THE IMPACT OF EFFECTIVE INVENTORY CONTROL MANAGEMENT ON ORGANIZATIONAL PERFORMANCE

CHAPTER ONE

INTRODUCTION

The effective and efficient functioning of a productive system requires the regular demand and supply of inventory at the input transformation and output phases of the production process.

Management is also seen as the effective and efficient utilization of resources for the achievement of organization objectives. To ensure the achievement of the objective three must be free flow of material, unencumbered  at every stage of the production process (Alexander, O’Connor, and Stafford, 2011).

In Nigeria today, there are many soft drink production companies in the  beverage industry and they all source their raw materials from few of not the same market. With the present economic melt down, organization are after these scare resources to  product their product. Therefore, the  urgency for the effective and efficient management of inventory in form of  raw material, work-in-progress and finished goods constitute significant  proportion of assets of most organization (Igwenagwu, 2007).

But why is it pertinent to keep an eye on these items in other words, why do we engage in inventory management?

Inventory items cost money to acquire, they cost  money to store and to look after, which means storage facilities has to  be provided so as to  make sure that these materials or items do not get spoilt until they are turned into sellable goods, they do not produce money (Ezzelle, 2008).

When stocks are held, it means tying down capital that would have been used in other areas, so it all represent cost and should be managed properly to acquire efficiently.

We must however, hold stocks to meet production needs and sales needs. This is because if we do not hold stocks in sufficient quantities west and the risk of running out of stock. Similarly, if we short of finished good, we may disappoint our customers. Inventory shortage in both these forms will likely lead to loss of customers and money. For the organization not to have above problems they should strike a balance between too much stocks (over inventory) and carrying too little stock. (Under inventory) (Hilton, 1999).     

This is essentially the importance of inventory management, managing assets of all kinds is basically an inventory problem, the same method of analysis applies to cash and fixed assets as to inventories themselves.

First of all a basic stock must be on hand to hand balance in flow and outflow of items, the size of the stocks depend on pattern of  flow whether fast moving or regular items.        

Secondly, because  the  unexpected may occur, it is necessary to have safety stock on hand presenting extra stock to avoid the cost of not having enough to met current needs (Collins, 2010).

Thirdly, additional amount may be required to  meet future growth needs, these are called anticipation stocks, related to anticipation  stock is the recognition that these are optimum purchases size defines as economic order quantity (EOQ)  

In borrowing money for buying raw materials for production or purchasing plants and equipments, it is cheaper or more economical to buy more than just enough to meet immediate needs. Manufacturing firms have three  kinds of inventories:

a.      Raw materials

b.     Work-in-progress

c.      Finished Goods      

a)                 Raw Materials: inventories are influence by anticipated production, seasonality of production, reliability of resources or supply and efficiently of scheduling purchased and production operations.

b)                Work-in-progress:  inventory is greatly influenced by the length of the production period which is the time between planning raw materials in production and completing the finished product. Inventory turnover therefore can be increased by decreasing the production, means of accomplishing these to perfect engineering technician, therefore, spreading up to manufacturing process. Another means is to buy rather than make them. The level of finished goods inventories is a matter of coordinating production and sales (Collins, 2010).

Holding stocks in what ever form  cost money: the capital tied down by the stocks itself has to be serviced  by the payment of interest and the land or warehouse  needed  for the stock has to  be bought or rented.

The handling and securing of the stocks and any quality determination that occur also cost money.  The sample type of the stock control system used in most organization is two: the bin system of stock control and which is of two quantities – the first is the stock level below which a new order has to placed, the other gives the quantity to be ordered. Under this system, the units of stocks are held in two; one and two stocks is taken from bin as required until this  bin is  empty. More are then ordered by the quantity being determined by the rate of usage or consumption rate.            

Comprehensive inventory; planning and control system have been successfully installed or established in many organizations. The major objectives of inventory management are to discover and maintain to optimum level of  investment in the inventory. Inventories may be too high or too low, if to high there are unnecessary carrying cost and risk of obsolesce, if too low, production may be disrupted or sales permanently cost and loss of goodwill, reputation and customers to their firms in the same industry (Collins, 2010).

The optimum inventory level is that which minimizes the total associated with inventory.

STATEMENT OF THE PROBLEM

The life blood of any organization, whether private or public whether productive or service organization is inventory. Because of the slit completive that exist in every industry, inventory management has become mandatory on each and every manager responsible for production in an organization.

Inventory is one vital resource that any organization requires and just like any other resource that is very scarce and that requires effective management rather than neglect.

The cost of acquiring these inventories is also important for the fact that too much of it will mean trying down capital and risk of becoming obsolete while having little could lead  to shortage  and production bottle neck. 

How then, to determine adequate quantity of raw material to buy, where to buy on a regular basis devoid of scarcity, the amount to invest on the inventory is the concern of the researcher.

OBJECTIVES OF THE STUDY

The objectives of the study are to determine:

1.                 The quantity of inventory the organization buy and stock

2.                 How the organization management the stock for effective use

3.                 How effective inventory management will not reduce material wastage/cost and hence improve organization performance 

SIGNIFICANCE OF THE STUDY

The result of this research when concluded will be of great benefit to the following.

1.     Companies in the beverage industry especially the Fan Milk PLC. The findings and the recommendation will asset production managers to find better ways to manage their inventory. The findings and recommendation can also be used as a steeping tone to other researcher in the areas for further research work.

STATEMENT OF HYPOTHESIS

The following are hypothesis developed to guide this research work:

Ho: Effective inventory management will not reduce material wastage/cost and hence cannot improve organizational performance

H1: Effective inventory management will reduce material wastage/cost and hence can improve organizational performance

SCOPE OF THE STUDY

The scope of this research is the  Fan Milk PLC and  its limited to the management of their inventory in the  last five (5) years  of the company operations.

LIMITATIONS OF THE STUDY

This research is limited by the time in the sense that  most respondent  do not keep appointment given to  the  researcher.