The Effect of Information Communication Technology on Inventory Management and Profit Maximization”. (A study of ABC Manufacturing Company)

CHAPTER ONE

INTRODUCTION

  • Background of the study

According to Momanyi (2014), in today’s business environment, even small and mid-sized businesses have come to rely on computerized inventory management systems. Certainly, there are plenty of small retail outlets, manufacturers and other businesses that continue to rely on manual means of inventory tracking. Indeed, for some small businesses like convenience stores, shoe stores, or nurseries, purchase of an electronic inventory tracking system might constitute a wasteful use of financial resources. But for other firms operating in industries that feature high volume turnover of raw materials and/or finished products, computerized tracking systems have emerged as a key component of business strategies aimed at increasing productivity and maintaining competitiveness.     Moreover, the recent development of powerful computer programs capable of addressing a wide variety of record keeping needs—including inventory management—in one integrated system have also contributed to the growing popularity of electronic inventory control options.

Given such developments, it is little wonder that business experts commonly cite inventory control as a vital element that can spell the difference between success and failure in today’s keenly competitive business. The inventory in this company is cash and the stockroom is the community bank, from which a lot can be learned. It is remarkable that a company, with several million dollars in inventory – more than a community bank would ever have in cash, does not insist on similarly stringent procedures. If a company could somehow convince its employees that inventory actually represents dollar bills sitting on the shelves or racks, how would it be treated? Would it be handled as it does now? Would a company allow people to substitute fives for tens, or tens for twenties without properly recording it? The answers may seem obvious, but how many of us can relate to any one of these situations? Attitudes of all employees must be changed to view inventory as the lifeblood of the company and their livelihood.

Obviously, to get a good handle on how to manage inventory, one must have correct up-to-date information. Properly managing inventory requires a system that will produce enough timely information to make informed management decisions. How to select a proper computer system is not within the scope of this article, but one basic concept needs to be remembered: The primary objective of any system is to provide predictable results. If certain benchmarks or standards are set to help manage a business, the system should capture the data consistently and measure those standards correctly. For example, if inventory turnover and customer service levels are measured to help manage inventory, a good computer system will consistently measure these and give warnings when they are out of line with the established standards (Carl, 2011).

“Information technology” can be defined in various ways. In terms of capital, among the most common is the BEA’s (U.S. Bureau of Economic Analysis) category “Office, Computing and Accounting Machinery (OCAM) which consists primarily of computers. Some researchers look specifically at computer capital, while others consider the BEA’s broader category, “Information Processing Equipment (IPE).” IPE includes communications equipment, scientific and engineering instruments, photocopiers and related equipment. Besides, software and related services are sometimes included in the IT capital. Recent studies often examine the productivity of information systems staff, or of workers who use computers (Berndt and Morrison, 1995).

According to Carr (2003), “inventory management” and investment in “information technology” have generated great interest in the academic and business press in recent years because of the substantial monetary expenditure involved. In October 2006, the total adjusted inventory in the United States (U.S.) was $481 billion for all manufacturers, $492 billion for retailers and $393 billion for wholesalers.

In view of Salami (2010), inventory management is pivotal in effective and efficient organization. It also vital in the control of materials and goods that have to hold for later use in the case of production or later exchange activities in the case of services.

Keth et al. (1994) in their text also stated that the major objective of inventory management and control is to inform managers how much of a good to re-order, when to re-order the good, how frequently orders should be placed and what the appropriate safety stock is, for minimizing stock outs. Thus, the overall goal of inventory is to have what is needed, and to minimize the number of times one is out of stock.

Drury (1996) defined inventory as a stock of goods that is maintained by a business in anticipation of some future demand. This definition was also supported by Schroeder (2000) who stressed that inventory management has an impact on all business functions, particularly operations, marketing, accounting, and finance.

  • Statement of the Problem

       Organizations in manufacturing sector and all others that handle different inventories has been facing inventory problems in the past, organization that were carrying hundreds or even thousands of different parts of items were faced with the impossible task of physically monitoring the inventory levels of each part. While every organization is undoubtedly unique each with its own set of purchasing, inventory, order fulfillment, tracking systems and pick-and-pack procedures, the importance an integrated software system plays in streamlining the tailored data within each warehouse cannot be underestimated, Using IT solutions to automate an organization inventory processes optimizes efficiencies and improves access to information across every aspect of a logistics enterprise.

1.3 Research Questions

  1. What is the effect of strategic ICT initiative on implementation of inventory in ABC Manufacturing Company?
  2. What is the effect of internal integration on inventory implementation in ABC Manufacturing Company?
  3. What is the impact of external integration on e-procurement implementation in ABC Manufacturing Company?
  4. What is the effect of technological integration on e-procurement implementation in ABC Manufacturing Company?

1.4 Objectives of the Study

However, the study will specifically seek to:

  1. To identify the effect of strategic ICT initiative on inventory control implementation in ABC Manufacturing Company.
  2. To examine the effect of internal integration on inventory control implementation in ABC Manufacturing Company.
  3. To understand the impact of external integration on e-procurement implementation in ABC Manufacturing Company.
  4. To examine the effect of technological integration on e- procurement implementation in ABC Manufacturing   Company.

1.5 Hypothesis

H1: ABC Manufacturing Company is implementing strategic

ICT initiative on Inventory control.

H2: Internal integration affects inventory control

implementation in ABC Manufacturing Company.

H3: External integration affects inventory control

implementation in ABC Manufacturing Company.

H4: Technological integration affect inventory control

implementation in ABC Manufacturing Company.

1.6 Significance of the study

       The research is important to the following stakeholders of ABC Manufacturing Company.

Employees who if the recommendations are implemented will be able to adopt the new system and improve their performance due to better systems which will be less cumbersome and reliable.

ABC Manufacturing Company management who will be able to make better decisions that will help improve service delivery and win customers confidence hence propel the company to higher heights in growth, this will be possible by observing reliable inventory reports that will be provided.

Shareholders who will be able to earn a return on their investments this is because revenue will increase with reduction in breakdown but increase in number of ABC users who in return raises the company revenue base.

The government and the public who will benefit from efficient services, accurate reports to the ministry on ABC activities quarterly.

1.7 Scope of the Study

       The study was carried out within ABC Manufacturing Company. The study focus was a sample of four major sections within ABC Manufacturing Company which happen to be more involved in usage of inventory and they include the following, maintenance, operations, Finance and procurement department.

1.8 Limitation of the Study

       Like similar studies, current study is not without limitations. This includes data collection time and the unwillingness of respondents to participate. Respondents in senior positions posed the greatest challenge as they were unwilling to participate, citing lack of time to fill the questionnaire hence hampering the expected response rate.

The topic of study also posed a challenge as most people did not understand the inventory control concept and the (ICT) hence mostly relying on the people on procurement department and those who had gained knowledge in the area through the course of their studies.

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