Inventory Control Analysis of Raw Material for Making

the Men’s Formal Trousers at PT. Dirgayusa

Apparelindo

Sarah Febrina Yolanda, and Asep Kurniawan

Faculty of Economic and Business, Universitas Jenderal Achmad Yani, Cimahi, Indonesia

Abstract. Inventory has an important role in a business operation, the company

is required to do proactive management that able to anticipate problems and

challenges in inventory management. Through optimal inventory control,

companies can reduce inventory costs so the company goals can be achieved.

This study aims to determine the control of raw materials applied by PT.

Dirgayusa Apparelindo. This research is a descriptive study with a qualitative

approach. Data collection in this study was carried out in the natural setting,

primary data through observation, interviews, and documentation. Data validity

and reliability were tested using triangulation techniques. The results showed that

company in carrying out inventory control is still not optimal, especially in efforts

to reduce the ordering cost, the risk of storage in warehouse, and in determining

the amount of inventory. The company also has not applied any ordering decision

techniques, so it is recommended to use the MRP method.

Keywords: Raw materials ꞏ Material requirement planning ꞏ Inventory control ꞏ

Inventory

1 Introduction

The Indonesian Ministry of Industry has set a growth target for the non-oil and gas

industry in 2018 by 5.67 percent. The target is increased by 0.83 percent from 2017

where the non-oil and gas processing industry only grew by 4.84 percent. The Minister

of Industry said that various potentials and opportunities to accelerate industrial growth

need to be utilized optimally, so that Indonesia can achieve a high quality and

sustainable economic growth [1]

So in this case, we need a policy that must be considered by the company, which is

a policy in implementing production planning and control activities. The unavailability

of raw materials for the production process is one of the things that can cause a

production system not run properly, therefore the company is required to do proactive

management that is able to anticipate problems and challenges that exist in inventory

management. How ever, the creation and storage of inventory is a cost, and to achieve

high levels of efficiency the cost of inventory should be kept as low as possible. [2]

Every company must be able to make decisions about the procurement of raw

material inventory at the company. Determination of the amount of investment in

inventory that is not right will reduce company profits. If the raw material inventory is

too large compared to the company's requirements it will effect to prepare also a large

Yolanda, S. and Kurniawan, A.

Inventory Control Analysis of Raw Material for Making the Men’s Formal Trousers at PT. Dirgayusa Apparelindo.

DOI: 10.5220/0009869900002900

In Proceedings of the 20th Malaysia Indonesia International Conference on Economics, Management and Accounting (MIICEMA 2019), pages 301-307

ISBN: 978-989-758-582-1; ISSN: 2655-9064

301

enough fund to purchase materials, that means the fund tied up in the investment of raw

material is becoming greater. Vice versa, if the supply of raw materials is too small,

and can not meet the needs of the company for the production process it will result the

frequency of raw material purchase will become greater. [3]

PT. Dirgayusa Apparelindo is one of the companies in the manufacturing industry,

products produced by PT. Dirgayusa Apparelindo is men's trousers that produced by

order. Procurement of raw materials at PT. Dirgayusa Apparelindo is determined by the

number of orders. Based on the order received, the company calculates the amount of

raw materials needed to fulfill the production process.

The company will determines and schedules the arrival time of raw materials to

subsequently enter the production process. However, in reality there are often delays in

the arrival of raw materials that hamper the production process, because the

unavailability of raw materials, which is concern by researchers is the delay in arrival

of raw materials that occurred in March, April and July 2018 delays that delayed in

very long that is 21 days and 20 days.

Delay in the arrival of this raw material will certainly have an impact on product

completion that is not in accordance with the schedule planned by the company, and it

is feared that it will make consumers dissatisfied because the product is not finished at

the specified time. Inventory management entails more than simply the forecasting and

replenishment of inventory; it also demands the management of inventory to optimize

services and profits. [4] The main issue of this research is there is a delay in the arrival

of raw materials so that it interferes the production process caused by the unavailability

of raw materials needed to carry out in production process activities due to lack of

inventory control.

2 Literature Review

2.1 Inventory

Inventory is one of the factors of production that influences the smooth production

process. The availability of raw materials will be closely related to the number of

products to be produced. The definition of inventory according to Samanta, et al [5] is

a physical stock of any items or resources used in organization. While the American

Production Inventory Control Society Dictionary in Shenoy and Rosas [6] inventory is

those stock or items used to support production (raw materials and work-in-process

items), .. supporting activities (maintenance, repair, and operating supplies ), and

customer service (finished goods and spare parts). Furthermore Hansen and Mowen in

Wauran, et al [7], said that inventory is all the money that organizations spends in

turning materials. Inventory is both goods and resources used to support the production

process. Inventory can be in the form of raw materials, work in process, supporting

activities, and customer service in the form of finished goods. Inventory of raw

materials is very important in a company, especially in manufacturing companies,

because it can affect the production quality of a company.

The main purpose of the inventory is to ensure the availability of raw materials for

the purposes of the production process. Meanwhile, according to Muller [8] the purpose

of inventory is predictability, fluctuations in demand, unreliability of supply, price

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protection, quantity discounts and lower ordering cost. Inventory must function

effectively and efficiently in its implementation so that it can support the company in

achieving its objectives. According to Sainadh and Sandhya [9] Inventory management

helps the manager to take the appropriate decisions at minimum cost for a period of

time. It creates a link between production and distribution departments. It fulfills the

stock by recognizing the need of inventory at the right time.

While the inventory function according to [9] inventory management helps the

manager to take the appropriate decisions among thestock and at minimum cost for a

period of time. It creates a link between production and distribution department. It

fulfils the stock by recognising the need of inventory at the right time, inventory

function is used to optimize inventory levels to facilitate production and sales activities.

2.2 Inventory Control

Wild [10] said that inventory control is the activity that organises the availability of

items to customers. It coordinates the purchasing, manufacturing and distribution

functions to meet marketing needs. While Miller in Sainadh and Sandhya [9], Inventory

control manages the shortage and accessibility of stock to secure the supply without

excessive supply of inventory. Based on the understanding of inventory control above,

it can be concluded that inventory control is an activity that regulates the availability of

goods to customers. It also coordinates the purchasing function, production function

and distribution function to meet market needs. Inventory control manages and secures

the supply of inventory so as not to overdo it or shortage, and therefore it is necessary

to balance and control inventory between purchases and production needs based on

customer orders.

The purpose of inventory control in general is to determine and guarantee the

availability of finished products, processed goods, components and raw materials in an

optimal manner, in optimal quantity and optimal time. The objectives of inventory

control according to Liu [11] is to control the existing inventory at a reasonable level

to prevent unnecessary product from being added to the inventory, to determine

purchasing cycle and order lead time, determine the batch and quantity of the orders,

and to determine the supplier’s on-time delivery rate, cooperation, and quality.

Inventory control also estimates the fluctuations in raw material prices in the future,

regulations the government concerning material inventory, the purchase price of raw

materials, storage costs and the risk of storing it in warehouses and the rate of material

being damaged.

2.3 Material Requirement Planning

Material Requirement Planning is a method which consists of a set of procedures,

decision rules and a set of recording mechanisms designed to describe the master

production schedule. The benefits of the Material Requirement Planning method are to

provide better responses to orders, provide faster responses, and increase the use of

facilities and labor, while also optimizing the amount of inventory. Material

Requirement Planning according to Heizer, et al [12] is a dependent demand technique

that uses a bill of materials, inventory, expected receipts, and a master production

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schedule to determine material requirements. While Palanivel and Karkuzhali [13]

Material Requirement Planning (MRP) is a logical, easily understandable approach to

the problem of determining raw materials, assemblies, sub-assemblies and parts needed

to manufacture an end product, it can be concluded that Material Requirement Planning

is an information management system that can support production decisions. Material

Requirement Planning is designed to regulate the planning of raw material

requirements, elements and components that will be used in the production process.

Material Requirement Planning is compiled based on some information available to

the company as the main input. According to Agrawal [14] The core data requirements

for doing materials planning system are: (1) The Production Plan: It specifies the

quantity of each finished unit of product to be produced and the time at which each unit

will be needed. (2) The Bill of Materials: It specifies the sub-assemblies components

and materials required for each finished goods. (3) The Inventory Records: It maintains

details of items in hand for each subassemblies components and materials needed for

each finished goods. (4) The Routing File: This file specifies the sequence of operations

required to manufacture components, subassemblies and finished goods. The MRP

system has three main steps that must be implemented, which is netting, is the process

of calculating the net needs for each period during planning. Lotting, is the process of

determining the quantity of orders to meet several periods of net need in one period at

a time. Offseting, is the process of determining the time or period for an order so that

the net needs for a period can be met.

3 Methodology

PT. Dirgayusa Apparelindo is one of the companies engaged in the manufacturing

industry, products produced by PT. Dirgayusa Apparelindo is formal and casual men's

trousers, can produce 46,800 pcs formal and casual men's trousers per month.

This research uses descriptive method with a qualitative approach. Because it uses

qualitative methods, this research does not use population, but uses a "social situation"

or social situation consisting of 3 elements, namely: places, actors, and activities that

interact synergistically. This study uses a sampling technique that is non probability

sampling with snowball sampling data collection techniques. Data sources or

informants in this research are the Head of Production, Head of Marketing, Head of

Purchasing, Head of Production Planning and Inventory Control, and Head of

Warehouse Section at PT. Dirgayusa Apparelindo.

Data collection technique uses in this research is by directly observing the place

where the research object is located in order to see the actual situation so that

information is obtained directly from the research object. In this study the role of the

document is as a complement so that the research results are increasingly credible. The

author uses data collection with observation and interviews techniques. The documents

used in this study are the company's official internal documents in the form of 2018

Period Fabric Arrival Report, 2018 Period Fabric Purchase Report, Production Planning

and Implementation Schedule, Men's Formal Trousers Pants Order Period 2018.

The author uses data analysis techniques consisting of data reduction, data display,

and conclusion drawing / verification. The process of testing the validity and reliability

in this study, used a triangulation process. Triangulation is qualitative cross-validation.

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It assesses the efficiency of the data according to the convergence of multiple data

sources or multiple data collection procedures. The process of triangulation is a data

validity test technique by utilizing something outside the data to confirm or compare it.

4 Results and Discussion

4.1 The Objectives of Raw Material Inventory Control in the Making of

Men's Formal Trousers at PT. Dirgayusa Apparelindo

Maintain Production Continuity. In the implementation of the objectives of

controlling the supply of raw materials for the production of men's formal trousers at

PT. Dirgayusa Apparelindo that is maintaining the continuity of production does not

experience problems, because in reality the activities of the production process at PT.

Dirgayusa Apparelindo has never stopped. This study found that in maintaining the

amount of raw material inventory of PT. Dirgayusa Apparelindo has effectively

controlled the supply of raw materials for zipper, buttons, hard cloth, yarn and labels.

However, the raw material for the type of plate fabric and the layer cloth is still not

effective because sometimes in some periods of the production process there is still an

excess of raw materials which causes an increase in inventory.

Efforts to Reduce Ordering Costs. In the implementation of the objectives of

controlling the supply of raw materials for the manufacture of men's formal trousers at

PT. Dirgayusa Apparelindo that is to reduce the cost of the message has not been fully

compliant because in several production process periods the order is placed in a small

quantity, causing an increase in the message charge rate for each unit of raw material

ordered. In terms of ordering raw materials PT. Dirgayusa Apparelindo has no problems

because of the quantity and quality of raw materials received by the company in

accordance with those ordered and determined so that the company does not need to re-

order which can increase the cost of ordering raw materials.

4.2 Inventory Factors of Raw Material Inventory Control in the

Making of Men's Formal Trousers at PT. Dirgayusa Apparelindo

Amount Needed. In the implementation of the factors of raw material inventory

making men's formal trousers at PT. Dirgayusa Apparelindo namely the amount needed

by the company does not experience obstacles, because in every production process the

company does not experience a shortage of raw materials. PT. Dirgayusa Apparelindo

always calculates the amount of raw materials needed in a production process, so that

PT. Dirgayusa Apparelindo can fulfill all the company's needs in carrying out

production process activities. PT. Dirgayusa Apparelindo determines the calculation of

the amount of raw material needs by multiplying the total product to be produced by

each amount of raw material needed. PT. Dirgayusa Apparelindo is also given a

tolerance of 20% for fabric raw material types and a tolerance of 10% for raw materials

included in the accessories component of the quantity of each raw material that has

Inventory Control Analysis of Raw Material for Making the Men’s Formal Trousers at PT. Dirgayusa Apparelindo

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been calculated. The company's implementation in determining the amount needed is

in accordance with what was planned beforehand.

Risk of Storage in Warehouse. In the implementation of the factors of raw material

inventory making men's formal trousers at PT. Dirgayusa Apparelindo namely the risk

of storage in warehouses is still not effective. PT. Dirgayusa Apparelindo carries out

routine maintenance of the remaining inventory in the warehouse, but no efforts have

been made to reduce the amount of inventory left in the warehouse.

4.3 Steps in Controlling Raw Material Inventory for Making Men's

Formal Trousers at PT. Dirgayusa Apparelindo

Determine the Amount of Inventory At the implementation of steps to control the

supply of raw materials for the manufacture of man’s formal trousers at PT. Dirgayusa

Apparelindo, namely the determination of the amount of raw material inventory

included in the category of accessories, layer cloth, zipper, buttons, hard cloth, yarn and

labels, has no problems, because basically these raw materials are raw materials that

are widely available in the market so that raw materials are easy obtained and always

arrive on time according to the needs of PT. Dirgayusa Apparelindo to carry out the

production process. However, in determining the amount of inventory of raw materials,

the type of plate fabric experienced several obstacles caused by the delay in arrival of

raw materials. The unavailability of raw materials according to a predetermined

schedule can hamper the company's production process so that the company's daily

production target cannot be achieved to the maximum. So in reality what has been

planned by the company does not go according to what the company planned due to the

determination of the amount of inventory does not match what the company planned.

Establish Inventory Administration. In the implementation of steps to control the

supply of raw materials for the manufacture of men's formal trousers at PT. Dirgayusa

Apparelindo, which is to determine the administration of inventory that has been

running according to what has been determined by the company. PT. Dirgayusa

Apparelindo in determining the company's administration is quite effective, because

the administrative flow is very clear and all data regarding raw materials has been well

recorded.

4.4 Planning for the Production of Men's Formal Pants using the

Material Requirement Planning Method

Planning for the production of men's formal trousers using the Material Requirement

Planning method at PT. Dirgayusa Apparelindo stipulated that the master production

schedule for 8 periods for November 2018 and December 2018 with a total production

of 39,437 pcs divided into 9,860 pcs for each production period. Lotting technique used

in the application of Material Requirement Planning at PT. Dirgayusa Apparelindo is a

Lot for Lot technique, where the procurement of raw materials is done based on the

needs of raw materials for each production period. The next Material Requirement

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Planning table is prepared based on information on information about raw material

inventory data, total net demand, lot sizing of raw material purchases, and lead time for

raw material purchases.

5 Conclusion

The results showed that company in carrying out inventory control is still not optimal,

especially in efforts to reduce the ordering cost, to reduce the risk of storage in

warehouse, and in determining the amount of inventory. PT. Dirgayusa Apparelindo

also has not applied any ordering decision techniques, so it is recommended to use the

material requirements planning method so the company can plan production process

activities more directed and can schedule the arrival of raw materials in accordance

with the required raw materials. So that the risk of delay in the arrival of raw materials

that can be reduced.

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