EFFECTIVE INVENTORY CONTROL AS A MEANS OF IMPROVING THE PROFITABILITY OF MANUFACTURING FIRM IN NIGERIA

(Accounting)

EFFECTIVE INVENTORY CONTROL AS A MEANS OF IMPROVING THE PROFITABILITY OF MANUFACTURING FIRM IN NIGERIA

(A CASE STUDY OF EMENITE NIGERIA LIMITED, EMENE)

TABLE OF CONTENT

CHAPTER ONE:

1.0     Introduction        

1.1     Background of the Study

1.2     Statement of Problem   

1.3     Formulation of Hypothesis

1.4     Objective of the Study  

1.5     Significance of the Study

1.7     Definitions of Terms

CHAPTER TWO

2.0     Review of Related Literature

2.1     Introduction

2.2     Functions of Inventories

2.3     Costs Associated with Inventory

2.4     Inventory Valuation Methods          

2.5     Nature of Inventory Control  

2.6     Inventory control mechanisms/ Control

2.7     Inventory Flow Circle

2.8     The Impact of Effective Inventory Control

          on Profitability of Firms

CHAPTER THREE

3.0     Research Methodology

3.1     Introduction        

3.2     Research Design  

3.3     Instrumentation   

3.4     Procedures for Data Collection

3.5     Population of the Study         

3.6     Determinations of Samples    

3.7     Method of Statistical Analysis

 

CHAPTER FOUR

4.0     Data Analysis and Design

4.1     Introduction

4.2     Analysis of Questionnaire Responses

4.3     Testing of Hypothesis

 

CHAPTER FIVE

5.0     Summary, Conclusion and Recommendation

5.1     Summary of Study

5.2     Conclusion of Study     

5.3     Recommendations        

Bibliography

CHAPTER ONE

1.0     INTRODUCTION

 

1.1     BACKGROUND OF THE STUDY

Inventory control refers to the management function concerned with the acquisition, storage, handling and usage of inventory, so as to ensure availability of inventory when needed, provide adequate cushion for contingencies and denying maximum economic benefits and at the same time minimizing wastage and losses.

          Independently, inventory purse can be defined as a quality of goods or maternal in the control of the enterprises and hold for a time in its relatively idle or unproductive state, awaiting its intended use or sale. It is equally identified as stock on hand at a given time.

          Control is necessary so as to minimize cost and at the same time keep our services good enough so that an organization do not lose business. The control and maintenance of inventory is a problem that is common to organization in different sectors of the company. Inventory problems have proliferated as technological ability to produce good in greater quantities and at a factor rate. Cash invented in inventories could be used some where else for profit making, debt servicing on dividend distribution. Management is therefore  becoming increasingly aware that the overall efficiency of company’s operation is directly related to inventory situation existing within the company. The real problem therefore has been in the determination of inventory level at which many invested in the inventory will produce a rate of return higher than it would if it had been invested in some other areas of business.

 

1.2     STATEMENT OF PROBLEM

          The issues of failure, poor quality products, “out of stock,” unnecessary delays in and in extreme cases of shut down in some organizations can be attributed to non-existence of effective inventory control system.

          Most managers are ignorant of inventory control hence they fall victim of the above listed circumstances. A few of them who are aware of usefulness of stock control excel in their various business.  

          Inspite of these, effective inventory control has not been without a lot of problems as observed by the researcher as follows:

 

1.       Most firms have no clearly identified inventory countries system.

2.       Most firms do not have enough money for keeping reasonable inventory.

3.       Most organization have little or no space for inventory. This affects the number of products to produce and stock.

 

1.3     FORMULATION OF HYPOTHESIS

For the purpose of this study, the following hypothesis have been formulated.

 

1.       Ho:  A well-planned and effective inventory control   technique does not contribute to the profitability of a manufacturing firm.

Hi:    A well-planned and effective inventory control technique partly contribute to the profitability of a manufacturing firm.

 

2.       Ho:   The amount of inventory stock does not have significance impact of the level of productivity.

          Hi:    The amount of stock has a significant impact on the    level of productivity.

 

3.       Ho;    A well-planned and effective inventory control technique does not provide a check on the accuracy for misappropriation in stores of most firms.

Hi,     A well-planned and effective inventory control technique provide a check on the accuracy for misappropriation in stores of most firms.

 

Statistical technique to be used in testing the above hypothesis is the “T” value.

          t = X1 – X2

               S2P        S2P

              N1 n2

Where X1    =       Mean of Management Sample

           X2     =       Mean of Supervisory Sample

          S2p   =       Variance of both the population sample

          N1      =       Size of the Management Sample

          N2      =       Size of the Supervisory Sample

 

1.4     OBJECTIVES OF THE STUDY

          The values of inventories in an industry are carefully detached by inventories regarded as “ring leader” of industry. James H. Greene said, “inventory is of such great consequence to the manufacturer that it shows up in the most importance financial statement balance sheet and profit and loss statement.

          Difference inventory control problems are being encountered by different organizations. A selection and adoption of an inventory control system that will result to the much needed improvement in the organizational profitability can achieve effective inventory control.

          The research therefore aims at:

 

1.       Funding the extent to which an effective and efficient inventory control system can contribute in improving the profitability of a firm.

2.       Identify some of the factors militating against a true adoption of an effective control system of inventories in a firm.

3.       Recommending ways through which a firm can enhance/adopt effective inventory control system in a firm like Emenite Nigeria Limited Enugu.

The research will however not lose sight on requisition problems of raw materials and how best to solve it.

1.5     SIGNIFICANCE OF STUDY

                   This involves practical and academic basis.

 

Practical

          Inventory control is a function that is very important and of great significant to organizations and manufacturing firms. Therefore, the study will place the stock manager on a better footing to actually know the cost of keeping inventories and how to avoid it.

          Inventory control is also necessary to service oriented organizations such as First Bank PLC which enable such service oriented organization to attain their target in a more efficient and effective way.

 

Academics

          The study of inventory control is also very important to students because it educates the readers on how to control inventory for effective and efficient operation organization activity and when this happens, defective/obsolete products will not be passed into the society for consumption. 

Amongst the constraints are:

1.       The inability of the researcher to interview some principal staff of the firms whose contribution should have been of great help.

2.       Limitation of time and maternal resources: Time was seriously research.

3.       Finance: The research as well as the student has to attend to other problems other than this particular one in partial fulfillment of some courses, it was therefore not easy to allocate money for this study especially during this economic crunch. Much money was required to travel to the company several times before collecting the necessary data.

 

1.7     DEFINITION OF TERMS

Some technical terms have been utilized in this research report. For avoidance of doubt and operational definitions are stated below.

 

Researcher:

          A person who conducts a systematic enquiry in order to find solution to a particular problem.

 

Organization:

          This is a group of individual or a body who have come together to achieve their goal.

 

Inventory:

          A detailed lists of goods or materials in an enterprise.

 

In-process Goods:

          Partially completed final products that are still in production process.

Ordering Goods:

          The act of requesting that goods should be supplied.

 

Stock:

          The kept goods that are available for sale or distribution.

 

Shrinkage:

          The decrease in inventory qualities over time from loss or theft.

 

First-in-First-Out (FIFO)

          Materials that are issued from the oldest supply in stock and units issued are costed at the oldest cost liked on the stock ledge sheet.

 

Last-in-First-Out (LIFO)

The cost of unit remaining in inventory represent the oldest cost available issues are costed at the latest cost available.

 

Cyclical orders:

Periodic review of inventory level.

 

Inventory Policy:

The rules that determines has and when certain decisions concerning the holding of inventory should be made.

Standardization:

The process of establishing agreement upon uniform identification for quality design and performance.

 

Flow Cycle:

The rate materials flow into and out of a system.

 

Population:   

The finite or infinite collection of objects under study.

 

Firm:

Two or more persons carrying on a business.

 

Raw Material:

Inputs into the production process that will modify or transform into finished goods.

Specification:

The detailed description of materials.

Manager:

A person who controls business.

Finished Goods:

Final products available for sale or distribution or storage.

 

Supplies:

Inventory items consumed in the normal functioning of an organization that are not a product of final product.

Material Costs:

Cost of purchasing the goods plug transportation and handling.

Order Costs:

The variable costs of placing in order for raw materials. Each separate shipment involves certain expenses connected with requesting and receiving materials.

Carrying Cost:

Expenses incurred from storing raw materials.

Usage Rate:

The rate per day at which the item is consumed in production, expressed in units. It is computed by *** annual consumption of the raw material by 365 days.

Lead Time:

The amount of time between placing an order and resolving the raw materials.

Safety Stock Level:

An insurance against problems in ordering and delivery goods.

 

Economic Order Quantity (EOQ)

Refers to the order size that will result in the lowest total of order and carrying cost for an item of inventory.

 

Bin Cards

The cards used for detailing receipts and issues of materials and also to assist  the storekeeper control the stock.

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