CHAPTER ONE INTRODUCTION
1.1 BACKGROUND STUDY According to James (1973) the objectives of most business include; survival and growth, fulfillment of social responsibilities and realization of satisfaction/profit. This level of returns enables the company to take advantage of business opportunities, undertake research and innovations which further makes for growth and survival in the long run, discharge its social responsibilities and its obligations to the owners. In order to maintain this status quo, it becomes important that positive effects be made to reduce operational costs of the business, increase production and boost the sales of their products. However, one of the efficient ways of attaining this desired goal is through reduction of operational costs to the basic minimal. One major component of this cost in many manufacturing organization that deserves top management’s attention is the investment in “inventories” otherwise referred to as stock. In most organizations, the inventory or stock figure is the largest single item in the current assets group. Excess or shortage of stocks can contribute to the failure of the business. Inventories of a manufacturing company includes ” raw materials, work-in-progress (WIP) and finished goods. Raw materials are the basic imput materials that are converted into finished goods through the manufacturing process. Normally, the raw materials are purchased and stored for futute production. Work-in-progress or semi-finished goods represents products thatr need extra work before they became finished goods for sale. In an ideal process, stocks or raw materials and work-in-progress facilitates production while stock of finished goods kis required for marketing operations. Considering the huge investments on the stock of raw materials, work-in-progress and finished goods, it therefore becomes very important that there should be efficient management of these resources so that profit margin of the firm will not be jeopardized. Any undertaking which tends to ignore the management of inventories will at the long run fail as its profitability level will always be on the decline.
