INVENTORY CONTROL AND ITS IMPLICATION FOR MANUFACTURING INDUSTRIES

CHAPTER ONE

GENERAL INTRODUCTION

INTRODUCTION

The world of study is full of discoveries and innovations. Through intensive question and enquires. The discoveries are used in solving some compound problems either directly or indirectly.

This study is focused on inventory control and its implication in an organization, with special reference to the manufacturing industries.

Inventory is an material supplied, received into store house and being shop or issued on request (Lockyer K. 1984)

Inventory control is the means by which material of correct quantity and quality is made available as and when required with due regard to economy in storage and ordering costs, purchase prices working capital.

Inventory control is very important in the public sector, but it is generally considered to be more important in the private sector, this is because there is a notion that control is always applied by a profit making organization. The present economic situation in the country has made it imperative for manufacturing industries to control its inventory scientifically other wise it will affect the cost of production as well as its profit margin.

There is no standard system of inventory control which can be universally recommended or applied, each organization adopt the one most suitable to its needs, although certain principle and practice are more or less common to most them.

Inventory control is very important unit in an organization, which has to be critically analysed and coordinated however various firms has not been making use of inventory control to their own advantage.

They tend to have little or shallow view of the stores activities, which in the long run brings set back to them and resulting to tying down the circulating capital.

Therefore adequate method of measuring and checking inventory level is crucial for the survival or any organization especially the manufacturing concern. Inventory control involves the making of rational decision on the level of inventorys that may be economically needed to meet all requirement for planned production.

From the stores point of view, one of the major important thing is to keep the incoming material as nearer as possible to the machine shops and assembly shops that will be used daily. To avoid a disruption of production process that may ultimately result in low productivity, low sales and low profit, shortage of materials should be avoided.

In other words, every organization should as a matter of importance, know its quantity and its economic order quantity.

More also, proper and adequate inventory control regulates the delivery of excessive materials, hence if left unchecked, it will pile up the ware house the production area, apart from the fact that the excess of deliveries tie up too much capital here the emphasis should be on the manufacturing schedule and everything is regulated by that, in respect to some manufacturing firms that deals with expensive or bulky material or components the flow has to be regulated and managed hour by hour and their demand high degree of understanding cooperation and efficiency.

Therefore, if as effective and efficiency system of the control is implemented by any manufacturing company as well as any other organization, a huge amount of money and time will adequately by saved.

1.1   HISTORICAL BACKGROUND OF UNITED NIGERIAN TEXTILE PLC.

  United Nigerian Textile Plc was incorporated in Nigerian on 7th May, 1964 for the purpose of producing printed textile materials. The company, which operates one of the biggest and most efficient textile mills in Nigeria, commenced operation at the beginning in 1965.

Initially, United Nigerian Textile Plc (UNT PLC) was a finishing plant importing gray, cloth as its main raw material. But following the federal government policy on background integration, in June 1967, the company installed both spinning and wearing facilities in produce gray both from locally grown cotton in its determination to expand its operation again in 1967, the company acquired a controlling interest in Zamfara Textiles Industry Limited (ZTIL) by this decision UNT PLC was assured of steady supply of gray buff for its highly efficient finishing plant, which at the time, was the only plant producing highly sophisticated wax print in the country and indeed, in west Africa.

In 1976 UNT Plc. UNT Plc conceived the idea of establishing a textile factory to produce material quite different from the conventional products of both Kaduna (UNT Plc) and Gusau (ZTIL) factories. This was successfully in corporate and established in 1977 at Funtua Textile Limited Under the company’s policy of even spreads. Funtua Textile Limited (FTL) is now producing high quality bed sheet, pillow cases and cotton/ Polyester fabrics.

In 1980, UNT PLC brought of NORSPIN and own its premises  a subsidiary company (UNITEX LIMITED) and an association company (SUPERTEX LIMITED) was set up. Unitex Limited is spinning plan, which produce yarn for the sole consumption of UNT PLC. Supertex Limited is a finishing plant producing wax prints. Although Supertex has been closed down in May 2004.

UNT Plc is now a group of four companies spread over three neighboring state, Namely Kaduna, Katsina and Zamfara, with its product being distributed through out the country. Its expansion and modernization programmes have made the group the biggest employers of labour among all the textile industries in the country and of course the target in terms of production capacity.

For the future, the industry will continue to seek to improve the quality of its products increase efficiency and as well keep abreast of modern advances in technology. 

1.2   STATEMENT OF THE PROBLEM

Malpractices exist in the store section, especially in the areas of theft and fraud, because of the small nature of some of the materials but high in value, therefore, such things can easily be pilfered if proper control is not adopted.

Consequently, inventory administration and control has been facing a lot of challenges of over and under inventorying pilfering and other happenings that are posing a threat to the operation of inventory activities have been persistent. Until an organization devices means through which inventory activities and inventory control and its implication can effectively be handled, the inventory administration and its control will continue to suffer some defeat. Inventory control and its importance came into limelight during the industrial revolution in Europe, the revolution resulted in scarcity of raw material and component parts, this led to many manufacturer devising ways of controlling and holding inventory, until when needed.

This research work is therefore intended to show case the modern proven methods of ordering holding and dispensing inventory and its control organization such that inventory and inventory control will be an hitch free task. These problems are not limited to single organization rather it is a universal problem still facing of affecting many organization. In all organizations, money is spent in acquiring materials and for lack of proper control, these materials are lift lying down uncared for. This is because the management pays little or no attention to the control of inventory. They do not see inventory control as a contributing factor to profitability or an aid in achieving the organizational goal.

This research work attempt to evaluate the stores section of the manufacturing concern with the aim of making useful suggestions and recommendation on possible way or strategies that can be adopted in enhancing an unproved effective and efficient inventory control.

Inventory control and its importance came into limelight during the industrial revolutions in Europe, the revolution resulted in scantly of raw materials and component in parts, this led to many manufacturers devising ways of controlling and holding inventorys unit when needed.

1.3   SIGNIFICANCE OF THE STUDY

This research is written in anticipation to be of immense value to many individual, group, private organization and government entailment.

The work will also increase the knowledge of then personnel staff of the organization under study especially the stores section with regards to  how to properly manage materials in the store so that too much lasted expenses would not be incurred by the organization as if will ultimately results in low profit margin of the organization.

The suggestion that will arise from finding of this study will made the policy makers, researchers and even the general public in a more enlightened position to either serve as a reference or increase their knowledge in formulating policies that would bring about rapid and meaningful development of their various organization particularly manufacturing sector.

Further effective management of material and inventory is one of the major factor contributing to the over all success of the organization, hence this work will reveal some of the problems hindering the effectiveness of store activities and if the suggestions taking into consideration will definitely contributes to the economic well being and the overall success of the organization.

1.4   OBJECTIVES OF THE STUDY

The main rational of writing this research is to enable the researcher, the inventory managers and the business studies students to find solution to the continuous problem encountered in controlling inventory in their various field of operation.

For instance, in the manufacturing industries by poor management of inventory has been prevalent there by reducing the profit margin of organization.

Inventory control involves the making of decision on the level of inventory that may be economically needed to meet all requirement for planned production.

One of the most important thing is to keep the incoming materials as nearer as possible to the amount the machine shops and assembly shop will use, why regularly shortage must be avoided or else production lines may have to stop and at the same time too much must not be delivered, other wise, it will pile up the ware house, the production area, apart from the fact that the excess of deliveries will tie up too much capital.

This study allows the researcher on opportunity to examine the organization’s inventory control system and implication more closely in order to understand the nature of the problem with a view of suggesting possible solution to them.

The research work is also to help us to see for ourselves, stores activities that are being carried out in manufacturing industry.

Finally, it is also hoped that it will constitute a source for assisting future students to obtain preliminary understanding of the subject matter covered by this work, as it will be a reference for further research work.

1.5   STATEMENT OF THE HYPOTHESES

The following hypotheses are tested in the course of this study.

HYPOTHESIS

H 0: That the use of inventory controls system will not improve the company’s efficiency.

H 1: That the use of inventory controls system will improve the company’s efficiency.

1.6   LIMITATIONS AND DELIMITATION OF THE STUDY

These are circumstances that limit ones effort in performing a giving task in conducting a study of this nature, there  must be some hindrance which stand as limitation encountered below.

The initial experience of the researcher showed research like this needs enough time for collecting of fact and other relevant information on inventory control and its implication.

Another limitation to this research was that most of the staff under the stores section were semi literates. Also the uncooperative attitude of some staff of the store house often due see the research work as the means of bringing to light any fraud committed by them in the course of their duties as stores officers therefore tended to give scarcity information when approached.

The most difficult constraint, which the study suffered from, was that of time constraints.

Yet the researcher was able to complete the job within reasonable framework.

1.7. DEFINITION OF TERM

1. Maximum Inventory Level: Is the amount expressed in the unit of issues, above which the inventory should not be allowed to exceed.
2. Minimum Inventory Level: This Is the amount expressed in the unit of issues, above which the inventory of any commodity should not be allowed to fall.
3. Reorder Level: Is also considered as the unit of issues at which ordering action is indicated in time before material could fall below the minimum level.
4. Inventory Taking: The process of verifying the quantity balance of items holds in inventory by comparing the physical and the record.
5. Review Of Inventory: In order to keep abreast of changing condition after inventory has been established, review of inventory would be conducted at a reasonable interval.
6. Economic Ordering Quantity (EOQ): Is the mathematical formula needed or employed by many organization to established the most economic amount to order for any item held in inventory.
7. Control by Value: It uses price in controlling the value of inventory, the whole inventory held are measured in monetary terms and inventory control as on of the tools used.
8. Control: Is an element of managerial task that involves the management of inventory held in stores houses to make sure that the objective of the enterprises or firm are accomplished efficiently and economically.
9. Inspection: Is the means of examining the incoming consignment for the right quality and quantity.
10. Discrepancy: The differences between record and physical quantity after inventorytaking.
11. Continuous Inventory Taking: This is the method whereby inventory taking continuously through out the year, in accordance with the predetermined programmes so that each item is physically verified at least once in the year.
12. Hastening Inventory Level: This is the amount expressed in the unit of issues at which it is estimated that hastening action is necessary to request suppliers to make early delivery.
13. Two Bin System: This system is a simple and direct method of inventory control. The two bins contain the same items and of equal quantities.
14. Investigation of Discrepancies: This process after the inventory taker and the storekeeper have agreed that a discrepancy exists, the procedure depends on the nature and value of the discrepancy.
15. Obsolete: This is where an item is no longer usable by the organization concerned due to the changes in operational technique or production.