EFFECT OF INVENTORY MANAGEMENT IN AN ORGANIZATION: A STUDY OF JULIUS BERGER NIGERIA PLC APAPA
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Inventory management involves the coordinating of materials availability, controlling, utilization and procuring of materials. Inventory management is the direction of activities with the purpose of getting the right inventory in the right place at the right time and in the right quantity and it’s directly linked to production function of any organization which implies that the inventory management system operated will affect the profitability of an organization directly and indirectly (Alm, 2000).
Inventories are the stock of raw materials, work in progress, finished goods and supplies held by a business organization to facilitate operations in the production process, (Pandey, 1995). Also if the company fails to manage its inventory efficiently, it is likely to face profitability problems (Block and Hirt, 1987). The goal of inventory management therefore is to provide the inventories required to sustain operations at minimum costs (Dickerson 1995).
Inventory management helps organization to establish the proper inventory levels through the economic order quantity; and to keep track of this level through inventory control system which many be manual such as two bin method and red line method, or computerized inventory control systems. Proper inventory controls also require an organization to undertake stocking and use appropriate method to value stock so as not to under or over state profits (Kotabo, 2002).
Companies incur substantial costs in the procurement and maintenance of inventories, which costs form a large portion of production costs. Inventory costs include: carrying costs such as storage and insurance; ordering costs like transporting and store placement; and stock out costs like redundancy and loss of sales. A company cannot achieve an outstanding performance without proper and efficient control of materials. Materials are as much as cash itself and any theft, wastage and excessive use of materials are of immediate financial loss and leads to poor performance of a company (Kotabo, 2002).
Laugero (2002) noted that Material control involved a systematic control and regulation of purchase, storage and usage of materials in such a way to maintain an even flow. In recent years, the construction industry has been facing a number of challenges especially in inventory management or material control, thus affecting the performance of most construction companies. There have been cases of materials overstocking which eventually get expired or out dated, under stocking lack of stock-taking theft of materials by workers and delays in deliveries of materials at the sites, among others.
Inventories constitute the most significant part of current assets of a large majority of organizations in Nigeria. On average, inventories are approximately 60 percent of current asset of organizations. Because of the large size of inventories maintained by organizations, a considerable amount of funds is required to be committed to them. It is therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. A firm neglecting the management of inventories will be jeopardizing its long-run profitability and may fail ultimately (Eni, 2001).
1.2 Statement of the Problem
Many companies have failed because their inventories tied up too much capital (funds), or the items in inventory became obsolete, impaired or lost. It is therefore not unnecessary to have an appropriate set of policies concerning the items to carry in inventory, the level of inventory control and management of stocks. It is pragmatically evident that the profitability of any business organization depends largely on the ability of management (of the concerned industry) to exercise effective purchasing and efficient materials control.
Inventory problems of too great or too small quantities on hand can cause business failures. If a manufacturer experiences stock-out of a critical inventory item, production halts could result.
Furthermore, most Organizations have difficulty in maintaining the right quantity of inventory for optimal productivity, growth and profitability due to poor vision, inadequate market forecast and effective planning. The result has been either under or over -capacity utilization which often spell doom on the corporate existence of such organization. Any industry that fails to observe the rule of Inventory Control and Management is heading towards a doom.
1.3 Aims and Objectives of the study
This research work examines the effect of inventory management in an organization and the objectives of this study include:
- To examine the effect of inventory management on organizational productivity.
- To determine the extent to which poor inventory management could affect organizations operation.
- To assess the extent to which compatibility of organizational policy could affect inventories management.
- To examine the factors affect the use of inventories in an organization.
1.4 Relevant Research Questions
- How does inventory management affect organizational productivity?
- How can poor inventory management affect organizations operation?
- To which extent will compatibility of organizational policy affect inventories management?
- What are the factors that affect the use of inventories in an organization?
1.5 Relevant Research Hypotheses
The following hypotheses were developed for the study:
Ho: There is no significant relationship between inventory management and organizational productivity.
H1: There is significant relationship between inventory management and organizational productivity.
1.6 Scope and Limitation of the Study
The work examines the effect of inventory management in an organization with a view to explore Julius Berger Nigeria, Plc Apapa, Lagos. In addition, the study covers effect inventory management on organizational cost of production, its components, functions, objectives as well as how it increase organization efficiency.
Some perceived constraints may be encounter by the researcher in the course of carrying out the research work. The limitations are as follows:
- Inadequate material: Inadequate material constituted one of the limitations of the research work. The non-availability of materials like journals, textbooks etc the research study.
- Finance: The researcher also may encounter some financial constraints which will contribute in limiting the work in the sense that fund available was not enough to carry out the research to a logical conclusion.
- Time: Time is also another factor or limitation that may affect the research work. The limited time may not give the researcher enough opportunity to do more rigorous work.
1.7 Significance of the Study
This research work is useful and relevant to the entire society, as it helps organizations and other sectors of the economy in knowing and appreciating the effects of inventory management in enhancement organization efficiency which aids increase in profitability and productivity.
Consequentially, it aids the Government, policy makers and stakeholders to properly articulate critical areas in inventory management that needs to be improved on so as to forge a stronger production workforce.
To this end it therefore serves as a benchmark for financial researchers to further evaluate the positive influence of inventory management, and how it ultimately impacts the performances and growth of the manufacturing industry in Nigeria.
- Definition of Terms
Organization: An organization is a social group which distributes tasks for a collective goal.
Inventory Management: Inventory management is primarily about specifying the size and placement of stocked goods.
Management: This is defined as the rational process if combining and utilizing the physical material and financial resource in an efficient and effective manner in order to achieve set objectives of the organization.
Production: The act of making or manufacturing from components or raw materials, or the process of being so manufactured.
Economic order quantity (EOQ): This is the order quantity that minimizes total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models.
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