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PROJECT TOPIC- ANALYSIS OF INVENTORY CONTROL EFFICIENCY IN EBONYI STATE FERTILIZER AND CHEMICAL COMPANY LTD

PROJECT TOPIC- ANALYSIS OF INVENTORY CONTROL EFFICIENCY IN EBONYI STATE FERTILIZER AND CHEMICAL COMPANY LTD

ABSTRACT

This study assessed the inventory control measures in Ebonyi state Fertilizer and Chemical Company Ltd to ascertain if the re-order levels and re-order quantities were able to maintain efficient inventory control in the company. Data were obtained from records of the company. To ensure a reliable research work, multiple regressions, analysis of variance (ANOVA)), graphical representation and ratio analysis were used to analyse, and further explain the result. F-statistics and T-test were employed to test both hypothesis for inventory control, efficiency and economic order quantity analysis. Result showed that there was significant relationship between the re-order level and inventory control efficiency since the observed value of F was statistically significant at 5% level of confidence. The result also indicated that there was significant relationship between the re-order quantity and economic order quantity as the observed F-value was statistically significant at 10% level of confidence. The theoretical expectation which the company was intended to maintain inventory control efficiency by operating at expected economic order quantity that reduced inventory costs was relatively achieved. In other words, inventory control system in the company as at the time of investigation was encouraging. However, the findings indicated that some of the orders made by the company during the period under review could not meet up with the deserved economic order quantity which invariably led to high inventory cost. Staffs was not given regular trainings on inventory control systems, recent developed software on inventory management and effective management information system (MIS) were not in place. The implication of the findings is that the company still have to put modern inventory control techniques in place in order to ensure deserved inventory control efficiency.

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

According to Sloan and Zurches (2013), inventories as one of the accounting theories provide an important channel between production and sale of both finished and unfinished products, thus, this constitute a large significant percent of the cost of production. An inventory is one of the most expensive and significant assets of the manufacturing companies, which represent a considerable percentage of the total invested capital.

Similarly, inventory control is very critical to manufacturing operations since raw materials shortage can lead to shut downs or disruptions in the production line, which in turn introduces additional expenses. On the other hand, overstocked inventory increases cost, such as holding cost, and reduces profitability through added warehousing cost, capital tied-up, deterioration, excessive insurance, added taxes and even risk of obsolescence (French and Sawad,2010).

This has led to increasing awareness of the need for precision in the field of inventory control amongst business. In the past decades, the stock of inventories was considered as an indicator of wealth. Even, inventories greatly excess of the amount needed to carry on the process of production and distribution were beneficial. But today, it becomes imperative for management to know how inventory can efficiently and effectively be planned and controlled in the industries Ola, (2005).

Virtually, every manufacturing industry and sales outfit requires some inventories to operate. A retail shop for instance must maintain supply of parts and products for their operation. Hence, there is virtually no firm that operates without adequate stocks because; they perform a vital cushioning function in the realization of organization objectives. Ebonyi State Fertilizer and Chemical Company Ltd were selected for this study. The company was in corporated as a limited liability company in 2004 and charged with the responsibility of producing variety of NPK fertilizer as farming inputs in commercial quantities.

PROJECT TOPIC- ANALYSIS OF INVENTORY CONTROL EFFICIENCY IN EBONYI STATE FERTILIZER AND CHEMICAL COMPANY LTD

1.2 Statement of the Problem

The principal objectives of most business organizations include survival, growth and maximization of owners’ wealth. The attainment of these objectives greatly depends, among other variables on the level of profit earned to enable an organizations take advantage of business opportunities and undertake research and innovations to enhance growth. Investment in inventories unequivocally constitutes one major component of the total cost of any manufacturing company.

It is usually the largest single item under current assets of most companies and attracts top management attention. An excess inventory carriage consumes a considerable proportion of an organization’s finance which otherwise could have been profitably employed in other areas, while the case of a shortage or stock out of materials and finished products could be very costly and devastating to the organization in terms of loss of sales and customer goodwill.

The ability of any organization to effectively manage this issue helps to strike a balance between the costs of holding and ordering inventories. The determination of an economic order quantity (EOQ), which could help to reduce total cost, thus constitutes some problems to business enterprises. Some firms face the problems of stock obsolescence, poor quality materials, high carrying and ordering costs due to wrong application of inventory control techniques.

There is also the problem of possible conflict between what decision model indicates as the optional action and what the manager might perceive as optional. Ebonyi State Fertilizer and Chemical Company Ltd have been in business for years but it is not known whether her inventory control system is efficient enough as to bring positive impact on the company. The researcher intends to investigate the appropriateness of inventory control techniques in place between the years 2004 to 2010.

1.3 Objectives of the Study

The broad objective of this study is to analyze the efficiency of inventory control in Ebonyi State Fertilizer and Chemical company Ltd. Efficiency of inventory control in the company can be determined when fertilizers of correct quantity and quality are made available as at when demanded with due regards to economy in stocks, holding and ordering costs, purchase prices and working capital(Starr and miller 2012). In other words, the company must insist on re-order quantity(economic order quantity) that would minimize costs of holding and ordering fertilizers.

However, the specific objectives are to;

  1. Determine if the re-order level of stock was able to maintain efficient inventory control in the company.
  2. Determine if the quantity of stock ordered (re-order quantity) was able to minimize costs of holding and ordering fertilizer.

1.4 Statements of Hypotheses

The identified problems have been hypothesized to guide the study as follows:

1          H0: there is no significant relationship between re-order level and inventory control efficiency in Ebonyi State Fertilizer and Chemical Company Ltd.

2          H0: there is no significant relationship between re-order quantity and economic order quantity in Ebonyi State Fertilizer and Chemical Company Ltd.

 

1.5 Significant of the Study

The analyses of inventory control efficiency in Ebonyi State Fertilizer and Chemical Company Ltd will help to verify the practicability of theoretical inventory control techniques and concepts in real situations in the manufacturing industries.

The need to study a means for evaluating profitability of holding inventory and its associated cost cannot be over emphasized and any study to improve its operation is a useful venture. Thus, the researcher hopes that the study will help management of the company under study to identify the most influential variables of inventory control and production as well as guiding against risk of losses arising from overstocking and obsolescence.

It will enable the company to discover and maintain optimum level of investment in inventory. This will assist the organization to maximize profits and reduce risk of liquidity. It will as well assist the company’s managers know that level of inventory that will be kept, order and then be able to forecasting the lead-time or the demand during the lead-time. Customers, confidence towards the company will be maintained as it enables delivery commitments to be met all the time.

Finally, research students and other academicians who may want to extend their studies in the areas of inventory control will also find this research project useful.

1.6 limitation of the Study

In the course of conducting this research work, numerous problems were encountered ranging from delay in releasing vital information by the staff and unfriendly attitude of some departmental heads of the company. Beside, data sourced from time series may contain errors, which are outside control of the researcher. However, notwithstanding these limitations, efforts were made to ensure that authentic, reliable data were used and at the end, put up a research work whose output is reliable and verifiable by any standard.

1.7       Scope of the Study

Control of inventory is no doubt a very broad area of study. The research, however, will be restricted to Ebonyi State with special reference to Ebonyi State Fertilizer and Chemical Company Ltd. This company was chosen because it relates to the agricultural industry which is the main policy focus of Ebonyi State Government and the environment in which this study is situated. The study will investigate the general practice of inventory control system adopted in the company between the time frame of 2004 and 2010.

PROJECT TOPIC- ANALYSIS OF INVENTORY CONTROL EFFICIENCY IN EBONYI STATE FERTILIZER AND CHEMICAL COMPANY LTD

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