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Analysis of Inventory Management in Order to Reduce Overstock (Case Study of TVF Footwear)

: TVF Footwear is a sandal and shoe brand originally from Bandung. It was founded in 2010 because, at that time, local industries were emerging, and they were motivated to make products that focus on the footwear category. TVF Footwear has an issue related to overstock inventory. The purpose of this research is to reduce overstock and improve inventory management in TVF Footwear. The root cause analysis is used Current Reality Tree (CRT) as a tool to find the root cause of overstock issue that faced by TVF Footwear. The result from root cause analysis are a lack of forecasting and deficient inventory management. The proposed solution is to prepare TVF footwear to apply the appropriate forecasting demand method for the next period and help the company to plan its inventory management by calculating the EOQ, ROP, and Safety stock. The result of the forecasting demand with the smallest forecasting error shows that the method chosen for Rainier is double exponential smoothing. The forecasting method that is suitable for Reiwal is trend analysis and the forecasting method that has the smallest error for Semeru is single exponential smoothing. The result for the EOQ method has a lower cost than the existing method. The total cost from the existing method is Rp 4.082.500.000 while the total cost using the EOQ method amounts to Rp 3.678.495.281. If the company can implement the EOQ method, the potential cost saving is Rp 404.004.718.


INTRODUCTION
The fashion industry has increased over the past years. This sector has a significant contribution to Gross Domestic Product (GDP). According to kemenparekraf.go.id, the creative economy sector contributed IDR 1,134 trillion to Indonesia's Gross Domestic Product (GDP) in 2021. The contribution of each sub-sector is 41,5 % for culinary, 17,7 % for fashion, and 15 % for crafts, according to data from the Badan Pusat Statistik (BPS). The footwear industry is one of the subsectors of the fashion industry sector growing along the time. Based on information from idnfinancials.com, to boost their competitiveness, the Ministry of Industry continues to foster the growth of small and medium enterprises (SMEs) in the footwear industry. Referring to the article from Kemenperin.go.id, the footwear sector grew by 2.4 per cent in semester 1 of 2021 compared to the same period in 2020, which was still minus 4.5 per cent. The export value of this product group in January 2021 was USD 490.5 million, increased by 6.2% MoM and 15.6% YoY. As described above, the Indonesian market's rapid expansion also suggests an enormous market potential, particularly in specific high-growth sectors. Entrepreneurs respond to the circumstances by expanding their businesses, one of which is TVF footwear, a fashion company. TVF Footwear is one of the brands that contribute to the growth of the creative economy, especially in the fashion industry, especially in footwear. TVF Footwear is a sandal and shoe brand originally from Bandung; it was founded in 2010 because, at that time, local industries were emerging, and they were motivated to make products that focus on the footwear category.

Business Issue
The increasing degree of competition in the footwear industry these days forces all companies to pay more attention to the market changes. Inventory is the most important component in a company and has a significant impact on business operations, therefore inventory optimization is required. TVF is a company that engaged in the sales of footwear especially sandals for casual. The problem that occurred in TVF Footwear is that the product ordered did not match with the demand that can cause an overstock. This problem affects the company performance, such as high cost, and ineffective inventory management. All production plan and ordering decisions at TVF Footwear are made based on the owner's judgement and does not take into consideration the historical data for the next period. Below is the comparation graph between demand and inventory, and the table of comparison cost between demand and inventory that occurred in 2021. From the graph above, can be seen that the inventory level is high above the demand level in several months that cause an overstock. The highest excess inventory that occurred in 2021 is in November that has 12.259 units while the demand level is 7.483 unis. This excess inventory may have an impact on the costs incurred by the business. According to Almaktoom (2017), overstock is the natural result of excess inventories. This causes an issue to the company that has numerous negative consequences. One significant effect is an increase in cost. Storage and security fees rise and money is spent on non-essential products. This research will focus to improve the inventory for Rainier, Reiwal, and Semeru products that can represent other product within the company which has a significant contribution which gives 70,05% of total sales.

CONCEPTUAL FRAMEWORK
A conceptual framework is intended to direct the author as they conduct the study to find the solution to the issues that the company faced. It is helpful to describe the type of problem that needs to be solved, how the problem will be solved, and the recommendation for problem-solving. The issue from this research is that TVF Footwear facing an overstock problem in inventory. Below is the conceptual framework for this research.

Simple Moving Average 4 months
Another method that is used in this research to develop a forecast for the following month is using the moving average from the previous four months. The     Summary of Forecasting Error After analyze the forecasting error from several methods above, the next step is to compare those forecasting errors and find the smallest one. The smallest forecasting error can help to find the optimal method that can be applied by the company. Here is the summary table for forecasting error from each method for Rainier, Reiwal, and Semeru products. From the result above, can be seen that the smallest forecast error for Rainier products is from the Double Exponential Smoothing method which has 23 for MAPE, 311 for MAD, and 153,652 for MSD. The smallest forecast error for Reiwal products is from the Trend Analysis method which has 28 for MAPE, 300 for MAD, and 121,958 for MSD. And for Semeru products, the smallest forecast error is from Single Exponential Smoothing method which has 22 for MAPE, 285 for MAD, and 221,109 for MSD. Those methods with the smallest error is the optimal forecasting method for the company to gain more information to prepare for the upcoming demand.

Inventory Management
According to the business issue above, managing the inventory can help the company in order to reduce the overstock in TVF footwear. The method that is used in this research are calculating the EOQ, ROP and Safety Stock. This method's output illustrates how much inventory has to be ordered, when the order needs to be placed, and to overcome the uncertainty.

Economic Order Quantity (EOQ)
EOQ is the number of orders that can minimize the total cost of inventory, and optimal purchases that can be the alternative solution for issue that faced by TVF Footwear. This method helps to determine how much total product that needs to be bought for each order to fulfil the demands for a period. EOQ calculation require data of annual demand in units (D), ordering cost (S), and holing cost (H). Here is the EOQ calculation for Rainier, Reiwal and Semeru product using POM QM software.  From the figure above, can be summarize that the optimal order quantity or EOQ for Rainier is 2.182 unit per order and the expected number of orders is 8. The EOQ result for Reiwal product is 2.003 unit with expected number of order amounting to 7. Last is EOQ result for Semeru product which amounting to 1.843 unit and the expected number of orders is 6.

Reorder Point (ROP) and Safety Stock
According to Nobil et al. (2020), the reorder point is a crucial milestone for businesses to determine the best time to place orders so they may prevent overstocking or shortages. Safety stock is extra stock to allow for uneven demand; a buffer (Heizer et al.,2017).
Here is the calculation of ROP and safety stock for Rainier, Reiwal and Semeru in 2021 by POM QM application with the 95% sevice level and 14 days lead time.

Analysis of Alternatives
Comparing the existing method applied by the company with the EOQ method allows for the determination of the optimal inventory management strategy for TVF Footwear. The comparison for inventory cost between the existing method applied by TVF Footwear and the EOQ method is shown below. Both methods using the ordering cost per order amounting to Rp 1.000.000, the holding cost amounting to Rp 7.000 per unit per year and the purchasing cost is Rp 85.000 per unit. Below is the comparison between existing method and EOQ method.