THE EFFECT OF INVENTORY MANAGEMENT ON THE PROFITABILITY OF CONSTRUCTION COMPANIES IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Inventory management is a critical management issue for most s large companies, medium-sized companies, and small companies.

Effective inventory flow management in supply chains is one of the key factors for success. The challenge in managing inventory is to balance the supply of inventory with demand. A company would ideally want to have enough inventories to satisfy the demands of its customers- no lost sales due to inventory stock-outs. On the other hand, the company does not want to have too much inventory staying on hand because of the cost of carrying inventory. Enough but not too much is the ultimate objective (Coyle, Bardi, and Langley, 2003). The role of inventory management is to ensure faster inventory turnover. It increases inventory turnover by ten (10) and reduces costs by 10% to 40%. The so-called inventory turnover is not yet right to sell products on the shelves based on the principle of FIFO cycle (http://www.academia.edu/).

Inventory management is necessary at different locations within an organization or within multiple locations of a supply chain, to protect (the production) from running out of materials or goods. Adequate inventories keptin manufacturing companies will smooth the production process. The wholesalers and retailers can offer good customer services and gain good public image by holding sufficient inventories. The basic objective of inventory management is to achieve a balance between the low inventory and high return on investment (ROT). (Johson et al, 1974). Inventory levels have been seen as one of the most interesting areas for improvement in organization materials management (Kumar Ordamar, Zhang, 2008). 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, Cheruiyot, and Mwangangi, 2014).

1.2 STATEMENT OF PROBLEM

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 . Thus the study seeks to investigate the effect of inventory management on the organizational performance of the selected manufacturing firms.

1.3 OBJECTIVES OF THE STUDY

The specific objectives were to

1. To ascertain the extent at which inventory control affects productivity of selected manufacturing firms
2. To investigate the nature of the relationship between demand management and customer satisfaction of selected manufacturing firms
3. To investigate the effect of Just-in-time on growth of selected manufacturing firms.

1.4 RESEARCH QUESTIONS

With the above objectives in focus, the study seeks to find answers to the following questions

1. To what extent does inventory control affect the productivity of selected manufacturing firms?

What is the nature of the relationship between demand management and customer satisfaction of selected manufacturing firms?

1. What is the effect of Just — in- time on the growth of the selected manufacturing firms?

1.5 SIGNIFICANCE OF THE STUDY

This work will benefit but private and public organization as it has to do with issues on how an organization can be control and managed through inventory management, also should forecast their staffing method. Every organization have staff and there is non-organization that can exist without having staff As at this point this work become beneficial society at large.

1.6 SCOPE OF THE STUDY

The work is centered on the effect of inventory management on the profitability of construction companies in Nigeria. Here we shall be considering what inventory management, it effect on the construction companies in Nigeria. This study will also help us in carefully look at the effect and its impact of inventory management played in the construction companies in Nigeria.

1.7 LIMITATION OF THE STUDY

In cause of carrying out this research work the researcher encountered some challenges ranging from finance; time distance to the source of information and difficulties of gathering data from respondent. However the researcher engaged some personal strategies to ensure the research ascertain its original purpose.

1.8 DEFINITION OF TERMS

Inventory: Is the raw materials, work-in-process products and finished goods that are considered to be the portion of a business assets that are ready or will be ready for sale.

Inventory control: It can be seen as the activities of checking a shop’s stock.

Inventory Management: Is the management of inventory and stock. Is all about having the right inventory at theright quantity.

Organizational performance: It comprises the actual output or results of an organization as measured against it intendedoutputs (or goal and objectives).