CHAPTER 1
INTRODUCTION
1.1
Background
In order to facing business competition nowadays, many companies
consider a strategic activity to maximize their profit. There are many factors
that can affect to the company’s profitability, it can be external factors and
internal factors, one of the internal factor is production activity. The
production activity of the company definitely influenced by the availability
of raw materials. The company must make sure that the amount of raw
material is enough for the company to do the production, then the production
activity of the company can run properly. By knowing the optimum amount
of raw material it needs the communication between the operational
department and production department.
As we know, Every company will be striving to enhance their
productivity and make all types of costs efficient in order to win superiority.
One of the way is forecast the consumer demand. This is important because
effective consumer demand forecasting would affect a company’s
profitability. Implementing a consumer demand forecasting can avoid the
stock-out and stock-over of the raw material (Stevenson, 2009: 72). The
company also has to think about the inventory planning system, because it is
the most important factors in meeting customer needs, provide a good
customer service, and staffing decisions (Evans and Collier, 2007: 439), if the
level of inventory capacity can’t match to the customer needs, this situation
can lead to the switching cost, where the customers try to find another
competitor's product, it can result to the company’s profit declines or it may
not even make any profit at all. By implementing an inventory model, the
company can minimize the total cost and gain a higher profit (Jay Heizer and
Barry Render, 2011: 507).
PT. Indo Pangan Lestari is a company which produce Jelly Stick.
Customer of PT. Indo Pangan Lestari for the local market has already covered
almost the entire area of Indonesia except east area of Indonesia. Based on
1
2
the data collected that the problem in PT. Indo Pangan Lestari until right now
is they never know the fixed quantity that the company must do the reorder of
raw material each month because they never forecast the demand in the next
period. It makes the quantity of the raw material out of stock, sometimes
overstock, that situation leads the increasing of inventory costs of the
company.
Based on that condition, the author is interesting to form an analysis
the demand and the optimum inventory of the raw material using EOQ
(Economic Order Quantity) method and Trend Projection analysis for
forecasting.
Based on the background above, the author is interested in giving a
title “Analysis The Inventory of the Raw Material in PT. Indo Pangan
Lestari“.
1.2
Scope of Limitation
The scope of the product in this research in PT. Indo Pangan Lestari
which is located in Tangerang is jelly stick. The author also wants to know
the demand of jelly product last year in order to forecast the demand in the
next period, also the optimum amount of the raw material available using the
economic order quantity model. So, PT. Indo Pangan Lestari can minimize
the costs and gain a higher profit. Scope of this research only in the internal
of the company.
1.3
Problem Formulation
Based on the background above that the author wants to form an
analysis the inventory of the raw material in PT. Indo Pangan Lestari, the
author formulate the problem formulation as below:
1. How to forecast the demand in the next period using a time series
analysis model (Trend Projection Method)?
2. How to set the optimum stock of raw materials to fulfill the
customer demand?
3. How much the re-order point and safety stock that PT. Indo
Pangan Lestari must consider to avoid the stock-out?
3
4. What is the total cost of inventory before and after EOQ?
(Economic Order Quantity)
1.4
Objectives of the Research
The objective of the research is to answer the problem in problem
formulation.
1. To know the demand of the product in the next period.
2. To know the optimum stock of raw materials to fulfill the
consumer demand.
3. To know the re-order point and safety stock to avoid the stock-out
that can make a switching cost.
4. To know the total cost of inventory before and after EOQ
(Economic Order Quantity).
1.5
Benefit of the Research
1.5.1
Benefit for PT. Indo Pangan Lestari
- PT. Indo Pangan Lestari know how much they must stock their products and
they know the amount of their safety stock and re-order point that can fulfill
the customer demand.
- PT. Indo Pangan Lestari can minimize their costs.
1.5.2
Benefit for The Author
- To enrich the study of the operational management, in particular the
associated with operational management especially forecasting, economic
order quantity, safety stock, and inventory costs.
1.5.3
Benefit for Others
- This research can be an information for anyone who read it as well.
- This research will enrich knowledge in the scope of the operations
management field.
- This research can be a reference material for further research.
4
1.6
State of The Art
Table 1.1 State of The Art
Journal
Description
Author
Research Result
The current forecasting model in place
atCompany XYZs has brought problems due
Analysis of
toineffective forecasting that resulted in
an
product stock outs and loss of sales. In order
Economic
to helpthem reduce their stock outs, a
Order
forecasting model was provided along with
Quantity
and Reorder
Point
Inventory
Control
Jose L.
Gonzalez
And Daniel
González
an economic order quantity and reorder
point. Finally, the economic order quantity
and the reorder point, optimizedthe order
quantity for each product when anorder is
placed, reducingthe companies
Model
product stock outissue and inventory cost. In
for
implementing the recommended forecasting
Company
model along with the Economic Order
XYZ.
Quantity, it would help them save
approximately 61% of their total cost which
adds up to about $8,300 in saving per
quarter.
Source: Author, 2013
5
Table 1.2 State of The Art (Continue)
By implement forecast of the
demand, we can make better
buying, allocation, and
replenishment decisions. It will
The
reduce the cost of over-stocks
Fundamental on
Demand
Abdul Talib Bon,
Forecasting in
Chong Yi Leng
Inventory
and minimize the frequency of
out-of-stocks. Understanding
consumer expectations at
given times and under different
Management.
market conditions delivers
tangible benefits to both on the
demand side and supply side
of business.
Grenda Bakery Lianli can
reduce the inventory cost by
Inventory
using EOQ (Economic Order
Control of Raw
Quantity) method. By
Materials at
Eyverson Ruauw
implementing EOQ method, in
Grenda Bakery
2009 Grenda Bakery Lianli
Lianli.
can reduce their inventory cost
from Rp. 1.335.726,304 to Rp.
653.057,8 and in 2010 from
Rp. 1.489.153,04 to Rp.
738.276,2.
Source: Author, 2013
6
Table 1.3 State of The Art (Continue)
By providing and
recommending the inventory
control model, the results have
shown improvements in
Demand
Forecasting for
Aju Mathew,
Economic
Prof.E.M.Somasekaran
Order Quantity
Nair, Asst Prof. Jenson
in Inventory
Joseph E
Management.
forecasting as well as in cost
reduction. If the company
follows through and
implements the recommended
inventory model, they would
be able to reduce the total cost
by approximately 20% which
is a cost reduction of for top
selling product.
Optimal purchase frequency at
Analysis the
Inventory
Control of Raw
Materials at PT.
NT Niston Ring
Edi Suswardji, SE.,
MM, Eman S, SE.,
MM., Ria
Ratnaningsih, SE.
PT.NT Niston Ring Indonesia,
Karawang is 5 times. Ordering
cost: Rp. 11.875.200,- ;
Inventory cost: Rp.
15.175.989,43 (after using
Indonesia,
EOQ method). Reorder point:
Karawang.
25.807,39 KG ; Lead time: 4
months.
Source: Author, 2013