CHAPTER ONE

INTRODUCTION

1.1            Background to the study

The success or failure of any enterprise can be greatly affected by the efficiency of its stores.  Efficient stores management can save an enterprise money, help to retain customers and maintain production; constant availability of raw material for production will put the production department in a position of continue operations with needed stock of raw materials, but this should not lead to overstocking of raw materials which will lead to increase in stock holding related risk and cost.  Stores mismanagement can cause an enterprise to lose money, customers and production which will in turn have an adverse impact on the financial performance of the organization as reported in the annual financial report. Financial performance is mostly used as a major indicator for performance measures and evaluations it also shows level of operations and the final profit and loss of the business for the year. Inventory is one of the most sensitive item in financial report with great effect on the profit and loss depending on how the inventory is managed, inventory consist of stock of raw material, stock of  work in progress and stock of finished goods, all of these can be managed as to the level to be held in a given time with exception to work in progress stock of raw material and stock of finished goods will have a great impact to financial cost as to the level held at a given time will either increase cost i.e reducing profit or will reduce cost which is profit maximization. Management of inventory or Inventory management is all about handling functions related to the tracking and management of material, it is concerned with planning, organizing and controlling the flow of stores from initial inventory purchase through internal operations to the service point through distribution.  Inventory management is very important in the case of production oriented enterprises. However, it is also relevant for the service sector which will need to manage all its supplies needed for efficient operations. In many organizations, the emphasis in the early years was on production and on acquiring the skills and capability to manufacture a hold of items required to meet the vast need of the consumers in the market place, items like raw material for production, spare parts for machines available skilled labour and stock of finished product. Therefore, attention is focused on marketing and on profitability which can only be achieved through cost reductions process. Just in time (JIT) is an inventory management method companies employ to increase efficiency and decrease waste by receiving materials, goods, and labor exactly when needed in the production process. This inventory supply system represents a shift away from the older "just in case" strategy where producers carried large inventories in case higher demand had to be met. According to (Choe; 2006). Knowledge is always embodied in a person, taught and learned by a person, used or misused by a person. An organization must adopt a good store management to in order to be able to control store finances and the organizational finance over all, this can be achieved by defining a procedural guidelines on stores management and well-defined levels of staff for authorization of different functions such as approving: replenishment of depleted items, acceptance of goods upon delivery, disposal of unserviceable or surplus items, ethical guidelines such as Code of Conduct for staff, other matters such as declaration of conflict of interest and acceptance of advantages, the types of items to be subject to stock control, e.g. fixed assets, consumables, and goods for sale, the desirable stock holding levels for individual stores/materials including: Re-order level – the level at which a new order is normally placed to replenish stock to allow ample time for normal procurement procedures to be followed. Maximum level – the maximum stock level for individual items to prevent the procurement of an unnecessarily excessive amount of goods.

In the case of goods produced by the organization for sale, the stock level should take into consideration the rate of production/turnover. The mode of stock control i.e. a manual or computerized system.  Where resources allow, a computer-based stock control system is preferred because it provides on. The duties of staff involved in the stock control process should be appropriately segregated to provide adequate checks and balances.  Where practicable, different officers should be assigned to handle various stores-related functions including: raising purchase requisition, receipt, and inspection and counting of stores items. Delivered by suppliers, the duties of which should better be discharged by at least two staff. Storage of received stores and processing transactions (e.g. issue of stores to users).  Stocktaking exercises or audit checks. Line access to stores information and facilitates maintenance of data such as stores movements.

Organization ability to uphold all these procedural guidelines will help improve a better store management which will reduce financial cost on stores with an overall increase in the profit of the organization since cost minimization is at the same time profit maximization. But in the work place many organization without a define procedures for stores and inventory control goes through loss arising from improper store and inventory handle. Duvall J. (2000), shows that during the past several years more than two dozen retail companies have been forced to file for bankruptcy due to inventory fraud.  This makes stores and inventory one of the susceptible areas of profit manipulations and window dressing of accounting records.

1.2         Statement of the Problem

The importance of stock management in an organization cannot be overemphasized. Managers are confronted with a lot of problems arising from stores control and how it impacts financial performance. In most organizations, the stores and inventory control system is weak, as their scales of operation grows the impact is felt resulting to high cost and loss in profit. Could it be that employees are ignorant of the importance of stock controls or could it be attributed to the hierarchical structure of the organization? The problem arises as to when and how inventory are issued out, what is the stock level at any time to minimize cost and when should requisition be made. The knowledge of stock management technique that will save management cost associated with store management. It is on this basis the study is carried out.

1.3 Research questions

    I.           Does the level of financial liquidity  depend on the inventory management

II.           Do you think that financial performance are meant to review the effectiveness of all stock management?

III.           Are their factors militating against stock management, do you think there will be effectively management?

IV.           In the absence of stock, do you think there will be effective financial performance?

V.           Are the employees of the organization acquainted with JIT and its limitation

VI.           To determine if companies had introduced the JIT philosophy in Nigeria.

1.4 Aim and Objectives of the Study

The main objective of the study is to assess the impact of Just in Time (JIT) on Financial Performance Nigeria Bottling Companies while the specific objectives are:

i.                   To determine the relationship between Just in time reduces financial performance. 

ii.                 To examine the relationship between effective stock management and financial performance.

iii.              To ascertain if poor financial performance can be traced to lapses in the stock management.

1.5 Statement of hypothesis

Two hypotheses are formulated in this study, the hypothesis is stated in the form denoted by (Ho) for null hypothesis and in the alternative from represented by (H1). They are stated thus;

Hypothesis I

H0: Just in time Techniques has no significant impact on Performance. 

Hypothesis II

H0:   Zero stock holding has no relationship with financial performance.

1.6 Significance of the Study

All research is aimed at arriving at a finding or an outcome as well as issuing suggestions that can directly be of benefit to affected entities (Adefila J.J. 2008). The study is positioned to make a significant contribution to the existing body of knowledge concerning the impact of JIT on financial performance Nigeria Bottling Company. The study will be of benefit to large manufacturing firms, much as they maintain their entity as a going concern. Institutions of higher learning will find this study useful for academic purpose, the study will also help managers at the work place in decision making and the general public will find the study relevant, as it deepens knowledge.

1.7Scope of the Study

The study examined only manufacturing companies in Nigeria on the impact of JIT on financial performance, limiting its scope to Nigerian Bottling Company Plc Kaduna and covers the period 2012-2014.

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