CHAPTER 1
INTRODUCTION
1.1
Background
Indonesia as a developing country is required to continue to develop and
improve their country so Indonesia can compete with the other countries in the
world. The real example is the improvements in government systems, economic
growth, infrastructure developments, property and many more. With this growth, it
possibles for Indonesia to more expand in infrastructure and property sector. In
Jakarta, the infrastructure and property developments are continuing. Four
infrastructure development plan has been incorporated into Peraturan Daerah
Rencana Pembangunan jangka Menengah Daerah (Perda RPJMD) DKI Jakarta for
the period 2013 to 2017 which is recently passed by DPRD DKI Jakarta. The four
infrastructures are Mass Rapid Transit (MRT), monorail, Giant Sea Wall (GWS) or
giant
sea
dam,
and
deep
tunnel
or
tunnels
multifunction
(http://www.beritasatu.com/).
There are also other infrastructures in Jakarta which are in the process now. A
public housing development in 2004-2012 rose sharply to 266 twin blocks, which is
the realization of the plan in previous years that have not been implemented (Figure
1.1). This development is still ongoing until now. The government wants to
accelerate the infrastructure development in Jakarta. So, there is acceleration of
infrastructure development in Jakarta through partnership Government – Private
scheme. There are PT. Penjamin Infrastruktur Indonesia (Persero) and PT. Sarana
Multi Infrastruktur (Persero) which are already cooperating. Not only government
but also private companies have mega building projects for this year. With many
projects that will be implemented, it gives great opportunity for players in the
properties and construction industry, especially for private companies.
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2
Figure 1. 1 Public Housing and Slum Households Development 2004-2012
Source: Data and Information of Development Performance 2004-2012
PT. Multi Anugerah Swadaya is a private manufacturing company that
produces precast concrete fence, precast u-ditch, precast box culvert, precast cover uditch, and many more. The main product of PT. Multi Anugerah Swadaya is precast
u-ditch. In the beginning, this company is handling private construction projects, for
example, installing fences and installing culverts in housing and roads. They expand
the scope not only projects in Jakarta but also outside the city. The customers are
individual customers, private companies and government. The segmenting of
customer can be seen in the Figure 1.2.
Figure 1. 2 Customer Segment of PT. Multi Anugerah Swadaya
Source: PT. Multi Anugerah Swadaya (2013)
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The company has handled the project on the toll road in Jakarta which is
installing the potted plants along the road. Now, the company has other projects with
the government. This is a positive market prospect, so the company gradually will
increase in the production and sales. The company has an inventory system to keep
their finished goods and raw materials. They also have safety stock of finished goods
and raw materials in the warehouse. In this company, raw materials are ordered when
the level of inventory becomes low or the employee’s result of checking in the
warehouse according to their sight and stock card. This shows that company does not
have ineffective and inefficient inventory systems. This system can cause
overstocking or understocking inventory which will lead to high costs or delay the
production. With high demand growth, the company should have effective and
efficient inventory system, so it can meet the demand of customer. Especially with
the acceleration of infrastructure program from the government, that demand is
required in rapid process.
With the growing of infrastructure sector, it will have an impact on increasing
in demand. To be able to compete in the market, a business should implement a
strategy that can face the market challenges. One of the strategies that can be done is
managing the inventories. Mwansele and Sichona (2011:1) said that poor inventory
management may result in understocking, overstocking as well as high inventory
total cost. By managing inventories, many industries or firms, whether
manufacturing or purchasing, can help to keep the firm’s production to run smoothly,
optimize the inventories, determine the reorder point, and minimize the total
inventory cost. Inventory is important and crucial to many companies. According to
Heizer, Render (2011:500,578,583), a company can reduce costs by reducing
inventory, but production may stop and customers become dissatisfied when the
product is out of stock. The objective of inventory management is to strike a balance
between inventory investment and customer service.
This research will analyze the precast u-ditch product of PT. Multi Anugerah
Swadaya, because this product is produce more than others and it also the main
product of the company. The raw materials of precast u-ditch are iron, cement, sand,
and split. Therefore, this research needs to be done to predict the next demand in the
future. As mentioned before, the company already cooperates with the government.
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The government projects have a tight schedule and deadline. So, the company must
be able to meet the demand, especially with the tight competition among other
companies. The company must have good efficiency in terms of inventory
management and cost of inventory, in order to prevent scarcity of raw materials. The
product that is studied is a precast u-ditch, this product is used for ditch construction
underground for buildings or roads. The phenomenon which is appointed is the
circumstances where the use of result of demand forecasting and inventory data can
support the implementation of Economic Order Quantity (EOQ) model and the level
of reorder point. Anytime the company has repetitive purchasing or planning of an
item, EOQ should be considered. Obvious applications for EOQ are purchase-tostock distributors and make-to-stock manufacturers, however, make-to-order
manufacturers should also consider EOQ when they have multiple orders or release
dates for the same items and when planning components and sub-assemblies. The
company can determine how much material should be ordered, when should be
ordered, and the amount of total cost of inventory. Also the using of Decision Trees
analysis that can help to determine the alternative solutions and make the best
possible solutions for the company to minimize cost and control the raw materials
inventory management.
1.2
Problem Formulation
There are several problem formulations can be identified based on the
background described above, as follows:
1. What is the most appropriate forecasting method and the number of demand
forecasted units of raw materials of PT. Multi Anugerah Swadaya based on
the most accurate forecasting result?
2. How many the economic order quantity of raw materials, the reorder point to
fill minimum stock level, and the total cost of inventory of PT. Multi
Anugerah Swadaya that optimize the quantity of inventory?
3. What is the alternative solution for PT. Multi Anugerah Swadaya to minimize
total cost and optimize the inventory?
1.3
Research Objective
The objective of this study, according to the problems that have been
formulated, as following:
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1. To determine the most appropriate forecasting method and the number of
demand forecasted units of raw materials of PT. Multi Anugerah Swadaya
based on the most accurate forecasting result.
2. To determine the economic order quantity of raw materials, the reorder point
to fill minimum stock level, and the total cost of inventory of PT. Multi
Anugerah Swadaya that optimize the quantity of inventory.
3. To find the alternative solution for PT. Multi Anugerah Swadaya to minimize
total cost and optimize the inventory.
1.4
Research Benefit
This study is expected to provide benefits in terms of business practices and
the development of science, these benefits may be useful for:
1. The company
This study is expected to provide information and managerial advices about
the inventory control in the company, so the company can create or update
the policies that will optimize the inventory function.
2. The readers
To increase knowledge about inventory control, especially in EOQ model and
reorder level and Decision Trees analysis that are implemented in the real
business activities.
3. The further research
To be useful reference materials for similar studies or further studies about
this topic.
1.5
Problem Scope
The scope of the problem in this study is limited only to the inventory control
system of raw materials from precast u-ditch product. The raw materials consist of
iron, cement, sand, and split. This research determines the number of demand
forecasted, the number of optimized units, reorder level, the total cost of inventory
and alternative solution in PT. Multi Anugerah Swadaya.
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1.6
State of the Art
Table 1. 1 State of the Art
Research
Journal
Author
Research Results
Method
Description
Forecasting
International
Aju Mathew,
Forecasting in general is a
Journal of
Prof. E. M.
prediction of some future
Science and
Soemasekaran
event. Businesses use a
Research
Nair and Asst
variety of forecasts such as
Publications,
Prof. Jenson
forecasts of technology,
Volume 3, Issue
Joseph E.
economy, and sales of product
10, October 2013
or service. The accuracy result
of demand forecast will
Demand
significantly improve the
Forecasting for
production scheduling
Economic Order
capacity planning, material
Quantity in
requirement planning, and
Inventory
inventory management.
Management
Forecasting
Polish Journal of
Kot S.,
The more accurate demand
Management
Grondys K.
forecasting, the more efficient
Studies, Vol. 3,
and Zsopa R.
decisions for the planned
2011
production, lower inventory
levels and costs of
Theory of
Inventory
Management
based on
Demand
Forecasting
maintaining inventory.
7
Table 1. 2 State of he Art (Continuation)
Research
Journal
Author
Research Results
Method
Description
Inventory
Business and
H. A.
The Economic Order Quantity
Control:
Economics
Mwansele, F.
model with the aid of some
Economic
Journal, Volume
J. Sichona,
judgment by the management,
Order Quantity
2011: BEJ-23
correspondece
will decrease holding costs
to R. R. J.
and ordering costs. The use of
Akarro
EOQ model will help to know
(EOQ)
Determination of
Inventory
the exact amount of raw
Control Policies
materials to order and when to
at Urafiki Textile
place new orders for each raw
Mills Co Ltd in
material.
Dar-es-Salaam,
Tanzania
Inventory
Journal Soc Sci,
S. L. Adeyemi
Inventory management is a
Control:
23(2): 135-142
and A. O.
must for the continuity and
Economic
(2010)
Salami
survival of any goal focused
Order Quantity
(EOQ)
manufacturing organization.
Inventory
Inventory management has
Management:
become highly developed to
A Tool Of
meet the rising challenges,
Optimizing
this is in response to the fact
Resources in a
that inventory is an asset
Manufacturing
situation feature.
Industry
A Case Study of
Coca-Cola
Bottling
Company, Ilorin
Plant
8
Table 1. 3 State of he Art (Continuation)
Research
Journal
Author
Research Results
Method
Description
Decision Trees
IJCSI
Jehad Ali,
Decision Trees is constructed
International
Rehanullah
from nodes which represent
Journal of
Khan, Nasir
circles and the branches are
Computer
Ahmad and
represented by the segment
Science Issues,
Imran
that connect the nodes.
Vol. 9, Issues 5,
Maqsood
No 3, September
2012
Random Forests
and Decision
Trees
This research will use Forecasting method, Economic Order Quantity (EOQ)
model, and Decision Trees analysis as what has been done in previous research.
However, compared with previous research, this research is conducted in different
industry and different country. So, by conducting this research will be known
whether the theory is also valid in the company which is as research object.