EVALUATION OF THE APPLICATION FOR INVENTORY CONTROL CONCEPT IN THE MANAGEMENT OF MATERIAL

1.0 Introduction

1.1 Background of Study

The objective of most business included survival and growth fulfilment of social responsibilities and realization of satisfactory profit. This level of returns enables the company to take advantage of business opportunities undertaken research and innovation which further makes for growth and survival in the long run, discharge the social responsibilities and it obligations to the owners.

In other to maintain this status quo, it becomes imperative that position attempt must be made to minimize the operational cost of the business, increase production and boost the sale of these products. However, one of the efficient ways of achieving the most desired efficiency in business operation is through education of operational cost to a tolerable level.

One major component of this cost in many manufacturing organization that deserves the attention of management is the investment in inventories. Otherwise know as stock. In most organizations, the inventory or stock figures is the largest sample item in the current assets group. Any excess as well as storage of stock can contribute to business failure. Inventories are the stocks of the product a company is manufacturing for sale, and the components of stock are raw materials, work-in-progress (WIP) and finished goods. Raw materials can be said to be those input goods through the manufacturing process.

Raw material stocks are those units of input which have been purchased and stored for future production. Working-in-progress (WIP) stocks are semi-manufactured products. They represent products that needs more work before they become finished products for sale. Stock of raw materials and work in progress facilitates production, while stock of finished goods is required to smooth marketing operations so considering the large sum of money that is committed on these stock of raw material work in progress and finished goods. It therefore becomes important that stock should be efficiently managed in other to avoid jeopardizing the profit position of the firm. The only sure way by which mis-management of stock can be avoided in a company is for the company to install a sound management system. Knowing the level of inventories needed for the most successful merchandising inventories at a lesser cost, this means high labour and plant efficiency in the physical handling of inventory in and out of storage.

There is an optimum level of investment for any asset whether cash, physical plant or inventories for example, the cash may be too large or too small. One of the reasons for having too large cash balance might be the sacrifice of earning made by the shareholders. On the other hand the reason for holding too low cash balance might be due to the poor credit rating of the firm therefore, for every assets, there must be that ideal optimum level of investment that when compared with other assets class helps maximize long run profit. However, inadequate inventories disrupt production and may lead to lost of sales. Stock obsolesce risk. In fact the optimum level of somewhere between those danger points. One of the importance of this study is to x-ray the computation and maintenance of this level which guarantees the maximization of profit and this is the essence of efficient and effective stock management.

Therefore, my focus on this study is on techniques of managing and controlling inventories of profit maximization as it is practiced in Nigerian bottling company Owerri. Emphasis being placed on cost.

1.2 Statement of the Problems

A critical evaluation at the trend of business activities in Nigeria over the years will reveal a consistent increase in cost and decline in profitability. In evaluating the role of inventory control and management in a manufacturing company like the Nigerian bottling company (NBC) plc Owerri plant, the Nigeria bottling company is bottling with a lost of problems varying from building up stock of materials which first of all has to be purchased from suppliers and remember in many cases the goods will have to be paid for with the organization working capital. Therefore, evaluating the role of inventory control becomes a problem.

1. Nigeria bottling company is also bottling with unavailability of raw materials in the sense that most at times, they operate on hand to mouth level and that makes the evaluation of inventory role to be difficult.
2. Because stocks are sometimes allowed out of the stores without proper requisitioning, it causes difficulty in evaluating the role of inventory.
3. Due to deterioration and pilferage caused by over stocking, it makes it difficult to evaluate the role of inventory in the company.
4. Because the optimal level of stock is not easily determined, it makes it difficult to evaluate ht role of inventory management.

1.3 Aim and Objectives of the Study

The aim of the study is to examine the Application for Inventory Control Concept in the Management of Material. In achieving this aim, the following specific objectives were laid out as follows:

1. To highlight the immense impotence of efficient stock management in manufacturing companies.
2. Find out the likely consequences of over stocking and under stocking in the manufacturing company and the benefits attributable to having stocks at its optimal level.
3. Find out the solution to the problem of managing and controlling stocks in the manufacturing companies.
4. Find out whether there is divergence between policy and practice in the stock management of Nigeria bottling company (NBC) plc Owerri.

1.4 Significance of the Study

The result of the study will be beneficial to different groups and individuals. Among these groups are researcher who might for one reason or the other want to make reference to this research work. Nigeria bottling company NBC plc in particular and other manufacturing companies is general would also benefit from the study as it is carried out in their area of operation and would thus help tem plan their inventory management activities properly.

The economy will stand to benefit two as knowledge gained from the finding of this work will help companies produce within their installed capacity. This will make their products more available in the economy thus preventing artificial scarcity which results in price likes, and subsequently inflation in the economy. The government will also be on the benefiting side, as the findings of the study will help them make or formulate good policies in respect of manufacturing companies.

1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

• Does manufacturing companies appreciate the importance of efficient evaluation of the role of inventory control and management?
• Does overstocking introduce necessary carrying and ordering cost and trying up of capital?
• Is the evaluation of the role of inventory control and management of any importance to a manufacturing company?
• What is inventory control concepts?
• What is the effect of the evaluation of inventory control concept in the management of materials?

1.6 Research Hypothesis

Hypothesis is a proposition put forward as a basis for reasoning on supposition formulated from proved data and presentation as a temporary explanations of experience in order to establish future research. To come out with significant result the following hypothesis were formulated:

Hypothesis One

• H0: over stocking introduces unnecessary carrying cost, ordering cost thereby tying funds in stock and obsolesce risk.
• H1: overstocking does not introduce unnecessary carrying cost, order cost ordering cost thereby tying funds in stock and obsolesce risk.

Hypothesis Two

• H0: efficiency in production is a function of effective stock management.
• H1: efficiency in production is not a function of its effective stock.

Hypothesis Three

• H0: manufacturing companies have fully appreciated the importance of efficient evaluation of the role of inventory control and management.
• H1: manufacturing companies have not fully appreciated the importance of efficient evaluation of the role of inventory control and management.

1.7 Scope of the Study

This study is to analyze the need for efficient stock management of manufacturing companies in general but with particular reference to Nigeria bottling company (NBC) Owerri plant this is with the view of finding out how the company has been able to manage her stocks and the achievement on the investment in stocks. The stocks comprises of stock of raw materials, work-in-progress (WIP) and finished goods.

1.8 Limitations of the Study

During the course of this study, there were some problems encountered which stood as limitations to the research work. Some of the limitations include:

1. Time Constraint:

   The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.

2. Financial Constraint:

   Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

3. Initial Cooperation Delay from Respondents:

   A particular limitation of this work came as a result of the respondent refusal to offer their cooperation at the initial time they were contacted. This contributed in making the success of this research study difficult.

1.9 Definition of Terms

In this research work, some technical words which are purely related to the topic and used for easy comprehension, and the explanation of these words are given below:

Ordering Cost:

Ordering cost usually consist of electrical cost preparing a purchase order or production order and special processing and receiving cost relating to he number of orders processed.

Carrying Cost:

Carrying cost of a desired rate of return on the investment in inventory and cost of storage, breakage, obsolesce, deterioration, insurance and personal property taxes.

Economic Order Quantity:

Economic order quantity is that size of inventory that will result in minimum total and annual cost of the items in question.

Reorder Level:

This is the point of level that automatically triggers on new order. It is dependent on expected usage during lead time.

Lead Time:

This is the interval between placing on order and receiving delivery.

Safe Stock:

This is the stock set aside to meet the demand of ht customer in the case of raw materials, in case there is sudden usage beyond normal usage. The essence that the company does not run out of stock at the same time.

Stock:

If quantity and goods or anything that is dept or stored for use as the need arise especially a quantity of raw materials, work-in-progress, finished goods of supplies.

Stock Control:

Activity processes or study of stock ensuring that quantities of e.g. raw materials, supplied or finished goods are such that satisfactory service level is maintained for all stock keeping units while holding cost are minimized.

Stock Holder:

A firm or a person who has a specified type of stock e.g. wholesaler that has stock of a particular manufactured goods.

Stock Holding Cost:

The cost incurred because a stock of material is kept for a time e.g. The rent of storage spaces, the wages of a store keeper, and the cost of stock records.

Stock Out:

A state of having no stock and stock keeping unit.

Stock Card:

This is the measuring of the quantities of item of stock that an enterprise has in other to obtain the accurate list of them.

Stock Turnover:

This is the ratio of the sales revenue of firm for a period of the average value of its stock in trade or stock of finished goods during that period.