Materials Inventory Management to Reduce Holding Cost and Backlog (System Dynamics Approach: A Case Study)

This study discusses the material of inventory management to produce automobiles in PT XYZ using system dynamics methodology with a case study design. The object of this study is an automobile brand, X Type 1. It is selected as the sample because this type of automobile has a highly competitive segment and a dynamic demand. Material in this sample object is divided into four groups based on the source of the material. The purpose of this study is to analyze the material inventory management in order to reduce holding costs and backlog. Reduction in the holding cost can be used for other investments or to increase the company's profits, while the backlog reduction can improve the company's competitive advantage. Simulations were carried out in two scenarios: the demand fluctuating with an upward trend and with a downward trend, in order to describe the dynamics of demand. This study found that the holding costs and backlog reduction can be achieved by changing the safety stock coverage and lead time delivery of materials. Safety stock coverage can be changed to the lowest level the company can apply, while lead-time delivery of materials depends on the conditions and trends in demand.