Int. J Sup. Chain. Mgt Vol. 9, No. 4, August 2020 849 The Supply Chain Management of Islamic and Conventional Banks; Evidence from Indonesian Case Imronudin 1 , Henry Dwi Wahyudi 2 1 Management Department, Universitas Muhammadiyah Surakarta Abstract— The present study aims to examine the idea of supply chain management in the financial institutions like banks in the region of Indonesia. After the detailed examination of existing literature current research work has developed a model for the supply chain in financial perspective with its physical implication as well. This study use panel or pooled data taken from annual report of Islamic and conventional banks in Indonesia during 2012-2017 period and consist of 10 Islamic and 24 conventional banks. Pooled regression is used to estimate the effect of bank-specific such as profitability, growth, tangibility, earning volatility and size on supply chain management. The finding of this study shows that profitability and growth have positive and significant effect on supply chain management, while size and tangible asset have negative impact on it of conventional banks. Earning volatility does not have any influence on supply chain management both for Islamic and conventional banks. In general, there is no significant explanatory variables which have significant influence on supply chain management of Islamic banks except growth variable which have marginal impact on supply chain management decision. In the future, this research can be developed by using different measure of earning volatility. Keywords— Supply chain management, Supply Chain Management, Islamic banks, Conventional Banks 1. Introduction Islamic and conventional banks have the same function as intermediary institutions channeling funds from parties who have excess funds to those who lack funds. However, both banks use different modes in delivering their funds. Conventional banks used interest as a basis in providing credit to their customers. Since the interest is determined in advance, conventional banks are relatively easy to determine profit they will earn, namely spread or the different between deposit and credit interest [1- 5]. Conversely, Islamic banks does not charge nor provide any interest to their customers. Instead, Islamic banks use profit and loss sharing mode of finance in channeling their funds, particularly murabahah and musharakah contracts [6]. Based on this profit and loss sharing principles, their profit depends on the profit of their customers and hence, Islamic banks cannot estimate properly their profit as conventional banks. Therefore, Islamic bank are more risky that their counterpart. This condition will influence on their supply chain management decision. Supply chain management is a ratio between liabilities and equity capital. The higher the liability the higher fixed burden of the banks and then the riskier. Since every source of capital have different cost of capital, banks should determine ideal supply chain management. Ideal supply chain management is the ratio of debt and equity that can minimize cost of capital which in turn improve form’s value. The debt irrelevance proposition of [7] suggest that in perfect market (i.e no asymmetric information, no transaction cost, no taxes, no bankruptcy cost, and no agency cost), no ideal supply chain management. In other word, the choice of source of capital does not have any impact on firm’s value. Thus, in perfect market, the different types of capital is not relevant. In reality, however, firms have to bear tax and hence supply chain management choice is relevant because of the fact that interest is a tax deductible expense and generates a valuable tax shield [8]. Until recently, topic concerning supply chain management is still attractive for academicians to investigate. Current research on supply chain management are many, for instance, [9-12]. Although there are a lot of researches on supply chain management, investigating supply chain management of Islamic bank is still attractive because the present of Islamic banks is quite new. Since Islamic bank is relatively new business entity which have different operation basis than that of conventional bank, this study interested in comparing the supply chain management decision of both Islamic and conventional banks particularly in Indonesia. The rest of the paper is organized as follows: Section 2 describes the literature review and hypothesis development. Section 3 presents data, variables, and research methodology. Section 4 presents empirical results and discussion. Finally, ______________________________________________________________ International Journal of Supply Chain Management IJSCM, ISSN: 2050-7399 (Online), 2051-3771 (Print) Copyright © ExcelingTech Pub, UK (http://excelingtech.co.uk/)