Track: Optimization

Abstract

Covid-19 pandemic has made a major change in economic activities of small enterprises especially for local shoes manufacturers in Indonesia. The changing sales mechanism from purchase order to online sales has significantly decreased their income. The pattern of online demand is probabilistic in nature. It needs a dynamic model to manage inventory level. This research is aimed to build a simulation model in inventory management for local shoes manufacturer using Monte Carlo simulation to find an inventory policy that provide lower total cost. simulation. We use spreadsheet to construct the simulation model and observes 20 weeks of sales demand. We also calculate carrying cost, ordering cost, and stock out cost of raw materials, then we run 500 simulations. The objective function of simulation process is to minimize total cost of inventory. By changing the order quantity ranging from 20 to 60 units, the lowest inventory cost is reached when the order quantity is 40 units. The inventory cost has a u-shaped curve where the cost is high when the order quantity is below 40 units and increases when the order quantity is above 40 units. The simulation modelling inventory management provides useful tool in analyzing an order policy which minimizes inventory cost when the nature of demand is probabilistic.