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THE IMPACT OF INVENTORY CONTROL TECHNIQUES ON PRODUCT LOSS REDUCTION AND FINANCIAL PERFORMANCE OF A FIRM

 

CHAPTER ONE

INTRODUCTION

1.1      Background to the Study

Organizations face an issue in today’s competitive economy, where on one hand, clients request branded products and services and necessitate that their requests are filled fast, however they would prefer not to pay a premium for this branding and accessibility (Graman and Magazine, 2006). Along these lines, organisations are investigating ways toward postponement system in light of continually changing demands (Yang et al. 2004). Graman and Magazine (2006) contended that today, the expense of holding inventory, broad item multiplication and the danger of outdated nature, particularly in rapidly changing markets, make the cost of holding huge inventories of finished products unnecessary and that appeal things normally have safety stock allocated to them, yet in many firms there are such a large number of low-request items that keeping any supply of these items is nonsensically costly, so they contend that organizations should now offer great support while keeping up insignificant inventories. Accordingly, inventory control approaches are basic parts of any organisation.

In traditional settings, inventories of crude materials, work-in-progress segments and finished goods were kept as a cushion against the chance of running out of needed items. Be that as it may, huge inventories expend significant assets and produce concealed expenses. Thus, numerous organizations have changed their way to deal with production and inventory control. Since the early 1980s, inventory control prompting inventory decrease has become the essential objective, as is regularly the situation in just-in-time (JIT) frameworks, where raw materials and parts are bought or delivered in the nick of time to be utilized at each phase of the production process. This way to deal with inventory control brings significant cost investment funds from reduced inventory levels. Therefore, inventories have been diminishing in several organizations (Chen et al., 2005), despite the fact that proof of improved firm performance is mixed (Kolias et al., 2011).

The job of inventory control is to guarantee quicker stock turnover. It builds inventory turnover by ten (10) and reduces costs by 10% to 40%. The alleged stock turnover is not yet option to sell products based on the guideline of FIFO cycle (Kenneth Lysons and Michael gilligham, 2003).

Inventory is characterized based on the business undertaking from firm to firm. Regular criteria utilized and are nature of inventory for instance retail, reason for which inventory is being held in stock or function and the related utilization in the supply chain. Normal arrangements are raw materials (items in natural state waiting for change, for example timber, steel and coffee seeds), segments and sub-collects. These are for fuse into the final products for example side mirrors, glasses for vehicle assembly organization and screens or consoles for a PC assembly organization), consumable. Appropriate order of inventory and its control improve the financial situation of a business (David Jessop and Alex Morrison 1994).

Inventory control is basically about indicating the size and arrangement of supplied products. Inventory control is required at various areas within an office area of an inventory system to secure the normal and arranged course of production against the irregular random disturbance of coming up short of materials or items for improved performance (Garry, 1997). The extent of inventory control additionally concerns the scarce differences between renewal lead time, conveying cost of inventory, resource management, stock forecasting, stock valuation and stock perceivability (Lau An., and Snell, 2006).

Poor inventory control had become an issue of extraordinary worry since performance is viewed as the standard for development of firms. A genuinely compelling inventory control framework limits the complexities engaged with planning, executing and controlling a chain network which is basic to business achievement. The open doors accessible by improving an organization's inventory control can altogether improve primary concern of business performance.

An excessive inventory and insufficient customer service is exceptionally normal, however superfluous. There are demonstrated procedures that can help precisely industry client demand and to compute the inventory required to meet the level of customer service. Utilizing the correct systems for sales determining and inventory control help to screen changes and react to alerts when move should be made. The correct way to deal with inventory control can deliver sensational advantages in client support with lower inventory (Kreg, Cristine, 2007).

Current inventory control in several organisations use new and refined strategies that accommodate dynamic performance of inventories to boost customer service with diminished inventory and lower costs. These improved techniques in inventory control are of significant outcome to general competitiveness where the most significant level of customer service and delivered value can influence on market share and profits.

Lastly, organizations make use of various types of inventory control to prevent loss and improve their financial performance. This is why the researcher aims to investigate the impact of inventory control techniques on product loss reduction and financial performance of a firm.

1.2           Statement of the Problem

Inventory control technique in any organization is sometimes seen in their sourcing for required items by their clients, buying of raw materials and general supply to the customers. Orgnisations use different inventory control techniques this is largely dependent on the kind of services rendered. However these techniques for inventory control is usually aimed at reducing loss and improves financial performance. Inability of organizations to use inventory control technique effectively will result in loss and financial performance will drop drastically. Based on the above information this study therefore sets to investigate the impact of inventory control techniques on product loss reduction and financial performance of a firm.

1.3       Objectives of the Study

The main objective of this study is to investigate the impact of inventory control techniques on product loss reduction and financial performance of a firm. Other specific objectives are:

To examine the effectiveness of inventory control techniques used by firms to enhance better financial performance To find out the importance of inventory control techniques on financial performance of firms in Nigeria To study the relationship between inventory control and organizational efficiency

1.4       Research Questions

In addressing our central problem, answers to the following research questions were found worthy.

What is the effectiveness of inventory control techniques used by firms to enhance better financial performance? What is the importance of inventory control techniques on financial performance of firms in Nigeria? What is the relationship between inventory control and organizational efficiency?

1.5  Research Hypothesis

For the purpose of this research, the following hypotheses were tested in order to achieve the set objective of the study:

There is a significant correlation between inventory control techniques and financial performance There is a significant relationship between inventory control and organizational efficiency

1.6       Significance of the study

Majority of companies suffer excessive inventories than are necessary. Inventory control is complex and is perceived as more than just a clerical function. This has resulted into lots of material shortages, high costs, and loss of profits. Managements ignore the fact that inventories allow the company to be flexible. Raw material inventory gives the firm flexibility in its purchasing without which the company must exist on hand to mouth basis, buying raw materials in keeping with its production schedule. Finished goods inventory allows the firm flexibility in its product scheduling and marketing. The said situation has urged the carrying out this research to enlighten managers, stakeholders, policy makers as well researchers and all interested parties on the importance of inventory control technique in an organisation.

1.7       Scope of the study

The study is meant to investigate the impact of inventory control techniques on product loss reduction and financial performance of a firm. Manufacturing firms in Ota, Ogun State, are considered a fair representation of similar firms in this research.

1.8       Limitations and delimitation of the study

In the course of conducting this research it is expected that some factors will limit the effectiveness of this study. This is inclusive of availability of relevant literature and textbooks, time constraints, financial constraints, inaccessible and inadequate database, and inadequate information from the case study firms.

1.9       Operational definition of terms

Inventory:It can be referred to as stock. By stock, we mean raw materials; work -in-progress and finished goods

Inventory Control:This is a system used in a firm to control the firms

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