VALUE CREATION - FINDING THE BEST RAW MATERIAL SUBSTITUTION COMBINATION IN FEED INDUSTRY

Abstract

PT.NEW HOPE INDONESIA takes feed sales as the main business. Due to the feed industry being a fully competitive market, usually 70-80% of the company's operating costs come from raw materials. Among which corn is the most used raw material. Under the extreme weather conditions of El Nino in 2023, short supply of corn in Indonesian market happened, the price of corn rose by more than 50% in early 2024; the company's raw material supply chain was also facing the pressure of stopping production due to the shortage of corn. Therefore, this study used cassava as an alternative to corn. Cassava agricultural product in abundant supply in Indonesia, to replace the amount of corn in feed formulation. After a thorough market supply assessment and verification of the effect of alternative farms, by applying linear programming method this study finally found that it is more reasonable for cassava to substitute less than 50% of corn. The formula corn cost Rp. 6461,46/kg in a specific market environment. The formula found the feed of casava could replace corn 43,19%, and it cost Rp. 5830,9/kg, which can effectively reduce the cost of Rp. 630,56 /kg. The discovery not only solves the problem of corn supply in a specific market environment but also significantly reduces the company's operating costs and improves the company's Profitability level.