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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Inventories occupy the most strategic position in structure of working capital of most business enterprises. It constitutes the largest component of current asset in most business enterprises. In the sphere of working capital, the efficient control and management of inventory has paired the most serious problem to the organization. The turnover of working capital is largely governed by the turnover of inventory, that is the rate of working capital is largely governed by the amount of inventory which is largely provided by the government. It is therefore quite natural that inventory which helps to maximize profit occupies the most significant place among current and profit assets.

The American usage of the word ‘inventory’ is synonymous with the British use of the word ‘stock’, this synonym is evident in the definitions of inventory and stock by the Oxford Dictionary. The Oxford English Dictionary defined inventory as follows:

a)      A list, catalogue, detailed account

b)      A lot or stock of goods, etc which are or may be made the subject of an inventory.

c)       The aggregate of goods and some specified kind of goods which a trader has on hand as provision for the possible future requirement of customers.

These inventories allow additional flexibility for suppliers in planning, producing and delivering an order for a given product‟s part, loner gan (2003)

Inventory is essential to organization for production activities, maintenance of plant and machinery as well as other operational requirements. This results in tying up of money or capital which could have been used more productively. The management of an organization becomes very concerned in inventory stocks are high. Inventory is part of the company assets and is always reflected in the company‟s financial position (balance sheet). This therefore calls for its close scrutiny by management, Sallemi (1997)

Management is very critical about any shortage of inventory items required for production. Any increase in the redundancy of machinery or operations due to shortages of inventory may lead to production loss and its associated costs.

These two aspects call for continuous inventory control. Inventory control and management not only looks at the physical balance of materials but also at aspects of minimizing the inventory cost.

The classic dilemma in inventory management is maintained in high service levels to meet the needs of customers while avoiding high stocks regardless of the type of items or even the department for which such stock is purchased as shown by the operations of TANESCO Company.

Tanzania Electric Supply Company Limited (TANESCO) is a Tanzanian parastatal organisation established in 1964. It is wholly owned by the government of Tanzania . The Ministry of Energy and Minerals regulates the operations of TANESCO by Ministry of finance 2015.

Tanesco deals with the production of Electricity and provide the services such as electricity generation , electricity transmission ,electricity distribution and sale of electricity to the Tanzanian mainland and bulk power supply to the island of Zanzibar . The company has a workforce of 4,896 persons. Its main offices are located in Dar es Salaam and it operates regional offices throughout Tanzania by Tanesco office.

Dobler (2000) argues that well and efficiently controlled inventories can contribute to the effective operation of the firm and hence the firm‟s overall profit. Proper management of inventory plays a big role in enabling other operations such as production, purchases, sales, marketing and financial management to be carried out smoothly. Basic challenge however is to determine the inventory level that works most effectively with the operating system or system existing within the organization.

1.2 Statement of the problem

The ideal of the situation for many organizations, there is no doubt that inventory management enhances their operations. Organizations with high levels of finished goods inventory can offer a wide range of products and make quick delivery from their backyards to the customers. In organizations such as Tanesco, the stock requirements enable it to provide the required items to its customers, thereby enabling the firm‟s operations to be carried out smoothly.

The current situation for the most of the organization, there is inconsistencies of inventory levels leading to various weakness like losses that come as a result of over, under-stocking, expiry inventory, failure to meet targets and low morale of the company members.

 As a result the company ‘stores are over crowded making the work of a store-keeper difficult, late issue of materials to the department and these in turn result into poor inventory service delivery.

1.3 Objective of the study

1.3.1 General objective

This study will examine the of inventory management on the operations of an organization.

1.3.2 Specific objectives of the study will

                                    i.            Establish the different kinds of inventory kept at Tanesco in Dar es salaam

                                  ii.             Examine different inventory control techniques practiced at the firm.

                                iii.            Establish the costs incurred by the firm through inventory management.

                                iv.            To examine the adherence to professionalism with respect to materials management.

1.4 Research questions

                                i.            What is the strength of the existing inventory management system?

                              ii.            What is the weakness of the firm’s inventory management system?

                            iii.            Did the campus have inventory management professionals?

                            iv.            What type of inventory control system the campus used?

                              v.            What factors affect effective inventory management the campus?

                            vi.            What are tools and techniques of inventory control system?

                          vii.            What inventory costing methods are used by the campus?

                        viii.            What type of stock taking system the campus uses?

                            ix.            How can the campus determines the re-order level and order level?

1.5 Scope of the study

The scope of the study will be limited to the impact of inventory management on the Performance of an organization. The study will be carried out at TANESCO Dar Es Salaam. And involved the staff of the firm’s stores, procurement Unit, support departments and management

1.6 Significance of the studying

The findings of the study will provide well–researched information, which can be useful to the Researchers for academic purposes in the area of inventory management.

To the stores and Procurement department staff, the study hopes to provide them with useful information like the recommended techniques of inventory control so as to meet their customer’s and organization’s needs.

To the firm’s management, the recommendations of the study may enable them to design inventory management policies to improve the smooth running of the firm, thereby satisfying customers and generally minimizing costs.





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