The Role of Strategic Sourcing and Supply Chain Agility on Firm Performance: Case Study of SMEs in Traditional Market

Abstract

Small and Medium Enterprises or abbreviated as MSMEs have an important and strategic role in national economic development. In 2018 the number of MSME players in Indonesia is predicted to reach 58.97 million by Data from the National Development Planning Agency, the Central Statistics Agency, and the United Nation Population Fund (Smartlegal.id, 2019). The contribution of the micro, small and medium enterprises (MSMEs) sector to the national gross domestic product is projected to grow 5% throughout 2019. According to Chairman of the Association of Indonesian Micro, Small and Medium Enterprises (Akumindo) Ikhsan Ingratubun, with the estimated growth, he believes the total contribution of MSMEs National gross domestic product (GDP) this year can reach 65% or around Rp2,394.5 trillion. Meanwhile, the realization of the contribution of MSMEs to national GDP last year reached around 60.34%. Meanwhile, according to economist at the Institute for Development of Economics and Finance (Indef) Bhima Yudhistira assessed, the projected growth of MSME contribution to GDP by 5% in 2019 is quite realistic, because it is in line with the estimated economic growth ranging from 5%-5.2%. (Ekonomi.bisnis.com, 2019). There are many MSMEs on the market, including traditional markets. With the advancement of the era as now MSMEs must compete with many new competitors. Therefore, managers must be agile and able to see an opportunity to create a new strategy, and move the organization in a new direction, namely they need to balance regulatory changes (rulechanging) and applicable regulations (rulefollowing) (Schermerhorn, 2010). MSMEs in order to compete with new competitors, several studies offer solutions to improve MSME performance, one of them is strategic sourcing. Strategic sourcing is the process of planning, implementing, monitoring and evaluating important decisions to achieve the company's long-term goals and plans (Carr, 2002). The main objective of Strategic sourcing is to reduce uncertainty and increase flexibility for better handling of uncertainties in supply, demand and competitiveness (Sinha, 2011). Strategic sourcing can't be separated from the supply chain agility, so that MSMEs can develop rapidly must adapt to a changing environment by acting agile (Nagel, 1991). The level of supply chain agility of a company is the ability to adapt the relationship between the company and its market (Murthy, 2008). Supply chain agility in terms of responsiveness,