2.4Â Â Â Â Â Â Â decisions problems in inventory management
2.5Â Â Â Â Â Â Â inventory cost
2.6Â Â Â Â Â Â Â inventory control system
2.7Â Â Â Â Â Â Â inventory control
2.7.1Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â importance of inventory control
2.7.2Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â objectives of inventory control
1.1Â Â Â BACKGROUND OF THE
Â Â Â Â Â Â Â In many
businesses, inventory is a key area of concern as inventory is what is sold.
Though, on the surface this may seem to be merely physical construct, inventory
management principles easily extend to services or other intangible product
offering. Perhaps, the first principle of inventory is that, inventory is
money, or rather, a representation of invested capital that is listed on the
balance sheet as a liability, a more accurate way to think of it is that, it is
an asset on the waiting, Larson (1995:30). According to Etuk (1995:50),
inventory refers to the stock of resources that posses economic value, held by
an organization at any point in time. These resourceful stocks can be equipments,
machines, capital goods or materials etc, at various scopes.
Â Â Â Â Â Â Â That is to say
that inventory is primarily about specifying the size and placement of stocked
goods that is required at different locations within a facility or within multiple
locations of a supply network to protect the regular and planned course of
production against the random disturbance of running out of materials or goods.
Manufacturers, distributors, and wholesales inventory tends to Cluster in
warehouses, retailers, inventory may exist in a ware house or in a shop or
store accessible to customers.
Â Â Â Â Â Â Â According to
Moskowitz and wright (1997:120), the scope of inventory also concerns the fine
line, carrying cost of inventory, asset management, inventory forecasting,
inventory valuation, inventory visibility, future inventory price forecasting,
and physical inventory, available physical space for inventory, replenishment,
returns and detective goods and demand forecasting. Balancing these completing
requirements leads to optimal inventory levels, which is an on-going process as
the business needs shift and react to the wider environment most manufacturing
organizations usually divide their â€œgoods for saleâ€ inventory into:
a.Â Â Â Â Â Â Â Â Â Â Raw materials: materials and components that
scheduled for use in making a product.
b.Â Â Â Â Â Â Â Â Â Â Work-in-progress (WID): materials and components
that have begun their transformation into finished goods
c.Â Â Â Â Â Â Â Â Â Â Finished goods: goods ready for sale to
customers are called finished goods. Although inventories are essential and
provide an alternative to production/purchase in the future, it also looks up
the capital of the organization. Large inventories do not lead to high volume
of output, instead it hampers production. In other wards, inventory is reviewed
as a necessary evil that cannot be eliminated. It is termed as evil because
maintaining inventories lies up money that could have been used for alternative
purposes and it also increases carrying cost (cost associated with holding
goods in stock). However, it is considered a necessary investment to achieve a
workable system of production, distribution and marketing of physical goods.
Accountants often discuss inventory in terms of goods for sale,
organization, manufacturers, service providers also have inventories (fixture,
furniture, supplies etc). Inventories not intended for sale to customers or to
clients may be held in any premises; most organization use stock tied-up cash
and if not controlled, will be impossible to control them. For many small
retailers, the largest asset on the balance sheet is inventory, however,
without careful planning; inventory can easily get out of hand, resulting in
heavy markdowns due to overstock and ultimately, serious cash flow problems.
Â Â Â Â Â Â Â Inventory
management sample means keeping the overall costs associated with having
inventory at efficient and effective level without creating unnecessary
problems. It is an important part of any business to have a stock of products
or items on hand.
Â Â Â Â Â Â Â Efficient
inventory management is a delicate balance at all times between having too much
and too little in order to maximize profits. The costs associated with holding
stock, running out of stock, and placing orders must all be looked at, and
compared in order to find the rigid formular for particular business. This is
because it is impossible to have an unlimited supply on hand, for different
reasons. Many businesses simply do not have enough money to keep excessively
large inventories due to the costs associated with purchasing the items as well
as storing them, and having too many products leads to further losses when they
do not move off the shelves, damages and shortages become inevitable, Star
(1962:76). At the same time, there are issues with inventory management when
there isnâ€™t enough stock on hand. One common problem is running out of
inventory, which is caused by trying to reduce inventory costs too much. This
is something that no business would like to experience, but it happens to
virtually all of them at a given point in time. Even the largest stores run out
of certain products from time to time when they sale or use more than they
expected. This can cause financial losses when inventory is not available for
customers to purchase. Part of inventory control is trying to minimize
shortages so these are rare occurrences. Most businesses expect they will have
shortages on occasion and they have calculated that the small loss is worth the
money saved by not having an overview, Gerald (1996:63)
Â Â Â Â Â Â Â According to
Lucey (1993:89), another important element of inventory management is called
reorder point. Businesses need to think ahead and calculate the best time for
reordering products, doing so too soon may cause financial difficulties or
running out of stock. On the other hand, waiting too long to reorder will
result in a shortage and running out of inventory before the next shipment
arrives. When figuring out a reorder point, it is necessary to calculate how
long it will take the shipment to arrive and the amount of demand for a
particular item. The over head costs, fees and shipping expenses of ordering
large versus quantities should also be looked at. He went on to say that
inventory management is an ongoing process that is rarely, if ever, executed
perfectly. It can break a business if it is executed poorly, because either
expense will be too high or customers will get tired of dealing with shortages
and find another place to spend their money. For instance, stores or warehouse
can make good estimates about how many of the specific product they will order
for a sale, but things still go wrong from time to time. Experienced experts in
the field of management have introduced several inventory management techniques
to help organizations make the best decisions regarding stock, but there are
still issues with performance (company turnover at the end of the day). It
appears there is still a stone left unturned, and this is what the researcher
brings to unravel in its own capacity and scope.
1.2Â Â Â STATEMENT OF THE
Â Â Â Â Â Â Â Â Â Inventory
is the life blood of any organization. This is because inventory contributes
directory to the profitability of an organization and such, the growth of any
organization depends largely on its ability to manage its inventory effectively
Â Â Â Â Â Â Â Based on this
fact, the researcher seeks to find out the problems that any manufacturing firm
places when and once there is no efficient and proper inventory management.
Poor Inventory Management: These
are problems that are involved in poor planning, executing and controlling a
supply and utilization of chain network inventory that is critical to the
success of the organization.
Inadequate Control of Inventory: lack
of managerial skills relevant to proper inventory management exposes many
organizations to many problems like overstocking, damage, deterioration etc. In
this regards, the researcher tries to find out the possible way of reducing
Â Â Â Â Â Â Â Problem of
deciding which item of inventory should be kept in stock and at what quantity
portrays the improper Economics Order Quantity (EOQ) in an organization. Some
organization looses much due to their failure to keep with EOQ desirable for
them, and this work throws more light to forestall this.
Problem of not IMPLEMENTING the Inventory
Â Â Â Â Â Â Â Â Â Many
organizations do not keep abreast with inventory management systems due to poor
or no knowledge about the inventory management and such organizations are bound
to face several related problems that this work highlights on towards reducing
Â Â Â Â Â Â Â Also, in some
manufacturing firms, they find it difficult to determine how much of the
inventory to order and when to order; in order to meet customers demand and
briefs about easy and smooth flow of production process without unnecessary
stoppage, idle time etc due to unavailability of inventory.
1.3Â Â Â PURPOSE OF STUDY
1.Â Â To
ascertain if manufacturing firms have formal policies, methods and procedures
for inventory management.
2.Â Â To
examine the effectiveness of the various tools and techniques used by
manufacturing firms in inventory management.
3.Â Â To
assess the impacts of efficient inventory management on manufacturing firms.
4.Â Â To
assess the consequences of poor book-keeping and store management on the
inventory management of manufacturing firms.
5.Â Â To
assess the significant consequences of inefficient inventory management on the
productivity of manufacturing firms in Nigeria.
1.4Â Â Â SIGNIFICANCE OF
Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â
This research work can be of great help to those who have a little or no
knowledge in manufacturing business. It will be valuable to people who are interested
in the manufacturing business and wish to make it their career.
Â Â Â Â Â Â Â The research
work can also help the management of Anambra Motor Manufacturing Company
(ANAMMCO) to appreciate areas where improvement is needed in her inventory
operations so as to boost her profitability and consequently increase her
shareholders wealth. Indeed, this will in no little way have favorable effects
on the national growth and development of Nigeria manufacturing sector in
particular and economy at large.
Â Â Â Â Â Â Â Finally, this
work will be of immense benefit and use for the future researchers and
ourselves in particular.
1.5Â Â Â SCOPE OF THE STUDY
Â Â Â Â Â Â Â Â Â The
scope of this study revolves around the effects and appraisal of efficient
inventory management on the performance of business organization and
manufacturing firms in particular.
Â Â Â Â Â Â Â Also, many areas
such as inventory management systems, contributions of efficient inventory
management towards profitability, material usage, cost minimization and economy
of operation; and the impacts of efficient inventory management especially as
it concerns the area of study etc; are given precise explanations as time and
scope constraints permit the researcher.
1.6Â Â Â RESEARCH QUESTIONS
1Â Â Â Â Â Â Â Â Â Â Â Â Does manufacturing firms in Nigeria have formal
methods, policies and procedures for efficient inventory management?
2Â Â Â Â Â Â Â Â Â Â Â Â How effective are the various tools and
techniques of inventory management in manufacturing firms?
3Â Â Â Â Â Â Â Â Â Â Â Â What are the impacts of efficient inventory
management in manufacturing firms?
4Â Â Â Â Â Â Â Â Â Â Â Â What are the consequences of poor book-keeping
and store management on the inventory management of manufacturing firms?
5Â Â Â Â Â Â Â Â Â Â Â Â Are there significant consequences of
inefficient inventory management on the productivity of manufacturing firms?
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