Track: Operations Management

Abstract

A coal-mining and trading company in Indonesia annually fulfills the demand for Domestic Market Obligations for the public interest power generation industry. The Ministry of Energy and Mineral Resources policy for coal entrepreneurs in Indonesia mandates that Indonesian coal producers meet 25 percent of the annual production plan for the domestic market. This policy has set the selling price of coal for the power generation industry for public use at $70 per metric ton. Indonesian coal business owners must follow the policy if they do not want to be banned from export. Due to higher production costs than the set selling price, this policy is hazardous to the company's bottom line. Losses in the company can be reduced through actions taken by the company. Based on root cause analysis using the Current Reality Tree method, the planning of coal blending was found to be ineffective. Since the user still plans the coal blending using intuition and the user's limited knowledge of methods that can optimize these activities. As a result, companies can reduce production costs by optimizing these plans. The linear programming method is used to solve the problem because it can minimize production costs by allocating the amount of coal mixed from the nine coal types available at the company and considering the buyer's quality requirements. After implementing the linear programming method, the total production cost is optimize and meets all product specifications required by the buyer.