CHAPTER 1

THE PROBLEM AND ITS SETTING

INTRODUCTION

In Carranglan today, there are many soft drink production in

the beverage industry and they all source their raw materials from few
of not the same market.

The effective and efficient functioning of a productive system

requires the regular demand and supply of inventory at the input
transformation and output phases of the production process.

With the present economic meltdown, organization are after these

scare resources to product their product. Therefore, the urgency for
the effective and efficient management of inventory in form of raw
material, work-in-progress and finished goods constitute
significant proportion of assets of most organization.

But why is it pertinent to keep an eye on these items in other words, why do we engage in inventory
management? Inventory items cost money to acquire, they cost money to store and to look after,
which means storage facilities has to be provided so as to make sure that these materials or items
do not get spoilt until they are turned into sellable goods, they do not produce money.
When stocks are held, it means tying down capital that would have been used in other areas, so it all
represent cost and should be managed properly to acquire efficiently.
We must however, hold stocks to meet production needs and sales needs. This is because if we do
not hold stocks in sufficient quantities west and the risk of running out of stock. Similarly, if we short
of finished good, we may disappoint our customers. Inventory shortage in both these forms will likely
lead to loss of customers and money. For the organization not to have above problems they should
strike a balance between too much stocks (over inventory) and carrying too little stock. (Under
 inventory).This is essentially the importance of inventory management, managing assets of all kinds
is basically an inventory problem, the same method of analysis applies to cash and fixed assets as to
inventories themselves.
First of all a basic stock must be on hand to hand balance in flow and outflow of items, the size of the
stocks depend on pattern of flow whether fast moving or regular items.
Secondly, because the unexpected may occur, it is necessary to have safety stock on hand
presenting extra stock to avoid the cost of not having enough to met current needs.
Thirdly, additional amount may be required to meet future growth needs, these are called anticipation
stocks, related to anticipation stock is the recognition that these are optimum purchases size defines
as economic order quantity (EOQ)
In borrowing money for buying raw materials for production or purchasing plants and equipments, it is
cheaper or more economical to buy more than just enough to meet immediate needs. Manufacturing
firms have three kinds of inventories:
1. Raw materials
2. Work-in-progress
3. Finished Goods
1. Raw Materials: inventories are influence by anticipated production, seasonality of production, reliability
of resources or supply and efficiently of scheduling purchased and production operations.
2. Work-in-progress: inventory is greatly influenced by the length of the production period which is the
time between planning raw materials in production and completing the finished product. Inventory
turnover therefore can be increased by decreasing the production, means of accomplishing these to
perfect engineering technician, therefore, spreading up to manufacturing process. Another means is
to buy rather than make them. The level of finished goods inventories is a matter of coordinating
production and sales.
Holding stocks in what ever form cost money: the capital tied down by the stocks itself has to be
serviced by the payment of interest and the land or warehouse needed for the stock has to be
bought or rented.
The handling and securing of the stocks and any quality determination that occur also cost money.
The sample type of the stock control system used in most organization is two: the bin system of stock
control and which is of two quantities – the first is the stock level below which a new order has to
placed, the other gives the quantity to be ordered. Under this system, the units of stocks are held in
two; one and two stocks is taken from bin as required until this bin is empty. More are then ordered
by the quantity being determined by the rate of usage or consumption rate.

Comprehensive inventory; planning and control system have been successfully installed or
established in many organizations. The major objectives of inventory management are to discover and
maintain to optimum level of investment in the inventory. Inventories may be too high or too low, if to
high there are unnecessary carrying cost and risk of obsolesce, if too low, production may be disrupted
or sales permanently cost and loss of goodwill, reputation and customers to their firms in the same
industry.The optimum inventory level is that which minimizes the total associated with inventory.

1.2 STATEMENT OF THE PROBLEM The life blood of any organization, whether private or public
whether productive or service organization is inventory. Because of the slit completive that exist in
every industry, inventory management has become mandatory on each and every manager
responsible for production in an organization. Inventory is one vital resource that any organization
requires and just like any other resource that is very scares and that requires effective management
rather than neglect. The cost of acquiring these inventories is also important for the fact that too much
of it will mean trying down capital and risk of becoming obsolete while having little could lead to
shortage and production bottle neck. How then, to determine adequate quantity of raw material to
buy, where to buy on a regular basis devoid of scarcity, the amount to invest on the inventory is the
concern of the researcher.

1.3 OBJECTIVES OF THE STUDY The objectives of the study are to determine:
1. What quantity of inventory to buy and stock?
2. What procedure to follow in purchasing?
3. How to locate required goods in the store?

1.4 SIGNIFICANCE OF THE STUDY The result of this research when concluded will be of great
benefit to the following.
1. Companies in the beverage industry especially the Nigerian Bottling company.
The findings and the recommendation will asset production managers to find better ways to manage
their inventory. The findings and recommendation can also be used as a steeping tone to other
researcher in the areas for further research work.

1.5 STATEMENT OF HYPOTHESIS The following are hypothesis developed to guide this research
work: Ho: effective inventory management will not reduce material wastage/cost and hence cannot
improve profitability. H1: effective inventory management will reduce material wastage/cost and hence
cannot improve profitability.

1.6 SCOPE OF THE STUDY The scope of this research is the Nigerian Bottling company and its
limited to the management of their inventory in the last five (5) years of the company operations.

1.7 LIMITATIONS OF THE STUDY This research is limited by the time in the sense that most
respondent do not keep appointment given to the researcher. Some respondents also misplaced the
research instrument administered to them. Another problem is restriction to vital information and
document by the organization under study due to secrecy, the organization is so strict with their
document and do not allow vital information to be revealed for fear for leaking management secret to
competitors, this generated a non-challant attitude by some staff towards the research.