THE INFLUENCE OF RELATIONSHIP MARKETING ON THE
SUPPLY CHAIN PERFORMANCE OF CERTIFIED ORGANIC RICE
Introduction:
Global warming is an environmental issue that has long been a topic of conversation
or discussion in almost all countries in the world. Global warming is an event of increasing
average air temperature due to increasing concentrations of greenhouse gases trapped in the
atmosphere. The increase in air temperature causes the environment to become drought,
changes in weather patterns in the world, extreme weather, melting ice at the north and south
poles that make environmental imbalances occur. The impact of global warming has been
felt in recent years and is detrimental to human life. Global warming occurs due to several
human activities. There are many human activities that can cause this, including the use of
fossil fuels; irresponsible logging, burning or deforestation; livestock activities; and also
agricultural activities.
Agricultural activities can affect environmental balance and sustainability.
Conventional farming methods are not environmentally friendly. These methods use raw
materials from chemicals that can cause global warming. Chemical raw materials, especially
inorganic fertilizers, will eventually release gases that are not utilized by plants or also
called greenhouse gases into the atmosphere, resulting in global warming. Global warming
can affect agricultural yields again so it can be said that the environment and agricultural
activities a r e reciprocally related. Extreme weather will affect agricultural activities,
namely the weather becomes erratic or difficult to predict so that the planting season for
agricultural commodities is difficult to determine, and can even change. Drought can cause
agricultural crops to lack water. In addition, the use of inorganic fertilizers in conventional
methods can also damage the soil structure and reduce the nutrient content in the soil. The
soil becomes infertile. These things make agricultural productivity low. Ultimately, an
environmental imbalance will be created that can harm the environment in the long run.
The phenomenon of global warming, which has a negative impact on the environment
in the long term, has encouraged the development of more environmentally friendly
cultivation methods, namely organic methods. Organic cultivation methods are methods of
cultivating agricultural commodities using raw materials from organic materials and
environmentally friendly methods. This method has been developed in countries around the
world, including Indonesia. The Indonesian government promoted the Go Organic program
in 2010. The program supports farmers or producers of agricultural products to cultivate
agricultural commodities organically and cultivate their products. The support is provided
through trainings as well as facilities and infrastructure for organic agricultural cultivation.
Through the program, it is hoped that producers of agricultural products will prefer to
cultivate agricultural commodities using organic methods rather than conventional methods
so that the soil becomes fertile and the environment becomes healthy again.
Because of the government's support, there are already quite a number of producers or
agribusiness actors who cultivate organic agricultural products in Indonesia. In Figure 1, we
can see the development of organic agricultural land in Indonesia from 2009-2012. From
Figure 1, it can be seen that there was an increase in the area of organic agricultural land in
Indonesia due to the Go Organic 2010 program from 2009 to 2010. A year later there was a
decrease in land area and increased again from 2011 to 2012 with a percentage increase of
19.2 percent. Seeing the development of the organic farming area indicates that organic
farming in Indonesia has developed. In 2012, the number of Indonesian producers who
cultivated agricultural commodities using organic methods was 6,627 producers and
processors of organic agricultural products were 22 processors (FiBL and IFOAM 2014).
One of the agricultural commodities developed using organic methods in Indonesia is rice.
Rice is one of the agricultural commodities that releases a lot of greenhouse gases into
the atmosphere. Rice plants require urea fertilizer which is more dominant than other types
of fertilizers because rice uses a lot of nitrogen gas to support its growth. 4Nitrogen that is
not utilized by rice plants will be released as CH gas emissions into the atmosphere. In
general, rice farmers in Indonesia are very excessive in the use of urea fertilizer. This is done
to increase the productivity of the rice they grow without seeing the negative impact on the
environment in the long run. The more or excessive urea fertilizer farmers use, the more
CH4 gas emissions are released by rice from Indonesian rice fields. This of course worsens
the environmental balance nature. Therefore, rice cultivation is strongly supported by the
Government of Indonesia to be developed using organic methods, as well as by governments
in other countries. According to FiBL and IFOAM (2014), the world's organic rice harvest
area is three percent of all organically cultivated cereals. Organic rice cultivation will
produce organic rice.
Organic rice has many advantages over conventional rice. In addition to its
environmentally friendly cultivation methods, organic rice is healthier because it does not
contain chemicals due to the use of chemical raw materials in conventional rice cultivation
that can be deposited in the human body if consumed in the long term. There is a change in
the perspective of some consumers in choosing and consuming agricultural products to
fulfill their food needs. Some consumers also pay attention to environmental and personal
health aspects. The advantages of organic rice products make some consumers prefer
organic rice products over conventional rice considering the effects of conventional rice are
harmful to the environment and long-term health.
In addition, at present, there are many restaurant businesses or restaurants that offer
organic rice. Not only from domestic consumers, organic rice is also in demand by
consumers in the world. The main markets for organic rice exported by Asian countries are
European countries. Indonesia is a major exporter of organic products, including organic rice
in Asia besides India, Thailand, Sri Lanka (FiBL and IFOAM 2014). This has the potential
for Indonesia to develop the organic rice market abroad. These things indicate that the
demand for organic rice is quite potential and prospective in the long term to be developed.
The potential and prospective demand for organic rice products must be matched by
the ability of producers or agribusiness actors to meet this demand. In addition to the
potential and prospective demand, the selling price of organic agricultural products is higher
than the price of conventional products, making it quite profitable. However, in the
development of organic rice business, there are obstacles that can hinder it.
Organically cultivated rice fields in Indonesia are generally located in the middle of
conventional farmlands because agricultural land in Indonesia is still dominated by land
cultivated with conventional methods. This will make it difficult for producers to maintain
organic principles because organic products should not be contaminated by chemicals, either
through water or air from conventional farmland. Therefore, the process of obtaining organic
certificates from certification companies is quite difficult. Meanwhile, some farmers who
have been tested to cultivate rice organically and obtain organic certificates are generally
located in locations that are very far from the highway. The remote location of organic rice
fields makes transportation access to markets and buying raw materials difficult and
transportation costs are expensive.
Another obstacle is the limited supply of organic raw materials. Organic fertilizers and
pesticides are also more difficult to find in the market compared to chemical raw materials.
In addition, organic rice cultivation requires very intensive maintenance because organic
cultivation is not assisted by chemical compounds that support high plant production and
high yields Fast. Organically cultivated rice is more vulnerable to pests and diseases because
it does not use chemical pesticides so it needs intensive maintenance. The susceptibility of
rice to pests and diseases as well as extreme weather and the destruction of soil structure in
Indonesia due to excessive use of chemicals make the productivity of organic rice relatively
low compared to conventional rice. This makes it difficult for farmers or organic rice
producers to meet consumer demand and expand their market. It is unfortunate if the supply
of organic rice cannot meet the potential demand.
Marketing constraints are also faced by organic rice producers, especially organic rice
farmers. Many farmers or producers do not have a clear and continuous market even though
the demand for organic rice from end consumers is quite potential. This is because farmers
or producers cannot sell their products directly to end consumers. The end consumers who
are the target market for organic rice are consumers with middle to upper income so that
product attributes such as brands or others become important in influencing purchasing
decisions even though organic rice is a food product. Therefore, in the organic rice business,
product attributes need to be considered in accordance with the wishes of end consumers.
That way, end consumers will believe in the product.
To deliver or distribute organic rice from producers to end consumers and ensure the
conformity of product attributes, the role of intermediary companies or distributors is
needed. In general, distributor companies as intermediaries set difficult requirements or
criteria for organic rice producers to be able to supply the company. An organic certificate is
one of the requirements generally set by distributor companies. The procedure for obtaining
an organic certificate is quite difficult because the inspection of each stage of organic rice
production is very detailed and must meet the standards set by the organic certification
company. The cost of obtaining an organic certificate is also very expensive. This cost is
borne by organic rice producers, some of whom are farmers. This will certainly make it
difficult for producers. If their organic rice products are not certified, producers will find it
difficult to get a continuous market.
Constraints in cultivating organic rice including marketing constraints can be
overcome, communicated, and faced together in the supply chain. At present, competition is
not faced by one individual or company alone, but must be faced together by all members of
the supply chain as the business environment develops. Organic rice is an exclusive product,
so the supply chain that delivers it must also be precise and exclusive. The exclusivity of the
supply chain can be seen from the role of all supply chain members who must maintain the
organic principles of organic rice so that the end consumer is satisfied.
In the organic rice supply chain, there are partnership relationships that exist between
supply chain members. Supply chain members are partners to other members. Relationship
marketing is one of the important strategies to be applied in maintaining partnership
relationships with suppliers and customers as partners. This strategy is a strategy to maintain
good partnership relationships in the long term. A partner has an important role. Working
together With partners, the quality and continuity of organic rice is always maintained and
tailored to the end consumers' desires. Partners are important in supporting the smooth
running and success of a business. Finding the right and suitable partner is quite difficult.
In relationship marketing, there are commitment and trust that must be developed and
enhanced in the supply chain partnership. Commitment is needed to ensure a smooth flow
along the supply chain, while trust is needed to ensure that the organic principles of organic
rice products are maintained. To develop these two things, there are several factors that
influence it. Factors affecting commitment are costs of switching partners, shared benefits,
and shared value, while factors affecting trust are shared value, communication, and
opportunistic attitudes.
In the organic rice business in Indonesia, in general, high trust is difficult for business
actors so that some business actors such as retailers or stores require organic certification of
products from official organic certification bodies to supply to them. This is due to problems
due to opportunistic attitudes or attitudes that only benefit themselves owned by business
actors. Not a few organic rice business actors behave opportunistically. Opportunistic
attitudes or behaviors that often occur are selling organic rice that is a mixture of organic
rice and conventional rice to consumers; late or not paying for purchased organic rice
products; cheating or deceiving partners and other cases. Opportunistic attitudes or behavior
by organic rice business actors must be overcome because it will harm other parties in the
supply chain. Therefore, partnership relationships need to be maintained by fostering
commitment and trust.
Maintaining a good partnership relationship can be done by maintaining the trust and
commitment of the partners. If partners believe and are highly committed in maintaining the
partnership relationship, the cooperation will be more cooperative, will avoid cases of moral
hazard that can be carried out by partners and other positive benefits. With a good or close
partnership relationship between supply chain members, the supply chain can also become
more integrated because supply chain members will be encouraged to integrate their
business activities with other members in the supply chain. Integrating business activities
can make the three supply chain flows smoothly so that the ultimate goal of the supply chain
is achieved, namely satisfying the end consumer.
Problem Formulation
The Go Organic 2010 program is a government program that supports and facilitates
the development of organic cultivation of agricultural commodities including rice in
Indonesia. Initially, the program was planned to start in 2001 until 2010. However, in
reality, the program started in 2010. The program is implemented by the government in
various regions in Indonesia that have the potential to develop organic agriculture. In West
Java, the areas where the Go Organic 2010 program was implemented specifically for
organic rice were Karawang, Subang, Bandung, and other areas. Bandung Regency is an
area where The program has the third largest proportion of paddy field area among other
regions in West Java. The program ended in 2012.
The end of the Go Organic 2010 program made many farmers or rice farmer groups in
Bandung return to cultivating it with conventional methods. This was done because the costs
required to cultivate rice organically are quite high. The cost of organic rice cultivation is
high because the labor required is more or more intensive for maintenance than labor in
conventional rice cultivation so that labor costs are high, while the yield of organic rice
production is still very low. Low organic rice production results in decreased farm profits. In
general, farm profits will be used as capital for the next farm. If profits decrease, then capital
also decreases so that further farming will be difficult. This causes farmers who try to
cultivate organic rice to be dissatisfied.
Organic rice cultivation methods are different from conventional rice cultivation
methods. Farmers are accustomed to conventional methods which are perceived to be easier
because they do not require intensive maintenance and the chemical raw materials needed
are widely available in the market. This is different from the organic method. These habits
and conveniences make it difficult for farmers to adapt to organic methods. In addition, the
market for organic rice is still difficult even though many consumers are concerned about
the environment and health. Organic rice farmers in Bandung Regency generally still find it
difficult to find a market so that in the end their products in the form of grain are sold to
middlemen at the same price or slightly higher than the price of grain using conventional
methods. This is very detrimental to organic rice farmers considering the high costs incurred
and low production yields that make many rice farmers abandon organic methods and prefer
conventional methods.
Bandung Regency is an area that successfully implemented the Go Organic 2010
program. The target of the program is the continued application of organic cultivation
methods by farmers after the end of the program. Although many rice farmers no longer
apply organic methods, there are still rice farmers in Bandung Regency who continue to
apply these methods and have even successfully obtained organic certificates from organic
certification companies.
PT Sarinah Agro Mandiri is a distributor of organic rice products. Initially, the
company only supplied organic rice from one of the certified organic rice farmer groups in
Bandung Regency, the Sarinah Organic Farmer Group. S a r i n a h Organic Farmer Group is
a farmer group assisted by PT Sarinah Agro Mandiri and the first farmer group in Bandung
Regency to obtain organic certification. PT Sarinah Agro Mandiri assists the farmer group in
marketing and selling organic rice products. PT Sarinah Agro Mandiri partners with several
other distributor companies and retailers to channel the products to the end consumers,
forming a supply chain of certified organic rice in Bandung Regency.
Over time, the demand for organic rice from end consumers to the Bandung Regency
certified organic rice supply chain has increased. This makes it difficult for supply chain
members to fulfill it because organic rice production is still low and cannot meet demand.
To overcome this, when the supply of organic rice from the Sarinah Organic Farmer Group
cannot meet PT Sarinah Agro Mandiri's demand, PT Sarinah Agro Mandiri always supplies
organic rice from the Nurani Sejahtera Farmer Group. The farmer group is the only farmer
group in Bandung Regency besides the Sarinah Organic Farmer Group that cultivates
organic rice and is certified. Therefore, PT Sarinah Agro Mandiri partnered with the Nurani
Sejahtera Farmers Group. The Nurani Sejahtera Farmers Group also wants to partner
because it has not yet found a clear and continuous market even though PT. Sarinah Agro
Mandiri does not always supply every time. However, the Nurani Sejahtera Farmers Group
does not always fulfill requests from the company because the price of organic grain offered
is often the same as the price offered by middlemen so that farmer groups prefer to sell their
grain to middlemen because the location is closer and other reasons.
Selling organic unhulled rice to middlemen is an alternative sales option or marketing
channel other than to PT Sarinah Agro Mandiri for the Nurani Sejahtera Farmer Group. In
the end, middlemen will mix organic rice with conventional rice which is then sold to end
consumers. This is very detrimental to end consumers. Organic rice is an exclusive product
that needs to be kept exclusive so that it is not separated from the organic principle so that an
appropriate and exclusive supply chain is needed. With such a supply chain, organic
principles will be maintained throughout the supply chain because the ultimate goal of the
supply chain is to achieve e n d consumer satisfaction. If the Nurani Sejahtera Farmer Group
sells its grain to middlemen, then its products are not in the right supply chain or marketing
channel. This is unfortunate considering that the farmer group's products have received
organic certificates.
Farmer groups that do not always supply organic grain to PT Sarinah Agro Mandiri
make it difficult for the company to meet the increasing demand. Therefore, building high
trust and commitment in the partnership relationship in the certified organic rice supply
chain in Bandung Regency is important so that farmer groups trust and are highly committed
to PT Sarinah Agro Mandiri as their partner.
End-consumer demands that cannot be met by the certified organic rice supply chain
in Bandung Regency should be addressed together in the supply chain. These problems
should be communicated openly and coordinated among supply chain members, including
the issue of the price of organic grain that is the same as the price offered by middlemen to
the Nurani Sejahtera Farmer Group. Communicating, coordinating, and integrating business
activities between supply chain members is necessary because the supply chain is a system
where business activities carried out by one member will affect other members. However, in
the certified organic rice supply chain in Bandung Regency, these problems have not been
overcome. This has led to The question is whether or not each supply chain member
coordinates and integrates its business activities with other members.
Problems that occur in the certified organic rice supply chain can ultimately have an
impact on end-consumer satisfaction. Unfulfilled end-consumer demands can lead to end-
consumer dissatisfaction and make it difficult for the supply chain to compete. In order to
compete with other producers, members of the organic rice supply chain must compete
together in the supply chain. Improving the certified organic rice supply chain in Bandung
Regency is important so that the supply chain can achieve its ultimate goal. Therefore, it is
necessary to analyze the partnership relationship, the degree of supply chain integration,
supply chain performance and the influence between the three in order to produce solutions
and managerial implications for the certified organic rice supply chain in Bandung Regency.
The research questions based on the existing problems are as follows:
1. What are the factors that influence commitment and trust in certified organic rice
supply chain partnerships in Bandung Regency using a relationship marketing
approach?
2. What is the degree of integration of the certified organic rice supply chain in
Bandung Regency?
3. How is the supply chain performance of certified organic rice in Bandung Regency?
4. How does the implementation of relationship marketing relate to supply chain
performance through the integration of certified organic rice supply chains in
Bandung Regency?
Degree of Supply Chain Integration in Industry:
Every industry has different characteristics, as do the companies within it. These
companies combine to form different supply chains. Behavior The integration process of
business activities carried out by companies in their supply chains in each industry can also
be different. The integration carried out by each company as a member of the supply chain
depends on the type of industry and business processes carried out by the supply chain.
However, in general, two-way integration to suppliers (backward) and customers (forward)
is the best business activity integration for c o m p a n ie s to implement.
Frohlich and Westbrook (2001) measured the degree of supply chain integration in the
iron and machinery industry by manufacturers. The concept of degree of integration used is
arcs of integration. Arcs of integration show five types of integration that can reflect the
degree of integration. The degree of integration reflects the extent to which business
activities and the three supply chain flows are integrated among all supply chain members.
This is useful in evaluating the strategies or steps that the supply chain must take as a unit in
achieving the ultimate goal of the supply chain, which is to meet the needs and satisfaction
of end consumers so that supply chain profits are maximized.
From all samples measured by Frohlich and Westbrook (2001), the highest percentage
of the degree of integration applied by manufacturers in the industry is the periphery facing
type, namely integration with suppliers and consumers is moderate or not too strong. Then,
followed by inward facing, customer facing, supplier facing, and the least applied by
manufacturers is the outward facing type of integration.
Schoenherr and Swink (2011) measured the degree of supply chain integration of
various industries. The industries measured were process, discrete processing, retail,
logistics, wholesalers and distributors, high-tech products, chemicals, and aviation. Almost
more than fifty percent of t h e i n d u s t r i e s measured are processing industries. The
concept of degree of integration used is the arcs of integration conceptualized by Frohlich
and Westbrook (2001). However, the number of samples used is more than the research by
Frohlich and Westbrook (2001). The result of the study is that the degree of integration that
most companies apply in the industry is periphery facing, then the next position is the type
of outward facing, customer facing, inward facing, and supplier facing. The good thing in
the results of his research is that many companies in these industries have implemented the
outward facing type where this type is very difficult to i m p le me n t and the best type of
degree of integration. The same thing is also found in the research of Zailani and Rajagopal
(2005), which is that many companies have implemented the outward facing type of
integration in several industries in the United States and East Asia.
The results of research by Frohlich and Westbrook (2001) and Schoenherr and Swink
(2011) show that supply chains consisting of companies as supply chain members in various
industries generally apply the periphery facing type of integration. Periphery facing is a
common or mainstream type of integration degree. In this type, the activities or business
processes carried out by each supply chain member are not too extensively integrated with
the activities or business processes of all supply chain members. This type of integration is
better when compared to the Inward facing which only integrates business processes
internally within the company. However, if it does not integrate business processes fully or
completely, then the supply chain goals will be difficult to achieve fully.
In the supply chain, there are several activities that can be integrated across all
members of the supply chain. Integrating business activities is important to streamline the
flow along the supply chain so that it runs smoothly and meets the needs of end consumers.
Some activities that can be integrated together in the supply chain can be referred to as
integrated activities. Some researchers measure the degree of supply chain integration
through different integrated activity measurements. These activities can be seen in Table 1.
All integrated activities used by researchers reflect business activities in product and
information flows, none of which reflect financial flows.
Supply Chain Performance Indicators:
Supply chain performance is an important measure in knowing and evaluating the
work of the entire supply chain. Supply chain performance reflects whether or not the
overall supply chain objectives have been achieved. The ultimate goal of a supply chain is to
meet the needs and satisfaction of end consumers. Supply chain performance is not only
determined by one or a few members of the supply chain, but by all members of the supply
chain. This is because the supply chain is like a system. If one member of the supply chain
does not perform well, it will disrupt the flow of products, finances and information flowing
to the next member or even along the supply chain.
Many researchers measure supply chain performance by combining various existing
methods and analytical tools. Using any method and analytical tool in measuring supply
chain performance generally begins with determining the dimensions or indicators of supply
chain performance to be measured. There are many dimensions or indicators that can reflect
supply chain performance. These dimensions or performance indicators measure the success
of business activities that occur along the supply chain. The smoothness of the three supply
chain flows reflects supply chain performance.
Each researcher measuring supply chain performance may use different dimensions or
performance indicators depending on the researcher's perspective and objectives. Voss
(1988) divided supply chain performance indicators into three categories, namely
marketplace, productivity, and non productivity. Frohlich and Westbrook (2001) also used
these three categories. Marketplace includes the ability of the supply chain to compete with
its competitors. Productivity includes business activities related to productivity along the
supply chain. Non productivity includes quality improvement and lead time reduction. Each
of the three categories consists of several other more detailed performance indicators. All of
these performance indicators describe the performance measures of business activities in the
manufacturing industry that can be integrated to suppliers and customers. Thus, the
performance indicators indicate the success of integrated activities.
According to Hausman (2002), the dimensions of supply chain performance
measurement are service, assets, and speed. Chan and Qi (2003) and Theeranuphattana and
Tang (2008) measured overall supply chain performance with five core processes, namely
sourcing, inbound logistics, processing, outbound logistics, and sales and marketing. These
five processes will serve as the basis for measuring performance. The five core processes are
almost the same as the concept of the main activities in analyzing the value chain according
to Porter's Framework except for supply. Supply is not the main activity that can be
analyzed in the value chain framework, but service. While Bhagwat and Sharma (2007),
Thakkar et al. (2009) and Bigliardi and Bottani (2010) divide indicators into financial and
non-financial indicators. Schoenherr and Swink (2011) and Moshkdanian and Molahosseini
(2013) categorize supply chain performance indicators into four competitive dimensions,
namely the dimensions of quality, delivery, flexibility, and cost.
Relationship between Relationship Marketing and Supply Chain Integration
Relationship marketing is a strategy that companies implement by conducting
partnerships (partnerships) to win the competition in the increasingly tight business world.
Relationship marketing is important to implement in the supply chain because doing a
business will never be separated from suppliers and customers. A business needs a supplier
to supply quality and continuous raw materials so that it can produce quality products. A
business person also needs customers because the purpose of doing business is to make a
profit by selling products to customers and increasing their satisfaction. Therefore, the
relationship between business people and suppliers and customers is important to maintain
by implementing relationship marketing or an effort to maintain long-term partnership
relationships.
Relationship marketing is generally carried out by a business to its suppliers and
customers as partners in the supply chain. While the supply chain consists of many members
that flow the three supply chain flows. In a supply chain that is not simple or long enough,
there are several partnerships between supply chain members, not just one partnership. In
order for the three flows, namely product, financial, and information flows to run smoothly,
the activities carried out in each member of the supply chain must be coordinated and
integrated so that the ultimate goal of the supply chain is achieved, namely meeting the
needs and satisfaction of end consumers. Coordinating and integrating the business activities
of all supply chain members will be easier to do when supply chain members implement
relationship marketing with their partners in the supply chain. A well-run partnership
relationship through relationship marketing will make its partners a working partner without
any limitations on information or other things provided. Therefore, the application of
relationship marketing can affect the integration of business activities in the supply chain.
Benton and Maloni (2004) and Zhao et al. (2007) stated that there is an effect of
relationship marketing implementation on supply chain integration. However, Benton and
Maloni (2004) stated this based on the results of descriptive analysis conducted by him, not
testing it with a particular method. They also stated that a powerful supply chain can be
integrated into the supply chain positively affects the partnership relationship. Benton and
Maloni (2004) prove it through indicators of commitment, trust, cooperation, conflict, and
conflict resolution that show partnership relationships that apply relationship marketing.
Then the partnership relationship that occurs between business actors who apply
relationship marketing will encourage business actors to integrate their business activities
with their partners. That way, supply chain members synthesize processes and strategies,
allowing all supply chain members to work together to reduce costs, improve product
quality, and speed up the cycle in the supply chain.
Zhao et al. (2007) also examined the relationship between relationship marketing
implementation and supply chain integration based on supply chain power. However, only
the commitment variable was tested as a variable that indicates the application of
relationship marketing. His research shows that power strongly influences relationship
commitment in the context of the supply chain. With increased power, relationship
commitment will increase. In addition, power and relationship commitment are very
important in supply chain integration. In the research of Zhao et al. (2005), the supply chain
integration that was tested for its relationship with relationship marketing was only
customer integration. The final conclusion of his research is that the existence of power and
relationship commitment will encourage businesses to integrate their business activities with
consumers.
The Relationship Between Supply Chain Integration and Supply Chain Performance
In a supply chain, there are three flows: product, financial or money, and information.
To facilitate these three flows, cooperation, coordination, and collaboration are needed to
integrate all business activities in the supply chain. Integration between all members of the
supply chain is necessary to achieve the goal of the supply chain, which is to meet the
demand and satisfaction of end consumers. Therefore, integration between supply chain
members is an important thing in the supply chain to always be improved.
If all business activities are integrated among supply chain members, the three flows
will run smoothly. The smoothness of the three flows will reflect supply chain performance.
Therefore, there is a positive relationship between supply chain integration and supply chain
performance. This was proven by Bowersox et al. (1999), Frohlich and Westbrook (2001),
Lockamy III and McCormack (2004), Benton and Maloni (2004), Zailani and Rajagopal
(2005), Schoenherr and Swink (2011), Leuschner et al. (2013) and Çerri (2014).
Bowersox et al. (1999) constructed supply chain integration into six components,
namely customer integration, internal integration, supplier integration, technology and
planning integration, measurement system integration, and relationship integration. These
six components are proven to indicate business activities that can be integrated to all
members of the supply chain. This was also confirmed by Çerri (2014) with a different
approach, namely the SEM (Structural Equation Modeling) method.
Meanwhile, Frohlich and Westbrook (2001) who came up with the concept of arcs of
integration proved that the outward facing type of integration, namely integration to
suppliers and consumers extensively can improve supply chain performance in the iron and
machinery industry. The wider the arcs of integration, the better the supply chain
performance because the arcs of integration and supply chain performance have a positive
relationship (Frohlich and Westbrook 2001; Zailani and Rajagopal 2005). The inward facing
type will experience difficulties in streamlining the supply chain flow. Meanwhile, supplier
or customer facing types will show low performance.
In contrast to Lockamy III and McCormack (2004), their research proves that
customer integration, internal integration, technology and planning performance are
dominant competencies that can improve overall supply chain performance. Supplier
integration is not mentioned to improve supply chain performance, in contrast to the
research results of Bowersox et al. (1999), Frohlich and Westbrook (2001) and Çerri (2014).
Basically, supplier integration is very important in ensuring the smooth flow of the supply
chain because suppliers are the earliest members of the supply chain. Therefore, supplier
integration can influence and even improve the overall supply chain performance.
Benton and Maloni (2004) tried to examine the relationship between supply chain
integration and supply chain performance in terms of the partnership relationship between
supply chain members. After proving that there is a positive relationship between
partnerships that conduct relationship marketing and supply chain integration, Benton and
Maloni (2004) also proved that by integrating all business activities of supply chain
members, it can improve supply chain performance. In addition, relationship marketing can
also be directly linked to supply chain performance. Thus, the application of relationship
marketing can directly improve supply chain performance while also influencing it through
supply chain integration. Research by Moshkdanian and Molahosseini (2013) shows that
there is a positive relationship between logistic integration and supply chain performance.
Logistic integration is more about the flow of products that are integrated together.
Theoretical Framework
Supply Chain/;
A supply chain is a collection of parties involved in activities to fulfill customer
orders. These companies usually consist of a series of suppliers, manufacturers, distributors,
stores or retailers and supporting companies such as logistics service companies (Mentzer et
al. 2001; Chopra and Meindl 2004). Mentzer et al (2001) have mentioned end consumers in
the definition of supply chain which includes as one of the members of the supply chain. All
members of the supply chain join together to form a chain which can also be referred to as
the supply chain structure. The supply chain structure can be seen in Figure 2. The supply
chain structure consists of suppliers (suppliers) to end consumers.
In the supply chain, there are all functions or activities in fulfilling end-consumer
orders. The functions or activities in question are business processes that occur in the supply
chain. According to Gunasekaran et al. (2004), the activities or business processes that occur
in the supply chain include plan, source, make/assemble, and deliver/customer. The business
process involves three flows along the supply chain: product flow, financial flow, and
information flow. These three flows move from each member of the supply chain to the next
member to the final consumer. The products that flow in the chain are not only finished
products, but can also be raw products or semi-finished products. According to Chopra and
Meindl (2004) and Pujawan (2005), the product and financial flows move from the supplier
to the end consumer in one direction, while the information flow is not only one-way, but
two-way, moving from the end consumer to the supplier and vice versa.
Supply chains are managed by companies within a value chain for two important
reasons. Firstly, firms try to get closer to consumers and ensure a link with the market.
Second, all companies coordinated in a supply chain formulate common goals (Anatan and
Ellitan 2008).
The purpose of a supply chain is basically to deliver products to end consumers to
meet the needs and satisfaction of end consumers. According to Chopra and Meindl (2004),
there is value in the supply chain that must be maximized by all members of the supply
chain. This is the goal of the supply chain. The value in question is the difference between
the value of the final product in the hands of the end consumer and the costs incurred by the
supply chain in meeting the needs of the end consumer. This value can also be said to be the
supply chain profitability obtained by all members. So, value or profit maximization is the
main goal of the supply chain that must be achieved together. Working together in the
supply chain will increase the value or profit of the supply chain.
There are three types of supply chains based on the degree of supply chain complexity,
namely direct supply chain, extended supply chain, and ultimate supply chain. The three
types of supply chains can be seen in Figure 3. The definitions of the three types of supply
chains are as follows (Mentzer et al. 2001).
1. Direct supply chain is a supply chain consisting of companies, suppliers, and consumers
involved in the flow of products or services, finance, and information from upstream to
downstream.
2. Extended supply chain is a supply chain that includes suppliers of key suppliers as well as
consumers who are involved in the flow of products or services, finances, and information
from upstream to downstream.
3. Ultimate supply chain is a supply chain that includes all organizations involved in all three
supply chain flows from upstream to downstream. This type of supply chain is the most
complex supply chain.
The main goal of a company as an individual who endeavors a business is to achieve
maximum profit. Therefore, a company always tries to streamline its production costs. Cost
efficiency is achieved to keep the price of its products competitive and increase profits.
Working together with both pre-company and post-company parties of a company in the
supply chain is necessary to achieve cost efficiency and maximum profit. The production
process does not require a small amount of time or stages in creating value-added products,
while from the end consumer side, there are just in time and quality demands that must be
met by business actors. Work together with all supply chain members involved in the flow
of products, financial, and information will make the three flows smooth so that the goal of
meeting the needs and satisfaction of the end consumer is achieved.
In general, the competition faced by individual companies is competition among their
peers or can be known as single alone competition. Companies are more likely to increase
their own competitive strength or individually. However, at this time, the business
environment has changed, namely the demands of consumers who are increasingly critical
and increasingly sophisticated technology. Therefore, the perspective on competition that
occurs in the business environment has changed to network competition, namely competition
between networks of companies (Indrajit and Djokopranoto 2006; Anatan and Ellitan 2008).
Network competition is faced by a collection of companies in a supply chain.
In addition to the changing concept of competition, the shape of the supply chain has
also changed. Previously, the supply chain was linear. Companies only partnered with one
supplier and one distributor. Now, the certainty of supply of raw materials and markets can
no longer be guaranteed through partnering with only one company because of the demands
of consumers who want higher quality, cheaper, and faster products. According to Chopra
and Meindl (2004), a supply chain does not only consist of one company at each stage of the
supply chain structure. Manufacturers can receive their raw material supplies from several
suppliers, not just from one. The same is true for distributors, retailers, and other members.
Therefore, the supply chain structure is not only straight (linear supply chain), but also in
the form of a network (supply network or supply web).
According to Indrajit and Djokopranoto (2006), to minimize the risk of supply and
market uncertainty, the shape of the supply chain changes to a network (network supply
chain) where a company partners with more than one supplier and more than one distributor
so that business processes that occur are more flexible and less rigid. A networked supply
chain will be able to expand the market because the marketing reach or product flow flows
to consumers in various places. Whereas a straight supply chain can only flow products to
one local retailer, making it less profitable for the companies involved. However, the
challenge for networked supply chains is to coordinate and integrate all the flows along the
supply chain in each member of the supply chain.
Supply Chain Management Concept:
Oliver and Weber first introduced the concept of supply chain management in 1982.
Supply chain management according to Chopra and Meindl (2004) is the management of
flows between levels in a supply chain to maximize total profit. Supply chain management is
also an integrated philosophy to manage the entire distribution flow from suppliers to
consumers (Cooper et al. 1997). According to Lambert et al. (2001), supply chain
management is the process of integrating key business activities along the supply chain.
Definition according to Cooper et al. (1997) and Lambert et al. (2001) have included the
word integration in it which shows that integration is important in the supply chain. This
concept has been widely applied by companies, especially by global companies that
distribute their products across countries.
In supply chain management, there are four drivers: inventory, transportation,
facilities, and information. Of these four drivers, the information driver is the main driver.
Information greatly influences and streamlines the other three drivers. The implementation
of management in the supply chain as a whole has a purpose. The main goal of
implementing supply chain management is the same as the goal of a supply chain, which is
to maximize the overall value obtained by the supply chain (Chopra and Meindl 2004).
Not all supply chain members apply management in the supply chain. Supply chains
that do not implement it indicate that the members of the supply chain are not aware of the
importance of working together in the supply chain. A supply chain is simply a physical
network of companies involved in the flow of products, finances and information from
suppliers to end consumers. Meanwhile, supply chain management is a joint management
that is implemented, carried out, and planned by all members of the supply chain to achieve
the ultimate goal of the supply chain, namely meeting the satisfaction of end consumers.
Principles and Functions of Supply Chain Management
In supply chain management, there are five basic principles that are key to optimizing
the supply chain. The five principles are (Muckstadt et al. 2003):
1. Knowing consumers and customers
As many businesses compete, supply chain management has turned into a pull system, where
consumers are the decision makers (Indrajit and Djokopranoto 2006; Anatan and Ellitan
2008). Understanding consumer needs and how suppliers work is very basic and important
in the supply chain because the ultimate goal of supply chain management is to meet the
satisfaction of end consumers who demand better, cheaper, and faster products.
2. Adopting the lean philosophy
Many companies have adopted the lean philosophy. This philosophy advocates companies
to streamline all things in their management that reflect waste such as reducing lead time,
implementing just in time, reducing inventory even zero inventory and others. These things
will have an impact on reducing company costs. This philosophy should be applied to all
members of the supply chain.
3. Create information infrastructure
Information is a flow in the supply chain in addition to product and financial flows.
Information flow is important to be integrated to create efficiency in the supply chain. Many
companies are already using the internet as
their infrastructure in communicating with their supply chain members.
4. Integrating business processes
Business processes within the supply chain occur between each member of the
supply chain. These processes along with the information infrastructure support the efficient
flow of products through the supply chain. In general, companies only care and focus on
their internal business processes. This is a shortcoming of the supply chain because in order
to be integrated, conducting business processes together will be able to increase the
efficiency of the supply chain because information is conveyed.
5. Combining decision-making systems
There are many decisions that should be made jointly in the supply chain. Decisions
that can be made jointly are those that relate to other members of the supply chain such as
production allocation decisions. Information about end-consumer demand is known by
retailers who distribute directly to end-consumers. This information can be informed to
producers to maintain product continuity. Therefore, supply chain members can conduct
joint demand forecasting so that their customers or consumers do not move to other supply
chains According to Ma'arif and Tanjung (2003), the functions performed in the
supply chain management is:
1. Demand forecast
Basically, supply chain management is a supply chain from producers to consumers,
so consumer demand becomes a reference for the process to producers (back). This means
that consumer demand must be known. One of the uncertainties in supply chain management
is forecast error.
2. Selecting suppliers
The supplier used must be a trusted supplier. Therefore, selecting suppliers is a
crucial early activity.
3. Ordering raw materials
Once it is known what the estimated demand is, the raw material order is made. One
of the uncertainties in supply chain management is order delays.
4. Inventory control
Inventory must be controlled so as not to waste the financial budget or production
costs. The point is how to procure so that inventory costs are minimal.
5. Production scheduling
Once the raw materials are ordered, production scheduling begins. One of the
uncertainties that may occur is a machine breakdown that causes the scheduled production to
be delayed.
6. Shipment and delivery
Shipping and delivery become important when the goods being transported are
perishable. One of the possible uncertainties is delayed delivery.
7. Information management
Information must be managed properly so that the information collected is the
correct information. One of the uncertainties that may occur is the delivery of incorrect
information.
8. Quality management
The quality of raw materials obtained from suppliers should be of the best quality.
Often the quality sent by suppliers is not the same as that in accordance with the agreement.
One of the uncertainties that may occur is the quality of the product that is not in accordance
with the standard.
9. Customer service
The function of supply chain management is to serve consumers, which can be seen
from how many goods are actually needed by consumers. Manufacturers will produce
according to the needs and desires of consumers.
Business Processes in Supply Chain Management
The Global Supply Chain Forum identifies that there are eight key business processes
that form the core of the supply chain management process. The eight business processes are
(Lambert et al. 2001):
1. Customer Relationship Management
2. Customer Service Management
3. Demand Management
4. Order Fulfillment
5. Manufacturing Flow Management
6. Procurement
7. Product Development and Commercialization
8. Returns
According to Chopra and Meindl (2004), business processes in the chain can be
viewed from two perspectives. The first viewpoint is the cycle view, which explains that
there are several cycles where each cycle occurs between two opposite members of the
supply chain. There are four process cycles in the cycle view. The procurement cycle is the
cycle of ordering raw materials from the earliest supply chain member. The manufacturing
cycle is the cycle of processing raw materials into finished products. The replenishment
cycle is the cycle of replenishing products purchased from previous supply chain members.
This cycle is carried out due to additional products that are requested more than the original
order by consumers or can be said to be a manufacturer's anticipatory action for unexpected
demand. The customer order cycle is a cycle of ordering by consumers. The four process
cycles can be seen in Figure 4.
The second perspective is the push or pull view, which explains that there are two
categories of views depending on the actions of supply chain members in response to
consumer orders (demand) or in anticipation of consumer demand. The pull process is a
process of responding to consumer demand, while the push process is a process carried out
by supply chain members in anticipation of consumer demand (Chopra and Meindl 2004).
The activities that occur in supply chain management are as follows (Mentzer et al. 2001):
1. Integrated behavior
Integrated behaviors or activities are performed for all supply chain members. Coordinated
supply chain activities are referred to as supply chain management among all supply chain
members.
2. Mutually sharing information
Parallel or equal information dissemination activities are carried out to implement the supply
chain management philosophy, particularly the planning and monitoring processes.
3. Mutually sharing risks and rewards
These activities should be carried out over a long period of time so that the burden or risk is
shared, thus easing the burden on each supply chain member.
4. Cooperation
Cooperation among supply chain members is necessary to implement effective supply chain
management.
5. The same goal and focus on serving customers
The supply chain will be successful if all members of the supply chain have the same goals
and focus or one vision in meeting customer needs and satisfaction.
6. Integration of processes
There are many business processes that occur along the supply chain. If they are not well
controlled, they will cause the flows to not run smoothly so they must be integrated by all
members of the supply chain.
7. Partners to build and maintain long-term relationships
Effective supply chain management requires partners or coworkers, namely other supply
chain members, to build long-term working relationships.
Key Players of Supply Chain Management
According to Indrajit and Djokopranoto (2006), the relationship between the main
players in supply chain management who have the same interests, namely:
1. Chain 1: Suppliers
The network starts from this chain, which is the source of the first material provider
where the chain of goods distribution will begin. The first material can be raw materials, raw
materials, auxiliary materials, and spare parts. The number of suppliers can be many or few.
2. Chain 1-2: Suppliers - Manufacturing
The first chain is connected to the second chain, which is manufacturing or factories.
Manufacturing does the work of making, manufacturing, assembling, converting or finishing
goods. The relationship with the first chain has the potential to make savings. Savings of 40-
60 percent can be obtained by using the concept of partnership with suppliers.
3. 1-2-3 Chain: Supplier - Manufacturer - Distributor
In this chain, there are activities to distribute finished goods produced by the
company. There are various ways to distribute goods to customers, for example through
distributors. Goods from the factory through the warehouse are channeled to the distributor's
warehouse or large traders in large quantities and large traders will distribute goods in
smaller quantities to retailers or retailers.
4. 1-2-3-4 Chain: Supplier - Manufacturing - Distributor - Retail
Wholesalers usually have their own warehouse facilities or can also rent from other
parties. The warehouse is used to store goods before they are distributed to retailers. In this
chain, savings can be made in the form of inventory and warehouse costs, namely by
redesigning the delivery patterns of goods both from the manufacturing warehouse and to
retail stores.
5. 1-2-3-4-5 Chain: Suppliers - Manufacturing - Distributors - Retail -Consumer
Retailers offer their goods to customers or buyers or users of goods. Examples of
retailers are shops, stalls, convenience stores, supermarkets, cooperatives, and supermarkets.
The supply chain only really stops after the goods are at the final buyer who is the last user
because the buyer is not necessarily the last user.
Supply Chain Strategy
To win the competition, the supply chain needs to determine and implement strategies.
Chopra and Meindl (2004) mentioned that there are two supply chain strategies, namely lean
supply chain (efficient supply chain) and agile supply chain (responsive supply chain). Lean
supply chain emphasizes efforts to meet end-consumer demand at the lowest price with the
lowest cost.
Consumer aspirations for low prices of functional products indicate that the supply
chain that delivers them must be able to reduce costs along the supply chain. This is a lean
strategy Lean supply chain emphasizes efficiency in the supply chain so that costs are low
(Fisher 1997; Christopher et al. 2006). To conduct a lean supply chain, good coordination
and integration between supply chain members are required. According to Fisher (1997) and
Christopher et al. (2006), the supply chain strategy that delivers innovative products is to
respond quickly to the needs of end consumers because product aspirations are fast. The
strategy for innovative products is an agile supply chain strategy that emphasizes speed and
flexibility. The strategies that can be carried out by the supply chain for each supply chain
strategy can be seen in Table 4.
Relationship Marketing in Supply Chain
At present, the business environment continues to change with the times so that
competition between business people is getting tougher. This requires a business actor to
work together with other business actors in the supply chain. The supply chain consists of
members who play a role in flowing products, finances, and information to the final
consumer. To maintain the smoothness of the three flows, cooperation and cohesiveness of
all members of the supply chain are needed so that a member must be able to maintain good
relations with other members who are directly related as partners. The relationship between
the two members of the supply chain directly can be referred to as a partnership relationship.
A supply chain consists of several partnership relationships that exist between supply chain
members. There is not only a partnership relationship because the supply chain consists of
more than one supply chain member that is interconnected with other members.
Maintaining partnership relationships, namely relationships to suppliers or consumers
that are good between members of the supply chain is a strategy for business people or
companies at this time. Relationship Marketing is the process of identifying, attracting,
developing, maintaining, improving or strengthening relationships with consumers and other
partners in the long term with the aim of improving performance (Grönroos 1994; Morgan
and Hunt 1994; Palmatier 2008).
According to Palmatier (2008), there are three aspects that can describe relationship
marketing. The first aspect is the unification or incorporation of activities at each stage in the
life cycle of a relationship with a partner. Therefore, relationships can be said to be a
dynamic process that develops over time through stages. There are four stages in fostering
relationships with partners in general, namely identifying, developing, maintaining, and
terminating. The second aspect is related to the target or scope of relationship marketing
activities. Relationships in relationship marketing can be evaluated or analyzed between
individuals with individuals, individuals with companies or groups, and between companies.
The last aspect is related to the benefits caused by relationship marketing activities. In
practice, a relationship must be able to produce benefits that can benefit both parties
involved.
Evolution of Relationship Marketing Theory
Relationship marketing theory is a theory that explains the relationship between
people or organizations in doing business together. Relationship marketing is a theory
developed from various sciences, namely economics, marketing, consumer or organizational
behavior, and others.
The theory of relationships between business people as partners continues to develop
from the 1950s, which was not originally called the term relationship marketing, to the
2000s, which was eventually recognized by the term relationship marketing. The
development or evolution of relationship marketing theory from The beginning of the
development can be seen in Table 5. In the 2000s, relationship marketing theory developed again
with the same concept. The impact of relationship marketing on performance is influenced by trust
and commitment as well as assets. So, trust and commitment are assets that need to be built in
running a business.
Relationship Marketing Development
According to Spekman et al. (1998), there are four stages of development in
relationship marketing. The stages of relationship marketing development start from a
transactional relationship called open market negotiation. At this stage, the relationship
between partners is only limited to colleagues as suppliers or consumers who carry out
transaction activities at a mutually agreed price and in a short period of time and involve
many suppliers and consumers.
The second stage is cooperation where the partnering business actors engage in a
cooperative relationship by making a contract wi t h i n a certain period of time and sharing
information. This stage is the basis of the development of relationship marketing, but has
not yet reached the real partnership relationship. Next is the coordination stage. The
definition of coordination according to Kràl (2007) is the process of making individuals or
things work together for a specific purpose or effect based on rules that combine elements
into an integrated and harmonious process. Coordination is closely related to dependency
between activities. If there is no activity dependency between individuals or things, then
there is nothing to coordinate. The two are interconnected because coordination is a response
to problems caused by activity dependencies (Bowersox and Morash 1989; Kràl 2007). So,
it can be said that one thing that indicates coordination is the existence of dependence
between several parties. At the coordination stage, partnering businesses have coordinated
activities such as being involved in the partner's information system (joint EDI), but only to
the extent of knowing or sharing broader information and the contract period at this stage is
longer.
The last stage in relationship marketing is collaboration. According to Bowersox and
Morash (1989), collaboration is the activity of doing something together with one or more
than one partner individuals (organizations) based on the underlying will of those
individuals. Collaboration is synonymous with common goals, cooperation, unity, shared
responsibility, commitment, and relationships between individuals not based on hierarchy.
Doing joint planning, implementation, and making decisions based on thinking can also be
said to be a form of collaboration. Collaboration requires individuals to consider themselves
as members in the team and contribute to achieving common goals (Mailick and Jordan
1977). According to Bowersox and Morash (1989), collaboration is the opposite extreme of
avoidance. At the point of collaboration, all individuals work together and are not
individualized, whereas at the point of avoidance, individuals are uncooperative and highly
individualized. So, collaboration is the activity of immersing oneself in an activity,
organization, planning to achieve a common goal and agreed upon by all parties. This stage
involves a common vision and mission between partners, conducting joint planning, and
integrating activities in the supply chain. Lawrence and Lorsch (2000) and Craft (2006) state
that collaboration between supply chain members is a reflection of the integration of the
processes undertaken.
The move from each stage to the next in relationship marketing is characterized by a
change in mind set and strategic orientation in supply chain members to be more willing to
involve their partners in every activity. Moving from coordination to collaboration requires
a high level of commitment and trust.
Commitment and Trust
The definition of commitment is the desire to invest financial, physical and valuable
partnership relationships based on the resources that are truly owned (Morgan and Hunt
1994; Thurau 2002; Palmatier 2008). Commitment will be present when it is realized that a
partnership relationship is important to maintain. Meanwhile, trust is the willingness to rely
on partners who have a high level of confidence and integrity. Confidence is an important
element in the trust component (Morgan and Hunt 1994; Thurau 2002). With commitment
and trust in the partnership relationship, it will increase the productivity, efficiency, and
effectiveness of the supply chain. According to Spekman et al. (1998), an effective supply
chain in a competitive business environment is a supply chain that maintains close working
relationships with partners in the long term where partners depend on each other for their
business activities and needs, thus creating mutual success in the supply chain.
The existence of commitment and trust in relationship marketing is important. These
two things are the key to success in fostering good relationships with partners in the long
term for the following reasons (Morgan and Hunt 1994):
1. Commitment and trust can encourage business people to work and try to maintain a good
relationship in the long term by working together with partners.
2. Commitment and trust can encourage business actors to inhibit interest in other alternative
partners in the short term because there is an expectation of long-term benefits obtained if
they stay in the existing partnership relationship.
3. Commitment and trust can lead businesses to consider activities that do not support or are
detrimental to the partnership as risky to undertake and to trust that their partners will not do
so.
Relationship Marketing Model
Morgan and Hunt (1994) state that there are five things that shape or influence
commitment and trust in relationship marketing. The five things are as follows:
1. Termination cost
Termination cost is the cost incurred by business actors when they lose partners
(suppliers or consumers) or replace partners who have previously worked together with
other new partners. The higher the cost, the greater the commitment of a business person.
2. Shared Benefit
Shared benefits or relationship benefits relate to benefits that can be provided and
shared with partners. Partners can benefit from the partnership. The benefits in question can
be in the form of profit, customer satisfaction, performance, or others. The more benefits
obtained, the greater the commitment to partnering.
3. Shared Value
Shared value shows the suitability of values such as vision, goals, targets, behavior
between partnering business actors. Conformity or similarity of values will facilitate the
business process that will be carried out together because conflicts or differences will be
difficult to find. Business actors tend to be highly committed and very trusting when each
business actor has the same values.
4. Communication
Communication is the process of sharing information both formally and informally
among partnering business actors. Communication that can increase trust in partners is
communication that contains relevant, reliable and quality information. Open, intensive and
timely communication can increase the trust of business people in partnerships.
5. Opportunistic Behavior
Opportunistic behavior is an activity that is concerned with one's own affairs and
benefits by taking advantage of other weak parties. If a partner behaves opportunistically,
his trust in the partner will decrease.
Termination cost, shared benefit, and shared value affect commitment, while shared
value, communication, and opportunistic behavior will affect trust. These five things will
affect the level of commitment and trust, which are important components in creating partnership
relationships to last in the long term. According to Morgan and Hunt (1994), trust or trust directly
affects the amount of partner commitment and is the main factor forming commitment. This is
because business people or partners will not commit before trust has been formed. Spekman et al.
(1998) state that trust is important in partnerships. Trust is at the core of strategic partnerships.
Partnerships based on a sense of trust are of high value because trust is difficult to obtain and
through trust, business people who partner will not hesitate to commit themselves to partners they
consider trusted.
Commitment and trust will affect or produce five things in the partnership relationship.
The five outcomes of commitment and trust in the partnership relationship are as follows
(Morgan and Hunt 1994):
1. Acquiescence
Acquiescence or the level of compliance indicates the degree to which business
actors are willing to accept and carry out policies, orders or requests from their partners.
High commitment will lead to an increased level of partner compliance.
2. Propensity to leave
Propensity to leave is the desire to end the partnership due to dissatisfaction or
several other things. The higher the commitment will make the desire to end the partnership
less.
3. Cooperation
Cooperation between partners results from commitment and trust. Strong
commitment and trust will result in an increasingly cooperative level of cooperation.
4. Functional conflict
Functional conflict is a conflict that occurs between partners where partners are
encouraged to resolve it so that the conflict is functional and improves the quality of the
partnership relationship. Partners who have a high sense of trust will perceive every conflict
as a conflict that can be resolved properly and produce positive results.
5. Decision-making uncertainty
Decision-making uncertainty indicates the extent to which partners have sufficient
information to make key decisions, can predict the consequences of their decisions and have
confidence in their decisions. High trust can reduce decision-making uncertainty because
with this trust, partners believe that their partners are worthy of trust or reliance to reduce
uncertainty.
The influence of termination cost, shared benefit, shared value, communication, and
opportunistic behavior on the level of commitment and trust which will then result in
acquiescence, propensity to leave, cooperation, functional conflict, and decision-making
uncertainty in the decision-making process. The partnership relationship due to commitment
and trust is outlined in the relationship marketing model originated by Morgan and Hunt
(1994).
Vertical and Horizontal Integration Concept
Every business actor can integrate its business activities with other business actors as
its partners. Integrating business activities is important to ensure the availability of supply or
markets and to strengthen or expand their markets. The integration process that can be
carried out by business actors is divided into two, namely vertical and horizontal integration.
The integration can be done within the supply chain. Choosing to do both depends on the
desired goals of the business actor. However, both can also be done by a business person
together.
Vertical integration combines or adds two or more business actors that are at different
stages to be under one command or joint management (Pride and Ferrell 2006). What is
meant by joint command or management is that the management of business activities in the
supply chain is integrated so that it is like a team under one management. According to Mike
(2005), the integration is done to reach the same target market among supply chain
members. The integration carried out by the supply chain is vertical integration because the
supply chain consists of members who are at different stages so that each member integrates
its business activities with other members.
Vertical integration is different from horizontal integration. According to Pride and
Ferrell (2006), horizontal integration is carried out between business actors who are at the
same stage in the supply chain or marketing channel. Business actors cooperate with other
business actors where the business is the same or almost the same. According to Mike
(2005), this integration is done to enlarge or strengthen the scale of the business by working
together (partnering).
Supply Chain Integration Concept
The definition of integration is the process of achieving combined efforts between
different subsystems in the execution of organizational tasks. These subsystems include
production, research, and sales. The meaning of the word task is the cycle of transformation
of inputs into outputs, including the design, production, and distribution of goods and
services. If the subsystems within a system are integrated, it will result in high overall
integration (Lawrence and Lorsch 2002). The word subsystem in the definition according to
Lawrence and Lorsch (2002) can be analogized as an agribusiness subsystem. This
definition is very much in line with the concept of integration in the supply chain or
agribusiness system.
According to Bowersox and Morash (1989), the process of integrating activities
depends on environmental conditions. From the perspective of integration, before seeing
whether a group of individuals or a company is integrated or not, it is first seen whether the
supply chain has been adapted according to its environmental and economic conditions or
not. An integrated company will create social relationships, stability, and familiarity.
According to Grant (1996), integrating activities is an ability that a company or organization
must have. Integration is a hierarchy because it must start from the ability of individuals or
divisions internally first and then gradually to integrate all individuals in the organization.
Supply chain business process integration consists of collaborative activities between
suppliers and buyers, either distributors or end consumers, joint product and system
development and information sharing. All activities in the supply chain are integrated
together in the supply chain. Companies will find it difficult to maximize profits if they only
streamline the flow of products, but must also be balanced with the implementation of
process integration for all activities and streamline the flow of information along the supply
chain (Bowersox and Morash 1989; Lawrence and Lorsch 2000; Mentzer et al. 2001).
According to Lawrence and Lorsch (2000), the quality of collaboration in the supply chain
will reflect the quality of the efforts made together in the supply chain. Thus, the better the
quality of collaboration, the better the quality of joint efforts in the supply chain and thus the
better the performance.
In the supply chain, there are many supply chain members who manage three flows,
namely product, financial, and information flows. There are three dimensions to supply
chain integration, namely (Lee 2000):
•
Information integration involves the sharing of information and knowledge among supply
chain members, including sales forecasting, production planning, warehousing, and
promotion.
•
Coordination and resource sharing, indicated by shared decisions and responsibilities of all
supply chain members.
•
Organizational relationships, including communication channels between supply chain
members, performance measurement and establishing a shared vision and goals.
There are two forms of supply chain integration, namely backward integration and
forward integration. According to Trent and Monczka (1998), backward integration is
called information integration. Not only information, but also technology integration to
previous supply chain members. Meanwhile, forward integration can also be called delivery
integration (Saunders 1997; Trent and Monczka 1998). This type of integration integrates
and streamlines the flow of products from suppliers to end consumers.
There is one flow that should be present in the supply chain, but is not mentioned in
both forms of integration, namely the flow of money or finance. Money flow is included in
the supply chain flows in addition to product flow (delivery integration) and information
flow (information integration). The flow of money flows from the end consumer back to the
supplier so that this flow must be integrated together with the flow of information in
information integration or backward integration.
From the main integration concepts as shown in Figure 7, five types of integration
within the supply chain were developed, known as Arcs of Integration (Frohlich and
Westbrook 2001). These types of integration reflect the degree of supply chain integration or
the extent to which a supply chain integrates its business activities with other supply chain
members. The arcs of integration can be seen in Figure 8.
In the concept of arcs of integration, the manufacturer as a core member of the supply
chain integrates with the supplier or customer. However, not only manufacturers can
integrate business activities, but other supply chain members can also do so with their
suppliers and customers. It depends on which supply chain member you want to see the
degree of integration. When you want to see the degree of integration of the entire supply
chain, the members whose business activity integration is measured are the supply chain
members who are between the supplier and the customer or middleman.
The area where the supply chain does not integrate with suppliers and customers or
only integrates internally within the company is called the narrow arc of integration. The
supply chain is not very extensive in integrating its business activities to other supply chain
members. And vice versa, the area where the supply chain integrates its business activities to
all members of the supply chain extensively is called the broad arc of integration.
Frohlich and Westbrook (2001) limit the narrow arc of integration with two quartiles,
namely the lower quartile towards the supplier and the lower quartile towards the customer.
In addition, the broad arc of integration is also limited by the upper quartile towards the
supplier and the upper quartile towards the customer. Arcs of integration are divided into
five types of degrees of integration in the supply chain. The five types of integration degree
will occupy the arcs of integration based on the quartiles that have been determined. This
can be seen in Table 6.
Judging from the five types of integration degree, all types apply inward facing.
Inward facing is similar to internal integration, i.e. the process of integration or
collaboration is only carried out on activities carried out within the company internally.
According to Schoenherr and Swink (2011), there are supply chains that are less intensive in
internal integration (inward facing), but intensive in external integration.
Bowersox et al. (1999) divided supply chain integration into six types. This statement
differs in context from that of Frohlich and Westbrook (2001). Bowersox et al. (1999)
explains that to integrate the whole supply chain, all six integrations must be fulfilled, while
Frohlich and Westbrook (2001) divide the types of the degree of integration of the whole
supply chain based on the reality on the ground, namely five types that reflect the degree of
integration. The six supply chain integrations according to Bowersox et al. (1999) and
Lockamy III and McCormack (2004), namely customer integration, internal integration,
supplier integration, technology and planning integration, measurement system integration,
and relationship integration.
Data Processing Method
This research requires a qualitative and quantitative method approach to process
primary data. Analysis of factors affecting commitment and trust in partnership relationships
is carried out using the relationship marketing model approach as the initial stage in this
research. After that, the degree of integration of the organic rice supply chain will be
measured. The measurement was carried out using factor analysis to group the respondents
into types of supply chain integration degree according to the concept of Arcs of Integration
by Frohlich and Westbrook (2001). The validation test of the grouping of the types of supply
chain integration degree that had been carried out previously was carried out using the
discriminant analysis method. The third stage is to analyze supply chain performance
quantitatively. The results of the three previous analyses will be used as input in the last
analysis in this study, which is the analysis of the influence between the application of
relationship marketing on performance through the integration of certified organic rice
supply chains in Bandung Regency. To test this, the PLS (Partial Least Square) method was
used.
Analysis of Factors Affecting Commitment and Trust in Partnership Relationships
with the Relationship Marketing Model
The factors influencing commitment and trust in partnership relationships between
members of the organic rice supply chain were analyzed using the Relationship Marketing
approach. This approach is used because it is in accordance with the context of this research,
which examines supply chains. In the supply chain, there is a business activity of partners to
build and maintain long-term relationships where supply chain members must maintain
long-term relationships with their partners (Mentzer et al. 2001). Meanwhile, relationship
marketing is an approach that requires businesses to maintain relationships with their
partners for the long term. In addition, in relationship marketing, there is trust in fostering
partnership relationships. In the flow of organic rice, trust is needed from each member of
the chain supply to other members to maintain the organic principles of organic rice until it
is received by the end consumer. Therefore, a relationship marketing approach is used.
The purpose of this analysis is to determine the partnership relationship between
supply chain members. The object of this analysis is the partnership relationship between PT
Sarinah Agro Mandiri and its partners. The partnership relationship between partner farmers
from two farmer groups with PT Sarinah Agro Mandiri and the partnership relationship
between PT Sarinah Agro Mandiri and the two distributor and retailer companies will be
analyzed at this stage. The respondent partner farmers in this analysis are not farmer groups
because basically farmer groups only act as coordinators of farmer group members. The
willingness to partner with PT Sarinah Agro Mandiri is left to the farmer group members.
PT Sarinah Agro Mandiri is also a core member in the certified organic rice supply chain in
Bandung Regency, so this stage focuses on the partnership relationship between PT Sarinah
Agro Mandiri and its supplier and customer partners.
According to Morgan and Hunt (1994), commitment and trust exist in the partnership
relationship between the partnering parties. Both are important in determining the quality of
the partnership relationship. A partner's commitment and trust will be influenced by five
variables, namely termination cost, shared benefit, shared value, communication, and
opportunistic behavior. However, in reality, it is not always the case that all these variables
will have a real effect on commitment and trust. The existence of trust will also affect how
the level of commitment of a partner to his partner. With commitment and trust, there will
be five impacts on the partnership relationship. The five outcomes or impacts of
commitment and trust in the partnership relationship are acquiescence, propensity to leave,
cooperation, functional conflict, and decision-making uncertainty. The relationship between
the five influencing variables, commitment, trust, and the five outcomes or impacts are
summarized in the Relationship Marketing Model by Morgan and Hunt (1994).
At the beginning of this research stage, the manifest variables or indicators that
describe each latent variable in the Relationship Marketing Model are determined first.
Determination of indicators for each latent variable is carried out because these variables are
abstract variables that cannot be measured. Therefore, through indicators, these variables can
be measured. The indicator statement reflects the description of each manifest variable or
indicator.
After the respondents' perception data is collected, the data will be processed using the
PLS (Partial Least Square) method with the help of SmartPLS 2 software. Data processing
at this stage will be carried out together with data processing at the last stage of analysis.
Data processing at the last stage of analysis is an analysis of the effect of the application of
relationship marketing in partnership relationships, supply chain integration, and supply
chain performance. Concurrent data processing is carried out because the model constructed
to analyze the factors affecting commitment and trust in partnership relationships is unified
into a large model along with the model used for the last stage of analysis. The model used
to analyze the factors affecting commitment and trust in partnership relationships is the
relationship marketing model. The variables in the model are accompanied by indicators that
explain the variables. By combining them into one model, the details of the relationship
between all the variables in this study can be seen. However, the results of data processing
that show these factors will be discussed separately with the discussion of the last stage of
analysis. The discussion is located in the partnership relationship analysis section as the
initial stage of this research. The results of this stage of analysis are the factors that have a
significant effect on commitment and trust in the partnership relationship and the impact or
results of commitment and trust.
Measurement of the Degree of Integration of the Certified Organic Rice Supply Chain
The degree of integration of a supply chain is important to know. A supply chain
consists of members just like a system. If there is a constraint or problem in one of the
members, it will disrupt all other supply chain members because the supply chain flow is
hampered. Therefore, knowing the degree of supply chain integration can show whether a
supply chain is integrated with each other or not. The integration that will be measured in
this study is vertical integration considering that the object being analyzed is a supply chain
consisting of parties (supply chain members) that are at different stages or levels. The
respondents in measuring the degree of supply chain integration are all members of the
certified organic rice supply chain in Bandung Regency except end consumers.
Analysis of the Degree of Integration of Organic Rice Supply Chain with Factor
Analysis
Before measuring the degree of supply chain integration, activities that can be
integrated or carried out by each member together with other members in the organic rice
supply chain (integrated activity) are first determined. Each activity reflects the integration
process carried out by supply chain members to both their suppliers (backward integration)
and customers (forward integration). At the level of partner farmers, the degree of
integration of activities carried out by partner farmers to their suppliers, namely suppliers of
raw materials for organic rice cultivation and to their customers, namely PT Sarinah Agro
Mandiri, will be measured. At the level of PT Sarinah Agro Mandiri, the company will
measure the degree of integration of business activities carried out with its suppliers, namely
partner farmers and customers, namely distributor and retailer companies. While at the last
level, distributor and retailer companies, the degree of integration will be measured against
their supplier, PT Sarinah Agro Mandiri, and their customer, the end consumer.
The input that will be entered into the factor analysis model is in the form of a Likert
Scale which is the result of the respondents' questionnaire. Each respondent is asked to rate
themselves in conducting every business activity that is directly related to their suppliers
and customers. The meaning of supplier is not only the initial supplier in this supply chain,
but the supplier or previous supply chain members who supply products to him. The same is
true for customers. The meaning of customer for each respondent is the supply chain
members they supply. The value used by respondents is in the form of a Likert Scale. The
Likert scale used is 1 (no integrated business activities) to 5 (extensive in integrating
business activities). The description of the Likert Scale value for each integrated activity is
contained in Appendix 2. The Likert Scale value will be an input in the factor analysis.
The integrated activities used in this study reflect the business activities that occur in
the flow of products, finances, and information along the supply chain. Integrated activities
also reflect activities that must be coordinated between supply chain members so that
activities in all supply chain members are integrated. This is in accordance with the
development stage of relationship marketing according to Spekman et al. (1998) which
shows that relationship marketing in the supply chain or partnership must pass the
coordination stage so that it can be said to be collaborative or integrated (collaboration
stage). Some integrated activities used are the result of a review of several previous studies.
Each integrated activity will be measured how business activities that supply chain members
integrate with their suppliers and customers. The integrated activities used in this study
along with the codes that represent them can be seen in Table 9.
Performance Measurement of Certified Organic Rice Supply Chain
Each product has different characteristics. Differences in product characteristics will
lead to differences in determining supply chain strategies. Supply chain strategy is needed to
achieve the ultimate goal of the supply chain, which is to meet the needs and satisfaction of
end consumers. According to Chopra and Meindl (2004), supply chain strategies are
categorized into two, namely lean supply chain and agile supply chain. The strategy is
determined based on the characteristics of the products flowing in the supply chain.
According to Fisher (1997) and Anatan and Ellitan (2008), product categories based on their
characteristics can be divided into two, namely functional products and innovative products.
If the product is a functional product, the appropriate supply chain strategy is lean supply
chain and if the product is an innovative product, the appropriate strategy is agile supply
chain.
Organic rice is included in functional products even though it is organically cultivated
because organic rice is a commodity product, has a long product life cycle, little product
variation, predictable demand and the customer driver is cost. Therefore, the supply chain
strategy that should be carried out is a lean supply chain strategy. The strategy focuses on
physical costs along the supply chain so that supply chain costs can be minimized. Minimal
supply chain costs will result in cheaper products. Therefore, the most important lean supply
chain strategy is efficiency.
To see the extent to which the organic rice supply chain in Bandung Regency has
achieved its ultimate goal, an evaluation of the strategies that have been carried out by the
supply chain is carried out through performance measurement. The performance measured at
this stage is the performance of all members of the organic rice supply chain including
partner farmers in addition to end consumers. The organic rice supply chain performance
indicators used in this study are adjusted to the characteristics of functional products and
lean supply chain strategies that should be implemented in the supply chain. The
performance indicators are emphasized on measures that affect supply chain costs. The
performance indicators of the organic rice supply chain in Bandung Regency in this study
are divided into two dimensions, namely internal and external. Performance indicators in the
internal dimension are indicators that reflect supply chain performance from the internal side
of the supply chain, while performance indicators in the external dimension reflect supply
chain performance measured from the end consumer side.
Analysis of the Effect of Relationship Marketing on the Performance of Certified
Organic Rice Supply Chain through Integration
The last data processing stage in this study is to analyze the effect of relationship
marketing implementation in partnership relationships on performance through the
integration of certified organic rice supply chains in Bandung Regency. At this stage, the
effect of relationship marketing on supply chain performance is not measured directly but
through chain integration supply chain. This is done because it will be analyzed first how the
influence between relationship marketing carried out between partners or supply chain
members on the integration carried out by all supply chain members and then analyzed how
the influence of supply chain integration on supply chain performance. There are two
hypotheses tested in the final stage of the research, namely:
H1 = The application of relationship marketing in partnership relationships has a positive
effect on supply chain integration.
H2 = Supply chain integration has a positive effect on supply chain performance Supply
chain integration is used as an intermediate variable that affects supply chain
performance.
linking relationship marketing and supply chain performance in this stage given that supply
chain integration is the last stage in the developmental stages of relationship marketing
according to Spekman et al (1998), namely collaboration. At the collaboration stage, supply
chain members will integrate their business activities with their suppliers and customers.
The basis for implementing relationship marketing is cooperation at the developmental
stage of relationship marketing. The more developed the mindset and strategy of business
people, relationship marketing in the partnership relationship will develop to collaboration
(integrated). Partnerships occur between partners or supply chain members only, not looking
at all members in the supply chain. To find out whether all members of the supply chain are
integrated or not due to the collaborated or integrated partnership (relationship marketing),
the influence of relationship marketing on supply chain integration is analyzed first. Since
cooperation is the basis for implementing relationship marketing, the cooperation variable
as the impact or result of implementing relationship marketing is directly linked to the
supply chain integration variable in the overall research model.
Supply chain integration is then linked to supply chain performance to see its
influence. Supply chain integration is linked to supply chain performance because
performance is an evaluation tool for the supply chain to see whether the ultimate goal has
been achieved or not, namely achieving end consumer satisfaction. The supply chain always
aims to improve its performance. Supply chain performance includes the performance of
supply chain members as a whole. Similarly, supply chain integration is carried out by all
members of the supply chain. To see its influence, an analysis of the effect of supply chain
integration on supply chain performance is carried out. Based on these things, to see the
effect of relationship marketing on supply chain performance more deeply, an intermediate
variable is needed, namely supply chain integration. In the overall research model, the
cooperation variable is also linked to the supply chain performance variable.
Analysis of the effect of implementing relationship marketing in partnership
relationships on performance through supply chain integration is carried out using the PLS
(Partial Least Square) method. The PLS method is used as another alternative method
besides the SEM (Structural Equation Modeling) method. According to Latan (2013), SEM
is a method that combines factor analysis and path analysis and is used to examine the
relationship between latent variables, latent variables with observed variables with many
indicators, and error variables. Indicators are needed to measure latent variables because
latent variables cannot be measured directly. SEM can explain complex relationships. There
are three types of SEM in its development, namely CB-SEM developed by Joreskog in 1969
(Covariance-Based SEM), PLS-SEM (Partial Least Square-SEM) developed by Wold in
1974, and GSCA (Generalized Structured Component Analysis) developed by Hwang and
Takane in 2004.
In this research stage, the PLS method is used because the method can explain
complex relationships according to research objectives and accommodate a small sample
size. According to Latan (2013), PLS is used to test theory (confirmatory) and develop
theory (explanatory). However, PLS is more appropriate to use when the purpose of a study
is to develop a theory. Because this study aims to develop theory in the presence of complex
relationships, the PLS method is used. Data processing with the PLS method was carried out
with the help of SmartPLS 2 software.
Data from the three previous analyses were used as inputs in the analysis at this stage.
All input data are Likert Scale scores with different interpretations. The first stage of the
analysis, i.e. the analysis of factors affecting commitment and trust in partnership
relationships, was processed simultaneously with the analysis at this stage. The input data
for the first stage of analysis has been collected, namely Likert Scale values for each
indicator that measures the partnership relationship factors, commitment, trust and the
impact or results of commitment and trust as latent variables. The data will be used as input
in the last stage of analysis.
The second stage of analysis is measuring the degree of supply chain integration. The
variable degree of supply chain integration is used as a latent variable in this last stage of
analysis. The indicator that measures the latent variable is integrated activity and then rated
using a Likert Scale. There are eight indicators associated with the variable degree of supply
chain integration. The Likert Scale value data that assesses the integration of each integrated
activity from each respondent will be used as input in this last stage of analysis. However,
the interpretation of Likert Scale values in the second stage analysis is different from the
Likert Scale values in the first stage analysis. A score of 1 in the second stage analysis
means no integrated business activities, while a score of 5 means extensive integrated
business activities. The assessment for each integrated activity has already been done in the
previous second processing stage.
The third stage in this research is to analyze the overall supply chain performance.
This analysis does not use a Likert Scale where performance is measured and assessed based
on respondents' perceptions. The performance measurement in this study was carried out
quantitatively using indicators of supply chain performance measurement and in the end the
growth was seen from the previous year.
CONCLUSIONS:
1. Factors that significantly affect commitment in the supply chain partnership are
termination cost and trust, while factors that are proven to significantly affect trust in
the supply chain are communication and opportunistic behavior. Commitment in the
supply chain partnership will affect acquiescence and propensity to leave, while trust
will affect cooperation and functional conflict of supply chain members as partners to
other members.
2. The overall degree of integration of the certified organic rice supply chain is customer
facing. The members of this supply chain generally integrate their business activities
extensively with their customers, but not extensively with their suppliers.
3. The supply chain performance of certified organic rice is not good enough from the
internal dimension, but it is good enough from the external dimension. The performance
of the external dimension is the performance of the supply chain seen from the side of
the members in serving end consumers. The good performance of the supply chain from
the external dimension shows that this supply chain really extensively integrates its
business activities to the end consumers.
4. The application of relationship marketing in the certified organic rice supply chain
partnership relationship is proven to have a significant positive effect on supply chain
integration. Supply chain integration also has a positive and significant effect on supply
chain performance. Both hypotheses in this study were proven correct. The application
of relationship marketing in the supply chain partnership relationship is proven to
significantly affect supply chain performance through supply chain integration.
