A Review of Supply Chain Risk Management in Agribusiness Industry

A Review of Supply Chain Risk Management in Agribusiness Industry

Sri Widiyanesti (Telkom University, Indonesia) and Yudi Fernando (Universiti Malaysia Pahang, Malaysia)
DOI: 10.4018/978-1-5225-2255-3.ch482
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Abstract

Supply chain of agricultural commodities becomes a major concern of Indonesian scholars and practitioners. Many companies engaged in this industry unable to survive in the market. This is contrary to the natural conditions of Indonesia with abundant natural resources and plenty of commodity producers. Problems often arise in the field of supply chain risk which link to commodities in Indonesia, among others: price fluctuation, the scarcity of the commodity, supply and demand are not balanced, distribution and production costs are expensive, raw material commodities that are imported, and natural disasters. Companies which engaged in agricultural business have high risk of survival and not even grow. To overcome this challenges the this chapter intend to review supply chain management concept by look at risk consideration may arise in the business uncertainties. The lack of studies to investigate the risk factors in agribusiness makes this study contribute to the supply chain literature.
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Introduction

There will always be risk in business. Nowadays, to be able to run business and succeed, companies should be able to identify risk factors and minimize the risks involved. The biggest challenge now is not only identifying and minimizing risk factor in the company's internal, but the risk factors in the company's supply chain network, in both upstream and downstream activity. Companies that are not able to handle the risks that arise in their business will inevitably suffer losses.

Facing increasing global competition and the fact that supply chains become more complex, there is a possibility that increasing the performance of supply chains will be difficult to reach, mainly because of the failure risk of supply chains (Tumala and Schoenherr 2011).

Companies that will able to survive is those resilient enough in managing risks. Risks that would be faced by companies are very diverse, depending on the company’s business type. For example, the iron industries in India have risks and problems such as; short life cycle and season ability, supplier inefficiency, design and technological changes, union strike, fluctuations of demand, lack of ownership, capacity and information, inventories, corporate strategy and goal, implications, and customer uncertainty (Pradhan and Srikanta, 2014).

Indonesia is the largest archipelagic country in the world and agricultural lands are widely available in Indonesia. Furthermore, most of Indonesians are working in agricultural sector. Agricultural sector is a critical industry to support daily life and food consumptions of Indonesian population. With such conditions and demands, Indonesia should be the world’s agricultural source, but, ironically, it is a frequent occurrence that Indonesian depends on imported agricultural products including nine basic commodities rather than produce its own demands for food source.

Supply chain of agricultural commodities become a major concern of Indonesian scholars and practitioners. Many companies engaged in this industry unable to survive in the long term. This is an unfortunate condition because Indonesia has abundant natural resources and plenty of commodity producers.

The development of industry and services sectors have a significant impact on the amount of agricultural land that is converted industrial and residential areas (Trisnasari et al., 2010). Indonesia is facing a decline in agricultural land area of about 2.65% (Pertanian.go.id, 2014). Agricultural land in Indonesia are switching functions, fields and rice paddies are being converted to housing and offices. This decline in agricultural area contributed to the decline of food production, which led to Indonesia importing agricultural products.

Aside from the reduced agricultural production, agriculture is no longer a major contributor to Indonesia GDP. In 2012 to 2014, the percentage of agricultural GDP decreased if compared with trade and processing industry (BPS, 2015). Despite being forecasted that in 2017 Indonesia will become self-sufficient in food production (Gera, 2015), it cannot be achieved if agricultural production has declined.

Indonesia has abundant natural resources adequate for agriculture, but unfortunately agriculture cannot be a source of revenue for Indonesia. The government must begin to focus on agriculture, because Indonesia has the resources, community livelihood, and agricultural fields. Besides agriculture is the primary food source for Indonesia, and a major needs worldwide.

Indonesia archipelago is unique compared to other agribusiness countries, such as Thailand. The problem faced by Indonesia is more complex, especially problems in the distribution and transportation sector. Besides Indonesia is experiencing other problems that hinder the development of agribusiness in Indonesia. With the current condition of Indonesia, farmers face a variety of business risks. Companies that will able to survive is those which resilient in managing risks. Risks that would be faced by companies are very diverse, depending on the company’s business type.

Key Terms in this Chapter

Sovereign Risk: Sovereign risk is risk which come from Regional instability, Communication difficulties, Government regulations, Loss of control, and Intellectual property breaches.

Transportation Risk: Transportation risk is risk which come from Port strikes, Delay at ports due to port capacity, Late deliveries, Higher costs of transportation, and Depends on transportation mode chosen.

Demand and Supply Risk: Demand risk is result from disruption emerging from downstream supply chain operator an supply risk is result from disruption emerging from upstream supply chain.

Disruption Risk: Disruption risk is risk which arise from natural disaster, such as weather disruption, or man made ones such as economic crises.

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