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Improving Inventory Management In Power Generation Company

2140 words - 9 pages Inventory Control Model
The oldest inventory control model was introduced by Ford W Harris in 1915. The approach of this model is to build a model of an idealized inventory system and calculate the fixed order quantity that minimizes total costs. This optimal order size is called the economic order quantity (EOQ) (Waters, 2003). The EOQ model depends on four parameters, there is; demand is known and constant, holding cost is known and constant, order cost is known and constant and the unit cost is known and constant. So, based on the parameters can be shown that in EOQ approach the pattern is figured like a tooth.

Figure 2.3 Economic Order Quantity
Source: Waters (2003

In addition, when the right time to order is commonly called by recommended order point (ROP). ROP is working based on two parameters, average demand during lead time and safety stock. But, Lin (1980) which cited in Zong (2008) stated that safety stock is not necessary if the supplier is reliable and there is no seasonal demand.
In his studies, Slack (2007) stated that In many cases, the Economic Batch Quantity (EBQ) system, is useful for item which produced internally and intermittent. Other inventory control model known as Vendor Managed Inventory (VMI), is retailer-vendor relationship inventory model which the buyer allowed the vendor gives replenishment based on actual demand.
The other inventory control method is Just in Time. Abuhilal (2006) stated that there is a method to manage inventory which emphasizing on how to get the most effective cost. The method is pull system, JIT. This method was introduced by Toyota Corp as a one of pull method inventory management. Boyd (2002) states that JIT method implementation gives a positive trend effect to short-term company financial indicator. The benefit to the company which successfully implement JIT method is the lower carrying cost, increased warehouse space and cost saving in the factory and warehouse. JIT implementation also reduced risk of obsolescence, and the most important is reducing response time toward customer’s orders.
For usual spare part, which classified as ‘not critical’ spare part, is the inventory control model can use standard inventory model which stated on textbooks which described above (Driessen et all, 2010)

2.1.3 ABC Analysis
Introduced by General Electric during 1950s ABC Analysis become very popular management tool. ABC Analysis is an inventory control method according to the Pareto Principle, which has a function to classify inventory into several groups based on the level of urgency from various categories (Jamshidi, 2008). Christoper (2011) in his book, also describe that typical ABC Analysis divided SKU groups on their profitability into three categories based on parreto principle. Basically ABC analysis principle states that manage the vital few items that will allow us to control the situation. Furthermore, the cost savings from the management of the cheap items we can switch to...


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