Chapter 22
A Conceptual Framework for Analysing Supply
Chain Performance of Oil Palm Refinery
in Malaysia
Fitra Lestari, Kamariah Ismail, Abu Bakar Abdul Hamid, Eko Supriyanto,
and Wahyudi Sutopo
Abstract The purpose of this research is the development of a supply chain
framework in order to provide the process reference model based on the relationship
between entities. This research chooses multiple cases of oil palm refinery in
Malaysian because there is a barrier in implementing supply chain strategy in the
form of inadequate measurement performance system. The methodology developed
in this research comprised three phases involving business process reengineering,
supply chain relationship model and performance indicator. There are 35 refineries
in the peninsular Malaysia. However, measurement of supply chain performance
will be selected in 6 oil palm refineries. The findings show that the conceptual
framework can provide an instrument to analyze supply chain performance and
evaluate the existing supply chain strategy.
Keywords Business process reengineering • Oil palm refinery • Performance
indicator • SCOR model • Supply chain performance • Supply chain relationship
model
F. Lestari • K. Ismail () • A.B. Abdul Hamid
Faculty Management, Universiti Teknologi Malaysia, Johor Bahru, Malaysia
e-mail: fitra_lestari@yahoo.com; m-maria@utm.my; m-abakar@utm.my
E. Supriyanto
Faculty Biosciences and Medical Engineering, Universiti Teknologi Malaysia, Johor Bahru,
Malaysia
e-mail: eko@utm.my
W. Sutopo
Industrial Engineering, Sebelas Maret University, Surakarta, Indonesia
e-mail: sutopo@uns.ac.id
© Springer Science+Business Media Dordrecht 2015
G.-C. Yang et al. (eds.), Transactions on Engineering Technologies,
DOI 10.1007/978-94-017-9804-4_22
331
332 F. Lestari et al.
1 Introduction
The oil palm industry has several entities of processing industries involving
Milling, Crushing Refinery and Oleochemical in order to win the market through
strengthening business networks into supply chain strategies [1]. To conduct of the
supply chain strategy, most of researchers divide the oil palm business into upstream
and downstream [2, 3]. According Arip et al. [4] downstream sector has the biggest
added value of products rather than upstream sector. Therefore, it has the potential
to enhance the comparative advantage in order to develop industrial products of oil
palm feedstock. In addition, there is one of processing industries in the downstream
sector that connect with overall entities which it is the oil palm refinery. This
industry produces many type derivative products of oil palm nevertheless they are
processed through the different technology of processing industry [5].
The business process of the oil palm industry requires to improve the perfor-
mance in supply chain strategies. Most of the research finds there is a barrier in
the application of supply chain strategy in the form of the measurement system is
inadequate [6, 7]. Omain et al. [8], conduct the research on the implementation of
supply chain strategy in the oil palm industry in Malaysia. The finding shows one of
the barriers in implementing supply chain strategy is in term of relationship between
members of the supply chain that cause the measurement system inadequate.
Therefore, supply chain strategies were used for different constructs for different
country [9].
The purpose of this study is to conduct the method of the supply chain strategy in
order to develop a conceptual framework for analyzing supply chain performance of
the oil palm refinery in Malaysia. The method will be constructed using the Supply
Chain Operations Reference (SCOR) model which this method can be used for
modeling, benchmarking and performance measurement [10]. In this case, SCOR
model is used to conduct relationships between entities in the oil palm downstream
industry. Based on the gap of this research, it requires a tool to analyze supply chain
strategy in the oil palm refinery that provide the reference process model based on
the relationship between entities. To achieve objectives of the study, the oil palm
refinery will be conducted based on the activity business process in Malaysia.
2 Measuring Supply Chain Performance
Measurement of supply chain performance aims to determine the extent of supply
chain strategy that has been set in running business processes working properly.
Akyuz and Erkan [11] conducted a literature review on supply chain performance
measurement. They revealed that this concept is useful for controlling and managing
the system. Thus, the several stages of improvements that are planned obtain optimal
results. Supply chain performance measurement is very necessary to assist in
evaluating supply chain strategy [12]. Many supply chain performance measurement
22 A Conceptual Framework for Analysing Supply Chain Performance of Oil... 333
methods that have been studied. However, application of these methods must be
adapted to the case studies that are conducted. Kurien and Qureshi [13] suggest that
the selection of the method of supply chain performance measurement must be in
accordance with a system that will be improved. Indeed, it is necessary to answer
the question of how measure supply chain performance of oil palm downstream
industry in Malaysia.
Several methods are used by researchers in measuring supply chain performance.
Balanced Scorecard (BSC) was developed by Kaplan and Norton in 1992 which it
purpose to measure performance based on perspectives, financial, customer, internal
business and innovation and learning. It methods focus on performance measure-
ment based on the vision and mission of the organization [14, 15]. Furthermore,
Activity-Based Costing (ABC) is a technique to measure performance in supply
chain strategy based on data of financial flow involving financial value and variable
cost [16] nevertheless it can not used for non-financial measurement. In addition,
Ramos et al. [17], measurement of the supply chain performance using Total Quality
Management (TQM) to analyze and improve the goal of the business process in form
products, services, and processes by creating value for customers. This approach
focuses achieving the target and customer satisfaction. Moreover, Supply Chain
Operations Reference (SCOR) model is used to evaluate the relationship between
supplier, manufacturing and customer in order to measuring the performance more
detail into activity of business process [18]. These methods are used to measure
supply chain performance and support problem solving of supply chain cases,
however the advantages of the methods depend on the scope of the problem.
This research develops a framework of performance measurement in supply
chain strategy using the SCOR model which it was built by the Supply Chain
Council (SCC). This method is used to investigate the relationship between entities
in business processes [19]. Therefore, distribution of physical products from the
supplier to the customer has a pattern that can be standardized into operational
procedures within business processes [20]. In addition, the relationship between
entities in supply chain strategy require developing the modeling tool which this
method can adopt business process reengineering based on the stages that have
standardized involving Plan, Make, Source, Deliver and Return [21]. This approach
also is used as a set of key performance indicators [22].
3 Oil Palm Refinery in Malaysia
The upstream industry produces raw materials from oil palm business. These
industries involve the plantation that produces Fruit Fresh Bunch (FFB) and the
milling that extracts the raw material in the form of oils [23]. Thus, these industries
commonly are an upstream stage in its production process. Moreover, downstream
industry involves processing the materials collected from the upstream industry
into finished products which it consists of crushing, refinery and oleochemical
[24, 25]. The type of customer will vary depending on market destination such
334 F. Lestari et al.
as international market and local market because the downstream industry has
direct contact with customers through the finished products. Furthermore, oil palm
downstream industries in Malaysia have the high competition in the global market
because industries of oil palm derivative products have been clustered into the
specific finished product. These products will be processed by the developed
countries to retail businesses such as food products, chemical industry, personal
care products, animal feed, cleaning products and several sources of energy [26].
The oil palm refinery has the relationship with the overall downstream industries
involving milling, crushing, oleochemical, delivery service providers and customer
to process the oil palm derivative products [27]. Therefore, the oil palm refinery
requires raw materials from the milling industry in the form of crude palm oil
(CPO) and the crushing industry in the form of crude palm kernel oil (CPKO).
The finished products are RBD palm oil, RBD palm kernel oil and palm fatty
acid distillate. Finished products that consist of various types of products will be
distributed in warehouses or direct shipping to await orders from the customer. In
addition, the final products will deliver to export through port and local industry
in the form of business to business (B2B) or business to customer (B2C). The
integrations of oil palm refinery with other entities within the oil palm downstream
industry show there is several configurations in the supply chain strategy. Thus,
stakeholders can optimize the integration in the oil palm refinery with measuring
supply chain performance based on the relationship between entities involving
supplier, manufacturer, distributor and customer [28]. Figure 22.1 show supply
chain oil palm refinery in Malaysia.
Furthermore, Malaysia has 55 refinery processes including 35 refineries in the
Peninsular Malaysia, 6 refineries in Sabah and 14 refineries in Serawak [29]. The
cases of oil palm refinery are chosen to be part of the sample with a specific
Fig. 22.1 Supply chain oil palm refinery in Malaysia
22 A Conceptual Framework for Analysing Supply Chain Performance of Oil... 335
purpose of the research. In addition, the overall refineries in Malaysia cannot
directly distribute their finished products to international market through the port
and local industry such as oleochemical industry. Thus, the samplings of the case
study will select certain refineries that deliver the finished product both of them
which the oleochemical industry is only in Peninsular Malaysia. It technique adopts
sampling based on purposive personal judgment [30]. Indeed, this research can
choose multiple cases in Malaysian oil palm refinery. There are 35 refineries in
the peninsular Malaysia. However, measurement of supply chain performance will
be selected in 6 oil palm refineries.
4 Development Supply Chain Framework
The following phases of frameworks for analyzing supply chain performance:
• Phase one: Reengineering of business process
The SCOR model serves to improve activities in the supply chain strategy
[31]. The model contains five different processes involving Plan, Source, Make,
Deliver and Return. Furthermore, it is breakdown into several levels of SCOR
model which the model can be seen in Fig. 22.2. The plan represents the planning
activities in achieving corporate targets. Source represents suppliers that supply
raw material to the industry. Make represent process transformation of raw
materials into finished products. Deliver is a process to distribute and deliver
finished products to the customer. Return represents customer complaints about
product of rejecting, defect, and repair. The five categories will be selected based
on activity in oil palm refinery in order to understanding the business process.
Furthermore, the data collection will be developed into business processes using
software which it can develop business processes based on SCOR model.
• Phase two: Determining supply chain relationship model
Most of the manufacturers have similarity the core business; nevertheless,
they have the different operational strategy in production [32]. This research will
explore some of operational strategies in the oil palm refinery, which become
several alternatives of supply chain configurations in the oil palm downstream
industry. This strategy considers the relationship between supplier and buyer,
which are based on the frame thinking of five force competitive models into by
Michael Porter at 1980. It conducts the condition whenever supplier or buyer
has power to affect activity in the business process. In addition, many oil palm
industries can be categorized into a holding company which it means supplier
and buyer allow to cooperate in order to obtain the optimal size of production.
The categories of relationship model between supplier and buyer can be seen in
Table 22.1.
• Phase three: Selecting performance indicator
The numbers of alternative relationship models appear into several scenarios
in supply chain strategies in order to measure performance indicator. SCOR
