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Implementation of Inventory Management System in a Furniture Company: A

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 International Journal of Engineering and Technology Volume 2 No. 8, August, 2012

Implementation of Inventory Management System in a Furniture Company: A

Real Case study
1
Syed Adeel Haneed Zaidi, 2Sharfuddin Ahmed Khan , 3Fikri Dweiri
1
Mechanical Engineering, King Fahd University of Petroleum and Minerals, Dhahran, 31261, Saudi Arabia
2,3
Industrial Engineering & Management Department, University of Sharjah, University City, Sharjah, 27272, United Arab Emirates

ABSTRACT
Inventory management system for any company is essential to fulfil customer demands on time and in cost effective manner. Selection
and implementation of inventory management system for any company management is vital. In this paper, we will discuss the most
commonly used inventory management tools and using a real furniture company data as a case study, we will implement the inventory
management system. In last, we will compare the implemented inventory management system with the existing system and infer the
results.

Keywords: Inventory Management system, EOQ, MRP, Forecasting Methods, Inventory Cost

1. INTRODUCTION Quantity (EPQ) applies to minimize the manufacturing setup

and finished products holding cost by deciding the economic
The industries implementing improved forecasting systems to manufacturing batch size [3].
make the production planning process more efficient. Due to
the complex nature of this task the companies designate a Over the years, the researchers have used different methods to
special unit to perform the forecasting tasks by using statistical compare the performance of forecasting methods across
software systems. In fact, in today’s world the companies are in different time series by mean squared error (MSE), root mean
strict competition and are improving businesses by making square error (RMSE), mean absolute deviation (MAD), mean
supply chain management as much efficient as possible. The absolute error (MAE) and mean absolute percentage error
industrial sector has to take forecasting decisions by (MAPE) [7-13]. However, every method has some limitations
considering uncertainties which can affect the overall and user has to be aware of limitations before using it for
production, for example a reduced market demand for a forecasting. This paper is consisting of a case study in a
particular product over a certain time period could easily furnisher manufacturing company based on the forecasting.
disturb the forecasting [1]. To deal with this situation every
company has a continuous reviewing process in order to 2. LITERATURE REVIEW
scrutinize the current market economic environment. In
common practice usually the marketing, sales and operations In 2007, Mula et al [1] managed to find out a fact that the
departments work out the initial forecasting figures according to uncertainties with fuzziness and lack of knowledge or epistemic
the demand and production capacity and later on judgmental uncertainty can be modelled with fuzzy constraints and
adjustments are implemented to achieve the optimum coefficients. This work proposed a new fuzzy mathematical
production and inventory levels. Many researchers have been programming model that provided a possibilistic modelling
implemented several models to deal with uncertainty during approach tested with an automobile seat assembler and
production planning process [1, 7]. Researchers also used compared with other fuzzy mathematical programming
different linear programming models to solve multi-period approaches. The proposed model is useful in determining the
procurement lot-sizing problems and found it suitable in master production schedule, MRP, stock levels, demand
determining the feasible lot size to decrease the purchasing cost, backlog and capacity levels for a given production planning.
transportation cost, shortage cost and inventory cost [2]. The good feature of this work is the proposed model that
actually considers the uncertainties with the lack of knowledge
Material Requirement Planning (MRP) based on procurement in data and existent fuzziness collectively during production
lot sizing decisions according to the demand over a finite time planning. Though researchers worked on these two types of
period. If the demands are known over a time horizon then a uncertainties but no one considered them jointly at the same
static Economic Order Quantity (EOQ) model can generate time.
feasible and optimum solutions [2]. The companies apply EOQ
models by determining the economic ordering lot size to reduce Davendra et al [2] used integer linear programming to solve the
the ordering and holding cost. Also, the Economic Production problem of multi-period procurement lot-sizing for single
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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

product and single supplier with rejections and late delivery observed that it treated negative and positive errors mainly if
performance under all-unit quantity discount environment. The the errors had large absolute values far from the symmetric.
developed mathematical model first established the cost Hence the authors were concerned on the proposed MAPE in its
objectives such as purchasing cost, ordering and transportation treatment with large positive and negative errors. In another
cost, inventory cost to determine the appropriate lot size and its development, Mathews et al [11] also quoted that no single
timing to minimize the total cost during the decision horizon measure provides definite suggestion of forecasting
and then it scrutinized the differences in rejection rates, performance, though the use of multiple measures can create
demand, storage capacity and inventory holding cost on total the comparisons between forecasting methods difficult and
cost. The proposed model in this work can be used in MRP in unmanageable.
realistic situations and can solve the problems with reasonable
size but if the number of quantity levels or periods increases the Since mean absolute error (MAE), root mean square error
proposed mathematical model could become densely populated (RMSE) and mean absolute percentage error (MAPE) are
with large number of binary variables and make the model usually applied for estimating the forecast performance of a
computationally complex or non-interactive. time series model, Naveen et al [10] suggested a bootstrap test
procedure of mean absolute errors of two alternative time series
Banerjee [3] proposed an IVB (Integrated vendor-buyer) system models and similar results were observed after comparison with
in which the demand rate was constant from the buyer and Sign test and DM test. The proposed bootstrap did not depend
manufacturer had to produce the same amount of inventory on particular distributional assumptions.
levels as the buyer demanded. But this model doesn’t fit when
the manufacturer’s production setup cost is bigger then the In 2002, a case study was published in which Everette and
buyer’s ordering cost. However, many researchers evaluated Joaquin [13] analysed the methods to adjust seasonal demand
and developed IVB systems in order to make it optimal for series in inventory at a large auto parts distributor. Simple
single-vendor single-buyer problem. Another model that procedures were developed to identify seasonal adjustments
incorporates raw material procurement and manufacturing setup with an additive decomposition procedure that can provide
is called IPP (Integrated procurement-production) in which considerable decline in forecast errors and safety stock
Jamal and Sarker [4] worked out the optimise batch size for investment. The company was not interested in forecast
just-in-time delivery based production system. Sarker and Parija summary errors found in empirical research. However, they
[5] developed optimum batch size and raw material ordering were interested to learn how seasonal adjustments produced
policy for production systems with fixed-interval and lumpy affects in inventory performance. The authors estimated the
demand delivery system. Lee [6] highlighted the fact that no aggregate MAD of forecast errors at each distribution centre
one had discussed the IPP system takes buyer’s ordering and any decline in MAD would reduce the safety stock
quantity and inventory holding cost into consideration and investment without affecting customer service.
proposed a Joint Economic Lot Size (JELS) of manufacturer’s
raw material ordering, production batch and buyer’s ordering Based on the above mentioned literature review, we can clearly
that was based on an integrated inventory control model identify the importance of proper inventory management
involved IVB and IPP systems together. system. Based on this contemplation, the remainder of this
study is organized as follows: Section 3 discusses the
Since demand forecasting is an imperative stage of planning methodology and analyses the results. Finally, Section 4 draws
and most of the organisations are using computerised conclusions.
forecasting systems to generate early forecasts and then
incorporate judgemental adjustments at later stages. Robert et al 3. METHODOLOGY
[7] investigated whether the judgemental adjustments in
forecasting made forecasting more effective and improve 3.1 Company Introduction
accuracy. They collected more than 60,000 forecasting data
from four supply chain companies and found that the bigger XYZ Furniture Company stands as a company for school
adjustments brought more average improvements in accuracy furniture with tradition and modernity, which has made a
then the smaller adjustments. Furthermore, the positive history. The Company has 110 successful years with many
adjustments (adjusting the forecast upwards) were less effective significant contributions in the development of school furniture.
in improving the accuracy then the negative adjustments. They serve the entire region with the same exceptional quality,
In 1999, Paul et al [8] reported that the researchers advised not function and service. The company has established a process-
to use mean absolute percentage error (MAPE) in the orientated quality-management system based on the new
measurement of forecast accuracy because it was considered standard DIN EN ISO 9001:2000. They provide ergonomic
asymmetric in that ‘equal errors above the actual value result in furniture for "school of the future", including flexible movable
a greater APE than those below the actual value [9]’. seating, height-adjustable desks and versatile, easy-to-
Armstrong and Collopy [10] also agreed that the MAPE treated reposition work surfaces, flexible room utilization. Different
errors in the forecast higher than the actual observation chairs and other furniture products are used for analysis in this
differently from those less than this value. In order to rectify paper in the following table 1 but the names of the products
this error, Paul et al [8] proposed a symmetric MAPE but it was

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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

have been changed from specific to common due to the o Backorder: The backorder rate for furniture in the
company policy. company is around 10%. The main reasons of this back
order rate are:
Table I
 The unexpected customer orders that contains
S. No. Product Names German parts with big quantities and cannot
be covered by the stock at that time.
1 Chairs without armrest  The unexpected customer order after sending
2 Class room chairs the purchase request to Germany.
3 Front desk chairs o Turn Over Rate: The current turnover was calculated, the
4 Waiting area chairs result is illustrated in Figure 1

5 Revolving Chairs

Turnover Ratio
Table 1 shows selected names for the products.
20.0

3.2 Current System Analysis

15.0

3.2.1 Data Analysis

Turnover
10.0
Current Turnover Ratio
The make-up of inventory solutions needs a deep look for the
5.0
previous historical data in order to assess the current inventory
performance, and gain the knowledge to develop the exact area
of weakness. The following data was received from the 0.0
1 2 3 4 5
company;
Current Turnover Ratio 3.5 4.2 15.4 1.5 1.4
o Working Days: The company has 280 working days per
year. They are working one shift/9.5 hrs/day.
Product
o Lead Time: The elapsed time between sending the
purchasing order to Germany and receiving the material
in XYZ Furniture Company store is eight weeks. The Figure 1: Current Turnover Ratio
eight weeks divided as follow;
o Inventory Model:
One week for sending the purchase request to
Germany, this includes: The company is using the pipeline system for
managing inventory.
 Negotiations for rates, delivery dates, o Safety Stock:
shipping volume.
The company is keeping 15 % of inventory as safety
 All related mailing and documentation
stock.
procedures.

Seven weeks till receiving the material this includes: 3.2.2 Proposed Model

 Production. For the purpose of improving the inventory management

 Purchasing material. system, two models were developed:
 Arrangement for containers.
 Loading & packing. 1) Economic Order Quantity system (EOQ).
 Transportation by sea from Germany. 2) Material Requirement Planning (MRP).
 Clearance in UAE.
 Transportation from Jabal Ali Port to These models were applied on five main products: Chairs
XYZ FURNITURE COMPANY in without armrest, class room chairs, front desk chairs, waiting
Sharjah. area chairs and revolving chairs.

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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

Forecasting was used as an input to these models, different common accuracy measures: MAD, MSE, and MAPE. Based
types of forecasting methods were used which are: two on the accuracy measures the most accurate method was
weighted moving average, three weighted moving average, assigned for each product, the remaining methods are shown in
exponential smoothing and double exponential smoothing. The Appendix (1). The results of evaluating the accuracy of each
last two methods were constructed using different values of product are illustrated as follow:
smoothing constant α. The forecast results were evaluated using

[Link] Chairs without armrest

[Link].1 Forecast

To evaluate the best forecast method to apply, accuracy measurements were calculated for each method. Table 2 shows the accuracy
measures for chairs without armrest.

Smoothing Constant Accuracy Measure/Method Exponential Smoothing Double Exponential Smoothing Weighted MA(2) Weighted MA(3)
Alpha (α) = 0.1 MAD 388.011 391.465 353.578 324.644
Beta (β) = 0.15 MSE 320323.126 285141.746 304579.022 253638.732
MAPE 29.700 32.432 24.584 25.272
Smoothing Constant Accuracy Measure/Method Exponential Smoothing Double Exponential Smoothing Weighted MA(2) Weighted MA(3)
Alpha (α) = 0.15 MAD 392.694 403.6764 353.578 324.644
Beta (β) = 0.15 MSE 320535.475 302051.428 304579.022 253638.732
MAPE 31.541 36.391 24.584 25.272
Smoothing Constant Accuracy Measure/Method Exponential Smoothing Double Exponential Smoothing Weighted MA(2) Weighted MA(3)
Alpha (α) = 0.2 MAD 399.10 416.911 353.578 324.644
Beta (β) = 0.15 MSE 325571.985 319158.8494 304579.0228 253638.732
MAPE 33.269 38.083 24.584 25.272
Smoothing Constant Accuracy Measure/Method Exponential Smoothing Double Exponential Smoothing Weighted MA(2) Weighted MA(3)
Alpha (α) = 0.3 MAD 417.505 444.685 353.578 324.644
Beta (β) = 0.15 MSE 343327.759 354062.144 304579.0228 253638.732
MAPE 36.640 41.50 24.584 25.272

Table 2 shows chairs without armrest accuracy measures

The highlighted cells represent the most accurate measures; using three weighted moving average will be best suited for chairs without
armrest.

The current demand is shown in the following Table 3:

Component\Month 1 2 3 4 5 6 7 8 9 10 11
Shell 878 1000 1200 1262 2452 734 1830 668 848 1291 1242

Fixing rod left 878 1000 1200 1262 2452 734 1830 668 848 1291 1242

Fixing rod right 878 1000 1200 1262 2452 734 1830 668 848 1291 1242

Front glide left 1756 2000 2400 2524 4904 1468 1830 1336 1696 2506 2484
Front glide right 878 1000 1200 1262 2452 734 1830 668 848 1291 1242

Rear glide right 878 1000 1200 1262 2452 734 1830 668 848 1291 1242
Chairs without armrest
878 1000 1200 1262 2452 734 1830 668 848 1291 1242
steel frame

Table 3 shows chairs without armrest current demand

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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

The calculation of forecasted demand:

Forecasted demand for period four = ((Demand for period 1) + (2*Demand for period two) + (3*Demand for period 3))/6

Forecasted demand is shown in Table 4:

Component\Month 1 2 3 4 5 6 7 8 9 10 11
Shell 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Fixing rod left 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Fixing rod right 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Front glide left 1756 2000 2400 2159 2213 2226 2211 2216 2216 2215 2216
Front glide right 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Rear glide right 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Chairs without
878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
armrest steel frame
Table 4 shows chairs without armrest forecasted demand.

[Link].2 Economic Order Quantity (EOQ)

The calculation of EOQ was made using excel sheet, the results are shown in table 5.

BILL OF MATERIAL

Annual Unit Price Setup

Code Material Description Qty / Unit Holding Cost Q*
Demand (D) (AED) Cost
PNS/0001 Shell g5, 6 1 11914 68 137 7.311 668.203

PNA/0001 Fixing rod left 5, 6 1 11914 2 137 0.172 4360.635

PNA/0002 Fixing rod right 5, 6 1 11914 2 137 0.172 4360.635
PNA/0007 Front glide 2 23829 2 137 0.251 5099.373
PNA/0008 Rear glide left 1 11914 2 137 0.258 3560.443
PNA/0009 Rear glide right 1 11914 2 137 0.258 3560.443
Chairs without
SFG/ 1 11914 42 137 4.507 851.109
armrest steel frame

Table 5 shows chairs without armrest forecasted EOQ.

Where:
H: Holding Cost = Unit Price * 10.73%.
Q*= ((2DS)/H)) ^0.5.

[Link].3 Material Requirement Planning (MRP)

MRP based on EOQ lot sizing was developed for each product besides that MRP using L4L was calculated and it’s available in appendix
(2). To apply the MRP (EOQ sizing):

First the BOM structure and MPS were built. The most accurate forecast was considered to obtain the net predicted demand. Then, the
net requirements were translated into time phased requirements. After that, EOQ formula was used to determine the other ordering policy
and obtain the planned order release. Next, the ending inventory for the component was calculated by the formula:

Ending inventory = Beginning inventory + Planned delivers – Net requirements.

Finally, the total inventory cost was calculated by:
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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

TIC = no. of orders x ordering cost + Cumulative Ending Inventory * holding cost

Lead time for all Chair without

components: 2 months Arm rest

Swing Steel Fixing Rod Fixing Rod Rear Glide Rear Glide Front
Shell (1)
(1) Right(1) Left(1) Left (1) Right (1) Glide(1)

Figure 2: BOM of chairs without armrest

 Material Requirement Planning (EOQ) of Shell:

Table 6: MPS of Panto Shell

Month Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Demand 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108

Table 7: MRP calculations of Shell

Month Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Net Requirements 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Time Phased Net
878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Requirements
Planned Order
668 668 668 668 668 668 668 668 668 668 668
Release (EOQ)
Planned
668 668 668 668 668 668 668 668 668 668 668
Deliveries
Ending Inventory -210 -542 -1073 -1485 -1923 -2368 -2805 -3245 -3685 -4124 -4564

Cumulative Ending Inventory: -26022 Holding Cost: 0

Ordering Cost: 1507 Total Inventory Cost: 1507

 Material Requirement Planning ( EOQ ) of Fixing Rod Left:

Table 8: MPS of Fixing Rod Left

Month Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Demand 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108

Table 9: MRP calculations of Fixing Rod Left

Month Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Net
878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Requirements

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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

Time Phased Net

878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Requirements
Planned Order
4361 0 0 0 4361 0 0 0 4361 0 0
Release (EOQ)
Planned
4361 0 0 0 4361 0 0 0 4361 0 0
Deliveries
Ending
3483 2483 1283 203 3458 2345 1239 131 3384 2277 1169
Inventory

Cumulative Ending Inventory: 21455 Holding Cost: 2302

Ordering Cost: 411 Total Inventory Cost: 2713

 Material Requirement Planning (EOQ) of Fixing Rod Right:

Table 10: MPS of Fixing Rod Left

Month Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Demand 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108

Table 11: MRP calculations of Fixing Rod Right

Month Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Net Requirements 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Time Phased Net
878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Requirements
Planned Order
4361 0 0 0 4361 0 0 0 4361 0 0
Release (EOQ)
Planned Deliveries 4361 0 0 0 4361 0 0 0 4361 0 0
Ending Inventory 3483 2483 1283 203 3458 2345 1239 131 3384 2277 1169

Cumulative Ending Inventory : 21455 Holding Cost: 2302

Ordering Cost: 411 Total Inventory Cost: 2713

 Material Requirement Planning ( EOQ ) of Front Glide:

Table 12: MPS of Front Glide

Month Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Demand 1756 2000 2400 2159 2213 2226 2211 2216 2216 2215 2216

Table 13 MRP calculations of Front Glide

Month Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Net Requirements 1756 2000 2400 2159 2213 2226 2211 2216 2216 2215 2216

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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

Time Phased Net

1756 2000 2400 2159 2213 2226 2211 2216 2216 2215 2216
Requirements
Planned Order
5099 0 0 5099 0 5099 0 5099 0 5099 0 0
Release (EOQ)
Planned Deliveries 5099 0 5099 0 5099 0 5099 0 5099 0 0
Ending Inventory 3343 1343 4042 1883 4769 2542 5431 3214 6097 3882 1666

Cumulative Ending Inventory: 38213 Holding Cost: 4100

Ordering Cost: 685 Total Inventory Cost: 4785

 Material Requirement Planning ( EOQ ) of Rear Glide Right:

Table 14: MPS of Rear Glide Right

Month Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Demand 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108

Table 15: MRP calculations of Rear Glide Right

Month Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Net Requirements 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Time Phased Net
878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Requirements
Planned Order
3560 0 0 3560 0 0 3560 0 0 3560 0
Release (EOQ)
Planned Deliveries 3560 0 0 3560 0 0 3560 0 0 3560 0
Ending Inventory 2682 1682 482 2962 1856 743 3197 2089 981 3434 2326

Cumulative Ending Inventory: 22434 Holding Cost: 2407

Ordering Cost: 548 Total Inventory Cost: 2955

 Material Requirement Planning ( EOQ ) of Rear Glide Left:

Table 16: MPS of Rear Glide Left

Month Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Demand 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108

Table 17: MRP calculations of Rear Glide Left

Month Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov

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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

Net
878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Requirements
Time Phased Net
878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Requirements
Planned Order
3560 0 0 3560 0 0 3560 0 0 3560 0
Release (EOQ)
Planned
3560 0 0 3560 0 0 3560 0 0 3560 0
Deliveries
Ending
2682 1682 482 2962 1856 743 3197 2089 981 3434 2326
Inventory

Cumulative Ending Inventory: 22434 Holding Cost: 2407

Ordering Cost: 548 Total Inventory Cost: 2955

 Material Requirement Planning ( EOQ ) of Chairs without armrest Steel Frame:

Table 18: MPS of Chairs without armrest Steel Frame

Month Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Demand 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108

Table 19: MRP calculations of Chairs without armrest Steel Frame

Month Nov Dec Jan Feb Mar Apr May Jun July Aug Sep Oct Nov
Net
878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Requirements
Time Phased
Net 878 1000 1200 1080 1107 1113 1105 1108 1108 1108 1108
Requirements
Planned Order
851 851 851 851 851 851 851 851 851 851 851
Release (EOQ)
Planned
851 851 851 851 851 851 851 851 851 851 851
Deliveries
Ending
-27 -176 -525 -754 -1009 -1271 -1526 -1783 -2040 -2296 -2553
Inventory

Cumulative Ending Inventory: -13960 Holding Cost: 0

Ordering Cost: 1507 Total Inventory Cost: 1507

Same methodology is applied to rest of the products attached in appendix.

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3.3 Model Analysis

The comparison will make it clear for the decision maker to choose the best model that will guarantee the improvement in controlling the
inventory system.

3.3.1 Chairs without Armrest

[Link] Economic Order Quantity

Economic Order Quantity(EOQ)

6000.00
Quantity (Unit)

Current EOQ
4000.00
Forecasted EOQ
2000.00

0.00
1 2 3 4 5 6 7
Current EOQ 708.77 4625.3 4625.3 5413.4 3776.6 3776.6 902.78
Forecasted EOQ 668.20 4360.6 4360.6 5099.3 3560.4 3560.4 851.10

Component

1: Shell G5, 6. 5: Rear Glide Left.

2: Fixing Rod Left 5, 6. 6: Rear Glide Right.
3: Fixing Rod Right 5, 6. 7: Chair without arm rest Steel Frame
4: Front Glide.

Figure 3: Economic Order Quantity of chairs without armrest

[Link] Inventory Cost

Inventory Cost

5000
4500
Cost (AED)

4000
3500
3000
2500 Current Inventory Cost
2000 Forecasted Inventory Cost
1500
1000
500
0
1 2 3 4 5 6 7
Component

Figure 4: Chairs without armrest Inventory Cost

Current Cost = 17147 AED

Forecasted Cost = 16047 AED
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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

[Link] MRP Inventory Cost

Figure 5: Chairs without armrest MRP Inventory Cost

Current Cost = 17147 AED

Forecasted Cost = 19136 AED

All other types of chair calculation and costs are attached in appendix 2.

4. RESULTS AND ANALYSIS

This section will summarizes the inventory cost for each product and the total inventory cost of all components beside the changes on
turnover ratio of products after implementing the new inventory model.

4.1 Product inventory cost

4.1.1 Chairs without armrest
[Link] EOQ Inventory Cost

Inventory Cost

5000
4500
4000
Cost (AED)

3500
3000
2500
2000 Current Inventory Cost
1500 Forecasted Inventory Cost
1000
500
0
1 2 3 4 5 6 7
Component

Figure 6: Chairs without armrest EOQ Inventory Cost

Current Cost = 17147 AED
Forecasted Cost = 16047 AED
Percentage Reduced = 6.4

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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

[Link] MRP Inventory Cost

Figure 7: Chairs without armrest MRP Inventory Cost

Current Cost = 17147 AED

Forecasted Cost = 19136 AED

Percentage Increased = 11.6%

4.1.2 Class room chair

[Link] EOQ Inventory Cost

Inventory Cost

5000

4000
Cost (AED)

3000

2000 Current Inventory Cost

Forecasted Inventory Cost
1000

0
1 2 3 4 5 6
Component

Figure 8 Class room chair EOQ Inventory Cost

Current Cost = 11545 AED
Forecasted Cost = 10947 AED
Percentage Reduced = 5.2 %

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[Link] MRP Inventory Cost

Figure 9 Class room chair MRP Inventory Cost

Current Cost = 11545 AED

Forecasted Cost = 13611 AED

Percentage Increased = 17.9%

4.1.3 Front Desk Chair

[Link] EOQ Inventory Cost

Inventory Cost

14000
Cost (AED)

12000
10000
Current Inventory Cost
8000
6000 Forecasted Inventory Cost
4000
2000
0
1 2 3 4 5 6
Component

Figure 10 Front Desk Chair EOQ Inventory Cost

Current Cost = 35305 AED
Forecasted Cost = 34236 AED
Percentage Reduced = 2.99%
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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

[Link] MRP Inventory Cost

Figure 11: Front Desk Chair MRP Inventory Cost

Current Cost = 35305 AED

Forecasted Cost = 25280 AED
Percentage reduced = 28.4%

4.1.4 Waiting Area Chair

[Link] EOQ Inventory Cost

Inventory Cost

1600
1400
Cost (AED)

1200
1000 Current Inventory Cost
800
Forecasted Inventory Cost
600
400
200
0
1 2 3 4
Component

Figure 12: Front Desk Chair EOQ Inventory Cost

Current Cost = 5410 AED

Forecasted Cost = 5357 AED
Percentage Reduced = 0.98%

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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

[Link] MRP Inventory Cost

Figure 13 Waiting Area Chair MRP Inventory Cost

Current Cost = 5410 AED
Forecasted Cost = 3549 AED
Percentage Reduced = 34.4%

4.1.5 Revolving Chair

[Link] EOQ Inventory Cost

Inventory Cost

2000

1600
Cost (unit)

1200

Current Inventory Cost

800
Forecasted Inventory Cost
400

0
1 2 3 4 5 6 7 8 9 10
Component

Figure 14 Revolving Chair EOQ Inventory Cost

Current Cost = 12692 AED
Forecasted Cost = 12689 AED
Percentage Reduced = 0.024%
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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

[Link] MRP Inventory Cost

Figure 15 Revolving Chair MRP Inventory Cost

Current Cost = 12692 AED
Forecasted Cost = 18946 AED
Percentage Increased = 49.3%

4.2 Total inventory cost of all components (EOQ method)

Total Inventory Cost

12000.0

10000.0

8000.0
Cost (AED)

Current Inventory Cost

6000.0
Forecasted Inventory Cost

4000.0

2000.0

0.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
component (No.)

Figure 16 Total Inventory Cost (EOQ method)

Current Cost = 57039.2 AED

Forecasted Cost = 55154 AED
Percentage Reduced = 3.3%

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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

4.3 Inventory Turn-Over of Products

Turnover Ratio

30.0

20.0
Turnover
Current Turnover
Ratio
10.0 Forecasted
Turnover Ratio
0.0
1 2 3 4 5 Product
Current Turnover Ratio 3.5 4.2 15.4 1.5 1.4
Forecasted Turnover 5.7 7.8 23.9 4.3 3.0
Ratio

Figure 17 Inventory Turn-Over of Products

The turnover of each product was improved after reducing the quantity ordered by implementing the EOQ.

4.4 Total Inventory Cost (MRP method)

Figure 18 Total Inventory Cost (MRP method)

Current Cost = 57039.2 AED

Forecasted Cost = 71224 AED
Percentage Increased = 24.9%

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 International Journal of Engineering and Technology (IJET) – Volume 2 No. 8, August, 2012

[5] Sarker BR, Parija GR, Optimal batch size and raw
5. CONCLUSION material ordering policy for a production system with a
fixed-interval, lumpy demand delivery system, European
In this paper we tried to establish a cost effective inventory Journal of Operational Research 89 (1996) 593-608.
management system for a furniture manufacturing company
after considering a real case study. The proposed forecasting [6] Wenyih Lee, A joint economic lot size model for raw
method can produce optimum solutions for inventory in terms material ordering, manufacturing setups and finished
of reduced ordering cost and holding cost. The calculated EOQ goods delivering, Omega 33 (2005) 163-174.
and MRP for different components identified effective cost
saving for forecasting process.
[7] Robert Fildes, Paul Goodwin, Michael Lawrence,
For further studies, adequate optimization techniques can be Konstantinos Nikolopoulos, Effective forecasting and
useful with probabilistic forecasting methods. judgmental adjustments: an empirical evaluation and
strategies for improvement in supply-chain planning,
ACKNOWLEDGEMENT International Journal of Forecasting 25 (2009) 3-23.

The authors would like to thanks Miss Samyah Al-Dubaili, [8] Paul Goodwin, Richard Lawton, On the symmetry of the
Miss Abdalla and Miss Afaf Abdalla for their efforts in data symmetric MAPE, International Journal of Forecasting
collection from company and initial analysis of the results. 15 (1999) 405-408.

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