Abstract - The primary object of this research is to explain and demonstrate the complex structure that links each variable within the dairy milk supply chain in Indonesia through the causal loop diagram (CLD). Referring to the structure of the National Model developed by Forrester (1989), there were six CLDs which belong to six sub-systems used to describe the relationship between variables in the dairy supply chain. The first CLD belong to population and consumption sub-system. The second until sixth CLD belong to milk production sub-system, dairy cattle sub-system, dairy cattle population sub-system, dairy farmer's income sub-system, and government sub-system. According to CLD, there are minimal one important drivers in each sub-system. The findings in this paper put forward some important issues that require for running the full simulation of some proposed scenarios. Keywords – causal loop diagram, dairy supply chain, National Model, six sub-system I. INTRODUCTION Supply chain management (SCM) is a network of connected and interdependent organizations working together, mutually and cooperatively, to control, manage and improve the flow of material and information from suppliers to end users [1]. The most important problem in SCM is coping with high uncertainty because of internal and external factors. It can change the behavior of the supply chain [2] and then, have the significant impact on the performance of the supply chain. In this context of the uncertain environment, this research interested in studying the behavior of the food supply chain, specifically the behavior of the dairy milk supply chain. The source of uncertainty in the dairy milk supply chain can be seen from four stages in the dairy value chain structure, namely input suppliers, milk production, processing, and marketing. Input suppliers represent supplies to farmers including feed, veterinary services, etc. Milk production means the operators who produce milk, and this includes dairy farmers, corporate farmers, and smallholders. Processing refers to companies which process the delivered milk. The forms of companies are co-operatives, multinational/ national companies, and small dairy companies. Marketing expresses the way dairy products are sold, including export, supermarkets, small retailers, etc. [3]. Related to the four stages in dairy value chain structure as the source of uncertainty, In Indonesia, milk production is dominated by dairy farmers which are members of local dairy cooperatives. The uncertainty of good quantity and quality supply frequently arise because the action conducted by dairy farmers usually not the same as those of the local dairy cooperative wanted. This problem becomes more complicated since there is no formal contract arrangement between dairy farmers and local cooperatives to inhibit each of party acting in their own interest or to inhibit the opportunistic behaviors of each of party in a transaction. The farmers are independent milk producers. Although the local cooperatives give some supplies to farmers (such as feed, veterinary services, etc.), the farmers have full responsibility for running out of the dairy farms day-to- day. The farmers can choose anything connected to their businesses by themselves. This condition makes, on the one hand, the dairy farmers have a good bargaining power and, on the other, the cooperative difficult to control the business and to predict and manage the certain quantity and quality of the supply flow. The dairy cooperative is repeatedly not capable to get the certain quality of fresh milk as required by the processor or the national standard [4], [5], [6], [7]. As the milk processor difficult to get quantity and quality of fresh milk as required, they will import. This research has chosen dairy milk supply as an object for studying the behavior of supply chain in the context of uncertainty, because its performance has received a great deal of attention in the last decade, due to issues related to food self-sufficiency. In this case, the uncertainty can hurt the performance of dairy milk supply chain. According to the Indonesian Coordinating Ministry of Economy, there are several objectives should be achieved by dairy milk in Indonesia. Those objectives can be seen in the Road Map of Indonesian Dairy 2015 – 2025. According to the roadmap, the national milk production should reach 2.75 million tons in 2020 and 5.32 milk tons in 2025. Besides, dairy cattle should reach 1.3 million heads in 2020 and 1.7 million heads in 2025. In 2020, the dairy cattle must be able to produce an average of 13.11 liters of milk per day and an average of 19.67 liters per day in 2025 [8], [9]. So, in this case, the studying of the behavior of the dairy milk supply chain is needed to formulate the scenario to achieve the target established by the Government of Indonesia. So, in order to predict the behavior of dairy supply chain in the context of uncertainty, the primary object of this research is to explain and demonstrate the complex structure and the various feedback loops that link each variable within dairy milk supply chain through system dynamics methodology. Systems Dynamics (SD), initially recognized as ‘industrial dynamics', is a Modeling the Causal Relationship Among Variables that Influencing the Capability of Dairy Supply Chain in Indonesia A. Susanty 1 , N. B. Puspitasari 1 , A. Bakhtiar 1 , N. Susanto 1 , D. Kurnia 1 1 Department of Industrial Engineering, University of Diponegoro, Semarang, Indonesia (ariessusanty@gmail.com; niabudipuspitasari@gmail.com, arfanbakhtiar@googlemail.com) . 27 978-1-5386-6786-6/18/$31.00 ©2018 IEEE