Application of the EOQ Method to Optimize Raw Material Inventory at PT XYZ

Abstract

General Background Manufacturing operations require precise material flow management to balance production continuity against the financial burdens of holding excess idle resources. Specific Background The HVAC and refrigeration sector depends heavily on raw materials like galvanized plates, where purchasing strictly based on estimates frequently leads to stockouts or severely inflated warehousing expenditures. Knowledge Gap While existing corporate policies address immediate procurement needs, they lack a calculated approach to determine exact economic thresholds, safety buffers, and dynamic reorder triggers to actively minimize total annual costs. Aims This research implements the Economic Order Quantity methodology to calculate the optimal order volume, purchasing frequency, safety stock, and reorder point for galvanized plates. Results Processing data detailing the annual consumption of 2,790,833 kilograms established an optimal purchasing volume of 1,050,645 units per transaction, executing 36 orders annually. The required safety stock was calculated at 3,141,831 kilograms to accommodate demand fluctuations. Furthermore, factoring in a 90-day lead time for material delivery, the reorder point was strictly set at 17,334,265 kilograms. Novelty This study quantitatively validates the transition from an arbitrary purchasing schedule to a fully integrated mathematical inventory framework within a high-volume HVAC manufacturing environment. Implications Deploying these calculated parameters drastically reduces holding expenditures, successfully slashing total inventory costs by Rp48,370,298,103 annually while ensuring uninterrupted production workflows. Highlights: Implementing mathematical inventory models replaces arbitrary purchasing, preventing severe stockouts and excessive holding expenditures. The Economic Order Quantity calculation dictates an optimal purchasing volume of 1,050,645 units per transaction. Establishing a 17,334,265-kilogram reorder point successfully accommodates a 90-day lead time and secures continuous production. Keywords: Economic Order Quantity, Reorder Point, Safety Stock, Galvanized Plate, Holding Cost