THE IMPORTANCE OF STOCK CONTROL IN A MANUFACTURING SECTOR A CASE STUDY OF ETERNIT LIMITED, SAPELE

ABSTRACT

 This study was done to examine the importance of stock control in a manufacturing company. The study was carried out in Eternit Ltd Sapele, Delta State. The objective of the study was to consider some management practices in manufacturing companies to see how they affect stock control of a company. Chapter one dealt with the background, the objective, the significance, scope and limitation on the importance of stock control in manufacturing company.  Chapter two dealt with a review of some related literature written on empirical studies.   Chapter three dealt with the method adopted in collecting the data and the method adopted was through administering of questionnaire.     Chapter four dealt with the result and findings based on the questionnaire administration to Eternit Ltd management staffs. Chapter five dealt with summary, findings, recommendations and conclusion. Some recommendations were made which if considered will go a long way to remedy the effect of mismanagement of stock of manufacturing companies.

CHAPTER ONE

INTRODUCTION

1.1    Background Of The Study

          Stock control is the system used in a firm’s investment in stock, which involves recording and monitoring of stock level, forecasting future demand and deciding when and how many to order, in other to minimize overall cost associated with stock. This is a managerial responsibility which focuses on material control, procurement, quality control and stock holding. Stock control is essentially an activity that is concerned with the efficient purchase and use of material for the attainment of predetermined corporate objectives.

          The need for efficient stock control in the face of increasing cost of material due to high demand of such materials, economic inefficiencies cannot be over emphasized.

          Stock constitutes an essential cost element of production, in manufacturing industries, whether process or job order firms. The objectives of an industry especially a private industry is to make production can be obtained when cost elements like stock and its cost controlled which will lead to less expenses and higher profit.

          In order to prevent manufacturing industries from running out of stock, the right material has to purchased from the best source at a good price on a positive note, stock control has an important role with regard to profit maximization.

1.2    Statement of the Study

          Due to economic problems of monetary instability and inflation, there has been high cost of material. Huge sum of money is lost through various forms of purchase fraud, low quality of materials and store materials and in addition the method of stock valuation. Beside the increased materials cost, misadministration which may cause or lead to stock out cost, this present a major problem of disruption use in operation as a result of inaccurate balancing of material acquisition with wage also account for high cost of materials acquisition. Problem of disruption can lead to supplies disaster of various magnitude one of such supply disaster may be stock-out-cost. The consequences of this include loss of current sales, premium payment for such delivery, loss of future sales and also good will.

1.3    Objective of Study

          In carrying out this study of stock control in Eternit Plc, Sapele, the following objectives will be achieved.

          To study the material and stock control policies and by evaluating, analyzing the purchasing procedures, materials holding methods and various accounting method of costing inventory.

          To investigate, so as to identify the controllable and incontrollable variables associated with materials cost control with a view of determining ways of keeping them within controllable limits.

          To highlight the need and importance of sound scientific approach to stock control in the face of our exteriority economy, and ever increasing cost of stock and materials.

          To analyse the efficiency of their stock holding using economic order quality (EOQ).

1.4    Research Questions

          Research questions enables one to view the essence of literature review to provide the required foundation for under taking on empirical study on stock control, answer required to the following research questions;

i.        How familiar are you with the activities of the store and materials holding department and purchase and supplies department?

ii.       In your own opinion, what are the functions of the store and materials holding department and the purchasing supplies department?

iii.      How has the store or material holding department and the purchasing and supplies department in proved the stock control system of the company?

iv.      How reliable is your stock control techniques?

v.       What do you think is the major cause of inefficient and ineffective stock control in the economy?

vi.      What are the major considerations that are criteria for the selection of a supplier for an order?

vii.     How efficient is the local purchase order (LPO) committee?

vii.     How does stock control play an important role in the profit maximization of the company?

ix.      How reliable is your internal control system?

1.5    Significance of Study

          Just as humans are very important to the process production, stocks are also very important because they are needed to be converted to finished goods. Stock control is vital for Nigeria firms especially in period of inflation which consequently leads to folding up of a lot of firms due to their inability to control stock constitutes a major part of the company’s investment, there is need therefore to control stock because more than half of the firms incomes are used to purchase stock for production. Hence, there is need to have effective stock control so as to avoid storage of stock for production and at the same time, too much which will rest in wastage and high holding stock cost.

          This research work is intended therefore to fill the gaps that have existed and create a ground for the future research with attempt to offer practicable suggestion on stock control in Eternit Ltd Sapele and hope that the suggestion will be of benefit to the company and other manufacturing firms. It will go a long way to enhance interest in new approaches, concepts and philosophies aimed at better cost control over materials.

1.6    Scope of Study

          This research work is committed to cover the following:

          To educate analytically the procurement stock controls policies and practice of Eternit Ltd, Sapele. The purchasing procedure of the organization was examined.

          A method of study of stores department was particularly carried out on its organization, it various stock control methods as well as its stock level analysis.

          The cost accounting section involvement in stock control and material accounting system was examined with regard to methods of costing materials issued, stores control ledgers and stock taking and checks.

1.7    Limitation of Study

          This study limited by the following factors:

The procedures 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 carry out the research study, the difficulty of eliciting the necessary co-operation of those  in place of relevant information has experienced. Some of those in place of relevant information declined for fear of giving at secret information of the organization others assumed this study to be fact finding exercise into their fraudulent practices and mismanagement, as such declined responds.

          Unwillingness to respond to questionnaire. Also to an appreciable extent, the study was limited by the value aspect which could be determined by statistical data.

1.8    Definition of Terms

1.      ABC Analysis: A basic technique of stock control, which classified stock control, which classified stock according to monetary values stock items are these categories as:

          i.        A- item; high value of items are this categorized as.

          ii.       B- items; moderate value items.

          iii.      C- low value items.

2.      Bin card: A store record showing maximum quality to be held in stock and re-orders level.

3.      Carry cost: Cost incurred in maintaining inventories including storage, insurance and cost of funds invested in.

4.      Controllable Cost: These costs which are subject to changes by action or decision of an individual responsible for the control of costs.

5.      Current Assets: These assets which can be converted into cash within an accounting year or within the operating cycle.

6.      Expire Cost: A cost that has no future revenue producing potential.

7.      EOQ (Economic Order Quality): The optimum quality of stock that minimized the carrying costs and ordering cost.

8.      FIFO (First In, First Out): A material that is issued which assumes that materials are issued from orders stock and according price. They are issued based on the time they were bought are issued out first as the name implies.

9.      Effectiveness: The accomplishment of a desire objective, goal or action.

10.    Efficiency: The accomplishment of a objective goal or action minimum resources.