Inventory Policy Determination for Raw Materials in ILY Pharmaceutical using Periodic Review (R, s, S) and Periodic Review (R, S) Method to Minimize Total Inventory Cost

Abstract

ILY Pharmaceutical is one of the pharmaceutical industry in Bandung that produces various type of medicines. In managing the raw materials for production, ILY Pharmaceutical is not using any standardize calculation for the inventory policy of the raw materials. That condition caused the raw materials to be overstocked and made the total inventory cost to be higher. The objective of this research is to minimize the total inventory cost in ILY Pharmaceutical by giving an inventory policy proposal. Based on the classification of the raw materials using ABC analysis, two inventory policy will be used. Periodic review (R, s, S) for A category and periodic review (R, S) for B and C category. The proposed inventory policy able to reduce the total inventory cost by 42% from $12.194,98 to $7.029,29. The reduced cost is mainly caused by the quantity of the raw materials that is stored in the warehouse is smaller than the existing condition. Even though the frequency of the order is increased thus increasing the order cost but the quantity ordered is smaller because in the proposed condition, there are a maximum inventory level so, the quantity ordered cannot exceed that level.