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IMPACT OF EFFICIENT INVENTORY CONTROL ON THE PRODUCTIVITY OF AN ORGANISATION

ABSRACT

The topic this research work is the impact of efficient inventory control on the productivity of an organization. Inventory control requires high cost and investment commitment most businessmen view inventory control or inventories and their attendant costs as “unnecessary evil” hence failing to assess carefully the benefits afforded their companies or business by existence of inventories. In a manufacturing company where these inventories are handled, the introduction of a well planned and effective system or means of controlling these inventories is necessary for profitability and accountability to both the management and shareholders of the company whose interest, objectives and aims under which the company as business was established must be protected. However, the research work will be treated in five chapters. Chapter one is the introduction of the work where the problems were identified five research questions and four hypothesis were stated to guide the work. Chapter two involved the review of related literature quoting the various professional ideas on the issue while my own perspective was also stated. Chapter three involved the sources of data for the study; the sample size and the statistical tool were used in analyzing the data. Chapter four dealt with proper analysis of the research questions and hypothesis with percentage frequency and hypothesis statistical tools. Chapter five is the summary of the work, the conclusion of findings from the data analysis in chapter four.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

A trend in the past has been for companies to hold some level of stock than previously did, hence companies has found that they can sometimes reduce the lead time required to obtain material and to produce product, so that they can operate with less inventory and still serve their customers effectively. Stock is an idle resources hold for future use whenever the inputs and outputs of a company are not used as they become available, inventory is present service operation and jobs tend to have small investments in stock for many companies, however, stocks account for a large percentage of assets thus the need for stock control.

Uzor (2006 : 128) defines stock control as the means by which materials of the correct quantity and quality is made available and a at when required with due regard to the economy in storage and ordering cost, purchasing and working capital. Carter and price (1996:139) defines stock control as the process of ensuring that the stock held by organization is supplied to those parts of the operations that required that items 9ie production, distribution, sales, engineering etc) Henritz and Farrel (1990:100) defines inventory control as the assurance of having the items at hand when needed and afford the added protection of reserve, stocks, theoretically untouchable but practically serving to full needs when extra ordinary demand develops or when correct procurement fails.

Organizations that have stocks has the advantages of assessing items to be held in stock, the extent of stock holding operational needs, time require to deliver goods availability of capitals, cost of storage regulation of the inputs of stock into are from the store house through these, it is possible for a firm to adopt adjust continuously the quantity and value of stock held to confirm with circumstances of control. According to Monk (2000:148) inventory need to be effectively managed, if efficient operation is to be achieved, he pointed disrupt the production distribution cycle that is so critical to the survival of all the manufacturing organization.

BRIEF HISTORY OF PZ NIG. PLC ABA

PZ Nigeria Plc Aba which is the acronym for Paterson Zochins come into existence as P.B Nicholas and company limited which incorporated on the 4th December 1948, under the name of P.B Nicholas and company limited to take up soap making activities. Paterson Zachnis Company limited of Manchester (PZ) subscribed 75.5% of the company’s issued share capital and has since then directly or through subsidiary companies retain the controlling interest. In accordance with the Federal Government directives (Indigenization act) it sold another 20% of its share participation of 60% in favours of Nigerian following the merger of PZ Company Nigeria Ltd and associated industries limited, the company changed it name to Paterson Zochnis industries limited. After the incorporation in 1948, new factory buildings were evicted and modern soap making/creating one of the earlier major industrial units in Nigeria. The company’s manufacturing facilities were further developed during the 1960’s both by addition to the soap making capacity and by the introduction of wide range performing, cosmetic and medicinal products. The formal soap factory premises at Aba are no longer used for manufacturing purpose but extension factory and Administrative premises therefore used.

During the year 1967 to 1970, manufacturing operator of the Aba factory were disrupted and in consequence, the company opened a rented premises of this soap product to its customers. This manufacturing unit eventually moved to modern purposes due to and equipment factory premises on company property in Ilupeju Industrial Estate Lagos state. The company’s range of products include bar and tablet soaps, perfumes, confectionary, medicaments and pharmaceutical, all of which are distributed throughout Nigeria with buffer stock help in strategic centers. The increasing popularity of detergent indicated by market surveys and the close and users associated between the company’s existing soap product and detergent. Refactory premises for the purpose were at Ilupeju and in 1973 one move major product was added to the company’s range of existing product and new developments till data.

1.2 STATEMENTS OF PROBLEMS

In the recent times, most organization has been characterized with drastic changes that comes a long with problems arising from business complexities. The Nigerian business environment is not left behind in these changes. Inventories are neither totally good nor bad but inventories control determines the position of the firm, many firms have ineffective stock control system which has le to the following:

1. Running out of materials which in turn disrupt production leading to loss of salary and education in profit maximization.

2. Holding of excessive inventory which leads excessive holding of cost extra space requirements, product obsolesce and pilferage of raw materials.

3. Tying up capital unnecessarily which attract interest inform of cost.

4. Poor operation of the stores which in turn leads to problem of material flow in the production system.

5. Selection and application of wrong inventory method which does not consider critical factors.

1.3 OBJECTIVES OF THE STUDY

The objectives of the study are 

1. To evaluate the various costs associated with inventory in the organization

2. To access the extent of implementation of stock control method in PZ Plc Aba Industries Ltd 

3. To examine the effectiveness of stock control method adopted by PZ Plc Aba.

4. To find out the determinant factor in choosing stock control method.

5. To identify the variables for effective stock control method in PZ Plc Aba

1.4 SIGNIFICANCE OF THE STUDY

The successful completion of the work will help top educate managers on how to ensure implementation of effective stock control. The study will be useful in ensuring efficiency in decision making which will enhance efficiency in the utilization of resources in the production activities.  The study will help the organization unrest the changing demand pattern by understand the variables in stock control and how to manipulate them in every situation, thus possessing the sufficient group of expertise in material management which can be supplied in production process.  Finally, this study shall make firm to know the essence of having the optimum level of stock at any particular period. The successfully completion of this work will go a long way to help researchers to widen out is or her knowledge about stock control and its importance. It will also enable students who will be carryout such related topics in future.

1.5 RESEARCHE QUESTIONS

1. What is the relationship between inventory control and production?

2. How can stock control influence the profit of an organization?

3. How does inventory control and cost operations relate?

4. What process are involve in inventory control of an organization?

5. Are there factors that militate against effective implementation of inventory control system?

6. What is the relationship between inventory control and sales?

1.6 RESEARCH HYPOTHESIS

In order to achieve the set goals, this work is guided by the following hypothesis:

Ho: Inventory control does not have any impact on the cost of operations in the organization.

Hi: Inventory control have any impact on the cost of operations in the organization.

Ho: Inventory control has no significant differences in terms of operations of organization.

Hi: Inventory control has significant differences in terms of operations of organization.

1.7 SCOPE OF STUDY

This study on the impact of effective inventory control on the productivity of an organization will focus on PZ Plc Aba. The elements of the subject matter, the techniques, reasons and importance of the topic under discuss will be elaborated in subsequent chapters of this study.

1.8 LIMITATIONS OF THE STUDY 

This study was faced with series of constraints in the course of writing it. Prominent among the constraints are time spent in visiting PZ Plc Aba and time spent in compiling my findings. Secondly, the finance in carrying out this activity was a big problem. Obtaining relevant data information was another limitation obtained was sufficient. Even in situation where interviews were necessary, there was difficult in scheduling while some qualified personnel are either busy or ignorant over such interview.

1.9 DEFINITION OF TERMS

1. LEAD TIME: This is the moment the stock controller placed order to the time the order is supplied.

2. STOCK TAKING: This represents the complete process of verifying and quantity balances of the entire range of items held in stock. It is usually carried out annually so as to discuss the value and quantity of stock for balance sheet purposes. 

3. STOCK CHECKING: Represents any physical check on the quantity of items held in stock

4. MAXIMUM STOCK LEVEL: This is the amount of stock expressed in units of issue above which the stock should not be allowed to rise. The purpose of this is to curb excess investment or over stock.

5. MINIMUM STOCK LEVEL: This is the level below which the stock should not be allowed to fall.

6. RE-ORDER LEVEL: This represents the amount of stock at which new order is to be placed or ordering actions is indicated in time for the material to be delivered before stock falls below the minimum level.

7. SURPLUS: A usable materials, equipment or parts including capital equipment which are in excess of normal manufacturing operating or repair requirements 

8. FIFO: First in first out

9. LIFO: Last in first out

10 OBSOLETE: This is where item is completely usable by the organization.

11. STOCK: These are inventories used within production system

12. PRODUCTIVITY: This is the rate of goods produced compared with how much input (time, money) used to produced them.

13. OBSOLESCENT: When stock is going out of use but is not yet completely unusable.

14. PRE PRODUCTION INVENTORY: Comprises parts and materials purchased form out side the organization for manufacturing a product.

15. DISCREPANCIES: This is when the amount of stock found by physical check fails to correspond wit balance stock.

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