CHAPTER ONE

INTRODUCTION

• Background of the Study

When scholars first introduced the word “inventory”, they use the word stocks that are kept on store for use as the need arises. However, inventory includes all those goods and materials used in the production and distribution processes. Raw materials, components parts, sub-assemblies and finished products are all part of inventory as well as the various supplies required in the production and distribution process.

Inventory (or stock control) is defined by Jessop and Morrison (2010) as the operation of continuously arranging flows of materials so that stock balance are adequate to support the current rate of consumption, with due regard to economy. Inventory ties up capital, use storage space require handling, deteriorate, sometimes become obsolete, incur taxes, require insurance, can be stolen, and sometimes are lost. Furthermore, inventory frequently compensates for sloppy and inefficient management, including poor forecasting, haphazard scheduling and inadequate attention to setup and ordering process. In other words, inventory may hide inadequacies and allows management to ignore them, in such cases inventory increases cost and productivity without enhancing net income, it is a liability regardless of where it is carried on the organizations balance sheet. In addition, if an organization has the wrong items in inventory, the situation is worsened. However, the benefits of a properly managed inventory outweigh the costs of maintaining it. The absence of the appropriate inventory will halt a production process. Lack of competent parts will short down an assembly line with partially complete ones collecting dust.

An inventory can be an asset in the full sense of the word. Measures of performance and productivity may differ among organizations, but all need adequate inventory management.

Also, it includes the related process of provisioning, which is the determination of requirement in advance, stock control is a way of regulating the levels of supplies in stock to avert stock excesses or deficiencies. It also involves techniques used to ensure that stocks are kept at levels that guaranteed maximum service levels at minimum costs.

Stock control involves the following processes

1. Assessing the items to be held in stock
2. Deciding the extent of stock holding of items individually and collectively
3. Regulating the input of stock into the store house
4. Regulating the issue of stock from the store house

All business and institution require inventories, often they are substantial part of total assets. Financially, inventories are very important to manufacturing companies, on the balance sheet, they usually represent form 20% to 60% of total assets, inventory are used, their value is converted into cash which improves cash flow and return on investment.

There is a cost for carrying inventories, which increase operating costs and decreases profit. Good inventory management is essential, inventory is an idle stock of physical goods that contain economic value and held in various forms by an organization in its custody awaiting packing, processing, transformation, we or sale in future point of times.

Since the inventory or stock in the company or firm determine to a greater extent the prosperity and success of a firm. Therefore, there is need for good management and control of inventory in order for it to bring a more positive impact to the firm or company. Some scholars also defined inventory management as an effort for planning and controlling of inventory from the raw material stage to the customers for consumption or further production.

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