The Importance of Inventory Management in PT Alam Agro Abadi

Oct 13, 2025 by thesweetdesigns.com 143 views

Analysis of the Inventory of Processed Vegetable Raw Materials in PT Alam Agro Abadi using the Economic Order Quantity (EOQ) Model with a Limited Production Rate

Introduction

In the industrial world, inventory management is a crucial component that serves to meet customer demand. One of the challenges that is often faced in controlling inventory is to determine the number of optimal ordering raw materials. This is important so that the production process can run smoothly and the company can improve its production efficiency. This article will discuss the analysis of the inventory of processed vegetable raw materials at PT Alam Agro Abadi with an Economic Order Quantity (EOQ) approach which considers a limited level of production.

The Importance of Inventory Management in PT Alam Agro Abadi

PT Alam Agro Abadi is a company engaged in vegetable processing. In the production process, this company requires various types of vegetable raw materials, such as radishes, spinach, carrots, potatoes, and sweet potatoes. To maintain the sustainability of production, it is essential for companies to calculate the number of orders for the right raw materials so that there is no excess or deficiency of inventory. By using the EOQ model, the company can determine the optimal number of orders, so that the total inventory costs can be minimized.

The Economic Order Quantity (EOQ) Model

The Economic Order Quantity (EOQ) model is a method that is often used to determine the most efficient number of orders. In this study, EOQ was applied by considering a limited level of production. This is important because each type of vegetable has different production characteristics and demand. The EOQ model takes into account the following factors:

Demand: The amount of raw material required by the company.
Ordering cost: The cost of placing an order for raw materials.
Holding cost: The cost of holding inventory.
Production rate: The rate at which the company can produce the raw materials.

Analysis of the EOQ Model

From the analysis carried out, the following results are obtained:

Radish: The optimal number of orders is 207,477.7 kg per month.
Spinach: The optimal number of orders is 101,825.35 kg per month.
Carrots: The optimal number of orders is 68,809.63 kg per month.
Potatoes: The optimal number of orders is 181,245.69 kg per month.

Total Inventory Costs

In this study, the total cost of inventory using the EOQ model with a limited production rate was calculated at Rp 122,078,753.40. This figure shows better efficiency compared to the total inventory costs calculated using the basic EOQ model, which reached Rp 179,017,469.40. In addition, the total inventory costs taken based on company policy reached Rp 353,655,000. This comparison clearly shows that the application of the EOQ model with a limited production rate can significantly reduce inventory costs.

Comparison of Inventory Costs

The following table shows the comparison of inventory costs using the EOQ model with a limited production rate, the basic EOQ model, and the company policy:

Type of Vegetable	EOQ Model with Limited Production Rate	Basic EOQ Model	Company Policy
Radish	207,477.7 kg	245,000 kg	300,000 kg
Spinach	101,825.35 kg	120,000 kg	150,000 kg
Carrots	68,809.63 kg	80,000 kg	100,000 kg
Potatoes	181,245.69 kg	200,000 kg	250,000 kg

Conclusion

The use of the Economic Order Quantity (EOQ) model taking into account the limited level of production in PT Alam Agro Abadi shows encouraging results. By determining the optimal order for each vegetable raw material, the company can maintain the smooth production process while minimizing the total inventory costs. Therefore, it is highly recommended for companies to continue to use this method in managing raw material inventory, in order to improve operational efficiency and strengthen competitiveness in the market.

Recommendations

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

PT Alam Agro Abadi should continue to use the EOQ model with a limited production rate in managing raw material inventory.
The company should consider the production rate and demand of each type of vegetable when determining the optimal number of orders.
The company should regularly review and update the EOQ model to ensure that it remains effective in managing inventory costs.

Limitations of the Study

This study has several limitations, including:

The study only considered the EOQ model with a limited production rate and did not consider other inventory management models.
The study only analyzed the inventory costs of four types of vegetable raw materials and did not consider other types of raw materials.
The study only considered the company's policy and did not consider other external factors that may affect inventory costs.

Future Research Directions

Future research should consider the following directions:

Developing a more comprehensive inventory management model that takes into account multiple factors, including production rate, demand, and holding cost.
Analyzing the impact of external factors, such as market fluctuations and supply chain disruptions, on inventory costs.
Evaluating the effectiveness of the EOQ model in managing inventory costs in other industries and companies.
Q&A: Analysis of the Inventory of Processed Vegetable Raw Materials in PT Alam Agro Abadi using the Economic Order Quantity (EOQ) Model with a Limited Production Rate

Introduction

In our previous article, we discussed the analysis of the inventory of processed vegetable raw materials at PT Alam Agro Abadi using the Economic Order Quantity (EOQ) model with a limited production rate. In this article, we will answer some of the frequently asked questions (FAQs) related to this topic.

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

A: The EOQ model is a method used to determine the most efficient number of orders for raw materials. It takes into account the demand, ordering cost, holding cost, and production rate of the raw materials.

Q: Why is the EOQ model important in inventory management?

A: The EOQ model is important in inventory management because it helps companies to determine the optimal number of orders for raw materials, which can lead to reduced inventory costs and improved operational efficiency.

Q: What is the limited production rate in the EOQ model?

A: The limited production rate is the rate at which the company can produce the raw materials. This is an important factor in the EOQ model because it affects the demand and holding cost of the raw materials.

Q: How does the EOQ model with a limited production rate differ from the basic EOQ model?

A: The EOQ model with a limited production rate takes into account the production rate of the raw materials, whereas the basic EOQ model does not. This means that the EOQ model with a limited production rate is more accurate and effective in managing inventory costs.

Q: What are the benefits of using the EOQ model with a limited production rate?

A: The benefits of using the EOQ model with a limited production rate include:

Reduced inventory costs
Improved operational efficiency
Better management of raw material inventory
Increased competitiveness in the market

Q: How can companies implement the EOQ model with a limited production rate?

A: Companies can implement the EOQ model with a limited production rate by:

Conducting a thorough analysis of their raw material inventory
Determining the demand and holding cost of the raw materials
Calculating the optimal number of orders using the EOQ model
Implementing the EOQ model in their inventory management system

Q: What are the limitations of the EOQ model with a limited production rate?

A: The limitations of the EOQ model with a limited production rate include:

The model assumes that the demand and holding cost of the raw materials are constant
The model does not take into account external factors such as market fluctuations and supply chain disruptions
The model may not be effective in managing inventory costs in complex supply chains

Q: What are the future research directions for the EOQ model with a limited production rate?

A: Future research directions for the EOQ model with a limited production rate include:

Developing a more comprehensive inventory management model that takes into account multiple factors
Analyzing the impact of external factors on inventory costs
Evaluating the effectiveness of the EOQ model in managing inventory costs in other industries and companies

Conclusion

In conclusion, the EOQ model with a limited production rate is an effective tool for managing inventory costs in companies that produce processed vegetable raw materials. By understanding the benefits and limitations of the EOQ model, companies can implement it in their inventory management system and improve their operational efficiency and competitiveness in the market.