INVENTORY AND STOCK CONTROL MANAGEMENT

Abstract

In this study inventory and stock control management, the concept of inventory is discussed which is central to materials management function. The definition of inventory and various types of inventories – raw materials, finished goods, in-process inventory, etc. – are outlined. The need to keep inventory and the functions of inventory as a separate agent to enable various subsystems in a manufacturing chain to be disassociated are described. The inventory-related cost parameters are listed along with methods of estimating them.

CHAPTER ONE

INTRODUCTION

• Background of the study

Every organization invests a considerable amount of capital on materials. In many cases, the cost of materials exceeds fifty percent of the total cost of goods produced. Such a large investment requires considerable planning and control so as to minimize wastage which invariably affects the performance and profitability of organizations. Materials are the lifeblood and heart of any manufacturing system. No industry can operate without them. They must be made available at the right price, at the right quantity, in the right quality, in the right place and at the right time in order to co-ordinate and schedule the production activity in an integrative way for an industrial undertaking. A manufacturing firm will remain shaky if materials are under stocked, overstocked or in any way poorly managed (Lee et al., 1977 and Banjoko, 2000). Materials Management encompasses all operations management functions from purchasing of raw materials through the production processes to the final delivery of the end products. It brings together under one management responsibility for determining the manufacturing requirement, scheduling the manufacturing processes and procuring, storing and dispensing materials (Wild, 1995, Ondiek, 2009). Thus, Materials Requirements Planning (MRP), purchasing, procurement of materials, inventory management, storage, materials supply, transportation and materials handling are the activities of Materials Management (Monday, 2008). Materials Management came to limelight at the advent of liberalization and globalization which posed intense competition on the business environment. Before that time, the concept was treated as a Cost Centre since Purchasing Department was spending money on materials while Store was holding huge inventory of materials, blocking money and space (Ramakrishna, 2005). With the process of liberalization, there has been a drastic change in the market which has forced manufacturing companies to devise strategies to minimize production costs in order to remain competitive. Since then, Materials Management has been recognized as a source of opportunities to reduce production costs and can be treated as a Profit Centre.  Today, there are dramatic evolutions in the market environment and every organization must strive to keep itself in business. Major competition has shifted from the market to the production floor where manufacturing costs can be reduced and profitability boosted for firms to compete favourably. Backed by advanced technology, firms are closely monitoring their manufacturing costs and embarking on efficient management of materials (Ondiek, 2009). Fearon et al. (1988) see the introduction of computers as a great boost to the adoption of Materials Management, as materials functions have many common databases. Therefore, efficient Materials Management is fundamental to the survival of business, industry and economy. Previous Researches (Evan et al., 1987; Ramakrishna, 2005; Ogbadu, 2009; Ondiek, 2009) have shown that materials account for more than fifty percent of the annual turnover in the manufacturing firms. This shows clearly that priority should be given to Materials Management in manufacturing firms in order to achieve significant cost saving, improvement in production efficiency, and increase in profitability and competitiveness. Thus, Materials Management should no longer be viewed as a drainpipe, but as a serious stabilizing and economic growth potential factor. Unfortunately, few studies exist yet on the effect of Materials Management on the performance of  manufacturing firms for a developing economy as Nigeria. According to Lucey (1989:29), inventory management is the system used in a firm to control the firms’ investment in stock. The system involves recording and monitoring of stock levels, forecasting future demands and deciding when and how to order with overall objective of minimizing in total, the cost associated with stock. However, inventory management is the ability of an organization to use all the techniques at its disposal to hold the quantity of stock (inventory) that will be enough to produce its required goods needed by the customers at the appropriate time and at least cost to the organization with the view to maximize profit. Thus, Ama (2001:475) states the following as the usefulness of inventory management to the organization.  Reduction in cost incurred due to inventory holding. Maintenance of certain level of customer services that are excellent. Organizational resources are always limited in supply and the resources are best utilized when wasteful organizational practice(s) are avoided. It is therefore, the aim of this work to evaluate how beverage companies as part of manufacturing concerns have been avoiding wastages in inventory by using efficient inventory management and control techniques like Economic Order Quantity (EOQ), Just-In-Time (JIT), Quick Response Manufacture (QRM), among others to render efficient services to their customers, maximize their profits, a avoid production hold-ups in factories and eliminate risk of liquidity crunch, etc.

STATEMENT OF THE PROBLEM

Management has been recognized as a source of opportunities to reduce production costs and can be treated as a Profit Centre. Today, there are dramatic evolutions in the market environment and every organization must strive to keep itself in business. Major competition has shifted from the market to the production floor where manufacturing costs can be reduced and profitability boosted for firms to compete favorably. Backed by advanced technology, firms are closely monitoring their manufacturing costs and embarking on efficient management of materials. In general terms, inventory management policies should be aimed at lowering the holding costs through higher inventory rotation, but without triggering substantial stock outs and backorders, caused by demand peaks and or lead time delays.

• OBJECTIVE OF THE STUDY

The main objective of this study is inventory and stock control management.  But for the successful completion of the study; the researcher intends to achieve the following sub-objectives;

1. To ascertain the impact of inventory control management in the profitability of the firm.
2. To investigate the effect of stock management in the manufacturing process.
3. To ascertain the relationship between inventory management and organizational profitability.
4. To ascertain the role of management in maintaining optimum level of stock

RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H₀: Inventory management does not have any impact on the profitability of the firm.

H₁: Inventory management does have a significant impact on the profitability of the firm.

H₀²: there is no significant relationship between inventory management and organizational profitability

H₂: there is a significant relationship between inventory management and organizational profitability

• SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study, the findings will be of benefit to the organizations. It will help organization with the good policy of inventory and stock control management. The study will also be of great benefit to the researchers who intends to embark on research on similar topics as it will serve as a guide. Finally, the study will be of great importance to academia’s, lecturers, teachers, students and the general public.

• SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers inventory and stock control management. The researcher encounters some constrain which limited the scope of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

• DEFINITION OF TERMS

INVENTORY: Inventory (American English) or stock (British English) is the goods and materials that a business holds for the ultimate goals to have a purpose of resale (or repair). Inventory management is a discipline primarily about specifying the shape and placement of stocked goods.

STOCK: The stock (also capital stock) of a corporation is constituted of the equity stock of its owners

CONTROL: The power to influence or direct people’s behavior or the course of events.

MANAGEMENT: Management (or managing) is the administration of an organization, whether it be a business, a not-for-profit organization, or government body.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.

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