EVALUATING INVENTORY MANAGEMENT

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EVALUATING INVENTORY MANAGEMENT AND
CONTROL IN MANUFACTURING FIRMS
(A STUDY OF CHAMPION BREWERIES PLC, UYO)
A RESEARCH PROJECT
PRESENT BY
CLEMENT OKON
TABLE OF CONTENTS
CHAPTER ONE
1.1
Introduction
1.2
Statement of the Problem
1.3
Objectives of the Study
1.4
Significance of the Study
1.5
Scope/Limitation of the Study
1.6
Research Questions
1.7
Definition of Terms
1.8
Organization of the Study
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.0
Introduction
2.1
Inventory Management: Definition and Concepts
2.2
Inventory Control Definition
2.3
Nature of Inventories
2.4
Needs to Hold Inventories
2.5
Objectives of Inventory Management
2.6
Inventory Management Technique
2.7
Inventory Management Process
2.8
Inventory Control System
2.9
Conclusion
CHAPTER THREE
RESEARCH METHODOLOGY AND DESIGN PROCEDURE
3.1
Introduction
3.2
Research Design
33.
Area of the Study
3.4
Population of the Study
3.5
Sample Size and Sampling Technique
3.6
Sources of Data
3.7
Method of Data Collection
3.8
Method of Data Analysis
CHAPTER FOUR
PRESENTATION
ANALYSIS
AND
INTERPRETATION
DATA
4.0
Introduction
4.1
Presentation and Analysis of Data
4.2
Testing of Hypothesis
4.3
Discussion of Findings
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1
Introduction
5.2
Summary
5.3
Conclusion
5.4
Recommendation
References
Appendix
OF
ABSTRACT
Inventory management is a significant component of any business since
inventories are normally accountable for the majority of the costs
incurred in business operations. Several researches conducted to ascertain
how companies meet customer demand by tracking and maintaining the
inventory required using and inventory management system. Thus, the
desire to find out inventory management and control on manufacturing
ignited this study. This work examined the inventory and control
management with a particular reference to Champion Breweries Plc, Uyo.
To achieve this purpose, four research questions were formulated to guide
the study. A structured questionnaire was used as the main instrument for
data collection from 50 personnel of the company. The data collected
from the respondents were analysed using simple percentage and
correlational analysis for testing hypothesis. The study concluded with
some recommendations that the company should hold inventory in the
form of raw material, work-in-progress (process) and finished goods.
CHAPTER ONE
1.1
INTRODUCTION
Inventory constitutes the most significant part of current assets a
larger majority of Nigerian manufacturing industries. Because of the
relative largeness of inventories maintained by most firms, a considerable
sum of an organization’s fund is being committed to them. It thus
becomes absolutely imperative to manage inventories efficiently so as to
avoid the costs of changing production rates, overtime, sub-contracting,
unnecessary costs of sales and lack order penalties during periods of
peaks demand.
According to Redhakrishman et al, (2009), manufacturing
enterprises (companies) are compelled to supply their best in order to
survive because remarkable changes in the market scenario frequently
occur because of global competition, shorter product life cycles, dynamic
changes of demand pattern and product varieties and environmental
standards. Pandey, 2008 says it is possible for a company to reduce its
levels of inventories to a considerable degree without any adverse effect
on production and sales, by using simple inventory planning and control
techniques. The reduction in excessive inventories carries a favourable
impact on a company’s profitability.
Nowadays, understanding of the significance of inventory control
throughout the various links in a supply chain is further increased by the
awareness in supply chain management. In recent years, management
decisions are supported by lots of newly constructed supply chain and
inventory control models. A sufficient supply without too much
oversupply of items are assured by monitory supply, storage and
availability is known as inventory control. Total inventory costs can be
minimized by optional order quantity in an inventory system in which an
order is considered slowly, as inventory continues to be used up.
Improving company management at the same time as improving custom
services, maximizing return of investment, improving production
performance and minimizing investment on inventories is the major
objective in implementing an inventory system.
1.2
STATEMENT OF THE PROBLEM
The problem of this study is how to maintain a large size of
inventories of raw material and work in progress (process) for efficient
and smooth production and of finished goods for interrupted sales
operators.
This study argues in its statement of the problem that inability to
maintain a minimum investment in inventories to maximize profitability
and also maintaining an inadequate level of inventories is also dangerous
in the manufacturing company.
1.3
OBJECTIVES OF THE STUDY
The objective of the study is to find out the following:
(i)
To
find
out
the
inventory
management
procedures
in
management
in
Champion Breweries Plc, Uyo.
(ii)
To
examine
the
inventory
and
control
Champion Breweries Plc, Uyo.
(iii)
To identify the problems associated with evaluating
management and control in manufacturing
(iv)
inventory
company.
To proffer solution to the problems associated with evaluating
inventory management in Champion Breweries Plc, Uyo.
(v)
To make useful recommendation based on research
1.4
SIGNIFICANCE OF THE STUDY
findings.
The ultimate goal of any industry or organization is to maximize
profit. The goal can be achieve in the manufacturing company like
Champion Breweries Plc, Uyo through inventory management and
control in manufacturing firm.
This study is necessary because it would enable the employer and
employee of Champion Breweries Plc, Uyo to improve ethnical behavior
and code of conduct in the management of the company.
It would be of immense benefit to investors who want to invest in
the company and the shareholders of the company to earn more profit. It
will also serve as a reference source to researchers (students) who might
want to further studies in the similar topic.
1.5
SCOPE/LIMITATION OF THE STUDY
The study concerns about evaluating inventory management and
control in manufacturing firm with specific focus on Champion
Breweries Plc, Uyo. Significantly, the study seeks to investigate the
inventory management procedures in the company and control man in the
manufacturing firm. However, the findings and recommendations will be
generalized to cover other similar company’s.
Besides, the study is limited to Champion Breweries Plc, Uyo and
its limitation in scope caused by the time constraint. The period within
which the study is conducted is short for a thorough research study,
hence, gathering adequate information becomes very difficult.
Also, finance is one of the limitations to the scope of this study.
The researcher is facing financial constraint to meet all the needed
educational requirements including this research work. This caused the
researcher to restrict this research to one company for possible
completion of the study.
Finally, lack of materials on the topic. This area is totally new in
the Nigeria companies, and schools, hence the researcher resolved to seek
friendly approach in order to obtain the needed materials or information
from the establishment or organization under study through the
administration of questionnaire and oral interview.
1.6
RESEARCH QUESTIONS
(1)
Does
inventory
management
increase
profitability
in
Champion Breweries Plc, Uyo?
(2)
Does inventories help Champion Breweries Plc to make effective
and efficient production?
(3)
What
is
the
benefit
of
inventory
management
to
the
shareholders of Champion Breweries Plc?
(4)
What are the problems associated with inventory
management
and control in Champion Breweries?
1.7
RESEARCH HYPOTHESES
The following research hypotheses were formulation to guide this
study.
HYPOTHESIS 1
H0:
Inventory management does not increase profitability
in
Champion Breweries Plc.
H1:
Inventory management increase profitability in
Breweries Plc.
Champion
HYPOTHESIS 2
H0:
There is no significant relationship between inventory management
and the benefits to shareholders of
Champion
Breweries Plc,
Uyo.
H1:
There is a significant relationship between inventory management
and the benefits to shareholders of
Champion Breweries Plc,
Uyo.
1.8
DEFINITION OF TERMS
(a)
INVENTORY MANAGEMENT: This refers to all the activities
involved in developing and managing the
inventory
levels
of
raw
materials, semi-finished materials (work-in-progress) and finished goods
so that
adequate supplies are available and the costs of over or
under stocks are low (Chiktriki and Ravindranuaath,
(b)
2010).
RAW MATERIALS: These are those basic inputs that are
converted into finished product through the manufacturing
process
(Pandey, 2008).
(c)
WORK –IN-PROGRESS: These are inventories that are
semi-manufactured products (Pandey, 2008).
(d)
FINISHED
GOODS:
These
are
inventories
manufactured products which are ready for sale
completely
(Pandey, 2008).
(e)
PROFITABILITY: This means the ratio of profit to capital or the
profit after taxes but before dividends divided by total assets and
expressed as a percentage (Fijo, 2004).
(f)
PRODUCTIVITY: This is the relationship between a given
output and the means used to produce it. It is the goods and
services produced per unit of labour, capital or both (Banjoko,
2000).
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.0
INTRODUCTION
This chapter on the review of related literature is about inventory
management and control in manufacturing firm with focus on Champion
Breweries Plc, Uyo in Akwa Ibom State.
The researcher presents the views and opinions of various authors
as follows:
(i)
Inventory management: Definition and Concepts.
(ii)
Inventory control definition
(iii)
Nature of inventories
(iv)
Need to hold inventories
(v)
Objectives of inventory management
(vi)
Inventory management technique
(vii) Inventory management process
(viii) Inventory control system
(ix)
Conclusion
2.1
INVENTORY
MANAGEMENT:
DEFINITION
AND
CONCEPTS
There is need for installation of a proper inventory control
technique in any business organization in developing country like
Nigeria. According to Kotler (2000), inventory management refers to all
the activities involved in developing and managing the inventory levels of
raw materials, semi-finished material (work-in-progress) and finished
goods so that adequate supplies are available and the costs of over or
under stocks are low. Rosenblatt (1977) says; “the cost of maintaining
inventory is included in the final price paid by the consumer. Good in
inventory represents a cost to their owner. The manufacturer has the
expense of materials and labour. The wholesaler also has funds tied up”.
Therefore, the basic goal of the researchers is to maintain a level of
inventory that will provide optimum stock at lowest cost.
According to Morris (1995), stressed that inventory management in
its broadest perspective is to keep the most economical amount of one
kind of asset in order to facilitate an increase in the total value of all
assets of the organization – human and material resources. Keth et al,
(1994) in their text also stated that the major objective of inventory
management and control is to inform managers how much of a good to
re-order, when to re-order the good, how frequently orders should be
placed and what the appropriate safety stock is, for minimizing stockcuts.
Thus, the overall goal of inventory is to have what is needed, and to
minimized the number of times one is out of stock. Drury, (1996) defined
inventory as a stock of goods what is maintained by a business in
anticipation of some future demand. This definition was also supported
by Schroeder, (2000) who stressed that inventory management has an
impact on all business functions, particularly operations, marketing,
accounting, and finance. He established that there are three motives for
holding inventories which will be discuss later.
2.2
INVENTORY CONTROL DEFINITION
Inventory control is simply knowing how much inventory you
have. It is a mean to control loss of goods. Business that use large
quantities of small items often use an “80/20” or ABC rule in which they
keep track of 20% of the largest value inventory items and use it to
represent the whole. “A” items are the top valued 20% of the company’s
inventory, both in terms of the cost of the item and the need for the item
in the manufacturing or sales process. Controlling this top 20% will
control 80% of their inventory costs. “B” items are those of mid-range
value and “C” items are cheap are rarely in demand.
The retailer or manufacturer can now categorize all items in the
inventory into one of these three classes and then monitor the stock
according to value. “A” items would be counted and tracked regularly,
while “B” and “C” items would be counted only monthly or quarterly.
2.3
NATURE OF INVENTORIES
Inventories are stock of the product a company manufacturing for
sale and components that make up the product. The various forms in
which inventories exist in a manufacturing company are:
(a)
Raw Materials: Raw materials are those basic inputs
that
are
converted into finished product through the manufacturing process.
(b)
Work-in-Process: These inventories are semi-
products. They represent products that
manufactured
need more work before they
become finished product for sales.
(c)
Finished Goods: These are inventories that are
completely
manufactured products which are ready for sale. Stocks of raw materials
and work-in-process
goods is
required
facilitate production, while stock of finished
for
smooth
marketing
operations.
Thus,
inventories serve as a link between the production and
consumption of goods.
The levels of three kinds of inventories for a firm depend on the
nature of its business. A manufacturing firm will have substantially high
levels of all three kinds of inventories, while a retail or wholesale firm
will have a very high level of finished goods inventories and no raw
material and work-in-progress inventories. Within manufacturing firms,
there will be differences. Large heavy engineering companies produce
long production cycle products, therefore, they carry large inventories.
On the other hand, inventories of a consumer product company will not
be large because of short production cycle and fast turnover.
According to Chikriki and Ravindranath (2010), firms also
maintain a fourth kind of inventories, supplies or store and spare supplies
include office and plant cleaning materials like soap, brooms, oil, fuel,
light bulbs etc. These materials do not directly enter production, but are
necessary for production process. Usually, these supplies are small part of
the total inventory and do not involve significant investment. Therefore, a
sophisticated system of inventory control may not be maintained for
them.
2.4
NEED TO HOLD INVENTORIES
The question of managing inventories arises only when the
company holds inventories. Maintaining inventories involves tying up the
company’s funds and incurrence of storage and handling costs. If it is
expensive to maintain inventories, why do companies hold inventories.
There are three general motives for holding inventories Pandey (2008).
(i)
Transactions Motive: These lay emphasis on the need to
maintained inventories to facilitate smooth production and sales
operations.
(ii)
Precautionary Motive: These necessitates holding of inventories
to guard against the risk of unpredictable changes in demand and
supply forces and other factors.
(iii)
Speculative Motive: These influences the decision to increase or
induce inventory levels to take advantage of price fluctuation.
According to Starr and David (1962), a company should maintain
adequate stock of materials for a continuous supply to the factory for an
uninterrupted production. It is possible for a company to procure raw
materials whenever it is needed. A time lay exists between demand for
materials and its supply. Also there exists uncertainty in procuring raw
materials in time on many occasions. The procurement of materials may
be delayed because of such factors as shrike, transport disruption or short
supply. Therefore, the firm should maintain sufficient stock of raw
materials at a given time to streamline production. Other factor which
may necessitate purchasing and holding of raw material inventories are
quantity discounts and anticipated price increase. The firm may purchase
large quantities of raw materials than needed for the desire production
and sales level to maintain quantity discounts of bulk purchasing. At
times, the firm would like to accumulate raw materials in anticipation of
price rise.
Work-in-process inventory builds up because of the “production
cycle”. Production cycle is the time span between introduction of raw
material into production and emergence of finished goods (products) at
the completion cycle. Till production cycle completes, stocks of work-inprocess has to be maintained. Efficient firms constantly try to make
production cycle smaller by improving production techniques.
Stock of finished goods has to be held because production and
sales are not instantaneous. A firm cannot produce immediately when
customers demand goods. Therefore, to supply finished goods on a
regular basis, their stock has to be maintained. Stock of finished goods
has also to be maintained from sudden demands from customers. In case
the firm’s sales are seasonal in nature, substantial finished goods
inventories should be kept to meet the peak demand. Failure to supply
products to customers, when demanded, would mean loss of the firm’s
sales to competitors. The level of finished goods inventories would
depend upon the coordination between sales and production as well as on
production time.
2.5
OBJECTIVES OF INVENTORY MANAGEMENT
In the context of inventory management, the firm is faced with the
problem of meeting two conflicting needs:

To maintain a large size of inventories of raw material and workin-progress for efficient and smooth production and of finished
goods for uninterrupted sales operations.

To maintain a minimum investment in inventories to maximize
profitability.
Both excessive and inadequate inventories are not desirable. Adel
and Chris, (1981), these are two danger points within which the firm
should avoid. The objective of inventory management should be to
determine and maintain optimum level of inventory investment. The
optimum level of inventory will be lie between the two danger points of
excessive and inadequate inventories.
The firm should always avoid a situation of over investment or
under-investments are:
(a)
Unnecessary tie-up of the firm’s fund and loss of profit
(b)
Excessive carrying costs, and
(c)
Risk of liquidity.
The excessive level of inventories consumes funds of the firm, which
cannot be used for any other purpose, and thus, it involves and
opportunity cost. The carrying costs, such as the costs of storage,
handling, insurance, recording and inspection, also increase in proportion
to the volume of inventory.
These costs will impair the firm’s profitability further. Excessive
inventories carried long-period increase chances of loss profitability. It
may not be possible to sell inventories in time and at full value. Lucey T.
(1992), raw materials are generally difficult to sell as the holding period
increases. These are exceptional circumstances where it may pay to the
company to hold stocks of raw materials. This is possible under
conditions of inflation and scarcity. Work-in-progress is more far difficult
to sell. Similarly, difficulties may be faced to dispose off finished goods
inventories as time lengthens. The downward shifts in market and the
seasonal factors may caused finished goods to be sold at low prices.
Another danger of carrying excessive inventory is the physical
deterioration of inventories while in storage. In case of certain goods or
raw materials deterioration occurs with the passage of time, or it may be
due to mishandling and improper storage facilities. These factors are
within the control of management, necessary investment in inventories
can, thus, be cut down.
Pandey (2008), says maintaining an inadequate level of inventories
is also dangerous. The consequences of under-investment in inventories
are:
(a)
Production holds-ups and
(b)
Failure to meet delivery commitments
Inadequate raw materials and work-in-progress inventories will result in
frequent production interruptions. Similarly, if finished goods inventories
are not sufficient to need the demand of customers regularly, they may
shift to competitors, which will amount to a permanent loss to the firm.
The aim of inventory management, thus, should be to avoid
excessive and inadequate levels of inventories and to maintain sufficient
inventory for the smooth production and sales operations. Efforts should
be made to place and order at the right time with the right source to
acquire the right quantity at the right price and quality. An effective
inventory management should:
(a)
ensure a continuous supply of raw materials to
facilitate
uninterrupted production;
(b)
maintain sufficient stocks of raw materials in periods
of
short
supply and anticipate price changes;
(c)
maintain sufficient finished goods inventory for smooth sales
operation, and efficient customer service;
(d)
minimize the carrying cost and time and;
(e)
control investment in inventories and keep it at an optimum level.
2.6
INVENTORY MANAGEMENT TECHNIQUE
In managing inventories, the firm’s objective should be in
consonance with the shareholder wealth maximization principle. To
achieve this, the firm should determine the optimum level of inventory.
Efficiently controlled inventories make the firm flexible. Inefficiently
inventory control results in unbalanced inventory and inflexibility – the
firm may sometimes run out of stock and sometimes may pile up
unnecessary stocks. This increases the level of investment and makes the
firm unprofitable (Pandey, 2008).
To manage inventories efficiency, answers should be sought to the
following two questions:
(a)
How much should be ordered?
(b)
When should it be ordered?
The first question, how much to order, relates the problem of
determine economic order quantity (EOQ), and is answered with an
analysis of costs of maintaining certain level of inventories. The second
question, when to order, arises because of uncertainty and is a problem of
determining the re-order point (Screenivas and Scrinivas, 2008).
ECONOMIC ORDER QUANTITY (EOQ)
One of the major inventory management problem to be resolved is
how much inventory should be added when inventory is replenished. If
the firm is buying raw materials, it has to decide lots in which has to be
purchased on replenishment. If the firm is planning a production run, the
issue is how much production to schedule (or how much to make). These
problems are called order quantity problems, and the task of the firm is to
determine the optimum or economic order quantity (or economic lot
size).
2.7
INVENTORY MANAGEMENT PROCESS
The techniques of inventory management discussed above, are
very useful in determining the optimum level of inventory and finding
answers to the problems of the economic order quantity, the re-order
point and the safety stock. These techniques are very essential to
economize the use of resources by minimizing the total inventory cost.
One research on inventory management indicates the broad framework
for managing inventories. More sophisticated techniques may be used to
handle inventory management problems more efficiently and effectively.
It should, however, be realized that inventory management more than the
use of techniques, is a managerial process of continuous planning,
coordination, control and monitoring, motivation etc.
2.8
INVENTORY CONTROL SYSTEM
According to Lucey T. (1996), a firm needs an inventory control
system to effectively manage its inventory. There are several inventory
control system in vogue in practice. The arrange from simple systems to
very complicated systems. The nature of business and the size dictate the
choice of an inventory control system. For example, a small firm may
operate a two-bin-system. Under this system, the company maintains two
bins. Once inventory in one bin is used, an order is placed, and
meanwhile the uses inventory in the second bin. For a large departmental
store that sells hundreds of items, this system is quite unsatisfactory. The
departmental store will maintain a self-operating, automatic computer
system for tracking the inventory position of various items and placing
order. The techniques used in controlling inventory system are as follows:
(i)
ACTIVITY BASED COSTING INVENTORY CONTROL
SYSTEM
Large numbers of firms have to maintain several types of
inventories. It is not desirable to keep the same degree of control on all
the items. The firm should pay maximum attention to those items whose
value is the highest. The firm should, therefore, classify inventories to
identify which items should received most effort in controlling. The firm
should be selective in its approach to control investment in various types
of inventories. This analytical approach is called the ABC analysis and
tends to measure the significance of each item of inventories in terms of
its value. The high-value items are classified as “A items” and would be
under tightest control. “C items” represent relatively least value and
would be under simple control. “B items” fall in between those two
categories and require reasonable attention of management. The ABC
analysis concentrates on important items and is also known as “control by
importance and exception (CIE)” Peters et al (2006). As the items are
classified in the importance of their relative value, this approach is also
known as “proportional value analysis (PVA)”.
Therefore, the following steps are involved in implementing the
ABC analysis:

Classify the items of inventories, determining the expected use in
units and price per unit for each item.

Determine the total value of each item by multiplying the expected
units by its units price.

Rank the items accordance with the total value, giving first rank to
the item with highest total value and so on.

Compute the ratios (percentage ) of number of units of each item to
total units of all items and the ratio of total value of each item to
total value of all items.

Combine items on the basis of their relative value to form three
categories – A – B and C.
(ii)
JUST-IN-TIME (JIT) SYSTEM
Japanese firms popularized the just-in-time (JIT) system in the
world. In a JIT system material or the manufacturing sites or stores just
few hours before they are put to use. The delivery of material is
synchronized with the manufacturing cycle and speed. JIT system
eliminates the necessity of carrying large inventories, and thus, saves
carrying and other related costs to manufacturer. The system requires
perfect understanding and coordination between the manufacturer and
supplies in terms of the timing of delivery and quality of this material.
Poor quality material or components could halt the production. The JIT
inventory system complements the total quality management (TQM). The
success of the system depends on how well a company manages its
suppliers. The system puts tremendous pressure on suppliers. They will
have to develop adequate systems and procedures to satisfactory meet the
needs of manufacturers.
(iii)
OUT-SOURCING
A few years ago there was a tendency on the parts of many
companies to manufacture all components in house. Now more and more
companies are adopting the practice out-sourcing. Out-sourcing is a
system of buying parts and components from outside rather than
manufacturing them internally. Many companies develop a single source
of supply, and many others help developing small and middle size
suppliers of components that they required. Example Tata Motors has
developed number of ancillary units around its manufacturing sites that
supply parts and components to its manufacturing plants. With the help of
Tata Motors the ancillaries are able to maintain the high quality of the
manufactured components. The car manufacturing company Maruti,
which how controlled by Suzuki of Japan has the similar system of
supply.
(iv)
COMPUTERIZED INVENTORY CONTROL SYSTEMS
More and more companies, small or large size are adopting the
computerized
system
of
controlling
inventories
investment.
A
computerized inventory control system” enables a company to easily
track large items of inventories. It is an automatic system of counting
inventories, recording withdrawal and revising the balance. There is an
in-built system of placing order as the computer notices that the reorder
point has been reached. The computerized inventory system is inevitable
for large retail stores, which carry thousands of items. The computer
information system of the buyers and suppliers are linked to each other.
As soon as the supplier’s computer receives an order from the buyer’s
system, the supply process is activated (Pandey, 2008).
2.9
CONCLUSION
Inventory constitutes the most significant part of current assets of
larger majority of Nigerian manufacturing industries. The manufacturing
companies hold inventories in the form of raw material, work-in-progress
and finished goods. There are at least three motives for holding
inventories.

To facilitate smooth production and sales operation (transaction
motive).

To guard against the risk of unpredictable changes in usage rate
and delivery time (precautionary motive).

To make advantage of price fluctuations (speculative motive).
Inventories represent investment of a firm’s funds. The objective of
the inventory management should be the maximization of value of the
firm. The firm should be therefore consider (a) costs, (b) return, and (c)
risk factors in establishing its inventory policy. The research also
discussed the following areas; inventory control definition, nature of
inventories, need to hold inventories, inventory management technique,
inventory control system. Baten and Kamil, (2010) said changes in
demand of the consumers for the product are managed by several
manufacturing companies using a production inventory system. A
completed goods warehouse to store products that are not sold
immediately after production and a manufacturing plant are present in
such a system. The material handling and storage system greatly
influence the performance of any manufacturing company Aslam et al
(2009).
CHAPTER THREE
RESEARCH METHODOLOGY AND DESIGN PROCEDURE
3.1
INTRODUCTION
This chapter is concerned with the presentation of the method used
in this study to accomplish its purpose on “Evaluating Inventory
Management and Control in Manufacturing”. The following areas are
taken into consideration, the research design, area of the study,
population of the study, sample and sampling technique, sources of data
as well as method of data collection.
3.2
RESEARCH DESIGN
This research design is the framework which specifies the types of
information to be collected, the sources of data and data collection
technique, a good design always ensure that the information gathered is
consistent with the study objectives and the data are collected through the
most accurate procedure Anyawu (1994). This research design is
descriptive.
3.3
AREA OF THE STUDY
This study was to evaluate inventory management and control in
manufacturing firm. The area of the study is Champion Breweries Plc,
Uyo.
3.4
POPULATION OF THE STUDY
The population of the study comprises of all the personnel of
Champion Breweries Plc, Uyo which was estimated to be 60 personnel.
The emphasis is placed on staff knowledge and information concerning
the subject of the study.
3.5
SAMPLE SIZE AND SAMPLING TECHNIQUE
A sample size of 50 was used for the study from the total
population. A stratified random sampling method was used to select the
60 personnel drawn from different departments of the organization
including the managers.
3.6
SOURCES OF DATA
The two sources of data used for this research are primary and
secondary sources.
Primary Source: The data collected from this source include the one
obtained as a result of direct contact with the management and staff,
questionnaire, personal observation and interview.
Secondary Source: The secondary data is the one gotten from the
existing work done by various researcher on the topic closely related to
the one of this study. The source includes, library, journals, internet and
other publication on the inventory management and control in
manufacturing firm.
3.7
METHOD OF DATA COLLECTION
In carrying out the research, the use of questionnaire was an
outstanding method of data collection. The questionnaire were developed
and administered to the staff and personnel of champion Breweries Plc,
Uyo.
3.8
METHOD OF DATA ANALYSIS
The responses obtained from respondents in Champion Breweries
Plc, Uyo formed data. The data were treated statistically in accordance
with research questions generated from the study.
Tables and simple percentage were used as techniques of analyzing
the research questions while Chi-square analysis was employed to test the
research hypothesis.
Therefore, the formula for Chi-square analysis is denoted by:
Where
X2
=
X2
=
(Fo-Fe)
Fe
Chi-square
Fo
=
Frequency Observed
Fe
=
Frequency Expected
CHAPTER FOUR
PRESENTATION, ANALYSIS AND INTERPRETATION OF
DATA
4.0
INTRODUCTION
This chapter entails the presentation of data analysis and
interpretation of data collected. The data collected was through the use of
questionnaire while the analysis was based on the research questions and
hypothesis stated earlier in chapter one of this study. Simple percentage
and tables were used to analyze the research questions while Chi-square
analysis was used for testing of research hypotheses.
4.1
PRSERNATION AND ANALYSIS OF DATA
Table 4.1.1 Shows the number of questionnaire sent out and the
number of questionnaire returned.
VARIABLES
RESPONDENTS
Questionnaire filled and retuned 45
PERCENTAGE
90%
Questionnaire not returned
5
10%
Total
50
100%
Source: Field Survey, 2012
Table 4.1.1 above shows that out of 50 copies of questionnaire
structured and distributed to the staff and management of Champion
Breweries Plc, 45 returned representing 90% of the returned
questionnaire while 5 copies was not returned representing 10% of
questionnaire not returned. The analysis is based on 45 respondents on
view of evaluating inventory management and control in manufacturing.
Research Question1: Does inventory management increase profitability
in Champion Breweries Plc?
Table 4.1.2
VARIABLES
RESPONDENTS
Yes
%
No
%
Agreed
18
36%
8
20%
Disagreed
2
4%
6
15%
Undecided
5
10%
6
15%
Total
25
50%
20
50%
Source: Field Survey, 2013
From the table 4.1.2 above, 18 (36%) of the respondent said Yes
and 8 (20%) on No indicated agreed that inventory management increase
profitability in Champion Breweries Plc, while 2 (4%) and 6 (15%)
respectively said “Yes” and “No” pointed disagreed. Also 5 respondents
representing 10% and 6 (15%) said Yes and No give undecided on the
question.
Research Question 2: Does inventories help Champion Breweries Plc to
make effective and efficient production?
Table 4.1.3
VARIABLES
RESPONDENTS
Yes
%
No
%
23
46%
12
30%
Disagreed
-
0
-
0%
No Comments
2
4%
8
20%
Total
25
50%
20
50%
Agreed
Source: Field Survey, 2013
Table 4.1.3 above shows that 23 respondents representing 46% said
Yes and 12 representing 30% on No agreed while another 2 respondents
(4%) and 8 respondents representing 20% said No made no comments.
The analysis deduced that inventories help Champion Breweries Plc to
make effective and efficient production.
Research Question 3: What is the benefit of inventory management to
the shareholders of Champion Breweries Plc?
Table 4.1.4
VARIABLES
RESPONDENTS
Yes
%
No
%
Good return on investment
10
20%
5
12.5%
Lower cost of capital
8
16%
6
15%
Lower share price
4
8%
4
10%
Improved inventory performance
3
6%
5
12.5%
Total
25
50%
20
50%
Source: Field Survey, 2013
Table 4.1.4 above shows that 10(20%) and 5 (12.5%) said Yes and
No indicated good return on investment, 8 (16%) on Yes and 6 (15%) on
No asserted lower cost of capital and 4 respondents representing 8% and
10% on Yes and No opted lower share price while 3 (6%) and 5 (12.5%)
of the respondents pointed improve inventory performance. Therefore, it
is deduced that inventory management brings about the benefits to the
shareholders of Champion Breweries Plc, Uyo.
Research Question 4: What is the problem associated with inventory
management and control in Champion Breweries Plc?
Table 4.1.5
VARIABLES
RESPONDENTS
Yes
%
No
%
16
32%
8
20%
5
10%
7
17.5%
4
8%
5
12.5%
Improved inventory performance
3
6%
5
12.5%
Total
25
50%
20
50%
How to maintain a large size of
inventories
How to maintain efficient smooth
production in the company
How to maintain investment in
inventories to maximize
profitability
Source: Field Survey, 2013
The above table 4.1.5 shows that 16 (32%) of the respondents said
Yes and 8 (20%) on No indicated how to maintain a large size of
inventories while 5 respondents (10%) and 7 (17.5%) said Yes and No
respectively opted how to maintain efficient and smooth production in the
company. Also, 4 (8%) of the respondents and 5 (12.5%) said Yes and No
pointed how to maintain investment in inventories to maximize
profitability. From this analysis, it is deduced that the problem associated
with inventory management and control is how to maintain a large size of
inventories, how to maintain efficient and smooth production in the
company as well as how to maintain investment in inventories to
maximize profitability.
4.2
TESTING OF HYPOTHESIS
HYPOTHESIS 1
H0:
Inventory management does not increase profitability
in
Champion Breweries Plc
H1:
Inventory management increase profitability in
Champion
Breweries Plc.
Table 4.2.1
VARIABLES
X
y
x2
y2
xy
Agreed
18
8
324
64
108
Disagreed
2
6
4
36
12
Undecided
5
6
25
36
30
Total
25
20
353
136
150
r
=
3 x 150 – (25) (20)
√3(353)-((25)2
3(136)-(20)2
450 – 500
=
√(1059-625) (408)-400)
=
-50
√ (434) (8)
=
-5
√ 3472)
=
-50
58.92
:.
r
=
-0.84
Decision Rule
However, r can take any value between -1 and +1 i.e. -1≤ r ≤ 1,
when there is a perfect relationship between x and y
The closer the value of r is to ±1, the stronger the correlation and
the closer the value of r is to 0, the weaker the correlation.
If the value of r is positive, there exists a positive correlation and if
the value of r is negative, there exists a negative correlation.
Since, r = -0.84, there is a strong negative correlation which states
that inventory management increase profitability in Champion Breweries
Plc, Uyo.
HYPOTHESIS 2
H0:
There
is
no
significant
relationship
between
management and the benefits to shareholders of
inventory
Champion
Breweries Plc, Uyo.
H1:
There
is
a
significant
relationship
between
management and the benefits to shareholders of
inventory
Champion
Breweries Plc, Uyo.
Table 4.2.2
Variables
x
y
x2
y2
xy
Good return on investment
10
5
100
25
50
Lower cost of capital
8
6
64
36
48
Lower share price
4
5
16
25
20
Improve inventory performance
3
4
9
16
27
Total
25
20
189
102
145
r
=
4 x 145 – (25) (20)
√4(189)-(25)2
=
4(102)-(20)2
580 – 500
√(756-625) (408)-400)
=
80
√ (131) (8)
=
80
√
=
1,048
80
32.37
:.
r
=
2.5
Decision Rule
However, r can take any value between -1 and +1 i.e. -1≤ r ≤ 1,
when there is a perfect relationship between x and y
The closer the value of r is to ±1, the stronger the correlation and
the closer the value of r is to 0, the weaker the correlation.
If the value of r is positive, there exists a positive correlation and if
the value of r is negative, there exists a negative correlation.
Since, r = 2.5, there is a perfect relationship between inventory
management and the benefits to shareholders of Champion Breweries Plc,
Uyo.
4.3
DISCUSSION OF FINDINGS
This study was carried out to examine the inventory management
and control in Champion Breweries Plc, Uyo. To achieve this objective,
four research questions were formulated to guide the study. A structured
questionnaire was use as the main instrument to gather data from 50
personnel in Champion Breweries Plc, Uyo. Out of this number, 45
(90%) copies of questionnaire were appropriately completed and returned
for data analysis.
The data collected from the respondents were analysed using
simple percentage and correlational analysis the research questions. The
findings revealed that:
(i)
Inventory management increase profitability in
Champion
Breweries Plc, Uyo.
(ii)
There
is
a
significant
relationship
between
management and the benefits to shareholders if
Breweries Plc, Uyo.
inventory
Champion
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0
INTRODUCTION
This
chapter
presents
the
summary,
conclusion
and
recommendation for further study based on the finding of this study.
5.1
SUMMARY
This study focused on the evaluation of inventory management and
control in manufacturing with a particular reference to Champion
Breweries Plc, Uyo.
Inventory management is the methods use to organize, store and
replace inventory, to keep an adequate supply of goods while minimizing
costs. Each location where goods are kept will be required different
methods of inventory management. Keeping an inventory, or stock of
goods, is a necessity in retail. Customers often prefer to physically touch
what they are considering purchasing, so you must have items on hands.
Inventory constitutes the most significant part of current assets of
larger majority of Nigerian manufacturing industries. Because of the
relative largeness of inventories maintained by most firms, a considerable
sum of an organization’s fund is being committed to them. Therefore,
manufacturing enterprises are compelled to supply their best in order to
survive because remarkable changes in the market scenario frequently
occur because of global competition.
5.2
CONCLUSION
Based on the finding of the study and the course of subject
limitation, it is concluded that in managing inventories, the firm’s
objective should be in consonance with the shareholder wealth
maximization principle. To achieve this, the firm should determine the
optimum level of inventory. Efficiently controlled inventories make the
firm flexible. Inefficient inventory control results in unbalanced inventory
and flexibility, the firm may sometimes run out of stock and sometimes
may pile up unnecessary stocks. This increases the level of investment
and makes the firm unprofitable.
5.3
RECOMMENDATION
Based
on
the
findings
of
this
study,
the
following
recommendations are made:

Inventories constitutes highest level of current assets of public
limited company in Nigeria.

The manufacturing companies like Champion Breweries Plc should
hold inventories in the form of raw materials, work-in-progress
(process) and finished goods.

The firm should maintained the three types of holding inventories
which include, transaction motive, speculative motive and
precautionary motive.

The two types of costs that are involved in inventory maintenance
– ordering costs and carrying costs should be adopted to the
company.
REFERENCES
Adel, A. Ghobber, Chris H. Friend (1981): The Material Dervitsostis K.
N. Operations Management USA. McGraw-Hill Series in
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Vendor Managed Inventory Model for a Single Echelon Supply
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199-210.
Behnam, F, Lee Luong & Remo M, (2008): Optimization/Simulation
Modeling of the Integrated Production Distribution Plan: An
Inventory Survey, Wseas Transaction an Business & Economics
No. 3 Vol. 5.
Charn, C. & Janis Grabis (2003): Supply Chain Configuration using
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Conference on Winter Simulation: Driving Innovation.
Chin-Hsiung Hsu, Ching-Shih Tson & Fong-Jung, Y. U (2009):
Multicritiria Trade off in Inventory Control using Memetic Particle
Swarm Optimization. Int’l Journal of Innovative Computing,
Information & Control, No 11(A), Vol.5.
Chitriki, Thotappa & K. Ravindranath (2010): Data Mining Aided
Proficient Approach for Optimal Inventory Control in Supply
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Drury, C. (1996): Management and Cost Accounting. London: Int’l
Housan Business Press.
Haruhiko, T., Tatsushi & Effects of Inventory Control on Bullwhip in
Supply Chain Planning for Multiple Company, Int’l Journal of
Innovative Computing, Information and Control. No. 3, Vol. 4.
Keth, L., A. Muhleman, & J. Oakland (1994): Production and
Operations Management. London: Pitman Publisher.
Kotler, P. (2002): Marketing Management. 2nd Ed. The Millennium
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Lucey, T. (1992): Quantitative Techniques. 4th Ed. London: Ashford
Colour Press.
Lucey, T. (1996). Costing: 5th Ed. London: Ashford Colour Press.
M. Aslam, Farrukh, A. R. Gardezi & Nasir Hayat (2009): Design,
Development & Analysis of Automated Storage and Retrieved
System with Single and Dual Command Dispatching using
MATLAIS, World Academy of Science, Engineering &
Technology.
M. Screenivas & T. Srinivas (2008): Effectiveness of Distribution
Network. Int’l Journal of Information Systems & Supply.
Pandey, I. M. (2008): Financial Management. Vikas Publishing House
PVT Ltd.
Peters, Mile H, Karaly Nehez & Tibor Toth (2006): A New Inventory
Control Method for Supply Chain Management. In Proceeding of
the 12th Int’l Conference on Machine Design and Production.
P. Radhakrishnan, V. M. Prasad & M. R. Gopalan (2009): A Optimizing
Inventory Using Genetic Algorithm for Efficient Supply Chain
Management. Journal of Computer Science Vol. 5.
APPENDIX II
QUESTIONNAIRE ON THE TOPIC EVALUATING INVENTORY
MANAGEMENT AND CONTROL IN MANUFACTURING”. A
STUDY OF CHAMPION BREWERIES PLC, UYO.
SECTION A: Please tick √
as applicable
1.
Sex: (a) Male
(b) Female
2.
Marital Status: (a) Married
3.
Age: (a) 20-29 years
(b) 30-39 year
(c) 40-49 yrs
4.
(d) 50 and above
How long have you been work in the company:
(a) 1-10yrs
5.
(b) Single
(b) 11-20yrs
(c) 21 and above
What is the level of your academic qualification?
(a) ND/NCE
(b) HND/B.Sc
(c) MBA
(d) Ph.D
6.
Position: (a) Manager
(b) Secretary
(c) Accountant
(d) Others Specify --------------SECTION B
7.
Does inventory management increase profitability Champion
Breweries Plc?
(a)
8.
What
Yes
is
(b) No
the
benefit
(c) No comment
of
inventory
shareholders of Champion Breweries Plc?
management
to
the
9.
10.
(a)
Good return on investment
(b)
Lower cost of capital
(c)
Lower share price
(d)
Improved business performance
What are the motives of holding inventories?
(a)
Transaction motives
(b)
Precautionary motives
(c)
Speculative motives
(d)
All of the above
Does inventories help Champion Breweries Plc to make effective
and efficient production?
(a) Yes
11.
(b) No
(c) No comment
What are the problem associated with inventory
and control in Champion Breweries Plc,
management
Uyo?
(a)
How to maintain a large size of inventories
(b)
How to maintain efficient and smooth production in
company
(c)
How to maintain investment in inventories to
maximize profitability
12.
How can an organization maintain effective inventory
management?
the
(a)
To ensure a continuous supply of raw materials
to
facilitate uninterrupted production
(b)
Maintain sufficient stock of raw materials in periods of short
supply and anticipate price changes
(c)
To minimize the carrying cost and
(d)
To control investment in inventories and keep it
at
optimum level
13.
14.
What are the techniques used in controlling system?
(a)
First in first out (FIFO)
(b)
Last in first out (LIFO)
(c)
Based stock method
(d)
All of the above
Does
Champion
Breweries
maintain
the
overall
(inventory) coordination is an economically efficient
(a) Yes
15.
(b) No
stock
way?
(c) No comment
Please comment on the evaluating inventory management
and
control in manufacturing firm.
………………………………………………………………………
………………………………………………………………………
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