ABSTRACT
The research work titled “Appraisal of Inventory
Management and Control in Manufacturing Firms”. The general objective of this study is to appraise
inventory management and control in manufacturing firms of some selected
manufacturing firms. The specific objectives are to: examine the effectiveness
of the various tools and techniques (Economic
order quantity and Economic Batch Quantity) used by manufacturing firms in inventory management and
ascertain the extents to which inventory control contribute to profitability in
manufacturing firms. This study adopted the ex-post factor and
descriptive research design. This study is anchored on theory of Economic order quantity (Wilson
EOQ). The area of the study is
manufacturing firms’ precisely two manufacturing firms Nigeria Breweries and
Unilever plc. The instruments used were main sources from both Primary data and
Secondary data. The primary data was obtained using oral interview and properly
structured questionnaire while the secondary data for the study were obtained
mainly from textbooks, journals and internet articles. A simple percentage
approach was employed to analyze the questionnaire while the hypothesis were
tested using Regression Analysis at 5% level of significance. The analyses were
performed using the Statistical Package for Social Sciences (SPSS) Version 20.
The study found that the various tools and techniques of inventory management
adopted in manufacturing firms are effective since the significance value
(p-value) of 0.046 < 0.05. it further found that inventory control has
contributed significantly to the net profit of manufacturing organization (Nigeria Breweries plc) with (p-value)
of 0.005 is less than 0.05 while revise is the case of Unilever plc. It
therefore recommended that manufacturing
firms should diversify their inventory system to suit specific needs of
production and at the same time ensure that maximum attention is paid to inventory
management so as to avoid or reduce the amount of loss that would be gotten
from damaged goods in inventory.
TABLE OF
CONTENTS
Title
page
Abstract
CHAPTER ONE: INTRODUCTION
1.1
Background of the study
1.2
Statement of the Problem
1.3
Objectives of the Study
1.4
Research questions
1.5
Research Hypothesis
1.6
Significant of the study
1.7
Scope of the study
1.8
Limitation of the study
1.9
Definition of term
CHAPTER TWO- REVIEW OF RELATED
LITERATURE
2.1
Conceptual framework
2.2
Theoretical framework
2.3 Empirical framework
2.4
Gap in Literature
CHAPTER
THREE: RESEARCH METHODOLOGY
3.1
Research design
3.2
Areas of the study
3.3
Population of the Study
3.4
Sampling Method
3.5
Research Instrumentation
3.6
Validity and Reliability of Research Instrument
3.7
Method of data collection
3.8
Method of data analysis
3.9
Model of specification
CHAPTER FOUR: PRESENTATION OF DATA ANALYSIS
4.1
Introduction
4.2
Data Presentation, Analysis, interpretations and descriptive statistics
4.3
Test of hypothesis
CHAPTER FIVE: SUMMARY OF FINDINGS,
CONCLUSION AND RECOMMENDATIONS
5.1
Summary of findings
5.2
Conclusions
5.3
Recommendations
5.4
Contribution to knowledge
5.5
Suggestion for further studies
References
Appendix
CHAPTER ONE
INTRODUCTION
1.1
Background to the study
Inventory control was not seen to be
necessary. In fact excess inventories were considered as indication of wealth.
Management by then considered stocking beneficial. But, today firms have
started to embrace effective inventory control due to its strategic role.
Inventory constitutes the major part of a Nigeria manufacturing firm’s current
assets due to the big size of inventories kept by firm’s most part of an
organization’s fund is being invested into it. Inventory plays
a significant role in the growth and survival of an organization in the sense
that ineffective and inefficient management of inventory will mean that the
organization loses customers and sales will decline. Prudent management of
inventory reduces depreciation, pilferage and wastages while ensuring
availability of the materials as at when required (Ogbadu, 2009). Efficient and
effective management of inventories also ensures business survival and
maximization of profit which is the cardinal aim of every firm. More so, an
efficient management of working capital through proper and timely inventory
management ensures a balance between profitability and liquidity trade-offs
(Aminu, 2012). Specific performance indicators have been proved to depend on
the level of inventory management practices (Lwiki et al., 2013).
Inventory
constitutes a major portion of current assets especially in manufacturing
companies and retail/trading firms. In order to maintain inventory levels of
such magnitude, huge financial resources are committed to them (Mittal, 2014).
As such, inventory also constitutes a major component of working capital. To a
large extent, the success or failure of a business depends upon its inventory
management performances. Inventory management, therefore, should strike a
balance between too much inventory and too little inventory. The efficient
management and effective control of inventories help in achieving better
operational results and reducing investment in working capital. It has a
significant influence on the profitability of a concern thus inventory
management should be a part of the overall strategic business plan in every
organization (Gupta & Gupta, 2012).
Inventory
management is recognized as a vital tool in improving asset productivity and
inventory turns, targeting customers and positioning products in diverse
markets, enhancing intra and inter-organizational networks, enriching
technological capabilities to produce quality products thereby imparting
effectiveness in inter-firm relationships. Proper inventory management even results
in enhancing competitive ability and market share of small manufacturing units
(Chalotra, 2013). Well managed inventories can give companies a competitive
advantage and result in superior financial performance (Isaksson & Seifert,
2013). Management of inventory is also fundamental to the success and growth of
organization as the entire profitability of an organization is tied to the
volume of products sold which has a direct relationship with the quality of the
product (Anichebe & Agu, 2013).
Nevertheless,
the primary focus in this research will be on manufacturing oriented firms.
Inventory control is pivotal in effective and efficient performance of a firm.
It is necessary in the control of goods to be used for production, stored or
exchanged for money. It also aids the firm to avoid holding too much or too
little stock or to tie up capital, which in return have an adverse effect on
performance of manufacturing firms. This guides against the incurring of cost
such as storage, spoilage, pilferage and obsolescence and the desire to make
items or goods available when necessary for the manufacturing firms to perform
properly.
Thus,
efficient inventory cost management is vital for the successful functioning of
manufacturing and retailing organizations. Inventory consist of raw materials,
work in progress, spare parts or consumables, goods in transit and finished
goods. It is not necessary that an organization will have all these inventory
classes, but whatever may be the inventory items, they need efficient management
as, generally, substantial share of the company’s funds are invested in
inventory (Lyndon &
Paymaster, 2016). The inventory cost management of any organization
represents an important decision making function at all stages of the product
manufacturing, distribution and sales chain. Apart from being a major portion
of total current assets of many organizations, inventory often represent as
much as 40% of the capital of industrial organizations. Sawaya and Giauque
(2006) also stated that inventory represents 33% of a company’s assets and as
much as 90% of working capital. As inventory constitutes a major segment of a
company’s assets, it is crucial that good inventory management practice is put
in place to ensure the organization’s growth and profitability to sustain the
business as a going concern. This means that the right materials are in stock
in the right quantity, and are available at the required time. Proper and
regular checks on stores inventory are conducted to avoid pilferage, wastage
and loss of customers due to stock-outs. Making the right order for inventories
(buying of stocks that are needed by customers) at all times would promote high
turnover thereby improving the profit level of the organization.
Good inventory management in any manufacturing
organization saves the organization from poor quality production, the
displeasure of customers, loss of profit and good social responsibility which
in turns have a direct effect in the performance of the firm (Temeng Eshun &
Essey, 2010). This is done by ensuring timely delivery of raw
materials to the factory and distribution of finished goods, in order of
production to the warehouse. If inventory management is not adequately
maintained, production cannot meet the aspirations of customers which is loss
of revenue to the organization and makes the organization performance very low.
Right from procurement to the time of processing, quality of raw material is
the chief determinant of the productive efficiency of any manufacturing
concern. It is against this backdrop that the study appraises the inventory
management and control in manufacturing firms.
1.2 Statement of the problem
Inventory is the life blood of any
organization. This is because inventory contributes directly to the
profitability of an organization more so the growth of any organization depends
largely on its ability to manage its inventory effectively and efficiently.
The real problem therefore has been in the determination
of the best inventory control method that fits into an organization very well
and also to get the best inventory level at which money invested in inventory
will produce a rate of return higher than it if invested in some other areas of
the business (Amoako-Gyampah & Gargeya, 2011). Manufacturing firms are
finding it challenging as to determination of how much of the inventory is the
ideal stock as to maintain. If inventory level is high, capital is
unproductively tied up. If the level of inventory is low, production will be
affected.
However, this study aim to carry out an investigation on
the relationship between inventory management control technique and performance
of manufacturing firm and also find the extent to which inventory control has
effect on performance of a manufacturing firm.
Poor inventory management involves poor planning, executing and
controlling a supply and utilization of chain network inventory that is
critical to the success of the organization.
Inadequate control of inventory consist
of lack of
managerial skills relevant to proper inventory management exposes many
organizations to many problems like overstocking, damage, deterioration and
others.
Problem of deciding which item of inventory should
be kept in stock and at what quantity lead to need for Economics Order Quantity
(EOQ) in an organization. Some organization looses much due to their failure to
keep with EOQ desirable for them, and this work throws more light to forestall
this.
The problem of not
implementing the inventory management systems; Many organizations do not keep abreast
with inventory management systems due to poor or no knowledge about the
inventory management and such organizations are bound to face several related
problems that this work highlights on towards reducing them.
Also, in some manufacturing firms, they find it
difficult to determine how much of the inventory to order and when to order; in
order to meet customers demand and smooth flow of production process without
unnecessary stoppage, idle time due to unavailability of inventory.
1.3 Objectives of the study
The overall objective of this study is to
appraise inventory management and control in manufacturing firms of some
selected manufacturing firms. The specific objectives are to:
i.
Examine
the effectiveness of the various tools and techniques (Economic order quantity or Economic
Batch Quantity) used by
manufacturing firms in inventory management.
ii.
Ascertain
the extents to which inventory control contribute to profitability in manufacturing firms.
1.4 Research questions
The study will be guided by the following research questions:
i.
How
effective are the various tools and techniques of inventory management in
manufacturing firms?
ii.
To
what extent has inventory contributed to profitability in manufacturing firms?
1.5 Research hypothesis
The under-stated hypotheses will be tested in
the course of this study:
Ho1:
Economic order
quantity (EOQ) and Economic Batch Quantity (EBQ) techniques of inventory
management adopted in manufacturing firms are not effective.
HA: Economic order quantity
(EOQ) and Economic Batch Quantity (EBQ) techniques of inventory
management adopted in manufacturing firms are effective.
Ho2:
Inventory control has not contributed significantly to
the net profit of manufacturing organization.
HA: Inventory control has contributed significantly to the
net profit of manufacturing organization.
1.6 Significance of the study
Future
investors: This research work can be of great help to those who have a
little or no knowledge in manufacturing business. It will be valuable to people
who are interested in the manufacturing business and wish to make it their
career.
Manufacturing firms: The research work can help the
Manufacturing Company to improve in areas where it is needed in their inventory
operations so as to boost their profitability and consequently increase their
shareholders wealth, and to assist the organizations to maximize their
profits and reduce their risk of liquidity.
General public: Indeed, this will in no little way have
effects on the national growth and development of Nigeria manufacturing sector
and economy at large. Customers’ goodwill towards the organization will be
maintained as it enables delivery committed to be met all the time.
Future researches/
Academia: This work will be of
immense benefit and use to the future researches as reference document and will
provide a base for other research works that might be carried out on stock
management in any other sector.
1.7 Scope of the study
The scope of this study considers appraisal of inventory
management and control in manufacturing firms. Also, this study will consider
inventory management systems, contributions of efficient inventory management
towards profitability, material usage, cost minimization and economy of
operation; and the effect of efficient inventory management for organizational
growth and performance.
1.8 Limitations of the study
In conducting this research work, the
researcher encountered some difficulties such as the following:
a.
Hoarding of data: Manufacturing firms held
tightly their methods and data generated from their operations because they
argued that they operate in a competitive industry and would not want to
release their secret to their competitors.
b.
Paucity of Relevant Literatures: The
researcher found it hard in obtaining relevant literatures while conducting
this research. Nevertheless, the researcher was able to surmount the above
hurdles and at the end put up a research work whose output is reliable,
testable and verifiable at any standard.
1.9
Definition of terms
Management: Management consists of the interlocking functions of creating
corporate policy and organizing, planning, controlling, and directing an
organization's resources in order to achieve the objectives of that policy.
Inventory: Inventory is
the raw materials, work-in-process products
and finished goods that are considered to be the portion of a business's assets
that are ready or will be ready for sale. Inventory represents one of the most
important assets of a business because the turnover of inventory
represents one of the primary sources of revenue generation and subsequent earnings for the company's
shareholders.
Control: Control is a systematic effort to set performance
standards with planning objectives, to design information feedback systems, to
compare actual performance with these predetermined standards, to determine
whether there are any deviations and to measure their significance, and to take
any action required to assure that all corporate resources are being used in
the most effective and efficient way possible in achieving corporate
objectives.
Inventory
Management: Inventory management is the management of inventory and stock. As an
element of supply chain management, inventory management includes aspects such as
controlling and overseeing ordering inventory, storage of inventory, and
controlling the amount of product for sale.
Inventory control: Inventory control, also known as stock control, involves
regulating and maximizing your company’s inventory. The goal of inventory
control is to maximize profits with minimum inventory investment, without
impacting customer satisfaction levels. Inventory control is also about knowing
where all your stock is and ensuring everything is accounted for at any given
time.
Manufacturing
Organization: This is organizations that primarily produce a tangible product and typically have low
customer contact. They produce physical, tangible goods that can be stored in
inventory before they are needed.
Costing Techniques (Methods): Costing techniques are methods for ascertaining cost-for-cost control and decision-making purposes. They can be
applied to make-or-buy decisions, negotiation, price appraisal and assessing
purchasing performance.
Cost
Centre: A cost center is a department
within an organization that does not directly add to profit but still costs the organization money to
operate. Cost centers only
contribute to a company's profitability indirectly, unlike a profit center, which contributes to
profitability directly through its actions.
Economics
Order Quantity (EOQ): The Economic
Order Quantity (EOQ) is the number of units that a company should add to inventory with
each order to minimize
the total costs of inventory—such as holding costs, order costs, and shortage costs.
Just-in-Time
(JIT): Just-in-time (JIT) is an inventory strategy companies employ
to increase efficiency and decrease waste by receiving goods only as they are
needed in the production process, thereby reducing inventory costs.
Ordering
Cost: Ordering costs are the expenses incurred to create and process
an order to a supplier. These costs are
included in the determination of the economic order quantity for an inventory
item.
Stock-out
Cost: Stock-out Costs is
the cost associated
with the lost opportunity caused by the exhaustion of the inventory. The
exhaustion of inventory could be a result of various factors. The most notable
amongst them is defective shelf replenishment practices.
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