ABSTRACT

This 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

Certification                                                                                                              ii

Dedication                                                                                                                 iii

Acknowledgement                                                                                                   iv

Abstract                                                                                                                     v

Table of contents                                                                                                     vi

CHAPTER ONE: INTRODUCTION

1.1       Background to the Study                                                                            1

1.2       Statement of the Problem                                                                          2

1.3       Aims and objectives of the Study                                                              3

1.4       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

References                                                                                                    9

CHAPTER TWO: LITERATURE REVIEW

2.1       Preamble                                                                                                        10

2.2       Economic Order Quantity Model                                                              17

2.3       Empirical Review                                                                                         20

2.4       Approaches to Inventory Control        22

2.4       Inventory Costs Incurred in Procurement Process                              26

2.5       The Relationship between Approaches of Inventory Control and Financial Performance 

2.6       The Reasons for Stocking Inventory                                                         32

2.7       Benefits of Inventory Control                                                                    39

References                                                                                                      42

CHAPTER THREE: RESEARCH METHODOLOGY

3.0       Preamble                                                                                                        44

3.1       Research Design                                                                                           44

3.2       Population of the Study                                                                              44

3.3       Sample and Sampling Techniques of the Study                                      44

3.4       Research Instrument                                                                                    45

3.5      Data Collection Procedure                                                                          45

3.7       Limitation of the Study                                                                               46

   References                                                                                                    45

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1       Preamble                                                                                                        48

4.2       Analysis of Data                                                                                           48

4.3       Analysis 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

Bibliography                                                                               67

Appendix                                                                                                       70

                                               CHAPTER ONE

                                            INTRODUCTION

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, 2002).

Companies 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).

Laugero (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).

1.2       Statement 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)

It 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 control (Newbery,2007)

In 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:

        i.            To evaluate the impacts of inventory control on organizational performance.

        i.            To assess the roles inventory control on organizational growth.

     ii.            To determine the effects of inventory control on organizational productivity.

1.4  Relevant Research Questions

  i.         Does inventory control have any impacts on organizational performance?

ii.         Does inventory control play any roles on organizational growth?

iii.         Does inventory control affect organizational productivity

1.5    Relevant Research Hypotheses

The following tentative statements were tested in this study.

Hypothesis I

Ho:     Inventory control does not have any impact on organizational performance.

Hi:      Inventory control has impacts on organizational performance.

1.6       Significance 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:

        i.            It will educate management of organizations on the place of inventory control and organizational performance, productivity and profitability.

     ii.            It will familiarize firms with the relevance of inventory control.

   iii.            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.

Inventory control is the supervision of the storage, supply and accessibility of items to ensure an adequate supply without excessive oversupply.

Inventory 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 capital.

Efficiency: Accomplishment of task rightly with a minimum resources, expenditure, time and effort to maximize profit.

Economic Order Quantity:  The level of inventory that minimizes total inventory holding costs and ordering costs.

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 PZ