COST MANAGEMENT IN OIL

AND FAT INDUSTRY

DMK5022 LOGISTICS IN OIL AND FAT INDUSTRY
INTRODUCTION

• The oil palm industry, which heavily depends on the world market, is an
export oriented industry (Vijaya et al., 2009).
• The consumption of world palm oil increased over the years because the
growing demand affected by the growing of food and oleo-chemical
industries.
• The oil palm industry in Malaysia contributes towards the economy of the
country at a total of 22.40 million tons of oil palm products including palm
oil, palm kernel oil, palm kernel cake, oleo-chemicals and finished
products, equivalent to RM 49.59 billion of export revenue in year 2009
alone (Wahid, 2010).
Prices of CPO (RM/tonne)
Flow Chart for Palm Oil
Milling
Cost Structure
Cost structure to produce FFB

1. Salary and wages

2. Maintenance
3. Seeding
4. Insect and desease control
5. Fertilizing
6. Harvest
7. Transportation to mill
8. Crops depreciation
Fertilizer contributes to 50-60% of production cost in 2008,
compared to only 30% in 2007.

In June 2001 MPOB introduced an innovative technique for

replanting oil palm: planting the oil palm seedlings into
residue rowsof old plant biomass.

The large amount of biomass contains nutrients which can

be recycled to succeeding young palms.

Several rates of fertilizer were tested to fine tune the fertilizer

recommendation for the innovative replanting technique.

Based on the trial, oil palm growth and FFB production are
not affected when 50% reduction of fertilizer rate were used

This results in cost reduction and minimize negative

environmental effect.
Cost Structure
Cost structure to produce CPO and PK

1. Salary and wages

2. Chemical
3. Manufacturing tools
4. Laboratory analysis
5. Gasoline and lubricant
6. Electrical power plant
7. Maintenance
8. Insurances
9. Mill depreciation
Cost Structure
Small scale palm oil mills targeted production cost for
CPO lies between RM 45 m t−1 to RM 50 m t−1 while
large scale palm oil mills less than RM 45m t−1.

Production cost was inversely proportional to Oil

Extraction Rate (OER).

There were a lot of factors affecting OER such as

amount of FFB being processed, ripeness, quality and
moisture content of FFB, year of oil palms, type of soil,
planting materials, machinery, manpower, technology
and so on (Wahid and Simeh, 2009).
Environmental issues
Environmental considerations, particularly in terms of water and air
pollution control, will continue to have an impact on the economics of
the business.

As government regulations in odor control and water pollution get

stricter, production costs will increase.

As with other industries, smaller operations that do not have the

financial ability to make substantial capital investments may be forced
to close.

Another major environmental concern will be of dwindling energy

sources.
Large amounts of energy are used during the milling and refining
process, and by the fleet of trucks needed to haul the raw and finished
material
to the plant or to customers.

As energy sources dwindle and become more expensive, the plant will
be forced to find more efficient and economical equipment.

The business owner will also be forced to supply fuel to the truck fleet
that will be cleaner burning and more abundant. One consideration is
that of bio-diesel. The bio-diesel is cleaner burning than today’s diesel
and is made from a renewable source, fats and oils
the fiber and shell waste are used in boiler to produce
steam and generate electricity. fiber, shells and EFB to
be used as fuel in boiler. The electricity is self
generated so that can save a lot of cost for fuel.

The solid wastes from POM are EFB, fiber, shells and
boiler ash while liquid waste is Palm Oil Mill Effluent
(POME). These wastes were considered as priceless by
products which contributed to generate electricity to
operate POM and supply to estates as well.

Both load required to generate electricity using biomass

sources and to treat the amount of mesocarp fiber and
kernel shell which have been removed from the
environment because these by products were either
recycled for self producing energy or used in plantations
as fertilizers
(Vijaya et al., 2008)
Discuss the energy saving during
• Transportation of O&F
• Handling of oil and fat products
• Processing of O&F