Inventory Management Analysis to Support Sales of Jaket Keren SME Garut
Nandang Laras Rezqi1*, AMA Suyanto1
1 Faculty of Economics and Business, Telkom University, Bandung, Indonesia
*Corresponding Author: [email protected], [email protected]
Accepted: 15 August 2022 | Published: 1 September 2022
DOI:https://doi.org/10.55057/ajrbm.2022.4.3.14
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Abstract: The trend of society is undergoing a transition from offline to online. This also has an impact on the interest in shopping that utilizes online media. As a way to take advantage of this phenomenon, an SME by the name of Jaket Keren which sells leather fashion products has taken advantage of the opportunity by marketing their products on online media. However, Jaket Keren has problems with planning for inventory management operations, resulting in buildup and shortage of inventory. Therefore, this study aims to describe the problems of operational inventory management that occur in Economic Order Quantity, Inventory Cost and Safety Stock which are currently applied to Jaket Keren. The method used in this research is a qualitative method. The data collection method of this research uses in-depth interview and triangulation. In this study, four interviewees were selected consisting of owners, employees, tailors and resellers of the Jaket Keren. The results of research on the economic order quantity aspect at Jaket Keren are still frequent shortages or stockpiles of leather and synthetic jackets because Jaket Keren has limitations in the production process. In addition, Jaket Keren does not have a minimum quantity requirement for procurement of goods, and employee negligence often occurs which causes the availability of goods to be disrupted. This has an impact on Jaket Keren inventory cost, which places orders for other tailors that make use of costs for procurement of goods inefficiently, so that Jaket Keren will incur costs that are more expensive than when producing their own. Moreover, Jaket Keren does not yet have a minimum limit on the amount of inventory when placing an order, which causes Jaket Keren to not have a safety stock to anticipate possible purchase requests from their consumers.
Keywords: Inventory management, Economic order quantity, Inventory cost and Safety stock ___________________________________________________________________________
1. Introduction
Micro, Small and Medium Enterprises (MSMEs) according to Presidential Decree No. 99 of 1998 are a stretch of the small and medium-scale people's economy from various business fields, the majority of which are small businesses (ekon.go.id, 2021). The results of the KataData Insight Center (KIC) research on MSME growth data from 2010 to 2021 shows an increased growth every year by 1.98% (databoks.katadata.co.id, 2021). However, in 2020 the world was inflicted with a Covid-19 pandemic which triggered the emergence of a new trend in society in shopping from offline to online which can be done through social media, websites and e-commerce. One of the MSME industries that are affected is the fashion industry. For the fashion industry, transaction of their fashion products on online media or online on social
media, websites and e-commerce is a big enough opportunity. Leather products are one of the many fashion products that are in demand. Garut as an area that
produces fashion products from leather has the opportunity to take advantage of various social media and e-commerce applications to boost product sales during the pandemic.
When selling online through e-commerce, systematic stock management of goods is required in order to provide optimal services to consumers, therefore inventory management is key to success for businesses in e-commerce. When selling products in e-commerce, businesses have entered a wider range than conventional management, therefore inventory management is important and must have clear supervision to ensure that the stock that appears online is in accordance with the stock of goods. owned so that there are no stock vacancies that can cause customer loss (Jurnalentrepreneur.id, 2021).
Jaket Keren, one of the MSMEs from Garut that produces fashion products made of leather, also follows the trend of selling products through e-commerce. However, the inventory management carried out by Jaket Keren is still not optimal due to the absence of stock reserves in storage and limited production, thus making purchase requests from consumers unable to be fulfilled, this will have an impact on the loss of opportunities when consumers make purchases.
In addition, when procuring goods, there is no minimum quantity requirement so that the amount of stock becomes excessive, this will lead to stock accumulation and will also have an impact on the selling value of the product which will decrease. Therefore, an Economic Order Quantity is needed which aims to be able to determine the minimum amount of stock and the number of orders to meet demand, in order to be able to manage inventory costs efficiently, henceforth, overcoming inventory shortages with safety stock to prevent the possibility of running out of stock is achievable.
2. Literature Review
2.1 Inventory Management
Heizer & Render (2014) said that Inventory management is a system that functions to manage inventory in an organization or company by classifying stored goods and making accurate records of inventory so that the flow of incoming and outgoing goods is known.
2.2 Inventory
According to Heizer & Render (2014), inventory is a valuable asset in the company, and represents as much as half of the total capital invested in the company. The statement defines that resource management will be useful for companies to manage production processes or monitor operational activities carried out by companies on an ongoing basis with the aim of being able to meet demands from consumers.
Determining the amount of inventory must be calculated correctly because the stock of goods and resources has a very important function for the smooth production process. Furthermore, according to Heizer & Render (2014) inventory has functions that will increase operational flexibility including:
a) Providing a choice of goods to be able to meet customer demand to anticipate the company in order to avoid fluctuations in demand. This inventory function is used in retail businesses.
b) Separating several stages of the production process. This happens if a company's inventory fluctuates, so additional inventory is needed in order to separate the production process from suppliers.
c) To reap profits of discounted prices because in large purchases you will get a reduced cost of shipping goods.
d) To avoid inflation and rising prices.
Regarding inventory control, Vikalina et al (2020) said that inventory control aims to determine the level of inventory that must be controlled properly so that there is no shortage in inventory.
Indicators of Raw Material Inventory Control are:
a) Budget for production.
b) Cost for storage of raw materials.
c) Supplier accuracy in delivering raw materials.
d) Purchase price of raw materials.
e) Amount of production raw materials to be ordered.
Inventory has an important role in business because the biggest investment of a business unit is in its inventory. Therefore, if there is a build-up of too much storage, it will cause high storage costs. If the company does not have sufficient inventory, it will result in an increase in the cost of procurement of goods because to meet demand there will be a shortage of inventory.
2.3 Sales
According to Kotler (2008), sale is a social process between individuals or groups to get what consumers need and want, and to create, offer, and exchange products of value. In carrying out sales activities aimed at achieving the expected sales volume are done. At the time of making a sale there are indicators of sales volume, namely:
a. Reaching sales volume b. Earning profit
c. Supporting company growth
Taking into account several expert opinions regarding sales volume, it can be concluded that it is the total sales assessed by the company's product units within a certain period to achieve the maximum predetermined profit so that it can support the growth of the business unit.
2.4 Correlation Between Inventory and Sales
In a study conducted by Sondak (2016) which links inventory and sales volume by conducting research on the object under study, interviewed participants said that the inventory system can increase sales volume because by establishing good inventory operations, planned inventory anticipation for stock reserves and planning for procurement of goods to be optimal so that there will be no vacancies and accumulation of goods can be achieved.
2.5 Framework
The framework below modifies previous research which was adopted from a combination of two researchers, namely Sodak (2016) and Saputra (2019). The reason for choosing the two research journals is because there are similarities in this study, in which both studies discuss structured inventory management so that it can increase sales. The following figure (Figure 1) aims to facilitate understanding of the framework of thought in this research.
Figure 1: Framework
3. Methodology
3.1 Social Situation Research
Location is a means of object of research which becomes a social interaction activity that is being studied. The location that will be used as the object of research is located in Bandrek Village, Garut Regency, which is the Jaket Keren’s store. In this study, the activities that will be explored are the management of the supply of Jaket Keren to the occurrence of sales transactions. In this study, purposive sampling will be used as a sampling technique. The interviewees in this study are the owners, employees, tailors and resellers.
3.2 Data Collection Method
This study uses a qualitative method using two data collection techniques which include interviews and triangulation. The following table (Table 1) shows the data of the interviewees.
Table 1: Data of informant for interview
No Nama Position Time and Location Interview
1 Ujang Rahmat, S.T Owner of Jaket Keren Tuesday, March 29, 2022 at 10 AM, Via Zoom Meetings
2 Ujang Maulana Employee of Jaket
Keren
Friday, March 25, 2022 at 9 AM, located at Jaket Keren Shop, Bandrek Village, Kersamanah District, Garut Regency 3 Muhammad Hamdan Reseller of Jaket
Keren
Friday, March 25, 2022 at 2 PM, located at Jaket Keren Shop, Bandrek Village, Kersamanah District, Garut
3.3 Data Analysis
After conducting interviews with the four sources, the following table (Table 2) shows the results of the interview.
Table 2: Interview Results
No Variable Results
1 Economic Order Quantity
● Regarding the supply of goods, Jaket Keren provides sheet leather for the tailors to sew
● The flow of ordering goods orders is carried out through the owner
● Policies are in effect regarding the supply of goods that have high sales to be in continuous restock
● In Jaket Keren, there are often problems in producing goods due to limited human resources (tailors)
● Jaket Keren has not been able to meet all the purchase requests from consumers.
● Resellers often run out of stock on supply as there are high number of resellers
● There are a total of 20 tailors
● There were problems in production due to tailors who could not process orders on time
2 Inventory Cost ● The materials and processing of goods are financed by Jaket Keren after the goods arrived
● Jaket Keren pay the wages of 120 thousand rupiahs per Jacket to the tailors
● Damaged products occur in the form of torn products as a result of rat bites
● The service fee depends on the damage
3 Safety Stock ● There is no fixed reference of the minimum amount on goods storage
● In ordering goods, the owner receives a report on the number of goods available in the warehouse from the employee before ordering
● The time it takes to make a jacket is 3-4 days when there is a high number of orders
4. Discussion
4.1 Inventory Management Process Overview
To be able to manage structured inventory management, aspects such as economic order quantity, inventory cost and safety stock are needed that will support productivity and inventory efficiency. The economic order quantity will have a useful impact on determining the minimum stock point when ordering goods so that it can determine the optimal order frequency. The inventory cost in turn must be planned optimally so that the cost of ordering and storing goods can be efficient, after which the safety stock will be an anticipation of a surge
in demand so that it can meet demand from consumers, so as to increase sales. In carrying out inventory management or inventory management, there is a supply flow to manage inventory operations so that the creation of an item that is processed to become a stock inventory in order to fulfill consumer demand. The following figure (Figure 2) shows an overview of the flow of goods supply until the sale at Jaket Keren is processed from the results of the interviews.
Figure 2: Alur Supply Chain Jaket Keren
In terms of productivity and inventory efficiency, to save costs, Jaket Keren provides raw materials ordered from suppliers of leather sheet materials. In the operational process, Jaket Keren’s employees will check the stock of goods when there is shortage of inventory and in the event of an order for a custom jacket. After that, the employee will make a report to the owner to place an order with the tailor. Orders received are immediately processed by Jaket Keren’s tailors with the raw materials provided by the company according to the order. After the tailors finish carrying out the production process, they will supply or send the goods to the company. When the supply items from the tailors arrive, the items will be managed by the employees to be stored in a storage area before the items are sold. For the sales process, Jaket Keren has its own resellers and sales through online or offline media in stores.
However, in the current flow there are still shortcomings or problems with the Economic Order Quantity, Inventory Cost and safety stock, the productivity and inventory efficiency have not been created in the operational process of inventory management in Jaket Keren. It will be difficult to increase sales if the operational process has not been carried out optimally.
4.2 Problem Analysis
Jaket Keren receives a lot of orders from consumers, but there are limitations in the procurement of stock supplies, thus creating a shortage of supplies when there are orders from consumers and resellers which make the demand not fulfilled. This has an impact on sales of Jaket Keren which will lose consumers due to unavailability of stock. To overcome this problem, Jaket Keren must make a plan by considering the amount and length of time it will take for the item to arrive, in order to reduce the occurrence of shortages and stockpiling of inventory. So that the costs used for the procurement and storage of these stock items can be issued efficiently.
4.2.1 Economic Order Quantity
Economic Order Quantity (EOQ) will assist in inventory control which will serve to determine the procurement of goods and how large the quantity of the procurement of goods so that ordering costs can be issued optimally (Vikalina et al, 2020)
In the operational process at Jaket Keren in procuring goods, there are still several problems.
Such as the unplanned procurement of goods at the time of making a new jacket design, the absence of a reference for the quantity to procure goods, delays in processing consumer requests in purchasing custom model jackets and the occurrence of human errors in the ordering process for stock fulfillment and custom jackets to tailors. To overcome these problems, Jaket Keren needs to follow the development of existing trends, create monthly sales data as a reference for procurement planning and provide confidence to appoint one of the employees who are responsible for determining policies in the procurement of goods.
In terms of production, there are problems in procuring stock due to the limitations of tailors meeting demands. At the time of order, Jaket Keren must also take into account the time it takes the tailors to produce the order. To overcome this problem, Jaket Keren must determine the reorder cycle time and the frequency of orders per month so as to minimize the opportunity cost that is not optimal and the shortage of stock due to supply delivery is not on time to meet consumer demand.
In its sales system, Jaket Keren uses an online sales system through e-commerce and social media and offline sales in stores. However, Jaket Keren has not been able to carry out inventory management operations properly because there is no planning in determining the minimum quantity of procurement of goods and planning for the estimated time required to process orders, which results in a shortage of inventory when consumers make purchases. If these issues continue to occur, it will cause Jaket Keren to potentially lose consumers, therefore harming the company because it has missed the opportunity to order from
consumers and that the sales will have the potential to decrease and not according to sales targets. Therefore, Jaket Keren must check the inventory periodically so that they can plan the determination to place an order for procurement of goods to meet the inventory stock.
Furthermore, it would be ideal if Jaket Keren made a procurement plan that can meet the stock needs for the next few weeks, so that consumers can buy products from the cool jacket without having to worry about the item being empty.
4.2.2 Inventory Cost
Procurement and storage of stock requires good planning so that the costs incurred to meet stock demands and maintenance of goods can be used efficiently. In the use of inventory costs according to Vikalina et al (2021), all costs required for the provision and maintenance of stock items must be planned effectively so that the costs incurred can be efficient.
In the process of procuring goods at Jaket Keren, the ordering cost incurred will increase if an order is done by outsourced tailors, the ordering cost incurred is inefficient because Jaket Keren has limitations in carrying out production, so that in order to meet consumer purchasing requests, it is necessary to increase the quota of the number of tailors in order to increase the number of tailors. production volume. In addition, there are also errors in the placement of goods storage which will make errors occur when checking goods. This is the result of employee negligence. To overcome this, supervision from the owner or an employee appointed by the owner is needed.
Jaket Keren do not yet have a minimum storage stock limit when they are going to reorder for procurement of goods and for checking the inventory it has not been done regularly so that planning for the number of orders for stock fulfilment cannot be planned optimally which results in stock accumulation and swelling storage costs because damaged stock maintenance.
To overcome the problem of shortages and stockpiling of inventories, Jaket Keren must plan to determine the minimum amount of stock in storage and record sales results so that it can be a benchmark for procurement of goods in the following months so that they can reorder with optimal frequency in order to streamline inventory costs and can fill inventory stock for sales.
4.2.3 Safety Stock
Heizer and Rander (2014) said that safety stock will be useful as an effort to anticipate the possibility of erratic consumer demand and can be a reserve on stock.
In the process of procurement of goods, Jaket Keren does not have a minimum storage stock limit when they are going to reorder for procurement of goods because the owner has not determined the minimum stock limit for reordering. This makes employees determine the minimum amount of inventory during the process of checking goods only by estimates so that there is no anticipation of stock reserves for sales when processing orders for these goods.
Jaket Keren’s tailors take about 3 to 4 days to produce products. For this reason, Jaket Keren must determine the minimum amount of stock inventory when placing an order for procurement of goods, so that it will become a stock reserve so that it can continue to make
sales continuously. Furthermore, Jaket Keren must also plan for ordering procurement of goods by considering the optimal amount so as not to experience a buildup and shortage of inventory and the time it takes to process the order until it reaches the cool jacket so that stock supplies can be fulfilled.
To anticipate the occurrence of erratic demand spikes, Jaket Keren have to carry out stock procurement planners to be able to meet inventory for two weeks time so that it can become additional stock in order to anticipate a surge in demand but must remain structured in determining the minimum amount of stock in storage and carrying out regular inventory checks in order to carry out effective planning for orders.
5. Conclusion and Suggestion
5.1 Conclusion
a. Economic Order Quantity
In the procurement of goods, there are still frequent shortages and stockpiles of supplies on leather and synthetic jackets. Jaket Keren have shortcomings in the production process as an effect of the number of orders received by tailors being not proportional to the number of tailors. As a result of that, Jaket Keren often makes carelessness which makes the availability of these items disrupted so that there is shortage in inventory which makes sales and resellers will potentially decrease and not match the sales target.
Regarding the goods that have accumulated in the stock inventory, this occurs as a result of lack of planning when procuring goods and the absence of sales data in the previous months to be used as a benchmark in making reorders in order to find out what items are in demand and items whose demand is decreasing.
b. Inventory Cost
The planning for the cost of procurement of goods in Jaket Keren has not been carried out effectively, because to fulfill consumer demand, they place an order with tailors who make inefficient use of costs for procurement of goods so that Jaket Keren often will spend more than when producing it themselves.
In the process of ordering goods, there is no provision for the minimum number of procurement of goods so that certain goods will experience a buildup as a result of long sales. Then Jaket Keren has to pay for the storage of the item and will experience additional costs to repair if the item is damaged.
c. Safety Stock
Jaket Keren has not yet set the minimum limit on the amount of inventory in the event of reordering. As a result, there is no stock reserve to anticipate the possibility of consumer demand because tailors take 3-4 days to process orders, therefore Jaket Keren must establish a stock reserve for two weeks so that there is no shortage of stock and anticipate in the event of a tailor cannot complete the stock fulfillment according to the target and the consumer's demand can be fulfilled when the tailor is processing the stock inventory.
d. Productivity and Inventory Efficiency
In Jaket Keren, there are problems in managing inventory, causing a shortage of inventory and stockpiling. In order for productivity and inventory efficiency to occur, Jaket Keren must collect data on sales per month to determine the minimum amount when procuring goods while paying attention to the provisions on the amount of stock in storage so that it can be a stock reserve for sales when orders are being processed by tailors and determine cycle time in reordering so that goods can be completed on time.
Furthermore, there are often errors in the placement of goods and procurement of goods, which causes inventory implementation to not go well. As a solution, Jaket Keren’s employees require training so that they can run the inventory properly, also Jaket Keren needs to carry out supervision carried out by employees appointed by the owner to be in control when goods enter the storage of goods.
e. Sales Increase
Jaket Keren has problems with limited production which causes them to be unable to meet all purchase requests from their consumers. To solve this problem, Jaket Keren can instruct their employees to increase the number of tailors in order to increase the volume of production.
5.2 Suggestion
5.2.1 Suggestion for The Company
Judging from the inventory that is currently being implemented by Jaket Keren with the constraints currently being faced, in order to improve inventory management in order to increase sales at Jaket Keren, the author will provide suggestions, as follows:
a) By having items of various types and sizes in large quantities, Jaket Keren can apply the Economic Order Quantity method to be able to optimize in determining the minimum amount of stock in storage and determine the optimal amount when procuring goods. To anticipate stock shortages or safety stock, Jaket Keren can procure goods with an amount twice the number of consumer requests per week.
b) Jaket Keren also has to check inventory stock regularly every day in order to find out the amount of stock items so that it can be used as planning material for procurement of goods. Then collect sales data per day which is accumulated weekly or monthly in order to know the development of sales volume.
c) Supervise inventory by selecting, training and disciplining employees who can assist in carrying out inventory operations.
5.2.2 Suggestion for Future Research
There are several suggestions that can be given for further research, namely related to developing an inventory management system to be further formulated which is integrated into a digital system with barcodes and developing further related to Economic Order Quantity, Inventory Cost and safety stock.
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