Inventory Control and its Impact on Profitability

(A case study of Turners Building Product (Arewa) Ltd Kaduna)

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ABSTRACT

This research work is titled “Inventory control and its impact on profitability” a case study of Turners Building Product (Arewa) ltd Kaduna. A great deal of attention has been devoted to the planning of other economic resources such as financial resources and material resources but the need for inventory control which is the most important resources that harnesses other resources has been undermined. Hence the objectives of this research is to bring to light the importance of inventory control and how it can be used to minimize wastage in organization. The importance of inventory control were pointed out in the introduction and also views of various authors concerning the topic were discussed. The survey method is adopted and questionnaire was the major instrument for data gathering. The researcher’s summary and conclusion revealed that inventory control is a tool for achieving organizational profitability.

TABLE OF CONTENTS

CHAPTER ONE

Introduction

Background of the study 1
Statement of the problems 4
Objectives of the study 5
Significance of the study 6
Scope of the study 7
Research questions 8
Historical background of the study 8
Definition of terms 9

CHAPTER TWO

Review of related literature

Definition of inventory control 12
Importance of inventory control 16
Control of stock by values 22
Economic order quantity (EOQ) model 24
Stock levels 25
Material requirement planning MRP 27
Cyclical provisioning 29
Definition of profitability 30
Reasons for limiting the extent of profitability 32
Stock level and portability 35

CHAPTER THREE

Research methodology

Area of the study 37
Research design 37
Population of the study 38
Sample and sampling techniques 39
Instruments for data collection 39
Administration of the instruments 40
Techniques for data analysis 40

CHAPTER FOUR

Data presentation and analysis

Presentation of results 42

CHAPTER FIVE

Summary, discussion, conclusion and recommendations

Summary of procedure 52
Discussion of findings 53
Implications of the findings 54
Conclusion 55
Recommendations 55
Suggestion for further studies 56

Bibliography 57

Appendix 58

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 center 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 wastage. 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 equipment 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 coup

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