Optimal Inventory Calculation

Oct 13, 2025 by vinooalluri.com 113 views

Introduction

In the industrial world, inventory management plays a crucial role in ensuring the smooth production process. One of the key aspects of inventory management is the management of raw materials, which are essential for the production of goods. A well-managed inventory system can help companies to maintain a stable supply of raw materials, reduce costs, and improve customer satisfaction. This article discusses the measurement of raw material inventory performance at CV Royal Insan Mandiri, a company that produces DIM Sum frozen products.

Background

CV Royal Insan Mandiri is a subsidiary of Royal Food, which produces a variety of frozen products, including DIM Sum. The company has a large inventory of raw materials, including chicken and shrimp, which are essential for the production of its products. However, the company has faced challenges in managing its inventory, including a shortage of supply of chicken raw materials on April 25-26, 2022, due to a surge in demand. This shortage resulted in a high price of raw materials, which affected the company's profitability.

Methodology

This study aims to measure the performance of raw material inventory at CV Royal Insan Mandiri using various methods, including:

Inventory Turnover Rates: This method measures the number of times inventory is sold and replaced within a given period.
Number of Days Supply: This method measures the number of days that inventory is available to meet customer demand.
Fill Rate: This method measures the percentage of customer demand that is met from inventory.
Economic Order Quantity (EOQ): This method calculates the optimal amount of inventory to order to minimize costs.
Safety Stock: This method calculates the amount of inventory to hold in reserve to meet unexpected demand.
Reorder Point (ROP): This method calculates the point at which inventory should be reordered to meet customer demand.

Results

The results of this study show that the level of inventory turnover for chicken raw materials was highest in June 2022, with a value of 68.35. For shrimp raw materials, the best value was recorded in March 2022, with a value of 68.79. The calculation of the number of days inventory supply for chicken raw materials showed the optimal value in May 2022, with a value of 9.14. For shrimp, the best value was recorded in March 2022, with a value of 9.82. The level of inventory fulfillment (fill rate) reached 100%, indicating that all customer demand was met without problems.

Optimal Inventory Calculation

The calculation of the optimal amount of inventory using the EOQ, Safety Stock, and ROP methods showed that for chicken raw materials, the EOQ was 1,033 kg per order, the safety stock was 40.41 kg, and the ROP was 133.67 kg. For shrimp raw materials, the EOQ was 605 kg per order, the safety stock was 40.41 kg, and the ROP was 72.41 kg.

Conclusion

The results of this study show that effective inventory management is crucial for companies to maintain a stable supply of raw materials, reduce costs, and improve customer satisfaction. The use of performance measurement techniques, such as inventory turnover rates, number of days supply, fill rate, EOQ, safety stock, and ROP, can help companies to achieve better efficiency in the management of raw material inventory. By understanding and applying these techniques, companies can improve their inventory management and achieve better profitability and sustainability.

Recommendations

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

Regular Inventory Monitoring: Companies should regularly monitor their inventory levels to ensure that they are meeting customer demand.
Inventory Optimization: Companies should use performance measurement techniques, such as EOQ, safety stock, and ROP, to optimize their inventory levels and reduce costs.
Supply Chain Management: Companies should manage their supply chain effectively to ensure that they have a stable supply of raw materials.
Customer Satisfaction: Companies should prioritize customer satisfaction by meeting customer demand and reducing lead times.

Useful Resources

For companies that want to improve their inventory management, the following resources are recommended:

Inventory Management Guide: This guide provides an overview of inventory management and its importance for businesses.
EOQ Method in Inventory Management: This article explains the EOQ method and its application in inventory management.
How to Calculate Safety Stock: This article provides a step-by-step guide on how to calculate safety stock.

By understanding and applying these techniques, companies can improve their inventory management and achieve better profitability and sustainability.

Q: What is the importance of inventory management in a manufacturing company?

A: Inventory management is crucial for a manufacturing company as it ensures that the production process runs smoothly, reduces costs, and improves customer satisfaction. A well-managed inventory system can help companies to maintain a stable supply of raw materials, reduce waste, and improve efficiency.

Q: What are the key performance indicators (KPIs) used to measure inventory performance?

A: The key performance indicators (KPIs) used to measure inventory performance include:

Inventory Turnover Rates: This measures the number of times inventory is sold and replaced within a given period.
Number of Days Supply: This measures the number of days that inventory is available to meet customer demand.
Fill Rate: This measures the percentage of customer demand that is met from inventory.
Economic Order Quantity (EOQ): This calculates the optimal amount of inventory to order to minimize costs.
Safety Stock: This calculates the amount of inventory to hold in reserve to meet unexpected demand.
Reorder Point (ROP): This calculates the point at which inventory should be reordered to meet customer demand.

Q: What is the Economic Order Quantity (EOQ) method and how is it used in inventory management?

A: The Economic Order Quantity (EOQ) method is a mathematical formula used to calculate the optimal amount of inventory to order to minimize costs. It takes into account the cost of ordering, the cost of holding inventory, and the demand for the product.

Q: What is the purpose of safety stock in inventory management?

A: Safety stock is the amount of inventory held in reserve to meet unexpected demand or to cover for any stockouts. It helps to ensure that the company can meet customer demand even if there are any disruptions in the supply chain.

Q: How can companies improve their inventory management and reduce costs?

A: Companies can improve their inventory management and reduce costs by:

Regularly monitoring inventory levels: This helps to ensure that inventory is not overstocked or understocked.
Using performance measurement techniques: This helps to identify areas for improvement and optimize inventory levels.
Implementing just-in-time (JIT) inventory management: This helps to reduce inventory levels and improve efficiency.
Improving supply chain management: This helps to ensure that raw materials are available when needed and reduces lead times.

Q: What are the benefits of effective inventory management?

A: The benefits of effective inventory management include:

Improved customer satisfaction: This is achieved by meeting customer demand and reducing lead times.
Reduced costs: This is achieved by minimizing inventory levels and reducing waste.
Improved efficiency: This is achieved by streamlining inventory management processes and reducing manual errors.
Increased profitability: This is achieved by reducing costs and improving efficiency.

Q: How can companies measure the effectiveness of their inventory management?

A: Companies can measure the effectiveness of their inventory management by:

Tracking key performance indicators (KPIs): This helps to identify areas for improvement and optimize inventory levels.
Conducting regular inventory audits: This helps to ensure that inventory is accurate and up-to-date.
Analyzing inventory data: This helps to identify trends and patterns in inventory levels and demand.
Implementing a continuous improvement program: This helps to identify areas for improvement and implement changes to optimize inventory management.

Q: What are some common challenges faced by companies in inventory management?

A: Some common challenges faced by companies in inventory management include:

Inventory obsolescence: This occurs when inventory becomes outdated or obsolete.
Inventory shrinkage: This occurs when inventory is lost or stolen.
Inventory overstocking: This occurs when inventory levels are higher than needed.
Inventory understocking: This occurs when inventory levels are lower than needed.

Q: How can companies overcome these challenges?

A: Companies can overcome these challenges by:

Implementing a just-in-time (JIT) inventory management system: This helps to reduce inventory levels and improve efficiency.
Using advanced inventory management software: This helps to streamline inventory management processes and reduce manual errors.
Conducting regular inventory audits: This helps to ensure that inventory is accurate and up-to-date.
Analyzing inventory data: This helps to identify trends and patterns in inventory levels and demand.