Impact Of Inventory Control Techniques On Product Loss Reduction And Financial Performance Of A Firm

Introduction

1.1 Background to the Study

Organizations face an issue in today’s competitive economy, where on one hand, clients request branded products and services and necessitate that their requests are filled fastly, however they would prefer not to pay a premium for this branding and accessibility (Graman and Magazine, 2006). Along these lines, organisations are investigating ways toward postponement system in light of continually changing demands (Yang et al. 2004). Graman and Magazine (2006) contended that today, the expense of holding inventory, broad item multiplication and the danger of outdated nature, particularly in rapidly changing markets, make the cost of holding huge inventories of finished products unnecessary and that appeal things normally have safety stock allocated to them, yet in many firms there are such a large number of low-request items that keeping any supply of these items is nonsensically costly, so they contend that organizations should now offer great support while keeping up insignificant inventories. Accordingly, inventory control approaches are basic parts of any organisation.

In traditional settings, inventories of crude materials, work-in-progress segments and finished goods were kept as a cushion against the chance of running out of needed items. Be that as it may, huge inventories expend significant assets and produce concealed expenses. Thus, numerous organizations have changed their way to deal with production and inventory control. Since the early 1980s, inventory control prompting inventory decrease has become the essential objective, as is regularly the situation in just-in-time (JIT) frameworks, where raw materials and parts are bought or delivered in the nick of time to be utilized at each phase of the production process. This way to deal with inventory control brings significant cost investment funds from reduced inventory levels. Therefore, inventories have been diminishing in several organizations (Chen et al., 2005), despite the fact that proof of improved firm performance is mixed (Kolias et al., 2011).

The job of inventory control is to guarantee quicker stock turnover. It builds inventory turnover by ten (10) and reduces costs by 10% to 40%. The alleged stock turnover is not yet option to sell products based on the guideline of FIFO cycle (Kenneth Lysons and Michael gilligham, 2003).

Inventory is characterized based on the business undertaking from firm to firm. Regular criteria utilized and are nature of inventory for instance retail, reason for which inventory is being held in stock or function and the related utilization in the supply chain. Normal arrangements are raw materials (items in natural state waiting for change, for example timber, steel and coffee seeds), segments and sub-collects. These are for fuse into the final products for example side mirrors, glasses for vehicle assembly organization and screens or consoles for a PC assembly organization), consumable. Appropriate order of inventory and its control improve the financial situation of a business (David Jessop and Alex Morrison 1994).

Inventory control is basically about indicating the size and arrangement of supplied products. Inventory control is required at various areas within an office area of an inventory system to secure the normal and arranged course of production against the irregular random disturbance of coming up short of materials or items for improved performance (Garry, 1997). The extent of inventory control additionally concerns the scarce differences between renewal lead time, conveying cost of inventory, resource management, stock forecasting, stock valuation and stock perceivability (Lau An., and Snell, 2006).

Poor inventory control had become an issue of extraordinary worry since performance is viewed as the standard for development of firms. A genuinely compelling inventory control framework limits the complexities engaged with planning, executing and controlling a chain network which is basic to business achievement. The open doors accessible by improving an organization’s inventory control can altogether improve primary concern of business performance.
An excessive inventory and insufficient customer service is exceptionally normal, however superfluous. There are demonstrated procedures that can help precisely industry client demand and to compute the inventory required to meet the level of customer service. Utilizing the correct systems for sales determining and inventory control help to screen changes and react to alerts when move should be made. The correct way to deal with inventory control can deliver sensational advantages in client support with lower inventory (Kreg, Cristine, 2007).

Current inventory control in several organisations use new and refined strategies that accommodate dynamic performance of inventories to boost customer service with diminished inventory and lower costs. These improved techniques in inventory control are of significant outcome to general competitiveness where the most significant level of customer service and delivered value can influence on market share and profits.

Lastly, organizations make use of various types of inventory control to prevent loss and improve their financial performance. This is why the researcher aims to investigate the impact of inventory control techniques on product loss reduction and financial performance of a firm.

1.2 Statement of the Problem

Inventory is the life blood of any organization. This is because inventory contributes directly to the profitability of an organization more so the growth of any organization depends largely on its ability to manage its inventory effectively and efficiently.

The real problem therefore has been in the determination of the best inventory control method that fits into an organization very well and also to get the best inventory level at which money invested in inventory will produce a rate of return higher than it if invested in some other areas of the business (Amoako-Gyampah & Gargeya, 2011).

Inventory control technique in any organization is sometimes seen in their sourcing for required items by their clients, buying of raw materials and general supply to the customers. Orgnisations use different inventory control techniques this is largely dependent on the kind of services rendered. However these techniques for inventory control is usually aimed at reducing loss and improves financial performance. Inability of organizations to use inventory control technique effectively will result in loss and financial performance will drop drastically. Based on the above information this study therefore sets to investigate the impact of inventory control techniques on product loss reduction and financial performance of a firm.

1.3 Objectives of the Study

The main objective of this study is to investigate the impact of inventory control techniques on product loss reduction and financial performance of a firm.

Other specific objectives are:

To examine the effectiveness of inventory control techniques used by firms to enhance better financial performance

To find out the importance of inventory control techniques on financial performance of firms in Nigeria

To study the relationship between inventory control and organizational efficiency

 

1.4 Research Questions

In addressing our central problem, answers to the following research questions were found worthy.

What is the effectiveness of inventory control techniques used by firms to enhance better financial performance?

What is the importance of inventory control techniques on financial performance of firms in Nigeria?

What is the relationship between inventory control and organizational efficiency?

 

1.5 Research Hypothesis

For the purpose of this research, the following hypotheses were tested in order to achieve the set objective of the study:

HO: Inventory Control has no significant effect on financial Performance.

Hi: Inventory Control has a significant effect on financial Performance

 

1.6 Significance of the Study

Majority of companies suffer excessive inventories than are necessary. Inventory control is complex and is perceived as more than just a clerical function. This has resulted into lots of material shortages, high costs, and loss of profits. Managements ignore the fact that inventories allow the company to be flexible. Raw material inventory gives the firm flexibility in its purchasing without which the company must exist on hand to mouth basis, buying raw materials in keeping with its production schedule. Finished goods inventory allows the firm flexibility in its product scheduling and marketing. The said situation has urged the carrying out this research to enlighten managers, stakeholders, policy makers as well researchers and all interested parties on the importance of inventory control technique in an organisation.

1.7 Scope of the Study

The study is meant to investigate the impact of inventory control techniques on product loss reduction and financial performance of a firm. Manufacturing firms in Ota, Ogun State, are considered a fair representation of similar firms in this research.

1.8 Limitations of the Study

In the course of conducting this research it is expected that some factors will limit the effectiveness of this study. This is inclusive of availability of relevant literature and textbooks, time constraints, financial constraints, inaccessible and inadequate database, and inadequate information from the case study firms.

1.9 Operational Definition of Terms

Inventory:

It can be referred to as stock. By stock, we mean raw materials; work -in-progress and finished goods

Inventory Control:

This is a system used in a firm to control the firms.

Inventory Control:

Inventory control is the process of ensuring that appropriate amounts of stock are maintained by a business, so as to be able to meet customer demand without delay while keeping the costs associated with holding stock to a minimum.
Inventory control is the process of keeping the right number of parts and products in stock to avoid shortages, overstocks, and other costly problems.

Organizational Performance:

Organizational performance means the effectiveness of an organization in the achievement of their desired goals. Organizational performance comprises the actual output or results of an organization as measured against its intended outputs.

1.10 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows.

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.

Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.

Chapter three deals on the research design and methodology adopted in the study.

Chapter four concentrate on the data collection and analysis and presentation of finding.

Chapter five gives summary, conclusion, and recommendations made of the study.