Vendor Managed Inventory (VMI) Implementation in Recycled PET Preform for The Beverage Industry

The beverage industry is a company that is focused on producing mineral water in Polyethylene Terephthalate (PET) bottles. PET bottles serve as the primary packaging choice in the beverage industry, making the use of preforms as a material for bottles unavoidable. On the other hand, the public is more aware of using sustainable materials. Adapting market awareness, the company shifted from virgin material to recycled material. Due to the significant initial investment, the company has decided on a single supplier strategy for recycled PET preform suppliers. This policy forces the company to manage the supplier to meet the company’s delivery accomplishment target. Currently, in the management of beverage found in the industry, the supplier only reaches 50% of delivery accomplishments, whereas the company target is 90%. The beverage industry strived for a revolution, so the company’s target was achieved. The vendor managed inventory method is implemented in this study to create a new revolution for PET preform suppliers, a new replenishment system. After the implementation of Vendor Managed Inventory (VMI), there has been an improvement, reaching 95% in delivery accomplishment. The adoption of vendor managed inventory ensures the attainment of the company’s objectives.


Introduction
The outlook for the Indonesian economy reaches a growth rate of 5% in 2022 and an estimated 5.2% in 2023.This positive condition is supported by ongoing demand recovery, with the main contribution from the manufacturing sector as the main driver of the nation's economic progress [1].The beverage industry, the research object, represents one of Indonesia's Fast Moving Consumer Goods (FMCG).Optimistic that this is an opportunity to contribute to Indonesia's economic growththe beverage industry aims to achieve 12% growth annually.The target set by the company is mirrored by statistics provided by the Central Bureau Statistics (CBS), where the consumption of bottled drinking water in Indonesia exhibited a notable uptrend.Specifically, bottled drinking water consumption registered a compound annual growth rate (CAGR) of 6.9% from 2011 to 2020.[2].The rise in drinking water consumption has significantly influenced the expansion of the bottled water industry, marked by steady yearly growth.People increasingly prefer bottled drinking water over conventional tap water for convenience [3].The increase in consumption of bottled water is like two sides of a coin; on one side, it addresses economic growth, but on the other side, it impacts environmental aspects caused by waste from bottled drinking water products [4].This is supported by data from NPAP, which found that the amount of plastic waste also keeps rising by 5 percent annually [5].Things get worse because around 61% of the plastic waste is not collected into a waste management system [6].Conversely, Indonesia is positioned as the second-largest source of plastic pollution globally, following only China [7].
The Indonesian government aims to demonstrate a solid dedication to waste management [8].They have established a nationwide goal to achieve a 30% reduction in overall waste and to effectively manage 70% of the waste by 2025 [9], Aiming to cut ocean plastic waste by 70% in the same period and noting that Indonesia's Food and Beverage (F&B) packaging sector is the leading user of plastic materials, accounting for a substantial 65% of consumption [10].The beverage industry is considered one of the contributors to harming the environment.The company also needs to contribute to using more environmental materials so the operation will benefit the economy and the environment in general.In the beverage industry, the principal material utilized is Polyethylene Terephthalate (PET) resin, which is first molded into a preform and then blown into a bottle.PET, a type of thermoplastic polymer, is widely used across various industries.One of the most commonly used PET is used in plastic bottles [11].Polyethylene Terephthalate (PET) is a lightweight and resilient plastic variety commonly employed in manufacturing beverage containers and food packaging [12].Four decades ago, an initiative to develop a more eco-friendly variant of PET began, marked by the Food and Drug Administration (FDA) certifying the manufacturing process for recycled PET [13].The main obstacles faced by the resin recycling sector include its vulnerability to fluctuations in terms of price, limited separation of recyclables, negative perceptions regarding recyclables, the limited ability of local governments to build efficient municipal waste management systems, and the absence of incentives for the recycling sector.In addition, the source of recycled material is limited, where the capacity only meets 22 % of raw material demands for Indonesia's recycling industries during 2017-2020 [14].Considering the challenging conditions for procuring recycled resin materials, the beverage industry understands that using recycled resin and preform must be adequately managed.So, the company's goal of supporting sustainability programs using recycled preform must be supported by the right supply chain formula.Currently, the company policy is only to use one supplier as a source of preforms due to the significant initial investment required for the preform mold to suit the beverage industry's requirements.With only 50% delivery accomplishment, compared with the company target of 90%.The company faces the challenge of delivery accomplishment set by the company, which still needs to be improved because there is a gap of about 40% from the target vs. the realization that the supplier cannot meet the beverage industry delivery schedule.This problem affects the whole production and becomes challenging to manage in the beverage industry, so the improvement must be done immediately.
Vendor-managed inventory is implemented in this study to create a model to mitigate the risk of supply chain issues.Vendor Managed Inventory (VMI) is an inventory management approach where the supplier takes charge of inventory and delivery planning, using their knowledge of customer needs to prevent shortages and optimize stock levels [15].Numerous prior studies utilizing Vendor Managed Inventory (VMI) have effectively addressed a range of inventory-related challenges, such as the implementation of the healthcare supply location-inventory-routing problem [16], implementation in the retail industry [17], implementation of VMI combined with block chain technology [18].Building upon previous research that employed the VMI method, research about replenishment systems in fastmoving consumer goods companies still needs to be improved, especially for recycled PET vendors.Therefore, supply replenishment systems using the VMI approach will be implemented in this study.So, the company delivery accomplishment target is achieved.

Research Methodology
The research has been carried out following the methodology outlined in Figure 1.

Defining the problem framework
2.1.1Analyse the existing procurement procedure.At this stage, analysis of all the materials in the beverage industry is implemented.Afterward, the list of all materials is the object of the research, so the research will only focus on the implementation, which can be done immediately.

Conduct packaging comparison.
At this stage, a comparison of types of material is conducted as the focus of the research object.Several parameters include total usage, delivery accomplishment level, and shift to more environmentally friendly materials.

Selecting VMI supplier.
At this stage, several criteria are selected to find the suitable criteria for a new supplier.All criteria selected come from previous research with the same industry, and then the final criteria are selected by the purchasing director and the beverage industry's plant director.This stage is critical because the beverage industry will only appoint one VMI supplier to implement VMI.The design of the criteria will refer to Table 1

VMI Implementation
In this stage, documentation and the verification process for the supplier are implemented.Assessment risk is conducted to find the risk that may disrupt the supply process in VMI implementation.After the identification and communication process with supplier N, it was found that the problem of sourcing raw materials for recycled resin caused the delivery process to be hampered.It is also supported by supporting sources that found various factors cause the scarcity of recycled resin sources, including the finding that only 10% of plastic can be recycled, whereas 47% of other plastic is burned, 4% is landfilled, and 9% goes to the sea [29].
The scarcity of resin not only affects the supply availability but also impacts the price of recycled resin.Many factors affect the price of recycled resin, including the price of crude oil as the main ingredient of virgin resin.The scarcity of resin also affects the availability of high-quality resin, where the available recycled resin contains a lot of dirt and contamination [30].

Forecast implementation.
In the implementation, forecasting is given from the beverage industry to the supplier so that the supplier can plan its needs and production in connection with the fluctuating needs of the beverage industry.This forecast is essential and must be calculated correctly because the beverage industry must be responsible for the forecast given.Suppliers must also prepare several materials that the beverage industry has determined.There are several forecast model approaches, such as moving average and exponential smoothing, which will be the focus of the forecast model in this research.Moving Average forecasting (MA) is a method of finding the average value of the selected historical data period [31].All formulas are detailed in equation ( 1) and equation ( 2) [31]. ∑ ∑ The Exponential Smoothing method employs exponentially decreasing weighting of historical observation values for forecasting purposes.There are several types of calculations in the Exponential Smoothing method, namely Single Exponential Smoothing, Exponential Smoothing with Trend (Holt's method), Linear Regression (Causal Models), and Triple Parameter (winters' method).All formula are detailed in equation (3) [32] [33]. - All formula for linear regression (Causal Models) are detailed from equation ( 4) and ( 5) [34].
̂ ̅ -̂ ̅ Forecasting also has measurements for the accuracy of the calculated forecasting results.The smaller the error value produced, the more accurate the forecasting results.The values that are the basis for assessing forecasting accuracy are the Mean Absolute Deviation (MAD), Mean Square Error (MSE), and Mean Absolute Percentage Error (MAPE) values.All formulas are detailed from equation (6-8) [35] [36].All symbols remark from equation ( 1)-( 8) are shown in Table 2 below.Table 2. Symbol equation.

2.2.2
Safety stock determination.Safety stock has an vital role in the process as a base for suppliers to conduct replenishment.The equation is shown in equation (9-11) [37].
Safety stock = safety factor × average replenishment lead time (days) (9) Safety stock = maximum daily consumption × maximum replenishment lead time in days (10) Formulas ( 9) and ( 10) operate under the assumption that demand follows a uniformly normal distribution throughout the lead time of the replenishment process.The safety factor indicates the number of standard deviations associated with a particular service level.Safety stock = average consumption x average replenishment lead time × safety factor (11) The most common safety factors are present in 20-40% [37].The calculation result will be compared with the inventory's current stock, and rule-based reasoning to determine the inventory status as shown in Table 3. Table 3. Replenishment formula [38].
Remark : CS : Current stock ROP : Reorder point SS : Safety stock 2.2.3 Replenishment system.Vendor Managed Inventory (VMI) is a cooperative inventory replenishment strategy that involves collaboration between suppliers and customers [39].VMI serves as a method to reduce expenses and maintain minimal inventory levels throughout the entire supply chain, with evidence demonstrating substantial enhancements in supply chain performance as a result.[40].

Assessment of Outcome.
In this phase, supplier performance data is collected according to all criteria that have been selected before.The previous and improved conditions are compared, especially for the delivery accomplishment level, to determine whether the VMI implementation is successful or improvement must be implemented.

Findings and Discussion
3.1 Phase 1 3.1.1Analyze the existing procurement procedure and conduct a packaging comparison.During this phase, a thorough comparison of all materials is carried out, and the top 5 materials for the amount purchased/month will become the leading candidate of the research.The complete processing data is presented in Table 4. Based on the processing data, the preform will be the primary focus of this research, since preform has the highest amount purchased /month, lowest delivery accomplishment, and possibly a shift to environmental material.The assessment in Table 4 shows that performance history related to delivery accomplishment is the most highlighted by the beverage industry's top management, among other criteria that have been determined before.The management of the beverage industry requests that these criteria be fulfilled as soon as possible so that they do not interfere with the production operational processes of the beverage industry.

Table 4. Material comparison.
After the implementation of this study, it was found that this study aligns with the Sustainable Development Goal (SDG) by the United Nations according to SDG 12: Responsible Consumption and Production and SDG 17: Partnerships for the Goals [41].The company's policy to ensure sustainable consumption means shifting from virgin material to recycled material for PET bottles, which means the company strives to reduce its environmental impact by using environmental materials.Also, this study aligns with how the company elaborates partnerships with its suppliers to achieve a common goal by implementing VMI implementation.

3.1.2
Selecting VMI supplier provider.At this stage, criteria are determined to select alternative suppliers following Table 1.The subsequent step involves the Purchasing department conducting sourcing activities to identify the most suitable supplier capable of meeting the preform requirements.There are three suppliers as a candidate: Supplier N, V, and I.All suppliers are compared based on criteria that have been conducted before, and the weight was determined following a questionnaire distributed to the purchasing director and plant director.All the processing data is conducted in Table 5.After an assessment, it is decided that supplier N should be appointed as VMI's supplier since Supplier N has the highest score among the other supplier candidates.Therefore supplier N has a responsibility to maintain the number stock according to rule in Table 3.

Replenishment system.
At this stage, the sequence of vendor-managed inventory is conducted so that both the beverage industry and supplier N understand their responsibility.The flow of information and material is shown in Figure 3 below.

Conclusion and Future Research
After VMI implementation, the company's target for delivery accomplishment was reached, reaching 95% of the delivery accomplishment from the 90% target.Hence, the company can opt for a long-term contract with supplier N for recycled preforms.Additionally, it is advisable to propose implementing a new replenishment system in another product category, like supporting materials and various raw materials, within the beverage industry to enhance performance across all sectors.

3. 2 . 2
Safety stock determination.Safety stock has an important role in the process as a base for supplier to conduct replenishment.Safety stock = average usage * average replenishment lead time * safety Coefficient = 278,853 pcs * 14 Days * 40 % = 1,560,064 pcs

Table 5 .
Supplier comparison.Forecast determination.At this stage, the application of forecasting is based on all forecast method that has been determined before.After comparing the accuracy of the smallest, the error value is found on Moving Average 2 since it has a better following forecasting accuracy in The sequence of Mean Absolute Deviation (MAD), Mean Square Error (MSE), and Mean Absolute Percentage Error (MAPE) values is altered.

Table 6 .
In this phase, all performance data for the past 8 months has been gathered.There are three main categories collected.The table is separated into two sections.The first one is before implementation, representing the initial condition, and the next section represents the 3.2.5 Implementation VMI.As shown in Table5, there is an improvement in delivery performance from 50 % to 95%.The score on May 2023 reached 80% because the implementation of VMI was implemented in the second week of May 23; there was also an improvement in communication because all data is collected daily and transparent.The VMI implementation makes supplier N more flexible and responsive in handling the beverage industry requests.Table6presents all the details of supplier evaluation.Supplier evaluation.