PACKAGED PALM COOKING OIL SUPPLY CHAIN NETWORK DESIGN USING OPTIMIZATION TO FULFILL DOMESTIC MANDATORY REQUIREMENTS, EXPORT DEMANDS, AND MAXIMIZE PROFIT

• Main Author: Hasna Pritawati, Nabilah
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/86072
• Institution: Institut Teknologi Bandung

The implementation of Domestic Market Obligation (DMO) policy by the Indonesian government in May 2022 to all Crude Palm Oil (CPO) and its derivative commodities has introduced significant changes to business processes, particularly in terms of export market share. The required DMO volume is determined by aligning a constant ratio, established by the government, with the total quantity of products intended for export. Once the domestic cooking oil demand has been met, the government will issue the Export Permit (PE), allowing export activities to proceed. Businesses face two primary obstacles in implementing the domestic cooking oil obligation: the lack of a marketing and distribution network in the domestic market and insufficient packaging facilities. These barriers hinder the ability to meet domestic demand, delay the issuance of the PE, and increase the risk of export failure. Additionally, the biodiesel-35 policy, which uses CPO as a raw material, raises concerns about the availability of CPO for cooking oil production. To address these challenges, a supply chain design for simple packaged cooking oil is developed. This design aims to determine the optimal number and capacity of palm oil mills, refinery plants, fractionation plants, and packaging plants required to meet both domestic and export demand while maximizing supply chain profits. The model also considers the impact of the B-35 policy on domestic biodiesel demand and the constant ratio element of the DMO policy, which links export and domestic cooking oil volumes. This aspect has not been explored in previous research. The model is validated and analyzed using case tests to assess its sensitivity. Variables such as export demand quantity, export product price, and the DMO ratio are adjusted to test the model's robustness. Optimization methods utilizing Mixed Integer Linear Programming (MILP) were employed to obtain optimal global solutions. The results from four case studies demonstrated that variations in export demand quantities significantly influence decisions regarding location, capacity, and the construction of new packaging plants. Export product price was found to be positively sensitive to profit but relatively insensitive to strategic decisions. A decrease in the DMO ratio from vi 30% to 20% resulted in a reduction in the production capacity of packaging plants. Conversely, no qualifying solution could be identified for an increase in DMO values from 30% to 40%, as all candidate locations for packaging plants had already been allocated the maximum capacity within the available set. The study results indicated that the optimal supply chain design to meet export demand, domestic cooking oil demand, and domestic biodiesel demand, while generating a maximum total profit of $66,423,748 USD, comprises four palm oil mills with a total capacity of 104,400 MT, two refinery plants with a combined capacity of 112,400 MT, two fractionation plants with a total capacity of 89,600 MT, five distribution centers with a total capacity of 20,160 MT, and two internal packaging plants with a capacity of 504 MT. Among the cost components—total fixed costs, production costs, storage costs, and transportation costs— transportation costs constitute the largest proportion, averaging 55.69%.