AN APPRAISAL OF EFFICIENT INVENTORY MANAGEMENT ON THE PERFORMANCE OF MANUFACTURING FIRMS (A CASE STUDY OF ANAMBRA MOTOR MANUFACTURING COMPANY – ANAMMCO)
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AN APPRAISAL OF EFFICIENT INVENTORY MANAGEMENT ON THE PERFORMANCE OF
MANUFACTURING FIRMS
(A CASE STUDY OF ANAMBRA MOTOR MANUFACTURING COMPANY – ANAMMCO)
ABSTRACT
This research work deals with an
appraisal of efficient inventory management on the performance of manufacturing
firms using Anambra motor manufacturing company as case study.
Survey samples were
used to determined the perception of the staff regarding the research questions
formulated and to further test the results, t-test was used.
-
That
costs associated with stocked materials are minimized through proper evaluation
of material issues and a centralized purchasing department.
-
Again
for improved productivity, cordial relationship is maintained among various
departments, which enhances profit maximization and growth. It is also observed
that the management trains her material personnel by way of conducting series
of seminars in the field of management.
Based on these
findings, it is penitent to recommend that since inventory contribute directly
to the profitability of an organization proper attention should be given to it
in both handling and usage and to ensure efficiency orientation
TABLE
OF CONTENTS
Title
page
Approval page
Dedication
Acknowledgment
List of table
Abstract
Table of contents
CHAPTER ONE:
Introduction
1.1 Background
of the study
1.2 Statement
of the problem
1.3 Purpose
of the study
1.4 Scope
of the study
1.5 Research
question
1.6 Significance
of the study
1.7 Limitation
of the study
1.8 Definition
of terms
CHAPTER TWO:
Literature
review
2.1 Concept
of inventory management
2.2 Classification
of inventory
2.3 Inventory
management and material requirement plan
2.4 Procurement
of inventory
2.5 Inventory
control
2.6 economic
order quantity
2.7 Stores
management
2.8 Stock
taking and stock checking
2.9 Summary
of literature review
Reference
CHAPTER THREE:
Methodology
3.1 Research
design
3.2 Area
of the study
3.3 Population
of the study
3.4 Sample
and sampling technique
3.5 Instrument
for data collection
3.6 Validation
of the instrument
3.7 Reliability
of the instrument
3.8 Method
of data analysis
Reference
CHAPTER FOUR:
Data presentation and analysis
4.1 Presentational
and analysis data
4.2 Summary
of results
References
CHAPTER FIVE:
Discussion, recommendation and
conclusion
5.1 Discussion
of results
5.2 Conclusion
5.3 Implications
of results
5.4 Recommendation
5.5 Suggestions
for further study
5.6 Limitation
to the study
References
Appendixes
LIST
OF TABLES
4.1 Perceptions
of male and female staff of Anammco on approaches.
4.2 T-Test
analysis of the difference between the mean perception scores.
4.3 Perception
of male and female staff of Anmmco an Nariable contribution.
4.4 T-test
analysis of the difference between the mean perception scores.
4.5 Presentation
of male and female staff of Anmmco on variable approaches.
4.6 T-test
analysis of the different between the mean perception scores.
4.7 Perception
of male and female staff of Anammco on availed approaches
4.8 T-Test
analysis of the difference in the mean perception scores.
4.9 Perception
of male and female of Anammco on the impact of efficient inventory management.
4.10 T-test
analysis of the difference in the mean perception score.
4.11 Perception
of male and female staff of Anammco on the productivity objective.
4.12 Perception
of male and females staff of Anammco on minimization of objectives.
4.13 Perception
of male and female staff of Anammco on efficiency attained.
CHAPTER
ONE
1.0
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
One of most topical functions in most
organizations in terms of its role and integration into the overall
organizational framework is the material or inventory management function. In
spite of increasing awareness of the importance of material management in
comparison with other business functions such as production, engineering,
finance, marketing, personnel, etc. it is in this regard that some of the key
concepts of materials or inventory management are to be examined with a view to
determining its role in the achievement of overall corporate objectives.
Notably, for he
purpose of clarity and better understanding, inventory management and materials
management will be used synonymously in this work.
However, it is
pertinent to first address the question of why should an organization attach
any importance to materials management at all. The central objective of most
business organizations is to maximize profit. All activities are usually
tailored towards the realization of this objective materials management is also
important in non-profit organizations such as government agencies, armed forces
etc.
However, the focus of
this research is on business organizations and manufacturing organizations in
particular since they usually require more dynamic approaches to materials
management as economic agents operating under ever changing economic and
business environments. This is because the challenge for more integrated
approach towards materials management is certainly more for the average
business organization than that of government agency.
Inventory management
involves all the processes needed to plan, acquire, store, control and
distribute inventories or materials at minimal costs to the organization. This
talkes us to the inventory management cycle, which comprises the systematic
stages involved in inventory management, which includes:
1.
The
management
2.
The
purchasing department
3.
The
vendor
4.
The
stores
5.
The
finance and accounts department
6.
The
audit
7.
The
review process
The management:
The management appoints purchasing officers and other key offices, approves
stock purchasing budget, issues policy guidelines on material requisition,
purchasing, receipts and accounting system, approves tenders, defines roles and
responsibilities of actions, sets inventory management objective and approves
the store guide.
The purchasing
department: The purchasing department carryout
prices survey/negation, issues purchase order – prepares stock requisition,
prepares budgets, both quantitatively and financially seek approvals from
management for fresh request and receives orders into the store.
The vendor: Issues
quotations, receives purchase orders, supplies goods, issues invoice and goods
delivery note (3 copies) and receives payments for acceptable delivery.
The stores: Receives
goods/ orders, check order against purchase order and delivery note, raises
store receipt vouches, signs the venders good received note and sends to
management, considers store requisitions from end users, update stock
ledgers/bin cards, carryout store layout and ensure security of store items
Finance and Accounts:
Checks
invoices against order, goods received note and inspection note, raise payment
voucher and finally effect payment based on the authority to incur
expenditure.
The audit:
Inspects the order on delivery, issues inspection note, examines the payment
vouchers, authenticate, check pass and authorize payments and reports to
management where necessary.
The review process: Involves
the consideration of the reports submitted by the board of survey, the audit
and any other person(s) assigned to report on the inventory management system,
and the establishment of control measures to ensure that the inventory
management objectives are realized in future cause of action.
Indeed, inventory
management is commonly referred to as the last Goldmine” for business
executives in view of its potentials for direct contribution towards profit
improvement (The Guardian Feb. 23, 2002). Unlike most business functions,
nay savings made in material cost goes directs into profits since most other
costs are either fixed or semi-fixed.
For example, if a
manufacturing company makes a turnover of N’000m and its profit is 15% turnover
or N’5m the company spends say 50% of its turnover on inventor6y and is able to
effect a 7.5% savings in inventory costs, the level of profit improvement in
relation to efficient inventory management can be calculated as follows:
N’000m sales at 15% profit
- N15m
N50m on inventory at 7.5%
Savings in material costs
- N3.75m
N18.75m
Now if the above savings in materials
cost was not achieved, it would have been necessary to increase turnover by 25%
(N125m) to achieve the same level of profitability. Thus, 7.5% savings in
inventory cost equates with 25% increase in sales turnover ratio as the one
analyzed above.
In practice, most companies are unable
to record up to 15% profit on sales turnover and as such inventory cost savings
are expected to contribute more significantly to profit improvement than
increase in turnover.
One of the problems facing many
organizations today is how to determine the best out of the various system
of management inventories. How to integrate the inventory management
processes into the overall organization structure in order to achieve corporate
objectives.
Generally, the choice of inventory
management system will depend on the organization, the nature of her business,
the operating environment, the level of professionalism exhibited by key
materials personnel and experience of the chief executive officer / policy
maker. In all cases, the central focus of the organization should be on which
concept will reduce inventory costs to the barest minimum. In other words,
which system guarantees the most substantial savings in materials costs.
However, in practice, it has been discovered that in the absence of any
corporate policy on the organization of the inventory management function, top
management values bear an overriding influence on the choice of an inventory
management concept.
Some organizations embark on
decentralized materials management approach which may well, have its own
merits. It is generally agreed by practitioners that the central objective of
cost minimization in materials management is better achieved through a
centralized materials management approach under a qualified and experience
materials manger (The Guardian March 2, 1999). The materials management
function can be performed as a single activity or subdivided into various
activities depending on the organization.
For large organization with many
product lines requiring diversified materials sourcing. It is more appropriate
to subdivide the functions into three units in which case there will be three
units mangers viz; purchasing manger, planning and control manager and
warehouse / sores manger all reporting to a departmental manager; the materials
manager. Such a company may also decide to bring in the physical distribution
unit under a centralized logistics management concept.
However, expert for operational
problems, the cost savings advantage derivable from efficient materials
management can be obtained in both cases. In very large organization, the
materials manager and the physical distribution manager could report directly
to the logistics manager so as to reduce operational problems. The advantage of
appoint a top manager in form of materials or logistics manager to supervise
materials incremental costs in that the is now in a better position to look at
the organization as a single unit just like the chief executive. Areas of
conflict that usually arise between purchasing, production, stores and
materials control etc are substantially reduced. Duplication of functions,
delays and wastages that lead to increased materials cost are therefore
reduced. Over all management efficiency is most like to increase.
Some organizations prefer to
decentralize the materials management department with each sub-department given
some measure of autonomy as a means of checking abuses that could arise when
one person is vested with authority over all material associated costs. As
earlier stressed, the structure of material management function at any point in
time depends on the organization in question. Eg. In a building construction
company where there is no finished goods inventory in the conventional meaning,
the logistic mangers will be dong almost the same job with the materials
manager and as such there will no need to run a logistic management concept as
defined in the content unless some other functions not included in the concept
are brought under logistic management.
However, in all cases, any of the above
concepts that promote cost savings, professionalism and management efficiency
will always be ideal for each organization.
BRIEF HISTORICAL
BACKGROUND OF ANAMMCO
Mercedes-Benz Anammco is a joint
venture between the federal government of Nigeria and Diamler – Benz AG of
Germany. MB-ANAMMCO manufactures of commercial vehicles and leads in the
commercial vehicle market in Nigeria with five tons play load and above, the
plant, which occupies a sprawling 300,000m2 sites at Emene, near
Enugu is veritably a shining example of a profitable and viable economic and
technological co-operation between the government and people of Nigeria and
Germany.
MB-ANAMMCO LTD was incorporated on
January 17, 1977 and the foundation stone laid on may 12, 1978. The official
commissioning of the plant was on July 8, 1980 by the first executive president
of Nigeria, Alhaji Shehu Shagari. It started formal production operation on
January 1981, and has to date made an enviable mark on the nation’s industrial
growth, adding over 20,000 vehicles to the nation’s transport sector backed up
effectively with a network of over 36 after sales service points and spare
parts supply depots. The company’s central spare parts depot in Enugu stocks
over 45,000 lines of items.
The Diamler-Benz controls 40% of
the total share capital the remaining 60% of which is distributed among the
Nigerian shareholders thus:
Federal ministry of finance 35%
Enugu state of finance 10.5%
Anambra state ministry of financier2.0%
Rivers state ministry of finance 3.4%
IMO state ministry of finance 1.3%
Abia state ministry of finance 1.2%
Nigerian citizens and associates 6.6%
MB-ANAMMCO had staff strength of 794
(12 expatriates) as at 2001 but has now risen to over 800 employees.
MB-ANAMMCO PRODUCT
RANGE:
The multi-million-naira plant was
initially planned to produce trucks for the Nigerian market. But today, the
plant ahs diversified its production range to include the full range of
commercial vehicle for the rapid industrialization of the country. It not only
produces trucks as originally planed, but also has gone a step further in
fabrication, manufacturing and production of buses and other utility vehicles.
Part of its product-range today include MBO 131, L 608 D, MBO 1520, MBO 911,
MBO 809, fire fighting vehicles, Ambulances, mobile clinics, collector and
other various specialized types of producing a new inter-city Bus (MBO 1635).
It should be noted that MB-ANAMMCO has achieved over 65% local content in some
of these vehicles, especially in buses.
As a formidable representative of MB-AG
in Nigeria, MB-ANAMMCO brings Mercedes Benz Technology and know-how to Nigeria
while at the same time creating over 260 employment opportunities for
Nigerians.
MB-ANMMCO has actively participated in
the federal government assisted mass transit programme. It has supplied over
800 units of different bus models to the federal urban mass transit agency and
state and local government mass transit companies. These buses are still going
strong as they are supported by the ubeatable after-sales services of the
company and their renowned distribution and dealers.
In the area of training and manpower
development, the MB-ANAMMCO training center, which was commissioned in 1982,
has lived up to its billing in producing high caliber middle level technical
manpower for the company, and the nation in general.
Staff welfare is not left out.
MB-ANAMMCO continues to live up to its social responsibilities in all
ramifications. It takes care of its over 800 employees by offering them highly
subsidiaries food at its modern canteen, providing free medical services to its
employees and their dependents and offering recreational facilities.
The company has continued to maintain a
high level of resilience in its attempt to survive the harsh economic climate
and live up to the most historical, traditional and successful auto company in
the world, Mercedes-Benz AG.
1.2 STATEMENT
OF THE PROBLEMS
Inventory is lifeblood of any
organization. This is because inventory contributes directly to the profitability
of an organization and as such the growth of any organization depends on its
ability to manage its inventory efficiently.
Based on this fact,
the following problems are to be examined by the researcher:
1.
The
inventory management system that can best achieve organization profit
objective.
2.
The
extent effective and efficient inventory management can contribute to
organization profitability.
3.
The
best approach of valuing material issues.
4.
The
best way to minimize acquisition costs and fraud to achieve economy of
operation.
5.
The
impact of efficient inventory management on organizational performance.
6.
The
way to improve productivity with a typical inventory management system.
7.
How
material deterioration and wastes can be minimized.
8.
Performance
efficiency and inventory management.
1.3 PURPOSE
OF STUDY
The purpose of this study includes:
1.
To
examine the management system that can best achieve the profitability objective
in the area of study.
2.
To
identify effective and efficient inventory management can contribute to the
organization’s profitability.
3.
To
determine the best approach of valuing material issues in the organization.
4.
To
find out the best way of minimizing acquisition costs fraud in the organization
to achieve economy of operation.
5.
To
ascertain the impact of efficient inventory management in the organization
6.
To
determine how productivity can be improved with a typical inventory management
as the area of study.
7.
To
identify how material deterioration and wastes can be minimized.
8.
To
find out performance efficiency in the organization’s inventory control.
1.4 SCOPE
OF THE STUDY
The scope of this
study borders on efficient inventory management, its effect on the performance
of business organization and manufacturing industries in particular.
Also, many areas such
as inventory management systems, contribution of efficient inventory management
to profitability, material issues, costs minimization and economy of operation,
the impact of efficient inventory management especially as it concerns the area
of study.
1.5 RESEARCH
QUESTION
1.
What
inventory management approach can best achieve the organization’s objective on
profitability?
2.
To
what extent can effective and efficient inventory management contribute to the
profitability of the organization?
3.
How
best can material issues be evaluated to prevent material deterioration and
wastages for better utilization of available materials in the organization?
4.
How
best can acquisition costs and fraud be minimized to gain economy of operation
in the organization?
5.
To
what extent has efficient inventory management impacted on the performance of
the organization?
6.
How
can productivity be improved in an inventory management arrangement as Anammco?
7.
How
can material deterioration and wastages be minimized in an inventory control
system?
8.
To
what extent has the organization achieved efficiency in operation through it
inventory control?
1.6 SIGNIFICANCE
OF THE STUDY
This research work can be of great help
to those who have little or on knowledge in the manufacturing business. It will
be valuable to people who are interested in the manufacturing business and want
to make it their career.
This study will also
help the management of Anambra motor manufacturing company (ANAMMCO) to
appreciate areas where improvement is needed in her inventory operations so as
to boost her profitability and consequently increase her shareholder’s wealth.
Indeed, this will in
no little way have a favoruable effect on the national income of Nigeria.
Again, it is hoped that his work will be of immense use to future researchers.
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