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The study was designed to find out the effects of Inventory Management on Corporate Profit using the Nigerian Bottling company as the case study. To achieve this objective, three Null Hypotheses and Alternative Hypotheses were formed to guide the study. All the staff of the Nigerian Bottling Company Plc, Lagos constituted the population of the study. A sample of thirty staff was used for the research out of which twenty five were completed and returned. Their responses to the questionnaires were presented on tables, analysed and interpreted and used in testing the validity of the Hypotheses formulated through the use of chi-square (X2) statistical test. The test rejected all the Null Hypotheses indicating that there is significant relationship between inventory management and profitability; that there is significant effect on the cost of managing inventory on profitability and that inventory management techniques impact positively on firms’ profitability. Also, based on the findings, the following recommendations were made among others: that there should be regular training of staff responsible for inventory procurement and issuance, that adequate inventory of raw materials should be maintained to cushion periods of short supply and that effective inventory management techniques should be applied always.
1.0 Background to the Study
Agara, (2005) defines inventory as the physical units of items i.e. goods that a business trades on or manufactures for sale. Inventory also includes all items required for proper packaging and raw materials. It also includes the items which are used as supportive materials to facilitate production. No manufacturing company can operate without material input(s), sourced locally or abroad, as inputs determine the company’s output and productivity. In manufacturing companies, inventory exists in various forms. These include Raw materials, Work in progress; partly finished goods/materials and sub-assemblies held between manufacturing stages, finished goods and supplies. Effective inventory management plays a critical role in the smooth and efficient running of any business. Inventory management is important from the point that it enables the firm to maintain adequate inventory for smooth production and selling activities and to minimize the investment in inventory to enhance the firm’s productivity. Many organizations, however, go out of business because of inability to handle inventory or poor inventory management. Some organizations have excellent inventory management and others have satisfactory inventory management. Management is therefore required to determine its optimum level of investment in inventories. Reducing excess inventory and investing in the right amount of inventory leads to improved customer service, increased inventory turnover, reduced costs and increased profitability. It is therefore important to manage inventories efficiently and effectively in order to avoid over or under investing in them. The study is therefore conducted to find ways of managing inventory for better profitability using Coca-Cola Company Plc as the case study.
1.1 Statement of the Problem
Managing inventory poses considerable challenges to the management of companies .This is because inventory represents high investments in businesses. This would therefore affect the liquidity position of the firm thus affecting profitability if not properly managed. Profitability represents a favorable return on investments. The profitability of a firm depends to a large extent on the ability of managers to take strategic decisions on inventory management. Some firms have encountered difficulties in inventory planning and control due to lack of qualified managers. The problem is to what extent could the right inventory level, at the right price, at the right time be achieved such that there is no stock-out costs and no over stocking or ideal working capital?
In fact, many manufacturing companies have been experiencing losses because large inventories become obsolete, damaged or lost. Thus, firms who fail to manage their inventories effectively will lose profitability in the long run or fail ultimately in business.
1.2 Objectives of the Study
This study set to achieve the following objectives:
• To determine the effects of inventory management on firm’s profitability.
• To ascertain the relationship between inventory management costs and profitability.
• To show the impact of effective inventory management technique on firm’s profit.
1.3 Research Hypotheses
The following hypotheses were formulated for this study: the null hypothesis is represented by the H0 the alternative hypothesis represented by H1.
H0: There is no significant relationship between inventory management and profitability.
H1: There is significant relationship between inventory management and profitability.
H0: There is no significant effect of the cost of managing inventory on firm’s profitability.
H1: There is significant effect of the costs of managing inventory on firm’s profitability.
H0: Effective inventory management technique does not impact positively on firm’s profitability.
H1: Effective inventory management techniques impacts positively on firm’s profitability.
1.4 Significance of the Study
This study would be of great benefit to management and staff of Nigerian Bottling Company Plc, and other manufacturing Companies that deal with large amount of inventories. It would also be useful to potential managers and entrepreneurs. It would provide them with information on how to manage inventory properly and reduce inventory costs. It would improve decision making on inventory management by managers and also increase customers’ satisfaction that will enhance the firm’s long term profitability.
In addition, this research will be useful to students of Business Administration/Management Sciences in Universities, Polytechnics and other Tertiary Institutions. It would also be beneficial to other researchers who may be interested in this area of study. It would be useful to shareholders or owners as application of improved inventory management system would increase cash-flow and reduce losses thus improving profit and wealth maximization.
1.5 Scope and Limitations of the Study
The scope of this study is confined to Nigerian Bottling Company Plc and its operations between the years 2001 to 2010 which is a time span of 10 years. It also covers a review of inventory control and inventory valuation methods and its effectiveness in relation to profitability.
The limitations to this study include; financial constraints for getting more data, unavailability of some materials and lack of some statistical data.
1.6 Definition of Terms
Buffer Stock or Safety Stock: This is the inventory that is kept for emerging situations where, for instance, there is a sudden upsurge in demand or the fresh order is delayed over the estimated lead time. The maintenance of buffer stock should be considered in the light of the following:
• Probability of rise in demand
• Failure of suppliers to meet delivery dates
• Ability to obtain stock from alternative sources at record time.
• The durability of the goods.
These factors should be considered before maintaining safety stock because such inventories are excess inventory, which may not be touched yet they incur storage cost.
Business: A commercial activity involving the exchange of money for goods and services.
Demand: This is the quantity or sales or production required for the period.
Financial Statement: These are statement produced at the end of an accounting period, such as the income statement and statement of changes in financial position (balance sheet).
Gross Profit: This is the difference between sales revenue and the cost of goods sold.
Indent: This is the actual inventory ordered. It equally
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