INVENTORY MANAGEMENT: A TOOL FOR MAXIMIZING PROFITABILITY AND CONTINUITY OF SMALL AND MEDIUM SCALE ENTERPRISES (A STUDY OF SELECTED SMEs IN UYO METROPOLIS)

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INVENTORY MANAGEMENT: A TOOL FOR MAXIMIZING PROFITABILITY AND CONTINUITY OF SMALL AND MEDIUM SCALE ENTERPRISES (A STUDY OF SELECTED SMEs IN UYO METROPOLIS)

 

TABLE OF CONTENTS

CONTENTS                                                                                          PAGES

Title Page   –         –         –         –         –         –         –         –         –          i

Certificate   –         –         –         –         –         –         –         –         –          ii

Declaration –         –         –         –         –         –         –         –         –          iii

Dedication –         –         –         –         –         –         –         –         –          iv

Acknowledgements      –         –         –         –         –         –         –          vi

Abstract      –         –         –         –         –         –         –         –         –          vii

Table of contents –         –         –         –         –         –         –         –          viii

CHAPTER ONE – INTRODUCTION

1.1 Background of the study                      –         –         –         –                                                                  1

1.2 Statement of the study                     –    –         –         –         –                                                                  5

1.3 Objectives of the study                    –    –         –         –         –                                                                  7

1.4 Research Question-                          –    –         –         –         –                                                                  7

1.5 Research Hypothesis                       –    –         –         –         –                                                                  8

1.6 Significance of the study                 –    –         –         –         –                                                                  9

1.7 Scope of the study                            –    –         –         –         –                                                                 10

1.8 Limitation of the study                    –    –         –         –         –                                                                 10

1.9 Definition of terms                           –    –         –         –         –                                                                 11

CHAPTER TWO – REVIEW OF RELATED LITERATURE

2.0 Introduction                                      –    –         –         –         –                                                                 13

2.1 Conceptual framework                    –    –         –         –         –                                                                 15

2.2 Inventory management theory       –    –         –         –         –                                                                 18

2.3 Nature of inventories                       –    –         –         –         –                                                                 19

2.4 Motives for holding inventories     –    –         –         –         –                                                                 23

2.5 Objective of inventory management   –         –         –         –                                                                 26

2.6 Inventory management technique –    –         –         –         –                                                                 29

2.7 The importance of inventory management- –         –         –                                                                 32

CHAPTER THREE – RESEARCH METHODOLOGY

3.0 Introduction-                                     –    –         –         –         –                                                                 34

3.1 Research design                                –    –         –         –         –                                                                 35

3.2 Area of study                                    –    –         –         –         –                                                                 35

3.3 Population of the study                   –    –         –         –         –                                                                 36

3.4 Sample size determination  and sampling techniques    –                                                                 36

3.5 Research instrument                        –    –         –         –         –                                                                 39

3.6 Sources of Data collection procedures –         –         –         39

3.7 Method of data analysis                  –    –         –         –         –                                                                 40

3.8 Reliability and validity of the instrument    –         –         –                                                                 42

3.9 Validation and Reliability of the Instrument          –         –                                                                 42

CHAPTER FOUR – DATA PRESENTATION, ANALYSIS AND DISCUSSION OF FINDING

4.0 Introduction                                      –    –         –         –         –                                                                 44

4.1 Respondents’ characteristic and analysis of data according

to research question                         –    –         –         –         –                                                                 44

4.2 Analysis of Questionnaires Administration –         –         –                                                                 48

4.3 Test of Hypothesis                           –    –         –         –         –                                                                 54

4.4 Discussion of findings                     –    –         –         –         –                                                                 56

CHAPTER FIVE – SUMMARY, CONCLUSION AND RECOMMENDATION

5.0 Introduction                                      –    –         –         –         –                                                                 59

5.1 Summary                                           –    –         –         –         –                                                                 59

5.2 Conclusion                                        –    –         –         –         –                                                                 61

5.3 Recommendations                            –    –         –         –         –                                                                 63

References

Appendix

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

Inventory management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different location within a facility or within multiple location of supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods (Behnam, 2013). It is the overseeing and controlling of the ordering, storage and use of components that an enterprise will use in the production of the items it will sell as well as the overseeing and controlling of the qualities of the finished product for sale. According to Mpamugo (2003) inventory management involves the procurement and maintenance of various levels of inventory items for smooth operation of a business in order to ensure profitability. A business inventory is one of the major assets of the business and it represents an investment that is tied up until the item is sold or used in the production of item that is sold. As postulated by Pandey (2003), inventories constitute the most significant part of current assets of a large majority of small and medium scale enterprise (SMES) in Nigeria.

Due to the large size of inventories maintained by some SMEs a considerable amount of funds is required to be commuted to them. It is therefore absolutely imperative for inventories to be effectively and efficiently managed in order to avoid unnecessary investment as well as cost. Where an enterprise neglect to manage their inventories properly, they run the risk of jeopardizing their long-run profitability and may fail ultimately, rather they end up in carrying storage cost as well as insurance expenses. Mismanaged inventories tend to create significant financial problems for a business which could result in inventory glut or inventory shortage. Rather, 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 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 enterprise 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 and continuity of small and medium scale enterprise (SMES) cannot be overstated, because that is the reason why organizations are in business, if inventory management is carried out properly. There will be increase in production and sales thereby maximizing profitability and continuity for the organization.

Panday (2003), suggested that business should reduce their inventory level to a considerable degree of 10-20 percent, without any adverse effect on production and sales by using simple inventory planning and control techniques, adding that the reduction in ‘’excessive’’ inventories carries a favourable impact on a company’s profitability and continuity. A successful inventory management involves creating a purchase plant that items are available when they are needed and ensure that they are at an appreciate quantity (i.e. not too much or too little) and keep track of existing inventory as well as to use.

According to Akinsulires (2003), the effective and efficient functioning of productive system requires the regular demand and supply of inventory of the input transformation and output phases of the production process. Management is also seen as the effective and efficient utilization of resource for the achievement of organizational objectives. To en sure profitably and continuity of SMEs, there must be a free flow of materials unencumbered at every stage of the production process.

In Nigeria today, there are many SMEs, and they all source their raw materials from the few available markets if not the same market. With the present economic problems, organizations are after these scare resources to produce their products, therefore calls for urgency in areas of effective and efficient management of their inventory inform of raw material, work- in- progress and finished goods, which constitute significant proportion of assets of most business which leads to profitability and continuity.

Why is it pertinent to keep an eye on these items? These are questions often asked by some sole proprietors and managers of SMEs.

Therefore, his study attempts to find out how inventory management can be effectively used to reduce time wastage, theft, obsolescence, pilferage and, many more in the organization so as to achieve their goals, in the profitability and continuity.

1.2 STATEMENT OF THE PROBLEM

Empirical research has shown that the study of inventory management 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/budget whereby a large sum of money is spent on acquisition of materials without making an adequate planned effort to provide for inventory facilities. These lapses couples with improper stack control system and lack of trained personnel account for the ineffectiveness of inventory function in the public and private sector. A lot of costs are associated with keeping of inventory despite that; we must however hold stock to meet production needs and sales needs. Acquiring too much of stock will lead to tying down of capital as well as the risk of the goods being obsolete and expired. On the other hand, having too little would jeopardize production as well as leading to under stocking. Inventory management has problems in general, especially in areas of discrepancies, theft, fraud, obsolescence, deterioration and breakages.

Many SMEs have failed due to disregard of the importance of inventory management while some of the SMEs tends to ask the question “how can we determine the quality of raw materials or goods to purchase on a regular basis devoid of scarcity?” how much should we invest in inventory to remain at an equilibrium level of demand and supply? Does effective inventory management results to profitability? Amongst other.It is against his backdrop that the researcher tends to undertake study on this topic in order to proffer solutions to these problems so as to faster profitability and continuity of SMEs in Uyo metropolis.

1.3 OBJECTIVES OF THE STUDY 

  1. Determine whether inventor management serves as a tool to maximizing profitability and continuity of SMEs.
  2. Ascertain the relationship between inventory management and the profitability of an organization.
  3. Known whether maintaining a minimum investment in inventory can maximize profit.
  4. Known whether to maintain large size inventory do leads to efficient and smooth production and sales operation of SMEs.
  5. Identify the problems faced by the Entrepreneurs in the course of managing inventories in their organizati

1.4 RESEARCH QUESTIONS

  1. Does inventory management serves as a tool to maximizing profitability and continuity of SMEs?
  2. Any relationship between inventory management and the profitability of an organization?
  3. Maintaining a minimum investment in inventory can maximize profit?
  4. Do large size inventory leads to efficient and smooth production and sales operations of SMEs?
  5. What are the problems faced by the entrepreneurs in the course of managing inventories in other organizations?

 1.5   RESEARCH HYPOTHESES

To guide his research work, the following hypotheses have been formulated:

H0: There is no significant relationship between inventory management and the profitability of small and medium scale enterprises.

H1:  There is significant relationship between inventory management and the profitability of small and medium scale enterprises.

H0:  Effective inventory management does not reduce material wastage and cost.

H1:  effective inventory management reduces material wastage and cost.

1.6    SIGNIFICANT OF THE STUDY

This study is significant in the fact that the findings could provide inventory management techniques as well as cutting- edge technologic managements and the organization of large to attain a greater level of inventory management, thus; profitability and hereby discouraging under stocking. Transaction ally, this study emphasizes the facilitate smooth production and sales operations.

The result of this study would serve as a stepping- stone for other researchers on further research in this area. This study is also aimed at updating previous research in the subject matter as well as emphasizing on the need for effective and efficient inventory management practices so as to ensure profitability and continuity of small and medium scale enterprises in Uyo metropolis.

1.7     SCOPE OF THE STUDY

This study focuses on selected small and medium scale enterprises in Uyo metropolis. In the course of selection, this study will touch on manufacturing and merchandising enterprises covering the scales of the micro, the small and medium enterprises all in Uyo metropolis. They are AMECOM Nigeria enterprises and Usmer water limited.

1.8 LIMITATIONS OF THE STUDY

In the course of carrying out this research, the main limitation envisaged is the fact respondents may misconstrue the purpose of the study on the groups that it is intended to expose their inefficiencies, thus unwilling to supply the needed primary day which will invariably affect the duration of the research. However, the researcher then eliminate this limitation by explaining the purpose of the study to make them see the benefits of this study other limitations include:

  • typing and photocopying of the needed materials
  • Inadequate blue-print on the exact subject matter.

1.9 DEFINITIONS OF TERMS

Inventory-inventory or stock refers to the goods and materials that business holds for the ultimate purpose of resale. (Behnam, 2013).

Management: Management is the coordination of all the resource of an organization through the process of planning organization, directing and controlling in order to attain organizational objectives (Nwachukwu, 2007).

Inventory management: it involve the procurement and maintenance of various levels of inventory items for the smooth operations of a business (Mpamugu 2003).

Organization –A conscious co-ordinate social unit created by groups in the society to achieve specific purpose, common aims and objectives by means of planned and co-ordinated activities (Mullins, 2007).

Efficiency- efficiency means getting the most output from the least amount of inputs, sometimes refers to as doing things right (Nwachukwu, 2007).

Effectiveness: this means “doing the right thing” to move the organization close to its predetermined objectives (Nwachukwu, 2007).

Production- the process of combining various materials inputs and immaterial input (intellectual) in order to make something for consumption (the output) (Wikipedia,2014).

Raw materials: those basic inputs that are converted into finished products through the manufacturing process (pandey,2003).

Economic order quantity (EOQ): the economic order quantity is that level of inventory which minimizes the total of ordering and carrying cost (pandey,2003).

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