Impact Of Efficient Inventory Control On Materials Management In An Organization

Project and Seminar Material for Purchasing and Supply PS

Impact Of Efficient Inventory Control On Materials Management In An Organization

Abstract

This study examine the impact of efficient inventory control on materials management in an organization at Rokana industries limited Nekede Owerru Imo State. The study was carried out using a systematic random sampling technique. The sample size used for this study was 100 out of the overall population. It was found that inventory management has not been very effective in any manufacturing firm and this is as a result of the fact that inventory policies are not strictly adhered to. Therefore, the researcher highlighted some recommendations which if implemented, will have its profitability improved as the result of reduction in cost which will enable it to reduce price and increase its turnover thereby spreading its overhead costs over increased output which will in turn result in reduced cost of reduction.

Chapter One

1.0 Introduction

1.1 Background of the Study

A trend in the past has been for companies to hold some level of stock than preciously did. Hence companies gas fund that they can sometimes reduce the lead time required to obtain materials and to produce products, so that they can operate with less inventory and skill serve their customers effectively.

Stock is idle resources hold for future use. Whenever the inputs and outputs of a company are not used as soon as they become available, inventory is present. Services operation and jobs tend to have small investments in stock. For may companies, however, stocks account for a large percentage of assets this need for stock control.

Chilaka (2006:128) times stock control as the means by which materials of the correct quantity and quantity is made available and as at when required with due regard to the economy in storage and ordering cost, purchasing and working capital.

Carter and price (1996:139) defines stock control as the process of ensuring that the stock held by the organization is supplied to those parts of the operations that required the items (ie production, distribution, sales, engineering etc).

Henritz and Farrell (1990:100) defines inventory stock control as the assurance of having the items at hand when needed and afford the added protection of reserve, stocks, theoretically untouchable but practically serving to fill needs when extra ordering demand develops or when correct procurement fails.

Organizations that have stocks has the advantages of assessing items to be held in stock, the extent of stock holding operational needs time required to deliver goods, availability of capitals, cost of storage, regulation of the input of s tock into and from the stove house through these, it is possible for firms to adjust continuously the quantity and value of stock held to com firm with circumstances of control.

According to monk (200:148) inventory need to be effectively managed, if efficient operation is to be achieved, due to its initial nature, the mode of control and management of inventories can be a factor in the success or failing of manufacturing company concern.

He pointed out that insufficient inventory can seriously disrupt the product distribution cycle that is so critical to the survival of all the manufacturing organization. On the other hand excessive inventories can cripple a firm as felons and this endanger it’s liquidity position. Either poor inventory management can present a serous challenge to the productive capacity of manufacturing organization.

In view of the subject matter of the work, the researcher aims at identifying the nature of stock control in Rokana industries Plc Nekede Owerri.

1.2 Statement of the Problems

Strictly, this project is a case study of the impact of efficient inventory control on materials management in an organization at Rokana industries limited Nekede Owerru Imo State.

The problems of the study therefore are as follows.

  1. The impact of efficient inventory control on the materials management in an organization can not be over stated-
  2. Selection and application of wrong inventory method which does not consider critical factors of efficient inventory control on materials management in an organization.
  3. Poor operation of the stove which in turn leads to problems of materials flow in the production system and efficient inventory control on materials management in an organization.
  4. Most people involving in efficient inventory control on materials management do not possess the right skill and knowledge on inventory control.
  5. The stock out cost or shortage cost has serious effect on the quantity of efficient inventory control on materials management.
  6. There is no serious attempt on the part of firms to improve efficient inventory control management.

1.3 Objective of the Study

The objectives of this study are

  1. To create serious awareness in the mind of firms and their employees on these serious need for efficient inventory control ob materials management in an organization
  2. To create the necessary awareness on the important of improving those who are involved in inventory control on materials management in an organization.
  3. To suggest other ways of improving efficient inventory control on materials management in a organization.
  4. To see whether efficient inventory control on materials management can be improved through empowerment.
  5. To make people appreciate the importance of effective inventory control on materials management in a organization.

1.4 Research Question

One Important thing a researcher of this nature to achieve is to provide the subject matter of the study. It therefore becomes necessary to formulate research question on which the answer would be based and are as follows.

  1. Are efficient inventory control basic element in inventory control management?
  2. Does your organization attach importance in carrying adequate efficient inventorying control management?
  3. Is poor inventory control administration tractable to poor efficient inventory control management?
  4. Does your organization achieve any efficient age as a result of effective and efficient inventory control management via efficient purchasing.

1.5 Statement of Hypothesis

In order to achieve the set goals, this work is guided by the following hypothesis:

  1. H0: Inventory control does not have any impact in the cost of operation in the organization
    H1: Inventory control has no significant differences in terms of operations of the organization.
  2. H0: Inventory control does not contribute to the success of an organization
    H1: Inventory control has significance differences in terms of operation of the organization.

1.6 Significance of the Study

The primary significance of this study is for fulfillment of the equipments for the award of higher national Diploma (HND) in purchasing and supply.

  1. To help and guild the younger ones on what to do when writing project or carrying ant research.
  2. To guide industrial purchase to efficient of inventory control enable them to obtain the “ best by which is the ultimate goal of the purchasing fracture”
  3. Successful completion of the work will help to educate managers on how to ensure implementation of effective stock control.
  4. Useful in ensuring efficiency in decision making which will enhance efficiency in the utilization of resources in the materials management activities.
  5. It helps organization unrest the charging demand pattern by understanding the variables is stock control and how to manipulate them in every situation, this possessing the sufficient group of expertise in materials management which can be supplied in production process.
  6. It make firms to know the essence of having the optimum level of stock at any particular period.
  7. The successful completion of this work will go a long way to help researchers to widen out it’s importance.
  8. It will also enable students who will be carrying out such related topics in future.

1.7 Scope of the Study

The study on the impact of effective inventory control on the materials management of a organization will focus on Rokana industries Plc, their elements are the subject matter the techniques, reasons and the importance of the topic under discuss will be elaborated in subsequent chapters of this study.

1.8 Limitation of the Study

In limitation, the financial carrying out this activity was a big problem. Obtain relevant data information was another limiting factor as almost all the required information obtained was sufficient.

The degree of time consumed at the expenses of lectures and other important assignments. This cannot be over emphasized.

Finally, fiancé was constraint for the researcher. Normally, a considerable amount of money for the gathering of information typing of manuscripts.

Difficulties in securing some vital documents contain some valued information’s relating to the subject matter of the researcher.

1.9 Definition of Term

(1) Lead time:

This is the moment, the stock controller placed order to the time the order is supplied.

(2) Stock taking:

This represent the complete process of verifying the quantity balances of the usually range of terms held is stock. It is usually carried out annually so as to discuss the value and quantity of stock for balance sheet purposes.

(3) Stock checking:

Represents any physical check on the quantity of items held in stock. This is actually applied either required or intermittently.

(4) Maximum stock level:

This is the amount of stock expressed in units or issue above which the stock should not be allowed to rise. The purpose of this level is to curb excess investment or over stocking.

(5) Minimum stock level:

This is the level blow to which the stock should not be eliminating under stocking.

(6) Re- Order Level:

This represents the amount of stock at which new order is to be placed or ordering actions is indicated in time for the materials to be delivered before stock falls below the minimum level.

(7) Surplus:

A useable materials, equipments or parts including capital equipment which are in excess of normal manufacturing operating or repair equipments.

(8) FIFO:

First in, first out

(9) LIFO:

Last in, last out.

(10) Obsolete:

This is where an item is completely usuable by the organization.

(11) Stock:

these are inventories or stores used within the production system.

(12) Productivity:

This is the rate or amount of goods produced compared with low much input (time, money ) used or needed to produce then.

(13) Obsolescent:

When stock is going out of use but is not yet completely unusable.

(14) Redundant:

When item in stock is more than what is reasonably necessary to provide an adequate service to the production or operational activity, the excess over the normal holding.

(15) Discrepancies:

This is when the amount of stock found by psychical check fails to correspond with the balance on the stock records.

(16) Minor discrepancies:

This is when difference between the physical check and stock record are less of small.

(17) Major discrepancies:

This is a situation where the difference between calculation and physical stock id small, but items involved in every important to the operations of the organization.

(18) Pre- Production inventory:

Companies parts and materials purchased from out side the organization for manufacturing a product.

(19) Stock control and inventory control:

Are used synonymously, stock control originated from Britmins while inventory control is of American origins but means the same thing.

(20) Buffer or safely stock:

Thus is not stock level but the stove manager must take cogmzanace of this so as to completely avoid a situation of s tock out.

(21)Stock out cost or shortage cost:

This usually occur when an organization lacks inventories to satisfy the requirement and demand.

(22) Administration / handing cost:

These cost are incurred when an organization places order for item to be stored.

(23) Cost of carrying stock:

These costs are incurred when inventory is held in stock/stores.

(24) Call- off order:

This is another system used to solve small value purchase problems.

(25) Petty cash order:

The petty cash order system is a little variation of the cash purchase.

Chapter Five

Summary, Conclusion and Recommendation

5.1 Summary of Findings

The main objective of this research work is to highlight the impact of efficient inventory control on materials management in an organization. Relevant related literature on inventory management was received to find out the extent of work already done. The instrument used for data collection was questionnaires which were subjected to reliability and validity before it was being administered to the respondents.

The sample size used for this study was 100, using a systematic random sampling. However, having analyzed the data the following are the findings which were deduced from this study:

  1. Rokana industries limited Nekede Owerru Imo State, the company used as the case study makes formal inventory policies. This is supported by table 4.5 in chapter 4 which shows that all the respondents agreed that the company makes formal inventory policies. This is a clear indication that the company attached some degree of importance to the management of inventories.
  2. It was discovered that the company makes use of replenishment model and the re-order date is not fixed rather, minimum and maximum levels are set. When stock is depleted to the minimum level, an order for replenishment is placed to bring the stock to the maximum level. It was also discovered that the company monitors the stock levels through the perpetual stock taking methods so that they can know when to re-order for stocks.
  3. There is a divergence between policies and the practices of those policies made in the company under this study because it was observed that the company does not adhere strictly to her inventory policies. This was confirmed by the responses in table 4.7 of the questionnaire where 25 of the respondents agreed that the company does not adhere strictly to her inventory policies. In order words, policy decisions are made by the company, but sometimes it fails to follow such procedures or policies made.
  4. A number of reasons were given by the respondents that constrain effective management of inventories in the company, they are as follows:
(a) Inadequate Flow of Information:

This was the reasons given as result of the occasional depletion of materials below the re-order point before a replenishment procedure is initiated. Sometimes information as to the issue of materials by the sales department are not given promptly, thereby leading to inadequate update of inventory records as a result of inadequate flow of information.

(b) Inflationary Pressures:

This is a general problem as was stated by the various respondents in the various departments. This according to them destabilizes their plans and causes them to invest more than planned on inventory since prices of materials are increasing rapidly. This means that sometimes the company exceeds her stipulated maximum stock level because it expects increases in prices in the future.

(c) Scarcity of Materials:

These like inflationary pressures causes the company to exceed her stipulated maximum stock level, the respondents when interviewed explained that since some of the materials which are being used are scarce, they are bought in large quantities so that they can be used for future purposes thereby exceeding re-order level.

  1. It was also discovered that the company runs out of stock from time to time and when asked why, the researcher was made to understand that although minimum stock is maintained, the reasons for stock out was attributed to unexpected delay in delivery or exceptionally high consumption during the lead time.

5.2 Conclusion

During the course of the study on the benefits of effective inventory management in a government establishment in which Rokana industries limited Nekede Owerru Imo State, it was discovered that inventory is the bedrock in the existence of any manufacturing firm and effective management of inventory will lead to effective control of the organization. However, whatever system or technique of inventory management, it much be channeled towards the reduction of stock to the barest minimum. These inventory techniques should be monitored to ensure its effectiveness.

Therefore, from the results of the data analysis it is right to conclude that inventory management has not been very effective in Rokana industries limited Nekede Owerru Imo State and this is as a result of the fact that inventory policies are not strictly adhered to. Therefore, efforts are needed to be made in order to improve on these present situations.

Therefore, the researcher highlighted some recommendations which if implemented, Rokana industries limited Nekede Owerru Imo State will have its profitability improved as a result of reduction in cost which will enable it to reduce price and increase its turnover thereby spreading its overhead costs over increased output which will in turn result in reduced cost of reduction.

5.3 Recommendation

Having carried out a study of inventory management in a manufacturing company with a specific focus on Rokana industries limited Nekede Owerru Imo State, the following are some recommendations given by the researcher which if implemented, will have its profitability improved as a result of reduction in cost to enable wider gross margin of the company:

  1. The company should try by all means to adhere to inventory polices made. A situation is a case whereby materials or items are allowed to leave the stores without proper requisition, this shows that the internal control is weak. In order to ensure that the company adheres to inventory policies, under no circumstance should items of inventory be allowed to leave stores without proper requisition.
  2. The company should employ the economic order quantity method when placing orders. The economic order quantity model puts into account the relevant costs associated with ordering and carrying inventory. Every business organization aims at reducing cost to the barest minimum and one of the avenues by which this could be achieved is adopting the economic order quantity method of placing order.
  3. Sufficient stock should be held in order to avoid stock-out so that when the ordering level is high; there will be enough stock to be delivered.
  4. The flow of information should be increased and should be circulated adequately in order to enhance adequate updates of inventory records.

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