THE EFFECT OF INVENTORY MANAGEMENT ON PERFORMANCE IN QUOTED TEXTILE MANUFACTURING COMPANIES IN NIGERIA. (A CASE STUDY OF OUDA TEXTILE AND NIGERIA TEXTILE INDUSTRIES)
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THE EFFECT OF INVENTORY MANAGEMENT ON PERFORMANCE IN QUOTED TEXTILE MANUFACTURING COMPANIES IN NIGERIA.
(A CASE STUDY OF OUDA TEXTILE AND NIGERIA TEXTILE INDUSTRIES)
This research arose from a desire to find out the reasons behind low level performance on many Nigeria firms. The decision focusing on inventories, represent a major class of assets for most manufacturing companies. The purpose of this work is to determine the low performance of many Nigerian companies in relation to the inefficiencies of the workers in the industries, and the relationship between the company finished product and the annual sales dispatched to their distributions. Kendel coefficient of concordance was used in the testing and there is a significant relationship between low performance of many Nigerian companies and the inefficiencies of workers in the industries, there is significant relationship between the companies finished products and annual sales dispatched to their distributors. From the finding analyzed below, it was as well discovered that low production are caused due to the benefit of the staff not actually determined, inefficiencies arise because the staff welfare are not encouraging, condition of service is not well challenging. Conclusively, the study discussed some crucial issues of inventory policies, using the Odua textile and Nigeria textile industries; the questions on the factors that affect inventory management are answered. The following policy options are recommended with a view to make the company more productive and competitive. The company should as a matter of urgency create inventory management department and employ a management expert to head the department in order to see effective application of inventory control models, the marketing department should be completely overhauled.
TABLE OF CONTENTS
Title Page i
List of Tables and Figures vi
CHAPTER ONE: INTRODUCTION
1.1 overview of the study 1
1.2 statement of the problem 4
1.3 purpose of the study 5
1.4 research questions 6
1.5 working hypothesis 7
1.6 significance of the study 8
1.7 definition of term 8
1.8 limitation and scope of the study 14
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 review of related literature 16
3.1 Methodology 60
3.2 sample and population 60
3.3 research instrument 61
3.4 administration of the questionnaires 64
3.5 data collection procedures 65
3.6 instrumentation 65
3.7 data collection method and analysis 67
3.8 limitation 68
4.0 presentation and analysis of data 69
4.1 research question 1 69
4.2 research questions 2 70
4.3 research questions 3 71
4.4 hypotheses 1 73
4.5 hypotheses 2 75
4.6 hypotheses 3 78
5.0 Finding 82
5.2 discussion of finding 83
5.3 Conclusion 85
5.4 Recommendation 88
5.5 Bibliography 90
1.1 OVERVIEW OF THE STUDY
Inventory Management: Is seen as an integral part of business activities which deals with acquisition, storage and allocation of materials to meet consumer’s demands.
Manufacturers usually maintain three types of inventories, Raw Material. Work- in Progress and Finished Goods.
Inventory management is one of the earliest yet consistently fruitful application areas for the techniques of management science. It is one area in which management practices has had a significant impact in the business world.
Inventory represents a major class of assets for manufacturing companies. Large inventory balances required significant investment of funds, so most companies establish policies for the management of funds. On the basis of this, comprehensive budgets can be developed to specify the desired ending balance of raw materials, work-in progress and finished goods for the budget period. Inventories difficulties can and do contribute to business failure. For instance when a firm does no more than unintentionally runs out of an item, the results are not pleasant. If it were retail store like most of the department stores in Lagos State, the merchant loses the gross margin on the item. If the firm were a manufacturing one such as Odua Textile Industries Ltd, the stock out could, in extreme cases bring production to a halt with its attendant loss of goodwill and customers’ frustration. If on the other hand, firms keep unnecessary large inventories, the effects could manifest themselves in terms of funds tied up in inventories. There is also the possibility of obsolescence, which are the final analysis effect from the margin.
An inventory system perform a lot of functions, these include providing materials part or products when they are needed to meet expected demand. For example, if it takes six weeks to manufacture a products and customers expect immediate delivery on an order. Sufficient finished goods inventory must be available to meet expected ‘customer demand’ in addition most companies carry what is called “SAFETYSTOCK”, which consist of inventory in excess of expected demand. This safety stock provides protection against upside fluctuations in demand such as sudden, unexpected increase in order (Dannebeirng and Star, 1991:491).
Inventories permit the management of a firm to “decouple” the various stages of the manufacturing and distribution process. For instance, even though a firm’s demand may follow a market seasonal pattern, production can be achieved at a smooth, uniform rate by following inventories to absorb or buffer the seasonal demand impact. Thus, inventories would increase during low demand periods, and then increase during peak periods. (Dannebring and Star, 1991:492).
Companies also frequently use inventories as a hedge against the uncertainty use of price charge or availability of materials. If inflationary pressures suggest that the price for a particular item is likely to rise, a firm may increase its inventory of the item in expectation that purchase price savings will more than offset any additional inventories costs. (Dannebring and Star, 1991:42)
There are two basic inventory decisions, managers do make as they attempt to accomplish the function just discussed. These decisions are made for every item in the inventory, the first is “how much” of an item to order or produce when the inventory of that item is to be accomplished.
The second is “when to replenish the inventory of those items. Models that aid these basic decisions include economic order quantity, economic lost size and service level models. They will be thoroughly examined under different cost and demand situations (Kirkkpatrick, 1991:255).
1.2 STATEMENT OF THE PROBLEM
Many Nigeria companies in manufacturing process are competitive in nature, and they need to produce the best product, which will best meet the taste of the public in general.
It was also observed that manufacturing companies are not working toward recognizing the inventory tools which will inevitably aid the increase in production and to meet up with the requirement of their customers.
Low production was also observed in many Nigerian companies which are also linked to the treatment of their workers not putting much effort in optimum production that will yield maximum return. With regard to the effort to provide effective inventory management, the following issues bother the researcher.
i. How are the effects of finished product related to sales?
ii. How are the patterns of the quantitative technique of inventory in relation to the decision making in an organization?
iii. To what extent is the low level performances of many Nigeria companies affect the inefficiencies of the works in industries
1.3 PURPOSE OF THE STUDY
Based on the identified problems the purpose of this study is to achieve the followings:
i. To determine the effect of finished product as related to sales dispatched to their distributions.
ii. To determine the pattern of the quantitative technique of inventory in relation to the decision making in an organization.
iii. To determine the low level performances of many Nigeria companies in relation to the inefficiencies of the workers in industries.
1.4 RESEARCH QUESTION
In the light of the problem stated above, a number of research questions demand answers from this study.
a. What are the effects of finished product as related to sales dispatched to their distributors?
b. What are the effects of the quantitative technique of inventory in relation to the decision making in an organization?
c. To what extent is the low level performance of many Nigeria companies in relation to the inefficiencies of the workers in industries?
1.5 WORKING HYPOTHESIS
The following hypothetical statement were formulated for testing.
H01: There is no significant relationship between the company finished product and the annual sales dispatched to their distributors.
H02: There is no significant relationship between the quantitative techniques of inventory and quicker reliable decision making.
H03: There is no significant relationship between the low level performance of many Nigeria companies and the inefficiency of the workers in the industries.
1.6 SIGNIFICANCE OF THE STUDY
Inventory management in many Nigeria manufacturing companies determines the best way production should take place, the stock required to invest on, and the best method of placing stock in the warehouse.
The major benefit derived will lead to technological innovation, social responsibility, acceleration of production and growth of market of the companies’ product in the state.
It is also important to note that the practice of inventory management will deal acquisition, storage and allocation of materials to meet consumers demand.
1.7 DEFINITION OF TERM
Definition of concepts and terms is necessary at this stage as a basis for comprehending some of the terms that will keep recurring in the course of our analysis.
Carrying Costs: These are the cost associated with the keeping of stocking of raw materials or finished products. There is an inverse relationship between the ordering cost and holding cost. (Dannenbring, 1991:62).
a. Ordering Costs: These are associated with placing order for materials they may be raw materials in the case of a manufacturing firm or finished products ordered by trading firm. (Dannenbring, 1991:63)
b. Economical Order Quantity: This is the size of a replenishment order that will minimize costs associated with ordering and carrying inventory.
c. Lumpy Demand Models: These are the inventory models used for items that have uniform and non-uniform demand
d. Optimum Production Lost Size: An optimum production size is one where the finished goods are being sold, while lot or batch is being produced. In this case the inventory of finished goods does not build up immediately to its maximum (Dannenbring, 1981:64).
e. Inventory Policy: These are rule that concern certain rules, made on stock holding. Holding of stocks are recorder level policy, period reveal policy, the minimize policy, recorder is also known as two bin system when stock are exhorted on one order replenishment, recorder for other one from one to another.
f. Production Run: This is the period when production, takes place. The length of production run is usually calculated in days as the quantity produced divided by the demand rate. In this case, if a firm produced divided by the demand for instance, a firm produce 2000f meters per bed sheeting to satisfy a demand rate of 500, the length of the production run will be 2000/500=4days.
g. Lead Time: This is the interval between the time an order is placed and the time the stock is actually “replenishment lead time”.
h. Safety Stock: This is an inventory carried in excess of expected requirement during the replenishment lead time to protect a company against stock outs due to uncertainty in demand during the time period.
i. Recorder Point: It deal with the question of “when to order” point is known as recorder point.
j. Stock Keeping Unit (SKU): This is the term some companies in place of item.
k. Service Level Model: This is an approach which uses probability of being out of stock without affecting customers, if demand is established. Normally, service level policy is usually aimed at achieving 95% mark leaving 5% as the stock out level.
l. Set-Up: This is the cost associated with the non-productive time involved in setting up machinery and equipment. (Dannenbring, 1991:74)
1.8 LIMITATION AND SCOPE OF THE STUDY
Inventory centre on appropriation of the right goods in the right Quantity at the right time and right place. This work will be constrained due to inability to cover large number of companies in Nigeria. A large coverage would have enabled more assertive statement to be made and this could have served as a good base for further advance works. The inability in restrictions and interpretation of findings due to the nature of the characteristic of the population in the industries. The variable being measured, the extraneous variables that are not completely controlled and all other influence that can affect the collection and analysis of the data.