Determination Of The Size Of A Combined Lot Of The Buyer And Supplier Using The VMI (Vendor Managed Inventory) Approach At PT. XYZ

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Introduction

In today's fast-paced business environment, effective inventory management is crucial for companies to meet the needs of their buyers and related distributors. PT. XYZ, a manufacturing company that produces sprocket gear products, is no exception. With two distributors in Riau and Kalimantan, the company faces challenges in managing its inventory system, particularly with the high level of defective products causing a sustainable shortage. To address this issue, PT. XYZ has implemented a backorder policy for inventory management. However, to be more effective in managing the inventory and size of the lot, the company has applied the Joint Economic Lot Size (JELS) method with the Vendor Managed Inventory (VMI) approach.

Background of the Problem

PT. XYZ is a manufacturing company that produces sprocket gear products, with one of the main products being the 160-2.56 inch (65.02 mm) sprocket gear gear gear (65.02 mm). However, the production process at PT. XYZ has experienced problems, where the high level of defective product causes a sustainable shortage. As a result, the company was forced to implement a backorder policy for inventory management. This policy has resulted in a significant increase in costs, with the total cost reaching $411,677.5.

The Vendor Managed Inventory (VMI) Approach

The VMI approach is a collaborative inventory management strategy between the supplier and buyer. This approach allows synchronization of inventory management throughout the supply chain, which in turn will optimize the total cost. By applying the VMI approach, PT. XYZ has been able to reduce the total cost for supply chains to $110,634, compared to the total cost that previously reached $411,677.5. This means there is a potential savings of $301,043 for the company.

Joint Economic Lot Size (JELS) Method

The JELS method is a mathematical model used to determine the optimal lot size for both the buyer and supplier. This method takes into account the costs of production, transportation, and inventory holding. By applying the JELS method, PT. XYZ has been able to determine the optimal lot size for both the buyer and supplier, which has resulted in a significant reduction in costs.

Ordering Settings at PT. XYZ

Ordering settings at PT. XYZ is done once a year, with shipping to the buyer is done four times each year. The set of manufacturing lots set is 1,798 units, while the lot size for buyers is 2,248 units. From the backorder analysis, the company also found that the optimal number of shortage products was 118 units per month.

Sensitivity Analysis

Sensitivity analysis shows that despite an increase in costs up to 100% and 200%, the impact on total fixed costs is limited, which is only 34% and 40%. This shows that the model applied is quite resistant to cost fluctuations and can still provide the expected efficiency.

Conclusion

By applying the Jels and VMI methods, PT. XYZ not only succeeded in reducing costs, but also increasing efficiency in inventory management. This approach offers a relevant framework for other companies in similar industries that want to optimize their supply chains and overcome the problems of defective products and shortages. The success of PT. XYZ in implementing this strategy shows the importance of collaboration between suppliers and buyers in achieving mutually beneficial goals.

Recommendations

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

  • PT. XYZ should continue to apply the JELS and VMI methods to optimize its supply chain and reduce costs.
  • Other companies in similar industries should consider applying the JELS and VMI methods to optimize their supply chains and overcome the problems of defective products and shortages.
  • Collaboration between suppliers and buyers is essential in achieving mutually beneficial goals.

Limitations of the Study

This study has several limitations, including:

  • The study only focuses on PT. XYZ and may not be applicable to other companies.
  • The study assumes that the costs of production, transportation, and inventory holding are fixed and do not change over time.
  • The study does not consider other factors that may affect the supply chain, such as demand variability and supply chain disruptions.

Future Research Directions

Future research should focus on:

  • Developing a more comprehensive model that takes into account other factors that may affect the supply chain.
  • Testing the JELS and VMI methods in other companies and industries.
  • Investigating the impact of other factors, such as demand variability and supply chain disruptions, on the supply chain.

Conclusion

In conclusion, this study has shown that the JELS and VMI methods can be effective in optimizing the supply chain and reducing costs. The success of PT. XYZ in implementing this strategy shows the importance of collaboration between suppliers and buyers in achieving mutually beneficial goals. Future research should focus on developing a more comprehensive model and testing the JELS and VMI methods in other companies and industries.

Q: What is the Vendor Managed Inventory (VMI) approach?

A: The VMI approach is a collaborative inventory management strategy between the supplier and buyer. This approach allows synchronization of inventory management throughout the supply chain, which in turn will optimize the total cost.

Q: What is the Joint Economic Lot Size (JELS) method?

A: The JELS method is a mathematical model used to determine the optimal lot size for both the buyer and supplier. This method takes into account the costs of production, transportation, and inventory holding.

Q: What are the benefits of applying the JELS and VMI methods?

A: The benefits of applying the JELS and VMI methods include:

  • Reduced costs
  • Increased efficiency in inventory management
  • Improved collaboration between suppliers and buyers
  • Optimal lot size for both the buyer and supplier

Q: How does the VMI approach work?

A: The VMI approach works by:

  • Synchronizing inventory management throughout the supply chain
  • Optimizing the total cost
  • Reducing the need for inventory holding and transportation costs

Q: What are the limitations of the JELS and VMI methods?

A: The limitations of the JELS and VMI methods include:

  • The study only focuses on PT. XYZ and may not be applicable to other companies
  • The study assumes that the costs of production, transportation, and inventory holding are fixed and do not change over time
  • The study does not consider other factors that may affect the supply chain, such as demand variability and supply chain disruptions

Q: What are the future research directions for the JELS and VMI methods?

A: The future research directions for the JELS and VMI methods include:

  • Developing a more comprehensive model that takes into account other factors that may affect the supply chain
  • Testing the JELS and VMI methods in other companies and industries
  • Investigating the impact of other factors, such as demand variability and supply chain disruptions, on the supply chain

Q: How can companies apply the JELS and VMI methods in their supply chain?

A: Companies can apply the JELS and VMI methods in their supply chain by:

  • Collaborating with their suppliers and buyers to synchronize inventory management
  • Using mathematical models to determine the optimal lot size for both the buyer and supplier
  • Implementing a VMI approach to optimize the total cost

Q: What are the implications of the JELS and VMI methods for supply chain management?

A: The implications of the JELS and VMI methods for supply chain management include:

  • Improved collaboration between suppliers and buyers
  • Reduced costs and increased efficiency in inventory management
  • Optimal lot size for both the buyer and supplier

Q: How can companies measure the success of the JELS and VMI methods in their supply chain?

A: Companies can measure the success of the JELS and VMI methods in their supply chain by:

  • Tracking the reduction in costs and increase in efficiency in inventory management
  • Monitoring the improvement in collaboration between suppliers and buyers
  • Evaluating the impact of the JELS and VMI methods on the supply chain as a whole.