Inventory policy design to minimize overstock and stockout of coal using periodic review power approximation method

Abstract

Coal is one of the raw materials used as a source of heat energy in several industries and Indonesia is one of the largest coal producing countries in the world and coal is spread in several areas in Indonesia. Tanjung Enim is located in South Sumatra is one of the coal-producing areas and there are many companies engaged in coal mining, one of which is FGH Ltd. FGH Ltd is one of the state-owned enterprises in Indonesia which the main activity is producing coal. However, there are several problems with coal inventory especially in 2020, where due to unpredictable coal demand, amount of coal inventory provided by FGH Ltd is “as much as possible” so it caused overstock, but there is also a stockout condition because FGH Ltd does not have a safety stock policy when that condition happened. Based on these problems, this research aims to minimize overstock and stockout of coal inventories using the Periodic Review (R, s, S) Power Approximation method then the results are Interval Review (R)=1,2 days, minimum inventory level (s)=167,675.22 tons, Maximum inventory level (S)=170,246.01 tons, and safety stock (ss)=100,306.73 tons. Then the author tried to simulate the proposed inventory policy with simple simulation in excel then the result are total inventory cost is decrease 39% from the actual condition where the proposed total inventory cost consist of total holding cost is decrease 20%, total shortage cost is decrease 100%, total procurement cost is increase 27%.