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EFEFCTIVENESS OF INVENTORY MANAGEMENT
IN A MANUFACTURING COMPANY
ABSTRACT
This study
examines the essence of effective inventories control and management to
manufacturing companies with particular emphasis on Ama Greenfield Breweries
plc. The aim of this study is to investigate and ascertain areas of lapses by
the company and offer effective ways and solutions in which the manufacturing
company can explore the services of inventory management to effect its
objectives. In carrying out this study, various research instruments such as
questionnaires and oral interview were used to collect data from respondents
and a research design was adopted with a sample size of 52. The statistical
tool used for this work is Chi-square. Based on the analysis, it was discovered
that inventory management plays a vital role in the manufacturing company. A
well functional inventory management following the recommendations can bring
about proper management thereby enhancing proper and effective production and
it will equally ensure the effective, efficient and adequate use of materials
and resources in the manufacturing company.
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Inventory is
one of the resources that are managed by business organizations and it was
first recorded in 1601. The need for inventory control cannot be overemphasized
as it is a means for improving the performance of manufacturing industries.
Inventory can be defined as a record of a business current assets including
property owned, merchandise on hand and the value of work in progress and work
complete but not sold and it is classified as a current asset because it can be
turned into liquid cash within a short period of time. Inventory has created a
great impact on the profitability of the manufacturing firm which resulted to
the deep research of this topic. Effectiveness of inventory management in a
manufacturing company.
Inventory
plays a major role in the operation of many businesses and manufacturing
companies. In manufacturing, inventories of raw materials allow companies to
operate independently of their sources of supplies. Day to day operation are
not dependent on deliveries from supplies since stock of the necessary mateials
are maintained and used s needed. Without inventory
control,
millions of naira could be lost year because of non accountability of stocks
and inaccurate checks and balances.
The process
of control and management of inventory is a very important factor in the
success or failure of any business for example, little stock will result in
stock out which will disrupt the production distribution cycle that is crucial
to the survival of all manufacturing companies while too much stock will tie
down the resources of a company. Poor or inadequate inventory management can
present a serious challenge to the productive capacity of a manufacturing
organization. In addition to raw materials and finished goods, many companies
also maintain items of assets, property, inventories of work in progress,
office supplies, business firms and general operation supplies.
Inventories
often constitutes the most significant part of current assets of large
companies. In the public limited companies, inventories are approximately 60%
of current assets on the average. The US Burean of the census stated that
inventory and accounts receivable ate the two largest accounts of equal magnitude
and together they comprise almost 80% of current assets and over 30% of total
assets for all manufacturing companies in 1982.
Considering
the large sum of money that are committed to the stocks of raw materials, work
in progress and finished goods, it is therefore of paramount necessity that
these stocks be managed efficiently and effectively in order to avoid the
jeopardizing of the profit position of the firm.
In
inventory, there is an optimum level therefore inadequate inventory causes loss
of sale and disrupts the production process while excessive stock level leads
to unnecessary carrying cost and obsolescence or spoilage risks. According to
Charles T. Horngren (2007), the optimum inventory. Level lies between the
inadequate inventories and the excessive inventories. Inventory management aims
at maintaining an optimum inventory level that will be carried at the least
cost.
A BRIEF
HISTORY OF AMA GREENFIELD BREWERY IN ENUGU STATE, NIGERIA
Ama
Greenfield Brewery is the jewell in the crown of Nigeria Breweries Plc and is
reputed as one of the most modern Breweries. Precisely on Friday October 24,
2003, the much talked about Nigeria Breweries Plc’s ultra modern Ama Greenfield
Brewery located in Enugu state was officially commissioned. It is Nigeria breweries
Plc company’s sixth Brewery and the second to be located in Enugu state. The
multi-billion naira Ama Brewery boasts of the best cutting edge technology and
world class standard processes. It is located in Umuezeani village in the
Amaeke Ngwo community of Udi Local Government Area of Enugu state. Mr. Lassy
Agose who was the public relations adviser to the Nigeria Breweries Plc at that
time said that Ama Greenfield Brewery has an installed capacity of 3 million
hectoliters per annum or 1 million carton units per week adding that it was
also equipped with an ultra modern waste water treatment plant in l ine with
safe manufacturing practices world-wide. Ama Brewery whose foundation was laid
on April 9,2001 by the then Enugu state Governor, Dr Chimaroke Nnamani took 14
months to be completed after the actual construction work commenced on January
23, 2002. the first brew was made on march 22nd, 2003 while the first bottle of
star larger rolled off the bottling line on April 24, 2003.
Ama
Greenfield Brewery encapsulates the essential ingredients of the world class
vision of the Nigeria Breweries plc and represents another milestone in the
company’s journey towards the realization of that vision. Beyond these, Ama
Brewery holds enormous socio-economic benefits to the community, state and
country at large.
In addition
to opening up the communities to commerce and modernization, the state stands
to benefit from increased revenue and the building of international confidence
for investment. This multibillion naira investment is also expected to
translate into enhanced employment, as well as open the flood gates of business
activities and opportunities in the economy, Mr. Agose stated during a
pre-commissioning press briefing in Lagos. Constructed at a cost of N40 billion,
it is an essential fulfillment of the pledge made by Heineken NV to invest N70
billion in Nigeria within five years building an ultra-modern civic centre, a
borehole and market stalls for the area.
1.2
STATEMENT OF THE PROBLEM
The problems
seen in the course of this study are as follows:-
i.
Ineffective management of inventory in the manufacturing company specifically
Ama Greenfield Breweries.
ii. Loss of
sales or business of the company as a result of insufficient inventories of
finished goods.
iii. Low
productivity in the manufacturing company as a result of poor inventories model
used by the company
iv. Poor
management and control of inventories in the manufacturing company.
1.3
OBJECTIVE OF THE STUDY
The major
objective of this study is to determine of the effectiveness of inventory
management in a manufacturing company. The specific objectives of this study
are as follows:-
i. To
determine to what extent the ineffective management of inventory in Ama
Breweries plc has caused low productivity in the company.
ii. To
examine the extent to which insufficient inventory of finished goods cause loss
of sales to the company.
iii. To
identify the degree to which poor inventory modern used by the company has
resulted to low productivity in the company.
iv. To
ascertain whether the company has suffered from poor management and control of
inventories.
1.4 TEST OF
HYPOTHESES
Based on the
problems and objectives of this study, the following hypotheses are formulated
for this research.
Ho: There is
no significant relationship between low productivity and poor inventories
management.
H1: There is
a significant relationship between low productivity and poor inventories
management.
Ho: There is
no significant relationship between proper inventory policies and productivity
in a manufacturing company.
H2: There is
a significant relationship between proper inventory policies and productivity
in a manufacturing company.
1.5 RESEARCH
QUESTIONS
For the
purpose of this research study, the following research questions were
formulated:
1. Does
effective inventory control ensure continuous production of goods in Ama
Breweries?
2. What is
the state of inventory management in the Nigerian manufacturing company
especially Ama Breweries plc?
3. Has
effective inventory control made a significant impact on the manufacturing
company?
1.6
SIGNIFICANCE OF THE STUDY
The
significance of this study lies on the fact that with improved inventory
control and management in manufacturing companies, the following persons may
benefit from it:
It will be
significant to manufacturing companies, firms and businesses as it will enable
them keep an adequate inventory control and ensure that they do not run out of
stock or have excess stock which can endanger their liquidity position. It will
also help to meet consumer’s demands or quest. It is also important to the
government as it will help to reduce waste of investment inventory. It will
also help lecturers to really know the importance of inventory control so that
they will be able to impact it on their students. This study will also reveal
the relevant methods to be used in preventing mismanagement; it will also
improve stock control which has led to the mismanagement and unproductively of
materials.
1.7 SCOPE OF
THE STUDY
This
research work on the effectiveness of inventory management in a manufacturing
company is focused on Ama Greenfield Breweries plc in Enugu state.
1.8
LIMITATIONS OF THE STUDY
Some
limitations and factors in this research study are as follows:-
i. The time
required for the research and the submission of this work is very short and the
researcher was unable to go through all manufacturing companies.
ii.
Financial constraints:-Finance which is the most important resource for this
work was not readily available.
iii. Limited
exeat:-Due to the fact that exeat is very difficult to get in school, proper
research was not carried out and this affected the integrity of the results
achieved.
iv.
Unco-operative attitudes of some of my respondents:- The management of Ama
Breweries prohibited its employees from giving out information about the
company to outsiders without adequate permission from the management and even
when this permission was obtained at the long run, many vital information were
not revealed because they were regarded as the privacy of the company.
1.9
DEFINITION OF TERMS
INVENTORY:This
is a record of a business’ current assets. It can also be described as the
merchandise or supplies held or in transit at a particular point in time.
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