APPRAISAL OF INVENTORY CONTROL IN A MANUFACTURING COMPANY (A CASE STUDY OF SEVEN UP - BOTTLING COMPANY)
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APPRAISAL OF INVENTORY
CONTROL IN A MANUFACTURING COMPANY (A CASE STUDY OF SEVEN UP - BOTTLING
COMPANY)
ABSTRACT
This research work examined the appraisal of inventory
control in a manufacturing company of a case study m seven-bottling company
PLC, Lagos.
The finding after questionnaire were administered to the
staff of seven up- bottling company PLC specifically accounts and warehousing
department, showed that effective inventory control would not minimize total
inventory costs in a manufacturing company and high inventory costs would not
lead to a reduction in the profit of a manufacturing company.
However, solution and recommendations were proffered to the
above identified problems to ensure a proper appraisal of inventory control in
a manufacturing company in seven up-bottling company PLC, Lagos.
TABLE OF CONTENTS
CHAPTER ONE
1.0 Introduction
1.1 Background to
the Study
1.2 Statement of
Problem
1.3 Objectives of
the Study
1.4 Research
Questions
1.5 Statement of
Research Hypothesis
1.6 Significance of
the Study
1.7 Scope of the
Limitations of the study
1.8 Historical Background of Seven-up Bottling
Company
1.9 Definition of
Key Terms
CHAPTER TWO - Literature Review
2.0 Introduction
2.1 Meaning of
Inventory Management
2.1 Control
2.2 Inventory Record
Keeping Procedures
2.2.1 Bin Card
2.2.2 Materials Requisition Note
2.2.3 Materials Returned Note
2.2.4 Materials TransferNote
2.3 Inventory
Control Method
2.3.1 Perpetual Inventory Method
2.3.2 Periodic Inventory Method
2.3.3 Physical Inspection Inventory
2.3.4 Just-In-Time (JIT)
2.4 Inventory Costs
2.4.1 Holding Costs
2.4.2 Ordering Costs
2.4.3 Stock-Out Cost
2.4.4 Purchase Costs
2.5 Control of Stocks Levels
2.5.1 Maximum Stock Level
2.6.2 Minimum Stock Level
2.6.3 Re-order Level
2.6 Control Models
2.7.1.1 Economic Order Quantity (EOQ)
2.7 Economic Order
Quantity
2.8 Analysis of
Inventory Control System in Seven-up Bottling Company PLC.
2.8.1 Ordering Procedure
2.8.2 Receipt Procedure
2.8.3 Recording Procedure
2.8.4 Material Issues
2.8.5 Materials Returns
2.8.6 Stock Taking
CHAPTER THREE - Research Methodology
3.0 Introduction
3.1 Research
Approach
3.2 Research Design
3.3 Restatement of
Research Questions
3.4 Statement of
Research Hypothesis
3.5 Population of
Study
3.6 Sampling
Techniques
3.7 Sample Size
3.8 Method of Data
Collection
3.8.1 Question Design
3.9 Data Analysis
Techniques
3.9.1 Chi-Square
3.9.2 Sample Percentage
3.10 Limitation of Methodology
CHAPTER FOUR - DATA PRESENTATION AND ANALYSIS
4.0 Introduction
4.1 Presentation and
Analysis of Data
4.1.2 Table
4.1.3 Table
4.2 Inventory Cost
Reduction
4.2.1 Table
4.2.3 Table
4.2.4 Table
4.3.1 Table
4.3.2 Table
4.4 Testing of
Hypothesis
4.4.1 Chi-Square (x2) Method
4.4.1.1 Hypotheses Indicating Relevant Question in
Questionnaire
4.5 Contingency
Co-efficient
4.6 Research Finding
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1
Summary
5.2
Conclusion
5.2
Recommendations
5.2
Bibliography
5.2
Questionnaire
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF
THE STUDY
In the real sense of economic development, the efficiency and
effectiveness of a nation's economy rests viably on its ability to meet with
the demands of the populace of such an economy.
In order words, the effectiveness of an economic is vested on
the manufacturing sector. This is because, the indices by which the development
and progress of an economy is measured is predicated on the goods and services
so produced by the out fits in such a sector which could either be consumed
locally or be exported for exchange of foreign currency.
Furthermore, the distinguishing factor between productive and
unproductive economies lies in the production capacity in relation to the
importation capacity which directly affects the economy. However, the
afore-mentioned positive outcomes/results are based on the" effective
management of the manufacturing industry in terms of its capital (Financial
resources) ,inventory, labour (Human resources) among other things, so as not
to bring about negative results such as costs resulting from overstocking, loss
resulting from capital tied down and loss goodwill as a result of stock
outages.
1.2 STATEMENT OF
THE PROBLEM
Inventory plays an essential role in any organization. The
larger the inventory size, the easier it is to reduce costs of purchasing,
manufacturing and shipping as well as provide prompts customer's service.
However, a larger inventory stock requires a higher investment of money, higher
carrying cost such as storage handling risk of obsolescence and data processing.
These costs must be balanced off against any advantages in holding inventory.
The study tends to look at certain problematic issues in
manufacturing companies as Seven- Up Bottling Plc it relates to inventory
management. Such issues are:
1. Stock are
managed, that the level of stock held are neither more than nor less than
requirement for a given season.
2. Most companies
fail to appreciate the role inventory management plays in the survival of their
business.
3. Accurate
information on the cost of stock is necessary for management control of working
capital requirement.
1.3 OBJECTIVES OF
THE STUDY
The main objective of this study is to conduct appraisal of
inventory control in a manufacturing company.
Specifically, the study intends to:
i. Present
inventory control system in the selected company.
ii. Examine
the checks and balances in the inventory control system.
iii. Determine
the effects of the organization's inventory control system on the operating
expenses and profit levels of the organization.
iv. Ascertain
the effectiveness and efficiency of the organization's inventory control
system.
v. Make
suggestions for improvement to bring about further enhancement of efficiency in
the company's inventory so as to improve the overall performance.
1.4 RESEARCH
QUESTIONS
i. Will
effective inventory control minimize total inventory cost in a manufacturing
company?
ii. Will high
inventory control lead to reduction in the profit of manufacturing company?
iii. Will
effective inventory control prevent frequent stock out in a manufacturing
company?
iv. What are the
sources and quality of raw materials that are available to sevenup Bottling
Company PIc?
v. How long
does it take to procure the raw materials?
vi. What storage techniques do the organizations use in
storing their raw materials?
vii. Identify the inventory management practices and policies
that are being used by the organization?
viii. What are the inventory management problems of the
organization?
1.5 STATEMENT OF
RESEARCH HYPOTHESIS
For the purpose of this study, the hypotheses available are
as follows;
i. Ho:
Effective inventory control would not minimize total inventory cost in a
manufacturing company.
Hi: Effective inventory control would minimize total
inventory cost in a manufacturing company.
ii. Ho: High
inventory cost would not lead to a reduction in the profit of a manufacturing
company.
Hi: High inventory cost would lead to a reduction in the
profit of a manufacturing company.
1.6 SIGNIFICANCE OF
THE STUDY
Inventory is an essential tool in any manufacturing
organization. It constitutes a large proportion of the total operating cost and
has direct effect on operational smoothness and profit level of an
organization.
It is hoped that, this study would provide useful information
that will enhance management ability to carry adequate inventory at a minimized
cost.
Also, it will serve as a reference point for future
researchers who wish to probe further into efficient management of inventory in
the manufacturing sector of the economy.
1.7 SCOPE AND THE
LIMITATIONS OF THE STUDY
This research intends to cover various processes involved in
controlling and managing inventory in Seven-Up Bottling Company.
1.8 HISTORICAL
BACKGROUND OF SEVEN-UP BOTTING COMPANY NIG. PLC
Seven-Up Bottling Company Nig. Plc was incorporated as a
private limited liability company on the 25th day of June, 1959 the company was
until 1979 wholly owned by the El-khail family. It was converted to a public
limited liability company on the 27th of December, 1978 and listed on the main
board of the Nigerian Stock Exchange in 1985.
The El-Khail was franchise for Nigeria by Seven-Up
International Plc, under which it is entitled to bottle and market Seven-Up
(7-up), the world's leading lime and lemon soft drink. In its attempts to widen
its product range, the company obtained franchise for Nigeria in 1966 from
crush international (USA) Inc; under which it is entitled to bottle and market
all "crush" flavor predominantly "orange crush". The
franchise was however sold to Nigerian Breweries PIc in 1995.
In its bid to achieve a "Mega Bottler" status the
company further acquired three franchise for Nigeria in 1989 from Pepsi-Cola
International under which it is entitled to bottle and market Pepsi (Cola
flavor), Mirinda (Orange flavor) and Teem (Lemonade flavor).
The company was launched in 1st of October, 1960, the day
Nigeria obtained her independence. The first bottle of 7 -up was rolled out at
Ijorathe same day.
In order to ensure availability of its product throughout the
nation, six additional plants were established at Ibadan in 1980, Kano in 1985,
Kaduna in 1988, Aba in 1989, Ilorin in 1989 and Benin in 1993.
Ijora plant was however relocated to Ikeja in 1981 because of
the down turn in the economy arising from political and economic crisis,
theIlorin and Benin plants were closed down in 1994. Benin plant was later
re-opened in 1986. Apart from the plants, a large network of depot was spread
all over the country to ensure constant supply of brands all over the country.
At present, the company has thirty two depots.
The company under the management of Faysal El-Khalil in an
attempt to increase sales eliminated wasteful expenditure and turned losses
into profit. . He also introduced many thrilling promotion packages such as
money shower in 1987, 7-up express in 1992 and 7-up Hi-life in 1994. This marketing
strategy was part of the short-term plan to reward customers and attract them
to 7 -up products. The strategy yield huge returns to company at a very high
cost.
However, consumers who built great expectation and did not
win became frustrated and began to challenge the credibility of the company.
This was largely due to the inability of consumers to estimate the
probabilities of winning. As they become more educated on the realities, the
exaggerated view of what was possible to win sometime turn into exasperation.
It also woke up the sleeping giant-Nigerian Bottling Company
Plc, bottler of Coke from a deep slumber.
The management of company has since then adopted various
strategies that can stand the test of time in order to ensure that the success
of the aggressive sales promotion which has made the company's product a
household to name would not be lost.
Some of the strategies currently put in place are
repositioning its products, rationalization exercise and cost reduction
techniques (including effective inventory control).
1.9 DEFINITION OF KEY TERMS
Carrying or Holding Cost: This 1S the cost of keeping,
carrying or maintaining inventory. It is usually expressed as a percentage of
naira value of inventory per unit of time. The major components are insurance
cost, interest charges, property tax and storage cost and cost of
deterioration, obsolescence, spoilage, pilferage and depreciation.
Economic Order Quantity (EOQ): The
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