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THE EFFECTS OF INVENTORY MANAGEMENT AND CONTROL ON THE PERFORMANCE OF THE MANUFACTURING ENTERPRISES

 

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Inventories are vital to the successful functioning of manufacturing and retailing organizations. They may consist of raw materials, work-in-progress, spare parts/consumables, and finished goods. It is not necessary that an organization has all these inventory classes. But, whatever may be the inventory items, they need efficient management as, generally, a substantial share of organizations funds is invested in them. Different departments within the same organization adopt different attitude towards inventory. This is mainly because the particular functions performed by a department influence the department’s motivation. For example, the sales department might desire large stock in reserve to meet virtually every demand that comes. The production department similarly would ask for stocks of materials so that the production system runs uninterrupted (Anichebe and Agu, 2013).

Inventory represents an important decision variable at all stages of product manufacturing, distribution and sales, in addition to being a major portion of total current assets of many organizations. Since inventory constitutes a major segment of total investment, it is crucial that good inventory management be practiced to ensure organizational growth and profitability. According to Temeng et al (2010), historically, however organizations have ignored the potential savings from proper inventory management, treating inventory as a necessary evil and not as an asset requiring management. As a result, many inventory systems are based on arbitrary rules. Unfortunately, it is not unusual for some organizations to have more funds invested in inventory than necessary and still not be able to meet customer demands because of poor distribution of investment among inventory items (Temeng, Eshun and Essey, 2010). Based on the above analogy, therefore this research work evaluates The effect of inventory management and control on the performance of manufacturing enterprises in Ikot Ekpene Local Government Area.

1.2 Statement of the Problem

Problems of inventory management and control have been around for a very long time. The need to collect goods when it is readily available and then store it for times of shortage is perhaps the fundamental stock holding problem, which was tackled long ago by man. Nowadays, we usually think of stocks being held by organizations to allow efficient and continuous operations. Managers are aware of the vital roles inventory plays in the activities of organizations. In most organizations, direct materials represent up to 50% of the total product cost, as a result of the money entrusted on inventory, thereby affecting the profitability of the organization. Organizations at times do not control their inventory holding, resulting in under stocking and causing the organizations to stay off production, thereby resulting to manufacturing enterprises organizational ineffectiveness. This therefore creates relationship problems between inventory management and organizational productivity, profitability and effectiveness.

1.3 Objectives of the Study

The broad objective of this study is to evaluate the effects of inventory management on the performance of manufacturing enterprises, while the specific objectives are:-

To determine the effect of inventory management and control on the performance of manufacturing enterprises To determine the various inventory systems in manufacturing enterprises. To examine the challenges of inventory management in manufacturing enterprises. To reveal the strategies that can be used to overcome the challenges of inventory management in manufacturing enterprises.

1.4 Research Questions

The following research questions were formulated based on the objectives of the study:

What are the effect of inventory management and control on the performance of manufacturing enterprises? What are the types of inventory system used by manufacturing enterprises? What are the challenges of inventory management in manufacturing enterprises? What are the strategies that can be used to overcome the challenges of inventory management in manufacturing enterprises?

1.5 Significance of the Study

This study is significant in the following ways:

It will help in revealing the impact of inventory management on the performance of manufacturing enterprises. It will reveal how inventory management affects organizational effectiveness. The study will also show how seriously inventory management is practiced by enterprises in Ikot Ekpene. The study will also serve as a useful reference material to other researchers seeking similar information.

1.6 Scope of the study

This study covers the effect of inventory management and control on the performance of manufacturing enterprise. A case study of Arsan water company.

1.7 Limitations of the Study

The study was limited by the following factors:

Financial Factor: Inadequate funds affected the way data were collected since the researcher had to travel long distances for the distribution of the research questionnaire forms.

Time Factor: This affected the reduction in the size of the sample used for the study because the researcher had less than two months to complete the study.

Material Factor: Shortage of relevant materials for literature review posed a great difficulty.

The study was also limited to the information gathered from primary and secondary records.

1.8 Organization of the Study

In this research study, the researcher took a critical look on the effect of inventory management and control on the performance of manufacturing enterprise. The research work was divided into five chapters.

Chapter one was on the background of the study, as well as statement of the problem, objectives of the study, research questions, statement of hypothesis, significance of the study scope and limitation of the study, organization of the study and definition of terms.

Chapter two reviewed the related literature on the subject matter and contributions of different authors.

Chapter four takes care of the data presentation, analysis and interpretation as well as discussion of findings.

Chapter five (5) encapsulates the summary, findings, conclusion and recommendations made by the researcher.

1.9 Definition of Terms

Management: The organizing and controlling of the affairs of a business or a sector of a business.

Inventory: A record of a business’s current assets, including property owned, merchandise on hand and the value of work in progress and work completed but not sold. It also means aggregate of those items of tangible personal property which are held for sale in ordinary course of business, are in process of production for such sales, are to be currently consumed in the production of goods or services to be available for sale.

Finished Goods: Goods being manufactured for sale by an enterprise.

Materials: Articles such as raw materials, semi-finished goods or finished parts, which the business plans to incorporate physically into the finished production.

Supplies: Article, which will be consumed by the business in its operation but will not physically as they are a part of the production.

Control: A means of monitoring for, triggering intervention in activities that are not going according to plan.

Performance: The amount of useful work accomplished compared to the time and resources used.

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