Improvement of the Coal Inventory Management System Using the Economic Order Quantity Method

Abstract

AbstractIn a business, inventory is frequently known as a source of contention. PT Petrokimia Gresik (PKG) is PT Pupuk Indonesia’s (Persero) subsidiary, an agro-industry company that the government always requires to meet national fertilizer supply to ensure food security and perform more efficient and cost-effective cost savings, through more efficient and economical use of facilities and infrastructure, including inventory management. At PKG, one of the most crucial inventory management issues is coal inventories, which have lately experienced a price increase of more than 200%. The trend of global coal prices has climbed to 2 times higher since 2021. The price of coal in Indonesia has risen from Rp. 500,000 per ton to Rp. 1,500,000 per ton, not to mention the world’s current state of war, the Russian invasion of Ukraine, which has increased fuel prices worldwide, including coal, which is in high demand by utility companies in Indonesia. While PT Petrokimia Gresik must continue to produce despite rising coal prices, inventory must be managed to achieve the lowest possible cost. Adopting the Economic Order Quantity (EOQ) method to improve the coal inventory management system needs to be considered. EOQ is an old theory, but we believe it is still relevant today. We will compare the company’s current coal inventory management to the EOQ method regarding efficiency, efficacy, and expenses associated with reordering, storage, and other factors. The study concludes that PKG’s coal supply system is relatively good, although there is still potential for improvement. The inventory management policies that are in place still refer to the prior period’s experience. Several causes contribute to coal overstock and understock issues, including a coal supply planning system that is not yet optimal. The proposed future improvement is to employ the Economic Order Quantity (EOQ) approach, which can save Rp 684,000,000 per year (average) in inventory expenditures. This demonstrates that the EOQ approach can save 6.7% per year in costs.