THE IMPORTANCE OF INVENTORY APPLICATION IN MANAGEMENT OF AN ORGANIZATION


CHAPTER ONE
INTRODUCTION

1.1 BACKGROUND OF THE STUDY

According to Pandey (2008), inventory constitutes the most significant part of current assets a larger majority of Nigerian manufacturing industries. Many of individuals (companies) deal with inventories on daily, basis without taking any bigger notice of them. For instance, we store food and many other items at home since it simplifies our daily life. However, we try to keep the inventories low since we otherwise would run out of space or money. Food may also be out of date if stored for too long a time, which presumes some kind of strategy behind the purchase of perishable items. Therefore, we are all familiar with the need to manage inventories intuitively.

According to Lipsey (1979), inventories are inevitable part of the productive process and require an investment of the company’s money since the company has paid for them but not yet sold. Manufacturing firms need inventories to produce optimal level and also make their products available to the market when needed, and hence they would expect some returns from their capital investment. Invariably, lack of inventories result to non-production or production below capacity. In such a situation, the profitability of the company will be drained especially where there is a situation of shut down. Excessive inventories connote situation where the company has more inventory than needed. This situation results to freeing the company’s capital in form of holding cost, storage cost etc.

Axsatar (2000) argues that the two main reasons for inventories are economies of scale and uncertainties. Lambert and Stock (1993) mean that inventories serve five purposes within a firm; they enable the firm to achieve economies of scale, they balance supply and demand, they enable specialization in manufacturing, they provide protection from uncertainties in demand and order cycle, and they act as a buffer between critical interfaces within the channel of distribution.
Inventories serve as buffers between mismatches in supply and demand, e.g. due to lumpy demand, variations in demand over time, unpredictable demand variations, economies of scale capacity limits, delays in response, and imperfect quality. Ballou (1999) relates the reasons for inventories to providing service to customers and achieving cost economies.

As seen, there are many reasons for inventories. Of course, there are also reasons against inventories. First, inventories represent a monetary investment in goods on which a firm must pay, rather than receive, interest. Inventory holding cost is the cost of keeping items on hand, including interest, storage and handling, taxes, insurance, and shrinkage (Krajewski Ritzman, 2004). The annual cost maintains one unit in inventory typically ranges from 20 to 40 percent of its value (Ballou 1999; Krajewski and Ritzman, 2004). Interest or opportunity cost arises since a company may obtain a loan or forgo the opportunity of an investment that promises an attractive return to finance the inventory. This is usually the largest component of the holding cost, often as high as 15 percent (Krafewski and Ritzman, 2004). Inventory also needs space and must be moved into and out of storage, which implies storage and handling cost. High inventories may imply costs for pilferage, obsolence, and deterioration. Ballou (1999) argues that inventories also a mask quality problem. Due to all these positive and negative effects, managing inventories carefully is important. (Zipkin 2000) means that managing inventories well is the difference between corporate success and failure. However, new inventory models are adopting a zero inventory management model otherwise referred to as Just-In-Time (JIT) concept.

1.2 STATEMENT OF THE PROBLEM

Most companies, especially manufacturing companies, now operate at lower capacity; hence they find it extremely difficult to control inventory. Quite often management is faced with inventory problems such as inadequate raw materials; obsolute materials; high storage cost etc. Each individual within a management group will answer the questions from his own point of view, what he thinks about inventory in isolation from other operation forgetting that inventory is not an end in itself but only a means to an end.

The contemporary society is characterized by complex and dynamic environment whereby business enterprises were found springing up randomly. The economy in effect is faced with numerous problems that require urgent attention either by corporate entities and government. Management of inventory in manufacturing companies is a function of observation of prudent inventory accounting techniques which aims at not only helping the sustenance of manufacturing industries of setting it upon the path of growth but also improve industry as a group concern.

The problem associated with inventory management is that of maintaining an optimum level of inventory. To do this, efforts will be made by the management of eliminating price distortions and high expenditure on frequent re-order, finding the true value of the order quantity, over labour sector inefficiency.

1.3 RESEARCH OBJECTIVES
The objectives of this study are to find out the following:
i) To determine whether there is an application of inventory control management in Bourbon Docking Nigeria Limited.
ii) To determine the technique used in controlling inventory system.
iii) To determine how proper inventory management and control can be of benefit to the growth of Bourbon Docking Nigeria Limited.
iv) To determine how proper management could enhance the productivity level of the company.
v) To determine and maintain the optimum level of inventory management in Bourbon Docking Nigeria Limited.

1.4 RESEARCH QUESTIONS
The following research questions were formulated to guide this study:
i) Does Bourbon Docking Nigeria Limited applied inventory control for proper management?
ii) What is the technique used in controlling inventory system?
iii) Does proper inventory management control be of benefit to the growth of Bourbon Docking Nigeria Limited?
iv) Does proper management enhance the productivity level of the company?

1.5 RESEARCH HYPOTHESES
Hypothesis 1
H0: Bourbon Docking Nigeria Limited does not applied inventory control for proper management.
H1: Bourbon Docking Nigeria Limited applied inventory control for proper management.
Hypothesis 2
H0: There is no significant difference between inventory management control and the benefit of Bourbon Docking Nigeria Limited.
H1: There is a significant difference between inventory management control and the benefit of Bourbon Docking Nigeria Limited.

1.6 SCOPE OF THE STUDY
This study is limited to Bourbon Docking Nigeria Limited, Harcourt, Rivers State and upon the research topic, which is centred on inventory application in management of an organization

1.7 SIGNIFICANCE OF THE STUDY

The ultimate goal of any company or organization is to make sure that adequate inventory controls are put in place. The goal can be achieve in the manufacturing firm (company) like Bourbon Docking Nigeria Limited, Harcourt, Rivers State through inventory management in an organization.

The study is necessary because it would enable the employer and employee of Bourbon Docking Nigeria Limited, Harcourt, Rivers State to improve their inventory level.

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 researcher (students) who might want to further studies in the similar topic.

1.8 LIMITATION OF THE STUDY

The limitation of this study was inability of management to divulge certain information which they consider sensitive and fear of publication which might be detrimental to their operation. Also, the outright inability of some respondents to complete and return the questionnaire to the researcher is one of the limitations of the study.

Another limitation to the study was distance and traffic congestion for the researcher to meet them in their offices and for possible return of the questionnaire.

Finally, the researcher observed the non-cooperative attitude of some workers of the company to make information available for him.

1.9 DEFINITION OF TERMS

1) INVENTORY: This is defined as the stock of the product a company is manufacturing for sale and the components that make up the products (Adibe, 1995 and Aguolu, 1997).
2) INVENTORY TURNOVER: The inventory turnover ratio is a common measure of the firm’s operational efficiency in the management of its assets.
 3) INVENTORY MANAGEMENT: This refers to all the activities involved in development 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 cost of over or under stocks are also low (Chiktriki and Revnidannalt, 2010).
4) MANAGEMENT: This is defined as a process (both social and technical that utilizes resources and changes human behaviour in the desired direction in order to produce contributions accomplishing the organization objectives (Igbodi, 1990).

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