THE EFFECT OF STOCK CONTROL PROFIT MAXIMIZATION IN MANUFACTURING COMPANY

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

Stock is frozen cash and as such should be given the same if not more priority than liquid cash. Firms need stock in one form or the other in order to carry out its day-to-day activities and as such, the need to have the stock at the required time, quantity, quality and under proper condition can never be over emphasized more often than not, organization hold in order to have ready supply of materials from the store house to guard against future increase in price, enjoy quality discount, prevent shortage of supply from its various sources etc. since the ultimate goals of any business set up is to make profit, then, such profit can only be realized through incurring the least affordable cost while expecting huge returns.

Inventory is major area of asset deployment which should be required to produce, minimum return on capital investment since it incurs cost so there is a great need to minimize such cost and control stock with respect to its receipt, storage and issue. When an organization is declining on what is to be held in stock, it is of necessity to consider what item are to be used, and produced by the organization in question and then decide which items is stocked. Stock have been noted to be life blood of organization and all such efforts are always made to see that efficient stock control system and equipments are invented to cater for the various items held in stock.

In order to minimize stock holding cost via efficient stock control measure, experience and qualified staff should be employed to see to such matter. In public sector of the economy today, stock control is nothing to write home about, you find stock idle in the store house, and some are even deteriorated due to lack of storage facilities and staff with the little or no knowledge with regard to store management.

However, in the private sectors where individual are the owner of the business, the reverse is the case because stock, no matter its form is given attention by well trained stoppers, under the appropriate conditions after all, huge sum of money have been sunk in the acquisition of such stock items and to what much is given much is or will be expected.

Organization in recent times have been facing one problem or the other which in most cases lead to early liquidation.  An investigation have revealed that most often than not, the whole problem normally arises from inefficient management of stocks at one stage or the other both within and out side the organization, you will find improper or lack of inspection facilities, poor and inadequate storing equipments, bad movement of stock, just to mention a few with most of these thing present in organization, there is a great possibilities of such an organization having problem thereby leading to closure.

Shortage arises due to lack of effective control stock among others, such as deterioration, reducing obsolescence obsolete, pilferage receipt of the wrong specification of stock stoppage in production arising from interior materials into the production term cost thousand or millions of naira. But if stock are been monitored with high accuracy such problem will be satisfactorily reduce or totally controlled.

According to the stores recently have been make to reduce this cost while still maintaining a high degree of control large firm have introduced a system of analyzing stock by various categories so as to ensure that adequate attention can be paid to important item.

The main theme of this project is to bring to lime light    the performance of beverage industry in Nigeria toward analysis of stocked control procedures with a particular reference to Nigeria Bottling Company (NBC).

In view of the above, we will have a glance on some specific areas further understanding. Firstly the writer intends to discuss analysis of stock control procedures in beverage industry.

Stock comprises a major part of a companies current asset, and can be classified as raw material, work in progress (or work in process) and finished goods. Its function are centered on stock management. At time firms could not reach the peak of its operation because of major lapse in the area of stock management, it was examined that the management tend to ignore the aspect of stock control in relation to inventory level mostly, some firm liquidate due to ineffective stock management, which was made known in the introduction part, this problems brings about frequent production interruptions and failure to meet delivery commitment. When a firm experience these, it obviously result to tie-up of the firms funds and loss of profit which could gradually lead to shut down of plant, and it affect the society as a whole (massive retrenchment). In essence stock for smooth production and to ensure the maintenance of holding stock that forms part of the smooth running of the business.

1.2       STATEMENT OF THE PROBLEM

In the past, many companies witnessed considerable lapse and increasing changes in management disciplines of stock control an important element in the management of stock.

1.           Stock management or management of stock is one of the problem business faces.

2.           The development of analytical techniques and computer capability now permits more sophisticated analysis of stock problems. These two phenomena have combined to transform stock control into a critical function requiring professional skills.

Most companies still adopt the oil and crude methods of stock control, the use of guess work and intuition, while others do not even make any attempt to minimize investment in inventory in the name of the pilling?

Also, companies that stock a strategic number of item do not segregate the high value of stock selective and efficient control these, no doubt have contributed to high operating cost and hence less profit recorded by most manufacturing companies.

1.3       OBJECTIVE OF THE STUDY

In studying or explaining the various factors affecting efficient stock control system in the firm under study, the following objective have been recognized and taken into consideration.

i.             Determination of whether any relationship exist between total inventory cost and sales?

ii.            Ascertain the effectiveness and efficiency of the firms stock control system and reduction in operating costs.

iii.           Avoid excessive holding cost e.g. cost of storage, handling, insurance recording and inspection etc.

iv.          Avoidance of unnecessary tie up? of the firms and loss of profit.

v.           Providing recommendations for improvement where necessary.

1.4       FORMULATION OF HYPOTHESIS

Ho: Effective stock management does not minimize the operational costs  of the firm

Hi: Effective stock management minimizes the operational costs of the firm.

1.5       SIGNIFICANCE OF THE STUDY

The aim of any (management) or manager as regards stock management should be to avoid excessive and inadequate level of stocks and to maintain sufficient stock to avoid the dangers of over and under investment in stock. The study therefore, will be of immense contribution towards helping management or manager to determine this by considering the relationship between stock levels and both sales volume and gross margin realized.

The study will also help the manager in effective stock management by

1.      Ensuring an uninterrupted supply of materials to facilitate smooth production.

2.     Maintains sufficient stock for periods of short supply and anticipate price changes.

3.      Maintain adequate stocks for smooth sales operations and efficient customer services.

4.      Minimized holding and ordering costs

5.      Control investment in stocks and keep it at a satisfactory level.

1.6       SCOPE OT THE STUDY

The scope include a general review of the practices of stock control in beverage industry a study of Nigeria Bottling Company (NBC) Plc.

1.7       LIMITATION OF THE STUDY

The being an analytical study of practice of stock control, there was some of the constraint of obtaining some of the information required from the staff, added to these were lacks of industrial average for comparative analysis and shortage of time.

1.8       HISTORICAL BACKGROUND OF THE FIRM

Coca-cola, the product that give the world its best known taste was developed under modest circumstance in Atlanta Georgia on May 8th 1894 by John Ptbertim sells for 5% a glass as a soda fountain drink. Water was mixed with syrup to produce a drink that was at once delicious and refreshing.

Coca-cola first came into Nigeria in 1953 when Nigerian Bottling Company (NBC) set up its first plant in Lagos, it was to be the beginning of an exciting strong growth and development particular in the recent past.

Nigeria Bottling Company is today the Nigeria number one bottling company engaged in production of soft drink sell more 7000000 bottle per day. Currently, there are about 20 plant in various party of the federation and more are yet to come.

Other products produced by Nigerian Bottling Company are Fanta Apple Fanta Pineapple, Ginger, Fanta Chapman,  Sprite, Krest and Bitter Lemon drink in the country and world wide.

1.9       ORGANIZATIONAL STRUCTURE OF THE STUDY

THE STAFF STRENGHT

The Nigeria Bottling Company has about 7,000 staff or more among these about 107 persons ranging from the managing director to other managers and head of Department as well as others are senior staff and the junior employee.

1.10    DEFINITION OF TERMS

1.      Stock: A supply of goods that  is available for production and sales in a shop, store.

2.      Re-Order Point: It is the methods for identifying the taking of an order or the point at which to place an order

3.      E.O.Q (Economic Order Quantity): It is to determine the quantity to be ordered of raw material, WIP and finished goods given expected usage, ordering and storage costs.

4.      Inventory: It is the detailed cost of an item (stock).

5.      Work in Progress: It is work in process.