Analysis of coal allocation on steam power plants and the effect of multi-suppliers, demand and time variations on coal’s safety stock

Abstract

Fulfilling coal-based electricity needs has its own challenges. It is because coal supply chain is a complex network in which various coal specifications could be supplied by more than one supplier. Uncertainty in demand and lead-time also complicates the situation. Moreover, each supplier can offer different price for the coal and different transportation. This paper empirically examined the coal allocation for steam power plants in Indonesia. There are 12 coal suppliers and 25 power plants as the subjects of evaluation. In order to find the set of suppliers and its allocations, optimization model that minimizing the purchasing and transportation cost was developed. The output from the optimization was then used as an input to find the level of safety stock, order quantity, and reorder point in each plant that can prevent the occurrence of stock out. A sensitivity analysis was also carried out to understand the impact of variation in demand and lead-time. The results show that lead time variations needs to be considered more in determining safety stock level rather than demand variations, including when having multi-suppliers.