Inventory Control and its Impact on Profitability
Inventory Control and its Impact on Profitability
CHAPTER I: Introduction
1.1 Background of the Study
Inventory control is an extension of stores keeping and it has been in practice for a long time. It has a wide scope of activities today. Inventory control is an act of safe keeping some valuable items for future use and to produce them when the need arises. Inventory control goes beyond the scope of keeping and producing the items only but also involves controlling of operations, receiving, quality control activities, training of store staff, control of all store houses, stock handling as well as clerical documentation.
Inventory control can be defined as an art and science of achieving the objectives of inventory in an organization. It involves planning, organizing, staffing controlling and co-coordinating all the inventory operational activities for the provision of efficient services. Inventory control is a serving centre and the services to be provided must be meticulously handled, more organized to meet the demand of all units or department that constitute the organization for optimum performance. The primary function of inventory control is to provide for efficient inventory and handling of goods to be redistributed to the ultimate user, this activity when carried out with the use of Information Technology (I.T) will make re-ordering of materials easy as the information are already in the computer. The use of information technology in controlling of inventory eliminates time wastages. This provision of services to the operating function must be fully appreciated. All other activities although they have their own relative importance are subordinate to this primary responsibility. The above central objective can be analyzed as follows:
- To make available a balance flow of raw materials components, tools, equipment and any other item necessary to meet operational requirement.
- To provide maintenance materials spare part to general stores as required.
- To receive and issue work in progress and finished products.
- To accept and store scraps and other material as it arises.
- To account for all receipt and issue of goods in the store.
Thus in any institution, private or public, some substantial amount is spent on the acquisition of materials, equipment etc. which are kept in the store house for future use. These items represent an equivalent amount of cash and have to be looked after, protected against unauthorized usage, until they are used for the intended purpose and duly accounted for.
A lot of costs are associated with keeping of inventory despite that; we must however hold stock to meet production needs and sales needs. This is because if we do not hold stock in sufficient quantity we stand the risk of running out of stock and incurring all the cost associated with stock out. Therefore, for an organization not to have the above mentioned problem it is important that they strike a balance between carrying too much stock (over stocking) and carrying too little stock (under stocking). The importance of profitability cannot be overstated, because that is the reason why organizations are in business, if inventory control is carried out properly, there will be increase in production and sales thereby increasing profitability for the organization.
Therefore, this study attempts to find out how inventory control can be effectively used to reduce time wastage, theft, obsolescence and pilferage in the organization so as to achieve their goals of profitability.
1.2 Statement of the Problem
Empirical research has shown that the study of inventory control or administration started late, unlike the study of other fields of human endeavour, such as medicine, engineering, and law, accounting and public administration to mention but few. This is not to say that it did not exist at all but this field has not attracted people as the belief that anybody can work in that area (inventory). Every year organization prepared and implements one type of economic policies/budget whereby a large sum of money is spent on acquisition of materials without making and adequate planned effort to provide for inventory facilities. These lapses coupled with improper stock control system and lack of trained personnel account for the ineffectiveness of inventory function in the public and private sector.
One is baffled to see that things bought for use such as capital equipments are left in the open during training reasons in which the outcome is usually deteriorated materials, a waste of effort and money.
Inventory control has problems in general, especially in area of discrepancies, theft, fraud, obsolescence, deterioration and breakages. All these constitute a great loss to the establishment coupled with this, is also the problem of excess stock of some items with its affendant consequences of tying down of capital in inventory. Thefts usually occur with materials which are small in nature but of very high value. These materials are usually stolen because there is no proper method of control. These problems are not limited to a single establishment rather, they are universal problems still facing many establishment.
1.3 Objectives of the Study
The aim of this study is to examine the impact of inventory control on the profitability of RCN Gas ltd Uyo, with the following specific objectives:
- To find out methods of operating stores in a private sector, such as RCN Gas
- To determine whether inventory control has help in increasing the profit of Turners
- To advice the company in the method adopted in inventory operations, if it is not consistent to the existing knowledge.
- To find out how stock are kept in the store house.
- To identify factors that militates against successful implementation of stock control system in the organization.
1.4 Significance of the Study
The significance of inventory control in profitability covers various aspects of the organization as a result its importance cannot be overlooked in particular the organization of Tuners Building Product Uyo.
The significance of compiling this research is to make researchers and historians who may need to know or get vital information about inventory control and it impact on profitability of Turner Building Product, and to give quick guide or easy access to the retrieval of information
The essence of this research work to the organization is to enable them know more about what is going on in the inventory control room, there problems and possible solution to tackle them. As a problem solving topic, the researcher however, believes that the study will help prospective inventory mangers to know more about this topic. It is also a requirement in partial fulfillment for the award of Higher National Diploma in purchasing and supply department.
1.5 Scope of the Study
The scope is limited to all aspect of inventory control as it affects profitability of RCN Gas LTD Uyo. The research work covers the following
- What is inventory control
- The importance of inventory control
- Control of stock by value
- The Economic Order Quantity (EOQ) model
- Stock level
- Material Requirement Planning MRP
- Cyclical provisioning
The scope will be restricted to the purchasing, account and production department of Tuners.
1.6 Research Question
The research will be conducted base on the following questions
- What inventory control system is in use in the organization?
- Does inventory control have any impact on profitability?
- Does the organization keep proper store records for inventory control?
- Do the organizations have adequate storage facilities?
- What are the factors militating against successful implementation of stock control system in the organization?
1.7 Historical Background of RCN Gas Uyo
Tuners Building Product limited Uyo is an associate of New Nigeria Development Company (NNDC). The company was established in Northern part of Nigeria precisely in Kakuri Akwa Ibom State in the year 1965. The company was established as a depot to the mother factory at Emene in Enugu state. It eventually came into full operation in 1972. the company was formerly known as Turners Asbestos (North) limited but the name was changed to Tuners Building Product limited in 1972 when it began its full operation.
RCN Gass limited also known as TBP (A) limited, started its production using one factory and producing building materials of various types these include roofing sheets made from asbestos and of different classes namely:- Big six corrugated sheets, standard corrugated sheets, Trafford tiles, self supporting sheets, ceiling beard popularly called flat sheets, (4×4 and 2×2) also made from asbestos, and also they produce interlocking stones.
The organization is made up of seven (7) departments, and these are the general administrative, account, production, maintenance, purchasing, audit and sales departments.
1.8 Definition of Terms
For the purpose of this project, the following terms are defined:
Code: a process of assigning numbers, alphabets or combination of both for identification purpose.
Deterioration: a situation where items are becoming less of value or worse in quality.
Identification: is the process of systematically defining and describing all items of inventory held in the store.
Stock or inventory: are raw materials that have been purchased for use in the operation of business semi-finished plants or partly processed raw materials awaiting further processing, finished products that are awaiting distribution to customers in warehouse at production site or in other location.
Issue/dispatch: is the process of receiving demands selecting the items required and handling them over to users.
Materials: are components, spare parts, raw materials that are kept in the store houses.
Scrap: means materials, products or replaced parts that have been used and no longer useful to the organization.
Receipt: is the process of accepting from all sources, all materials equipment and parts used in the organization including supplies for manufacturing or operating process.
Inspection: means the examination of incoming consignment for quality and quantity.
Obsolete: materials that are out of date or use.
Obsolescence: materials that are getting out of date or use.
Stores vocabulary: is a document in which all items held in the store are described.
Redundant: when the quantity of an item in stock is more than is reasonably necessary to provide an adequate service to the production or operational activity, the excess over the normal holding is said to be redundant.