INVENTORY PLANNING FOR IMPORTED PLASTIC RAW MATERIAL USING ECONOMIC ORDER QUANTITY (EOQ) METHOD BY CONSIDERING THE UNIT DISCOUNT AND BUDGET LIMITATION IN PT. X

Abstract

As the flexible packaging manufacturer, PT. X produces various types of products according to customer demand, with a make to order system. The raw material used is plastic film imported from abroad with each raw material ordered with different suppliers. Management of import raw material inventory at PT. X is not optimal because PT. X does not implemented any method but only takes the simplest way which purchases material once a month based on the previous data without considering the efficiency and effectiveness of raw material availability. Then, forecasting method applied is not appropriate yet based on estimated orders from the previous period. The shortage of imported raw materials to meet production needs is a problem in the inventory control system at PT. X, because PT. X This makes PT. X must procure raw materials quickly so that the shortage of imported raw materials can be covered. PT. X purchases raw materials ship by air with the price of imported raw materials per unit increasing 40% from normal purchases by shipping by sea. This will have an impact on the embedded of inventory costs. Linear regression forecasting method is used to perform forecasting and then the optimal raw material inventory control is carried out using the Economic Order Quantity (EOQ) method. The optimal order results from the EOQ method will be used to analyze the budget limitation. To find out the order quantity based on the existing budget, the EOQ method will be developed by considering a unit discount. The results of the proposed method shows that the annual total inventory cost decreases from IDR 129,941,758,916 to IDR 122,636,229,042 or reduced by 5.55% per year. However total inventory cost with the company’s method and using EOQwith Unit Discount model is from IDR 129,941,758,916 to IDR 110,508,929,368 or reduced by 14.96% per year.