The Need For Efficient Inventory Management In A Manufacturing Company

The Need For Efficient Inventory Management In A Manufacturing Company
(A Case Study Of Nigeria Bottling Company N.b.c Enugu State)

The Need For Efficient Inventory Management In A Manufacturing Company
(A Case Study Of Nigeria Bottling Company N.b.c Enugu State)

The objective of most business include survived and growth fulfillment of social responsibility and realization of satisfactory profit. This level of return enables company to have advantage of business opportunities undertake research and innovation which further make for growth and survival in the long run discharge its social responsibilities and its obligations to the owners.

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In order to maintain this status quo, it becomes imperative that positive attempt must be made to minimize the operational cost of the business increase production and boost the face of these products.

However, one of the efficient ways of achieving the most desired efficiency in business operation is through education of operational cost to a tolerance level. One major component of this cost in many manufacturing organization that desires the attention of management is the investment in “inventories” otherwise known as stock. In the most organization, the inventory or stock figures is the largest simple item in the current assets group. Any excess as well as storage of stock can contribute to business failure inventories are the stock product 0 company is manufacturing for sale and the component of stock are raw materials work-in-progress (W.I.P) and finished goods. Raw materials are those input materials that are converted into finished goods through the manufacturing process.

Raw material stocks are those units of input which have been purchased and stored for production. Work-in-progress (WIP) stocks are semi-manufacturing products. They represent products that need more before they become finished products for sales.

Stock of raw materials and work-in-progress facilitate product while stock of finished goods is required to smooth marketing operation.

Considering the large sum of money work-in progress and finished goods it therefore become obvious that those stocks should be managed efficiently in profit position of the firm.

Any jeopardizing its long run profitability and may fail ultimately or the only sure way by which this risk can be avoided in a company is for the company to install a sound management system given the level of inventories needed for the most successful merchandising operation. The objective of operational management in to advice the lowest possible total cost of maintaining these inventories. This mean high labours and plant efficiency in the physical handling of inventories into one out of storage.


A critical look at the trend to business activities over some years in Nigeria will reveal a consistent increase in cost and declaring profitability.

It puzzles one why manufacturing companies in Nigeria have been operating efficiently whether is because of in availability of raw material ability. But how can we recognize those with seasoned manager and vast market potential for manufacturing of product in Nigeria.

There is also problem of discrepancy between policy and practice in stock management in the company under study. Stuck or inventories are sometimes allowed out of the stores without proper requisition being made. This is divergence between stock policy which prohibit stock leaving the stock without the proper requisitioned product.


The primary objective of this write up are:

(A) To highlight the immense importance of efficient stock management in manufacturing companies

(B) Finding the likely consequence of over stocking and under stocking the manufacturing company and the benefit attribute to having stock at its optimum level.


From the second point of secreting capital inventory in substantially less leaved their receivables and for is usually a less described from collateral from bank loan.

The important of this study to NBC in particular is to find solution to this processing problem. How much can the business afford to invest in stock or inventories without adverse financial effects on the company profitability since company of this type have some operation need more investing too much on stock means that there will be little or no funds to meet up the expenditure on these operation union for there is need for the manufacturing company to invest wisely on stock.

This study will also help the manufacturing companies to good against risk of losses through the following:

(A) Deterioration and evaporation- material which can easily deteriorate and evaporation should be used for storage to preview deterioration and evaporation.

(B) Change in taste of fashion- care should be taken not to our stock items that can easily be rendered useless due to fashion change as this can result to higher importation the stock holding can be ascertained through the change in price of stock. Stocks are built if the price anticipated to be high. Similarly, any expected fail in the price will be the management to reduce the stock.



(i) Does manufacturing companies appreciate the importance of efficient inventory management?

(ii) Does overstocking introduce unnecessary carrying and ordering cost typing up of capital?

(iii) Is inventory management of any important to a manufacturing company?


Noal (1881) defined hypothesis as a proposition put toward as a basis for reasoning a supporbution formulated from proved data and presented as a temporal explanation of experience as a science in order to establish a basis for the future research.

To come up with a useful result the following hypothesis were formulated efficient in production is not a function

Ho1 of efficient stock management

Ho2 Efficiency inventory management is a major tool for cost reduction and increasing profitability

Ho3 Inventory planning involves the determination of such factor as market demand and plant capital


In this research work some technical words which are purely related to the used for easy comprehensive explanation of these work are given below.

ORDERING COST: ordering cost usually consists of clerical cost of preparing a purchase order or production order and special processing and receiving cost relating to number of order processed.

CARRY COST: Carry cost of a desired rate of return on the investment in inventory and cost of storage. Breakage obsolesce determination insurance and personal property taxes.

ECONOMICAL ORDER QUANTITY: Inventory order quantity is that size of inventory that win result in minimum total annual cost at the item in question.

RE-ORDER LEVEL: This is the point of level that automatically higher on new order. It is dependent on expected usage during lead time.

LEAD TIME: This is the in oval between placing an order and receiving delivery

SAFETY A QUANTITY OF GOOD: Anything to kept or stored for use as the need arise especially a quantity of raw material work in-progress, Finished goods or supplies.

STOCK CONTROL: Activity process or study of ensuring that quantities of stock eg raw material supplied or finished goods such that satisfactory service level is maintained for all stock-keeping unit while holding cost are minimized.

STOCK HOLDER: A term or a person who has a specific type of stock (e.g wholesaler that has stock of particular manufacturing goods).

STOCK HOLDING COST: The cost incurrent for a time eg the rent of storage space the stock level (inventory level) the magnitude of the stock of something.

STOCK OUT: A stock of having no stock keeping unit.

STOCK CARD: This is the card made for each item of inventory held.

STOCK TAXING: Measuring the quantity of items of stock that a enterprise has in order to obtain accurate list of it.

STOCK TURNOVER: The ration of the sale revenue of a firm for a period of the average value of its stock-in-trade or stock of finished goods during that period.

VALUE ANALYSIS: Considering of the function of all the part of the design of one firm product to see whether the change in national manufacturing methods or design with increase the product value to the firm.

OBSOLENCE: The decline in value of the asset through external caused such as technological charge or change in demand.


The essence of business process and development is undoubtedly to improve profitability and therefore increased returns on investment.

These are usually made attainable by proper management of stock. The American institute of chartered and practicing accountant (AICPA) 1979 define the terms inventory or stock as the aggregate of those items at tangible property which

1. Are held for sale in the ordinary course of business.

2. Are processes of production of such sale.

3. To be currently consumed in the production of goods or services to be available for sale. Lorna lee and Daniel w poble (19970 classical inventory as follow:

1. Production inventories: Raw materials parts and component which enter the firm product in production process. This may consist of two general type viz.

(i) Special items manufactured to company specification and

(ii) Standard industrial items purchased off the sect

2. Maintenance repair and operating supplies which are consumed in the production process but which do not become part of the product (e.g.) lubricating oil machine repair parts) and so on, However the problem in stock management is the determination of the optimum stock level.

3. This is the level that reduces the cost of holding such stock. The optimum level is determined at some point between two extreme minimum stock level and maximum stock level its determination is a matter of some complexity because stock movement to area a dynamic situation of consistently change in stock level since the investment in stock tends to vary more or less.


The presentation of inventory in financial statement is the essence of inventory management in companies in particular and business organization in general with the increasing size of management for presenting fairly the result of companies operation is greater today ever before.

Therefore if the management are to meet this challenge fully they must have a logical and consistent body of accounting theory to guide them as stated in S.A.S4 this theoretical structure must be realistic in terms of economic environment and designed to meet the need of the major user of financial statements.

In the late 1920, many companies experienced great slumps and as caused by lack of inventory management.

For companies to escape from these problems a good inventory control system should be set out. There are different models for the management and control of inventory. They have highlights the problems prospering and avenues of controlling inventories business organization. There are no doubt that many uncertainties effect inventory management system these include determining

(a) How much that should be required in period

(b) How much to obtain it

(c) When to obtain it

(d) Whether what is produced out of it will be marketable


I.M. Panbey saw inventory as goods held for sale which include finished goods, raw materials partially completed goods in production.

However, Pandey said that the question of many inventories since according to him involves typing up company funds and incurring storage cost beyond the estimate in answering question why company held inventories he suggested as follows:

– Transactionary motive

– Precautionary motive

– Speculative motive


Panbey saw inventory as goods held for sale which include finished goods raw materials and partially completed goods in production. He also said that for manufacturing companies inventories are stock of product a company is manufacturing for sale and the components that up the product.

However, Panbey said that the question of managing inventories since according to him involves typing up company fund and incurring storage cost beyond the estimate. In answering questions why companies hold inventories he suggested as follows:-

– Transaction motive

– Precautionary motive

– Speculative motive

He went further in his contribution on the objective of holding inventories is to separate or purchase production activities and that holding finished goods is to separate production function and sale activities in order to make purchase continuously at the rate of production usage to high ordering costs loss of quantity discount and production interruption.

More so its demands were uncertain the firm would hold inventory to silence off the stock out cost. Precaution motive arise when demand is higher than expected.

Therefore the firm would hold inventory even it cost of order were zero when faced with an uncertain demand pattern. Speculative motive is when the requisition price of the items stocked for inventory to protect against future increase in price and if there were quantity discount. The firm would hold some inventory to take advantage of these saving but one should ignore all those and concentrates on transaction motive


The inventories of most manufacturing company are made up of raw materials work-in-progress and finished goods this is defined by Pandey (1987) as the stock of product a company is manufacturing for sale and the component that made up the product.

Explicit survey has show that inventories constitute the major component of current assets and yet the least liquid of the current asset. This is evidenced by the fact that raw material has to be sold to create debtors.

It is the objective of inventory manager to try to maintain the investment interest at the lowest amount which is sufficient for production save and financial requirement of the company. According to Adekunle (1986) inventory must be adequate to maintain an efficient level of operations and to meet the need of the company However inventories must be kept not more often as required of cost associated with them.

These costs include the cost of holding and storing excessive quantity of inventory. Risk of adverse exposure to physical deterioration.

Not withstanding those cost survey had it no company can do without inventory.

Braide 19860 says an inventory has financial significance because revenue may be obtained from its sales or sale of goods and services.

To have an efficient inventory in companies effort should be made to find solution as to the quantity of inventory and time of ordering it be resolved by economic order quantity (EOQ) and Re-order level or both.


The model helped management to identify not only the time to order but also the ideal order Quantity M. Y. MAC CORMAC and J.J Teehing (1908) said that the following information are needed in order to develop economic order quantity (EOQ) model:

A. The time required from order to delivery

B. The rate of usage of the products

C The cost of ordering

D The cost of carrying a unit in inventory.

This composed of a interest plus storage plus and allowance for wastage breakage and obsolesce

E The discount structure of bulk order

(A) The penalties for being out of stock in the contribution of William H.Jecin (1973). He defined two cost as function of the order (batch) quantity and then the order of those two cost. He regarded the cost as the carry cost of inventory.

The component of these cost are:

(A) Cost of storing that inventory quantity

(B) Obsolesce or deterioration change if the gods in question have physical characteristics such that age will reduce the goods value

(C) An input interest cost to allow for the corporation investment of fund in the inventory. The interest cost may be significant in size.


This show that total carrying cost is a function x and has a linear relationship with x as the number of unit per order increases the carrying cost increase.


In the last chapter the research presented and anallysed the data collected. In this chapter it is important to guide a clear and concise account of the finding based on the analysed data.

From the analysis carries out the company makes policy decision about stock management. This is appreciated by table 14.1 which shows that out of the 40 respondents. 30 or 75% agreed that the company makes policy decision about stock management. This is a clear indication that the company attaches importance to the management of stock. Every company needs to manage its stock efficiently because it forms the bulk of its investment.

The finding also reveals that following department and financial department act as sources of data for planning and controlling stocks. This is evidenced by 24 or 60% of the respondent which confirmed the assertion with table 111.

The marketing department will give information concerning the marketing of the stock the information about the production department and the information about the financing of stock originates from the financial department.

Also there is no separate committee assigned with the function of making policy decision about stock of inventory management. this is justified by table iv which all the respondent answered that there is no separate committee assigned with the function of stock management. But from the interview with the cost account, he said that with the responsibility of making policy decision about inventory management rest on the store and cost account department.

The analysis as confirmed in table x revealed that maintaining stock at their optimul guarantees the following:

(1) Stability of sale

(2) No risk in interruption of production process

(3) Economic resulting form bulk buying are gained. Therefore;it is not at advantage to have stock at low

sale or very high sale. The ideal level of stopck every company should aim at is the optimal level.

The company employs the use of computer controlling stock asa evidenced by table xiii in that al nthe respondent answer “yes” that the company use computer for controlling of stock. This computer aid the company in her effort in maintaining efficient management of stock. It does this by finding solution to where inventory management decision

(i) How much to buy or make and

(ii) Order. There is regular stock taking in company. The discretion for taking stock is within the stores and cost accounting department.

DATA PRESENTATION (Highlight of the study)

In valuation of stock,the method used must be consistent and reasonable simply. The company should choose the method that will be used costing issued materials or stores and this must clearly reflect their periodic incomes the maket price method might be suggested as against the weight average method (WAM) used by the company through this method cannot go without the administrative difficulties.


From the survey conducted,it was revealed that the company use data or computer for the management and controlling of stock. This researcher is hereby calling for intensified computer process. This if done will help in finding solution to these stock management decision viz:

(i) How much to by or make and

(ii) When to order

The former related to the problem of determining economic order quantity (EOQ) while the later relate to the problem determining the order point.

Considering all the above recommendations,the researcher is very optimistic that if they are well implemented. The efficiency of the inventory management will be greatly enhanced.


As the topic states; is “the need for effective inventory management in a manufacturing company” one will then say that really manufacturing companies face inventory management problem of what the researcher tried to analyse and bring possible recommendation to that effect.

The problems associated with inventory management are unavailability of raw materials. The determinations of optimal level of stock as well as the discrepancy between policy and pratice in stock management.

In carrying out the research work some research question were asked such as:

(A) Does the manufacturing companies appreciate the importance of efficient inventory management.

(B) Does over stocking introduce unnecessary caring and ordering cost and typing up of funds on capital?

In an attempt to answer the above research questions, populations size of party employees wee draw from three department viz marketing production and financial department. The simple random sampling technique was used and the method of data collection used were oral interview company journals textbook and questionnaires which were mostly structure. The department act as source of data for planning and controlling of stock. Moreover from the analysis of data gathered it was revealed that the company makes decision about stock management and also that stock can be allowed to leave the store without proper requisition being made for it in order to meet up with emerging based on the above analysis carried out. The set up stock management committee which should ensure that there is adequate information flow about inventory management and organize a perfect storage system for the stocks. There should be optimum stock level to avoid under or overstocking.

Also market price of valuation. Although the company uses computer for the management and control of stock. The researcher is hereby calling for increasing computer operations as this will strengthen the stock management process in the area of how to buy or produce when to order.


As stated earlier stock from a greater of the current assets of the majority of companies and this is the major source of cash to manufacturing companies.for draw manufacturing company to survive it must manage its inventory of raw material work-in-progress and finished goods efficiency; the management problem on our investment or under investment in inventories and should be just sufficient that is at optimum level. The problem of optimum level of stock is overcome through the spelling of fairly wide stock limit known as maximum stock level and minimum stock level. The former limits the investment in stock while the later ensure that stock are sufficient for normal demands.

The Need For Efficient Inventory Management In A Manufacturing Company
(A Case Study Of Nigeria Bottling Company N.b.c Enugu State)

To place an order for the Complete Project Material, pay N5,000 to

GTBank (Guaranty Trust Bank)
Account Name – Chudi-Oji Chukwuka
Account No – 0044157183

Then text the name of the Project topic, email address and your names to 08060565721.  

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