CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND TO THE STUDY

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 tying down capital that would have been used in other aspects, so it all represents cost and should be managed properly to acquire efficiency.

Similarly if we are short of finished goods, we may disappoint our customers 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 tried down by the stock itself has to be serviced by the payment of interest and the land or warehouse needed for stock has to be bought 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 is 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 is to discover and maintain to optimum level of investment in the inventory.

Inventories may be too high or too low. If too high there are unnecessary carrying cost and risk of obsolescence. If too low production may be 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.

1.2     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 be 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     OBJECTIVES OF THE STUDY

The main objectives of the study is to examine the impact of inventory planning and control in Nigerian bottling companies. Also, the objectives will be achieved.

1.                 To examine the impact of inventory management on the profitability of Nigerian bottling companies.

2.                 To examine how effective inventory management can enhance profitability.

3.                 To determine the effect of inspection and stock on inventory management.

4.                 To find out how proper implementation of inventory can reduce wastage cost and pilferages.

1.4     STATEMENT OF HYPOTHESIS

H0:    Effective inventory management has no effect on profitability.

Hi:     Effective inventory management has effect on profitability.

1.5     RESEARCH QUESTION

1.     Does inventory management have an impact on the profitability of manufacturing organization?

2.     Does effective inventory management enhance profitability to organizations?

3.      Do Inspection and stock taking have an effect on inventory management?

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

1.6     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.

It is equally an attempt to the 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..

1.7     SCOPE OF THE STUDY

This study is based mainly on the impact of inventory planning and control with regards to Nigerian Bottling companies covering a period from 2014-2015. It is the objective of the researcher to go into research work of others who has research on this similar topics to gather their opinions on inventory planning and control and the various techniques used to analyze their work.

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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