THE EFFECT OF INVENTORY CONTROL IN MANUFACTURING COMPANY - UNIPROJECTS

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THE EFFECT OF INVENTORY CONTROL IN MANUFACTURING COMPANY

THE EFFECT OF INVENTORY CONTROL IN MANUFACTURING COMPANY

CHAPTER ONE

INTRODUCTION

This chapter of the study presents the background of the study, statement of the problem, general objective, specific objectives, research questions, scope of the study, significance of the study and definition of key terms

Background of the study

 

United wire production limited, Kaduna is Liability Company. The company was incorporated in March 1977, and started commercial production in October 1979, and has been in full products since January, 1980. United wire products limited in currently set up to produce different sizes of wire, Nail, Barbed wire chain link fencing wire. In 1981-82 the company underwent an expansion exercise involving the introduction of two new product lines soft building wire welding electrodes. it is the only company in the northern states producing welding electrodes. In 1985, a Gal vanishing plant was added to the product line of the company. The company at that time was first to manufacture Galvanized wire which is a raw material required for the production of barbed wire, chain link fencing wire and galvanized welded mesh. The successes recorded above have not only made the company the leading wire manufactures in other states but also one of the leading in the country as a whole.

United wire production limited face a dilemma in today’s competitive marketplace, where on one hand, customers demand customized products and services and require that their orders are filled quickly, but on the other hand they do not want to pay a premium for this customisation and availability (Graman and Magazine, 2006)

. Therefore, organisations are exploring ways toward postponement strategy in response to constantly changing demands Yang et al.(2010). Graman and Magazine (2006) argued that today, the cost of holding inventory, extensive product proliferation and the risk of obsolescence, especially in rapidly changing markets, make the expense of holding large inventories of finished goods excessive and that high demand items naturally have safety stock assigned to them, but in many organisations there are so many very-low-demand items that keeping any stock of these items is unreasonably expensive, so they argue that companies must now provide good service while maintaining minimal inventories. Therefore, inventory management approaches are essential aspects of any organisation.

In traditional settings, inventories of raw materials, work-in-progress components and finished goods were kept as a buffer against the possibility of running out of needed items. However, large buffer inventories consume valuable resources and generate hidden costs. Consequently, many companies have changed their approach to production and inventory management. Since at least the early 1980s, inventory management leading to inventory reduction has become the primary target, as is often the case in just-in-time (JIT) systems, where raw materials and parts are purchased or produced just in time to be used at each stage of the production process. This approach to inventory management brings considerable cost savings from reduced inventory levels. As a result, inventories have been decreasing in many firms (Chen et al., 2014), although evidence of improved firm performance is mixed (Kolias et al., 2011).

 

The role of inventory management is to ensure faster inventory turn over. It increases inventory turn over by ten (10) and reduce costs by 10% to 40%. The so called inventory turn over is not yet right to sell products on the shelves based on the principle of FIFO cycle (Kenneth lysons and Michael gilligham, 2003).

 

Inventory is classified basing on the business undertaking from organization to organization. Common criteria used and are nature of inventory for example manufacturing, sale or retail, purpose for which inventory is being held in stock or function and the related usage in the supply chain. Typical classifications are raw materials (items in unprocessed state awaiting conversion e.g. timber, steel and coffee seeds), components and sub-assembles. These are for incorporation into the end product e.g. side mirrors, glasses for car assembling company and monitors or keyboards for a computer  assembling company), consumable (all supplies in an undertaking which are classified as indirect and which do not form part of saleable product. (Divided into production, maintenance, office and welfare). Proper classification of inventory and its control improve the financial position of a business (David Jessop and Alex Morrison 2004).

Inventory management involves the planning, ordering and scheduling of the materials used in the manufacturing process. It exercises management over three types of inventories that is raw materials, work in progress and finished goods. Purchasing is primary concerned with management over the raw materials inventory, which includes; raw materials or semi-processed materials, fabricated parts and MRO items (Maintenance, Repair and Operations) (Garry, 1997).

However, Lau and Snell (2006) argued that inventory management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different locations within a facility or within multiple locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods for improved performance. The scope of inventory management also concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods and demand forecasting.

Poor inventory management had become an issue of great concern since performance is regarded as the main stream for development of organizations. A truly effective inventory management system minimizes the complexities involved in planning, executing and controlling a supply chain network which is critical to business success. The opportunities available by improving a company’s inventory management can significantly improve bottom line business performance.

According to Jayeff (2008) argued that from a financial perspective, inventory management is no small matter. Oftentimes, inventory is the largest asset item on a manufacturer’s or distributor’s balance sheet. As a result, there should be a lot of management emphasis on keeping inventories. The objectives of inventory reduction and minimization are more easily accomplished with modern inventory management processes that are working effectively for improved performance.

The inventory management is much more complex than the initiated understood. In fact, in soft drinks industry the inventory control department is perceived as little more than a clerical function as it is probably not very effective. The result of this to inventory management is lots of material shortages, excessive inventories, high costs and poor customer service (Briers, 2005).

Too much inventory and not enough customer service is very common, but unnecessary. There are proven techniques that can help accurately industry customer demand and to calculate the inventory needed to meet defined level of customer service. Using the right techniques for sales forecasting and inventory management help to monitor changes and respond to alerts when action needs to be taken. The right approach to inventory management can produce dramatic benefits in customer service with lower inventory (Kreg, Cristine, 2007).

Statement of the problem

Some of the manufacturers of cable wire in Nigeria are presently undergoing difficulties especially in the area of inventor functions and managerial policies. The evaluation techniques of inventory issues and pricing techniques of supplies, since these are certain cost benefit rations to be associated with every unit of inventory the firm maintains, this fact calls for a decision to be made on what quantities purchases and manufactured items should be kept in stock certain criteria are to be evaluated by good management so that it can make good decision on its inventory policy. This will definitely facilitate a sound and reliable decision on the productivity and productivity levels of the company. In recent time, there has been a shortage of raw materials and followed by low production capacity with resultant effects of low output and high price of final products. Both skilled and unskilled labourers and workers of United wire limited were sent on compulsory leave and some are totally retrenched as a result of closure of factories when it became clear that materials were not made available for the company. Various government policies as regards impart restrictions and foreign exchange market fluctuation pose a lot of problem on most manufacturing firms in getting raw materials imported also, poor decision concerning product mix, sales mix pricing policies for profitability, output policy and ordering purchasing policies constitutes another set of problems in the operation of these firms. This aspect of the problem has worsened the situation because of ultimate effect is that the cost per unit of the few available product is poorly computed that the sales price to the final consumer goes slay rocketing. No manufacturing or retailing firm can operate in vacuum especially one concerning inventory management and united wire limited is not an exception.

Objective of the study

The overall objective of the study was to find out the effect of inventory control in manufacturing company, a case study of united wire production limited kaduna

 The Specific objectives is

  1. To find out the techniques of inventory management used at United wire limited
  2. To examine the relationship between inventory management and productivity of United wire limited
  • To find out the challenges faced by united product limited in managing the inventories.
  1. To investigate the effect of inventory control on united wire products limited

Research questions

  1. What are the techniques of inventory management used at united wire limited?
  2. What is the relationship between inventory management and performance of united wire limited?
  • What are the challenges faced by united wire limited in managing the inventories?
  1. What are the effect of inventory control in united wire limited

Scope of the study

The study is aim to investigate  the effect of inventory control in manufacturing company the study will focuss on United wire production limited, Kaduna.

Significance of the study

The study findings may be significant in the following ways;

It is hoped that study findings may be used as basis for further research and investigations in form of literature.

 

The findings may provide information to managers in different organizations especially on knowing how to compare actual performance and inventory management.

 

The findings may also be beneficial to other up coming researchers to investigate further about the impact of inventory management on organizational performance of other organizations other than eternity limited.

 

The study may further encourage government to set up educational institutions to provide training on how to manage inventory in organizations.

Definition of key terms

Inventory: – is the amount of goods, materials or parts carried out in stock or store house for example, work in progress (W.I.P), raw materials, financial goods resale MRO items.

Inventory management according to Garry, J.Z, (1997) involves the planning, ordering and scheduling of the materials used in the manufacturing process. It exercises control over three types of inventories i.e. raw materials, work in progress, and finished goods. Purchasing is primary concerned with control over the raw materials inventory, which includes; raw materials or semi-processed materials, fabricated parts and MRO items (maintenance, repair and operations).

Inventory control: – refers to the process whereby the investment in materials and parts carried in stock is required within pre-determined unit set in accordance with inventory policy established by management.

A customer, also client, buyer or purchaser is the buyer or user of the paid products of an individual or organization, mostly called the supplier or seller. This is typically through purchasing or renting goods or services. It is also the person or group that is the direct beneficiary of a project or service.

 

Profit generally is the making of gain in business activity for the benefit of the owners of the business. It is also defined as returns received on a business undertaking after all operating expenses have been met.

A technique refers to the ways which may be adopted in order to minimize on the uncertainties or outcomes of poorly inventory levels like stockless purchasing system, determining order quantities and inventory levels.

Efficiency refers to a functioning or prospering of a company at a given time in a given period basing on the desired goals and objectives of a company.

 

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