Inventory Control Procedures In Manufacturing Organizations

INTRODUCTION
Inventory could be defined as the stock of materials kept in anticipation of future demand or use. The term was originally an American term for depicting the value or quality of materials that are kept or stored for use as the need arises. It is applied to a detailed list of goods or articles in a given place or a stock – taking.
Furthermore, there are about five classifications of inventory; namely;
– Raw materials
– Components and sub-assembles
– In process materials or work in progress
– Finished goods
– Consumables.
Having said these, it is the process of controlling these inventories or materials that I am going to research about in this project, using Emenite Ltd as a case study.

1.1 BACKGROUND TO THE STUDY
Having pointed out in the introduction that inventory includes Raw materials, finished goods, components and sub-assemblies, work-in-progress, consumables etc, it means that a very substantial amount of a company’s working capital is always tied up in it’s inventories, it implies that the company should be able to control it’s inventory effectively and this brings us to the definition of inventory control.
Inventory control is the activities, techniques and methods of maintaining an accurate stock of items or inventories at a desired level. This is because a company’s inventory can either be an asset or a liability to her, depending on the quantity available at the moment.
Too much inventories consumes physical space, increase the possibility of damages, spoilage or loss. While on the other hand, too little inventory disrupts manufacturing operations, engenders chaos on the shop floor and increases the likelihood of poor customer service.
Too much or too little inventory is an evidence of poor forecasting inadequate attention to processes and procedures and haphazard scheduling. Therefore if a manufacturing company must survive, strategies for minimizing avoidable waste, shortages and excesses must be developed so as to compete effectively with other firms. And all these can only be achieved through effective inventory control.

1.2 STATEMENT OF PROBLEM
Since inventories are the wheels on which manufacturing activities run on, the progress of a manufacturing concern or it’s down fall depends on how firm their grip on inventories are. I have therefore set out by this project to:
1. Consider and analyze the various systems of inventory control and the problems for maintaining them.
2. Know the standard system for controlling inventory
3. Find out the imitations against the effective implementation of inventory control procedures.

1.3 OBJECTIVE OF THE STUDY
a) Demonstrate the methodology of Emenite Ltd inventory control procedure.
b) Present the various ways of achieving organizational goals through proper raw material handling.

1.4 SCOPE OR DELIMITATION OF STUDY
While conducting research for this project, there are some problems which were encountered and which affected (indirectly) the project. They include:
1) For lack of time could not question all the staff of Emenite Ltd, hence I applied the sampling method.
2) The study was limited to Emenite alone, since I could not reach other manufacturing companies. Hence the project only speaks about Emenite.
3) There was not much money with which to run around for the project.

1.5 RESEARCH QUESTIONS
The information’s contained in this project were collected based on the presumption of the following hypothesis:
a) That the success of manufacturing concerns depends on their material management.
b) That Emenite ltd has a very good inventory control procedure, hence their success in manufacturing.
c) Many other manufacturing companies can make good progress if they follow a suitable material control process.

1.6 SIGNIFICANCE OF STUDY
This study is very important because:
1) It will bring to the knowledge of manufacturing companies, that proper inventory control is the basis for organization progress in manufacturing.
2) Up coming manufactures will be able to learn from an existing company how to handle their inventory so as to make profit from it.

1.7 A BRIEF HISTORY OF EMENITE LTD
Emenite Limited, Enugu was incorporated in 1961 as TRNERS ASBESTOS CEMENT (TAC) Nig. Ltd. The industry started actual business of manufacturing re-enforced cement materials such as roofing sheets and flat sheets (ceiling boards) in 1962. The product line was later expanded to include pressure pipes.
In 1988, Turners Asbestos Cement (TAC) was acquired by the Etex Group of Belgium from the former British owners, and the name was consequently changed to Emenite Limited, still maintaining the manufacture of flat sheets called Emciel, roofing sheets of different sizes, like big six corrugated sheets and other hand mould products like qualities, Emlux and Duraceil. These products are durable, economical continent, reliable, pleasing and toxic fee, leading to its award of NIS 150 9002 certificate.
Since the acquisition or change of ownership, Emenite have continued to grow from strength to strength. For instance, in 2003, it commissioned a new production line worth five billion Naira (N5,000,000,000) with totally internally generated fund. And also commission another one in 2004, called SM III. This attests to 17’s vibrancy making sure it’s more than three hundred production staff and the two production lines are busy, they produce not less than fifty thousand sheets of both corrugated and flat sheets. Per day.
Their raw materials are partly local and imported. Raw materials like cement paper and lime stone are sourced locally while others like felt and polyelectrolyte (a binding component) and fiber are imported. Generally, it could be said that 60% of their raw materials are locally sourced while others are imported, including sub-assemblies and machine parts.
Emenite limited has a team of becoming a leaser in building materials manufacture in Nigeria and in the West Africa sub – region.
INVENTORY CONTROL AT EMENITE LTD
The inventory at Emenite Ltd is made up of raw materials like cement, lime stone, chemical etc and sub-assemblies like spare parts for machine repairs.
THE STORES SECTION
Called technical stores in Emenite, it handles the most stocks of raw materials. The storekeeper uses bin card, stores ledger card and a computer programme called M.I.S. (management information system) in keeping record of issuance and receipt of materials.
ADMINISTRATION DEPARTMENT
This deals with policies that should be adopted in the company. This department ensures that stocks are procured through the use of purchase order, usually L.P.O.S
ACCOUNTS SECTION
It takes control of the financial aspects of the stock for the company. This section attaches an inspection report certificate for the payment of goods supplied. This is prepared after the prices, quality, quantity of the stocks have been verified and found suitable for the company. The chief accountant therefore authorizes for the payment of these stock.
INTERNAL AUDIT
This section verifies the price of items purchased from the market as regards stocks. The stocks are checked through quarterly returns being rendered for high value stock whereas verification of all stocks is done at the end of the financial year. The internal auditor sends his reports to the managing director.
PRODUCTION SECTION
The care of work in progress is by this section or department. The sheet that are still in the production line are in their hands.
PURCHASING & SUPPLIES
They work hand in hand with the stores department. In some organizations the stores sees to the purchasing of inventories, but for transparency sake, it was separated in Emenite and any goods that must be bought must be through the purchasing department.
STOCKS MOVEMENT
a) Ordering
In Emenite Ltd, the process for ordering stock goes in a scale form. They have three stock levels; the min, level, re-ordering level and the maximum level.
When goods are ordered, it must not be less than the minimum level and must not exceed the maximum level. Moreso, goods must be at the reordering level before an order would be placed. When the stock is at the re-ordering level, the store keeper raises an R.T.O (requisition to order), which he sends to the purchasing department. The purchasing or supplies department advertises for quotations from suppliers, giving this the specifications. After this, the successful suppliers are issued prenumbered L. P. O. S, authorizing than to supply.
b) Receiving
When a supplier brings goods or stock of which he was asked to bring the storekeeper first of all checks his own copy of the L.P.O to know if such goods were needed in the first place. If it was needed, he them cross – checks the accuracy of the quantity, and calls the end user department to check for quality. On confirmation the goods are entered into the DIG (Daily Income of Goods) and finally raises the goods received note based on the invoice value.
c) Issuing
Before request for any stock item will be granted, it must accompanied by a requisition note which must be authorized b the department.