Inventory control is one of the basic
functions of every business; economic success of any manufacturing company has
a direct relationship with the efficiency of inventory control.
The major objective was set out to
examine how inventory control system can be used to evaluates organization's
performance while its specific objective, cost objectives and smooth flow of goods
through the production process.
The methodology used for data
collection included collection of
primary data through questionnaires and secondary data were also
obtained from published materials by eminent scholars and professionals on the
field of study. The targeted population of the study was forty (40) employees
of Dunlop Nigeria Plc Lagos drawn from three departments that is, store,
production and purchasing and supply department. The total of forty (40)
questionnaires was administered in which thirty-five (35) were returned and
only thirty three of the returned questionnaires were valid. Therefore the
sample size of thirty-three was presented and analyzed for the study.
The data collected were analyzed using
sample percentage and chi-square test to test the hypotheses.
The findings concluded that there is
significant relationship between inventory control and organizations performance
in Dunlop Nigeria Plc lkeja, Lagos.
The study recommended among others,
proper co-ordination and cooperation between various departments dealing in
materials, proper classification and codification of materials, planning of
material requirements, control of purchase of materials through budgeting and
internal check for effectives inventory control.
1.0 Background of the Study
1.1 Statement of the Study
1.2 The Objective of the Study
1.3 Research Questions
1.4 Statement of Research Hypotheses
1.5 Significance of the Study
1.6 Definition of Operational Terms
1.7 Organization of the Study
2.1 Inventory Control Models
2.2 The Store System
2.3 Who is the Store Keeper?
2.4 Organization of Stores
2.5 Computer Based Inventory Control System
2.6 Inventory Standardization (Planning and
2.7 Inventory Management
2.8 Measures of Inventory Management
2.9 Performance in an Organization
2.10 Historical Background of the Company
2.11 Dunlop and Inventory Control
3.1 Research Design
3.2 Population of Study
3.3 Sample Size and Sampling Technique
3.4 Data Collection Method/Techniques
3.5 Data Collection Instrument
3.6 Data Analysis
3.7 Restatement of Research Hypothesis
3.8 Validity and Reliability of Instrument
3.9 Limitation of the Study
Presentation Analysis and Finding
4.0 Data Presentation Analysis
4.1 Test of Hypotheses/Finding
Conclusion and Recommendation
BACKGROUND OF THE STUDY
Inventories are the soul and life wire
of any manufacturing organization. It is also regarded as the next most current
assets of an establishment after cash at hand or in the bank, this is so
because, and it can be easily converted into cash, especially the finished
goods, once it is sold and paid for.
Inventory control is an important and
expensive activity which is often neglected and under-rated in many
organizations both in the public and private sectors, and an efficient
inventory control system could be used to advantage, in reducing costs and
ensuring increased profitability for an organization.
Inventory could simply be defined as
any idle resource of an enterprise. It is commonly used to indicate raw
materials in process, finished, packaging, spares and others, stocked in order
to meet an expected demand or distribution in the future.
Inventory control involves activities
designed towards the effective management and control of all inventory items
held n stock. Morrison (1982) defines inventory control as a means by which
materials of the correct quantity and quality is made available, as and when
required with due regard to economy in storage and ordering cost, purchase
price and working capital.
From the above definition, it could be
deduced that inventory control is a system aimed at maintaining a balance flow
of materials by paper arranging in a continuous basis, receipts and issues, so
that any given time, the stock balance are adequate to meet current operational
Inventory control however, involves the
actual implementation and carrying out of policies which management has
established, to regulate stock balance without excess or deficiencies.
In modern supply management, inventory
control is the real control function; it encompasses all basic aims of the
stores operation. The basic concept of inventory control is quite simple, the
right material, in the right quantity and quality, at the right time and place.
The element of cost in relation to inventory control also plays a vital role.
All businesses require inventories, which are the substantial parts of the total
Financially, inventories are very
important to manufacturing companies. On the balance sheet, they usually
represent from 20%, to 60% of the total assets; As inventories are used, their
values are converted into cash, which improves cash flow and return on
investment. There is a cost for carrying inventories which increases operating
cost and decreases profit. It is common to lose some of them by ways of
obsolescence, theft, physical deterioration, damages amongst others. It
important that these assets must be well managed to ensure that only the
required quantities are available, well stored and safely transferred into and
within the organization. Control and management of inventories are crucial
factors in the success of failure of manufacturing and non-manufacturing
organizations. For example, insufficient inventory seriously disrupt the
production distribution cycle that is so vital in survival of all manufacturing
companies. Also, excessive stock cripple a firms cash flow and thus endanger its
The availabilities and quantities of
those inventories are the parameters for determining their efficiency. The
investments in inventories usually are so high that proper and continuous
surveillance should be put on them.
The essence of inventory control is to
strike a balance between carrying to much stock and carrying too little. In
today manufacturing environment many firm produce a wide range of products
requiring many components, though the cost of materials, may vary from one industry
to another. However, in many organizations, materials cost materials cost about
50% of the total value of finished goods. The consequences of these high
magnitude is that the problem of planning and managing materials in these
organizations are complex, but efficiency and effectiveness with which these
firms do its buying, storing and issuing of materials might well determine the
firms profitability and vice-versa.
Therefore, it is in recognition of
these that the researcher has chosen the topic "An evaluation of inventory
control system and its impact on organizational performance". Though the
term inventory control may have different meanings to different users. More
often, the term is usually constructed to mean material control or stock control.
STATEMENT OF THE PROBLEM
In actual practices, the vast majority
of manufacturing distribution companies suffer from lower customer and service,
higher costs and excessive inventories than are necessary. Inventory control
problems are usually the result of using poor processes, practices and
antiquated support systems. The inventory management is much more complex than
the uninitiated understand. Infact, in many companies the inventory control
department is perceived as little more than a clerical function. The likely
result of this approach to inventory control is lots of material shortages,
excessive inventories, high cost and poor customer service.
It is also important to note that,
inventory control, if poorly managed can contribute to increased expenses, lead
to lose of profits to the firm due to stock outs, and deterioration of stock
due to over stocking among others.
However, despites its importance,
theoretical development, and popularity in the business and academic press,
there is little empirical research that clearly defines inventory management
and investigates its impact on the firm as a whole consequently more
information is needed to understand successful inventory management and
problems encounter therein.
THE OBJECTIVES OF THE STUDY
The major objective of the study is to
examine how inventory control system can be used to evaluate organizational
performance. Therefore, its specific objectives include the following:
objective, to minimize sum of relevant cost.
objective, desired customer services levels significantly affect inventory
find and tract down all the processing data-s in an inventory system
define a procedures, by which assets are identified and maintained in the
smooth the flow of goods through the production process.
provide protection against the uncertainties of supply and demand.
obtain a reasonable utilization of people and equipment.
To expand the frontiers of the
objectives, the following research questions are raised.
• What constitute inventory control?
• What constitute organizational
• What is the relationship (if any)
between inventory control and organizational performance?
STATEMENT OF RESEARCH HYPOTHESES
In order to test the above
relationship, the following hypothesis are formulated.
• Null hypotheses Ho
• Alternative hypothesis Hi
inventory control does not lead to reduction of cost in
inventory control lead to reduction of cost in an organization.
Ho: There is no significant
relationship between inventory control
and organizational profitability.
Hi: There is significant relationship
between inventory control and
SIGNIFICANCE OF THE STUDY
The necessity of the study is to
determine, whether inventory control system can be used to evaluates an
organizational performance. The outcome of the study will assist the store
manager in the arrangement of the stores, movement
of stocks and records keeping and in the maintenance of adequate stock level to
avoid too much of stock and / or too little that lead to stock out situation.
It will also assist the organization in developing its policy on inventory
control system and procedure.
DEFINITION OF OPERATIONAL TERMS
This provides sources of the
This refers to the stock on hand at a particular time comprising raw material,
goods in the process of manufacturing and finished goods. Jhingan and Stephen
Management: This refers to the activities involved in planning and
controlling of sock levels and turning of order to leave inventory cost at its
minimum. Magge et al. (2004).
Re-Order Level: This
is the level of stock at which order must be placed such that stock level"
would not exceed the maximum level or fall below minimum during the lead time.
Cost / Holding Cost: This is the cost which a firm actually incurs for
carrying the stock. It includes interest on capital, storage cost, and
allowance for spoilage. Jhingan and Stephen (2004).
Cost: This include the managerial, clerics material, transportation and
receiving costs associated with a purchase or production order. Datta (1986).
/ Item Cost: This represents the selling price of a unit of stock.
Order Quantity: This is the quantity per order to fulfill annual demand and
leave total inventory costs at its minimum. It is
the quantity level at which total
carrying cost equate total order cost.
Stock Level: The maximum stock is the upper level of the inventory and the
quantity that must not be exceeded. Jhingan and Stephen (2004).
Minimum Stock Level: This
is the stock level to which the inventory should be allowed to remain. Jhingan
and Stephen (2004).
• Minimum Stock Level: This is the
stock level to which 4-he inventory should be allowed to remain. Jhingain and
out Cost: it is the stock level necessary to cater for a given rise of
ORGANIZATION OF THE STUDY
Chapter one deals with the introduction
/ background of the study, the problem statement; the objective of the study,
research questions, formulation of hypotheses, limitations of the study, justification
of the study, definition of operational terms and organization of the study.
Chapter two entails the theoretical
framework and literature reviews and taking into consideration the reviews and
contributions of eminent scholars on the field of the study.
Chapter three includes the methodology
of the study using appropriate instruments.
Chapter four captures data presentation
analysis and findings, Chapter five deals with the summary conclusions