EFFECTIVE EFFICIENT INVENTORY MANAGEMENT ON PERFORMANCE OF MANUFACTURING FIRMS
(A STUDY OF BETA GLASS PLC, UGHELLI)
ABSTRACT
This research work deals with an appraisal of efficient inventory management on the performance of manufacturing plant. (A study of Beta Glass, Ughelli). Survey sample were used to determine the perception of the staff regarding the research question formulated and further test the results t – test was used. The cost associated with stocked materials are minimized through proper evaluating of materials issued and a centralized purchasing department. Again for improved productivity, cordial relationship is maintained among various departments, which enhance profit maximization and growth.
It is also observed that the management trains her materials personnel by way of conducting series of seminars in the field of management. Based on those findings, it is pertinent to recommend that since inventory contributes directing to the profitability of an organization, proper attention should be given to it in both handling and usage and to ensure efficiency orientation.
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
1.1 Background of the study
1.2 Statement of the problem
1.3 Objective of the study
1.4 Research question
1.5 Significant of the study
1.6 Scope of the study
1.7 Limitation of the study
1.8 Operation definition of terms
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Definition and Concept of Inventory Management
2.2 Classification of Inventory
2.3 Inventory management and material requirement plan
2.4 Procurement of Inventory
2.5 Inventory control
2.6 Economic Order Quantity (EOQ)
2.7 Stores Management
2.8 Stores taking and stock checking
2.9 Materials handling and ways control measures
2.10 Historical Background
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Theoretical Framework
3.2 Research Design
3.3 Population of Study
3.4 Sample Size
3.5 Sampling Techniques
3.6 Research Instrument
3.7 Methodology of Data Collection
3.8 Validity and reliability
3.9 Method of data analysis
CHAPTER FOUR: PRESENTATION AND ANALYSIS
4.1 Introduction
4.2 Data Presentation
Chapter five: SUMMARY, CONCLUSION, RECOMMENDATION
5.1 Summary
5.2 Conclusion
5.3 Recommendation
5.4 Suggestion for future research
Reference
Appendix
Questionnaire
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
One of most topical functions on most organization in terms of its role and integrated into the overall organizational frame work is the material or inventory management function. In spite of increasing awareness of the importance management in comparison with other business functions such as production, engineering, finance, marketing, personnel etc.It is in this regard that some of the key concepts of materials or inventory management are to be examined with a view of determining its role in the achievement of overall corporate objective
Notably, for the purpose of clarity and better understanding inventory management and materials management will be used synonymously in this work. Inventory management is pivotal in effective and efficient organization. It is also vital in the control of materials and goods that have to be held (or stored) for latter use in the case of production or later exchange activities in the case of services. The principal goal of inventory management involves having to balance the conflicting economics of not wanting to hold to much stock. Thereby having to tie up capital so as to guide against in incurring of cost such as storage, spoilage, pilferage and obsolescence and the desire to make items or goals available which and where required (quality and quantity wise) so as to avert the cost of not meeting such requirement.
Inventory problems of two great or two small quantities on hand can cause business failure if a manufacturer experiences stock out of a critical inventory item, production halts could result. Moreover, a shopper expects the retailers to carry the item wanted. If an item is not stocked when the customer thinks it should be, the retailer to loses a customer not only on that item but also many other items in the future.
Essentially, inventory management, within the context of the foregoing features involves planning and control. The planning aspect involves looking ahead in terms of the determination in advance.
i. What quantity of item to order
ii. How often (periodicity) do we order for them to maintain the overall source – store sink co-ordination in an economically efficient way.
The control aspect, which is often described as stove control involves the procedure, set up at the planning stage to achieve the above objective. This may include monitoring stock level periodically or continuously and deciding what to do on the basis of information that is gathered and adequately processed.
The researcher has taken Beta Glass Ughelli as a study so as to clearly see if their resounding success can attributed to the kind of inventory system they embark on since their production process requires a lot of raw materials and despite the economic condition of the country at any given time.
Therefore, inventory management is a must for the continuity and survival of any goal focused manufacturing organization. It is pertinent to first address the question of why should an organization attach any importance to material management at all. The central objective of most business organization is to maximum profit. All activities are usually tailored towards the realization of this objective materials management is also important on non – profit organizations such as government agencies, armed forces etc. However, the focus of this research is on business organizations and manufacturing organizations in particular since, they usually require more dynamic approaches to materials management as economic agents operating under ever changing economics and business environment. This is because the challenges for more integrated approach towards organization them that of government agency.
Inventory management involves all the processes needed to plan, acquire, store, control and distribute inventories or materials at minimal cost to the organization. This takes use to the inventory management cycle, which comprises the systematic stage involved in inventory management which includes:
1. The management
2. The purchasing department
3. The vendor
4. The stores
5. The finance and account department
6. The audit
7. The review process
1. THE MANAGEMENT: The management appoints purchasing officers and other key officers, approves stock purchasing budget, issues policy guidelines on materials requisition, purchasing, receipt and accounting system, approves tenders, defines role and responsibilities of actions, set inventory management objectives and approves the store guide.
2. THE PURCHASING DEPARTMENT: The purchasing department carryout prices survey / negotiation, issues purchase order, prepares stock requisition, prepares budgets, both quantitatively and financially seek approvals from management for fresh request and receives order into the store.
3. THE VENDOR: Issues quotation, receives purchases order, supplies goods, issues invoice and goods delivery note (3 copies) and receives payments for acceptable delivery.
4. THE STORE: The store receives goods / orders check order against purchase order and the vendors goods received note and sends to management, considers store requisition from and users, up date stock ledgers / bin cards, carryout store layout and ensure security of stock items.
5. THE FINANCE AND ACCOUNTS: This checks invoice against order, goods note, raise payment voucher and finally effect payment based on the authority to incure expenditure.
6. THE AUDIT: The audit inspects the order on delivery, issues inspection note, examines the payment vouchers authenticate, check pass and authorize payment and reports to management where necessary.
7. THE REVIEW PROCESS: Involves the consideration of the reports submitted by the board of survey, the audit and any other person(s) assigned to report on the inventory management objective are realized in future cause of action. Indeed, inventory management is commonly referred to as the “Last Goldmine” for business executives in view fo tis potentials for direct contribution towards profit improvement.(The Guardian February 23, 2002) unlike most business function many savings made in materials, cost goes direct into profit since most other cost are either fixed or semi fixed.
For example, if a manufacturing company make a turnover of N1,000 000 000m and its profit is 15% turnover of N5m the company spend say 50% of its turnover on inventory and is able to effect a 7.5% savings in inventory cost, the level of profit improvement in relation to efficient inventory management can be calculated as follows
N000m sale at 15% profit - N15m
N50m on inventory at 7.5%
Savings in materials cost -N3.75m
-N18.75m
Now if the savings in materials cost was not achieved, it would have been necessary to increase turnover 25% (N125m) to achieve the same level of profitability. Thus, 7.5% savings on inventory cost equate with 25% increase in sales turnover ratio as the one analyzed above.
In practice, most companies are unable to record up to 15% profit on sales turnover and as such inventory cost savings are expected to contribute more significantly to profit improvement than increase in turnover. One of the problems facing many organizations today is how to determine the best out of the various systems of management inventories. How to integrate the inventory management process into overall organization structure or in order to achieve corporate objectives.
Generally, the choice of inventory management system will depend on the organization, the nature of her business, the operating environment, the level of professionalism exhibited by key materials personnel and experience of the chief executive officer / policy maker. In all cases, the central focus of the organization should be on which of the concept will reduce inventory cost to the barest minimum. In other words, which system guarantees the most substantial savings in materials cost. However, in practice, it has been discovered that in the absence of an corporate policy on the organization of the inventory management function, top management value bear an overriding influence on the choice of an inventory management concept.
Some organizations embark on decentralized materials management approach which may well have its own merits. It is generally agreed by practitioner that the central objective of cost minimization in materials management is better achieved through a centralized materials management approach under a qualified and experience materials manager (The Guardian March, 2 1999). The materials management function can be performed as a single activity or subdivided into various activities depending on the organization.
For large organization with many product line requiring diversified materials sourcing. It is more appropriate to subdivide the function into three units in which case there will be three units manager viz; purchasing manager, planning and control manager warehouse / store manager all reporting to a departmental manager, the materials manager such as company may also decide to bring the physical distribution unit under a centralized logistic management concept.
However, expert for operational problems, the cost savings advantage derivable from efficient materials management can be obtained in both cases. In very large organization, the materials manager and the physical distribution manager could report directly to the logistics manager so as to reduce operational problems. The advantage of appointing a top manager in form of materials or logistics manager, is to supervise materials incremental cost. In that there will now be in a better position to look at the organization as a single unit just like the chief executive. Areas of conflict that usually arise between purchasing, productions, store and materials control etc. are substantially reduced. Duplication of function, delays and wastages that lead to increase materials cost are therefore reduced. Overall management efficiency is most like to increase.
Some organization prefer to decentralize the materials management development with each sub department given some measure of autonomy as a means of checking abuses that could arise when one person is vested with authority overall materials associated cost. As earlier stressed, the structure of materials management function at any point in time depends on the organization in question. E.g in a building construction company where there is no finished goods inventory in the conventional meaning be logistic manager will be doing almost and as such there will be no need to run a logistic management concept as defined in the content unless some other functions not included in the content are brought under logistic management.
However, in all cases, any of the above concepts that promote cost saving, professionalism and management efficiency will always be ideal for each organization.
1.2 STATEMENT OF THE PROBLEMS
Inventory is life blood of any organization. This is because inventory contributes directly to the profitability of an organization and as such the growth of any organization depends on its ability to manager its inventory efficiently.
Based on this fact, the following problems are to be examined by the researcher.
1. Improper management of inventory in manufacturing firms
2. Excessive usage of materials in manufacturing firms
3. Excessive purchase of raw materials in manufacturing firms
4. inefficient inventory control mechanisms
1.3 OBJECTIVES OF THE STUDY
The objective of the study includes,
1. To find out a proper way of managing inventory in manufacturing firm.
2. To reduce the excessive usage of materials for production.
3. To reduce excessive purchase of raw materials.
4. To provide efficient mechanisms for inventory control.
1.4 RESEARCH QUESTION
1. What are the ways of managing inventory in a manufacturing firm?
2. Identify the ways of reducing excessive usage of materials in manufacturing firm?
3. Identify the ways of reducing excessive purchasing of raw materials.
4. What are the efficient mechanisms used in inventory control?
1.5 SIGNIFICANCE OF THE STUDY
The significance of this study includes the following:
1. This research work can be of great help to those who have little or no knowledge on the manufacturing industry.
2. It is well be valuable to people who are interested in the manufacturing industries and want to make it in their career.
3. This study will also help the management of Beta Glass Plc, Ughelli to appreciate areas where improvement is needed in her inventory operations, so as to boost her profitability and consequently increase her shareholder wealth.
4. Indeed, this will in no little way have a favourable effect on the national income of Nigeria.
5. This will also help to enhance researchers’ knowledge on the subject matter. (Inventory management techniques).
1.6 SCOPE OF THE STUDY
The scope of this study borders on efficient inventory management, its effect on the performance of business organization and manufacturing industries in particular. Also many areas such as inventory management systems contribution of efficient inventory management to profitability, materials issues cost minimization and economy of operation, the impacts of efficient inventory management especially as its concerns the area of study. However occasional references will be made to relate companies when ever necessary.
1.7 LIMITATIONS OF THE STUDY
In the course of conducting this research work, the research encountered some hindrances that stand as limitation to the study.
a. Time factor: In the course of doing the research work, the research was checked with academic work, couple with personal demand and this really affect the researcher.
b. Financial constraint: Lack of finance to go about this research work was another challenge to the researcher. It was not easy to take responsibility financially for the research work.
c. Human Nature: Most of the respondents was reluctant to fill the questionnaire and it took the researcher time to explain to them the need to fill it. Some respondents gave vague responds which was difficult to the researcher to analyze, summarize an finally draw conclusion from.
1.8 OPERATIONAL DEFINITION OF TERMS
1. Logistics: According to Baziotopoulos (2008). An investigation left logistics out sourcing practices in the great manufacturing sector. PhD thesis. Logistics is the management of the flow of resources, not only goods, between the point of original and the point of destination in order to meet the requirement of customers or corporation.
2. Incremental cost: The additional cost resulting from the materials procurement , storage and usage.
3. Organizational Structure: According to Jacobides, M.G (2007). The inherent limits of organizational structure and the unfulfilled role on hierarchy lessons from a near way organization science, 18, 3, 455 – 477.
4. Diversified material sourcing: Various sources of materials acquisition.
5. Operational problem: Problems arising from performing the activities involved in materials management.
6. Decentralization: Where the various operations of the organization are controlled by autonomous departments and personnel’s.
7. Centralization: Where various operations of the organization are controlled under one central body.
8. Cost savings: The amount of money gained from efficient operations.
9. Sales turnover ratio: According to Bodie, Zanc, Alex and Alan J. Marcus (2004). Essential of investment, 5th edition. McGraw Hill Ivwin P. 459. ISBN 0-07-251011-3 sales turnover ratio is the rate at which sales are made overtime.
Integrated approach: A combination of processes that will yield effective and efficient achievement of corporate aim