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Process Analysis on Order Processing Function to Reduce Order Processing Time:

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 IRACST- International Journal of Research in Management & Technology (IJRMT),
Process Analysis on Order Processing Function to
Reduce Order Processing Time: Indonesian Context
Tri Susanto
Industrial Engineering Department, Bakrie University,
Indonesia.
tri.susanto@bakrie.ac.id
Novita Azkia
Management Department, Bakrie University,
Indonesia.
Abstract—This study aims to find the root cause of delayed order
processing in PT X and improve order-processing function so it
could be minimized that delayed order processing. This topic is
chosen because the problem of delayed order processing has
negatively affected business performance of PT X. A brief review
of business process condition presented. Data processing and
analysis conducted using Microsoft Excel. This research adopts
framework of DMAIC (Define, Measure, Analyze, Improve, and
Control) of Six Sigma. A new business process of the case study
company is proposed, which in turn is used to modify the existing
business process architecture. Analysis result shows that root
causes of order processing delay are other job priority by
Regional Sales Manager (RSM), different perspective on
inventory level, limited distributors’ capability, and limited
budget of S&OP Division. Different perspective on inventory
level and limited distributors’ capability are the factor that has
high significance towards order processing delay. Different
perspective between PT X and its distributors often creates
compliance issues that need to be resolved each order cycle.
Analysis result also shows that in order to minimize order
processing delay, PT X are able to implement more flexible
ordering system and assign only one position to handle
negotiation and/or approval step as well as to act as sales
performance controller for distributors. This study only explore
the problem until improvement proposal while implementation
and control are out of the topic of this study. Continued research
is needed to create more detailed action plan to implement the
improvement proposal. This research relates to process
organization and the core competencies of a multi-national
company in one of the biggest emerging market in the world. The
analysis and improvement in this research could help the
company to improve efficiency of its order processing function.
This research represents in depth analysis on order processing
function and proposes significant policy change for the company
Keywords-component; Business Process Analysis, Order
Processing
I. INTRODUCTION (HEADING 1)
All Global economy has affected business to always
improve their operation in order to survive the competition. In
all function of business, improvement is encouraged to increase
Vol. 6, No. 3, 2016
Aurino RA Djamaris
Management Department, Bakrie University,
Indonesia.
effectiveness and efficiency in operation while fulfilling
customers’ demands. Supply chain management is one of the
key functions in business whose concern is to satisfy customers
by ensuring the right product available in the right place and
time. Supply chain concerns with flow of goods and
information from upstream to downstream, from execution
level to strategic planning level.
One of the concerns in supply chain management is
inventory. Inventory defined as any stored resource that used to
satisfy a current or future need [4]. Every firm, especially the
ones who cope with physical products will put emphasis on
inventory level for its high value. Service level and availability
are two common measurements of how company can satisfy
customers using optimal resources [22]. Both measurements
are dedicated to create perfect order that consist of five
requirements; delivering the desired assortment and quantity of
products to the correct location on time, damage-free, and
correctly invoiced [7]. Inventory holds an important function
in creating perfect order for all customers. Insufficient
inventory level will cause stock out thus lowering service level
and availability. Besides, firm will hurt caused by frequent
emergency transportation and extra resources needed to fulfill
the demand. On the other hand, over-inventory will lead to
higher cost and tied up capital. Therefore, firms are now under
pressure to assure product availability and prompt
manufacturer, distributor and retailer to improve stock keeping
policy [9]; [16]; [21]; [22].
One of the concerns while controlling inventory level is
inventory build-up which is related to supplier. Complicated
process in supplier will negatively affect inventory level in a
company. Since inventory is one of the biggest assets, company
will not choose slow-response supplier. As a supplier, order
processing is one of critical areas in company performance
indicator for company to guarantee customers’ satisfaction. The
need to simplify order processing activity without
compromising sales target in efficient manner has become
urgency for supplier in order to win business competition (for
example:[2], [10]; [17])
 IRACST- International Journal of Research in Management & Technology (IJRMT),
Vol. XXX, No. XXX, 2011
II. LITERATURE REVIEW
Inventory has a significant importance in maintaining
operation flexibility within firm. The main uses of inventory
are ([4]; [14]; [19]): decoupling function, manage irregular
supply and demand, gain quantity discount from supplier,
avoid stock outs and shortages, allow flexibility in production
scheduling, price protection (for example: [21]; [16]; [9]).
There are only two fundamental decisions that you have to
make when controlling inventory [4]: 1. How much to order,
2. When to order. Competitive pressure has always driven
firms to seek enhanced capabilities to reduce inventory level,
to enhance service level and supply availability, and to
establish the right product inventory mix and level in each
geographies and channels [23].
Building inventory related to supplier’s service
performance. One of the concerns for supplier in providing
service is order-processing function. Typical elements of order Figure 1. Piramyd of Business Process. (Antonucci & Goeke,
2011)
processing are; order entry, order filling, and order status
reporting. Those elements are explained through the following Business process improvement is achieved by changing the
paragraph. state of elements of a business process. Thereby the state after
Order entry refers to many tasks that take place prior to the change exceeds the state before the change in such a way
actual filling of an order. One of the challenges in this phase is that the degree of accomplishing organizational goals is
establishing the order terms and conditions and communicates increased, which improves the performance of the business
them to the customers clearly. Correct and clear order process. ([20]; [1]; [11] Several researches upon
information provided by customers will help order entry methodologies of business process improvement are:
process run smoothly. Later, order-filling activity performed.
A formalized procedure regarding order-filling priorities is 1) Adesola & Baines (2005)
important to prevent the company against failure of [1]has developed methodologies called MIPI (Model-based and
completing important order(s). Final order processing stage is Integrated Process Improvement) which consists of seven steps
order status reporting which ensures that good customer of BPI, explained in Table 1.
service provided by keeping the customer informed of any
delays in order processing or delivery of the order [5]. 2) Coskun, Basligil, and Baracli (2008)
Order processing function is the focus of analysis in The authors developed weak point analysis and improvement
this research. The business process analysis should be based model that define weakness based on the importance criteria
upon the customer value and the strategy. Based upon the within all processes. The proposed methodology is called
understanding derived from such analysis, executives can WABPI (weak point analysis for business process and
deploy (or redirect) their resources more effectively [25]; [6]; improvement) [11] that consist of four phases. This roadmap is
Business process management (BPM) has taken hold in presented in the Figure 2.
industry, as more than 80% of the leading organizations
3) Chase, Jacobs & Aquilano (2006) and Goestsch & Davis
worldwide have actively engaged in some type of BPM
(2010)
program (Towers and Schurter, 2005 in [3]; [24]). Business
Process Management considered as a customer-focused The nucleus of Lean Six Sigma is the Define, Measure,
approach to the systematic management, measurement and Analyze, Improve, and Control, or DMAIC Roadmap [12].
improvement of all company processes through cross- This roadmap can be used as problem-solving procedures that
functional teamwork and employee empowerment [15]. focus on solving root-cause of problem. The standard approach
BPM can be understood through the pyramid in Figure to Six-Sigma projects is the DMAIC methodology developed
1, which describes the level of integrated business processes. by General Electric described in Figure 3 (Walleck, S.,
The higher level of pyramid represents the question “what the O’Halloran, D. & Leader, C., “Benchmarking World-Class
company does” while the lower level represents the question Performance,” Mc.Kinsey Quarterly, no. 1 (1991) p. 7, in [8];
“how to accomplish and manage process tasks”. [18]; [26]).

CASE STUDY: PT X
This research will examine order processing system in
PT X. PT X is a global cosmetics manufacturer which manages
248 active stock keeping unit (SKU). As the products are fast
moving consumer goods, availability of assortments products
becomes key concern for the firm. PT X has 19 distributors,
 IRACST- International Journal of Research in Management & Technology (IJRMT),
which will distribute their products in all over Indonesia. As a
supplier of these 19 distributors, order-processing system is
expected to be effective and give fast response to the customers
while maintaining company’s sales target. In fact, distributors
often experience their order is delayed to be carried out.
National average of order processing delay is three working
days. The delay is often caused by low value of purchase order
submitted by distributors. Based on Sales and Operation Plan
(S&OP) Manager, this delay often triggers out of stock event in
distributor warehouse that will lead to loss of sales in retail
level. Moreover, distributors feel forced to purchase products in
high value despite of their capability. In 2011, two distributors
hand in notice that makes the company lost its distribution
channel in two big cities in Bali and Java Island. That event
triggers PT X to simplify their ordering system.
This research will focus on improving ordering system
that is aimed to give better service for customers and still
achieve sales target. The outcome will be new ordering systems
for company which provides easier replenishment order by
eliminating unnecessary process without compromising
company service level and sales target.
PT X acts as a supplier for its 19 distributors, which will
distribute its products in 51 sales areas all over Indonesia.
Those 19 distributors are dedicated into specific distribution
territory. Some territories are further divided into several areas
in order to increase coverage area. In 2011, PT X had
succeeded in achieving Rp372 billion sales in domestic market.
Java and Sumatra are still the biggest contributors in sales
achievement. Sales percentage by distributor is depicted in
Figure 4 while sales percentage by area is depicted in Figure 5.
TABLE I.
Vol. XXX, No. XXX, 2011
PO Recommendation is a document that
contains recommendation of stock build-up for
distributors based on sales history and stock position.
PO Recommendation has three purposes:
a. introduce new
products/variance/promotion/program
b. recommend distributor to order specific items in
certain quantity regarding their stock in hand and
sales history
c. help S&OP Department achieve sales target
4. PO Confirmation
PO Confirmation is an ordering document from
distributor to S&OP as a response of PO
Recommendation. PO Confirmation contains what
items are requested and how much quantity is needed.
5. Sales Order
Sales order is result of PO Confirmation after
getting through compliance checking step. Further
detail about compliance checking is explained in
process map. Sales order is transmitted to logistics
department for delivery order.
6. Delivery Order
Delivery Order is an instruction to prepare
products delivery from company’s warehouse to
distributors’ warehouse
MODEL-BASED AND INTEGRAL PROCESS IMPROVEMENT

Case Study Discussion No Step Step Description Techniques

1 Understand Develop vision and Organization Model
Business strategic objectives SWOT analysis
Current Condition of Order Processing Function Needs Perform competitor Force field analysis
Using data flow diagram, author tries to explain the data analysis Readiness assessment
and/or report used in order processing function. Preliminary Develop organizational Stakeholder analysis
data needed in this activity is database stock and sell-in plan for model Process prioritization
Evaluate current matrix
current month. At the end of the function, supply planning practices, prioritize Pareto analysis
officer will publish Sales Order which will be transmitted to objective Process performance
logistics department. Data flow diagram level zero for order Scope change table
processing function is presented in Figure 6. Establish measurable
targets
Develop Process
The data used in order processing function are explained objectives and assess
below: readiness
1. Database Stock Obtain approval and
initial project resource
Database stock is a monthly update of stock Benchmark the process
position in each distributor. Database stock is 2 Understand Identify the business XPat process
the process process architecture IDEFO
provided by Finance Department and is further Scope and define the Walkthrough
processed by S&OP Department. process Process flowchart
Capture and model the ABC
2. Sell-in Plan A S IS process Cause and effect
Sell-in Plan is operational target of S&OP information analysis
Division regarding sales order volume. Sell-in Plan is Model the process

created by S&OP Division. Sell-in Plan and Database

stock are then developed into PO Recommendation.
3. PO Recommendation
 IRACST- International Journal of Research in Management & Technology (IJRMT),
Vol. XXX, No. XXX, 2011
3 Model and Verify and validate the Value added analysis
• identify customer and their priorities
analysis model
• Identify a project suitable for six-sigma effort
process Measure the existing
proces performance Define • Identify CTQs (critical-to-quality characteristics)
Analyze the business
process
• Determine how to measure the process and how it is to
• performing
4 Redesign Benchmark the process Benchmarking • Identify the key internal processes that influence
Process Identify performance Creative silence Measure • CTQs
criteria for redesign workshop
process Brainstorming
Identify focus of • Determine the most likely cause of defects
redesign activity • Understand why defects are generated by identifying
Model and validate new Analyze • the key variables
TO BE process model
Identify IT
requirements • Identify means to remove the causes of the defects
Estimate performance • Confirm the key variables and quantity their effects on CTQs
of redesign process • Identify the maximum acceptances ranges of the key variables
Improve • modify the process to stay within an acceptable range

• Determine how to maintain the improvement

• Put tools in place to ensure that the key variables remain
Control • under controlled

Figure 3. DMAIC Roadmap. (Walleck, S., O’Halloran, D. & Leader, C.,

“Benchmarking World-Class Performance,” Mc Kinsey Quarterly, no. 1
(1991) p. 7, in Chase, Jacobs, & Aquilano, 2006)

Sales Percentage by Distributor in 2011

A
19%
4% 29% B
5% C
6% 17% A
13% B
7%

Figure 4. Sales percentage by distributor in 2011R

Figure 2. Piramyd of Business Process. (Antonucci & Goeke, 2011)

 IRACST- International Journal of Research in Management & Technology (IJRMT),
Vol. XXX, No. XXX, 2011
1. Recommendation
Sales Percentage by Region in 2011
Recommendation is a preliminary step in order
Pekanbaru Tegal Papua
processing function. It aims to give performance
Samarinda 2% Padang 1% 1%
2%
review and stock building suggestion for distributors.
2% B. Aceh
1% Final result of recommendation step is Purchase Order
Makassar Lampung
3% 2%
(PO Recommendation). PT X implements P-model
Manado inventory replenishment which enables distributors to
3% Jabat
23%
place order in specific time each month. Each
Medan distributor has order-placement-week (W) which
5%
varied from once to three times a month. Each order-
Semarang
placement-week is called order cycle. PO
5%
Bogor Recommendation will be sent to distributors before
Palembang 13%
their upcoming order cycle.
6%
2. Compliance checking
Denpasar Compliance checking aims to check compliance level
6% Surabaya
Bandung Malang
the submitted purchase order. This step involves
10%
7% 8% distributor, S&OP Division, and Sales Department.
S&OP Division needs to do compliance checking by
Figure 5. Sales percentage by Region in 2011 comparing value of PO Confirmation and PO
Note: Jabar is a terminology for Jakarta, Bekasi, and Tangerang
Recommendation. There will be three different
treatments for PO Confirmation depends on its
compliance percentage. Compliance checking is often
Finance
Compliance the longest step in order processing function and often
Depart Compliance Level Final Order Order Checking
S&OP Checking
ment
Deparment causes delayed order processing event.
3. Order Closing
Sales Order After compliance checking step has been passed,
Database Stock Sell-in Plan
Recommendati S&OP Division will publish Sales Order (SO). Sales
on process
order is a document to confirm that sales have been
Logistic
s
made and need to be carried out. Sales order will be
PO Recomendation
transmitted into Logistics Department for Delivery
Order.
Distribu
Delivery Order
tor

Current Condition of Delayed Order Processing

PO Recomendation PO Recomendation
Based on SOP of Order Handling and Processing,
purchase order from distributors should be processed within
Confirmatory
Process
four working days. However, distributors still experience
order-processing delay. In average, 28% of distributors’ orders
are delayed up to three working days. Usually, compliance
checking step is the most time consuming step before an order
Figure 6. . Data Flow Diagram (Level 0) of Order Processing Function can be processed. Delay percentage condition for top three
distributors is depicted in Figure 10 and Figure 11. Top three
Source: PT X (2011), further processed by author distributors still have to face order delay though the delay
percentage is slightly below national average. A, B, and C still
have 21%, 24%, and 22% of their orders were delayed. In
Beside data flow diagram, the process of order terms of delay period, B experiences four days delay, slightly
processing function is also explained in detail using process higher than national average. A and C experience 2.6 and 1.7
map. Order processing function will be described through days delay, respectively. Order processing delay should be
several business activities that need to be done in the function. given more attention since it will directly affect product
Detail process map of order processing function is depicted in availability in retail market. Delay in product replenishment
Figure 7, Figure 8, and Figure 9 and explained in the passage will potentially create loss of sales due to stock out.
below.
Generally, there are three steps in order processing
function:
 IRACST- International Journal of Research in Management & Technology (IJRMT),
Vol. XXX, No. XXX, 2011
Order Processing Activity for Compliance Level >90% Order Processing Activity for Compliance Level 80% - 90%

Finance S & OP Distributor Sales Finance S & OP Distributor Sales

Start Start

Database Stock Create Sell-in Plan Database Stock Create Sell-in Plan
(2) (1) (2) (1)

PO Recomendation PO Recomendation
Create Stock Ending Create Stock Ending
Report (3) Report (3)

Create PO Create PO
PO Confimation PO Confimation
Confimation ( Confimation (
5) 5)

Compliance
Request RSM
Compliance Checking? No
approval (6)
Checking

Publish Sales Order Approved?

Yes Increase
Compliance (8) No

Finish
Start
Negotiation (7)
Phase

Publish Sales Order

Yes
(10)
Figure 7. Order Processing Activity for Compliance Level > 90% Yes Succeed?

No
Source: PT X (2011), further processed by author
Accumulated to
Finish Next Cycle Order (9)

The highest percentage of delay frequency and delay

period among the top three distributors is B that covers three
Phase

cities in Sumatera, 2 cities in Sulawesi, and one city in Java

Island. Banda Aceh was the area that experienced the most Figure 8. Order Processing Activity for Compliance Level 80% - 90%
frequent delay, 55% of its order were delayed. The delay period Source: PT X (2011), further processed by author
in Banda Aceh was also quite long, 4 days in average.
However, the longest delay period was experienced in
Pekanbaru and Padang where the delay last 5.7 days in
average. Both are affected by infrastructure damage in
Sumatera Island. The delay period for other B’s areas varied
from 2.7 to 4 days in average. B is the second biggest
distributor in term of sales contribution. Moreover, it covers
five big cities in three islands in Indonesia where the
competition is tough. Thus, more attention on delay problem
should be paid for B areas.
 IRACST- International Journal of Research in Management & Technology (IJRMT),
Vol. XXX, No. XXX, 2011
Order Processing Activity for Compliance Level <80% Order compliance level is the percentage value of PO
Finance S & OP Distributor Sales
Recommendation relative to PO Confirmation. The reason of
order processing delay is usually because PO Confirmation has
Start low compliance. Low compliance level will lead to longer
order processing delay because S&OP needs to ask for
Database Stock
(2)
Create Sell-in Plan
(1)
approval before the order can be processed. Top 3 distributor
experienced low compliance level slightly higher than national
PO Recomendation Request RSM
average, 7%, 6%, and 6% for A, B and C, respectively. Banda
Create Stock Ending
Report (3)
approval (6)
Aceh was the most suffered area in delay processing time. It
was likely because its compliance is the lowest among other
Approved? areas in top 3 distributors. The average compliance level for
PO Confimation
Create PO
Banda Aceh is only 43.07% so that approval and/or negotiation
Confimation ( Yes
5) effort became very time consuming. On the other hand, Tegal
Request Sales
Director Approval
(7)
never experienced order delay while its compliance is only
Compliance
Checking?
No No
70.48% in average. It was because Tegal was relatively new
Approved?
area so that PT X and C were still looking for the best way to
sell the product in the area. The average compliance level in the
No areas under top 3 distributors is shown in Figure 12.
Yes Increase Negotiation (7)
Compliance (8)

Yes Succeed?

Publish Sales Order Yes

(10) No

Accumulated to
Next Cycle Order (9)

Finish
Phase

Figure 12. Average Compliance Level

Figure 9. Order Processing Activity for Compliance Level < 80%
Source: PT X (2011), further processed by author
After visualizing business process through process map
and data flow diagram, the next step is to analyze the gap
between current condition and desired condition. Desired
condition can be set based on Standard Operating Procedure
(SOP), working instruction, or operational guidelines that
applied for order processing function. Clear measurement and
definition become key success factor of improvement efforts.
The following instruction and procedure will be used as
measurement standard of business activities:

1. SOP: Order Handling and Processing (updated: May

2012)
2. Operational Guideline : Order Compliance and
Figure 10. Delay Percentage Closing (updated: August 2010)

Several positions will be involved in this discussion, they are:

1. Supply Planning Officer is a staff in S&OP
Department who is responsible for order processing
activity
2. Regional Sales Manager (RSM) is a person in charge
of Sales Department who is responsible for sales
performance within specific region

Based on process map explained above, gap analysis

Figure 11. Delay (in day)
is presented in the Table 2. The result of gap analysis was the
being discussed to find the root cause of the delayed order
 IRACST- International Journal of Research in Management & Technology (IJRMT),
Vol. XXX, No. XXX, 2011
processing problem as depicted in Figure 13. The discussion Other job priority
Delayed approval (ies)
also results in the significance level of each root cause. Root from RSM 1

cause number 2 and 3 will the focus of improvement as they Low compliance
level
Order approval
system Different pers- 2
have highest significance level among others. Delayed
negotiation
pective on
inventory level
Delayed order process by
processing Work overload distributor
experienced by 3
process owner(s) Distributors’
Delayed PO Only one person
limited capability
Retail Sales Condition Recommendation
shipment
in charge on
order processing
activity
Retail sales become key concern in this final assignment No backup 4
personnel
in order to have a complete understanding of sales, from either Limited budget of
S&OP division

PT X or distributor point of view. PT X, in this case S&OP

Division, always has a great concern for distributors’ purchase
value whereas, distributors have limitation in capital, Figure 13. Delay (in day)
warehouse capacity, and retail absorption. Distributors’
purchase value on each order cycle is controlled through PO
Recommendation and compliance level to make sure that sales
target can be achieved. Of the perspective of distributor, this
kind of control creates inflexibility in their operation.

To bridge the different interest between two parties,

author tries to compare actual retail sales to retail sales target
by PT X. Surprisingly, actual sales retail in top 3 distributors
are slightly higher than retail sales target: 102.12%, 103.63%,
103.38% for A, B, and C respectively. This number shows that
retail sales target for the whole year is actually attainable
enough. This sales target is divided into quarterly, monthly and
weekly target that is used as a basis to create PO
Recommendation on each cycle.

The purchase value by distributors may vary on each

order cycle but, at the end, the targeted retail sales will be
achieved. Instead of rigidly controlling the purchase value of
each distributor for each cycle, PT X is actually able to create
more flexible ordering system that will improve their
relationship with distributors. Flexible ordering system can be
translated into requirement of order frequency and order value.
Based on the statement of RSM for B and C, distributors prefer
to purchase more frequent but in smaller value. This condition
becomes a great concern for distributor whose area is only
allowed to purchase once or twice a month. Because the order
cycle is rigid, distributors need to spare more capital in
inventory. Moreover, to avoid order processing delay caused
by low compliance level, distributors have to purchase at least
80% of the value of PO Recommendation. The control system
applied by PT X can be revised into a more flexible one
without compromising retail sales target. By creating a more
flexible ordering policy, customers’ satisfaction (in this case
distributor) will increase while targeted retail sales will still be
achieved.
 IRACST- International Journal of Research in Management & Technology (IJRMT),
Vol. XXX, No. XXX, 2011

TABLE II. GAP ANALYSIS

No. Activity Compliance Actual SOP Explanation
1. Database Stock Support from Comply with Standard
Finance Dept.
2. Create Sell-in Plan Report Comply with Standard
3. Create Ending Stock Report Comply with Standard
4. Create PO Recommendation Comply with Standard
5. Send PO Recommendation Not Comply PO Recommendation is sometimes sent PO Recommendation should be Supply Planning Officer often busy with compliance level for the current week
in the beginning of order cycle send before order-cycle rather than preparing PO Recommendation for the upcoming week
6. Receive PO Confirmation Not Comply Distributors often delay their response PO Confirmation should be Supply Planning Officer needs to remind several distributors to send their PO
to send PO Confirmation received max 1 day after PO Confirmation
Recommendation
7. Compliance Checking Comply with Standard
8. Approval and Negotiation Not Comply Decision for under-compliance order is Decision for under-compliance Several RSM and distributors are hard to deal with regarding PO compliance
Process (if necessary) often delayed for 3 working days order should be made max 3
(national average) working days after PO
Confirmation is received
9. Publish SO Comply with Standard
 IRACST- International Journal of Research in Management & Technology (IJRMT),
Vol. XXX, No. XXX, 2011
Transportation Cost Simulation relatively not significant for all regions. Table 3 shows
comparison between current and suggested minimum value of
delivery, and percentage of total cost difference from potential
PO database 2011 revealed that there are times PT X retail sales per cycle.
delivered product to distributors in relatively small order
values. These value is then become the base value of TABLE III. MODEL-BASED AND INTEGRAL PROCESS IMPROVEMENT
transportation cost simulation. The simulation is conducted by
using these order values as a requirement of minimum value of As-Is Suggested % of Additional Cost VS.
Region
Ave Value of Delivery Min Value of Delivery Potential Sales
delivery. By comparing this minimum order value to monthly Jabat Rp 2.274.826.330 Rp 1.639.019.020 0,3%
retail sales, author is able to obtain data of how many Bogor Rp 1.892.999.121 Rp 861.235.680 0,6%
deliveries will be made throughout the month. Delivery Surabaya Rp 965.588.902 Rp 617.114.188 0,6%
frequency and order value of delivery will be the base of Bandung Rp 749.103.171 Rp 441.132.972 2,3%
transportation cost calculation. Current transportation cost is Padang Rp 542.486.993 Rp 224.101.336 13,2%
then compared to suggested-transportation cost using new Tegal* Rp 321.115.824 Rp 282.028.774 1,5%
Aceh Rp 147.954.141 Rp 68.917.298 22,8%
base value. Last, the cost difference is compared to average Pekanbaru Rp 515.918.669 Rp 240.547.834 10,0%
potential retail sales per region. The simulation result is Papua Rp 315.478.994 Rp 43.417.284 0,0%
showed in Figure 14 and Figure 15. Makasar Rp 683.309.571 Rp 152.744.320 1,5%
Manado Rp 655.492.119 Rp 389.614.138 1,3%
Samarinda Rp 486.385.713 Rp 121.841.940 0,0%

Based on author’s observation, PT X often rejects PO

with small value from distributors. This condition could lead
to loss of potential sales in retailer, which are losses for PT X
and distributor as well. By lowering minimum order value of
delivery, PT X will have to spend extra cost on transportation
due to increasing delivery frequency. However, this extra cost
is able to covers potential retail sales which will be a huge
advantage for PT X and distributors as well. The willingness
to lowering minimum order value of delivery will also
increase distributors’ satisfaction because they are able to
Figure 14. Cost Difference & Potential Retail Sales (Group 1)
order in small value and experience faster order processing.
Lowering minimum order value of delivery can be beneficial
for the company since:

 It creates operation flexibility for distributors thus,

increase their satisfaction towards PT X’s services.
 Both PT X and distributors are able to capture
potential sales in the regions.

Improvement Recommendation
Order processing delay is an indicator that orders
processing function is not an effective and efficient process.
Based on the analysis in this chapter, improvement in order
Figure 15. Cost Difference & Potential Retail Sales (Group 2) processing function using systematic approach is developed to
reduce order processing delay. Order processing delay is
Regions are divided into group 1 and group 2 based
mainly caused by low compliance level of PO Confirmation
on transportation cost characteristics. Jabat, Bogor, Surabaya,
sent by distributors. The delay has two major effects; create
Bandung, Padang, Tegal, Semarang, Aceh, and Pekanbaru
potential stock out and loss of potential sales and inconvenient
belong to group 1 because they have similarity in inland
experienced by distributor due to negotiation process. Those
transportation with several transportation mode choices.
major drawbacks had forced two distributors to hand in notice
Papua, Makasar, Manado, and Samarinda, on the other hand,
in 2011 and create distribution coverage problem for PT X. In
belong to group 2 since delivery to those area always use m3
conclusion, order processing delay caused by low compliance
as unit of transportation cost calculation. Simulation result
level needs to be eliminated in order to maintain relationship
from either groups showed that additional cost of
with current distributors and anticipate future business growth.
transportation is relatively a small percentage of potential
retail sales per order cycle. The percentage of additional cost
as a consequence of suggested minimal order value is
 IRACST- International Journal of Research in Management & Technology (IJRMT),
Vol. XXX, No. XXX, 2011
As a result of this research, author will propose a policy will be conducted at the last week of the month to
change in order processing function to improve process ensure sales achievement. The process of target sales
efficiency and effectiveness. This proposal is based on checking is depicted in Figure 17.
analysis on sales, stock, and transportation cost. Policy change
that proposed by author are implemented in compliance
checking step which becomes the most time consuming step in
order processing function. Furthermore, replenishment policy
is also become the object of policy change which is aimed to
ease replenishment process by distributor.
Based on retail analysis and transportation cost analysis
in previous sub-chapter, the author proposes the following
policy changes:
1. Give distributor flexibility in managing their order
value on each purchase order
As stated by RSM, distributors prefer
smaller but often purchase. The current order cycle
rule does not accommodate the needs of distributors
as PT X’s customers. Actually, order cycle rule and
PO Recommendation are aimed to control sales target
achievement. However, referring to retail sales
analysis, sales target can be 100% achieved. On the
other words, distributors are able to fulfill PT X’s
targeted retail sales. From transportation cost
analysis, lowering minimum value delivery will also
be beneficial for both parties. Increasing cost of
transportation is not significant compared to potential
retail sales that can be captured.
When such condition is met, it will be
advantageous for both parties to loosen order Figure 16. Suggested Process Map
requirement by lowering minimum value of delivery
order as suggested in Table 3. PO Recommendation
can be sent monthly then it is distributors’ decision to
split the order considering minimum value of delivery
order. This will also be beneficial for PT X,
especially S&OP Division because it does not need to
prepare PO Recommendation on each order cycle.
Suggested process map is depicted in Figure 16.
2. Give full responsibility for RSM or equivalent
position to approve PO and become sales
performance controller.
Double approval for under compliance PO is not
effective to control sales performance since both
parties tend to rely on each other. By giving
authorization and responsibility to RSM or equivalent
position to approve under compliance PO, order
processing time can be shorten and delay can be
avoided since only single approval is needed.
Furthermore, RSM or equivalent position holds
accountable as single sales performance controller so
that distributors will be highly monitored despite
more flexible ordering system. Target sales checking
 IRACST- International Journal of Research in Management & Technology (IJRMT),
Vol. XXX, No. XXX, 2011

Figure 17. Target Sales Checking

 IRACST- International Journal of Research in Management & Technology (IJRMT),
Vol. XXX, No. XXX, 2011
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 IRACST- International Journal of Research in Management & Technology (IJRMT),
Vol. XXX, No. XXX, 2011
AUTHORS PROFILE Manajemen : Analisis Faktor Kompetensi Soft Skills Mahasiswa
1. Tri Susanto MT, Industrial Engineering, ITB, Bakrie University Yang Dibutuhkan Dunia Kerja Berdasarkan Persepsi Manajer
Faculty, Industrial Statistics, Probabilistic Theory, Operation dan HRD Perusahaan, Business and Management Revuiew
Research I, H R Consulting, including H R plan , recruitment, Strategi Pemilihan Transporter dan Jenis Truk Menggunakan
selection, training and development; Qualty Journal (Moestopo Linear Programming Model.
University) Analisis dan Simulasi Sistem Antrian Bus Rapid 3. Novita Azkia, Student Bakrei University,
Transit (BRT) TransJakarta pada Halte Transit BNN.
2. Aurino Djamaris MM, Magister Management, Bakrie University
Faculty, Applied Business Computation, Maths and
Statistics, Decision Modeling, Logistics & Supply
Chain, Production and Operation Management, Jurnal

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