MANAGEMENT OF SMALL SCALE INDUSTRIES IN ENUGU STATE PROBLEMS AND PROSPECTS (A CASE STUDY OF ENUGU SOUTH LOCAL GOVERNMENT AREA)

CHAPTER ONE

INTRODUCTION

1.1            GENERAL BACKGROUND OF THE SUBJECT MATTER

The Nigerian Management of small business area is characterized by high cost of financial resources.   A cursory look of the markets in Enugu South Local Government reveals an upward trend in prices of goods both consumer goods and capital goods.   This is associated with the high interest rate prevalent in Enugu South Local Government Area of Enugu State.

Under the above mention condition, the question becomes that of the fittest.  Large established merchandizing companies tend to marginalized that of small scale industry as small scale industries find it very difficult if not absolutely impossible to qualify for granting of loans from finance houses partly because of the high interest rate associated with such grants and partly as a result of absence of sufficient collateral.

In view of the above facts, it becomes pertinent for those small scale industries to resort to other means such as inventory control and management of cash, debtors and creditors which make for higher profit so as to survive the out threat competition with the large firmly established merchandising firms and industries.

There is no generally accepted definition of small-scale business. The committee for economic development of the united state gave a valuable list of characteristic which a small business will have, and these are:

Managers are also owners, area of operations are mainly local, owner supplied capital and small in size within the industry.

It is the low productivity of those small scale industry in Enugu that necessitated this study: an urge for an efficient stock control system in order to optimise investments in stock at minimum costs and at optimum profits.

This efficiency is achieved primarily by maintaining stock level at a balance between too much stock and too little stock and at the same time maintaining a given level of consumer service.

As regard to any other investment in small business, the costs of holding stock must be related to the benefits to be gained.

To do this effectively, the costs must be identified.   Basically, the cost can be categorized into three groups: -   

a)                 Cost of holding stock

b)                Cost of ordering or obtaining stock and

c)                 Stock out cost.

The overall objective of inventory control in small scale industries is to maintain stock levels so that the combined cost (i.e a, b, c) above are at a minimum.   This is done by establishing two factors, when to order and how many to order.

1.2            PROBLEMS ASSOCIATED WITH THE SUBJECT MATTER

As indicated above most management of small-scale industries in Enugu South Local Government neither plan nor control their stock.

This results in either overstocking or under stocking by those with loan financial resources.

The consequences of this inefficiency is just vident, high cost of goods sold thereby reducing profit made.   The situation has led the researcher to ask the following questions:

1)      Do small scale industries in Enugu South Control their investment in stock?

2)      If they do, what is the system of control employed?

3)      Does the system employed make for optimum stock level?  In other words, is the system efficient?

1.3            PROBLEMS THAT THE STUDY WILL BE CONCERNED WITH

As stated earlier, most small-scale industries neither plan nor control their inventory.   As a result, those that have substantial funds ever over stock merchandise, while others that have problems of funds under stock merchandise.

This study therefore aims at the following objectives;

1)      To identify the causes of the high cost of goods sold by small-scale industry in Enugu.

2)      To find out whether or not small scale merchandising businesses control their stock and the system of stock control employed.

3)      Where a system of control exists to appraise the efficiency of such system and

4)      From the finding, to offer some suggestions on the efficient system that should be adopted by small-scale industries in Enugu to ensure optimum profit at minimum costs.

1.4     THE IMPORTANCE OF STUDYING THE AREA