INVENTORY MANAGEMENT AND CONTROL IN A MANUFACTURING ORGANIZATION (A CASE STUDY OF AKARAKA INDUSTRIES NIGERIA LIMITED ABOH MBAISE –IMO STATE)
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1.1 BACKGROUND OF THE STUDY
It is a fact in materials management that continuity in production or provision of services on constant flow of required inventory. However, the question confronting the materials management remain, how much shall be ordered when the quality available is less than required to meet production demand or the quantity is less than order point and how best to plan and control the quantity of inventory needed at a given time.
The focus of the materials manager is to reduce the two extreme ends of the spectrum, that is excessive (surplus) stock and adequate stock (stockout). The level of stock or inventory to be purchased or carried by an organization will depend on a number of issue, such as level of consumption, bulk purchase, discount, reliable, delivery dates, difficulty in matching supply with demand, speculation (availability or scarcity) and the company’s policy it is this prevailing dynamic circumstance that gives rise to the need for inventory planning for product availability. Inventory planning however, an enormous task that requires an astute combination of intelligence of what is actually happening to demand and that of what we expect to happen (forecasting).
Inventory in the form of raw materials, work in progress and finished goods constitute significant proportion of assets of most organization. But why is it pertinent to keep any eye on these items in other words, why do we engage in inventory management?
Inventory items cost money to acquire, they cost money to store and to look after, which means storage facilities has to be provided so as to make sure that these materials or items do not get spoilt until they are turned into sellable goods, they do not produce money. When stock are held, it means tying down capital that would have been used in other areas, so it all represent cost and should be managed properly to acquire efficiency.
We must however, hold stock to meet production needs and sales needs. This is because if we do not hold stocks in sufficient quantities, we stand the risk of running out of stock.
Similarly, if we are short of finished goods, we may disappoint our customers. Inventory shortages in both of these forms will likely lead to loss of customers and money. For the organization not have the above problems, they should strike a balance between carrying too much stock (over stocking) and carrying too little stock (under stocking).
This is essentially the importance of inventory management. Managing assets of all kinds is basically an inventory problem, the same methods of analysis applies to cash and fixed assets as to inventory themselves.
Advancement in all business activities has brought about the need for efficient inventory management and control. For the past decade inventories were handled by a clerk in a routine manner. But in recent times proper attention has been given to it. As a matter of fact, a well planned and effectively controlled inventory can contribute substantially to the organization’s growth and efficiency. Inventory control is a vital element in the management of materials.
However, before delving into this plight, it is appropriate to give the definition of inventory control.
According to Baily [1983:73] inventory control is the means by which materials of the correct quantity is made available as and when required, with due regard to economy in storage and ordering cost, purchase price and use of working capital. It involves the following processes.
[a] Accessing the items to be held in stock
[b] Deciding the extent of stock holding of items individually and collectively.
[c] Regulating the input of stock into the storehouses.
[d] Regulating the issue of stock from the storehouses.
Therefore, through these process, it is possible to adjust continuously the quantity and value of inventory held to confirm to circumstance at all times.
The functionary name given to the activities in the stores is known as inventory control or stock control. The inventory controller or stock controller takes custody of the day to day movement of stocks.
Inventory procedure includes receipt, storekeeping, issue and balance of stocks. In practice, the three major functions involve the overall activities that take place in the stores.
Some of the activities are: communication with other department, identification of stores, receipt and inspection, issue and dispatch, stock records, stores accounting, stock control, stock taking and stock checking, storage of equipment and so on.
Inventory control is the clerical control of the movement of goods into and out of the stores, and of the level of inventories in the stores. Different inventory records are kept to know when inventories fell to minimum, maximum inventory level, and re-order point. The success or failure of any organization depends largely on efficient system of their inventory control, since inventory control is regarded as a procedure in which appropriate system containing information are fed to various department for recording or action.
Actually different systems are operated in different organizations in controlling their inventories. Some of these systems work out well while others failed in their purposes. These systems and other relevant point will be discussed fully in the next chapter.
The researcher could not close the general introduction without giving a brief historical background of the company he is researching on.
Akaraka Industries Nigeria Limited [AINL] was incorporated as a private limited liability company in 1994 under the companies’ allied matters Act of 1990. The company is an industrial/Agro-chemical industry located at Oboama Enyiogugu Aboh Mbaise along Owerri Umuahia road. It has her head office at 186 wetheral road Owerri and her factory at Mbaise in Imo State Nigeria.
It was formed mainly to process solid minerals as industrial chemicals and production started with a capacity of 144 tones per day using two machines at its factory in Mbaise along Owerri – Umuahia road. Each machine has a rated capacity of 3 tones per hour and is capable of pulverizing solid minerals to a more scale of hardness not exceeding 7 and humidity below 6 percent.
The grain size of finished products from the pendulum pulverize may be adjusted in the range of 0.125mm to 0.44mm [equivalent to 120 to 320 mesh per inch] according to customers requirements or specification.
The staff strength of Akaraka Industries Nigeria Limited is about 325 with 75 percent of the total workforce coming from the immediate community.
All raw materials of Akaraka Industries Nigeria Limited are naturally as sedimentary metamorphic and igneous rocks in millions of tones.
Her product range includes:
[i] KAOLIN: Used as filler in plastic, rubber [tyre] and paints manufacture filler in papermaking for making porcelain [crucibles] and ceramics [china wares] and in the manufacture of pharmaceuticals.
[ii] CALCITE: Used as raw materials for manufacture of paints, soap, plastic, cosmetics, adhesives etc, as raw materials in the chemicals, glass and cellulosic industry. It is also use for smelting of iron ore and could be crushed and used as granite for roads and concrete as a flux [coke] in melting of iron and melting steel. Manufacture of cement, detergents, soda, lime, glass, artificial fertilizer etc.
[iii] DOLOMITE: Used in the manufacture of paints, toothpaste, cement and lime. It is also used for building, as ornamental stone and as magnesium ore for the production of magnesium.
[iv] DIATOMITE: Used as a filter to remove impurities in breweries and discoloration from liquids as an abrasive to polish soft materials as an absorbent in the production of dynamite when mixed with nitroglycerine.
[v] FELDSPAR: Used in pottery for making porcelain, in making enamel wares, glass, artificial teeth, in the manufacture of fertilizer and for architectural decorations.
[vi] BARYTE: Used mainly in drilling of crude oil and in paint manufacturing. It is also used for pyrotechnics and for protection against x-rays, as flux in brass meeting, as inter filler in the oil cloth manufacture, linoleum paper and plastic, as a weighing material for textiles and leather.
[vii] GYPSUM: Use for manufacture of plaster of Paris [POP] for soil conditioning for cosmetics and pharmaceutical manufacture as a retarded in Portland cement production, as an extender for paint, as a distributor in insecticides and can also be used as filler for paper.
[viii] TALCUM: Used in cosmetics, soap electric cables, ceramics, paints and crayon manufacture.
[ix] AKACLEAN: Used as a souring power
[x] BONACREAM: Used in cosmetics manufacture and for treatment of keloid.
[xi] AKACREAM: Used as after share and for treatment of general skin infection.
The finished products are usually packaged in 50kg bags but can be bagged in jumbo sack if the need arises.
As a result of increased efforts on research and development, the quality of the company’s chemicals ranks the best in the country and very suitable for export.
1.2 STATEMENT OF PROBLEM OF THE STUDY
The survival of any business set up depends upon sufficient application of material functions, policies involved and recognition according to the function.
Up till now inventory management has not been able to occupy it rightful position due to one reason or the other. There has been infringement on the right of inventory management personnel. They are often restricted to mere clerical work in many organizations.
Inventory control and stores management functions have not been fully understood and carried out by many manufacturing organizations.
It is this general assumption that made the researcher to take up the study of how Akaraka Industries Nigeria Limited, Aboh Mbaise operate theirs, to see if there is a difference or differences from the general assumption.
The researcher is not just out to identify the problems or differences but most importantly to device alternative source within the organizational constraints and yet accomplish the set objectives.
1.3 OBJECTIVE OF THE STUDY
The researcher’s reasons in undertaking the study of the inventory management and control in manufacturing organizations taking a case study of Akara Industries Nigeria Limited, Aboh Mbaise are numerous.
The choice is aimed at representing all other manufacturing companies and to attribute the findings to other institutions and organizations.
A well-planned and effectively controlled inventory can contribute substantially to a firm’s profit because inventories are the life-wire of all organizations. It is however necessary to visualize the purpose of this research as follows:
1. To ensure correct quality of stock required.
2. To ensure constant supply and flow of material to the operations.
3. To ensure that the materials are available at the correct time they are needed.
4. To ensure a continuous or steady supply of information for control of production about what to produce in order to keep established level of the organization finished stock.
5. Control of obsolescence of stock ensuring that all stocks held by the organization are being used at a regular rate and therefore have not been superseded by a new or redesigned item.
The success of the company as a manufacturing one has a great influence on the researcher to know the secret behind this success, since inventory control is concerned with the success over failure of any company.
The loopholes to be filled in the management of stores and inventory need to be taken care of.
The researcher feels that through this medium he can suggest the right professional techniques suitable for stores and inventory management and control in all sectors of the economy.
Review of contributors towards the situation of the case study will be narrated to see the attitude of the nation and individuals towards this discipline.
Finally this study will help the organization to recognize the problems and how to resolve them.
1.4 SCOPE OF THE STUDY
The researcher found it impossible to cover many manufacturing organization in this study so he focused his investigation on Akaraka Industries Nigeria Limited, Aboh Mbaise, Imo State Nigeria as a case study.
The researcher however bases his findings on this study and would relate them to other industries in the same area of activities.
1.5 RESEARCH QUESTION
The study will center its findings on the following questions.
1. What is the role and place of stores department in the organization?
2. Is inventory well managed in the organization?
3. Are professionals employed to handle stores?
4. What are the receiving and issue procedure employed in the organization or store?
5. What system of inventory or stock control is adopted?
6. How are scraps, waste, obsolete and redundant materials managed?
1.6 RESEARCH HYPOTHESIS
In order to achieve the objective of the study, research hypothesis will be developed and used in the analysis of data collected. The research hypotheses are:
1. Ho: The inventory control of the received stock items in the industry is not effective.
HA: The inventory control of the received stock item in the industry is effective.
2. Ho: The inventory control has no significant impact on purchasing performance in Akaraka Industries.
HA: The inventory control has significant impact on purchasing performance in Akaraka Industries.
1.7 SIGNIFICANCE OF THE STUDY
The research will serve as a useful guide to manufacturing organization on effective control and management of inventories which form the life blood of their set up.
The research work will be a reference material for researchers on how to manage and control inventories in an industry.
It is however the researcher’s belief that the information gathered from this research will help the employers and employees of Akaraka Industries [Nig] Ltd to know whether their method of inventory control procedure are effective or not.
The reader might benefit from considering inventory control in manufacturing organizations as he perceives it in his own environment.
1.8 LIMITATIONS OF THE STUDY
The research is limited to Akaraka Industries Nigeria Ltd. It was not easy to get most heads of departments and supervisors on seat while some of those seen were reluctant to open up. Nevertheless, I am grateful to the very few who not only made data available to me but also provide some useful guidelines and critics.
Scarcity of reference materials in the country really affected the smooth work of the project. Most of the text books in the library were out dated so finding and locating items becomes a problem. Materials required from the library were difficult to get, the librarian kept on giving promises of come today, come tomorrow at the end disappointing the researcher.
Unavailability of adequate finance was another major limitation. The researcher could not attain the desired scope and depth as a result of this financial handicap.
1.9 DEFINITION OF TERMS
1. Inventory – All the tangible assets of an organization other than the fixed assets.
2. Stock control and Inventory control – Are used synonymously, whereas stock control originates from Britain, inventory is of America origin. Both mean the same thing.
3. Pre-production Inventory – Comprise parts and materials purchased from outside the organization for manufacture into the products.
4. In-production stock – Comprises the parts and assemblies manufactured inside the organization which are not yet finished products and may for accounting purposes be treated as part of work –in-progress.
5. Post-production stocks – Are finished products held either at the factory or at warehouse and distribution centers elsewhere.
6. Stock taking – Represent the complete process of verifying the quantity balances of the entire range of items held in stock. It is periodic but is usually carried out annually so as to disclose the value and quantity of stock for balance sheet purposes.
7. Stock checking – Represent any other check on physical quantities which may be applied either regularly or intermittently.
8. Minimum stock level [or danger level] – Represents the amount of stock expressed in units of issue below which stock of any given item should not be allowed to fall. When this level is reached, it triggers off urgent action to bring forward delivery of the next order.
9. Maximum Stock Level – Is the amount of stock expressed in units of issue above which the stock should be allowed to rise. The purpose of this level is to curb excess investment.
10. The Ordering Stock Level – Represents the amount of stock expressed in units of issue at which ordering action is indicated in time for the materials to be delivered before stock falls below the minimum.
11. Buffer or Safety Stock – This is the reserve stock held to guard against stock out due to usage or lead time exceeding the average.
12. Lead Time – The time between the placing of new order and the arrival of the order.
13. Out of stock – A state where there is no stock at all in the store.
14. FIFO – First-in-first out.
15. LIFO – Last-in-first out
16. Ltd – Limited.
17. Codification – This is the allocation of number or alphabets to stores items for easy identifications.
18. Surplus – A Usable material, equipment or parts including capital equipment which are in excess of normal manufacturing operating or repair requirements.
19. Scraps – Materials which have lost their original value due to faulting work, obsolescence or other causes. They may also raise through manufacturing out offs or treated as scarp due to non-usage over the years and disposed of as such.
20. Obsolete – A material, or equipment or part which is no longer useable in the service for which it is purchased and therefore cannot be utilized owing to technological, fashion or taste change.
21. Obsolescence – This can be machinery or equipment which is going out of use for operational reasons but not completely phased out or out of use.
22. Deterioration – when material has lost its useful vale naturally or due to poor handing and storage.
23. Discrepancy – this is a non-agreement of the calculated or book balance with the quantity physically found and counted during stocktaking.
24. Dormant Stock – item with no present demand are classified as dormant stock.
25. MRO Items – these are maintenance, repairs and operating supplies which help to facilitate production operation but do not become part of the finished product.