Vol. 5, No. 10, October 2024

E-ISSN:2723 – 6692

P-ISSN:2723– 6595

http://jiss.publikasiindonesia.id/

Journal of Indonesian Social Sciences, Vol. 5, No. 10, October 2024 2769

Developing Optimization Strategy for Dead Stock Inventory:

Study Case for PT ABC

Anggita Laras Trihapsari

Institut Teknologi Bandung, Bandung, Indonesia

Email: anggita_laras@sbm-itb.ac.id

Correspondence: anggita_laras@sbm-itb.ac.id

KEYWORDS

ABSTRACT

Inventory Management; Slow

Moving Inventory; Dead Stock

Inventory

This study addresses the critical issue of inventory management at

PT. ABC is a leading food and beverage company in Indonesia,

focusing on reducing slow-moving and deadstock materials. The

research employs a quantitative and qualitative approach,

combining in-depth interviews with key personnel and analysis of

secondary data from company records and industry guidelines. The

study identifies the root causes of inventory inefficiencies. The

findings lead to the development of targeted strategies to optimize

inventory management and enhance operational efficiency. The

study's recommendations include both short-term and long-term

solutions, aiming to reduce deadstock levels and improve overall

material management practices at PT ABC.

Attribution-ShareAlike 4.0 International (CC BY-SA 4.0)

Introduction

Since its discovery, coffee has become a global commodity, with consumption steadily

increasing worldwide, including in Indonesia. The Dutch introduced coffee to Indonesia in the late

1600s, starting with Arabica coffee cultivation in Java. By the 17th and 18th centuries, coffee

production spread to other parts of the country, thanks to Indonesia's favorable climate. Today,

Indonesia stands as one of the world's largest coffee producers and exporters. Indonesia's rich coffee

history has fostered a strong coffee culture and a growing domestic market. The rise in coffee

consumption has been fueled by the spread of coffee shops and retail outlets across the country. In

2022, cafés and bars in Indonesia generated approximately 1.9 billion U.S. dollars in sales, reflecting

the popularity of coffee in everyday life (FAS, 2023; Statista, 2024).

PT ABC, a key player in Indonesia's coffee industry, has seen rapid growth since its

establishment in 2017. With more than 800 stores nationwide, the company has expanded beyond

coffee to include food and retail products. As PT ABC continues to grow, it faces increasing challenges

in managing its supply chain, particularly in inventory management (Plinere & Borisov, 2015).

Managing inventory effectively is essential to keeping operations running smoothly and ensuring that

the company can meet customer demand without overstocking, which can lead to financial strain.

Inventory management is crucial for businesses across various industries, including PT ABC.

The company spends about 1.5 billion rupiah monthly on storage costs for its eleven warehouses

across Indonesia, with half of these costs coming from its main warehouse. A significant portion of

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this expense is due to dead stock and slow-moving items that take up valuable warehouse space.

Deadstock refers to items that have been unsold for a long time, while slow-moving inventory

includes products that sell less frequently than others. These challenges often arise from

overestimated demand, forecasting errors, or changes in market trends.

The urgency for PT ABC to address dead stock is compounded by the increased storage

demands resulting from the company's operational growth since 2017. If left unaddressed, these

issues will disrupt operations and reduce the company’s ability to respond to market demands

efficiently. Therefore, this research aims to understand the root causes of dead stock at PT ABC and

develop an effective optimization strategy to address them.

The proposed strategy's novelty lies in its focus on integrating inventory management systems

with real-time data analysis. Unlike more conventional approaches, this strategy emphasizes

automation and predictive analytics to enhance the accuracy of inventory planning. Consequently,

this approach is expected to reduce dead stock levels and improve operational efficiency.

If not addressed, these inventory issues can lead to higher costs and reduced profitability for

PT ABC. By improving inventory management, the company could reduce excess stock and lower

storage costs while remaining responsive to market demands. This research aims to identify the key

drivers of slow-moving and dead stock inventory at PT ABC and explore procedures or policies that

could help prevent these issues. Additionally, the study will seek to establish standard methods for

inventory reviews and develop an action plan to manage the company's inventory better, ultimately

contributing to more efficient and cost-effective operations.

Implementing the proposed optimization strategy is expected to bring significant benefits,

including reduced storage costs, improved responsiveness to market demands, and enhanced

operational efficiency. Furthermore, the broader implications of this research include establishing a

new standard for inventory management that can enhance PT ABC’s long-term competitiveness.

Materials and Methods

The study adopts a qualitative and quantitative approach to explore and address issues related

to inventory management, mainly focusing on the high levels of slow-moving and deadstock materials

at JOB PT ABC. The research is designed to uncover the root causes of these inventory challenges and

propose practical solutions tailored to the company's specific needs.

Data collection involves both primary and secondary sources. Primary data are gathered

through in-depth interviews with key personnel in JOB PT ABC’s management division. These

interviews provide insights into the roles and responsibilities of the participants, their perspectives

on the importance of material management, and the challenges they face in managing inventory. The

questions are designed to delve into the factors contributing to the accumulation of slow-moving and

deadstock materials and to understand the effectiveness of the current inventory management

methods.

In addition to the interviews, secondary data are collected from company records, industry

reports, and academic literature. This information helps contextualize the primary data, offering a

broader understanding of the inventory management issues at JOB PT ABC. It also allows for

benchmarking against industry standards and the identification of best practices that could be

applied to improve the company’s processes (Martin, 2018).

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The analysis of the data is conducted using The Current Reality Tree (CRT). CRT is used to

identify the root causes of the inventory problems, enabling a clear understanding of the underlying

issues that need to be addressed.

Overall, this research approach combines detailed interviews with thorough document analysis

to explore the inventory management issues at JOB PT ABC. By identifying root causes and potential

solutions, the study aims to offer practical recommendations for improving the company’s inventory

practices and reducing the levels of slow-moving and deadstock materials.

Results and Discussions

Result

Validity Test

Validity testing is a process used to determine the extent to which a measuring instrument

actually measures what it is supposed to measure.

Table 1. Validity Test Results

Correlations

Pearson Correlation

.536**

Sig. (2-tailed)

<.001

100

Pearson Correlation

.536**

Sig. (2-tailed)

<.001

100

**. Correlation is significant at the 0.01 level (2-tailed).

The research results obtained from statistical tests were below 0.05, which indicates that the

data results are valid and the research can be continued.

Normality Test

The following are the results of the normality test carried out.

Table 2. Normality Test Results

Tests of Normality

Kolmogorov-Smirnova

Shapiro Wilk

Statistics

Sig.

Statistics

Sig.

.137

100

<.001

.953

100

.001

.115

100

.002

.964

100

.008

a. Lilliefors Significance Correction

The research results are obtained if the data obtained is normally distributed, because the sig. value

is below 0.05, so the research can be continued.

Reliability Test

Reliability testing aims to assess the extent to which a measuring instrument produces consistent and

stable results when used in the same situation or repeated at different times.

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Table 3. Reliability Test Results

Reliability Statistics

Cronbach's Alpha

N of Items

.695

The test results obtained if the Cronbach's alpha value is 0.695, which indicates that the instrument

used has good reliability, so it can be continued for further analysis.

Regression Test

The following are the results of the regression test obtained.

Table 4. Regression Test Results

Coefficientsa

Model

Unstandardized

Coefficients

Standardized

Coefficients

Sig.

Std. Error

Beta

(Constant)

11,172

1,529

7.309

<.001

.478

.076

.536

6.281

<.001

a. Dependent Variable: Y

The table above states that the inventory management variable has an influence on dead stock

inventory with a significance value (sig) below 0.05, explaining that there is a good relationship

between each variable.

Analyze the root cause of inventory problems with the Current Reality Tree (CRT)

Figure 1. CRT inventory problems

Stock shortages at PT ABC occur due to poorly predicted demand, caused by sales data that is

not real-time and lack of integration between sales and inventory systems that are still managed

manually. In addition, high storage costs arose because the company made large purchases to obtain

discounts without adequate cost-benefit analysis, exacerbated by an inaccurate forecasting system in

inventory planning. Expired goods were also a problem due to poor stock rotation, where PT ABC

used a manual system to monitor expiry dates, thus slowing down the identification of products that

should be used or sold immediately. The focus on high critical areas includes the need for information

system integration to address stock shortages and inaccurate demand data, as well as automation in

forecasting and inventory management systems to prevent unplanned purchases and overstocking,

and ensure effective stock rotation to avoid expired goods.

Expired Good

Inventory

Problems

Stock

Shortage

High

Storage Cost

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Discussion

Based on the research results, it is found that inventory management has a significant influence

on dead stock inventory at PT ABC, because decisions taken in stock management, such as ordering

methods, replenishment frequency, and demand prediction, can determine how effectively the

company avoids the accumulation of unsold goods. Inefficient inventory management, such as

purchasing goods in bulk without taking into account market turnover or trends, risks creating dead

stock, which will then burden storage costs and working capital. Conversely, by implementing the

right systems, such as data-driven demand analysis and strict stock control, PT ABC can reduce the

amount of dead stock and improve operational efficiency.

Inventory is a list or record containing information about items or assets owned by an

organisation, company, or individual (Wijaya et al., 2022). So that inventory management is the

process of planning, controlling, and supervising goods or products owned by an organisation or

company (Hijrah & Maulidar, 2021).

Effective inventory management plays an important role in reducing dead stock inventory,

which is goods that remain unsold for long periods of time and are at risk of becoming obsolete or

expired Li et al. (2022). When inventory management is not done well, companies often experience a

buildup of goods that are no longer needed or relevant to market demand (Fang & Chen, 2022). One

of the main factors that lead to dead stock is the lack of proper planning in purchasing goods and

determining the optimal stock. Without strict monitoring, such items tend to remain in the

warehouse, creating additional storage costs and costing the company money (Kumar. &

Shivabharathi., 2022).

Weak inventory management systems often result in inaccurate demand forecasts, where the

quantity of goods purchased exceeds actual demand. This happens because there is no integration

between sales, procurement, and stock management (Atmaja & Anandita, 2021; Khobragade et al.,

2018). In the absence of real-time data on sales trends and consumer demand, companies risk

purchasing goods in quantities that do not match market needs (Mor et al., 2021). As a result, the

accumulated stock becomes dead stock, and the company has to bear storage costs and financial

losses due to unsaleable goods (Gayam et al., 2021).

Good inventory management can mitigate the risk of dead stock by optimising stock rotation

and using methods such as First In, First Out (FIFO) (Atcha et al., 2024). Automated management

systems that are integrated with sales data and demand forecasts help ensure that goods move

through their lifecycle, so that older products go out first before they become obsolete (Tang et al.,

2022). In addition, the use of technologies such as warehouse management systems (WMS) or

Enterprise Resource Planning (ERP) allows for automated stock monitoring, providing accurate

information on when items should be reordered or discontinued (Tanthatemee & Phruksaphanrat,

2012; Tong et al., 2023).

Thus, good inventory management not only helps reduce dead stock but also improves the

operational efficiency and profitability of the company. By paying attention to real-time data, sales

analysis, and stock rotation cycles, companies can avoid over-purchasing and reduce potential losses

from unsold goods. Therefore, investment in advanced inventory management technology and

training personnel to understand demand patterns are key in maintaining a healthy stock balance

and minimising dead stock.

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Conclusion

Based on the research results, inventory management has a significant effect on dead goods

inventory at PT ABC, because decisions in stock management, such as ordering methods,

replenishment frequency, and demand prediction, determine the company's effectiveness in avoiding

the accumulation of unsold goods. Inefficient inventory management, such as purchasing goods in

bulk without considering market turnover or trends, risks creating dead goods, which will burden

storage costs and working capital. By implementing the right systems, such as data-driven demand

analysis and strict stock control, PT ABC can reduce the number of dead goods and improve

operational efficiency. Therefore, investment in advanced inventory management technology and

personnel training to understand demand patterns are key to maintaining a healthy stock balance

and minimising dead goods, which is in line with efforts to develop a dead goods inventory

optimisation strategy at PT ABC.

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