ABSTRACT
Inventory
control is one of the basic functions of every business; economic success of
any manufacturing company has a direct relationship with the efficiency of
inventory control.
The
major objective was set out to examine how inventory control system can be used
to evaluates organization's performance while its specific objective, cost
objectives and smooth flow of goods through the production process.
The
methodology used for data collection included collection of primary data through questionnaires and
secondary data were also obtained from published materials by eminent scholars
and professionals on the field of study. The targeted population of the study
was forty (40) employees of Dunlop Nigeria Plc Lagos drawn from three
departments that is, store, production and purchasing and supply department.
The total of forty (40) questionnaires was administered in which thirty-five
(35) were returned and only thirty three of the returned questionnaires were
valid. Therefore the sample size of thirty-three was presented and analyzed for
the study.
The
data collected were analyzed using sample percentage and chi-square test to
test the hypotheses.
The
findings concluded that there is significant relationship between inventory
control and organizations performance in Dunlop Nigeria Plc lkeja, Lagos.
The
study recommended among others, proper co-ordination and cooperation between
various departments dealing in materials, proper classification and
codification of materials, planning of material requirements, control of
purchase of materials through budgeting and internal check for effectives
inventory control.
CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND OF THE STUDY
Inventories
are the soul and life wire of any manufacturing organization. It is also
regarded as the next most current assets of an establishment after cash at hand
or in the bank, this is so because, and it can be easily converted into cash,
especially the finished goods, once it is sold and paid for.
Inventory
control is an important and expensive activity which is often neglected and
under-rated in many organizations both in the public and private sectors, and
an efficient inventory control system could be used to advantage, in reducing
costs and ensuring increased profitability for an organization.
Inventory
could simply be defined as any idle resource of an enterprise. It is commonly
used to indicate raw materials in process, finished, packaging, spares and
others, stocked in order to meet an expected demand or distribution in the future.
Inventory
control involves activities designed towards the effective management and
control of all inventory items held n stock. Morrison (1982) defines inventory
control as a means by which materials of the correct quantity and quality is
made available, as and when required with due regard to economy in storage and
ordering cost, purchase price and working capital.
From
the above definition, it could be deduced that inventory control is a system
aimed at maintaining a balance flow of materials by paper arranging in a
continuous basis, receipts and issues, so that any given time, the stock
balance are adequate to meet current operational requirement.
Inventory
control however, involves the actual implementation and carrying out of
policies which management has established, to regulate stock balance without
excess or deficiencies.
In
modern supply management, inventory control is the real control function; it
encompasses all basic aims of the stores operation. The basic concept of
inventory control is quite simple, the right material, in the right quantity
and quality, at the right time and place. The element of cost in relation to
inventory control also plays a vital role. All businesses require inventories,
which are the substantial parts of the total assets.
Financially,
inventories are very important to manufacturing companies. On the balance
sheet, they usually represent from 20%, to 60% of the total assets; As
inventories are used, their values are converted into cash, which improves cash
flow and return on investment. There is a cost for carrying inventories which
increases operating cost and decreases profit. It is common to lose some of
them by ways of obsolescence, theft, physical deterioration, damages amongst
others. It important that these assets must be well managed to ensure that only
the required quantities are available, well stored and safely transferred into
and within the organization. Control and management of inventories are crucial
factors in the success of failure of manufacturing and non-manufacturing
organizations. For example, insufficient inventory seriously disrupt the
production distribution cycle that is so vital in survival of all manufacturing
companies. Also, excessive stock cripple a firms cash flow and thus endanger its
liquidity positive.
The
availabilities and quantities of those inventories are the parameters for
determining their efficiency. The investments in inventories usually are so
high that proper and continuous surveillance should be put on them.
The
essence of inventory control is to strike a balance between carrying to much
stock and carrying too little. In today manufacturing environment many firm
produce a wide range of products requiring many components, though the cost of
materials, may vary from one industry to another. However, in many
organizations, materials cost materials cost about 50% of the total value of
finished goods. The consequences of these high magnitude is that the problem of
planning and managing materials in these organizations are complex, but
efficiency and effectiveness with which these firms do its buying, storing and
issuing of materials might well determine the firms profitability and
vice-versa.
Therefore,
it is in recognition of these that the researcher has chosen the topic "An
evaluation of inventory control system and its impact on organizational
performance". Though the term inventory control may have different
meanings to different users. More often, the term is usually constructed to
mean material control or stock control.
1.1 STATEMENT OF THE PROBLEM
In
actual practices, the vast majority of manufacturing distribution companies
suffer from lower customer and service, higher costs and excessive inventories
than are necessary. Inventory control problems are usually the result of using
poor processes, practices and antiquated support systems. The inventory
management is much more complex than the uninitiated understand. Infact, in
many companies the inventory control department is perceived as little more
than a clerical function. The likely result of this approach to inventory
control is lots of material shortages, excessive inventories, high cost and
poor customer service.
It
is also important to note that, inventory control, if poorly managed can
contribute to increased expenses, lead to lose of profits to the firm due to
stock outs, and deterioration of stock due to over stocking among others.
However,
despites its importance, theoretical development, and popularity in the
business and academic press, there is little empirical research that clearly
defines inventory management and investigates its impact on the firm as a whole
consequently more information is needed to understand successful inventory
management and problems encounter therein.
1.2 THE OBJECTIVES OF THE STUDY
The
major objective of the study is to examine how inventory control system can be
used to evaluate organizational performance. Therefore, its specific objectives
include the following:
·
Cost objective, to minimize sum of relevant
cost.
·
Services objective, desired customer
services levels significantly affect inventory levels.
·
To find and tract down all the processing
data-s in an inventory system repository.
·
To define a procedures, by which assets are
identified and maintained in the inventory system.
·
To smooth the flow of goods through the
production process.
·
To provide protection against the
uncertainties of supply and demand.
·
To obtain a reasonable utilization of
people and equipment.
1.3 RESEARCH QUESTIONS
To
expand the frontiers of the objectives, the following research questions are
raised.
•
What constitute inventory control?
•
What constitute organizational performance?
•
What is the relationship (if any) between inventory control and organizational
performance?
1.4 STATEMENT OF RESEARCH HYPOTHESES
In
order to test the above relationship, the following hypothesis are formulated.
•
Null hypotheses Ho
•
Alternative hypothesis Hi
Hypothesis
One
Ho: Efficient inventory control does not lead
to reduction of cost in
an
organization.
Hi: Efficient inventory control lead to
reduction of cost in an organization.
Hypotheses
Two
Ho:
There is no significant relationship between inventory control
and
organizational profitability.
Hi:
There is significant relationship between inventory control and
organizational
profitability.
1.5
SIGNIFICANCE OF THE STUDY
The
necessity of the study is to determine, whether inventory control system can be
used to evaluates an organizational performance. The outcome of the study will assist the store
manager in the
arrangement of the stores, movement of stocks and records keeping and in the
maintenance of adequate stock level to avoid too much of stock and / or too
little that lead to stock out situation. It will also assist the organization
in developing its policy on inventory control system and procedure.