INVENTORY CONTROL AS AN EFFECTIVE TOOL FOR COST CONTROL IN AN ORGANIZATION
(A CASE STUDY OF CADBURY NIGERIA PLC).
The topic of this research work is inventory control as an effective tool for cost control in an organization using Cadbury Nigeria plc as a case study. Inventory control can be defined as the implementation of management’s inventory policies in a manner that assures that the goal of inventory management is met. The management of various companies is faced with the problem of at what level inventory should be held in order to have a healthy operation that is optimal stock level that will minimize the cost of stocks the (ordering and holding costs). The researcher objective is to know the effectiveness of inventory control on cost control.
In this course of carrying this research work various techniques or methods of data collection were used. They include questionnaires, interviews and observations. A sample size of 73 workers in Cadbury Nigeria plc was also used and was chosen among the number of department/sections of worker using Bowley’s proportional allocation formula.
The researcher makes use of three hypotheses in this study to analyze the research project. The researcher made used of Z-test in testing the formulated hypothesis. The researcher used the descriptive statistical tools (tables, figures and percentages) in the presenting and analyzing the data generated from this study. From the analysis, the researcher finds out that effective management of inventory will help a firm to control its cost and contribute to the actualization of a firm organizational goal.
The researcher therefore recommends that organization should apply the technique of inventory control with the objective of cost control so as to enable the goal of profit maximization to be attained
1.1 BACKGROUND OF THE STUDY
In general, inventory control and cost control techniques have become a household name in the business of manufacturing firms, that boast of the possession of goods or stocks, that hope to sell when the demand arises. It is so important to them, such that their survival as a corporate entity, hinges on how they are able to coordinate and control their applications. Inventory is a term that has been explained in various ways by various scholars, inventories are stocks of the product a company is manufacturing for sale and components that makes up the product.
They are raw-materials, work in progress and finished goods and they constitute various form of inventory in a manufacturing firm. Inventories are the stocks of material or finished goods which a company keeps in anticipation of demand or consumption. In the past, inventory management was not seen to be necessary. In fact excess inventories were considered as indication of wealth. Management by then considered overstocking beneficial.
But today firms have started to embrace effective inventory control. The goal of effective inventory control is to be sure that optimum levels of inventories are available that there are minimal stock outs, (i.e running out of stock), and that inventory is maintained in a safe place and is always readily accessible to the proper personnel. Consequently, there is a need for the firms to undertake effective inventory control with the aims of:
a) Ensuring a continuous supply of materials to facilitate
b) Maintaining sufficient stock of raw materials in periods of short supply and anticipated price changes
c) Minimizing the carrying cost and time virtually every company has one form of inventory or the other.
The level of the forms of inventories of a firm depends on the nature of its business manufacturing. The scope of inventory management concerns the fine lines between the replenishment lead time, carrying cost of inventory asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management replenishment, returns and defective goods and demand forecasting. Balancing these competing requirements leads to optimal inventory levels, which is an on-going process as the business need shift and react to the wider environment.
Inventory management involves the monitoring of material moved into and out of stock room locations and the reconciling of inventory balance.
Management of inventories with the primary objective of determining/controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling cost. Policies relate to what levels of inventories are to be maintained and which vendors will be supplying the inventory. How and when inventories will be replenished, how inventory records are create, managed and analyzed and what aspect of inventory management will be out sourced are also importance component of proper inventory management.
On the other hand, cost control refers to steps taken by management to assure that all segments of the organization function in a manner consistent with its policies. For effective cost control, most organization use standard cost system, in which the actual cost are compared against standard cost for performance evaluation and deviations are investigated from remedial actions. Cost control is also concerned with feedback that might change any of all the future plans, the production method, or both. From the foregoing, it can be categorically asserted that how strategic a firm manages its stocks or inventories will defines its cost control techniques and budgets. It is therefore, the focus of this research study to carry out and assessment of inventory control as an effective tool for cost control in an organization, using the inventory and cost control techniques of Cadbury Nigeria plc as our case study.
INVENTORY CONTROL AS AN EFFECTIVE TOOL FOR COST CONTROL IN AN ORGANIZATION
1.2 STATEMENT OF PROBLEMS
In the last couple of decades, the numbers of products offered to the market have generally exploded. As the same time, the product life time has decreased drastically. The combination of the two trends leads to increase in accuracy of the demand forecasts, leading to firms facing an increase in demand uncertainty resulting in the increase in inventory levels. It is important that a company maintains adequate stocks of material for the continuous supply to the factory for an uninterrupted production, in doing so such a company is exposed to two undesirable points namely excessive carry cost and the risk liquidity, while inadequate inventory can lead to production hold-ups and failure to meet delivery commitments.
The study is concerned with problem of how to determine and maintain optimum level of inventory investment. It cannot be over-emphasized that inventory keeping is an indispensable activity in the activity of every business firms that deals in stocks. This is because these stocks, depending on how they are warehoused or better still managed, can make or mar them.
It is not only just to keep record of these inventories; there is also the need for management to maintain the cost objectives put forward in the planning stage of inventory management. Evidence has also shown that a lot of firms have failed management control and thus, they have been made to count their losses. How then can the firms maintain adequate or proper inventory control alongside with cost control? The answer to this question and many issues from the basis for the appraisal is this research study.
1.3 OBJECTIVES OF THE STUDY
To know how effective inventory control is when it comes to controlling cost in an organization.
To outline the relationship that exists between inventory control and the cost control system of an organization.
To know how effective inventory control technique.
1.4 RESEARCH QUESTIONS
How effective is inventory control when it has to do with an organization cost control practices?
What are the essential relationship existing between inventory control and cost control?
How can planned effective inventory control techniques contribute to the profitability in a firm?