CHAPTER ONE

1.0     INTRODUCTION

Inventory in the form of raw materials, work in progress and finished goods constitutes significant proportion of assets of most firms. But why is it pertinent to keep an eye on these items in other words, why do we engage in inventory management?

Inventory materials cost money to acquire, they cost money to store and to look after these means storage facilities has to be provided  as to make sure that the materials or items do not get spoiled until they are turned into saleable goods, they do not produce money.

When stock are held, it means typing down capital that would have been used in other aspects, so it all represents cost and should be managed properly to acquire efficiency.

However, hold stock to meet production needs and sales needs. This is because if we do not hold stocks in sufficient qualities we stand the risk of running out of stocks.

Similarly if we are short of finished goods, we may disappoint our customers and money, for the organizations to avoid the above problems they should strike a balance between carrying too much stock (overstocking) and carrying too little stock (under stocking).

This is essentially the importance of inventory management managing assets of all kinds is basically an inventory problem, the same method of analysis applied to cash and fixed assets as to inventory themselves.

First of all, a basic stock must be on hand to balance inflows and outflows of items, the size of the stock depends on the pattern of flows whether fast moving or regular items or slow moving or irregular items.

Secondly, because the unexpected may occur, it is necessary to have safety stocks on hand representing extra stock to avoid the cost of not having enough to meet current needs.

Thirdly, additional amount may be required to meet future growth needs, these are called anticipation stocks relations to anticipation stocks is the recognition that there are optimum purchase sizes defined as economic order quality (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 firm generally have three kinds of inventories.

(a)              Raw materials

(b)             Work-in-progress

(c)              Finished goods

(a)              The level of Raw Materials: inventories is influenced by anticipated production, seasonality of production, reliability of source of supply and efficiency of scheduling purchases and production operation.

(b)             Work-in-progress inventory: is greatly influenced by the length of the production period, which is time in planning raw materials in production and completing the finished products. Inventory turn over therefore can be increased by decreasing the production.

One means of accomplishing this is perfect engineering techniques, thereby spreading up to manufacturing process. Another means is to buy rather than make them.

The level of finished goods is a matter of coordinating production and sales.

Holding stock whatever form cost money the capital tries down by the stock it self has to be service by the payment of interest and the land or warehouse needed for stock has to be bough or rented. The handling and securing of the stocks and any quality deterioration that occur also cost money.

The sample type of stock control system used in most organization is two the bin system of stock control and is of two quality. The first qualities, is the stock level below which an order I to be placed, the other gives the quantity to be ordered. Under this system, the unit of stock are held in two one and two stock is taken from bin as required until this bin is empty. More are then ordered by the quality 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 and to discover and maintain to optimum level of investment In the inventory.

Inventories may too high or too low if too high there are unnecessary carrying cost and risk of obsolesce. If too low production may disrupted or sales permanently cost and loss of goodwill, reputation and customers to other firms in the same industry.  The optimum inventory level is that which minimizes the total cost associated with inventory.

1.1     HISTORICAL BACKGROUND OF NIGERIAN BOTTLING COMPANY PLC. COCA-COLA

          Nigeria Bottling company plc, is a bottler of coca-cola, fanta sprite, coca-cola was first made on the 8th may, 1886 by Dr, John Styth Perberton, a pharmacist in his town Atlanta Georgia USA. Frank M. Robison assisted Dr. Perberton in the preparation of coca-cola. He also designed the following script that distinguished the famous trade mark.

          Coca-cola content remain a secret for ever 100 years. The formulate known as MERCHANDISE 7X is kept in a special security valt in a bank in the United states of America. Coca-cola Worlds leading soft drinks sold on more than 145 countries.

          A total of 250 million servings are consumed everyday in all part of the globe from Canada in the North to Argentina and news Zealand in the south from Alaska to China from Mexico to Nigeria.

          Coca-cola first came to Nigeria in 1953 when Nigeria Bottling Company set up its first plant in Lagos. Nigerian bottling company is today Nigerians number one bottler of soft drinks selling more than ten million bottles per day.

          Ice cold coca-cola cannot be compared with any soft drink, fanta also is far the number one best seller in the orange segment and Krest Bitter lemon, most widely sold lemon lime drinks in Nigeria other product, bottle by Nigeria Bottling company include fanta lemon, Chapman, fanta tonic, fanta Ginger Ale club soda, Eva water and five Alive.

The success of coca-cola has brought with the development of number of industries all contributing to the growth of the Nigerian economy, the Delta glass company in Ughelli which supplies the millions of bottles in operation, and the car on product factories in Ijebu-ode and Kano to seal the bottles, the Bennin city plastic crates for carrying bottles. It should be noted that Nigerian Bottling company have diversifies into other areas which investment was incurred. The agric seeds for farmers located in Zaria, the rice processing at Afuze in Edo state is a part of diversification which Nigerian Bottling company had invested.

In addition, the trucks which are familiar sight in many parts of the country, deliver soft drinks to more than 65,000 dealers are also assembled in Ibadan Nigeria. Nigeria Bottling Company  is also the largest manufacturers of C02 in the country used to carbonate, your favourites soft drinks. Nigeria Bottling Company employs over 7,000 Nigerians in all field of operation.

Nigeria Bottling Company Kaduna was established in 1976 under the Northern region. The Kaduna plant is divided into the following division:-

Administrative Department:- This is headed by the plant manager who control all activities In the plant.

Finance Department:- This is headed by the finance manager, who handled the cash flow of the plant, signing vouchers and budget preparations.

Sales Department:- this headed by the plant sales manager who is in-charge of sales, advertisement and promotion of product the plant sales manager is assisted by other two managers, one is the area sales manager in-charge of the plant sale trucks and Zaria’s Depot for proper coordination of activities. These two manager report directed to the plant manager.

Production Department:- This department is headed by the Bottling Hall manager who is in-charge of Bottling all the workshop managers which is responsible for the repairs an the maintenance of all the company vehicles.

Personnel Department:- This is headed by the plant personnel manager who is in-charge manpower development of human resources management.

Engineering department:- This position is headed by to engineer; sharing sections they are responsible for maintenance and repairs of machines and all the electrical installation of the company.

Quality Assurance Department:- This is headed by quality Assurance manager who is a Biologist in-charge of quality standard syrups before  a production take place.

The company is operating a three shift syrup to enable exigencies if a raise in production. The company structure is such that it is headed by an executive chairman who is Nigerian and a General manager who is an expatriate. The company is having five regional offices namely Northern region, North –east region, south east region, south-west region and west region each being headed by a Regional General manager (RGM)

The main objectives of Nigeria Bottling Company is to satisfy the needs of their customers alike in their area of operation namely the production or provision of soft drinks and in the process provide employment and maximize profitability of the enterprise. Quality is the key word, which determine the success of the whole operation  only the very best ingredients are used for making of soft drink with assistance of sophisticated filling and washing equipment installed in all plants hygiene is maintained in all plant to ensure top quality product, that reach the consumers, presently there about eight plant at Kaduna, Markudi, Jos, Maiduguri, Sokoto, Ilorin and Kano, Katsina.

1.2     STATEMENT OF GENERAL PROBLEM

The life blood of any organization both private and public sector is material and this has been neglected long ago by various business concerned. The survival of any business set up depends upon sufficient application of materials function policies involved and recognition according to the function.

Up till now inventory management has not been able to occupy its rightful position due to one reason or the other. There has been infringement on the right of inventory management personnel. They are often restricted to mere clerical work in many organizations.

The lack of recognition for inventory management functions in many organization has cause so many havoc for instance where the function is forced to e recognized and established because of the demand to manage the affairs of various activities. To compound these problems the function responsible for the manpower operation have few or no plans for the low level personnel to benefit from the staff training programmes which would have enhanced the basic skills professionally.

1.3     RESEARCH QUESTION

1.     Does inventory management as a tool for enhancing profitability in manufacturing organization?

2.     How does low effective inventory management enhance profitability to organizations?

3.      How does issues of inventory is done as well as its inspection and stock taking in the organization?

4.     How does proper implementation of inventory reduce wastage cost and pilferages?

1.4     AIMS AND OBJECTIVES OF THE STUDY

The aims and objectives of this research work are:

1.                 To take a general look at inventory management as a tool for enhancing profitability in manufacturing organization.

2.                 To provide information on low effective inventory management can enhance profitability.

3.                 To geared towards analyzing how issue of inventory is done as well as its inspection and stock taking in the organization and how it affects inventory management.

4.                 To reveal to the management of the organization how proper implementation of inventory can reduce wastage cost and pilferages will be minimized.

1.5     SIGNIFICANCE OF THE STUDY

The study is aimed at having a look at inventory management as a tool for enhancing profitability and to come out with same problems associated with function and necessary way of solving such problems. The researcher chose Nigeria Bottling Company Plc as its case study.

It is equally an attempt to disabuse the impressing of manufacturing organization that inventory is not a profit generating centre but to see inventory management as a managerial function which need to be accorded a proper attention than merely treating it as a dumping ground.

The work can be very useful to those engaged in inventory management function in organization and to students studying production operations management in various institutions of higher learning. The study is also a partial fulfillment for the award of Higher National Diploma in Business Administration and management in Kaduna Polytechnics. The studs also to improve the function of inventory management In the organization under study and the entire manufacturing industry at large.

1.6     STATEMENT OF HYPOTHESIS

H0:    Effective inventory management has no effect on profitability.

Hi:     Effective inventory management has effect on profitability.

1.7     SCOPE AND LIMITATION OF THE STUDY

Inventory management being a complex and dynamic concept, has a wider area of coverage, so it is obvious that research of this nature cannot hold without a problems, which serves in most cases as problem. As such its work is limited to these areas the researcher feels and crucial or relevant to the problem under investigation that is “inventory management as a tool for enhancing profitability in manufacturing organization”.

The  following are some of the problems that limited the extent of the study.

Time constraints: this is a very important for one to get accurate and up to date data, it is important to have enough time. But for a research to spent time as much as possible collecting information (being a student) and at the same time battling with class room work, coupled with assignment it is infact not easy without the available time.

Another problem is restrictions to vital information and document by the organization understudy due to secrecy. The organization is so strict with their documents added not allow vital information to be revealed for fear of leaking managements secrets to competitors, this generated a non challant attitude by some staff towards the research.

Another constraints that of finance. To conduct a research as this nature one needs money to enable one travel to different organizations at different geographical locations. But it is factual that there is nothing like “enough money in the country again, the researcher therefore restricted the study to only the Kaduna branch of the organization understudy.

1.8     DEFINITION OF TERMS

Inventory:  Items usually held in stock by organizations. This can be inform of raw materials, finished goods, work in progress furniture, capital, equipment etc.

Raw materials: Are item, which are to process through production process to obtain the desire finished good.

Work in progress: They are partly finished goods, which are to go for further production before they can be regarded as finished goods.

Store House: Is a building where materials or item held in stock are kept and protected against unauthorized removals is also a place where materials are received, stored, accounted for recorded replenished when due.

Lead Time: These are the new product of the whole production process.

Stock control: Is the means by which materials of the correct quantity and quality is made available and when required with due regards, to economy in storage ordering cost, purchasing prices and working capital.

Re-order Level: This is the point between the maximum and minimum stock level at which time is essential to initiate purchase requisition for fresh supplies of materials. The point is usually higher than the minimum stock level to cover emergencies such as abnormal usage materials.

Economic Under Quantity:    This is size of the order, which minimizes the total cost of acquiring and holding stock. It is the quality that is most economical to order at a time, taking into consideration the cost of ordering and carrying.

Maximum Stock Level:  Is that level above which stock should not normally be allowed to rise except is special circumstances to avoid both storage problems and over investment in stocks.

Minimum stock level:   Is that level below which stocks should not normally be allow to fall if it goes below there is danger of shortage of supply which may result to stoppage in production.

Average  stock level:     The average stock investment is a useful parameter for indicating to management the extent to which the actual investment on average has influence from the target

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