Key findings:

The study on tempe production found that optimizing raw material purchases using EOQ method reduces inventory costs. The business was deemed feasible with R/C ratios of 1.19 in 2018 and 1.17 in 2019. This suggests a stable and profitable venture for tempe craftsmen, highlighting opportunities for sustainable growth in the industry.

What is known and what is new?

The study on tempe production contributes new insights by specifically focusing on the optimization of raw material inventory and the feasibility of tempe production as a business. While it is known that raw material inventory is vital for production processes and business operations, this study uniquely applies the EOQ method to determine the optimal raw material supply for tempe production, aiming to reduce inventory costs. The findings suggest that tempe production is feasible for craftsmen, as indicated by stable R/C ratios over two consecutive years. This research highlights opportunities for tempe craftsmen to improve their business practices, reduce costs, and potentially expand their operations, contributing to the sustainability and growth of the tempe industry.

What is the implication, and what should change now?

The implication of this study is that tempe craftsmen can enhance their business profitability and sustainability by implementing the EOQ method to optimize raw material inventory. The findings suggest that maintaining an optimal level of raw materials can help reduce inventory costs and improve overall efficiency. Additionally, the feasibility analysis indicates that tempe production is a viable business venture. To capitalize on these findings, tempe craftsmen should consider adopting the EOQ method in their inventory management practices and continue to monitor the feasibility of their business operations. This proactive approach can lead to improved financial performance and long-term success in the tempe industry.

Research Background 

Agro-industry has a very important role in agricultural development. This can be seen from its contribution in terms of increasing the income of agribusiness actors, absorbing labor, increasing foreign exchange earnings, and encouraging the growth of other industries [1]. Although the role of agro-industry is very important, agro-industrial development is still faced with various challenges [2]. Defining agro-industry in two ways, firstly agro-industry as an industry with main raw materials from agricultural products and secondly agro-industry as a development stage as a continuation of agricultural development but before the development stage reaches the industrial development stage [3].

Currently, in Indonesia there are about 81 thousand tempe-making businesses that produce 2.4 million tons of tempe per year. The tempe industry generates around Rp. 37 trillion added value. From the data held by the Primary Cooperative tofu and Tempe Indonesia, out of 2.5 million tons per year of domestic soybean needs, only 650 thousand tons can be met by local soybean farmers. Meanwhile, the remaining 1.85 million tons were imported from the United States. Of the 1.85 million tons, about 80 percent is processed into tempeh and tofu, while the other 20 percent is for other preparations such as soy milk [4].

Soybean production in Indonesia in the period 1980-2015 fluctuated with an average growth rate of 2.37% per year. Based on BPS ARAM I data in 2015, soybean production is estimated to reach 998.87 thousand tons or an increase of 4.59% compared to 2014 amounting to 955.00 thousand tons. In 2017, soybean production experienced a drastic decline of 538,728 tons. Whereas in 2018 soybean production increased by 982.5 tonnes [4].

The existence of the tempe agro-industry is getting worse due to the traditional marketing system as well as the less attractive packaging and the less strategic selling points [5]. In addition, the problem of tempe craftsmen in Sedenganganmijen Village is that the cost of supplies set by tempe craftsmen is considered to have not reached the level of efficiency because the frequency of ordering raw materials is still quite large. This condition greatly affects the sales of tempe so that the business activities of tempe have not been able to provide optimal profits. Therefore it is necessary to pay attention to the level of willingness  [6]. Failure in the supply of raw materials will cause failure to gain profits or income in entrepreneurship [7]. If the costs in a business's inventory are not properly controlled, it will have an impact on the income of a business [8].

Raw Material Inventory

In the company every operational manager is required to be able to manage and stock up in order to create an effective and efficient operational activity [9]. Raw material inventory has an important position in the company because the supply of raw materials has a huge influence on the smoothness of the production process [10].Inventory is a number of materials, parts provided and materials in process that are contained in the company for the production process, as well as service goods or products provided to meet the demand for components or subscriptions at any time [11].

Business Feasibility Study

A business feasibility study is an activity that studies in depth about a business or business to be run, in order to determine whether or not the business is run [12]). A feasibility study is an analysis of how successfully a project can be completed, accounting for factors that affect it such as economic, technological, legal and scheduling factors. Project managers use feasibility studies to determine potential positive and negative outcomes of a project before investing a considerable amount of time and money into it [13].

Tempe

Tempe is a traditional food that is produced from fermentation of soybeans or several other ingredients. Fermentation uses several types of Rhizopus fungi, such as Rhizopus oligosporus, Rhizopus oryzae, Rhizopus stolonifer and several other types of Rhizopus fungi. [14]. Where in the fermentation process there will be hydrolysis of complex compounds to become simple, so they are good for digestion. Tempe is a food rich in dietary fiber, calcium, B vitamins and iron [15]. Tempe apart from being an alternative to meet protein needs, also has medicinal value such as antibiotics to cure infections, antioxidants to catch free radicals [16].

Research Objective (Heading 2)

The objectives of this study were (1) to calculate the optimum supply of raw materials required by tempe craftsmen in the production process (2) to analyze the business feasibility of tempe craftsmen.

Types and Sources of data

The data used are primary and secondary data. Secondary data is obtained from documents, literature, scientific journals, relevant previous review reports as well as from various sources such as the Central Bureau of Statistics and relevant parties. Meanwhile, primary data is obtained through several ways, namely field observations and interviews [17]. 

Sampling Method 

This research was conducted in Sedenganmijen Village, Sidoarjo Regency. This study uses a census method, where all populations are sampled. A total of 42 tempe craftsmen as research respondents.

Analysis Method 

EOQ Analysis (Economic Order Quantity)

The analytical tool used to determine the optimal amount of raw material purchases can be formulated as follows [18].

EOQ = 

Information : 

P : fee each time you order

D : demand rate per planning time horizon

S : storage cost per planning time

2.3.2    Safety Stock 

Safety stock is an additional inventory that will be held to protect or keep the possibility of stock out [19]. The average delay in the arrival of raw materials is one day from the lead time [20]. Can be calculated by the formula:

Safety stock = Usage per day x average delay of materials

Reorder Point 

Reorder point is the time or point where another order must be made in such a way that the arrival or receipt of the ordered goods is exactly at the time where the inventory above the safety stock equals zero ([21]. The reorder rate is a limit of the amount to know when to reorder so that the arrival of raw materials is on time [22]. In determining when to reorder it can be done with the formula: 

ROP = Use of raw materials during lead time + safety stock 

Total Inventory Cost (TIC) 

Total Inventory is the total cost of inventory incurred from a business, this is calculated to determine the optimal amount of costs incurred by the entrepreneur in the process of obtaining raw materials [23].  Can be calculated by the formula:

TIC =  Purchase Fee + Order Fee + Storage Fee

TIC = PD + 

Keterangan: 

TIC: Total inventory cost

D: Annual demand (Unit)

Q: The quantity ordered

S: Order fee per order

H: Storage fee per period

R/C ratio 

Return Cost Ratio is the ratio between the total revenue from the sale of a production issued. Return Cost Ratio to see the comparison between total revenue and total cost is used formula [24]:

R/C = 

Keterangan: 

R/C     : Return Cost 

TR: Total Reception (Rp) 

TC : Total Production Costs (Rp)

Soybean Raw Material Supplies (EOQ)

Economic Order Quantitythat is, a mathematical approach that determines the number of goods that must be ordered to meet the projected demand with minimal inventory costs [25]. Analysis of the optimal purchase of tempe raw materials from 2017 to 2019 using the EOQ method in the tempe agro-industry in Sedenganmijen Village, Krian District, Sidoarjo Regency, which consists of 42 craftsmen which are calculated on average. The data used include the amount of raw material for tempeh for one year, ordering costs and storage costs for soybeans. In this case will be explained in Table 1 below.

Tabel 1. The optimal number of orders for soybeans in the 2017-2019 production period

Source : Processed data, 2020

Based on table 1 above in 2017 to 2019, if calculated by using EOQ manually or with POM software, it will produce the same value, namely the optimal number of orders in 2017 of 133 kg with an order frequency of 124 times, in 2018 it was 153 kg with order frequency 107 times and in 2019 amounting to 169 kg with an order frequency of 98 times. For more details, the EOQ calculation through the POM software is presented in Figure 1.

Figure 1. 2017 EOQ Calculation

Based on the results of the analysis through the POM software above, it can be seen that the optimal purchase amount (EOQ) of tempe craftsmen in Sedenganmijen Village is 133 kg. With a purchase frequency of 124 times a year, this is already at the optimum point for purchasing raw materials. There is also a reorder point value and total cost which will be discussed in the next topic. Furthermore, the calculations in 2018 are presented in Figure 2.

Figure 2. 2018 EOQ Calculation

Based on Figure 2 above, it can be seen that the optimal quantity of raw material purchases by tempe craftsmen after being analyzed is 153 kg with a purchasing frequency of 107 times a year. If it is applied to tempe craftsmen in Sedenganmijen Village, this will minimize expenses on inventory costs. Likewise, the reorder point value and safety stock will be discussed in the next topic. For calculations in 2019, it can be presented in Figure 3.

Figure 3. 2019 EOQ Calculation

Based on Figure 3 above, the optimal purchase amount of soybeans is 169 kg with a total frequency of ordering 98 times a year, which in this case has reached the optimum limit in purchasing raw materials, which should be applied to tempe producers in Sedenganmijen Village, Krian District. . Can be compared with the use of orders before and after calculations in the POM software.

Safety Stock

Safety Stock is additional inventory whose purpose is to minimize the occurrence of out of stock  and reduce additional storage costs and stock out costs [26]. The average use of soybean raw materials in Sedenganmijen Village every day is 50 kg with an average value of delay that is a week (seven days) so the value of the safety stock for tempe craftsmen is as follows:

Safety Stock = 50 x 7 day = 350 Kg

Therefore, the safety stock value that must be prepared by tempe craftsmen to carry out the tempe production process in a week is 350 kg.

Reorder Point

The reorder point is a certain time or time where the tempe craftsman must place an order for raw materials before the inventory in the warehouse runs out [27]. In calculating reorder points, a company must also pay attention to the lead time or grace period for orders. The lead time that occurs for the average tempe craftsman in Sedenganmijen Village is one day. Based on calculations according to EOQ, the determination of the reorder point for tempe craftsmen in Sedenganmijen Village obtained a reorder point value in 2017 to 2019 of 397 kg, which means that the raw material must be purchased if the usage reaches 397 kg. 

Total Inventory Cost

To find out whether the calculation of inventory purchases analyzed according to EOQ (Eqonomic Order Quantity) is better than the company's conventional method, it is necessary to compare the total inventory cost that the company has calculated so far with the total inventory cost according to EOQ calculation (Eqonomic Order Quantity) [27]. The TIC calculations for 2017 - 2019 respectively follow.

1) TIC ₂₀₁₇              = (6.600 x 16.489) + (776,42 x 794) + (66,5 x 1.480)

                = 108.827.400 + 616.480 + 98.420

                = 109.542.300

2) TIC ₂₀₁₈              = (6.700 x 16.489) + (601,25 x 1.098) + (76,5 x 1.548)

                = 110.476.300 + 660.178 + 118.422

                = 111.254.900

3) TIC ₂₀₁₉              = (6.800 x 16.489) + (503,77 x 1.351) + (84,5 x 1.568)

                = 112.125.200 + 680.604 + 132.496

                = 112.938.300

From the above calculations, it shows that the amount of raw material inventory according to calculations using the EOQ method in 2019 the largest raw material inventory cost is Rp 112,938,300 and in 2017 the smallest raw material inventory value is Rp 109,542,300, while in 2018 raw material inventory value of Rp 111,254,900.

 Comparison of Raw Material Inventory Before and After EOQ

Table 2. Differences in Raw Material Inventory Before and After EOQ

     Source : Processed data, 2020

From the differences in the above calculations, it can be concluded that the calculation using the EOQ method is more efficient than conventional calculations, the price difference between the two (conventional method with the EOQ method) if a percentage is made of 8 percent.

R/C Ratio

This ratio is an important indicator for entrepreneurs to measure the ability or feasibility of the business they are running [28]. n this case the researchers calculated the value of the R / C ratio only in 2018 and 2019, in 2017 the value of the R / C ratio still did not reach more than one because the current income was still negative because it was considered the beginning of the business. For more details, see the following table below:

Table 3. Result of Financial Analysis of Tempe Craftsmen in Sedenganmijen Village

Source: Processed data, 2020

From the table above, it can be seen that the value of R / C <1 occurred in 2017, this is because 2017 is considered the beginning of the business. Whereas in 2018 and 2019 the value of R / C> 1, it can be concluded that the tempe business in Sedenganmijen Village is feasible to run.

The EOQ method of raw material supplies for tempe craftsmen in Sedenganmijen Village has a fairly large difference in value that can be seen from the optimal purchase amount that should be added from the usual purchase amount by reducing the frequency of purchases. Likewise with the difference in the amount of inventory which has a price difference of around Rp. 20,000,000. Judging from the financial feasibility aspect of the tempe business in Sedenganmijen Village is feasible, it can be proven by the R / C ratio value in 2018 and 2019 of 1.19 and 1.17 which means that the RC / ratio value is more than one, the tempe making business in Sedenganmijen Village it means that it is feasible to be cultivated or profitable.

Funding: No funding sources 

Conflict of interest: None declared

Ethical approval: The study was approved by the Institutional Ethics Committee of University of Pembangunan National Veteran East Java

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