INVENTORY CONTROL PRACTICES AND ORGANISATIONAL PERFORMANCES IN RIVER STATE
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Abstract
This study was carried out to examine inventory control practices and organizational performance in Rivers State. In any major manufacturing companies, inventory control is essential parts to check and carry out inventory adequately for proper recording. The descriptive survey research design was adopted for the study. Questionnaires were administered to selected company workers in Ikwerre Local Government Area and a total number of one hundred and twenty (120) copies of questionnaire were sent out to be completed by the respondents but 90 (75%) copies of questionnaire were appropriately completed and returned for data. The study revealed that, there are significant relationship between effective Inventory control practice (EICP) and the Return on investment (ROI) in manufacturing companies in Rivers State. Also, inventory control practices do affects productivity of selected manufacturing companies in Rivers State. The study concluded that inventory control has really assisted organizations and manufacturing firms in coordinating their inventories and their overall performance. The study recommended that organizations and manufacturing companies should get the recent developed software on inventory management so as to update their knowledge of inventory management on a regular basis.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Inventory control practices was not seen to be effectively relevant in the past years, most times left-over inventories were been viewed as indication of wealth. Organization by then considered over stocking usefulness. But today organization have started to embrace effective inventory management (Syed, Nurul, Nabihah & Raja, 2016). There are several reasons for controlling inventory. A critical review of the financial statement of most organizations would review the substantial amount normally held on inventory. Managers, needs more reliable and effective control in order to reduce costs and remain competitive. Ogbu (2016) posits that inventory management enhances more profit by reducing costs associated with storage and handling of materials. Excessively stock could result in funds being tied down, increase in holding cost, decline of materials, obsolescence and theft. On the other hand, deficiency of materials can lead to interruption of products for sales, poor customer relations and underutilize machines and equipment.
Inventory is a stock of goods that is kept by a business in anticipation of some future request (Dimitrios, 2008). Steven (2017) supports the above definition of inventory by stressing that inventory control practices has an impact on all business functions, particularly operations, marketing, accounting and finance. Inventories represent those items which are either accumulated for sale or they are in the process of manufacturing or in the form of materials, which are yet to be utilized. An inventory system is the set of policies and controls that monitor levels of stocks and determine what levels should be maintained, when stock should be replenished, and how large orders should be. Thus, inventory control is defined as the system used by a firm to control its investment in inventory (Stevenson, 2010). It involves the recording and monitoring of stock level, forecasting future demand and deciding on when and how to order (Adeyemi and Salami, 2010). Controlling inventory efficiently has become an important operational weapon for products and service firms wishing to survive the competitive pressures. The primary goal of inventory control, therefore, is to have adequate quantities of high quality items available to serve customer needs, while also minimized the costs of carrying inventory (Brigham & Ehrhard, 2005).
Inventory control practices in any organization, deals with identifying every items of stock. Inventory control practice 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. Effective inventory control practice determine how profit of an organization can be maximized. Maximizing of profit depend on minimizing cost and maximizing revenue, (Timothy, Patrick, Nebat & Raja 2016). Maximization is an efficient concept which requires increasing profit without increasing the resources used. The practice of inventory control in an organization is to ensure that at any point in time the capital of the business is not necessarily tied down in form of material in the store, which may provide opportunity for fraud and theft. In other word, the management wishes to put at minimal rate stock losses, which emanate from store operation. Thus, as business organization, stock is of paramount importance, likewise the profit of the business. Inventory problems of too high or too small quantities on hand can cause business failures. If a small business experiences stock-out of a critical (Vinod, 2011).
Inventory control is the ability to supply goods and services at the right time with the right quality and quantity. It is a reliable means in which businesses are been managed to ensure customers are satisfied and organizations remain in operation via minimization of losses. Amahalu and Ezechukwu (2017) define inventory management as the use of various techniques to optimize levels of all types of stock, raw materials, working-progress and finished goods. Inventory control can be done through introduction of different measures so as to prevent the company from incurring unnecessary losses made by different departments measures which can be put in place for example stock-taking which is the accounting of stock at every end of the month, so as to record the lost and available stock, making proper supervisions on sites during construction of buildings so to avoid theft of materials by workers. The company should set up strict rules to procurement officers and store managers which they should follow during purchasing and storing of material so as to avoid loss of inventory in the company (Amahalu, Nweze, Nwere & Obi, 2018).
Organizational performance is a general measure of a firm’s overall achievement over a given period of time and which can be used as basis for comparison between difference period of time and among similar firms in the same industrial sectors. Firms performance confirms the financial stands and it is a pointer to the financial soundness and productivity of an organisation, (Egbunike, 2007). The essence of assessing the firm’s performance is to provide useful information to various organizational stakeholders. Organizational stakeholders are in myriad of numbers ranging from trade creditors, bond holders, lenders, investors, employees to management and each stakeholder has varying degrees of information needs that prompts them to keep tracking the performance of a company. Firm’s performance can be evaluated or computed with different method however each measure draws or depicts the diverse part of financial performance (Dimitrios, 2008). Financial performance implies general financial wellbeing of an organisation over a given timeframe. Financial performance analysis is the way toward deciding the working and financial attributes of a firm from financial statements and it is being measured as return on assets in this study using accounting figures, (Adeniyi, 2009)
Organizational performance can easily be enhanced with the help of an effective inventory management system in place. Improvement in organizational performance as a result of making profit due to cost minimization and revenue maximization, (Kwadwo, Boateng & Prempeh, 2015). This can be achieved with the aid of an effective inventory control practice technique. An effective inventory control will improve an organization’s performance especially now that most organizations operate in more competitive industries and sectors all over the world. However, organizations have ignored the potential savings from proper inventory control practices, treating inventory as a necessary evil and not as an asset requiring management. As a result effective inventory control practices are based on arbitrary rules (Timothy et al 2010). Inventory plays a significant role in the growth and survival of an organization in the sense that ineffective and inefficient management of inventory will mean that the organization loses customers and sales will decline.
1.2 Statement of the Problems
Nigeria is currently experiencing economy instability and crisis, manufacturing companies are faced with the extreme changes in customers’ demands for their products. Every manufacturing company will ideally want to have enough stocks to satisfy the demand of its customers. On the other hand the company does not want to have too much inventory staying on hand because of the cost of carrying inventory. The implications are: Out of stock of critical material leading to hasty buying because of low stock levels, i.e. difficulties in determining average amount of stock necessary to satisfy production requirement, suggested by (Okoye et al 2016). Unnecessary tying down of funds as well as loss of fund due to pilferage, spoilage and obsolescence of stock maintain of too low inventories so as to meet demand as at when needed. High cost of materials purchased and rate of wastage are also main concerns that affect organizations productivity, sales and profitability. The concern is not only to shareholders but also to management and the growth of the nation. How the effective inventory policy affects organizational performance, with size as control variable has not been determined within or outside the Nigerian context. The above statement of problem led to a study on inventory control practice and organizational performance within the selected manufacturing companies in Rivers State.
1.3 Aims/Objectives of the Study
The primary aim of this study is to examine inventory control practice and organizational performance in Rivers State. The specific objectives are;
- To examine the relationship that exist between effective Inventory control practice (EICP) and the Return on capital employed (ROCE) in manufacturing companies in Rivers State.
- To ascertain the extent at which inventory control practices affects productivity of selected manufacturing companies.
- To find out the impact of inventory management and control system in purchasing and supply of inventory in the manufacturing company.
- To unveil the relationship between inventory management and control system in the performance of a manufacturing company.
1.4 Research Questions
With the above objectives in focus, the study seeks to find answers to the following questions;
- Is there any significant relationship between effective Inventory control practice (EICP) and the Return on investment (ROI) in manufacturing companies in Rivers State?
- Does inventory control practices affects productivity of selected manufacturing companies in Rivers State?
- Does inventory control practices has any positive impact on the performance of a manufacturing company?
- Does inventory management and control practice help organization to be more profitable?
1.5 Research Hypotheses
Ho: there is no significant relationship between effective Inventory control practice (EICP) and the e Return on investment (ROI) in manufacturing companies in Rivers State.
H1: there is a significant relationship between effective Inventory control practice (EICP) and the e Return on investment (ROI) in manufacturing companies in Rivers State.
Ho: Inventory control practices has no positive impact on the performance of a manufacturing company
H2: Inventory control practices has a positive impact on the performance of a manufacturing company
1.6 Significance of the Study
The study is specifically designed to help organizations find a way of controlling out of stock challenges. Based on this, when this study is completed, it will be beneficial to every manufacturing company in Rivers State and other manufacturing firms in the country. It will essentially help to showcase the relevance of inventory control to organizations if well managed. It also enable managers know how important it is to take stock and evaluate stock accurately. The findings here will gives students an insight of what the practice of inventory control is outside the school environment. It will also serve as a reference materials to future researchers and scholars in the same field of study.
1.7 Scope and Limitation of the Study
The study on inventory control practices and organizational performance will be restricted to some selected manufacturing companies in Rivers State, taking into cognizance its inventory control practices and technique or steps while trying to bring out how relevant it can be to the organizational activities. An attempt will also be made to assess the cost control technique of the companies in order to see how they synergize with their inventory control practices.
There are many constraints envisaged from the research, these include but not limited to the followings:
- The research work is limited to only manufacturing sector
- Time limitation, within which to carryout research works.
- The data provided by the manufacturing outfit concerned might be adequate and incredible.
- Other limitation attitudes in the course for souring primary data through personal interview and observation.
1.8 Definition of Terms
The terminologies used in this study are defines below for a better understanding of this work in order for the researcher not to be misinterpreted.
Inventory: Refers to stock of item used within the production system or the operation of business coming among which are: raw materials, semi finished goods of a given company.
Inventories: These are stock of materials or finished goods which a company keeps in anticipation of demand or consumption. They constitute a sizeable portion of the total assets of many firms.
Controls: The activity of determining the range and quantity of material which should be stocked and regulation of receipts and issues of the materials.
Manufacturing: It is an industry producing goods in a large quantity.
Company: Is a business organization that makes money by producing or selling goods service. It is also known as a commercial business been with others in an enviable way e.g. a group of actors, singers or dancers in a companies.
Stock Level: One of the most objective of a stock control system is to ensure that “stock-out” do not carry occur and that surplus stock are not carried.
Stock Outs: Occurs when there is insufficient stock to meet production demands and this can lead to loss of customer goodwill, reduced profit etc
Minimum Stock Level: The minimum stock level is below which stock should not be allowed to fall. If stock so below this level there is a danger of the stock out resulting in production stoppage.
Maximum Stock Level: The maximum stock level above which stock should not be allowed to rise. It is desirable that the level should be as low as possible but of course it must all forecast usage of materials and time type in delivering.
Lead Time: The time normally taken in replenishing inventory after the order has been placed. It is the time interval between the ordering of inventory and time of its receipts.
Carrying Cost: Expenses incurred from storing raw materials
Order Cost: The variable cost of placing an order for raw materials.
Re-Order Level: This is the point at which is essential to initiate purchase requisition for fresh supplies of the materials. This point will be higher than the minimum stock level, so as to cover such emergencies as abnormal usage of material.
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