PRODUCT DEMAND ALLOCATION AND DISTRIBUTION OPTIMIZATION MODEL USING TRANSSHIPMENT MODEL (CASE STUDY: PT PERTAMINA LUBRICANTS INDONESIA)

The oil and gas industry is one of significant contributors to the Indonesian economy. According to the Ministry of Energy and Mineral Resources in 2012, revenue from the oil and gas industry contributes significantly to the total Indonesian revenues and even ranks as the top contributor. One of the products derived from the oil processing is lubricant. PT Pertamina Lubricants which is a subsidiary of PT Pertamina is one of the important players in the lubricants industry. Currently, PT Pertamina Lubricants performance is good, retaining about 60% of the domestic market share. In order to attain the current performance levels, a continuous improvement program should be implemented in order to increase the competitiveness of PT Pertamina Lubricants in the market. One of the strategies to assure the continuous improvement process is the optimization of the procurement and distribution of the products sold domestically. The existing condition shows that the company's domestic expenditures reach 63% of the total company's expenditure. PT Pertamina Lubricants has three Lubricants Production Unit (later on is mentioned as Production Petroleum Unit (UPP)), and where the products that have been produced by these three facilities are sent to seven Regions in Indonesia and from these Regions they are then distributed to 27 Sub Regions. Each of the Regions and Sub Regions has a full responsibility in selling the products and acting as if they are independent business units. The main objective of this study is to determine a policy for allocating product demands from Sub Regions to Regions and the UPP, that will minimized the operational (procurement and distribution) cost. The approach in this paper is the supply chain management concept to map out the amount of product needed for each entity (Regions and Sub Regions), and the transhipment concept model to determine the optimal distribution route. Results of model implementation on three products with the highest demand come up with creation of new distribution routes which gives the lowest operational cost and 5. 77% savings from the existing condition. The new distribution route from the implementation of the model allows the UPP to deliver their product directly to Sub Regions without passing through Regions.