EFFECT OF INVENTORY MANAGEMENT ON THE PERFORMANCE OF MANUFACTURING COMPANIES IN NIGERIA

Abstract

Inventory management is the most important part of any business especially for manufacturing companies. This research work reports the findings on inventory management and its impact on Nigerian Breweries Aba. It specifically examined the relationship between inventory management and companys performance. Record analysis of relevant data was obtained from the companys annual report and journals from 2010 to 2014. The relationship between the inventory management and company performance was determined based on profit before tax (PBT), turnover, and return on assets (ROA) using regression analysis. The research found that inventory management has significant impact on the performance of a firm. The study also proved that there was a significant relationship between profits before tax (PBT), turnover (TO). But no significant effect on return on asset (ROA) and inventory management. Therefore, the researcher in this study suggests that inventory management can improve Profitability and turnover of manufacturing companies. Recommendations for future study were also discussed.

TABLE OF CONTENTS

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study

1.2 Statement of Problem

1.3 Objective of the study

1.4 Research Questions

1.5 Research Hypothesis

1.6 Significance of the study

1.7 Scope of the Study

1.8 Definition of Terms

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1 General Overview of Nigeria Breweries

2.2 Concept of Inventory

2.2.1 Types of Inventory

2.2.2 Reasons for Inventory

2.3 Inventory Management

2.3.1 Inventory levels

2.3.2 Inventory Costs

2.3.4 Customer satisfaction

2.4 Inventory Management Techniques

2.4.1 Economic Order Quantity (EOQ) Model

2.4.2 Just in time (J.I.T)

2.4.3 The Action Level Methods of Inventory Management

2.5 Theoretical Framework

2.5.1 Relationship Marketing Theory

2.5.2 Assimilation Theory

2.6 Empirical Review

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Research Design

3.2 Area of the Study

3.3 Sources of Data

3.4 Data Analysis Technique

3.5 Model Specification

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Data Presentation

4.2 Data Analysis

4.3 Test of hypothesis

4.3.1 Test of hypothesis One

4.3.2 Test of hypothesis Two

4.3.3 Test of hypothesis Three

4.4 Discussion of result

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.2 Summary of Findings

5.3 Conclusion

5.3 Recommendations

5.3 Limitation of the Study

References

Appendix

 LIST OF TABLES

Table 4.1 Regression result of Inventory Management and Profit before Tax 

Table 4.2 Regression result of Inventory Management and Turnover 

Table 4.3 Regression result of Inventory Management and Return on Assets 

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

These days management of business organization, private or public is more challenging than ever before. Good managers bring about sustained good economic returns and productivity enhancement through the adoption of proven effective inventory management techniques and strategies.

Inventory is one of the resources that are managed by business organizations and it was first recorded in 1601. The need for inventory management 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. 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. Effective inventory management practices are those that would sustainably lead to effective and efficient production systems, service delivery, enhance competitiveness, increase productivity, organizational profitability and customer satisfaction (Wilcox et al., 2006). Therefore it is the responsibility of the management of business organizations to find ways of obtaining and maintaining competitive advantage in the global and local marketplace. The management practices that make the personnel contribute the best of their labour towards enhancing productivity and competitive advantage for the firm are relevant to organizational survival and growth (Wright et al., 1994; Tayebs, 1995; Breust et al., 2003). Process engineering, downsizing and reorganization, quality management, customer-based performance measurement, and high work performance human resource management inventory management techniques and practices that are increasing internal and external environment of firms especially to increase efficiency, effectiveness and labour productivity (Wilcox el al., 2006; Collis &Montgomery, 1995; Barttell & Ghoshel, 1995).

Every business irrespective of the size is concern with achieving effective performance. Performance in an organization is related to the capacity of the individuals, their abilities and innovation, organizational leadership and culture within which these individuals work.

The leadership style and management practices in the organization create a unique work environment and culture that either promotes or hinders productivity (Maritz, 1995; Ristow et al, 1999). The achievement of organizational goals requires the use of proven managerial techniques and practices to promote commitment collaboration and innovation at work (Hall, 1996), through appropriate policies, practices and procedures. Effective managerial techniques and practice results from good leadership and these in turn enable the employees to attain their aspirations and consequently work with high motivation. This results in effective performance (Maritz, 1995; collis & Montgomery, 1995; Ristow et al, 1999). Ultimately, it is the performance of many individuals towards the achievement of the implicit and explicit organizational goals that results in successful organizations (Armstrong & Baron, 1998). However, irrespective of the production method that are adopted, the technical aspect of production alone cannot improve labor output, without due consideration of the human resource management and motivation factors (Power & Shoal, 1997; Shoal et al, 1993).

Manufacturing companies in Nigeria such as Nigerian Breweries Aba is one of the oldest breweries in the country was commissioned in 1957 with an initial production capacity of 500,000 HL, being the second oldest division of Nigerian

 Breweries PLC. It however suddenly embarked on strategic business realignment in 2005, after which the branch started producing only Maltina, Amstel Malta and Fayrouz (nibrewnews: 2007). Before the reorganization the branch was shut down and workers were laid off some forced to retired. Total number of union members in 2004 was 1818. This showed a 15% reduction in membership size over 2003, which was due to the restructuring exercise in 2004(Nigerian Brewery, Environmental and social report: 2006). The sudden closure of this plant and the spate of factory closures that has attended the Nigerian business environment like the case of Dunlop PLC., which also shut down their production facilities has necessitated an inquiry with the hope of describing the extent of impact and influence of managerial techniques on the performance of a large brewing company in Nigeria.

1.4 Statement of Problem

Inventories play an essential role in many manufacturing Companies that is why we say, inventories is live wire of any manufacturing industry especially Nigerian Breweries. Inventory is like to business what human blood is to human beings, it implies that business sustainability so much depend on it. Management of inventories in brewery industries is a function of observations of prudent inventory accounting techniques which aims at not only helping the sustenance of the company or setting it on the path to growth. Instability is the major problem to tackle in the Nigeria economy, this is because it fluctuates the prices of the products thereby shifting customer taste. Hence the need for companies to maintain competitive advantage in both global and local market place under a challenging environment has increasingly spurred the manager to come up with techniques that would ensure the growth and survival of the organization.

In 2005 the Aba branch of Nigerian Breweries embarked on strategic business realignment, before which the factory was shutdown, worker were laid off some forced to retire. The main factor that accounted for this turn around was the change in the inventory managerial practice adopted by the management in production. The management technique focused mainly on cost reduction, competitiveness and efficiency not considering the human aspect of managing employees in the production brewing sector: supplier quality management, customer involvement, information and feedback, committed leadership, strategic planning and employee involvement (Cua et al, 2001). Therefore, the change in management strategy accounted for the temporal closure of the Aba factory, the laying off of workers and the strategic business reorganization of the branch; there is need for adequate evaluation of the impact of managerial technique on the productivity capacity of such manufacturing companies in Nigeria.

1.5 Objective of the study

This study is embarked upon with the expectation of ascertaining the impact of inventory management on the performance of manufacturing company. Specifically this study is intended to achieve the following objectives.

i. To determine the effect of inventory management on the profit before/after tax of manufacturing companies in Nigeria.

ii. To ascertain the effect of inventory management on the turnover of manufacturing companies Nigeria.

iii. To ascertain the effect of inventory management on returns on assets of manufacturing companies in Nigeria.

1.4 Research Questions

For the purpose of this research study, the following research questions were formulated:

i) What is the effect of inventory management on the profit before tax of manufacturing companies in Nigeria?

ii) What is the effect of inventory management on the turnover of manufacturing companies?

iii) What is the effect of inventory management on returns on assets of manufacturing companies in Nigeria?

1.5 Research Hypothesis

Ho1: Inventory management has no significant effect on the profit before tax of

manufacturing companies in Nigeria.

Ho2:  Inventory  management  has  no  significant  effect  on  the  turnover  of

manufacturing companies.

Ho3: Inventory management has no significant effect on returns on assets of

manufacturing companies in Nigeria.

1.6 Significance of the study

This evaluation is embarked upon with the hope of providing description on the impact of inventory managerial technique on performance of manufacturing Companies in Nigeria, with special interest with Nigerian breweries Plc. the Aba Branch. This study is timely and of significance because it intends to investigate the effects of Inventory managerial practices on the performance of Nigerian breweries Aba plants. Hence the need for this study cannot be overemphasized; from, a practical perspective, the findings of this study will be of use to management and practicing managers on strategic techniques to adopt in precarious challenging times in manufacturing Company among others. This study will be of immense benefit to the following groups

Students: It will as well be of great benefit to scholars/students and researcher because it will increase their knowledge base on inventory management as well serve as conceptual guide to upcoming researchers and students in same field of study

Government: The findings and recommendations of the study will assist Government on maintaining policy that will assist manufacturing Industries in the Country.

Bank: The findings and recommendations of the study will assist banks in their lending activities to such manufacturing industries

Policy Makers: The study will also benefit the policy makers in formulating policies that will assist government in implementing policy that will help manufacturing firm, hence boosting the Countrys economy.

1.8 Scope of the Study

This research work on the Evaluation of Inventory management in a manufacturing companies is focused on Nigeria Breweries plc. Aba.

The justification of choosing the company is that the company is a large manufacturing firm with almost 3000 employees consisting of managers and staff (nibrewnews, 2008), producing assorted brands of products to consumers.

1.8 Definition of Terms

Inventories: Inventories are stocks of the product a company manufacture for sale and component that make up the product. The various form in which inventories exist in a manufacturing company are, raw materials, work in progress and finished

goods. It could as well mean records 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.

Lead Time: The time elapsed between the act of ordering and actually receiving the materials. In manufacturing operations, lead time refers to the time interval between set up of and actual output from the machines.

Purchase Costs: The amount expended on the inventory during purchase. Ordering Cost: These are incremental costs associated with inventory replenishment. They include all costs incurred in sending inquiries, writing purchase orders, receiving and inspecting goods, paying the bills, and performing related paper work to keep the supplies flowing. Other components are personnel salaries, expenses for telephones, paper forms, and supplies and shipping costs.

Lot size: The size of the order that will be purchased to replenish inventory. Purchase Order: A document issued by a buyer to a supplier, ordering the supply of specified goods, and generally specifying the quantity required and the price.

Purchase Requisition: A document issued by an authorized person in the company to the buyer, instructing him to buy specified goods.

Perpetual Inventory Record: An inventory record which is maintained perpetually up-to-date, by recording all transactions which affect the inventory, by recording the new balance after each transaction, and by regular and systematic checking of the record against the stock.

Bill of material: A list showing all the parts that must be provided to complete one or more of a particular assembly or list of the parts or materials used to manufacture a product.

Inventory Policy: An organizations stock holding policy is implemented by a series of rules which determine how and when certain decisions concerning the holding of stock should be made. This series of rules is known as inventory policy. Management: It is process of planning organizing leading and controlling the work of organization members and using all available organizational resources to reach stated organizational target or aim.

Brewery: Is a place where beer is made or a company that makes beer.

Industry: Is where the production of goods are made especially in factories.