories, namely a management philosophy, implementation of a management philosophy, and a set of management processes. As a philosophy, SCM takes a systems approach to viewing the supply chain as a single entity, rather than as a set of fragmented parts, each performing its own function [5], [6], [7]. SCM is a set of beliefs that each party in the supply chain, directly and indirectly, affects the performance of all the other supply chain members, as well as ultimate, overall supply chain performance [8]. Based on this condition, one important issue in the field of SCM is how to develop the integrated performance measurement systems that consider the effect of the action of all members simultaneously. The integrated performance measurement system should represent a balanced approach and should clarify the measurement boundaries, specify the performance measurement dimensions and metrics (financial and non- financial measures) and may also provide the relations industrial milk processing among the dimensions of supply chain management. Taking into account that factor, some researcher (such as Santos, et.al [9]; Bhagwat, and Sharma [10]; Bigliardi and Bottani, [11]) and including this research, propose a balance SCM scorecard with different metrics inside as tools for measuring supply chain performance. Moreover, different from many performance measurement methods and technique that have lacked strategy alignment, in balanced scorecard, a balanced approach and systematic thinking will systematically identify the most appropriate metrics [12] which is aligned with targeted strategy. In this research, the balanced SCM scorecard will be implemented to measure the performance of the dairy supply chain. Specifically, the performance measurement between farmers, the dairy cooperative, and industrial milk processing. The reason for choosing dairy supply chain as a context for measuring is that the performance of those supply chains has received a great deal of attention in the last decade, due to issues related to food self-sufficiency and the government of Indonesia has selected the dairy industry as an area for priority development. In February 2014, the Indonesian Coordinating Ministry of Economy launched the Road Map of Indonesian Dairy 2015 – 2025. The roadmap states that, in 2020, the target for milk production is set at 2.75 million tons of milk, the target of milk consumption per capita is set at 20 liters per capita per year, and the target of dairy cattle is set at 1.3 million head of dairy cattle which produce an average daily production of 13.11 liters of milk per day. For 2025, the target for milk production is set at 5.32 million tons of milk, the target of milk consumption per capita is set at 30 liters per capita per year, and the target of dairy cattle is set at 1.7 million head of dairy cattle which is producing an average daily Performance Measurement of the Relationship Between Farmers-Cooperatives- Industrial Processing Milk in a Dairy Supply Chain: A Balanced Supply Chain Management Scorecard Approach A. Susanty 1 , A. Bakhtiar 1 , R. Purwaningsih 1 , D. F. Dewanti 1 1 Department of Industrial Engineering, Diponegoro University, Semarang, Indonesia [email protected]; [email protected]; [email protected]; [email protected] 978-1-5386-0948-4/17/$31.00 ©2017 IEEE 1387

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Page 1: Performance Measurement of the Relationship Between ...eprints.undip.ac.id/64891/1/8A....Between...in_a_Dairy_Supply_Chain_… · production from dairy farmers is marketed through

Abstract - This research has several purposes. First, identify the metrics on each perspectives in the balanced supply chain management scorecard. Second, develop the scale of measurement of each metric. Third, utilize the analytical hierarchy process to measure the relative importance of each metric and perspective, and fourth, measure the current performance of each metric and give some feedback. As a pilot testing, the object of this research was represented by the relationship between the individual dairy farmers and two selected dairy cooperatives located in Semarang District and also by the relationship between two selected dairy cooperatives and the industrial milk processing which is where the cooperative sells its milk. There were 28 metrics used in this research and the result of measurement indicated that the performance of the relationship between farmers, dairy cooperatives, and industrial processing milk had total score 2.82. The total score was subject to improve since the highest total score could be achieved was 5. Then, among 22 metrics, 10 metrics should be improved since those metrics have high importance but low performance.

Keywords - balanced supply chain management

scorecard, dairy supply chain, cooperative, dairy farmers, industrial milk processing

I. INTRODUCTION There were several definitions of supply chain management (SCM). According to reference [1], SCM is a concept, whose primary objective is to integrate and manage the sourcing, flow, and control of materials using a total systems perspective across multiple functions and multiple tiers of suppliers. According to reference [2], SCM refers to as a set of methods used to effectively coordinate suppliers, producers, depots, and stores, so that commodity is produced and distributed in the correct quantities, to the correct locations, and at the correct time, in order to reduce system costs while satisfying service level requirements. The fundamental notion of these definitions is that a Supply Chain must be controlled in order to be fast and trustworthy, cost-effective, and flexible enough to meet customers’ requirements. Then, according to reference [3], SCM refers to corporate business process integration from end users through suppliers that provide information, goods, and services that add value for customers. Given several definitions of SCM, Mentzer et al [4] classify the definition of SCM into three categories, namely a management philosophy, implementation of a management philosophy, and a set of management processes. As a philosophy, SCM takes a systems approach to viewing the supply chain as a single

entity, rather than as a set of fragmented parts, each performing its own function [5], [6], [7]. SCM is a set of beliefs that each party in the supply chain, directly and indirectly, affects the performance of all the other supply chain members, as well as ultimate, overall supply chain performance [8]. Based on this condition, one important issue in the field of SCM is how to develop the integrated performance measurement systems that consider the effect of the action of all members simultaneously. The integrated performance measurement system should represent a balanced approach and should clarify the measurement boundaries, specify the performance measurement dimensions and metrics (financial and non-financial measures) and may also provide the relations industrial milk processing among the dimensions of supply chain management. Taking into account that factor, some researcher (such as Santos, et.al [9]; Bhagwat, and Sharma [10]; Bigliardi and Bottani, [11]) and including this research, propose a balance SCM scorecard with different metrics inside as tools for measuring supply chain performance. Moreover, different from many performance measurement methods and technique that have lacked strategy alignment, in balanced scorecard, a balanced approach and systematic thinking will systematically identify the most appropriate metrics [12] which is aligned with targeted strategy. In this research, the balanced SCM scorecard will be implemented to measure the performance of the dairy supply chain. Specifically, the performance measurement between farmers, the dairy cooperative, and industrial milk processing. The reason for choosing dairy supply chain as a context for measuring is that the performance of those supply chains has received a great deal of attention in the last decade, due to issues related to food self-sufficiency and the government of Indonesia has selected the dairy industry as an area for priority development. In February 2014, the Indonesian Coordinating Ministry of Economy launched the Road Map of Indonesian Dairy 2015 – 2025. The roadmap states that, in 2020, the target for milk production is set at 2.75 million tons of milk, the target of milk consumption per capita is set at 20 liters per capita per year, and the target of dairy cattle is set at 1.3 million head of dairy cattle which produce an average daily production of 13.11 liters of milk per day. For 2025, the target for milk production is set at 5.32 million tons of milk, the target of milk consumption per capita is set at 30 liters per capita per year, and the target of dairy cattle is set at 1.7 million head of dairy cattle which is producing an average daily

Performance Measurement of the Relationship Between Farmers-Cooperatives-Industrial Processing Milk in a Dairy Supply Chain: A Balanced Supply Chain

Management Scorecard Approach

A. Susanty1, A. Bakhtiar1, R. Purwaningsih1, D. F. Dewanti1

1Department of Industrial Engineering, Diponegoro University, Semarang, Indonesia [email protected]; [email protected]; [email protected]; [email protected]

978-1-5386-0948-4/17/$31.00 ©2017 IEEE 1387

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production of 19.67 liters of milk per day [13]. It has become apparent that in the near future the dairy supply chain in Indonesia has some target to achieve. In this case, the dairy supply chain in Indonesia needs to formulate the strategy to achieve the target and also systematically identifying the most appropriate metric which is aligned with targeted strategy. Then, the relationship between individual farmers, the dairy cooperative, and industrial processing milk has become the focus of the measurement because of the dominance of those three actors on the supply side of the dairy supply chain in Indonesia. Totally, a number of individual dairy farmers in Indonesia reach 192,160 farmers [13]. Then, mostly of milk production from dairy farmers is marketed through local dairy cooperatives, and then they sell it to the industrial milk processor [14] Shortly, to implement a balanced SCM scorecard in measuring the performance of the relationship between individual farmers, the dairy cooperative, and industrial processing milk in the dairy supply chain, this study has several objectives. First, this study aims to identify the metrics on each perspective which can influence the success of achieving the long-term relationship between individual farmers, the dairy cooperative, and industrial processing milk and also the road map of Indonesian Dairy 2015 – 2025. Second, this study aims to develop the scale of measurement of each metric from each perspective. Third, this study aims to utilize the analytical hierarchy process to measure the relative importance of each metric and perspective. The last, this study aims to measure the current performance of the dairy supply chain with the proposed balanced SCM scorecard and give some feedback to the dairy supply chain, especially the feedback for increasing the relationship between individual farmers, the dairy cooperative, and industrial processing milk.

II. METHODOLOGY A. Object of the Research The object of this research is a dairy milk supply chain in the Province of Central Java. The Province of Central Java is included in three provinces that produce the largest milk in Indonesia [15]. More specifically, as a pilot testing, the object of this research is represented by the relationship between the individual dairy farmers and two selected dairy cooperatives located in Semarang District and also by the relationship between two selected dairy cooperatives and the industrial milk processing which is where the cooperative sells its milk. In this case, two selected dairy cooperatives will be a focal point of data collection because they have an intentional relationship with individual dairy farmers since the dairy farmers are members of the cooperative, and dairy cooperatives also have intent relationship with industrial milk processing since they market their milk to the industrial milk processing.

B. Instrument and Measurement There were 28 metrics used in this research. They were used to measure customer perspective (10 metrics), financial (6 metrics), internal business process perspective (4 metrics), and learning and growth perspective (8 metrics). Metrics for measuring customer perspective from the relationship between dairy farmers, cooperatives, and industrial processing milk are developed from several previous research, such as Prakash and Pant [16], Hong and Zhong-Hua [17], Callado (2013) [18], Standard National Indonesia (SNI) 3141.1:2011 [19], Susanty et al [20], Thailand Agriculture Standard [21], Agus and Usmiati [22], Woolford et al [23], Roberts and Larson [24], and Vagany and Dunay [25], and also from the interview with the cooperatives and Industrial processing milk This study used a 5-point Likert Scale with the different meaning for measure the condition of each indicator with higher scores reflecting the better condition (1=the worst condition and 5= the best condition). As an example, the meaning of value 1 to 5 for the level of conformity of Total Plate Count (TPC) contained in the milk delivered by the farmers with the limit set by the Indonesian National Standard, can be described as follows. Value 1 means the level of TPC, is between 800,001 CFU/-1,000,000 CFU/ml; value 2 means the level of TPC, is between 600,001 CFU/-8,000,000 CFU/ml; value 3 means the level of TPC, is between 400,001 CFU/-600,000 CFU/ml; value 4 means the level of TPC is between 200,001 CFU/-400,000 CFU/ml; and value 5 means the level of TPC is between 1 CFU/-200,000 CFU/ml. In detail, list of metrics and their scale can be seen in Table 1.

TABLE I THE METRICS FOR MEASURING THE PERFORMANCE BETWEEN

FARMERS, COOPERATIVES, AND INDUSTRIAL PROCESSING MILK

Dimension Metrics

Customers Perspective (CP)

Customer satisfaction (CP1) [17]

Level of satisfaction of dairy farmers with price offered by the cooperative (CP11) [20] Level of satisfaction of cooperatives with the commitment of dairy farmers to produce milk with specific quality and quantity (CP12) [20]

Compliance to food quality and Codex standards (CP2) [19]

1. The level of conformity of Total Plate Count (TPC) contained in the milk delivered by the farmers with Indonesia National Standard or SNI (CP21) [19]

2. The level of conformity of Total Plate Count (TPC) contained in the milk delivered by the cooperatives with standard of industrial milk processing (CP22) (SNI 3141.1:2011 [19]

3. The level of conformity of fat contained in the milk delivered by the farmers with SNI (CP23) (SNI 3141.1:2011) [19]

4. The level of conformity of fat contained in the milk delivered by the farmers with standard of industrial milk processing (CP24) (SNI 3141.1:2011) [19]

5. The level of conformity of Solid Nonfat (SNF) contained in the milk delivered by the farmers with SNI (CP25) [19]

6. The level of conformity of Solid Nonfat (SNF) contained in the milk delivered by the farmers with standard of industrial milk processing (CP26) [19]

Ease of contact (CP3) [13]

Level of ease of the farmers to get in touch with the cooperatives (CP31) [20]

The loyalty of dairy farmers to cooperatives (CP4) [18] [20]

Duration of farmers become a member of cooperatives (From interviews with the cooperatives) (CP41)

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Dimension Metrics Financial Perspective (PF) Profitability (PF1) [17]. [18]

1. Percentage of profit sharing received by the farmers from selling their milk to cooperatives (From interviews with the cooperatives) (PF11)

2. Percentage of profit sharing received by the cooperatives from selling their milk to industrial milk processors (From interviews with the cooperatives) (PF12)

The net price of products (PF2) [16]

1. Prices and conditions offered by dairy cooperative do not change unexpectedly and it can be seen from frequency of price changes offered by the cooperatives to the farmers (From interviews with the cooperative; [20]) (PF21)

2. Prices and conditions offered by industrial milk processor do not change unexpectedly and it can be seen from frequency of price changes offered by the industrial processing milk to the cooperatives (From interviews with the cooperatives (PF22)

Term of payment (PF3) [16]

1. The prices per liter that the farmers get from cooperative according to the quality of their milk (PF31) (From interviews with the cooperatives; [20]))

2. The prices per liter that cooperatives get from of industrial milk processing according to the quality of their milk (PF32) (From interviews with the cooperatives; [20]))

Internal business process Perspective (BP)

Planned process cycle time (BP1) [16}

Duration of milk stored in cooling unit after the milking process (BP11) [21]

Quality check of incoming milk and raw materials (BP2) [16]

The number of types of quality checking of milk conducted by the cooperative before they sent it to the industrial milk processing (BP21) (From interviews with the cooperatives)

Implementation of HACCP and other quality control measures (BP3) [16]

1. The level of implementation of HACCP and other quality control measures by the farmers (BP31) (From interviews with the cooperatives)

2. The level of implementation of HACCP and other quality control measures by the cooperatives (BP32) (From interviews with the cooperatives)

Learning and Growth Perspective (LG) The level of information sharing (LG1) [16], [20]

1. Frequency of information sharing between the farmers and cooperatives (LG11) (From interviews with the cooperatives; [20])

2. Frequency of information sharing between the cooperatives and industrial processing milk (LG12) (From interviews with the cooperatives)

Buyer- supplier collaboration in problem solving (LG2) [16], [20]

1. Level of collaboration in problem-solving between the farmers and cooperatives (LG21) (From interviews with the cooperatives; [20])

2. Level of collaboration in problem-solving between the cooperatives and industrial processing milk (LG22) (From interviews with the cooperatives)

Investment in training (LG3) [16], [20]

1. Frequency of training for capacity building from cooperatives to farmers in a year (LG31) (From interviews with the cooperatives)

2. Frequency of training for capacity building from industrial milk processing to the cooperatives in a year (LG32) (From interviews with the cooperatives)

Investment in technology (LG4) [18]

1. Level of sophistication of tools used by the farmers for milking process (LG41) [22], [23]

2. Level of sophistication of tools used by cooperative for cooling the milk (LG42) [24], [25]

C. Data Collection Procedure

This study utilized two types of closed questionnaires for data collection. The aims of the first type of questionnaire were asking the respondent the level of importance of each perspective and each metric. The aims of the second type of questionnaire were asking the respondent the current condition of each metric. The first and the second type of questionnaire was filled by the representative management of the surveyed cooperative. Additional information needed for this research was collected through follow-up telephone interviews and archival records. In this case, we accompanied the respondents when they filled the questionnaire to make sure that they understood the questions.

III. RESULTS The result of AHP and the value given to each metric based on current condition can be seen in Table 2.

TABLE II

TRE RESULT OF MESUREMENT OF EACH METRIC AND TOTAL SCORE

Perspectives Metrics Weight Result (1-5) Score= Weight x score

Customers Perspective (CP)

CP11 0.050 2 0.10 CP12 0.050 2 0.10 CP21 0.008 3 0.02 CP22 0.008 3 0.02 CP23 0.008 3 0.02 CP24 0.008 3 0.02 CP25 0.008 5 0.04 CP26 0.008 5 0.04 CP31 0.023 5 0.12 CP41 0.070 3 0.21

Average 0.024 3.40 Sub total

0.70 Std. Deviation 0.023 1.17 Financial Perspective (PF)

PF11 0.040 3 0.12 PF12 0.040 1 0.04 PF21 0.040 5 0.20 PF22 0.040 1 0.04 PF31 0.040 3 0.12 PF32 0.040 3 0.12

Average 0.040 2.667 Sub total

0.641 Std. Deviation 0.000 1.506 Internal business process Perspective (BP)

BP11 0.061 2 0.12 BP21 0.218 2 0.44 BP31 0.026 5 0.13 BP32 0.026 3 0.08

Average 0.08 3.00 Sub total

0.77 Std. Deviation 0.09 1.41 Learning and Growth Perspective (LG)

LG11 0.031 5 0.16 LG12 0.031 5 0.16 LG21 0.018 4 0.07 LG22 0.018 3 0.06 LG31 0.018 2 0.04 LG32 0.008 2 0.02 LG41 0.031 2 0.06 LG42 0.031 5 0.16

Average 0.02 3.50 Sub total

0.71 Std. Deviation 0.01 1.41 TOTAL SCORE 2.82

The result of measurement in Table 2 indicated that the performance of the relationship between farmers, cooperatives, and industrial processing milk has total score 2.82. The total score was subject to improve since the highest total score could be achieved was 5. Moreover, among the four of perspectives, the learning and growth perspective indicate a good performance since this perspective had the highest average value compared to the other. Then, the data in Table were transferred to the importance-performance analysis (IPA) grid presentation (see Figs. 1).

X-axis represents the perception of performance scores relating to the condition of the relationship between the farmers, the cooperatives, and industrial milk processing. The Y-axis represents the relative weights of the 28 metrics relating to the relationship between the farmers, the cooperatives, and industrial milk processing. The four quadrants are constructed based on the mean of score of performance and the relative weight of each metric. In this case, (see Fig. 1), the mean of performance rating was 3.61 and the mean of relative weight was 0.06.

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The four quadrants in importance-performance analysis are characterized as (i) quadrant A or concentrate here quadrant - high importance, low performance: requires immediate attention for improvement and are major weaknesses; (ii) quadrant B or keep up with the good work quadrant - high importance, high performance: indicate opportunities for achieving or maintaining competitive advantage and are major strengths; (iii) quadrant C or low priority quadrant - low importance, low performance: are minor weaknesses and do not require additional effort; and (iv) quadrant D or possible overkill quadrant- low importance, high performance: indicate that business resources committed to these attributes would be overkill and should be deployed elsewhere.

Fig. 1. The result of mapping the metrics based on the level of

importance (the weight) and current performance in the Importance

IV. DISCUSSION

Figure 1 indicated that most of the metrics belong to quadrant A or concentrate here quadrant and quadrant C or low priority quadrant. The items in the “concentrate here” quadrant are the ones with low performance, although they are perceived to be important for the relationship between the farmers, dairy cooperatives, and industrial milk processor. Thus, the items should receive the most investment to boost the performance. Those are the area that can bring the maximum effect with minimum investment. There are ten metrics in concentrate here quadrant, i.e. the level of satisfaction of dairy farmers with price offered by the cooperative (CP11), the level of satisfaction of cooperatives with the commitment of dairy farmers to produce milk with specific quality and quantity (CP12), duration of farmers become a member of cooperatives (CP41), duration of milk stored in cooling unit after milking process (BP11), the level of implementation of HACCP and other quality control measures by the cooperatives (BP32), percentage of profit sharing received by the farmers from selling their milk to cooperatives (PF11), percentage of profit sharing received by the cooperatives from selling their milk to industrial milk processor (PF12), the frequency of price changes offered by the industrial processing milk to the cooperatives (PF22), the prices per liter that the framers get from cooperative according to the quality of their milk (PF31), and the prices per liter that cooperatives get

from of industrial milk processing according to the quality of their milk (PF32). Most of the metrics in perspective financial belong to concentrate here quadrant and none of the metric from learning and growth is belonging to this quadrant. According to research conducted by Susanty et al [20] and Boniface et al. [26] and also the concept of balanced scorecard itself, improving the performance of the metrics in the financial perspective which included in concentrate here quadrant could not be done separately from the other metrics of the other perspective. In this case, research conducted by Susanty et al [20] and Boniface et al. [26] indicated that the financial performance of the cooperative depends on the quality of the relationship between the farmers and cooperative. The good relationship between the farmers and cooperative can make the farmers more loyal to the cooperative, which in turn, could make the farmers act accordingly to provide benefits to the cooperative. Then, according to the concept of the balanced scorecard, the financial perspective was an objective achieved through performance improvement from the other three perspectives. So, based on this condition, although there were ten metrics in the concentrate here, the improvement could be start on three metrics in the customer perspective (improving the level of satisfaction of dairy farmers with price offered by the cooperative, improving the level of satisfaction of cooperatives with the commitment of dairy farmers to produce milk with specific quality and quantity, and improving the duration of farmers become a member of cooperatives) and two metrics in the internal business process perspective (decreasing the duration of milk stored in cooling unit after milking process, and improving the level of implementation of HACCP and other quality control measures by the cooperatives).

V. CONCLUSION

Through the balanced supply chain management scorecard, this research can identify 28 metrics which belong to customer perspective, financial perspective, internal business process perspective and learning and growth perspective. Then, the result of measurement of current performance of all the metrics indicated that the performance of the relationship between farmers, dairy cooperatives, and industrial processing milk had total score 2.82. The total score was subject to improve since the highest total score could be achieved was 5. Moreover, this study also used importance-performance analysis as the simple tool that can help to identify metrics should be improved to increase the overall performance of the relationship between the farmers, dairy cooperatives, and industrial milk processing. Through the importance-performance analysis, this research can identify ten metrics should be improved because those metrics have high importance but low performance. The result of this research cannot be generalized since the object of this study was very limited on two

A B

C D

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cooperatives as a focal point. This research only a pilot study for implementation the balanced supply chain management scorecard as the tool to help identify the current performance of specific relationship in the supply chain management.

ACKNOWLEDGMENT

This work has been funded by the University of Diponegoro through the grant for “Research for International Publication”, the budget year 2017.

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