Evaluation Of Usefulness Of Inventory Management (a Case Study Of Some Selected Beverage Companies)

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ABSTRACT

 It has been generally accepted that for any organization to produce and satisfy its stakeholders, such organization must have good management team that manages the resources of the organization using some laid down rules. In manufacturing concerns, inventories constitute a greater proportion of assets. The management of inventories usually involves a lot of problems which range from the right tome to place order to maximization of profits for the stakeholders. Thus, the research undertaken this research work entitled. Evaluation of usefulness of inventory management. A study of some selected Beverage Companies including: Coca-Cola Nigeria Plc, Pepsicola Nigeria Plc and Nigeria Mineral Water Industries Limited.

 

The objective of this work includes: To determine whether profit is maximized and cost minimized due to the application of the efficient inventory management. To determine also whether manufacturing concerns in our country manage inventories effectively by using inventory management techniques e.g. Economic Lot Size, Just-in-Time etc.

 

Data were collected using questionnaire method, and were analyzed using chi-square (X2) Pearson product moment, correlation co-efficient (r) and regression analysis.

 

The result therefore shows that they place order at the right time and right quantity overcoming the setbacks of lead time. The companies also minimize costs of holding inventories and maximize their profits. The findings showed that manufacturing concerns in Nigeria meet the target requirement of their customers, stakeholders, and the society where they operate.

 

The research recommends that: all staff of the manufacturing concerns should be made to have the thorough knowledge of inventory management as this will enable them to work towards their stock protection and cost minimization. The manufacturing concerns should get the recent developed software on inventory management and use to update their knowledge of inventory management on regular bases.

 

 


 

TABLE OF CONTENTS

 

Certification


 

ii


 

Dedication


 

iii


 

Acknowledgement


 

iv


 


CHAPTER ONE

 

1.1

Introduction

1

1.2

Statement of Problem

5

1.3

Objectives of the Study

6

1.4

Research Questions

8

1.5

Statement of Hypotheses

9

1.6

Significance of Study

10

1.7

Scope of Study

11

1.8

Limitation of the Study

12

1.9

Definition of Terms

13

 

References

15

 

 

 

CHAPTER TWO

REVIEW OF RELATED LITERATURE

 

2.0

Introduction

16

2.1

Evaluation of kinds of inventories and methods of

 

checking inventories

20

2.2

Basic types of inventory management techniques in

 

manufacturing concerns

27

2.3

determination of economic order quantity (EOQ) or economic

Lot size (ELS) of inventories

36

Analysis of cost minimization by the use of efficient inventory

 

management

40

2.5

Profit maximization through efficient inventory management

43

2.6

Customer’s satisfaction due to the use of inventory

 

management

45

2.7

Possibility of Hitch free production due to application of

 

inventory management by manufacturing concerns

47

2.8

Liquidity control through efficient inventory management

49

References

51

 

 

 

CHAPTER THREE

3.0

Research methodology

53

3.1

Research Design

53

3.2

Sources of data

54

3.3

Method of data collection

54

3.4

Population and sample size

55

3.5

Techniques on data analysis

59

3.6

Chi-square distribution

60

 

References

62

 

 

 

 

CHAPTER FOUR

 

4.0

Presentation and analysis of data

63

4.1

Percentage determination of questionnaires responses in

 

tabular costs

64

4.2

Analysis of the ordering and holding cost as percentage of the

total costs

82

4.3

Analysis of economic lot size (ELS) ans Production level

83

4.4

Analysis of customer satisfaction through production and sales

levels

 

84

4.5

Analysis of cost minimization by the use of economic lot size

 

(Economic Order Quantity)

86

4.6

Test of hypothesis by Chi-square (X2)

87

4.7

Measurement of linear correlation

94

CHAPTER FIVE

 

5.1

Summary of findings

107

5.2

Conclusion

108

5.3

Recommendation

110

 

Bibliography

112

 

Appendix I

115

 

Appendix II

116

         

 

 

 

 

 

CHAPTER ONE

 

1.1       INTRODUCTION

 

Every Organization has to its own purpose of operation. The level of actualizing the objectives or goals determines how efficient and effective that organization is. But for the goals of any organization to be achieved, such entity must observe some stipulated or laid down principles for its effective performance. When these rules are followed simultaneously, then the usefulness of such principles or concepts will be achieved.

 

In general term, management has been recognized as that which plans, direct and as well control the effective use of organizational resources to achieve its objective.

 

Akpala (1987) as in Onuoha (1991:4-5) defines management as the process of combining and utilizing or of allocation of organization’s input (men, materials and money) by planning, organizing, directing and controlling for the purpose of producing output (goods and services) desired by the customers so that the organizational objectives / goals are accomplished.

 

In evaluating a topic as this, one ma start by analyzing the key words in it, such as usefulness, inventory, and management as they relate to the manufacturing concerns.


 

Something is said to be useful when it is achieving the best objective, purpose aim or goal of its wage. And also when using the laid down rules and resources available, achieves the best desired goals without wasting the available resources.

 

According to Ama (2001:470), inventory is the stock o goods a firm is producing for sale and the component that make up the goods.

 

Again, Hilton (1994:13-14) defines inventory as: an itemized list of goods or valuables with their estimated worth, specifically, the annual accounting stock taken in any business.

 

Therefore, from the above definitions inventory is the totality of all the stock, which includes: raw materials, work-i-progress and finished goods that enable an organizational to produce. It could also said to be the total amount of goods and or materials contained in a store or factory at any given time.

 

But the question is: are there ways of handling these inventories for the purpose of achieving the best thereof? The answer is simply yes! The inventories must be managed and controlled in order to achieve their usefulness.

 

In doing this, the production manager, purchases manager and the sales manager of the organization always put heads together to


 

design suitable ways of handling the level of stock purchases, production stock requirement and sales using some feedbacks to exercise controls in order to synchronize result with the standard set.

 

According to Lucey (1989:29), inventory management is the system used in a firm to control the firms’ investment in stock. The system involves recording and monitoring of stock levels, forecasting future demands and deciding when and how to order with overall objective of minimizing in total, the cost associated with stock.

 

However, inventory management is the ability of an organization to use all the techniques at its disposal to hold the quantity of stock (inventory) that will be enough to produce its required goods needed by the customers at the appropriate time and at least cost to the organization with the view to maximize profit.

 

Thus, Ama (2001:475) states the following as the usefulness of inventory management to the organization.

 

 

 

-              Reduction in cost incurred due to inventory holding.

 

-              Maintenance of certain level of customer services that are excellent.


 

-              Sustenance of a large size of inventory for efficient and smooth production and sale operation.

 

-              Maximization of profit.

 

-              Sustenance of minimum investment level in inventories.

 

-              Avoidance of risk of losses due to theft, frauds, waste or carelessness due to large stock holding.

 

-              Production of adequate and accurate information regarding inventory to management of effective decision making about the firm.

 

-              Boost of customers holding.

 

Organizational resources ate always limited in supply ad the

 

resources are best utilized when wasteful organizational practice(s) are avoided. It is therefore, the aim of this work to evaluate how beverage companies as part of manufacturing concerns have been avoiding wastages in inventory by using efficient inventory management and control techniques like Economic Order Quantity (EOQ), Just-In-Time (JIT), Quick Response Manufacture (QRM), among others to render efficient services to their customers, maximize their profits, a avoid production hold-ups in factories ad eliminate risk of liquidity crunch, etcetera. To achieve the above


 

objectives, some beverage companies like Seven Up Bottling Company, Limca Bottling Company (Eastern Bottlers LTD) and Coca-Cola Nigeria Bottling Company were selected for this study.

 

 

 

1.2 STATEMENT OF PROBLEM

 

The main problem of this research work is that the inventory management techniques that operate efficiently in other countries of t eh world like Britain, Japan, United States of America; among others do not do so in Nigeria local environmental factors through the needs of the models to operated effectively. The specific problems are as follows:

 

-              Cost of obtaining and holding inventories is always high and this affects the price of the finished products the concerns thereby making it difficult for the common people to get or buy them.

 

-              That manufacturing concerns due to poor transportation system and unreliable delivery services that hold well in Nigeria find it difficult to determine or forecast workable lead time and inventory levels that can enable them place order at the right time and get replenishments.


 

-              Due to production hitches suffered by the manufacturing concerns, their customers who are the suppliers to the final customers find it difficult to obtain their required orders especially during festive periods like Christmas and New years, among others, thereby causing scarcity of the products and increase in price.

 

-              It is difficult in Nigeria for the operators in the manufacturing concerns to determine the quantity of inventory to order which is economical due to variations in environmental factors such

 

as price changes or products due to constant petroleum price fluctuations that affect other facets of economic production.

 

The above problems among others have made the researcher to embark on this work to evaluate how efficient the inventory management techniques are operating in the manufacturing concerns in Nigeria.

 

 

 

 

 

 

1.3       OBJECTIVES OF THE STUDY

 

The general objective of this work is to evaluate the application of inventory management in Nigeria manufacturing concerns, so as to


 

know whether they operate efficiently like in other countries of the world such as Japan, United States of America and Britain among others.

 

While the specific objectives are to:

 

(a)         Determine if manufacturing concerns place orders at the right time and obtain quantities of inventories that are economical through the use of inventory management.

 

(b)         Determine whether the companies do not have enough inventory size or quantity that help them have hitch-free/smooth production and sales to their customers.

 

(c)         Ascertain whether the use of inventory management enables the concerns to reduce the cost of inventories ad thereby improve on their liquidity.

 

(d)         Ascertain whether the companies maximize their profit for the full benefits of their stakeholders.

 

(e)         Assess if the organizations render efficient services to their customers through prompt delivery of their orders at attractive prices.

 

 

 

1.4    RESEARCH QUESTIONS


 

For a meaningful research work to be carried out on the usefulness of inventory management in manufacturing concerns, a number of questions must be asked and answered. The following are therefore, some of the research questions:

 

(i)          Do manufacturing concerns use efficient inventory management techniques such as: economic order quantity (economic lot size) and just-in-time, among others?

 

(ii)          Does economic lot size technique in particular assist manufacturing concerns to hold sustainable size of inventory, for efficient and smooth production?

 

(iii)        Has the inventory management and control techniques help them to minimize their costs of inventories?

 

(iv)        How have the manufacturing concerns contributed to the economic growth of their host communities in particular and the country, Nigeria at large?

 

(v)         Does efficient inventory management help the manufacturing companies to maximize their profits?

 

(vi)        To what extent have the customers of manufacturing concerns received satisfactory services from the manufacturing companies?


 

These question will be structured in such a way that the respondents will state whether they strongly agree, agree or are neutral or disagree in their responses. The answers from these questions will form the basis of the analysis.

 

 

 

1.5 STATEMENT OF HYPOTHESES

 

A research hypothesis is a generalized and verifiable statement about a state of phenomena which may be true or false.

 

According to Onu (1996:13), the validity of a hypothetical statement is subject to verification which must be based on adequate information on which decisions could be objectively based for either to accept or reject such a hypothesis. Thus, a research hypothesis is defined further as a rule of accepting or rejecting the validity of a statement on the basis of random samples from the chosen population.

 

Therefore, these research null hypotheses will be empirically tested in this research work.

 

1.           Ho: Manufacturing concerns do not minimize costs of inventories through the use of economic lot size (economic order quantities).


 

2.           Ho: Just-in-Time (JIT), Economic Lot Size and Quick Response Manufacture (tools of inventory management) do not assist manufacture concerns to hold sustainable size of inventories for efficient and smooth production.

 

3.           Ho: Economic Lot Size (ELS), Just-in-Time material Requirement Planning (MRP) and Quick Response Management (QRM) tools of inventory management do not help manufacturing concerns to maximize profit.

 

 

 

1.6    SIGNIFICANCE OF THE STUDY

 

Having gone through the statement of the research problem, the significance of this research work are as follows:

 

(i)           It will enable manufacturing concern to discover and maintain optimum level of investment in inventory.

(ii)          It will enable the manufacturing concerns attend to their social responsibilities as their hoist countries constitute part of their stakeholders.

 

(iii)        It will enable inventory managers to know the ideal quantity of stocks to order that is economical to the organization and when to order for it.


 

(iv)        It will assist the organizations to maximize their profits and reduce their risk of liquidity.

 

(v)         It will enable the manufacturing companies obtain the right size of inventories that will always support their smooth and hitch free production and sales operations

 

(vi)        It will assist the organizational managers know that level of inventory that will be kept to cover errors in forecasting the lead time or the demand during the lead time.

 

(vii)      Customers goodwill towards the organization will be maintained as it enables delivery committed to be met all the time.

 

(viii)     It will provide a base for other research works that might be carried out on stock management in any other sector.

 

(ix)        Lastly, it will help reduce business failure in our society as inventory constitutes one of the core pillars of business operation.

 

 

 

1.7    SCOPE OF STUDY

 

This research work is intended to evaluate the usefulness of inventory management in manufacturing concerns but the field of manufacturing is very vast and for this reason the researcher based


 

this study on some selected beverage companies in Nigeria namely: Coca-cola Nigeria PLC, Pepsi cola Nigeria Plc and Nigerian Mineral Water Industries Limited.

 

The research also x-rayed how the usefulness of inventory management has assisted manufacturing companies to reduce cost of inventories obtained the size of inventory that is economical and that supports hitch free production, maximize the profit for t he stakeholders and render efficient services to their customers, etcetera.

1.8    LIMITATION OF THE STUDY

 

In conducting this research work, the researcher encountered some difficulties such as the following:

 

(a)         Secrecy: Manufacturing concerns as a principle always held tightly to their methods and data generated from their operations. This is perhaps not to allow people know their technical know-how, and their performances. They hold this view because they argued that they operate in a competitive industry. As a result of this, obtaining information from them.

 

However, were some of the data needed cannot be supplied for security reasons; they were extrapolated from the supplied ones in order to prove the concept of this research work.

 

(b)         Finance: The researcher found it difficult to finance this work because of the attitude of manufacturing companies which in a bid to protect their information always use many strategies to cause somebody seeking for information from the to repeat as many times as possible in their office looking for a single item of data. Again, putting the assembled materials n the accepted standard cost much.


 

(c)         Paucity of Relevant Literatures: The concept of inventory and its management have been of old. But the way in which manufacturing concerns treasure information on their inventories has made it almost difficult for relevant literatures to be seen easily on this area of study as compared in other fields.

 

Because of this, the researcher found it hard in obtaining relevant literatures while conducting this research.

 

However, the researcher laid his hands on were enough to evaluate and make conclusion on this topic.

 

Nevertheless, the researcher was able to surmount the above hurdles and at the end put up a research work whose output is reliable, testable and verifiable at any standard.

 

 

 

1.9    DEFINITION OF TERMS

 

MANAGEMENT: The term management is used in various ways. Itcould refer to a group of people in an organization, or could also refer to the process of accomplishing a given task. Various scholars define management in various ways. However, management is the coordination of an organization’s resources aimed at achieving a predetermined goal or objective.


 

INVENTORY: Inventory is the total amount of good and/or materialscontained in a store or factory at any given time. The word inventory can refer to both the total amount of goods and the act o counting them. Many companies take an inventory of their supplies on a regular basis in order to avid running out of popular items.

 

ECONOMIC ORDER QUANTITY (EOQ): A standard formula used toarrive at a balance between holding too much so too little stock. FIRST IN, FIRST OUT: A system to ensure that perishable stock isused efficiently so that it doesn’t deteriorate. Stock is identified by date received and moves on through each stage of production in strict order.

 

JUST IN TIME (JIT): This aims to reduce costs by cutting stock to a

 

minimum.

 

STOCK REVIEW: This is a regular review of stock. At every reviewyou place an order to return stock to a predetermined level.

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