CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Inventory plays a significant role in the operation of several businesses and manufacturing firms. In manufacturing, inventories of raw materials permit business to run individually of their sources of materials. Daily operation are not based on deliveries from supplies since stock of the required materials are preserved and used is needed. Without inventory control, millions of naira might be lost year in year out because of non-accountability of stocks and inaccurate checks and balances.
The process of control and management of inventory is an extremely important factor in the success or failure of any type of organisation for instance, little stock will lead to stock out which will interrupt the production distribution cycle that is critical to the survival of all manufacturing firms while excessive supply will tie down the resources of a firm. Poor or insufficient inventory management can provide a major difficulty to the efficient capability of a manufacturing company. Along with raw materials and finished products, lots of business likewise maintain items of assets, property, inventories of operate in progress, office supplies, business companies as well as general operation supplies.
Inventories frequently constitutes one of the most considerable component of current assets of big firms. In the public limited companies, inventories are roughly 60% of current assets on the average. The US Bureau of the census mentioned that inventory and accounts receivable consumed both biggest accounts of equal magnitude and together they make up practically 80% of current assets and over 30% of overall assets for all manufacturing firms in 1982.
Nevertheless, inventory management is an important element of working capital management which affects both short-term solvency in addition to profitability. Inventory management is key in facilitating the firm's effective operations. The goals of inventory management is to optimize the use of firm's resources by guaranteeing sufficient supply of materials production process likewise reducing the cost of holding excessive inventories Ogbadu (2009). Inventory management is important also to avoid repetitive and unproductive funds (Ashok 2013). This is a tactical management decision that ought to help to strike a balance between excessive inventory and insufficient inventory (Gupta & Gupta 2012). The sufficient and efficient management by the Stock/Inventory manager will help in accomplishing better functional results and minimizing investment in working capital. As a result, the accurate stock management helps give consensus of liquidity and risk exposure of the company. Chamber's and Lacey (2011) observed that inventory management look for to strike balance between benefit that accrue from holder's inventory and costs of doing the same. In the context of management, the inventory manager decision drawn from the tactical level of the company, is to reduce cost or maximize profit while satisfying customer's needs, which ought to position the firm into an ideal replenishment radar.
Concurrently, the goal of an investor & corporate body as a separate legal entity is to make great return on investment (profitability). Profitability measurement is typically focused on financial actions or performance. In this context operational measures is an adjustment of manufacturing company or their outcome arising from use inventory control system.
Furthermore, because of dispute in literature concerning inventory control management & method on profitability of company in different studies Boateng (2016), Koumanakos (2008), Enoch, Gregory & Elizabeth (2017), Edwin & Florence (2016) and so on portraying that inventory control management and method have positive or negative effect or does not have any type of significance on financial performance or profitability of companies. This study plans to contribute to the compendium of knowledge by examining inventory control and profitability of key distributors of Nigerian Brewing Company using Anscatech and Immaculate Beverages as a case study.
1.2 Statement of the Problem
Inventory is an essential part of current assets primarily in manufacturing concerns. Substantial funds are dedicated to inventories as to ensure smooth flow of production and to meet consumer need. Nevertheless, maintaining inventory likewise includes holding or bringing costs together with opportunity cost. Inventory management, for that reason, plays an essential role in balancing the benefits and negative aspects connected with holding inventory. Effective and efficient inventory management goes a long way in effective running and survival of a business ventures, when companies cannot handle their inventory efficiently they are bound to experience, stock out, the decline in efficiency and profitability, customer dissatisfaction. Therefore, the examine looks to examine inventory control and profitability of key distributors of Nigerian Brewing company using Anscatech and Immaculate Beverages as a case study.
1.3 Objectives of the Study
The overall objective of this study is to examine inventory control and profitability of key distributors of Nigerian Brewing Company using Anscatech and Immaculate Beverages as a case study. However, the specific objectives include:
i) To ascertain the effectiveness of the various tools and techniques used by manufacturing firms in inventory management.
ii) To understand the extents to which inventory control contribute to profitability in manufacturing firms.
iii) To observe the effect of inventory management on organizational profitability in manufacturing firms.
1.4 Research Questions
For this research study, the following research questions were our guided:
i) What is the effectiveness of the various tools and techniques used by manufacturing firms in inventory management?
ii) To what extent does inventory control contribute to profitability in manufacturing firms?
iii) What is the effect of inventory management on organizational profitability in manufacturing firms?
1.5 Research Hypotheses
The following hypotheses were formulated for this study:
i) There is a significance correlation between the effectiveness of the various tools and techniques and manufacturing firms in inventory management.
ii) There is a significance correlation between inventory control and profitability in manufacturing firms
iii) There is no significance correlation between effect of inventory management and organizational profitability in manufacturing firms.
1.6 Significance of the Study
This study is useful and relevant to manufacturing firms and the entire society in the following ways:
It will help to improve inventory control and management in manufacturing companies as it will enable them to keep an adequate inventory control and ensure that they do not run out of stock or have excess of it, which endangers their liquidity.
It will enrich organizations and other sectors of the economy in knowing and appreciating the effects of inventory management in the enhancement of organizational efficiency, which aids increase in profitability and productivity.
It will reveal the methods that should be used in preventing mismanagement in companies and business outfits.
1.7 Scope of the Study
This study centred on inventory control and profitability of key distributors of Nigerian Brewing Company covered such areas as storage, transportation procurement, inventory handling planning control, and value engineering, etc. Information was got from the depot of Anscatech and Immaculate Beverages, Enugu, Enugu State.
1.8 Limitations of the study
In conducting this research work, the researcher encountered some difficulties such as the following:
Hoarding of data: Manufacturing firms held tightly their methods and data generated from their operations because they argued that they operate in a competitive industry and would not want to release their secret to their competitors.
Paucity of Relevant Literatures: The researcher found it hard in obtaining relevant literatures while conducting this research. Nevertheless, the researcher was able to surmount the above hurdles and at the end put up a research work whose output is reliable, testable and verifiable at any standard.
1.9 Definition of Terms
There are terms and concepts associated with inventory management, which terms and concept are explained below.
Inventory: is a record of a business’ current assets or merchandise, or supplies held in transit at a particular time.
Inventory Management: is the part of operation management concerned with discoursing and maintaining the optimum level of inventory investment. It is concerned with policy-making on inventing planning and inventory control.
Inventory Control: involves the regulation of quantities of materials or inventory on hand in such a way as to ensure the meeting of the current needs of the organization while avoiding excess stocking; the calculation is on the rate of withdrawals and the time necessary for replenishment.
Inventory techniques: These are techniques to control, coordinate and utilize stock effectively.
Profitability: This is the return gained from stages of production carried out by a firm.
