Optimizing a Small-Scale LNG Supply Chain with Inventory Routing Problem: A Conceptual Modelling

Liquefied Natural Gas (LNG) plays an important role in Indonesia's energy transition agenda by reducing the country's dependence on coal and increasing its reliance on cleaner energy sources such as solar power and biofuels. As an archipelago country, Indonesia's unique geography makes LNG distribution to remote power plants challenging for several reasons, including high transportation costs, limited infrastructure, and limited storage capacity. The purpose of this study is to develop a conceptual model based on the Inventory Routing Problem (IRP) for the small-scale LNG supply chain. To identify key decision variables, the research uses a structured methodology, starting with a visual representation of the system and then identifying key variables. Following this, an influence diagram is constructed to illustrate the causal relationship between decisions, parameters, and cost components. Integrated into the model are vessel assignments, routing decisions, shipment quantities, and storage allocations along with four major cost elements: shipping, storage, operating, and port. By using the influence diagram, it is possible to formulate an objective function that minimizes the total distribution costs. As a result of the findings, conceptual modelling through influence diagrams is transparent, interpretable, and aligned with the dynamics of real-world logistics. By establishing a robust mathematical framework, it can be used to formulate and optimize further mathematical equations. It will be possible to determine the most efficient route for LNG vessels, allocate storage capacity, and evaluate the cost efficiency of Indonesia's small-scale LNG distribution system because of this analysis.