EFFECTIVENESS OF INVENTORY MANAGEMENT IN A MANUFACTURING COMPANY (A CASE STUDY OF AMA GREENFIELD BREWERIES PLC, ENUGU, NIGERIA)

CHAPTER ONE


                                    INTRODUCTION


  1.1 BACKGROUND OF THE STUDY 


   Inventory  is  one  of  the  resources  that  are  managed  by  business


  organizations  and  it  was  first  recorded  in  1601.  The  need  for  inventory


  control  cannot  be  overemphasized  as  it  is  a  means  for  improving  the


  performance  of  manufacturing  industries. Inventory  can  be  defined  as  a


  record  of  a  business  current  assets  including  property  owned,  merchandise


  on hand and the value of work in progress and work complete but not sold


  and it  is classified as a current asset because it can be turned into liquid cash


  within  a  short  period  of  time.  Inventory  has  created  a  great  impact  on  the


  profitability of the manufacturing firm which resulted to the deep research of


  this  topic.  Effectiveness  of  inventory  management  in  a  manufacturing


  company. 


   Inventory plays a major role in the operation of many businesses and


  manufacturing  companies.  In  manufacturing,  inventories  of  raw  materials


  allow companies to operate independently of their sources of supplies. Day


  to day operation are not dependent on deliveries from supplies since stock of


  the necessary mateials are maintained and used s needed. Without inventory
                                                                                     
 

  control, millions of naira could be lost year because of non accountability of


  stocks and inaccurate checks and balances. 


   The  process  of  control  and  management  of  inventory  is  a  very


  important factor in the success or failure of any business for example, little


  stock will result in stock out which will disrupt the production distribution


  cycle  that    is  crucial  to  the  survival  of  all  manufacturing  companies  while


  too  much  stock  will  tie  down  the  resources  of  a  company.  Poor  or


  inadequate  inventory  management  can  present  a  serious  challenge  to  the


  productive  capacity  of  a  manufacturing  organization.  In  addition  to  raw


  materials and finished goods, many companies also maintain items of assets,


  property, inventories of work in progress, office supplies, business firms and


  general operation supplies. 


   Inventories often constitutes the most significant part of current assets


  of  large  companies.  In  the  public  limited  companies,  inventories  are


  approximately 60% of current assets on the average. The US Burean of the


  census  stated  that  inventory  and  accounts  receivable  ate  the  two  largest


  accounts  of  equal  magnitude  and  together  they  comprise  almost  80%  of


  current assets and over 30% of total assets for all manufacturing companies


  in 1982.
                                                                                      3
 

   Considering the large sum of money that are committed to the stocks


  of  raw  materials,  work    in  progress  and  finished  goods,  it    is  therefore  of


  paramount necessity that these stocks be managed efficiently and effectively


  in order to avoid the jeopardizing  of the profit position of the firm. 


   In inventory, there is an optimum level therefore inadequate inventory


  causes loss of sale and disrupts the production process while excessive stock


  level leads to unnecessary carrying cost and obsolescence or spoilage risks.


  According to Charles T. Horngren (2007), the optimum inventory. Level lies


  between the inadequate inventories and the excessive inventories. Inventory


  management  aims  at  maintaining  an  optimum  inventory  level  that  will  be


  carried at the least cost.


 


  A BRIEF HISTORY OF AMA GREENFIELD BREWERY IN ENUGU


  STATE, NIGERIA


 Ama    Greenfield  Brewery  is  the  jewell  in  the  crown  of  Nigeria


  Breweries Plc and is reputed as one of the most modern Breweries. Precisely


  on Friday October 24, 2003, the much talked about Nigeria Breweries Plc’s


  ultra modern Ama Greenfield Brewery located in Enugu state was officially


  commissioned. It is Nigeria breweries Plc company’s sixth Brewery and the


  second  to  be  located  in  Enugu  state.  The  multi-billion  naira Ama  Brewery
                                                                                     
 

  boasts  of  the  best  cutting  edge  technology  and  world  class  standard


  processes.    It  is  located  in  Umuezeani  village  in  the  Amaeke  Ngwo


  community of Udi Local Government Area of Enugu state. Mr. Lassy Agose


  who  was  the  public  relations  adviser  to  the  Nigeria  Breweries    Plc  at  that


  time said that Ama Greenfield Brewery has an installed capacity of 3 million


  hectoliters per annum or 1 million carton units per week adding that it was


  also equipped with an ultra modern waste water treatment plant in l ine with


  safe  manufacturing  practices  world-wide.  Ama  Brewery  whose  foundation


  was laid on April 9,2001 by the then Enugu state Governor, Dr Chimaroke


  Nnamani took 14 months to be completed after the actual construction work


  commenced  on  January  23,  2002.  the  first  brew  was  made  on  march  22nd,


  2003 while the first bottle of star larger rolled off the bottling line on April


  24, 2003. 


   Ama Greenfield Brewery encapsulates the essential ingredients of the


  world  class  vision  of  the  Nigeria  Breweries  plc  and  represents  another


  milestone  in  the  company’s  journey  towards  the  realization  of  that  vision.


  Beyond these, Ama Brewery holds enormous socio-economic benefits to the


  community, state and country at large.


   In addition  to  opening  up  the  communities  to  commerce  and


  modernization,  the  state  stands  to  benefit  from  increased  revenue  and  the
                                                                                      
 

  building  of  international  confidence  for  investment.  This  multibillion  naira


  investment is also expected to translate into enhanced employment, as well


  as  open  the  flood  gates  of  business  activities  and  opportunities  in  the


  economy,  Mr.  Agose  stated  during  a  pre-commissioning  press  briefing  in


  Lagos. Constructed at a cost of N40 billion, it is an essential fulfillment of


  the  pledge  made  by  Heineken  NV  to  invest  N70  billion  in  Nigeria  within


  five years building an ultra-modern civic centre, a borehole and market stalls


  for the area. 


  1.2 STATEMENT OF THE PROBLEM


 The problems seen in the course of this study are as follows:-


    i. Ineffective  management  of  inventory  in  the  manufacturing


              company specifically Ama Greenfield Breweries. 


    ii. Loss of sales or business of the company as a result of insufficient


              inventories of finished goods.


    iii. Low productivity in the manufacturing company as a result of poor


              inventories model used by the company 


    iv. Poor management and control of inventories in the manufacturing


            company. 

  1.3 OBJECTIVE OF THE STUDY

   The major objective of this study is to determine of the effectiveness


  of  inventory  management  in  a  manufacturing  company.  The  specific


  objectives of this study are as follows:-


    i. To  determine  to  what  extent  the  ineffective  management  of


            inventory in Ama Breweries plc has caused low productivity in the


            company. 


    ii. To examine the extent to which insufficient inventory of finished


            goods cause loss of sales to the company. 


    iii. To identify the degree to which poor inventory modern used by the


              company has resulted to low productivity in the company. 


    iv. To  ascertain  whether  the  company  has  suffered  from  poor


              management and control of inventories. 


  1.4 TEST OF HYPOTHESES


   Based  on  the  problems  and  objectives  of  this  study,  the  following


  hypotheses are formulated for this research. 


  Ho: There is no significant relationship between low productivity and poor


          inventories management. 
                                                                                     
 

  H1: There is a significant relationship between low productivity and poor


          inventories management. 


  Ho: There is no significant relationship between proper inventory policies


        and productivity in a manufacturing company. 


  H2: There  is  a  significant  relationship  between  proper  inventory  policies


        and productivity in a manufacturing company. 


 


  1.5 RESEARCH QUESTIONS 


   For  the  purpose  of  this  research  study,  the  following  research


          questions were formulated:


  1. Does  effective  inventory  control  ensure  continuous  production  of


        goods in Ama Breweries?


  2. What  is  the  state  of  inventory  management  in  the  Nigerian


          manufacturing company especially Ama Breweries plc?


  3. Has  effective  inventory  control  made  a  significant  impact  on  the


          manufacturing company?


 

  1.6 SIGNIFICANCE OF THE STUDY 


   The  significance  of  this  study  lies  on  the  fact  that  with  improved


  inventory  control  and  management  in  manufacturing  companies,  the


  following persons may benefit from it: 


   It  will  be  significant  to  manufacturing  companies,  firms and


  businesses  as  it  will  enable  them  keep  an  adequate  inventory  control  and


  ensure  that  they  do  not  run  out  of  stock  or  have  excess  stock  which  can


  endanger  their  liquidity  position.  It  will  also  help  to  meet  consumer’s


  demands  or  quest.  It  is  also  important  to  the  government  as  it  will  help  to


  reduce  waste  of  investment  inventory.  It  will  also  help  lecturers  to  really


  know the importance of inventory control so that they will be able to impact


  it  on  their  students.  This  study  will  also  reveal  the  relevant  methods  to  be


  used in preventing mismanagement; it will also improve stock control which


  has led to the mismanagement and unproductively of materials. 


 


  1.7 SCOPE OF THE STUDY 


   This research work on the effectiveness of inventory management in a


  manufacturing  company  is  focused  on  Ama  Greenfield  Breweries  plc  in


  Enugu state. 


 

  1.8 LIMITATIONS OF THE STUDY 


 Some limitations and factors in this research study are as follows:-


    i. The time required for the research and the submission of this work


            is  very  short and  the  researcher  was  unable  to  go  through  all


              manufacturing companies. 


    ii. Financial  constraints:-Finance  which  is  the  most  important


            resource for this work was not readily available. 


    iii. Limited exeat:-Due to the fact that exeat is very difficult to get in


            school,  proper  research  was  not  carried  out  and  this  affected  the


            integrity of the results achieved. 


    iv. Unco-operative attitudes of some of my respondents:- The


              management  of  Ama  Breweries  prohibited  its  employees  from


            giving  out information  about  the  company to  outsiders  without


            adequate  permission  from  the  management  and  even  when  this


            permission  was  obtained  at  the  long  run,  many  vital  information


            were not revealed because they were regarded as the privacy of the


            company.


 

  1.9 DEFINITION OF TERMS 


  INVENTORY:This is a record of a business’ current assets. It can also be


  described  as  the  merchandise  or  supplies  held  or  in  transit  at  a  particular


  point in time.