IMPACT OF INVENTORY MANAGEMENT ON ORGANISATIONAL PRODUCTIVITY (A STUDY OF FOOD CONCEPT PLC)

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IMPACT OF INVENTORY MANAGEMENT ON ORGANISATIONAL PRODUCTIVITY (A STUDY OF FOOD CONCEPT PLC)

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Inventories are vital to the successful functioning of manufacturing and retailing organizations. They may consist of raw materials, work-in-progress, spare parts/consumables, and finished goods. It is not necessary that an organization has all these inventory classes. But whatever may be the inventory items, they need efficient management as, generally, a substantial share of its funds is invested in them. Different departments within the same organization adopt different attitude towards inventory. This is mainly because the particular functions performed by a department influence the department’s motivation. For example, the sales department might desire large stock in reserve to meet virtually every demand that comes. The production department similarly would ask for stocks of materials so that the production system runs uninterrupted. On the other hand, the finance department would always argue for a minimum investment in stocks so that the funds could be used elsewhere for other better purposes, (Vohra, 2008:427).

Inventory represents an important decision variable at all stages of product manufacturing, distribution and sales, in addition to being a major portion of total current assets of many organizations. Inventory often represents as much as 40% of total capital of industrial organizations (Moore, Lee and Taylor, 2003:321). It many represent 33% of company assets and as much as 90% of working capital, (Sawaya Jr. and Giauque, 2006:121). Inventory management is the supply of goods and offerings at the proper time with the right time and amount (Ogbo, 2011). It is a reliable approach in which organizations are being controlled to make sure that customers are satisfied and corporation stays in operations via minimization of losses. Stock management has been a trouble to many enterprise organizations in Nigeria. Inventories offer a good-sized link between manufacturing and income of product, and represent a big percent of the cost of manufacturing. It is one of the maximum high-priced and critical belongings of many agencies representing a massive percent of the entire invested capital (Ogbo, 2011).

Inventory management in regards to Miller (2010) includes all activities kept in place to make certain that consumer have the expected service or product. It coordinates the purchase, production and distribution functions to satisfy the advertising and marketing expectations and organizational wishes of availing the product to the clients (Adeyemi & Salami, 2010).

Adeyemi and Salami (2010) stressed that the overall purpose of inventory management is to have what is needed, and to reduce the quantity of instances production and services operations are interrupted by using issues of stock outages. In addition, Bloomberg et al. (2012) mentioned that effective management of stock has huge potentials for improving the efficiency of corporations, and firms that use scientific stock control practices have a great aggressive advantage within the market. Consequently, successful inventory management is essential to the survival of business, industry and economy. Many practices are available for effectively managing inventories. There are traditional inventory management practices such as Automatic Replenishment, ABC Inventory Model, Just-In Time (JIT) Inventory, Economic Order Quantity EOQ), Vendor Managed Inventory etc. The management of inventories has an important bearing on the financial strength and competitiveness of organizations due to the reason that it directly affects the working capital, production and customer services (Vergin, 2012).

Inventory plays a significant role in the growth and survival of an organization in the sense that ineffective and inefficient management of inventory will mean that the organization loses customers and sales will decline. Prudent management of inventory reduces depreciation, pilferage, and wastages while ensuring availability of the materials as at when required (Ogbadu, 2009). Inventory management is critical to an organization’s success in today’s competitive and dynamic market. This entails a reduction in the cost of holding stocks by maintaining just enough inventories, in the right place and the right time and cost to make the right amount of needed products. High levels of inventory held in stock affect adversely the procurement performance out of the capital being held which affects cash flow leading to reduced efficiency, effectiveness and distorted functionality (Koin, et al., 2014). Since inventory constitutes a major segment of total investment, it is crucial that good inventory management be practiced to ensure organizational growth and profitability.

According to Temeng (2010:195), historically, however organizations have ignored the potential savings from proper inventory management, treating inventory as a necessary evil and not as an asset requiring management. As a result, many inventory systems are based on arbitrary rules. Unfortunately, it is not unusual for some organizations to have more funds invested in inventory than necessary and still not be able to meet customer demands because of poor distribution of investment among inventory items (Temeng, Eshun and Essey, 2010:199).

Inventory is a vital part of current assets mainly in manufacturing concerns. Huge funds are committed to inventories as to ensure smooth flow of production and to meet consumer demand. However, maintaining inventory also involves holding or carrying costs along with opportunity cost. Inventory management, therefore, plays a crucial role in balancing the benefits and disadvantages associated with holding inventory. Efficient and effective inventory management goes a long way in successful running and survival of a business firm, when organizations fail to manage their inventory effectively, they are bound to experience, stock out, the decline in productivity and profitability, customer dissatisfaction

It is against this background that this research work is conducted to examine to the effects of inventory management on business organization productivity

1.2 STATEMENT OF THE PROBLEM

Problems of inventory management and control have been around for a very long time. The need to collect food when it is readily available and then store it for times of shortage is perhaps the fundamental stock holding problem, which was tackled long ago by man. Nowadays, we usually think of stocks being held by organizations to allow efficient and continuous operations.

Managers are aware of the vital roles inventory plays in the activities of organizations. In most organizations, direct materials represent up to 50% of the total product cost, as a result of the money entrusted on inventory, thereby affecting the profitability of the organization. Organizations at times do not control their inventory holding, resulting in under stocking and causing the organizations to stay off production, thereby resulting to organizational ineffectiveness. This therefore creates relationship problems between inventory management and organizational productivity, profitability and effectiveness.

1.3 OBJECTIVES OF THE STUDY

The broad objective of this study is to evaluate the effects of inventory management on business organization, while the specific objectives are: –

To evaluate the concept of inventory management

To determine the effect of inventory management on organizational productivity.

To examine the effect of inventory management on organizational profitability.

1.4 RESEARCH QUESTIONS

The following questions will guide the study;

What is inventory control and management?

How does inventory management affect organizational productivity?

How does inventory management affect organizational profitability?

1.5 STATEMENT OF HYPOTHESES

The following hypothesis were formulated to guide the study:

HYPOTHESIS ONE

Ho: There is no significant relationship between proper inventory management and organizational productivity

H1: There is a significant relationship between proper inventory management and organizational productivity

HYPOTHESIS TWO

Ho: There is no significant relationship between proper inventory management and productivity in Food Concept Plc.

H2: There is a significant relationship between proper inventory management and productivity in Food Concept Plc, Lagos

1.6 SCOPE AND DEFINITION OF THE STUDY

This research project center’s on the effects of inventory management on business organization. Spatially, the research work was restricted to Food Concept PLC.

1.7 SIGNIFICANCE OF THE STUDY

The significance of this study can be viewed from the following perspectives.

One main significance of this study is that when completed, it would serve as a bridge for the gap that have been created between where previous works on this subject area stopped and today.

This study is significant in the sense that its finding would serve as a base and framework for future researchers to carry out further studies in the field of knowledge under study.

The business organizations would benefit from this study in view of the fact that they would learn how inventory management enhanced business services

The outcome of this research is hoped to be of immense use to students of management since it contains information on inventory management.

1.8 JUSTIFICATION OF THE STUDY

Empirical evidence has supported the business case by linking good inventory management with organizational productivity. Ultimately, companies engage in inventory management to save cost, maintain consistent production cycles, take advantage of market opportunities, and to avoid stock out.

This research aims to increase our understanding of why executives need to take into cognizance good inventory management in order to attain higher organizational productivity.

1.9 OPERATIONAL DEFINITION OF TERMS

The following terms were operationally defined in order to facilitate a comprehensive understanding of this research work.

Inventory management: With regards to the contents of this study, this is the supply of goods and services at the right time with the right quality and quantity.

Inventory management: With regards to the contents of this study, this is the science-based art of ensuring that just enough inventory stock is held by an organization to meet demand

Inventory: With regards to the contents of this study, it is a stock of goods that is maintained by a business in anticipation of some future demand

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