THE IMPACT OF INVENTORY MANAGEMENT ON THE PRODUCTIVITY OF AN ORGANIZATION
ABSTRACT:
This project is a case study of the inventory management system function as it is practised in the Nigeria Bottling Company Plc.
The management of inventory is a very difficult task and calls for hard and coordination of the activities of various categories of workers. For efficiency to be achieved in the management of inventory, all the sections and staff involved have to be efficient in their functions.
The major problem in inventory management is the determination of optimum inventory balance that will be advantageous to the company. This study, therefore, seeks ways by which the problem can be reduced.
Chapter one gives the background information to the study chapter two is a review of the basic concept, theories and practices of inventory. Chapter three discuss the methods used in collating and analysing data which is actually presented and analysed in chapter four. In chapter five, the concluding chapter is to evaluate the findings in the course of the study and made due recommendation.
TABLE OF CONTENTS
Title page……………………………………………………ii
Declaration…………………………………………………iii
Certification………………………………………………...iv
Dedication……………………………………………………v
Acknowledgments………………………………………..vi
Table of Contents…………………………………………viii
Abstract……………………………………………………..xii
CHAPTER ONE: INTRODUCTION
1.1 Background of Study………………………………..1
1.2 Statement of Research Problem…………………..4
1.3 Objective of the Study………………………………5
1.4 Scope of the Study…………………………………..6
1.5 Significance of the Study…………………………..7
1.6 Research Hypothesis………………………………..8
1.7 The Research Methodology……………………….9
1.8 Limitation of the Study……………………………10
CHAPTER TWO: LITERATURE REVIEW
2.1 Definition of Inventory…………………………….12
2.2 Reasons for Holding Inventory…………………..16
2.3 Inventory Management……………………………19
2.4 Overstocking…………………………………………21
2.5 Inventory Planning…………………………………22
2.6 Inventory Control…………………………………..24
2.7 Internal Control…………………………………….27
2.8 Re-ordering Arrangement for Effective Control System…………………………………….29
2.9 Product Demand……………………………………30
2.10 Lead Time…………………………………………….32
2.11 Economic Order Quantity (EOQ)……………….34
2.12 Maximum Stock Level……………………………..36
2.13 Minimum Stock Level……………………………..37
2.14 Re Order Level………………………………………38
2.15 Determination of Inventory Levels……………..39
2.16 Inventory Model…………………………………….44
2.17 Economic Order Quantity (EOQ) Model………45
2.18 Economic Order Quantity (EOQ)……………….48
2.19 Re-Order Point and Safety Stock Model………50
2.20 Unexpected Overstocking and Stock-Out ……52
2.21 Accounting Treatment of Stock Under Statement of Accounting Standard (SAS) 4 ……………………….55
CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY
3.1 Introduction…………………………………………62
3.2 Methods of Gathering Data………………………63
3.3 Use of Questionnaire………………………………63
3.4 Observation………………………………………….64
3.5 Personal Interview………………………………….64
3.6 Secondary Sources…………………………………65
3.7 Method of Analyzing Data………………………..66
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Overview………………………………………………67
4.2 Questionnaire……………………………………….67
4.3 Test of Hypothesis (1)……………………………..75
4.4 Calculation of EOQ………………………………...78
4.5 Conclusions………………………………………….85
4.6 Regression Analysis………………………………..86
4.7 Regression Analysis………………………………..87
CHAPTER FIVE: FINDINGS RECOMMENDATIONS AND CONCLUSION
5.1 Introduction…………………………………………91
5.2 Findings………………………………………………92
5.3 Recommendation…………………………………..93
5.4 Conclusion…………………………………………..95
Bibliography………………………………………………..97
Appendix…………………………………………………….99
CHAPTER ONE:
1.1 BACKGROUND OF STUDY -
It is generally accepted that the primary objective of most business enterprise is to make profit by identifying and serving the needs of customers. Thus, profit being the principal source of growth and continue existence of the business enterprise, serves as and index by which the performance of an enterprise can be evaluated over time.
In manufacturing Organizations, profit maximization is made possible through sale promotion, production of high quality products and effective control of inventory. Inventory constitutes a significant part of product cost. According to Okoye A.E. (1997) inventory constitutes over sixty percent of the cost of production. In view of this, inventory management and control is important in a manufacturing organization.
Effective production relate to the process of identifying the needs of customer and delivery goods or services to meet their needs. Control of inventory enable manufacturing Organization to keep stock; inventory that are necessary to satisfy the needs of customers and have a balance between maximum and minimum stock level.
If production and delivery of goods could be instantaneous, there would no need for inventory except as a safe guard against price changes. Despite the achievements of computers, automation and scientific management.
Inventory control is necessary from the time orders are placed for material to the time they are consumed. The importance of inventory control lies in the fact that any saving made in reducing the cost of production, improves profitability of the business. In a competitive business environment, inventory control in the long run determines not only the growth but also the survival of the business Organization.
Trends in the global business environment indicate that most manufacturing organization have continued to experience negative fortunes in their business. This is often traceable largely to poor or lack of inventory control, low quality products, ineffective sales production etc.
Inventory control is therefore the method of ensuring that the right quality and quantity of the relevant stock is available at the right time and at right places. The stock can be raw materials, work in progress or finished goods awaiting dispatch.
Inventory control requires a thorough knowledge and wisdom to decide what, how and why holding a particular stock.
1.2 STATEMETN OF THE RESEARCH PROBLEM
Trends in the global business environment indicate that most manufacturing organizations have continued to experience negative sale promotion, low quality products, inefficient management team and poor inventory control. Poor inventory control usually leads to a number of critical problems which affect ultimately the continue existence and survival of business organizations.
It is in the light of these ugly trends which are occasioned by poor inventory control that the study is design to seek tentative answers to the following research questions;
1. How cost associated with inventory can be reduced?
2. What quantity of inventory will be sufficient for effective production?
3. How effective are the methods adopted for the control of inventory?
1.3 OBJECTIVE OF THE STUDY
The study is intended to achieve the following aims
1. To find out how cost associated with inventory can be reduced.
2. To examine the level of inventory that be sufficient for effective operation
3. To investigate and evaluate the effectiveness of the methods used in the management of inventory
4. Make recommendation in the light of findings from the above objectives.
1.4 SCOPE OF THE STUDY
This study is directed at manufacturing sector, but the focus is on Nigerian Bottling Company Plc, because of the impossibility of reaching all manufacturing companies in Edo state.
This research work is an exploratory one, which seek to evaluate the effectiveness of Nigerian Bottling company inventory management.
The work will be based largely on empirical evidence on the analysis of data of inventory control for eight-year period (2001-2008) in Nigerian Bottling Company. It will also involve a study of the general practice of inventory control method adopted in the company.
1.5 SIGNIFICANCE OF THE STUDY
Inventory management problems are prevalent in most Nigerian manufacturing concerns or entities. Ineffective management and control can result in a serious problem. A study of this type is justified when one consider the fact that if inventory are poorly managed, it is likely to cause delay in production, customers dissatisfaction, lack of goodwill and addition to this, the working capital of the organization will be affected negatively.
Moreso, the study is relevant as it helps to balance conflicting objectives such as those associated with stock out and overstocking problem. However, it is hope that the findings and recommendations will assist the Nigerian Bottling Company to understand the implications of their present inventory management system and formulate strategies to improve their inventory system for better performance.
1.6 RESEARCH HYPOTHESIS
For the purpose of this study, the following hypotheses which have been formulated,
i. Null Hypothesis (Ho): inefficient inventory management does not have effect on the performance of Nigeria Bottling company Plc.
ii. Alternative Hypothesis (Hi): inefficient inventory management do have effect on the performance of Nigeria Bottling Company Plc.
1.7 THE RESEARCH METHODOLOGY
The study will make use of questionnaire designed to collect necessary information with respect to the inventory system of Nigerian Bottling Company Plc.
The questionnaire will be formal and structured to explain the reasons for the information sought and encourage its disclosure. In addition to the questionnaire, oral interview will be conducted with appropriate employees of Nigeria Bottling Company.
The production process will be observed to see the flow of goods in the conversion process. Materials handing and inspection procedures will also be observed.
Secondary data will also be obtained from Nigerian Bottling Company Plc, the Library, textbooks and journals will be exploited.
1.8 LIMITATION OF THE STUDY
In a study of this nature, there are bound to be some impediment, this study is not an exception. The following have been the most militating factors.
1. The limited time schedule for the completion of this project is too short to carry out an intensive and exciting study of this nature.
2. Confidentially of information: Business entities normally considered research as a stranger, hence access to certain information was difficult.
3. The extent to which the employees of the organizations shall be willing to complete the questionnaire administered to them and the importance they attached to the study.
FINDINGS, RECOMMENDATIONS AND CONCLUSION
5.1 INTRODUCTION
This work, inventory management entails the gathering of data through primary and secondary sources. The primary sources include personnel interview and the questionnaire, which was administered to the senior and junior staff in the production department, store and account department in Nigeria bottling company.
The questions in the questionnaire where analyzed using simple percentage, the finding recommendations and conclusions gather from the analysis formed the bases of this chapter
5.3 RECOMMENDATION
What this research has tried to achieve is a proper understanding of the Inventory management process in a manufacturing company. We sought to determine if the manufacturing company represented here have a proper inventory management.
Based on findings, the following recommendations are made.
1. Nigeria bottling company should make use of economic order quantity in addition to just – in – time system in the management of their inventory.
2. An acceptable method should be used to calculate what the safety stock level should be. The probabilistic approach was discussed in the literature review and is made up of assigning probabilities to various inventory level, which the store may carry. From this, the re – order point will be calculated. Safety stock is simply the re – order point less the usage during lead-time.
3. The Nigeria bottling company plc should try as much as possible to have an alternative sources of raw materials that is they should have a local sources of their raw materials needs.
5.4 CONCLUSION
The major objective of this study was to look the inventory management system in Nigeria Bottling Company Plc, with a view of ascertaining the effectiveness and make recommendation on how to improve on it.
The research was able to present and analyzed 16 questions. Though, it was not possible to analyze all the questions in the questionnaire since I was only concerned with the key questions for the purpose of my analysis
The questions analyzed covered the areas necessary for the assessment of the inventory management system in Nigeria bottling company plc.
Some suggestions on how the procedure would further be improved where also recommended.
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