INVENTORY CONTROL AS AN EFFECTIVE TOOL FOR COST CONTROL IN AN ORGANISATION (A CASE STUDY OF CADBURY NIGERIA PLC)
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INVENTORY CONTROL AS AN EFFECTIVE
TOOL FOR COST CONTROL IN AN ORGANISATION (A CASE STUDY OF CADBURY NIGERIA PLC)
ABSTRACT
The topic of
this research work is inventory control as an effective tool for cost control
in an organization using Cadbury Nigeria plc as a case study. Inventory control
can be defined as the implementation of management’s inventory policies in a
manner that assures that the goal of inventory management is met. The
management of various companies is faced with the problem of at what level
inventory should be held in order to have a healthy operation that is optimal
stock level that will minimize the cost of stocks the (ordering and holding costs).
The researcher objective is to know the effectiveness of inventory control on
cost control. In this course of carrying this research work various techniques
or methods of data collection were used. They include questionnaires,
interviews and observations. A sample size of 73 workers in Cadbury Nigeria plc
was also used and was chosen among the number of department/sections of worker
using Bowley’s proportional allocation formula. The researcher makes use of
three hypotheses in this study to analyze the research project. The researcher
made used of Z-test in testing the formulated hypothesis. The researcher used
the descriptive statistical tools (tables, figures and percentages) in the
presenting and analyzing the data generated from this study. From the analysis,
the researcher finds out that effective management of inventory will help a
firm to control its cost and contribute to the actualization of a firm
organizational goal. The researcher therefore recommends that organization
should apply the technique of inventory control with the objective of cost
control so as to enable the goal of profit maximization to be attained.
TABLE OF
CONTENT
Approval
Page
Dedication
Acknowledgement
Abstract
Table Of
Content
CHAPTER ONE
1.0
INTRODUCTION
1.1
Background Of The Study
1.2
Statements Of The Problem
1.3
Objectives Of The Study
1.4 Research
Questions
1.5
Hypothesis Of The Study
1.6
Significant Of The Study
1.7 Scope
And Limitation Of The Study
1.8
Definition Of Terms
Reference
CHAPTER TWO
2.0 REVIEW
OF RELATED LITERATURE
2.1
Inventory Management: Definition Of Concepts
2.2 Problems
Associated With Inventory Management
2.3 Impacts
Of Improper Management Of Inventory
2.3.1 Ideas
For Improvement
2.3.2
Implementation And Execution
2.4 Benefit
Of Inventory Management And Control
2.4.1
Process Of Inventory Management And Control
2.4.2
Optimum Inventory Level
2.4.3
Reasons For Holding Inventory
2.5 Costs
Associated With Inventories
2.6
Inventory Cost Control Management
2.7
Inventory Valuation Method
2.8
Inventory Control Management And Its Application
2.8.1Technique
Of Inventory Control
2.9
Historical Background Of Cadbury Nigeria Plc
Reference
CHAPTER
THREE
3.0 RESEARCH
DESIGN AND METHODOLOGY
3.1 Research
Design
3.2 Sources
Of Data
3.3 Research
Instrument
3.4
Reliability/ Validity Of Research Instrument
3.5
Population Of The Study
3.6 Sample
And Sampling Procedures
3.7
Administration Of Research Instrument
3.8 Method
Of Data Analysis
3.9 Decision
Criterion For The Validation Of Hypothesis
Reference
CHAPTER FOUR
4.0 DATA
PRESENTATION AND ANALYSIS
4.1 Data
Presentation And Analysis
4.2 Testing
Of Hypotheses
CHAPTER FIVE
5.0 SUMMARY
OF FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Summary
Of Findings
5.2 Conclusions
5.3
Recommendations
Bibliography
Appendix
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
In general,
inventory control and cost control techniques have become a household name in
the business of manufacturing firms, that boast of the possession of goods or
stocks, that hope to sell when the demand arises. It is so important to them,
such that their survival as a corporate entity, hinges on how they are able to
coordinate and control their applications. Inventory is a term that has been
explained in various ways by various scholars, inventories are stocks of the
product a company is manufacturing for sale and components that makes up the
product. They are raw-materials, work in progress and finished goods and they
constitute various form of inventory in a manufacturing firm. Inventories are
the stocks of material or finished goods which a company keeps in anticipation
of demand or consumption.
In the past,
inventory management was not seen to be necessary. In fact excess inventories
were considered as indication of wealth. Management by then considered
overstocking beneficial. But today firms have started to embrace effective
inventory control. The goal of effective inventory control is to be sure that
optimum levels of inventories are available that there are minimal stock
outs, (i.e
running out of stock), and that inventory is maintained in a safe place and is
always readily accessible to the proper personnel.
Consequently,
there is a need for the firms to undertake effective inventory control with the
aims of:
a) Ensuring
a continuous supply of materials to facilitate
b)
Maintaining sufficient stock of raw materials in periods of short supply and
anticipated price changes
c)
Minimizing the carrying cost and time virtually every company has one form of
inventory or the other. The level of the forms of inventories of a firm depends
on the nature of its business manufacturing.
The scope of
inventory management concerns the fine lines between the replenishment lead
time, carrying cost of inventory asset management, inventory forecasting,
inventory valuation, inventory visibility, future inventory price forecasting,
physical inventory, available physical space for inventory, quality management
replenishment, returns and defective goods and demand forecasting. Balancing
these competing requirements leads to optimal inventory levels, which is an
on-going process as the business need shift and react to the wider environment.
Inventory
management involves the monitoring of material moved into and out of stock room
locations and the reconciling of inventory balance. Management
of
inventories with the primary objective of determining/controlling stock levels
within the physical distribution function to balance the need for product
availability against the need for minimizing stock holding and handling cost.
Policies relate to what levels of inventories are to be maintained and which
vendors will be supplying the inventory. How and when inventories will be
replenished, how inventory records are create, managed and analyzed and what
aspect of inventory management will be out sourced are also importance
component of proper inventory management.
On the other
hand, cost control refers to steps taken by management to assure that all
segments of the organization function in a manner consistent with its policies.
For effective cost control, most organization use standard cost system, in
which the actual cost are compared against standard cost for performance
evaluation and deviations are investigated from remedial actions. Cost control
is also concerned with feedback that might change any of all the future plans,
the production method, or both. From the foregoing, it can be categorically
asserted that how strategic a firm manages its stocks or inventories will
defines its cost control techniques and budgets. It is therefore, the focus of
this research study to carry out and assessment of inventory control as an
effective tool for cost control in an organization, using the inventory and
cost control techniques of Cadbury Nigeria plc as our case study.
1.2
STATEMENT OF PROBLEMS
In the last
couple of decades, the numbers of products offered to the market have generally
exploded. As the same time, the product life time has decreased drastically.
The combination of the two trends leads to increase in accuracy of the demand
forecasts, leading to firms facing an increase in demand uncertainty resulting
in the increase in inventory levels. It is important that a company maintains
adequate stocks of material for the continuous supply to the factory for an
uninterrupted production, in doing so such a company is exposed to two undesirable
points namely excessive carry cost and the risk liquidity, while inadequate
inventory can lead to production hold-ups and failure to meet delivery
commitments. The study is concerned with problem of how to determine and
maintain optimum level of inventory investment.
It cannot be
over-emphasized that inventory keeping is an indispensable activity in the
activity of every business firms that deals in stocks. This is because these
stocks, depending on how they are warehoused or better still managed, can make
or mar them. It is not only just to keep record of these inventories; there is
also the need for management to maintain the cost objectives put forward in the
planning stage of inventory management. Evidence has also shown that a lot of
firms have failed management control and thus, they have been made to count
their losses. How then can the firms maintain adequate or proper inventory
control
alongside with cost control? The answer to this question and many issues from
the basis for the appraisal is this research study.
1.3
OBJECTIVES OF THE STUDY
To know
how effective inventory control is when it comes to controlling cost in an
organization.
To outline
the relationship that exists between inventory control and the cost control
system of an organization.
To know
how effective inventory control technique.
1.4 RESEARCH
QUESTIONS
How
effective is inventory control when it has to do with an organization cost
control practices?
What are
the essential relationship existing between inventory control and cost control?
How can
planned effective inventory control techniques contribute to the profitability
in a firm?
1.5
HYPOTHESES OF THE STUDY
H0:
Inventory control management is not an effective tool for cost control in an
organization.
H1:
inventory control management is an effective tool for cost control in an
organization.
H0: There is
no relationship existing between cost control and inventory control.
H1: There is
relationship existing between cost control and inventory control.
H0: A
well-planned and effective inventory control technique does not contribute to
the profitability in a firm.
H1: A
well-planned and effective inventory control technique contributes to the
profitability in a firm.
1.6
SIGNIFICANCE OF THE STUDY
Prior to the
eighteenth century, possessing inventory was considered a sign of wealth.
Generally, the more inventories you had, the more prosperous you were. As at
then, inventory existed in stores of wheat, herd of cattle and rooms full of
pottery and other manufactured goods. While these inventories were been kept,
their effective cost objective were also being defined at the same time, in
order to allow the firm achieve its objectives.
Based on
this, when this research study is completed, it will be beneficial to:
The
management of Cadbury Nigeria plc and other manufacturing firms in the country.
It will essentially help to bring out how relevant inventory control and
effective cost control are to their organizations if well manipulated. It also
let them see how important it is to take stock and evaluate it correctly.
Academic
student: it will allow the student to have an insight of what the practice of
inventory control is outside school environment. It will also provide them with
information for their further study.
1.7 SCOPE
AND LIMITATION OF THE STUDY
The research
study will basically focus on Cadbury Nigeria plc, taking into cognizance its
inventory control practices and technique or steps and try to bring out how
relevant it can be to the organization’s activities. An attempt will also be
made to assess the cost control technique of the company in order to see how
they synergize with their inventory control practices.
The
limitation that will likely be faced in the course of this project shall
include; limited timing for the completion of the project, shortage of required
finances for the work, non-cooperation on the part of some of the respondent
will be given the questionnaire.
1.8
DEFINITION OF TERMS
The
following are defined in the work
INVENTORIES:
These are stock of materials or finished goods which a company keeps in
anticipation of demand or consumption. They constitute a sizeable portion of
the total assets of many firms.
INVENTORY
MANAGEMENT: Is the process which integrates the flow of supplies into, through
and out of an organization to achieve a level of service.
RAW
MATERIAL: Inputs into the production process that will modify or transform into
finished goods.
WORK IN
PROGRESS: Semi finished products found at various stages in the production
operation.
STOCK LEVEL-
One of the most objective of a stock control system is to ensure that
“stock-out” do not carry occur and that surplus stock are not carried.
STOCK OUTS:
Occurs when there is insufficient stock to meet production demands and this can
lead to loss of customer goodwill, reduced profit etc
MINIMUN
STOCK LEVEL: The minimum stock level is below which stock should not be allowed
to fall. If stock so below this level there is a danger of the stock out
resulting in production stoppage.
MAXIMUM
STOCK LEVEL: The maximum stock level above which stock should not be allowed to
rise. It is desirable that the level should be as low as possible but of course
it must all forecast usage of materials and time type in delivering.
CONTROLS:
The activity of determining the range and quantity of material which should be
stocked and regulation of receipts and issues of the materials.
LEAD TIME:
The time normally taken in replenishing inventory after the order has been
placed. It is the time interval between the ordering of inventory and time of
its receipts.
CARRYING
COST: Expenses incurred from storing raw materials
ORDER COST:
The variable cost of placing an order for raw materials.
RE-ORDER
LEVEL: This is also known as economic ordering quantity (E.O.Q). It is the most
economic quantity to order; in order words, it is the ordering quantity at
which the controllable cost of ordering is minimized.
RE-ORDER
LEVEL: This is the point at which is essential to initiate purchase requisition
for fresh supplies of the materials. This point will be higher than the minimum
stock level, so as to cover such emergencies as abnormal usage of material.
REFERENCE
Ama.G.A.N.
(2006).Management and cost Accounting. Nigeria: Amason
Publication
venture.
Atkison.C.
(2005).Inventory Management Review. London: Heinemann
Publisher.
Chukwuma.C.U.
(2010).Management Accounting. Enugu:Dikasinma
Publisher.
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