study is aimed at examining the significance of inventory control and
organizational performance, a study of PZ, llupeju, Lagos. The survey research
design was used in this research. The researcher made use of structural
questionnaire as the research instrument to collect relevant data from 120
respondents on the subject matter of the research out of which a total of 105
questionnaires was retrieved and analyzed using simple percentage. The
researcher made use of simple Random Technique as the sampling procedure while
the chi-square was used to test the hypothesis raised in this research. Findings
in this study reveals that, every profit-driven organization
should have a sound, effective and well-coordinated inventory management system
because the business environment is rapidly changing, highly competitive and it
drastically affects the performance of the organization. It has also
been found out in this study that, many organizations fail to take cognizance
of effective inventory control management. The researcher has therefore
recommended that PZ should take into serious consideration the issue of
inventory control management in order to achieve the organizational set goals.
TABLE OF CONTENTS
of contents vi
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of the
1.3 Aims and objectives of the Study 3
Relevant Research Questions 3
1.5 Relevant Research Hypotheses 3
1.6 Significance of the Study 6
1.7 Scope of the Study 6
1.8 Definition of Terms 7
CHAPTER TWO: LITERATURE REVIEW
2.1 Preamble 10
2.2 Economic Order Quantity Model 17
2.4 Approaches to Inventory Control 22
Costs Incurred in Procurement Process 26
Relationship between Approaches of Inventory Control and Financial Performance
2.6 The Reasons for Stocking
2.7 Benefits of Inventory Control 39
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Preamble 44
of the Study 44
and Sampling Techniques of the Study 44
3.5 Data Collection Procedure 45
of the Study 46
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Preamble 48
of Data 48
of Questionnaire 52
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 64
5.2 Conclusion 64
5.3 Recommendations 65
5.3 Suggestions for Further Studies 66
1.1 Background to the Study
An organization that
will not be very far away from the realization of its mission and vision,
ideally and realistically should take inventory control seriously because the
quality of the products or services of an organization assuredly is the life blood of the organization which must not
be toyed with (Lynch, 2005).
Inventory control is the direction of activities with the purpose
of getting the right inventory in the right place at the right time and in the
right quantity and it’s directly linked to production function of any
organization which implies that the inventory management system operated will
affect the profitability of an organization directly and indirectly (Alim, 2000).
In the words of Van (2004) “effective
and efficient inventory control system helps to eliminate
weaknesses, seize opportunities and counter the threats in our changing
business environment that is saturated with all uncertainties”.
In the views of Gibson (2008), the good
products and services of an organization that ought to serve as sources of
blessings and fortunes to the management of the organization, the workers in
the organization and to the general public may surprisingly turn to sources
misfortunes and unimaginable losses if the organization takes the issue of
inventory control with a pinch of salt.
In order to achieve all organizational goals, ranging from profit
maximization, market leadership, customers’ satisfaction, cost minimization and
workers’ satisfaction which will all have direct bearing on the image of the
organization; the organization needs not toy with proper inventory control. In fact, any
organization that desires and dreams of competing in business favourably needs
to continuously take the issue of inventory control seriously (Laugero, 2002)
Inventory control involves the coordination of materials
availability, controlling, utilization and procuring of materials (Ahmad, 2001). Inventories are the stock of raw
materials, work in progress, finished goods and supplies held by a business
organization to facilitate operations in the production process (Gibson, 2008).
Also, in the views of Kotabo (2002), if the company fails to
manage its inventory efficiently, it is likely to face profitability problems. The
goal of inventory management therefore is to provide the inventories required
to sustain operations at minimum costs (Dickerson 1995).
Inventory control helps organization to establish the proper
inventory levels through the economic order quantity; and to keep track of this
level through inventory control system which many be manual such as two bin
method and red line method, or computerized inventory control systems. Proper
inventory controls also require an organization to undertake stocking and use
appropriate method to value stock so as not to under or over state profits (Kotabo,
incur substantial costs in the procurement and maintenance of inventories,
which costs form a large portion of production costs. Inventory costs include:
carrying costs such as storage and insurance; ordering costs like transporting
and store placement; and stock out costs like redundancy and loss of sales. A
company cannot achieve an outstanding performance without proper and efficient
control of materials. Materials are as much as cash itself and any theft,
wastage and excessive use of materials are of immediate financial loss and
leads to poor performance of a company (Kotabo, 2002).
noted that material control involved a systematic
control and regulation of purchase, storage and usage of materials in such a
way to maintain an even flow. In recent years, the construction industry has
been facing a number of challenges especially in inventory management or
material control, thus affecting the performance of most construction
companies. There have been cases of materials overstocking which eventually get expired
or out dated, under stocking lack of stock-taking theft of materials
by workers and delays in deliveries of materials at the sites, among others
In the words of Lynch (2005), inventory control can be done
through introduction of different measures so as to prevent the company from
incurring unnecessary losses made by different departments. Lucey (2000) is of the opinion that various
inventory control measures can be put in place to avoid overstocking or
understocking of needed inventories in the production processes. Some of these measures could be stock-taking of
the inventories at every end of the month, so as to record the lost and
available stock. According to Van (2004), the organization that intends to
effectively and efficiently control its inventory need to put in place proper
and timely supervisions on sites during production so to avoid theft of
materials by workers. The company should set up strict rules to procurement
officers and store managers which they should follow during purchasing and
storing of material so as to avoid loss of inventory (Stotsky and WoldeMariam, 2006).
It is therefore important for an organization to have a sound,
effective and well-coordinated inventory management system because the business
environment is rapidly changing, highly competitive and it drastically affects
the performance of the organization (Olubodum, 2003).
of the Problem
The fundamental problem of most organizations is poor
or inadequate inventory control (Osuagwu,2001).
Most organizations do not even see any need for proper inventory control that
helps to control maximum stock levels, minimum stock levels, re-order stock
levels, carrying costs and ordering costs (Lynch, 2005)
is even heart-disturbing that some of these organizations desire to meet and
surpass organizational performance, customers’
needs and expectations, enjoy customers’ brand loyalty, good organizational
image or goodwill, customers’ confidence and management efficiency and
effectiveness, but, do not take cognizance of proper and timely inventory
the view of Nyanga (2000), inventory control problems arise as a result of the
absence of in-depth knowledge of stock valuation, poor management know-how,
poor orientation in relation to stock re-order levels. The existence of these
problems negatively affects the customers’ satisfaction, customers’ retention
and loyalty, organizational performance, productivity, profitability, growth,
goodwill and achievement of organizational goals.
1.3 Aims and
objectives of the Study
The major purpose of the study is to examine
the impact of inventory control management on the organizational performance. This
research work seeks to achieve the following under-listed specific objectives:
To evaluate the impacts of inventory control on organizational
To assess the roles inventory
control on organizational growth.
To determine the effects of inventory
control on organizational productivity.
1.4 Relevant Research Questions
Does inventory control have
any impacts on organizational
Does inventory control play
any roles on organizational growth?
Does inventory control affect organizational
1.5 Relevant Research Hypotheses
The following tentative statements were tested in this study.
Ho: Inventory control does not
have any impact on organizational performance.
control has impacts on organizational performance.
of the Study
The research will be of great significance to firms, owners and
potential owners of small-scale business, Nigerian policy makers, government
and researcher in related fields as follows:
It will educate
management of organizations on the place of inventory control and
organizational performance, productivity and profitability.
familiarize firms with the relevance of inventory control.
It will educate small-scale firm owners about the consequences of the poor inventory control on organization performance.
1.7 Scope of the Study
This research work evaluates the impacts of inventory
control and organizational performance using PZ as a case study. The
respondents of this study are majorly members of staff of PZ, Ilupeju, Lagos. Adequate information relating to the
inventory control of the above company was dully given to me by a management
staff of the company in person of Mr Fashek Busayo who has been with the
company for the past ten years.
1.8 Definition of Terms
Inventories: The stock of raw materials, work in progress,
finished goods and supplies held by a business organization to facilitate
operations in the production process.
control is the supervision of the storage, supply and
accessibility of items to ensure an adequate supply without excessive
management involves planning organizing and controlling the flow
of materials from their initial purchase unit through internal operations to
the service point through distribution.
Reorder Stock Level: The stock level at which replenishment should
be made again.
Maximum Stock Level: The stock
level beyond which stock should not exceed to prevent overstocking.
Minimum Stock Level: The level of stock below which stock should
not be allowed to fall to prevent under –stocking.
Productivity: The amount of output per unit of input (labour, equipment and
Efficiency: Accomplishment of task rightly with a minimum resources, expenditure,
time and effort to maximize profit.
The level of inventory that minimizes total inventory holding costs and
Carrying Costs: These are costs that are incurred in the
storage or keeping of the stock.
Ordering Costs: These are costs that
are incurred right from when order was placed to when the goods are eventually
received in the warehouse of the company.
Lead Time: This refers to
the re-order period which is the time lag between when the order was placed and
when it was eventually received.
PZ: Patterson and Zochonis, the two founders of