APPRAISAL OF INVENTORY CONTROL IN A MANUFACTURING COMPANY (A CASE STUDY OF SEVEN UP - BOTTLING COMPANY)

ABSTRACT

This research work examined the appraisal of inventory control in a manufacturing company of a case study m seven­-bottling company PLC, Lagos.

The finding after questionnaire were administered to the staff of seven up- bottling company PLC specifically accounts and warehousing department, showed that effective inventory control would not minimize total inventory costs in a manufacturing company and high inventory costs would not lead to a reduction in the profit of a manufacturing company.

However, solution and recommendations were proffered to the above identified problems to ensure a proper appraisal of inventory control in a manufacturing company in seven up-bottling company PLC, Lagos.

TABLE OF CONTENTS

CHAPTER ONE

1.0    Introduction 

1.1    Background to the Study 

1.2    Statement of Problem 

1.3    Objectives of the Study 

1.4    Research Questions 

1.5   Statement of Research Hypothesis 

1.6    Significance of the Study 

1.7    Scope of the Limitations of the study 

1.8    Historical Background of Seven-up Bottling Company

1.9    Definition of Key Terms 

CHAPTER TWO - Literature Review

2.0    Introduction 

2.1    Meaning of Inventory Management 

2.1    Control 

2.2    Inventory Record Keeping Procedures 

2.2.1 Bin Card

2.2.2 Materials Requisition Note

2.2.3 Materials Returned Note

2.2.4 Materials Transfer Note

2.3    Inventory Control Method

2.3.1 Perpetual Inventory Method

2.3.2 Periodic Inventory Method

2.3.3 Physical Inspection Inventory

2.3.4 Just-In-Time (JIT)

2.4    Inventory Costs

2.4.1 Holding Costs

2.4.2 Ordering Costs

2.4.3 Stock-Out Cost

2.4.4 Purchase Costs

2.5 Control of Stocks Levels

2.5.1 Maximum Stock Level

2.6.2 Minimum Stock Level

2.6.3 Re-order Level

2.6 Control Models

2.7.1.1 Economic Order Quantity (EOQ)

2.7    Economic Order Quantity

2.8    Analysis of Inventory Control System in Seven-up Bottling Company PLC.

2.8.1 Ordering Procedure

2.8.2 Receipt Procedure

2.8.3 Recording Procedure

2.8.4 Material Issues

2.8.5 Materials Returns

2.8.6 Stock Taking  

CHAPTER THREE - Research Methodology

3.0    Introduction 

3.1    Research Approach 

3.2    Research Design 

3.3    Restatement of Research Questions 

3.4    Statement of Research Hypothesis 

3.5    Population of Study 

3.6    Sampling Techniques 

3.7    Sample Size 

3.8    Method of Data Collection 

3.8.1 Question Design

3.9    Data Analysis Techniques 

3.9.1 Chi-Square 

3.9.2 Sample Percentage 

3.10 Limitation of Methodology 

CHAPTER FOUR - DATA PRESENTATION AND ANALYSIS

4.0    Introduction  

4.1    Presentation and Analysis of Data 

4.1.2 Table 

4.1.3 Table 

4.2    Inventory Cost Reduction 

4.2.1 Table

4.2.3 Table

4.2.4 Table

4.3.1 Table

4.3.2 Table

4.4    Testing of Hypothesis

4.4.1 Chi-Square (x2) Method

4.4.1.1 Hypotheses Indicating Relevant Question in Questionnaire

4.5    Contingency Co-efficient

4.6    Research Finding 

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

In the real sense of economic development, the efficiency and effectiveness of a nation's economy rests viably on its ability to meet with the demands of the populace of such an economy.

In order words, the effectiveness of an economic is vested on the manufacturing sector. This is because, the indices by which the development and progress of an economy is measured is predicated on the goods and services so produced by the out fits in such a sector which could either be consumed locally or be exported for exchange of foreign currency.

Furthermore, the distinguishing factor between productive and unproductive economies lies in the production capacity in relation to the importation capacity which directly affects the economy. However, the afore-mentioned positive outcomes/results are based on the" effective management of the manufacturing industry in terms of its capital (Financial resources) ,inventory, labour (Human resources) among other things, so as not to bring about negative results such as costs resulting from overstocking, loss resulting from capital tied down and loss goodwill as a result of stock outages.

1.2     STATEMENT OF THE PROBLEM

Inventory plays an essential role in any organization. The larger the inventory size, the easier it is to reduce costs of purchasing, manufacturing and shipping as well as provide prompts customer's service. However, a larger inventory stock requires a higher investment of money, higher carrying cost such as storage handling risk of obsolescence and data processing. These costs must be balanced off against any advantages in holding inventory.

The study tends to look at certain problematic issues in manufacturing companies as Seven- Up Bottling Plc it relates to inventory management. Such issues are:

1.    Stock are managed, that the level of stock held are neither more than nor less than requirement for a given season.

2.    Most companies fail to appreciate the role inventory management plays in the survival of their business.

3.    Accurate information on the cost of stock is necessary for management control of working capital requirement.

1.3     OBJECTIVES OF THE STUDY

The main objective of this study is to conduct appraisal of inventory control in a manufacturing company.

Specifically, the study intends to:

i.             Present inventory control system in the selected company.

ii.           Examine the checks and balances in the inventory control system.

iii.        Determine the effects of the organization's inventory control system on the operating expenses and profit levels of the organization.

iv.        Ascertain the effectiveness and efficiency of the organization's inventory control system.

v.           Make suggestions for improvement to bring about further enhancement of efficiency in the company's inventory so as to improve the overall performance.

1.4            RESEARCH QUESTIONS

i.  Will effective inventory control minimize total inventory cost in a manufacturing company?

ii.        Will high inventory control lead to reduction in the profit of manufacturing company?

iii.    Will effective inventory control prevent frequent stock out in a manufacturing company?

iv.      What are the sources and quality of raw materials that are available to seven up Bottling Company PIc?

v.           How long does it take to procure the raw materials?

vi.  What storage techniques do the organizations use in storing their raw materials?

vii. Identify the inventory management practices and policies that are being used by the organization?

viii. What are the inventory management problems of the organization?

1.5     STATEMENT OF RESEARCH HYPOTHESIS

For the purpose of this study, the hypotheses available are as follows;

i.            Ho: Effective inventory control would not minimize total inventory cost in a manufacturing company.

Hi: Effective inventory control would minimize total inventory cost in a manufacturing company.

ii.     Ho: High inventory cost would not lead to a reduction in the profit of a manufacturing company.

Hi: High inventory cost would lead to a reduction in the profit of a manufacturing company.

 1.6     SIGNIFICANCE OF THE STUDY

Inventory is an essential tool in any manufacturing organization. It constitutes a large proportion of the total operating cost and has direct effect on operational smoothness and profit level of an organization.

It is hoped that, this study would provide useful information that will enhance management ability to carry adequate inventory at a minimized cost.

Also, it will serve as a reference point for future researchers who wish to probe further into efficient management of inventory in the manufacturing sector of the economy.

1.7     SCOPE AND THE LIMITATIONS OF THE STUDY

This research intends to cover various processes involved in controlling and managing inventory in Seven-Up Bottling Company.

1.8     HISTORICAL BACKGROUND OF SEVEN-UP BOTTING COMPANY NIG. PLC

Seven-Up Bottling Company Nig. Plc was incorporated as a private limited liability company on the 25^th day of June, 1959 the company was until 1979 wholly owned by the El-khail family. It was converted to a public limited liability company on the 27th of December, 1978 and listed on the main board of the Nigerian Stock Exchange in 1985.

The El-Khail was franchise for Nigeria by Seven-Up International Plc, under which it is entitled to bottle and market Seven-Up (7-up), the world's leading lime and lemon soft drink. In its attempts to widen its product range, the company obtained franchise for Nigeria in 1966 from crush international (USA) Inc; under which it is entitled to bottle and market all "crush" flavor predominantly "orange crush". The franchise was however sold to Nigerian Breweries PIc in 1995.

In its bid to achieve a "Mega Bottler" status the company further acquired three franchise for Nigeria in 1989 from Pepsi-Cola International under which it is entitled to bottle and market Pepsi (Cola flavor), Mirinda (Orange flavor) and Teem (Lemonade flavor).

The company was launched in 1^st of October, 1960, the day Nigeria obtained her independence. The first bottle of 7 -up was rolled out at Ijora the same day.

In order to ensure availability of its product throughout the nation, six additional plants were established at Ibadan in 1980, Kano in 1985, Kaduna in 1988, Aba in 1989, Ilorin in 1989 and Benin in 1993.

Ijora plant was however relocated to Ikeja in 1981 because of the down turn in the economy arising from political and economic crisis, the Ilorin and Benin plants were closed down in 1994. Benin plant was later re-opened in 1986. Apart from the plants, a large network of depot was spread all over the country to ensure constant supply of brands all over the country. At present, the company has thirty two depots.

The company under the management of Faysal El-Khalil in an attempt to increase sales eliminated wasteful expenditure and turned losses into profit. . He also introduced many thrilling promotion packages such as money shower in 1987, 7-up express in 1992 and 7-up Hi-life in 1994. This marketing strategy was part of the short-term plan to reward customers and attract them to 7 -up products. The strategy yield huge returns to company at a very high cost.

However, consumers who built great expectation and did not win became frustrated and began to challenge the credibility of the company. This was largely due to the inability of consumers to estimate the probabilities of winning. As they become more educated on the realities, the exaggerated view of what was possible to win sometime turn into exasperation.

It also woke up the sleeping giant-Nigerian Bottling Company Plc, bottler of Coke from a deep slumber.

The management of company has since then adopted various strategies that can stand the test of time in order to ensure that the success of the aggressive sales promotion which has made the company's product a household to name would not be lost.

Some of the strategies currently put in place are repositioning its products, rationalization exercise and cost reduction techniques (including effective inventory control).

1.9 DEFINITION OF KEY TERMS

Carrying or Holding Cost: This 1S the cost of keeping, carrying or maintaining inventory. It is usually expressed as a percentage of naira value of inventory per unit of time. The major components are insurance cost, interest charges, property tax and storage cost and cost of deterioration, obsolescence, spoilage, pilferage and depreciation.

Economic Order Quantity (EOQ): The economic order quantity is the amount of a product, which should be purchased or manufactured at one time in order to minimize the total cost involved.

Lead Time: The time lag between placing an order and the delivery of the order. It may be constant or variable.

Inventory Catalogue: A book that identifies all materials of inventory carried by name, manufacturer's part number, cross indexed by user's identification number if necessary and classified for indexing purpose.

Maximum Inventory: That level of inventory beyond which inventory must not rise. It is the sum total of the re-order end order quantity less the minimum anticipated usage during the lead time.

Minimum Inventory: That level of inventory below which inventory must not fall. It is the difference between the re­order and the average for the average usage for the average lead time.

Ordering Cost: The cost of generating and processing and order and its related paper work, It may include the cost of telephone calls, postages, stationeries etc.

Over Stock Cost: The cost of carrying more than the required inventory that is the cost of over stocking.

Re-order Level: The inventory level at which an order for replenishment is placed.

Re-Order Quantity: The quantity ordered each time a replenishment order is placed.

Set-Up Cost: The out of pocket costs associated with machine set-up that would increase with the number of set­up.

Stock-out Cost: The marginal profit lost on each items demanded but not immediately available in stocks or costs resulting from failures to have sufficient goods on hand to fill or satisfy orders.

Inventory Policy: It is a set of rules which determine how and when certain decisions concerning the holding of stock should be made.