14 Chapter II Literature Review This chapter discusses the existing literature, theories, and models about sustainability Supply Chain, Contract in Supply Chain. Underlying theories and institutional context will be discussed first and then the institutional context of the research will be explained later. The main point of this chapter is the state of the art. The State of the arts part describes the position of this research among other research in the Supply Chain Sustainability stream. The state of the arts table will describe as well about the research gap which is tried to be fulfilled by this dissertation. This chapter will be closed with a proposed model or theory or conceptual framework of this research and proposition or hypothesizes. The proposed model is the new sustainability supply chain framework that integrates with responsible supply chain action and performance measurement indicators. II.1. Underlying Theories The basic philosophy of this research is pragmatism with mixed methods approach. There are several theories that are used to support this research. II.1.1 Theory of Supply Chain Management Today's competition and strengthened by rapidly changing and very diverse customer demands make the company think to form collaboration with other parties in delivering goods to customers with good quality, the right amount and at the right time too. Companies must form a collaboration that is often referred to as Supply Chain. According to Pujawan, (2017) supply chain is a network of companies that jointly work to create and deliver a product to the end-user. These companies include suppliers, distributor factories, stores or retailers, as well as other supporting companies Correspondingly, Simchi-Levi et al., (2003), supply chains are networks of independent and interconnected organizations that work together cooperatively and mutually beneficial in controlling, regulating, and improving the flow of material and information from suppliers to users. 15 Pujawan explained that Supply Chain Management is a method or approach for managing the flow of products, information, and money in an integrated manner involving parties, starting from upstream to downstream consisting of suppliers, factories, agents of distribution activities and logistics services. Supply chain also can be viewed as several sequential decision-making processes and execution, processes (material handling, managing information, financial matter) that have objective to meet the customer demand at the right time (Van der Vost,2004). Figure II.1 shows that the actor that is involved in a supply chain is not only the supplier, manufacturer, or distributor, but it’s involved transporter, warehouse, retailer, and consumer themselves (Van de Vost, 2004). Figure II.1 Schematic diagram of a supply chain (shaded) within the total supply chain network (Van der Vost, 2004) The functions in Supply Chain are not only product development and distribute it to the customer, but it is varied greatly, ranging from maintaining good relationships with suppliers, (including supplier evaluation, development, and selection processes), to maintaining good relationships with end customers through Customer’s relationship Management (CRM) programs as seen in figure II.2 (Martins, 2019). Supply chain as shown in Fig.II.2 can clearly illustrate the functions in a Supply Chain. Source function consists of supplier evaluation, selection, and development as well as procurement activities. In the focal firm, sometimes refer to manufacturer, product design and product development take place (make). In 16 delivery function lean and agile paradigm are identified (deliver)and the last is return function which consist of reverse logistics and generic Supply Chain configuration (return) (Martins, 2019). Figure II.2. Supply Chain: Process and Function (Martins, 2019) Holistic framework of Supply Chain Management, known as Supply Chain Operation Referrence (SCOR) was established by Supply Chain Council in 1996 to guidance company in measuring the performance of their supply chain (figure II.3) Supply Chain Management knowledge continues to experience development from time to time. Along with its development, various theories were applied to support the progress of Scientific Logistics Management and Supply Chain, which can be categorized in terms of levels of theory, namely: (1) Synchronization; (2) Synergy; (3) Synthesis, and in terms of time (era), namely: (1) Post-war era; (2) Computerization era; (3) Globalization era; (4) Internet era. An overview of supporting theories of Logistics Management and Supply Chain Science is presented in Figure II.4. In the 1950s and 1960s, initially only military organizations used the terminology of Logistics Management to support their operations and there were no business organizations that used the actual logistics 17 concept. Along with the development of management theory and information systems, the concept of Logistics Management began to be broader and increasingly influential in the business sectors. Figure II.3 Supply Chain Operation Reference (SCOR) Framework (http://www.apics.org/apics-for-business/frameworks) The phases of the development of Logistics Management are explained in Figure II.4. (Frazelle, 2002: 6): 1. 1960s: Workplace Logistics. Workplace Logistics is the flow of material on a single workstation. The goal of Workplace Logistics is to minimize the movement of a worker on a machine or along an assembly line. The principles and theories of Workplace Logistics were developed in the discipline of Industrial Engineering, which is currently popularly known as Ergonomics. 2. 1970s: Facility Logistics. 18 Facility Logistics is the flow of material between workstations within a facility (facilities can be factories, terminals, warehouses, or distribution centers). The purpose of Facility Logistics is material handling within a facility. 3. 1980s: Corporate Logistics. Company Logistics is a material and information flow between facilities and processes in a company. For manufacturing companies, logistics activities occur between factories and warehouses; and for large traders, between the distribution centers; as well as for retail, between distribution centers and retail stores. The aim of the Logistics Company is to achieve and maintain favorable customer service policies and reduce total logistics costs. The popular name for Corporate Logistics in the 1980s was Physical Distribution. Figure II.4. Supply Chain Management Supporting Theories (Christopher, M. 2011) 3. 1990s: Logistics & Supply Chain (Supply Chain Logistics). Supply Chain is the flow of material, information, and money between companies (inter-workstations, inter-facilities, inter-companies, and between chains). A supply chain is a network of facilities (warehouses, factories, terminals, ports, shops, houses), modes of transportation (trucks, trains, aircraft, ships), and logistic 19 information systems that are interconnected from suppliers to suppliers to consumers.