EFFECT OF INVENTORY CONTROL IN MANUFACTURING COMPANY

EFFECT OF INVENTORY CONTROL IN MANUFACTURING COMPANY

CHAPTER ONE

  • INTRODUCTION

Inventories are vital to the successful functioning of manufacturing and retailing  organizations. Theymay consist of  raw  materials,  work-in-progress,  spare  parts/consumables,  and  finished  goods.  It  is  not  necessary  that  an  organization  has  all  these  inventory  classes.  But,  whatever  may  be  the  inventory  items,  they  need  efficient  management as, generally, a substantial share of its funds is invested in them. Different departments  within the  same  organization  adopt  different  attitude  towards  inventory.  This  is  mainly   because  the  particular  functions  performed  by  a  department  influence  the  department’s  motivation.  For  example,  the  sales  department  might  desire large stock in reserve to meet virtually every demand that comes. The production department similarly  would  ask  for  stocks  of  materials  so  that  the  production  system  runs  uninterrupted.  On  the  other  hand, the  finance  department  would  always  argue  for  a  minimum investment  in  stock   so  that  the  funds  could  be  used  elsewhere for other better purposes, (Vohra, 2008:427).

Inventory represents an important decision variableat all stages of product manufacturing, distribution and sales,  in addition to being a major portion of total current assets of many organizations. Inventory often represents as  much as 40% of total capital of industrial organizations (Moore, Lee and Taylor, 2003:321). It many represent  33% of company assets and as  much as 90% of  working capital, (Sawaya  Jr. and Giauque, 2006:121). Since inventory  constitutes  a  major  segment  of  total  investment,  it  is  crucial  that  good  inventory  management  be  practiced to ensure organizational growth and profitability.  According to Temeng et al (2010:195), historically,however organizations have ignored the potential savings  from  proper  inventory  management,  treating  inventory  as  a  necessary  evil  and  not  as  an  asset  requiring management. As a result, many inventory systems arebased on arbitrary rules. Unfortunately, it is notunusual  for some organizations to have  more funds invested  in inventory than necessary and still not be able to meet  customer demands because of poor distribution of investment among inventory items (Temeng, Eshun and Essey,  2010:199).

Inventory control can be defined as the system used in a firm to control the firm’s inventory in stock. It involve, monitoring and recording of stock levels, forecasting future demands and deciding when and how much to order.

According to Pandy, (2008) inventory control is defined as “the scientific act of controlling the amount of stock held in various form within a business” This business may be multi – national or small scale primary procedures, supplying large firms. Inventory control problems are not limited to manufacturing company only but also in other organization e.g. Armed forces, transport, school, hospital, club, and government unit.  Inventory include raw materials, finished goods and work in progress.

Moreover, materials have become very importance in many industries; they occupy as much as 40% or more of the invested capital of such industries. The relative importance of materials as a production variable has continue to improve with the passage of time, especially in manufacturing industries.

No effective and efficient management will like to turn a deaf hear to inventory control as a vital aspect of material management, especially in this period of economic Recession in our country when many companies have either folded up or are producing out less than installed capacitive of their respective plants. Therefore, it will not be out of place to suggest that the achievement of corporate goals of firm is a function of the efficiency of the inventory control function. Indeed, inventory control is highly essential in all organization.

 

1.2     STATEMENT OF PROBLEM.

Quality control in  CADBURY NIGERIA PLC is one of the technique use to check product comformity in the company, for accurate pricing of stock, there has to be an  effective means of recording the quality of stock. This is to say that records must be up to date regarding the quality of product produce in the company. The following are the problems of of inventory control on product quality in Cadbury  Nigeria plc

 

Problems of inventory management and control have been around for a very long time. The need to collect food when  it  is  readily  available  and  then  store  it  for  times  of  shortage  is  perhaps  the  fundamental  stock  holding  problem, which was tackled long ago by man. Nowadays, we usually think of stocks being held by organizations  to allow efficient and continuous operations.

Managers are aware of the vital roles inventory plays in the activities of organizations. In most organizations, direct materials represent up to 50% of the total product cost, as a result of the money entrusted on  inventory,

thereby  affecting  the  profitability  of  the  organization.  Organizations  at  times  do  not  control  their  inventory holding, resulting in  under stocking and causing the organizations to  stay off production, thereby resulting to organizational ineffectiveness. This therefore creates relationship problems between inventory  control and product quality in Cadbury Nigeria Plc.

1.3     OBJECTIVES OF STUDY

          The objective of the study are to:

  • Check the problem of determining economic order quantity (EOQ)
  • have a general and critical revenue of managing problems arising from quality control.
  • Find a way of converting faulty valuation in methods and at the same time determining the suitable stock valuation methods for the particular circumstances.
  • Suggest appropriate policy regarding determination of maximum and minimum stock level\
  • Clerical operations account for inefficiencies in management control in inventory
  • Look for ways of making maximum and effective use of the seeming wasting resources which are not fully utilized in the management control system of stock

 

  • OBJECTIVE OF STUDY

The study is aimed at achieving the following purpose in CADBURY NIGERIA PLC.

  • To achieve inventory control function of ensuring that sufficient good are retained in the stock to meet all requirements.
  • The key to stock control system and efficiency of stock management is in ensuring a balance position, providing material needed for production, maintaining the most economic level for materials of deferent nature at that right time and place yet keeping the cost incurred, in so doing to a minimum level.
  • The possibility of carrying unnecessary large stocks resulting in obsolesce of stock items, wastage and eventual lost of funds will tackle.
  • In financial management, it is believed that little percentage saving on a large scale would mean large amount of money in the firm concerned. This study will highlight ways of bringing the huge expenditure on stock control system to the bearest minimum.
  • To provide an insight to student, researchers and other interested persons or organization in inventory system practical in real life situation as compared with the theories of inventory control to determine to what extent the theory really applies, especially Cadbury plc.
  • The study will highlight the cause of problems encountered in controlling stock and find suitable solution to eradicate these problems.
  • To suggest ways of ensuring continuous supply of material to facilitate an interrupted of stock management and control.
  • To ensure efficiency of stock management and control
  • To control investment in stock.
  • This study will reveal the need for the company to go computerized regarding inventory control
  • Problem which arise in the cause of inventory control practice, are highlighted and suggested solution preferred.
  • It is hope that, this study will serve a very useful purpose to Cadbury plc in the area of inventory control and stock management.

 

1.5     STATEMENT OF HYPOTHESES

With due respect to the state inventory control problems and the need for efficiency of stock management, the following working hypothesis are made.

  • Economic order Quantity (EOQ)
  • Various cost associated with inventory control
  • Computerized inventory control system will enhance efficient of stock management growth and cost reduction.

 

 

 

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