Inventory Cost Management of Polymer Material Used in Palm Oil Bottle Production

Thailand is a major palm oil producer that serves domestic and international markets. With an increased demand, the need for polymer materials used in palm oil bottle production rises. To achieve efficient production processes and minimize the effects of dynamic changes in the market, effective inventory management is required to ensure smooth production with the lowest total inventory cost. This study utilizes a system dynamic (SD) modeling approach to examine the interrelationships of parameters affecting the total inventory cost of polymer material used in palm oil bottle production. The SD model considers parameters: order quantity, discount price, ordering cost, holding cost, warehouse cost, transportation cost, and product cost. The simulation results indicate that the product cost takes over 95% of the total inventory cost. Taking the biggest discount price with the largest order quantity provides the lowest inventory cost in the long term. The warehouse cost ranks second. By fully utilizing the warehouse space, the total inventory cost is reduced. The sensitivity analysis is performed to confirm the model’s validity and suggest strategies to minimize the total inventory cost in the long term. The results suggest that the companies negotiate with the suppliers to match the best order quantities with suitable prices. The selected order quantities should fully utilize the warehouse space to reduce the total inventory cost in the long term.