7 Chapter II Literature Review II.1 Literature Review II.1.1 Decision Making Analysis In running a business, the owner will face various problems and a range of choices in managing the business. Business owners are constantly confronted with decision-making, from small matters to large ones. Decision-making is a process of selecting a choice from various alternatives to solve existing problems. In a business context, if decision-makers make the right choices, it can maximize profits, optimize resource utilization, and enhance business competitiveness. Wang & Ruhe (2007) state that decision making is a process of choosing a preferred option or a course of action among a set of alternatives on the basis of given criteria or strategies. Decision-making analysis is an approach used to evaluate existing alternatives in a comprehensive and structured manner, taking relevant criteria into account. Decision-making analysis can assist decision-makers in identifying the best solution to resolve current issues and minimize future risks. Goodwin & Wright (2014) state in their book that "analysis" is the key term in decision-making analysis. Analysis is a process of breaking something down into its component parts or, in other words, dissecting a problem into a series of smaller issues. This allows decision-makers to acquire enhanced comprehension. Decision-making is crucial for leaders and managers inside an organization. At Sambeng Farm, Binsar Napitupulu functions as both the proprietor and the primary decision-maker. At Sambeng Farm, an examination of decision- making is performed to identify the most advantageous site for durian sales, anticipated to facilitate a forward integration plan. The chosen approach for location selection is the Simple Multi-Attribute Rating Technique (SMART). 8 II.1.2 Simple Multi-Attribute Rating Technique (SMART) The Simple Multi-Attribute Rating Technique (SMART) is a decision- making process employed to evaluate and select alternatives based on several criteria. Goodwin & Wright (2014) assert that SMART has been widely utilized due to its transparency and relative simplicity, facilitating comprehension and application by decision-makers from diverse backgrounds. SMART can effectively highlight the critical aspects of a situation, while it may not fully encompass all the complexities and nuances of a decision. Goodwin and Wright (2014) elucidate fundamental terms pertinent to the SMART technique, including: a. Objectives: indication of the preferred direction of movement (defined by Keeney and Raiffa, 1976) b. Attribute: used to measure performance in relation to an objectives. c. Value: the straightforward desirability of an option in a risk-free setting. d. Utility: the adjusted desirability of an option in a setting involving risk. According to Goodwin & Wright (2014), the main stages in the SMART method are: Table II.1 Stages of SMART Stage 1 Identify the decision maker (or decision makers) Stage 2 Identify the alternative courses of action. Stage 3 Identify the attributes which are relevant to the decision problem. Stage 4 Measure the performance of the alternatives on that attribute. Stage 5 Determine a weight for each attribute. 9 Stage 6 For each alternative, take a weighted average of the values assigned to that alternative. Stage 7 Make a provisional decision. In this study, the SMART method will be used to determine the optimal sales location for Sambeng Farm for the following reasons: 1). Simplicity and Structure: SMART is a simple, structured tool for decision-making that facilities the efficient analysis and management of several location criteria. 2). Multi-Criteria Evaluation: Location selection involves multiple factors, such as market potential, accessibility, operational costs, and consumer purchasing power. SMART allows these criteria to be evaluated in an integrated way. 3). Flexible Weighting: SMART enables criteria to be weighted based on priority, allowing Sambeng Farm to focus more on factors like market potential if they’re deemed crucial. 4). Data-Driven Decisions: SMART provides a quantitative approach, helping Sambeng Farm make objective, data-based choices, reducing subjectivity. 5). Resource Optimization: By choosing the optimal location, Sambeng Farm can better allocate resources, reduce risks, and increase the chances of business success. II.1.3 Forward Integration Strategy Vertical integration is a term used to refer to both forward and backward integration. Vertical integration strategies enable a business to establish control over its distributors and suppliers. Forward integration is acquiring or increasing control over distributors or retailers in order to get closer to the end consumer and eliminate the intermediary (David & David, 2022). Closer to the end consumer and eliminating intermediaries is the goal of Sambeng Farm. Sambeng Farm aims to distribute its durians directly from 10 the farm to stores or end consumers independently, without intermediaries. Thus, it can be said that Sambeng Farm intends to implement a forward integration strategy as its business strategy. Like other business strategies, the forward integration strategy carries both benefits and risks. As stated by Rothaermel (2023), the benefits of implementing forward integration in a business include: • Lowering cost • Improving quality • Facilitating scheduling and planning • Facilitating investments in specialized assets. • Securing critical supplies and distribution channels. Meanwhile, the risks of implementing forward integration include: • Increasing costs. • Reducing quality. • Reducing flexibility. • Increasing the potential for legal repercussions. From the benefits and risks mentioned by Rothaermel, it is evident that they are opposing factors. If executed and calculated accurately, a forward integration strategy can reduce expenses. However, if not carefully calculated, it could lead to increased costs, meaning the company would have to spend more. This also applies to issues of quality and flexibility. Therefore, in this study, the analysis of the forward integration strategy will present a cost comparison between using intermediaries and not using intermediaries for Sambeng Farm in selling its durians from the farm to the pre-determined store, using the SMART method. 11 II.2 Conceptual Framework A conceptual framework is a series of ideas developed and an effort at simplification from researchers' abstract thoughts about observed phenomena so that research can be directed, well-described, and easily understood (Pratiwi, 2022). Figure II.1 Conceptual Framework Based on the conceptual framework above, the business issue being faced by Sambeng Farm and discussed in this study is choosing the optimal sales location for durians to maximize profits while maintaining fair prices for consumers and operational efficiency. To address this issue, the SMART method will be used to select the optimal sales location for Sambeng Farm. The choice of the SMART method in this study is based on the reasons explained earlier. Since the issue facing Sambeng Farm is not only selecting a sales location but also eliminating intermediaries and independently distributing its durians from the farm to the sales location, a forward integration strategy will also be applied. The analysis of the forward 12 integration strategy will include a comparison of Sambeng Farm's expenses when using intermediaries versus not using intermediaries..