CHAPTER ONE
1.0 INTRODUCTION
The
effective and efficient functioning of a productive system requires the regular
demand and supply of inventory at the input transformation and output phases of
the production process.
Management
is also seen as the effective and efficient utilization of resources for the
achievement of organization objectives. To ensure the achievement of the
objective three must be free flow of material, unencumbered at every stage of the production process.
In Nigeria
today, there are many soft drink production companies in the beverage industry and they all source their
raw materials from few of not the same market. With the present economic melt
down, organization are after these scare resources to product their product. Therefore, the urgency for the effective and efficient
management of inventory in form of raw
material, work-in-progress and finished goods constitute significant proportion of assets of most
organization.
But why is
it pertinent to keep an eye on these items in other words, why do we engage in
inventory management?
Inventory
items cost money to acquire, they cost
money to store and to look after, which means storage facilities has
to be provided so as to make sure that these materials or items do
not get spoilt until they are turned into sellable goods, they do not produce
money.
When stocks
are held, it means tying down capital that would have been used in other areas,
so it all represent cost and should be managed properly to acquire efficiently.
We must
however, hold stocks to meet production needs and sales needs. This is because
if we do not hold stocks in sufficient quantities west and the risk of running
out of stock. Similarly, if we short of finished good, we may disappoint our
customers. Inventory shortage in both these forms will likely lead to loss of
customers and money. For the organization not to have above problems they
should strike a balance between too much stocks (over inventory) and carrying too
little stock. (Under inventory).
This is
essentially the importance of inventory management, managing assets of all
kinds is basically an inventory problem, the same method of analysis applies to
cash and fixed assets as to inventories themselves.
First of
all a basic stock must be on hand to hand balance in flow and outflow of items,
the size of the stocks depend on pattern of
flow whether fast moving or regular items.
Secondly,
because the unexpected may occur, it is necessary to have
safety stock on hand presenting extra stock to avoid the cost of not having
enough to met current needs.
Thirdly,
additional amount may be required to
meet future growth needs, these are called anticipation stocks, related
to anticipation stock is the recognition
that these are optimum purchases size defines as economic order quantity
(EOQ)
In borrowing
money for buying raw materials for production or purchasing plants and
equipments, it is cheaper or more economical to buy more than just enough to
meet immediate needs. Manufacturing firms have three kinds of inventories:
a.
Raw materials
b.
Work-in-progress
c.
Finished Goods
a)
Raw
Materials: inventories are influence by anticipated production,
seasonality of production, reliability of resources or supply and efficiently
of scheduling purchased and production operations.
b)
Work-in-progress: inventory is greatly influenced by the length
of the production period which is the time between planning raw materials in
production and completing the finished product. Inventory turnover therefore
can be increased by decreasing the production, means of accomplishing these to
perfect engineering technician, therefore, spreading up to manufacturing
process. Another means is to buy rather than make them. The level of finished
goods inventories is a matter of coordinating production and sales.
Holding
stocks in what ever form cost money: the
capital tied down by the stocks itself has to be serviced by the payment of interest and the land or
warehouse needed for the stock has to be bought or rented.
The
handling and securing of the stocks and any
quality determination that occur also cost money.
The sample
type of the stock control system used in most organization is two: the bin
system of stock control and which is of two quantities – the first is the stock
level below which a new order has to placed, the other gives the quantity to be
ordered. Under this system, the units of stocks are held in two; one and two
stocks is taken from bin as required until this
bin is empty. More are then ordered
by the quantity being determined by the rate of usage or consumption rate.
Comprehensive
inventory; planning and control system have been successfully installed or
established in many organizations. The major objectives of inventory management
are to discover and maintain to optimum level of investment in the inventory. Inventories may
be too high or too low, if to high there are unnecessary carrying cost and risk
of obsolesce, if too low, production may be disrupted or sales permanently cost
and loss of goodwill, reputation and customers to their firms in the same
industry.
The optimum
inventory level is that which minimizes the total associated with inventory.
1.2 STATEMENT
OF THE PROBLEM
The life
blood of any organization, whether private or public whether productive or
service organization is inventory. Because of the slit completive that exist in
every industry, inventory management has become mandatory on each and every
manager responsible for production in an organization.
Inventory
is one vital resource that any organization requires and just like any other resource that is very scares and
that requires effective management rather than neglect.
The cost of
acquiring these inventories is also important for the fact that too much of it
will mean trying down capital and risk of becoming obsolete while having little
could lead to shortage and production bottle neck.
How then,
to determine adequate quantity of raw material to buy, where to buy on a
regular basis devoid of scarcity, the amount to invest on the inventory is the concern of the
researcher.
1.3 OBJECTIVES
OF THE STUDY
The
objectives of the study are to determine:
1.
What quantity of inventory to buy and stock?
2.
What procedure to follow in purchasing?
3.
How to locate required goods in the store?
1.4 SIGNIFICANCE
OF THE STUDY
The result
of this research when concluded will be of great benefit to the following.
1.
Companies in the beverage industry especially the
Nigerian Bottling company.
The
findings and the recommendation will asset production managers to find better
ways to manage their inventory. The findings and recommendation can also be
used as a steeping tone to other researcher in the areas for further research
work.
1.5 STATEMENT
OF HYPOTHESIS
The following are hypothesis developed
to guide this research work:
Ho:
effective inventory management will not reduce material wastage/cost and hence
cannot improve profitability.
H1:
effective inventory management will reduce material wastage/cost and hence
cannot improve profitability.
1.6 SCOPE
OF THE STUDY
The scope
of this research is the Nigerian
Bottling company and its limited to the
management of their inventory in the
last five (5) years of the
company operations.
1.7 LIMITATIONS
OF THE STUDY
This
research is limited by the time in the sense that most respondent do not keep appointment given to the
researcher.
Some
respondents also misplaced the research instrument administered to them.
Another
problem is restriction to vital information and document by the organization
under study due to secrecy, the organization is so strict with their document
and do not allow vital information to be revealed for fear for leaking management secret to competitors,
this generated a non-challant attitude by some staff towards the research.