Int. J. Logistics Systems and Management, Vol. X, No.

Y, xxxx

A process simulation of inventory planning and

control for Minute Maid Pulpy at Coca-Cola
Rahajeng Anggi Andini and
Togar M. Simatupang*
School of Business and Management,
Bandung Institute of Technology,
10 Ganesha St., Bandung 40132, Indonesia
Fax: +62-22-2504249
E-mail: rahajeng.anggi@sbm-itb.ac.id
E-mail: togar@sbm-itb.ac.id
*Corresponding author
Abstract: This research aims to develop a process simulation model for the
synchronisation of multiple decision parameters to ensure in full and on-time
delivery. Previous research overlooks the decision complexity of inventory
planning and controlling in a logistics network that consists of various divisions
with different hierarchy of functions. A case study at Coca-Cola was conducted
to find out the value of synchronising decision parameters of inventory
planning and control for a popular line of beverages called Minute Maid Pulpy
with a unique fruit flavour. Monte Carlo simulation was employed to assess the
optimal operational performance for the company under various alignment
scenarios. The process simulation showed that the most optimal performance
was obtained by using 3.5 day coverage as the level of inventory target in the
plant, updating master of production schedule based on ending inventory at the
distribution centre, and using predicted ending inventory to reduce the
replenishment time.
Keywords: inventory planning; inventory control; process improvement;
finished goods delivery; synchronisation, decision parameters; process
simulation; Monte Carlo method; Coca-Cola.
Reference to this paper should be made as follows: Andini, R.A. and
Simatupang, T.M. (xxxx) A process simulation of inventory planning and
control for Minute Maid Pulpy at Coca-Cola, Int. J. Logistics Systems and
Management, Vol. X, No. Y, pp.000000.
Biographical notes: Rahajeng Anggi Andini is a Research Associate at the
School of Business and Management in Bandung Institute of Technology,
Indonesia. She earned her Masters in Business Administration (MBA) with
distinction in operations management concentration from Bandung Institute of
Technology. Her research interests include supply chain management,
operations management, and logistics systems.
Togar M. Simatupang is a Professor of Operations and Supply Chain
Management. He holds a PhD degree from Massey University in New Zealand.
He has extensively published in logistics and supply chain management
journals. He has been attributed Highly Commended Award by Emerald
Literati Network for his research in supply chain management. His current
research and teaching interests focus primarily on supply chain collaboration,
operations management, and logistics management.

Copyright 200x Inderscience Enterprises Ltd.

R.A. Andini and T.M. Simatupang

Introduction

Supply chain management (SCM) has been a major component of competitive strategy to
enhance organisational productivity and profitability. The objective of SCM is about how
to fulfil customer demand for a standard quality product with a low cost and minimal lead
time (Simchi-Levi et al., 2008). The goal of every profit-based organisation is to make
money by meeting enterprise demands with service level agreements at the minimised
cost. This kind of logistics environment faces the inherent dilemma between two
approaches: to hold high levels of inventory in order to deal with peak demand while
ensuring the availability of stock and to hold low levels of inventory in order to cut
expenses while ensuring the quality and reducing returns due to shelf-life, obsolescence,
or engineering changes (Yuan et al., 2003). Any company has to deal with this dilemma
through synchronising activities of logistics planning and control in ensuring excellent
service level of delivery at reasonable costs.
The synchronisation of planning and control inside a company can be achieved by
focusing on two core processes baseline planning and updating (Marcotte et al., 2009).
In inventory planning and control, an integrated and aligned process that involves related
organisational divisions is needed to enhance customer service level of on-time delivery
(Azadeh et al., 2011; Li and Wang, 2007). Lee (2004) argues that supply chains with
aligned planning and control cycle are able to create sustainable competitive advantage.
Simchi-Levi et al. (2008) also state that coordination between planning and control holds
a key role in improving service level with minimum level of inventory (LOI).
The current approaches focus in one particular area of inventory system such as
demand management (Shea and Gilleon, 2011), replenishment policy (Yuan et al., 2003),
stock management (Cyplik et al., 2009), inventory records (Cha-ume and Chiadamrong,
2012), and inventory management (Inaba, 2012). Many companies that focus only on low
cost and high speed supply chains fail to react if there are unexpected changes in either
demand or supply (Carvalho et al., 2012). Other research streams recently attempt to
synchronise decisions between logistics activities. Viau et al. (2009) proposed a
framework for integrating inventory and transportation. Marcotte et al. (2009) identified
different schemes of cooperation between actors based on advanced planning system and
point-to-point relationships. Under demand uncertainty, Ettien et al. (2007) proposed a
scenario-based approach to solve capacity-planning problem. Li et al. (2006) studied
synchronisation of assembly manufacturing and final deliveries in a consumer electronics
supply chain. Furthermore, Ding and He (2011) focused on integrated consideration of
production scheduling and assembly line to attain efficient finished-goods delivery.
However, previous research often overlooked the synchronisation between inventory
planning and control across different autonomous divisions with different geographical
and hierarchical coverage. In practice, companies often deal with persistent problems of
misaligned links between inventory planning and control. Lack of visibility, long
planning horizon, and complex business processes make it difficult to synchronise
planning and controlling logistics activities (Viau et al., 2009). There is a need a decision
framework for exposing different parameters of planning and controlling to achieve
on-time delivery with minimised delivery costs across autonomous divisions. Therefore,
the main objective of this research is to provide an analysis framework to synchronise
decision parameters from forecasting to delivery activities across various divisions. A
case study is adopted to demonstrate the typical situation of misalignment between
inventory planning and control by using Monte Carlo simulation in a beverage company

A process simulation of inventory planning and control for Minute Maid Pulpy

of Coca-Cola for a product line of Minute Maid Pulpy. Minute Maid Pulpy is a
naturally-refreshing juice drink with real fruit juice and real fruit pulp which offers a
unique sensory experience. This beverage product line is a flagship product in the
national market, but the planning and control processes are fragmented that make it hard
for the company to achieve its targeted service level of on-time delivery.
The paper is structured as follows. First, the research method is outlined. Second, a
brief description about the company in this case study is provided. After describing the
findings in the discussion, the final section outlines the conclusions.

Research method

A conceptual framework can be seen in Figure 1. Internal and external input requirements
of the system need to be identified in understanding existing condition. If all important
variables and parameters had been identified, the optimum condition can be found for all
of those parameters to implement an effective inventory planning and controlling to
ensure in full and on-time delivery. The steps of this research thus consist of
understanding existing condition, root cause analysis, and simulation.
Figure 1

Research conceptual framework (see online version for colours)

Existing Condition

Internal
input:

Ext.
requirement:

Forecast
Demand
Uncertainty
Production
Capacity

Demand
Variability

- existing system modeling

- existing system analysis
- problem identification
- root cause analysis

Cost
Delivery
Lead Time
Production
Lead Time

- performance measure identification

- simulation
Business Solution

: context of research

R.A. Andini and T.M. Simatupang

A single case study is adopted to illustrate the situation of misalignment between

inventory planning and control in ensuring on-time delivery. The case was conducted to
improve the performance of inventory management plan of the Minute Maid Pulpy
products at Coca-Cola Bottling Indonesia (CCBI) in West Java Operation. To understand
the existing planning process, data and information were collected. The types and
techniques of data collection are as follows:
a

Primary data: The data obtained were from interviews and field observations. Daily
office activity was observed to find out how the company managed the supply chain
of Minute Maid Pulpy products. The observation was focused on production
planning, such as processing forecast data from NO, fulfilling demand from some
parties, and also how to anticipate unexpected changes and problems. The
observation was done from November 2011 to February 2012. The purpose of the
interview is to gather all data related to SCM of the 350-millimeter Minute Maid
Pulpy products at CCBI, West Java operation.

Secondary data: Secondary data were obtained from the companys documents and
also a literature review. The literature can be about theories that are related to
research, reports of scientific research that are relevant to the research, and also some
information from the internet.

After collecting the data and information, all the data were processed to map the business
process. The next step of the research is assessing the condition of company based on the
existing model. Based on the assessment, the problems at the company were identified.
One of the problems was chosen to be the topic of this research. It was decided that the
problem to be analysed for this research was inventory management plan of the 350 ml
Minute Maid Pulpy products. The problem occurred because the inventory plan
performance was below the target.
Root causes were identified by analysing the causes of negative symptoms using
cause-effect diagram. After root causes were identified, some possible solutions were
proposed. To find the best possible solution, Monte Carlo simulation was used. In order
to be in control, the process parameter values need to be kept within a set limit and
remain relatively constant. This allows a comparison of planned and actual parameter
values. Once the comparison is done, the parameter values can be influenced through
certain reactive measures in order to improve the performance or to re-align the
monitored value to the defined value (Gunasekaran et al., 2004).
The main purpose of model analysis is generally to minimise the total costs by
considering the uncertainty of the planning information (Van Landeghem and Vanmaele,
2002). It is necessary to specify the probability of demand distribution that can be
captured in Monte Carlo simulation (Zabawa and Mielczarek, 2007). Simulated events
take place randomly and match the description of the theoretical probabilities derived
from acquired experiences. The most important of the fundamental process in Monte
Carlo simulation is called random number mapping which consists of matching the
random number with simulated events when they occur and how long they last
(Banomyong and Sopadang, 2010). Procedures for the simulation study in logistics
include understanding supply chain processes and planning processes, designing
scenarios, conducting a data collection, conducting performance measures, defining the
target for each performance measure, defining termination condition, and evaluating

A process simulation of inventory planning and control for Minute Maid Pulpy

policies/strategies of supply chain (Chan and Prakash, 2012; Zabawa and Mielczarek,
2007).

2.1 Coca-Cola Bottling Indonesia

CCBI is a manufacturer and product distributor of the Coca-Cola Company (Coca-Cola
Bottling Indonesia, 2012). It is a trade name of a joint venture between a number of local
companies and an Australian company, Coca-Cola Amatil. The plants are engaged in
producing, bottling, and distributing products of The Coca-Cola Company such as
Coca-Cola, Sprite, Fanta, Ades, Minute Maid, Frestea, Isotonik, and A&W. CCBI
already has ten operation areas in various provinces in Indonesia. Not all operations area
has a single plant. Several operation areas that do not have their own plant obtain the
products from other operation areas. Nevertheless, not every plant produces all
Coca-Cola products.
CCBI National Office (NO) is located in Cibitung, Jakarta. This office does all
national planning here, including forecasting and arranging the master production
schedule (MPS). The operational plan is sent regularly to each demand operation
planning (DOP), and the data from each operation have to be submitted to NO regularly.
To make a forecast, they use historical data of sales records and promotion information
from the marketing department. DOP does not have the authority to change the forecast
data and MPS, it only has the authority to give suggestion or revision and it needs to get
permission from NO first.
CCBI West Java Plant is one of CCBI sourcing plants that is located in Rancaekek,
West Java. It has five distribution centres (DC) to distribute the demand of West Java.
West Java Plant produces three different products of Minute Maid Pulpy. Besides
meeting the demand of West Java operation area, CCBI West Java also fulfils the
demand in other operation areas. Every department in Bandung Plant coordinates with
the related department in NO directly. All reporting process must be made to the NO
directly. The relation within departments in Plant West Java is only some form of
coordination in which they discuss and crosscheck the instructions from NO. There is no
structural coordination among departments in Bandung Plant. Delivery and operation
planning (DOP) is division that is responsible for fulfilling the demand planning. DOP
reports to NO. DOP works on the basis of forecast and MPS that have been made by NO.
Minute Maid Pulpy is a fruit flavour beverage with Vitamin C and pulp (original fruit
grains). Coca-Cola launched Minute Maid Pulpy Orange (MMPO) in Indonesia in 2008.
In Indonesia, it is only produced in Surabaya, Bandung, and Cibitung Plant. All of PET
350 ml Minute Maid Pulpy products are produced in Line 1 at CCBI Bandung plant. This
line has 350 bottle per minute (bpm) speed filler. From all products that were produced
by the company for a whole year in 2010, the 350 m MMPO l placed the highest order in
2010. After the success of MMPO, Minute Maid Pulpy Tropical (MMPT) and Minute
Maid Pulpy OMango (MMPOM) were produced and sold in Indonesia in 2011 before
finally Minute Maid Pulpy Lemon was launched in May 2012. Because it is a popular
and fast growing product as well as complicated product in the production scheduling it
is produced by using only one production line this product was chosen to become the
focus in this case study. Because the operational performance before April 2012 became
the main data, three variants (MMPO, MMPT, and MMPOM) were used in this research.

R.A. Andini and T.M. Simatupang

Just like another company, CCBI is facing demand variability. As a leading beverage
company, it has to maintain its market demand and cost to win the competition with other
companies. Delivery in full on time accurate invoice (DIFOTAI) is the most important
KPI in fulfilling the market demand. From all products that were produced by the
company for the whole year of 2010, 350 ml MMPO contributed the highest order in
2010.
DIFOTAI target for 2011 was 96%; national DIFOTAI 2011 performance was below
the target. West Java operation performance was only 88.4%. Inventory plan is one of
KPIs that supports DIFOTAI performance even it does not directly contribute to the
formula. Minute Maid Pulpy products inventory planning contributes to this achievement
failure. Due to the importance of the presence of product Minute Maid Pulpy, the
company should evaluate and increase the performance of inventory management of
Minute Maid Pulpy products by providing stock at the level needed to meet the demand.

2.2 Analysis of business situation

DIFOTAI is key performance indicator (KPI) that shows how well the company covered
demand based on order and targeted lead time. Demand that cannot be met is recorded as
out of stock (OOS). If the company can meet the demand but the lead time is over than
the targeted lead time, it is still recorded as OOS. The lead time for fulfilling Minute
Maid Pulpy products is two days. In 2011 performance, no stock at DC contributed 1.3%
in miss-fulfilling purchase order (PO). Figure 2 describes DIFOTAI.
Figure 2

DIFOTAI breakdown (see online version for colours)

General business process in fulfilling demand can be seen in Figure 3. The logistics
network of Minute Maid Pulpy is a mix of push and pull system involved various
divisions ranging from the NO, the plant, and the DC. In order to meet their delivery
service level, a target LOI has to be determined in terms of days of coverage. The target
inventory in DC was different with the target inventory in the plant. There were also a
range of targeted inventory levels: safe, stop, and top. Safety level is a minimum LOI that
needs to be covered, stop level is when replenishment is no longer needed, and top level
is the maximum LOI.

A process simulation of inventory planning and control for Minute Maid Pulpy

Targeted days of coverage inventory were based on forecast on that particular day. In
West Java Operations, they used 3.5 days of coverage in the plant and 4.4 days of
coverage in DC as safe level for Minute Maid Pulpy products. Inventory Plan was
calculated each week to see whether it had met the KPI target or not.
Figure 3

Supply chain business process

R.A. Andini and T.M. Simatupang

The existing system model was formed from data collection under several assumptions
using Microsoft Excel. The data that had been collected were Minute Maid Pulpy
products data that related with supply chain system like forecast, sales, production from
August to October 2011. The assumptions that were used are perfect supply and
production and also lost sales instead of backordered.
The existing system model was then simulated using Monte Carlo simulation based
on historical demand data. Historical forecast data, demand from other operations, and
purchase order were random variable that were used in this simulation. The simulation
was run according to work days from August to October 2011 which was 75 days.
Average numbers from all simulation outputs would be the final output numbers.
LOI was used as the performance measure in this modelling simulation. Performance of
simulation result was then tested using Wilcoxon with alpha 0.05. Wilcoxon test showed
that the model had mimicked the existing system (Asymp. Sig number > 0.05).

2.3 Root cause analysis

Root cause analysis was conducted using cause and effect method. Negative symptoms
were identified first and then processed downwardly to identify root causes. It was found
that not having sufficient stock at DC was the negative symptom. Based on the actual
data, the existing production capacity was sufficient, even for one month stock-up.
Inventory plan performance is measured by minimal LOI using days of coverage as unit.
Targets for days of coverage in DC were varied for each product. Based on the interview
and existing modelling, the target for MMPO and MMPOM were 4.4 days and 7 days for
MMPT since it has the lowest demand. The actual days of coverage was reported to NO
by the end of the week (each Friday) for performance analysis. After analysing the
existing model, the root causes were identified as follows:
1

Inventory level in plant only considering demand from DC: Bandung plant not only
covered 350 ml Minute Maid Pulpy products from West Java operations but also
covered other operations. Plant has a minimum LOI to cover unpredicted demand or
situation that is also formulated in days of coverage. The target for plant was 3.5
days. The existing model showed that the target was based only on daily DC forecast
without considering demand for other operations. Even the daily delivery was the
prioritised delivery for DC rather than the delivery for other operations. Thus, there
will be a bigger opportunity since there will be no stock for delivery to DC if the
targeted LOI does not consider the demand for other operations.

Slow response in replenishment process: Based on the interview and existing model
analysis, the number of products that was delivered to DC was based on targeted DC
LOI. The data of ending inventory in DC was submitted by the end of each work day
before DOP calculated the quantity of inventory that was needed for each DC in that
particular day and before the quantity of inventory was delivered the next day with
one day lead time. Targeted LOI would be difficult to be reached with this slow
response system.

A process simulation of inventory planning and control for Minute Maid Pulpy
3

Low forecast accuracy: Overall forecast accuracy performance in 2011 had achieved
their target. Forecast accuracy was calculated using sales forecast accuracy (SFA).
The formula is one minus absolute forecast error. If the result was negative it was
counted as zero. Overall performance of forecast accuracy for all CCBI products had
reached its target in 2011. However, the actual data of Minute Maid Pulpy products
in the period of AugustOctober 2011 showed that their forecast accuracy was very
low. For MMPO and MMPT, it was only 20 to 30%, while for MMPOM it was less
than 10%. One of the reasons for the low performance was due to new products.
Since forecast data were given from NO and DOP did not have the authority to
change it, this research did not focus on how to improve forecast accuracy. Solutions
to this cause will be focused on reducing the negative impact of low forecast
accuracy.

2.4 Alternative solutions

The possible solutions were generated from root causes that had been identified before.
The solutions have to be related to business issues and have to answer the problem that
had been stated previously. If each of the problems can be solved, a better delivery
service can be expected. The first identified root cause is that the inventory level in plant
only covers the demand from DC. Besides the demand from DC, plant also covers
demand from other operations. One possible solution is that plant inventory has to covers
two kinds of demand: demand from DC and demand from other operations. As explained
before, the targeted LOI for plant and DC were based on DC daily forecast demand.
CCBI had calculated that the optimal targeted LOI for plant was 3.5 days and for DC was
4.4 days. There was also a STOP level of LOI in DC which was 5 days. The solution
scenario related to plant inventory will be based on those quantities with STOP level
quantities as the extreme condition. The scenarios are described in Table 1 based on
combination of LOI that the company should fulfil both local and other operations orders.
Table 1
Scenario

Solution scenario for targeted plant LOI

Targeted plant LOI (unit: daily demand)
DC

Other operations

Existing

3.5

0.0

3.5

3.5

4.4

0.0

4.4

4.4

5.0

5.0

Slow response in meeting the targeted days of coverage was also one of identified root
causes. Because replenishment quantity depends on ending inventory in DC and there
was one day lead time, improvement in replenishment process related either to ending
inventory data or lead time. Since one day lead time is relatively good enough, the
solution was focused on ending inventory data. In the existing replenishment process, the
replenishment products would be received in the next two days. The proposed solution
scenario was to calculate predicted ending inventory for day (t + 1) based on actual
ending inventory day (t) and daily forecast for day (t + 1). The proposed replenishment
process and quantity were based on this predicted ending inventory so the

10

R.A. Andini and T.M. Simatupang

replenishment process time could be reduced for one day. In the existing replenishment
process at day (t + 2), replenishment product that was received was the replenishment
need for day (t). With predicted ending inventory scenario at day (t + 2), replenishment
product that was received was the replenishment need for day (t + 1). This proposed
scenario reduces one day of the process time. This scenario was also mixed with variation
targeted plant LOI scenarios.
As mentioned in root cause analysis, low forecast accuracy may become a main
problem in supply planning. If forecast accuracy is low, an overstock or OOS situation
can be an unexpected problem that is difficult to deal with. Forecast was based on a given
data and DOP did not have the authority to change it, the improvement could be made
through production scheduling. Production scheduling was based on MPS. Although
MPS was given by NO, the details of MPS were planned by DOP. DOP also had the right
to make suggestion or adjustment based on the actual field condition. The proposed
solution scenario is thus to do an MPS update once a week based on ending inventory
data in DC. This scenario should also be mixed with the previous scenarios. One update
in a week is considered enough because the update process requires time and effort. The
more the update process is held, the more changes in the production are made, thus
affecting the productivity and responsiveness. More efforts and time are also required in
the planning process since it is conducted manually.
Table 2

Scenario
Existing
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19

Proposed solution scenarios

Target min. LOIDC

Targeted plant LOI

(unit: x daily demand)

MMPO

MMPT

MMPOM

DC

Other op.

4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4

7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7

4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4
4.4

3.5
3.5
4.4
4.4
5
3.5
3.5
4.4
4.4
5
3.5
3.5
4.4
4.4
5
3.5
3.5
4.4
4.4
5

0
3.5
0
4.4
5
0
3.5
0
4.4
5
0
3.5
0
4.4
5
0
3.5
0
4.4
5

Update
MPS

Ending
inventory
prediction

No
No
No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No

No
No
No
No
No
No
No
No
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes

A process simulation of inventory planning and control for Minute Maid Pulpy 11
Based on the proposed possible solutions, there are 19 solution scenarios. The details of
the scenarios can be seen in Table 2. Each of scenarios was measured based on the
targeted performance measures.
The business issue is about fulfilling demand by providing stock at the level needed
to meet the demand. Inventory plan performance measure, which is LOI at DC, is used as
a performance indicator. The targeted LOI DC was determined from the quantity that had
been calculated from the company and also was based on the existing model. The targets
were 4.4 days for MMPO and MMPOM and 3.5 days for MMPT. Just like the existing
condition, DC LOI that was measured was on the average of all Friday DC LOI in every
week.
Since DIFOTAI is the main KPI in fulfilling demand, OOS at DC also becomes one
of performance measures. OOS performance result could also help to analyse whether
MPS update was effective or not. The maximum percentage OOS target was based on
KPI target, which was 3%. The percentage of OOS was calculated by comparing the
quantity of OOS to actual sales.
Inventory cost and opportunity loss were to be include in performance indicators due
to financial condition to lower relevant costs. Inventory cost is a percentage from product
price and opportunity loss is product price. Actual percentage of inventory cost is a
restricted data so it was assumed. Since average inventory cost in Indonesia is low and
maximum time Minute Maid Pulpy products in the warehouse are six weeks, 30% of
product price is a reasonable maximum annual inventory cost. Product price per box was
IDR 126,000. Performance with 10% and 20% annual inventory cost was also measured
to see if there was any possibility of different result with a low inventory cost. As far as
the performance measure is concerned, it was assumed that delivery cost remained the
same with existing system because they did replenishment every day.

Simulation results

In order to determine which of the models was better for this company, a simulation was
performed using Monte Carlo method. There were three variables that had probabilistic
elements: forecast data, demand from other operations, and PO. These variables were
random input based on probability of distribution of actual data. The simulation was run
75 times which was based on work days from October to November 2011. The final
result that was measured was the average of all simulation run.
Table 3

Performance measure and target for each performance measure (see online version
for colours)

Performance measure
DC level of inventory
OOS because of no stock at DC
Inventory cost
Opportunity loss

Target
MMPO

MMPT

MMPOM

4.4 days

7 days
3%
Lower than existing
Lower than existing

4.4 days

The performance of each scenario was compared to the existing performances based on
the targeted performance measures that had been determined before. Table 3 shows the
targeted DC LOI and OOS performance from each scenario. It can be seen that every

12

R.A. Andini and T.M. Simatupang

scenario have a better day of coverage than the existing scenario, and days of coverage of
every scenario were above the target. There were several scenarios for OOS (because of
no stock at DC) performance that were above the maximum target. As shown in Table 4
those scenarios are indicated with red font. Those scenarios are thus eliminated from the
possible solution scenario.
Table 4
Scenario
Existing
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19

Days of coverage and OOS performance from each scenario

Target min. LOIDC

OOS because stock at DC (%)

MMPO

MMPT

MMPOM

MMPO

MMPT

MMPOM

Average

3.32
5.03
4.82
5.03
5.03
4.67
5.03
4.70
5.03
5.03
5.80
6.26
5.87
6.26
6.26
5.61
6.08
5.64
6.14
6.21

9.51
7.55
7.33
7.56
7.56
7.25
7.55
7.26
7.56
7.56
8.29
8.67
8.31
8.67
8.67
7.94
8.34
7.97
8.42
8.46

4.19
4.60
4.49
4.60
4.60
4.44
4.60
4.45
4.60
4.60
5.59
5.77
5.61
5.77
5.77
5.47
5.67
5.49
5.70
5.73

14.65%
2.64%
5.95%
2.61%
2.59%
7.45%
2.68%
7.18%
2.61%
2.61%
5.07%
1.06%
4.77%
1.03%
1.00%
6.31%
2.14%
6.01%
1.82%
1.66%

0.24%
0.22%
0.24%
0.21%
0.21%
0.25%
0.22%
0.25%
0.21%
0.21%
0.25%
0.21%
0.24%
0.21%
0.21%
0.63%
0.27%
0.60%
0.23%
0.22%

0.00%
0.02%
0.13%
0.00%
0.00%
0.13%
0.02%
0.13%
0.00%
0.00%
0.03%
0.01%
0.03%
0.00%
0.00%
0.76%
0.29%
0.75%
0.15%
0.08%

4.96%
0.96%
2.11%
0.94%
0.94%
2.61%
0.97%
2.52%
0.94%
0.94%
1.78%
0.43%
1.68%
0.41%
0.41%
2.57%
0.90%
2.45%
0.73%
0.65%

After eliminating several scenarios, the next performance measure to consider was cost.
Remaining possible solution scenario with the lowest cost was the scenario that was
expected to be able to answer the objectives of this research. Table 5 shows cost for each
remaining possible solution scenarios. From the results, we can see that there was no
different result with different percentage of annual inventory cost. The lowest total of
inventory cost was the one from scenario 11. As expected, plant inventory according to
the target of CCBI, with the consideration of demand from other operations with MPS
update and prediction ending inventory, was the best scenario in achieving the targeted
DC LOI, and targeted OOS because of no stock at DC and lowered total cost. The
consideration of demand from other operations increased the stock in plant and it also
correlated with the increase in DC LOI. MPS update gives a correction to the production
quantity based on inventory level in DC with the prediction ending inventory,
replenishment process time could be reduced and it also affected in DC LOI. The
combination of variables in scenario 11 gave the lowest cost with the minimum inventory
(lower inventory cost) but still covered OOS because there was no stock at DC (lower
opportunity loss).

Total (20%)

Opp. lost

Total cost (30%)

Total cost (20%)

Total cost (10%)

Total (10%)

Existing

231,413.463

171,688.482

77,137.821

1,099,854.840

1,331,268.303

1,271,543.322

1,331,268.303

615,865.399

433,161.917

205,288.466

250,900.726

866,766.124

684,062.643

866,766.124

733,757.055

511,782.567

244,585.685

247,672.040

981,429.095

759,454.607

492,257.725

814,637.962

565,706.433

271,545.987

246,944.040

1,061,582.002

812,650.473

518,490.027

563,235.582

375,490.388

187,745.194

253,751.297

816,986.879

629,241.685

441,496.491

679,498.936

452,999,291

226,499.645

248,512.040

928,010.976

701,511.331

475,011.685

759,607.837

506,405.225

253,202.612

247,672.040

1,007,279.877

754,077.265

500,874.652

11

568,259.509

378,839.673

189,419.836

107,488.360

675,747.869

486,328.033

296,908.196

13

684,161.227

456,107.485

228,053.742

104,643.560

788,804.787

560,751.045

332,697.302

14

764,140.086

509,426.724

254,713.362

101,367.560

865,507.646

610,794.284

356,080.922

16

534,240.565

356,160.377

178,080.188

188,341.417

722,581.982

544,501.794

366,421.605

18

631,787.681

421,191.787

210,595.894

165,459.388

797,247.069

586,651.176

376,055.282

19

699,572.611

466,381.740

233,190.870

152,271.279

851,843.890

618,653.020

385,462.149

Total cost from each scenario

Total (30%)

A process simulation of inventory planning and control for Minute Maid Pulpy 13

Table 5

Inventory cost

Scenario

14

R.A. Andini and T.M. Simatupang

Discussion

Scenarios 1 to 4 are varying targets of minimum LOI in the plant. These scenarios were
built as the bases for all possible solutions to find which minimum LOI that was most
suitable for the existing condition and also to see whether the other solutions gave a
better result or not. To find out whether updating MPS and prediction about ending
inventory improved the whole system, scenarios 5 to 19 were built. Scenarios 5 to 9 were
the scenarios where the updating MPS was implemented. Scenarios 10 to 14 are the
scenarios that use the updating MPS and predicted ending inventory, while scenarios 15
to 19 are scenarios that use a predicted ending inventory only.
The best scenario for the minimum LOI at plant is 3.5 days that is also the target
quantity that had been formulated by the company. The demand from other operations
gave better stock availability. The updating MPS gives a better picture of the actual sales
and daily needs. The sales at weekends were bigger than those on weekdays; thereby a
higher inventory cost was obtained. Ending inventory prediction gave a faster
replenishment process. With a faster replenishment process, a better stock availability
and reduction of opportunity loss were resulted.
Since the solution was at the operational level, it did not require plenty of time and
expenditure. However, there are some steps that are needed to be considered in
implementing the business solutions above. Socialisation is needed to make every
division and employees that are involved in this process understand the procedures and
the more important thing for them is to understand the reason behind it. DOP members
need to know and understand the new target of LOI, how to calculate prediction ending
inventory, and how to formulate an updating MPS. The production division also needs to
know and understand that there will be an updating MPS one time in every week.
The technical preparations are needed to support the success of the implementation
process. A new form might be needed for the updating MPS. Employees directly
responsible for this process might need time to learn how to apply a new process. This
preparation process requires approximately three weeks. Before the implementation
process is conducted, a trial of this process is needed to see the performance of the new
system. A trial is also needed to see if there are some obstructions in the process or if
there are some improvements in this process. Three months is a reasonable time for the
trial. During and after the trial process is conducted, the evaluation of the process to
analyse the performance and obstructions during the trial should be done. The analysis
can be used to make some improvements in the implementation process.
Findings of this research imply that managers have possibilities to identify different
decision parameters that should be considered along the planning and controlling cycle.
Decision of inventory target should be combined with updating forecast and MPS.
Managers need to examine the impact of parameters changes to delivery performance
across different divisions of central office, production site, and DC. By doing so, specific
adjustments can be made to ensure in full and on time delivery performance. A Monte
Carlo method is a useful tool to assess the complex process of inventory planning and
controlling (Zabawa and Mielczarek, 2007). The understanding of synchronisation
mechanisms can help managers in the decision-making process to improve in full and
on-time delivery performance.

A process simulation of inventory planning and control for Minute Maid Pulpy 15
The contribution of this research is the application of process simulation to examine
suitable decision parameters across different divisions that involve in forecasting and
controlling in full and on-time delivery. The complexity of logistics processes from
forecasting, production, and delivery makes it possible to capture and synchronise
decision parameters and examine its impact on deliver performance. The present research
would complement previous approaches that attempt to synchronise different decision
parameters in logistics decision such as inventory and transportation (Viau et al., 2009),
demand planning and capacity planning (Ettien et al., 2007), and assembly and
transportation planning (Li et al., 2006).

Conclusions

The root causes that had been identified were the inventory level in the plant that only
accommodates demand from DC, slow response in replenishment process, and low
forecast accuracy. In order to determine which of the models is better, alternative
solutions were examined using Monte Carlo simulation. There are three variables that
have probabilistic elements: forecast data, demand from other operations, and PO. Based
on the results of the possible solution scenarios simulation, the most suitable solution to
answer the research objective is that LOI and daily demand from D) are not the only
consideration. Daily demand from other operations also needs to be considered in the
synchronisation of decision parameters. The target for LOI that is optimal is 3.5 days
either for daily demand from DC or daily demand from other operations. The updating
process for MPS needs to be held one time in every week to minimise the negative
impact of low forecast accuracy.
The use of Monte Carlo simulation shows that it is a suitable framework to formulate
variables and system in a dynamic business environment under uncertainty and involving
different divisions that often work together to fulfil customer demand. A whole process
starts from forecasting, production scheduling, production, until delivery. Analysis by
using graphics makes it possible to capture the dynamics of decision parameters and also
minimise the risk of changes in the planning and control process. In this case, the
minimum target of inventory (LOI) can be adjusted according to the changes in demand.
Further research is required to improve the companys whole decision mechanisms
that affect service level in delivery time with minimised cost. The focus of the future
study in increasing the forecast accuracy, especially demand forecast for new products is
by examining whether there is functional bias in the forecasting. Individual and
functional areas whether intentionally or not influence the organisational forecast
unfavourably. For updating MPS, updating forecast can be one factor to update MPS
besides the inventory factor. Dynamics of MPS based on updated demand information is
a fruitful area of future research. In addition, overstock analysis study may improve the
whole supply planning and reduce the inventory cost. A study to determine appropriate
algorithm for scheduling a system may also be helpful to reduce delays and idle times.

16

R.A. Andini and T.M. Simatupang

Acknowledgements
The authors would like to thank Rizka Chairiah, Iwan Somantri, and Zaini Arifin as main
informants at CCBI for providing data and information. The authors also would like to
thank Angappa Gunasekaran and anonymous reviewers for providing constructive
comments and help in improving the contents of this paper.

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