2018 5th International Conference on Electric Vehicular Technology (ICEVT)

October 30-31, 2018, Surakarta, Indonesia

Goal Programming Model for Capital Budgeting

Investment of Lithium Accumulator Production
Unit for Motorcycle
Cecilia Intan Wijayanti Wahyudi Sutopo1,2 Roni Zakaria
1Industrial
Industrial Engineering Departement, Engineering Departement, Industrial Engineering Departement,
Faculty of Engineering, Universitas Faculty of Engineering, Universitas Faculty of Engineering, Universitas
Sebelas Maret Sebelas Maret Sebelas Maret
Surakarta, Indonesia Surakarta, Indonesia Surakarta, Indonesia
2National Center for Sustainable [email protected]
[email protected]
Transportation Technology (NCSTT)
Bandung, Indonesia
[email protected]

Abstract— Issue of lithium battery technology has widely equipment such as mobile phones, laptops, electric bicycles,
discussed in recent years. Currently, the use of lithium batteries and electric cars. The reason that lithium batteries are widely
has been so close to the life of the community such as the use of used because it has higher density, more durability, thermal
public road lighting, solar power plants, handy talky, and stability, dynamic performance, and good discharge tolerance
accumulator for the motorcycle. To commercials, those [3]. That opportunity causes research and development team
accumulators need some preparations such as feasibility study, of the firm conducted a plan related to the use of lithium
market research, and capital budgeting. Feasibility study and batteries on motorcycle vehicles and brought the results that
market research has been done in the previous, so this paper is lithium batteries can be used on motorcycle vehicles that are
doing the third step that is capital budgeting. Capital budgeting
generally circulated in the community. Furthermore, the firm
uses to allocate capital for some complicated project by the
already has resources in the form of capital, machinery,
existence of multiple and conflicting goals. Those projects
related to the company's goals to minimize costs that are production area, and experts that ready to realize the
contrary to the objectives of quality improvement, meeting the commercialization plan of the lithium battery.
needs of space, production capacity, warehouse capacity, etc. This study is a continuation of research that has been done
This research uses a goal programming approach for capital by [4] with the title "Markov Chain and Techno-Economic
budgeting commercialization and production of lithium Analysis to Identify the Commercial Potential of New
accumulator and demonstrates via an in-depth case example of Technology: A Case Study of Motorcycle in Surakarta,
a production problem.
Indonesia.". From those research is found that the increase of
Keywords— Accumulator for motorcycle, capital budgeting, market share will also increase the internal rate of return (IRR)
goal programming, lithium accumulator. and net present value (NPV) and accelerate payback period
(PP). The results of its market share prediction for the lithium
I. INTRODUCTION battery (LiFePO4) for the first mover company is 44% with the
optimal condition in the second period of 68% and the steady
The early history of the battery industry in Indonesia
state condition in the fourth period of 89.8%. It is also
began with the establishment of PT Nipress in 1973 in the
mentioned that the result of investment feasibility analysis for
production capacity of 58,000 units of batteries per year.
the lithium-ion battery (LiFePO4) battery meets the criteria of
Currently, the company continues to increase its production
IRR, NPV, and PP assessment so that the investment is
capacity considering the use of motorcycle vehicles in
feasible to run.
Indonesia increased from 68 million units in 2011 to 98
million units in 2015 [1]. The data shows that the growth of Several previous studies have discussed lithium batteries
motor vehicles increased by 43% from 2011 to 2015. When such as research conducted by [5] concerning lithium battery
there are two types of batteries in the market, those are wet chargers with solar, electrical and mechanical energy sources,
batteries and dry batteries or MF (Maintenance free) batteries. [6] on comparative reviews lithium batteries, lithium-
Based on research conducted by [2] the voltage and capacity polymer, lead-acid and nickel-metal hydride in electric cars.
in the wet battery will decrease when stored long without a While [7] explain about the environmentally friendly fuel for
recharge, while the dry ones are relatively stable. However, those including lithium batteries. Followed by [8] on patents
dry batteries are sold more expensive because of its on the value chain of lithium batteries, and a study explaining
advantages. the recycling process of lithium batteries by [9]–[11].
The issue of energy saving is currently growing rapidly By 2020 Indonesia is optimistic that local companies will
amidst increasing energy demand. That condition has an be able to meet the demand for lithium batteries, so the import
impact on the world of transportation, electronics, and of lithium batteries will be halted [12]. Seeing these
industry. Including the use of lithium batteries which is an opportunities, PT Nipress Tbk. continue to conduct research
electrochemical battery with lithium iron phosphate and development on the lithium battery department. At the
(LiFePO4) as its cathode is widely used in electronic

978-1-5386-9164-9/18/$31.00 ©2018 IEEE 107

beginning of the department's establishment, the company
invested $1.5 million to develop the production of lithium
batteries. Until then, the company continues to increase its
investments to increase its production capacity [12].
Therefore, it is important to do an analysis of the feasibility
related to the lithium battery production plan.
Before running a new project, a company should
undertake capital budgeting considering that the project to be
implemented involves a certain amount of capital to be spent
for the company to gain an economic advantage, compliance
with regulations and other operating requirements of the Fig 1. Problem’s mapping
project [13]. So, it can be mentioned that the reason for doing III. RESULT AND DISCUSSION
capital budgeting is to assess the feasibility of a project that
requires investment and how to allocate the capital as well. The company currently has a lithium specialty department
The stages of capital budgeting start from determining what that assembles products of lithium batteries. Some of the
needs for the project, then estimate the amount of capital to be assembled products are general street lighting, panels on solar
planted, and predict the cash flows that will run within the power plants and handy talky. Now the company wants to
projected time. expand its business by becoming the first company in
Indonesia to produce lithium batteries for motorcycles to see
The study of capital budgeting has been done in previous
studies, such as research about the programming for capital its market share reaching 44% [4]. In the plan, the company
budgeting model with NPV as its parameters [14], the needs to review what projects should be run. This study
uncertainty of programming in the capital budgeting model considers six projects where the first to third project scenario
[15], capital budgeting in the planned launch of cough drug (denoted X1, X2 & X3) related to the production system
innovations in tablets [16] and studies related capital alternatives and the fourth project (X4) related to the plant area
budgeting modeling with the goal programming in the how many times the current. Meanwhile, the fifth project (X5)
company's plans to increase its production capacity [17]. This related to the warehouse area how many times the current and
research will be used by the firm in determining capital the sixth project (X6) concern to QC facility investment how
budgeting of new product development plan that is lithium many times the number of facilities owned today.
battery (LiFePO4), so it can come to a decision consideration.
Considering that the investment will require substantial
II. METHODOLOGY funds, this research is completed by modeling the goal
programming for capital budgeting to get a decision that
The company plans to launch a new lithium battery approximates the real condition by considering seven
product. Therefore the department of research and objectives as performance criteria.
development (RnD) of the company planned the project
investments. The project that the company wants to run A. Goals
requires several investments that directly relate to the lithium The six decision variables are expressed in integer values
battery production system i.e., purchase of production because the fractional values are meaningless. In solving the
machinery, expansion of production floor area, warehouse goal programming problem, each goal will have positive
area and purchase of quality control facility. The four deviations and negative deviations minimized using
investment plans will generate operational costs and cash hierarchical optimization procedures [15]. The decision
outflow so that the company wants to minimize the amount of variable is defined as follows [17]:
money that must be issued by the company. After the product
Xj: Variable decision-making or activities now referred to
has been massively produced, the company maximizes the as sub-goals
fulfillment of production targets with 6% of market demand.
Otherwise, if production exceeds it will require additional bi: Goals that will be achieved
costs to maintain the exceeds products, so the company wants
: number of units of deviation excess (+) towards the
to minimize the occurrence of the condition. Products that
goal (bi)
have been produced and commercialized will bring revenue to
the company through the sale of products that will generate : number of deviation units that lack (-) against the
profits. The greater number of products sold will also increase goal (bi)
profits and revenues, in the sense that the company wants to
maximize this condition. The system description of this Priority 1: Annual minimum profit contribution (million
rupiahs)
research is shown in Fig 1. below:
The Company determines the minimum profit target to be
achieved at IDR 29,152,992,000 per year. The value is
obtained from the company's desire to earn a profit IDR
29,060 of the batteries’ sale price per unit in IDR 350,000
multiplied by the company's sales target. While the values on
X1, X2, and X3, are obtained by the same profit calculation
multiplied by the production capacity of each system. The
minimum negative deviation becomes the goal of the

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equation. Thus, the goal of minimum profit contribution is number of funds needed on each project owned. The minimum
formulated as follows: positive deviation becomes the goal of the equation. Thus, the
purpose of capital allocation is formulated as follows:
30.688X1 + 30.688X2 + 35.802X3 + n8 - p8
372.3X1 + 763.2X2 + 1073.1X3 + 1016.8X4 + 1016.8X5
= 29.153 (1) + 37.3X6 + n3 - p3 = 50,000 (9)
Priority 2: The purpose of increasing sales (million Operational Cost (million rupiahs)
rupiahs)
In addition to limited capital, operational cost limits
Increased profit itself is influenced by increased sales of should also be considered appropriately. The maximum
lithium batteries. IDR 351,120,000,000 represents the operational cost budgeted by the company is IDR
minimum revenue (revenue target) that the company wants to 2,500,000,000 per year. While the value on X1, X2, X3, X4,
achieve. The value is influenced by the selling price of X5, and X6 shows the number of operational costs on each
batteries per unit of IDR 350,000 multiplied by the company's project owned. The minimum positive deviation becomes the
sales target. Meanwhile, the value on X1, X2, and X3 is goal of the equation. Thus, the operational objectives of
obtained from the selling price multiplied by the production operational costs are formulated as follows:
capacity of each system. The minimum negative deviation
becomes the goal of the equation. Thus, the purpose of 1690.1X1 + 982.4X2 + 916.8X3 + 177.2X4 + 155.5X5 +
increasing sales is formulated as follows: 0.3X6 + n4 - p4 = 2,500 (10)
369.600X1 + 369.600X2 + 431.200X3 + n9 - p9 Priority 6: The purpose of addition of warehouse
inventory and production plant
= 351.120 (2)
The need for additional warehouse (m2)
Priority 3: The purpose of demand fulfillment (unit)
The need for additional warehouse space is related to the
The company's objective is to fulfill the existing demand
purchase of several machines that will increase production
by increasing the number of machines, employees and
maximizing production hours. 1,003,200 shows the capacity. A value of 0 means the warehouse space is
production target of lithium batteries per year obtained from considered fit for the production capacity of the selected
forecast demand multiplied by the company's ability to fulfill production system, and there is no reserve of excess
the demand that is 6% of demand in Indonesia. Forecast warehouse space. While the constant 48 following the X5
demand itself is determined deterministically from demand shows the value that the current warehouse space is available
battery multiplied by lithium battery market share (44%). of 48 m2. The values contained in X1, X2, and X3 indicate the
Meanwhile, the values on X1, X2, and X3 are obtained from need for warehouse space according to the production
the production capacity of each production system. The capacity of each production system. The minimum positive
minimum negative deviation becomes the goal of the deviation becomes the goal of the equation. Thus, the purpose
equation. Thus, the purpose of fulfillment of demand is of the addition of a supply warehouse is formulated as follows:
formulated as follows:
155X1 + 160X2 + 165X3 - 48X5 + n1 - p1 = 0 (11)
1,056,000X1 + n5 - p5 = 1,003,200 (3) 2
The need for additional production floor (m )
1,056,000X2 + n6 - p6 = 1,003,200 (4)
The need for production floor area is related to the
1,232,000X3 + n7 - p7 = 1,003,200 (5) purchase of new machines with different dimensions and a
Priority 4: The purpose of minimizing excess production large number, so it is necessary to specify the minimum
capacity (units) production area. A value of 0 means that the floor area of
production is considered appropriate by considering its
Although the company wants to maximize sales, it is allowance and no idle production floor. While the value of 132
important to avoid the exceeds in production, as it will lead to which follows X4 shows that the current production floor area
excess capacity maintenance costs. Model formulation is
is 132 m2. The values contained in X1, X2, and X3 indicate
equal to the third priority to meet demand. It's just that the goal
is to minimize the positive deviation. Thus, the objective of the need of production floor area of each production system.
minimizing excess production capacity is formulated as The minimum positive deviation becomes the goal of the
follows: equation. Thus, the purpose of additional production floor
requirements is formulated as follows:
1,056,000X1 + n5 - p5 = 1,003,200 (6)
527X1 + 519X2 + 519X3 - 132X4 + n2 - p2 = 0 (12)
1,056,000X2 + n6 - p6 = 1,003,200 (7)
Priority 7: QC facilities
1,232,000X3 + n7 - p7 = 1,003,200 (8)
The addition of the number of quality control facilities
Priority 5: The purpose of capital allocation associated with an increase in the number of production means
Capital Allocation (million rupiahs) more and more products that must be checked quality.
1,003,200 indicates the production target of lithium batteries
The design of the production line certainly requires per year. While 6,758,400 shows the existing quality control
investment for each project. But there is a limitation of capital
capacity. The minimum positive deviation becomes the goal
in the budget, so it needs to be done appropriately through
of the equation. Thus, the purpose of fulfilling the QC facility
capital allocation. Preparation design of lithium battery
production line has a capital budget of IDR 50,000,000,000. is formulated as follows:
While the value on X1, X2, X3, X4, X5, and X6 shows the

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1.003.200X6 + n10 - p10 = 6.758.400 (13)
Where,
Pn ››› Pn+1 ››› Pn+2 (14)
B. Objective Function
Based on the order of priority above, the objective function
of this model is stated as follows:
Min a = P1 n8 + P2 n9 + P3 ∑ + P4 ∑ + P5 [p3 +
p4] + P6 [p1 + p1] + P7 p10 (15)
C. Model Result
The modeling of goal programming for capital budgeting
in this study was solved using IBM ILOG CPLEX 12.6
software. The results of the model are shown in TABEL I
below:
TABEL I. MODEL RESULT
p Value n Value X Value
p1 0 n1 32 X1 0

p2 0 n2 141 X2 1
p3 0 n3 40,011 X3 0
p4 0 n4 9 X4 5
p5 0 n5 1,003,200 X5 4
p6 52,800 n6 0 X6 2
p7 0 n7 1,003,200
p8 1,535 n8 0 a 2,059,200
p9 18,480 n9 0
p10 0 n10 4,752,000

Formulation of the model consists of objective function

referring to [4], [17] and [18] determination of production cost
components and production capacity determination referring
to [19]. Meanwhile, the area of production and warehouse
related to [20] and [21].
Based on the result of modeling that has been done the
selected production system is semi-automatic. The needs of
semi-automatic production system are machine number 1, 3,
5, 6 and 7 based on Fig. 2. Additional floor production area
needed is 132m2 x 5 = 660 m2 and additional warehouse
inventory area of, 48m2 x 4 = 192 m2. As for the fifth priority, Fig 2. Machine Alternative for Each production system
the purpose of capital allocation consists of allocations for
initial investment and operational costs per year. Obtained IV. CONCLUSION
allocation for investment of production machine worth, IDR The purpose of a capital budgeting model for an
763,170,200 new plant construction investment, IDR investment of a new production unit for lithium accumulator
1,016,806,004 x 5 = IDR 5,084,030,020, investment of considering minimize cost and maximize revenue. Multi-
warehouse construction, IDR 1,016,806,004 x 4 = IDR objective optimization goal programming was used to
4,067,224,016, investment procurement facilities Quality determine the optimal capital allocation, optimal line
Control, IDR 37,360,000 x 2 = IDR74,720,000. While production area, optimal inventory warehouse area, and the
allocation for operational cost of production machine IDR suit production system to fulfill the customer demand but
982,364,925, operational cost of new plant construction, IDR keep it not to exceed the production capacity.
177,172,000 x 5 = IDR 885,860,000, operational cost of The result shows that the model is capable of finding the
warehouse construction, IDR 155,520,000 x 4 = IDR optimal solution. Through the decision of line production
622,080,000 and operational cost for quality control facility area, and inventory warehouse area minimum investment
IDR 37,360,000 x 2 = IDR 597,801. Fig 2. below show the cost and operational cost will be achieved. Meanwhile, the
alternative machine for this project. decision of the production system will support to minimize

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