EFFECTIVENESS OF INVENTORY MANAGEMENT IN MANUFACTURING COMPANY (A CASE STUDY OF AMA GREENFIELD BREWERIES PLC, ENUGU, NIGERIA)
1.1 BACKGROUND OF THE STUDY
Inventory is one of the resources that are
managed by business organizations and it was first recorded in 1601. The need
for inventory control cannot be overemphasized as it is a means for improving
the performance of manufacturing industries. Inventory can be defined as a
record of a business current assets including property owned, merchandise on
hand and the value of work in progress and work complete but not sold and
it is classified as a current asset
because it can be turned into liquid cash within a short period of time.
Inventory has created a great impact on the profitability of the manufacturing
firm which resulted to the deep research of this topic. Effectiveness of
inventory management in a manufacturing company.
Inventory plays a major role in the operation
of many businesses and manufacturing companies. In manufacturing, inventories
of raw materials allow companies to operate independently of their sources of
supplies. Day to day operation are not dependent on deliveries from supplies
since stock of the necessary mateials are maintained and used s needed. Without
inventory control, millions of naira could be lost year because of non
accountability of stocks and inaccurate checks and balances.
The process of control and
management of inventory is a very
in the success or failure of any business for example, little stock will result
in stock out which will disrupt the production distribution cycle that is crucial to the survival of all manufacturing
companies while too much stock will tie down the resources of a company. Poor
or inadequate inventory management can present a serious challenge to the
productive capacity of a manufacturing organization. In addition to raw
materials and finished goods, many companies also maintain items of assets,
property, inventories of work in progress, office supplies, business firms and
general operation supplies.
Inventories often constitutes the most
significant part of current assets of large companies. In the public limited
companies, inventories are approximately 60% of current assets on the average.
The US Burean of the census stated that inventory and accounts receivable ate
the two largest accounts of equal magnitude and together they comprise almost 80%
of current assets and over 30% of total assets for all manufacturing companies
Considering the large sum of money that are
committed to the stocks of raw materials, work
in progress and finished goods, it
is therefore of paramount necessity that these stocks be managed
efficiently and effectively in order to avoid the jeopardizing of the profit position of the firm.
In inventory, there is an optimum level
therefore inadequate inventory causes loss of sale and disrupts the production
process while excessive stock level leads to unnecessary carrying cost and
obsolescence or spoilage risks. According to Charles T. Horngren (2007), the
optimum inventory. Level lies between the inadequate inventories and the
excessive inventories. Inventory management aims at maintaining an optimum
inventory level that will be
carried at the least cost.
A BRIEF HISTORY OF AMA GREENFIELD
BREWERY IN ENUGU STATE, NIGERIA
Greenfield Brewery is the jewell in the crown of Nigeria Breweries Plc
and is reputed as one of the most modern Breweries. Precisely on Friday October
24, 2003, the much talked about Nigeria Breweries Plc’s ultra modern Ama
Greenfield Brewery located in Enugu state was officially commissioned. It is
Nigeria breweries Plc company’s sixth Brewery and the second to be located in
Enugu state. The multi-billion naira Ama Brewery boasts of the best cutting
edge technology and world class standard processes. It is located in Umuezeani village in the
Amaeke Ngwo community of Udi Local Government Area of Enugu state. Mr. Lassy
Agose who was the public relations adviser to the Nigeria Breweries Plc at that time said that Ama Greenfield
Brewery has an installed capacity of 3 million hectoliters per annum or 1 million
carton units per week adding that it was also equipped with an ultra modern
waste water treatment plant in l ine with safe manufacturing practices
world-wide. Ama Brewery whose foundation was laid on April 9,2001 by the then
Enugu state Governor, Dr Chimaroke Nnamani took 14 months to be completed after
the actual construction work commenced on January 23, 2002. The first brew was
made on March 22nd,
2003 while the
first bottle of star larger rolled off the bottling line on April 24,
Ama Greenfield Brewery encapsulates the
essential ingredients of the world class vision of the Nigeria Breweries plc
and represents another milestone in the company’s journey towards the
realization of that vision. Beyond these, Ama Brewery holds enormous
socio-economic benefits to the community, state and country at large.
In addition to opening up
the communities to commerce and
the state stands to benefit from increased revenue and the building of
international confidence for investment. This multibillion naira investment is
also expected to translate into enhanced employment, as well as open the flood
gates of business activities and opportunities in the economy, Mr. Agose stated
during a pre-commissioning press briefing in Lagos. Constructed at a cost of
N40 billion, it is an essential fulfillment of the pledge made by Heineken NV
to invest N70 billion in Nigeria within five years building an ultra-modern
civic centre, a borehole and market stalls for the area.
1.2 STATEMENT OF THE PROBLEM
The problems seen in the course
of this study are as follows:-
Ineffective management of inventory in the
manufacturing company specifically Ama Greenfield Breweries.
Loss of sales or business of the company as a
result of insufficient inventories of finished goods.
Low productivity in the manufacturing company as
a result of poor inventories model used by the company iv. Poor management and control of
inventories in the manufacturing company.
1.3 OBJECTIVE OF THE STUDY
The major objective of this study is to
determine of the effectiveness of inventory management in a manufacturing
company. The specific
objectives of this study are as follows:-
To determine to what extent the ineffective
management of inventory in Ama Breweries plc has caused low productivity in the
To examine the extent to which insufficient
inventory of finished goods cause loss of sales to the company.
To identify the degree to which poor inventory
modern used by the company has resulted to low productivity in the
To ascertain whether the company has suffered
management and control of inventories.
1.4 TEST OF HYPOTHESES
Based on the problems and objectives of this
study, the following hypotheses are formulated for this research.
Ho: There is no significant
relationship between low productivity and poor inventories management.
H1: There is a
significant relationship between low productivity and poor inventories
Ho: There is no significant
relationship between proper inventory policies and productivity in a
H2: There is a
significant relationship between proper inventory policies and productivity in
a manufacturing company.
1.5 RESEARCH QUESTIONS
For the purpose of this research
study, the following research questions were formulated:
Does effective inventory control ensure
continuous production of goods in Ama Breweries?
What is the state of inventory management in the
Nigerian manufacturing company especially Ama Breweries plc?
Has effective inventory control made a
significant impact on the manufacturing company?
1.6 SIGNIFICANCE OF THE STUDY
The significance of this study lies on the
fact that with improved inventory control and management in manufacturing
companies, the following persons may benefit from it:
It will be significant to manufacturing
companies, firms and businesses as it will enable them keep an adequate
inventory control and ensure that they do not run out of stock or have excess
stock which can endanger their liquidity position. It will also help to meet
consumer’s demands or quest. It is also important to the government as it will
help to reduce waste of investment inventory. It will also help lecturers to
really know the importance of inventory control so that they will be able to
impact it on their students. This study will also reveal the relevant methods
to be used in preventing mismanagement; it will also improve stock control
which has led to the mismanagement and unproductively of materials.
1.7 SCOPE OF THE STUDY
This research work on the effectiveness of
inventory management in a manufacturing company is focused on Ama Greenfield
Breweries plc in
1.8 LIMITATIONS OF THE STUDY
Some limitations and factors in
this research study are as follows:-
The time required for the research and the
submission of this work is very short and the researcher was unable to go
through all manufacturing companies.
constraints:-Finance which is the most important
resource for this work was not readily available.
exeat:-Due to the fact that exeat is very difficult to get in school,
proper research was not carried out and this affected the integrity of the
attitudes of some of my respondents:- The management of Ama Breweries
prohibited its employees from giving out information about the company to
outsiders without adequate permission from the management and even when this
permission was obtained at the long run, many vital information were not
revealed because they were regarded as the privacy of the company.