A potato is one of the vegetables which are perishable commodity that could not be stored for a long time without the support of adequate facilities. In the supply management of potatoes, more frequent orders mean make the cost of inventory greater. In contrast, rarely order makes lower ordering cost, but require the product shelf life longer. Economic Order Quantity (EOQ) is the method of calculating the number of orders that resulted in the optimal total cost. Inventory planning through EOQ method requires a trade-off between quantity and frequency of ordering and shelf life of potatoes. This study aims to determine the number and frequency of ordering based on the shelf life of potatoes in order to obtain the lowest total cost of inventory. This study begins with an attempt to reassure the shelf life of potatoes after harvest. Experimental method used to determine the shelf life of potatoes, where the parameters measured were weight loss, hardness, moisture content, and appearance of the skin. Observations were made every three days with three different lighting treatment that is storage the material: (1) exposed to direct sunlight, (2) are not directly exposed to sunlight, and (2) in a dark room. The number of the shelf life of potatoes are used as the deadline of the shelf life of potatoes in stock, the maximum number of orders and reorder point. Furthermore we performed the analysis using the framework of the implementation of the basic model of EOQ. The results showed that based on the data last three years the company should be able to make savings of Rp. 986,928.00 if the planned supply through the use EOQ model with the order value in every month an average of 1.72 times of the actual order, so order frequency becomes less that of an average of 12 times to 5 times a month. In order to plan next year through the decomposition method and using the data of four years earlier, then the value of forecast supply requirement of 402 071 kg a year. This value is then decomposed into each month with an average of 33,506 Kg. Using the value of inventory cost components are the same then the average value obtained EOQ is 6,087 Kg and order frequency is 5 times a month Keywords: Potatoes inventory planning, EOQ on agrobased perishable product, order quantity, frequency of order, potatoes shelf life.
Is Inventory a Hot Potato in Your Company?
Over the past decade, business operations have invested heavily in various technologies and systems. Every system that firms use has the potential to generate vast amounts of data, providing granular insights into every aspect of how a business operates. Despite these advances however, the value of these data can only be realized when firms can use them to adopt new decision and business processes that can improve performance over the long term. How can firms improve supply chain performance in a reliable, scalable, and sustainable way?
Published online: Aug 06, 2019 Articles Buzz Shahan, Chief Operating Officer, United Potato Growers of America
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This article appears in the August 2019 issue of Potato Grower.
A supply chain is a system that includes those activities, people, entities, information and resources necessary to get a desired product from the supplier to the final customer. Some examples of supply chain activities are those used by most fresh potato farmers and their packer/shippers to supply a retailer or wholesaler with their potatoes, and by retailers/wholesalers to receive and merchandize those potatoes. In making the fresh potato supply chain function, which responsibilities lay with the supplier, which lay with the retailer/wholesaler, and how do the two differ?
One would assume that supply chain management would be as logical and straightforward as any other business process. Such is the case from the retail/wholesale side, but not always from the grower/shipper side. Retail/wholesale companies become involved in supply-chain management primarily to maximize overall profitability. They do this by controlling product quality, tightening inventory levels, and honing freight and delivery costs.
Unlike those on the retail/wholesale side whose supply chain involvement centers on rate of returns, many on the grower/shippers’ side perform their supply side tasks on a purely functional basis. Here are functions that too many fresh potato suppliers see as their supply chain duties: First, get the order by most any means, possibly sacrificing price (grower equity) to do it. Second, fulfill the order by generating the requested packages, an obvious functional prerequisite. And third, ship the order on time, including arranging transportation when required to do so, another functional prerequisite.
A deeper dive into how the fresh potato supply side addresses supply chain decisions reveals that decisions are almost always based on what is best for the function, not on what is best for the basic supplier—the grower. Think about what this says about fresh potato supply chain management overall. Think about a missing responsibility that, if added to fresh potato supply side duties—as happens in other industries—would have the greatest impact on grower profitability. What would that responsibility be?
Because fresh potatoes are fresh produce, and because fresh produce price reacts most sensitively to the supply/demand balance, demand forecasting becomes fundamental to all else that follows in supply side supply chain management, and certainly in terms of boosting grower profitability. Here’s the anomaly: Since grower profitability is absolutely tied to accurate demand forecasting, why does demand forecasting not appear on the list of responsibilities of many who perform fresh potato supply chain functions? Happily, demand forecasting does appear on the list of supply side duties in certain potato-producing regions; growers in those regions reap consistent and fair returns because of it. Whose fault is it that certain packer/shippers in certain regions are allowed to skip over this key component of supply chain management? Shouldn’t this fundamental aspect of grower profitability be part of their accountability?
Assume that a firm existed called “Fresh Potato Supply Chain Management Company” and that this firm were hired to manage the supply side of the fresh potato supply chain. Assume also that this firm’s compensation depended upon grower prosperity. Now, go out on a limb here, and venture a guess as to what their first act would be in supply chain management.
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