THE INVENTORY MANAGEMENT AND CONTROL PROCEDURE IN MANUFACTURING OUTFITS
TABLE OF CONTENT
1.1 Introduction/Background of the Study
1.2 Statement of problems
1.3 Objective of the study
1.4 Significant of the study
1.5 Scope, Limitation and delimitation of the study
1.6 Definition of basic terms and concepts
2.0 Literature Review
2.1 Nature of Inventory
2.2 Inventory Control and Management
2.3 Objectives of Inventory Control
2.4 Importance of Inventory Management
2.5 Objectives of Inventory Management
2.6 Critical Evaluation of Inventory Problems
3.1 Summary of Findings
1.1 INTRODUCTION/BACKGROUND OF THE STUDY
It is difficult to exaggerate the contribution of production to the society wellbeing. Why this is so, is suggested by Alexander Solzcheritzyn in his novel captioned August, 1914. One of the Chief character in that work Suyatosalar lakinfovich Obodovsy a former anarchist, who maintained the following position. As for industry, anyone who has created something with his own hands know that production is neither capitalist nor socialist but one thing only. It is what creates national wealth, the common material basis without which no country can exist. When enough has been built and made. Then even if distribution is less than perfect, no one will be left without this share. With reference you goods, production could be defined as the fabrication of a physical objects, solid or liquid, through the use of labour, material and equipment, adequate and proper utilization of labour materials and equipment will have to be made in order to enhance greater efficiency, since production is very important to any economy whatsoever.
The viability of an organisation can be enhanced through effective and efficient management of material resources. Inventory management control system exists to ensure that proper and adequate utilization of materials are made and that the optimum level of material investment are determined and maintained. This is a notable measure managing material resources. Management of resources covers action taken from the procurement of the resources to their disposal firms the certain measures towards preventing their stock from being in shortage. Pilferage and waste of some of the resources are very effective while others are not.
Bindey, I.M. in his book: "Management defined management as an art and science of achieving the set objective of a business in the most efficient way. Management can be defined as the process of reading organisational goals by working and through people and other organisational resources.
1.2 STATEMENT OF PROBLEMS
The goal of every business entity is to maximized wealth. Wealth maximization is achieved when interest of the stock holder can be met only when the business entity make profit. Profit is said to have been cost and expense incurred. Effective Inventory Controls are important factors in keeping the total cost of maintaining inventories at a minimum and help to increase returns on the investment.
many organizations do not adequately control their inventory, making it possible for losses (through shortage of stock, pilferage, waste of materials, e.t.c.) to pass unnoticed. The stores department is often neglected an equivalent amount of (liquid) cash.
Unplanned flow of materials is detrimental to efficient production. Production stoppages resulting from the stock out have innumerable negative effects (cost). they lead to loss of manpower, disappointment of customers and possible loss of goodwill.
Few manufacturing firms use scientific approach of inventory control. Many full bank on the rule of thumb "this is reasonably inaccurate". It results into over-stocking or under-stocking. over-stocking entails incurring high storage cost. Excessive capital being locked up, storage of storage spaces and stock losses.
On the other hand, under-stocking may result to panic buying production delay and loss of sales revenue which gives rise to loss of profit and goodwill or even penalty payments where there is a contract to maintain regular supplies.
Stock loss could accrue when inventories are not properly accounted for. This may be due to the type of inventory system used. The method of valuation of unsure or unsold inventories at the end of the accounting period and the managerial efficiency in adopting an acceptable inventory control when and most required.
This study will look into the nature and extent of solving those problems.
1.3 OBJECTIVE OF THE STUDY
The objectives of this study are as follows:
· To identify the major problems involved in implementing inventory management and control procedure systems in the manufacturing industries.
· To identify the major weakness e.g. in the inventory management
1.4 SIGNIFICANCE OF THE STUDY
An effective organization is one which achieves its objectives in the minimum cost efficient manner. Inventory management and control have become pertinent factor in determining corporate plans and objectives and can only be neglected at the expense of the organization concerned. Inventory management and control is very vital and relevant function, which no efficient and effective management can afford to ignore.
Many companies are making losses while others are winding up. This gives rise to the organization/firms thinking that there is viability to manage resources effectively in Nigeria. This study gives rise to many organizations, individuals and the corporate firms to benefit inevitably to the adequate and proper management of inventories. Also product management of our financial, material and human resources are more important now that ever before, because of adequate management of inventories as the economy takes a downturn. No wonder Havngreu says that good inventory control helps maximize efficiency, minimize waste, unintentional error and fraud. Therefore, the reduction of wastage is one of the most important element of inventory planning.
It also helps the firm to attain its viability, that is, profit maximization and growth through adequate planning and management of the inventories, because profit is necessary for new plans, equipment, working capital and so on. Also, the willingness of individuals to invest in a business is governed largely by the firm’s profit history and profit potentials. In many respects, the welfare of all employees of business vest on the profitability of the company. Hence, inventory management and control procedure are highly relevant function in all organizations, small or big, profit or no profit oriented, service or manufacturing alike.
1.5 DEFINITION OF BASIC TERMS AND CONCEPTS ABC METHOD
Stock control technique that divide into sub-classification and uses different control system for each classification carrying cost: usually consist of a desire rate of return on the investment in inventory and cost storage, space, breakage, obsolescence, deterioration, Insurance and personal property tax.
1.6 ECONOMIC ORDER QUANTITY – (EOQ)
Amount of inventory that should be ordered at one tie so that the associated annual cost of inventory can be minimized.
FIRST IN – FIRST OUT (FIFO)
The inventory which is acquired earliest is assumed to be first used. The inventory acquired later is assumed to be in hand still.
Inventory means a schedule of items held at a particular time for sale, production of goods and services or is in the process of production for each sale (WIP). Inventory is also called stock, hence the two terms “stock and Inventory” are used interchangeably here.
LAST IN – FIRST OUT (LIFO)
A cost flow assumption that the inventory last acquired is used first.
Time interval between placing an order and recurring inventory.
Clerical cost of preparing a purchase order or production order and processing and receiving. Cost relating to the number of orders processed.
PERIODIC INVENTORY SYSTEM
System whereby the cost of goods sold is computed periodically by replying solely on the physical counts are not keeping day-to-day records of units sold or on hand.
PERPETUAL INVENTORY SYSTEM
A continuous order of additions to or reduction in material, work in progress and cost of goods sold on a day-to-day basis.
A term used to measure the relationship of profit to investment that generated the profit. It measures the effectiveness and efficiency of a firm’s use of resources at its disposal.
Quantity level at which a new order should be placed.
Minimum or buffer inventory used as a caution against reasonably expected maximum usage.
Cost that induce expensive spending, loss of contribution margins and loss of customer’s goodwill.
Here, it refers to profitability and growth - the perpetual inventory system. This may be defined as a method of recording store balances after every receipt issued to facilitate regular checking and to obtain closing down for stock taking.
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