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IMPACT OF INVENTORY
MANAGEMENT ON PRODUCTIVITY IN NIGERIA BOTTLING COMPANY
CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
The effective and efficient functioning of a productive
system requires the regular demand and supply of inventory at the input
transformation and output phases of the production process.
Management is also seen as the effective and efficient
utilization of resources for the achievement of organization objectives. To
ensure the achievement of the objective three must be free flow of material,
unencumbered at every stage of the
production process.
In Nigeria today, there are many soft drink production
companies in the beverage industry and
they all source their raw materials from few of not the same market. With the
present economic melt down, organization are after these scare resources
to product their product. Therefore,
the urgency for the effective and
efficient management of inventory in form of
raw material, work-in-progress and finished goods constitute
significant proportion of assets of most
organization.
But why is it pertinent to keep an eye on these items in
other words, why do we engage in inventory management?
Inventory items cost money to acquire, they cost money to store and to look after, which means
storage facilities has to be provided so
as to make sure that these materials or
items do not get spoilt until they are turned into sellable goods, they do not
produce money.
When stocks are held, it means tying down capital that would
have been used in other areas, so it all represent cost and should be managed
properly to acquire efficiently.
We must however, hold stocks to meet production needs and
sales needs. This is because if we do not hold stocks in sufficient quantities
west and the risk of running out of stock. Similarly, if we short of finished
good, we may disappoint our customers. Inventory shortage in both these forms
will likely lead to loss of customers and money. For the organization not to
have above problems they should strike a balance between too much stocks (over
inventory) and carrying too little stock. (Under inventory).
This is essentially the importance of inventory management,
managing assets of all kinds is basically an inventory problem, the same method
of analysis applies to cash and fixed assets as to inventories themselves.
First of all a basic stock must be on hand to hand balance in
flow and outflow of items, the size of the stocks depend on pattern of flow whether fast moving or regular
items.
Secondly, because
the unexpected may occur, it is
necessary to have safety stock on hand presenting extra stock to avoid the cost
of not having enough to met current needs.
Thirdly, additional amount may be required to meet future growth needs, these are called
anticipation stocks, related to anticipation
stock is the recognition that these are optimum purchases size defines
as economic order quantity (EOQ)
In borrowing money for buying raw materials for production or
purchasing plants and equipments, it is cheaper or more economical to buy more
than just enough to meet immediate needs. Manufacturing firms have three kinds of inventories:
a. Raw materials
b. Work-in-progress
c. Finished
Goods
a) Raw
Materials: inventories are influence by anticipated production, seasonality of
production, reliability of resources or supply and efficiently of scheduling
purchased and production operations.
b)
Work-in-progress: inventory is
greatly influenced by the length of the production period which is the time
between planning raw materials in production and completing the finished
product. Inventory turnover therefore can be increased by decreasing the
production, means of accomplishing these to perfect engineering technician,
therefore, spreading up to manufacturing process. Another means is to buy
rather than make them. The level of finished goods inventories is a matter of
coordinating production and sales.
Holding stocks in what ever form cost money: the capital tied down by the
stocks itself has to be serviced by the
payment of interest and the land or warehouse
needed for the stock has to be bought or rented.
The handling and securing of the stocks and any quality determination that occur also cost
money.
The sample type of the stock control system used in most
organization is two: the bin system of stock control and which is of two
quantities – the first is the stock level below which a new order has to
placed, the other gives the quantity to be ordered. Under this system, the
units of stocks are held in two; one and two stocks is taken from bin as
required until this bin is empty. More are then ordered by the quantity
being determined by the rate of usage or consumption rate.
Comprehensive inventory; planning and control system have
been successfully installed or established in many organizations. The major
objectives of inventory management are to discover and maintain to optimum
level of investment in the inventory.
Inventories may be too high or too low, if to high there are unnecessary
carrying cost and risk of obsolesce, if too low, production may be disrupted or
sales permanently cost and loss of goodwill, reputation and customers to their
firms in the same industry.
The optimum inventory level is that which minimizes the total
associated with inventory.
1.2 STATEMENT OF
THE PROBLEM
The life blood of any organization, whether private or public
whether productive or service organization is inventory. Because of the slit
completive that exist in every industry, inventory management has become
mandatory on each and every manager responsible for production in an
organization.
Inventory is one vital resource that any organization
requires and just like any other resource
that is very scares and that requires effective management rather than neglect.
The cost of acquiring these inventories is also important for
the fact that too much of it will mean trying down capital and risk of becoming
obsolete while having little could lead
to shortage and production bottle
neck.
How then, to determine adequate quantity of raw material to
buy, where to buy on a regular basis devoid of scarcity, the amount to
invest on the inventory is the concern
of the researcher.
1.3 OBJECTIVES OF
THE STUDY
The objectives of the
study are to determine:
1. What
quantity of inventory to buy and stock?
2. What
procedure to follow in purchasing?
3. How
to locate required goods in the store?
1.4 SIGNIFICANCE OF THE STUDY
The result of this research when concluded will be of great
benefit to the following.
1. Companies in the
beverage industry especially the Nigerian Bottling company.
The findings and the recommendation will asset production
managers to find better ways to manage their inventory. The findings and
recommendation can also be used as a steeping tone to other researcher in the
areas for further research work.
1.5 STATEMENT OF
HYPOTHESIS
The following
are hypothesis developed to guide this research work:
Ho: effective inventory management will not reduce material
wastage/cost and hence cannot improve profitability.
H1: effective inventory management will reduce material
wastage/cost and hence cannot improve profitability.
1.6 SCOPE OF THE
STUDY
The scope of this research is the Nigerian Bottling company and its limited to the management of their
inventory in the last five (5) years of the company operations.
1.7 LIMITATIONS OF
THE STUDY
This research is limited by the time in the sense that most respondent do not keep appointment given to the
researcher.
Some respondents also misplaced the research instrument
administered to them.
Another problem is restriction to vital information and
document by the organization under study due to secrecy, the organization is so
strict with their document and do not allow vital information to be revealed
for fear for leaking management secret
to competitors, this generated a non-challant attitude by some staff towards the
research.
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