Analysis Of Inventory Control With The Continuous Review System, Periodic Review System, And Min-Max Method Method

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Introduction

Inventory control is a crucial activity carried out by companies to ensure that consumer needs are met properly and at low costs. In today's competitive market, effective inventory management is essential for businesses to stay ahead of the competition. CV. Global Pratama, a plastic distribution company that serves 16 types of plastic products, faces challenges in terms of inventory management in Pekanbaru, Riau. Over the past two years, the company has experienced excess inventory, which is 39% in 2020 and 35% in 2021. In addition, the company also experienced stockout problems in several products, caused by fluctuating market demand and lack of effective inventory control methods.

The Importance of Inventory Control

Inventory control is a critical function that helps companies to manage their inventory levels, minimize stockouts, and reduce excess inventory. Effective inventory control can lead to significant cost savings, improved customer satisfaction, and increased competitiveness. In this study, we aim to evaluate and determine the optimal inventory model in determining the quantity of ordering by considering the minimum total cost. The three methods analyzed in this study are the Continuous Review System, Periodic Review System, and Min-Max Method.

Inventory Control Methods

Continuous Review System

The Continuous Review System is a method that requires the company to continuously monitor the level of inventory and re-order when the amount of inventory reaches a certain point (reorder point). In this way, companies can avoid stockouts and manage inventory costs more efficiently. This method is particularly useful for companies with fluctuating market demand, as it allows them to respond quickly to changes in demand.

Periodic Review System

The Periodic Review System is a method where the inventory is checked at a fixed time interval. If the inventory level is below certain limits, the company will place an order to recharge the stock. Although this method is easier to apply, the risk of stockout can be higher because there is no ongoing monitoring. This method is suitable for companies with stable market demand, as it allows them to maintain a consistent inventory level.

Min-Max Method

The Min-Max Method is a method that sets the minimum and maximum limit for inventory. When the amount of inventory reaches the minimum limit, ordering will be made to reach the maximum limit. This allows companies to have good control over demand fluctuations. This method is particularly useful for companies with high demand variability, as it allows them to maintain a consistent inventory level.

Results and Analysis of Inventory Costs

Based on the calculations, the total cost of inventory according to company policy is Rp. 5,610,815,960 per year. Meanwhile, the results of the analysis using each method showed:

  • Total inventory costs with Continuous Review System: Rp. 5,035,020,914 per year.
  • Total inventory costs with Periodic Review System: Rp. 5,049,289,602 per year.
  • Total inventory costs with Min-Max Method: Rp. 5,143,927,748 per year.

From these results, it can be seen that the Continuous Review System provides an optimal total inventory cost, with savings reaching 10.26% compared to current company policies. The use of this method allows companies not only to reduce costs, but also increase response to changes in market demand.

Conclusion

Exact inventory control is very important for distribution companies such as CV. Global Pratama. Through the analysis conducted, it is proven that the application of the Continuous Review System method can provide significant benefits in terms of cost efficiency and inventory management. By adopting this method, companies can minimize stockout risk, reduce excess inventory, and increase customer satisfaction. Therefore, it is important for companies to consider the application of this method as part of a better inventory management strategy in the future.

Recommendations

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

  • CV. Global Pratama should adopt the Continuous Review System method as part of its inventory management strategy.
  • The company should continuously monitor its inventory levels and re-order when the amount of inventory reaches a certain point.
  • The company should also consider implementing a just-in-time inventory system to reduce excess inventory and minimize stockout risk.

Limitations of the Study

This study has several limitations, including:

  • The study only analyzed three inventory control methods, and other methods may also be effective.
  • The study only considered the total cost of inventory and did not consider other factors such as customer satisfaction and inventory turnover.
  • The study only analyzed the data from CV. Global Pratama and may not be generalizable to other companies.

Future Research Directions

Future research should focus on:

  • Analyzing other inventory control methods and their effectiveness.
  • Considering other factors such as customer satisfaction and inventory turnover in the analysis.
  • Conducting a more comprehensive analysis of the data from other companies to increase generalizability.

Conclusion

In conclusion, this study has shown that the Continuous Review System method can provide significant benefits in terms of cost efficiency and inventory management. By adopting this method, companies can minimize stockout risk, reduce excess inventory, and increase customer satisfaction. Therefore, it is important for companies to consider the application of this method as part of a better inventory management strategy in the future.

Introduction

In our previous article, we discussed the importance of inventory control and analyzed three inventory control methods: the Continuous Review System, Periodic Review System, and Min-Max Method. In this article, we will answer some frequently asked questions (FAQs) related to inventory control and provide additional insights on how to implement these methods in your business.

Q: What is inventory control, and why is it important?

A: Inventory control is the process of managing and tracking inventory levels to ensure that the right products are available in the right quantities at the right time. It is essential for businesses to control their inventory levels to minimize stockouts, reduce excess inventory, and improve customer satisfaction.

Q: What are the benefits of implementing an inventory control system?

A: The benefits of implementing an inventory control system include:

  • Reduced stockouts and excess inventory
  • Improved customer satisfaction
  • Increased efficiency and productivity
  • Reduced costs and improved profitability
  • Better decision-making and forecasting

Q: What are the three inventory control methods analyzed in this study?

A: The three inventory control methods analyzed in this study are:

  • Continuous Review System: This method requires the company to continuously monitor the level of inventory and re-order when the amount of inventory reaches a certain point (reorder point).
  • Periodic Review System: This method involves checking the inventory at a fixed time interval and re-ordering when the inventory level is below a certain limit.
  • Min-Max Method: This method sets the minimum and maximum limit for inventory and re-orders when the amount of inventory reaches the minimum limit.

Q: Which inventory control method is the most effective?

A: The Continuous Review System is the most effective inventory control method, as it provides an optimal total inventory cost, with savings reaching 10.26% compared to current company policies.

Q: How can I implement the Continuous Review System in my business?

A: To implement the Continuous Review System, you will need to:

  • Set up a system to continuously monitor your inventory levels
  • Determine the reorder point and reorder quantity
  • Re-order when the inventory level reaches the reorder point
  • Continuously review and adjust the system as needed

Q: What are some common challenges associated with inventory control?

A: Some common challenges associated with inventory control include:

  • Inaccurate forecasting and demand estimation
  • Insufficient inventory levels
  • Excess inventory levels
  • Stockouts and lost sales
  • Inefficient inventory management processes

Q: How can I overcome these challenges?

A: To overcome these challenges, you can:

  • Improve forecasting and demand estimation techniques
  • Implement a just-in-time inventory system
  • Use data analytics and visualization tools to track inventory levels and trends
  • Continuously review and adjust your inventory management processes

Q: What are some best practices for inventory control?

A: Some best practices for inventory control include:

  • Regularly reviewing and adjusting your inventory levels
  • Implementing a just-in-time inventory system
  • Using data analytics and visualization tools to track inventory levels and trends
  • Continuously training and educating employees on inventory management processes
  • Regularly reviewing and adjusting your inventory management policies and procedures

Conclusion

In conclusion, inventory control is a critical function that helps businesses to manage their inventory levels, minimize stockouts, and reduce excess inventory. By implementing an effective inventory control system, businesses can improve customer satisfaction, increase efficiency and productivity, and reduce costs and improve profitability. We hope that this Q&A article has provided you with additional insights and information on how to implement an effective inventory control system in your business.