Modeling the Halal value chain: a simulation-based approach

Abstract The global demand for halal products and services has grown rapidly, creating the need for an integrated halal value chain (HVC) that spans input supply, production, logistics, distribution, marketing, and consumption. This study develops a dynamic model for the Halal Value Chain (HVC) using a system dynamics approach, starting with the identification of key variables and their interrelationships through a causal loop diagram. A stock-and-flow model was then constructed and simulated using data from over 250 Indonesian micro, small, and medium enterprises (MSMEs) with halal certification. A 12-month simulation shows that technology adoption strongly enhances halal value chain performance, while Islamic finance and regulation have a moderate effect. Conversely, R&D shows a negative impact under current MSME conditions in first month but turns positive effect in the next month. The performance of the halal value chain improved in the eighth month, driven by the use of digital technology, regulation, research and development, and Islamic financing. Strong regulations, routine R&D, continuous use of technology, and Islamic financing as corporate capital are essential to the halal value chain. This integrated approach can enhance the halal value chain in Indonesia and other contexts.