Impact Of Efficient Inventory Planning And Control In Government Establishments

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Impact Of Efficient Inventory Planning And Control In Government Establishments


Abstract


This research work is carried out critically to evaluate the impact of efficient inventory planning and control in government establishment; Ministry of works and transport Owerri was chosen as a case study. The researcher carried out this work through the process of questionnaire method of data collection in this research work, a detail of literature review will be given in chapter two (2) on the benefits of effective inventory management in an organization. The hypothesis that was used for this research is chi-square method which is also to be used in testing of the hypothesis from which the right hypothesis will be given.


Chapter One


Introduction

1.1 Background of the Study

Inventory is said to be the stock of the product a company is manufacturing producing for sales and the component that make up the products. Inventories are grouped and divided into three main types.

They include: the raw materials, semi finished goods and finished goods or products. Moreover, we have another types of inventory which is known as inventory of supplies. It does not required significant investment and in some cases (it depends on how big is the organization and the nature of its activities).

Inventory serves as a link between the production and consumption of goods in the sense that it is not of the major assets of most firms the component of inventory varies from organization to organization but they usually range between 20%-80% depending on the nature of the organizations business and inventory management techniques.
However, poor inventory management will lead to a serious challenges of the variability (i.e capable of living) of an organization and can sometimes have bad effect on its solvency poor inventory of capital (money fund) of the organization.

This research work is designed to gain an understanding of the basic theory benefit of inventory management.


1.2 Statement of the Problem

Effective inventory management should ensure that there is placement of an order at the right time with the right source of required material/right quality and quantity. To satisfy the inquiring nature of this research work, the following problems are to be given consideration:

  1. How can we eliminate or prevent the delay in receiving goods?
  2. How can wastage in production department be reduced and how is it possible?
  3. In establishing a good inventory control policy, why is re-order level much more important?
  4. Why do companies keep inventory?

1.3 Objective of the Study

The purpose of the study is to find out how to determine the motives for hooding inventory and inventory management in the government establishment. This study seeks to find the benefits of inventory management in an organization and to determine the effectiveness of inventory management and how to contribute to the profitability of the firm or organization.

However, the study will not fail to examine most importantly the role played by the financial manager in inventory control and why he is made to play such roles.


1.4 Research Questions

  1. How can inventory management contribute to the profitability of an organization.
  2. Why do company keeps inventory.
  3. How can a company benefit from and effective inventory system.

1.5 Statement of Hypothesis

In this research work the hypothesis below is essential

  • Ho (NULL) There is no significant relationship between business profitability and effective inventory management.
  • Hi (ALTERNATIVE) There is a significant relationship between profitability and effective inventory management.

1.6 Significant of the Study

This study will be of great help to the business organization is such a way that it will help them to know to maintain sufficient sock of raw materials (Goods) in period of short supply and in case of change in price in other to ensure better continuous supply of materials, to facilitate uninterrupted production know what it takes to maintain sufficient finished good stock for smooth sales operation and effective customers services and how to minimized the carrying cost and time.

The study will also be guide to scholar (students) in the sense that it will be of use and as secondary case of compares between firms the government on their part will be assisted through this study especially the tax authority and in their tax policy formulation, and how the manufacturing firms value their stock at the beginning and ending of the year.


1.7 Scope of the Study

The scope of this study is limited to the views of the following people , secretaries, managers, auditors and accountants. However, some worker of Ministry of works and transport Owerri account department, stores section and operation department are also interviewed.


1.8 Limitation of the Study

The study is limited to Imo State with a particular reference to Ministry of works and transport Owerri. The major constraint to this project work is interims of financial, research materials such as textbooks etc, which are not easily available. Other factors that posed constrain to this research works is time factors due to encroachment of the researcher’s class work, texts and examination into the time that would have been used in carrying out details on this topic.


1.9 Definition of Terms

Inventory:

This is the physical stock of goods which though remain idle in a store but is essential for smooth running of the organization and hence have economic value.

Inventory Management:

This is all about monitoring of inventory levels and requirement at a manufacturing plant and distribution facilities.

Re-Order Level:

This is the point at which purchase order should be made for a fresh supplies of the materials.

Re-Order Quantity:

This is the quality that should be ordered any time replenishment order is placed to bring stock to desired level.

Holding Cost:

They are cost that can be attributed to holding a given level of inventory.

Purchasing Objectives:

When an organization define it needs for goods and services and compel the suppliers to make available to them, negotiate with sources of supply or in other words, to make contact and place and finally receive the goods and services and pay them.

Minimum Stock Level:

This is the level below which stock should not fall. If stock falls below this level, the danger of stock out will manifest.

Maximum Stock Level:

This is the level at which stock should not be allowed to rise. If stock rises above this level, there will be problem of high carrying costs.

Stock Out:

It is when there is demand for an item of stock and such demand is unsatisfied.

Work in Progress (WIP):

They are semi manufactured goods required for further work before they become finished products.


1.10 Organizations of the Study

The chapter one consist of the introductory part of the study which includes the study background, the statement of the research problem, the study objective and scope of the study.

The second chapter is a critical review of other literatures relevant to the study and its objectives including the theoretical framework for the study. While the third chapter is methods of data collection, sampling and data analysis used in conducting the study. The fourth chapter centres around the research findings including an analysis of how it relates to previous findings. The fifth chapter consists of the summary of findings, conclusion and recommendations base on the study objectives.


Chapter Five


Summary, Conclusion and Recommendation

5.1 Summary of Findings

The main objective of this research work is to highlight the benefits of effective inventory management in an organization in which Ministry of works and transport Owerri. 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 52 out of 500, using a systematic random sampling. However, having analyzed the data the following are the findings which were deduced from this study:

i. Ministry of works and transport Owerri, 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.

ii. 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.

iii. 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 table4.7 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.

iv. 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.

v. 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 Ministry of works and transport Owerri, 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 Ministry of works and transport Owerri 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, Ministry of works and transport Owerri 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 Ministry of works and transport Owerri, 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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Frequently Asked Questions


Do inventory management and procurement practices affect organizational performance?

In such environment, inventory management ensures control over customers demands thereby resulting to customer satisfaction and increase financial performance. The purpose of this research work is to examine inventory management and procurement practices and their impact on organizational performance.

What is the importance of inventory management in a competitive business?

In this competitive business environment costs control serves as an important instrument to remain competitive in the market. In such environment, inventory management ensures control over customers demands thereby resulting to customer satisfaction and increase financial performance.

What is the implication of inventory management on gross profit?

Inventory management entails maintaining the lowest level of certain assests to attain greater value of assets of the organization. An econometric analysis about the implication of industry have a high correlation with gross profit and working capital intensity. 

What is involved in in-inventory management?

Inventory management is an overarching term that refers to your tracking system for every phase in the product life cycle. It can include your sales forecasting, product ordering, supply chain management, warehouse management, and customer fulfillment solutions. To find out more, check out our article, “What Is Inventory Management?” 

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