STOCK CONTROL IN A MANUFACTURING ORGANISATION A CASE STUDY OF BETA GLASS CO. PLC, UGHELLI ABSTRACT
This project was undertaken to establish analytically the
need and importance of sound scientific approach to stock control and cost
control, in the face of our deteriorating economy and ever increasing cost of
material. A case study of Beta Glass Plc. Ughelli was conducted.
The review of literature was comprehensive in chapter two.
The significance of efficient materials budgeting and planning, Value Analysis
(VA) and Value Engineering (VE) in cost-control was delineated. A typical is
purchasing procedures and principles, although particularly suitable for a
manufacturing organisation was also highlighted in the literature review.
The storage of supplies and stores control which is an
integral aspect of stock cost control was considered in section 2.5 of the
literature review. A detailed discussion of stock control methods dealing with
quantitative models for materials planning and control was carried out under
section 2.5.02 and section 2.5.03 various stock valuation methods were
extensively discussion under accounting for stock in section 2.6.
The procedures and method of the study adopted in this
research work, was highlighted under the research methodology in chapter three.
Primary data were generated through the use of questionnaires and personal oral
interview. Secondary data were obtain from journals, monographs of the
international federation of purchasing and materials management (IFPMM), the
institute of purchasing and supplies (IPS), the institute of Chartered
Accountant of Nigeria (ICAN) and textbooks relevant to the need of the
The analysis of the data collected was carried out in four.
The various sectors involved in stock control and cost control was empirically
evaluated with particular regard to their functions, effectiveness and short
comings.
In the light of the general findings and lapses, some
recommendation were suggested to enhance the efficiency and effectiveness of
stock control and cost control.
CHAPTER ONE
1.1 INTRODUCTION
Stock control is the system used in a firms investment in
stock, which involves recording and monitoring of stock level, forecasting
future demands and deciding when and how many to order to minimize over all
cost associated with stock.
This emphasis as managerial area of responsibility which
focuses on production on material control, procurement quality control and
stock handing. Stock control is thus essentially an activity that is concerned
with the efficient procurement and use of material for the attainment of
predetermined corporate objectives.
The need for efficient stock control in the face increasing
cost of material due to information and our deteriorating economy cannot be
over emphasized. Stock constitutes an essential cost element of production in 2
large majority of manufacturing industries, stock cost account for about
65pccentage of the total manufacturing cost of their finished goods.
Obviously, the objective of any business concern among other
is the maximization of profit. Profit maximization is the result of optional
and efficient utilization at available financial and material resources. In
essence, corporate success is measured by increased profit as well as by
exploiting opportunities for sustained profit-ability.
Company’s procurement function becomes of paramount
importance when its outlay account for high proportion of the total cost of
manufacturing and operating process, when a large rang of diverse items are
required, and these tends to be scare or unavailable at critical stage of the
production cycle ,large ranges of spare parts have to be obtained from
important source and their price / cost fluctuation and other international
trade barriers.
On positive note, stock control has an important role with
regards to profit maximization.
1.2 STATEMENT OF
PROBLEMS
The major stock control problem is to maximize profitability
by balancing stock investment cost against what is required to sustain smooth
operations. Raw material stock which constitutes a vital cost element in
manufacturing expenditure of any organization engaged in manufacturing process
account for about 65% the total manufacturing cost of most industries.
An increasing high cost of material have been recorded in
recent years due to the worsening economic problems of monetary instability and
inflation, this high cost of material could also be attributed to material
misadministration.
Huge sum of money is lost trough various forms of
procurement fraud, large scale materials pilferages by the store and material
users department in addition losses through material obsolescence, wastes
occasioned by mismanagement and inaccurate balancing of material acquisition with
usage also account for high cost materials. Beside, the increased material cost
misadministration can lead to supplies disaster of various magnitudes. One of
such supplies disaster may be stock —out cost, this present a major problem of
disruptions in operations as a result of inaccurate balancing of materials
procurement with consumption. The consequences of this may be in the form of
breakdown of machines, loss of current sales, premium payment for rush
delivery, loss of goodwill and future sales.
1.3 OBJECJIVE OF
STUDY
In carrying out this study of stock control in Beta Glass
Co. Plc, Ughelli, the following objective will be achieved.
(1) To study the
material\stock control policies and practices by evaluating analytically the
purchasing procedures, material handing methods and various accounting method
of costing material issued by valuation of closing inventory stock.
(ii) To
investigate, so as to identify the controllable and uncontrollable variables
associated with material cost control with a view o f determining ways of
keeping them within controllable limits.
(iii) To highlight
the need and importance of sound scientific approach to stock control in the
face our deteriorating economy and ever increasing cost of stock and materials.
(iv) To analyze the
efficiency of their stock holding using economic order quantity (E 0 Q).
1.4 SIGNIFICANCE
OF STUDY
Stock control is even more necessary for Nigeria firm
especially in period of economic deteriorate on and ever increasing cost of
materials consequently causing the folding up of a lot of firm.
Stock constitute a
major part of the company’s investment, these is need therefore to control
stock because of more than half the company’s incomes used to purchase stock
production. Hence there is need to have
effective stock control so as to avoid shortage of stock for production and at
the same time to much stock which will result in wastage and high holding cost.
The major problem faced by the manufacturing firms as regard
stock, that of determining optimum level of stock and evaluation of management
policies for ordering stock. unfortunate little or no attention have been given
to need for value analysis (V A) cost analysis and purchasing research of
material to evolve a more scientific approach and innovation to improve
efficiency and effectively talking of inflationary threads.
This research work therefore is intended to fill the gaps
that have existed and create aground for future research with attempt to offer
practicable suggestion on stock control in Beta Glass Co Plc, Ughelli and to
hope that the suggestion we be of benefits to the company and other manufacturing
firms. It will go long way to enhance
interest in new approaches, concepts and philosophies aimed at better cost —
control over material.
1.5 SCOPE OF STUDY
This research work is committed to cover the following area.
(i) To evaluate
analytically the procurement stock controls policies and practices of Beta
Class Co. Plc. The purchasing procedure of the organization was examined.
(ii) A methodical
study for the stores department was particularly carried out on its
organization, it various stock control methods as well as its stock level
analysis.
(iii) The cost
accounting section involvement in stock control and materials accounting system
was examined with regard to methods of costing materials issued, stores control
ledgers and stock taking and checks.
1.6 NATURE OF
STUDY
This study consists of two aspects
(i) The objective
aspects which render it — self to cost and statistical analysis.
(ii) The value
aspect, which could not readily be, determined by statistical analysis.
1.7 RESEAREH
METHODOLOGY
In the course of this study, a research method of data
collection based on two main sources was used: they are the primary and secondary
data.
The primary data refers to the data that will be collected
during the course of field work. This includes personal observations, the use
of Questionnaire and personal interview. The administration of questionnaire
was carried out at the material users departments, the stores and purchasing
department, and the cost accounting office that is involve in the inventory
controls record keeping Questions relevant to the need of this study were
raised in the questionnaires administered. A personal in was also held with the
purchasing manager, the chairman and some members of the committee, the store
manager, and the production planning manager.
The secondary data were obtained from the “financial
Statement” and the production planning monthly report of Beta Glass Plc,
Ughelli. Journals of the institute of purchasing and supplies, the
international federation of purchasing and material management (IFPMM), and
tests on supplies and stock control were also consulted.
1.8 LIMITATIONS OF
STUDY
This study was limited by the following factors:
i. The
bureaucratic involved in obtaining data was cumbersome: - Series for approval
had to be granted before certain form of data were released. Even after
obtaining approval to carryout the research study, the difficulty of eliciting
the necessary cooperation of those in place of relevant information was
experienced. Some of those approached declined for fear of giving out secret
information about the organization. Others assumed this study to be fact - finding
exercise into their fraudulent practices and mismanagement, as such declined
responds.
ii.
Unwillingness to react to questionnaires.
iii. Also to an
appreciable extent, the study was limited by the value aspect which could not
ready be determined by statistical analysis.
1.8.1 RESEARCH QUESTIONS
Research question enable one to view the essence of
literature review to provide the required foundation for undertaking an
empirical study on stock control, answer are required to the following research
questions.
i How familiar
you with the activities of the store and material handling department and
purchase and supplies department.
ii. In your own
opinion, what are the functions of the store/material holding department and
the purchasing / supplies department.
iii. How has the
store/material holding department and the purchasing and supplies department
improved the Stock control system of the company?
iv. How reliable
is your stock control technique?
v. What do you
think is the major cause of inefficient and ineffective of stock control in the
company?
vi. How efficient
is the local purchase order (LPO) committee?
vii. What are the
major considerations that are criteria for the selection of a supplier for an
order?
viii. How does
stock control play an important role in profit maximization of the company?
ix. How reliable
is your internal control system?
1.8.2 STATEMENT OF HYPOTHESIS
NULL HYPOTHESIS H0
The material and stock control techniques and internal
control system of the company are weak.
ALTERNATIVE HYPOTHESIS: HI
The materials and stock control techniques and internal
control system of the company are strong.
1.9 DEFINITION OF
TERMS
ABC analysis: a basic technique of stock control, which
classified stock according to monetary values. Stock items are this categorized
as:
(i) A — item : - High value items for which careful control
is needed
(ii) B — item: - Moderate values items
(iii) C — item: - Low value items
Bin card: - A store record showing maximum and minimum
quality to be held in-stock and re-order level.
Carry cost: - Costs incurred in maintaining inventories
including storage, insurance and cost of funds invested in stock.
Controllable Cost: -
These cost which are subject to changes by the action or decision of an
individual responsible for the control of costs.
Current Asset: - These asset which can be converted into
cash within an accounting year or within the operating cycle.
Identification: - A system symbolizing stock for
representing information land the rules associating them to express in a code
for easier and correct identification.
Expired Cost: - A cost that has no future revenue —
producing potential.
EOQ (Economic Order Quantity): - The optimum quantity of
stock that minimizes the carrying costs and ordering cost.
Effectiveness: - The accomplishment of a desired objective,
goal or action.
Efficiency: - The accomplishment of a objective goal or
action with minimum resources.
Forecast: -. An estimate of what future observations will
look live if the underlying process continues as it has been in the past.
FIFO (First-In, First-Out): - A material is issued which
assumes that material are issued from order’s stock and accordingly priced.
LIFO (Last-In, First-Out): - A material flow-cost method
which assumes that the materials are issued form the most recent received stock
and according priced.
Lead-Time: - The interval between the time that the need for
the material is determined and the time the material is actually manufactured
delivered or received.
MRP (Material Requirement Planning): - A system of planning
for availability of stock in time, which
presupposes that lead times for all stock items are known and can be supplied
to the system, at least as estimates. Thus in possible the calculation of net
quantities required without taking into consideration time variation, its tries
to ensure materials availability on time phased basis.
Perpetual Inventory: - A continuous record at an item in
stock or stores dealt in showing at a glance an accurate picture of the position
of stock on hand.
Maximum Stock Level:- The highest prescribed level that
stock should not exceed.
Minimum Stock Level: — The smallest determined level below,
which stock should not fall.
Non-controllable Costs: - Cost that can not be affected by
the action or decisions of an individual.
Re-Order Point: - The stock level where an order must be
placed to provide adequate lead time to ensure delivery in time. A
replenishment order is made when stock reaches re-order point.
Safety Stock: - The minimum stock level that provides a
cushion against running out of stock because of changes in demand or changes in
lead time.
Stock — Out Cost: - Losses through idle capacity eased by
non availability of materials.
Time Series: - Data classified chronologically, generally to
find out the trend or deviation from the trend. A series of figures during
successive and equal time intervals.
Variable Cost: — Costs that vary in total in direct
proportion to volume.
Value Analysis (VA): - It is an organized creative approach
to identify unnecessary cost items, it tries to reduce cost and if possible,
ultimately eliminate those unnecessary component of cost, which have no
functional utility to those item concerned.