Problem

SNR face a problem regarding their supply chain management. Their supply chain
management doesn’t always result as profit for the company. The problem emerges as they have
quarterly stock target. The quarterly stock target itself is a seen as double edge sword as they have
to prevent stock out scenario while also prevent the inventory carrying cost for the company.

Pertamina have their own program of marketing for their lubricant product. The program’s
called trade promo program. The program come off every March and July within a year. This
program push SNR to order the product in big amount when the program came off to fulfill their
target. The actual data is shown on Chart 1 below.

Automotive Lubricant Buying Statistic

140 113 120
109
Volume (000 liter)

120 98 103
93 87 87
100 81 84
75 71 75 72 77 87 70 74
80 64 58 57 62 62 64
60
40
20
-
Oct 205
Apr-15
May-15

Apr-16
May-16
Jan-15
Peb 2015
Mar-15

Aug-15

Des 2015
Jan-16
Peb 2016
Mar-16

Aug-16
Jun-15

Oct-16

Des 2016
Jul-15

Jun-16
Nov-15

Jul-16

Nov-16
Sep-15

Sep-16
Chart 1 Automotive Lubricant Order Statistic

The problem is with this big amount of stock, the selling rate is not able to compete with
it. Thus, in each quarter, they have to sell the stock with lower price than they normal price to the
wholesaler. This resulting of decrease in profit. In addition, their bargaining power against the
wholesaler also decrease as the only way to prevent additional inventory carrying cost in a quick
way is to sell the goods to the wholesaler. Furthermore, when they order the lubricant in big
amount, not necessarily they get discount from Pertamina’s program for all of the goods. There’s
also additional cost of order for 2nd and 3rd Quarter.
 BAB III Case Analysis and Alternative

Case Analysis

Cause-Effect Diagram Analysis

Diagram 3 Fish Bone (Cause-effect Diagram)

The problem that happens in PT Sadikun Niagamas Raya (SNR) can be describe with
Cause and Effect Diagram above. Based on that diagram we separate the problem to achieve
Effective and Efficient Distribution in 6 segments:

1. Measurement: The principles set the target that SNR should achieve quarterly target to get
additional discount in order to stimulate market share. Meanwhile, this policy give pressure
to SNR and caused them not able to give full performance on efficiency in distribution
because SNR being more focus on pricing competition.
2. Material: Promotion can cause fluctuated demand that give effect to inventory (over or
deficit stock). Within promotion SNR produce more product in hope to be able to sell them,
but in fact SNR don’t have enough data to measure the demand, that is why over stock
happens.
3. Methods: SNR have policy to sell their product in minimum quantity 5 cartons. In fact, this
not in accordance with every layer of market demand, only in demand by big outlets and
wholesalers who dare to afford to buy in large amount.
4. Environment: The policy from principle pushed distributor to buy product in large amount,
otherwise they will not get additional discount and loss competitiveness in market.
5. Manpower: Lack of supporting labor to sell products to small outlet, so the SNR has
difficulty in distributing its products directly to the outlet. SNR being too depend on big
outlet or wholesalers to distribute the product.
6. Machines: SNR must spend extra to fill the distribution to a small store by buying more
vehicles that are adequate for delivery of goods with fewer amounts. Though SNR does not
know the market demand for sure, whether the small shop will be loyal and buy directly
from the SNR and not buy from wholesale.

Operations Problem Analysis

PT Sadikun Niagamas Raya as the Distributor of Pertamina in case has a problem on their
distribution process, cause of the uneffective process in their supply chain, it start from the external
until the internal process, and involve other parties.

1. Promotion Level from Principal

The distribution system of the principle was changed from the old style to the new
system, in mind that principal considered monopoly by the others, so in the new system (free
market in 2001) principle should distribute their product to the retailers directly, but that
system is still running well until now. In 2009, cause of the high competition, to sell the
product quickly in short period, Principal make a system that called trade promotion to
improve sales system instantly, unfortunatelly the system is not run just for a while, it still
do by the Principal until now in every quarter, which is the purchase patterns of the
distributor follow the principle system.
2. Sell in Distributor

The principal system (Trade promotion) in every quarter make all Distributor (include
Sadikun Niagamas Raya) to increase their order in every trade promotion event, even the
Distributor didn’t have demand from the Customer, so the system push all distributor to sold
out it’s product from Principal. In the end, this impact make the Sadikun Niagamas as the
Distributor has a lot of stock in at the certain period, and the product that order from principal
is not always get the special price even in trade promotion period. In cases the distributor
order the product based on to close quarterly targets, it won’t get the trade promottion
discount, so the profit will be decreased.

3. Middle Man

In supply chain process, the middle man play a role we call it “Grosir”, the middle man
has a role as the connection between the distributor and the retailers, this role make the
middle has a strong position in supply chain, cause they have the maket (from retailers) and
product (from distributors) information at the same time. In other ways, the midlle man has
a system that support retailers need, such as sell the product in the unit and party as well,
which is the small retailer will prefer to use the system in midlle man (sell in unit) than to
distributor which is sell in volume parties.

Distributor Retails

Distributor Middle Small Retails

Product Man Demand

Distributor Retails

the others strengh of Midddle man is they has some of distributor as the suppliers to their
unit stock, so in their warehouse, they has a variant of products and it can make their market
larger.

Cause of the middle man has a connection in more than one distributor, they can choose
and manage the product price which one they will order, sometimes they will use the
 information to make the distributor in war price competetion each others, in last, war price
will damage on service quality.

4. Stakeholder Relationship

The current condition, Distributor to the retailer has a small share of total product
transfer (30%), product transfer dominan (70%) to the middle man, as the impact of middle
man has the super power position. So the distributor will get less information from the
retailers, information about the market demand, or something else. In other ways, the current
flow PT Sadikun Niagamas raya didn’t have the sales team (canvassing team) to cover until
the small retailers / outlets, in machine support, PT Sadikun also didn’t have the small outlet
to cover the small outlet too, which mean, all the current condition (internal and external)
make PT Sadikun doesn’t have the power to reach the retailer more effective than the Middle
man.

Distributor

30% 70%

Retailer Middle Man

Internal strenght of PT Sadikun Niagamas doesn’t eneough to make a relationship with

the small outlets or just to strenght their position to the current retailers. That why, retailer
is preferer using the middle man services. From all the conditon in the supply chain of PT
Sadikun Niagamas Raya, it all make the supply chain is not running well and make the
system distribution uneffective and inefficient.

Alternative and Recommendation

1. IT Innovation

Indeed the business world is currently facing the challenge of cyberspace. Some say
the future, if you are not in the digital world, you are nowhere or will die. That’s true, there
 are many world class trading, banking, and transportation businesses out of business. This is
due to eroded waves of the digital age.

There are many examples of businesses that must be out of business because They are
eroded by digital waves. Among others ; Toys’R’Us stores in the United States, mojor book
stores such as Barnes and Noble, and Borders.

Now no longer need a travel agent if we want to travel. Want to go by plane, train, or
want to book a hotel and choose our seated position, all can be done using smart mobile
phone.

Actually the most threatened will go out of business is the middle of the business (the
middle man). Because the services of “the middle” is no longer needed or just remove it and
replaced with digital technology systems.

Currently SNR does not have a technology system that can facilitate the coordination
between SNR with retailers so that information related to product demand data by retailers
not yet fully accepted by SNR well. There is an inefficiency between the number of stored
products and the number of existing demand, the expectation with the existence of an
information system that can connect well between SNR with the retailer can further increase
the flow of information between both SNR and retailers.

Flow of nformation Distributor

System (PT Sadikun
Niagamas Raya)

Middle Man Retailers

Retailers Retailers End - User

Chart 2 flow information (reverse supply chain)

2. Improve Service Performance
 Improve the performance of SNR services can be done by investing and improving the
existing distribution system. Investment by adding new transportation assets such as truck,
small car cargo to reach the small outlet and facilitate the flow of distribution so that the
distribution process can be more efficient.

By investing in some of these aspects, SNR can better ensure the level of service such
as on time delivery, reduce the risk of product damage and indirectly can increase customer
trust and loyalty.

Current process, distribution sharing dominan on Middle man which is up to 70%,

after PT Sadikun do some investment and try to increase their service level (of course
customer loyalty), PT Sadikun can rebuild their distribution sharing by change it step by
step, so the propotional sharing
distribution PT Sadikun should be dominan
Middle Man
directly (from Niagamas Raya PT Sadikun to retailers)
and to the middle man less. By do
some change, it Small will change the position
Retailers
of middle man as Retailers the strength supply
chain position to the follower.
Small
Retailers
Retailers

Up to
70% as 20 – 30% for small
the main retailers
sharing

Chart 3 Distribution sharing scheme