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)
ABSTRACT
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
PAGE
Title Page i
Declaration ii
Certification iii
Abstract iv
Acknowledgments v
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
CHAPTER
THREE
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
CHAPTER
FOUR
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
CHAPTER
FIVE
5.0 Finding 82
5.2 discussion
of finding 83
5.3 Conclusion 85
5.4 Recommendation 88
5.5 Bibliography 90
CHAPTER ONE
INTRODUCTION
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.
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