Charting a Thriving Path for the Malaysian Palm Oil Supply Chain: A SWOT-QSPM-Powered Strategic Roadmap

Abstract

Purpose: The purpose of this article is to examine the supply chain issues in the palm oil industry in Malaysia and by proposing a comprehensive and strategic plan. Research design, data and methodology: Through meticulous qualitative analysis, we have identified the strengths, weaknesses, opportunities, and threats (SWOT) affecting the Malaysian palm oil supply chain. Leveraging the SWOT-Quantitative Strategic Planning Matrix (QSPM), we have critically assessed a range of strategies. Results: Our findings have underscored the supply chain's robust infrastructure and efficient operations as significant strengths, while environmental impact and distribution concerns emerged as notable weaknesses. The study highlights the promotion of certified sustainable palm oil to meet global demands as the most promising opportunity, juxtaposed against stricter regulations hampering market access as the primary threat. Remarkably, the QSPM has singled out the activation of existing infrastructure as the top priority. Conclusions: This study contributes substantially to the field by offering an in-depth analysis and improvement blueprint specifically tailored to the palm oil supply chain. In light of prevailing negative perceptions, distribution campaigns, and trade hurdles, businesses can harness the strategic insights presented here to unlock the full potential of the supply chain and steer it towards sustainable prosperity.

1. Introduction

The network of organisations, people, activities, information, and resources involved in the manufacturing, distribution, and delivery of goods or services to the end consumer is referred to as a supply chain.

It includes all of the actions and procedures that occur between the procurement of raw materials and the final consumption of a product or service. A supply chain's fundamental purpose is to guarantee that the correct product or service is delivered at the correct location, at the correct time, in the correct amount, and at the correct cost (Ibragimov et al., 2019). Coordination and integration of numerous operations such as procurement, production, logistics, transportation, warehousing, and distribution are required.

Similarly, the palm oil supply chain also includes numerous phases, such as from the plantation to the mill, then to the refinery for additional chemical processing and manufacture, and lastly to the goods we use every day. Commercial oil palm planting increased rapidly in Southeast Asia in the mid-twentieth century, owing to rising worldwide demand (Lim & Biswas, 2019). Plantations were expanded on a bigger scale, and manufacturing methods were refined to satisfy the expanding demands of diverse sectors.

Palm oil became popular owing to its distinct properties, such as high production per unit of land, adaptability in a variety of uses, and inexpensive cost in comparison to other vegetable oils. It quickly became a favourite for cooking oil, food processing, cosmetics, detergents, and biofuels (Amindoust et al., 2012). As worldwide demand for palm oil grew, the industry's supply chain expanded and became increasingly intertwined. Palm oil became a major traded commodity, with considerable amounts shipped from major producing nations, mainly Indonesia and Malaysia, to other global areas.

Concerns have been made regarding the palm oil industry's environmental effect, which includes deforestation, biodiversity loss, and greenhouse gas emissions. Land rights, labour practices, and indigenous groups have all received more attention (Uthayakumar & Thong, 2017). These problems have prompted greater scrutiny and requests for the palm oil supply chain to be more sustainable.

The palm oil supply chain in Malaysia is a complex network involving various stages, from cultivation and harvesting to processing and export as depicted in Figure 1. Malaysia is one of the largest producers and exporters of palm oil globally. Firstly, cultivation and plantation. Oil palm cultivation involves planting oil palm trees in large plantations. These plantations are typically owned by plantation companies or smallholders. The cultivation process includes land preparation, planting of oil palm seedlings, and maintenance of palm trees through fertilisation, pest control, and harvesting (Basiron, 2008). Smallholders play a significant role in Malaysia's palm oil industry, with many of them owning small plots of land where they cultivate oil palm. Then comes harvesting and collection. Oil palm trees start producing fresh fruit bunches (FFBs) after around three years(Vijayakumaran et al., 2020). These FFBs are harvested from the plantations. Harvesting of FFBs involves cutting the bunches from the trees using machetes or specialised tools. Once harvested, the FFBs are collected and transported to the nearest palm oil mills. Then there are palm oil mills. Palm oil mills process the FFBs to extract crude palm oil (CPO) and palm kernel oil (PKO) (Basiron, 2008). The FFBs are sterilised, threshed, and then pressed to separate the palm oil from the palm kernels. The extracted oils undergo further processing, including clarification, purification, and drying.

Figure 1: Palm oil supply chain (Malaysia)

Next, refining and fractionation. Crude palm oil produced at the mills is sent to refineries for further processing. Refineries remove impurities and unwanted components from the CPO, resulting in refined, bleached, and deodorised palm oil (RBDPO) (Guan et al., 2016). Fractionation is an optional process where the RBDPO is separated into different fractions, such as palm olein and palm stearin, to meet specific market requirements. Finally, there is storage and distribution. Palm oil products are stored in tanks or containers after processing before being delivered (Yahya et al., 2022). Malaysia has a welldeveloped palm oil logistics and transportation infrastructure, including ports, highways, and rail networks. The palm oil products are typically exported to various destinations worldwide via shipping (Mukherjee et al., 2015). Saha et al. (2024) suggested a model that offers better degree of adaptability and flexibility in managing complexity in healthcare supplier choosing issues.

2. Literature Review

SWOT ANALYSIS OF PALM OIL INDUSTRY IN MALAYSIA

Table 1: The Internal and External Sub-criteria Affecting the Palm Oil Industry

3. Research Methods and Materials

ANALYSIS OFINTERNALAND EXTERNALFACTOR

Table 2: The Results of Prioritising the Sub-criteria of SWOT

From Table 1, in accordance to the relevant experts, its weighs 42.5%. Similarly,” Abundant and productive plantations” in the first place. “Infrastructure in place, Malaysia's infrastructure streamlines palm oil production, delivery, and export” with a weight of 26.2% in the second place. With a weight of 10.3% and the fourth place is “Global Market Dominance with Quality and Adaptability”. The third place of 21% weighing is “Economic contribution”.

The results of prioritising the sub-criteria related to weaknesses are given. According to the results of the table, it can be seen that the most important weakness of the company is the “Environmental Issues, palm oil faces environmental criticism, consumer backlash, and governmental adjustments” The importance of this factor is 23.5%. However, the lowest weight of weaknesses, according to experts, is related to “Price volatility, Managing Price Volatility in Palm Oil Industry” with a weight of 21.3% and “Dependence on export markets, international markets affect Malaysia's palm oil export’s profitability” with a weight of 24.7%. The last factor of “quantitative and qualitative weakness of human resources” is in first place with weight of 22.6.

Based on the results, it can be said that the biggest opportunity for the company is “Growing Demand, Malaysia seeks market share in rising vegetable oil consumption.”. Similarly, “Enhancing Energy Security with Palm Oil-based Biofuels.” with a weight of 26.7% is in second place and “Value-Added Products, Enhancing Competitiveness of Malaysian Palm Oil” and “Advancing Quality Control in Palm Oil Manufacturing through Technology” jointly have the third and the fourth priority. According to the results of Table 2, it can be seen that the most important threat to the company is “Competitor Countries, Malaysia competes with Indonesia, Thailand, and Colombia” because it has the highest weight amongst the desired sub-criteria.

Based on the Table 3, after calculating all the weight and the which one should be prioritised moved on to the Table 3 which the analysis of the internal and the external factor. Numbers get from Table 2. For Table 3, sum up all the strengths and weaknesses, it will get a 1 firm number and the same goes to the total of opportunities and threats. Strength and weaknesses each has four reasons and total of those strengths and weaknesses are 8. By dividing half of the total sum up which is one, strengths will get 4 out of 8 to calculate and get the significant factor. Just like strengths, weaknesses also get 4 out of 8 to get their significant factor. Simple and clear procedures are utilised for rating because the organisation hasn't yet evaluated internal and external elements; instead, it relies on the opinions of specialists and managers.

Table 3:Analysis of the (a) Internal Factors (b) External Factors

Then, a score of 1-4 is assigned to each of these factors. A score of 1 denotes a significant weakness, a score of 2 indicates a modest weakness, a score of 3 denotes the factor's strength, and a score of 4 indicates the factor's extreme strength. Weaknesses are given a rank of 1-2.5 among the internal components in this regard, whilst strengths are given a rank of 2.5-4. The same scoring system is used for threats and opportunities. By multiplying a significant factor and the rank that has been calculated, the result of the multiplying will get a weighted score.

4. Results and Discussion

SO1: Development of the production of palm oil through ownership infrastructure:

From Table 4, this strategy involves investing in and owning the infrastructure required for palm oil production. It may include acquiring and managing palm oil plantations, mills, and processing facilities. By having ownership and control over the production infrastructure, companies can ensure efficient operations, quality control, and cost optimization.

Table 4: The designed strategies of the industry

SO2: Production of palm oil through the development and creation of a network of partners:

This strategy focuses on forming partnerships and collaborations with various stakeholders involved in the palm oil supply chain. This can include partnering with smallholder farmers, local communities, research institutions, and industry organisations. By leveraging these partnerships, companies can expand their production capabilities, access a wider network of suppliers, and enhance overall efficiency.

SO3: Organization of palm oil branding, especially for the organisation's products and major markets:

This strategy emphasises branding and marketing efforts for palm oil products, with a focus on capturing major markets. It involves developing a strong brand identity, promoting sustainable and responsible practices, and highlighting the quality and traceability of Malaysian palm oil. Effective branding can help differentiate Malaysian palm oil from competitors, enhance market presence, and build consumer trust.

SO4: Development of social interactions with relevant institutions:

This strategy involves actively engaging with relevant institutions, both domestically and internationally, to strengthen the palm oil industry's position and address concerns. This includes establishing partnerships with government bodies, NGOs, consumer advocacy groups, and sustainability initiatives. By fostering positive relationships and collaboration, the industry can contribute to policy development, promote sustainable practices, and address social and environmental challenges.

ST1: Cost Leadership Strategy

Implementing a cost leadership strategy involves focusing on cost efficiency throughout the palm oil supply chain. This can be achieved by optimising production processes, leveraging economies of scale, adopting technology advancements, and streamlining operations. By minimising costs, companies can offer competitive pricing and potentially gain market share.

ST2: Product Differentiation Strategy

A product differentiation strategy involves developing unique features, qualities, or branding for palm oil products. This can include promoting sustainable and eco-friendly practices, ensuring traceability, and emphasising high-quality standards. By differentiating their palm oil products, companies can attract customers who value sustainability, health, and ethical considerations.

ST3: Market Segmentation Strategy

Market segmentation involves identifying specific target markets or customer segments within the palm oil industry. This strategy focuses on tailoring products, marketing, and distribution approaches to meet the unique needs and preferences of different customer groups. By understanding and catering to specific market segments, companies can gain a competitive advantage and better address customer demands.

ST4: Innovation and Research Strategy

An innovation and research strategy involves investing in research and development (R&D) activities to drive product and process innovation in the palm oil supply chain. This can include developing new palm oil derivatives, exploring sustainable cultivation practices, and improving processing technologies. By continuously innovating, companies can stay ahead of competitors, meet evolving market trends, and create value-added offerings.

WO1: Cost Management and Efficiency Improvement

This strategy focuses on managing costs throughout the palm oil supply chain. It involves implementing cost control measures, optimising resource allocation, and seeking cost-saving opportunities. By efficiently managing expenses, companies can improve profitability and maintain competitiveness in the market.

WO2: Sustainable Resource Management and Development

The WO2 strategy centres around responsible resource management. This includes implementing sustainable cultivation practices, minimising environmental impact, and ensuring the long-term viability of palm oil production. By prioritising sustainability, companies can meet consumer expectations, comply with regulatory requirements, and safeguard the reputation of the industry.

WO3: Process Optimization and Operational Excellence

The WO3 strategy emphasises improving operational processes and enhancing overall efficiency. This can involve analysing and streamlining workflows, implementing lean principles, and adopting technology to automate manual tasks. By optimising processes, companies can reduce waste, improve productivity, and enhance customer satisfaction.

WO4: Stakeholder Engagement and Community Development

The WO4 strategy focuses on building positive relationships with stakeholders and contributing to community development. This can include engaging with local communities, supporting education and healthcare initiatives, and promoting fair trade practices. By actively involving stakeholders and fostering social responsibility, companies can enhance their reputation, build trust, and create a sustainable business environment.

WT1: Risk Management and Contingency Planning

This strategy focuses on identifying and mitigating potential risks within the palm oil supply chain. It involves conducting risk assessments, implementing risk management processes, and developing contingency plans to address unforeseen events such as natural disasters, market fluctuations, or regulatory changes. By proactively managing risks, companies can minimise disruptions and protect their operations.

WT2: Diversification and Market Expansion

The WT2 strategy involves diversifying product offerings and expanding into new markets. This can include developing value-added palm oil derivatives, exploring niche markets, or targeting new geographical regions. By diversifying and expanding market reach, companies can reduce reliance on a single market segment and capture new growth opportunities.

WT3: Quality Assurance and Compliance

This strategy emphasises maintaining high product quality and adhering to regulatory standards. It involves implementing quality assurance programs, ensuring product traceability, and complying with food safety and sustainability certifications. By prioritising quality and compliance, companies can build trust with customers, meet market requirements, and avoid reputational damage. To prioritise strategies based on the QSPM, Table 5 is presented. Thistable indicatesthe QSPM for Offensive Strategies (SO), Competitive Strategies (ST), Conservative Strategies (WO) and Defensive Strategies (WT).

Table 5: QSPM for (a) offensive Strategies, (b) Competitive Strategies, (c) Conservative Strategies, (d) Defensive Strategies

Based on Table 5, the presented data appears to be a QSPM (Quantitative Strategic Planning Matrix) examination of Malaysia's palm oil supply chain. The QSPM is a strategic management technique for assessing and prioritising various strategies based on their feasibility, attractiveness, and possible influence on the organisation or sector.

There are four areas in the analysis: aggressive tactics, competitive strategies, conservative strategies, and defensive strategies. Each part is comprised of a matrix including numerous techniques and their accompanying weights, strengths, and total attractiveness ratings (TAS). The TAS is computed by multiplying each strategy's strength by its weight and adding the results.

The section on offensive strategies focuses on techniques for aggressively pursuing expansion and gaining a competitive advantage in the palm oil supply chain. The offensive strategy with the greatest total attractiveness score (TAS) in this section is Strategy S4, which has the most potential effect and feasibility among the offensive strategies. The section on competitive tactics examines ways for gaining a competitive advantage over other competitors in the palm oil sector. The TAS of Strategy ST2 is 6.484, making it the most appealing and realistic competitive strategy in this examination. Conservative strategies are those that prioritise stability, risk minimization, and sustaining the status quo. Strategy WO4 has the greatest TAS of 6.172 among the conservative options, showing its potential effect and practicality. The section on defensive tactics focuses on techniques for mitigating possible risks, hazards, or interruptions in the palm oil supply chain. WT3 has the greatest TAS of 5.461, indicating its desirability and practicality as a defensive approach.

Overall, the QSPM research provides a thorough review of various techniques in Malaysia's palm oil supply chain. The plans with the highest TAS ratings in each component have the greatest potential effect and feasibility. Decision-makers may use these ratings to prioritise and pick appropriate tactics depending on the organization's or industry's particular objectives and limits.

Table 6 summarises the weight of each of the strategies prioritised. The findings indicate that the top goal is to activate the current infrastructure to its maximum potential. When a corporation is following conservative supply chain policies for palm oil in Malaysia, this tactic is employed. The strategy with the highest attractiveness score is the product differentiation strategy (ST2), with an attractiveness value of 6.484. This makesit the most appealing strategy out of those listed, and it also highlights how important it is strategically and how important it is for the palm oil business to differentiate its goods. The most consideration and consideration for immediate implementation should be given to this priority. With an attractiveness score of 4.335, Sustainable resource management and development (WO2), the least appealing of the mentioned strategies, has the lowest attractiveness score. It has been given the 15th-lowest priority, indicating that it should be treated with the least care or even ignored.

Table 6: Priorities Strategies Based on QSPM Result

5. Conclusions

In conclusion, the palm oil supply chain in Malaysia is intricate and vital to the economy. Malaysia produces and exports a substantial amount of palm oil. Participants in the Malaysian palm oil supply chain include smallholders, plantations, mills, refineries, and exporters. The production of palm oil is significantly influenced by smallholders. Smallholders struggle with resource scarcity, low productivity, and issues of sustainability. Malaysian palm oil production relies on large-scale plantations. Plantations owned by corporations employ mechanisation and effective land management. Some Malaysian palm oil plantations are charged with deforestation, biodiversity loss, and violations of human rights. The modern palm oil milling industry in Malaysia efficiently extracts and refines palm oil from fresh fruit clusters. Food safety and quality are guaranteed by stringent regulations. However, improvements must be made to milling waste management and greenhouse gas emissions. Malaysia has addressed sustainability issues in the palm oil supply chain.

The Roundtable on Sustainable Palm Oil (RSPO) has certified the country's sustainable practices. Improving smallholder livelihoods, palm oil's environmental impact, and its traceability. However, the palm oil supply chain in Malaysia remains unsustainable. It is difficult to strike a balance between economic progress, environmental conservation, and social responsibility. To address these issues and promote sustainable palm oil production in Malaysia, government, business, NGOs, and consumers must collaborate. The supply chain for Malaysian palm oil is essential for sustainability, environmental preservation, and social responsibility. Malaysia's palm oil industry can be improved by implementing sustainable practices, addressing deforestation and human rights, and enhancing transparency and traceability.