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SUPPLY CHAIN MANAGEMENT OF PT HM SAMPOERNA

INDONESIA

Cheng-Wen Lee

, Taufiqquddin Ande

Department of International Business, Chung Yuan Christian University, Zhong Li, Taoyuan City, Taiwan

Ph.D. Program in Business, College of Business, Chung Yuan Christian University, Zhong Li, Taoyuan City,

Taiwan

chengwen@cycu.edu.tw

taufiquddin_ande@yahoo.co.id

PAPER INFO ABSTRACT

Received: August

2022

Revised: August

2022

Approved: August

2022

Background: The mission of PT HM Sampoerna is to give adult smokers in

Indonesia the best smoking experience possible. One of the reasons for the

company's success is the work of supply chain management within PT HM

Sampoerna.

Aim: The goals of this study are to see what factors influence supply chain

management techniques in the cigarette sector in Indonesia, with a focus on

PT HM Sampoerna Indonesia, to create supply chain management practices

in PT HM Sampoerna, to evaluate the efficacy of PT HM Sampoerna's supply

chain management, and to identify factors impacting supply chain

management in PT HM Sampoerna.

Method: This research employs case study research, direct interviews with

corporate employees, and secondary approaches such as industry and

company websites.

Findings: The management of the supply chain is generally highly

successful. Because they only employ one distributor, PT HM Sampoerna's

supply chain management is distinctive. PT Sampoerna gained various

benefits that influence the performance of the organization after unifying its

supply chain management.

KEYWORDS

supply chain management, PT HM Sampoerna, logistics

INTRODUCTION

Supply chain management is a strategic approach to manage multinational enterprise

corporate relationships to deliver products or services to end customers (Brewer & Speh, 2000).

As a result, supply chain management concept application is a critical aspect in improving

corporate performance (Wu et al., 2009). It is a competitive strategy for bridging the gap

between the company and its suppliers and distributors in an inter-organizational system (Felea

& Albǎstroiu, 2013).

Supply chain management is an international and interfirm process that is dependent on

the effectiveness of all management functions coordination and performance measurement

standards (Chopra & Meindl, 2007). The supply chain's performance can be measured by

supply sides, demand sizes, production, logistics, and finance (Mena et al., 2013; Trkman &

Groznik, 2006). Saleh et al. (2017) conducted a case study on supply chain dynamics and

discovered that supply chain dynamics were related to power balance, structure,

interdependence, and relationship stability. This proves that supply chain management is

esssential for a company. Even the big companies need it, including cigarette companies and

one of them is PT HM Sampoerna.

PT HM Sampoerna is the biggest cigarette producer in Indonesia, producing brands such

as Kretek Sampoerna, A Mild Sampoerna, and Dji Sam Soe. PT Philip Morris Indonesia has a

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1323 Interdisciplinary Social Studies, 1(11), Aug 2022

subsidiary named Sampoerna. PT Philip Morris bought 97 percent of PT HM Sampoerna's

shares in 2005 (Detik Finance, 2005). It is because PT Philip Morris is the world's top cigarette

maker, it is one of PT HM Sampoerna's initiatives to strengthen its position. PT HM

Sampoerna's objective is to provide adult smokers in Indonesia with the greatest smoking

experience possible. The work of supply chain management inside PT HM Sampoerna is one

of the causes in the company's success (PT HM Sampoerna, 2021).

Studies regarding supply chain management have been conducted by numerous

researchers. Syahir et al. (2022) studied how supply chain management affect supply chain

performance in a contruction company, while Suryana et al. (2018) designed an electronic

system of supply chain management for a garment factory to support and improve the flow of

information there. Another one conducted by Hutagalung and Aisyah (2022), in which they

discovered that the application of supply chain management might help the company in the

process of purchasing raw material, meeting customers’ demands, and product distribution.

This proves that the implementation of supply chain management has a significant role in

optimizing companies’ potentials, including in PT HM Sampoerna.

The operational management of PT HM Sampoerna has numerous challenges. One of the

most complex aspects of supply chain management is logistic supply, which deals with the

day-to-day operations of supplying raw materials, collecting raw materials, distributing raw

materials, and producing data. As a result, the goal of this study is to assess the factors that

influence supply chain management techniques in the Indonesian cigarette sector. The study's

goals are to create supply chain management practices in PT HM Sampoerna, assess supply

chain management efficacy in PT HM Sampoerna, and identify factors impacting supply chain

management in PT HM Sampoerna.

The cigarette company of HM Sampoerna is chosen because it is the uniqueness of

material flows, in which the material flow is direct without any small suppliers and the

distribution strategies apply to one distributor. There was a change of supply chain

management from many distributors of tobacco as raw materials to one distributor. To fulfil

the supply of raw materials and supply of goods, the company must apply an effective supply

chain. Production and product delivery to customers is affected by the practices of supply chain

management.

There have been many academic studies and research related to the management of the

supply chain but none of the research discusses the factors that affect supply chain management

in the cigarettes industry in Indonesia. This research intends to address the knowledge gap.

Research objectives of this study are to evaluate supply chain management practices at PT

HM Sampoerna, to evaluate PT HM Sampoerna supply chain management effectiveness, to

find out factors that affect strategies of supply chain implementation in PT HM Sampoerna,

and to examine measures taken to upgrade supply chain management of PT HM Sampoerna.

This study is beneficial as a guideline for all stakeholders and the cigarette industry to

understand supply chain management practice in the cigarette industry by focusing on PT HM

Sampoerna. This study also will present factors affecting the implementation of supply chain

strategies in PT HM Sampoerna, present measures to take in improving supply chain

management in the industry and a reference for academic research to conduct future research

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1324 Interdisciplinary Social Studies, 1(11), Aug 2022

METHOD

This study uses two types of methods. The primary method was interview, specifically

direct interviews with employees of a company to obtain real-time information and the second

method uses the industry website and company website to confirm the information by

analyzing the data there. Literature review on studies related to Supply chain management and

Cigarette companies’ industry aims to identify the current research state in the area. The study

uses keywords search such as supply chain, logistic management, cigarette companies, etc. in

electronic databases of Elsevier, Emerald, Springer, Willey, and Google Scholar. The literature

research was conducted for papers published in 2017. The researchers also interviewed 5

managers who are closely related to logistic and supply chain management activities.

RESULTS AND DISCUSSION

Sampoerna Indonesia

Products and services of Sampoerna are:

1) Sampoerna A

2) Dji Sam Soe

3) Sampoerna’s Clove. Handmade clove cigarette produced in Denpasar in 1968

4) U Mild which was released on 2005

5) Sampoerna Evolution was released on 2008

6) Marlboro by Philip Morris International and distribute in Indonesia. It consists of 5

variants: Marlboro Red, Marlboro Lights, Marlboro lights Menthol, and Marlboro

Ice

The Existence of Philip Morris

Philip Morris did acquisition to PT HM Sampoerna in 2005. Philip Morris developed

connections to sales offices and warehouses in 30 branches that were not connected. By

implementing Enterprise Resource Planning (ERP), the company responds quickly to the need

of the company because the data are provided very efficiently by the system.

The Implementation of Management Information System in PT HM Sampoerna

One approach that is familiar and commonly used in information technology is Enterprise

Resource Planning (ERP). This system supports daily transactions and operational systems

consisting of resources of materials and capacities, finance, human resources, product

distribution, and its supply chain, payments, and after-sale (Shannak, 2015).

The benefit of the implementation of MIS in PT HM Sampoerna:

1) Supply chain management (Supplier, warehouse, distribution, etc.) is more

effective and efficient;

2) The better monitoring process of key performance indicator;

3) Support customer service;

4) Support industry vertical; and

5) Support decision-making process.

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1325 Interdisciplinary Social Studies, 1(11), Aug 2022

Strategy Implementation and Business Strategies

Successful strategy implementation needs support, a commitment of high discipline, and

a willingness to do more from the team and managers (Holbeche, 2018). It depends on

collaboration and cooperation from functional and divisional managers in an organization. An

organization needs to do effective strategy evaluation because it allows an organization to

maximize resources from its internal strength, seek opportunities outside, identify the threats

and be able to defend from threats, respond to reduce weakness in internal organization, and

also understand and be aware of the strategies of business such as geographic, diversification,

acquisition, development of the product, penetration of the market, retrenchment, company

liquidation, joint ventures action, etc.

Business Model Framework of PT HM Sampoerna

Key Resources

1) Man;

2) Money consists of profit, shareholder and investment;

3) Materials consist of Tobacco leaf and clove;

4) Machine; and

5) Information.

Key partnership

1) PT Asia Tembakau;

2) PT Harapan Maju Sentosa;

3) PT Persada Makmur Indonesia;

4) PT Union Sampoerna’s Dinamika;

5) PT Agasam;

6) PT Golf Taman Dayu;

7) PT Handal Logistic Nusantara;

8) PT Perusahaan Dagang dan Industri Pangan;

9) PT Sampoerna’s Print Pack;

10) PT Taman Dayu; and

11) PT Wahana Sampoerna.

All the key partnerships have cooperated with PT Panamas as a sole distributor company

of PT HM Sampoerna.

Distribution Channel and Product Flow of PT HM Sampoerna

The distribution strategy of PT HM Sampoerna is a sole distributor that only uses one

single distributor namely PT Panamas. In the level of distribution flow, PT HM Sampoerna

uses three levels of distribution in where PT Panamas distributes the products to agents and

retail all over Indonesia. PT Panamas are a marketing unit that does markets products of PT

HM Sampoerna.

Material flows from farmers directly to PT HM Sampoerna without the use of any

distributor. Thousands of farmers are managed by PT HM Sampoerna using IT which is based

on bar code. Bar code consists of information about farmers such as the name of farmers, the

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1326 Interdisciplinary Social Studies, 1(11), Aug 2022

farming areas, variety of tobaccos, etc. This information system only has one arrow information

because the owner of the farming is the company of PT HM Sampoerna.

All results of farming are collected by the company and the farmers do not get any

information from the company such as the number of orders and so on.

Product Flow of PT HM Sampoerna

The distribution strategy used by PT HM Sampoerna’s in distributing the cigarette is sole

distributor called PT Panamas and in the level of distribution flow PT HM Sampoerna use three

levels:

1) PT Panamas;

2) Agent; and

3) Retailer.

Figure 1. The Function of PT HM Sampoerna Agent and Retailers in Distributing to All

Indonesian Markets

PT Panamas is the unit business of PT HM Sampoerna. PT Panamas manage some

divisions. One of its divisions is to distribute cigarettes to direct selling and outlet, therefore

they need one application that prepares speed and easy access to data administration deals with

cigarette distribution. PT Panamas received information from PT HM Sampoerna about how

many cigarettes products that distributed by PT Panamas as sole distributors and when is the

payment of the products. All the information is managed by PT Panamas by using an

application of technology to know the distribution. It also provides information about the

potential market and the effort of agents and suppliers in marketing the cigarettes.

Marketing products of PT HM Sampoerna is divided into 5 regions (PT HM Sampoerna,

2020):

1) Jawa I Region is based in Bandung, consists of 7 branches in Bandung, Sukabumi,

Tasikmalaya, Cirebon, Purwokerto, Semarang, Yogyakarta;

2) Jawa II Region I based in Surabaya, consists of 8 branches in Surabaya, Madiun,

Pamekasan, Malang, Jember, Denpasar, Banjarmasin and Samarinda;

3) Sumatera Medan region is based in Medan, consists of 6 branches in Banda Aceh,

Loukseumawe, Medan, Padang Sidempun, Padang and Pekan Baru;

4) Jakarta Region is the Head office consists of 10 branches in Jakarta I, Jakarta II, Jakarta

III, Jakarta IV, Serang, Jambi, Palembang, Bengkulu, Lampung, and Pontianak; and

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1327 Interdisciplinary Social Studies, 1(11), Aug 2022

5) Eastern Indonesia is based in Makassar consists of 3 branches in Makassar, Manado,

Ambon.

PT Panamas distribute information to agents and suppliers about delivery and payments.

PT HM Sampoerna market distribution employee 4000 people with 700 vans and 2000

motorcycles operated in all Indonesian areas through 34 branches and 84 sub-branches (PT

HM Sampoerna, 2021).

Supply Chain Management in PT HM Sampoerna

Supply Chain Partnership

The suppliers’ relationship needs to be implemented in the long-run relationship both

supply-side and demand side (Sturm et al., 2021). Good cooperation between the company and

suppliers’ performance will improve productivity, quality, and flexibility (Palandeng et al.,

2018). Company operations performance is improved by long-term cooperation relationship

(Prajogo & Olhager, 2012).

Supply Chain Capabilities

To provide the best value to the customers, companies need to have full capabilities to

achieve excellent performance. The characteristics of this supply chain are gain speed, low

cost, have differentiation, and can provide the best value to customers (Tracey et al., 2005).

Supply Chain Performance

Supply chain performance could be achieved with good performance planning, high-

performance production, delivery performance, customers service performance, and good

financial performance (Gunasekaran et al., 2001).

Figure 2. Direct Competitor of PT HM Sampoerna: PT Gudang Garam Tbk

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1328 Interdisciplinary Social Studies, 1(11), Aug 2022

PT Gudang Garam implements ERP applications from Oracle to integrate their system.

Supply chain, logistics, and management control. Thousands of tobacco farmers are managed

using a bar code basis to create effectiveness in the supply chain of raw materials.

In 2020, sales of PT Gudang Garam had a critical crisis to its competitor where the sales

were only IDR 86.10 trillion compared to HM Sampoerna’s which was 179.71 trillion

Indonesian rupiahs. This situation happened because of the moderate system of management

in PT Gudang Garam (T. Saleh, 2020).

Source: BEI

Table 1. Head-to-Head Stocks of Gudang Garam Vs HM Sampoerna’s

There was a difference between HM Sampoerna and PT Gudang Garam in supply chain

was PT HM Sampoerna used sole distributor while PT Gudang Garam Tbk used three

distributor companies namely PT Surya Kerta Bhakti, PT Surya Bhakti Utama and PT Surya

Jaya Bhakti. PT Gudang Garam has problems managing distribution since every distributor has

their procedures so that it was not efficient. Looking into competitor HM Sampoerna, Gudang

Garam changed its model of management in 2012, the three distributors were merged into one

namely PT Surya Madistrindo. The management did revitalization. To succeed with its

revitalization, the management used organizational change including employee recruitment

from its competitor.

The differences between HM Sampoerna and Gudang Garam in logistics are in PT HM

Sampoerna’s raw materials are cosmetic while Gudang Garam invested in logistic

infrastructure to enhance the inventory control system in the ware-house. In operation, PT HM

Sampoerna supports the business entirely by providing high-quality products to the adult

smokers in Indonesia and delivering quality and innovation while Gudang Garam serves both

the fast-growing light and mild segment and full flavour segment provide both quality and

choices by names of Gudang Garam only.

Interviews Results

The interview is used to evaluate the practices of supply chain management used by PT

HM Sampoerna, seek supply chain management effectiveness of PT HM Sampoerna, find out

factors affecting supply chain strategies implementation, and measures that were taken to up-

grade PT HM Sampoerna supply chain management.

The interviewer asked some questions to answer the research questions:

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1329 Interdisciplinary Social Studies, 1(11), Aug 2022

Table 2. The Results of the Interview

Questions

Answers

1) What is your opinion about the

implementations of supply chain

management in PT HM Sampoerna?

2) What is your judgment about the supply

chain management effectiveness of PT

HM Sampoerna?

3) What is your thought of decision-making

performed by PT HM Sampoerna in their

supply chain management practices?

4) What are the Challenges factors in supply

chain strategies implementation faced by

PT HM Sampoerna?

5) What actions that taken to reduce or

eliminate some challenges in supply

chain management strategies

implementation?

6) What actions that taken to develop some

practices of supply chain management of

PT HM Sampoerna?

7) What is your opinion or recommendation

for PT HM Sampoerna to implement

supply-chain management strategies

effectively?

1) Supply chain management used by PT

HM Sampoerna is unique because HM

Sampoerna uses only one distributor;

2) Supply chain management used by PT

HM Sampoerna’s needs to be more

aggressive because the inventory policy

is still very simple;

3) The supply chain management in PT HM

Sampoerna is very effective;

4) PT HM Sampoerna applies moderate

standards in decision-making in the

practices of supply chain management;

5) PT HM Sampoerna needs to make

decision-making faster and more

communicative ways between

department and supply chain internally in

their supply chain management;

6) The factors challenging the

implementation of supply chain strategies

faced by PT HM Sampoerna is the limited

technical skill of the employee;

7) Other factors challenging the

implementation of supply chain strategies

faced by PT HM Sampoerna start from

the data collection and report daily about

distribution data and production data.

Even though it uses comprehend data

management but still lack efficiency

because mostly the data is still collected

at the end of time deadline of the report;

8) PT HM Sampoerna reduced the

challenges in supply chain management

implementation in its strategies of supply

chain management by building-the

warehouse production close to the

farming place and time deduction in

materials movement from storage to

production;

9) Measures to be taken to improve supply

chain management of PT HM Sampoerna

is management had an attempt to reduce

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1330 Interdisciplinary Social Studies, 1(11), Aug 2022

Supply Chain Structure Complexity by

making the simple structure of the

department in the organization and

reducing time in storage activity; and

10) To implement effective supply chains

management strategy, Sampoerna’s has

to make the same perception of the people

specified in the middle and up the level to

reduce spending decisions related to

materials supply. Since Sampoerna’s has

a single distributor chain. Sampoerna’s

has to implement better strategies to fulfil

the needs of materials by designing an

internal team that uses one single

information system which links all

operations so there will be no more

information undelivered clear to all

operation.

Source: Researchers’ Interview

CONCLUSION

In general, the supply chain management is very effective. Supply chain management used

by PT HM Sampoerna is unique because they use only one distributor. After PT Sampoerna

changed its management in the supply chain into one distributor, some advantages that affect

the performance of the company. The existence of ERP implementation in the factories in the

operational, blended machine, sales, and production became one of the key successes in supply

chain management.

The existence of Philip Morris into PT HM Sampoerna in 2005 brought some changes in

information technology by the development of network infrastructure. Philip Morris developed

connections to sales offices and warehouses in 30 branches that were not connected. By

implementing ERP, the company is able to respond quickly to the need of the company because

the data are provided very effectively and efficiently by the system.

Factors affecting the implementation of supply chain strategies in PT HM Sampoerna are

the limitation of technical skill of the employee, data collection, and report in daily distribution

data and production data. Even though it uses comprehend data management but still lack of

efficiency because mostly the data is still collected at the end of time deadline of the report.

The management had an attempt to reduce Supply Chain Structure Complexity by making the

simple structure of the department in the organization and reducing time in storage activity.

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