THE IMPACT OF STOCK MANAGEMENT ON THE SUCCESS OF AN ORGANISATION CASE STUDY: UTC NIGERIA LTD

ABSTRACT

 

The study on the Impact of Stock Management on organizational success was conducted in UTC Nigeria Ltd as a case study. A total of 30 respondents were selected as representative sample departments of purchasing, production and stores.

 

 

The objectives of the study were, to establish the inventory management systems and techniques in place, to find out the costs associated with holding stock in an organization, to establish the measure of success in an organization and to establish the relationship between stock management and organizational success

 

 

The findings indicate that UTC Nigeria Ltd hold stock. The findings reveal that there is formal stock management and several techniques are applied to manage stock which includes stock taking and inventory level tracking.

 

 

The research further reveals that many factors combine to bring the organizations success a reality. These according to the research findings are; total cost reduction, increase in daily sales and sales turnover, reduced waste, customer satisfaction and profit levels. Stock Management has got a big impact on the success of an organization. Therefore organizations need to put enough emphasis on the stores department

 

 

The research forwards some recommendations such as;

 

Costs: Management needs to be aware that there are a number of costs directly or indirectly attributed to stock. These costs range from acquisition, storage and disposal costs. These costs need to be eliminated to absolute minimum.

 

Monitoring and evaluation; Precautionary measures therefore need to be put in place to guard against certain occurrences such as fire and theft. The researcher also put forward areas for further research and these are;

 

1. Procurement and materials acquisition and organizational efficiency

 

2. the relationship between stores department and other departments

 

3. Buyer supplier relationship and operational efficiency

 

 

 

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TABLE OF CONTENTS

 

ABSTRACT……………………………………………………………………………………………………………… ii

 

TABLE OF CONTENTS…………………………………………………………………………………………. viii

 

LIST OF TABLES……………………………………………………………………………………………………. xi

 

LIST OF FIGURES…………………………………………………………………………………………………. xii

 

 

CHAPTER ONE……………………………………………………………………………………………………….. 1

 

1.0 INTRODUCTION……………………………………………………………………………………………….. 1

 

1.1 BACKGROUND TO THE STUDY………………………………………………………………………. 1

 

1.2 STATEMENT OF THE PROBLEM………………………………………………………………………. 4

 

1.3 PURPOSE OF THE STUDY…………………………………………………………………………………. 4

 

1.4 RESEARCH OBJECTIVES………………………………………………………………………………….. 4

 

1.5 RESEARCH QUESTIONS…………………………………………………………………………………… 4

 

1.6 SCOPE OF THE STUDY……………………………………………………………………………………… 4

 

1.6.1    Content Scope………………………………………………………………………………………………… 4

 

1.6.2    Geographical scope………………………………………………………………………………………….. 5

 

1.6.3         Period Scope………………………………………………………………………………………………. 5

 

1.7 SIGNIFICANCE OF THE STUDY……………………………………………………………………….. 5

 

1.8 OPERATIONAL DEFINITION OF TERMS…………………………………………………………. 6

 

 

CHAPTER TWO: LITERATURE REVIEW………………………………………………………………… 7

 

2.0 INTRODUCTION……………………………………………………………………………………………….. 7

 

2.1 STOCK MANAGEMENT…………………………………………………………………………………….. 7

 

2.1.1         Types of stocks held in organizations……………………………………………………………….. 7

 

2.1.2 Raw materials…………………………………………………………………………………………………… 7

 

2.1.3 Work in process………………………………………………………………………………………………… 8

 

2.1.4 Finished goods………………………………………………………………………………………………….. 8

 

2.1.5 Maintenance repair and operating supplies (MRO)………………………………………………….. 8

 

2.1.6 Transit stock……………………………………………………………………………………………………… 8

 

2.1.7 Theoretical inventory…………………………………………………………………………………………. 8

 

 

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2.3 STOCK MANAGEMENT METHODS………………………………………………………………….. 9

 

2.3.1 Manual Stock Management………………………………………………………………………….. 9

 

2.3.2 Computerized Systems………………………………………………………………………………… 9

 

2.4 STOCK TAKING………………………………………………………………………………………………. 10

 

2.4.1 Periodic Stock taking…………………………………………………………………………………. 10

 

2.4.2 Continuous Stock taking……………………………………………………………………………. 10

 

2.4.3 Stock Discrepancies…………………………………………………………………………………… 10

 

2.5 COSTS INVOLVED IN STOCK MANAGEMENT……………………………………………… 11

 

2.5.1         Carrying costs /holding costs…………………………………………………………………………. 11

 

2.5.2 Purchasing costs………………………………………………………………………………………………. 11

 

2.5.3 Quality costs……………………………………………………………………………………………………. 11

 

2.6 DETERMINATION OF STOCK LEVELS…………………………………………………………… 11

 

2.6.1 Reorder level………………………………………………………………………………………………….. 11

 

2.6.2 Minimum level………………………………………………………………………………………………… 12

 

2.6.3 Maximum level……………………………………………………………………………………………….. 12

 

2.6.4 Buffer stock / safety stock…………………………………………………………………………………. 12

 

2.6.5 Economic Order Quantity…………………………………………………………………………………… 12

 

2.7 FACTORS AFFECTING STOCK LEVELS…………………………………………………………. 13

 

2.8      MODERN TECHNIQUES IN STOCK MANAGEMENT…………………………………. 14

 

2.8.1 Just in Time stock management technique (JIT)……………………………………………………… 14

 

2.8.2 Vendor Managed Inventory………………………………………………………………………………. 14

 

2.8.3 Material Requirement Planning (MRP)…………………………………………………………………. 14

 

2.9 ORGANIZATIONAL SUCCESS……………………………………………………………………….. 15

 

2.10 THE RELATIONSHIP BETWEEN STOCK MANAGEMENT AND

 

ORGANIZATIONAL SUCCESS…………………………………………………………………………….. 15

 

2.11 CONCLUSION……………………………………………………………………………………………….. 16

 

 

CHAPTER THREE: METHODOLOGY……………………………………………………………………. 17

 

3.0 INTRODUCTION……………………………………………………………………………………………… 17

 

3.2 STUDY POPULATION……………………………………………………………………………………… 17

 

3.3 SOURCE OF DATA………………………………………………………………………………………….. 17

 

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3.4 SAMPLING PROCEDURE………………………………………………………………………………… 17

 

3.4.1 Sample size…………………………………………………………………………………………………….. 18

 

3.5. DATA COLLECTION………………………………………………………………………………………. 18

 

3.5.1. Questionnaires……………………………………………………………………………………………….. 18

 

3.6 STUDY VARIABLES……………………………………………………………………………………….. 18

 

3.7 DATA PROCESSING AND ANALYSIS……………………………………………………………. 19

 

3.7.1 Coding…………………………………………………………………………………………………………… 19

 

3.7.2 Analysis………………………………………………………………………………………………………….. 19

 

3.7.3 Editing……………………………………………………………………………………………………………. 19

 

3.8 DATA PRESENTATION AND CONCLUSION………………………………………………….. 19

 

3.9 LIMITATIONS OF THE STUDY……………………………………………………………………….. 19

 

 

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF

 

FINDINGS……………………………………………………………………………………………………………… 20

 

4.0 INTRODUCTION……………………………………………………………………………………………… 20

 

 

CHAPTER FIVE: DISCUSSION OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS………………………………………………………………………………………….. 27

 

5.0 INTRODUCTION……………………………………………………………………………………………… 27

 

5.1 DISCUSSION OF FINDINGS……………………………………………………………………………. 27

 

5.1.1 ESTABLISHMENT OF INVENTORY MANAGEMENT SYSTEMS AND TECHNIQUES IN PLACE… 28

 

5.1.2 COSTS ASSOCIATED WITH HOLDING INVENTORY IN AN ORGANIZATION…………………….. 29

 

5.1.3 MEASURES OF SUCCESS IN AN ORGANIZATION……………………………………………………… 30

 

5.1.4 THE RELATIONSHIP BETWEEN STOCK MANAGEMENT AND ORGANIZATIONAL SUCCESS… 30

 

5.2 SUMMARY OF FINDINGS………………………………………………………………………………. 30

 

5.3 CONCLUSION…………………………………………………………………………………………………. 31

 

5.4 RECOMMENDATION………………………………………………………………………………………. 32

 

5.5 AREAS FOR FURTHER RESEARCH………………………………………………………………… 33

 

 

APPENDIXES………………………………………………………………………………………………………… 34

 

APPENDIX I: REFERENCES………………………………………………………………………………………….. 35

 

APPENDIX II: QUESTIONNAIRE FOR THE STAFF OF RWENZORI BEVERAGES (U) LTD………………. 37

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LIST OF TABLES

 

Table 1: Expected Respondents…………………………………………………………………………………. 18

Table 2: Tabulation and interpretation of findings………………………………………………………… 20

 

Table 3: Respondents’ gender……………………………………………………………………………………. 20

Table 4: How long respondents have been in service…………………………………………………….. 21

 

Table 5: Respondents’ education level………………………………………………………………………… 21

Table 6: Stock management techniques……………………………………………………………………….. 21

 

Table 7: Whether the organization holds stock or not……………………………………………………. 22

Table 8: Whether UTC Nigeria Ltd beverages carry on stock taking……………………………….. 22

 

Table 9: Rate of stock taking……………………………………………………………………………………… 22

Table 10: Whether the organization observe stock levels……………………………………………….. 23

 

Table 11: Management contribution to organization success………………………………………….. 23

Table 12: Whether the organization carries out stock management formally…………………….. 24

 

Table 13: Presence of discrepancies…………………………………………………………………………….. 25

Table 14: Response on contribution of stock management to organization success……………. 25

 

Table 15:  Whether stock management is a success measure to the organization……………….. 26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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LIST OF FIGURES

 

 

Figure 1: Economic order quantity……………………………………………………………………………… 13

 

Figure 2: Factors affecting stock levels……………………………………………………………………….. 24

Figure 3: Response on stock management techniques and methods………………………………… 25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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CHAPTER ONE

 

 

1.0 INTRODUCTION

 

This chapter covers the background of the study, statement of the problem, objectives of the study, the scope of the study, significance of the study and the operational definition of terms.

 

 

1.1 BACKGROUND TO THE STUDY

 

 

Many organizations in Nigeria that do not have proper stock management systems in their operations face a lot of challenges most of which include dependency on the efficiency of the supplier, missed sales in case of stock outs, high costs of obtaining materials and poor customer service. However, organizations have recently found it as having a great impact on the success of the organizations (Frazelle, 2002; Jessop, 1986). Good stock management by a firm will lower costs, improve efficiency and ensure production while at the same time meet fluctuations in customer demand. It will give the firm a competitive advantage as more efficient production can feed through to lower prices and also customers are always satisfied as products will be available on demand. Stock management has been defined by different scholars but all drive to the same meaning. The international dictionary of management (1995) defines stock management as the use of management techniques designed to determine and implement the holding of optimum levels of stock, whether raw materials stocks, bought out goods, work in progress, or finished goods. Stock availability is the most important aspect of customer service. The goal of stock management is therefore to increase financial returns on inventory while simultaneously increasing customer service levels (Frazelle, 2002). Stock management directly affects both the value of the assets used in a business and the quality of services given to customers. Firms should therefore focus on just a few core activities which of course include stock management in order to maintain a long term competitive advantage. Using this approach which has been refined, companies have tried to focus on their stock and have set a stage for wide spread acceptance of advantages of stock management (Baily 1997;

 

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Lewis 1970; Quinn 1992; Hamel and Prahalad 1994). Baily (1997) explains that it is widely feared that shortages of materials and certain products will be increasingly common in future. Whlie Kotler 1973 and Balachandrian (1975) argue that in times of shortages, the marketing problem shifts its location from selling to buying. Basing on this, Croell (1977) suggests that the purchasing department is expected to provide what is expected of in terms of stock taking, stores lay out and stock levels. The scenario of stock management involves determining the purchasing practice and techniques and strategy. A supply strategy is seen by Porter (1999) as an integral part of the general competitive strategy of a firm. Determining the relationship to have with suppliers is therefore crucial in stock management (Bain, 1959, Lenders, 1965). Nair (1999) explains that stock management involves stock control, purchasing, stock losses, stock cover, stock turnover and general stores operations and materials handling. An example of effective stock management system is given by W. H. Smith who sells 100,000 product lines every year and more than a million orders are placed around 2,000 different suppliers to keeping the shelves stocked at precisely the right level is an exciting task. By feeding sales information directly in the computer, it enables stock to be replenished automatically and quickly and frees staff to help customers and increase sales which in turn lead to success (Daily Monitor 10^th October 2004 p 21). Firms that have not embraced the use of stock management in their operations have been reported to miss the chances of maximizing sales. So poor performing industries look to stock management to drive down costs improve performance and revolutionalise traditional systems of production. It is against this background that firms have realized the importance of stock management towards organizational success Lewis and Trevin (2000). Success is the ability of a person or machine or an organization to do something well, (Longman Dictionary, 1987). Success measures are necessary for organizations because they show whether organizations are achieving their target set at strategic and operational levels (Kermally, 1997). Success of an organization is measured basing on many variables regarding customer satisfaction, sales volume, total cost reduction and meeting industry standards. According to Host (1992), sales volume and growth rate of change in sales are used to evaluate organizational

 

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success. They are determined by evaluating marketing factors that influence sales, including marketing strategies, competition, promotional programs and distribution decisions. The success of an organization can also be implied on how the organization achieves its mission and satisfy its customers’ needs in the most competitive way. The organization is said to be successful when it can satisfy all its target customers in time, handle customer order in the right time and use the available resources effectively and efficiently. UTC Nigeria Ltd Ltd is one of the biggest mineral water Manufacturing Company in Nigeria as well as West Africa. It is the first company in Nigeria to manufacture Mineral water and have 80% market share in mineral water industry in Nigeria (www.rwenzori.net). The factory is located on plot 588,592 Lagos state. It is 16kms from Lagos city centre on the road to Jinja. UTC focuses its future on innovation and excellence in business. It has a well – equipped PET bottling plant, which can produce over 400,000 bottles per day. The water bottling lines can produce over 300,000 bottles per day. This reflects UTC desire to keep a pace with technological advances.

 

 

The company keeps different categories of stock including raw materials, finished products and maintenance repair and operations supplies (MROs), some of which include 500 ml, 1000 ml and 1500 ml water bottles, PET bottles for soft drinks, Plastic containers for cosmetics, chemicals and plastic bottles for medicines. UTC looks forward to strengthening its market leadership through constant enhancement of excellence of its products through innovative manufacturing and marketing, reinvestments and an efficient countrywide distribution network and focuses on extending its market leadership up to at least 95% courtesy of company profile. The company has however not achieved the extra desired 15% of the market share probably because of poor stock management system in place. It is therefore feared that stock management could impact on the success of this organization (www.rwenzori.net).

 

 

 

 

 

 

 

 

 

 

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1.2 STATEMENT OF THE PROBLEM

 

 

Stock management is a very important aspect in an organization, and it allows efficient balance of patterns of traffic flow, use of space, rapid and easy access to stock of input and output general efficient stores operation and customer satisfaction. It is however clear that UTC Nigeria Ltd has failed to achieve the extra desired 15% of the market in the past two years, (www.rwenzori.net). This can probably be attributed to poor stock management systems in place. The researcher was therefore undertaken to establish the relationship between stock management and organizational success.

 

 

1.3 PURPOSE OF THE STUDY

 

 

The purpose of the study was to establish the impact of stock management on the success of an organization using UTC Nigeria Ltd as case study.

 

 

1.4 RESEARCH OBJECTIVES

1. To establish the inventory management systems and techniques in place

 

2. To find out the costs associated with holding inventory in an organization

 

3. To establish the measure of success in an organization

 

4. To establish the relationship between stock management and organizational success

 

 

 

1.5 RESEARCH QUESTIONS

1. What are the inventory management systems and techniques in place?

 

2. What are the costs associated with holding inventory in an organization?

 

3. What are the measures of success in an organization?

 

4. What is the relationship between stock management and organizational success?

 

 

 

1.6 SCOPE OF THE STUDY

 

1.6.1   Content Scope

 

The study encompassed stock management as an independent variable while organizational success is the dependent variable. The study specifically focused on stock taking, and also investigated stock levels in organization.

 

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1.6.2   Geographical scope

 

The research was conducted in Apapa district using UTC Nigeria Ltd as a case study. It is located on plot 588,592 block 111 UTC Nigeria Ltd. It is 16 kilometers from lagos Apapa express way on the road to Tincan Iland. It is known to be a large company enough in terms of stock management to cater for all the objectives of the study.

 

1.6.3  Period Scope

 

The study considered information from respondents for a period of two years. (2006-2008)

 

 

 

1.7 SIGNIFICANCE OF THE STUDY

The finds of the study will assist;

 

1. The organization UTC Nigeria Ltd to be aware of the relationship between stock management and organizational success and the recommendations will be used accordingly to reform stock problems that might be existing in their organization.

 

2. Future researchers will be provided with literatures and recommendations for future research.

 

3. The findings will also help other organizations to get an insight on how stock management impacts on organizational success.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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1.8 OPERATIONAL DEFINITION OF TERMS

 

 

Stock cover, length of the time present stocks will last if sales continue at the same rate as in the immediate past.

 

Raw materials, Basic materials which under go changes through manufacturing process in the course of being incorporated into the final goods.

 

Work in progress, comprises incomplete items in the course of manufacturing.

 

Finished goods, items out of the production ready for use.

 

Success, this refers to achievement or attainment of desired goals or results.

 

Purchasing, the function responsible for obtaining by buying, lease, tenancy, franchise, or any other legal means of supplies, services or works required by an organization for use in operation or resale.

 

Stock, components and part finished goods kept in an organization’s stores to be used in manufacturing at future date.

 

Stock taking, this is the physical counting of materials that are held in the store.

Stores layout, this is how the stores floor is laid and how the materials are kept in the shelves.

 

 

 

 

 

 

 

 

 

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