CHAPTER ONE

INTRODUCTION

1.1      Background of the study

Inventory management is a critical management issue for most large companies, medium-sized companies, and small companies. Effective inventory flow management in supply chains is one of the key factors for success. The challenge in managing inventory is to balance the supply of inventory with demand. A company would ideally want to have enough inventories to satisfy the demands of its customers. On the other hand, the company does not want to have too much inventory staying on hand because of the cost of carrying inventory. The role of inventory management is to ensure faster inventory turnover. Inventory management is necessary at different locations within an organization or within multiple locations of a supply chain, to protect (the production) from running out of materials or goods. Adequate inventories kept in manufacturing companies will smooth the production process. The wholesalers and retailers can offer good customer services and gain good public image by holding sufficient inventories. The basic objective of inventory management is to achieve a balance between the low inventory and high return on investment (ROT), (Johson et al, 1974). Inventory levels have been seen as one of the most interesting areas for improvement in organization materials management (Kumar Ordamar, Zhang, 2008). 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). Inventory management is critical to an organization's success in today’s competitive and dynamic market. This entails a reduction in the cost of holding stocks by maintaining just enough inventories, in the right place and the right time and cost to make the right amount of needed products. High levels of inventory held in stock affect adversely the procurement performance out of the capital being held which affects cash flow leading to reduced efficiency, effectiveness and distorted functionality (Koin, Cheruiyot , and Mjku 222wangangi , 2014). Inventories are vital to the successful functioning of manufacturing and retailing organizations. They may consist of raw materials, work-in-progress, spare parts/consumables, and finished goods. It is not necessary that an organization has all these inventory classes. But, whatever may be the inventory items, they need efficient management as, generally, a substantial share of its funds is invested in them.

1.2      STATEMENT OF THE PROBLEM

Nowadays, we usually think of stocks being held by organizations to allow efficient and continuous operations. Managers are aware of the vital roles inventory plays in the activities of organizations. In most organizations, direct materials represent up to 50% of the total product cost, as a result of the money entrusted on inventory, thereby affecting the profitability of the organization. Organizations at times do not control their inventory holding, resulting in under stocking and causing the organizations to stay off production, thereby resulting to organizational ineffectiveness. This therefore creates relationship problems between inventory management and organizational productivity, profitability and effectiveness.

1.3      OBJECTIVE OF THE STUDY

The main objective of this study is inventory management and organizational profitability in large manufacturing company.  But for the successful completion of the study; the researcher intends to achieve the following sub-objectives.

1.   To determine the effect of inventory management on organizational productivity.

2.   To examine the nature of relationship between inventory management and organizational effectiveness

3.   To ascertain the significant role inventory play in organizational growth

4.   To ascertain whether ineffective and inefficient management of inventory will cause organization to lose customers and sales declination.

1.4 RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses were formulated by the researcher; 

H0:  inventory management does not play any role in organizational growth

H1: inventory management does play a role in organizational growth

H02: there is norelationship between inventory management and organizational profitability

H2: there isrelationship between inventory management and organizational profitability

1.5 SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study, the findings will be of benefit to any manufacturing organization. The study will help with the techniques and inventory control procedures as applied in any organization with a view to improve the organization performance. The study will also be of great benefit to the researchers who intends to embark on research on similar topics as it will serve as a guide. Finally, the study will be of great importance to academia’s, lecturers, teachers, students and the general public.

1.6 SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the inventory management and organizational profitability in large manufacturing company. The researcher encounters some constrain which limited the scope of the study;

 a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study 

b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

1.7 DEFINITION OF TERMS

INVENTORY: Inventory or stock is the goods and materials that a business holds for the ultimate goals to have a purpose of resale. Inventory management is a discipline primarily about specifying the shape and placement of stocked goods

INVENTORY MANAGEMENT: Inventory management is the practice overseeing and controlling of the ordering, storage and use of components that a company uses in the production of the items it sells. Inventory management is also the practice of overseeing and controlling of quantities of finished products for sale.

 ORGANIZATIONAL PROFITABILITY: A profitable organization is one that generates more money than it expends. Profitable organizations are businesses that use a variety of tactics to make a profit. Calculating return on investment (ROI) will help businesses determine whether they are generating a profit.

MANUFACTURING COMPANY: Manufacturing is the production of merchandise for use or sale using labour and machines, tools, chemical and biological processing, or formulation

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

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