Added-value utility formulation in palm oil supply chain based on risk, investment and technology

Hidayat, Syarif and Nurhasanah, Nunung (2014) Added-value utility formulation in palm oil supply chain based on risk, investment and technology. International Journal of Business and Economics Research, 3 (6-1). pp. 57-64. ISSN 2328-756X

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Abstract

In palm oil supply chain (POSC) the operational risk, investment and technology levels between the actors may not be proportionately rewarded by the same levels of added value. Each actor will attempt to obtain the highest reward. However, each actor must consider the level of added-value obtained by other actors so as to maintain the fair balance in the overall supply chain profitability. Otherwise any of the least profitable actor will withdraw itself from the supply chain and the supply chain will collapse. In this study the authors proposed a formula to calculate the utility function based added-value for each of the actors in the POSC. The utility function is a formula based on the risk, investment and technology levels of each of the POSC actors. Permutation of the three factors was used while seeking their combination that give the highest utility function added-value. To optimize the added-value distribution between the agents the concept of stakeholder dialogue was used. This research is important because the developed models offer a workable algorithm to seek optimum weight level of underlying factors while calculating utility added-value that satisfy the POSC as a whole. Agent-based modeling approach was used for this purpose to facilitate the negotiation between all actors to reach the balanced added-values. Netlogo software was used in developing the models. The proposed utility function model provided the means to find the weight values, while the optimization model proved to be practical to calculate the expected negotiated prices between all the actors. Application of the models to other types of commodity and different supply chain model will need some adjustments in the calculation.

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