Volume 8, Issue 11, November 2023 International Journal of Innovative Science and Research Technology

ISSN No:-2456-2165

Optimizing Inventory Management with

Inventory Control and Ordering Methods
in the Automotive Industry
Muhammad Hamzah Makarim, Antonius Setyadi
Mercubuana University, Indonesia

Abstract:- Tight competition encourages every company 14.8% so that the automotive industry is facing several
to increase its competitiveness by making efficiency in all challenges(Gaikindo, 2022). The impact of competition on
fields, one of which is by controlling inventory in the the automotive market makes assembly plants more
company by optimizing warehousing costs, availability of demanding in terms of cost and functionality. They must
raw materials and products. At the same time by also be able to guarantee a wide selection of functionality at
avoiding interruptions in the production flow. As one of a competitive price (Priniotakis & Argyropoulos, 2018;
the companies that produces car engines, the company Zowid et al., 2019). One of the functionalities that play an
optimizes inventory to meet consumer demand and avoid important role is inventory management. Deciding the right
production stops. The problem that occurs in this degree of stock is basic since stock ties up cash and
company is that only 20% of the components have the influences execution. Having an excessive amount of stock
amount of stock that is in accordance with the decreases working capital and influences the liquidity of the
company's planning. Based on these problems, there is a organization. On the other hand, too little stock prompts
need for proper classification of component and stock-outs and lost deals prompting diminished benefits.
inventory policy to minimize the occurrence of excess Obviously the board's consideration ought to be centered
stock experienced by the company. In this study, around keeping stock levels some in the middle between,
component classification is using ABC and XYZ analysis. endeavoring to increment consumer loyalty and limit stock-
In addition, the company needs to determine its stock outs while keeping stock expenses as low as could really be
level, reorder components using the Reorder Point expected (Saliji, 2021).
(ROP) method, and optimize the number of orders
ordered for each part with Economic Order Quantity This research was conducted at an automotive
(EOQ). The results of this study obtained a grouping of company that produces car engines where most of the basic
components for classes A = 15 components, B = 18 ingredients of engine parts are imported goods. In its
components and C = 78 components and X = 86 arrangement, the company divides it into 2 categories,
components, Y = 8 components and Z = 17 components. namely local goods and imported goods. In this factory, the
By improving the ROP and EOQ values, the company standard stock for imported parts is 2 months yet as
can optimize inventory by reducing the amount of displayed in Figure 1 the bar diagram shows the quantity of
inventory by 9.1 billion. part numbers in the distribution center for how long of stock
while the line shows the level of the piece. The data used in
Keywords:- Inventory, ABC analysis, XYZ analysis, Reorder this study are components used in the engine production
point (ROP), Economic Order (EOQ). process in the automotive industry. We can see in the picture
below that the number of components that meet these
I. INTRODUCTION criteria is only 19 (nineteen) part numbers out of a total of
111 part numbers or 20% of the total components in the
The automotive industry is currently growing warehouse. While other components exceed the target set by
according to data from the Indonesian Automotive Industry the company, there are even 13 part numbers that have a
Association (GAIKINDO) car sales in 2022 were 1,048,000 storage period of more than 12 months.
units, this figure increased compared to the total in 2021 by

Fig. 1: Inventory at the end of February 2023

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Volume 8, Issue 11, November 2023 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
The condition of the number of parts that experience inventory in the warehouse is currently 38% (154,522
overstock will greatly affect the total inventory in the MIDR) of the total inventory including raw materials that
company. This causes the total inventory costs that must be are experiencing overstock. Of course, this condition can
spent by the companyto be high and exceed the allocation of indirectly disrupt the company's cash flow.
inventory costs. As found in Figure 2 where the total

Fig. 2: Total Inventory at Engine warehouse

In inventory management is commonly used ABC A. ABC Analysis

analysis method to separate items based on pareto diagrams The priorities for inventory management are established
(Umry & Singgih, 2019). ABC analysis is not difficult to using ABC analysis. There are three classes of inventories:
utilize and figured out by many individuals. Other stock A, B, and C. Class A inventories receive the greatest
grouping involving XYZ examination to characterize parts attention and management efforts, whilst class C receives
in light of its interest fluctuation(Swastomo et al., 2020). the least attention and class B is in between A and B.(Jadhav
& Jaybhaye, 2020).
In connection with this condition, it is important for
companies to look at their inventory policies. Companies Each item is categorized by ABC analysis based on the
need to classify raw materials to determine the level of stock annual investment made in inventory acquisition.
and reorder, one of which is by using the Reorder Point Commodities can be classified into three categories using
(ROP) method, this strategy is generally used to decide the Pareto principle.(Kučera & Suk, 2019; Prachuabsupakij,
when the stock will be repurchased so that the amount of 2019)
basic materials available can meet production needs (Daman  Category A (70-20) comprises product categories that
& Nusraningrum, 2020). In addition, companies need to account for 70% of the total capital, and the quantity of
optimize the number of orders ordered for each part with items handled represents 20% of all product categories.
Economic Order Quantity (EOQ). This strategy is a  Category B (15–30), which includes products that make
technique used to decide how much of goods that can be up around 20% of the total capital allocated for inventory
ordered in a period for the purpose of minimizing the cost of (following category A), with roughly 30% of all
inventorying these goods with this method the company can commodities handled falling into this group.
maximize profits in terms of shipping and storage  Things in Category C (10–50) represent both the
costs(Nobil et al., 2020). quantity of things that account for roughly 50% of all
handled items and those that only take up around 5% of
II. LITERATUR RIVIEW the entire capital.
Inventory is an inactive asset whose presence is B. XYZ Analysis
hanging tight for the following system. The following An XYZ analysis classifies an object based on its range
system can be through assembling activities that occur in of possible uses. Three categories are created by this study
factories or consumption activities that occur in households, for the products.(Suryaputri et al., 2022):
offices and others (Maulaya et al., 2019; Swastomo et al.,
 X-classes are things with steady interest that have little
2020). Inventory not only provides added value, but also
change and can be estimated with high exactness.
incurs costs. These costs can be categorized into different
 Y-class things with variable interest with moderate
sections depending on the approach chosen such as ordering
changes and moderate expectation exactness.
costs, storage costs, and shortage costs (Taufik Djatna,
2020)Hence inventory is the most important part of assets  Z-class, how much interest for different wares shifts
and working capital in a business. For smooth operations, significantly after some time and is difficult to gauge.
every organization needs some sort of inventory to
maintain(Malviya et al., 2020).

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Volume 8, Issue 11, November 2023 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
In view of the Variety Coefficient (CV), the predefined vacillations (Trubchenko et al., 2020). The blend of these
boundaries are XYZ examination grouping two examinations assists in deciding the buying technique
positioning(Saputra et al., 2018): for each stock grouping and figuring out what items ought to
 Class X with a Coefficient of Variety under 0.5. continuously be in with loading, when items ought to be
 Class Y with a Coefficient of Variety somewhere in the requested, and when items are requested by the estimate
range of 0.5 and 1. results (Christopher Amadeus Herlambanga, 2021).
 Class Z with a Coefficient of Variety more noteworthy
than 1. The ABC - XYZ examination network should be
visible in Table 1, where X is classified as an item with
C. Combination ABC and XYZ Analysis steady interest, Y is an item with fluctuating business sector
ABC examination has constraints that can be covered by interest and Z is an item with little or exceptionally dubious
XYZ examination, which adds a variable normal of interest interest (Suryaputri et al., 2022).

Table 1: Combination ABC and XYZ

D. ROP Analysis increases, storage costs will increase because the average
To oversee stock, it is important to decide when the amount of inventory that must be maintained is more (Nisa,
stock should be added to keep up with stock at the ideal 2019).
point. This point is regularly known as Reorder point (ROP)
(Umry & Singgih, 2019). The purpose of the EOQ method is to calculate the
total order with the most economical level that must be
According to (Darmawan et al., 2021)material control ordered by a company that still pays attention to the
with Reorder Point (ROP), the decision regarding when to financing of total ordering and storage costs (Romadhon &
submit a reorder lies in two factors, namely; the first is Wardoyo, 2021)if this method can be applied properly, of
consideration of the level of reordering directly based on course, the amount of inventory available will be better and
normal usage and the second is consideration of safety reduce the risk of the item becoming damaged.To calculate
preparations based on the degree of uncertainty and the level the Economic Order Quantity the formula used is:
of service requested.To compute the reorder point stock the
equation utilized is:
2 ×𝐷×𝑆
𝐸𝑂𝑄 = √
𝑅𝑂𝑃 = (𝑑 × 𝐿) + 𝑆𝑆…………..(1) 𝐻

With: With:
ROP = Reorder Point D = annual demand for raw material inventory
d = Demand S = cost required per order
L = Lead-time H = the fee required for storage per unit annually
SS = Safety Stock
III. RESERCH RESULT
E. EOQ Analysis
EOQ an accounting formulation that determines the A. ABC Analysis
point at which the combination of order cost and inventory The item to be dissected purposes ABC for 111 items,
delivery cost is the least, then the result will be the most the division in ABC examination for each class depends on
cost-effective quantity to order(Daman & Nusraningrum, Pareto and item center. In the wake of dissecting utilizing
2020). As the quantity ordered increases, the number of ABC from the current item, the outcomes are as per the
orders per year will decrease, but as the quantity ordered following:

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Volume 8, Issue 11, November 2023 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165

Fig. 3: ABC Classification Result

Based on the calculation results in Figure 3, it can be XYZ analysisis utilized when the interest for a part can
concluded that of the 111 components in the warehouse, differ fundamentally starting with one part then onto the
group A amounts to 15 types or 13.5%, group B amounts to next for a specific item. XYZ investigation sorts items into
18 types or 16.2% and group C amounts to 78 items or three gatherings. There is bunch X for items with persistent
70.3%. The results of this grouping have an impact on the interest, portrayed by tiny vacillations and request can be
handling of raw materials in the warehouse.According to assessed with great precision. Then bunch Y for parts whose
(Suryaputri et al., 2022) for components that are class A are utilization is discontinuous, the interest changes and has a
strict inventory control, the recording system must be medium degree of interest estimate exactness. The latter is
monitored so that it is precise and carried out every day. bunch Z for items whose utilization after some time has a
Furthermore, the handling of class B raw materials with huge distinction popular volume and is truly challenging to
moderate or periodic inventory control, and the handling of gauge. The consequences of part gathering in the
night raw materials is in class C with infrequent inventory distribution center in light of XYZ examination should be
control. visible in Figure 4.

B. XYZ Analysis

Fig. 4: XYZ Classification Result

This can be concluded that from 111 components in the approaches applied to each subsequent attribute is clear
X group warehouse, there are 86 types or 77%, Y group is 8 because the execution of the general framework relies on the
types or 7% and C group is 17 items or 15%. fusion of the two (Suryaputri et al., 2022). Subsequent to
leading ABC and XYZ investigation, a grid was made to
C. ABC and XYZ Analysis bunch natural substances and parts in light of the
Based on the examination results of XYZ characterizing consequences of the two examinations. This framework has
products by considering changes in interest, this can nine groupings in light of the combination of ABC and XYZ
overcome the constraints of ABC investigation. The examination as displayed in Table 2.
relationship between the characterization and stock control

Table 2: ABC and XYZ Combination Result

Prediction/ Value A B C
X 14 Items 16 Items 56 Items
Y - - 8 Items
Z 1 Item 2 Items 14 Items

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Volume 8, Issue 11, November 2023 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
D. ROP of 20 working days and in this company determines that the
In the ROP, ordering components based on average daily safety stock for each component is 2 months, the results of
usage, safety stock and lead-time required for the the ROP calculation of the components in the warehouse
component can be received by the company. Because this based on this calculation are compare with the company’s
engine component is sent from abroad which has a lead-time determination are as in table3 below:

Table 3: ROP Comparison

ROP Tesis
No Part No ROP system Diff
ini
1 21111-2M030 17.000 17.159 159
2 28300-2M200 17.200 18.159 959
3 35300-2M370 17.200 18.159 959
4 21130-2M001 17.000 18.159 1.159
5 25600-2M030 16.750 18.159 1.409
6 25600-2M060 500 602 102
7 22140-2M050 17.150 16.959 -191
8 23111-2M100 17.200 18.159 959
9 24300-2M011 17.200 18.159 959
10 22410-2M010 17.200 18.159 959
11 23510-2M500 68.950 68.636 -314
12 24100-2M020 17.200 18.159 959
13 24500-2M800 275.050 274.544 -506
14 24200-2M020 17.200 18.159 959
15 24400-2M011 17.200 18.159 959
16 23200-2M100 500 602 102
17 23410-2M510 60.100 59.465 -635
18 39210-2M360 17.200 18.159 959
19 25280-2M000 17.200 18.159 959
20 21310-2M030 17.200 18.159 959
- - - - -
- - - - -
106 23611-2M500 - - -
107 21211-2M550 - - -
108 21211-2M500 - - -
109 21111-2M001 - - -
110 21191-2M100 - - -
111 22410-2M030 - - -

From the above comparison, it is found that there are can create a risk of not fulfilling demand.In Figure 5 we can
parts that have ROP numbers that are higher and lower than see the impact of inventory on the company, the impact of
the calculation. With the high level of ROPit will have an the high ROP value the company has an additional inventory
potential impact on the high value of inventory in the of around 9.11 billion.
company, as well as the low level of existing inventory that

Fig. 5: Summary ROP Comparison

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Volume 8, Issue 11, November 2023 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
E. EOQ ordering cost for each order. Meanwhile, if the order
With the correct application of the EOQ method, it can exceeds EOQ, it will have an impact on increasing storage
have a positive impact on the company, such as minimizing costs and the high amount of inventory in the warehouse.
ordering costs and reducing storage costs.Lower component This impact can be seen from the graph generated by the
procurement to EOQ can lead to an increasing higher EOQ calculation using POM QM for Windows in Figure6.

Fig. 6: EOQ Calculation result by POM QM

From Figure 6 we can see that the equilibrium point for Pharmaceutical Science and Clinical Research, 6(1),
component 21111-2M030 is at 566.17 or 566 if rounded up, 20. https://doi.org/10.20961/jpscr.v6i1.38960
which is the meeting point between holdingcost and setup [4]. Gaikindo. (2022). 10 BESAR PENJUALAN MOBIL
cost where the point shows the lowest cost that must be WHOLE SALES BY BRAND INDONESIA.
incurred by the company for ordering raw materials for Www.Gaikindo.or.Id. https://www.gaikindo.or.id/10-
component 21111-2M030. besar-penjualan-mobil-whole-sales-by-brand-
indonesiajanuari-desember-2022/
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Industry Case Study : ABC and HML Analysis for
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