APPLICATION INVENTORY SYSTEM

BY :
REGINA LUISYA SALSABELA
(1411800098)
INVENTORY

Inventory is stock of elements / items to meet future needs or stored

materials / goods that will be used to meet certain objectives, for example
in the production or assembly process, resale and for parts of an
equipment / machine.

Heizer & Rander

MANAGEMENT INVENTORY

Inventory management is a part of a company

that functions to regulate the inventory of
goods owned. Starting from how to obtain
inventory, storage, until the inventory is used
or issued.
FUNCTION OF MANAGEMENT INVENTORY

 Ensure availability of supplies (safety stock)

 Reducing the risk of delays in shipping supplies
 Reducing the risk of fluctuating prices
 Get discounts from orders in large quantities
 Adjust purchases to the production schedule
 Anticipating changes in supply and demand
 Anticipating sudden requests
 Maintain the amount of inventory that is only available
seasonally, so that when the material is not in season, the
company still has the inventory.
 Overseeing inventory orders that do not comply with
specifications, can be returned to the supplier if it is not suitable
 Determine the quantity of inventory that must be kept just in case
 INVENTORY CLASSIFICATION

INVENTORY

Stage Process Judgement Demand Operational

• Raw material Class A 1. Independent Endurance

• Goods in process Class B 2. Dependent storage quality
• MRO Class C 3. Deterministic
• Finished goods 4. Probabilistic
INDEPENDENT DEMAND

Independent demand is a demand that is

only related to the itself, or a demand for
various items of goods that have nothing
to do with one another. For example, a
department or division produces various
goods or compnents that are not
interconnected solely to meet external
demand. For example demand is
bread,bicycles,cars,and medicines.
DEPENDENT DEMAND

Dependent demand is the demand for an item/

component due to the need for other goods/
components composed of various
components. For example, the demand for
bicycle tires in the bicycle tire division arises
because of the demand for bicycles in bicycle
assembling parts. The demand for bicycle
tires in the tire division is dependent demand
from other divisions in one organizations.
Deterministic demand

The deterministic model is a model in which

there are symptoms that can be
measured with a high degree of certainty.
In this deterministic model all parameters
and variables are known or can be
calculated with certainty. The EOQ
inventory model (Economic Order
Quantity) is included in the deterministic
model.
Probabilistic Demand

The probabilistic / stochastic demand is a

demand in which there is a demand that is not
always constant. Sometimes the demand for an
item varies and also follows certain probabilistic
distributions. In the face of a demand that has
an affiliation, the company usually has
inventory which is commonly called safety
stock. Continuous inventory system (system Q,
r) and periodic inventory system (system P) are
models used in solving probabilistic demand.
MANAGEMENT INVENTORY
SET INVENTORY
ABC ANALYSIS

ABC analysis is a method in inventory management to

control a number of small items, but has a high investment
value. ABC analysis can classify items based on rank
values from highest to lowest values and then divided into
priority class classes; usually classes A, B, C and so on
sequentially from the highest to lowest rating, therefore this
analysis is called "ABC Analysis". Generally class A has a
small number of items, but has a very high value.
ELEMENTS OF THE INVENTORY MANAGEMENT SYSTEM
 ABC CLASSIFICATION

CLASS A
LOW UNIT, HIGH RUPIAH
CLASS B
MEDIUM UNIT, MEDIUM RUPIAH
CLASS C
HIGH UNIT, LOW RUPIAH
 Graph of ABC analysis

% PERSENTASE NILAI UANG BARANG

80 - A
70 -
60 -
50 -
40 - B
30 -
20 - C
10 -
0 | | | | | | | | | | |
10 20 30 40 50 60 70 80 90 100 % PERSENTASE PERSEDIAAN

•
 EXAMPLE OF ABC ANALYSIS
PROBLEMS
1. An ABC company in 2007 has inventory data (Inventory) as follows, determine
the analysis of ABC inventory (inventory) that the company has:

CODE UNIT QUANTITY PRICE(RUPIAH) TOTAL PRICE NO. URUT

101 A 15 17.000 255.000 4

102 B 75 2.500 187.500 7

103 C 15 13.500 202.500 6

104 D 15 74.000 1.110.000 2

105 E 230 9.000 2.070.000 1

106 F 55 6.500 357.500 3

107 G 100 2.100 210.000 5

108 H 200 750 150.000 8

TOTAL 4.542.500
 THE ANSWER :
CODE UNIT QUANTITY PRICE TOTAL PRICE VALUE SUM % ABC
(RUPIAH) PERSENTASE
(%)
105 E 230 9.000 2.070.000 45.56962025 A

104D 15 74.000 1.110.000 24.43588332 77.87 A

106 F 55 6.500 357.500 7.870115575 A

101 A 15 17.000 255.000 5.613648872 B

107 G 100 2.100 210.000 4.623004953 14.69 B

103 C 15 13.500 202.500 4.457897633 B

102 B 75 2.500 187.500 4.127682994 C

7.4
108 H 200 750 150.000 3.302146395 C

TOTAL 4.542.500
ELEMENTS OF THE INVENTORY MANEGEMENT SYSTEM
DEMAND : INDEPENDENT VS DEPENDENT

VS
INVENTORY COST
FOCUS IN INVENTORY MANAGEMENT

 How much must be ordered at a certain

time?
 How many types of inventory must be
stored?
 When should the inventory be ordered?
 TWO BASIC DECISIONS IN EOQ

 How much raw material must be

ordered when the material needs to be
repurchased - Replenishment cycle
 When do you need to buy back - reorder
point
 MINIMIZE COSTS
Periodic Cost(Rp)

o st
To t al C t
Co s
in g
l d
Ho

Ordering cost

EOQ Quantity (Q)

 Notation used:
Q = Amount of goods per order
EOQ = The optimal amount of goods per order (EOQ)
D = Annual demand for supplies in units
S = The cost of installing or ordering each order
H = Retaining or storage costs per unit per year

By using the above notation, the determination of the EOQ

formula is:
a. Annual Ordering Cost (TOC) = ( D / EOQ ) S

b. Annual Holding Cost (THC) = ( EOQ/ 2 ) H

c. Annual Total Cost (TC) = TOC + THC

Model EOQ

 EOQ =

2DS
H

Ordering Cost = Holding Cost

D Q
S = H
Q 2
 Model EOQ

Demand D
Order Amount in one year (N) = ------------------------------ = ------
Number of units ordered EOQ

Number of working days per day

Time between orders = T = -------------------------------------------
Number of orders in one year
 RE-ORDER POINT
Inventory
EOQ Inventory
(Q*) average
(Q*/2)

Reorder
Point
(ROP)

Time
(Lead Time)
 RE – ORDER POINT

 The level of inventory where action

must be taken to replenish inventory.
 Waiting time (L): the time between
placing and receiving an order.
 Request per day (d): (demand for
average material use / week).
 ROP = d x L X Safety stock
 Safety Stocks

 Additional inventories held to guard against

changes in the level of sales or delays in
production - shipments

 Initial inventory = EOQ + Safety stock

 Average inventory
= (EOQ / 2) + safety stock
Cost of Safety stock
= H (safety stock)
Determining the amount of Safety Stock

 Experience factor
 Conjecture factor
 Cost
 Delay
Example:
Use per day 15 Kg
Late delivery of 10 days
So the amount of safety stock
= 10 x 15 Kg
= 150 Kg
EXAMPLE POBLEMS

PT. SEJAHTERA in the coming year

requires 240,000 units of raw materials.
The price of raw materials per unit is IDR
2,000. the message fee for each order is
Rp150,000, while the storage fee is 25%
of the average value of inventory.
ASKED :
 a. How much is the most economical order (EOQ)?
 b. How many times do reservations have to be made in a
year?
 c. How many days does the company have to place an order
(1 year = 360 days)?
 d. If the time needed from the time of ordering until the raw
material arrives at the company is 2 weeks, and supplies
safety of 50,000 units when the company must reorder
(Reorder Point). If it is assumed to be 1 year = 50 weeks.
 e. How much is the storage cost?
 f. How much does the order cost?
 g. How much does the safety stock cost?
 h. Determine the total inventory cost!
EOQ
D = 240.000
2DS S = 150.000
H H = 25% x 2.000
 EOQ =

=  ( 2 x 240.000 x 150.000) / (25% x 2.000 )

= (144.000.000)
= 12.000 unit
ORDER AMOUNT IN ONE YEAR
Demand D
Order Amount in one year (N) = ------------------------------ = ------
Number of units ordered EOQ

Ordering made by the company in a year = 240,000 /

12,000 = 20 x orders.
How many days does the company have to place an order
(1 year = 360 days)?

If 1 year = 360 days

- Then the order is made

company is:
360/20 = 18 Days Once
RE – ORDER POINT

ROP = d x L + Safety stock

- Usage per week
(240,000 / 50) = 4,800 units
- Reorder point
= delivery time + safety stock
= dxL + Safety stock
= 4.800 x 2 + 50.000
= 59.600 unit.
Holding Cost (THC)

 THC = (EOQ/2) H

THC
= (12.000 / 2) x 25% x 2.000
= 6.000 x 500
= Rp 3.000.000
Ordering Cost (TOC)

 TOC = ( D / EOQ ) S
 TOC
= 150.000 x ( 240.000 / 12.000 )
= 150.000 x (20)
= Rp 3.000.000
Safety Stock Cost

= H (safety stock)
= (25%) x (2.000 ) x ( 50.000 )
= 500 x ( 50.000 )
= Rp 25.000.000
Inventory Total Cost - TC

Holding Cost + Ordering Cost + Safety stock

Cost

= Rp 3.000.000 + Rp 3.000.000 + 25.000.000

= Rp 31.000.000
Production Order Quantity (POQ) MODEL

In the EOQ model we assume that all orders

inventory is received at one time. However there are times
certain where the company can accept its availability throughout
period. This situation requires another model called POQ
which in this model products are produced and sold at the time
together.

POQ can be applied in two situations, namely:

1. When inventory is continuously flowing or piling up after a certain
period of time after an order is made.
2. When units are produced and sold simultaneously.

In this model the optimum quantity is obtained if the ordering cost is

equal to the storage cost.
This method uses an approach to the concept of the
number of economical orders used in each period that
are of a discrete or diverse nature. Calculation of the
period order quantity method (POQ) uses an
economical order basis which will later be used as
supporting data to calculate the optimal order interval.
So that the company can reduce the cost incurred in
making an order because by using this method orders
made by the company will not be more than 4 (four)
times in one month.
THE PATTERN OF POQ

Ordering Cost = Holding Cost

(D/Q)S = H(Q/2) [ 1 – d/p]

Q 2
= 2DS
-------------
H[1 – d/p]

Q = 2DS / H[1 – d/p]

 Where :
 D: annual request
 S: booking fee
 H: storage costs
 Q: optimum number of items
 d: daily demand level
 p: daily production level
Example problems of POQ

Known: D = 1,000 units

S = Rp. 15,000
H = IDR 10,000 per unit per year
p = 8 units / day
d = 4 units / day

Asked: what is the optimum quantity?

Optimum Quantity : Q = 2DS / H[1 – d/p]

Q= 2 (1.000)(15.000)
----------------------------
10.000[1-4/8]

Q= 6000 = 77,4 = 78 Units/month

QUANTITY DISCOUNT MODEL

Quantity discount is simply a reduced price because an

item is purchased in large quantities.

- Determination of the quantity of an order even with the

largest order even may not minimize total inventory
costs.

- Indeed, with increasing discounts because the quantity

of product costs will decrease but storage costs will
increase because of the larger number of orders
 The main factor in considering discounts
because of quantity is reduced product costs
and increased storage costs.

Total costs = booking fees + storage costs +

product costs
TC = (D / Q) S + (Q / 2) H + PD

P = Price per unit

Example of Quantity Discount

Known: D = 5000 units

S = Rp. 25,000
H = 20% = 0,2
Asked: optimum quantity?
Jadwal kuantitas
NO. DISCOUNT DISCOUNT QUANTITY DISCOUNT (%) DISCOUNT PRICE (P)

1. 0-999 NO DISCOUNT 50

2. 1.000-1.999 4 48

3. >=2.000 5 40
Optimum Quantity : Q = 2DS/HP

Q1 = 2 (5.000)(25.000)
---------------------- = 25.000.000
(0,2)( 50)
= 5.000 units

Q2 = 2 (5.000)(25.000)
--------------------- = 2.400.000
(0,2)(48)
Q2 = 2.400.000 = 1.549,2 unit

Q3 = 2 (5.000)(25.000)
----------------------
(0,2) ( 40)

= 31.250.000 = 5.590,2 unit

EXERCISE
 The VIYATA Company in 2014 planned to produce
18,000 units at a price of Rp.5,000 per unit. To
make one unit of finished product requires 2.5 kg of
raw material, at a price of Rp.1,200 per kg. The raw
material must be ordered 2 weeks in advance, with
a message fee of Rp.50,000. Save costs consist of
9% warehouse rental fees and 6% insurance costs
of raw material prices. Safety stock of 1,000 kg.
Calculate EOQ, Order costs, Safety stock fees,
Storage fees and Reorder Points!
SEKIAN