Development of Make or Buy Decision on Polyethylene Terephthalate Preform Plastic Bottles in Addis Ababa MOHA Soft Drink Company
Subject Areas : Cost-Benefit AnalysisBelachew Mebrat 1 * , Lydia Gebremariam 2 , Rahel Tesfaye 3
1 - Lecturer in Department of Industrial Engineering, Gondar Institute of Technology, University of Gondar, Gondar, Ethiopia
2 - Department of Industrial Engineering, Gondar Institute of Technology, University of Gondar, Gondar, Ethiopia
3 - Department of Industrial Engineering, Gondar Institute of Technology, University of Gondar, Gondar, Ethiopia
Keywords: PET preform, Cost-benefit, and linear regression analysis ,
Abstract :
The purpose of the study is to develop a make-or-buy decision on polyethylene terephthalate (PET) preform of plastic bottles for the sake of minimizing the company expense. However, the study was focused on the summit MOHA soft drink industry PET preform purchasing price status. The study aimed to address the impact of the demand-supply gap on PET preform prices, particularly affecting companies reliant on preforms. It focused on conducting a cost analysis to assess the feasibility of replacing merchant-supplied PET preforms with in-house injection machines, along with outlining viable investment strategies for PET preform production. The study utilized cost-benefit and linear regression analyses to evaluate the economic feasibility of this approach. The findings revealed that replacing merchant-supplied PET preforms with an in-house injection machine is a highly effective strategy for reducing procurement costs. The company achieved significant annual savings of 91,705,969.30 birr through this approach. This underscores the economic advantage of producing PET preform plastic bottles internally, rather than purchasing them from external suppliers.
[1] Zhang, R., et al. (2020). "PET bottles recycling in China: An LCA coupled with LCC case study of blanket production made of waste PET bottles." 260: 110062.
[2] Amaro, L. P., et al. (2015). "Preparation and testing of a solid secondary plasticizer for PVC produced by chemical degradation of post-consumer PET." 46: 68-75.
[3] Rabnawaz, M., et al. (2017). "A roadmap towards green packaging: the current status and future outlook for polyesters in the packaging industry." 19(20): 4737-4753.
[4] Singh, S., et al. (2017). "Material issues in additive manufacturing: A review." 25: 185-200.
[5] Johnson, F., et al. (2021). Purchasing and supply management, McGraw-Hill Companies, Inc.
[6] Johnson, P. F., et al. (2002). "Determinants of purchasing team usage in the supply chain." 20(1): 77-89.
[7] Prihandono, D., et al. (2020). "Green marketing tools effect on consumer buying decision in the bottled water industry." 8: 537-546.
[8] Fielding, N. and M. Schreier (2001). Introduction: On the compatibility between qualitative and quantitative research methods. Forum Qualitative Sozialforschung/Forum: Qualitative Social Research.
[9] Huang, P., et al. (2006). "Survey and analysis of public environmental awareness and performance in Ningbo, China: a case study on household electrical and electronic equipment." 14(18): 1635-1643.
[10] Bałdowska-Witos, P., et al. (2020). Life cycle assessment of beverage bottles. Journal of Physics: Conference Series, IOP Publishing.
[11] Fuenmayor Contin, J. D. (2020). Partial Upgrading of Extra-Heavy Crude Oils via Fixed Bed Aquaprocessing Using Two Catalysts with Different Pore Size Distributions, Schulich School of Engineering.
[12] Tohidi, H., Jabbari, M.M., (2012). “Decision role in management to increase effectiveness of an organization”. Procedia-social and behavioral sciences, 32: 825-828, https://doi.org/10.1016/j.sbspro.2011.12.149
[13] Lara, O. H., et al. (2020). The current state of law on plastic pollution in Mexico and a view toward the future. Plastics in the Aquatic Environment-Part II, Springer: 221-254.
[14] Liu, S., et al. (2021). "Numerical simulation and optimization of injection rates and wells placement for carbon dioxide enhanced gas recovery using a genetic algorithm." 280: 124512.
[15] Nascimento, L. F., et al. (2010). "PET Bottle Recycling Chain." (56).
[16] Nisticò, R. J. P. T. (2020). "Polyethylene terephthalate (PET) in the packaging industry." 90: 106707.
________________________________________________________
Original Research .
Development of Make or Buy Decision on Polyethylene Terephthalate Preform Plastic Bottles in Addis Ababa MOHA Soft Drink Company
Belachew Mebrat1*, Lydia Gebremariam2, Rahel Tesfaye3
Received: 23 December 2022 / Accepted: 19 April 2025 / Published online: 24 June 2025
*Corresponding Author Email, beleachewmebrat23@gmail.com
1- Lecturer in Department of Industrial Engineering, Gondar Institute of Technology, University of Gondar, Gondar, Ethiopia
2,3- Department of Industrial Engineering, Gondar Institute of Technology, University of Gondar, Gondar, Ethiopia
Abstract
The purpose of the study is to develop a make-or-buy decision on polyethylene terephthalate (PET) preform of plastic bottles for the sake of minimizing the company expense. However, the study was focused on the summit MOHA soft drink industry PET preform purchasing price status. The study aimed to address the impact of the demand-supply gap on PET preform prices, particularly affecting companies reliant on preforms. It focused on conducting a cost analysis to assess the feasibility of replacing merchant-supplied PET preforms with in-house injection machines, along with outlining viable investment strategies for PET preform production. The study utilized cost-benefit and linear regression analyses to evaluate the economic feasibility of this approach. The findings revealed that replacing merchant-supplied PET preforms with an in-house injection machine is a highly effective strategy for reducing procurement costs. The company achieved significant annual savings of 91,705,969.30 birr through this approach. This underscores the economic advantage of producing PET preform plastic bottles internally, rather than purchasing them from external suppliers.
Keywords- PET preform, Cost-benefit, and linear regression analysis
Introduction
In the dynamic landscape of modern business operations, the strategic decision-making process of whether to make or buy products is a critical element that can significantly impact a company's competitiveness and profitability. This decision becomes even more crucial in industries such as the beverage sector, where packaging plays a pivotal role in product quality, branding, and customer perception.
Summit MOHA Soft Drink Share Company is producing Pepsi Cola, Miranda orange, 7 up, and Miranda Tonic however Polyethylene Terephthalate (PET) preforms plastic bottles are the main facility in soft drink industries. The company has invested in high expenses to obtain the PET from suppliers not only this but also it cannot be obtained in the right place and at the right time. This, reduced the company’s productivity since equipment costs have been the major factor in the company’s growth [1]. The main types of PET preform used in the company are the quantity of P-018 (0.5 litter preform), the quantity of P-023 (1 litter preform), and the quantity of P-022 (1.5 litter preform). Although, perform plastic bottles are manufactured from polyethylene terephthalate to take the advantage of lightweight, ease of handling, and longer shelf life of packaged goods [2]. Furthermore, an injection machine is used to produce PET preform.
The market for PET products is expected to develop at a compound annual growth rate (CAGR) of 5.31 percent from 2017 to 2022, reaching USD 23.35 billion, according to research by [3]. From 2017 to 2022, the market is projected to increase in volume by a CAGR of 4.1 percent, reaching 552.64 billion units. PET preforms are unfinished PET bottles with variously sized necks. The evolution of carbonated soft drinks has raised time to time due to this the demand for PET bottles have increased. As a result, the demand for PET bottles in 2015 enhanced from 19,077 to 41,127 tons. While as record data shows since 2020 the required bottle for soft drink products had 85,479 tons [4]. This trend indicates that the consumption of PET bottles is strictly increased so making the PET perform using an injection machine in the company is reduces the demand and supplier gaps. The main objectives of the study are, to calculate the costs associated with establishing and running a PET factory for MOHA soft drink, to assess the feasibility of the study using economic analysis tools and to develop solution whether it is more cost-effective for the host company to produce or purchase PET preforms.
The article delves into the intricacies of the make or buys decision-making process within the context of MOHA Soft Drink Company's operations. It explores the various factors influencing this decision, such as cost considerations, quality control, supply chain dynamics, and strategic alignment with the company's core objectives. By examining the development of MOHA Soft Drink Company's approach to the make or buy decision regarding PET preform plastic bottles, this article aims to provide valuable insights and lessons for other companies facing similar strategic dilemmas.
Literature Review
As [5] studied the advantages of injection moulding machines over electric and hydraulic moulding machines include superior accuracy and precision, higher efficiency leading to cost-effectiveness, ability to work with a wide material variety, and lower scrap rates. However, disadvantages of injection moulding machines compared to their electric and hydraulic counterparts include the need for a high initial investment, operational complexity resulting in tooling costs, potential material waste, and environmental impact considerations.
The make or buy decision is a strategic choice that companies often face when determining whether to produce a component in-house or outsource it to external suppliers. This decision is particularly relevant in industries such as the beverage sector, where the production of PET preform plastic bottles plays a crucial role. However, make or buy decision involves evaluating the costs and benefits of producing a component in-house versus outsourcing it to external suppliers. Several factors influence this decision, including production capacity, cost considerations, quality control, and strategic alignment with the company's core competencies [6]. Recent studies have further emphasized the importance of the make or buy decision in the context of the beverage industry. For example, a study by [7] analysed the make or buys decision for PET preform plastic bottles in a beverage company and found that investing in in-house production led to significant cost savings and improved quality control.
In conclusion, the make or buy decision for PET preform plastic bottles at MOHA Soft Drink Company requires a thorough analysis of various factors, including cost, quality control, and strategic alignment. By using economic evaluation tools and considering recent research findings, the company can make a decision that enhances its efficiency and competitiveness in the market.
Methods
The study has followed both qualitative and quantitative research methods. Qualitative information has been used to conduct engineering analysis and raw material needed while quantitative analysis was to evaluate economic analysis and overall PET perform manufacturing cost [8]. To develop PET perform plastic bottle make or buy decisions collect the company’s previous PET bottle purchase price data, injection machine costs, and forecast the future PET preform demand to know how much PET preform bottle will be needed using a linear regression model. Then, decide the right decision using a cost-benefit ratio and engineering economic analysis. Therefore, the study reduces transportation, and production cost, create job opportunity, and removes the supplier and demand gap. Finally, the aim of the study is to make a cost analysis in the replacement of merchant-supplied PET preform with injection machine on summit MOHA soft drink Company.
I. Linear regression Model
The demand for PET preform in the company is forecasted to determine the amount of PET preform consumption. However, to analyse the future PET preform using the equation as shown in Eq. (1).
(1)
Where Y and X are dependent and independent variables for PET preform respectively. Furthermore, a, and b are the y-intersection and slope of the regression line. Y-intercept and the slope of a regression line as shown in Eq. (2) and (3) respectively.
(2)
(3)
II. Selection of the plant site
Right plant site selection has a significant factor for investment analysis. Thus, the chemical and physical properties of the land play an important role in the selection of location. Although, the site selection process can be investigated by the availability of land, accessibility of facilities, water, and power availability. As a result, considering the above factors selecting available free from in the company compound seemed a feasible location to produce PET preform.
Manufacturing cost
Detail production cost of injection machine is shown below.
I. Injection Machine Cost
PET preforms plastic bottle production using an injection machine. Chose Ningbo sonly injection machine due to production capacity, quality, and price consideration [9]. Machine manufacturing cost is shown in Table I.
Table I.
Injection Machine Cost Specifications
No | Name | Specification | Production capacity | Quantity | Unit price | Total cost in ETB |
1 | 438T injection machine | Model-HY-1280 | 720kg per hour | 1-set | 2,314,293.72 | 2,314,293.72 |
2 | Perform mould | 500ml, 11, 1.51 48 cavity | 6092.16 kg per hour | 2-set | 567,657.6 | 1,135,315.2 |
| Auxiliaries | Hopper dryer | 100 kg per hour | 1-set | 94,609.6 | 94,609.6 |
3 |
| Vacuum hopper | 50 Litres | 1-set | 118,262 | 118,262 |
|
| Water chillier | 500 KW | 1-set | 141,914.4 | 141,914.4 |
|
| Total |
|
|
| 3,813,846.37 |
|
| Total cost after tax of 17% |
|
|
| 4,462,200.25 |
II. Installation and Training Cost (ITC)
Ningbo sonly machine industry will dispatch two engineers to MOHA soft drink Company for machine installation and give training. However, it requires 13 days for proper installation and training [9]. Therefore, installation and training costs as shown in Eq. (4).
(4)
III. Raw Material Cost
The machine is able to produce 17,500 PET-preform plastic bottles per hour. But, due to technical and operational problems, it works with 96% efficiency. The company worked annually 248 days. Raw material cost is shown in Eq. (5).
(5)
Therefore, the machine has the capacity of making 82,280,448 preform a year, but according to the procurement data of MOHA for the past, the 3 years forecast the next year using simple linear regression to identify the amount of raw material needed.
IV. Linear Regression
The data is a time series so the independent variable is the time period and the dependent variable is the company demand for PET preform as shown in Eq. (1). Let Y1= quantity of P-018 (0.5 litter preform),Y2= quantity of P-023 (1 litter preform), Y3= quantity of P-022 (1.5 litter preform), a1= y-axis intersection for P-018 (0.5 litter preform), a2= y-axis intersection for P-023 (1 litter preform), a3= y-axis intersection for P-022 (1.5 litter preform) b1= slope of regression line for P-018 (0.5 litter preform),b2= slope of regression line for P-023 (1 litter preform) and b3= slope of regression line for P-022 (1.5 litter preform). The linear regression PET preform demand forecast as shown in Table II.
Table II.
Linear regression variables from the company data
X | Y1 | Y2 | Y3 | X2 | XY1 | XY2 | XY3 |
1 | 30,439,584 | 8,862,912 | 5,998,258 | 1 | 30,439,584 | 8,862,912 | 5,998,258 |
2 | 27,363,168 | 11,306,112 | 2,403,648 | 4 | 54,726,336 | 22,612,224 | 4,807,296 |
3 | 48,083,532 | 11,906,544 | 8,057,952 | 9 | 144,250,596 | 35,719,632 | 24,173,856 |
∑X=6 | ∑y1=105,886,284 | ∑y2=32,075,568 | ∑y3=16,459,858 | ∑x2=14 | ∑xy1=229,416,516 | ∑xy1=67,194,768 | ∑xy1=34,979,410 |
Therefore, use Eq. (2), (3) for y-intercept and slope respectively.
a1 =
= 17,606,480
a2 =
= 7,648,224
a3 = 
= 3,426,924.98
b1 =
= 8,844,474
b2 =
=1,521,816
b3 =
= 1,029,847
After evaluating the y-intercept and slope find each type of PET to perform a demand forecast for the next four years using Eq. (1).
As a result, a single 0.5-liter preform requires 25 grams of PET resin [10]. Therefore, according to the forecast the company needs 52,984,376 units of a preform for 0.5-litter bottles and this consumes 1,324,609,400g of PET resin. However, a single 1-litter preform consumes 37.2 g of PET resin [11]. Therefore, it needs 13,735,488 unit preform requires 510,960,153.6g PET resin. Moreover, for 1.5 litter requires 324,491,459.86g. Finally, the total amount of PET resin needed for annual production is 2,160,061,013.46g/2,160.06T. The required raw material for the production of preforms polyethylene terephthalate resin costs around (34,059birr) 720 U.S. dollars per metric ton. The tax and price of the PET resin according to [13]. Total PET resin cost with tax is as shown in Table III.
Table III.
PET resin value and tax
HS code | Production description | Importer name | Country of origin | Country consignment | Net weight | Value ETB | Total tax ETB | ||
391111000 | PET resin | MOHA soft drink | China | China | 2,160.06T | 73,569,224 | 17,509,475.3 | ||
Total annual raw material cost after tax = 91,078,699.3 birr |
| ||||||||
V. Labor Cost
The machine is fully automated due for this reason there is no need for too many workers. However, for two shifts only two are workers required to operate the machine and control the technical and operational problems. For one operator paid 4,600birrr therefore annually paid 111,400 birrs for labour.
VI. Power Consumption Cost
The machine work with a hydraulics system and electric power; due to this reason petroleum-based fluid and electricity are needed although for chilling the preform and cleaning the internal part of the machine water is required. The machine consumes 0.208 kwh/kg of electricity, 0.043m3/kg of water, and 0.0021L/kg of petroleum. Therefore, the annual power consumption cost (APCC) is;
VII. Transportation cost
A standard 20-foot container can accommodate around 28 tons which means to ship 2,160.06 tons of PET resin overseas, need about 77containers. Furthermore, shipping a full container overseas from Ningbo port to Djibouti port’s current cost is 4,837dollars although to transport the machine and raw material from Djibouti port to Addis Ababa is 350birr per quintal. Therefore, the total transportation cost for raw material and injection machines is 25,446,225.331birr. As a result, the total manufacturing cost is the summation of machinery, raw material, power; installation, labour, and transportation cost to manufacture PET preform plastic bottles in the company invest 123,342,506.44birrr for total manufacturing cost.
VIII. Straight-line depreciation cost
As [14] showed that the cost of an injection machine is 4,462,200.25birr and the salvage value of the machine is 1,007,575.2 birr. The depreciation value of the injection machine is shown in Eq. (6).
Where Dt is the annual depreciation
N is the number of years in depreciation
B is the cost of the asset made ready for use
S is estimated salvage value after depreciation
Therefore, the annual depreciation value for every five years is calculated using Eq. (6)
Cost to make analysis
Total variable cost per unit = material cost + other expense
. Total cost is the summation of fixed, variable, and depreciation costs as a result the value is shown below.
Buying cost analysis
A company has an extra capacity that can be used to produce a PET preform which has been buying (p-018, p-022, and p-023) for (2.55, 3.95, and 3.70) birr per unit respectively. If the company makes the preform, it will incur raw materials cost of 1.226 birrs per unit and other expenses of cost 0.372 birrs per unit. The annual fixed cost associated with human resources, machines, and installation is 110,400, 4,462,200.25, and 98,393.36 birrs respectively. However, demand over the next year is estimated at 52,984,376units of p-018, 13,735,488 units of p-023, and 7,546,313.02 units of p-022. Therefore, the total cost to buy PET preform plastic bottles for each type is;
Results and Discussion
The feasibility study conducted for the establishment of a PET preform plant aimed to evaluate the make or buy decision. It was found that there were no significant technical obstacles to implementing this concept. An empty room within the MOH plant was chosen as the installation site for the machinery due to the presence of necessary utilities and zero land cost. The selection of the 438T injection machine was based on its cost-effectiveness and high efficiency [15]. The analysis revealed that the production cost of PET preform bottles amounted to 124,033,431.41 birr, whereas the cost of purchasing PET preforms would have been 215,739,400.75 birr. This indicates a substantial annual cost saving of 91,705,969.30 birr by opting to produce the preforms in-house [16]. In conclusion, the decision to manufacture PET preform bottles internally has proven to be advantageous in terms of cost savings and is expected to enhance the company's efficiency and effectiveness. This strategic move not only reduces procurement costs but also offers greater control over the production process, ensuring consistent quality and timely delivery of preform bottles.
Conclusions
In conclusion, the make or buy decision regarding PET preform plastic bottles at MOHA Soft Drink Company in Addis Ababa represents a significant strategic move toward enhancing operational efficiency and cost-effectiveness. The study underscored the importance of weighing the costs and benefits of in-house production versus outsourcing. Through a detailed cost analysis and the use of economic evaluation tools, it was determined that establishing an in-house PET preform plant would yield substantial cost savings. This decision, coupled with replacing merchant-supplied preforms with an on-site injection machine, not only reduced procurement costs but also promised a quick return on investment. The study also emphasized the significance of considering factors like production capacity, quality control, and strategic alignment. By carefully evaluating these aspects, MOHA Soft Drink Company made an informed decision aligned with its long-term strategic goals. Overall, this development is expected to positively impact the company's operations, enhancing efficiency, reducing costs, and maintaining a competitive edge in the beverage industry.
Nomenclatures | |
PET | Polyethylene terephthalate |
ETB | Ethiopia Birr |
ITC APCC Dt TC KW | Installation and training cost Annual power consumption cost Annual depreciation cost Total cost Kilowatts
|
References
[1] Zhang, R., et al. (2020). "PET bottles recycling in China: An LCA coupled with LCC case study of blanket production made of waste PET bottles." 260: 110062.
[2] Amaro, L. P., et al. (2015). "Preparation and testing of a solid secondary plasticizer for PVC produced by chemical degradation of post-consumer PET." 46: 68-75.
[3] Rabnawaz, M., et al. (2017). "A roadmap towards green packaging: the current status and future outlook for polyesters in the packaging industry." 19(20): 4737-4753.
[4] Singh, S., et al. (2017). "Material issues in additive manufacturing: A review." 25: 185-200.
[5] Johnson, F., et al. (2021). Purchasing and supply management, McGraw-Hill Companies, Inc.
[6] Johnson, P. F., et al. (2002). "Determinants of purchasing team usage in the supply chain." 20(1): 77-89.
[7] Prihandono, D., et al. (2020). "Green marketing tools effect on consumer buying decision in the bottled water industry." 8: 537-546.
[8] Fielding, N. and M. Schreier (2001). Introduction: On the compatibility between qualitative and quantitative research methods. Forum Qualitative Sozialforschung/Forum: Qualitative Social Research.
[9] Huang, P., et al. (2006). "Survey and analysis of public environmental awareness and performance in Ningbo, China: a case study on household electrical and electronic equipment." 14(18): 1635-1643.
[10] Bałdowska-Witos, P., et al. (2020). Life cycle assessment of beverage bottles. Journal of Physics: Conference Series, IOP Publishing.
[11] Fuenmayor Contin, J. D. (2020). Partial Upgrading of Extra-Heavy Crude Oils via Fixed Bed Aquaprocessing Using Two Catalysts with Different Pore Size Distributions, Schulich School of Engineering.
[12] Tohidi, H., Jabbari, M.M., (2012). “Decision role in management to increase effectiveness of an organization”. Procedia-social and behavioral sciences, 32: 825-828, https://doi.org/10.1016/j.sbspro.2011.12.149
[13] Lara, O. H., et al. (2020). The current state of law on plastic pollution in Mexico and a view toward the future. Plastics in the Aquatic Environment-Part II, Springer: 221-254.
[14] Liu, S., et al. (2021). "Numerical simulation and optimization of injection rates and wells placement for carbon dioxide enhanced gas recovery using a genetic algorithm." 280: 124512.
[15] Nascimento, L. F., et al. (2010). "PET Bottle Recycling Chain." (56).
[16] Nisticò, R. J. P. T. (2020). "Polyethylene terephthalate (PET) in the packaging industry." 90: 106707.