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Strategic Management Study of the "PESAT" Dairy Farmers Cooperative in Banyumas Regency, Central Java, Indonesia
Field Study Abstract:
The PESAT Cooperative had been involved in the dairy industry, producing raw/ fresh milk for other purposes. The main business of the cooperative was marketing raw/fresh milk to milk processors and end-users. Most of their fresh milk was sold to a big milk processor (PT. Sari Husada) but they also processed a small quantity of their fresh milk to pasteurized milk. This business had a big risk since this form of milk is highly perishable. It requires a specific treatment and technology to maintain the freshness of the milk.
The PESAT cooperative had the vision to become a big business institution through marketing of fresh milk and related products with strong considerations to fully serve the members. It can be done through improvement of customer satisfaction by producing more and providing high quality products.
The PESAT Cooperative’s strengths were as follows: (1) they have been producing high quality milk (with only a small volume of milk rejected by consumers); (2) they are located near a dairy research and training center; (3) they are placed in an area/region that is appropriate for maintaining a dairy farm, e.g., favorable average daily temperature; (4) they have a good milk processing equipment; (5) they have been supplying milk and maintaining a good partnership with a milk processor; (6) they have been doing backward integration in terms of providing feed concentrate for the livestock of their members; and (7) they have a healthy financial condition.
On the other hand, the cooperative’s weaknesses included the following: (1) they do not use their available equipment optimally especially for producing other milk products; (2) they have no appropriate marketing plan (poor marketing management); (3) they lack market information and have high dependence on one milk processor (Sari Husada); (4) the education level of the members was low (55% were elementary graduates only); (5) there have been a decreasing number of members (from 368 in 1998 to 320 in 1999); (6) there was high average production cost of each member’s dairy farm, i.e., IDR958/1; and (7) the number of PESAT Cooperatives’ dairy cows had tended to decrease gradually from 875 in 1997 and 1998 to only 791 cows in 1999.
The management adopted the generic strategy of focus based on differentiation, believing that it can fully serve the narrow/specific market through differentiating its product by delivering high-quality fresh milk. But this strategy just increased the level of its dependence on one specific consumer, only one market niche which was PT. Sari Husada.
The cooperative gave little consideration to exploring other markets. By focusing only on PT. Sari Husada, the cooperative was highly dependent on that market. The cooperative produced only a small volume of pasteurized milk so that its equipment was not fully optimized.
To capture a bigger slice of the market and match the increasing demand of local consumption, the board of directors of the cooperative should implement a broad differentiation strategy, which implied to not rely only on a specific target market or a milk processor.
Broad differentiation strategy was strongly recommended to the management of the PESAT Cooperative since the bargaining power of the feed supplier was low, the cooperative was highly dependent on one customer and rivalry among existing cooperatives was high. A broad differentiation strategy would try to differentiate the company’s product that will appeal to a broad spectrum of buyers. To be more competitive, the cooperative should protect its product leadership (with high-quality fresh milk) and attempt to increase its product line.