STRATEGIC PROCUREMENT PRACTICES THROUGH DEEP SUPPLIER RELATIONSHIPS

AND EXCHANGE OF VALUABLE KNOWLEDGE

AT PT AEROFOOD INDONESIA

(A STUDY AT AEROFOOD ACS UNIT DENPASAR)

UNDERGRADUATE THESIS

Proposed as Requirement to Earn Bachelor’s Degree at Faculty of Administrative Science Brawijaya University

CLARA LORENZA SARASWATI NIM. 145030300111007

BRAWIJAYA UNIVERSITY FACULTY OF ADMINISTRATIVE SCIENCE

DEPARTMENT OF BUSINESS ADMINISTRATION CONCENTRATION ON INTERNATIONAL BUSINESS

MALANG 2018

1

CHAPTER I

INTRODUCTION

A. Background

In the current era of globalisation, transportation plays a significant role in

every aspect of life. A high-level competition requires almost all levels of society

to have high mobility by making rapid movement from one place to another. Air

travel services are one of the most popular modes of transportation. Free air traffic

allows faster movement by air travel services, compared to the other modes of

transportation.

There are five main airports in Indonesia, such as Polonia, Soekarno-Hatta,

Juanda, Ngurah Rai, and Hasanudin. By 2015, number of aircraft passengers with

domestic departures decreased by 1,406,949 people from 2014. Meanwhile, the

number of aircraft passengers with international departures increased by 253,689

people from 2014. Significant increase occurred in 2016, as evidenced by the

presence of 41,094,610 aircraft passengers with domestic departures and

13,370,083 aircraft passengers with international departures.

During January to August of 2017, there were 28,305,213 aircraft

passengers with domestic departures and 9,948,645 aircraft passengers with

international departures. Observing from the data, it was estimated that the

number of aircraft passengers with domestic departures and international

departures would continue to increase until the end of 2017, given that the total of

aircraft passengers in January to August of 2016 were 27,258,058 people with

domestic departures and 8,780,002 people with international departures,

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subsequently increased until the end of the year (bps.go.id, 2017). Figure 1

illustrates number of aircraft passengers at main airports in Indonesia.

Figure 1. Number of Aircraft Passengers at Main Airports in Indonesia

Source: Indonesian Central Bureau of Statistics, 2017.

Along with the interest of air travel services to provide convenience for the

society, there is rapid growth of airline companies operating in various

destinations. Airline companies provide domestic and international routes, in

accordance with the needs of society. Apart from providing convenience for

society, they are in support of national economy and tourism activities.

Directorate General of Civil Aviation of the Ministry of Transportation of

Republic of Indonesia analysed and determined to open 60 new flight routes

during the summer to winter 2017. On domestic flights, there were 9 national

2014 2015 20162017

(January-August)

Domestic 38,051,273 36,644,324 41,094,610 28,305,213International 12,148,239 12,401,928 13,370,083 9,948,645

05,000,000

10,000,00015,000,00020,000,00025,000,00030,000,00035,000,00040,000,00045,000,000

3

airlines operating on those routes. Meanwhile, on international flights, there were

5 national airlines operating on those routes. Apart from supporting national

economy and tourism activities, the decision was made to meet market demand of

freight and passengers. In addition, there was a challenging increase in demand

from aircraft passengers at average of 9% per year (hubud.dephub.go.id, 2017).

Rapid growth of airline companies with increased aircraft activities has also

encouraged the increase of business actors supporting the activities of airlines.

Companies engaged in in-flight catering services, as business actors, highly

support the aircraft activities. They provide unique business values by delivering

catering services, such as food and beverage products, as well as providing in-

flight logistic services. Catering services aim to satisfy passengers in air travel

services during flight times. In-flight logistic services aim to manage high quality

of aviation logistics services.

Jones (2012, p. 9) described flight catering as something different from any

other sectors of the catering industry. It may be observed from how food dishes

have similarities with the style of food served in restaurants and cafeterias. But

practically, the way food is prepared and cooked would rather resemble a food

manufacturing plant than a catering kitchen.

In-flight catering services are considered successful in delivering their

business values, if they are able to provide memorable and classy experience for

passengers in air travel services. By the increase of in-flight catering service

companies, it certainly has an impact on the tight competition between business

organisations that provide similar services. Hence, they target a similar group of

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consumers. Companies engaged in in-flight catering services are required to run

business operations optimally, so that they run in balance with the existing

competition. Companies may build customer satisfaction by providing the best

services, balanced by competitive prices.

PT Aerofood Indonesia, or known as Aerofood ACS, is one of the largest

in-flight catering service companies in Indonesia. PT Aerofood Indonesia is a part

of the national airline company, namely Garuda Indonesia. Boasting 40 years of

experience as an internationally recognised airline-catering provider, PT Aerofood

Indonesia has been successful in maintaining reputation by delivering premium

services with best-in-class food and beverage products. Currently, PT Aerofood

Indonesia has more than 6,000 professional staffs and it is regarded as the leader

in its field. It delivers premium quality products and in-flight logistic services to

approximately 40 domestic and international commercial airlines, also over 20

blue ribbon companies across Indonesia (aerofood.co.id, 2017).

Figure 2. Milestone of PT Aerofood Indonesia

Source: PT Aerofood Indonesia (company archive), 2017.

Early Establishment Period (1974-1997)

The Beginning (1998-2001)

Early Growth (2002-2005)

Continuous Growth (2005-2008)

Quantum Growth (2008-2012)

Rapid Growth (2013-2017)

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According to Figure 2., it is shown that PT Aerofood Indonesia was legally

established on 23 December 1974. In the early establishment, PT Aerofood

Indonesia successfully established two kitchens in Jakarta and Medan. Within 4

years, PT Aerofood Indonesia was able to establish three additional kitchens in

Denpasar, Surabaya, and Balikpapan. By 2001, PT Aerofood Indonesia

successfully earned IDR 100 billion. With the ownership of five kitchens in

carrying out its business operations in 2002 until 2005, PT Aerofood Indonesia

managed to earn IDR 392 billion. The growth of PT Aerofood Indonesia

continued as it managed to earn IDR 501 billion in 2008.

In early 2008, PT Aerofood Indonesia successfully owned 7 main kitchens

across Indonesia, including Jakarta, Medan, Denpasar, Surabaya, Balikpapan,

Jogjakarta, and Bandung. In 2010, PT Aerofood Indonesia operated in Jakarta,

Denpasar, Surabaya, Medan, Balikpapan, Jogjakarta, Bandung, and Lombok. At

that time, PT Aerofood Indonesia analysed that company had captured 75% of the

market share in in-flight catering services across Indonesia, that managed to earn

IDR 1.3 trillion by the end of 2012.

In 2013, PT Aerofood Indonesia strived to focus on optimising the end-to-

end process and business transformation, also synergies within business groups.

In 2014, company managed to experience a significant increase in the context of

effectiveness and productivity. Still in 2014, PT Aerofood Indonesia, branch in

Pekanbaru, has started to operate. In 2015, company objectified IPO in one or

more business units to obtain sources of funding or other financing activities to

improve the financial capability.

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In 2016, there was an increase in business expansion from existing

opportunities by using IPO proceeds and other financing activities. In 2017, PT

Aerofood Indonesia has been vigorous in widening its business scope to overseas.

It refers to the pioneering efforts undertaken to increase corporate profits. For the

years to come, PT Aerofood Indonesia has set plans to continuously improve the

service excellence by means of proactively seeking more business opportunities

and developing more innovative approaches to stay ahead of market demands and

expectations.

Although product quality, competitive pricing, and customer satisfaction are

important for the business continuity, many business organisations lack of

knowledge about how to maximise their resources effectively and efficiently to

achieve successful business operations. Lawal (2015) revealed that many

businesses seize to operate optimally because of improper implementation of the

procurement process, which eventually leads to a high cost of running a business.

Procurement practices are valued as strategic activities for companies that

support the continuity of business operations. Therefore, it is necessary to

understand and implement proper procedure of procurement practices. Proper

procedure may improve company’s performance in meeting the demands of a

competitive market, which encourages good chances of success.

The success of PT Aerofood Indonesia cannot be separated from the

successful procurement practices that have been performed by the company.

Suppliers are essential in supporting procurement practices in a company. Both

good coordination and collaboration, among the company and its suppliers, are

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key to the realisation of good procurement practices. However, good coordination

and collaboration are merely not sufficient to achieve strategic procurement

practices.

Norrman in Int. J. Procurement Management (2008) mentioned that sharing

things, such as risk and gain sharing, are the key to achieve successful supply

chain implementation. Procurement practices, in supply chain implementation, are

related to the real role and contribution of long-term cooperative partnerships

between the company and its suppliers. Currently, many companies tend to focus

on internal control of procurement practices compared to external factors, such as

suppliers. In the presence of a close relationship by the company and its suppliers,

exchange of valuable knowledge among the parties is required to generate vision

and risk control in procurement practices. It may lead to the direction of integrated

and innovative supply chain performance and enhance the company’s

performance.

The deep supplier relationships (company and its suppliers) are judged as

mutually beneficial relationships. They constantly seek for trust and personal

relationships, also knowledge integration between both parties. Therefore,

companies are increasingly looking for opportunities to establish cooperative

partnerships with appropriate partners to control over business process and

procurement practices that are agile, efficient, and responsive to dynamic market

changes.

In view of the success of PT Aerofood Indonesia, author believes that PT

Aerofood Indonesia has been quite successful in its procurement practices, in

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relation to the relationships between the company and its suppliers that support

the business operation. Based on that consideration, author is interested to criticise

the form of relationships and knowledge integration between PT Aerofood

Indonesia and its suppliers.

This study would like to attempt to describe the role of deep supplier

relationships and exchange of valuable knowledge that exist among the company

and its suppliers. The research would be conducted at PT Aerofood Indonesia,

branch in Denpasar, otherwise known as Aerofood ACS Unit Denpasar.

Therefore, with all rationalisations, this study entitled "Strategic Procurement

Practices through Deep Supplier Relationships and Exchange of Valuable

Knowledge at PT Aerofood Indonesia".

B. Research Problems

Based on the existing background, the research problems in this study, as

follows:

1. How are deep relationships formed between Aerofood ACS Unit

Denpasar with its suppliers as partners to run long-term partnerships?

2. How is exchange of valuable knowledge formed between Aerofood

ACS Unit Denpasar with its suppliers for implementing risk-gain

sharing between both parties?

3. How is strategy making process done by Aerofood ACS Unit

Denpasar to achieve deep supplier relationships and exchange of

valuable knowledge?

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4. How does Aerofood ACS Unit Denpasar evaluate the success of deep

supplier relationships and exchange of valuable knowledge?

C. Research Objectives

Based on the existing research problems, the purposes of this study, as

follows:

1. Describing how deep relationships are formed between Aerofood

ACS Unit Denpasar with its suppliers as partners to run long-term

partnerships.

2. Describing how exchange of valuable knowledge is formed between

Aerofood ACS Unit Denpasar with its suppliers for implementing

risk-gain sharing between both parties.

3. Describing how strategy making process is done by Aerofood ACS

Unit Denpasar to achieve deep supplier relationships and exchange of

valuable knowledge.

4. Describing how Aerofood ACS Unit Denpasar evaluates the success

of deep supplier relationships and exchange of valuable knowledge.

D. Research Contributions

The results of this study are expected to contribute, both practical

contribution and academic contribution, as follows:

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1. Practical Contribution

For the company, the practical aspect is intended as a consideration

and suggestion for PT Aerofood Indonesia, particularly Aerofood

ACS Unit Denpasar, on how to get involved in deep-supplier

relationships and exchange valuable knowledge with suppliers. It also

aims to improve strategic procurement practices within its supply

chain activities and enhance the company’s performance.

2. Academic Contribution

a. Be able to know, understand, and implement strategic procurement

practices through deep-supplier relationships and exchange of

valuable knowledge with partners, such as suppliers, referring to

the practices that have been performed by Aerofood ACS Unit

Denpasar, to find relevant ideas between the theories gained in

lectures and practices obtained in the field.

b. Be able to provide suggestions and insights for further research,

where this study, particularly in supply chain management, may be

used as a reference in further research.

E. Systematic Discussion

Systematic discussion aims to obtain an overview of the concept of thinking

used by author to describe the problems and understand the contents of the study

systematically, as follows:

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CHAPTER I : INTRODUCTION

Chapter I illustrates general views or background, research

problems, research objectives, research contributions, and

systematic discussion.

CHAPTER II : LITERATURE REVIEW

Chapter II illustrates the descriptions of previous studies

and review of the study, including the theories from

various references which are relevant to the theme of

study, as the basis of scientific foundation in this study.

Theories used, namely supply chain management theory,

theory of procurement practices, theory of deep supplier

relationships, and exchange of valuable knowledge theory.

CHAPTER III : METHODOLOGY

Chapter III examines the type of research, focus of

research, location of research, sources of data, data

collection techniques, instruments of research, and data

analysis methods used by author in this study.

CHAPTER IV : RESULTS AND DISCUSSION

Chapter IV describes the results of study, such as data

presentation, data analysis or interpretation, and

recommendations suggested by author in this study.

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CHAPTER V : CONCLUSIONS AND SUGGESTIONS

Chapter V encompasses the conclusions in this study and

suggestions for the company and further research in the

future.

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CHAPTER II

LITERATURE REVIEW

A. Previous Studies

1. Building Knowledge Integration in Buyer-supplier Relationships:

The Critical Role of Strategic Supply Management and Trust

(Revilla and Knoppen, 2015)

Strategic supply management is an important antecedent of knowledge

integration. Companies that emphasise the strategic role of supply management

are better prepared to work with their suppliers to solve significant problems that

arise within supply activities and achieve improved performance for both supply

management and business operations. However, a lack of trust refrains companies

from cooperating with their supply chain partners.

Trust may diminish when buyer and suppliers have different interest and

engage in behaviours that are explicitly or implicitly prohibited, such as taking

advantage of specific and critical knowledge gained within buyer-supplier

relationships. Trust between buyer and its suppliers plays a crucial role in learning

and developing the knowledge integration capability. Trust is considered as the

important variable that influences inter-organisational behaviour. It is also

considered as potential factor to influence performance through knowledge

integration directly and indirectly.

This research is a quantitative research with survey data of 133 usable

responses of the respondents came from managerial positions in Spanish

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manufacturing firms and subsidiaries of multinational companies operating in

Spain. Respondents in managerial positions were chosen because their

understanding would reflect larger portion of the company and its relationships

with the suppliers. The objectives of this research are investigating the impact of

knowledge integration in terms of joint-decision making and joint-sense making

on relational performance, including operational efficiency and innovation, as

well as examining the key antecedents that might facilitate knowledge integration,

in relation to supply management and trust.

The results showed that both integrative mechanisms, such as joint-decision

making and joint-sense making, affect performance in different ways. This study

also found that trust has multiple significant influences, where supply

management is required to jointly understand the dynamic and complex context.

Therefore, in terms of supplier selection process, it is important to identify the

suppliers that have higher learning capability. Suppliers that demonstrate a

willingness to understand the root causes of mistakes, and by doing so open up to

buyer, are the most likely to develop knowledge integration capability.

The type of research used in this study is different from the type of research

in author’s study, which is quantitative research, with survey data of 133 usable

responses of respondents in managerial positions from Spanish manufacturing

firms and subsidiaries of multinational companies operating in Spain. In author’s

study, the research would be conducted at PT Aerofood Indonesia, branch in

Denpasar, by analysing primary and secondary data, using qualitative approach.

The similarities between this existing study and the author’s study are the

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purposes of both studies to demonstrate how knowledge sharing may empower

supply management and how trust may affect the knowledge sharing activities

between company and its suppliers.

2. The Effect of Buyer-supplier Partnership and Information

Integration on Supply Chain Performance: An Experience from

Chinese Manufacturing Industry (Khan, Liang, and Shahzad,

2015)

Coordination, collaboration, and cooperation are often used in business

terms to increase productivity and improve performance. Cooperative

relationships and the integration of information between buyer and its suppliers

play important roles in the supply chain. The development of mutual trust and

personal connections, or so-called guānxì (� �), between buyer and suppliers

may lead to a better business environment, in relation to the supply chain.

Collaborating with suppliers may support company to improve the ability in

managing supply and demand while ensuring that costs remain under control.

Some companies are more focused on improving their relationship with suppliers,

while others pay more attention to information integration among supply chain

actors, i.e. buyer and suppliers. However, those two main approaches are integral

and inseparable elements. Thus, companies must work hard in building

relationships and getting involved in information integration activities

simultaneously.

This research is a quantitative research with structural equation modelling

approach, which analyses relation between variables more complex than multiple

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regression analysis and factor analysis, that is used to analyse data which was

collected from 218 Chinese manufacturing industries. This study measured how

the integral elements of buyer-supplier relationships and information integration

activities could significantly influence supply chain performance. The results of

this study indicated that trust and guānxì are very important elements, also

integration of information between organisations, including quality information

and real-time information. Buyer-supplier relationships also have a significant

impact on information integration.

This study demonstrated that a unity of buyer-supplier relationship elements

and information integration activities cannot be separated from the determination

of supply chain performance. Therefore, strategic decisions are needed to trust

partners based on critical information. In other words, Chinese companies attempt

to create good cooperative relationships by carefully choosing partners to avoid

problems and conflicts before engaging in information integration activities.

The type of research used in this study is different from the type of research

in author’s study, which is quantitative research, where data was collected from

218 Chinese manufacturing industries. In author’s study, author would conduct

the research at PT Aerofood Indonesia, branch in Denpasar. The sources of data

were obtained from primary and secondary data, by using qualitative approach.

The similarities between this existing study and the author’s study are the

purposes of both studies to demonstrate how a unity of buyer-supplier relationship

elements and information integration activities cannot be separated from the

determination of supply chain performance, particularly in procurement practices.

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3. The Influence of Information Sharing, Supplier Trust and

Supplier Synergy on Supplier Performance: The Case of Small

and Medium Enterprises (Pooe, Mafini, and Loury-Okoumba,

2015)

Evaluation of suppliers’ performance is an essential element for small

medium enterprises (SMEs). Therefore, business enterprises may take a step, also

implement plans and policies to improve their performance in achieving

sustainable competitive advantage. These elements, such as information sharing,

supplier trust, and supplier synergy, are considered to have effects on the

performance of suppliers in small and medium enterprises (SMEs). Thus, having

interaction effectively and efficiently among organisations through the activity of

sharing input resources is very appropriate to be implemented.

This research is a quantitative research with survey questionnaire of 309

owners or managers of small and medium enterprises, based in southern Gauteng,

South Africa, which employ approximately 500 employees. This study focused on

four objectives, such as determining the impact of information sharing on supplier

trust, determining the impact of information sharing on supplier synergy,

determining the impact of supplier trust on supplier performance, and determining

the impact of supplier synergy on supplier performance.

The results showed that information sharing provides positive and

significant influences to supplier trust, also weak but significant influences to

supplier synergy. Supplier synergy provides positive and significant influences to

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supplier performance. However, the influence of supplier trust to supplier

performance is weak and not significant.

Supplier synergy, that provides a positive influence on supplier

performance, requires the company to be responsive and to take the initiative to

improve that state of affairs. Small and medium enterprises (SMEs) should be

involved in joint-forecast activities with their suppliers to develop and strengthen

collaboration. Such collaboration may empower supply chain management by

strengthening cooperative relationships as well as having integration processes

that is able to improve future performance. Therefore, the element of supplier

synergy is stronger than the element of supplier trust. This study recommended

that efforts by small medium enterprises (SMEs), to grow and develop supplier

synergy, should be higher than merely fostering suppliers of trust element.

The type of research used in this study is different from the type of research

in author’s study, which is quantitative research, by doing survey questionnaire of

309 owners or managers of small and medium enterprises, based in southern

Gauteng, South Africa, which employ approximately 500 employees. In author’s

study, the research would be conducted at PT Aerofood Indonesia, branch in

Denpasar, by analysing primary and secondary data, using qualitative approach.

The similarities between this existing study and the author’s study are the

purposes of both studies to demonstrate how a collaboration empowers supply

chain management by strengthening cooperative relationships as well as having

integration processes that may improve future performance between buyer and

suppliers.

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4. Exploring the Factors of Inter-Organizational Knowledge Sharing

(Chen, et al, 2014)

Knowledge sharing among organisations is a strategic element to achieve

competitive advantage in rapid and dynamic changes in the business environment.

The main types and key issues of knowledge sharing are more concerned in

previous studies. However, either how or why organisations need to develop trust

in cooperative relationships and participate in knowledge sharing is often

overlooked.

A social-exchange perspective should be considered as something important

to explore the relational factors that lead to knowledge sharing activities, in

relation to the supply chain. Referring to knowledge sharing activities as pattern

of inter-organisational interactions and the outcomes of social relationships

performed, it must be emphasised that relational and shared values are major

elements of mutual trust among organisations. Relational and shared values refer

to the sharing of valuable knowledge between both parties.

This study is a quantitative research and it used structural equation

modelling approach to analyse data in this study. This study explored two main

aspects. First aspect is about how organisations could get involved in knowledge

sharing within the inter-organisational context. Second aspect is about how the

organisation could get involved in coordination and integration of information

assets with partners.

This research was applied to manufacturing companies in Taiwan of 195

respondents, as it was considered ideal in effective communication and interaction

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with their partners. Those manufacturing companies were chosen because they

have experienced in cross-organisational data sharing and knowledge-sharing

activities, by means of managers as key informants. The managers often engage in

knowledge-sharing strategies and information systems among organisations. The

results of this study indicated that shared-value and linkages, between related

organisations, play important roles in facilitating trust between organisations.

Thus, organisations should strive to reach consensus of mutual goals to

reduce the uncertainty and concerns of information security, that is shared to

maximise knowledge-sharing activities among organisations. The attitude of

mutual trust is the main foundation of the exchange of information and the

knowledge sharing among organisations. Therefore, the establishment of a close

relationship among the organisations may motivate the parties to have mutual

trust one another, particularly in sharing valuable knowledge smoothly to capture

the business opportunities.

The type of research used in this study is different from the type of research

in author’s study, which is quantitative research. The research was applied to

manufacturing companies in Taiwan of 195 respondents. Meanwhile, in author’s

study, author would conduct the research at PT Aerofood Indonesia, branch in

Denpasar, where the sources of data obtained from primary and secondary data,

by using qualitative approach. The similarities between this existing study and the

author’s study are the purposes of both studies to demonstrate how or why

business organisation needs to develop trust in cooperative relationships with its

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suppliers and participate in knowledge sharing, otherwise known as exchange of

valuable knowledge.

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Table 1. Previous Studies

Authors/Year Title of the Study Methodology Results

Revilla and Knoppen (2015)

Building Knowledge Integration in Buyer-supplier Relationships: The Critical Role of Strategic Supply Management and Trust

This research is a quantitative research. The data used in this research is primary data through questionnaire as the main instrument.

The result showed that both integrative mechanisms, such as joint-decision making and joint-sense making, affect performance in different ways. This study also indicated that trust has multiple significant influences, where supply management is required to jointly understand the dynamic and complex context.

Khan, Liang, and Shahzad (2015)

The Effect of Buyer-supplier Partnership and Information Integration on Supply Chain Performance: An Experience from Chinese Manufacturing Industry

This research is a quantitative research. The data used in this research is primary data with survey method through questionnaire as main instrument.

The results of this study indicated that trust and guānxì are important elements, also integration of information between organisations, including quality information and real-time information. On the other hand, buyer-supplier relationships have a significant impact on information integration.

Pooe, Mafini, and Loury-Okoumba (2015)

The Influence of Information Sharing, Supplier Trust and Supplier Synergy on Supplier Performance:

This research is a quantitative research. The data used in this research is primary data through questionnaire as the main instrument.

The results indicated that information sharing may provide positive and significant influences to the supplier trust. Nevertheless, it may provide weak, yet significant influences to the supplier synergy.

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Continuation of Table 1. Previous Studies The Case of Small and

Medium Enterprises Supplier synergy provides positive

and significant influences to supplier performance. However, the influence of supplier trust to supplier performance is weak and not significant.

Chen, et al (2014) Exploring the Factors of Inter-Organizational Knowledge Sharing

This research is a quantitative research and it used SEM approach to analyse data in this study. The data used in the research is primary data with questionnaire as the main instrument.

The results of this study indicated that shared-value and linkages between related organisations play important roles in facilitating trust between organisations. Thus, organisations should strive to reach consensus of mutual goals to reduce the uncertainty and concerns of information security that is shared.

Source: Data processed, 2017.

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B. Review of the Study

1. Supply Chain Management

a. Definition of Supply Chain Management

Currently, logistics management has evolved into a supply chain

management (SCM). Supply chain management is defined as the management

across and within a network of upstream and downstream organisations of both

relationships and flows of materials, information, and resources (Mangan and

Lalwani, 2016, p. 11). According to Ross (2015, p. 9), supply chain management

is about a company integrating its process capabilities and marketplace objectives

with its suppliers and customers on a strategic and tactical level.

Meanwhile, the Council of Supply Chain Management Professionals

(CSCMP) in Christiansen (2015, p. 227) described supply chain management as

the planning and management of all activities involved in sourcing and

procurement, conversion, also all logistics management activities. Importantly, it

includes coordination and collaboration with the channel partners, such as

suppliers, intermediaries, third party service providers, and customers.

From the definitions above, it is concluded that supply chain management is

an integrated system that combines supply and demand management. It is along

with all activities that include the flow and transformation of goods from the stage

of suppliers to end-users with the information flow as a key factor to reach the

supply chain innovation.

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b. Roles and Objectives of Supply Chain Management

According to Stadtler, Kilger, and Meyr (2014, p. 281), supply chain

management aims at improving the competitiveness of the supply chain, by

integrating organisational units along the supply chain as well as by coordinating

material, information, and financial flows, to fulfil market (customer) demands.

On the other hand, Ivanov and Sokolov (2009, p. 1) implied the added value

creation which is dispersed over the whole value chain, from raw materials to

product dissemination and consumption, as the role of supply chain management.

Meanwhile, Ross (2016, p. 1) explained how supply chain management is

important because companies have come to recognise that their capacity to

continuously reinvent competitive advantage depends less on internal capabilities,

but more on their ability to look outward to their networks of business partners.

Companies may search for the resources to assemble the right blend of

competencies that resonate with their own organisations, also core product and

process strategies. From the explanations above, it is concluded that supply chain

management system aims to maximise the value and profit, generated by each

component of the supply chain activities.

According to Ross (2015, p. 19), supply chain management is used to

reassemble and energise channel structures by tapping into the core competencies

of their channel partners and accelerating cross-enterprise collaborative processes.

Scott, Lundgren, and Thompson (2011, p. 4) described that the functional view of

supply chain management belongs to the functional plan process, where demand

and supply are balanced to develop a course of action to meet sourcing,

26

production, and delivery needs. On the other hand, Kahraman and Oztaysi (2014,

p. 21) claimed that the fundamental objective of supply chain management is to

integrate various suppliers to satisfy market demand.

From the explanations above, it is concluded that the objective of supply

chain management is to overcome the speed of change and uncertainty of market

and supply by accelerating cross-enterprise collaborative processes. In this case,

the meaning of market is the level of demand of consumers, which always

changes. Supply chain management may also help a company to achieve well-

managed supply chain operation and improve company’s performance. Supply

chain system is described on Figure 3.

Figure 3. Supply Chain System

Source: Martono, 2015.

Producer

Processing of Materials

Finished Works (Goods)

Consumers

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c. Main Factors in Supply Chain Management

According to Kersten (2010, p. 265), factors of success for efficient supply

chain management consist of customer orientation, organisation, relationships or

cooperation, IT systems, process optimisation, controlling or performances

measurement, and management support. On the other hand, Hirsch in Kersten

(2010, p. 265) mentioned that it considers both organisational and functional

success factors.

The organisational success factor could be seen as the precondition of any

SCM-related intention. SCM-related intention cannot be separated from the

intention of fulfilling market changes and improving company’s performance. The

functional success factors are clustered into the systematic categories, such as

supply chain organisation, processes, customers, suppliers, partnerships, IT,

controlling, and organisation.

Supply chain organisation in this category cannot be separated from the

ability of aligning the supply chain in accurate and strategic ways, as well as

assisting in problem solving and conflict resolution. Processes in this category are

related to standardisation, simplification, and optimisation of processes, also

ensuring reactivity and flexibility. Customers in this category are related to the

development of customer relationship management, as well as building up and

maintaining relationships.

Suppliers in this category cannot be separated from the development of

supplier management and supplier relationships, also close communication and

integration of information. Partnerships in this category cannot be separated from

28

clear understanding and benefit sharing, also goals at maximising long-term

performance of each partner in supply chain. IT in this category is related to

information management, also in support of planning and forecasting.

Controlling in this category cannot be separated from the performance

measurement, also corporate controlling and internal controlling. Lastly,

organisation in this category is related to how company organises the supply chain

activities among the supply chain drivers. Therefore, it is concluded that both

organisational and functional success factors play important roles to achieve

supply chain management.

d. Innovation in Supply Chain Management

Innovative supply chain management may be used to achieve the full

performance of a supply chain and lead to improved company’s performance.

Ponis (2010, p. 73) described supply chain innovation as a capability that is

considered vital for both mitigating supply chain risks and creating innovation for

the supply chain, where innovation may be a risk relief factor. Meanwhile,

innovation originating through the supply chain is more important than internal

innovation. Thus, ensuring an efficient process is in place to facilitate the

exchange of ideas, where it is not only relevant but also essential. According to

Natour, Kiridena, and Gibson (2011), the supply chain approach to managing

business operations strongly supports the alignment and integration of key

business processes within the supply chain by adhering to efficiency,

responsiveness, and agility.

29

Efficiency, responsiveness, and agility are the components that reflect the

integrated process in supply chain flexibility. Those components may survive any

uncertainties within supply chain activities. They are related to process flexibility,

sourcing strategy, also internal and external factors. To achieve supply chain

innovation, those influential components must be considered. It is concluded that

to achieve supply chain innovation, better supply chain management may be

implemented through understanding the influential components within supply

chain activities, to gain improved supply chain performance and mitigate supply

chain risks.

e. Supply Chain Management Strategy

According to Cetinkaya, et al (2011, p. 21), supply chain management

strategy determines the goals and the configuration of the supply chain regarding

supply chain partners, supply chain structures, supply chain processes, and supply

chain systems. Chopra and Meindl in Ramanathan and Ramanathan (2013, p. 10)

mentioned that supply chain strategies determine these components, such as the

nature of material procurement, transportation of materials, manufacture of

product or creation of service, and distribution of product.

Cohen and Roussel (2013, p. 4) described that supply chain strategies within

a company must support the company’s primary basis of competition, where the

strategy is a balancing act. From the explanations above, it is concluded that

supply chain management strategy determines the goals within supply chain

activities as a balancing act of enhancing company’s performance. Supply chain

as a strategic asset is described on Table 2.

30

Table 2. Supply Chain as a Strategic Asset

Primary Basis of Competition

Product and Service Attributes

Key Supply Chain Contributions

Innovation Cutting-edge, must-have

Time to market and time to volume

Customer Experience

Tailored to meet customers’ specific needs

Supply chain interactions designed from the customer’s perspective

Quality Reliable performance Procurement and production excellence and quality control

Cost Lowest priced Efficient, low-cost configuration and processes

Source: Cohen and Roussel, 2013.

2. Procurement Practices

a. Definition of Procurement

Arnolds, Heege, Roh, and Tussing in Munch (2015, p. 42) claimed that the

concept of procurement is often used to highlight operational activities.

Meanwhile, Weele in Ordonez de Pablos (2012, p. 10) defined procurement as a

function of purchasing inputs used in the company’s value chain, including raw

materials, supplies, and other consumables, also machinery and equipment.

On the other hand, Ribeiro (2009, p. 27) claimed procurement as a process

through which a project team comes to conclude one or several contracts for the

supply of goods, works, or services, that are part of the deliverables of a project.

Therefore, it is concluded that procurement is a part of operational activities

which is related to purchasing inputs for the supply of goods, works, or services,

also negotiation and contracts with the suppliers.

31

Procurement and purchasing are often considered as similar meanings, but

they are obviously different. Munch (2015, p. 42-43) stated that procurement is a

company’s organisation unit responsible for all strategic and operational,

purchasing-relevant planning, strategies, activities, processes, and interfaces. On

the other hand, purchasing is a subset of procurement which is based on

transactions and is responsible for the provision of goods and services required

within the company at the right time, price, and quality.

Therefore, it is concluded that procurement involves the process of selecting

suppliers, establishing negotiations and terms of payment agreements, appraising

goods and / or services, selecting suppliers by holding tenders and formulating

contracts, as well as purchasing goods and / or services needed. While, purchasing

may be implied as a part of procurement because the main task is to purchase

goods and / or services, also receive the bills and make payment to suppliers.

Nevertheless, procurement and purchasing have similar functions, jobs, and

objectives, which provide goods and / or services in support of the business

operation of a company.

b. Roles and Objectives of Procurement Practices

Grant, Trautrims, and Wong (2015, p. 127) mentioned that the role of the

procurement function has changed significantly with the genesis of idea in

competing supply chain. Meanwhile, Mena, Christopher, Hoek (2014, p. 9) stated

that because of the development of procurement function, many firms have

reverted to an obsessive focus on cost at the expense of other critical factors, such

as risk, sustainability, and overall value to the business. Therefore, procurement

32

plays an important role as a leading entity to gather correct information and

distribute them to logistics operations, to improve the company's operational

competencies.

Virolainen in Isen (2012, p. 7) stated that the procurement role entails not

only operational activities but also strategic responsibilities. Hence, it may be

implied as an indispensable partial process of the supply chain within a company.

On the other hand, Martono (2015, p. 32) described the procurement objectives, as

follows:

1) To receive goods and services from suppliers based on quantity,

price, and quality as needed.

2) To ensure the company for getting the best service from the

suppliers, so that the business operation runs smoothly.

3) To identify suppliers that are able to provide the best goods and

services, also foster good relationships.

4) To establish closer relationships with suppliers to understand each

the needs of both parties.

5) To negotiate purchasing costs.

6) To prepare for possible scarcity of goods, mark-ups, and plan of

new organisational product development.

In addition, procurement also has the other main objectives, such as

managing the continuous flow of goods and / or services for the company

continuously as well as working side by side with other operational departments,

depending on the business operation of the company. Thus, a procurement

33

manager plays an internal role to provide information about prices, product

information, supplier data, and its capacity to other operational functions. Role of

procurement practices is on Figure 4.

Figure 4. Role of Procurement Practices

Source: Data processed, 2017.

c. Main Contributions and Activities of Procurement Practices

According to Chick and Handfield (2014, p. 35), the congruent

contributions that procurement may provide, as follows:

1) product innovation and technology development;

2) knowledge sharing and new process capability development;

3) multi-tier supplier integration;

4) mitigation of supplier risk;

5) supplier performance improvement and capability augmentation;

6) supplier financial disruption avoidance;

7) sustainable supply chain improvements.

Suppliers

Manufacturing/Production Process

Consumers

Procurement Practices

(Raw Materials)

34

Figure 5. General Activities of Procurement Practices

Source: Lawal, 2015.

According to Figure 5., the main activities of the procurement practices are

to provide value-added for the organisation, in terms of price or cost, and ensure

availability time. In addition, the procurement practices also organise the

availability of raw materials and inventory from suppliers to the production

process, also manage the company's operational needs. It is concluded that the

main procurement activities include agreeing to the specification of the goods or

services with the other operational departments, selecting suppliers, negotiating

with suppliers, holding tenders and formulating contracts, managing and / or

monitoring, as well as evaluating the performance of its suppliers.

d. Partnership Working in Procurement Practices

Martono (2015, p. 34) stated that if company decides to purchase any goods

and / or services from suppliers, the steps which must be taken, as follows:

Requirement Identified

Advertise Requirement

Expressions of Interest

Tender Document Produced

Tender Evaluation

Contract Award

Contract Implemented

Contract Management

35

1) selection of suppliers;

2) negotiation with suppliers;

3) evaluation of suppliers’ performance.

Partnership working may be started from searching for suppliers’

background from few references. Afterwards, those suppliers may be notified and

invited to attend the tender process or auction process, also negotiation.

Thereafter, the buyer may assess the capabilities of those suppliers. After

assessing those suppliers based on what buyer requires, the best suppliers may be

selected and the partnership working is obtained. Partnership working in

procurement practices is described on Figure 6.

Figure 6. Partnership Working in Procurement Practices

Source: Data processed, 2017.

Analysis of Suppliers

Tender & Auction

Assesment of Suppliers

Selection of Best Suppliers

Partnership Working

36

Purchasing in procurement practices is a substantial process and it plays

important role in continuity of business operation within the company. Therefore,

the old perspective of purchasing goods and / or services must be changed by

having the new perspective which explores further about strategic purchasing to

achieve strategic procurement partnerships. Partnership working is able to support

the procurement practices by building close relationships with suppliers to share

trust, coordination and collaboration, risk and gain, as well as bonding to each

other.

3. Deep Supplier Relationships

a. Understanding of Deep Supplier Relationships

Dyer in Netland and Powell (2016, p. 207) stated that building deep supplier

relationships often requires supply base reduction and consolidation. After the

supplier base has been reduced, the buyer needs to develop lean supplier

relationship development program. According to Harris and Streeter in Netland

and Powell (2016, p. 207), goal of the close buyer-supplier relationships is to

develop the suppliers into partners and to create mutually beneficial relationships

that provide efficient and consistent values to end customers. Nicosia and Moore

(2006, p. 15) stated that many commercial enterprises are moving from arms-

length to deeper supplier relationships.

Meanwhile, the definition of deep supplier relationships has not been overly

discussed in existing studies for decades. Therefore, in this study, author

concludes that deep supplier relationships are designed to achieve competitive

advantage of business operation. Deep supplier relationships come from the

37

relationships built by buyer and its suppliers to achieve strategic procurement

practices. The concept is about the mutually beneficial relationships which

involves the development of trust and guānxì, also knowledge integration among

them. Concept of deep supplier relationships is described on Figure 7.

Figure 7. Concept of Deep Supplier Relationships

Source: Data processed, 2017.

b. Roles and Objectives of Deep Supplier Relationships

According to Marik, Camarinha-Matos, and Afsarmanesh (2013, p. 416), by

building relationships between buyer and suppliers and thereby creating

interdependencies, the market complexity of the procurement is reduced. Khan,

Liang, and Shahzad in Int. J. Sup. Chain Mgt. (2015) stated that buyer-supplier

partnerships provide organisations with multiple potential benefits, such as

improved quality products, increased flexibility, reduced inventory levels, and

reduced total costs. It also enhances supply chain and company’s performance.

Therefore, a good partnership quality between buyer-suppliers based on mutual

Partnership Working

Arms-length Supplier

Relationships

Trust

Guānxì

Integration

Deep Supplier Relationships

38

trust, fulfilment of promises, and joint-problem solving, helps in avoiding

complex and lengthy contracts.

It is concluded that deep supplier relationships are more essential than the

arms-length supplier relationships. They may reduce the market complexity of

procurement and obtain significant impacts of building up as well as maintaining

relationships when doing negotiation, formulating contracts, and having

partnership working between buyer and suppliers through mutual relationships.

Deep supplier relationships also enable the buyer and suppliers to openly share

relevant knowledge related to their partnerships, where open sharing of

knowledge may avoid unnecessary gaps.

c. Evolution of Deep Supplier Relationships

Yawar (2015, p. 47) stated that the long-term relationships in the form of

collaborations, partnerships, and alliances are based on mutual goal sharing, trust

and commitment, setting information and communication channels, as well as

adopting appropriate strategies that benefit both buyers and suppliers. From the

description above, it may be concluded that deep supplier relationships play

substantial role over the arms-length relationships. Deep supplier relationships are

not only about the confrontation and cooperation, but also coordination and

collaboration.

Good relationships may be held by considering the power and dependence

among both parties, before paying attention to relationship performance and

relationship bonds. Relationship performance consists of reputation, trust, and

performance satisfaction, where personal relationships (guānxi) consist of

39

structural bonds and social bonds – as relationship bonds. Coordination and

collaboration may be implied as drivers in the exchange of valuable knowledge, to

achieve long-term partnerships. Achieving strategic partnerships through four

steps is described on Figure 8.

Figure 8. Four Steps Achieving Strategic Partnerships

Source: Munch, 2005.

d. The Art of Deep Supplier Relationships through Trust and

Guānxì

In China, deep supplier relationships have been implemented for decades.

The development of mutual trust, or commonly called as xìnyòng ( � � ) and

personal relationships, otherwise known as guānxì ( � � ). They are considered

to lead to a better business environment.

Khan, Liang, and Shahzad in Int. J. Sup. Chain Mgt. (2015) stated that trust

is defined by the expectation that an actor may be relied on fulfiling obligations,

also may behave in a predictable manner, may act, and may negotiate fairly when

Confrontation Cooperation Coordination Collaboration

Traditional and Modern Procurement

Supplier Relationship Management

40

the possibility for opportunism is present. Therefore, trust is considered as

powerful force. It has impact in creating decisions and taking actions, as well as

achieving agility, efficiency, and responsiveness from both buyer and suppliers,

by considering the reputation and performance satisfaction.

Trust plays an important role in building relationships to achieve long-term

partnerships. When buyer trusts its suppliers by considering reputation as well, it

may be easier for both parties to get involved in such deep supplier relationships,

including the exchange of valuable knowledge.

Khan, Liang, and Shahzad in Int. J. Sup. Chain Mgt. (2015) described

guānxì as special personal connections that are bounded by an implicit

psychological contract to follow related structural and social norms. They are in

forms of long-term relationship, mutual commitment, also trust and obligation.

Buyer and suppliers may form a structural network where they exchange favours

and services. Both parties may also bond together to maintain relationships.

Buyer and its suppliers implement social connection where they

communicate by paying attention to applicable norms. Guānxì plays important

role in building relationships that combines commitment and interpersonal

strength between buyer and suppliers. It aims to achieve long-term partnerships

and to get involved in exchanging valuable knowledge. Art of deep supplier

relationships is described on Figure 9.

41

Figure 9. Art of Deep Supplier Relationships

Source: Data processed, 2017.

4. Exchange of Valuable Knowledge

a. Understanding of Exchange of Valuable Knowledge

Winkelen and McKenzie (2011, p. 1) stated that valuable knowledge may be

found in many places in organisations. They may be in forms of unique business

models or solutions, key value-adding processes, core technology competencies,

to business support systems, that integrate knowledge across the organisations.

Therefore, it is stated that a company needs to identify and manage their valuable

knowledge.

Exchange of valuable knowledge may achieve effective business strategy, in

relation to supply chain and procurement practices. Valuable knowledge is

identified to explore two main dimensions. First dimension is about the

importance of the knowledge, where it is able to describe the company’s needs in

relation to supply chain and its potential benefit to the company. Second

dimension is about the accessibility of the knowledge within supply chain

activities, particularly procurement practices, in relation to buyer-supplier

relationships.

Long-term Partnership

Deep Supplier

Relationships

Trust

Guānxì

Integration

Mutual Commitment

42

b. Roles and Objectives of Exchange of Valuable Knowledge

Winkelen and McKenzie (2011, p. 2) stated that the reasons for using a

systematic process to identify and evaluate the knowledge sources of the

organisation, as follows:

1) To understand what knowledge the organisation has;

2) To understand what knowledge is needed – a gap analysis;

3) To add structure to thinking and action;

4) To create a view that is robust against organisational change and

over time so that sustained initiatives can be justified.

Therefore, it is concluded that the exchange of valuable knowledge plays

important roles and objectives in maintaining relationships in relation to

procurement practices within supply chain, where the reasons, as follows:

1) To understand what knowledge the organisation has in relation to

procurement practices;

2) To understand what knowledge is needed within procurement

activities – a gap analysis;

3) To add structure to thinking and action in procurement process;

4) To create a view that is robust against organisational change in

relation to procurement activities, so that sustained initiatives can

be justified.

Thus, valuable knowledge that is shared between buyer and suppliers is

started from developing a knowledge map within supply chain activities, then

valuing the knowledge of supply chain activities in the map, and using the output

43

from the valuation of the knowledge map. It aims to share substantial knowledge

between both parties. Buyer and suppliers may discover ways to work

strategically and jointly share risks and gains that come up in supply chain

activities, particularly procurement practices.

c. Main Components of Exchange of Valuable Knowledge

In this study, author groups key factors of the exchange of valuable

knowledge into three components, as follows:

1) Joint-improvement;

Joint-improvement, otherwise known as joint-value creation, may

be obtained from not only supply chain innovation, but also sharing

between buyer and suppliers. Therefore, it may overcome the order

information received from users. Hohn (2009, p. 6) mentioned that

mutual interdependence drives joint-improvement. The mutual

interdependence is directed for both parties, i.e. buyer and

suppliers.

2) Planning integration;

Scholten and Stillwell (2013, p. 6) mentioned that planning and

information are closely linked, where the information is needed to

assist decision making in planning, and the monitoring of

development may result in new planning actions. Therefore,

information management and planning process management

coincide. It is important for both buyer and suppliers to get

involved in planning integration. Planning integration aims to

44

obtain the exact order information and plan the further supply chain

activities, particularly procurement practices. It also takes planning

actions, where the risks may be reduced and the creation of values

for both parties is enhanced.

3) Information integration;

Khan, Liang, and Shahzad in Int. J. Sup. Chain Mgt. (2015) stated

that information integration refers to the sharing of key information

along the supply chain network which is enabled by information

technology (IT). Schwentick (2006, p. 30) stated that information

integration is a real process with four major tasks, such as

understanding, standardising, specifying, and executing. Therefore,

the goal of information integration is to enable rapid development

of taking actions which requires the information from multiple

sources, that are buyer and suppliers, in relation to supply chain

activities and procurement practices.

d. Performance of Exchange of Valuable Knowledge

Bolisani and Bratianu (2017, p. 163) stated that knowledge sharing may

increase the average level of organisational knowledge and contribute directly to

the increase of organisational entropy. Meanwhile, Hammerwoll in Rosell (2013)

claimed that when sensitive or strategic knowledge is being shared,

communication is critical and it requires deeper and more connected relationships.

Therefore, in relation to supply chain activities and procurement practices, it is

important to explore further about major components which may lead to increase

45

the average level of organisational knowledge about supply chain management

and contribute directly to the improved business operation.

Major components to achieve the exchange of valuable knowledge are

described on Figure 10., as follows:

1) Joint-improvement

It is implemented by having coordination and collaboration

capabilities between buyer and suppliers. Coordination and

collaboration are reached by having mutual goal sharing and

making strategic decisions, also overcoming risk challenges. It

aims to lead to higher level and achieve long-term partnerships.

2) Planning integration

It is obtained by having demand and supply management between

buyer and its suppliers in business operation. It aims to lead into

logistics integration and supply chain innovation shared between

both parties, to take right actions of order information and

inventory controls.

3) Information integration

It is reached by sharing confidential information which includes

quality information and real-time information between buyer and

suppliers through traditional way or IT. The major tasks of

information integration are understanding, standardising,

specifying, and executing key factors within inter-organisational

matters.

46

Figure 10. Performance of Exchange of Valuable Knowledge

Source: Data processed, 2017.

5. Strategic Procurement Practices

According to Hill and Jones (2012, p. 22), strategic intent is to build new

resources and capabilities for creating and exploiting future opportunities. Thus,

strategic procurement practices may be concluded as practices of selecting

suppliers, establishing negotiations and terms of payment agreements, appraising

goods and / or services, selecting suppliers by holding tenders and formulating

contracts, as well as purchasing goods and / or services needed, to create and

exploit future opportunities. Strategic procurement practices could be pursued by

building deep supplier relationships and exchange of valuable knowledge between

buyer and its suppliers. Strategic analysis which can be used is Critical Success

Factors. According to Yong and Mustaffa (2012), critical success factors (CSF)

represents factors which are critical to the success of the industry concerned.

Kotula et al (2015) summarised the findings of Khan and Pillania (2008)

and Chiang et al (2012) about set of critical success factors (CSF) of strategic

Coordination and Collaboration

Demand and Supply Capabilities

Quality

& Real-time

information

Joint-improvement

Planning Integration

Information Integration

Valuable Knowledge

47

sourcing. Firstly, the critical success factors (CSF) included strategic supplier

partnership, sourcing flexibility, supplier evaluation, and trust. Thereafter, critical

success factors (CSF) was renewed into this set, such as strategic purchasing,

supplier development, internal integration, and information sharing.

Thus, strategic procurement practices by building deep supplier

relationships and exchange of valuable knowledge with CSF approach may be

integrated from set of critical success factors and project goals. Set of critical

success factors consist of trust, guānxì, and exchange of valuable knowledge.

Project goals consist of defined objectives of procurement practices.

6. Strategy Making Process and Implementation of Deep Supplier

Relationships and Exchange of Valuable Knowledge

According to Mainardes, Ferreira, and Raposo (2014), strategy is the way in

which the company should behave or act in the market and relate to its external

environment. Strategy aims to get involved in preparing the organisation to

confront the current hostile environment, to this end systematically and

objectively deploying the skills, qualifications, and internal resources of the

enterprise. Meanwhile, Steen (2013) defined strategy as the core of a potentially

flexible and adaptive intended course of action. Strategy provides each decision

maker with just enough guidance and with just enough of the full picture to ensure

consistency across decisions, both over time or at a point in time. It may be

concluded that strategy which is agile refers to how company should be

responsive and adaptive to changes in business environment.

48

However, the definition of strategy and policy is quite similar which is still

debatable in recent studies. Policy is a broad guideline for decision-making that

links the formulation of strategy with its implementation (Vijaywargia, 2012).

Companies generally use policies to ensure the employees throughout the firm in

making decisions and taking actions that support the company’s mission,

objectives, and strategies. Gregg (2007) stated that policy can be driven from the

top or from the bottom of organisation, where the policy is aligned with the

strategy of the company.

Strategy making is series of communication episodes where specific matters

of concerns are invoked, evoked, and negotiated, defining and appropriating value

to the organisation (Cooren, et al, 2015). According to Gacic et al (2015), strategy

process is seen as continuous-iterative process that begins with situational analysis

of internal and external factors of the organisation’s environment, also the

formulation of a strategy for the organisation, followed by its implementation in

all the organisation's processes and controls. Harrington (2005) described strategy

making process as an organisation-level mode of operation utilised in the phases

of strategic management: information processing and interpretation, strategic ends

and means formulation, and strategy implementation. Strategic management can

influence the firm’s policies (Clark, 2017). Environmental variables of interest for

the strategy making process typology are dynamism and complexity, where

dynamism is unexpected change or change that is hard to predict.

According to Hill and Jones (2012, p. 7), five main steps in strategy making

process, such as: 1) Select the corporate mission statement and major goals; 2)

49

Analyse the external competitive environment to identify strategic opportunities

and threats in the operating environment; 3) Analyse the internal competitive

environment to pinpoint the strength and weakness of the organisation; 4) Select

the strategy - contingent upon findings in steps 1, 2, 3; 5) Implement the strategy.

Meanwhile, Williams (2014) describes three steps of strategy making process, as

follows: 1) Assess the need for strategic change, where managers must determine

if strategic change within the organisation is needed based on what is happening

in the business environment; 2) Conduct a situational analysis, where it represents

an internal analysis and requires external environmental scanning; 3) Choose

strategic alternatives, where managers will determine what strategies to follow in

achieving goals and objectives successfully based on the situational analysis.

Implementation of deep supplier relationships and exchange of valuable

knowledge may also be interpreted by using supplier-partnering hierarchy. Liker

and Choi in Harvard Business Review (2004) stated the supplier-partnering

hierarchy on Figure 11., as follows:

1) Understand how the suppliers work, by learning about suppliers’

businesses, seeing how suppliers work, respecting suppliers’

capabilities, and committing to co-prosperity.

2) Turn supplier rivalry into opportunity, by sourcing each component

from two or three vendors, creating compatible production

philosophies and systems, as well as setting up joint-ventures with

existing suppliers to transfer knowledge and maintain control.

50

3) Supervise the suppliers, by sending monthly report cards to core

suppliers, providing immediate and constant feedback, as well as

getting senior managers involved in solving problems.

4) Develop suppliers’ technical capabilities, by building suppliers’

problem-solving skills, developing a common lexicon, and honing

core suppliers’ innovation capabilities.

5) Share information intensively but selectively, by setting specific

times, places, and agendas for meetings, using rigid formats for

sharing information, insisting on accurate data collection, as well as

sharing information in a structured fashion.

6) Conduct joint-improvement activities, by exchanging best practices

with suppliers, initiating continuous improvement in projects, as

well as setting up supplier study groups.

Figure 11. Supplier Partnering Hierarchy

Source: Liker and Choi, 2004.

Conduct joint improvement activities

Share information intensively but selectively

Develop suppliers' technical capabilities

Supervise your suppliers

Turn supplier rivalry into opportunity

Understand how your suppliers work

51

C. Mind Map

Figure 12. Strategic Procurement Practices through Deep Supplier Relationships and Exchange of Valuable Knowledge

Source: Data processed, 2017.

Trust & Guānxì (��) & (��)

Joint-improvement, Planning Integration, Information Integration

Communication Pattern

Mutual Commitment

Cooperative Behaviour

Exchange of Valuable Knowledge

Deep Supplier Relationships

Strategic Procurement

Practices

Agility, Responsiveness,

& Efficiency

Innovation in Procurement

Activities

52

CHAPTER III

METHODOLOGY

A. Type of Research

Type of research that would be used in this study is descriptive research

with qualitative approach, otherwise known as descriptive qualitative study.

Based on the objectives that have been proposed, this research is a descriptive

research that aims to analyse and describe the practice of deep supplier

relationships and exchange of valuable knowledge at PT Aerofood Indonesia,

branch in Denpasar.

Kountur (2007, p. 108) defined descriptive research as a type of research

which provides description of a condition clearly without any treatments of the

object under study. According to Sugiyono (2013, p. 1) qualitative research is

essentially a method used to examine the state of nature, where researcher is the

key instrument that collects data by using triangulation. Meanwhile, descriptive

qualitative study intends to describe phenomena that exist, both natural and

human beings, which pays more attention to the characteristics, qualities, and

linkages between activities (Sukmadinata, 2011, p. 73).

Therefore, it is concluded that a descriptive qualitative study naturally

gathers the data that describes specific events, obtained from human experience,

perceptions, motivations, and behaviours, also the collection and

analysis of words, to set a comprehensive summarisation. The purpose of this

study is to achieve the understanding of the subjects from certain topics.

53

B. Focus of Research

Focus of research has an important role for author to simplify the study and

limit the research in this study, specifically on the object of research. According to

Sugiyono (2012, p. 32), the focus of qualitative research is holistic

(comprehensive and inseparable). Therefore, qualitative research establishes its

research based on the overall social situation under study. It includes aspects of

place, actors, and activities, which interact synergistically.

In this study, the focus of research, as follows:

1. Current procurement practices through buyer-supplier relationships

built between Aerofood ACS Unit Denpasar and its suppliers.

2. Current procurement practices through valuable knowledge integrated

between Aerofood ACS Unit Denpasar and its suppliers.

3. Strategy making process which is currently done by Aerofood ACS

Unit Denpasar in procurement practices, to get engaged in buyer-

supplier relationships and valuable knowledge integration with its

suppliers.

4. Evaluation of the success in procurement practices through buyer-

supplier relationships and valuable knowledge integration by

Aerofood ACS Unit Denpasar to its suppliers.

C. Location of Research

Location of the research is defined as a place used by author to conduct the

research process. According to Nasution (2003, p 43), the location of research

54

indicates on the understanding of the place or social location of research,

characterised by the presence of elements, i.e. actors, and places, and activities

that could be observed. In this research, author is interested to conduct a research

at Aerofood ACS Unit Denpasar.

PT Aerofood Indonesia is a company which is engaged in in-flight catering

services in Indonesia. Aerofood ACS Unit Denpasar is one of the branches of PT

Aerofood Indonesia. It is located at Ngurah Rai International Airport, Bali,

Indonesia. Aerofood ACS Unit Denpasar I is located in front of the airport, where

Aerofood ACS Unit Denpasar II is located in the back of the airport. The research

would be conducted at Procurement Department of Aerofood ACS Unit Denpasar,

as the field is considered relevant to the research conducted by author.

D. Sources of Data

According to Arikunto (2013, p. 172), sources of data refer to the subjects

from which the data may be obtained. Indrianto and Supomo (2013, p. 142)

defined sources of data as important factors to be considered in the determination

of data collection methods, besides the type of existing data which has been made.

According to Figure 13., the sources of data in this study, as follows:

1. Primary Data

This data is obtained through direct observation of the sources related,

raw or unprocessed. Sugiyono (2012, p. 137) defined primary data as

the source of data which directly provides the data for the researcher.

The primary data may be obtained by doing interviews with related

55

research objects, such as managers and staffs of Procurement

Department at Aerofood ACS Unit Denpasar. Author would also do a

direct interaction through direct observation within procurement

practices.

2. Secondary Data

This data is an indirect data obtained from literature reviews,

documents, archives, etc., in relation to the research objectives.

According to Sugiyono (2012, p. 137), secondary data is a source of

data which indirectly provides data for the researcher, it may be

received from other related people or documents. In relation to the

topic of this study, the secondary data, which would be used, includes

company profile and Procurement Department archives.

Figure 13. Sources of Data in Research

Source: Data processed, 2017.

Sources of Data

Primary Data Secondary Data

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E. Data Collection Techniques

According to Maryadi et al (2010, p. 14), data collection techniques, used in

qualitative research, are techniques that allow obtaining detailed data with a

relatively long time.

Figure 14. Data Collection Techniques in Research

Source: Data processed, 2017.

According to Figure 14., the data collection techniques in research, as follows:

1. Interviews

According to Sugiyono (2010, p 194), interviews are used as data

collection techniques if the researcher would conduct a preliminary

study to find the problem which should be researched. Interviews are

also used if the researcher digs information from the respondents.

Data Collection

Techniques

Interviews

ObservationDocumentation

57

In this study, the research would be conducted by semi-structure

interviews with in-depth interview technique. The interview would

also be held in form of small group discussion. In-depth interview

technique is an interview process conducted, by following the

situation where the interviewer must be good at guiding the

interviewees. Main questions are created in interview guide based on

the research problems which have been proposed (Narbuko and

Achmadi, 2013, p. 85).

In this research, the interviews would be held by using Indonesian

(Bahasa Indonesia) as an intermediate language. Thereafter, it would

be translated into English as main language in this study.

Determination of informants is conducted by purposive sampling

technique and certain considerations by choosing certain people who

are considered capable of providing information or data for this

research.

2. Observation

Supriyati (2011, p. 46) defined observation as a technique to collect

the data which has a naturalistic nature in a natural context, as the

observer participates naturally in the interaction. In this research,

author would apply the type of participatory observation. Researcher

would directly do what the respondents do, besides conducting a

research. Thus, the collected data would be more complete and

meaningful.

58

3. Documentation

Narimawati, Anggadini, and Ismawati (2010, p. 39) described

documentation as the activity of collecting data by analysing those

documents in a company. In this research, author would collect the

data from Procurement Department archives, such as contract

document, supplier report card, hygiene inspection report, evaluation

of suppliers’ performance, and other documents, which tie Aerofood

ACS Unit Denpasar and its suppliers.

F. Instruments of Research

According to Arikunto (2010, p. 203), the instruments of research are tools

or facilities, used by researcher, in collecting data to make the work easier and the

results better. The results may become more accurate, complete, and systematic,

so that easily processed. According to Figure 15., instruments of research in this

study, as follows:

1. Researcher

Researcher would be the instrument of its own research. According to

Sugiyono (2009, p. 305), researcher as an instrument of research aims

to establish the focus of research, select informants as data sources,

collect data, assess data quality, analyse data, interpret data, and draw

conclusions on its findings.

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2. Interview Guide

Interview guide refers to sets of guiding questions which lead to better

questions in relation to the theme of the research. It is used during

interviews with related informants or interviewees based on the

research. In this study, it aims to seek further information about how

the relationships and integration formed between Aerofood ACS Unit

Denpasar and its suppliers. The researcher would conduct in-depth

interviews with certain interviewees, in relation to the field, as

follows:

a. Mr. Melvin Septa Osman as Procurement Manager at Aerofood

ACS Unit Denpasar

b. Mr. A. A. Made Bagiada as Head Buyer of Procurement

Department at Aerofood ACS Unit Denpasar

c. Mr. I Wayan Yudhi Lesmana as Administrator of Procurement

Department at Aerofood ACS Unit Denpasar

d. Mr. I Made Ari Dwinatha as Capital Investment Staff of

Procurement Department at Aerofood ACS Unit Denpasar

e. Mrs. Ketut Desrani (Vendor of Dwijaya) as representative of the

suppliers that gets involved in partnership-working with Aerofood

ACS Unit Denpasar

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Figure 15. Instruments of Research

Source: Data processed, 2017.

G. Data Analysis Methods

According to Basrowi and Suwandi (2008, p. 192), data analysis is the

process to select, sort, dispose, and classify, to answer two main issues, as

follows: (1) what theme could be found in those data; (2) how far those data could

support the theme.

Figure 16. Data Analysis Methods

Source: Data processed, 2017.

Instruments of Research

Researcher Interview Guide

Data Analysis Methods

Data Reduction

Data Presentation

Conclusion/Verification

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According to Figure 16., Miles and Huberman in Prastowo (2012, p. 242)

described data analysis methods as three models, as follows:

1. Data Reduction

Data reduction is a process of selecting, centralising the attention to

simplifying, abstracting, and transforming preliminary data arisen

from written notes in the field. This data reduction takes place

continuously when the qualitative research is held. In the beginning, it

may be organised through conceptual framework, problem

approaches, and data collection.

During the data collection, it may be organised by creating summary,

coding, writing notes, etc. In this data reduction process, the

researcher seeks for the valid data. When the validity of the data is

doubted, the research must seek any further information with other

informants.

2. Data Presentation

In this method, researcher explores the description of structured

information to draw a conclusion and take action. Data is generally

displayed in narrative text, where the researcher describes the

information which has been classified before, also presents the

conclusion. In this data presentation process, the researcher classifies

the similar information as a category.

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3. Conclusion/Verification

Researcher draws a conclusion and verifies the data by searching for

the meaning of each symptom derived from the field and recording

any regularities or configurations that may exist, also the flow of

causality from phenomena and any proportions. In this process, the

researcher draws a conclusion from previously concluded data, then

the researcher tries to match them with any notes or observations

obtained in the research. The next step which the researcher must

achieve is to report the results by new findings which are different

from the existing findings.

Meanwhile, a technique of examining the data to check the validity is

triangulation. According to Moleong (2012, p 330), triangulation is a technique

that checks the validity of data which utilises something else beyond that data for

purposes-checking or as a comparison towards the data. Denzin in Moleong

(2012, p. 330) distinguished four kinds of triangulation; by using sources,

methods, researcher, or theories.

Patton in Moleong (2012, p. 330) described triangulation by using sources

as comparing and re-checking the level of credibility in information obtained

through different times and tools in qualitative research. Under triangulation

technique by using sources in this study, the researcher compares interview results

obtained from each interviewee as a comparison to check the truth of information

obtained. Furthermore, researcher also compares the results of doing interviews

with the results obtained by doing observation and collecting archives.

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63

CHAPTER IV

RESULTS AND DISCUSSION

A. General Description of PT Aerofood Indonesia

1. Company Profile

By 40 years of experience as an international airline catering provider,

Aerofood ACS, as a part of Garuda Indonesia, has succeeded in maintaining the

company's reputation in delivering premium class services for best-in-class food

and beverage products. The company's success could be traced back to its

establishment in 1974, when the company began to operate under the name of PT

Aero Garuda Dairy Farm, in collaboration with Dairy Farm, a Hong Kong-based

catering company. Hereafter, PT Aero Garuda Dairy Farm changed its name to PT

Angkasa Citra Sarana Catering Service in 1991, it operated the business under

the flag of ACS (Aerowisata Catering Services).

ACS subsequently diversified the business by providing industrial catering

services in 2002. The company began to pioneer the F & B retail business in

2008. By various successes and achievements, the company expanded new

divisions that also contributed greatly to the company's growth. In 2009, laundry

management services and in-flight logistics started to operate under the division

named Garuda Support. Along with the continued business advancement of the

company, Aerowisata Group, as the parent company, launched a new brand logo

in 2010. The new logo was intended to strengthen the image of the company and

its subsidiaries.

In the same year, 2010, PT Aerowisata Catering Services changed its

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name to PT Aerofood Indonesia with Aerofood ACS as the trademark. The

company's new logo showed the company's stronger commitment and breathed

new spirits to all the joints of this Jakarta-based company, also increasingly

encouraged Aerofood ACS to expand its wings. In 2010, Aerofood ACS has

successfully owned other offices in Denpasar, Surabaya, Medan, Balikpapan,

Bandung, Yogyakarta, and Lombok. In 2014, the branch in Pekanbaru started to

operate. Aerofood ACS Denpasar is the second largest after Aerofood ACS

Jakarta.

Currently, Aerofood ACS employs more than 6,000 professionals and

delivers its business values to approximately 40 international and domestic

commercial airlines, also over 20 blue ribbon companies across Indonesia.

Combined with the company’s outstanding customer-oriented approach, in 2013,

Aerofood ACS earned a prestigious recognition as the 2013 Indonesian Airline

Support Service Provider by Frost & Sullivan. For the future, Aerofood ACS

expects to maintain its market share by improving the quality and quantity needed

to support competition within in-flight catering services.

2. Location of Aerofood ACS Unit Denpasar

Aerofood ACS Unit Denpasar is located in Kuta, Bali, Indonesia. Aerofood

ACS Unit Denpasar I is in I Gusti Ngurah Rai International Airport, while

Aerofood ACS Unit Denpasar II is located at Jalan Taman Sari 36, Tuban, Kuta,

Bali, Indonesia. Aerofood ACS Unit Denpasar has strategic location because the

place is around I Gusti Ngurah Rai International Airport. It makes easier for the

company to run its business activities.

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3. Business Fields of PT Aerofood Indonesia

Aerofood ACS, in operating its business, provide services to its customers.

The services which are offered, as follows:

a. In-flight Catering Services

The business activities in this category include providing more than

1.5 million in-flight meals a month for approximately 40 commercial

airlines. Aerofood ACS has positioned its corporate brand as an

innovative and creative catering provider, delivering sophisticated

service with customisation to meet customer needs. Aerofood ACS

selects only the finest ingredients from fresh agricultural products to

meet the demand for healthy and quality food in flight. Currently,

Aerofood ACS has 9 in-flight facilities with various operational sizes

in major cities across Indonesia, such as Jakarta, Denpasar, Surabaya,

Medan, Balikpapan, Yogyakarta, Bandung, Lombok, and Pekanbaru.

b. Industrial Catering Services

Aerofood ACS is also successfully known as a business with premium

catering services in industries, such as oil, mining and gas, city

catering, also health care. Currently, the company serves more than 1

million staff meals for more than 20 customers from these industries

with a broad spectrum of integrated services ranging from canteen and

housekeeping services, maintenance, and laundry services, also

mining camps and offshore dormitories. In addition to preparing

nutritious food with the highest security standards, the company's

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industrial catering division also provides consulting services to assist

the needs of hospital kitchens to ensure all safety and health

requirements.

c. Garuda Support Services

Aerofood ACS applies the concept of In-flight Service Total Solution

in Garuda Support division to enable the company provide its skill and

capability to combine procurement, storage, and logistics services.

The ISTS concept allows the company to provide aviation logistics

management services of high quality in handling dinnerware, also

services and supplies of cabins, dry goods, beverage distributions, and

reading materials. First Class & Executive Lounges is another facility

in this division that offers world-class facilities equipped with a

business centre with meeting rooms and latest IT support, relaxation

area, refreshment area with shower, treatment room, luggage area, and

prayer room. ACS Laundry is a large comprehensive facility, that

aims to handle in-flight laundry needs. It also serves laundry needs at

hotels and restaurants. Both facilities use the latest machinery to

utilise clean water, filter, and soften to ensure maximum cleanliness.

d. F & B Retail Service (Dapur Selera)

Dapur Selera invites its visitors to pamper their tongues with a variety

of authentic Indonesian dishes, contemporary from various corners of

the archipelago. Using only a selection of the finest ingredients, the

food is served in a friendly atmosphere.

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4. Business Philosophy of PT Aerofood Indonesia

The vision of PT Aerofood Indonesia is to be the leading premium quality

food and service provider in ASEAN. On the other hand, the mission of PT

Aerofood Indonesia consists of several points, as follows:

1) Operational excellence for Garuda Indonesia and other esteemed

customers.

2) Customer intimacy for long-term partnerships.

3) Maximise company values for the stakeholders through

implementation of I-FRESH Corporate culture.

The motto of PT Aerofood Indonesia is "Customer Comes First". The

philosophy of this motto is as a premium service company that deals with

customers, both within and outside the country, the company must be "reliable"

and "trustworthy". Therefore, to be "the foremost", the company must be

supported by "perfect service".

5. Logo of PT Aerofood Indonesia

Figure 17. Logo of PT Aerofood Indonesia

Source: www.aerofood.co.id, 2017.

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According to Figure 17., the logo of PT Aerofood Indonesia has

philosophy, as follows:

1) Leaf represents a service which is sophisticated, flawless, and relax.

2) Feather symbolises skill, fine detail tradition, and great idea.

3) Pillar symbolises cultural authenticity in the proper way.

4) Aerofood ACS represents the company name.

5) Garuda Indonesia Group represents a group of companies.

6. Corporate Culture of PT Aerofood Indonesia

According to Robbins and Judge (2008, p. 256), corporate culture refers to a

system shared by members within the company that differentiates the company

from other companies. Corporate culture is described as values, beliefs,

assumptions, attitudes, and norms of behaviour that has been institutionalised. It

exists in appearance, attitude, and action, as the identity of a company. PT

Aerofood Indonesia also develops a corporate culture, otherwise known as “I-

FRESH”. Aerofood ACS demonstrates its commitment by delivering innovative

catering services. It is a manifestation by implementing the concept of I-FRESH

(Integrity, Fast, Reliable, Effective & Efficient, Service Excellence, and Hygiene).

Figure 18. Corporate Culture of PT Aerofood Indonesia

Source: www.aerofood.co.id, 2017.

I-FRESH

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According to Figure 18., I-FRESH (Integrity, Fast, Reliable, Effective &

Efficient, Service Excellence, and Hygiene) is described, as follows:

I (Integrity)

The company always prioritises the value of moral honesty as an integral

part of how company conducts business, applies ethical values in daily activities,

and strengthens the trust of partners and customers.

F (Fast)

The company's premium services are always presented with immediate and

cost-effective, with the goal of constantly delivering quick and accurate response

to customer needs.

R (Reliable)

The company's commitment to uphold the company's reputation and

customer's confidence is one of the factors that keeps the company going as a

quality business partner who always understands the customers' business needs.

E (Effective & Efficient)

The company is built with a strong foundation based on noble values,

principles of virtue and innovative expertise; everything is effectively harmonised

to get maximum efficiency.

S (Service Excellence)

The company continues to strive to be the best by optimising the company's

expertise and leveraging the wealth of corporate experience to deliver service

excellence that exceeds customer expectations.

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H (Hygiene)

The company always uses the most stringent standards of hygiene and

safety, without any compromises. Therefore, all the services of the company are

always considered, to meet international health and safety standards and rules.

7. Organisational Structure of PT Aerofood Indonesia

Figure 19. Organisational Structure of Aerofood ACS Unit Denpasar

Source: PT Aerofood Indonesia (company archive), 2017.

Organisation is a unity of various parts in carrying out certain activities to

achieve goals, that requires tasks, responsibilities, and clear authorities of each

part of departments. Therefore, the organisational structure is clearly required in

the clear division of authority, responsibility, and capability. The organisational

General Manager

EMO

- Asst. Production Manager- OM GA- OM FA

- Asst. HK Manager

- Chief Engineer- Planning Manager

- Asst. Store Manager- Procurement

Manager

EMHC

- Asst. HC Manager- Head IT

Finance Manager Lounge Service Manager Asst. OC Manager Customer Service

Manager

Asst. QHSE Manager Chief Security

Duty Manager

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structure of PT Aerofood Indonesia is designed as best as possible by dividing the

tasks of each department to run the task maximally, so that it is able to achieve

company goals.

According to Figure 19., Aerofood ACS Unit Denpasar is headed by

General Manager as the company's main director. In the assignment, General

Manager directs the organisation with the help from Asst. QHSE Manager, Chief

Security, Duty Manager, Executive Manager of Operation, Executive Manager of

Human Capital, Finance Manager, Lounge Service Manager, Outside Catering

Assistant Manager, and Customer Service Manager. Executive managers are

responsible to direct the big departments that consist of some small departments.

The Executive Manager of Operation is responsible for providing the

command to Production Assistant Manager, GA Operation, Non-GA Operation

Manager, Housekeeping Manager, Chief Engineer, Planning Manager, Store

Assistant Manager, and Procurement Manager. Procurement Department is led by

Procurement Manager, assisted by Head Buyer, to provide command to

administrators and the staffs of sections in the department. Organisational

structure of Procurement Department at Aerofood ACS Unit Denpasar is

portrayed on Figure 20.

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Figure 20. Organisational Structure of Procurement Department at Aerofood

ACS Unit Denpasar

Source: PT Aerofood Indonesia (company archive), 2017.

B. Data Presentation

1. Procurement Practices at Aerofood ACS Unit Denpasar

According to SKEP/NO. 5014/DU/SKEP/2017 (p. 5), the Guidelines of

Procurement Practices at PT Aerofood Indonesia describes procurement of goods

and / or services as activities that are held to receive goods and / or services for

the needs of the company, that the processes start from planning the requisitions

to fulfilling goods and / or services needed, where it involves certain divisions or

units at each stage. Operational goods are described as materials that are used to

fulfil operational needs and / or production, and not an asset. Investment goods

are described as goods that are needed to support operational needs and / or

production, as an asset.

Procurement Manager

Head Buyer

SV Engineering & Capital Investment

Staff

Staff

SV Fruits & Vegetables

Staff

SV Dry Goods & Monouse Materials

Staff

Staff

Admin 1 Admin 2

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Construction services are described as each work that is related to the

construction of a building and / or transformation of other physical objects. They

consist of construction planning services, construction execution services,

construction supervision services, and construction project management services.

On the other hand, consultation services are described as professional services,

related to certain skills in various fields of knowledge that prioritise mind-set.

Other services are described as services, related to certain capabilities that

prioritise skills in a governance system which have been recognised by business

entities, to finish a job, apart from construction services and consultation services.

Procurement of goods and / or services within Aerofood ACS Unit

Denpasar is held by Procurement Department. When doing its performance,

Procurement Department is not able to execute the processes on its own. They are

assisted by related departments, such as PPIC Department, Store Department, and

Quality Control Department. Those are the responsibilities of Procurement

Department based on the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 12-13), as follows:

1) Planning a Procurement Calendar, both procurement of operational

activities and capital investment.

2) Coordinating a meeting with User in arranging Document of

Procurement Plan (Workplan).

3) Announcing the invitation of procurement of goods and / or services to

potential suppliers (vendors) and ensuring that they are not included in

Blacklist, as well as doing administrative evaluation over the

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qualifications of potential suppliers (vendors), both pre-qualifications and

post-qualifications.

4) Providing explanations about procurement of goods and / or services

(Aanwijzing), related to requirements of the offer, steps in delivering the

offer, and procedures of the evaluation, which will be resulted in reports.

5) Evaluating the submitted offering proposals and doing the clarification

for the potential suppliers (vendors) that are listed in AVL or non-AVL.

6) Suggesting and announcing the winners of tenders, as well as evaluating

the refutation from the participants.

7) Preparing letter of appointment to selected suppliers and doing Contract

Discussion Agreement, if it necessary.

8) Preparing draft of contracts, by coordinating with related sections.

9) Creating, releasing, and printing Purchase Orders that are obtained from

Purchase Requisitions.

10) Creating reports that describe processes and results of the procurement of

goods and / or services.

11) Submitting the evaluation of suppliers’ performance, in relation to the

procurement of goods and / or services to Quality Assurance & Policy

Control.

12) Building coordination with procurement executants to build knowledge

management for the procurement of goods and / or services.

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13) Conducting the training for suppliers (vendors) and discussing about

existing problems within User and suppliers related to the procurement of

goods and / or services (supplier relationship management).

14) Sending reprimand letters and warning letters to suppliers (vendors) with

a bad performance.

15) Documenting process of the procurement of goods and / or services

orderly.

To carry out the tasks well and in accordance with the company’s

objectives, there are three sections in Procurement Department. Those sections are

required to hold responsible for the procurement activities held in the company.

They have to report the processes and results to Procurement Manager, assisted by

Senior Buyer and administrators of Procurement Department. The three sections

in Procurement Department, as follows:

1) Engineering & Capital Investment Section, is responsible for the

procurement of goods/services related to engineering activities and the

capital investment within the company.

2) Raw Materials (fruits & vegetables) Section, is responsible for the

procurement of goods that contains fresh fruits and vegetables for the

needs of production process within operational activities of the company.

3) Mono-use Materials and Dry Goods (foods & beverages) Section, is

responsible for the procurement of goods that contains mono-use

materials and dry goods (food and beverages) for the needs within

production process and operational activities of the company.

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Apart from the responsibilities of Procurement Department, procurement of

goods and / or services at PT Aerofood Indonesia has some principles based on

the Guidelines of Procurement Practices at PT Aerofood Indonesia, in SKEP/NO.

5014/DU/SKEP/2017 (p. 8-9), such as effective, efficient, competitive, open,

transparent, fair and reasonable, accountable and direct sourcing. Procurement

practices must be in accordance with the needs set by the company and it may

provide maximum benefits in accordance with the target set. It should also be

sought to obtain optimal and best results in a short period of time by using the

funds and resources as minimally as reasonably possible.

Competitive procurement of goods and / or services should be opened to

qualified suppliers and conducted through fair competition among suppliers of

goods and / or services. Suppliers that meet certain criteria or requirements under

applicable terms and procedures may get involved in procurement of goods or

services. The transparency a procurement of goods and / or services may be seen

from all provisions and information in the procurement of goods and / or services,

including technical terms, procurement administration, evaluation procedures,

which are opened to qualified suppliers.

In the procurement of goods and or services, it is obligatory to give equal

treatment to all prospective suppliers. Procurement of goods and / or services

must reach the target and it may be accountable to minimise the potential for

misuse and deviation. Direct sourcing of procurement may be done after

prioritising procurement directly from the authorised producers or distributors to

obtain efficient price.

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According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 9), general policies of

procurement practices at PT Aerofood Indonesia are directed to these purposes, as

follows:

1) Adjusting the activities with company goals and strategies in creating

customer value and stakeholder value.

2) Emphasising synergy and integrity in the procurement of goods and / or

services between the companies in the field of Garuda Indonesia Group,

to reach benefits of scale, loyalty of suppliers, also increasing the

bargaining position of the company.

3) Encouraging the growth of domestic industries in Indonesia, expanding

the use of domestic products, and giving the opportunities to small-

medium enterprises (SMEs).

4) Encouraging the synergy with the stated-owned enterprises to improve

the efficiency and effectiveness.

5) Doing the procurement activities based on User’s Request and suggesting

to do or stop the purchase for certain goods and / or services, based on

the vision of seeking bigger profits for the company.

Figure 21. Codes of Procurement Practices at PT Aerofood Indonesia

Source: PT Aerofood Indonesia (company archive), 2017.

PRIDE

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According to Figure 21., there are codes in procurement of goods and / or

services, pursued by PT Aerofood Indonesia, as follows:

1) Prudence

That is professional, independent, wise, also do best and right in

accordance with GCG principles, best practices, and regulations that are

applicable to all stages in procurement of goods and / or services.

2) Reliable

By ensuring each stage in procurement of goods and / or services to be

done accordingly, even better than the expectation of User with the best

quality and / or price, to improve company’s competitiveness.

3) Integrity

That puts honesty and confidential value by not giving, offering, or

receiving gifts, as well as having remuneration, commissions, rebates, or

anything from or to any parties, in relation to the procurement of goods

and / or services.

4) Dedicated

By applying the values and corporate culture (I-FRESH), also preventing

the conflict of interest to protect the company.

5) Efficient

That works effectively and efficiently by avoiding waste of time, effort,

and cost.

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Figure 22. Procurement Practices at Aerofood ACS Unit Denpasar

Source: PT Aerofood Indonesia (company archive), 2017.

According to Figure 22., there are five important stages that are described

in the procurement practices of goods and / or services at PT Aerofood Indonesia.

The preparatory phase begins with the analysis of needs by Planning Unit for the

procurement of goods and / or services of materials, or the User for the

procurement of other goods and services. The procurement of goods and / or

services should be initiated by a requirement in the form of Purchase Requisition

approved by the competent authority to turn into Purchase Order. Purchase

Requisition for the goods and / or services is issued by the User and given to the

Procurement Department. Furthermore, it is necessary to prepare Owner Estimate

to assess the fairness of price quotes or negotiations and price references. Owner

Estimate is made by the User and verified by Procurement Department and

Accounting & Finance Department.

There is a coordination meeting for the preparation of Workplan by the

Procurement Manager and one of the staffs, User, and another relevant

Preparation Execution Documentation

ImplementationTransaction (Payment)

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department. The execution phase begins with the Workplan that has been

compiled, reported, and approved by the competent authority over the work plan

of a procurement process. Furthermore, Procurement Team formulates the

procurement document that contains provisions in the procurement process of

goods and / or services to serve a guide in the execution phase.

The next process is done by providing announcements via e-Procurement

website of Aerofood ACS and national print media. If it is necessary, the notices

will also be sent directly via facsimile and / or e-mail to the suppliers that are

capable of performing the work, whether registered in AVL or non-AVL. The

prequalification process should be conducted thereafter as an evaluation and

verification of additional documents / requirements, related directly to the

procurement of goods and / or services.

After the process with the making of the document is completed,

Explanation Meeting (Aanwijzing) is conducted to invite all participants in

specified time. At the time of the meeting, all participants and the Procuring

Entity should sign the Integrity Pact. The results of the meeting should be set forth

in the Official Report signed by the representative of each participant and the

Procuring Entity. Submission of offering proposals thereafter may be done by post

/ courier or through an e-Procurement system.

Afterwards, there is an evaluation of administrative documents, technical

evaluation of bidders that pass the administrative evaluation. Evaluation of the

offering proposals by the bidders, that passed the technical evaluation, may be

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done by e-auction. The clarification and negotiation will be done to get the best

price. Final evaluation is needed to combine technical value and price.

Based on the final evaluation, the Procurement Officer submits the report of

result of the procurement practice to the authority of the company and submits the

winner announcement through e-Procurement website and / or e-mail / fax.

Procurement Officer submits the final report in the form of a chronological report.

Storing all existing procurement documents, from the preparation stage until the

final report is needed to do documentation.

These departments, such as Procurement Department, Quality Control

Department, and Receiving Team, are in charge of implementation stage for

procurement of goods and / or operational services of store items. Meanwhile,

these are the departments that are in charge in the implementation of procurement

of non-store items, such as Procurement Department, User Department (User),

and Quality Control/Receiving Department. The payment stage, in relation to the

suppliers, may be made by agreement in the previously created Cooperation

Agreement. Payment is made after all complete documents are received by

Accounting & Finance Department. The documents that are needed, as follows:

1) The first invoices include invoices, tax invoices, Purchase Requisition,

suggestion of the winners, announcement of winners, letter of

cooperation agreement, Purchase Order, news of delivery / receipt of

goods, and advance payment (if available).

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2) Subsequent billing invoices include invoices, tax invoices, Purchase

Order, goods handover items according to terminology, and work

progress reports.

2. Provision of Suppliers

a. General Requirements of Suppliers

According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 20), general requirements that

must be required by suppliers, as follows:

1) Suppliers that may be included are domestic and foreign businesses,

including joint venture, consortium, state-owned enterprises, subsidiaries,

factories, machine shops, sole agents or distributors, specialists, SMEs,

cooperatives, and individual businesses.

2) Suppliers fill the approved Vendor Registration Form to Approved

Vendor List, or they have passed the prequalification, except for the

suppliers who take responsibility over direct purchase which are not

included in the Approved Vendor List.

3) Suppliers sign the Integrity Pact for each procurement of goods and / or

services.

4) Suppliers have professional, technical, and managerial requirements,

based on specific experience, including human resources, capital,

equipment, and other adequate facilities.

5) Suppliers fulfil legislation regulation to run the business as providers.

6) Suppliers have the legal capacity to sign the contract.

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7) As taxpayers, suppliers have already met the tax obligations of the latest

year.

8) Suppliers that follow the procurement process of goods and / or services

are not included in the Blacklist and not involved in sub-contract with

other suppliers that are included in the Blacklist as stipulated in the

sanction.

9) Suppliers are not in the judicial process and criminal or civil sanctions

with Aerofood ACS.

10) Suppliers are not under court supervision / not bankrupt, or their

businesses are not in the process of termination.

11) The requirements for suppliers are included in the announcement of

being the “Provider Partner” on the e-Procurement website of Aerofood

ACS.

b. Approved Vendor List Policies

Based on the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 20), the company does not

approve the sourcing of goods and services before the sourcing has met any

applicable company standards. The purpose of establishing the Approved Vendor

List is to obtain the qualified suppliers. The membership of the suppliers in

Approved Vendor List are valid as long as they are still required to supply the

goods and / or services based on company policies. The process of finding the

qualified suppliers, so that they may be listed on Approved Vendor List, as

follows:

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1) Establishment of Shortlist

Procurement Officer does the shortlist by preparing the list of potential

vendors and evaluates the required administrative, technical, and

financial documents. The requirements for foreign suppliers are quite

similar to the domestic ones. The required documents of Approved

Vendor List, as follows:

a) Sign General Term of Condition and e-Procurement Registration

Form

b) Executive Summary & Company Profile

c) Certificate of Business License

d) Article of Association

e) Tax Registration Number

f) Financial Statement of 2 years (preferably)

g) Integrity Pact

h) Bidder Representative’s Biodata

2) Due Diligence Visit

Before doing Due Diligence Visit, PT Aerofood Indonesia must prepare

the evaluation criteria by considering these points, as follows:

a) Qualifications of suppliers, such as Producers, Official Distributors,

and Representative Office

b) Credibility of suppliers, such as reputation, financial report, number of

employees, facilities at company/factory, etc.

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c) Quality of suppliers, such as procurement report, service improvement

request (SIR), and Vendor Checklist Audit.

Procurement Business Unit should form a Due Diligence Visit Team to

confirm and evaluate the capability and competency of the suppliers. The team

will include Procurement Business Unit, Related Departments, and Quality

Assurance (required, for food and beverage products).

3) Evaluation

Due Diligence Visit Team must evaluate all related information and

documents, to group them based on the criteria, in form of evaluation, as

follows:

a) Required Administrative Documents, such as Business License

b) Adequacy of Funds, such as the latest 2 years Financial Report and

Income Tax Return (Personal and Entity)

c) Owned Facilities

d) Quality Audit (expired in a year), including production process,

layout, storage, quality standards, packaging, and chemical materials.

4) Registration of Approved Vendor List

Based on the evaluation, Approved Vendor List will be established and

kept by Procurement Department as company archive to discover

potential and qualified suppliers for certain goods and / or services.

c. Execution of Procurement Practices with Suppliers

The Guidelines of Procurement Practices at PT Aerofood Indonesia, in

SKEP/NO. 5014/DU/SKEP/2017 (p. 37) described Explanation Meeting

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(Aanwijzing) as something important because it gathers the potential suppliers to

discuss about tenders of the procurement of goods and / or services after receiving

explanations from Procurement Manager and the User. Afterwards, the auction

and negotiation are done to get the best price, based on administrative and

technical evaluation from the data collected by suppliers. The final evaluation

establishes the selected suppliers that successfully win the tender and get

partnered with the company for supplying goods and / or services.

The importance of Aanwijzing and auction or negotiation are proved when

author conducted research. Author observed how Aanwijzing worked between the

company and its suppliers to discuss about supplying engineering tool.

Afterwards, e-auction was held by Procurement team after the suppliers sent the

offering proposals.

Firstly, the team gathered together with the suppliers concisely to generally

discuss about the upcoming procurement. At that time when Aanwijzing was held,

the main purpose was to discuss about plan of supplying suitable forklift for the

needs of Storehouse. Procurement Manager and Capital Investment Staff

coordinated the action with Engineering Manager and User. Afterwards,

Aanwijzing (Restricted Explanation Meeting) started when Procurement Manager

and Engineering Manager presented and explained what goods that were needed.

After the explanations, the suppliers with Procurement Manager and Engineering

Manager visited storehouse to observe directly what type of forklift suited the

shelves to move materials around. Being a personal assistant in the meeting,

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author took a note about the keynote of discussion about supplying forklift

between Procurement Manager, Engineering Manager, and the suppliers.

Similarly, before e-auction started, Procurement Manager and Capital

Investment Staff coordinated the action with Engineering Manager about the

Workplan. e-Auction was held by Procurement Team that included Procurement

Manager, Administrators of Procurement Department, and Capital Investment

Staff, together with Engineering Manager. The suppliers did e-auction in auction

room and they were helped by administrators in inserting offering prices. After

the e-auction section ended, Procurement Manager and Engineering Manager re-

explained about the terms and conditions of goods before the final evaluation. In

this section, suppliers shared opinions and suggestions about the tools which

would be supplied.

After selecting good supplier to gets partnered with the company, the

procurement practice will be carried on by doing contract management that ties

the company and the supplier in a certain period. Contract management is the key

to build buyer-supplier relationships that arranges the practices of supplying

material by supplier to the company.

According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 48-50), the system of contract

management at PT Aerofood Indonesia is divided into two forms, as follows:

1) Price Agreement

a) Lump Sum Contract, is used to complete certain works in certain

period with a fixed price. This system is appropriate to do wholesale

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works because the volume and the price for each element is measured

by Workplan and technical specifications.

b) Unit Price Contract, is used to complete all works in certain period or

volume with exact and fixed unit price to each element of work based

on certain technical specifications.

c) Outline Agreement, otherwise known as Unit Price Contract, in a

certain period between the company and its suppliers under these

conditions, such as being held to guarantee the efficient price and

available goods/services which are needed time after time with

uncertain volume or quantity of work at the time when the Contract is

signed.

2) Delivery

a) Stockless Purchasing System, which consists of Call of Order

Contract (for a long-term period with the purpose of pressing the

inventory costs, in order to purchasing a number of items received)

and Consignment Contract (for the goods/services that are already

available in User location to guarantee the speed of availability of

goods and / or services.

b) On Call Basis Contract, is used to manage the partnerships for long-

term period to purchase a number of items used.

The partnerships between company and its suppliers are also affected by the

evaluation of suppliers’ performance. Evaluation of suppliers’ performance is

intended by PT Aerofood Indonesia to develop the mutually beneficial

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relationships between the company and its suppliers, particularly with suppliers

that have good behaviour and performance. In evaluating suppliers, company

impose these actions, such as doing performance assessment and coaching, as

well as giving rewards and punishments.

3. Power and Dependence at Aerofood ACS Unit Denpasar

a. Legal Partnership Agreement

Legal partnership agreement may be described as a legal ownership of

specific agreement by individuals or entities for determining how such treaty is

used and owned for the practices and evaluation, otherwise known as legal

property rights. In building long-term partnerships, a company needs legal

partnership agreement to organise the relationships between them and its

suppliers. Likewise, PT Aerofood Indonesia is guided by some legal partnership

agreements which organise the procurement practices in building deep supplier

relationships and exchange of valuable knowledge between them and its suppliers.

According to SKEP/NO. 5014/DU/SKEP/2017 (p. 47), the Guidelines of

Procurement Practices at PT Aerofood Indonesia describes contract as a

fundamental matter. The contract is an important document to manage the

procurement of goods and / or services, both operational activities and capital

investment by suppliers that are chosen to be the winners of tenders. The contracts

are achieved by both the company and its suppliers. The form of contract is

written agreement which has to be signed by both parties to maintain the

partnerships. The content of contract consists of these elements, as follows:

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1) Information about the party that provides the order and command

receiver.

2) Detailed description about the goods and / or services with

specifications.

3) Fixed or definite price which has been negotiated by both parties.

4) Requirements of payment.

5) Terms of cooperation, completion, and submission.

6) Number of goods and / or services.

7) Guarantee of goods and / or services.

8) Sanctions in a condition when the partners are unable to fulfil their

responsibilities, which may lead to termination of employment

contract.

9) Rights and obligations.

10) Other clauses.

Apart from the contract, there are also any other legal partnership

agreements which manage the partnerships between PT Aerofood Indonesia and

its suppliers. Those documents are achieved by PT Aerofood Indonesia and

delivered to its suppliers after signing the partnerships, so that it comes under the

company’s legal property rights. The documents consist of Key Performance

Indicator (KPI), Standard Operating Procedure (SOP), Instructions in a form of

Inter Office Memo, and Policy & Procedure of Procurement (P&P).

Key Performance Indicator (KPI) of the procurement of goods and / or

services is created for the internal management at PT Aerofood Indonesia,

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particularly Procurement Department, as references to reach the target of

procurement practices. Afterwards, Key Performance Indicator (KPI) will be

interpreted to a Standard Operating Procedure (SOP) to manage the

responsibilities and line of duties of suppliers in supplying goods and / or services

under the conditions of on-spec and on-time. Thus, the legal partnership

agreement of suppliers are opted in the decision of PT Aerofood Indonesia.

Moreover, Service Level Agreement (SLA), as a part of signed contract, is

created to inflict a wary effect to suppliers and get them tied up. Hereafter,

instructions in a form of Inter Office Memo are delivered among the managers to

consider policies related to the procurement of goods/services. Policy &

Procedure of Procurement which was released by President Director in May 2017,

aims to guard the procurement of goods/services, so that it runs well. Legal

partnership agreement may be interpreted on Figure 23.

Figure 23. Legal Partnership Agreement

Source: Data processed, 2018.

Legal Partnership Agreement

KPI

SOP

Inter Office Memo

P&P

Contract & SLA

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These are following statements from interviewees about the importance of

legal partnership agreement in building partnerships, based on Table 3., as

follows:

Table 3. Statements about Importance of Legal Partnership Agreement

In Indonesian 1. Procurement

Manager “Yang terpenting adalah SOP karena kita bertindak berdasarkan SOP. Kita juga memiliki instructions untuk beberapa kebijakan yang dapat diambil, muncul saat pertemuan para manajer dan dapat berupa Inter Office Memo. Selain itu, kita meniliki P&P (Policy & Procedure of Procurement) yang paling baru dikeluarkan pada Mei 2017.”

2. Senior Buyer of Proc. Dept.

“Selain kontrak yang penting, semua dokumen berasal dari ACS yang selanjutnya diterapkan untuk mengatur pengadaan oleh vendor. SLA juga digunakan untuk mengikat vendor.”

3. Admin of Proc. Dept. “Semua dokumen yang dikeluarkan itu diterapkan pada vendor agar dapat memenuhi on-spec dan on-time. Selain itu, ada SLA yang dapat memberi efek jera. Pemberlakuannya seperti jika ada pengiriman terlambat, maka sekarang dikenakan dari SLA sebesar 25% dari total PO.”

4. Capital Investment Staff of Proc. Dept.

“KPI ACS itu berasal dari internal manajemen perusahaan untuk memenuhi target, kemudian diterjemahkan dalam SOP. Jadi, vendor mengikuti ACS.”

5. Vendor of Dwijaya “Kami berjalan mengikuti kontrak. Kami mengikuti sistem ACS dari dulu yang manual hingga sekarang. Jika ada keberatan, akan dibicarakan setelah penjelasan prosedur oleh ACS.

In English 1. Procurement

Manager “The most important one is SOP because we take actions based on SOP. We also have instructions for some policies, which generally come up in meeting for managers, in form of Inter Office Memo. Moreover, we have P&P (Policy & Procedure of Procurement), which was released in May 2017.”

2. Senior Buyer of Proc. Dept.

“Apart from the contract that is essential, all documents are from the company and they are

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implemented to organise procurement practices by vendors. Service Level Agreement is also used to bind vendors.”

3. Admin of Proc. Dept. “All documents are released to vendors, to fulfil on-spec and on-time. Moreover, there is SLA to inflict a wary effect. For instance, if the time of delivery is late, the vendors pay a penalty from SLA in the amount of 25% from Purchase Order.”

4. Capital Investment Staff of Proc. Dept.

“KPI ACS is from company’s internal management to reach target of procurement goals, then it is interpreted to SOP. Thus, vendors keep up with ACS.”

5. Vendor of Dwijaya “We follow the contract. We keep up with the system from ACS from manual to the latest one. If there are any objections, it will be discussed with ACS.

Source: Data processed, 2018.

b. Power

Power may be interpreted as the party that dominates the partnerships

between PT Aerofood Indonesia and its suppliers. Power describes how the

suppliers work in supplying goods and / or services for the needs of operational

activities and capital investment. It also represents how level of equal power runs

for the suppliers in supplying goods/services to Aerofood ACS Unit Denpasar.

At Aerofood ACS Unit Denpasar, all parties have high level of equal power

in practices of supplying goods/services. It is in accordance with one of the

principles called fair and reasonable, based on the Guidelines of Procurement

Practices at PT Aerofood Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 9).

The classification of suppliers are separated according to their responsibilities.

Mainly, the suppliers of raw materials (fruits & vegetables) and dry goods (foods

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& beverages), tend to dominate the practices to supply for the production process

of Aerofood ACS Unit Denpasar.

Previously, raw materials were supplied by two selected suppliers as first

supplier and second supplier, under condition of supplying materials by first

supplier at larger percentage. Similarly, there would be certain suppliers chosen

for each item in section of Dry Goods (foods & beverages). Suppliers also supply

materials based on the quantity and dates of delivery that are set by staffs of

Procurement Department. On the other hand, the company also depends on

monopoly suppliers for certain items supplied.

Aerofood ACS Unit Denpasar is rated as the potential company, in the field

of in-flight catering company. Besides, the suppliers also manage to supply

alongside the needs of company. In supplying materials, suppliers tend to give the

best quality and high standard as a good level of service for the company in

accordance with its deal. Equal power for each supplier may be interpreted on

Figure 24.

Figure 24. Equal Power for Suppliers

Source: Data processed, 2018.

Suppliers

Equal Power

Procurement Practices

Aerofood ACS Unit Denpasar

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These are following statements from interviewees about the power of

suppliers that supply goods and / or services to Aerofood ACS Unit Denpasar,

based on Table 4., as follows:

Table 4. Statements about Power of Suppliers and Buyer

In Indonesian 1. Procurement

Manager “Tidak ada yang mendominasi, semua memiliki bagian segmentasinya sendiri. Kita memiliki bagian-bagian pengadaan di Departemen Procurement, di antaranya raw materials, engineering supplies, dry goods & mono-use materials, dan capital investment. Raw materials dan dry goods (foods & beverages) merupakan yang paling banyak karena itu menjadi bahan dasar untuk service dari Aerofood Indonesia. Tetapi, supporter-nya banyak, dalam arti kata, engineering supplies untuk mesin-mesin (high-lift truck; salah satu komponen penting) dan juga capital investment untuk menjalankan service kita (mesin untuk packaging dan kompor yang memiliki lifetime lebih dari 2 tahun). Jadi, mereka semua kurang lebih memiliki kedudukan yang sama.”

2. Senior Buyer of Proc. Dept.

“Kita (Foods & Beverages Section) juga membagi seperti section di buah dan sayur, namun pembagian item dipecah berdasarkan quantity-nya yang dibagi per tanggal untuk masing-masing vendor sebagai alternatif.”

3. Admin of Proc. Dept. “Kita membagi item untuk cadangan karena kita tidak berani untuk mengambil satu vendor juga, kecuali vendor monopoli. Untuk buah dan sayur berhubungan dengan musim, jadi tidak berani mengambil satu vendor, pasti kesusahan.”

4. Capital Investment Staff of Proc. Dept.

“Untuk pengadaan ini, kita jelasnya tidak akan berani untuk tunjuk satu vendor saja.”

5. Vendor of Dwijaya “Selain ACS, ada buyer yang besar juga. Untuk perusahaan sejenis (in-flight catering service), dulu ada juga yang merupakan buyer. Namun, sekarang hanya ACS dari bidang tersebut dan merupakan yang terbesar. Dalam supply barang, tidak dibedakan untuk customer, namun untuk hal

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kualitas terdapat perbedaan standard yang akan disesuaikan untuk memenuhi permintaan masing-masing customer. Kita mencoba memberi pelayanan yang terbaik.”

In English 1. Procurement Manager “No parties dominate, each of them has their

segmentation. We classify sections in Procurement Department, such as raw materials, engineering supplies, dry goods & mono-use materials, and capital investment. Raw materials and dry goods sections are the most important section because it supports the production. There are some sections that support them, such as engineering supplies for the engines (high-lift trucks), also capital investment to run production (machine for the packages and stoves which have lifetime over 2 years). Thus, all of them have equal position.”

2. Senior Buyer of Proc. Dept.

“We (Foods & Beverages Section) split the orders as what the fruit-vegetable section do, yet the separation of each item is divided based on the quantity and time of delivery for each vendor alternatively.”

3. Admin of Proc. Dept. “We split each item for another vendor because it is risky to take only one vendor, except the monopoly vendors. Fruits and vegetables are in relation to the seasons, so that it is more risky.”

4. Capital Investment Staff of Proc. Dept.

“For the procurement practices, it is too risky to keep up with only one vendor for each item.”

5. Vendor of Dwijaya “Apart from ACS, there are other big buyers. For similar company (in-flight catering services), we also supplied for them, in the past. Nevertheless, ACS is currently the largest party. In supplying materials, there is no difference for each buyer and the standard of quality is in accordance with the needs of company. We attempt to serve our customers well.”

Source: Data processed, 2018.

c. Size of Suppliers and Buyer

According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 20), the important requirement

97

to be sourcing vendor is that suppliers are included in domestic and foreign

businesses, starting from individual businesses to big enterprises. Suppliers are

rated very good for successfully supplying goods/services at Aerofood ACS Unit

Denpasar by reaching benefits of scale. Suppliers are assessed for supplying

goods and / or services that is in accordance with the company needs the suppliers

to do, such as how they rarely notify last-minute information. Suppliers tend to

notify the company when the certain problems arise. Certain problems generally

occur on raw materials section because supplying those materials is vulnerable to

disaster risks. Under those conditions, suppliers normally notify the company by

sending mails. Afterwards, company will conduct surveys based on the reports

they have collected. If the materials are scarce, Procurement Team will coordinate

with Planning Team or User about the condition.

Strategy making process is performed by choosing main supplier in

supplying materials. It is done to only entrust one supplier for each variety with

the assistance of backup supplier to take over the responsibilities under certain

conditions. Backup suppliers are only appointed when certain condition arises,

such as disaster risks, main supplier’s unavailability in carrying out their

responsibilities, and urgent needs by Aerofood ACS Unit Denpasar. It is

implemented by specifying market price.

In supplying goods / and or services, suppliers are entrusted to reach

benefits of scale because the company has managed the regulation about the

procurement. Both parties have agreed on Service Level Agreement (SLA) as a

reinforcement towards the agreement. If they are not able to reach the target of

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supplying materials based on required specifications and quantities, they will get a

penalty as it is written on Service Level Agreement (SLA). On the other hand,

Aerofood ACS Unit Denpasar also gives away rewards to the successful suppliers

that are able to reach and exceed the target.

According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 7), Service Level Agreement

(SLA) is a deal or agreement between both parties as a level of service and a

guarantee of a service from suppliers to the company, which is created in a written

section of agreement or contract. Meanwhile, appreciation given away to suppliers

from the company is not fully written in a signed agreement. This decision was

accomplished by Procurement Manager in March 2017 and submitted for an

annual event of PT Aerofood Indonesia, called Forum Satu Saya (FSS) as the

latest work program of Procurement Department in November 2017.

According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 57), rewards and punishments

(awards and sanctions) are given as a form of evaluation of suppliers, to assess

obedience of suppliers in supplying materials. Procurement Team measures the

evaluation based on the process of supplying goods/services and implementing the

contract/agreement by suppliers. Procurement team also measures from the

evidences that are found out as an infraction or achievements of the suppliers.

Otherwise, a potential buyer, such as Aerofood ACS Unit Denpasar is rated

good for reaching the standard benefits of scale of the suppliers and entrusting

them for the supply activities. This matter is not able to be assessed with certainty

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because Aerofood ACS Unit Denpasar depends on the conditions from the airline

companies. The aircraft passengers are not able to be predicted constantly, so that

the activities of supplying materials to Aerofood ACS Unit Denpasar adjust the

situation and condition that arise.

When doing observation, author found out that uncertain order could affect

the procurement practices, which leads to the activities of requesting additional

materials or cancelling the planned materials from Purchase Orders to suppliers.

From this situation, certain suppliers that supply additional materials, otherwise

known as urgency, will do the procurement practices by receipts-only that are

delivered by Procurement Team. Uncertain orders may come from disaster risks

or uncertain conditions from the airlines. It may also come from uncertain forecast

of Purchase Requisitions by PPIC Department, adjusting the condition of Kitchen

Section and the storehouse. Receiving the data by doing observation, author

describes the memo of requesting additional materials or cancelling the planned

materials, as in Figure 25.

Figure 25. Memo of Cancellation and Additional Materials

Source: PT Aerofood Indonesia (company archive), 2018.

0%

20%

40%

60%

80%

100%

August September

Cancellation of Fruits & Vegetables

Cancellation of Food & Beverages

Additional Materials

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These are following statements from interviewees about the power of

suppliers that supply goods and / or services to Aerofood ACS Unit Denpasar,

based on Table 5., as follows:

Table 5. Statements about Size of Suppliers and Buyer

In Indonesian 1. Procurement

Manager “Untuk pembagian vendor sebagai antisipasi, sekarang ini kita sedang mengubah sistem dua vendor itu. Maksudnya adalah karena sifatnya melawan alam, tidak ada yang bisa mengatasi. Pengadaan masih banyak bergantung pada kiriman dari Pulau Jawa, sedangkan Pulau Bali sendiri belum sepenuhnya bisa fight untuk hasil daerahnya sendiri. Contohnya, dry goods banyak diproduksi dari Pulau Jawa (paling dekat Surabaya). Untuk buah dan sayur, beberapa wilayah belum cukup untuk memenuhi item, termasuk barang impor. Namun, untuk sekarang kita mengubah sistem dengan hanya menunjuk satu vendor dan vendor kedua berlaku sebagai backup vendor. Vendor kedua harus siap jika sewaktu-waktu dibutuhkan dan tidak bergantung pada kuota. Vendor kedua harus siap dengan emergency call (1x24 jam) untuk kebutuhan tertentu dengan tetap mengikuti harga pasar. Untuk pemenuhan target oleh vendor, sangat yakin dengan adanya Service Level Agreement (SLA) sebagai reinforcement. Jika vendor tidak berhasil mengirim barang sesuai spec atau quantity, maka akan mendapatkan penalty sebesar 25% dari nilai PO. Namun, untuk reinforcement positif, kita juga memberikan award.”

2. Admin of Proc. Dept. “Untuk pemberitahuan last-minute itu jarang, pasti mereka akan bersurat terlebih dahulu. Kita pun juga akan melakukan survei ke pasar tentang kelangkaan barang tersebut, selanjutnya akan berkoordinasi dengan Planning dan User atas perihal yang berhubungan dengan kelangkaan material tersebut.”

3. Capital Investment Staff of Proc. Dept.

“Terkait dengan musim untuk pengadaan buah dan sayur, jika memang sedang ada kelangkaan maka

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mereka akan mengirim surat ke kita. Lalu, kita akan cek ke pasar untuk mencari tahu kelangkaan barang tertentu.”

4. Vendor of Dwijaya “ACS dalam memenuhi target (benefits of scale) dapat dikatakan standar. Permintaannya itu cenderung naik-turun karena terpengaruh dari kondisi airlines. Jika penumpang pesawat naik-turun, maka permintaan ACS juga akan cenderung naik-turun.”

In English 1. Procurement

Manager “The separation for each item is implemented for an anticipation, we are recently changing the system of using two vendors. Most of the procurement practices are in relation to nature, which cannot be planned. Most of our procurement practices depend on the delivery from Java Island. Yet, the delivery from Bali Island has not successfully fulfilled the raw materials, ordered by the company. For instance, dry goods are mostly produced in Java Island (the nearest place is Surabaya). For fruits and vegetables, some areas have not fully fulfilled the orders, including imported materials. However, we are recently using the latest system by pointing only one vendor, where the role of second vendor is backup vendor. Backup vendor has to be ready whenever the company needs to order materials and it does not depend on the quota/quantity. Backup vendor has to be ready when there is an emergency call (1x24) for particular needs, by following market price. For fulfilling target by vendor, we are assured by the presence of Service Level Agreement (SLA) as reinforcement. If vendors are not able to fulfil the orders based on-spec or quantity, they will pay penalty in amount of 25% from value of Purchase Orders. Nevertheless, for a positive reinforcement, we also give away the awards.”

2. Admin of Proc. Dept. “For the notification of last minute is rare, they generally mail or contact us before. We also do surveys in markets for the scarce of certain materials, furthermore we do coordination with Planning Department and User about the problems regarding rare items.”

3. Capital Investment Staff of Proc. Dept.

“In relation to seasons for the procurement practices of fruits and vegetables, vendors will contact us if the materials ordered are scarce. Then, we will verify it in markets to find out certain rare items.”

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4. Vendor of Dwijaya “ACS in reaching benefits of scale is rated as standard. The orders are uncertain because they are affected by condition from airlines. If aircraft passengers are uncertain, the orders by ACS will also be uncertain.”

Source: Data processed, 2018.

d. Interdependence

Interdependence may be described as to what extent both parties depend on

each other to achieve the goal of the companies and how the equal level of

dependence is intertwined among both parties in general. Aerofood ACS and its

suppliers are rated to be highly dependent to each other, to achieve the goal of the

companies because of the mutually beneficial relationships. Aerofood ACS Unit

Denpasar depends on its suppliers, mainly for the operational activities or

production process. On the other hand, suppliers consider Aerofood ACS Unit

Denpasar as potential buyer because of the long-term relationships formed.

Fresh raw materials section, such as fruits and vegetables, is the main

section that mostly depends on the suppliers. But, when it comes to finished

goods, company also outsources materials aside from the suppliers. Aerofood

ACS Unit Denpasar values the interdependence as something important because

the company are not able to run their operations without its suppliers.

Meanwhile, suppliers also highly depend on Aerofood ACS Unit Denpasar

because it provides them a great income. Most of the suppliers are assessed to

have long-term partnerships with Aerofood ACS Unit Denpasar for more than 10

years. In accordance with that matter, the procurement has to run openly to the

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required suppliers and the implementation has to be held by competing in a good

manner among the suppliers, to fulfil certain criteria based on the terms and

procedures, as in the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 9). Mutual interdependence

between suppliers and Aerofood ACS Unit Denpasar is interpreted on Figure 26.

Figure 26. Mutual Interdependence

Source: Data processed, 2018.

These are following statements from interviewees about the

interdependence between Aerofood ACS and its suppliers, based on Table 6., as

follows:

Table 6. Statements about Interdependence among Suppliers and Buyer

In Indonesian 1. Procurement

Manager “Kita sangat bergantung pada semua vendor. Karena tanpa vendor, ACS tidak bisa berjalan dengan baik.”

2. Senior Buyer of Proc. Dept.

“Fresh raw materials section, seperti buah dan sayur, di Procurement Department, sangat bergantung pada vendor-vendor karena kita selalu

SuppliersMutual

Interdependence

Aerofood ACS Unit Denpasar

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mengandalkan pasokan dari mereka. Dan lagi, formasi kerja ACS menyediakan service harus didukung oleh vendor.”

3. Admin of Proc. Dept. “Untuk barang jadi, kita juga outsource dari pihak lain selain vendor untuk memenuhi kebutuhan jika pekerja kita dirasa kurang.”

4. Vendor of Dwijaya “Sangat bergantung pada ACS karena ACS termasuk buyer potensial. Kemudian, ACS dapat memberikan omset yang besar bagi perusahaan dari permintaannya. Dan lagi, kami sudah bekerjasama lama dengan ACS selama lebih dari 20 tahun. Selama bekerjasama, tidak pernah ada masalah dari pihak ACS dengan perusahaan kami.”

In English 1. Procurement

Manager “We really depend on all vendors because we cannot run the business operations well without them.”

2. Senior Buyer of Proc. Dept.

“Fresh raw materials section, such as fruits and vegetables, highly depends on vendors because we continuously rely to the supplies from vendors. Moreover, work system of ACS in providing services must be supported by vendors.”

3. Admin of Proc. Dept. “For finished goods, we also outsource from third parties aside from the vendors, to fulfil the needs if necessary.”

4. Vendor of Dwijaya “We highly depend on ACS because ACS is a potential buyer. Moreover, ACS provides profit for us from its orders. We have been working with ACS for over 20 years. During the partnership, it always runs well between both parties. "

Source: Data processed, 2018.

4. Deep Supplier Relationships at Aerofood ACS Unit Denpasar

Deep supplier relationships are assessed as something important to

Aerofood ACS Unit Denpasar because it may highly achieve the mutually

beneficial relationships among the company and its suppliers. By building deep

supplier relationships, Aerofood ACS Unit Denpasar tends to obtain compatible

price, where the suppliers are able to gain profit from the procurement practices of

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the company. Moreover, pursuing deep supplier relationships will encourage the

suppliers to continuously supply goods and / or services by obeying the

requirements from Aerofood ACS Unit Denpasar, such as good quality, on time,

and on-spec.

Deep supplier relationships come from trust and personal connections built

among both parties. These key factors are assessed as a stage which may lead both

parties to a level in tying suppliers a little closer to the company, so that it

achieves knowledge integration. Subsequently, company considers its suppliers as

close colleagues for getting help from them in certain conditions.

Frequently, there are some certain incidents which cause the procurement

practices are not able to run in accordance with the signed contract or agreement.

For instance, suppliers occasionally receive notification delays of Purchase

Orders. Thus, they have to supply materials for urgent needs without relying on

the Purchase Orders as usual, where they suddenly get notified by Aerofood ACS

Unit Denpasar via phone or mail.

Being deviated from the contract, suppliers often receive late payment from

Aerofood ACS Unit Denpasar for certain matters that are not written in signed

agreement. Yet, the suppliers tend to understand and trust the company’s

responsibilities to overcome the arisen problems. Regardless of the matter,

Aerofood ACS Unit Denpasar and its suppliers attempt to constantly build trust

and understand each other, to achieve good relationships.

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These are following statements from interviewees about the importance of

deep supplier relationship for Aerofood ACS Unit Denpasar, based on Table 7.,

as follows:

Table 7. Statements about Importance of Deep Supplier Relationships

In Indonesian 1. Senior Buyer of Proc.

Dept. “Kepentingan kita di sini, yaitu untuk menjaga hubungan baik dengan vendor. Ini untuk mendapatkan kualitas barang baik sesuai spesifikasi yang diminta, dan juga mendapat pilihan harga tepat. Kita biasa dibantu vendor juga jika ada keterlambatan payment.”

2. Admin of Proc. Dept. “Hubungan dengan vendor itu harus terjalin dengan baik karena relasi kita dengan mereka itu untung dengan untung atau mutualisme. Kita untung dari segi pemilihan harganya, mereka dari segi profit.”

3. Capital Investment Staff of Proc. Dept.

“Hubungan dengan vendor lebih dari sekedar mengadakan tender, menyusun contract, dan mendapatkan harga. Kami menganggap vendor itu seperti keluarga karena selama ini kami meminta tolong juga pada vendor. Kadangkala, bisa melenceng dari kontrak tapi dalam scope yang tidak terlalu luas, melencengnya seperti keterlambatan PO. Itu yang kita anggap sebagai rekanan bisnis dari ACS.”

In English 1. Senior Buyer of Proc.

Dept. “Our concern is to maintain good relationships with vendors. It aims to get good quality of goods as our requested specification, also the right price. Vendors also generally assist us if there is a late payment.”

2. Admin of Proc. Dept. “Relationships with vendors must be well-established because our relationships are win-win situation or mutualism. We can get the right price, where they can gain profit.”

3. Capital Investment Staff of Proc. Dept.

“Relationships with vendors are more than implementing tender, formulating contract, and finding right price. We consider the vendors to be like a family because we have been asking for help from vendors. Sometimes, it can be off the contract but not in a large scope, such as the late notification

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of Purchase Order. That is what we consider to be business partners of ACS.”

Source: Data processed, 2018.

a. Reputation of Suppliers and Buyer

Reputation may be described as the perception of capabilities of suppliers

and Aerofood ACS Unit Denpasar and how they define reputation of each party in

general. Evaluation of suppliers is held per-semester by assessing the suppliers’

performance and creating report of suppliers. Report cards of the suppliers are

obtained from Receiving Team and Quality Control Department. Receiving Team

submits the report of the lack of quantity and late time of delivery, where Quality

Control Department submits the report of quality of materials.

Based on the evaluation of suppliers, Procurement Team tends to interpret

them into percentage to entrust the recommended suppliers which will be

considered for the upcoming procurement practices. Meanwhile, rewards also

become the important thing to maintain the reputation of the suppliers. Moreover,

Approved Vendor List (AVL), including the selection of administrative

qualifications and implementation of hygiene inspection (by Procurement

Department and Quality Control Department), also plays an important role.

According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 54), the policy of evaluation

are used to maintain the performance of procurement practices by getting support

from its suppliers to supply goods and / or services. On the other hand, Approved

Vendor List (AVL) is used as an internal reference of Aerofood ACS Unit

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Denpasar to consider the potential suppliers. The suppliers in Approved Vendor

List (AVL) tend to successfully supply goods/services in accordance with the

qualification from the company, as in the Guidelines of Procurement Practices at

PT Aerofood Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 25).

Suppliers tend to rate Aerofood ACS Unit Denpasar as the buyer that has

good reputation. However, the cancellation of Purchase Orders sent to suppliers

may affect the procurement practices by the suppliers. Service Level Agreement

(SLA) tends to ensnare the suppliers by charging them with the penalty.

On the other hand, Aerofood ACS Unit Denpasar never compensates the

suppliers for the cancellation of certain materials. The penalty of Service Level

Agreement (SLA) for the suppliers is arranged in separated attachments, where it

is a section of Main Agreement. Each Main Agreement is strived to attach the

clause of Service Level Agreement (SLA), as in the Guidelines of Procurement

Practices at PT Aerofood Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 61).

Reputation of suppliers is interpreted on Figure 27.

Figure 27. Reputation of Suppliers

Source: Data processed, 2018.

Reputation of Suppliers

AVL & Evaluation Maintenance

Awards

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These are following statements from interviewees about the reputation of

Aerofood ACS and its suppliers, based on Table 8., as follows:

Table 8. Statements about Reputation of Suppliers and Buyer

In Indonesian 1. Procurement

Manager “Untuk reputasi vendor, bisa dilihat dari AVL yang kita pegang, seperti dengan melakukan seleksi kualifikasi administrasi dan juga hygiene inspection yang dilakukan oleh gabungan antara Procurement Team dan QC Team untuk mengetahui kelayakannya.”

2. Senior Buyer of Proc. Dept.

“Evaluasi digunakan untuk menentukan pemilihan vendor tertentu tersebut untuk kembali supply atau berhenti.”

3. Admin of Proc. Dept. “Evaluasi vendor dilakukan tiap semester dengan merekap berita acara dari Receiving tentang kekurangan quantity dan QC tentang kualitas barang. Hasil evaluasi vendor diinterpretasikan dalam persen untuk mengukur keberhasilan. Misalnya, jika berada pada 70%, maka vendor direkomendasikan untuk mengikuti pengadaan selanjutnya. Selain itu, ada juga apresiasi vendor yang telah berjalan hampir 1 tahun.”

4. Capital Investment Staff of Proc. Dept.

“Untuk evaluasi vendor, jika melampaui 70% ke atas, akan dapat dihubungi lagi untuk melakukan pengadaan. Sedangkan, di bawah itu akan dipertimbangkan kembali untuk diberhentikan.”

5. Vendor of Dwijaya “Reputasi ACS sendiri termasuk bagus. Namun, kadang PO yang sudah disesuaikan tiba-tiba dibatalkan pihak ACS dengan keadaan barang telah siap. Hal ini menyulitkan karena terdapat SLA yang menuntut penalti seperti dikenakan potongan harga. Di sisi lain, selama ini ACS belum pernah mengganti kerugian yang ditimbulkan dari pembatalan pengadaan.”

In English 1. Procurement Manager “We may see the reputation of vendors from AVL

that is released, by selecting from administrative qualifications as well as doing hygiene inspection which is done by Procurement Team and QC Team to verify the worthiness.”

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2. Senior Buyer of Proc. Dept.

“Evaluation is used to consider the selection of vendors to re-supply or leave off.”

3. Admin of Proc. Dept. “Evaluation of vendors is done per semester by collecting report cards from Receiving Team about lack of quantity and from QC Team about quality of materials. The result is interpreted in percent to measure the success. For instance, if the vendors reach 70%, they will be recommended for upcoming procurement practices. Moreover, we give awards to the vendors which have been done for approximately a year now.”

4. Capital Investment Staff of Proc. Dept.

“For evaluation of vendors, if they can reach 70% and above, they will be highly recommended for upcoming procurement practices. However, under 70%, we will reconsider to discharge them.”

5. Vendor of Dwijaya “Reputation of ACS is good. However, sometimes Purchase Orders are suddenly cancelled by the company with the condition that the materials have been ready to be delivered by us. It matters because there is a SLA which asserts penalty. On the other hand, so far ACS has not compensated for the losses, resulting from cancellation of orders.”

Source: Data processed, 2018.

b. Trust

In relationship performance, trust is assessed to play role in building deep

relationships between buyer and suppliers. Trust may describe to what extent the

buyer is willing to rely on its suppliers. Likewise, trust may also describe to what

extent the suppliers are willing to rely on the buyer. By considering the situation,

the company will successfully build trust between them and its suppliers.

Aerofood ACS Unit Denpasar generally builds trust among both parties by

having close approach with the suppliers. It starts with suggestions about the

procurement of goods and / or services planned and delivered by Procurement

Team and User to the suppliers. By suggesting the procurement of goods/services

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Figure 28. Trust among Buyer-Suppliers

Source: Data processed, 2018.

to the suppliers, Aerofood ACS Unit Denpasar looks forward to getting intimate

with them about planning the suitable materials for procurement practices.

Aanwijzing (Explanation Meeting) plays significant role to build subsequent

connection among both parties, where Aerofood ACS Unit Denpasar is able to

recognise their potential suppliers.

Afterwards, suppliers are open to suggest the suitable materials to

Procurement Team and discuss about the negotiation of upcoming procurement

practice, to achieve the goals. According to the Guidelines of Procurement

Practices at PT Aerofood Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 12),

Procurement Team has the responsibilities to do coaching on suppliers. This state

is applied to overcome arisen problems within User and suppliers, in relation to

the practices of supplying goods/services (supplier relationship management).

Trust between Aerofood ACS Unit Denpasar with its suppliers may be interpreted

on Figure 28.

Close Approach SRM

Buyer

SuppliersTrust

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Exchange of suggestions may be assessed as something significant because

the company is able to analyse the suppliers’ passion in pursuing mutually

beneficial relationships. However, different matter is indicated by monopoly

suppliers. Monopoly suppliers tend to steer relationships in a direction that do not

benefit the buyer.

To overcome the matter above, Aerofood ACS Unit Denpasar attempts to

build the trust by reckoning in Principle Letter of the monopoly suppliers, so that

we may entrust monopoly suppliers. On the other hand, in building trust among

both parties, Aerofood ACS Unit Denpasar tends to get supplied continuously by

certain monopoly suppliers for specific materials.

Aerofood ACS Unit Denpasar trusts each of its suppliers by considering

Approved Vendor List (AVL) to select sourcing suppliers, by considering

qualified administrative selection and Hygiene Inspection. Procurement Team

considers several references to ensure the selection about the reputation. Integrity

Pact is a statement letter signed by User, Procurement Manager, and suppliers to

prevent the collusion, corruption, and nepotism, as in the Guidelines of

Procurement Practices at PT Aerofood Indonesia, in SKEP/NO.

5014/DU/SKEP/2017 (p. 7). Trust may also be assessed from how the suppliers

manage to supply goods/services without attaining punishments. Service Level

Agreement (SLA) is documentation to manage how far Aerofood ACS Unit

Denpasar tolerates the suppliers’ failures.

According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 59), releasing a warning letter

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or punishment is related to an aspect of evaluation, such as quality, quantity, late

in delivery or late completion, and failure of delivery. The terms and conditions

are regulated as an attachment in the contract. Aerofood ACS Unit Denpasar has a

right to terminate the contract with the suppliers. There are three categories of

infraction of suppliers, such as:

1) Yellow Category

There is no strict punishment for this matter, where the offense will be

reported as a consideration in doing final evaluation.

2) Red Category

When the suppliers are reported because of the offense on the red

category and they are running the procurement practices as in signed

contract, the jobs must be completed first. However, the participation of

related suppliers will be revoked as long as the winner of the

procurement practice has not been announced. Furthermore, if the related

suppliers do further infraction, they will be included in Black List.

3) Black Category (Black List)

When suppliers are reported because of the offense on the black list and

they are running the procurement practices as in signed contract, the jobs

can be completed first or dismissed based on the consideration of

authorised officials that signed the contract. However, the participation in

supplying of goods/services of related suppliers will be revoked as long

as the contract has not been signed.

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Suppliers claim to entrust Aerofood ACS because of the long-term

partnerships that have been pursued among them. Communication between both

parties are also rated very good. If there are any missed information, both parties

will communicate via phone or mail. Moreover, if it is needed to discuss about the

complains and the policies, face-to-face interaction will be held to boost the

ability of sharing ideas more freely.

These are following statements from interviewees about the trust built

among Aerofood ACS and its suppliers, based on Table 9., as follows:

Table 9. Statements about Trust among Suppliers and Buyer

In Indonesian 1. Procurement

Manager “Percaya itu tentu harus karena saling bekerjasama. Tetapi, kita juga punya punishment. Misalkan, mereka sudah tidak qualified atau wanprestasi, kita akan menjalankan SLA. Jika mereka 3x mendapat SLA dengan hal yang sama, berarti mereka sudah tidak qualified untuk menjadi vendor dan belum siap menjadi vendor kita atau sedang mempunyai masalah, sehingga untuk sementara waktu tidak bisa jadi vendor kita. Sebelum Aanwijzing kita lakukan AVL, AVL itu sangat bisa dipegang hasilnya. Jika administrasi dan perizinannya (vendor) lengkap, maka bisa diandalkan. Perizinan mereka dikeluarkan oleh pemerintah. Selain itu, vendor juga memiliki referensi rekanan kerja yang lain, jadi kita bisa percaya mereka dari referensi itu untuk supply ke kita.”

2. Senior Buyer of Proc. Dept.

“Pertama, kepercayaan kita timbul mulai dari saat memberitahukan kebutuhan barang pada vendor, kita melakukan pendekatan dengan mereka. Setelah itu, kita melakukan Aanwijzing dengan mereka, supaya akhirnya kita bisa melihat bagaimana mereka dapat memberikan respon tentang cara mendapatkan barang terkait dan suggest barang

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yang tepat untuk kebutuhan kita. Dari situlah, kita dapat mempercayai vendor tersebut sebagai rekanan kerja untuk ACS.”

3. Admin of Proc. Dept. “Dari situlah (diskusi, Aanwijzing, dan negosiasi), kita bisa melihat seberapa jauh gereget (antusiasme) mereka dalam hal ini (pengadaan barang/jasa).”

4. Capital Investment Staff of Proc. Dept.

“Kita juga harus percaya dengan vendor yang memberikan principle letter. Khususnya vendor monopoli, kami sangat membangun kepercayaan dengan mereka (karena karakteristik mereka) demi kepentingan pengadaan, sehingga harus sering berkomunikasi.”

5. Vendor of Dwijaya “Kami percaya sekali dengan ACS karena kerjasama yang telah lama berjalan juga. Walaupun ada missed, kita bisa komunikasikan dengan baik lewat telepon atau mail. Jika masih ada keberatan atau yang perlu didiskusikan seperti complain dan kebijakan, kita akan melakukan face-to-face untuk strategi mengatasi kendala.”

In English 1. Procurement Manager “Trust is necessary in achieving partnerships.

However, we also give punishments. For instance, if they are not qualified, we will run the SLA. If they get three times of punishment in accordance with SLA, they are not ready to become our suppliers, so that they have to leave off for specified time. Before Aanwijzing, we will rely on AVL, AVL plays important role. If the administrative qualification is comprehensive, the company will be able to rely on its vendors. Their licenses are issued by the government. In addition, vendors also have references to other counterparts or colleagues, so that we can trust them from those references for supplying materials to us.”

2. Senior Buyer of Proc. Dept.

“First, the trust begins from the moment of notifying the orders to vendors, by having close approach. Afterwards, we hold Aanwijzing with vendors, so that we can finally see how they can respond about how to get related orders and suggest the right materials for our needs. From that action, we can trust the vendors as working partners for ACS.”

3. Admin of Proc. Dept. “From those actions (discussion, Aanwijzing, and negotiation), we can see how the enthusiasm that comes from vendors in running procurement practices.”

116

4. Capital Investment Staff of Proc. Dept.

“We also have to trust the vendors that provide principle letters. With monopoly vendors, we strongly build trust with them (because of their characteristics) for the importance of procurement practices, so that we are able to communicate frequently.”

5. Vendor of Dwijaya “We highly trust ACS because of the long-term partnership that has been performed by us and ACS as well. Even there are any arisen problems, we are able to communicate well by phone or mail. If there are still any objections or policies that need to be discussed, we will have a face-to-face strategy for overcoming obstacles.”

Source: Data processed, 2018.

c. Performance Satisfaction

Performance satisfaction is able to assess how company and its suppliers

have trusted each other based on performance satisfaction among them. It

describes how buyer is satisfied with its suppliers’ performance and how suppliers

are satisfied with buyer’s performance. Moreover, it assesses how Aerofood ACS

Unit Denpasar characterises its level of satisfaction over the suppliers’

performance, along with how suppliers characterise the level of satisfaction over

the buyer’s performance in general.

Aerofood ACS Unit Denpasar claims to have high level of satisfaction over

its suppliers’ performance. The main reason that drives the satisfaction is how

suppliers highly understand the certain condition that is arisen. Suppliers

frequently supply the materials by delivering receipt-only from Aerofood ACS

Unit Denpasar. Occasionally, they receive late notification of Purchase Orders

from Procurement Team and late payment from Accounting & Finance

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Department. Aerofood ACS highly appreciates the suppliers for their assistance.

The company believes that the suppliers’ assistance might have been achieved by

building trust between both parties, where the suppliers are convinced by the

assurance of responsibility from the company.

Nevertheless, Aerofood ACS Unit Denpasar realises that it has not fully

satisfied the suppliers, so that the company attempts to give the best for both

parties. Furthermore, the company may prove its trust towards suppliers by

considering the references from the colleagues who are also supplied by the same

suppliers. By considering references, company may rate how good the track

record that each supplier has in supplying materials. On the other hand, suppliers

feel highly satisfied over the performance of Aerofood ACS Unit Denpasar

because of the track record in in-flight catering service activities. Performance

satisfaction of Aerofood ACS Unit Denpasar and its suppliers may be interpreted

on Figure 29.

Figure 29. Performance Satisfaction

Source: Data processed, 2018.

These are following statements from interviewees about the performance

satisfaction of Aerofood ACS and its suppliers, based on Table 10., as follows:

Aerofood ACS Unit Denpasar

Performance Satisfaction Suppliers

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Table 10. Statements about Performance Satisfaction of Suppliers and Buyer

In Indonesian 1. Procurement

Manager “Percaya dibuktikan dengan cara melihat dari vendor yang juga memiliki referensi rekanan kerja lain (restaurant atau supermarket) yang telah dijalankan, jadi kita juga bisa percaya dari referensi itu untuk kelayakan supply dari vendor ke kita.”

2. Admin of Proc. Dept. “Karena vendor telah percaya dengan kita, maka mereka bersedia untuk supply barang tanpa PO terlebih dahulu.”

3. Capital Investment Staff of Proc. Dept.

“Jika dibuat skala 1-10, maka nilainya 8 ke atas atau sangat puas. Tentunya sangat puas terhadap kinerja vendor karena kembali lagi kami sering meminta pertolongan vendor untuk supply barang hanya dengan tanda terima yang diberikan karena keterlambatan PO. Mereka juga sering menerima keterlambatan pembayaran oleh Accounting & Finance Department. Hal ini dimaklumi oleh vendor karena mereka juga percaya akan jaminan tanggungjawab dari kami. Meskipun begitu, kami juga sadar bahwa vendor belum sepenuhnya puas terhadap (kinerja) kami, oleh karena itu kami tetap berusaha yang terbaik.”

4. Vendor of Dwijaya “Kami sangat puas akan ACS (kinerja dan track record) yang unggul (di bidang in-flight).”

In English 1. Procurement

Manager “Trust is also gained by looking at vendors that have references from work partners (restaurants or supermarkets) that are supplied by them, so that we can trust them for the worthiness of supply from vendors to us.”

2. Admin of Proc. Dept. “Because vendors have trusted us, then they are willing to supply goods without Purchase Orders first (late notification of Purchase Orders).”

3. Capital Investment Staff of Proc. Dept.

“If the scale is 1-10, then the value will be 8 upwards or very satisfied. We are certainly very satisfied with the performance of vendors because we generally ask for help from vendors to supply materials, only with a receipt given due to late notification of Purchase Orders. They also often receive late payment by Accounting & Finance Department. Vendors understand this because they also believe in our assurance of responsibility. However, we are also aware that vendors are not yet

119

fully satisfied with our performance, therefore we keep trying to give the best.”

4. Vendor of Dwijaya “We are very satisfied with ACS (performance and track record), in the field of in-flight.”

Source: Data processed, 2018.

d. Relationship Bonds

Relationship bonds imply how the formation of close relationship is joined

by two or more entities through frequent connection. Relationship bonds may be

included as one of the practices that company attempts to implement personal

relationships. That practice tends to encourage suppliers to remain in the

relationships because they are willing to. Relationship bonds consist of structural

bonds and social bonds, as in Figure 30.

Figure 30. Relationship Bonds among Buyer-Suppliers

Source: Data processed, 2018.

Structural bonds in buyer-supplier relationships may come from economic

effects for both parties. Those effects are due to increased efficiency and

Relationship Bonds

Structural Bonds

Social Bonds

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effectiveness in running operations and value-added creation by buyer and

suppliers. Structural bonds may be created by suppliers in providing value added

services to Aerofood ACS Unit Denpasar, where the company is ready to support

its suppliers in doing procurement practices alongside the company needs.

Exceedingly, the company marks the works of its suppliers as very good in doing

procurement practices during the ongoing partnerships, particularly in both

effectiveness and efficiency.

Both effective and efficient are described in the Guidelines of Procurement

Practices at PT Aerofood Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 8).

Effective implies that the procurement of goods and / or services must be in

accordance with the needs of the company and it has to provide high values based

on goals that have been set. Efficient implies that the procurement of goods and /

or services must be held to get the optimal and good results in a quick way by

likely using minimum costs and resources.

The determination of effectiveness and efficiency is proved when author

conducted research. When doing observation, author was given the opportunity to

create, release, and deliver Purchase Orders to suppliers. The proof of

effectiveness and efficiency were observed when Purchase Orders could not be

released on time. So that, the suppliers kept making efforts in supplying materials

with receipts-only, to take responsibilities in achieving goal of Aerofood ACS

Unit Denpasar.

Social bonds imply the critical but positive interpersonal relationships,

where they have to be accompanied by any other bonds to bind the suppliers

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strongly to company. They may be defined as closest degree of mutual personal

relationships by the company and its suppliers. They are developed through social

interaction between both parties, Aerofood ACS Unit Denpasar and its suppliers,

by relying on social norms and standards of behaviour that tie up.

Integrity refers to one of the high values which is upheld by the company in

accordance with the codes of procurement practices. Based on PRIDE, integrity

means that the company emphasises the value of moral honesty and secrecy by

not giving, offering, or receiving gifts, honorarium, rewards, rebates, and any

other things from partners, in relation to procurement practices. Integrity in a

context of procurement is related to relation between suppliers and Receiving

Team, regarding to the quantity. By emphasising the integrity value, company

encourages its suppliers and Receiving Team to constantly work with the value of

moral honesty. The value of dedicated is also upheld by applying corporate

culture, I-FRESH, to avoid the conflict and protect company behalf. Those values

are listed in the Guidelines of Procurement Practices at PT Aerofood Indonesia, in

SKEP/NO. 5014/DU/SKEP/2017 (p. 10).

Moreover, integrity is also upheld when it comes to organise meetings with

the partners. It is done by working professionally with its suppliers, to avoid

prejudices because of holding meetings outside of the office. Therefore, decision

comes from company is holding the meetings between company and its suppliers

are constantly held inside the office and if it is not necessary, the communication

is done via online.

122

According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 15-16), the company applies

some systems which are related to the procurement of goods and / or services.

One of them is called e-Procurement, used by Procurement Team to run

procurement practices over released Purchase Requisitions from SAP Material

Management by using internet. This system includes the arrangement of

Workplan to Announcement of Winners, where Procurement Team may also

transfer data to SAP Material Management, to have Contract Maintenance or

Purchase Orders.

Suppliers generally rate Aerofood ACS Unit Denpasar as special buyer,

among their buyers. So that, they attempt to work optimally in procurement

practices, in line with with effectiveness and efficiency. It is done by preparing

and planning materials before Purchase Orders are released and delivered from

the company to them.

On the other hand, personal meetings are considered as a sensitive case,

where the relationships are limited to professional partners. Nevertheless,

meetings and sharing sessions are held periodically inside the office to enhance

the deep relationships between both parties. Furthermore, Aerofood ACS Unit

Denpasar and its suppliers aspire to hold joint activity going forward, to strongly

bind both sides.

These are following statements from interviewees about the relationship

bonds of Aerofood ACS and its suppliers, based on Table 11., as follows:

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Table 11. Statements about Relationship Bonds among Suppliers and Buyer

In Indonesian 1. Procurement

Manager “Jujur, kita (Procurement Team dan vendor) tidak boleh bertemu di luar, kita sangat menjaga integritas. Terkadang, kita memang berteman dan bertemu di luar namun posisinya sangat sensitif dalam hal ini (menghindari persepsi negatif). Oleh karena itu, segala jenis pertemuan kita upayakan di kantor. Bahkan, sekarang sudah diadakan online untuk mengurangi pertemuan. Untuk pengadaan training bersama itu belum.”

2. Senior Buyer of Proc. Dept.

“Hubungan kerja saat ini yang terjalin antara perusahaan dan vendor hanya sebatas partner kerja profesional, seperti pertemuan di kantor. Di luar itu (training) belum ada, mungkin ke depannya.”

3. Capital Investment Staff of Proc. Dept.

“Yang pertama sesuai nilai kita, yaitu integritas. Dalam hal ini, integrity yang berhubungan dengan vendor itu adalah kuantitas barang yang dikirim vendor pada Receiving Team karena vendor itu tidak hanya terkait dengan Procurement saja. Norma yang paling ditekankan adalah integritas. Dalam hal ini, kita tanamkan bahwa kedua belah pihak harus saling jujur saat memasok dan menerima barang untuk pengadaan.”

4. Vendor of Dwijaya “ACS sangat special bagi kami, jadi kami bekerja semaksimal mungkin untuk mereka. Biasanya, kami akan berusaha untuk mempersiapkan dan plan barang terlebih dahulu sebelum PO diterbitkan ke kita.”

In English 1. Procurement

Manager “In fact, we (Procurement Team and vendors) cannot meet outside the office, we emphasise integrity. Sometimes, we become friends and we spend time outside the office, however it is a sensitive case (to avoid negative perceptions). Thus, the meetings are generally held inside the office. Moreover, we also suggest vendors to contact us via online, i.e. e-Procurement. Training among the company and vendors have not been fully held.”

2. Senior Buyer of Proc. Dept.

“Current working relationships between company and vendors come under the context of professional partners, such as holding meetings inside the office. We hope that training between company and vendors will be able to be held in the future.”

3. Capital Investment “Firstly, it is in accordance with our values, i.e.

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Staff of Proc. Dept. integrity. In this case, integrity, in relation to vendors, is quantity of materials delivered by vendors to Receiving Team, because vendors are not only related to Procurement Team. The emphasised value is integrity. We emphasise that both parties must act honestly in running procurement practices.”

4. Vendor of Dwijaya “ACS is remarkable, thus we attempt to do the best for them. Generally, we tend to prepare and plan materials, right before Purchase Orders are delivered to us.”

Source: Data processed, 2018.

5. Exchange of Valuable Knowledge at Aerofood ACS Unit

Denpasar

According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 12), one of the main tasks of

Procurement Department is building a coordination between procurement

executants. It is held to integrate knowledge management in procurement

practices among them. Regardless of the matter, exchange of valuable knowledge

is a critical part of in knowledge management. Exchange of valuable knowledge

plays an important role when Aerofood ACS Unit Denpasar attempts to build

deep relationships with its suppliers. It is driven by coordination and collaboration

within different practices between Aerofood ACS Unit Denpasar and its suppliers

which is created in one working context and used by both parties.

Exchange of valuable knowledge in Aerofood ACS Unit Denpasar consists

of three major components. They are in a form of joint-improvement, planning

integration, and information integration. Joint-improvement is divided into

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coordination & collaboration, mutual goals, strategic decision making, and risk

challenges. Planning integration includes demand and supply capabilities. On the

other hand, information integration is divided into information sharing and shared

information technology (IT).

a. Joint-improvement

1) Coordination and Collaboration

Coordination and collaboration imply to what extent Aerofood ACS Unit

Denpasar relies on its suppliers within relationships, where the suppliers also rely

on the company in doing procurement practices. Coordination and collaboration

also assess the level of coordination and collaboration within the relationships. Its

level may be rated as no limited or extensive between both parties. No limited

refers to unrestricted or limitless authority, where extensive refers to large in

amount or scale.

Aerofood ACS Unit Denpasar considers close communication as an

intermediary between the company and its suppliers in developing coordination

and collaboration. Coordination and collaboration play significant role in

overcoming arisen problems and discussing upcoming practices within the joint-

improvement of company and its suppliers. Close communication may be done by

having mutual understanding and mutual contact.

Moreover, holding frequent sharing sessions by Aerofood ACS Unit

Denpasar to its suppliers is also one of practices to develop coordination and

collaboration among them. Company generally holds the sharing session, once in

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a month or once in two months. Coordination and collaboration may be

interpreted on Figure 31.

Figure 31. Coordination and Collaboration

Source: Data processed, 2018.

The company also creates a group chat to gather its suppliers based on their

works and responsibilities to facilitate both parties in discussing procurement

practices. Procurement Team also constantly attempts to communicate with the

suppliers in arranging agenda for sharing session, explanation meeting and tender.

The coordination and collaboration cannot be rated as no limited, but extensive.

Coordination and collaboration must be held alongside the company policies, but

it still remains on a wide scale (extensive) between both parties. It is in

accordance with the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 5). It explains that procurement

practices must be held alongside the general principles of procurement, Good

Corporate Governance, best practices, and value-added for the company.

The importance of coordination and collaboration is proved when author

conducted research. When doing observation, author directly got involved in the

meeting of offering proposals by suppliers to Aerofood ACS Unit Denpasat. In

Close Communication

Coordination & Collaboration

Joint-improvement

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the meeting of offering proposals, suppliers do not only submit the offering

proposals but also discuss about existing problems of supplying local and

imported apples. Procurement Team managed to suggest opinions to overcome

the problems by classifying the items. Regardless of the matter, Aerofood ACS

Unit Denpasar and its suppliers tend to have coordination and collaboration to

mutually cope with the problems that exist in procurement practices.

These are following statements from interviewees about the coordination

and collaboration between buyer and its suppliers, based on Table 12., as follows:

Table 12. Statements about Coordination and Collaboration

In Indonesian 1. Procurement

Manager “Kita mempunyai event, yaitu mengadakan sharing session bersama vendor biasanya sekali sebulan atau sekali selama dua bulan. Selain itu, kita juga menjalin komunikasi dekat dengan membuat suatu group chat di Whatsapp untuk para vendor, supaya bisa berkomunikasi lebih lancar.”

2. Senior Buyer of Proc. Dept.

“Kita rutin berkomunikasi dengan e-mail atau bersurat untuk memberitahukan agenda Aanwijzing maupun tender.”

3. Capital Investment Staff of Proc. Dept.

“Koordinasi dan kolaborasi biasa kami lakukan dengan komunikasi dekat dengan cara saling menghubungi dan saling pengertian.”

4. Vendor of Dwijaya “Kita dihubungi pihak ACS via telepon maupun surat untuk pemberitahuan hal penting. Dalam koordinasi dan kolaborasi dengan ACS, biasanya kami rutin mengadakan kumpul dan sosialisasi bersama.”

In English 1. Procurement

Manager “We have event, that is sharing session with vendors, once in a month or two months. Moreover, we also have close communication by creating group chat on Whatsapp for vendors, to communicate smoothly.”

2. Senior Buyer of Proc. “We routinely communicate with vendors via e-mail

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Dept. or mail to notify the agenda of Aanwijzing and tender.”

3. Capital Investment Staff of Proc. Dept.

“Coordination and collaboration are done by having close communication, such as regularly contact each other and develop mutual understanding.”

4. Vendor of Dwijaya “We are contacted by ACS via telephone or mail in notifying important matter. In coordinating and collaborating with ACS, we usually conduct regular gathering and socialisation together.”

Source: Data processed, 2018.

2) Mutual Goals

Mutual goals tend to identify the shared goals that are achieved by Aerofood

ACS Unit Denpasar and its suppliers. Mutual goals also imply to what extent the

company and its suppliers are trying to achieve shared goals. In joint-

improvement, it is important to assess how coordinated and collaborated actions

enable both parties to achieve mutual goals.

Aerofood ACS Unit Denpasar claims mutually beneficial relationships as a

driver to achieve mutual goals with its suppliers. By relying on fundamental of

win-win solution, mutual goals may be coordinated among both parties. All the

time, the company and its suppliers tend to discuss about the shared goals

regularly.

Mutual goals are also achieved by gathering the company and its suppliers

each year to discuss about further goals and policies. Aerofood ACS Unit

Denpasar generally holds renewal among its suppliers by reminding them about

the vision & mission and their contributions in doing procurement practices.

According to the company profile of PT Aerofood Indonesia, the company and its

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suppliers are emphasised to establish closeness of relationships in achieving long-

term partnerships and to implement corporate culture in running business

operations, namely I-FRESH. Mutual goals have to prioritise synergy and

integrity in procurement practices within Garuda Indonesia Group. Mutual goals

may be interpreted on Figure 32.

Figure 32. Mutual Goals

Source: Data processed, 2018.

Suppliers freely express their opinions towards further goal of partnerships

within both parties. They also claim that both parties have mutual goals, where it

jointly relies on providing benefits. However, the purchase target of Aerofood

ACS Unit Denpasar cannot be ensured by suppliers because focus of target runs

alongside the condition of airlines.

Mutual Goals

Further Goals

Policies

I-FRESH

130

When the certain condition arises from airlines, it will also affect both the

company and its suppliers. To overcome the impact, Procurement Team attempts

to regularly notify its suppliers about the cancellation of supplying certain

materials for specific time. To avoid the conflict which is able to affect the shared

goals because of the serially cancellation, suppliers tend to ask for a proof of

cancellation causes from Aerofood ACS Unit Denpasar.

These are following statements from interviewees about the mutual goals

between buyer and its suppliers, based on Table 13., as follows:

Table 13. Statements about Mutual Goals

In Indonesian 1. Procurement

Manager “Kita setiap tahunnya itu pasti mengadakan renewal dan mengundang semua vendor, seperti raw materials, dry goods & mono-use materials, engineering supplies, juga capital investment. Hal itu kita lakukan untuk remind secara recurrent ke mereka tentang visi, misi, kebijakan, kontribusi, dan di part mana mereka bekerja untuk kita.”

2. Senior Buyer of Proc. Dept.

“Aerofood ACS dan vendor bisa dikatakan memiliki tujuan sama yang mengalir lancar layaknya air. Namun, fokus target tentu tidak bisa dipastikan karena ACS mengikuti kondisi pada airlines. Jika terjadi sesuatu yang berpengaruh terhadap airlines, maka ACS dan vendor pun akan terkena dampaknya. Untuk mengatasi hal tersebut, ACS berupaya untuk rutin memberikan pemberitahuan pada vendor mengenai cancellation pada item tertentu.”

3. Admin of Proc. Dept. “Mutual goals itu pada dasarnya akan kembali lagi pada prinsip hubungan mutualisme yang terjalin antara dua belah pihak. Hubungan mutualisme bisa dikatakan yang utama. Kedua belah pihak, yaitu ACS dan vendor, sama-sama sadar untuk bekerja saling menguntungkan satu sama lain.”

4. Vendor of Dwijaya “Tujuan yang sama pastinya ada antara ACS dan

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kami. Tentunya, berusaha saling menguntungkan dan tidak saling merugikan kedua belah pihak. Namun, target tidak bisa kami pastikan karena kerjanya by order dari ACS itu sendiri sesuai keadaan airlines. Untuk menghindari permasalahan karena cancellation berturut-turut, biasanya kami juga meminta bukti nyata alasan dari cancellation tersebut.”

In English 1. Procurement

Manager “We will annually do renewal and invite all vendors, such as raw materials, dry goods & mono-use materials, engineering supplies, and capital investment. It aims to remind them repeatedly about vision, mission, policies, contribution, and responsibility in doing procurement practices.”

2. Senior Buyer of Proc. Dept.

“Aerofood ACS and vendors are likely to have the same goals that flow smoothly like water. However, the focus of target cannot be ascertained because ACS follows the condition on airlines. If certain condition affects the airlines, ACS and the vendors will also be affected. To overcome this, ACS attempts to routinely notify vendors of cancellation on certain items.”

3. Admin of Proc. Dept. “Mutual goals basically come from mutual relationships and win-win situation. Mutual beneficially relationship is key factor. Both parties, i.e. ACS and vendors, attempt to work mutually.”

4. Vendor of Dwijaya “Both of us share mutual goals. Certainly, we try to work mutually and do not harm each other. However, the target cannot be ascertained because it comes from the orders of ACS based on the condition of airlines. To avoid problems due to successive cancellation, we generally ask for proof or reason of the cancellation.”

Source: Data processed, 2018.

3) Strategic Decision Making and Risk Challenges

Strategic decision making implies to what extent the buyer or its suppliers in

the position to be forced to take actions they may otherwise not do. In taking

forced actions, there must be certain factors that are applicable in this matter.

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Strategic decision making also describes how Aerofood ACS Unit Denpasar and

its suppliers come up with the initiative to work strategically.

Aerofood ACS Unit Denpasar confesses that they are in the position to be

forced to take actions when suppliers are not able to supply goods/services as it

was planned before among both parties. To overcome the arisen problems come

from suppliers, Procurement Team are forced to warn them by issuing warning

reports based on what is listed in Service Level Agreement (SLA). The failure of

supplying materials by suppliers must be warned because the operational activities

at Aerofood ACS Unit Denpasar highly depend on the procurement practices.

However, Aerofood ACS also attempts to understand certain cases that

obstruct the suppliers in doing their works. The factor which inhibits the suppliers

in supplying the required goods/services is generally caused by disaster risks.

Disaster risks are related to natural phenomena, which cannot be avoided by both

Aerofood ACS Unit Denpasar and its suppliers.

Thus, both parties come up with the initiative to work strategically by

generally holding a sharing session to jointly discuss about mutual settlement for

the procurement practices. On the other hand, suppliers attempts to understand, in

case Aerofood ACS Unit Denpasar experiences unwanted arisen problems,

especially when the certain phenomenon is related to disaster risk. Iniative to

work strategically may be interpreted on Figure 33.

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Figure 33. Initiative to Work Strategically

Source: Data processed, 2018.

Otherwise, Procurement Team attempts to seek for unavailable items by

supplying from shops, markets, restaurants, and retailers, otherwise known as

direct purchase. According to the Guidelines of Procurement Practices at PT

Aerofood Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 27), direct purchase

is a procurement method which is done by purchasing goods and / or services

directly, called cash vendor. Direct purchase will be held if there are some certain

conditions arise, such as an urgency, VVIP or extra flight, meal test or special

event, unfulfilled materials by suppliers, and situation when unfulfilled materials

will disrupt operational activities within a company and potentially inflict a loss

for the company.

Risk challenges imply to what extent Aerofood ACS Unit Denpasar and its

suppliers proactively manage risk and innovation together. Risk challenges

describe how the company goes about assessing the risks involved with its

suppliers. Similarly, risk challenges also describe how the suppliers go about

assessing the risks involved with Aerofood ACS Unit Denpasar.

To overcome the risks that arise, Procurement Team generally suggests the

substitutes offered by suppliers to User to ask for an agreement to replace certain

Suppliers Mutual Settlement Buyer

134

items. If it is approved, Procurement Team will re-notify the suppliers to supply

the substitutes. If it is rejected, Procurement Team tends to personally hold

procurement practices, such as supplying the certain items from other units of PT

Aerofood Indonesia. On the other hand, suppliers realise that both parties are not

able to predict disaster risks. So that, Procurement Team may confirm the validity

of arisen phenomenon by providing valid data or information.

Aerofood ACS Unit Denpasar attempts to jointly manage risks by

considering the capabilities of suppliers in supplying goods/services. Procurement

Team regularly notify its suppliers about estimated consumption that are needed

by the customers. If there is a cancellation, Procurement Team routinely manages

to provide chronological circumstances of cancellation to its suppliers.

According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 15), risk management at PT

Aerofood Indonesia is done by two steps. The first step is done by reviewing the

risk of strategic procurement practices. The second step is done by reviewing the

guidelines of procurement practices that are related to the capability of risk

management.

Moreover, Procurement Team is also able to recommend suggestions to its

suppliers how to mitigate risks. Suppliers are suggested to coordinate with their

partners to fulfil the needs of Aerofood ACS Unit Denpasar. For instance,

suppliers of fruits & vegetables generally coordinate with their farmers to estimate

the availability of materials. This is needed to be conferred, to be able to supply

the materials in specified time. Procurement Team tends to establish clauses that

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do not incriminate the suppliers, by adding force majeure to tolerate the state of

emergency that arise.

These are following statements from interviewees about the strategic

decision making and risk challenges between buyer and its suppliers, based on

Table 14., as follows:

Table 14. Statements about Strategic Decision Making and Risk Challenges

In Indonesian 1. Procurement

Manager “Operasional itu harus tetap berjalan, ibaratnya yaitu the show must go on. Jika tidak ada material, penumpang pesawat tidak bisa dapat makanan. Jika operasional sudah membutuhkan barang itu dan vendor tidak bisa kirim, maka kita harus carikan sendiri di luar. Kita juga rutin mengabarkan perkiraan consumption ke vendor supaya mereka bisa mempertimbangkan cara terbaik untuk supply, misal dalam waktu 3 bulan. Misalnya, vendor bisa menghubungi petaninya untuk membicarakan perihal barangnya. Jika ada barang yang tidak bisa di-supply oleh vendor, kita juga dapat mencari barang itu ke unit lain ACS.”

2. Senior Buyer of Proc. Dept.

“Dampak alam memang tidak bisa dihindari. Jika vendor tidak bisa supply barang tertentu, maka dia harus membuat surat kekosongan untuk barang tersebut. Selanjutnya, kita akan suggest lagi ke User untuk rekomendasi pengganti. Jika rekomendasi pengganti diterima, kita akan notify ke vendor untuk diadakan atau mencari ke pasar jika tidak ada. Kita juga rutin mengabarkan kronologi cancellation pada vendor setelah vendor mengantongi berita terkait alasan cancellation.”

3. Admin of Proc. Dept. “Biasanya jika vendor sudah tidak bisa supply, kami akan carikan material tersebut di pasar atau supermarket, namun juga tetap diberikan SLA.”

4. Capital Investment Staff of Proc. Dept.

“Jika vendor tidak bisa supply, maka kami akan berikan SLA, berdasarkan berita acara pula. Hal itu memang harus dilakukan karena berhubungan dengan operasional dan sebenarnya harus dipenuhi

136

dulu dari vendor. Tetapi, jika vendor sudah menyerah maka kami akan ambil tindakan lain juga, seperti mencarikan di pasar. Kemudian, jika vendor tidak memenuhi SOP, jelas terkena SLA. Kita juga akan mempertimbangkan keadaan tertentu untuk vendor pada pasal-pasal terkait di dalam kontrak, seperti adanya force majeure untuk musibah tertentu yang muncul.”

5. Vendor of Dwijaya “Kami biasanya akan mencoba mengerti dengan kondisi yang ada karena tidak ada yang bisa merencanakan kondisi alam. Jika ACS melakukan cancellation terus-menerus, kita juga meminta data pendukung alasan dari cancellation tersebut.”

In English 1. Procurement

Manager “The operation must keep running, supposing that the show must go on. If there are not any materials, we cannot satisfy aircraft passengers by serving food as general. If materials needed for operational activities and vendors fail to fulfil, so that we need to do direct sourcing. We also routinely notify estimated consumption to vendors, so that they can consider the best way to supply, e.g. within 3 months. For instance, the vendors can contact their farmers or collleagues to discuss about the planned materials. If there is an item that cannot be supplied by the vendors, we can also receive the specified item from another unit of ACS.”

2. Senior Buyer of Proc. Dept.

“The impact of nature is inevitable. If the vendors cannot supply certain materials, then they must deliver a proof of failure in doing procurement practices. Furthermore, we will re-suggest to User for another recommendation. If it is accepted, we will notify the vendors to supply. On the other hand, if it is unavailable, we will seek the items in markets. We also routinely notify the chronology of cancellation to the vendors after the vendor received the news regarding the reasons for cancellation.”

3. Admin of Proc. Dept. “Generally, if the vendors are not able to supply, we will find the material at the market or supermarket, but we still tend to run SLA.”

4. Capital Investment Staff of Proc. Dept.

“If vendors cannot supply, we will run SLA, based on report cards as well. It must be done because it is in relation to operational activities and it must be completed first by vendors. However, if the vendor fails to supply then we will take other actions, such as sourcing from the market. Furthermore, if

137

vendors cannot keep up with SOP, we also run SLA. We will also consider certain circumstances for vendors in the related clauses from the contract, such as force majeure for certain disasters that arise.”

5. Vendor of Dwijaya “We usually attempt to understand the certain conditions that arise because it cannot be planned. If ACS does a continuous cancellation, we will also ask for supporting data of the cancellation.”

Source: Data processed, 2018.

b. Planning Integration

Demand and supply capabilities are included in planning integration

because they are related to capabilities of buyer and its suppliers in requesting and

supplying materials in a current period. Demand capabilities describe how

Aerofood ACS Unit Denpasar regularly requests their needs to its suppliers.

Supply capabilities describe how the suppliers continuously supply Aerofood

ACS Unit Denpasar based on the requirement of the company. Demand and

supply capabilities may be interpreted on Figure 34.

Figure 34. Demand and Supply in Procurement Practices

Source: Data processed, 2018.

Demand (User)

Order (Proc. Team)

Supply (Suppliers)

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Aerofood ACS Unit Denpasar has scheduled materials to be supplied on a

regular basis. Procurement Team claims that it is possible to suddenly notify the

suppliers for the additional materials to serve extra flight and charter flight.

Regardless of this matter, Procurement Team admits that suppliers may supply the

materials, according to their abilities to supply the additional ones. It is because of

the urgency or sudden needs delivered from Aerofood ACS Unit Denpasar.

Procurement Team requests the materials by delivering Purchase Orders to

its suppliers on a regular basis. Purchase Orders refer to the orders over

purchasing goods and / or services, where they are included in legal documents

and involved in signed agreement. According to the Guidelines of Procurement

Practices at PT Aerofood Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 46),

Procurement Team has responsibilities to oversee the capabilities of suppliers in

supplying materials. The responsibilities include releasing Purchase Orders and

monitoring the arrival of materials, creating warning letter or punishment based

on the report from User, and evaluating its suppliers based on the information

from User.

To fulfil the request of sudden need from Aerofood ACS Unit Denpasar,

suppliers tend to negotiate the delivery time of additional materials. If they

prepare stocks in their storehouse, they will notify Aerofood ACS Unit Denpasar

and directly supply to storehouse of the company. If they do not prepare the

stocks in their storehouse, suppliers will communicate with Procurement Team

whether using substitutes or not. If suppliers are out of stock in supplying

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materials, they will attempt to notify Aerofood ACS Unit Denpasar three days or a

week before the delivery time.

These are following statements from interviewees about the demand and

supply capabilities between buyer and its suppliers, based on Table 15., as

follows:

Table 15. Statements about Demand and Supply Capabilities

In Indonesian 1. Procurement

Manager “PO itu salah satu dokumen legal untuk memberitahukan permintaan regular kita pada vendor. PO itu termasuk pecahan dari dokumen kontrak.”

2. Admin of Proc. Dept. “Last-minute information itu jarang, biasanya kami menginformasikan hal seperti itu jika ada extra flight dan charter flight.”

3. Capital Investment Staff of Proc. Dept.

“Last-minute information yang diberitahukan ke vendor karena ada extra flight atau charter flight, biasanya kita memaklumi kemampuan supply. Berkaitan dengan sifatnya dadakan atau tambahan, maka vendor bisa supply sebisanya.”

4. Vendor of Dwijaya “Jika ada informasi dadakan, biasanya kami negosiasi untuk jam pengiriman. Misal ada stock di gudang, kita bisa langsung kirim. Namun jika tidak ada stock, maka kita akan komunikasi lebih lanjut dengan ACS untuk bisa suggest pengganti atau tidak. Untuk regular jika kita tidak bisa kirim barang yang diinginkan, maka kita akan informasikan ke ACS seminggu atau paling lambat tiga hari mengenai kekosongan tersebut beserta surat keterangan kekosongan.”

In English 1. Procurement Manager “Purchase Order is a part of the legal documents to

notify our regular requests to the vendors. The Purchase Orders are part of signed contract.”

2. Admin of Proc. Dept. “We rarely notify last-minute information, we usually do that if there are extra flights and charter flights.”

3. Capital Investment “Last-minute information is notified to the vendors

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Staff of Proc. Dept. because there is extra flight or charter flight, we generally understand the capability of supply. With respect to this certain condition, then the vendor can supply as much as possible.”

4. Vendor of Dwijaya “If there are any sudden orders, we generally negotiate for time of delivery. If there are stocks in storehouse, we can simply deliver them. If there is no stock, then we will communicate with ACS to suggest replacement or not. For regular basis, if we cannot deliver the required item, then we will inform ACS a week or at least three days about the emptiness and the proof letter.”

Source: Data processed, 2018.

c. Information Integration

Information integration implies to what extent information integration takes

place within the relationships between Aerofood ACS Unit Denpasar and its

suppliers. It tells how both parties highly depend on each other towards exchange

of information. Information integration also describes how level of information

sharing is within Aerofood ACS Unit Denpasar and its suppliers.

Information integration takes place within Aerofood ACS Unit Denpasar

and its suppliers to define planning of materials required and interpret on-spec and

on-time in supplying goods/services. Aerofood ACS Unit Denpasar highly

depends on confidential information more than public-released information.

Procurement Team claims that the level of information sharing between both

parties is continuous, where Procurement Team communicates with the suppliers

daily.

Apart from confidential information from exchange of information and

hygiene inspection, public-released information is needed. It plays important role

141

to find out about the arisen problems come from the suppliers and review their

performance as references from other colleagues. Procurement Team attempts to

notify the required materials to suppliers, long before time of delivery. It is done

by Procurement Team to avoid the inconvenience from the suppliers. If there are

any urgencies, Procurement Team will communicate with the suppliers first, to

ask for the availability of required additional materials. Information sharing by

using confidential information and public-released information may be interpreted

on Figure 35.

Figure 35. Information Sharing

Source: Data processed, 2018.

Recently, Aerofood ACS Unit Denpasar priorities the information sharing

with the suppliers via online. According to the Guidelines of Procurement

Practices at PT Aerofood Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 30),

e-Procurement is one of the electronic medias used in doing procurement

practices. e-Procurement is a web-based application that provides various

Information Sharing

Confidential Public-released

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information that is related to the procurement process of goods/services, in

accordance with the guidelines of procurement of goods/services applicable at PT

Aerofood Indonesia.

e-Procurement can be accessed through https://eproc.aerofood.co.id/. e-

Procurement of PT Aerofood Indonesia is a procurement system that provides

convenience for partners or prospective providers of goods/services, otherwise

known as prospective suppliers. It helps to communicate and provide procurement

support for PT Aerofood Indonesia to accelerate the procurement process,

improve operational efficiency in terms of cost and time, and ensure the

transparency of the procurement process to realise Good Corporate Governance.

Suppliers claim that information sharing between both parties is

fundamental. They rate the information about on-spec and on time of materials

from Aerofood ACS Unit Denpasar as very good. If there are any sudden needs,

Procurement Team will be responsive to directly notify the suppliers. Therefore,

suppliers can directly supply the additional materials to the company when they

prepare stocks in their storehouse. At the time when suppliers experience

difficulties in supplying materials because of no vehicles, Aerofood ACS Unit

Denpasar may pick up the materials directly from the suppliers’ storehouse.

These are following statements from interviewees about information sharing

within buyer and its suppliers, based on Table 16., as follows:

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Table 16. Statements about Information Integration

In Indonesian 1. Procurement

Manager “Sharing informasi antara kita dengan vendor itu bisa dibilang berkelanjutan. Hal ini karena hampir tiap hari selalu berkomunikasi dengan mereka (vendor), baik itu melalui via telepon, mail, dan bertemu langsung. Sekarang ini, kita juga sudah dimudahkan dengan media online, sehingga bisa menghubungi vendor setiap saat, misal dengan chat di group ACS dan vendor yang ada di Whatsapp. Sharing informasi di antara kami lebih banyak didapat langsung dari mereka sendiri (confidential information). Namun, kita juga menerima public-released information yang bentuknya berita di media, biasanya berhubungan dengan bencana atau masalah penyebab kesulitan vendor untuk supply.”

2. Senior Buyer of Proc. Dept.

“Kita selalu menginformasikan ke vendor tiap harinya. Jika ada kebutuhan mendesak, kita juga biasanya telepon mereka dulu untuk memastikan ada tidaknya barang tersebut. Hal itu dilakukan supaya vendor juga tidak merasa kesulitan.”

3. Capital Investment Staff of Proc. Dept.

“Selain mengandalkan informasi internal dari vendor sendiri dan hygiene inspection, kita juga memperhatikan informasi publik dan referensi rekanan untuk mengetahui performa dari vendor kita.”

4. Vendor of Dwijaya “Sharing informasi itu penting, ACS memberikan info tentang on-spec dan on-time dengan jelas. Dalam hal ini pemberitahuan informasi oleh ACS dapat dibilang sangat bagus. PO selalu diinformasikan tepat waktu sehingga bisa direncanakan dengan baik. Mereka juga selalu menginformasikan sebelumnya jika ada kebutuhan mendesak (dadakan). Saat ACS butuh barang mendesak namun kami sedang tidak ada armada untuk mengirim, ACS bisa langsung mengambil ke kami. Untuk saat ini, kami sangat memprioritaskan untuk mendapatkan info hanya dari perusahaan terlebih dahulu.”

In English 1. Procurement

Manager “Sharing information among the company and suppliers is continuous. We regularly communicate with them (vendors), by communicating via telephone, mail, and direct meeting. Recently, we also have an online media, so that we can contact

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the vendors at any time, for example with a chat in the group ACS and vendors on Whatsapp. Sharing information is mostly received from the vendors in direct form (confidential information). However, we also receive public-released information in form of news, related to disasters or problems causing vendors fail to supply.”

2. Senior Buyer of Proc. Dept.

“We always notify to the vendors on regular basis. If there is an urgent need, we also generally call them first to make sure the availability of the item. It is done so that vendors do not find it difficult.”

3. Capital Investment Staff of Proc. Dept.

“In addition to relying on confidential information from our own vendors and hygiene inspection, we also pay attention to public-released information and partner references to determine the performance of our vendors.”

4. Vendor of Dwijaya “Sharing information is essential, ACS provides information about on-spec and on-time clearly. In this case, the notification by ACS can be rated very good. Purchase Orders are always notified on time, so that it can be planned well. They are always in advance if there is an urgent need. When ACS needs urgent materials but we are not able to deliver directly, ACS can directly pick the materials up from us. Recently, we highly prioritise to get information only from the company first.”

Source: Data processed, 2018.

6. Evaluation of Success at Aerofood ACS Unit Denpasar

Evaluation in buyer-supplier relationships and knowledge integration is

substantial. Evaluation is able to measure how far the success of Aerofood ACS

Unit Denpasar in building deep relationships and exchange of valuable knowledge

with its suppliers. Aerofood ACS Unit Denpasar tends to consider the evaluation

to make strategy decisions and determine the steps that will be taken in the future.

According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 54), evaluation of suppliers is

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intended as an effort of the company to develop mutually beneficial relationships

with its suppliers, particularly the ones who have good performance. The main

criterias in assessing the performance of each supplier include quality, price,

delivery, and service & innovation. Those criterias are listed in the Guidelines of

Procurement Practices at PT Aerofood Indonesia, in SKEP/NO.

5014/DU/SKEP/2017 (p. 55). The problems come from quality, price, and

delivery will be documented on report cards of suppliers.

Procurement Team claims that they regularly evaluate how good deep

relationships and exchange of valuable knowledge with suppliers run throughout

the partnerships. The success of building deep supplier relationships and exchange

of valuable knowledge are evaluated by integrating three components. They are

semester report, total evaluation of suppliers’ performance, and Key Performance

Indicator (KPI). Procurement Team generally create semester reports based on the

evaluation of suppliers’ performance and procurement practices, thereafter align it

with the Key Performance Indicator (KPI).

Key Performance Indicator is considered important, based on the total

evaluation of suppliers’ performance. Total evaluation of suppliers comes from

report cards of suppliers, hygiene inspection, and suppliers’ performance. When

Key Performance Indicator (KPI) turns out high, it shows that procurement

practices run well and suppliers have good performance in supplying

goods/services. Hence, Key Performance Index (KPI) and total evaluation of

suppliers’ performance run side by side.

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By evaluating its relationships, Procurement Team tends to give the

appreciations for the suppliers that have good performances. On the other hand,

Procurement Team tends to give the punishments or sanctions for the suppliers

that fail in doing their responsibilities. Procurement Team perceives that the

appreciate given may enhance the relationships between both parties. However,

the punishment may encourage the suppliers to work maximally.

The appreciation is awarded by doing early payments to the suppliers that

successfully win the awards twice. In this matter, the company are also able to

propose for a price negotiation. The suppliers can achieve the reward by

upgrading the quality of materials, where the reward is rated by considering

hygiene inspection, report cards of suppliers, and total evaluation of suppliers. On

the other hand, punishment is given to the suppliers based on infraction or offense

they perform.

Furthermore, suppliers consider good communication as a good evaluation

for Aerofood ACS Unit Denpasar and the suppliers in building deep relationships

and exchange of valuable knowledge. When Aerofood ACS Unit Denpasar

continuously entrusts them to supply goods/services, suppliers assume trust as one

of components in successful evaluation. Report cards of suppliers’ performance

are also measured as a success reached by the suppliers. Less report cards of

suppliers’ performance shows that they tend to do the procurement practices well.

To verify the success, author compares the complaints for suppliers that include

quality, quantity, and late time of delivery. Report cards were collected per month,

from 2016 to 2017, on Figure 36 and Figure 37.

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Total Complaints in 2016

Month Total January 15 February 13 March 11 April 12 May 27 June 24 July 12 August 7 September 9 October 7 November 23 December 58

Figure 36. Total Report Cards 2016

Source: PT Aerofood Indonesia (company archive), 2018.

Total Complaints in 2017

Month Total January 56 February 48 March 12 April 7 May 1 June 12 July 18 August 15 September 23 Figure 37. Total

Report Cards Jan – Sep 2017

Source: PT Aerofood Indonesia (company archive), 2018.

0

10

20

30

40

50

60

70

Total Report Cards 2016

Per Month

0102030405060

Total Report Cards 2017

Per Month

148

No Criteria Amount

Jan – Dec 2016

Jan – Sep 2017

1 Quality 146 119 2 Quantity 37 42

3 Late Delivery 35 31

Total 218 192

Figure 38. Report Cards 2016 - 2017 based on Criteria

Source: PT Aerofood Indonesia (company archive), 2018.

According to Figure 38., report cards of suppliers in January-

September 2017 had decreased from 2016. The appreciation, given from

Aerofood ACS Unit Denpasar to its suppliers, has started in March 2017.

Procurement Team claims that appreciation for the suppliers can successfully

affect their performance in supplying materials after the appreciation is

implemented. The suppliers attempt to achieve their innovation in procurement

practices. This practice tends to bring win-win solution for both parties, when the

0

20

40

60

80

100

120

140

160

Quality Quantity Late Delivery

Report Cards 2016-2017 Based on Criteria

Jan - Dec 2016 Jan - Sep 2017

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suppliers receive early payment and Aerofood ACS Unit Denpasar receives the

feedback of their innovation.

Report cards are one of the essential requirements to measure the success to

integrate them with hygiene inspection, and evaluation of suppliers’ performance.

Afterwards, it will be integrated with semester report. Key Performance Indicator

in January-September 2017 is rated higher than in 2016. It demonstrates that

Procurement Team has successfully maintained the good communication between

the company and its suppliers.

However, Procurement Team realises that they still need to concern on each

criteria of their evaluation of suppliers’ performance. From the figures, quality is

considered as vulnerable element that needs more attention than the other

elements. According to the Guidelines of Procurement Practices at PT Aerofood

Indonesia, in SKEP/NO. 5014/DU/SKEP/2017 (p. 55), the reflected inconsistency

of quality in an amount received by User is a cause of inconsistency of

specifications and a ratio of defective materials or failures in services by

suppliers. Therefore, Procurement Team attempts to constantly remind the

suppliers to improve and maintain the quality of materials. This matter is directly

related to efforts of the company to enhance and maintain its reputation.

These are following statements from interviewees about evaluation of

success in deep supplier relationships and exchange of valuable knowledge, based

on Table 17., as follows:

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Table 17. Statements about Evaluation of Success

In Indonesian 1. Procurement

Manager “Jika kita bicara tentang evaluasi, kembali lagi dasarnya adalah KPI. KPI itu berasal dari evaluasi vendor yang ada dan dilakukan tiap semester. Jika mereka tidak dapat berita acara, maka KPI pun bagus. Jika KPI bagus, maka komunikasi dengan mereka terbilang bagus. Kita berpedoman dari itu.”

2. Admin of Proc. Dept. “Selain laporan semester, juga berasal dari evaluasi vendor dan integrasi dengan KPI. Jika KPI kita terpenuhi, maka kerjasama dengan vendor itu bagus, apapun kriterianya dipenuhi semua oleh mereka.”

3. Capital Investment Staff of Proc. Dept.

“Untuk evaluasi keberhasilan, laporan semester, evaluasi vendor, dan KPI itu berintegrasi. Jika KPI naik, berarti supply dari vendor bagus. Jika pembelian dengan cash kita banyak, berarti KPI sudah tidak aman karena vendor tidak supply.”

4. Vendor of Dwijaya “Evaluasi keberhasilan itu didapatkan dari komunikasi bagus yang terjalin. Selain itu, kepercayaan pada ACS yang membuat kerjasama bertahan. Tidak adanya berita acara juga bisa menunjang evaluasi yang baik.”

In English 1. Procurement Manager “Evaluation is related to KPI. The KPI comes from

evaluation of vendors and it is done per semester. If they do not receive report cards, then KPI will be good. If KPI is good, then communication is rated good.”

2. Admin of Proc. Dept. “Aside from the semester report, it also comes from evaluation of vendor and integrate them with KPI. If our KPI is fulfilled, then the cooperation with the vendor is rated good, regardless of the criteria fulfilled by all of them.”

3. Capital Investment Staff of Proc. Dept.

“For evaluating success, semester report, evaluation of vendor, and KPI integrate to each other. If KPI goes up, it means supply from vendor is good. If we mostly do direct purchase, then KPI is not secure because the vendors rarely supply.”

4. Vendor of Dwijaya “Evaluation of success is obtained from good communication that is intertwined. In addition, the trust between both parties that makes the partnership run. The absence of report cards can also support a good evaluation.”

Source: Data processed, 2018.

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C. Data Analysis

Figure 39. Portrait of Strategic Procurement Practices

Source: Data processed, 2018.

According to Figure 39., Aerofood ACS Unit Denpasar has considered

deep supplier relationships as mutually beneficial relationships in procurement

practices. Procurement Team implements the practice of deep supplier

relationships by considering power and dependence. Thereafter, power and

dependence lead to the development of relationship performances and relationship

bonds, also valuable knowledge integration between them.

The practice of deep supplier relationships at Aerofood ACS Unit Denpasar

has run in accordance with the statement of deep supplier relationships by Harris

and Streeter in Netland and Powell (2016, p. 207) that goal of the close buyer-

supplier relationships is to develop the suppliers into partners and to create

mutually beneficial relationships. Aerofood ACS Unit Denpasar also tends to

Suppliers Aerofood ACS Unit Denpasar

Business Operation

Trust & Guānxì

Exchange of Valuable Knowledge

Strategic Procurement

Practices

Relationships

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prioritise coordination and collaboration as deeper relationships, aside from

confrontation and cooperation as arms-length relationships. The company

considers these steps as ways to achieve long-term partnerships with its suppliers.

It is in accordance with the statement by Nicosia and Moore (2006, p. 15), that

many commercial enterprises are moving from arms-length to deeper supplier

relationships.

Exchange of valuable knowledge is also a part of deep supplier

relationships. It supports Aerofood ACS Unit Denpasar to understand what

knowledge; related to solutions, value-added, and competencies, within

procurement practices that should be shared to its suppliers. It is in accordance

with the statement of valuable knowledge by Winkelen and McKenzie (2011, p.

1), that valuable knowledge may be in forms of unique business models or

solutions, key value-adding processes, core technology competencies, to business

support systems, that integrate knowledge across the organisations.

Exchange of valuable knowledge contributes to create a view that is robust

against organisational change in relation to procurement activities between

Aerofood ACS Unit Denpasar and its suppliers, so that sustained initiatives can be

justified by implementing joint-improvement, planning integration, and

information integration. It is in accordance with the statement of Winkelen and

McKenzie (2011, p. 2), that creating a view that is robust against organisational

change and over time is one of the reasons for using a systematic process to

identify and evaluate the knowledge sources of the organisation.

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The success of implementation in building deep supplier relationships and

exchange of valuable knowledge may be described using supplier-partnering

hierarchy. Supplier-partnering hierarchy consists of six steps, where it attempts to

reach the maximum value. Aerofood ACS Unit Denpasar and its suppliers are

aware of carrying on the mutually beneficial relationships, where the suppliers are

committed to satisfy the company to create value along procurement practices.

Implementation practice of Aerofood ACS Unit Denpasar in building deep

supplier relationships and exchange of valuable knowledge, in accordance with

the portrait by Liker and Choi in Harvard Business Review (2004) about supplier-

partnering hierarchy, may also be interpreted on Figure 40., as follows:

1) Understand how the suppliers work.

Procurement Team attempts to select the best of the best available suppliers

to be listed in Approved Vendor List of Aerofood ACS Unit Denpasar. Approved

Vendor List (AVL) as an internal reference to consider the potential suppliers

based on the results of administrative qualification and hygiene inspection with

the evaluation. Suppliers of the company that come from domestic and foreign

businesses are scaled from small to large enterprises. The businesses are in forms

of joint venture, consortium, state-owned enterprises, subsidiaries, factories,

machine shops, sole agents or distributors, specialists, SMEs, cooperatives, and

individual businesses.

Suppliers of the company run their businesses, such as supplying raw

materials (fruits and vegetables), mono-use materials, dry goods (foods and

beverages), also engineering materials and capital investment. Those businesses

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are in accordance with the needs of Aerofood ACS Unit Denpasar to fulfil

operational activities or production process. At Aerofood ACS Unit Denpasar, all

parties have high level of equal power in activities of supplying goods/services.

However, the suppliers of raw materials (fruits & vegetables) and dry goods

(foods & beverages), tend to dominate the procurement practices because of their

usefulness in meeting the requirements of main business field at Aerofood ACS

Unit Denpasar.

Aside from Approved Vendor List (AVL), the capabilities of suppliers that

have jointly been working together with Aerofood ACS Unit Denpasar are also

measured by using evaluation per semester of their performance and external

references. If suppliers successfully reach high percentage in evaluation, they will

be recommended to join upcoming procurement practices. The company also

considers that trust can affect the performance of suppliers, where it is also

verified by seeking information from the colleagues that are also supplied by the

same suppliers, otherwise known external references.

To commit to co-prosperity, Aerofood ACS and its suppliers are highly

dependent to each other. Aerofood ACS Unit Denpasar and its suppliers are aware

of the mutually beneficial relationships in achieving long-term partnerships.

Furthermore, co-prosperity of both parties may lead to the goals of each

companies.

2) Turn supplier rivalry into opportunity

Previously, Aerofood ACS Unit Denpasar chose first suppliers and second

suppliers to supply for each certain item, particularly for raw materials section.

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The reason was because disaster risks could happen suddenly and disrupt the

procurement practices. In this case, the percentage of each certain item supplied

by first suppliers was higher than the percentage of each certain item supplied by

second suppliers.

Recently, Aerofood ACS Unit Denpasar tends to supply each certain item

from main and backup suppliers, mainly for the needs of raw materials and dry

goods. Procurement Team changes the terms, where there are main suppliers and

backup suppliers to anticipate the risks that arise and entrust the most capable

suppliers. Backup suppliers will only be notified when there is urgency at

Aerofood ACS Unit Denpasar. Moreover, it does not apply to the materials

supplied by monopoly suppliers.

Basically, company involved in in-flight catering activities mainly depends

on the airlines. When certain problems occur in airline activities, business

operations at PT Aerofood Indonesia and its suppliers will also be disrupted.

Therefore, Aerofood ACS Unit Denpasar regularly reminds its main

suppliers about the shared vision, mission, policies, and contribution, where those

suppliers take parts in procurement practices. The purpose of the reminder is to

gather both parties in mutual way to constantly run best procurement practices by

working strategically to overcome arisen problems.

Aerofood ACS Unit Denpasar and its main suppliers attempt to transfer

knowledge and control over procurement practices. Aside from working

strategically to achieve mutual goals and make strategic decision, Procurement

Team regularly shares confidential information and notifies the suppliers about

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the required consumption for airlines. On the other hand, suppliers also share their

confidential information and notify Procurement Team about the availability or

unavailability of required materials. Therefore, Procurement Team and its

suppliers are still able to maintain over procurement practices by seeking for

alternatives, although the required materials are unavailable.

3) Supervise the suppliers

Procurement Team tends to send monthly report cards to main (core)

suppliers, to provide regular assessment of the suppliers’ performance. Report

cards generally describe the mistakes done by the suppliers in supplying materials.

Those report cards are considered in the total evaluation of suppliers per semester,

to describe the failure of procurement practices by suppliers, in term of quality,

quantity, and time of delivery.

In supervising suppliers, Procurement Team is charged to provide

immediate and constant feedback about Purchase Orders and arisen problems in

procurement activities. Similarly, suppliers have to provide immediate and

constant feedback about the availability of required materials. If the required

materials are unavailable, suppliers will be asked to send a letter that explains the

reasons of unavailable materials with the proof attachment.

When suppliers fail in doing procurement practices based on the signed

agreement, they will receive the warning letter. Procurement Manager and Senior

Buyer will also have rights to warn the suppliers, if the procurement practices

done by the suppliers are not in accordance with Service Level Agreement (SLA)

attached. On the other hand, Procurement Manager and Senior Buyer are able to

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suggest alternatives to overcome the arisen problems. The manager may take

action alongside the Inter Office Memo and P&P. In urgent condition where the

suppliers cannot do procurement practices, the procurement practices can be done

by direct sourcing.

4) Develop suppliers’ technical capabilities

Procurement Team is also charged to build suppliers’ problem-solving

skills. When suppliers have difficulties in running procurement practices, they are

requested to directly notify Procurement Team and suggest what can be done to

overcome the problems. In some cases, suppliers tend to suggest the substitutes to

replace the unavailability of required materials. However, the replacement using

substitutes has to be firstly approved by related User.

Procurement Team attempts to emphasise to its suppliers about the value of

moral honesty and secrecy by not giving, offering, or receiving gifts, honorarium,

rewards, rebates and any other things from partners, in relation to procurement

practices within the company and its suppliers. Furthermore, both parties agree to

run procurement practices alongside with the company culture of Aerofood ACS

Unit Denpasar (I-FRESH) to avoid the conflict of interest.

Procurement Team attempts to hone suppliers’ innovation capabilities by

rewarding an appreciation. Early payment will be rewarded to suppliers for having

good performance. Suppliers have to improve their innovation in serving good

quality within procurement practices, to achieve the award given by Aerofood

ACS Unit Denpasar. This step is also able to affect the cash flow to get better.

5) Share information intensively but selectively.

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Procurement Team generally set agendas for meetings or sharing sessions

with its suppliers inside the office. Sharing session is generally held once in a

month or once in two months. Sharing session is held to discuss about innovation

and problem-solving within procurement activities. Moreover, Procurement Team

and its suppliers also share general information via mail, telephone, and group

chat created by Procurement Team.

Procurement Team and its suppliers tend to share confidential information

within both parties over public-released information. Confidential information

generally provides the data about the planning of procurement practices that binds

Aerofood ACS Unit Denpasar and its suppliers. They include Purchase Orders,

information letter, report cards, and partnership documents. On the other hand,

public-released information generally provides the data about the external

references and proof of arisen problems within procurement activities which

affect the practices.

Both parties generally share information directly or indirectly. In delivering

information, Procurement Team and its suppliers constantly share the accurate

data collection. The shared confidential information should be signed or approved

by authorised officials of each party. On the other hand, public-released

information should be obtained from official news or media.

Procurement Team and its suppliers share information in a structured

fashion. Firstly, Procurement Team notifies the required materials to suppliers by

delivering Purchase Orders. Suppliers are asked to confirm the availability of

required materials. If the required materials are unavailable, suppliers have to

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notify the unavailability of required materials in previous week or three days

before the time of delivery, by providing the letter with proof attachment. Then,

Procurement Team can also re-notify the suppliers about the meetings or sharing

sessions that will be held. Aanwijzing is also one of the meetings held by

Procurement Team to share information about the upcoming procurement

practices and hold discussion to receive suggestions from suppliers.

6) Conduct joint-improvement activities.

Prudence as one of the procurement codes at PT Aerofood Indonesia. It

implies to professional, independent, wise, also do best and right in accordance

with GCG principles, best practices, and regulations that are applicable to all

stages of procurement practices. Therefore, Aerofood ACS Unit Denpasar

emphasises Good Corporate Governance (GCG) to give directions and help

aligning strategy of procurement practices with the company’s overall strategy

with the third parties. Best practices can be held in the forms of providing

mechanism to ensure the relationships stay healthy and vibrant, creating a

platform of policies for problem resolution, as well as ensuring that performance

measurement objectives are achieved.

Procurement Team initiates continuous improvement in projects with its

suppliers by achieving value for both parties. The aims of continuous

improvement in projects are to build open communication and develop the

relationships. The company and its suppliers are encouraged to use the talents of

supply base to create sustained value, while constantly seeking improvement in

procurement practices.

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Procurement Team regularly sets up study groups with its suppliers in a

form of sharing session. Both parties generally discuss about the agreement over

procurement practices, innovation of supplying goods/services, and the resolution

of arisen problems that come from suppliers to buyer, buyer to suppliers, and

supplier to another supplier.

Figure 40. Supplier Partnering Hierarchy at Aerofood ACS Unit Denpasar

Source: Data processed, 2018.

Aerofood ACS Unit Denpasar, as in-flight catering service companies,

frequently face uncertain condition that comes from airlines or disaster risk that

disrupt the activities of airlines. Business operation of Aerofood ACS Unit

Denpasar relies on the number of aircraft passengers and the number of air travel

services that operate. Thus, this problem leads to the loss for the company in

production process. When the nature risk arises, most suppliers will also face the

problems of inability in doing procurement practices and supplying materials for

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Aerofood ACS Unit Denpasar. Meanwhile, the other suppliers also incapable to

supply materials based on the required specification or time.

Regarding to this, Aerofood ACS Unit Denpasar has obtained some new

ways or courses of action, otherwise known as strategies. They include the actions

of delivering the latest responsibilities of suppliers and appreciation for the most

capable suppliers. Aerofood ACS Unit Denpasar attempts to constantly behave in

the market of airlines and react to its external environment which is uncertain, to

preserve the commitment of company in upholding the customers satisfaction and

operational excellence.

The action is in accordance with the statement of strategy by Mainardes,

Ferreira, and Raposo (2014), that strategy is the way in which the company should

behave or act in the market and relate to its external environment. It also runs

alongside with the statement of Steen (2013), that defined strategy as the core of a

potentially flexible and adaptive intended course of action. It is called flexible and

adaptive because the action taken by Aerofood ACS Unit Denpasar is responsive

to the changes in business environment within airline activities.

Procurement Team, as the leader in procurement practices within

interorganisational context, realised that alignment between the company goals

and the role of internal or external environment is important. Procurement Team

attempts to align the capability of internal environment with the analysis of

external environment related, to keep the decisions consistent. As Steen (2013)

stated that strategy provides each decision maker with enough guidance and

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enough of the full picture to ensure consistency across decisions, both over time

or at a point in time.

The latest courses of action of Aerofood ACS Unit Denpasar come from the

occurrence where specific matters of uncertain airline activities and uncertain

nature risks are observed, inspected, and compared to internal capabilities, to

appropriate the value to the company. It is in accordance with the statement by

Cooren, et al (2015), that strategy making is series of communication episodes

where specific matters of concerns are invoked, evoked, and negotiated, defining

and appropriating value to the organisation. The actions of Aerofood ACS Unit

Denpasar, that begins by considering external environment and internal

capabilities, run alongside with the statement by Gacic et al (2015), that strategy

process is seen as continuous-iterative process that begins with situational analysis

of internal and external factors of the organisation’s environment.

The actions of delivering the latest responsibilities of suppliers and

appreciation for the most capable suppliers are seen as the strategy making

process of Procurement Team in building deep supplier relationships and

exchange of valuable knowledge between Aerofood ACS Unit Denpasar and its

suppliers. The reason is because they are valued as phase of strategic management

that set interpretation, do formulation, and implement the strategy in the end as an

action. It is in accordance with the statement by Harrington (2005), that strategy

making process refers to an organisation-level mode of operation utilised in the

phases of strategic management: information processing and interpretation,

strategic ends and means formulation, and strategy implementation.

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Strategy making process within procurement practices by Procurement

Team is described in five main steps alongside the statement by Hill and Jones

(2012, p. 7), as follows:

1) Select the company’s mission and major goals

Company’s main mission is to seve operational excellence for Garuda

Indonesia and other esteemed customers. The goal of procurement practices

is to be held in accordance with general principles of procurement, Good

Corporate Governance (GCG), best practices, and value-added to the

company. It must also be held to achieve the goals of the company and run

in accordance with the company policies.

2) Analyse the external competitive environment

Aerofood ACS Unit Denpasar in the production process to serve the

customers is assisted by suppliers (vendors) in supplying materials required.

The capabilities of suppliers in doing procurement practices affect the

performance of procurement practices within the company. The failure of

doing procurement practices because of uncertain nature risks and the

incapability of suppliers in supplying required materials based on required

specification and time may inflict a loss to Aerofood ACS Unit Denpasar.

3) Analyse the internal competitive environment

The weakness of Aerofood ACS Unit Denpasar is running a business

that is adjusted to the capabilities of suppliers in providing required

materials for production process. Meanwhile, when uncertain risk arises, it

will also affect the operation of Aerofood ACS Unit Denpasar and its

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suppliers. Likewise, uncertain condition from airlines causes the request of

additional service or service cancellation. Those cases are related to the

relationships with suppliers. Additional service, which needs additional

materials, requires the additional supplies from suppliers which cannot be

planned by them. Occasionally, the suppliers incapable in supplying

additional materials. On the other hand, cancellation of certain materials

because of service cancellation tends to inflict a loss to suppliers that have

planned the procurement practices.

However, the strength of Aerofood ACS Unit Denpasar is the company

has the right to control and direct its suppliers in doing procurement

practices. The suppliers run procurement practices alongside with the

decision from Aerofood ACS Unit Denpasar through SOP and agreement

delivered to them. By directing suppliers as what the company requires to

do, the company looks forward to achieving better procurement practices in

facing the uncertain condition along the company business environment.

4) Select the strategy

Raw materials and dry goods are the most important sections in

Procurement Department, where they are related to production process.

However, raw materials section is more vulnerable because it is affected by

nature or disaster risks. The company needs to pay attention to that section.

Previously, there were two suppliers selected for raw materials section

in each certain item of fruits or vegetables. Suppliers played the roles as first

supplier and second supplier, where the percentage of supplies by first

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supplier was 60% and the percentage of supplies by second supplier was

40%. In this matter, company still faced the problems about incapability of

certain suppliers in supplying materials based on required specification and

time. It urged the company to deliver report cards to them as the results of

failure in doing procurement practices. On the other hand, company tended

to occasionally do direct sourcing because of the requirement of additional

materials that could not be supplied by suppliers. Likewise, the cancellation

from Procurement Team inflict a wary effect on suppliers from a loss.

In terms of behaving from the external environment, Aerofood ACS has

developed their latest strategies to overcome uncertainties. Recently,

Procurement Team decides to entrust only first supplier to supply for each

certain item in raw materials section to maintain procurement practices

based on required specification and time. This decision is supported by the

evidence of incapability of certain suppliers in Bali to supply the materials

as the company needs. Procurement Team removes the role of second

supplier in supplying for daily supplies, where the second supplier becomes

the backup supplier.

Procurement Team also releases the appreciation given for the most

capable suppliers in doing procurement practices. Procurement Team values

this action as the renewal of procurement practices in inter-organisational

context. Similarly, this action intends to bind the core suppliers in closer

approach and ensures that the procurement practices by suppliers in

accordance with on-specification and on time.

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5) Implement the strategy

The action of entrusting first supplier as main supplier in doing

procurement pratices for each certain item of fruits or vegetables and

changing the responsibility of second supplier as backup supplier, has been

implemented since the end of 2017. On the other hand, awards given to

most capable suppliers has been implemented since March 2017. Those

latest actions have been approved by top management of the company.

The policies within procurement practices made by Aerofood ACS

Unit Denpasar follows the strategy of the company – to link the formulation

and implementation of strategy. Procurement Team has the responsibility to

control over the policies between company and its suppliers. It is in

accordance with the statement by Gregg (2007), that policy can be driven

from the top or from the bottom of organisation, where it is aligned with the

strategy of the company. It also runs alongside with the statement by

Vijaywargia (2012), that policy is a broad guideline for decision-making

that links the formulation of strategy with its implementation.

The action of entrusting first supplier as main supplier in doing

procurement pratices for each certain item is followed by the policy that

defines the full responsibility of supplying materials by main supplier.

Similarly, the action of changing the responsibility of second supplier as

backup supplier is followed by the policy that defines the responsibility of

supplying materials by backup supplier – if needed or in uncertain

condition, such as the needs from extra flight or charter flight. The backup

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supplier will only be called if the urgency arises within the operation needs.

They have to be ready when there is an emergency call (1x24h).

The action of giving awards or appreciation for the most capable

suppliers is followed by the policy of giving early payment for the most

capable suppliers that reaches two times in awards. The assessment of giving

appreciation is obtained from report cards of suppliers, results of hygiene

inspection, and suppliers’ performance. This appreciation aims to push better

cash flows generated, where Aerofood ACS Unit Denpasar is satisfied of

improved performance by the suppliers. The appreciation can be portrayed on

Figure 41., as follows:

Figure 41. Appreciation for Suppliers of Aerofood ACS Unit

Denpasar

Source: Data processed, 2018.

Strategy making process of Aerofood ACS Unit Denpasar is also in

accordance with the statement of Williams (2014) in highlighting the importance

Total Evaluation Feedback Award

Suppliers’ Performance,

Hygiene Inspection, and Report Cards

2x award = early payment

Price negotiation =

better cash flow

Vendors =

improved quality

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of assessing the need for strategic change based on what is happening in the

business environment, conducting a situational analysis from internal analysis and

external environmental scanning, and choosing strategic alternatives based on the

situational analysis. Likewise, the policies may change to reflect the upcoming

adaptive strategies because strategy making process as the phase of strategic

management can influence the policies. It is in accordance with the statement by

Clark (2017), that strategic management can influence the firm’s policies.

The aim of implementing practices and strategies to support deep supplier

relationships and exchange of valuable knowledge is to achieve strategic

procurement practices at Aerofood ACS Unit Denpasar. It is in terms of inter-

organisational context with its suppliers. Procurement Team defines procurement

practices as activities that are held to receive goods and / or services for the needs

of the company, that the processes start from planning the requisitions to fulfilling

goods and / or services needed, where it involves certain divisions or units at each

stage.

The main responsibilities in procurement practices that are in relation to

suppliers include announcing the invitation of procurement of goods and / or

services to potential suppliers, providing Aanwijzing, evaluating the submitted

offering proposals and doing the clarification for the potential suppliers,

announcing the winners of tenders, preparing letter of appointment to selected

suppliers, preparing draft of contracts, submitting the evaluation of suppliers’

performance, also conducting supplier relationship management and sending

reprimand letters and warning letters to suppliers. Those responsibilities are

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within each worker in Procurement Team and its suppliers. It is in accordance

with the statetement of procurement by Ribeiro (2009, p. 27), defined

procurement as a process through which a project team comes to conclude one or

several contracts for the supply of goods, works, or services, that are part of the

deliverables of a project.

Strategic procurement practices of Aerofood ACS Unit Denpasar is intended

to build capabilities between internal and external environment (suppliers). It

includes in implementing the practices of deep supplier relationships and

exchange of valuable knowledge and discovering strategy making process to

choose strategic alternatives based on the situational analysis and search for future

opportunities. It is in accordance with the statement of Hill and Jones (2012, p.

22), that strategic intent is to build new resources and capabilities for creating and

exploiting future opportunities.

Critical Success Factors (CSF) is one of the essential business strategies

to evaluate the success of business activity or business project as the statement of

Yong and Mustaffa (2012). Critical Success Factors (CSF) can be used by

Aerofood ACS Unit Denpasar to achieve strategic procurement practices. By

identifying critical success factors (CSF), Aerofood ACS Unit Denpasar is able to

create a common point of reference to measure the success of procurement

practices. Strategic procurement practices by building deep supplier relationships

and exchange of valuable knowledge with CSF approach may be integrated from

set of critical success factors and project goals. Set of critical success factors

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consist of trust, guānxì, and exchange of valuable knowledge. Project goals

consist of defined objectives.

Figure 42. Critical Success Factors of Strategic Procurement Practices

Source: Data processed, 2018.

According to Figure 42., Critical Success Factors (CSF) of achieving

strategic procurement practices at Aerofood ACS Unit Denpasar can be identified

by taking six steps, as follows:

1) Establish procurement’s strategic goals

The goals of procurement practices at PT Aerofood Indonesia include

these points, as follows:

Strategic Procurement

Practices

Critical Success Factors

Key Performance

Indicator (KPI)

Report to Measure Evaluation

Deep Supplier Relationships

Trust, Guānxì,

and Exchange of

Valuable Knowledge

Objectives

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a) Procurement of goods and / or services at PT Aerofood Indonesia is

held in accordance with general principles of procurement, Good

Corporate Governance (GCG), best practices, and value-added to

the company.

b) Procurement practices are held to lead to achieve the goals of the

company and run in accordance with the company policies.

2) Identify what project activities that are essential to achieve strategic

goals, based on each candidate of CSF

To achieve strategic procurement practices, project activities that can

be done by Procurement Team is related to the relationships with sourcing

suppliers. Project activities can be done by building strategic supplier

partnerships, doing suppliers’ evaluation, and developing trust. Furthermore,

project activities can be held by boosting supplier development, having internal

integration, and sharing information.

3) Evaluate the list of CSF candidates to find the essential elements for

achieving success

General principles of procurement can be achieved by building trust,

guānxì, and exchange of valuable knowledge. Equalising the exchange of

valuable knowledge that consists of joint-improvement, planning integration,

and information integration, will run the procurement practices effectively and

efficiently, by adding values and using minimal resources. Building trust and

relationship bonds within Aerofood ACS Unit Denpasar and its suppliers play

important role to run procurement practices on a competitive basis and

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encourage healthy competition within the suppliers, alongside with the values

of I-FRESH. Building trust is also important in selecting suppliers that meet

the requirements applied at PT Aerofood Indonesia, such as relying on

Approved Vendor List (AVL).

By building trust and relationship bonds, Aerofood ACS Unit

Denpasar tends to give the same treatment to its selected suppliers, in

accordance with the norms and values applied. To avoid misuse and deviation,

exchange of valuable knowledge that includes joint-improvement will lead into

the initiatives of working strategically by holding discussion or sharing session

between Procurement Team and its suppliers. Emphasising the exchange of

valuable knowledge that includes joint-improvement will help to implement

GCG principles within Aerofood ACS Unit Denpasar and its suppliers.

By implementing exchange of valuable knowledge that includes

planning integration, it will help Aerofood ACS Unit Denpasar and its

suppliers to share demand and supply capabilities. Implementing the exchange

of valuable knowledge that includes information integration can lead to the

transparency between both parties, particularly for the confidential information

sharing. By integrating trust-building, personal connections, and exchange of

valuable knowledge, best practices in procurement activities can be achieved

by Procurement Team and the suppliers. Thus, each of CSF candidates tends to

produce its essential element to achieve the success.

4) Identify how Procurement Team will monitor and measure each of the

CSF candidates

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Each CSF candidates plays its role in running procurement practices.

Final evaluation is used by Procurement Team to monitor and measure each of

CSF candidates, in relation to the deep supplier relationships and exchange of

valuable knowledge within Aerofood ACS Unit Denpasar and its suppliers.

Total evaluation is measured from integrating regular report cards, hygiene

inspection, and evaluation of suppliers’ performance.

Trust shared between Aerofood ACS Unit Denpasar is measured by

evaluating the suppliers’ performance based on applied Standard Operating

Procedure and KPI goals, to monitor the performances between both parties.

Performance satisfication of Aerofood ACS Unit Denpasar over its suppliers

can be measured from each parameter in evaluation of suppliers’ performance.

The main criterias in evaluating the suppliers’ performance are about quality,

price, delivery, also service and innovation.

If the suppliers are rated unqualified, Procurement Team will warn

them by giving the report cards and running the Service Level Agreement (SLA).

However, Procurement Team will recommend the qualified suppliers for joining

upcoming procurement practices if they reach more than 70% percent of total

evaluation. On the other side, hygiene inspection is held by Procurement Team

and Quality Control Team, to ensure the capabilities of the suppliers in supplying

goods/services.

To appreciate the suppliers in having good performance, Procurement

Team tends to give away rewards to them by giving early payment for

achieving the awards twice. This appreciation aims to push better cash flows

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generated. Thus, Aerofood ACS Unit Denpasar is satisfied of improved quality

by the suppliers.

Relationship bonds (guānxì) can also be measured by evaluating the

suppliers’ performance alongside with applied Standard Operating Procedure

(SOP) of procurement practices to work in accordance with the value of

integrity. Procurement Team can rate the suppliers whether they are qualified

or not, by relying on the value of integrity. By the value of integrity, suppliers

of Aerofood ACS Unit Denpasar are emphasised to be honest in doing

procurement practices.

Joint-improvement is divided into coordination and collaboration,

mutual goals, and strategic decision making. In strategic decision making,

company and its suppliers have to work strategically, by integrating mutual

goals. The initiatives of suppliers can be measured with the criteria of service

and innovation in evaluation of suppliers’ performance.

Criteria of service is related to the capabilities of suppliers in

responding and adapting to various circumstances. Criteria of innovation is

related to the capabilities of suppliers in doing product development as well as

improving their resources’ capability to deliver their works and provide input

for the company needs. On the other hand, report cards are given to warn the

suppliers for their failures in doing procurement practices in terms of quality,

quantity, and time of delivery.

5) Communicate CSF candidates along with the other essential elements

of procurement activities

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Apart of maintaining the relationships with its suppliers, Procurement

Team also has responsibilities in organising regular procurement practices,

coordinating a meeting with User, and holding explanation meeting

(Aanwijzing) which is useful for Procurement Team, User, and suppliers. In

running other responsibilities, Procurement Team emphasises its suppliers to

constantly maintain trust, personal connections, and knowledge integration.

Trust plays role in doing regular procurement practices, such as the moral

honesty by suppliers in supplying materials.

Relationship bonds formed by both parties lead to regular sharing

session between Aerofood ACS Unit Denpasar and its suppliers to discuss the

innovation and problem resolution in procurement practices. On the other

hand, exchange of valuable knowledge affects the coordination and

collaboration between Procurement Team, User, and suppliers. Suppliers tend

to support Procurement Team with knowledge integration, to fulfil the needs of

the User. The request from User turns into Purchase Requisitions. Afterwards,

Purchase Orders are created and released to be fulfilled by suppliers for doing

procurement practices.

6) Keep monitoring and re-evaluating CSF candidates to ensure that

procurement practices keep progressing towards the goals

Procurement Team regularly monitors and re-evaluates each candidate

of CSF to reach the goals. Final evaluation of strategic procurement practices,

whether it is success, are measured from integrating semester report, total

evaluation of suppliers’ performance, and aligning with Key Performance

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Indicator (KPI). The integration means tha Key Performance Indicator (KPI) is

able to assess the procurement performance that comes from semester report

and total evaluation of suppliers’ performance. Procurement Team claims that

selecting the right Key Performance Indicator (KPI) and using it effectively

will help to improve the performance of procurement practices.

Direct sourcing by paying cash also affects the Key Performance

Indicator (KPI). If Procurement Team tends to source directly by using cash,

Key Performance Indicator (KPI) will be not safe because of lack of supply

from the suppliers. If suppliers have good performance and receive less report

cards, Key Performance Indicator (KPI) will also turn out good.

Final evaluation will monitor and re-evaluate the success of

procurement practices to maintain relationships with suppliers. When the result

of Key Performance Indicator (KPI) is good, it will be able to describe the

success of deep relationships and exchange of valuable knowledge built

between Aerofood ACS Unit Denpasar and its suppliers in procurement

practices. Thus, strategic procurement practices run in accordance with the

procurement goals.

D. Recommendations for Upcoming Strategies

To make the most of company’s supplier relationships, Aerofood ACS Unit

Denpasar needs to determine its position to develop good ways of working. Apart

of its success in building deep supplier relationships and exchange of valuable

knowledge, its suppliers hold some objections in procurement practices.

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Procurement Team needs to identify the significant issues of the suppliers’ that

require immediate action.

Suppliers claim that they cannot ensure target orders, in relation to airline

condition. Uncertain demands of Aerofood ACS Unit Denpasar cause the

suppliers quite unsettled. Similarly, continuous cancellation of orders, especially

for delivered Purchase Orders from Aerofood ACS Unit Denpasar, may inflict a

financial loss to the suppliers. Suppliers may receive penalty from the terms of

Service Level Agreement (SLA), where Aerofood ACS Unit Denpasar has never

compensated the loss of suppliers because of the cancellation of orders.

From the statements above, Procurement Team is expected to address those

priority issues. Procurement Team needs to address the priority issues and achieve

the defined objectives simultaneously, as running procurement practices and

maintaining supplier relationships. At last, Procurement Team needs to constantly

ensure the solution performs as designed.

There are some ways to manage supplier relationships in Aerofood ACS

Unit Denpasar, as follows:

1) Understand the importance of each supplier for the company.

2) Understand each role of Procurement Team to manage each supplier.

3) Understand the agreements signed by the company and its suppliers.

4) Manage each supplier effectively and efficiently.

5) Evaluate the suppliers by using 10 C’s supplier managing ways, based

on these criterias (commitment, control, consistency, culture, and

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communication), aside from these only criterias (competency,

capacity, cash, cost, and clean).

6) Ensure mutual trust and strong partnerships.

7) Commit to co-prosperity and mutual development.

8) Save special coordination and collaboration for only key strategic

partners.

Segmentation is essential because Procurement Team can focus on priority

issues and save intense coordination and collaboration for only certain suppliers.

Aerofood ACS Unit Denpasar may do segmentation to group its suppliers in

doing procurement practices, as follows:

1) Low-capability, such as supermarkets, restaurants, or other retailers,

which become references for direct-sourcing.

2) Crucial, such as monopoly suppliers, who tend to steer relationships in a

direction that do not benefit the buyer (one-sided).

3) Primary, such as suppliers for monouse materials, who have limited

relationships with the company and supply based on the necessity.

4) Middle-capability, such as suppliers for engineering materials, who

continuously supply materials for supporting operational activities of the

company.

5) High-capability, such as investors who run capital investment, who work

together with the company in improving programs to enhance

performance.

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6) Joint-improvement, such as suppliers for raw materials and dry goods,

who work together with the company on coordination and collaboration

programs to add values.

After doing segmentation, Procurement Team may address and issues from

prioritised suppliers. The suppliers, assessed as the prioritised, are suppliers for

raw materials and dry goods. However, Procurement Team must keep paying

attention to the other suppliers to maintain the deep relationships and procurement

practices silmutaneously. Procurement Team may split the work programs for

prioritised and supporting suppliers to maximise the procurement performance.

At last, Procurement Team may use scenario analysis as a strategy for

developing joint-improvement and mitigating risks with its suppliers. Scenario

analysis can help Procurement Team to analyse possible future events, both good

and bad. It also provides rational framework for exploring each possibility.

Figure 43. Scenario Analysis of Procurement Practices

Source: Data processed, 2018.

Gather Data

Define Problems

Focus on Priority

Options for Solution

Develop Scenarios

Separate Certainties & Uncertainties

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From the gathered data on Figure 43., there are two problems highlighted

from procurement practices at Aerofood ACS Unit Denpasar. Firstly, it comes

from initiatives of working strategically between the company and its suppliers by

holding sharing sessions, study groups, and meetings, but no joint-training has

been done. Secondly, it comes from the risks that affect both Aerofood ACS Unit

Denpasar and its suppliers, in relation to airlines condition.

Risks that may inflict a loss to Aerofood ACS Unit Denpasar and its

suppliers can be chosen as the priority. All this time, Procurement Team and its

suppliers tend to hold sharing sessions to discuss about the arisen problems and

solutions, also innovation in supplying materials. Generally, the final discussion

may result in choices of relying on Service Level Agreement (SLA) as an

attachment of signed agreement or supplying substitutes.

Therefore, there are some options that can be used by Procurement Team to

renew the programs. Training may be held by Aerofood ACS Unit Denpasar and

its suppliers in the future. Training between both parties can drive the suppliers to

perform about their capabilities in coping with certain circumstances arised

(suppliers’ agility) and presenting their materials or offered substitutes

(procurement exhibition) to Procurement Team. Procurement Team will be able to

oversee and understand what products or materials that its suppliers supply to the

company. It also easily assists Procurement Team to recognise substitutes of

certain materials. Training can also be held in a form of study groups to discuss

about the innovation of procurement practices and risk mitigation. Risk

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mitigation, to avoid loss, can be done by renegotiating the supply terms and

agreed metrics on Service Level Agreement (SLA) between both parties.

Scenario develops as if the cancellation of orders continuously happen from

Aerofood ACS Unit Denpasar to its suppliers. If this case keeps happening, there

will be some programs in the future to protect both parties. Aerofood ACS Unit

Denpasar and its suppliers can responsively do remedial contract terms, especially

for the clauses and force majeure. To stabilise the procurement practices,

Procurement Team may also enhance the service level indicators (SLI).

Procurement Team must ensure the continuity of supply until exit (if necessary),

to save Key Performance Indicator (KPI). Lastly, exit strategy is an appropriate

mechanism if there is no way to overcome the arisen problems, where

Procurement Team must do a direct sourcing.

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CHAPTER V

CONCLUSIONS AND SUGGESTIONS

A. Conclusions

This research aims to describe how Aerofood ACS Unit Denpasar achieves

strategic procurement practices through deep supplier relationships and exchange

of valuable knowledge. Building deep supplier relationships emphasises on three

key factors, i.e. trust, guānxì, and exchange of valuable knowledge. Exchange of

valuable knowledge consists of three elements, such as joint-improvement,

planning integration, and information integration. The results from the research

conducted for this study can be concluded, as follows:

1) This study shows that Aerofood ACS Unit Denpasar implies deep supplier

relationships as something important because it can highly achieve

mutually beneficial relationships between the company and its suppliers.

Deep supplier relationships come from trust and guānxì built among both

parties, where they can lead to a level in tying suppliers a little closer to

the company. Furthermore, knowledge integration can be achieved.

2) This study shows that Aerofood ACS Unit Denpasar claims that exchange

of valuable knowledge plays significant role in building deep

relationships. Procurement Department implements the action between

procurement executants. Exchange of valuable knowledge drives

coordination and collaboration, also manages risk-gain sharing between

both parties. Furthermore, it develops one working context in procurement

practices.

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3) This study shows that Aerofood ACS Unit Denpasar determines the

actions of delivering the latest responsibilities of suppliers and

appreciation for the most capable suppliers are seen as the strategy making

process in phase of strategic management by Procurement Team. Those

actions are valued as phase of strategic management that set interpretation,

do formulation, and implement the strategy in the end as an action. The

main steps in strategy making process done by Aerofood ACS includes the

selection of company’s mission and major goals, analyse the external and

internal competitive environment as situational analysis, select the strategy

based on the situational analysis, and implement the strategy. Policies are

valued to follow the strategies, where it is aligned with the strategy of the

company and may change to reflect the upcoming adaptive strategies.

4) This study shows that Aerofood ACS Unit Denpasar claims that they

regularly evaluate its relationships with the suppliers. The success is

evaluated by integrating three components. They are semester report, total

evaluation of suppliers’ performance, and Key Performance Indicator

(KPI). Procurement Team also creates semester reports based on the report

cards of suppliers, hygiene inspections, and evaluation of suppliers’

performance. They will be aligned with the Key Performance Indicator

(KPI). By evaluating the relationships, the company tends to give the

awards or punishments to its suppliers.

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B. Suggestions

These are the suggestions that author recommends to Aerofood ACS Unit

Denpasar based on the results of research, as follows:

1) Aerofood ACS Unit Denpasar may make a try in managing suppliers in

tight ways. The company needs to understand the importance of its

suppliers by delegating each role in Procurement Team. Procurement

Team must absolutely understand the agreements, so that they can manage

the suppliers effectively and efficiently. The company can evaluate its

suppliers by relying on 10 C’s suppliers managing ways. Procurement

Team must ensure mutual trust and strong partnerships, where both parties

commit to co-prosperity and mutual development. The company needs to

save special coordination and collaboration for its key strategic partners.

2) Aerofood ACS Unit Denpasar may do segmentation to group its suppliers

in doing procurement practices. By relying on segmentation, Procurement

Team may focus on priority issues and save intense coordination and

collaboration for only certain suppliers. The company can group its

suppliers into six objectives, such as low-capability, crucial, primary,

middle-capability, high-capability, and joint-improvement.

3) Aerofood ACS Unit Denpasar may use scenario analysis as a strategy for

developing joint-improvement and mitigating risks with its suppliers.

Scenario analysis can help the company to analyse possible future events,

both good and bad. It also provides rational framework for exploring each

possibility.

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This is the suggestions that author recommends for further research,

specifically:

1) Further research may discover the theory of strategy and policy, since the

theory of both strategy and policy is still debatable in recent studies. The

difference between strategy and policy is a little complicated because

policies come under the strategies. Apart from that, the policies are made

to support strategies in several ways. Some stated strategy is now the more

common term for what used to be called policy, though there is no

consensus on this also. Thus, it is important to seek for the most proper

theories to define strategy and policy.

2) Further research may evaluate the success of deep supplier relationships

and exchange of valuable knowledge by combining two strategic analysis

in a framework. Critical Success Factors (CSF) represents factors which

are critical to the success of a project or program. On the other hand,

Scenario Analysis represents possible future events with the rational

framework to explore each possibility. Combining Critical Success Factors

(CSF) and Scenario Analysis may achieve a new vision of procurement

strategy. Integrating possible future events with the exploration of each

possibility can support CSF candidates in achieving defined objectives of a

procurement project or program about buyer-supplier relationship

management.

CURRICULUM VITAE

I. PERSONAL IDENTITY

Name : Clara Lorenza Saraswati

e-Mail : saraswaticlara1@gmail.com

Place of Birth : Sidoarjo, Jawa Timur, Indonesia

Date of Birth : 6 July 1996

Citizenship : Indonesian

Religion : Catholic

Address : Jalan Melon No 6 Mojokerto, Jawa Timur

GPA : 3.71

II. FORMAL EDUCATION

1. Faculty of Administrative Science, Brawijaya University (2014-2018) 2. SMA Negeri 2 Mojokerto (2011-2014) 3. SMP Negeri 2 Mojokerto (2008-2011) 4. SD Taruna Nusa Harapan (2002-2008)

III. ORGANISATIONAL EXPERIENCE

1. Entrepreneurship and Innovation Laboratory FIA UB 2017/2018 (General Secretary)

2. Brawijaya Startup Action 2017 (Steering Committee) 3. Entrepreneurship and Innovation Laboratory FIA UB 2016/2017

(Staff of Startup Division) 4. Brawijaya English Tournament 2016 (Staff of Storytelling Division) 5. Singapore International Foundation 2015-2016 (Member) 6. Brawijaya English Tournament 2015 (Staff of Storytelling Division)

IV. INTERNSHIP EXPERIENCE

Aerofood ACS Unit Denpasar (Procurement Analyst and Human Capital Intern)

V. NON-ACADEMIC ACHIEVEMENT

2018: First Winner of ESPRIEX 2018 2017: Finalist of ESPRIEX 2017 2016: Finalist of International Padjajaran Business Case Competition 2016: Finalist of SKHA Competition 2015-2016: Finalist of Young Social Entrepreneurs 2015: Finalist of Gadjah Mada Business Case Competition

I DEDICATE MY WORK TO MY MOTHER AND MY FATHER,

AS WELL AS MY BEST FRIENDS.