IMPLEMENTATION OF ECONOMIC ORDER QUANTITY WITH BACKORDERING TO REDUCE INVENTORY COST AT PT. XX

Abstract

This research focused on solving the problems of inventory management that cause the inventory cost rising. The problem in PT. XX is the stock out condition of raw material SPHC270C-OD that cause the backorder in month June, July, September and November. The result of observation is to found that PT. XX is not using the inventory management system to control the order of raw material. The decision of ordering material every month is based on the management forecast calculation. The forecast calculation using fluctuation approach to forecast the future demand of raw material. The result is PT. XX has to backorder 8,619kgs of raw material to cover the stock out and the total inventory is Rp.46,572,239,-. This research tries to reduce the inventory cost and prevent the back order by using Economic Order Quantity with Backorder. The result is inventory cost using EOQ is Rp.17,093,377,- and it can reduced 63.3% of the current method and also PT. XX can save Rp.29,478,862,-. For the forecasting method, Holt Winter Multiplicative Exponential Smoothing is the best forecasting method that suitable with the trend and seasonal condition of the demand. The forecast demand for year 2014 is 381,692kgs with total inventory cost of Rp.18,034,566,-.