ABSTRACT
This research work examined the appraisal of inventory control in a
manufacturing company of a case study m seven-bottling company PLC, Lagos.
The finding after questionnaire were administered to the staff of seven up-
bottling company PLC specifically accounts and warehousing department, showed
that effective inventory control would not minimize total inventory costs in a
manufacturing company and high inventory costs would not lead to a reduction in
the profit of a manufacturing company.
However, solution and recommendations were proffered to the above
identified problems to ensure a proper appraisal of inventory control in a
manufacturing company in seven up-bottling company PLC, Lagos.
TABLE OF
CONTENTS
CHAPTER ONE
1.0 Introduction
1.1 Background to the Study
1.2 Statement of Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Statement of
Research Hypothesis
1.6 Significance of the Study
1.7 Scope of the Limitations of the
study
1.8 Historical Background of
Seven-up Bottling Company
1.9 Definition of Key Terms
CHAPTER TWO -
Literature Review
2.0 Introduction
2.1 Meaning of Inventory
Management
2.1 Control
2.2 Inventory Record Keeping
Procedures
2.2.1 Bin Card
2.2.2 Materials Requisition Note
2.2.3 Materials Returned Note
2.2.4 Materials Transfer Note
2.3 Inventory Control Method
2.3.1 Perpetual Inventory Method
2.3.2 Periodic Inventory Method
2.3.3 Physical Inspection Inventory
2.3.4 Just-In-Time (JIT)
2.4 Inventory Costs
2.4.1 Holding Costs
2.4.2 Ordering Costs
2.4.3 Stock-Out Cost
2.4.4 Purchase Costs
2.5 Control of Stocks Levels
2.5.1 Maximum Stock Level
2.6.2 Minimum Stock Level
2.6.3 Re-order Level
2.6 Control Models
2.7.1.1 Economic Order Quantity (EOQ)
2.7 Economic
Order Quantity
2.8 Analysis
of Inventory Control System in Seven-up Bottling Company PLC.
2.8.1 Ordering Procedure
2.8.2 Receipt Procedure
2.8.3 Recording Procedure
2.8.4 Material Issues
2.8.5 Materials Returns
2.8.6 Stock Taking
CHAPTER THREE - Research Methodology
3.0 Introduction
3.1 Research Approach
3.2 Research Design
3.3 Restatement of Research
Questions
3.4 Statement of Research
Hypothesis
3.5 Population of Study
3.6 Sampling Techniques
3.7 Sample Size
3.8 Method of Data Collection
3.8.1 Question Design
3.9 Data Analysis Techniques
3.9.1 Chi-Square
3.9.2 Sample Percentage
3.10 Limitation of Methodology
CHAPTER FOUR -
DATA PRESENTATION AND ANALYSIS
4.0 Introduction
4.1 Presentation and Analysis of
Data
4.1.2 Table
4.1.3 Table
4.2 Inventory Cost Reduction
4.2.1 Table
4.2.3 Table
4.2.4 Table
4.3.1 Table
4.3.2 Table
4.4 Testing of Hypothesis
4.4.1 Chi-Square (x2) Method
4.4.1.1 Hypotheses Indicating Relevant Question in Questionnaire
4.5 Contingency
Co-efficient
4.6 Research
Finding
CHAPTER FIVE
SUMMARY, CONCLUSION
AND RECOMMENDATIONS
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5.1
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Summary
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5.2
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Conclusion
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5.2
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Recommendations
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5.2
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Bibliography
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5.2
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Questionnaire
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In the real sense of economic development, the efficiency and effectiveness
of a nation's economy rests viably on its ability to meet with the demands of
the populace of such an economy.
In order words, the effectiveness of an economic is vested on the manufacturing
sector. This is because, the indices by which the development and progress of
an economy is measured is predicated on the goods and services so produced by
the out fits in such a sector which could either be consumed locally or be
exported for exchange of foreign currency.
Furthermore, the distinguishing factor between productive and unproductive
economies lies in the production capacity in relation to the importation
capacity which directly affects the economy. However, the afore-mentioned
positive outcomes/results are based on the" effective management of the
manufacturing industry in terms of its capital (Financial resources)
,inventory, labour (Human resources) among other things, so as not to bring
about negative results such as costs resulting from overstocking, loss
resulting from capital tied down and loss goodwill as a result of stock
outages.
1.2 STATEMENT OF THE PROBLEM
Inventory plays an essential role in any organization. The larger the inventory
size, the easier it is to reduce costs of purchasing, manufacturing and
shipping as well as provide prompts customer's service. However, a larger
inventory stock requires a higher investment of money, higher carrying cost
such as storage handling risk of obsolescence and data processing. These costs
must be balanced off against any advantages in holding inventory.
The study tends to look at certain problematic issues in manufacturing
companies as Seven- Up Bottling Plc it relates to inventory management. Such
issues are:
1.
Stock are managed, that the level of
stock held are neither more than nor less than requirement for a given season.
2.
Most companies fail to appreciate the
role inventory management plays in the survival of their business.
3.
Accurate information on the cost of
stock is necessary for management control of working capital requirement.
1.3 OBJECTIVES OF THE STUDY
The main objective of this study is to conduct appraisal of inventory
control in a manufacturing company.
Specifically, the study intends to:
i.
Present inventory control system in
the selected company.
ii.
Examine the checks and balances in
the inventory control system.
iii.
Determine the effects of the
organization's inventory control system on the operating expenses and profit
levels of the organization.
iv.
Ascertain the effectiveness and
efficiency of the organization's inventory control system.
v.
Make suggestions for improvement to
bring about further enhancement of efficiency in the company's inventory so as
to improve the overall performance.
1.4
RESEARCH QUESTIONS
i.
Will effective inventory control
minimize total inventory cost in a manufacturing company?
ii.
Will high inventory control lead to
reduction in the profit of manufacturing company?
iii.
Will effective inventory control
prevent frequent stock out in a manufacturing company?
iv.
What are the sources and quality of
raw materials that are available to seven up Bottling Company PIc?
v.
How long does it take to procure the
raw materials?
vi. What storage techniques do the
organizations use in storing their raw materials?
vii. Identify the inventory management practices and
policies that are being used by the organization?
viii. What are the inventory management problems of
the organization?
1.5 STATEMENT OF RESEARCH HYPOTHESIS
For the purpose of this study, the hypotheses available are as follows;
i.
Ho: Effective inventory control would
not minimize total inventory cost in a manufacturing company.
Hi: Effective inventory control would minimize total inventory cost in a
manufacturing company.
ii. Ho: High inventory cost would not lead to a reduction in the
profit of a manufacturing company.
Hi: High inventory cost would lead to a reduction in the profit of a
manufacturing company.
1.6 SIGNIFICANCE OF THE STUDY
Inventory is an essential tool in any manufacturing organization. It
constitutes a large proportion of the total operating cost and has direct
effect on operational smoothness and profit level of an organization.
It is hoped that, this study would provide useful information that will
enhance management ability to carry adequate inventory at a minimized cost.
Also, it will serve as a reference point for future researchers who wish to
probe further into efficient management of inventory in the manufacturing
sector of the economy.
1.7 SCOPE AND THE LIMITATIONS OF THE STUDY
This research intends to cover various processes involved in controlling
and managing inventory in Seven-Up Bottling Company.
1.8 HISTORICAL BACKGROUND OF
SEVEN-UP BOTTING COMPANY NIG. PLC
Seven-Up Bottling Company Nig. Plc was incorporated as a private limited
liability company on the 25th day of June, 1959 the company was
until 1979 wholly owned by the El-khail family. It was converted to a public
limited liability company on the 27th of December, 1978 and listed on the main board of the Nigerian Stock
Exchange in 1985.
The El-Khail was franchise for Nigeria by Seven-Up International Plc, under
which it is entitled to bottle and market Seven-Up (7-up), the world's leading
lime and lemon soft drink. In its attempts to widen its product range, the
company obtained franchise for Nigeria in 1966 from crush international (USA)
Inc; under which it is entitled to bottle and market all "crush"
flavor predominantly "orange crush". The franchise was however sold
to Nigerian Breweries PIc in 1995.
In its bid to achieve a "Mega Bottler" status the company further
acquired three franchise for Nigeria in 1989 from Pepsi-Cola International
under which it is entitled to bottle and market Pepsi (Cola flavor), Mirinda
(Orange flavor) and Teem (Lemonade flavor).
The company was launched in 1st of October, 1960, the day
Nigeria obtained her independence. The first bottle of 7 -up was rolled out at Ijora the same day.
In order to ensure availability of its product throughout the nation, six
additional plants were established at Ibadan in 1980, Kano in 1985, Kaduna in
1988, Aba in 1989, Ilorin in 1989 and Benin in 1993.
Ijora plant was however relocated to Ikeja in 1981 because of the down turn
in the economy arising from political and economic crisis, the Ilorin and Benin
plants were closed down in 1994. Benin plant was later re-opened in 1986. Apart
from the plants, a large network of depot was spread all over the country to
ensure constant supply of brands all over the country. At present, the company
has thirty two depots.
The company under the management of Faysal El-Khalil in an attempt to
increase sales eliminated wasteful expenditure and turned losses into profit. .
He also introduced many thrilling promotion packages
such as money shower in 1987, 7-up express in 1992 and 7-up Hi-life in 1994.
This marketing strategy was part of the short-term plan to reward customers and
attract them to 7 -up products. The strategy yield huge returns to company at a
very high cost.
However, consumers who built great expectation and did not win became
frustrated and began to challenge the credibility of the company. This was
largely due to the inability of consumers to estimate the probabilities of
winning. As they become more educated on the realities, the exaggerated view of
what was possible to win sometime turn into exasperation.
It also woke up the sleeping giant-Nigerian Bottling Company Plc, bottler
of Coke from a deep slumber.
The management of company has since then adopted various strategies that
can stand the test of time in order to ensure that the success of the
aggressive sales promotion which has made the company's product a household to
name would not be lost.
Some of the strategies currently put in place are repositioning its
products, rationalization exercise and cost reduction techniques (including
effective inventory control).
1.9 DEFINITION OF KEY TERMS
Carrying or Holding Cost: This 1S the cost of keeping, carrying or maintaining
inventory. It is usually expressed as a percentage of naira value of inventory
per unit of time. The major components are insurance cost, interest charges,
property tax and storage cost and cost of deterioration, obsolescence,
spoilage, pilferage and depreciation.
Economic Order Quantity (EOQ): The economic order quantity is the amount of a product, which
should be purchased or manufactured at one time in order to minimize the total
cost involved.
Lead Time: The time lag between placing an
order and the delivery of the order. It may be constant or variable.
Inventory Catalogue: A book that identifies
all materials of inventory carried by name, manufacturer's part number, cross
indexed by user's identification number if necessary and classified for
indexing purpose.
Maximum Inventory: That level of inventory beyond
which inventory must not rise. It is the sum total of the re-order end order
quantity less the minimum anticipated usage during the lead time.
Minimum Inventory: That level of inventory below
which inventory must not fall. It is the difference between the reorder and
the average for the average usage for the average lead time.
Ordering Cost: The cost of generating and
processing and order and its related paper work, It may include the cost of
telephone calls, postages, stationeries etc.
Over Stock Cost: The cost of carrying more than
the required inventory that is the cost of over stocking.
Re-order Level: The inventory level at which an
order for replenishment is placed.
Re-Order Quantity: The quantity ordered each time
a replenishment order is placed.
Set-Up Cost: The out of pocket costs associated
with machine set-up that would increase with the number of setup.
Stock-out Cost: The marginal profit lost on
each items demanded but not immediately available in stocks or costs resulting
from failures to have sufficient goods on hand to fill or satisfy orders.
Inventory Policy: It is a set of rules which determine how and when certain decisions concerning
the holding of stock should be made.