Development Strategy of Cow’s Milk Processing Industry Using Business Model Canvas in Gundaling Farm, Karo Regency, North Sumatera Province, Indonesia

Development Strategy of Cow’s Milk Processing Industry Using Business Model Canvas in Gundaling Farm, Karo Regency, North Sumatera Province, Indonesia

Yulian Sharah¹*, Tavi Supriana², Ade Trisna³ 

¹Master of Animal Science Program, Faculty of Agriculture, University of North Sumatra, Jl. Prof. Dr. A. Sofyan No. 3 Usu Campus Medan, North Sumatra, 2015 

²Department of Agribusiness, Faculty of Agriculture, University of North Sumatra, Jl. Prof. Dr. A. Sofyan No. 3 Usu Campus Medan, North Sumatra, 20155 

³Department of Animal Husbandry, Faculty of Agriculture, University of North Sumatra, Jl. Prof. Dr. A. Sofyan No. 3 Usu Campus Medan, North Sumatra, 20155 

*Corresponding Author

DOI :  https://dx.doi.org/10.47772/IJRISS.2024.808062

Received: 10 August 2024; Accepted: 22 August 2024; Published: 30 August 2024

ABSTRACT

This study aims to analyze the internal factors and external factors affecting the Gundaling Farm cow’s milk processing industry and formulate a development strategy and business model development plan for the Gundaling Farm cow’s milk processing industry using a business model canvas (BMC). The research method is descriptive qualitative method with data collection techniques namely interviews, observations and structured questionnaires. The Business Model Canvas was mapped to facilitate the analysis of the new development strategy. SWOT analysis was chosen to determine the strengths, weaknesses, opportunities, and future threats that the industry will face. This analysis is taken into consideration for internal and external strategy factors. The results of this study are quality and varied products as the main strength, less attractive packaging design as a weakness, a wide open market as an opportunity, and incomplete P-IRT licensing as a threat. The current position of the Gundaling Farm cow’s milk processing industry is in quadrant I, indicating an aggressive strategy. The recommended alternative development strategy is the SO strategy, namely 1) Using quality products to expand the market; 2) Utilize the location for edufarm/fieldtrip. The results of the SWOT analysis were integrated into the nine elements of the business model canvas to produce 8 elements of the business model canvas, namely value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure.

Keywords: BMC, SWOT Analysis, Development Strategy

INTRODUCTION

Cow’s milk is a drink that contains nutrients needed by the human body, namely protein. In addition to fresh milk, cow’s milk can be processed into various processed products such as pasteurized milk, yoghurt, gelato, and mozzarella cheese. Along with the times, public interest in dairy products continues to increase, this is due to public awareness of the need for nutritious food. North Sumatra Province, precisely Karo Regency, has one industry engaged in the processing of cow’s milk products, namely Gundaling Farm.

Gundaling Farm is a pilot model of integrated farming system that runs a business in the field of cow’s milk processing through the pasteurization process and the raw material for the milk is obtained from the production of dairy cows managed by the industry itself. Gundaling Farm’s cow’s milk-based processed product industry is promising if developed optimally. Over time, the industry continues to develop where in 2018 Gundaling Farm began trying new product innovations to be marketed to the public in the form of processed cheese such as mozzarella, tomme de sinabung, and provolone. The innovation was very well received by the community until now. The expansion of the scope of the industry carried out by Gundaling Farm is a development of their previous industry. According to Reinaldo et al in Rahayu et al., (2022) said that even large industries must have a strategy to be able to compete in the industrial market. Likewise, the Gundaling Farm cow’s milk processing industry must have a strategy to keep growing in the world of the processed cow’s milk industry.

One of the ways that industries can apply to build and develop their industries is by using a business model canvas (BMC). BMC is a tool that is able to describe simply but also thoroughly the current condition of the industry based on market segmentation, value offered, value offering paths, customer relationships, revenue streams, vital assets, cooperation partners, and cost structures. It is necessary to conduct research on the Gundaling Farm industry model using the business model canvas (BMC) to examine the development strategy of the Gundaling Farm cow’s milk processing industry model that is being carried out. According to Osterwalder and Pigneur (2017), using a canvas model with “Nine Building Blocks” makes it easy for companies to build and develop their industry. The nine blocks cover four main areas in an industry, namely customers, offerings, infrastructure, and financial viability. The Nine Building Blocks consist of customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships, and cost structure.

This BMC analysis is assisted by using internal and external factor analysis which aims to help the industry formulate its strengths alongside its weaknesses. In addition, this analysis is used to map what is an opportunity (opportunity) and also things that threaten an industry (threath). Rahayu et al. (2022) added that SWOT analysis is not only used in mapping the industry, but in its development SWOT analysis is also used to explore new strategies by an institution. The SWOT analysis technique is one that can be a solution. The SWOT analysis tool focuses on four main aspects of the industry. SWOT analysis plays a very important role in the process of developing industrial strategies. Planning is the most important part of an industrial activity (Prasetya, 2023). Strategy as a tool to achieve goals because a strategy is basically a scheme to achieve the intended target (Umar in Irmadamayanti, 2023).

The results of previous studies that have been conducted related to the BMC approach, such as research from Suwarni and Handayani (2020) suggest that by using BMC, business actors can take a dynamic approach to business model development that will reflect the competitive business environment. Hasanah (2019) added that data analysis using BMC and SWOT analysis showed that the results of identifying the nine BMC elements were very helpful in understanding, explaining, and predicting activities that should be carried out or not. Lukman, et al., (2018) used a combination method of BMC and SWOT analysis in formulating a business model development strategy for dairy products where this study discussed that there was a need for improvement of each element in the dairy industry model. Development efforts using business models will run effectively if industry players carry out initial business model canvas mapping, so that in making business model improvements can be directed and targeted in the future.

Based on previous research discussing BMC and SWOT analysis to determine the development strategy of the livestock business. However, research using these methods has never been applied to the cow’s milk processing industry in North Sumatra Province is still limited, so this study will examine the development strategy of the cow’s milk processing industry in Karo Regency using BMC. The objectives of this study are 1) to analyze internal factors and external factors affecting the Gundaling Farm cow’s milk processing industry; 2) to formulate a development strategy and business model development plan for the Gundaling Farm cow’s milk processing industry.

MATERIALS AND METHODS

Time and Place

This research was conducted at the Gundaling Farm milk processing industry located in Karo Regency, North

Sumatra Province. Research and data collection activities were carried out for 2 months, namely February-March 2024.

Research Methods

This research is a descriptive qualitative study that uses primary data and secondary data. Primary data sources are data sources that can provide research data directly (Widoyoko, 2012). This primary data obtained in the form of in-depth interviews, field observations, and documentation to internal parties consisting of representatives from each section who have a deep understanding of the cow’s milk processing industry, namely: human resources, operations, production, purchasing, accounting, and finance as well as 30 customers at Gundaling Farm. Secondary data was obtained through literature studies by collecting data related to the research and from relevant agencies, namely the Central Statistics Agency (BPS), the Agriculture and Livestock Service Office of Karo District and other relevant matters. Secondary data is data obtained from other parties rather than obtained by themselves in their collection (Supranto, 2012). The data collection method is carried out by means of interviews, observation and documentation to internal parties who have a deep understanding of the cow’s milk processing industry and customers with the selection technique using purposive sampling, namely the technique of taking data sources with certain considerations at Gundaling Farm.

Data Analysis

1. Analyze Strength, Weakness, Opportunity, Threat

This stage aims to determine the overall environmental conditions of the Gundaling Farm cow’s milk processing industry, both internal (strengths and weaknesses) and external (opportunities and threats). Then proceed with the calculation of the IFAS and EFAS matrix values. Each factor is given a weight and rating. According to Rangkuti (in Riantoro and Aninam, 2021), the calculation of the weight of each factor is given a value ranging from 0.0 (not important) to 1.0 (most important). All of these weights may not exceed a total score of 1.00. The internal rating is determined based on how well the industry is able to manage its internal resources and the external rating is determined based on how effective the industry is in responding to external opportunities and threats. The rating calculation for each factor is given a value on a scale ranging from 4 (highest) to 1 (lowest).

2. Formulation of Development Strategy

As a result of SWOT identification, alternative strategies can be formulated from the combination of internal and external conditions of the industry. The elements of strengths, weaknesses, opportunities, and threats were selected from several factors that became strategic issues in the development of the cow’s milk processing industry model at Gundaling Farm. The selection of these strategic issues was obtained based on interviews, direct observation of customers and industry conditions, then conducted FGDs with internal industry parties.

The selected strategic issues are depicted in the SWOT matrix which is a suggestion for the formulation of alternative strategies in the business model convas which results in four best strategies for the industry. The strategy is a combination of strengths and opportunities (SO Strategy), weaknesses and opportunities (WO Strategy), strengths and threats (ST Strategy), and weaknesses and threats (WT Strategy).

3. Gundaling Farm Business Model Mapping and Development Strategy Plan

At this stage, each building block is mapped into the canvas based on the results of interviews with customers or Gundaling Farm, namely customer segments, value propositions, channels, customer relationships, revenue streams, key resources, key activities, key partnerships and cost structures. Furthermore, strategy formulation uses SWOT analysis which serves to help evaluate the industrial model. The strategic plan obtained will be the material for strategic alternatives. The results of SWOT analysis and questionnaires are integrated to become the basis for consideration in the preparation of business model development based on business model canvas. In the mapping of the development of the Gundaling Farm cow’s milk processing industry, there are yellow highlights in the form of development on each element obtained from the integration of the results of SWOT analysis and questionnaires. However, each element is not necessarily a development. This is because whether the results of SWOT and questionnaires include development on the elements of the business model canvas or not.

RESULT AND DISCUSSION

Strength, Weakness, Opportunity, Threat Analysis

Internal factors and external factors of the Gundaling Farm cow’s milk processing industry based on the results of interviews with internal parties of Gundaling Farm. then further analysis is carried out using the IFAS and EFAS matrix. Internal strategic factors are further analyzed using internal strategic factor analysis (IFAS) and external strategic factor analysis (EFAS).

Table 1: IFAS and EFAS Matrix Calculation Results

Table 1 shows that the main strength factor of Gundaling Farm’s cow’s milk processing is quality and variety of products with a weighted score of 0.73. The main weakness factor is less attractive packaging design with a weighted score of 0.47. The main opportunity factor is that the market is still wide open with a weighted score of 0.83. The main threat factor is the incomplete P-IRT license with a weighted score of 0.53. Based on the results of the IFAS and EFAS analysis, it can be seen that the difference in the weighted scores of internal factors and external factors results in a positive sign.

Figure 1: Quadrant position of Gundaling Farm’s cow milk processing industry

Based on Figure 1, it can be seen that the intersection of the IFAS value is 1.26 and EFAS is 0.25. This shows that the Gundaling Farm cow’s milk processing industry is at quadrant point I, which is an aggressive strategy. An aggressive strategy means that the condition of the industry is being benefited. The company has high strengths and opportunities in carrying out its business activities. In accordance with the opinion of Prasetya (2023), it is said that the right strategy to apply when in quadrant I is an aggressive growth policy (Growth Oriented Strategy).

Formulation of Development Strategy

The elements of strengths, weaknesses, opportunities, and threats were selected from several factors that became strategic issues in the development of the cow’s milk processing industry model at Gundaling Farm. The selection of strategic issues was based on in-depth interviews, direct observation of customers and industry conditions, and then conducted FGDs with internal industry parties. The selected strategic issues are depicted in the SWOT matrix which is a suggestion for the formulation of alternative strategies in the business model convas which results in four best strategies for the industry.

Table 2: SWOT Matrix of Gundaling Farm Cow Milk Processing

Based on the results of the SWOT matrix analysis, six alternative strategies were obtained, shown in Table 2, described as follows:

1.      S-OStrategy

(SO₁) Using quality products to expand the market

To use quality dairy products to expand the market, Gundaling Farm can utilize the strengths of the industry by taking advantage of existing opportunities so that Gundaling Farm’s dairy products can be better known because of the availability of a wide open market.

(SO₂) Utilize the location for edufarm/fieldtrip

Due to the strengths of Gundaling Farm, the Gundaling Farm dairy processing industry can utilize the Gundaling Farm location as an edufarm/fieldtrip area for customers and tourists.

2.      W-OStrategy

(WO₁) Update packaging design and product labeling

Product packaging has a function to protect the product, as a buyer attraction, as a promotion and source of information from the product. The packaging of processed products used by Gundaling Farm is still simple and the design is less attractive. Therefore, it is necessary to update the packaging design and product labeling.

(WO₂) Using websites and social media for marketing

Currently, Gundaling Farm’s marketing has not been maximized, even though the industry can reach a wider market and be recognized by many people. To overcome these problems, Gundaling Farm needs to improve marketing by utilizing the development of digital technology. This aims to help the industry reach more customers and be able to understand customer preferences better and be able to deliver marketing messages in a more targeted manner.

3.      S-TStrategy

(ST₁) Strengthening relationships with various parties

This strategy is an effort to maintain the existence of Gundaling Farm’s cow’s milk products in the market. Using this strategy can overcome threats by strengthening relationships with various parties, both from partnerships in various regions and government agencies.

(ST₂) Improve farm waste management

By utilizing its strengths, this strategy explains that the industry can focus on handling the smell of cow dung in retail sales by improving farm waste management. Resolving this problem will minimize threats and provide comfort to customers while in the farm and retail sales area.

4.      W-TStrategy

(WT₁) Establish a special division for design, labeling, P-IRT licensing, and waste.

The strategy of forming a special division for design, labels, and P-IRT licensing is a strategy to overcome threats while minimizing the weaknesses that exist in the Gundaling Farm cow’s milk product processing industry.

(WT₂) Organizing events and promos

The strategy of organizing events and promos is a strategy to minimize threats aimed at obtaining profits that can be used to overcome unexpected costs during the lean season and in addition can help the industry to maximize marketing.

Business Model Mapping and Business Model Development Plan of Gundaling Farm Cow Milk Processing Industry

Based on the results of the SWOT analysis, the position of the Gundaling Farm cow’s milk processing industry is in quadrant I, which is an aggressive strategy. Therefore, a business model development plan was developed using the business model canvas.

Customer Segment (CS)

Customer segment or customer segment that describes a group of different people or organizations that the industry wants to reach or serve. The customer segment in cow’s milk processing at Gundaling Farm targets its market at children over 2 years old, teenagers, adults, and parents. According to Osterwalder and Pigneur (2017), to satisfy customers, the industry must be able to group them into different segments based on similarities in needs, behavior, or other attributes.

1. Value Propositions (VP)

The value propositions offered by Gundaling Farm are (1) product quality. Gundaling Farm always prioritizes product quality. This is evidenced by the dairy products originating from fresh milk raw materials obtained from dairy farms which are processed by the industry itself without using preservatives, and there are many variations of products and flavors in dairy products provided at affordable prices. (2) CSR to social services and supporting MSMEs. The industry conducts CSR to the Karo Regency social service by distributing milk to social services as much as 140-160 bottles of milk, this activity is carried out twice a year and also supports MSMEs by providing a place for MSMEs to join to open a stand at retail sales.

Based on the results of the SWOT analysis, packaging design and serving portions are critical for Gundaling Farm to attract value propositions for new customers. Therefore, the value proposition development that can be suggested is to update the packaging design and packaging customization.

 2. Channels (CH)

Gundaling Farm conveys a proportion of its value through direct selling with consumers who visit retail sales. So for the sale of its own products, the industry focuses on its own retail. Customers who come directly are usually visitors who are interested in dairy milking tourist attractions in North Sumatra Province because they only exist at Gundaling Farm so that this method of promotion is more quickly spread by word of mouth.

Based on the results of the SWOT analysis, to achieve a new customer segment, the development of Gundaling Farm channels that can be suggested is to actively use the website and social media. The advantage of using this technology is that it makes it easier for people to get clear information about the superior processed products available and there is navigation on the website and social media so that people are more comfortable and can inform the advantages of the services and dairy products offered, provide education to the public about the advantages and advantages of dairy products.

3. Customer Relationships (CR)

Gundaling Farm has a close and good relationship with customers, this aims to create customer loyalty or retain existing customers. The service provided is that customers can interact and communicate directly with sales officers during the transaction process until completion. It is also evident that many customers purchase products more than once or repeat orders. Then to attract customers, the industry also provides discounts for some dairy products, such as discounts for purchasing 3 bottles of pasteurized milk only paying a price of Rp99,000.

Based on the results of the SWOT analysis, so that the customer segment returns to buy dairy products, the development of Gundaling Farm’s customer relationships that can be suggested is to organize events and provide promos for dairy products, and also inform the website and social media. Social media can be used as a promotion such as events, promos, discounts on dairy products.

4. Revenue Streams (RS)

Gundaling Farm’s revenue streams are derived from the sale of dairy products such as pasteurized milk, cheese, yoghurt, and gelato through retail sales. The average sales of Gundaling Farm’s dairy products every weekend are 800-1000 bottles per liter of pasteurized milk, 200-400 cups of gelato, and 300 bottles of yoghurt.

Based on the results of the SWOT analysis, the development of Gundaling Farm’s revenue streams is to increase revenue streams from the sale of farm waste and the sale of cull cows. Livestock waste includes all waste generated from livestock businesses, be it solid, liquid, gas or feed waste. Likewise, unproductive dairy cattle or cull cattle can be traded to increase revenue streams.

5. Key Resources (KR)

Key resources used by Gundaling Farm consist of physical resources, financial resources, and human resources. Physical resources are in the form of dairy farms, buildings for producing dairy products, adequate production equipment, quality raw materials and retail product sales and there is abundant forage and agricultural waste that can be used as feed for cattle. Financial resources come from the owner’s personal property used to run industrial activities. Human resources are trained and certified labor.

Based on the results of the SWOT analysis, when reviewing the development of value propositions, namely packaging design and packaging customization, the development of key resources is packaging designers.

6. Key Activities (KA)

Key activities carried out by Gundaling Farm are dairy cow care, production activities, distribution and product sales. Starting from dairy cow care, milking. Before processing cow’s milk, it is necessary to pay attention to the milking method and post-milking handling which is very important in maintaining the quality and quality of the product. Milking activities to post-milking handling are not carried out manually, these activities always use machines. Production activities carried out by Gundaling Farm are creating innovations in processed milk products, producing processed milk products, and packaging products. Distribution and sales activities of products such as milk and yogurt must be sold immediately and reach customers because the durability of these products is only 4 hours at room temperature and 5 days in the refrigerator. Based on the results of the SWOT analysis, when reviewing the development of the value proposition, the development of key activities is to improve product quality and product variations, create packaging designs and customize products (flavor variations, packaging sizes). When reviewing the development of channels, namely actively utilizing websites and social media, the development of key activities is reactivating websites and social media.

7. Key Partnerships (KP)

Gundaling Farm has established partnerships with several suppliers. The establishment of this relationship aims to make it easier for Gundaling Farm to obtain both primary and complementary raw materials. This collaboration is related to the continuity of raw material stock, quality assurance and quality of raw materials, as well as the certainty of cheaper raw material prices so that it can reduce selling prices. Some of Gundaling Farm’s partners are PT. Anugerah Alam Berastagi is a partner in the product sales division, then Satia Sindunata, PT. Media Sugar Industri, PT. Dharmasraya Duta Kreasi is a partner in the product raw material division, and then Halim Sari Gandum, CV. Wahana, Tiga Pilar is a partner in the feed division. Based on the results of the SWOT analysis, the place where respondents buy processed cow’s milk products is only at Gundaling Farm’s retail sales, while so far respondents want processed cow’s milk products to be marketed in supermarkets and cafes. Therefore, the development of Gundaling Farm’s key partnerships that can be suggested is supermarkets and cafes. When reviewing the development of key activities, namely the reactivation of websites and social media, the development of key partnerships that can be suggested is a freelance web developer. Freelance web developers are expected to develop industry websites and social media. While reviewing the development of value propositions, namely packaging design and packaging customization, the key partnerships that can be suggested are packaging designers.

8. Cost Structure (CS)

Gundaling Farm distinguishes expenses according to their sections, namely: the most important costs included in operational costs include cow care, machine maintenance, and purchasing raw materials. Furthermore, the main resource costs include: production costs, labor, marketing, distribution, packaging, and other unexpected costs. Based on the results of the SWOT analysis, when reviewing the eight elements above, the cost structure that will be added is freelance web developer fees, packaging designer fees, additional packaging material costs, and transportation costs. The addition of these costs will increase industrial expenses so that careful planning is needed.

CONCLUSIONS

1. Internal factors of the Gundaling Farm dairy industry are quality and varied products as the main strength, unattractive packaging design as a weakness. While the external factors of the Gundaling Farm dairy industry are the market is still wide open as an opportunity, and the P-IRT permit has not been completed as a threat.
2. The position of the Gundaling Farm dairy industry is currently in quadrant I indicating an aggressive strategy. The recommended alternative development strategy is the SO strategy, namely 1) Using quality products to expand the market; 2) Utilizing locations for edufarm/fieldtrips.
3. Business mapping and development plans for the Gundaling Farm dairy industry business model are integrated into nine elements of the business model canvas, resulting in the development of 8 elements of the business model canvas, namely value propositions, channels, customer relationships, renew streams, key resources, key activities, key partnerships, and cost structure.

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