Inventory Control And Organizational Performance

Project and Seminar Material for Business Administration and Management BAM

Abstract

This study is aimed at examining the significance of inventory control and organizational performance, a study of PZ, llupeju, Lagos. The survey research design was used in this research. The researcher made use of structural questionnaire as the research instrument to collect relevant data from 120 respondents on the subject matter of the research out of which a total of 105 questionnaires was retrieved and analyzed using simple percentage. The researcher made use of simple Random Technique as the sampling procedure while the chi-square was used to test the hypothesis raised in this research. Findings in this study reveals that, every profit-driven organization should have a sound, effective and well-coordinated inventory management system because the business environment is rapidly changing, highly competitive and it drastically affects the performance of the organization. It has also been found out in this study that, many organizations fail to take cognizance of effective inventory control management. The researcher has therefore recommended that PZ should take into serious consideration the issue of inventory control management in order to achieve the organizational set goals.

Chapter One

Introduction

1.1 Background of the Study

Inventory management is a critical management issue for most companies large companies, medium-sized companies, and small companies. Effective inventory flow management in supply chains is one of the key factors for success. The challenge in managing inventory is to balance the supply of inventory with demand. A company would ideally want to have enough inventories to satisfy the demands of its customers- no lost sales due to inventory stock-outs. On the other hand, the company does not want to have too much inventory staying on hand because of the cost of carrying inventory. Enough but not too much is the ultimate objective (Coyle, Bardi, and Langley, 2003). The role of inventory management is to ensure faster inventory turnover. It increases inventory turnover by ten (10) and reduces costs by 10% to 40%. The so-called inventory turnover is not yet right to sell products on the shelves based on the principle of FIFO cycle(http://www.academia.edu/). Inventory management is necessary at different locations within an organization or within multiple locations of a supply chain, to protect (the production) from running out of materials or goods. Adequate inventories kept in manufacturing companies will smooth the production process. The wholesalers and retailers can offer good customer services and gain good public image by holding sufficient inventories. The basic objective of inventory management is to achieve a balance between the low inventory and high return on investment (ROT). (Johson et al, 1974). Inventory levels have been seen as one of the most interesting areas for improvement in organization materials management (Kumar Ordamar, Zhang, 2008).

Inventory plays a significant role in the growth and survival of an organization in the sense that ineffective and inefficient management of inventory will mean that the organization loses customers and sales will decline. Prudent management of inventory reduces depreciation, pilferage, and wastages while ensuring availability of the materials as at when required (Ogbadu, 2009). Inventory management is critical to an organization’s success in today’s competitive and dynamic market. This entails a reduction in the cost of holding stocks by maintaining just enough inventories, in the right place and the right time and cost to make the right amount of needed products. High levels of inventory held in stock affect adversely the procurement performance out of the capital being held which affects cash flow leading to reduced efficiency, effectiveness and distorted functionality ( Koin, Cheruiyot , and Mwangangi , 2014).

1.2 Statement of the Problem

Inventory is a vital part of current assets mainly in manufacturing concerns. Huge funds are committed to inventories as to ensure smooth flow of production and to meet consumer demand. However, maintaining inventory also involves holding or carrying costs along with opportunity cost. Inventory management, therefore, plays a crucial role in balancing the benefits and disadvantages associated with holding inventory. Efficient and effective inventory management goes a long way in successful running and survival of a business firm, when organizations fail to manage their inventory effectively they are bound to experience, stock out, the decline in productivity and profitability, customer dissatisfaction . Thus the study seeks to investigate the significance of inventory control on organizational performance using PZ Ilupeju, Lagos.

1.3 Objective of the Study

This study is aimed at examining the significance of inventory control and organizational performance, a study of PZ, llupeju, Lagos. Specifically the study seeks :

To ascertain the extent at which inventory control affects firms productivity.
To examine the importance of inventory control on organizational performance.
To examines factors that draw back the process of inventory control.

1.4 Research Question

What is the extent at which inventory control affects firms productivity?
What are the importance of inventory control on organizational performance?
What are the factors that draw back the process of inventory control?

1.5 Research Hypothesis

HO: Inventory Control has no significant effect on Organizational Performance.

Hi: Inventory Control has a significant effect on Organizational Performance

1.6 Significance of the Study

Findings from this study will be beneficial to Inventory control managers who will have to define how often inventory levels are reviewed to determine when and how much to order and whether it is performed on perpetual or periodic basis. To PZ Ltd who may wish to adopt the study, it will shade more light on how well they can manage their inventory strategically so as to maximize profit. The study will also help scholars to build knowledge and find possible future research on the effects of inventory management systems. The study will serve as a reference material to student and other researchers in other related field of study.

1.7 Scope of the Study

The scope of this study borders on examining the significance of inventory control and organizational performance. The study is however limited to PZ Ltd, Ilupeju Lagos.

1.8 Limitation of the Study

The following factors poses to be a limitation during the course of this research

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).

Time constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.;

1.8 Definition of Terms

Inventory:

Inventory refers to a company’s goods and products that are ready to sell, along with the raw materials that are used to produce them. Inventory is the accounting of items, component parts and raw materials a company uses in production, or sells

Inventory Control:

Inventory control is the process of ensuring that appropriate amounts of stock are maintained by a business, so as to be able to meet customer demand without delay while keeping the costs associated with holding stock to a minimum. Inventory control is the process of keeping the right number of parts and products in stock to avoid shortages, overstocks, and other costly problems.

Organizational Performance:

Organizational performance means the effectiveness of an organization in the achievement of their desired goals. Organizational performance comprises the actual output or results of an organization as measured against its intended outputs.

Chapter Five

Summary, Conclusion and Recommendation

5.1 Summary

This study is aimed at examining the significance of inventory control and organizational performance using PZ, llupeju, Lagos as case study. The study ascertained the extent at which inventory control affects firms productivity. It examined the importance of inventory control on organizational performance. It examined factors that draw back the process of inventory control. The survey research design was used in this research. The researcher made use of structural questionnaire as the research instrument to collect relevant data from 120 respondents on the subject matter of the research out of which a total of 105 questionnaires was retrieved and analyzed using simple percentage. The researcher made use of simple Random Technique as the sampling procedure while the chi-square was used to test the hypothesis raised in this research.

5.2 Conclusion

The study concluded that inventory management is essential in the operation of any business. Inventory as an asset on the balance sheet of companies has taken on increased importance. Findings in this study reveals that, every profit-driven organization should have a sound, effective and well-coordinated inventory management system because the business environment is rapidly changing, highly competitive and it drastically affects the performance of the organization. It has also been found out in this study that, many organizations fail to take cognizance of effective inventory control management.

5.3 Recommendation

The following recommendations were made based on are finding:

PZ should take into serious consideration the issue of inventory control management in order to achieve the organizational set goals.
Other manufacturing firms develop a policy framework to facilitate faster Implementation of the best inventory management practices
Organizations should also strengthen the supplier relation to the level of partnerships and also not only concentrate on one supplier so that the failure of one supplier will not mar the production system
Organizations should train their personnel in the area of inventory control management that will empower them to be in charge for smooth running of the inventory management activities or program
The study recommended that top management should emphasis on the proper inventory management techniques and measuring of efficiency deviations to identify weaknesses in the process of managing inventories.

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Frequently Asked Questions

What are the contributions of inventory management to organizational performance?

Contributions of inventory management to organizational performance. The study explored contributions of inventory management to organizational performance. The reason was to establish whether respondents were aware that inventory management practices contribute greatly to the performance of local governments.

Does inventory management affect organizational effectiveness in Nigeria?

The study of the “Effects of Inventory Management on Organizational Effectiveness in selected organizations in Enugu, was carried out, to asses the impact of proper inventory management on organizational performances in Emenite, Hardis & Dromedas and the Nigeria Bottling Company all in Enugu, Enugu State.

How does inventory control affect the performance of a firm?

Phebe & Njoku (2018) indicated that inventory control has a significant positive impacts on the performance parameters of organizations and therefore contributes to economic production quantity and quality of products at budgeted costs and scheduled time to customers and hence profitability of manufacturing firms.

How does inventory management practice affect micro and small enterprises performance?

The main objective of this study was to examine the impact of inventory management practice of micro and small enterprises competitiveness and performance. The results of the study indicate that higher levels of inventory management practice can lead to an enhanced competitive advantage and improved organizational performance.

Does inventory management affect firm performance and cash flows?

However, almost all these studies fail to acknowledge the fact that inventory management also have an effect on firms operating cash flows. In this study, we focused exclusively on the effects of inventory management on firm performance of Ghana’s manufacturing firms.

What is the importance of inventory management to organizations?

Basing on the findings, Inventory management helps organizations to cut down costs incurred by an organization.

Does inventory management affect firm performance in Ghana?

The empirical results provided evidence that the main variable, inventory management have no effect on firm’s performance and is insignificantly related to firm performance of manufacturing firms in Ghana. Keywords: Ghana Stock Exchange, Firm performance, Manufacturing firms, Inventory management, Profitability, Operating cash flow

Which measures of firm performance are related to effective inventory management?

Measures of firm performance which were profitability and operating cash flows were examined. Regression equations stated in the form of return on assets and operating cash flow was used in analysing firm performance data. Pearson correlation and multiple regression analysis was also used as proxies in relatedness to effective inventory management.

What are the objectives of inventory management study in Nigeria?

…manufacturing organizations in Nigeria, while the specific objectives are:- 1. To examine the nature of relationship between inventory management and organizational effectiveness. 2. To determine the effect of inventory management on organizational productivity.

Does inventory management affect organizational effectiveness?

…inventory management and organizational effectiveness. Inventory management has a significant effect on organizational productivity. There is highly positive correlation between good inventory management and organizational profitability. The study concluded that Inventory Management is very vital to the success and growth of organizations.

What is inventory management?

From the foregoing therefore, one infers that inventory management is the act of ensuring that balanced items of stock are maintained at the right quantity, quality, place and time in an organization, to ensure organizational business continuum. Types of Inventory

Why should organizations diversify their inventory system?

The entire profitability of an organization is tied to the volume of products sold which has a direct relationship with the quality of the product Against this background the study recommended that Organizations should diversify their inventory system to suit specific needs of production, and that management

How does inventory management affect firm performance?

In an effort to fasten inventory management on firm performance, many decisions are being taken to provide a direction and strategy for competitiveness and productivity. Empirical studies have had diverse findings conducted globally on inventory management.

What is the difference between inventory control and inventory management?

Starting with good inventory control, effective inventory management is the result of both inventory control and inventory management. While inventory control is associated with ensuring that the inventory in the warehouse is in good condition, inventory management is focused on reordering goods.

Does inventory management affect firm performance in Ghana?

What are the effects of the financial crisis on inventory management?

… This has misled firms into adopting irrelevant inventory management strategies exposing them to high inventory wastages, unnecessary shortages and production delays.

How to promote inventory management practice in micro and small enterprises?

Therefore, it is recommended for owners and managers of micro and small enterprises to promote the inventory management practice by using different scientific to1. Introduction

What is the impact of inventory management practice on performance?

How does the competitiveness of a firm affect its inventory management?

…increased competitiveness of a firm may enable a firm to implement higher level of inventory management practice due to the need to outperform its competitors constantly and keep its competitive

How can inventory management improve the performance of MSEs?

Therefore, in the development process of any country, the performance of MSEs based on competition, productivity, and efficiency will play a significant role in the economy. It is observed from literature that making use of formal inventory management practices is one of the ways to acquire competitiveness. Stevenson, B. ( 2010 ).