research examined the impact of inventory control on the profitability of
manufacturing companies with reference to Nigerian Breweries Plc.
design was adopted with the use of a well structured questionnaire. Respondents
were selected based on simple random sampling technique. Fifty (50) staff of
Nigerian Breweries were sampled.
were formulated and tested with the use of Chi-Squre analysis. The analysis
resulted to rejecting both null hypotheses and hence accepting the two
decisions of the tested hypotheses conclusions were reached that Inventory control contributes to the profitability of
manufacturing companies, and Inventory control reduces cost
were proffered to the management of Nigerian Breweries Plc and
manufacturing industries in large.
TABLE OF CONTENTS
1.1 Statement of the Problem
and Objectives of the Study
1.3 The Research Questions
of the Hypothesis
1.5 Significance of the Study
1.6 Scope and Limitations of the Study
1.7 Definition of Terms
Background of the Case Study
for Holding Stock
Movement and Documentation
Issued in Excess of Requirement
2.6 Methods of Stock Valuation
2.7.2 Objectives of Stock Control
2.8 Inventory Control Systems
2.9 Guide to Inventory
2. 10 Shortened
Lead Times to Increase Profitability
2.12 Manage Inventory to Meet Profit Goals
Future of Inventory Control Systems
Probability Sampling Techniques
of the Methodology
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Presentation, Analysis and
Interpretation of Respondents Bio Data
Analysis and Interpretation of Research
188.8.131.52 Liquidity and
SUMMARY, RECOMMENDATIONS AND
1.0 BACKGROUND OF THE STUDY
The environment, in which the organization finds itself, is
dynamic, faced with competition from different sources. At the root of any
firm's financial success is careful planning and control of its limited
The past several decades have witnessed marked and steadily
increasing changes in management disciplines, numerous planning and control
activities formerly performed in a routine manner by clerks have evolved into
sophisticated and strategic functions with far reaching effects on
An important decision in all organizations is the quantity of
stock to hold on hand. Once the inventory levels are determined they become
important components in the manufacturing system.
Inventories are stock of materials of any kind stored for future
use, mainly in the production process. Thus, today's inventory is tomorrow's production.
However, semi -finished goods awaiting use in the next process or finished
goods awaiting release for sale are also included in the broad category of
inventories. For a manufacturing organization aiming at operating at an optimal
level, such must be sensitive to the management and control of its inventory
because it constitutes a large proportion (about 60%) of the liquid and current
assets of such an organization, consequently, having a significant effect on
Therefore, inventories are materials or resources of any kind
having some economic value either awaiting conversion or use in the future.
Apart from these, there are also many indirect materials such as
maintenance materials, fuel lubricants etc which are used in manufacturing
organization. They are also classified as inventories of materials for future
use, but they differ only in their use and classification from raw and other
direct materials. All of then earn nothing, yet they are badly required to be
stocked and used as and when the need arises.
Inventory control is the method of ensuring that the right
quantity and quality of the relevant stock is available at the right time and
at the right place. It is also the system used in a firm to control the firm’s
investment in stock is available at the time and at the right place. It is also
the used in a firm investment in stock this includes the recording and
monitoring of stock levels, forecasting future needs and deciding when and how
many to order. It involves those activities to be carried out to ensure
effective receipts, holding and issue of stock.
Profitability on the other hand is the ability to sell goods and
services above cost and earn reasonable returns on capital employed. It should
be noteworthy that production does not need to be geared directly to sales.
Large inventories allow efficient services of customer demands.
If a product is temporarily out of stock, present as well as
future sales may be lost. Thus, there is an incentive to maintain large stocks
of all three types of inventories.
The advantages of increased inventory then are several. The firm
can affect economies of production and purchasing can fill orders more quickly.
In short, the firm is more flexible.
The obvious disadvantages are the total cost of holding the
inventory including storage and holding costs and the required return on
capital tied up in inventory.
An additional disadvantage is the danger of obsolescence, because
of the benefits. However, the sales manager and production manager are biased
towards relatively large orders. It falls on the financial the temptation for
large inventories. This is done by forcing consideration of the cost of funds
necessary to carry inventories as well as perhaps the handling and storage
Like accounts receivables, inventories should be increased as long
as the resulting savings exceeds the total cost of holding the added inventory.
The balance finally reached depends on the estimates of actual savings, the
cost of carrying additional inventory ands the efficiency of inventory control.
Obviously, this balance requires coordination of the production, marketing and
finance areas of the firms in keeping with the overall objectives. We will
explore the various principles of inventory control by which the various
principles of inventory control by which an appropriate balance might be
achieved inn this research work.
Conclusively, the study of the impact of inventory control on the
profitability of manufacturing companies is worth pursuing that the results of
this study will provide empirical evidence for the effective guidance of
OF THE PROBLEM
Inventory control involves putting in place every necessary requisite
feature to impact favorably on manufacturing companies and to make it more
effective and efficient.
In this context, a manufacturing company will be faced with the
What quantity should the company
re-order at what time?
What level of work-in-progress
should they have in order to keep the production smooth?
What level of finished goods should they keep
to meet customers demand?
What level of stock is capable of
safeguarding against damages" deterioration, pilferage, evaporation etc?
These problems could be summed up into two conflicting needs of
the company that must be attended to. These are as follows:
To sustain a minimum investment III inventories to maximize
profitability, which might lead to under trading?
To sustain a large size of inventory for efficient and smooth
production operation, which might lead to overtrading?
For this research work, the main problems are;
Ineffective stock management can
lead to inadequate holding of stock, resulting in the inability to meet
customers demand as at when due and loss of goodwill.
Improper stock control can lead
to drain in the resources of the company
Determination of the stock level capable of
guarding against Obsolescence of goods.
Unqualified staff in the store
department can affect the production •
1.2 AIM AND OBJECTIVES OF THE STUDY
The broad aim of this study is to critically assess the impact
inventory control has on the profits of manufacturing companies.
objectives that will foster the achievement of the above aim are:
To examine how material purchase
procedures affects the rate of usage
To analyze the relationship
between inventory and profitability.
To examine the effect inventory
cost minimization has on profit maximization To examine various principles of
inventory control by which an appropriate balance between carrying cost and
ordering cost can be achieved
1.3 THE RESEARCH QUESTIONS
questions are interrogative statements 'that arise from the course of study.
Such questions are meant to information to the study.
In order to
arrive at a logical conclusion, questions relevant to this research will be
asked, among which are the following:-
Does inventory control reduce
Does inventory control increase
tock available for sale?
Is there any relationship between material purchase procedure
and rate of usage
Does inventory management and control
contribute to the profitability of manufacturing companies?
Is there a significant relationship between
rate of usage, lead time and stock level?
1.4 STATEMENT OF THE HYPOTHESIS
A hypothesis is an assumption, a tentative statement made about
the value of a parameter or the observed fact of a distribution put forward to
be tested and proven, so as to reject or accept the preconceived concept. To
provide answers to the research questions, arising from the study, the
following hypothesis are postulated:
Ho: Inventory control does not contribute to the
profitability of manufacturing companies.
HI: Inventory control
contributes to the profitability of manufacturing companies.
Ho: Inventory control does not reduce cost
HI: Inventory control reduces cost
1.5 SIGNIFICANCE OF THE STUDY
In actual practice, the vast majority of manufacturing companies
suffer excessive inventories than are necessary. The inventory control process
is much more complex than the uninitiated understand. In fact, inventory
control is perceived as little more than a clerical function. This has resulted
into lots of material shortages, high costs and loss of profit.
Manufacturers ignore the fact that inventories allows the company
to be flexible. Raw materials inventory gives the firm flexibility in its
purchasing. Without it, a company must exist on a hand to mouth basis, buying
raw materials in keeping with its production schedule.
Conversely, raw materials inventory may be bloated temporarily
because the purchasing department has taken advantage of quantity discounts.
Finished goods inventory allows the firm flexibility in its product scheduling
and its marketing.
The above situation has urged the carrying out of this research
work in order to enlighten manufacturers, researchers, students and all other
interested persons on the importance of inventory control so that it becomes
easier to known when "Enough is Enough".
1.6 SCOPE AND LIMITATIONS OF THE STUDY
The premise on which this study is based is that profitability of
manufacturing companies is dependent upon effective and efficient inventory
This study will therefore cover the inventory management and
control system adopted by Nigerian Breweries Plc over a period of 2003 to
breweries Plc is considered a fair representation of companies within the same
industry carrying out similar activities or operations. Most of the information
needed to carry out this research is from staffs of Nigerian Breweries Plc.
In the course of conducting this research work, it is expected
that the following will constitute impediment to the effective conduct of this
Availability of relevant
literatures and textbooks
Inaccessible and inadequate database
Inadequate information given by the case
1.7 DEFINITION OF TERMS
Economic Order Quantity (EOQ): This is
the level of activity at which the cost of inventory control is minimized
Inventory: It can be referred to as
stock. By stock, we mean raw materials, work -in-progress and finished goods
Inventory Control: This is a system
used in a firm to control the firms
Inventory turnover: This simply
shows how quickly inventory is being
Obsolete stock: a stock no
longer in use i.e. outdated
Ordering cost: the cost
incurred in placing the order up to the point of receiving the goods into the
Overtrading: This is a situation whereby
a company performs excessive business operations than its capital can cope
Profitability: this is the ability to sell
goods and services above costs and earn reasonable returns on capital employed.
Raw Material: these are those inputs that
are converted into finished goods through the manufacturing process.
Re-Order Level: it is a fixed
point between maximum and maximum stock levels where requisitions are raised
for new purchases.
Shortage Cost: these are costs incurred
when customers demand cannot be met because the tock is exhausted.
Under Trading: this is a situation whereby
a company has much funds than necessary.
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