Inventory Planning And Control In An Industry

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Inventory Planning And Control In An Industry


Abstract


The inventory planning and control play an important role in manufacturing firms.

This research project examines the existing practice as regards the ordering of raw materials their conversion to finished goods through the production process and their marketability for the finished goods.

The primary data were collected through survey methods using questionnaires and personal interviews. The analysis of data collected was carried out using chi-square, simple percentage and to show the rate at which each response occurs. Base on the analysis, the following findings were made, that inventory planning and control problems in manufacturing companies revolves around the determination of the optimum stock level to hold/carryout any point in time.

Also inadequate stock leads to production stoppages and loss of scales. I therefore recommended that companies should endeavour to keep accurate records of inventories as a means of effective planning and control. There in need fro proper planning and control in order to achieve maximum output in production.


Chapter One


1.0 Introduction

1.1 Background Of The Study

Inventory represents an important assets and in the largest singles item of cost in every business, accordingly, The success or failure of a concern may depend. Largely upon efficient material purchasing, storage, utilization and accounting, (buyers, C.I and Homes, G.A (1984). It is possible to distinguish three different classes of inventory they are.

Pre- production inventory(raw materials) In- process inventory (Work- in progress) and finished Goods inventory.
Pre- production inventory provides a types of insurance for the company, if difficulties in the future supply of raw materials are expected, this inventory will enable production to continue smoothly. If future cost of raw materials are expected to rise, higher stocks might be held as a rise in price.

Finished good may also be thought of as an insurance, if orders are received they will be able to be supplied immediately from inventory, hence the customer will not have to wait for delivery such insurance and reasons fro holding inventory in times of high interest rates. Consequently, good management of inventory is important to the profit minded enterprise.

Inventory in stock represents a major asset of most industrial and commercial organization and it in that stock are managed efficiently so that such investments do not be come unnecessarily large.

A firm should determine its level investment in stock, if must ensure that stocks are sufficient to meet the requirement of production and sales Secondly, It must avoid holding surplus stock which are unnecessary and which increase the risk. The stock level lies somewhere between these two extremes. The country is currently passing through a period of case where profit is hand by, hence the resources has become more and more vital. Thus methods must be adopted to ensure that funds invested in inventory are not wasted.

Inventory may be defined as being an idea/resource with economic value or as levis suggests” inventory is money temporarily wearing the gives of a casting or a bad bad of chemicals “ it in money on which the company pays, rather than collects interest. Values lessen as physical determination progress while insurance, storage and other cost accumulate. Inventory is money always end angers of devaluation with forces such as design and customer’s preference changes constantly in operation.

Management has been defined as the establishment of the environment for group efforts in such a way that individuals will contribute the group objectives with the least amount of such inputs as money time efforts discomfort and materials (Kountze and O’ Donnell, 1980).

It can also be defined as the process of planning, organization, directing and controlling the efforts or organization members and using all other organizational resources to achieve stated organization goals.

Inventory management is the art and science of achieving the set objectives of processing the materials at the lowest possible cost, ensuring adequate flow and making. The most economical use or such materials in order that the total cost of production is minimized through the creation of such an environment that would enable the individuals contribute to the achievement of the objective with least amounts of such input as money time, materials etc. on the other hand, inventory control is the science based art of ensuring that enough inventory in held by an organization to meet economically both its internal and external demand commitments.

There can be disadvantage in holding either to much or too little inventory. as such, inventory control primarily concerned with obtaining the correct balance.

Such production is very important to any economy adequate proper utilization of labour, materials and equipments will then have to be made on order to ensure greater efficiency. In the case of Nigeria, which is filled with uncertainty, the industrial sector cannot afford wastages especially with regards to materials.

Hence, there is need for proper and effective utilization of resources in order to prevent any short fall in the level of production and enhance profitability in the bottling Nigeria PLC.


1.2 Statement Of The Problem

The primary aim of inventory planning and control in an industry is survival, growth and the maximization of shareholders wealth. To attain these problems of inventory planning and control in an industry, a level of profit must be earned to allow an industry take advantages of business opportunities, undertake research and innovations which will enable growth. The achievement of these problem make it imperative that positive steps will be taken to mammies the total cost of the business and at the same time maximize revenue generating potentials.

The biggest question before planning and control in an industry is: How big should inventory.’ The answer to this question is obvious – they should be just big enough. This question is made more difficult by the fact that generally each individual within a control management group tends to answer the question from his own point of view.
He fails to recognize cost outside his usual frame work. He tends to think of inventory in isolation from other operation.

An industry organization needs to effectively manage its inventories. The planning and control of inventory involves holding on hand at any particular point in time decisions as to whether to buy.

Raw materials in large quality the member of times to place orders for materials and the optimum times to place requisition” why are we always out of planning and control of inventory” is often the problems of great member of businessmen faced with the dilemm as and frustration of attempting simultaneously to maintain stable providing customers with adequate services and keeping investment in inventor and equipments at reasonable levels.
But this is only one of the characteristic problems of inventory planning and control in an industry, problems business managers face dealing with production planning, scheduling and keeping inventories in hand to meet customers needs.

Other problems – just as when managers approach than on the basis of pencil work done are: How often should we re-order” How should we adjust production, when sales are uncertain? What capacity levels should we set for job- shop operations? How do we plan production and procurements for seasonal sales?

Inventory planning and control in an industry further involves how to schedule the departments and machines in order to avoid the risk having excess in process in inventory.

A profit oriented industry that can maintain these features of inventory planning and control will enable the industry chances of profitability and will have to be doing a good job controlling its inventories and production levels.

The fact that the statements are voided so frequently points out the many conflicts of interest which appear in most inventory situation.

To resolve these conflicts we need to resolve uncertain such as.

  1. Should we even have inventories?
  2. What should the inventories be?
  3. What is the correct inventory level”
  4. For a product?
  5. How can we control inventories?
  6. How can we evaluate performances?

1.3 Objective Of The Study

The objective of this study are as follows:

  1. To examine the basic inventory models (such as the EOQ) safety stock as operated by the Nigeria Bottling PLC
    Owerri plant, otherwise to find out how much the industry is losing for not buying in the Economic Order quantity (EOQ) lot sizes
  2. To determine whether there is any relationship between the of level of inventory and the level of production and customers services.
  3. To determine whether there is any relationship between the level of inventory and the level of profitability of the Nigerian Bottling Plc, Owerri plant.
  4. To identify the weakness if any involved in implementing inventory management and control system in an industry with special references to the Bottling Company Plc Owerri plant.

1.4 Research Questions

The Research questions for this study are:

  1. What is the economic order quality and the Bottling company plc, Owerri plant .
  2. Is the company buying at the economic order quality?
  3. If no to 2 above hoe much is the company losing annually for failing to buy at the economic order quantity lot sizes?
  4. What basic inventory models as most common to an industry?
  5. Why are most companies always running out of stocks ?
  6. How big should inventory be?
  7. Is there any relationship between inventory level and profitability?

1.5 Statement Of Hypothesis

This section serves a guide to the research work the problem identified and the objective stated, certain assumptions are made which will be tested during the course of the project work.

The hypothesis development for this research work are stated below;

  • H0: Inventory planning and control contributes to the increasing the profitability of the company
  • H1: Inventory planning and control does not to the increase the profitability of the company.

1.6 Significance Of The Study

Inventory planning and control in an industry constitutes a large proportion of the operating costs of a business hence its effective control management would enhanced the survival and growth of the business while contributing to a satisfactory profit level of operations by immixing costs.

No company can afford to invest its scarce resources in areas of considerable risks and uncertain. Therefore, he need to study a means of evaluating the profitability of holding inventory and costs involved in doing so can never be over emphasized.

Given the financial position of the Bottling Plc. Owerri plant, as a profit Oriented concern and its social and economic commitment to the growth of the company need to be exploited.

It in therefore the hope of the researcher that this study would be found useful by the owners, Management of the company and student, who may want to extend their studies in the area of inventory management.


1.7 Scope Of The Study

Inventory planning and control in an industry is really a very broad area, but this study is limited to an industry. With special references of the bottling Nigerian Plc, owerri plant.

The study investigate the general practice of inventory planning and control in an industry and control system adopted in the Nigeria Bottling PLc, Owerri plant, the Nature types and other factors influence the size of inventory and of raw materials in the factory. It in an analytical survey of the problems of the Nigeria Bottling in an industry with respect to the application of raw materials, planning and control in an industry management techniques.
Practically, the study in based on the analysis of raw materials control and management of the company for a period.

Investigations are carried out in this project at to what extent the inventory policies affected total corporate objectives of the firm such as profitability, efficiency etc in analyzing the data gathered, a quantitative techniques are employed to calculate the economic order quantity and Re-order point (ROP).


1.8 Limitation Of The Study

In a study of this nature, a lot of problems are bound to appear. It is left to the researcher to strive to achieve the best the could in spite to these problems. Some of the limiting factors of this research project are:

1. Inadequate information

Inadequate information was limiting factor in the sense that the extent the researcher could go depended on the available data. Most data which the researcher intended using for this analysis were not available as completed records of departments of the company.

2. Finance:

The researcher was forced by lack of money to limit the study to certain periods and to limit the respondents to a certain respondent to a certain number this is the case as much money was needed in typing questionnaires and conducting interviews.

3. Time:

This research project, being a requirement for the award of higher National diploma(HND) degree has time interval allocated to it by the institution The allotted time is also the some foe other course work and various assignment, hence there is always consistent conflict between lecturer hours and appointed schedule with company executives.

4. Illiteracy:

The researcher encountered problem in administering the questionnaires as a result of illiteracy of some respondents. The researcher had to take time to help some of this respondents in completing the
Questionnaires by asking the question and recording the responses accordingly.


1.9 Definition Of Terms

Inventory:

According to pandey” inventory is stock of goods and components that make up the product that an industry is producing for sales” we have difference types of inventory.

  • Raw materials inventory for machining within the company.
  • M.R.O Inventory Maintenance requirement operation
  • Work- in- progress inventory are an absolute necessity
  • Inventory of supplies
  • Finished goods inventory it is possible to calculate accurately the production inventories required period of time.
Lead or procurement Time:

The period of time expressed in days, weeks, months, etc between ordering (either externally or internally) and replenishment i.e when the goods are available for use.

Economic order quantity (EOQ):

This is a calculated ordering quantity which minimize the balance of costs between inventory holding and re- order cost.

Maximum stock:

The maximum stock level is the level above which stocks not normally be allowed to rise. It is set by:

  1. The rates of sales of the finished goods
  2. Lead time
  3. Re-Order level of inventory
  4. Re-order quantity of inventory insurance etc
Minimum stock level:

This is the level below which the stock must not normally fall.if stocks go below the level, when there is the possibility stoppage it is set after considering two factors.

  • The rate of production of goods during the lead time.
  • Lead time which is the same things as the period necessary to obtain delivery of raw materials
Re-Order quantity:

The re-order quantity is the quantity that a firm orders any time it what to replenish its stock. It is important for an establishment to know not only the size of inventory to order at a time, but also when he inventory is due replenishment

Re-order level:

The level stock at which a further replenishment order should be placed.
The re-order level is dependent upon the lead time and the demand during the lead time

Materials requirement planning (MRP):

Is a computer based inventory management system designed to assist production management in scheduling.

Planning:

Coping by formulating future courses of actions to attain seethe result.

Inventory:

Planning is a process whereby the products are being planned, budget, coordinate, organize , controlled and budgeted for use.

Control:

Can be defined as a management function that concerns itself with taking the necessary corrective actions.

Inventory control:

Is a process where the products or materials are taken properly care of.

Inventory production:

Is a process whereby the products of materials are manufactured fro use and after which it will be taking to the market

Industrial Resolution:

Is the result that need high expenditure in materials for proper management.

Inventory cost:

Inventory carrying cost cannot be avoided is any business organization.

The Suppliers:

They are the source of the organization materials and as such they have full knowledge both commercial and technical knowledge of the product .

Buffer or safety stock:

It serves as an insurance against late delivery and shortage of materials.

Handling cost:

These are cost of Labour in handling and storage of inventories they are cost of buying and maintenance.

Stock out cots or shortage cost:

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

Planned maintenance:

This is an organized maintenance work carried out as per recorded.

Access to store house / store yard:

Employees others collecting materials should not be admitted into the storage area. Arrangement should further be made.

Administrative:

These costs are when an organization place order for item to be stocked.


Inventory Planning And Control In An Industry


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