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Abstract. The paper aims to determine the inventory of raw materials with Economic Order Quantity, Vendor
Manangement Inventory and Consignment. Based on the relationship between buyers and suppliers, it is necessary to
have a model that integrates inventory management model between buyers and suppliers. The model covers plans for
supply control continuous review of having a relatively higher setup cost compared to serving cost makes Economic
Order Quantity (EOQ) a more appropriate alternative to Just In Time. Partial determination of EOQ causes inventory cost
optimization to only occur on the buyer’s side, which in turn hampers buyer-supplier relationship. As such, an integrated
EOQ inventory model between suppliers and buyer through Vendor Managed Inventory (VMI) has been developed.
EOQ-VMI integration can reduce the supplier’s inventory cost, but on the other hand the buyer’s inventory cost is
increased. However, the overall total of the inventory cost of supplier and buyer becomes lower than using traditional
EOQ. In total, the inventory system cost is lower the buyer inventory cost 0.29% and lower the supplier inventory cost
to 0.04%. Based on sensitivity analysis, the inventory model can be applied even when there is a 30% increase or
decrease in number of demand, price, setup cost, and holding cost. To address this situation, a consignment agreement
was developed which determines the parties to bear the inventory costs.
(2001) in Analysis of inventory benefit in supply chain by The research is focused on creating an integrated
applying VMI strategy, Dong and Xu (2002) Evaluate the inventory management model between buyers and
VMI affect towards Supply Chain, Kuk (2003) Vendor suppliers. The model covers plans for supply control
Managed Inventory (VMI) in Electronic Industry, continuous review of having a relatively higher setup cost
Rudiansyah and Tsao (2005) Heuristic formulation and compared to serving cost makes Economic Order
model for Vendor Managed Inventory Routing model Quantity (EOQ) a more appropriate alternative to Just In
(VMIR), De Toni and Zamolo (2005) Model Time. The integration of EOQ-VMI can reduce vendor
replenishment with Efficient Consumer Responde (ECR) inventory cost, however buyer inventory cost may
in VMI, Yao dkk (2005) Discuss the supply chain increased. Yet the total vendor buyer inventory cost is
integration in VMI, Ambrosino and Scutella (2005) lower than with traditional EOQ. To overcome this, a
Distribution network design in VMI, Piplani (2006) Consignment agreement is developed, this is to determine
Implementation of VMI in electronic manufacturing which of the parties that will cover the inventory cost.
company, Marques dkk (2008) Discussion of VMI
concept, Hartini and Kamal (2010) A policy for order 1.2 EOQ VMI Model
fulfilment with VMI, Mahamani and Rao (2010)
Development of VMI Model for single supplier and single To reduce schedule instability, it could be done by
buyer. raising relationship between two parties involved. In this
The development of VMI concept towards strategy level, one of the parties agrees to give information
is conducted by Viswanathan and Piplani (2001) (information sharing, IS), it coud be an inventory status,
Evaluation of the VMI affect towards Supply Chain, order forecast, production schedule that can be exchanged
Inventory Benefit Analysis in supply chain by applying and utilized by both parties so the company performance
VMI strategy, Dong and Xu (2002), Kuk (2003) Vendor and the whole supply chain system can be more efficient.
Managed Inventory (VMI) in Electronic Industries, One of the strategy that could be dperformed is Vendor
Rusdiansyah and Tsao (2005) Heuristic formulation and Managed Inventory (VMI).
model for Vendor Managed Inventory Routing (VMIR) In the EOQ and VMI inventory model, order
model, De Toni and Zamolo (2005) Replenishment quantity size is determined by supplier. Supplier will
model with Efficient Consumer Response (ECR) in combine the supplier setup cost (Ss) and buyer order cost
VMI, Yao dkk (2005) A discussion of supply chain (SB). Economic Order Quantity Q S is obtained through this
integration towards VMI, Ambrosino and Scutella equation:
(2005) Distribution network design in VMI, Piplani
(2006) VMI Implementation in Eelectronic manufacture √ (8)
company, Marques dkk (2008) A discussion of VMI Total buyer inventory cost is a sum of material
concept, Hartini and Kamal (2010) A policyfor order purchase cost and holding cost.
fulfilment with VMI; Mahamani and Rao (2010) )
Development of VMI Model for single supplier and
single buyer, Ziaee and Baouquard (2010) Analysis of ( ) (9)
cost and lot size in VMI model, Sitompul (2012) Total supplier inventory cost is :
Development of Inventory Model managed by vendor ( ) ( ) (10)
(VMI)
Following is the consignment agreement model.
Valentini and Zavanella (2003) Consignment Inventory: A 1.3. EOQ VMI Consignment Model
study case of industry and performance analysis,
Saraswati dkk (2011) Determination of Joint Lot Size with In EOQ VMI Consignment (EOQ-VMI-Cs) inventory
Consignment, Joy dkk (2013) Determination of Joint Lot model, the decision to determine order quantity and
size with Bargaining Game and Consignment, Wangsa delivery schedule is performed by supplier. Order cost is
and Iskandar (2013) The development of Consignment charged to supplier as well as the holding cost. Below is
Stock Model in the Eselon Supply Chain 2 system, the agreement in EOQ VMI Consignment inventory
Poonam and Bedi (2014) Comparison of consignment cost model:
structure and Vendor Managed Inventory, Dwi Setyoko 1. The needs of order and delivery schedule is
and Tiena G. Amran (2015) EOQ-VMI-Consignment Raw determined by supplier.
material inventory model. The purpose of the research is 2. Order cost is charged to supplier.
to design an inventory model and to determine integrated 3. The ownership of the inventory, wheter in
order quantity by taking account with supplier and buyer supplier or buyer’s place, belongs to supplier.
inventory cost in order to increase profit and to understand Although the product has been delivered to
the profit distribution of buyer and supplier. buyer, the ownership is still on supplier until the
product is used by buyer.
1.1. Model Formulation for Economic Order Quantity- 4. Holding cost, whether in supplier or buyer, is
Vendor Management Inverntory- Consignment charged to supplier.
Proceedings of the Asia Pacific Industrial Engineering & Management Systems Conference 2017
( ) ( )
In the Economic Order Quantity (EOQ) inventory model EOQ-VMI-Cs inventory model can be used if and
with VMI and Consignment (Cs), the buyer holding cost only if the inventory cost total with EOQ-VMI-Cs is
(hB) and supplier holding cost (hS) is charged to supplier lower than the total in traditional EOQ inventory cost
and the determination of order quantity is under the model.
authority of supplier (QS’).
Buyer inventory cost TB is only purchase cost (wy),
(11) From equation (7) and (16) it is obtained
[( ) ( )]
( ) ( )
( ) ( )
Proceedings of the Asia Pacific Industrial Engineering & Management Systems Conference 2017
Cost (w)
{ [( ) ( ) ] } (19) Order Cost (SB) Rp 100.000 /order
Buyer Holding Cost (hB) Rp 970,2 /kg/year
Lead Time Delivery (bb) PT ANI (L) 2 days,1 month (N)
= 20 days.
2. CASE STUDY Vendor Inventory Data Rp 26.518 / kg
Distribution-production Cost (c)
This section presented the case study on PT.MAPI Setup cost (SS) Rp 2.651.760 /setup
(buyer) and PT. ANI (supplier) in the Body Assy Throttle Vendor Holding Cost (hS) Rp 1.164,24 /kg/year
for raw material alumunium ADC-12 to proposed the
integrated model EOQ –VMI with Consignment. Figure 4
shows the inventory system using Vendor Managed Table 2. The Results of Traditional EOQ Calculation
Inventory (VMI). In this system, supplies are integrated Lot Size (QB) 15.875 kg/lot
between supplier and buyer (PT. MAPI and PT. ANI). Order Frequency (m) 77 times/year
Buyer and supplier is no longer concern about policy Supplier Cost (TS(QB)) Rp 32.633.115.361
respectively, yet to concern about collaboration policy as Buyer Cost (TB(QB)) Rp 36.037.245.929
one system of supply chain. Buyer and supplier has a Supplier Profit ( ) Rp 3.388.728.368
dependency to each other in inventory system. Both Buyer Profit ( ) Rp 8.686.453.502
companies must work together, to give information and be Total Profit ( ) Rp 12.075.181.870
open to each other to generate an optimum inventory
model. The buyer, in this case PT. ANI, receives product
order from it’s customer and then responsible to inform In the traditional system, buyer always set schedule
the order to supplier. Buyer is no longer perform ordering and order quantity based on their existing information.
process. The supplier is the one who responsible to set Supplier will respond to the order passively, without
and control the supply level. Supplier will determine the further follow up to know why they buy such an amount.
order number/size that is economical and then produce the Changes that usually encountered the order can cause
raw materials in accordance with the economical number schedule instability. This can caused low service level,
of raw material order. The raw materials will be soon knowing that many order are failed be fulfilled and caused
delivered to buyer. The buyer and supply costs, in this an increase in inventory cost.
case, the buyer only have to pay for holding cost, because
buyer is no longer have to perform order for raw material 2. 2 EOQ VMI Model
directly. The order cost is covered by supplier. In the VMI
supply system, supplier covers the inventory costs such as Table 3. The Results of EOQ –VMI Calculation
holding cost, setup cost, and order cost/replenishment Lot Size (QS) 76.021 kg/lot
Here is the a table summarizing the results of three Order Frequency (m) 16 times/year
Inventory Design Model : 1). EOQ Trasiditional, Supplier Cost (TS(QS)) Rp 32.508.166.566
Inventory cost 2). EOQ –VMI and Model 3). EOQ – Buyer Cost (TB(QS)) Rp 36.058.721.734
VMI with Consignment Model for automotive parts and Supplier Profit ( ) Rp
components manufacturer. 3.513.677.163
Buyer Profit ( ) Rp 8.664.977.697
2.1 Raw Material Purchasing Cost,Order Cost, Total Profit ( ) Rp 12.178.654.861
Holding Cost and Stockout Cost.
Raw Material Purchasing Cost Table 4. The Method Comparisons Between Inventory
Purchasing Cost (PT. MAPI) = Rp 29.464 /kg. (ordering Costs in EOQ and EOQ-VMI
cost),
Order Cost (PT ANI) = Rp. 20.000. Traditional EOQ-VMI Saving
Administration Cost = Rp. 30.000. EOQ (Rp) (Rp) /year (Rp)
Material Handling Cost = Rp. 50.000. Supplier 32.633.115.361 32.508.166.566 124.948.795
Total Vendor Order Cost (SB) = Rp 100.000 /order cost
Holding cost (hC) PT ANI Rp 150.000 m3/month or Rp TS(Q)
1.800.000 m3/year or Rp 970,2 /kg/year. Buyer 36.037.245.929 36.058.721.734 -
cost 21.475.804
TB(Q)
Buyer Inventory Data 2.037.619 pcs/year Total 68.670.361.291 68.566.888.300 103.472.991
Goods demand (D) System
Sales Cost (p) Rp 21.949 /pcs Cost
Raw Material Demand (y) 1.222.571 kg/year
Raw Material Purchasing Rp 29.464 /kg
Proceedings of the Asia Pacific Industrial Engineering & Management Systems Conference 2017
In EOQ with VMI, buyer and supplier may cut the 2.4. Analysis of Model Sensitivity
inventory cost because supplier can accurately determine
the number of alumunium ADC-12 raw material to be Sensitivity analysis is conducted by changing the
produced and delivered to buyer. Supplier has no longer number of demand, price, setup cost and holding cost (see
needed to perform estimation that can cause the lack or Figure 1. Figure 2. Figure 3 and Figure 4) . Changes are
excess material that can increase inventory cost too high. done with 30% increase to 30% decrease interval.The
Supplier may also have a more efficient setup cost. Table change of value weight in each criterias is done by
3 shows the supplier inventory cost can be cut by Rp. decreasing or increasing the number of demand, price,
124.948.795 per year. Although the regular total of setup cost and inventory cost. This is to see the result
inventory system can be saved to Rp. 103.472.991 per tendency of EOQ VMI Consignment inventory model
year, the buyer inventory cost has increased to Rp. wether it will change or not.The trial of the weight change
21.475.804 per year. This result is definately not a in every point, was increased or decreased, from the initial
satisfaction to buyer, so it is necessary to develop an value weight in the trial at 10%, 20% and 30% point. As
agreement that can generate win-win relationship for both for sensitivity analysis of the ctriterias and subcriterias is
sides. shown on the tables below :
Table 5. The Results of EOQ –VMI Consignment Figure. 1. Sensitivity Analysis to Demand
Calculation
Lot Size (QS) 56.146 kg/lot
Order Frequency (m) 22 times/year
Supplier Cost (TS(QS’)) Rp 32.539.498.685
Buyer Cost (TB(QS’)) Rp 36.021.843.730
Supplier Profit ( ) Rp 3.482.345.045
Buyer Profit ( ) Rp 8.701.855.701
Total Profit( Rp 12.184.200.746 Figure 2. Sensitivity Analysis to Setup Cost
)
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