EFFECTS OF WAREHOUSING SYSTEMS ON SALES SUSTAINABILITY, PROFITABILITY AND EFFICIENCY OF RICE DISTRIBUTORS IN EBONYI STATE NIGERIA

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ABSTRACT

Nigeria is the largest producer and consumer of rice in West Africa, but her local rice supply – demand deficit has persistently expanded due to losses incurred during storage and as a result of poor warehousing management. This study was therefore carried out to analyze the effect of warehousing management systems (WHS) on sales sustainability, profitability and efficiency of rice distributors in Ebonyi State, Nigeria. The respondents (120 rice distributors) for this study were selected via a multi stage random sampling method and data generated through the use of structured questionnaire. Data collected were analyzed using simple descriptive tools like tables, means, percentages and frequencies as well as econometric tools like Ordinary Least Square, ordered probit, bivariate probit and Z-test. Findings show that majority of the rice distributors (88%) are males, aged between 50 – 59 years (mean age of 54 years), married (93%) and followed by singles (7%). The monthly mean loss of about N4,000 and N2,000 for the traditional and modern warehousing system users respectively imply that the use of the traditional system of warehousing attracted more losses than the modern. Findings show that while majority (76%) of the traditional WHS users had sustainability value of 0.50 – 0.75, majority of the modern WHS users (92%) had sustainability value of 0.76 – 1.00 therefore suggesting that sales are more sustained with modern WHS. The profitability index, rate of return on investment and marketing efficiency values were higher for modern WHS users (0.380, 0.613 and 61.9 respectively) than traditional WHS users (0.369, 0.585 and 58.5 respectively). Although the market was generally inefficient at 61.3 and 58.5 for modern and traditional warehousing system respectively. The probit result of factors affecting the choice of various warehousing systems by rice distributors showed that the number of employees was positively signed and significant at 1% level while firm age, firm location, stock volume, credit, firm type and capital were negatively signed and significant at 1%, 1%, 1%, 5%, and 1% level respectively. The result also showed that number of customers, firm location, market training, and credit access positively influenced sales sustainability at 10%, 1%, 5% and 5% level respectively while number of competitors and warehouse maintenance cost negatively influenced sales sustainability at 1% and 5% level respectively. In addition, education, experience and volume of purchase were positively influenced and significant at 1%, 10% and 1% level respectively as factors influencing market efficiency while age of the respondent, household size, transportation cost, interest rate and labour cost were all statistically significant at 1% level and negatively influenced market efficiency. Z-test analysis of difference in mean sales sustainability, marketing efficiency and profit of modern and traditional WHS were all statistically significant at 1% level implying that warehousing system significantly influenced the sales sustainability, marketing efficiency and profit of rice distributors in Ebonyi state. Therefore it is recommended that provision of modern storage facilities such as warehouses in the study area and distributors should be enlighten on the use of modern warehousing system which sustain sales and enhances profitability.







TABLE OF CONTENT

Title Page                                                                                                                                i

Declaration                                                                                                                             ii

Certification                                                                                                                           iii

Dedication                                                                                                                             iv

Acknowledgement                                                                                                                  v

Table of Content                                                                                                                     vi

List of Tables                                                                                                                          vii

Abstract                                                                                                                                  ix

 

CHAPTER 1: INTRODUCTION   

1.1       Background of the Study                                                                                            1

1.2       Problem Statement                                                                                                     6

1.3       Research Questions                                                                                                    8

1.4       Objectives of the Study                                                                                              8  

1.5       Research Hypothesis                                                                                                  9

1.6       Justification of the Study                                                                                            10

1.7       Scope of the Study     

 

CHAPTER 2: LITERATURE REVIEW

2.1       Concept of Warehousing                                                                                            12

2.1.1    History of Warehousing                                                                                             14

2.1.2    Warehousing System                                                                                                  14

2.1.3    Changing Trends of Warehousing                                                                              15

2.1.4    Types of Warehouses                                                                                                16

2.1.5    Why have a Warehouse                                                                                              17

2.1.6    Functions and Benefits from Warehouses                                                                  17

2.2       Rice Production and Storage System in Nigeria                    .                                    19

2.2.1    Rice Production (Trending issues in Nigeria).                                                           20

2.2.2    Sectorial Policies Aimed at Boosting Rice Production over the years in Nigeria          23

2.2.2.1 Presidential Initiative on Increased Rice Production (2002-2007)                                    23

2.2.2.2 Nigerian National Rice Development Strategy (NRDS) (2009-2018)               24       

2.2.2.3 President Transformation Agenda (2011)                                                                  24

2.2.2.4 Cross-Commodity Input Support: Fertilizer Policy                                                   25

2.2.2.5 Cross-Commodity Price Support Measures: Guaranteed Minimum Price                25

2.2.2.6 Dry Season Farming Policy                                                                                        25

2.2.2.7 Dangote Rice Production Strategy                                                                             26

2.2.3    Rice Production Ecologies and their Potentials                                                         27

2.2.4    Rice Production Constraints in Nigeria          .                                                           28

2.2.5    Rice Storage                                                                                                               30

2.2.6    Storage Equipments for Preserving Rice                                                                   31

2.3       Concept of PostHarvest Loss in Rice Production                                                      34

2.3.1    Storage Losses and Factors Affecting Storage of Grain                                           35

2.4       Concept of Profitability                                                                                              37

2.4.1    Determinants of Profitability                                                                                      37

2.5       Concept of Distribution                                                                                              38

2.5.1    The Distribution Channel                                                                                          39

2.5.2    Channel Strategy                                                                                                       41

2.6       Concept of Efficiency                                                                                               41

2.6.1    Types of Market Efficiency                                                                                      43

2.6.2      Indicators of Market Efficiency                                                                               44

2.7       Theoritical Framework                                                                                              46

2.7.1    Profitability Theory                                                                                                   46

2.7.2    Warehouse Management Theory                                                                              48

2.7.3      Role of Warehouse in Supply Chain                                                                        49

2.7.4      Inventory Control Theory                                                                                         49

2.7.5      Logistics Theory                                                                                                       50

2.7.6      Supply Chain Management                                                                                      51

2.7.7      Distribution Theory                                                                                                  52

2.7         Emperical Review                                                                                                    54

                                                                                               

CHAPTER 3:  RESEARCH METHODOLOGY

3.1       Study Area                                                                                                                  64

3.2       Sampling Technique                                                                                                   64

3.3       Method of Data Collection                                                                                         65

3.4       Method of Data Analysis                                                                                            65

3.5       Model Specification                                                                                                   65

 

CHAPTER 4: RESULTS AND DISCUSSION

4.1:      Socio-economic characteristics of respondents                                                          74

4.3:      Warehousing systems by rice distributors                                                                  79

4.4:      Monthly losses incurred by rice distributors                                                              80

4.5:      Sales sustainability by rice distributors                                                                      81

4.6:      Categorising Sales sustainability by rice distributors                                                82

4.7:      Cost and returns analysis of rice distributors in Ebonyi state                                     83

4.8:      Probit estimates of warehousing system determinants                                              85

4.9:      Factors affecting sales sustainability                                                                                88

4.10:    Factors affecting marketing efficiency of rice distributors                                             92

4.11:    Factors affecting profit performance of rice distributors in Ebonyi state                 96

4.12:    Paired sample statistic                                                                                                103

4.13:    Z-test analysis of difference in sales sustainability, profit and marketing efficiency  104                                                                                                                    

CHAPTER 5:   SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1       Summary                                                                                                                    106     

5.2       Conclusion                                                                                                                  107

5.3       Recommendations                                                                                                      108

 

REFERENCES

APPENDIX










 

LIST OF TABLES

 

TABLES                                                                                                        PAGES

 

4.1:      Socio-economic characteristics of respondents                                                          74

4.3:      Warehousing systems by rice distributors                                                                  79

4.4:      Monthly losses incurred by rice distributors                                                              80

4.5:      Sales sustainability by rice distributors                                                                      81

4.6:      Categorising Sales sustainability by rice distributors                                                82

4.7:      Cost and returns analysis of rice distributors in Ebonyi state                                     83

4.8:      Probit estimates of warehousing system determinants                                              85

4.9:      Factors affecting sales sustainability                                                                                89

4.10:    Factors affecting marketing efficiency of rice distributors                                             93

4.11:    Factors affecting profit performance of rice distributors in Ebonyi state                 97

4.12:    Paired sample statistic                                                                                                103

4.13:    Z-test analysis of difference in sales sustainability, profit and marketing efficiency  104                                                                                                                    

 

 

 

 

 

 

CHAPTER 1

INTRODUCTION


1.1       BACKGROUND OF THE STUDY

Rice is one of the fundamental food vegetation grown in the world. Being a cereal crop, rice is bumped- up as an essential staple food for the human race (Imolehim and Wada, 2000). Globally, over half of the world’s population consumes rice (West Africa Rice Development Agency, WARDA, 2005). The world production for rice in 2017 was estimated at of 501.9million tonnes, while consumption was 503.7 million tones, having a gap of 1.8% (Food and Agriculture Organization, FAO, 2017).

 

In Nigeria, rice is being fed on by each household in a first-rate volume (Godwin, 2012). Rice is cultivated in actually all the agro-ecological zones of Nigeria and is being produced with the aid of Nigeria farmers (Kano State Agricultural and Rural Development Authority, KNARDA, 2007). Nigeria has experienced a surge in domestic demand for rice since1970 (Odusina, 2008). And as a result, rice has become a strategic staple dietary household item in Nigeria, especially among high-income groups (Kanu and Ugwu, 2012). In 2009, Nigeria’s estimated annual rice demand was once put at 5 million metric tonnes while annual supply on the average was about 2.21 million tonnes of milled rice product, leaving a deficit of 2.79 million tones which was bridged by means of importation (National Rice Development Strategy, NRDS, 2009). Even with a populace estimate of 174,507,539 individuals and populace growth charge of 2.54% Nigeria is amongst the main importers of rice (Boansi, 2014). About ₦1billion is spent each day on importation of rice even being endowed with a robust agricultural and natural sources base as nicely as favorable climatic conditions for agricultural production (Abubakar, 2013). Local rice production in Nigeria has failed to capture up with the growing pace of consumption due to inconsistent insurance policies on rice, fallacious methods of production, excessive charges and scarcity of vital inputs for production, inadequate warehousing (Boansi, 2014). One of the predominant things that increases rice production in Nigeria is population growth. About 3.2 Million hectares have been beneath rice cultivation in Nigeria with an estimated country wide production of 3.7 million metric heaps in 2017 (Grain Report, 2017). Nwiliene et al. (2012), noted that rice farmers in Nigeria bear storage loss specifically from insect pest infestation. They mentioned that storage damage induced with the aid of insect pests has begun to pose a serious hazard to reserves stored by using rice farmers and distributors. Similarly, Togola et al.(2010), reported infestations by insect pests in many rice-producing zones in the country,  causing estimated 3-18% damage to grain, relying on the region and length of storage. Patrick (2013) stated that Nigeria records over 40 percentage put up harvest losses, which has led to hike in rice importation in the country. Up to 50% - 60% cereal grains are lost all through storage due to use of nearby storage facilities, there is need for the use of scientific way of storage such as warehousing (Deepak and Prasanta, 2017). The use of modern storage facility in storing grain is therefore important to prevent mould spoilage, pest infestation, and grain germination of dry rice (Brigid, 2004). Rice grains after harvest are typically stored for the next harvest season, for selling and domestic consumption (Pamma and Vimala, 2000). Since rice production is usually seasonal and consumption is ordinary and non-stop at some stage in the year, fantastic storage is therefore required by rice farmers and distributors, and when rice is stored in good extent it is called warehousing (Nwele, 2016).

 

Warehousing is considered as one of the main spheres of logistics. The broad meaning is the storage of finished goods or materials for manufacturing, agricultural or commercial purposes. Warehouses are crucial components of most modern supply chains. They are likely to be involved in various stages of the sourcing, production and distribution of goods. At the dispatch point serving the next customer in the chain, warehousing is critical to the provision of high customer service levels (Sakil, 2013). Modern warehousing and traditional warehousing are the two sorts of warehousing. Some of the practices in the modern warehouse encompass the use of automated storage, systematic storage, just–in-time delivery, appropriate record of inventory etc. Modern warehousing management system performs an imperative role in the success of businesses these days such as growing market volatility, product range proliferation and shortening client lead times, promoting off season, bulk storage and distribution, normal delivery  which enhances sales sustainability and profitability and leads to efficiency (Frazelle, 2002).

 

Sales sustainability is described as the approach used to produce super sales performance by business enterprises. Sale sustainability is the index used to measure sales performance. Such indices are: potential to keep customer (customer retention), repeated purchase, stock ratio, competitive strength, turn over, earning market share, availability of stock etc. Firm location, number of customers, market training and access to credit are the main factors that determine sales sustainability. Also, the capacity of rice distributors to maintain precise patron service and relationship contributes to sustainable sales. This results in growing predictable sales with an expanding customer base, and profitability (Sustainable Packaging Coalition International, SPC International, 2014).

 

On the different hand, Profitability is the ability of a business enterprise to make earnings from all enterprise activities and stages. It refers to the potential of any given investment to earn a return (Harward and Upto, 1961). Proper management of accounting do increases sales sustainability, and enhances the profit of the organization which leads to efficiency in the use of resources. Efficiency means producing something with a minimum quantity of effort. It is the potential to do something well, successfully and without waste. Bdour and Al-khoury (2010), defined efficiency as the allocation of scarce resources that maximizes the fulfillment of targets in a business enterprise. Igboji et al. (2015), in their study on rice profitability and efficiency in Ebonyi State suggested that rice manufacturing is surprisingly worthwhile and efficient. Rice production and distribution has a great contribution to the nation gross domestic product and income of the producers and distributors. Ekpe and Alimba (2013) noted that rice production in Ebonyi State has a positive gross margin and if producers will increase their inputs in production, the profitability of rice enterprise will increase more. Therefore warehousing managers need to apply sales sustainability strategies such as knowing, understanding, satisfying and maintaining good customer service and relationship with their target customers which help to build trust, encourage customers loyalty and also build the type of long-term relationships necessary to helping the business (rice production and distribution) become sustainable, profitable and efficient( Wagner, 1998).

 

Warehousing system refers to the aggregate of tools and operational methods used in the storage surroundings (Berg and Zijm,1999). Modern warehousing system in supply chain attributes to general sales growth by potential improvements in productivity, order accuracy, reduced space requirements, increased volume capacity, control of inventory and increased customer service (Adams et al.,1996; Allen, 2003; Fernie et al., 2000; Rushton et al.,2000; Harrison and Hoek, 2002; Tarn et al., 2003; Marvick and White, 1998; Naish and Baker, 2004 and Christopher and Towill, 2000). Both Okoruwa and Ogundele (2008) cited that rice farmers and distributors in Nigeria lose sources committed into their enterprise due to losses incurred as a result of using traditional storage (warehousing) device which affects their sales sustainability, profitability and efficiency. Therefore, business enterprises requires use of modern warehousing system, which paves way for elevated profitability, proper storage and protection of goods, meeting timely demand of the market, ensuring unremitting supply of goods, developing goodwill of the producers, coping with multi stock room inventories and improves competitive electricity etc. Ineffective management of warehousing systems leads to storage loss (Vipul, 2013).

 

To prevent losses the post-harvest system of rice requires enhancement in the use of resources. Nigeria losses about ₦ 2.7 trillion annually as an end result of post-harvest food losses (Nigeria Stored Products Research Institute, NSPRI, 2017). FOA( 2018), stated that the estimated post- harvest loss of rice in Nigeria is 24.9 percent resulting in a notable loss of income for farmers. Ohagwu, Akubuo and Agu (2013), in their study on submit harvest losses of rice at Ebonyi mentioned that 1000kg/ ton of rice are loss throughout post harvest operation. Thus, losses associated with these plants restrict the profits of all farmers, threaten food safety and will increase stipulations of poverty among rural households, whose income stream relies upon on the capability to store excess farm produce for a later date (Thamaga–Chitja et al., 2004). Abedin, Rahman, Mia and Rahman, (2012) cited that stored rice grain is subjected to damages through the various biotic and abiotic factors. The biotic elements includes fungi, mites, insect, pest, rodent, birds, and many others and the abiotic elements includes temperature, moisture content, relative humidity, storage structure, natural calamities like heavy rain and floods, etc. If the damages of these biotic and abiotic factors are not observed on time, losses will be a whole lot greater. As a result, many distributors will sell right now in order to mitigate loss. Consequently, receive low market prices for any surplus grain they may additionally save (Kimenju et al., 2009). Therefore, they forgo potential profits that they would have earned had they held stocks longer and sell later in the marketing year when prices are usually a great deal greater (Stephens and Barrett, 2011). In different words, storage loss and forced early income create a state of affairs that undermines family food security. Early income due to storage loss decrease profits which in turn decrease profitability (Didier et al., 2013). Hence, this study was aimed to examine the effect of warehousing system on sales sustainability, profitability and efficiency of rice distributors in Ebonyi state, Nigeria.

 

1.2       PROBLEM STATEMENT

Nigeria is the greatest producer and consumer of rice in West Africa, but its local rice supply – demand deficit has persistently multiplied due to so many factors, amongst which are losses incurred during storage of rice as a end result of poor warehousing management and use of local storage devices (Samuel, 2016). Inadequate warehousing leads to irregular delivery, order inaccuracy, decreased volume capacity, reduced customer provider and limited efficient distribution network which impacts performance, out-rich to customer, distribution network, sales sustainability and profitability which consequences to inefficiency. Although local rice manufacturing has accelerated during the 1990’s but the expanded is no longer ample to fulfill nearby rice demand by Nigerians (Johnson et al., 2013). This has resulted in a big home supply-demand gap, leading to importation of rice (Aminu et al., 2012).

Poor warehousing management leads to storage loss. Coker and Ninalowo (2015), mentioned that Nigeria has been unable to reach self-sufficiency in rice production, partly due to large post-harvest losses in particular at some stage in storage of rice. Nwosun and Esekahagbe (2008), noted more than a few storage problems encountered by using farmers ranging from losses of product during duration of storage, ailment and insect attacks, inadequate drying, rodent attack, mishandling and use of poor containers, use of traditional warehouse system which results in serious post-harvest losses. Ebewore, Achoja and Felix (2013) also mentioned most of the storage issues which covered lack of capital, poor storage facilities, biotic and abiotic factors. They also noted that poor and inadequate storage facilities have been identified with food shortage, loss of income by farmers, scarcity of food and food wastage during harvest period leading to food insecurity.

 

Hindered by inconsistent policies on rice, improper methods of production used by farmers, high costs and scarcity of vital inputs of production, etc, local rice production for Nigeria has failed to catch up with the increasing pace of consumption (Boansi, 2014). Presently, Nigerian rice sub-sector is dominated by weak and inefficient producer-market linkages due to poor infrastructure including lack of improved processing facilities, low rice productivity, poor postharvest handling and storage, expensive and poor access to inputs (High quality seed, fertilizing and crop protection products), inadequate market information, and low capacity to meet quality standards. This has declined the rice productiveness and effects to low earnings for the rice farmers in Nigeria, especially in Ebonyi State. In Ebonyi State, it has resulted in huge loss of man power through the abandonment of the farmers and the migration of rural youths to cities in search of white collar jobs (Igboji, Anozie and Nneji, 2015). Due to insufficient warehousing in Ebonyi State, rice producers and distributors are not getting maximum return. Okoruwa, Ogundele and Oyewusi (2006) have noted that rice farmers in Ebonyi State are not getting maximum returns from the resources committed into their enterprises due to losses, leading to a decline in per capital food production. This situation manifests in low output per area which no doubt lead to low profitability.

 

1.3       RESEARCH QUESTIONS

This study is aimed at providing useful answers to the following research questions regarding effect of warehousing systems on sales sustainability, profitability and efficiency of rice distributors in Ebonyi state, Nigeria:

i)            what are the categories of the respondents according to the warehousing systems?

ii)          what are the losses as a result of the warehousing system used?

iii)           what is the level of sales sustainability by warehousing system of the respondents?

iv)         how does warehousing system affect the profit performance and marketing efficiency of the respondents?

v)          what are the determinants of choice of various warehousing systems by the respondents?

vi)         what are the factors influencing sales sustainability, profit performance and marketing efficiency of the respondents?

vii)       what is the difference between warehousing systems on sales sustainability, profitability and efficiency?

 

1.4       OBJECTIVES OF THE STUDY

The broad objective of the study is to analyse the effects of warehousing systems on sales sustainability, profitability and efficiency of rice distributors in Ebonyi State, Nigeria.

The specific objectives are to:

i)               categorize the respondents according to the warehouse systems.

ii)             examine the losses incurred by the warehousing system used.

iii)           ascertain the level of sales sustainability of rice by warehousing system.

iv)            examine the profit performance and marketing efficiency of rice based on warehousing system.

v)             analyse the determinants of choice of various warehousing  system by the respondents.

vi)            examine the factors influencing sales sustainability,  profit performance and marketing efficiency of rice bases on the warehousing system.

vii)           ascertain which is to examine the difference between warehousing systems on sales sustainability, profitability and efficiency .

 

1.5      RESEARCH HYPOTHESES

Ho1: There is no significant relationship between warehousing systems and losses incurred.

Ho2:    There is no significant relationship between sales sustainability, profit performance and efficiency of rice marketing.

Ho3:    There is no significant relationship between warehousing systems and sales sustainability.

 

1.6       JUSTIFICATION OF THE STUDY

The economic survival of Nigeria substantially depends on her ability to feed the citizens and also export the surpluses to earn foreign change (Epundu, 2010). The International Rice Research Institute (IRRI) in 1995 made a projection indicating a world rice want of 758 million tons in the year 2025, which used to be 70% of more rice than was bumped up in 1995. According to Panhwar (2006), discount of losses reduces cost of production, lowers the expenses for consumers and at the same time extend profitability. It is from the foregoing backdrop that this study is justified and will be beneficial in numerous ways.

The study will be of benefit to rice distributors in the warehousing system of rice due to the fact the overall performance of warehousing of rice has effect on the sales sustainability, profitability and efficiency of rice distributors. It will enlighten distributors on the use of modern-day warehousing system which sustain income and leads to profitability and efficiency.

The study will also be of important to producers, consumers, investors, distributors and others who need the data for their respective works in the aspect of warehousing system.

The findings from this study will make Nigerian Government to admire the contribution of rice distributors and will guide policy that will encourage them to perform their role more efficiently in rice distribution.

Apart from contributing to the existing physique of know-how in the study area, this research will influence the success of individual distributors to achieve maximum profitability in production.

It is finally hoped that information from the study will provide a reference materials to students, establishments and researchers for future studies on associated issues.

 

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