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THE IMPACT OF INVENTORY MANAGEMENT AND CONTROL IN
TOWER GALVANIZED PRODUCT LIMITED KADUNA
ABSTRACT
This research work is an
attempt to look into the impact of inventory management and control in
manufacturing company. It was conducted using Tower Galvanized Products (GTP)
Ltd Kaduna. The research work was carried out with the intention of examining
the pit falls of manufacturing companies in carrying out necessary management
and control of their inventories. For this purpose the study was divided into five
chapters. Chapter one introduced the research topic, the objective of the study
was also define which include to access and highlight the different methods of
inventory, planning and reeducation and the most appropriate one. Chapter two
was concerned with the review of related literature and points like objectives
of inventory management which include to maintain minimum investment in
inventories to maximize profitability were discussed. Chapter three dealt with
the methodology used in collecting data. In this chapter the random sampling
technique was adopted and questionnaire were used to collect the data. Chapter
four has to do with the analysis of the various data collected using the mean.
In chapter five, summary of the research work was don and conclusion were drawn
to give recommendations in that a manufacturing companies with a view to profit
maximization and cost reduction should adopt and maintain an effective
inventory management and control system
TABLE OF CONTENTS
Title page i
Declaration page ii
Approval page iii
Dedication iv
Acknowledgement v
Abstract vii
Table of contents viii
CHAPTER
ONE
Introduction
1.1 Background of Study 1
1.2 Statement of the Problem 4
1.3 Objective of the Study 6
1.4 Significance of Study 7
1.5 Research Questions 8
1.6 Scope of the Study 8
1.7 Limitation of the Study 9
1.8 Definition of terms 9
CHAPTER
TWO
Literature Review
2.1 Introduction 11
2.2 The Concept of Inventory
Management 12
2.3 The Nature of Inventory 14
2.4 Motive for Holding Inventory 16
2.5 Objective of Inventory
Management 20
2.6 Techniques of inventory
Management and Control 22
2.7 Economic Order Quantity Model 23
2.8 Inventory Records 31
2.9 Inventory Valuation Methods 35
2.10 Inventory Ordering System 38
2.11 The Impact of Computer
Application on Inventory Management and control 41
CHAPTER
THREE
Research
methodology
3.1 Introduction 44
3.2 Research Design 44
3.3 Area of Study 45
3.4 Population of the Study 45
3.5 Sample 45
3.6 Instrument for Data
Collection 46
3.7 Validity
of the Instrument 47
3.8 Reliability
of the Instrument 47
3.9 Methods
of Data Collection 48
3.10 Methods
of Data Analysis 48
CHAPTER FOUR
Data Presentation and Analysis
4.1
Introduction
50
4.2
Characteristics
of respondents 50
4.3
Presentation
of Data and Analysis in Tables 54
4.4
Summary of
findings 61
4.5
Discussion
of Findings. 63
CHAPTER FIVE
Summary,
Conclusion and Recommendations
5.1 Summary 66
5.2 Conclusion 67
5.3 Recommendations 69
Bibliography 72
Appendixes
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Inventories constitute the most
significant part of current events of a large majority of companies in Nigeria
and indeed many other part of the world. Because of the large size of
inventories maintained by firms, a considerable amount of fund is required to
be committed to them. Therefore, the efficient and effective management of
inventories becomes imperative in order to achieved unnecessary turnover or to
minimized the cost associated with keeping inventories. The neglect of
inventory management and control by a firm will amount to jeopardizing its long
run profitability and may even cause the firm to fail ultimately.
Inventory is defined as the stock of
any item or material used in an organization. Therefore, an inventory
management is the set of policies and control that monitor levels of inventory
and determines the following:-
i. What level should be maintain
ii. When stock should be replenished.
iii. How large order should be
However, inventory can include input
such as human resources, financial, equipment e.t.c and output such as parts or
component.
It is possible for a company to
reduce its level of inventories to a considerable degree without any adverse
effect on production and sales by using inventory planning and control techniques.
The reduction in excessive inventory
carries a favourable impact on company profitability (Pandey 1999) in doing
this however, care should be taken to avoid under stocking which directly
affect production causing stoppage, loss of sales, loss of good will. etc.
Inventory forms a link between
production and sales of a product. A manufacturing company must maintain a
certain level of inventory in the form of raw materials, work in progress and
finished goods. Raw materials inventory gives the firm flexibility in its
purchase, without it, a manufacturing company must exist on a hand-to- moth
basis buying raw materials in keeping with its production schedule. Work-in-
progress are items of stock that are subjected to further processing to
produced the finished product. finished goods inventory allows the firm
flexibility in its production scheduling and in its marketing thus there is on
incentive to maintain large stocks of all three types of inventory.
In an inflationary environment like
Nigeria, there is the need to adopt a realistic inventory valuation method in
order to give correct value of inventory in the profit and loss account and in
the balance sheet which would have otherwise show an appropriate financial position
of the organization and thus negating the purpose of accounting which is the
provision of accurate financial information to investors, shareholders, management,
government and her agencies and other related interested parties in order to
assist them in taking decision about the organization.
It is in view of this that the need
arises for an appropriate management and control measure to maintain the most
accurate level of stock that will assist management of the organization
carryout business in such a way that it does
not portray the organization in bad shape.
1.2 STATEMENT
OF THE PROBLEM
The wide distance between the source
of raw material and factories in Nigeria today has posed a great problem to
management. Thus the management may not predict with certainty to delivery date
of materials. How then does the management ensure that there is no hitch and
delay in the supply of raw material to satisfy their day to day requirements
without necessarily keeping excessive stock of raw materials and finished goods
which represent investment from which no return is expected immediately.
In line with this, the major problem
face by management is the determination of what stock to be kept, when to
reorder, of what cost to reorder, what the production level should be, how work
in process and stages involved should be controlled, movement of finish goods
from point of production into the market. The disadvantages associated with
huge investment in inventory (tying down of capital, increase in
holding/carrying cost etc) act as a detriment in management in committing huge
sum of funds in inventory. Conversely making little investment will be
disastrous as it will lead to frequent stock out and consequent disruption of
production system and incurring additional cost resulting from frequent
ordering.
Since no company especially a
manufacturing company can operate without keeping stock, it is necessary to
check the occurrence of pilferage depletion, damages, breakages, obsolescence
etc. among other things.
1.3 OBJECTIVE
OF THE STUDY
The primary objective of this
research work is to consider inventory control system as described and
discussed by different authors. This will be taken as a standard against which
the inventory system of the company under study will be appraised to determine
its efficiency and suitability in the peculiar environment it operates.
The objectives of this study
includes:
1.
To
determine an optimum level of inventory to be maintain by the company under
study.
2.
To
assess and highlight the different methods of inventory planning, control and
valuation and the most appropriate one for a manufacturing company.
3.
To
highlight the need for and nature of inventory.
4.
To
make viable recommendations on the basis of the out come of the research.
5.
Effect
on delivery date with certainty.
1.4 SIGNIFICANCE
OF THE STUDY
The significance of a proper and
efficient inventory control and management cannot be over emphasized. Its
effect is not only on the individual company but on the economy as a whole.
This study is meant to find solutions
to the itching problems of Tower Galvanized Products (TGP) Nigeria limited
Kaduna in inventory management and control.
The study will also be of immense
benefit to the owners and management of the company under study, their
creditors and prospective shareholders who might wish to invest in the company. This is so
because managing inventories efficiently and effectively will help the company
to avoid unnecessary investment. It helps the management in quick and accurate
decision making. It will also help to build-up the goodwill of the current asset
of many companies.
Finally, the knowledge required from
this study will broaden the existing knowledge in this field and aid researcher
in applying it to other companies or organizations.
1.5 RESEARCH
QUESTION
With reference to the statement of
the problem highlighted above and considering the scope and limitations of this
study the following research questions are formulated.
1. How does the company determine the optimal
level of stock to be maintain?
2. How appropriate is the valuation method
given the present inflationary situation?
3. What determine the level of control to be
maintain on various types of stock?
4. What practical problems are in the ways of
progress of inventory management and control in the area under study?
5. How does the effect of large investment
inventory affect the management (holding cost).
1.6 SCOPE
OF THE STUDY
This research work is focused on
inventory management and control in Tower Galvanize Product (TGP) Nigeria
limited, Kaduna during the year
2001-2006 as it affects the full implementation of the basic concepts of
inventory management. Associated issues like inventory procurements, storage and
physical distribution policy of the company will also be examined.
1.7 LIMITATIONS
OF THE STUDY
1. Lack of corporation from subjects leading
to the use of smaller than the anticipated number this can affect the quality
and the generalization of the findings.
2. Inability to use correct data gathering
instrument due to ignorance about their availability
3. Low return rate of questionnaires
4. Using less then fair representative sample
due to inability to research subjects.
1.8 DEFINITION
OF TERMS
- Inventory: This is the list of
items held in stock by a company at any particular time.
- Stock: This consists of all goods
and materials stored by an organization. It is a supply of items which are kept
for future used.
NB for the purpose of this research
work, stock and inventory are sometimes used interchangeably
- Lead time: This is also known as
reorder period or delivery. It is the period of time between ordering and
reception of goods ordered for.
- Re-order level: This is the point
at which it is necessary to initiate purchase requisition for new supply of
materials.
- Minimum stock level: This is the
level below which stocks should not normally be allowed to fall. It can be said
to be buffer or safety stock which makes allowances to cover for error in forecasting
the lead time or the demand during the lead time.
- Maximum stock level: This is the
level above which stock should not normally be allowed to rise.
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