Increasing the accuracy of planning

Oct 13, 2025 by vinooalluri.com 136 views

Analysis of Raw Material Inventory Control with Economic Order Quantity (EOQ) Method for Multi Item (Case Study: Syahfira Bakery Factory)

Introduction

The rapid development of the business world presents a significant challenge for every business, both new and established. The increasingly massive globalization also encourages increasingly fierce competition. In this case, management of raw material inventory is a crucial factor that determines business continuity. Effective management of raw material inventory can help businesses to minimize costs, reduce waste, and increase competitiveness in the market.

The Importance of Raw Material Inventory Control

Raw material inventory control is a critical aspect of business operations, especially in the food industry sector. The Syahfira Bakery factory, for example, faces classic problems in controlling raw material inventory. Lack of raw materials is at risk of inhibiting the production process, while excess raw materials will burden storage costs. To overcome this, the application of the Economic Order Quantity (EOQ) method is the right solution.

The Economic Order Quantity (EOQ) Method

The EOQ method is a mathematical model that helps the company determine the optimal amount of raw materials that must be ordered in one purchase so that storage costs and ordering costs can be minimized. This method considers various factors such as ordering costs, storage costs, and demand for raw materials. The EOQ method is widely used in various industries, including the food industry sector, to optimize raw material inventory control.

Case Study: Syahfira Bakery Factory

The Syahfira Bakery factory is a leading bakery in the food industry sector. The factory produces a wide range of bakery products, including bread, cakes, and pastries. The factory faces classic problems in controlling raw material inventory, including lack of raw materials and excess storage costs. To overcome this, the factory applied the EOQ method to optimize raw material inventory control.

Methodology

The EOQ method was applied to the Syahfira Bakery factory to optimize raw material inventory control. The method considers various factors such as ordering costs, storage costs, and demand for raw materials. The EOQ model was developed using the following formula:

EOQ = √(2DS/H)

Where:

EOQ = Economic Order Quantity
D = Demand for raw materials
S = Ordering cost
H = Storage cost

Results

The results of the analysis showed that the total cost of raw material inventory according to the Syahfira Bakery factory reached Rp. 4,770,206,141. Meanwhile, using the EOQ method, the total cost of raw material inventory can be reduced by Rp. 3,160,948,702, so that a savings of Rp. 1,609,257,439.

Benefits of the EOQ Method

The application of the EOQ method not only helps in cost efficiency but also provides other benefits such as:

*** Increasing the accuracy of planning: ** EOQ helps in predicting more accurately the needs of raw materials in the future, so as to minimize the risk of shortcomings or excess stock. *** Streamlining cash flow: ** By reducing inventory costs, company cash flows become smoother, so that they can be used for other needs such as business development. ** Increasing productivity: ** Availability of timely raw materials and guaranteed will increase the productivity of the production process, so that it can produce more optimal output.

Conclusion

This research is expected to provide a real picture of how the application of the EOQ method can help companies, especially in the food industry sector, in optimizing controlling raw material inventory. Thus, companies can improve operational efficiency, minimize waste, and increase competitiveness in the market.

Recommendations

Based on the results of this study, the following recommendations are made:

The EOQ method should be applied to other companies in the food industry sector to optimize raw material inventory control.
The EOQ method should be integrated with other inventory management systems to improve operational efficiency.
The EOQ method should be used to predict demand for raw materials in the future to minimize the risk of shortcomings or excess stock.

Limitations

This study has several limitations, including:

The study only focused on the Syahfira Bakery factory and did not consider other companies in the food industry sector.
The study only considered the EOQ method and did not consider other inventory management systems.
The study only considered the cost efficiency of the EOQ method and did not consider other benefits such as increasing productivity and streamlining cash flow.

Future Research Directions

Future research should focus on the following areas:

Developing a more comprehensive inventory management system that integrates the EOQ method with other inventory management systems.
Conducting a study on the application of the EOQ method in other industries, such as the manufacturing industry.
Conducting a study on the impact of the EOQ method on company performance, including cost efficiency, productivity, and cash flow.

References

[1] Hillier, F. S., & Lieberman, G. J. (2010). Introduction to operations research. McGraw-Hill.
[2] Kotler, P. (2012). Marketing management. Pearson.
[3] Taylor, D. W. (2013). Operations management. Cengage Learning.

Note: The references provided are a selection of relevant academic sources that support the research findings and recommendations.
Frequently Asked Questions (FAQs) about Raw Material Inventory Control with Economic Order Quantity (EOQ) Method

Introduction

In our previous article, we discussed the importance of raw material inventory control and the application of the Economic Order Quantity (EOQ) method to optimize raw material inventory control. In this article, we will answer some frequently asked questions (FAQs) about raw material inventory control with EOQ method.

Q1: What is the EOQ method and how does it work?

A1: The EOQ method is a mathematical model that helps companies determine the optimal amount of raw materials that must be ordered in one purchase so that storage costs and ordering costs can be minimized. The EOQ method considers various factors such as ordering costs, storage costs, and demand for raw materials.

Q2: What are the benefits of using the EOQ method?

A2: The EOQ method provides several benefits, including:

Increasing the accuracy of planning: EOQ helps in predicting more accurately the needs of raw materials in the future, so as to minimize the risk of shortcomings or excess stock.
Streamlining cash flow: By reducing inventory costs, company cash flows become smoother, so that they can be used for other needs such as business development.
Increasing productivity: Availability of timely raw materials and guaranteed will increase the productivity of the production process, so that it can produce more optimal output.

Q3: How can I calculate the EOQ?

A3: The EOQ can be calculated using the following formula:

EOQ = √(2DS/H)

Where:

EOQ = Economic Order Quantity
D = Demand for raw materials
S = Ordering cost
H = Storage cost

Q4: What are the limitations of the EOQ method?

A4: The EOQ method has several limitations, including:

Assumes constant demand: The EOQ method assumes that demand for raw materials is constant, which may not be the case in reality.
Does not consider lead time: The EOQ method does not consider lead time, which can affect the availability of raw materials.
Does not consider other costs: The EOQ method only considers ordering costs and storage costs, and does not consider other costs such as transportation costs and handling costs.

Q5: Can I use the EOQ method for other types of inventory?

A5: Yes, the EOQ method can be used for other types of inventory, including:

Finished goods inventory: The EOQ method can be used to optimize finished goods inventory, which can help to reduce storage costs and improve cash flow.
Work-in-progress inventory: The EOQ method can be used to optimize work-in-progress inventory, which can help to reduce storage costs and improve productivity.
Service inventory: The EOQ method can be used to optimize service inventory, which can help to reduce storage costs and improve customer satisfaction.

Q6: How can I implement the EOQ method in my company?

A6: To implement the EOQ method in your company, you can follow these steps:

Conduct a demand analysis: Conduct a demand analysis to determine the demand for raw materials.
Determine the ordering cost: Determine the ordering cost, including transportation costs and handling costs.
Determine the storage cost: Determine the storage cost, including storage space and maintenance costs.
Calculate the EOQ: Calculate the EOQ using the formula EOQ = √(2DS/H).
Implement the EOQ: Implement the EOQ by ordering the optimal amount of raw materials.

Q7: What are the future research directions for the EOQ method?

A7: Future research directions for the EOQ method include:

Developing a more comprehensive inventory management system: Developing a more comprehensive inventory management system that integrates the EOQ method with other inventory management systems.
Conducting a study on the application of the EOQ method in other industries: Conducting a study on the application of the EOQ method in other industries, such as the manufacturing industry.
Conducting a study on the impact of the EOQ method on company performance: Conducting a study on the impact of the EOQ method on company performance, including cost efficiency, productivity, and cash flow.

Conclusion

In this article, we have answered some frequently asked questions (FAQs) about raw material inventory control with EOQ method. We hope that this article has provided valuable information and insights for companies that are looking to optimize their raw material inventory control.