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1.1 BACKGROUND TO THE STUDY
One of most topical functions on most organization in terms of its role and integrated into the overall organizational frame work is the material or inventory management function. In spite of increasing awareness of the importance management in comparison with other business functions such as production, engineering, finance, marketing, personnel etc.It is in this regard that some of the key concepts of materials or inventory management are to be examined with a view of determining its role in the achievement of overall corporate objective
Notably, for the purpose of clarity and better understanding inventory management and materials management will be used synonymously in this work. Inventory management is pivotal in effective and efficient organization. It is also vital in the control of materials and goods that have to be held (or stored) for latter use in the case of production or later exchange activities in the case of services. The principal goal of inventory management involves having to balance the conflicting economics of not wanting to hold to much stock. Thereby having to tie up capital so as to guide against in incurring of cost such as storage, spoilage, pilferage and obsolescence and the desire to make items or goals available which and where required (quality and quantity wise) so as to avert the cost of not meeting such requirement.
Inventory problems of two great or two small quantities on hand can cause business failure if a manufacturer experiences stock out of a critical inventory item, production halts could result. Moreover, a shopper expects the retailers to carry the item wanted. If an item is not stocked when the customer thinks it should be, the retailer to loses a customer not only on that item but also many other items in the future.
Essentially, inventory management, within the context of the foregoing features involves planning and control. The planning aspect involves looking ahead in terms of the determination in advance.
i. What quantity of item to order
ii. How often (periodicity) do we order for them to maintain the overall source – store sink co-ordination in an economically efficient way.
The control aspect, which is often described as stove control involves the procedure, set up at the planning stage to achieve the above objective. This may include monitoring stock level periodically or continuously and deciding what to do on the basis of information that is gathered and adequately processed.
The researcher has taken Beta Glass Ughelli as a study so as to clearly see if their resounding success can attributed to the kind of inventory system they embark on since their production process requires a lot of raw materials and despite the economic condition of the country at any given time.
Therefore, inventory management is a must for the continuity and survival of any goal focused manufacturing organization. It is pertinent to first address the question of why should an organization attach any importance to material management at all. The central objective of most business organization is to maximum profit. All activities are usually tailored towards the realization of this objective materials management is also important on non – profit organizations such as government agencies, armed forces etc. However, the focus of this research is on business organizations and manufacturing organizations in particular since, they usually require more dynamic approaches to materials management as economic agents operating under ever changing economics and business environment. This is because the challenges for more integrated approach towards organization them that of government agency.
Inventory management involves all the processes needed to plan, acquire, store, control and distribute inventories or materials at minimal cost to the organization. This takes use to the inventory management cycle, which comprises the systematic stage involved in inventory management which includes:
1. The management
2. The purchasing department
3. The vendor
4. The stores
5. The finance and account department
6. The audit
7. The review process
1. THE MANAGEMENT: The management appoints purchasing officers and other key officers, approves stock purchasing budget, issues policy guidelines on materials requisition, purchasing, receipt and accounting system, approves tenders, defines role and responsibilities of actions, set inventory management objectives and approves the store guide.
2. THE PURCHASING DEPARTMENT: The purchasing department carryout prices survey / negotiation, issues purchase order, prepares stock requisition, prepares budgets, both quantitatively and financially seek approvals from management for fresh request and receives order into the store.
3. THE VENDOR: Issues quotation, receives purchases order, supplies goods, issues invoice and goods delivery note (3 copies) and receives payments for acceptable delivery.
4. THE STORE: The store receives goods / orders check order against purchase order and the vendors goods received note and sends to management, considers store requisition from and users, up date stock ledgers / bin cards, carryout store layout and ensure security of stock items.
5. THE FINANCE AND ACCOUNTS: This checks invoice against order, goods note, raise payment voucher and finally effect payment based on the authority to incure expenditure.
6. THE AUDIT: The audit inspects the order on delivery, issues inspection note, examines the payment vouchers authenticate, check pass and authorize payment and reports to management where necessary.
7. THE REVIEW PROCESS: Involves the consideration of the reports submitted by the board of survey, the audit and any other person(s) assigned to report on the inventory management objective are realized in future cause of action. Indeed, inventory management is commonly referred to as the “Last Goldmine” for business executives in view fo tis potentials for direct contribution towards profit improvement.(The Guardian February 23, 2002) unlike most business function many savings made in materials, cost goes direct into profit since most other cost are either fixed or semi fixed.
For example, if a manufacturing company make a turnover of N1,000 000 000m and its profit is 15% turnover of N5m the company spend say 50% of its turnover on inventory and is able to effect a 7.5% savings in inventory cost, the level of profit improvement in relation to efficient inventory management can be calculated as follows
N000m sale at 15% profit - N15m
N50m on inventory at 7.5%
Savings in materials cost -N3.75m
Now if the savings in materials cost was not achieved, it would have been necessary to increase turnover 25% (N125m) to achieve the same level of profitability. Thus, 7.5% savings on inventory cost equate with 25% increase in sales turnover ratio as the one analyzed above.
In practice, most companies are unable to record up to 15% profit on sales turnover and as such inventory cost savings are expected to contribute more significantly to profit improvement than increase in turnover. One of the problems facing many organizations today is how to determine the best out of the various systems of management inventories. How to integrate the inventory management process into overall organization structure or in order to achieve corporate objectives.
Generally, the choice of inventory management system will depend on the organization, the nature of her business, the operating environment, the level of professionalism exhibited by key materials personnel and experience of the chief executive officer / policy maker. In all cases, the central focus of the organization should be on which of the concept will reduce inventory cost to the barest minimum. In other words, which system guarantees the most substantial savings in materials cost. However, in practice, it has been discovered that in the absence of an corporate policy on the organization of the inventory management function, top management value bear an overriding influence on the choice of an inventory management concept.
Some organizations embark on decentralized materials management approach which may well have its own merits. It is generally agreed by practitioner that the central objective of cost minimization in materials management is better achieved through a centralized materials management approach under a qualified and experience materials manager (The Guardian March, 2 1999). The materials management function can be performed as a single activity or subdivided into various activities depending on the organization.
For large organization with many product line requiring diversified materials sourcing. It is more appropriate to subdivide the function into three units in which case there will be three units manager viz; purchasing manager, planning and control manager warehouse / store manager all reporting to a departmental manager, the materials manager such as company may also decide to bring the physical distribution unit under a centralized logistic management concept.
However, expert for operational problems, the cost savings advantage derivable from efficient materials management can be obtained in both cases. In very large organizati
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