INVENTORY CONTROL PROCEDURES IN MANUFACTURING ORGANIZATIONS

(A CASE STUDY OF EMENITE LIMITED, EMENE)

By

EKE GODFREY C.

Presented To

Department of Accountancy

ABSTRACT

This is a research project on inventory control procedures using Emenite Limited as a case study of manufacturing company.

This study is necessitated by the fact that many manufacturing firms can no longer meet up to installed capacity due to poor management of inventories. This has led to closing down of various companies or retrenchment of workers due to lean pockets. Therefore in this project, I am at critically examining the inventory control procedures of Emenite limited with the view that some other manufacturing companies in Enugu will learn from its success.

To solve the problem, both primary and secondary data were collected by using questionnaires, oral interviews of staff and personal observations. And in organizing the data, taxes and percentages were used.

The interpretation of the findings provide that Emenite Limited is a successful manufacturing company whose firm inventory control policies vitally ensures its success, and that other manufacturing companies can successes by following in the footsteps of Emenite Ltd.

TABLE OF CONTENT

Title page i

Approval page ii

Dedication iii

Acknowledgment iv

Table of contents v

Abstract viii

CHAPTER ONE

1.0 Introduction 1

1.1 Background to the study 2

1.2 Statement of problems 3

1.3 Objective of the study 3

1.4 Scope of the study 4

1.5 Research questions 4

1.6 Significance of the study 5

1.7 Brief history of Emenite 5

CHAPTER TWO

2.0 Literature review 10

2.1 The concept of inventory control 10

2.2 Inventory control procedures 13

2.3 Finished goods inventory 16

2.4 Problems of inventory control 18

2.5 Inventory control decisions 19

2.6 Stock control models 22

2.7 Inventory valuation 26

2.8 Inventory records 30

2.9 Summary of Related Reviewed Literature 35

CHAPTER THREE

3.0 Methodology 37

3.1 Research design 37

3.2 Area for the study 37

3.3 Population for the study 38

3.4 Sample and sampling procedure 38

3.5 Instrument for data collection 42

3.6 Validation of instrument 42

3.7 Reliability of the instrument 42

3.8 Method of data collection 43

3.9 Method of data analysis 43

CHAPTER FOUR

4.0 Data presentation and analysis of data 44

Summary of findings 55

CHAPTER FIVE

5.1 Discussion of results 57

5.2 Conclusion 58

5.3 Implications of the research results 58

5.4 Recommendation 59

5.5 Suggestion for further studies 60

5.6 Limitations of the study 60

References 62

Appendix 63

CHAPTER ONE

INTRODUCTION

Inventory could be defined as the stock of materials kept in anticipation of future demand or use. The term was originally an American term for depicting the value or quality of materials that are kept or stored for use as the need arises. It is applied to a detailed list of goods or articles in a given place or a stock - taking.

Furthermore, there are about five classifications of inventory; namely;

- Raw materials

- Components and sub-assembles

- In process materials or work in progress

- Finished goods

- Consumables.

Having said these, it is the process of controlling these inventories or materials that I am going to research about in this project, using Emenite Ltd as a case study.

1.1 BACKGROUND TO THE STUDY

Having pointed out in the introduction that inventory includes Raw materials, finished goods, components and sub-assemblies, work-in-progress, consumables etc, it means that a very substantial amount of a company's working capital is always tied up in it's inventories, it implies that the company should be able to control it's inventory effectively and this brings us to the definition of inventory control.

Inventory control is the activities, techniques and methods of maintaining an accurate stock of items or inventories at a desired level. This is because a company's inventory can either be an asset or a liability to her, depending on the quantity available at the moment.

Too much inventories consumes physical space, increase the possibility of damages, spoilage or loss. While on the other hand, too little inventory disrupts manufacturing operations, engenders chaos on the shop floor and increases the likelihood of poor customer service.

Too much or too little inventory is an evidence of poor forecasting inadequate attention to processes and procedures and haphazard scheduling. Therefore if a manufacturing company must survive, strategies for minimizing avoidable waste, shortages and excesses must be developed so as to compete effectively with other firms. And all these can only be achieved through effective inventory control.

1.2 STATEMENT OF PROBLEM

Since inventories are the wheels on which manufacturing activities run on, the progress of a manufacturing concern or it's down fall depends on how firm their grip on inventories are. I have therefore set out by this project to:

1. Consider and analyze the various systems of inventory control and the problems for maintaining them.

2. Know the standard system for controlling inventory

3. Find out the imitations against the effective implementation of inventory control procedures.

1.3 OBJECTIVE OF THE STUDY

a) Demonstrate the methodology of Emenite Ltd inventory control procedure.

b) Present the various ways of achieving organizational goals through proper raw material handling.

1.4 SCOPE OR DELIMITATION OF STUDY

While conducting research for this project, there are some problems which were encountered and which affected (indirectly) the project. They include:

1) For lack of time could not question all the staff of Emenite Ltd, hence I applied the sampling method.

2) The study was limited to Emenite alone, since I could not reach other manufacturing companies. Hence the project only speaks about Emenite.

3) There was not much money with which to run around for the project.

1.5 RESEARCH QUESTIONS

The information's contained in this project were collected based on the presumption of the following hypothesis:

a) That the success of manufacturing concerns depends on their material management.

b) That Emenite ltd has a very good inventory control procedure, hence their success in manufacturing.

c) Many other manufacturing companies can make good progress if they follow a suitable material control process.

1.6 SIGNIFICANCE OF STUDY

This study is very important because:

1) It will bring to the knowledge of manufacturing companies, that proper inventory control is the basis for organization progress in manufacturing.

2) Up coming manufactures will be able to learn from an existing company how to handle their inventory so as to make profit from it.

1.7 A BRIEF HISTORY OF EMENITE LTD

Emenite Limited, Enugu was incorporated in 1961 as TRNERS ASBESTOS CEMENT (TAC) Nig. Ltd. The industry started actual business of manufacturing re-enforced cement materials such as roofing sheets and flat sheets (ceiling boards) in 1962. The product line was later expanded to include pressure pipes.

In 1988, Turners Asbestos Cement (TAC) was acquired by the Etex Group of Belgium from the former British owners, and the name was consequently changed to Emenite Limited, still maintaining the manufacture of flat sheets called Emciel, roofing sheets of different sizes, like big six corrugated sheets and other hand mould products like qualities, Emlux and Duraceil. These products are durable, economical continent, reliable, pleasing and toxic fee, leading to its award of NIS 150 9002 certificate.

Since the acquisition or change of ownership, Emenite have continued to grow from strength to strength. For instance, in 2003, it commissioned a new production line worth five billion Naira (N5,000,000,000) with totally internally generated fund. And also commission another one in 2004, called SM III. This attests to 17's vibrancy making sure it's more than three hundred production staff and the two production lines are busy, they produce not less than fifty thousand sheets of both corrugated and flat sheets. Per day.

Their raw materials are partly local and imported. Raw materials like cement paper and lime stone are sourced locally while others like felt and polyelectrolyte (a binding component) and fiber are imported. Generally, it could be said that 60% of their raw materials are locally sourced while others are imported, including sub-assemblies and machine parts.

Emenite limited has a team of becoming a leaser in building materials manufacture in Nigeria and in the West Africa sub - region.

INVENTORY CONTROL AT EMENITE LTD

The inventory at Emenite Ltd is made up of raw materials like cement, lime stone, chemical etc and sub-assemblies like spare parts for machine repairs.

THE STORES SECTION

Called technical stores in Emenite, it handles the most stocks of raw materials. The storekeeper uses bin card, stores ledger card and a computer programme called M.I.S. (management information system) in keeping record of issuance and receipt of materials.

ADMINISTRATION DEPARTMENT

This deals with policies that should be adopted in the company. This department ensures that stocks are procured through the use of purchase order, usually L.P.O.S

ACCOUNTS SECTION

It takes control of the financial aspects of the stock for the company. This section attaches an inspection report certificate for the payment of goods supplied. This is prepared after the prices, quality, quantity of the stocks have been verified and found suitable for the company. The chief accountant therefore authorizes for the payment of these stock.

INTERNAL AUDIT

This section verifies the price of items purchased from the market as regards stocks. The stocks are checked through quarterly returns being rendered for high value stock whereas verification of all stocks is done at the end of the financial year. The internal auditor sends his reports to the managing director.

PRODUCTION SECTION

The care of work in progress is by this section or department. The sheet that are still in the production line are in their hands.

PURCHASING & SUPPLIES

They work hand in hand with the stores department. In some organizations the stores sees to the purchasing of inventories, but for transparency sake, it was separated in Emenite and any goods that must be bought must be through the purchasing department.

STOCKS MOVEMENT

a) Ordering

In Emenite Ltd, the process for ordering stock goes in a scale form. They have three stock levels; the min, level, re-ordering level and the maximum level.

When goods are ordered, it must not be less than the minimum level and must not exceed the maximum level. Moreso, goods must be at the reordering level before an order would be placed. When the stock is at the re-ordering level, the store keeper raises an R.T.O (requisition to order), which he sends to the purchasing department. The purchasing or supplies department advertises for quotations from suppliers, giving this the specifications. After this, the successful suppliers are issued prenumbered L. P. O. S, authorizing than to supply.

b) Receiving

When a supplier brings goods or stock of which he was asked to bring the storekeeper first of all checks his own copy of the L.P.O to know if such goods were needed in the first place. If it was needed, he them cross - checks the accuracy of the quantity, and calls the end user department to check for quality. On confirmation the goods are entered into the DIG (Daily Income of Goods) and finally raises the goods received note based on the invoice value.

c) Issuing

Before request for any stock item will be granted, it must accompanied by a requisition note which must be authorized b the department.