ABSTRACT
The study was designed to find out the
effects of Inventory Management on Corporate Profit using the Nigerian Gas
company as the case study. To achieve this objective, three Null Hypotheses and
Alternative Hypotheses were formed to guide the study. All the staff of the
Nigerian Gas Company Plc, Uyo constituted the population of the study. A sample
of thirty staff was used for the research out of which twenty five were
completed and returned. Their responses to the questionnaires were presented on
tables, analysed and interpreted and used in testing the validity of the
Hypotheses formulated through the use of chi-square (X2) statistical
test. The test rejected all the Null Hypotheses indicating that there is
significant relationship between inventory management and productivity; that
there is significant effect on the cost of ASSESSMENT inventory on productivity
and that inventory management techniques impact positively on firms’ productivity.
Also, based on the findings, the following recommendations were made among
others: that there should be regular training of staff responsible for
inventory procurement and issuance, that adequate inventory of raw materials
should be maintained to cushion periods of short supply and that effective
inventory management techniques should be applied always.
TABLE
OF CONTENTS
Content Pages
Title
Page……………………………………………………………………… i
Declaration……………………………………………………………………. ii
Certification…………………………………………………………………… iii
Dedication……………………………………………………………………... iv
Acknowledgements…………………………………………………………v
Abstract………………………………………………………………………..vi
Table
of contents……………………………………………………………vii
List of table……………………………………………………………………. xi
List
of figures…………………………………………………………………..xi
CHAPTER
ONE: INTRODUCTION
1.0
Background to the
study………………………………………………..
1.1 Statement
of the Problem………………………………………………
1.2 Objectives
of the Study………………………………………………..
1.3 Research
Hypothesis………………………………………………….
1.4 Significance
of the Study……………………………………………..
1.5 Scope
and Limitations of the Study…………………………………..
1.6 Organisation of the
Study……………………………………………..
1.7 Historical Background of Nigerian gas
Company Plc,
Uyo………………………………………………………………….
1.8 Definition
of Terms……………………………………………………
CHAPTER
TWO: REVIEW OF RELATED LITERATURE
2.0 Introduction……………………………………………………………
2.1 Conceptual Framework………………………………………………..
2.1.1 Meaning of Inventory
Management………………………
2.1.2 Forms of Inventory
Maintained by Manufacturing
Companies
2.1.3
Functions of Inventory………………………………………………..
2.1.4
Need for Holding Inventories………………………
2.2. Inventory Valuation
Methods…………………………………………
2.2.1 First In First Out (FIFO)………………………………………………
2.2.2 Last In First Out
(LIFO)………………………………………………
2.2.3 Weighted Average Price
(WAP)………………………………………
2.2.4 Illustration: Stock Valuation
Methods………………………….
2.2.5 Factors Affecting Inventory Valuation
Decisions…………
2.3 Inventory
Control……………………………………………………...
2.3.1 Elements of Inventory
Costs…………………………………………..
2.3.2 Objectives of Inventory Control and Setting
of
Inventory Levels
2.3.3 Factors to Consider In Inventory
Control…………………………….
2.3.4 Inventory Control Costs……………………………………………….
2.3.5 Inventory Control Methods……………………………………………
2.4 Requirement for Effective Inventory
Management…………………..
2.5 Objectives of Inventory
Management…………………………………
2.6 Over Investment in
Inventories………………………………………
2.7 Under Investment in
Inventory……………………………………….
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Introduction……………………………………………………………
3.1 Research
Design……………………………………………………….
3.2 population
of the study………………………………………………...
3.3
Sample Size and Sampling Technique………………………………...
3.4 Method
and Sources of Data…………………………………………...
3.5 Instrumentation…………………………………………………………
3.6 Data
Analysis Technique……………………………………………….
CHAPTER FOUR: DATA
PRESENTATION, ANALYSIS AND INTERPRETATIONS
4.0 Introduction…………………………………………………………….
4.1 Data presentation……………………………………………………….
4.2 Data
analysis……………………………………………………………
4.3 Test
of Hypotheses……………………………………………………..
CHAPTER FIVE: SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.0 Introduction…………………………………………………………….
5.1 Summary of findings……………………………………………………
5.2 Conclusion………………………………………………………………
5.3 Recommendations………………………………………………………
References………………………………………………………………
Appendix I……………………………………………………………...
Appendix II…………………………………………………………….
Appendix III……………………………………………………………
LIST OF TABLES
Tables Pages
Table 2.2.1 Valuation of Stock Using FIFO Method
Table 2.2.2 Valuation of Stock using LIFO Method
Table
2.2.3 Valuation of Stock Using WAP
Method
Table
2.2.4 Tabular Method of EOQ
Table 2.2.5 Classification of Items in Stock Using
ABC system
Table 2.2.6 Classification of Items in Stock using
ABC system
Table 4.1.1 Number
of Questionnaires administered and returned
Table 4.1.2 Number
of Years served by Respondents in the Company
Table 4.2.1 Awareness
of the Existence of Inventory Management Techniques
Table 4.2.2 Inventory
Management Techniques Adopted by the Company.
Table 4.2.3 Costs
associated with ASSESSMENT Inventory in Nigerian Gas Company Plc, Uyo.
Table 4.2.4 Problems
faced by Nigerian Gas Company Plc, Uyo In ASSESSMENT its Inventory.
Table 4.2.5 Negative
Effect of Ineffective Inventory Management.
Table 4.2.6 Inventory
Valuation Method Adopted By Nigerian Gas Company Plc, Uyo.
Table 4.2.7 Benefits
to be derived from proper Management of Inventory.
Table 4.3.1 Test
for Hypothesis I
Table 4.3.2 Table
for Hypothesis II
Table 4.3.3 Test
for hypothesis III
LIST OF FIGURES
Figure Page
Figure
2.2.1: Graphical
representation of EOQ
CHAPTER ONE
INTRODUCTION
1.0 Background
to the Study
Agara, (2005:111) defines inventory as
the physical units of items i.e. goods that a business trades on or
manufactures for sale. Inventory also includes all items required for proper
packaging and raw materials. It also includes the items which are used as supportive
materials to facilitate production. No manufacturing company can operate
without material input(s), sourced locally or abroad, as inputs determine the
company’s output and productivity. In manufacturing companies, inventory exists
in various forms. These include Raw materials, Work in progress; partly
finished goods/materials and sub-assemblies held between manufacturing stages,
finished goods and supplies. Effective inventory management plays a critical
role in the smooth and efficient running of any business. Inventory management
is important from the point that it enables the firm to maintain adequate
inventory for smooth production and selling activities and to minimize the
investment in inventory to enhance the firm’s productivity. Many organizations,
however, go out of business because of inability to handle inventory or poor
inventory management. Some organizations have excellent inventory management
and others have satisfactory inventory management. Management is therefore
required to determine its optimum level of investment in inventories. Reducing
excess inventory and investing in the right amount of inventory leads to
improved customer service, increased inventory turnover, reduced costs and
increased productivity. It is therefore important to manage inventories
efficiently and effectively in order to avoid over or under investing in them.
The study is therefore conducted to find ways of ASSESSMENT inventory for greater
productivity using Coca-Cola Company Plc as the case study.
1.1 Statement of the Problem
Assessment inventory poses considerable
challenges to the management of companies .This is because inventory represents
high investments in businesses. This would therefore affect the liquidity
position of the firm thus affecting productivity if not properly managed. Productivity
represents a favorable return on investments. The productivity of a firm
depends to a large extent on the ability of managers to take strategic
decisions on inventory management. Some firms have encountered difficulties in
inventory planning and control due to lack of qualified managers. The problem is to what extent could the right
inventory level, at the right price, at the right time be achieved such that
there is no stock-out costs and no over stocking or ideal working capital?
In fact, many manufacturing companies
have been experiencing losses because large inventories become obsolete,
damaged or lost. Thus, firms who fail to manage their inventories effectively
will lose productivity in the long run or fail ultimately in business.
1.2 Objectives of the Study
This study set to achieve the following
objectives:
1)
To
determine the effects of inventory management on firm’s productivity.
2)
To
ascertain the relationship between inventory management costs and productivity.
3)
To
show the impact of effective inventory management technique on firm’s profit.
1.3 Research Hypotheses
The following hypotheses were
formulated for this study: the null hypothesis is represented by the H0 the alternative
hypothesis represented by H1.
Hypothesis
I
H0:
There is no significant relationship
between inventory management and productivity.
H1: There is significant relationship
between inventory management and productivity.
Hypothesis
II
H0: There is no significant effect of the
cost of ASSESSMENT inventory on firm’s productivity.
H1: There is significant effect of the
costs of ASSESSMENT inventory on firm’s productivity.
Hypothesis
III
H0: Effective inventory management
technique does not impact positively on firm’s productivity.
H1: Effective inventory management
techniques impacts positively on firm’s productivity.
1.4 Significance of the Study
This study would be of great benefit to
management and staff of Nigerian Gas Company Plc, and other manufacturing
Companies that deal with large amount of inventories. It would also be useful to potential managers
and entrepreneurs. It would provide them with information on how to manage inventory
properly and reduce inventory costs. It would improve decision making on
inventory management by managers and also increase customers’ satisfaction that
will enhance the firm’s long term productivity.
In addition, this research will be
useful to students of Business Administration/Management Sciences in
Universities, Polytechnics and other Tertiary Institutions. It would also be
beneficial to other researchers who may be interested in this area of study. It
would be useful to shareholders or owners as application of improved inventory
management system would increase cash-flow and reduce losses thus improving
profit and wealth maximization.
1.5 Scope and Limitations of the Study
The scope of this study is confined to
Nigerian Gas Company Plc and its operations between the years 2001 to 2010
which is a time span of 10 years. It also covers a review of inventory control
and inventory valuation methods and its effectiveness in relation to productivity.
The limitations to this study include;
financial constraints for getting more data, unavailability of some materials
and lack of some statistical data.
1.6 Definition of Terms
Buffer Stock or Safety Stock: This is the inventory that is kept for
emerging situations where, for instance, there is a sudden upsurge in demand or
the fresh order is delayed over the estimated lead time. The maintenance of
buffer stock should be considered in the light of the following:
·
Probability
of rise in demand
·
Failure
of suppliers to meet delivery dates
·
Ability
to obtain stock from alternative sources at record time.
·
The
durability of the goods.
These
factors should be considered before maintaining safety stock because such
inventories are excess inventory, which may not be touched yet they incur
storage cost.
Business: A commercial activity involving the
exchange of money for goods and services.
Demand:
This is the quantity or sales or
production required for the period.
Financial
Statement: These are
statement produced at the end of an accounting period, such as the income
statement and statement of changes in financial position (balance sheet).
Gross
Profit: This is the
difference between sales revenue and the cost of goods sold.
Indent: This is the actual inventory ordered.
It equally refers to the written (i.e. memo) itself.
Industry: This is an organized economic activity
concerned with the production, manufacture or construction of a particular
product or range of products. It is also used to refer to a particular branch
of economic or commercial activity.
Inventory
Turnover: This is the number of times stock is sold in
an accounting period.
Lead Time or Delivery Period: This is the time between when an order
is placed and when the supplier delivers the goods to the store. A lead time of
20 days will mean that it takes a period of 20 days for goods to be ordered and
received into the sore.
Maximum Inventory Level: This is the highest inventory level
over which materials are not allowed to exceed in order not to incur or have
excess cost of storage. It is the level of inventory over which the company
should not stock to avoid surplus inventory, obsolescence and huge storage cost
in order to minimize the total cost of production. If inventories are allowed
to exceed the maximum inventory level, more costs of pilferage, obsolescence,
cost of capital tied down and so on will be incurred. Maximum stock level= safety stock=maximum usage
during the maximum lead time.
Minimum/Maximum
Delivery Period: The earliest time possible for delivery to get to the
organization is known as minimum delivery period while the longest period for
delivery to reach the organization is known as the maximum delivery period. The
average of the minimum and the maximum delivery periods is called normal
delivery period.
Minimum Stock Level: This is the inventory below which the
Company may be running at a risk of stock out. It is normally kept to ensure
that the safety stock is maintained and enough inventory to cover minimum usage
during the average delivery period. Management, after considering the minimum
consumption during the minimum delivery period, normally fixes this level.
Net
Profit: This refers to
when sales revenue plus other income such as rent received exceed the sum of
cost of goods sold plus other expenses.
Output: This refers to goods or services
produced by an organization
Productivity: This is the rate at which a company
produces goods and services, in relation to the amount of materials and
employees needed.
Re-Order Level: This is the balance which the existing
inventory will get to before a new order is placed.
Re-Order Quantity: This is also called the Economic order
Quantity (EOQ). It is the optimum quantity to order for per order period. The
quantity to order should be that which has the minimum ordering and storage cost.
The re-order quantity of a firm may or may not minimize the cost of storage and
the cost of ordering. If the re-order quantity of the firm is the one that
minimizes the cost of holding and ordering, such a re-order quantity will
become EOQ or Economic Batch Size.
Stock Out: This term refers to the situation
where the store runs out of inventory to be issued to user departments or for
sale. Where there is stock out, requisitions are normally returned to user
departments not honoured or customers’ orders are not met. Inventory management
should prevent this situation because of the adverse effects it could have on
the company.
Usage or Consumption of Inventory: This is the quantity of inventory used
during the period of expectation of delivery to arrive. The highest level
consumption possible during this period is known as minimum usage or
consumption. The minimum usage + maximum usage divided by 2 = Average or normal
usage. Calculation could be made in units, kilogram or litres.
1.7 Organisation
of the Study
This study is organized into five
chapters as follows:
Chapter One contains the Background of
the Study which consists of the Introduction, Statement of the Problem,
Objectives of the Study, Research Hypothesis, the Significance of the Study,
Scope and Limitations of the Study, Definition of terms used in the Study,
Organization of the Study, and the Brief History of the Company under study.
Chapter Two deals with the Review of
Related Literature. It shows the various standpoints of previous researchers,
their theories, perspectives, arguments and empirical work with their
approaches and outcomes. Chapter Three presents the design of the study;
sources of data collection, procedure for gathering data, research methodology,
instrument used in gathering data, method of choosing respondents are stated
clearly in this Chapter.
In Chapter Four, the data collected is
presented, analyzed, and interpreted through the use of tables and figures to
fully explain the findings. Chapter Five is the final Chapter and contains the
Summary, Conclusions and Recommendations.
1.8
Historical Background of Nigerian Gas Company Plc, Uyo.
The Nigerian Gas Company Plc was
incorporated in 1951 to bottle and sell carbonated non-alcoholic beverages. NBC
Plc has the sole franchise to bottle and sell Coca-Cola products in Nigeria.
Production began in 1953 at a gas Plant in Ebutte-Metta, Uyo state. That same
year, the company opened its first gas plant in Apapa, Uyo. In 1972, its shares
were listed on the Stock Exchange and became a publicly quoted company. Since
production started, NBC Plc has remained the largest bottler of non-alcoholic
beverages in the country in terms of sales volumes, with about 1.7 billion
bottles sold per year, making it the second largest market in Africa.
The Company serves approximately 160
million people in Nigeria by producing and distributing a unique port folio of
quality brands, bringing passion to the market place and demonstrating
leadership in corporate social responsibility. From a humble beginning as a
family business, the company was an instant hit with the Nigerian consumers and
has remained so.NBC Plc has grown to become a predominant bottler of
non-alcoholic beverage in Nigeria, responsible for the manufacture, sale and
distribution of various Coca-Cola product brands. Other popular brands produced
by the company are Eva water, Five Alive fruit juice, Fanta, Sprite, Schweppes
and the newly introduced Burn energy drink. Presently, the company has 13 gas
plants and 59 depots (distribution warehouses) and over 200,000 sales outlets
nationwide.
The Company was recognized for its
Corporate Social Responsibility activities as ‘The most Socially Responsible
Company in Nigeria’ and ‘Most Environmental Friendly Company’ in 2011 at the
Social Enterprise Reporting Awards .The Company also obtained Nigeria’s First
Food Safety Systems Certification (FSSC) 22000. In 2000, the Company became a
member of the newly formed Coca-Cola Hellenic Company, one of the largest
anchor bottlers worldwide and the biggest in Europe. Coca-cola Hellenic group
operates in 28 countries, serving more than 2.1 million unit case sales in
2009.The Company is headquartered in Athens and listed on the Athens, New York
and London Stock Exchanges. Source: http://www.nbcplccareers.com/aboutus:php
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