The benefit of effective inventory management in an organization

CHAPTER  ONE

INTRODUCTION

• BACKGROUND OF THE STUDY

Inventory is said to be  the stock  of the product a company is manufacturing  producing for sales and the  component  that make up the products. Inventories are grouped  and divided  into three main types.

They  include: the raw  materials, semi  finished goods and  finished goods or products. Moreover, we have another types of  inventory which is known  as inventory of supplies. It does not required significant investment and in some cases (it depends  on how big is the organization and the nature of its activities).

Inventory serves as a link  between the production and  consumption of goods in the sense  that it is not of the major assets of most firms the component  of inventory varies from organization to organization but they  usually range between  20%-80% depending on the nature of the organizations business and inventory  management  techniques.

However, poor inventory  management will lead to a serious  challenges of the variability (i.e capable of living) of an organization and can sometimes have bad effect on its solvency  poor inventory of capital (money fund) of the organization.

This research  work is designed to gain an understanding of the basic theory benefit of inventory management.

• STATEMENT OF THE  PROBLEM

Effective inventory management should ensure  that there is placement of an order  at the right time with the right source of  required material/right quality and quantity.

To  satisfy the inquiring  nature of this research work, the  following problems are to be given consideration:

• how can we eliminate or prevent  the delay  in receiving  goods?
• How can wastage  in production  department  be reduced and how is it possible?
• In establishing a good inventory control policy, why is re-order level much more important?
• Why do companies keep inventory?

• OBJECTIVE OF THE STUDY

The purpose of the study is to find out how to determine the motives for hooding inventory and inventory management in the company. This study seeks to find the benefits of inventory management in an organization and to determine the effectiveness of inventory management and how to  contribute to the profitability  of the firm or organization.

However, the study  will not fail to examine  most importantly the role played by the financial manager in inventory control and why he is made to play such roles.

• SIGNIFICANT OF THE STUDY

This  study will be of great  help to the business organization is such a way that it will help them to know to maintain sufficient  sock  of raw materials (Goods) in  period of short  supply and in case of change in price in other to ensure  better continuous  supply of materials, to facilitate uninterrupted  production know what it takes to maintain sufficient finished good  stock for smooth sales  operation and  effective customers services and how to minimized  the carrying cost and time.

The study will also be guide to scholar (students) in the sense that it will be of use and as secondary case of compares between firms the government on their part will be assisted through this study especially the tax authority and in their tax policy formulation, and how the manufacturing firms value their stock at the beginning  and ending of the year.  

• RESEARCH QUESTIONS
• How can inventory management contribute to the profitability of an organization.
• Why do company keeps inventory.
• How can a company benefit from and effective inventory system.
• STATEMENT OF HYPOTHESIS

In this research  work the hypothesis  below is essential

Ho     (NULL) There is no significant relationship between business profitability and effective  inventory management.

Hi        (ALTERNATIVE) There is a significant relationship between profitability and effective inventory management.

• SCOPE AND LIMITATION  OF THE STUDY
• SCOPE : The scope  of this study  is limited  to the views of the following people , secretaries, managers, auditors  and accountants. However, some worker of flour mill limited account department, stores section and operation department are also interviewed.
• LIMITATION :The study is limited to Delta  State  with a particular  reference to Sapele  Local Government    The enterprise that was investigated is the life flour Mill Limited , Sapele.

The major constraint to this project work is interims of financial, research materials such as textbooks etc, which are not easily available. Other factors that posed constrain to this research works is time factors due to encroachment of the researcher’s class  work, texts and examination into the  time that  would have  been used  in carrying out details on this topic.

• DEFINITION OF TERMS
• INVENTORY: This is the physical stock of goods which though remain idle in a store but is essential for smooth running of the organization and hence  have economic value.
• INVENTORY MANAGEMENT: This is all about monitoring of inventory levels and requirement at a manufacturing plant  and distribution facilities.
• RE-ORDER LEVEL: This  is the point at which purchase  order should be made for a fresh supplies of the materials.
• RE-ORDER QUANTITY: This is the quality that should be ordered any time replenishment order is placed to bring stock to desired level.
• HOLDING COST: They are cost that can be attributed to holding  a given level of inventory.
• PURCHASING OBJECTIVES: When  an organization  define it needs for  goods and services and compel the  suppliers to make  available to them, negotiate with sources of supply or in other words, to make  contact and place and finally receive the  goods and services and pay them.
• MINIMUM STOCK LEVEL:  This  is the level below which stock should not fall. If stock falls below this level, the danger  of stock out will manifest.
• MAXIMUM STOCK LEVEL: This is  the level at which stock  should not be  allowed to rise. If stock rises above this level, there will be problem of high carrying costs.
• STOCK OUT: It is when there is demand for an item of stock and such demand is unsatisfied.
• WORK IN PROGRESS (WIP): They are  semi manufactured goods required for further work before they become  finished products.

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