1.1 Introduction
Inventory refers to the stock of resources that possess economic value, held by an organization at any point of time. These resources stocks can be manpower, machines, capital goods or materials at various stages. Inventories are the stocks of raw materials, work in progress, finished goods and supplies held by a business organization to facilitate operations in the production process (Pandey, 2005). Efficient inventory cost management is vital to the successful functioning of manufacturing organizations. The inventory cost management of any organization represents an important decision making function at all stages of the product manufacturing, distribution and sales chain. Inventory Management has attracted a great deal of attention from people both in academia and industries.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
Inventory is one of the resources that are managed by business organizations and it was first recorded in 1601. The need for inventory control cannot be overemphasized as it is a means for improving the performance of manufacturing industries. Inventory can be defined as a record of a business current assets including property owned, merchandise on hand and the value of work in progress and work complete but not sold and it is classified as a current asset because it can be turned into liquid cash within a short period of time. Inventory has created a great impact on the profitability of the manufacturing firm which resulted to the deep research of this topic.
Chase, Jacobs & Aquilano (2004), defined inventory as the stock of any item or resource used in an organisation. An inventory system is the set of policies and controls that monitor levels of inventory and determine what levels should be maintained, when stock should be replenished, and how large orders should be Inventories can either be assets as well as items held in the ordinary course of business or they can be goods that will be consumed or used in the production of goods to be sold.
According to Wild (2002), inventory control is the activity which organises the availability of items to the customers. It coordinates the purchasing, manufacturing and distribution functions to meet marketing needs. This role includes the supply of current sales items, new products, consumables, spare parts, obsolete items and all other supplies. Inventory enables a company to support customer service, logistic or manufacturing activities in situations where purchasing or manufacturing of the items is not able to satisfy the demand. Lack of satisfaction could arise due to the speed of purchasing, protracted manufacturing and because quantities cannot be provided without stocks.
In inventory, there is an optimum level therefore inadequate inventory causes loss of sale and disrupts the production process while excessive stock level leads to unnecessary carrying cost and obsolescence or spoilage risks. Inventory plays a major role in the operation of many businesses and manufacturing companies. In manufacturing, inventories of raw materials allow companies to operate independently of their sources of supplies. Day to day operation are not dependent on deliveries from supplies since stock of the necessary mateials are maintained and used s needed. Without inventory control, millions of naira could be lost year because of non accountability of stocks and inaccurate checks and balances.
The process of control and management of inventory is a very important factor in the success or failure of any business for example, little stock will result in stock out which will disrupt the production distribution cycle that is crucial to the survival of all manufacturing companies while too much stock will tie down the resources of a company. Poor or inadequate inventory management can present a serious challenge to the productive capacity of a manufacturing organization. In addition to raw materials and finished goods, many companies also maintain items of assets, property, inventories of work in progress, office supplies, business firms and general operation supplies.
Therefore, in Pabod and Palm Nectar Breweries Limited Company in Port Harcourt where the research was carried out, the activities that was conducted is to know the Inventory Management and Financial Performance of Manufacturing Companies in Nigeria.
1.3 Statement of Problems
Investigation reveals the problems of the Inventory Management and Financial Performance of Manufacturing Companies in Nigeria research work which include:
- Ineffective management of inventory in the manufacturing company specifically Pabod and Palm Nectar Breweries Limited Company.
- Loss of sales or business of the company as a result of insufficient inventories of finished goods.
- Low productivity in the manufacturing company as a result of poor inventories model used by the company.
- Poor management and control of inventories in the manufacturing company.
Inventory management is very essential in any organization setting, because holding stock is just like holding cash, and cash is life blood of the firm. Also in the context of inventory management, the organization is faced with the problem of reconciling two conflicting need; to maintain a large inventory for smooth production run and to maintain a minimum inventory to maximize profitability by having the lowest carrying cost.
1.4 Aim and Objectives of Study
The aim of the study is to scrutinize the Inventory Management and Financial Performance of Manufacturing Companies in Nigeria. In achieving this aim, the following specific objectives were laid out as follows:
- To determine to what extent the ineffective management of inventory in Pabod and Palm Nectar Breweries plc has caused low productivity in the company.
- To examine the extent to which insufficient inventory of finished goods cause loss of sales to the company.
- To identify the degree to which poor inventory modern used by the company has resulted to low productivity in the company.
- To ascertain whether the company has suffered from poor management and control of inventories.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Does effective inventory control ensure continuous production of goods in Pabod and Palm Nectar Breweries?
- What is the state of inventory management and Financial Performance in the Nigerian manufacturing company especially Pabod and Palm Nectar Breweries plc?
- Has effective inventory control made a significant impact on the manufacturing company?
- To what extent the ineffective management of inventory in Pabod and Palm Nectar Breweries Limited Company in Port Harcourt has caused low productivity in the company?
- What is the degree to which poor inventory modern used by the company has resulted to low productivity in the company?
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