The Need For Effective And Efficient Inventory Management In A Manufacturing Company A Case Study Of Emenite Enugu

According to James (1973) the objectives of most business include; survival and growth, fulfillment of social responsibilities and realization of satisfaction/profit. This level of returns enables the company to take advantage of business opportunities, undertake research and innovations which further makes for growth and survival in the long run, discharge its social responsibilities and its obligations to the owners. In order to maintain this status quo, it becomes important that positive effects be made to reduce operational costs of the business, increase production and boost the sales of their products. However, one of the efficient ways of attaining this desired goal is through reduction of operational costs to the basic minimal.

One major component of this cost in many manufacturing organization that deserves top management’s attention is the investment in “inventories” otherwise referred to as stock.

In most organizations, the inventory or stock figure is the largest single item in the current assets group. Excess or shortage of stocks can contribute to the failure of the business.

Inventories of a manufacturing company includes – raw materials, work-in-progress (WIP) and finished goods. Raw materials are the basic imput materials that are converted into finished goods through the manufacturing process. Normally, the raw materials are purchased and stored for futute production. Work-in-progress or semi-finished goods represents products thatr need extra work before they became finished goods for sale. In an ideal process, stocks or raw materials and work-in-progress facilitates production while stock of finished goods kis required for marketing operations.

Considering the huge investments on the stock of raw materials, work-in-progress and finished goods, it therefore becomes very important that there should be efficient management of these resources so that profit margin of the firm will not be jeopardized. Any undertaking which tends to ignore the management of inventories will at the long run fail as its profitability level will always be on the decline. To check and fored stall this anomally, it is advisable that the company should install a sound management system.

Given the level ofinventories needed for the most successful merchansizing opeation, the objectives of operational management is to achieve the lowest possible total cost of maintaining these inventoris. This means high labour and planned efficiency in the physical handling of inventories into and out of shortage.

There is an optimum level of inventory for any asset whether it be cash, physical plant or inventories. For example, the cash may be too large or too small. One of the reasons for havin too large cash balance might be the sacrifice of shareholders earnings. On the other hand, the reason for holding too low cash balance might be due to the poor credit rating of the firm. Therefore, for every assets, there must be that ideal or optimal level of investment such that when compared with the other asset classes, helps maximize longrun profit.

Horngren (1982) stated that the “optimum inventory level is somewhere between the two danger points”. The two danger points are inadequate inventories and excessive inventories. Inadequate inventories disrupt operations and may lead to loss of sales, and loss of goodwill.    On the other hand, excessive inventories introduces uneccessary carrying costs and obsolence risks. Infact, the optimal level is somewhere between these danger points. One of the prime aims of this study is to x-ray the computation and maintenance of this level which guarantees the maximization of profit and this is the essence of efficient and effective inventory management.

Therefore, the primary focus of this research is on techniques of managing and controlling stocks for profit maximization as it is practiced in EMENITE, the emphasis being placed on cost. In tackling this problem, chi-square method will be used.