INVENTORY CONTROL AND ITS IMPACT ON PROFITABILITY (A CASE STUDY OF TURNERS BUILDING PRODUCT (AREWA) LTD KADUNA)
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INVENTORY CONTROL AND ITS IMPACT ON PROFITABILITY
(A CASE STUDY OF TURNERS BUILDING PRODUCT (AREWA) LTD KADUNA)
ABSTRACT
This
research work is titled “Inventory control and its impact on profitability” a
case study of Turners Building Product (Arewa) ltd Kaduna. A great deal of
attention has been devoted to the planning of other economic resources such as
financial resources and material resources but the need for inventory control
which is the most important resources that harnesses other resources has been
undermined. Hence the objectives of this research is to bring to light the
importance of inventory control and how it can be used to minimize wastages in
organization. The importances of inventory control were pointed out in the
introduction and also views of various authors concerning the topic were
discussed. The survey method is adopted and questionnaire was the major
instrument for data gathering. The researcher’s summary and conclusion revealed
that inventory control is a tool for achieving organizational profitability.
TABLE OF CONTENTS
Title page i
Approval ii
Declaration iii
Dedication iv
Acknowledgement v
Abstract vii
Table of contents viii
CHAPTER ONE
Introduction
1.1
Background
of the study 1
1.2
Statement
of the problems 4
1.3
Objectives
of the study 5
1.4
Significance
of the study 6
1.5
Scope
of the study 7
1.6
Research
questions 8
1.7
Historical
background of the study 8
1.8
Definition
of terms 9
CHAPTER TWO
Review of related literature
2.1
Definition
of inventory control 12
2.2
Importance
of inventory control 16
2.3
Control
of stock by values 22
2.4
Economic
order quantity (EOQ) model 24
2.5
Stock
levels 25
2.6
Material
requirement planning MRP 27
2.7
Cyclical
provisioning 29
2.8
Definition
of profitability 30
2.9
Reasons
for limiting the extent of profitability 32
2.10 Stock level and portability 35
CHAPTER THREE
Research methodology
3.1
Area
of the study 37
3.2
Research
design 37
3.3
Population
of the study 38
3.4
Sample
and sampling techniques 39
3.5
Instruments
for data collection 39
3.6
Administration
of the instruments 40
3.7
Techniques
for data analysis 40
CHAPTER FOUR
Data presentation and analysis
4.1
Presentation
of results 42
CHAPTER FIVE
Summary, discussion, conclusion and
recommendations
5.1
Summary
of procedure 52
5.2
Discussion
of findings 53
5.3
Implications
of the findings 54
5.4
Conclusion 55
5.5
Recommendations 55
5.6
Suggestion
for further studies 56
Bibliography 57
Appendix 58
CHAPTER I: Introduction
1.1 Background of the Study
Inventory control is an extension of
stores keeping and it has been in practice for a long time. It has a wide scope
of activities today. Inventory control is an act of safe keeping some valuable
items for future use and to produce them when the need arises. Inventory
control goes beyond the scope of keeping
and producing the items only but also involves controlling of
operations, receiving, quality control activities, training of store staff,
control of all store houses, stock handling as
well as clerical documentation.
Inventory control can be defined as an
art and science of achieving the objectives of inventory in an organization. It
involves planning, organizing, staffing controlling and co-coordinating all the
inventory operational activities for the provision of efficient services.
Inventory control is a serving centre and the services to be provided must be
meticulously handled, more organized to meet the demand of all units or
department that constitute the organization for optimum performance. The
primary function of inventory control is to provide for efficient inventory and
handling of goods to be redistributed to the ultimate user, this activity when
carried out with the use of Information Technology (I.T) will make re-ordering
of materials easy as the information are already in the computer. The use of
information technology in controlling of inventory eliminates time wastages.
This provision of services to the operating function must be fully appreciated.
All other activities although they have their own relative importance are
subordinate to this primary responsibility. The above central objective can be
analyzed as follows:
i.
To
make available a balance flow of raw materials components, tools, equipment and
any other item necessary to meet operational requirement.
ii.
To
provide maintenance materials spare part to general stores as required.
iii.
To
receive and issue work in progress and finished products.
iv.
To
accept and store scraps and other material as it arises.
v.
To
account for all receipt and issue of goods in the store.
Thus in any institution, private or
public, some substantial amount is spent on the acquisition of materials,
equipment etc. which are kept in the store house for future use. These items
represent an equivalent amount of cash and have to be looked after, protected
against unauthorized usage, until they are used for the intended purpose and
duly accounted for.
A lot of costs are associated with
keeping of inventory despite that; we must however hold stock to meet
production needs and sales needs. This is because if we do not hold stock in sufficient
quantity we stand the risk of running out of stock and incurring all the cost
associated with stock out. Therefore, for an organization not to have the above
mentioned problem it is important that they strike a balance between carrying too
much stock (over stocking) and carrying too little stock (under stocking). The
importance of profitability cannot be overstated, because that is the reason
why organizations are in business, if inventory control is carried out
properly, there will be increase in production and sales thereby increasing
profitability for the organization.
Therefore, this study attempts to
find out how inventory control can be effectively used to reduce time wastage,
theft, obsolescence and pilferage in the organization so as to achieve their
goals of profitability.
1.2 Statement of the Problem
Empirical research has shown that the
study of inventory control or administration started late, unlike the study of
other fields of human endeavour, such as medicine, engineering, and law,
accounting and public administration to mention but few. This is not to say
that it did not exist at all but this field has not attracted people as the
belief that anybody can work in that area (inventory). Every year organization
prepared and implements one type of economic policies/budget whereby a large
sum of money is spent on acquisition of materials without making and adequate
planned effort to provide for inventory facilities. These lapses coupled with
improper stock control system and lack of trained personnel account for the
ineffectiveness of inventory function in the public and private sector.
One is baffled to see that things
bought for use such as capital equipments are left in the open during training
reasons in which the outcome is usually deteriorated materials, a waste of
effort and money.
Inventory control has problems in
general, especially in area of discrepancies, theft, fraud, obsolescence, deterioration
and breakages. All these constitute a great loss to the establishment coupled
with this, is also the problem of excess stock of some items with its affendant
consequences of tying down of capital in inventory. Thefts usually occur with
materials which are small in nature but of very high value. These materials are
usually stolen because there is no proper method of control. These problems are
not limited to a single establishment rather, they are universal problems still
facing many establishment.
1.3 Objectives of the Study
The aim of this study is to examine
the impact of inventory control on the profitability of Turners Building
Product (Arewa) ltd Kaduna, with the following specific objectives:
1) To find out methods of operating
stores in a private sector, such as Turners building product (Arewa) Kaduna.
2) To determine whether inventory
control has help in increasing the profit of Turners
3) To advice the company in the method
adopted in inventory operations, if it is not consistent to the existing knowledge.
4) To find out how stock are kept in the
store house.
5) To identify factors that militates
against successful implementation of stock control system in the organization.
1.4 Significance of the Study
The significance of inventory control
in profitability covers various aspects of the organization as a result its importance
cannot be overlooked in particular the organization of Tuners Building Product
(Arewa) Kaduna.
The significance of compiling this
research is to make researchers and historians who may need to know or get
vital information about inventory control and it impact on profitability of
Turner Building Product, and to give quick guide or easy access to the
retrieval of information
The essence of this research work to
the organization is to enable them know more about what is going on in the
inventory control room, there problems and possible solution to tackle them. As
a problem solving topic, the researcher however, believes that the study will
help prospective inventory mangers to know more about this topic. It is also a
requirement in partial fulfillment for the award of Higher National Diploma in
purchasing and supply department.
1.5 Scope of the Study
The scope is limited to all aspect of
inventory control as it affects profitability of Turners Building Product
(Arewa) LTD Kaduna. The research work covers the following
i.
What
is inventory control
ii.
The
importance of inventory control
iii. Control of stock by value
iv. The Economic Order Quantity (EOQ)
model
v.
Stock
level
vi. Material Requirement Planning MRP
vii. Cyclical provisioning
The scope will be restricted to the
purchasing, account and production department of Tuners.
1.6 Research Question
The research will be conducted base
on the following questions
1.
What
inventory control system is in use in the organization?
2.
Does
inventory control have any impact on profitability?
3.
Does
the organization keep proper store records for inventory control?
4.
Do
the organizations have adequate storage facilities?
5.
What
are the factors militating against successful implementation of stock control
system in the organization?
1.7 Historical
Background of Turners Building Product (Arewa) Kaduna
Tuners Building Product (Arewa)
limited Kaduna is an associate of New Nigeria Development Company (NNDC). The
company was established in Northern part of Nigeria precisely in Kakuri Kaduna
state in the year 1965. The company was established as a depot to the mother
factory at Emene in Enugu state. It eventually came into full operation in
1972. the company was formerly known as Turners Asbestos (North) limited but
the name was changed to Tuners Building Product (Arewa) limited in 1972 when it
began its full operation.
Turners Building Products (Arewa)
limited also known as TBP (A) limited, started its production using one factory
and producing building materials of various types these include roofing sheets
made from asbestos and of different classes namely:- Big six corrugated sheets,
standard corrugated sheets, Trafford tiles, self supporting sheets, ceiling
beard popularly called flat sheets, (4x4 and 2x2) also made from asbestos, and
also they produce interlocking stones.
The organization is made up of seven
(7) departments, and these are the general administrative, account, production,
maintenance, purchasing, audit and sales departments.
1.8 Definition
of Terms
For the purpose of this project, the
following terms are defined:
Code: a
process of assigning numbers, alphabets or combination of both for
identification purpose.
Deterioration:
a situation where items are becoming less of value or worse in quality.
Identification:
is the process of systematically defining and describing all items of inventory
held in the store.
Stock or inventory: are raw materials that have been purchased for use in the operation of
business semi-finished plants or partly processed raw materials awaiting
further processing, finished products that are awaiting distribution to
customers in warehouse at production site or in other location.
Issue/dispatch:
is the process of receiving demands selecting the items required and handling
them over to users.
Materials: are
components, spare parts, raw materials that are kept in the store houses.
Scrap: means
materials, products or replaced parts that have been used and no longer useful
to the organization.
Receipt: is
the process of accepting from all sources, all materials equipment and parts used
in the organization including supplies for manufacturing or operating process.
Inspection:
means the examination of incoming consignment for quality and quantity.
Obsolete: materials
that are out of date or use.
Obsolescence: materials
that are getting out of date or use.
Stores vocabulary: is a document in which all items held in the store are described.
Redundant: when
the quantity of an item in stock is more than is reasonably necessary to
provide an adequate service to the production or operational activity, the
excess over the normal holding is said to be redundant.
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