Conduct sensitivity analysis

Oct 13, 2025 by thesweetdesigns.com 115 views

Application of Raw Material Inventory Control Using the Economic Order Quantity (EOQ) Method and its Sensitivity Analysis: A Case Study of PT. Medan Sobi Soy Sauce Cap

Introduction

The smooth running of a production process is heavily reliant on the availability of raw materials in the right quantities and sizes to meet the company's needs. In this context, PT. Medan Sobi Soy Sauce Cap, a company engaged in the production of soy sauce, faces challenges in managing five main types of raw materials: soybeans, flour, brown sugar, white sugar, and salt. This study aims to compare the total inventory costs incurred by the company with the total cost that should be used by applying the Economic Order Quantity (EOQ) method.

The Importance of Raw Material Inventory Control

Raw material inventory control is a critical aspect of production management, as it directly affects the efficiency and profitability of a company. Effective inventory control ensures that raw materials are available in the right quantities and at the right time, reducing the risk of excess or lack of raw materials. This, in turn, saves operational costs and improves the overall performance of the company.

The Economic Order Quantity (EOQ) Method

The EOQ method is a technique used to determine the optimal amount of raw materials that must be ordered to minimize total inventory costs, including storage costs and ordering costs. By implementing EOQ, companies can be more efficient in managing inventory, reducing the risk of excess or lack of raw materials, and ultimately saving operational costs.

EOQ Calculation Results at PT. Medan Sobi Soy Sauce Cap

In this study, calculations have been carried out to compare the ongoing inventory management policy with the results of calculations using the EOQ method. Based on the results of the analysis, here are the total inventory costs obtained for each raw material:

Soybeans:
- Current company inventory costs: Rp. 43,380,000
- Inventory costs using EOQ: Rp. 42,897,998
- Savings: 1.1%
Flour:
- Current company inventory costs: Rp. 10,902,000
- Inventory costs using EOQ: Rp. 10,549,857
- Savings: 3.23%
Brown sugar:
- Current company inventory costs: Rp. 41,199,000
- Inventory costs using EOQ: Rp. 40,747,467
- Savings: 1.09%
White sugar:
- Current company inventory costs: Rp. 44,592,000
- Inventory costs using EOQ: Rp. 44,110,736
- Savings: 1.07%
Salt:
- Current company inventory costs: Rp. 3,088,800
- Inventory costs using EOQ: Rp. 2,981,823
- Savings: 3.46%

From the data above, it appears that the EOQ method provides more optimal and efficient results, resulting in significant savings in inventory costs.

Sensitivity Analysis

Sensitivity analysis on EOQ calculations is done by observing the frequency of ordering on time intervals between orders. The results of the analysis show that the higher the order frequency, the smaller time interval between orders will be. Conversely, if the order frequency decreases, the time interval between orders will be even greater.

This is important to be understood by the company, as it can help in making strategic decisions about when and how much raw materials must be ordered. By conducting sensitivity analysis, companies can regulate better allocation of resources and anticipate changes in market demand.

Conclusion

The application of the Economic Order Quantity (EOQ) method in controlling raw material inventory at PT. Medan Sobi Soy Sauce Cap has been proven to provide significant benefits. Through this approach, companies can not only reduce inventory costs but also increase operational efficiency. Therefore, it is recommended that the company continues to apply and monitor the use of this method to maintain the sustainability of an efficient production process.

Recommendations

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

Implement the EOQ method: PT. Medan Sobi Soy Sauce Cap should implement the EOQ method to optimize raw material inventory control and reduce inventory costs.
Conduct sensitivity analysis: The company should conduct sensitivity analysis to understand the impact of order frequency on time intervals between orders and make strategic decisions accordingly.
Monitor and review: The company should regularly monitor and review the implementation of the EOQ method to ensure its effectiveness and make adjustments as needed.

By following these recommendations, PT. Medan Sobi Soy Sauce Cap can maintain an efficient production process and improve its overall performance.
Frequently Asked Questions (FAQs) on the Application of Raw Material Inventory Control Using the Economic Order Quantity (EOQ) Method

Q: What is the Economic Order Quantity (EOQ) method?

A: The EOQ method is a technique used to determine the optimal amount of raw materials that must be ordered to minimize total inventory costs, including storage costs and ordering costs.

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

A: The EOQ method provides several benefits, including:

Reduced inventory costs
Improved operational efficiency
Reduced risk of excess or lack of raw materials
Increased profitability

Q: How does the EOQ method work?

A: The EOQ method involves calculating the optimal order quantity based on the following factors:

Demand rate
Ordering cost
Holding cost
Lead time

Q: What is the difference between the EOQ method and other inventory control methods?

A: The EOQ method is a more advanced inventory control method that takes into account the optimal order quantity, whereas other methods may use a fixed order quantity or a periodic review system.

Q: Can the EOQ method be used for all types of inventory?

A: The EOQ method is typically used for inventory items with a high demand rate and a relatively low holding cost. It may not be suitable for inventory items with a low demand rate or a high holding cost.

Q: How can the EOQ method be implemented in a company?

A: The EOQ method can be implemented in a company by:

Identifying the inventory items that are suitable for the EOQ method
Calculating the optimal order quantity using the EOQ formula
Implementing a just-in-time (JIT) inventory system
Monitoring and reviewing the inventory levels regularly

Q: What are the limitations of the EOQ method?

A: The EOQ method has several limitations, including:

It assumes a constant demand rate and a fixed lead time
It does not take into account the impact of inflation or changes in market demand
It may not be suitable for inventory items with a high degree of variability

Q: Can the EOQ method be used in conjunction with other inventory control methods?

A: Yes, the EOQ method can be used in conjunction with other inventory control methods, such as the Just-In-Time (JIT) system or the Economic Production Quantity (EPQ) method.

Q: How can the EOQ method be used to improve supply chain management?

A: The EOQ method can be used to improve supply chain management by:

Reducing inventory costs and improving operational efficiency
Improving the accuracy of demand forecasting and lead time estimation
Enhancing the collaboration between suppliers and customers

Q: What are the future developments in the EOQ method?

A: Future developments in the EOQ method may include:

The use of advanced analytics and machine learning algorithms to improve demand forecasting and lead time estimation
The integration of the EOQ method with other inventory control methods, such as the JIT system or the EPQ method
The development of new EOQ formulas that take into account the impact of inflation or changes in market demand.