INVENTORY POLICY AS A TOOL IN THE ATTAINMENT OF ORGANIZATIONAL GOALS

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Introduction

1.1 Background of the Study

One of the major assets of any company or business are their inventories and they represent a large proportion of total investment of their business. Inventory constitutes one of the largest controllable assets of a business. Survey carried out by accountant international study group in 1968 shows that inventories generally constitutes after assets, the largest balance sheet item in the financial report of manufacturing and merchandizing firm expressed as a percent of net total assets. Managing assets of all kinds is basically an inventory problems. The inefficiency of an inventory may result in an unbalanced inventory. The firm may frequently be out of stock of certain type of inventory and overstock of other type as follows: Raw materials, work in progress and finished goods.

It is pertinent at this juncture to point out that inventory policy cannot be established by a single executive. A sound inventory policy can be obtained by concerted efforts of the films executive committee. This is because production, marketing, financial and purchasing department all have a stake in inventory policy is to be adopted by any organization is as complex as it is important. There is a optimum level of investment for any inventory be it cash, physical plant and other inventories. A mistake in inventory policy may result in either too large or too little of being kept. If production and delivery of goods were instantaneous there would be need for inventory policy except as hedge against changes.

Inventory must be maintained so that the customers may be saved immediately or at least quickly enough so that he does not turn to another source of supply. On the other hand, production operations cannot flow smoothly, without having inventories of work in progress direct materials, finished parts and supplies.

For the purpose of this study, it is necessary to distinguish between inventory records and control and correct stores cards whose balances and physical counts are in agreement. There may be efficient requisition purchasing receiving and material handling. But despite all these thing and diligent employees the inventory control will be inadequate, clerical efficiency therefore is not in arrangement only major duty as inspection can attain inventory control. The major inventory problem is to maximize profitability by balancing inventory investment against what is required to sustain operation.

The problem of inventory investment policy to non-profit organization like hospitals armed forces e.tc. And profitability can take the form of minimizing cost in these organization inventory control and record will not be needed and or applied unless there is a sound inventory policy. The big question asked by a number of businessmen and executive faced with the dilemma and frustration of attempting to maintain stable production operation, provide customers with adequate service and keep investment in stocks and equipment at reasonable levels.

Why are we always out of stock? How often should we re-order or how should we adjust production when sales are uncertain? What capacity level should we set for operation? What do we plan as production and procurement for seasonal sales? The idea of inventory involves the difficult of determining how big inventory should be. To some people, inventory should be just big enough but what is ‘BIG ENOUGH'. The problem is made more difficult because each individual within the management group tend to answer his questions from his or her own point of view. He or she fails to recognize cost outside his frame work and thinks of inventory in isolation from other operations.

It is unfortunate that business executive are more to view inventories with dislike as an opportunity unnecessary drain on resources, something that one has been able to eliminate, but hardly a “productive” asset like a new machine or tool. They fail to realize that inventories are so productive in earnings as other types of capital investment. They serve as lubrication and spicing for production distribution system keeping it from burning out or breaking down under external shocks. All organization to survive in this complex system, it must operate efficiently and inventory policy and management will hold to achieved this by resulting in relatively high utilization “ratio” how to write absolute and deteriorated inventories and few instances of work stoppage or cost of sales due to stock out. All these contribute to high profit margin high total assets utilization, high rate of return on investment and a strong stock price.

The need for a proper inventory policy cannot be over emphasized. It could be seen with various benefits associated with sound inventory policy. Good inventory and management achieve the aim of making inventories act as cushions for absorbing planning errors and unforeseen fluctuations in supply and demand and facilitating smooth production and marketing operation.

Furthermore, inventory has help in isolating or minimizing the interdependence of all parts of the organization so that each may work effectively by manufacturing or purchasing many parts and such assembles to be stored and used s needed.

In the light of the above, it should be seen that a good policy helps in attainment a required amount of sales and this sales turnover help in achieving profit maximization which of course is the aim of most organization. inventory policy can be used by organization of all sizes. A proper inventory is the first in achieving organization goal but often policies taken by organization are dangerous that doubt arises of whether there is any policy by organization are dangerous that doubt arises of whether there is any policy at all.

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1.2 Statement of the Problem

It has always been asserted that inventory policy involved control, planning and investment and maintenance of inventory for the successful production sales and adequate and prompt service to customers. There is further assertion that without a solid and proper inventory policy, a company cannot be able to achieve aims to which they are set up.

Despite this assertion, the researcher observed that many productive companies have no proper inventories policy and maintaining huge profit. The researcher further observed that these companies have no definite policy for maintaining adequate inventory policy to which the organization is set up. Sub Problems

With the introduction of structural adjustment programs SAP the cost o acquiring money is very high. This has made manufacturing part of the company investment which is being in inventory be it raw materials, spare parts, and finished goods. In recent times, it has been found out that there has been an increased profit through high sales with increasing cost of carrying cost management is watching purchasing decision more closely and one cannot afford to let materials or inventories remain idle in the store house.

The emphasis now was in the integrity function of materials management and taking account of the value of money. More so, inventory policy is to maximize profitability in balancing inventory investment against what is required to sustain smooth operation. The executive of most manufacturing companies view inventory management a times as unnecessary drain on resources which should not be given much more time. Their problem being that forget that the most neglected inventory are also the most expensive to keep in stock.

This negligence has led to some manufacturing companies to be closed down like African Breweries Ibadan and a lot more.

The arbitration imperfection and indiscretion of the management personnel charged with responsibility of inventory planning and control cannot be overlooked. The fund invested in inventories could be used in making investment in other areas that will yield quicker and greater returns and enable the company to enjoy the benefits of time value of money.

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1.3 Objectives of the Study

The research work is to examine the unfulfilling attitude influencing size and structure of inventories to be held and the best planning and control methods to be used by the organization.

An organization that takes a good inventory policy has made a step towards achieving its aims and objectives and such could be seen a prudent organization. The types of inventory policy taken its accuracy and time taken to formulate this policy is a prove of good planning, responsiveness to responsibility, and so depends on efficient and effective organization. This study therefore tries to discuss

1. The difficulty of finding the proper cost to be assigned to the maintenance of inventory as well as other matters which influences the establishment of an adequate inventory policy.
2. The problem of re-ordering and production scheduling as it affects inventory policy.
3. The crash seasonal and similar problems as they relate to a rational programme of inventory and production planning with the major problem of forecasting and control included in the total approach to inventory policy in as it relates to the business.
4. This study is also aimed at ascertaining the method of formulating inventory policy in organizations, the levels of inventory stock held and the possible ways of eradicating disappointment from suppliers to customers.

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1.4 Significance of the Study

Lesser attention has been paid to the formulation of inventory policy while more attention has been paid to its management. Efficiency is the key word of all organization be it manufacturing, merchandizing and so on which are both small scale and large scale. A well established inventory policy enables the organization to enjoy multiple effects of its merit. The importance of this study is to provide guideline that will help both effective and efficient. This invariable creates an opportunity for a more co-ordinate work and profit maximization since the satisfaction of most management is that they succeeded in using minimum cost to maximize profit.

To the stores or production manager as he may be called who is responsible for the stores production department and who is responsible and accountable for the inventories. This study will provide the necessary equipment needed for planning, control and procurement of inventories according to “Hongreen” two limits must be imposed in controlling inventory levels because there are two danger points that management usually wants to avoid, the first danger that of inadequate inventories, disrupts production and may lose sale. The second danger excessive inventories introduced unnecessary carrying cost and obsolescence risk.

In the light of the above it is hoped that this study will help eradicate or minimize the incidence of the above with the current emphasis of small scale manufacturing industries, this study will be of immense help to the public and any person who have the intention of indulging in some small scale business.

Others who will benefit from this study are future researchers and fellow students who may pick up this work from the library. Since researcher could not have ordinary gone into this work, as it will be considered invaluable, this work exposed him to things that could have escaped his notice. Employees in training and development courses in stores management for this position of stores work helpful. It is also helped that managers also found this public organization as well as the government and individuals will find this work as an assistance in their daily transaction.

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1.5 Definition of Terms

Policy:

The term policy covers the objects of business and the principle upon which it is conducted.

Inventory Control:

Is the controlling of physical qualities of actual things found in the stores at any time. It is no procurement policy and procedure which supply livestock and pricing procedure which clear out dead stock.

Work — In — Progress:

This is the materials that are still in process of production.

Raw Material:

Material available to be used in the production process.

Finished Goods:

Complete product ready for sales, shipment and consumption.

Profit Maximization:

This is the maximization of total policy

Wealth Maximization:

This is the maximization of earnings per share which will maximize stockholder welfare.

Planning:

Planning is an intellectual demanding process. It requires that we unconsciously determine the action and base our decision on purpose, knowledge and consider estimate.

Inventory:

This is the total firms investment in work in progress, raw materials and finished goods.