Optimization of Packaged Palm Cooking Oil Supply Chain Network to Fulfill Domestic Mandatory Requirements, Export Demands, and Maximize Profit
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Abstract
This study addresses palm oil supply chain network design challenges in Central Kalimantan, Indonesia, focusing on balancing export demands with Domestic Market Obligation (DMO) and biodiesel-35 policy requirements. The research aims to determine optimal facility numbers, locations, and capacities that maximize profitability while meeting both export and domestic cooking oil demands. A Mixed Integer Linear Programming (MILP) model was developed to optimize this multi-level, multi-product, multi-capacity, multi-destination supply chain with transshipment distribution. The model incorporated DMO policy constraints connecting export quantities with domestic demand requirements, with robustness assessed through sensitivity analysis of demand variations, export price fluctuations, and government policy changes. The optimal network configuration requires five palm oil mills, two refinery and fractionation units, five distribution centers with packaging facilities, and two internal packaging plants, generating USD 66,423 thousand monthly profit. Sensitivity analysis revealed that facility decisions are primarily influenced by demand quantities, while price fluctuations mainly affect profitability without changing infrastructure decisions. This model provides strategic guidance for stakeholders to optimize packaged cooking oil supply chains under regulatory constraints. The research demonstrates that DMO policy creates new connections between export-bulk and domestic packaged cooking oil networks. Five strategically located distribution centers with packaging capabilities enable simultaneous fulfillment of export demands while prioritizing domestic requirements. The model's novelty lies in addressing DMO policy's constant ratio element linking export and domestic volumes, contributing to both economic and social welfare considerations.