Effectiveness of inventory management in a Manufacturing company

INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Inventory is one of the resources that are managed by business
organizations and it was first recorded in 1601. The need for inventory
control cannot be overemphasized as it is a means for improving the
performance of manufacturing industries. Inventory can be defined as a
record of a business current assets including property owned, merchandise
on hand and the value of work in progress and work complete but not sold
and it is classified as a current asset because it can be turned into liquid cash
within a short period of time. Inventory has created a great impact on the
profitability of the manufacturing firm which resulted to the deep research of
this topic. Effectiveness of inventory management in a manufacturing
company.
Inventory plays a major role in the operation of many businesses and
manufacturing companies. In manufacturing, inventories of raw materials
allow companies to operate independently of their sources of supplies. Day
to day operation are not dependent on deliveries from supplies since stock of
the necessary mateials are maintained and used s needed. Without inventory
control, millions of naira could be lost year because of non accountability of
stocks and inaccurate checks and balances.
The process of control and management of inventory is a very
important factor in the success or failure of any business for example, little
stock will result in stock out which will disrupt the production distribution
cycle that is crucial to the survival of all manufacturing companies while
too much stock will tie down the resources of a company. Poor or
inadequate inventory management can present a serious challenge to the
productive capacity of a manufacturing organization. In addition to raw
materials and finished goods, many companies also maintain items of assets,
property, inventories of work in progress, office supplies, business firms and
general operation supplies.
Inventories often constitutes the most significant part of current assets
of large companies. In the public limited companies, inventories are
approximately 60% of current assets on the average. The US Burean of the
census stated that inventory and accounts receivable ate the two largest
accounts of equal magnitude and together they comprise almost 80% of
current assets and over 30% of total assets for all manufacturing companies
in 1982.
Considering the large sum of money that are committed to the stocks
of raw materials, work in progress and finished goods, it is therefore of
paramount necessity that these stocks be managed efficiently and effectively
in order to avoid the jeopardizing of the profit position of the firm.
In inventory, there is an optimum level therefore inadequate inventory
causes loss of sale and disrupts the production process while excessive stock
level leads to unnecessary carrying cost and obsolescence or spoilage risks.
According to Charles T. Horngren (2007), the optimum inventory. Level lies
between the inadequate inventories and the excessive inventories. Inventory
management aims at maintaining an optimum inventory level that will be
carried at the least cost.
A BRIEF HISTORY OF AMA GREENFIELD BREWERY IN ENUGU
STATE, NIGERIA
Ama Greenfield Brewery is the jewell in the crown of Nigeria
Breweries Plc and is reputed as one of the most modern Breweries. Precisely
on Friday October 24, 2003, the much talked about Nigeria Breweries Plc’s
ultra modern Ama Greenfield Brewery located in Enugu state was officially
commissioned. It is Nigeria breweries Plc company’s sixth Brewery and the
second to be located in Enugu state. The multi-billion naira Ama Brewery
boasts of the best cutting edge technology and world class standard
processes. It is located in Umuezeani village in the Amaeke Ngwo
community of Udi Local Government Area of Enugu state. Mr. Lassy Agose
who was the public relations adviser to the Nigeria Breweries Plc at that
time said that Ama Greenfield Brewery has an installed capacity of 3 million
hectoliters per annum or 1 million carton units per week adding that it was
also equipped with an ultra modern waste water treatment plant in l ine with
safe manufacturing practices world-wide. Ama Brewery whose foundation
was laid on April 9,2001 by the then Enugu state Governor, Dr Chimaroke
Nnamani took 14 months to be completed after the actual construction work
commenced on January 23, 2002. the first brew was made on march 22nd,
2003 while the first bottle of star larger rolled off the bottling line on April
24, 2003.
Ama Greenfield Brewery encapsulates the essential ingredients of the
world class vision of the Nigeria Breweries plc and represents another
milestone in the company’s journey towards the realization of that vision.
Beyond these, Ama Brewery holds enormous socio-economic benefits to the
community, state and country at large.
In addition to opening up the communities to commerce and
modernization, the state stands to benefit from increased revenue and the
building of international confidence for investment. This multibillion naira
investment is also expected to translate into enhanced employment, as well
as open the flood gates of business activities and opportunities in the
economy, Mr. Agose stated during a pre-commissioning press briefing in
Lagos. Constructed at a cost of N40 billion, it is an essential fulfillment of
the pledge made by Heineken NV to invest N70 billion in Nigeria within
five years building an ultra-modern civic centre, a borehole and market stalls
for the area.

1.2 STATEMENT OF THE PROBLEM
The problems seen in the course of this study are as follows:-
i. Ineffective management of inventory in the manufacturing
company specifically Ama Greenfield Breweries.
ii. Loss of sales or business of the company as a result of insufficient
inventories of finished goods.
iii. Low productivity in the manufacturing company as a result of poor
inventories model used by the company
iv. Poor management and control of inventories in the manufacturing
company.

1.3 OBJECTIVE OF THE STUDY
The major objective of this study is to determine of the effectiveness
of inventory management in a manufacturing company. The specific
objectives of this study are as follows:-
i. To determine to what extent the ineffective management of
inventory in Ama Breweries plc has caused low productivity in the
company.
ii. To examine the extent to which insufficient inventory of finished
goods cause loss of sales to the company.
iii. To identify the degree to which poor inventory modern used by the
company has resulted to low productivity in the company.
iv. To ascertain whether the company has suffered from poor
management and control of inventories.

1.4 TEST OF HYPOTHESES
Based on the problems and objectives of this study, the following
hypotheses are formulated for this research.
Ho: There is no significant relationship between low productivity and poor
inventories management.
H1: There is a significant relationship between low productivity and poor
inventories management.
Ho: There is no significant relationship between proper inventory policies
and productivity in a manufacturing company.
H2: There is a significant relationship between proper inventory policies
and productivity in a manufacturing company.

1.5 RESEARCH QUESTIONS
For the purpose of this research study, the following research
questions were formulated:
1. Does effective inventory control ensure continuous production of
goods in Ama Breweries?
2. What is the state of inventory management in the Nigerian
manufacturing company especially Ama Breweries plc?
3. Has effective inventory control made a significant impact on the
manufacturing company?

1.6 SIGNIFICANCE OF THE STUDY
The significance of this study lies on the fact that with improved
inventory control and management in manufacturing companies, the
following persons may benefit from it:
It will be significant to manufacturing companies, firms and
businesses as it will enable them keep an adequate inventory control and
ensure that they do not run out of stock or have excess stock which can
endanger their liquidity position. It will also help to meet consumer’s
demands or quest. It is also important to the government as it will help to
reduce waste of investment inventory. It will also help lecturers to really
know the importance of inventory control so that they will be able to impact
it on their students. This study will also reveal the relevant methods to be
used in preventing mismanagement; it will also improve stock control which
has led to the mismanagement and unproductively of materials.

1.7 SCOPE OF THE STUDY
This research work on the effectiveness of inventory management in a
manufacturing company is focused on Ama Greenfield Breweries plc in
Enugu state.

1.8 LIMITATIONS OF THE STUDY
Some limitations and factors in this research study are as follows:-
i. The time required for the research and the submission of this work
is very short and the researcher was unable to go through all
manufacturing companies.
ii. Financial constraints:-Finance which is the most important
resource for this work was not readily available.
iii. Limited exeat:-Due to the fact that exeat is very difficult to get in
school, proper research was not carried out and this affected the
integrity of the results achieved.
iv. Unco-operative attitudes of some of my respondents:- The
management of Ama Breweries prohibited its employees from
giving out information about the company to outsiders without
adequate permission from the management and even when this
permission was obtained at the long run, many vital information
were not revealed because they were regarded as the privacy of the
company.

1.9 DEFINITION OF TERMS
INVENTORY:This is a record of a business’ current assets. It can also be
described as the merchandise or supplies held or in transit at a particular
point in time.