A system dynamics approach for analyzing supply chain industry: Evidence from rice industry

Abstract

The rice industry policy must be comprehensive with a scope of policy from upstream to downstream. In other words, it must cover all supply chains of the rice industry consisting of five levels, such as, the level of farmers who process rice, grain traders, rice traders, rice traders in production areas and rice traders in urban markets.The purposes of this research are (1) to identify and model the current supply chain system of the rice industry; (2) analyze the simulation of the rice industry supply chain system policy; and (3) recommend rice industry policies which provide incentives for all rice industry supply chain actors. The research method used is the case study method. The aim is to understand a phenomenon in the rice industry supply chain system in depth in West Java Province – Indonesia. The results show that the rice industry supply chain system model is a closed cycle consisting of material flow feedback in the form of grain, rice, money and information flow in the form of demand that occurs in the interaction of actors from farmers, grain traders, rice milling units (RMU), rice traders in production centers to rice traders in urban wholesale markets in Bandung and Jakarta. Every businessman in the rice industry has the same goal, which is to maximize the profits. Thus, it can potentially lead to a conflict of interest which is manifested in the desire of every businessman to sell as much as they produce at the highest possible price but this will not happen because of the limited resources they have, such as capital and the market demand they receive. The strategy of increasing production is often carried out by the government at this time which it cannot be done partially without considering other rice industry supply chain instruments. The impacts of this partial policies are farmers, collectors, rice traders and rice mills gain unstable profits and the benefits received are lower than before the production strategy and policy were implemented. The recommended policy strategy is the rice industry supply chain system should be able to guarantee the availability of sufficient rice and capable of guaranting the welfare of farmers with a policy that integrates rice farming and agro-industry production strategies, financing strategies and accessible to all levels of actors in the rice industry supply chain, human resource development strategies and rice business risk management strategies, simultaneously. The integrated policy strategy needs to be carried out since rice supply chain management is a coordinating system of material flow in the form of grain, rice, money, facilities and information flow in the form of orders or requests, knowledge and innovation.