975 Int. J S up. Chain. M gt Vol . 9, No. 1, Februa ry 2020 Supply C hain S trategy for I mplementing F iscal D ecentralization and its E ffect on R egional P erformance in N orth S umatera P rovince, I ndonesia Sirojuzilam 1* , Edo Billy Andri Turnip 1 , Jumadil Saputra 2 1 Faculty of Economics and Business, Universitas Sumatera U tara, Medan, Indonesia 2 Department of Economics, Faculty of Business, Economics, and Social Development, Universiti Malaysia Terengganu, 21030 Kuala Nerus, Terengganu, Malaysia 1 [email protected] Abstract - The purpose of this study is to invest igate the implemented by the central authority has been supply chain strategy for implementing fiscal transformed int o a re gional authority and implemented decentralization and its effect on regional performance by regions autonomously. Today, one of the most which consists of financial equalization capabilities and prominent issues in discussing the economy of a region regional development in North Sumatera province, is the issue of regional performance/ gross regional Indonesia. A secondary data collected from the Central domes tic product [1 - 4] . Bureau of statistic North Sumatera which consist of 33 The enactment of this Law provides a n oppo rtunity for regencies/cities in North Sumatera province for the the region to explore the economic potential and period of 2011 - 2015 and analyzed using panel regression improve its financial performance in order to realize analysis by assisting EVIEWS 10.0. This study applied regional self - reliance. Unequal distribution of natural the Williamson index to id entify the effect of fiscal resources and original local government revenue to decentralization of financial capability via the General autonomous regions, requires a sou rce of local revenue Allocation Fund (DAU) budget per capita and Gross that can reduce the fiscal imbalance. Areas with high Regional Domestic Product (GRDP). The variable of local revenue will easily finance their expenses while regions with low local revenues will have difficulty fiscal decentralization is the primary revenue received by financing their expenses. It will also result in local govern ment measured by Original Local differences in exp enditu re between regions to carry out Government Revenue (PAD) and Balance Fund (DP) government functions and services to a very diverse while the regional performance using per capita income. society. It will reflect the high level of financial need The result of the analysis shows that the random effect among the regions concerned. model is the best model for estimating the effect of fiscal A total of 33 regencies/cities in North Sumatera decen tralization on regional performance. By applying Province which consists of 25 distri cts and 8 the Williamson Index for General Allocation Fund per municipalities. Every region has different economic capita, this study indicates it unstably distributed. Also, activities, areas, and natural resources so that the Local Williamson Index for per capita income distribution Revenue received by each region is different. The categorized as moderate. Lastly, the Origi nal Local following will present some data areas with the Government Revenue and Balance Fund have a positive acceptance of it is the origina l loca l government effect on regional performance. revenue. The reception of original local government Keywords - Fiscal Decentralization, Supply Chain Strategy, revenue from 2011 - 2014 shows that West Nias District Original Local Government Revenue, Regional Expenditure, has the lowest original local government revenue General Allocation Fund and Fund Balance. among other regions in North Sumatra of IDR 10,298 billion in 2014. The highest ori ginal local government 1. I ntroduction revenue is in Medan for IDR 1,515,686 billion. High economic activity and substantial tax revenues make Supply chain management (SCM) has been the the city of Medan as the region in North Sumatra with dominant research paradigm of the last few decades. the highest original local government revenue. Langkat Considerable efforts have been put forth in developing Regency with the mos t sign ificant area has PAD in decision models for solving supply chain related 2014 of IDR. 107,812 billion. While the area with the problems. Since the regional autonomy was smallest area of Sibolga has PAD in 2014 of IDR. im plemented by Regional regarding the Fiscal Balance 74,515 billion. From the above data can be seen how between Central - Regional Government, various the regional income is still uneven. Thus, the objective policies concerning local finance in Indonesia are of implementin g fisc al decentralization as an inter - changing. Regional development previously regional financial system must be achieved, so that every region in Indonesia has a relatively equal ability ___________________________ ___________________________________ to build and empower the community. As a province International Journal of Supply Chain Management IJSCM, ISSN: 205 0 - 7399 (Online), 2051 - 3771 (Print) Copyright © Exceling Tech Pub, UK ( http: //excelingtech.co.uk/ ) 976 Int. J S up. Chain. M gt Vol . 9, No. 1, Februa ry 2020 that has 33 regencies/cities were consisting of 25 Following its function, [19 - 21 ] to overcome fiscal district s and 8 municipalities and every district/city imbalances that occur then the General Allocation have different resources, and economic activities. It is Fund plays a vital role in the equitable distribution of necessary to investigate the effect of fiscal financial capacity among regions to finan ce the ir decentralization on regional performance in Nort expenditure needs in the context of decentralization. Sumatera province, Indonesia. The General Allocation Fund is expected to overcome the vertical gap between the central government and 2. Literature Review local government as well as the horizontal gap between local governments to occur equity in fis cal capacity. The e xisten tial philosophy of supply chain The study conducted by [ 5 - 7 ,9 ] , shows that DAU has a management is to integrate the flow of materials, role in the distribution of the financial capacity of the information and products from the initial suppliers to district of West Sumatera. Most of the regions have the end customer [5 - 21] . Fiscal decentralization aims to excellent financial ability after receiving DAU. The support the implementation of regional autonomy, so research conducted b y [ 8] shows that the equitable that the r egulation of the substance of Law no. 32 of distribution of financial capability between regions has 2004 and Law no. 33 of 2004 is a unity that cannot be improved after the implementation of fiscal separated. In - Law no. 33 of 2004, the financial balance decentralization. It is evident from the declining value between the central and regional governments includes of the Williamson index from 0.45 to 0.23 - 0.33. the financial distribution between the Cen tral a nd Regional Governments as well as equitable, Besides as an in strume nt of financial capability, fiscal democracy, fair and transparent interregional rations decentralization also aims to accelerate the equitable concerning regional potentials, conditions and needs. A distribution of regional development. A comprehensive form of financial balance is the existence of regional study conducted by [30] , they studied the convergence funding derived from APBN revenues allo cated to of regional economic growth east coast north sumater a. regions to fund regional needs in the context of The y found that there is a process of convergence of decentralization implementation. The Balancing Funds economic growth among the districts/cities in North consist of Revenue Sharing Funds sourced from taxes Sumatra, East Coast Region. Further, this study also and natural resources, the Special Allocation Fund found that Gross Regional Domestic Product (Regional (DAK), and the General Allocation Fund (DA U). Th e Performance) per capita, working populatio n, num ber three types of funds together with the Local Revenue of poor and length of study has a significant influence and Other Revenue is a source of local funds used to in increasing the speed of convergence of economic run the wheels of local governments that expected to growth in the East Coast region of North Sumatra. improve service in various sectors, especially the Therefore, the local governments have the authority to public sector. make policy more directed to devel op the region by using and managing its finances compared to the In [22] , the main feat ures o f a region capable of central government which has limitations in dealing implementing fiscal decentralization are 1) regional with various problems and demands of community financial capacity, which means the region has the needs directly. Also, the allocation function should be ability and authority to extract financial resources, used as much as possible by the loca l gove rnment in administer and use itself to finance the administration the development as the more knowing, the needs, of the governm ent. 2 ) the dependence on the center conditions, and the situation of the local community should be as minimal as possible. The less fund [10] so that the community can feel the development. transfer from the center, the higher the degree of independence of a region indicating that the region is 3. Methodology increasingly able to finance its expenditures without assistance from t he central government [23 - 26] . Agile Supply Chain expresses the need for Conversely, the lower degree of independence of a organizations to develop and coordi nate relationships region indicates that the area is increasingly unable to with their business partners, including suppliers, finance its expenditure. Thus, with the sharing of the manufacturers and distributors. The method of data financial balance, it will support the region to analysis used in this study is the Williamson Index implemen t fisc al decentralization. Unequal distribution (WI) used to identify the level of equalization of local of natural resources and local revenue (PAD) to financial ability.