EFFECTIVENESS OF INVENTORY MANAGEMENT IN A 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 2

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. 3

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 4

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 5

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:-

  1. Ineffective management of inventory in the manufacturing company specifically Ama Greenfield Breweries.
  2. 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

  1. 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:-

  1. To determine to what extent the ineffective management of inventory in Ama Breweries plc has caused low productivity in the company.
  2. 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.

  1. 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. 7

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? 8

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. 9

1.8 LIMITATIONS OF THE STUDY

Some limitations and factors in this research study are as follows:-

  1. 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.
  2. 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.

  1. 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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Accountancy

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