1 Chapter I Introduction In Chapter 1, "Introduction," serves as an introduction that will provide a general overview of the research. This includes the context or situation underlying the problem to be studied, an explanation of the scenario used, the stakeholders related to the object being researched, and the formulation of the research problem. This chapter is expected to provide contextual understanding. I.1 Background As an agrarian country, Indonesia has a diverse range of natural resources that strongly support the production of various agricultural commodities. The agricultural sector in Indonesia plays a crucial role in the country's economy, not only as a food producer but also as a provider of employment, a driver of the rural economy, and a contributor to exports. This is evidenced by the contribution of the agricultural sector to the Gross Domestic Product (GDP), which was 13.28% in 2021, with a growth rate of 1.84%. In the third quarter of 2022, the agricultural sector grew by 1.85% and contributed 12.91% to the GDP. One agricultural commodity with potential for development is horticultural commodities. Horticulture is a part of the agricultural sector that includes vegetables, fruits, ornamental plants, and biopharmaceuticals. Durian is a fruit that is highly popular among Asian communities, especially in Southeast Asia, including Indonesia. Often referred to as the "king of fruits," Indonesia boasts a diverse range of durian varieties. Durian is a tropical fruit native to Indonesia (the forests of Kalimantan and Sumatra). Along with Thailand, Malaysia, Vietnam, and the Philippines, Indonesia is one of the largest durian producers in the world. Each region in Indonesia has its own unique durian varieties with distinct characteristics and names. Some of the most popular types of durians in Indonesia are durian Montong, durian Musang King, durian Bawor, and Black Thorn. 2 Figure I.1 Durian Plant Production in Indonesia (source: BPS) According to the Central Statistics Agency (BPS), Indonesia produced 1.85 million tons of durian in 2023, an increase of 17.06% from the previous year. Based on data from 2023, East Java was recorded as the largest durian producer in Indonesia with 488.36 thousand tons, followed by Central Java with 197.96 thousand tons, and West Java with 158.69 thousand tons. In 2016, Indonesia became the largest producer of durian, accounting for 47% of the total production, followed by Thailand at 33%, and Malaysia. Despite this, durian consumption in Indonesia continues to increase every year, but durian production does not always keep pace. This is because durian is a seasonal fruit, and when it is not durian season, durian orchards experience a decline in production. In addition to the high domestic consumption of durian, the demand for durian exports from Indonesia is also substantial. This presents both challenges and opportunities for durian farmers in Indonesia. The main challenge is the inconsistent supply of durian, which leads to price fluctuations and affects durian availability. Furthermore, competition from other countries like Thailand and Malaysia also poses a challenge for Indonesia. The opportunities lie in increasing 0 500000 1000000 1500000 2000000 2021 2022 2023 Durian (Ton) Durian Plant Production in Indonesia SUMATERA BARAT RIAU JAMBI SUMATERA SELATAN BENGKULU LAMPUNG KEP. BANGKA BELITUNGKEP. RIAU DKI JAKARTA JAWA BARAT JAWA TENGAH DI YOGYAKARTA JAWA TIMUR BANTEN BALI NUSA TENGGARA BARAT NUSA TENGGARA TIMUR KALIMANTAN BARAT 3 durian production by utilizing new technologies and innovations, as well as enhancing supply chain efficiency by improving coordination and integration among stakeholders. Most farmers in Indonesia operate small-scale agricultural businesses spread across various regions, selling their products without implementing proper harvest and post-harvest handling practices, and they do not apply "Good Agricultural Practices" (GAP) to gain added value and competitive advantage. Many farmers in Indonesia sell their products not directly to consumers but through intermediaries and middlemen, including durian farmers. This results in an inefficient and ineffective supply chain due to the many intermediaries involved. This inefficiency leads to a decrease in product quality and an increase in the price of agricultural products (in this case, durian), as well as a significant price difference between what farmers receive from intermediaries and what intermediaries sell to consumers. This issue arises from farmers' lack of understanding of the durian supply chain flow. The durian business is one of the profitable ventures in the agricultural sector. This is due to the high demand for durians in Indonesia. Durian enthusiasts are even willing to visit durian farms directly or purchase durians at high prices imported from other countries. Binsar Napitupulu, a durian lover and entrepreneur, recognized the business potential in the durian market and decided to utilize his land to plant durian trees, resulting in the establishment of Sambeng Farm. Since Sambeng Farm is a new venture, with the planting of durian trees starting at the end of 2023, it needs to plan its business strategy while waiting for the trees to bear fruit. The owner of Sambeng Farm aims to select an urban location for selling durians to maximize profits. One way to do this is by eliminating intermediaries and handling the sales process independently, from farm to store. This is because most durian stores in 4 urban areas operate without owning their own farms, and similarly, many farm owners do not have stores in the city to sell their durians. I.2 Company Profile Sambeng Farm was established at the end of 2023 in Desa Sambeng, Pemalang Regency, Central Java. It was developed on land previously used for poultry farming, which Binsar Napitupulu acquired. The land, measuring 1 hectare, was chosen for its fertile soil. Initially involved in housing development, Binsar Napitupulu expanded into agriculture, focusing on horticulture and durian cultivation. Sambeng Farm learned from local durian growers in Central Java (Pemalang, Pekalongan, Banyumas, Pati) and now cultivates 150 durian trees. The farm has been operational for about 12 months, with durian trees expected to be ready for harvest in about 4 years. The farm grows premium durian varieties, including Bawor, Musangking, Duri Hitam, and Super Tembaga. The selling price of durian on the farm ranges from Rp80,000.00 to Rp500,000.00 per kilogram, which would be significantly higher if sold through intermediaries to consumers. I.3 Business Issue During the cultivation and maintenance of durian trees, the owner of Sambeng Farm began to analyze where to sell the durians once they are ready for harvest. The owner studied the durian sales flow and found that typically, harvested durians are not sold directly to consumers but are transported by intermediaries who then sell them to consumers or deliver them to durian stores in various cities that partner with these intermediaries. To maximize profits and expand the market, Sambeng Farm faces a dilemma regarding the optimal sales location for the durians, since durian is a seasonal fruit, the owner of Sambeng Farm wants to open the store only during the durian harvest season. Choosing the right sales location is crucial to ensure that durians are sold at the best price and that distribution costs from the farm to the sales locations are efficient. In order to deal with that, owner Sambeng Farm, Binsar, wants to implements the forward integration 5 strategy by handle the distribution of durians from the farm directly to consumers. A forward integration strategy also will helpful to keep the durian prices reasonable for consumers in the city, allowing people from various backgrounds to enjoy premium durian at the best price, while also maximizing the farm's profits. However, the owner of Sambeng Farm does not want to simply choose a sales location without evidence from various considerations, such as distribution costs, operational costs, and other expenses required when opening a durian store during the durian harvest season, which will also impact the calculations for the forward integration strategy. The main issue currently faced by Sambeng Farm is choosing the optimal sales location for durians to maximize profits while maintaining fair prices for consumers and operational efficiency. This thesis will discuss more regarding how to determine the optimal sales location and the effectiveness of the forward integration strategy for Sambeng Farm profitability. The owner of Sambeng Farm needs to identify the criteria for finding sales location and analyze whether the strategy can contribute significantly to the company’s profit or not. I.4 Research Questions and Research Objectives Based on the business issue, here are the research questions: 1) What are the criteria for finding a new sales location consider forward integration. 2) What are the alternatives optimal durian sales locations for Sambeng Farm. 3) Which alternative location did Sambeng Farm ultimately decide to use in order to put the forward integration approach into practice. 4) How can the solution for selling durians at the designated location be implemented. Based on the research questions above, the objectives of this research are: 6 1) To identify and analyze the key criteria for selecting a new durian sales location that aligns with the forward integration strategy based on the preferences of the owner of Sambeng Farm. 2) To evaluate and determine the most optimal durian sales location alternatives for Sambeng Farm using the SMART method. 3) To assess the final sales location chosen by Sambeng Farm for implementing the forward integration approach. 4) To develop a practical implementation strategy for selling durians at the selected location I.5 Research Scope and Limitation This study has research scope and limitations as follows: 1) The research will focus on identifying the optimal sales location for Sambeng Farm’s durian business using the SMART (Simple Multi-Attribute Rating Technique) method and analyzing the impact of forward integration. 2) The research may be limited by market dynamics, as price fluctuations, competition levels, and regulatory changes could impact the accuracy of the location selection. 3) The research may be limited by data availability on competitor sales performance, as detailed competitor sales data is restricted, and estimations are based on industry averages and observations. 4) The research will focus on a seasonal store operation model and does not consider potential revenue from non-seasonal product sales. 5) The research may be limited by assumptions on cost structures, as current market prices for distribution, operational, and investment costs may change over time..