Inventory Control And Organizational Performance

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Abstract

This study is aimed at examining the significance of inventory control and organizational performance, a study of PZ, llupeju, Lagos. The survey research design was used in this research. The researcher made use of structural questionnaire as the research instrument to collect relevant data from 120 respondents on the subject matter of the research out of which a total of 105 questionnaires was retrieved and analyzed using simple percentage. The researcher made use of simple Random Technique as the sampling procedure while the chi-square was used to test the hypothesis raised in this research. Findings in this study reveals that, every profit-driven organization should have a sound, effective and well-coordinated inventory management system because the business environment is rapidly changing, highly competitive and it drastically affects the performance of the organization. It has also been found out in this study that, many organizations fail to take cognizance of effective inventory control management. The researcher has therefore recommended that PZ should take into serious consideration the issue of inventory control management in order to achieve the organizational set goals.

Chapter One

Introduction

1.1 Background of the Study

Inventory management is a critical management issue for most companies large companies, medium-sized companies, and small companies. Effective inventory flow management in supply chains is one of the key factors for success. The challenge in managing inventory is to balance the supply of inventory with demand. A company would ideally want to have enough inventories to satisfy the demands of its customers- no lost sales due to inventory stock-outs. On the other hand, the company does not want to have too much inventory staying on hand because of the cost of carrying inventory. Enough but not too much is the ultimate objective (Coyle, Bardi, and Langley, 2003). The role of inventory management is to ensure faster inventory turnover. It increases inventory turnover by ten (10) and reduces costs by 10% to 40%. The so-called inventory turnover is not yet right to sell products on the shelves based on the principle of FIFO cycle(http://www.academia.edu/). Inventory management is necessary at different locations within an organization or within multiple locations of a supply chain, to protect (the production) from running out of materials or goods. Adequate inventories kept in manufacturing companies will smooth the production process. The wholesalers and retailers can offer good customer services and gain good public image by holding sufficient inventories. The basic objective of inventory management is to achieve a balance between the low inventory and high return on investment (ROT). (Johson et al, 1974). Inventory levels have been seen as one of the most interesting areas for improvement in organization materials management (Kumar Ordamar, Zhang, 2008).

Inventory plays a significant role in the growth and survival of an organization in the sense that ineffective and inefficient management of inventory will mean that the organization loses customers and sales will decline. Prudent management of inventory reduces depreciation, pilferage, and wastages while ensuring availability of the materials as at when required (Ogbadu, 2009). Inventory management is critical to an organization’s success in today’s competitive and dynamic market. This entails a reduction in the cost of holding stocks by maintaining just enough inventories, in the right place and the right time and cost to make the right amount of needed products. High levels of inventory held in stock affect adversely the procurement performance out of the capital being held which affects cash flow leading to reduced efficiency, effectiveness and distorted functionality ( Koin, Cheruiyot , and Mwangangi , 2014).

1.2 Statement of the Problem

Inventory is a vital part of current assets mainly in manufacturing concerns. Huge funds are committed to inventories as to ensure smooth flow of production and to meet consumer demand. However, maintaining inventory also involves holding or carrying costs along with opportunity cost. Inventory management, therefore, plays a crucial role in balancing the benefits and disadvantages associated with holding inventory. Efficient and effective inventory management goes a long way in successful running and survival of a business firm, when organizations fail to manage their inventory effectively they are bound to experience, stock out, the decline in productivity and profitability, customer dissatisfaction . Thus the study seeks to investigate the significance of inventory control on organizational performance using PZ Ilupeju, Lagos.

1.3 Objective of the Study

This study is aimed at examining the significance of inventory control and organizational performance, a study of PZ, llupeju, Lagos. Specifically the study seeks :

To ascertain the extent at which inventory control affects firms productivity.

To examine the importance of inventory control on organizational performance.

To examines factors that draw back the process of inventory control.

1.4 Research Question

What is the extent at which inventory control affects firms productivity?

What are the importance of inventory control on organizational performance?

What are the factors that draw back the process of inventory control?

1.5 Research Hypothesis

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

Hi: Inventory Control has a significant effect on Organizational Performance

1.6 Significance of the Study

Findings from this study will be beneficial to Inventory control managers who will have to define how often inventory levels are reviewed to determine when and how much to order and whether it is performed on perpetual or periodic basis. To PZ Ltd who may wish to adopt the study, it will shade more light on how well they can manage their inventory strategically so as to maximize profit. The study will also help scholars to build knowledge and find possible future research on the effects of inventory management systems. The study will serve as a reference material to student and other researchers in other related field of study.

1.7 Scope of the Study

The scope of this study borders on examining the significance of inventory control and organizational performance. The study is however limited to PZ Ltd, Ilupeju Lagos.

1.8 Limitation of the Study

The following factors poses to be a limitation during the course of this research

Financial constraint

Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint

The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.;

1.8 Definition of Terms

Inventory:

Inventory refers to a company’s goods and products that are ready to sell, along with the raw materials that are used to produce them. Inventory is the accounting of items, component parts and raw materials a company uses in production, or sells

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.

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