- 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.