Building Economic Sustainability of the Energy Sector:
How Purchasing Performance and Material Inventory Performance
Influence Sustainable Economic Levels Moderated by Fiscal Term
FIRERA1,*, MOCHAMMAD AL MUSADIEQ1, SOLIMUN2, BENNY HUTAHAYAN1
1Department of Business Administration, Faculty of Administrative Sciences,
University of Brawijaya,
Veteran St., Ketawanggede, Kec. Lowokwaru, Malang City, East Java 65145,
INDONESIA
2Department of Statistics, Faculty of Mathematics and Natural Sciences,
University of Brawijaya,
Veteran St., Ketawanggede, Kec. Lowokwaru, Malang City, East Java 65145,
INDONESIA
*Corresponding Author
Abstract: - This research investigates the relationship between purchasing performance and material inventory
performance with the fiscal term as a moderating variable on sustainable economic levels in Indonesia's
upstream oil and gas industry. Data were collected over five years (2017-2021) from 26 Production Sharing
Contract Contractors (PSCC) in Indonesia during the preliminary Plan of Development (POD) phase. This
research uses Structural Equation Modeling (SEM). The results showed that purchasing performance
significantly affects sustainable economic levels, and material inventory performance has no significant effect
on sustainable economic levels. Fiscal term moderation on the influence of purchasing arrangements on
sustainable economic levels has a significant impact. In contrast, fiscal term moderation on the influence of
material inventory performance on sustainable economic levels has an insignificant effect. This research
provides a comprehensive framework by explaining the influence of purchasing performance and material
inventory performance with the fiscal term moderating variable on sustainable economic levels as a novelty in
this research.
Key-Words: - Purchasing Performance; Material Inventory Performance; Sustainable Economic Levels;
Upstream Oil And Gas Industry; Economics; Development; Energy Sector.
Received: May 18, 2023. Revised: December 13, 2023. Accepted: February 9, 2024. Published: April 15, 2024.
1 Introduction
The dynamics of Indonesia's fossil industry are
primarily influenced by fluctuations in crude oil
prices, [1], [2], [3], efforts to improve oil and gas
recovery, [4], the use of outdated production
facilities, [5], and carbon neutralization initiatives,
[6]. Consequently, these factors have adversely
affected the petroleum field economics of
Production Sharing Contract (PSC) Contractors in
Indonesia's fossil industry, [7], [8]. PSC Contractors
have encountered an inflexible fiscal term, [9], and
rising capital and operating costs, [10], [11],
negatively impacting petroleum field economics.
Cost optimization is one of the most crucial survival
strategies for successful modern businesses, [12].
Effective and efficient supply chain management
forms the backbone of every cost optimization effort
[13].
Based on the SCM concept, purchasing and
inventory management is essential in creating
effective and efficient cost management,
considering that the spending budget managed by
the purchasing and inventory function is enormous,
[14], [15]. For this reason, the performance of the
purchasing and inventory functions is a variable that
directly influences the company's Sustainable
Economic Levels. The explanation above forms the
basis and logic of thinking in this research, with the
main focus on the cost aspects in upstream oil and
gas business activities that contribute to the
economic level of the field. Performance
management of purchasing and material inventory is
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the most significant contribution to cost
management in the upstream oil and gas industry, so
purchasing Performance and material inventory
performance become exogenous variables. These
exogenous variables will be studied for their
influence on the company's Sustainable Economic
Levels, in this case, the Sustainable Economic
Levels of upstream oil and gas business projects,
which is an endogenous variable. The flow of the
relationship between performance variables for
purchasing and material inventory to the project
economic level variable, moderated by the fiscal
term variable, as is the concept of economic rent.
The use of the fiscal term as a moderating
variable is because the fiscal period is an indicator
that shows the portion of the revenue, especially oil
and gas revenue sharing and tax incentives. The
character of investors will generally make maximum
efforts to obtain benefits from their investments, in
line with the Fiscal Stimulus theory, [16]. This
concept is the background to the fiscal term used as
moderation in this research. A fiscal term plays a
pivotal role in attracting investors, ensuring fair
income distribution, and achieving a balance
between costs in the fossil industry, [17]. It
encompasses the principles, regulations, and taxes
that govern oil and gas exploration, production, and
distribution. Practitioners and academics recognize
that purchasing gives firms a competitive edge, [18].
Extensive research has been conducted to enhance
purchasing management, which subsequently
improves business performance, including studies
by, [19], [20].
In this research, there is a void in the
relationship between purchasing performance
variables, material inventory performance, and
sustainable economic levels, especially in
Indonesia's upstream oil and gas industry. For this
reason, research is needed to fill the gaps in question
and empirically prove the research variables in the
Indonesian upstream oil and gas industry to be more
suitable for application in related decision-making.
This research was conducted to fill this gap by
analyzing the relationship between purchasing and
material inventory performance variables with the
fiscal term moderating variable on sustainable
economic levels.
2 Literature Review
In this section, we will explain the research variable
theory used and the relationships between variables
found in several previous studies, which are then
used as a basis for formulating hypotheses.
2.1 Purchasing Performance
Modern companies view purchasing management as
strategic, [21], due to its essential part in SCM
activities. Organizations must procure goods and
services from vendors to sustain their operations,
called purchasing management. Companies
frequently integrate purchasing strategies into their
overall strategic goals to enhance performance, [22].
Procurement methods need to be more adaptable to
unforeseen changes, [23]. The nature of purchasing
in the fossil industry is analogous to other sectors.
Over 70% of the total budget allocated in 2021 will
be given to goods and services needed in the same
year, underscoring the pivotal role of the purchasing
function in the oil and gas industry, [24].
In a broader context, purchasing plays a crucial
role in a company's success by contributing to
organizational strategic decision-making,
particularly in upstream oil and gas activities,
especially those related to purchasing Performance
and Sustainable Economic Levels, [25], [26]. The
significance and contribution of purchasing to
business strategy and Performance have been
subjects of extensive debate in the purchasing
literature, [27]. However, empirical research has
shown a significant correlation between purchasing
performance and firm performance, [28], leading to
increased profitability and corporate value, [29],
[30]. The efficiency and effectiveness of purchasing
departments are often used as benchmarks for
evaluating purchasing performance, [31], [32].
Performance encompasses the successful
execution of tasks by the organization.
Consequently, a company or organization's
purchasing function must efficiently fulfill its duties
to maximize overall performance. Improving
purchasing performance can benefit the
organization, leading to increased profits and value
through approaches such as lean principles, [33],
integrated strategies and collaboration, [34], and
cost-oriented tactics. Efficiency and effectiveness
have been central performance metrics for decades,
[35], and they are relevant for evaluating purchasing
performance due to their emphasis on both
efficiency and effectiveness, [36], [37].
2.2 Material Inventory Performance
[38], explained that Material Inventory Management
plays a vital role in the continuity and growth of an
organization's business. This means that effective
and efficient management of inventory materials
will create a competitive advantage for the
company's sustainability and increase company
value. Material Inventory Management, like
Purchasing Management, is part of SCM activities.
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However, the financial aspect is also very attached,
considering that Material Inventory/inventory
consists of raw materials, work-in-process products,
and finished products, which is an asset for the
company that will be reported in the company's
financial statements. Even though it is treated as an
asset, it will provide more benefits or added value
for the company at the end of the activity. For
example, in manufacturing activities, inventory
materials cannot provide added value if they are still
stored in the warehouse as stock/supplies or raw
materials or in the work-in-process stage. Still, if
they have become finished materials/finished
products, they will have added value for the
company.
Scope of Material Inventory Management
activities, namely managing replenishment lead
time, carrying costs of inventory, asset management,
inventory forecasting, inventory valuation,
inventory visibility, future inventory price
forecasting, physical inventory, available physical
space, quality management, replenishment, returns
and defective goods, and demand forecasting. The
essence is to plan, implement, and control the flow
and storage of goods effectively and efficiently. [39]
define Inventory Management as "a continuous
process of planning, organizing and controlling
inventory aimed at minimizing investment in
inventory while balancing supply and demand."
Balancing supply and demand for inventory
materials to achieve optimal inventory levels is full
of challenges, and this is an ongoing process
considering that business needs are very dynamic
and react to the environment. Management of
inventory materials will directly or indirectly affect
the profitability of an organization; for this reason, it
is essential to manage it, considering that special
efforts are needed to balance operational needs. This
is important because if there is no balance between
supplies and needs, in the sense that if there is more
inventory to meet needs, it will result in excess
material, while the opposite will result in
unavailability of inventory materials which
ultimately has an impact on operational activities.
In response to this, currently, there is a lot of
research or studies on how to balance supply and
demand so that it is at an optimal level, and this is
related to company performance and the creation of
added value. Due to the importance of material
inventory management, since the mid-1990s, there
has been a large increase in the annual number of
inventory management articles. Previous research
explains in his book that many research studies have
been carried out to improve material inventory
performance management, which will ultimately
improve company performance.
2.3 Sustainable Economic Levels
[39], explains that in the upstream oil and gas
industry, many factors influence decisions on
drilling and development activities and allocating
capital across the company's portfolio, [40].
Investors should strive to maximize profits, but
financial strength and shareholders (banks, [41],
fund managers, etc.) may require a company to
pursue 'growth' (reserve volume) or diversify its
operations. Many contractors use oil prices to
determine drilling decisions by calculating the
potential oil and gas that can be produced. High oil
prices stimulate drilling decisions because the
economic structure will be more favorable. Still,
conversely, when prices fall, companies tend to
limit some of their exploration activities. If prices
remain low long enough, companies will plug high-
cost wells, delay development activities, and
postpone high-risk businesses so that when making
investment decisions in capital-intensive and high-
risk industries such as upstream oil and gas, [42], it
is generally based on a full-cycle project economic
analysis (life-cycle), expected long-term prices,
[43], portfolio decision making, [44], and strategic
reasoning.
[45], explain that maintaining the economic
level, as described previously, is very much
influenced by two aspects, namely increasing
revenue and cost efficiency. However, along the
way, many contractors will face challenges that
need to be met both from internal and external
aspects, such as competitiveness, oil and gas prices,
government policies, technological advances,
business management, human and financial
resources, the environment, and other aspects. In
this research, the economic level of an oil and gas
field will be examined based on sustainable
elements that are linked to business or business
performance, [46]. The word sustainable used in this
research has an essential meaning or is translated
literally or lexically, meaning that it is a word that is
interpreted with the meaning of the primary word.
The approach that will be taken in this research
is related to the Sustainable Economic Levels
following the concept of "Sustainable Growth",
[47]. The sustainable growth rate (sustainable
growth rate) defines sustainable growth as the
percentage increase in annual sales consistent with
established financial policies, (target debt to equity
ratio, target dividend payout ratio, target profit
margin, target ratio of total assets to net sales). The
Sustainable Growth Rate is the movement of the
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margin of profit on sales or earnings per share from
one period to another.
2.4 Fiscal Term
The concept of economic rent is the basis for
implementing fiscal policy by each host country's
government to prepare fiscal terms. This is based on
the, [48], explanation that economic rent is
synonymous with excess profit or surplus, so the
host country's government tries to get as much
economic rent as possible through various levies,
taxes, royalties, and bonuses. Modern fiscal policy
theory is developed by, [49], stating that the aim of
fiscal policy is as a tool for economic stabilization
carried out by each country, but fiscal policy can
also be used to distribute income and to reallocate
resources in a way desired by the government as the
host country. [50], explained that petroleum
contracts can be divided into four main types;
concessions, joint operating agreements (JOA),
service contracts, and production sharing
agreements (PSA).
Along with the differences in contract types,
this will also have an impact on the fiscal terms that
will be offered by the Government as the owner of
the work area. Each type of contract will apply
different fiscal terms, while the components of the
fiscal terms applied to this type of contract, [51], are
generally as follows:
a. Equity Share
b. Taxes
c. First Tranche Petroleum (FTP)
d. Domestic Market Obligations (DMO)
e. Depreciation
f. Other incentives
g. Bonuses (Signature, Production)
2.5 The Relationship between Variables
Furthermore, the relationship between research
variables can be explained through the following
explanation:
2.5.1 The Effect of Purchasing Performance on
Sustainable Economic Levels
The business world in every type of industry is
currently facing dynamics in line with changes in
the external environment in particular, this is a
challenge for every company to answer these
challenges so that the company's profitability or the
company's economic level can be maintained, [52].
The contribution of effective, efficient, and optimal
procurement performance is needed for every
company, so it is believed that the role of
procurement performance can influence the
company's financial performance or the economic
level of a business. This has been proven
empirically from research conducted by, [53],
showing that procurement performance greatly
influences profitability in Manufacturing Companies
in Uganda.
This is also in line with research conducted by,
[54], [55], [56], show that the implementation of
sustainable purchasing influences company
performance through purchasing performance (cost
side) and competitive advantage (revenue side) from
a developing country perspective, as well as the
main antecedents for savings and strategic
purchasing performance. This effect is further
strengthened by purchasing integration. Research
conducted also shows purchasing knowledge
becomes very valuable when combined with other
functional processes through purchasing integration.
This causal chain is also supported through a
general knowledge-based theory view. Based on the
description above, a research hypothesis is built,
namely:
H1: Purchasing Performance Influences the
Sustainable Economic Levels.
2.5.2 The Effect of Purchasing Performance on
Material Inventory Performance
The influence of performance on Material Inventory
is believed to have an important role in the
company's financial performance, with good
performance having a healthy impact on the
company's cash flow in particular and company
performance in general. This effect has been proven
by, [57], who showed the results of their research
that the mediating role of inventory in obtaining
financial performance benefits is generally related to
lean production, so based on a combined analysis of
surveys and secondary data, the influence of lean
production on financial performance was found to
be partly mediated by inventory leanness. Based on
the description above, a research hypothesis is built,
namely:
H2: Material Inventory Performance Influences the
Sustainable Economic Level
2.5.3 The Fiscal Term as Moderating Variable
on the Relationship of Purchasing
Performance and Material Inventory
Performance on Sustainable Economic
Levels
Research on Fiscal Term moderation on the
relationship between Purchasing Performance and
Sustainable Economic Levels and the relationship
between Material Inventory Performance has never
been studied before, which is one of the novelties in
this research, with the research hypothesis:
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H3: Fiscal Term as a moderating variable on the
influence of Purchasing Performance on
Sustainable Economic Levels
H4: Fiscal Term as a moderating variable on the
influence of Material Inventory Performance on
Sustainable Economic Levels
Based on the explanation above, the conceptual
framework of this research can be drawn in Figure
1.
Material Inventory
Performance
Purchasing Performance
Sustainable Economic
Levels
Fiscal Term
Fig. 1: Conceptual Framework
3 Methodology
This research employs explanatory research with a
quantitative approach. This study is examined using
SEM WarpPLS. The location research was carried
out in the upstream oil and gas industry in
Indonesia, especially in companies both Indonesian
and foreign legal entities, which have contracted
with SKK Migas on behalf of the Indonesian
Government and have carried out oil and gas
production activities in Indonesia during the 2017 -
2021 research period. This research is based on data
obtained by these companies, in the form of factual
data which is secondary data, [58].
The population limits in this study refer to the
following criteria:
1) Companies operating in the upstream oil and gas
industry (both IOC and NOC);
2) Production Sharing Contract Contractors that
have contracted with SKK Migas (in this case
representing the Indonesian government) use a
type of cooperation contract, to carry out
exploration and exploitation activities in
Indonesia's sovereign territory hereinafter
referred to as PSCC; And
3) PSCC which is at the POD I stage and has
carried out oil and gas production activities
during the 2017-2021 research period.
Based on the criteria above, there were 26
PSCCs selected as the research population. This
research uses observation data (n samples) whose
number is N= 26 PSCC. All members of the
population were sampled, and saturated samples
were drawn so that n = N = 26. Time series data
were observed from 2017 to 2021 (t= 5 years) and
cross-sectional data, namely in 26 PSCC so that the
unit of analysis in this study is in the form of pooled
data t x n = 5 X 26 = 130.
4 Results and Discussion
4.1 Indicator Loading for Each Variable
At this stage, significant indicators from the results
of the exploratory analysis of the initial indicators
will be used to carry out a re-exploratory analysis.
This is done to identify indicators that have negative
weights, only indicators that have a positive weight
can be used. Generally, indicators that have a
negative weight can potentially provide results that
are not by theory or rationality. For this reason,
indicators that have negative weights are removed
from the model, to facilitate interpretation of the
relationships between variables. Next, an
exploratory analysis of indicators that only have
positive weights is carried out again. The outer
loading of each indicator is shown in Table 1.
Table 1. Outer Loading for Each Variable
Variable
Indicator
s
P-
value
Conclusio
n
Purchasing
Performanc
e (X1)
X1.1
<0.00
1
Significant
X1.2
<0.00
1
Significant
Material
Inventory
Performanc
e (X2)
X2.1
<0.00
1
Significant
X2.2
<0.00
1
Significant
Fiscal
Term (X3)
X3.1
<0.00
1
Significant
X3.2
<0.00
1
Significant
X3.3
<0.00
1
Significant
X3.4
<0.00
1
Significant
Sustainable
Economic
Levels
(Y2)
Y1.1
<0.00
1
Significant
Y1.2
<0.00
1
Significant
Y1.3
<0.00
1
Significant
As a result of the indicator exploration at this
stage, it was found that all indicators had a
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significant and positive weight, namely the
variables:
1) Purchasing Performance (X1) has two
indicators, namely the Ratio of Annual
Expense to Revenue (X1.1) and Cost
Efficiency (X1.2).
2) Material Inventory Performance (X2) has two
indicators, namely INVDA (Number of days
inventory) (X1.1) and Ratio of Inventory to
Revenue (X2.2).
3) Fiscal Term (X3) There are four indicators,
namely Equity Share (X3.1), FTP (X3.2),
DMO (X3.3), and Tax (X3.4).
4) Sustainable Economic Levels (Y2) has three
indicators, namely Sustainable IRR (Y2.1),
Sustainable NPV (Y2.2), and Sustainable R/C
(Y2.3).
Based on the results, all indicators have
significant and positive weights so that these
indicators can be used as indicators that can form
variables in this research. The next stage, namely
the indicator model resulting from the exploration,
is used to test the hypotheses using the SEM
WarpPLS approach.
4.2 Goodness of Fit of Structural Models
The stage after carrying out the exploratory analysis
of indicators is the stage of testing the suitability of
the statistical model for the data to be studied. If the
Goodness of Fit of the structural model is met, the
model resulting from the analysis can be used for
hypothesis testing. [59], explained that in carrying
out the Goodness of Fit model there are 10 Model
Fit measures and Quality Indices in the WarpPLS
analysis to measure the quality of the structural
model. Interpretation of the results of hypothesis
testing can be done if the model's Goodness of Fit
has been met. The Goodness of Fit model in this
research is presented in Table 2.
Based on the results above, it shows that the
model is fit, namely that all model fit and quality
indices are met. There are also two Fit
Models/Quality Indexes that have ideal conditions,
namely Average block VIF and Average full
collinearity VIF. Thus, the model is said to be good
and can be used to test hypotheses and explain the
phenomenon being studied.
Apart from testing the feasibility of the model
based on SEM-PLS analysis using WarpPLS as
explained above, on this occasion the feasibility test
of the research model can also be proven by looking
at the analysis of the multivariate coefficient of
determination expressed using the Predictive
Relevance Method (Stone-Geisser's Q2 test) or Q-
Square.
Table 2. Model Fit and Quality Indices
No.
Model Fit
Measures and
Quality Indices
Value
Resu
lt
Fit
Criteria
1
Average path
coefficient
APC=0.
265,
P<0.00
1
Signi
fican
t
P < 0.05
2
Average R-
squared
ARS=0.
215,
P=0.00
3
Signi
fican
t
P < 0.05
3
Average adjusted
R-squared
AARS
= 0.197,
P=0.04
Signi
fican
t
P < 0.05
4
Average block
VIF
AVIF=
1.213
Ideal
Acceptable
if AVIF ≤
5
Ideally <=
3.3
5
Average full
collinearity VIF
AFVIF
=1.920
Ideal
Acceptable
if AVIF ≤
5
Ideally <=
3.3
6
Tenenhaus GoF
GoF=
0.409
Larg
e
Small ≥
0.1
Medium ≥
0.25
Large ≥
0.36
7
Sympson's
paradox ratio
SPR=0.
807
Acce
ptabl
e
Acceptable
if ≥ 0.7
Ideally = 1
8
R-squared
contribution ratio
RSCR=
0.981
Acce
ptabl
e
Acceptable
if ≥ 0.9
Ideally = 1
9
Statistical
suppression ratio
SSR=1.
000
Acce
ptabl
e
Acceptable
if ≥ 0.7
10
Nonlinear
bivariate causality
direction ratio
NLBC
DR=1.0
00
Acce
ptabl
e
Acceptable
if ≥ 0.7
Q-square is a measure of how well the
observations made provide results for the research
model, or the testing process carried out to show
how well the observation values are produced using
the Q-square value, [60]. The criteria for the
strength and weakness of the model are measured
based on the Q-square predictive relevance value
which ranges from 0 (zero) to one, [61]. The closer
to 0 the Q-Square predictive relevance value
indicates that the research model is getting weaker,
conversely the further away from 0 (zero), and the
closer it is to the value of 1 (one), it means the
research model is getting better. The Q-square value
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can be formulated using the formula formulated by,
[62]: Q2 = 1 – (1 – R12) (1 – R2 2) .... (1 – R n2)
R12, R22 to Rn2 are the R-Square values of
endogenous variables in the model.
In this study, the R-Square obtained R12 is 0.31
and R22 is 0.12, so Q2 is 0.393. [63], explains that a
Q-Square value of more than 0 means the model has
a predictive relevance value. The calculation results
show a predictive-relevance value of 0.393 or
39.28%, meaning that this value indicates that the
diversity of data that the model can explain is
39.28% or in other words, 39.28% of the
information contained in the data can be explained
by the model.
4.3 The Results of Research Hypothesis
Testing
The next stage in this research is hypothesis testing
which is carried out using SEM-PLS analysis with
the WarpPLS application. The results of hypothesis
testing obtain the direct influence path coefficient
(structural model) and p-value.
The path coefficient value functions to:
a. Presents the degree of strength and
weakness of influence between variables or
one variable on another variable. The
greater the path coefficient value indicates
the stronger the influence of a variable on
other variables.
b. Shows the direction of influence between
variables by presenting a positive or
negative sign.
The following is an explanation of the sign in
question:
a. The positive sign on the path coefficient
indicates that the direction of influence
between variables is in the same direction, if
the greater the value of a variable, the
greater the value of the variable being
influenced.
b. Meanwhile, the negative sign on the path
coefficient indicates the opposite direction
of influence between variables. If the value
of one variable is greater, the value of the
other variable that is influenced will be
smaller.
The p-value obtained from the results of this
SEM PLS analysis is used as a decision rule in
hypothesis testing, namely whether or not there is a
significant influence of one variable on other
variables. If the p-value <0.05 (alpha 5%), then it
can be said that the influence of one variable on
other variables is significant, [64]. Table 3 shows
the results of testing research hypotheses using the
SEM WarpPLS method.
Table 3. The Results of Research Hypotheses
Testing
Independen
t Variable
Dependent
Variable
Path
Coeff
icient
P-
value
Concl
usion
Purchasing
Performance
Sustainable
Economic
Levels
-
0.201
<0.00
1
Signifi
cant
Material
Inventory
Performance
Sustainable
Economic
Levels
0.132
0.059
Not
Signifi
cant
Moderating Effect (Fiscal
Term)
Purchasing
Performance
*Fiscal
Term
(Moderated)
Sustainable
Economic
Levels
-
0.269
<0.00
1
Signifi
cant
Material
Inventory
Performance
*Fiscal
Term
(Moderated)
Sustainable
Economic
Levels
0.148
0.040
Signifi
cant
Notes: Significant-level on α = 5%; * = Not significant
effect
The findings reveal that:
1) The influence of the Purchasing Performance
variable on the Sustainable Economic Levels
is declared significant, this can be seen from
the p-value being smaller than α (0.05), so the
first hypothesis of this research is accepted.
The path coefficient has a negative effect.
Bearing in mind that the Purchasing
Performance variable uses indicators based on
cost aspects if there is an improvement effort
on the Purchasing Performance variable, this
will also have an impact on improving the
economy on the Sustainable Economic Levels
variable, and vice versa if there is an increase
in costs. then this will have an impact on
reducing the economic level. There is an
increase in performance in the purchasing
function, in this case, there are cost savings in
the company's production operations, this will
affect the economic level of the project,
meaning there will be an increase in company
performance. By the Supply Chain
Management (SCM) concept, the
improvement efforts that will be carried out
by the purchasing function will affect the
subsequent supply chain and also the
company's performance, especially in the
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financial aspect. The findings in this research
strengthen the main theories used to support
the hypothesis regarding the variables in
question, as follows:
a. The Purchasing Performance variable is
one of the foundations of the strategic
management concept for the
procurement management concept,
namely Transaction Cost Economic
theory, [65], which explains that
company strategic decision-making,
especially regarding purchasing
performance, considers cost aspects
effectively and efficiently, to create
improvements in company financial
performance.
b. Sustainable Economic level variables
have a theoretical basis which is one of
the foundations of the strategic
management concept for the project
economic level concept, namely Profit-
Maximizing and Competition-Based
theory, [66], which explains that the
main purpose of the existence of
business organizations is to maximize
profits in the long term and develop
sustainable competitive advantages over
competitive competitors in external
markets.
2) The effect of the Material Inventory
Performance variable on the Sustainable
Economic Levels is declared to have an
insignificant effect, this can be seen from the
p-value being greater than α (0.05), so the
second hypothesis of this research is rejected.
The path coefficient has a positive effect. The
Material Inventory Performance variable does
not have a significant effect on the sustainable
economic level, the most likely cause of this
is:
a. According to the research data, it shows
that the Material Inventory Performance
variable which is represented by the
Inventory to Revenue Ratio indicator, and
the Sustainable Economic Levels variable
which is represented by the Sustainable
NPV indicator do not have very different
movement patterns or trends from 2017 to
2021.
b. Referring to empirical studies from
previous research, the results show that the
influence of inventory management on
company performance is greatly
influenced by the amount of revenue,
meaning that if the revenue value is very
large compared to the inventory value, the
impact of inventory management has no
significant influence on the company's
financial performance. This is supported
by previous research that inventory
management does not affect the company's
financial performance, especially in
industries that have the character of
material inventory rather than being the
main raw material/raw material for the
products produced by the company and
companies whose business is or the
business is in the service sector so that the
inventory material is used as inventory
material.
The findings in this study do not strengthen the
main theories used to support the hypothesis
regarding the variables in question, as follows:
a. The Material Inventory Performance
variable has a main theoretical basis which
is the foundation for the material inventory
management concept, Inventory Theory,
[67], is theoretical basis for the material
inventory concept in the material
inventory performance variable, which
explains that minimizing costs associated
with maintenance Inventory will have an
impact on organizational performance,
especially financial aspects, and also in
meeting customer demand.
b. The Sustainable Economic Levels variable
has a theoretical basis which is one of the
foundations of the strategic management
concept for the project economic level
concept, namely Profit-Maximizing and
Competition-Based theory which explains
that the main purpose of the existence of
business organizations is to maximize
profits in the long term and develop
sustainable competitive advantages over
competitive competitors in external
markets, [68].
3) The effect of the Fiscal Term as a moderator on
the influence of Purchasing Performance on
Sustainable Economic Levels is declared
significant, this can be seen from the p-value
being smaller than α (0.05), so the third
hypothesis of this research is accepted. If the
path coefficient has a negative sign, it is said
that there is a relationship in the opposite
direction. The Fiscal Term variable as
moderation has a strong influence on the
relationship between the Purchasing
Performance variable and the Sustainable
Economic Levels. This can be explained further
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that the Fiscal Term is a tool in the form of a
policy used by the Government to stabilize a
country's economy. Generally, the government
in preparing fiscal policy hopes to obtain
maximum revenue by preparing a fiscal policy
that reflects this. On the other hand, PSCC as
an investor wants an attractive Fiscal Term to
improve its economy, such as a maximum
profit-sharing percentage or tax exemptions.
An attractive Fiscal Term for PSCC will
influence work patterns which will improve
their performance, including Purchasing
Performance which uses indicators based on
cost aspects. If there are efforts to improve
Purchasing Performance, moderated by Fiscal
Term, it will have a significant effect on
improving economics in the Sustainable
Economic Levels.
4) The influence of the Fiscal Term as a
moderating variable on the influence of
Material Inventory Performance on the
Sustainable Economic Levels is declared
significant, this can be seen from the p-value
being smaller than α (0.05), so it is said to be
significant, so the fourth hypothesis of this
research is acceptable. If the path coefficient
has a positive sign, it is said that there is a
unidirectional relationship. The Fiscal Term
variable as moderation has a strong influence
on the relationship between the Material
Inventory Performance variable and the
Sustainable Economic Levels. This can be
further explained that the Fiscal Term is an
important component that is taken into account
in making decisions to invest in the upstream
oil and gas industry. The implication is that the
Fiscal Term is not just a passive variable but
actively contributes to decision-making
processes, especially in the context of
investments in the upstream oil and gas sector.
It suggests that stakeholders or decision-makers
should take the Fiscal Term into serious
consideration when evaluating investments in
this industry.
4.4 Limitations
In this research, we would like to highlight some
limitations that need to be considered for a better
understanding of the research findings. These
limitations are:
1) The results of the SEM-PLS data analysis
indicate that Material Inventory Performance
has an insignificant relationship with
Sustainable Economic Levels. This variable
utilizes indicators based on cost and revenue
aspects, but future researchers may consider
using indicators related to service level aspects.
It is hoped that by utilizing data from other
aspects, more comprehensive results can be
obtained for the Material Inventory
Performance.
2) Furthermore, it should be noted that this study
indirectly uses oil and gas price data as an
indicator to assess the influence of prices over
time on purchasing performance and material
inventory management to maintain field
economics. Subsequent researchers may
consider using indicators related to oil and
natural gas prices directly about purchasing
performance and material inventory
management to better preserve field economics.
3) All the questionnaires were selected from
Indonesia's upstream oil industry. Therefore,
the results of this study can be generalized if
the observed research objects have similar
characteristics and can be considered
homogenous.
4.5 Implications
The findings of this research are expected to provide
practical contributions to the Government of
Indonesia, Contractual Cooperation Contractors
(Investors), and other stakeholders. These research
findings can serve as valuable input for decision-
making processes aimed at maintaining or
improving the economic viability of an oil and gas
field and increasing investments in the upstream oil
and gas industry in Indonesia. The practical
contributions of this research are as follows:
1) Given the significant influence of Purchasing
Performance on Material Inventory
Performance and Sustainable Economic Levels
in the upstream oil and gas industry in
Indonesia, the results of this research are
crucial for SKK Migas and Contractors in
formulating Supply Chain Management
(SCM))-related policies in upstream oil and gas
operations to sustain economic viability. With
the right policies in place, this will ultimately
benefit the Indonesian government and the
nation as a whole by maximizing returns and
ensuring the sustainability of upstream oil and
gas industry activities.
2) The moderating effect of Fiscal Terms on the
relationship between Purchasing Performance,
Material Inventory Performance, and
Sustainable Economic Levels is significant.
Therefore, the Indonesian government,
especially in formulating Fiscal Terms offered
to investors for managing upstream work areas,
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should consider that attractive Fiscal Terms for
contractors can impact the improvement of
economic viability in upstream oil and gas field
development projects through purchasing
performance.
3) The Indonesian government continues its
efforts to increase production to 1 million
barrels per day and 12 billion standard cubic
feet per day of gas by 2030, requiring support
from all parties, especially operators. Based on
the profiles of the three PSCCs, which are part
of the research sample, it is evident that their
performance, particularly in SCM, is average.
While PSCCs have autonomy in procurement
management and budgeting, some areas need
improvement in implementation. Therefore, the
government needs to introduce new policies to
create a conducive environment for PSCC to
make efforts to enhance their performance,
especially in production, supported by effective
and efficient SCM activities.
4) The results of this research can serve as a
reference for SKK Migas and Contractors in
implementing Strategic Operation Management
in the management of the upstream oil and gas
industry. This involves long-term planning,
adherence to good engineering practices,
meeting established targets, evaluating
implementation to analyze areas that do not
meet expectations or targets, and continuous
improvement in all aspects of production
operations.
5) This research can serve as a reference for
practitioners, particularly in the field of SCM in
the Indonesian upstream oil and gas industry. It
is hoped that this research will contribute to the
literature of practitioners focused on SCM.
5 Conclusion
In conclusion, this study shows that:
1) Purchasing Performance significantly affects
Sustainable Economic Levels with a negative
effect. Decreasing costs in Purchasing
Performance increases Sustainable Economic
Levels. This supports Transaction Cost
Economic theory and Cost Leadership Strategic
theory as the foundations of procurement
management concepts in corporate strategy.
2) Material Inventory Performance does not
significantly affect Sustainable Economic
Levels with a positive effect. Changes in costs
in Material Inventory Performance do not
affect Sustainable Economic Levels. This
finding does not support Inventory Theory and
Profit-Maximizing and Competition-Based
theory as the foundations of inventory
management and Sustainable Economics Level
concepts.
3) Fiscal-term moderation on Purchasing
Performance has a significant effect with a
negative effect. Increasing Fiscal Terms
strengthens the relationship between
Purchasing Performance and Sustainable
Economic Levels. This supports Transaction
Cost Economic theory, Cost Leadership
Strategic theory, and modern fiscal policy
theories.
4) Fiscal Term moderation on Material Inventory
Performance does not have a significant effect.
Increasing Fiscal Terms does not affect the
relationship between Material Inventory
Performance and Sustainable Economic Levels.
This finding does not support Inventory
Theory, Profit-Maximizing and Competition-
Based theory, and modern fiscal policy
theories.
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Contribution of Individual Authors to the
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All authors were involved in the conception and
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drafting of the paper, revising it critically for
intellectual content; and the final approval of the
version to be published; and that all authors agree to
be accountable for all aspects of the work.
Sources of Funding for Research Presented in a
Scientific Article or Scientific Article Itself
No funding was received for conducting this study.
Conflict of Interest
The authors have no conflicts of interest to declare.
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