Inventory Control and its Impact on Profitability (A case study of Turners Building Product (Arewa) Ltd Kaduna)
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Inventory
Control and its Impact on Profitability
(A case
study of Turners Building Product (Arewa) Ltd Kaduna)
CHAPTER ONE:
Introduction
1.1 Background of the Study
Inventory
control is an extension of stores keeping and it has been in practice for a
long time. It has a wide scope of activities today. Inventory control is an act
of safe keeping some valuable items for future use and to produce them when the
need arises. Inventory control goes beyond the scope of keeping and producing the items only but also
involves controlling of operations, receiving, quality control activities,
training of store staff, control of all store houses, stock handling as well as clerical documentation.
Inventory
control can be defined as an art and science of achieving the objectives of
inventory in an organization. It involves planning, organizing, staffing
controlling and co-coordinating all the inventory operational activities for the
provision of efficient services. Inventory control is a serving centre and the
services to be provided must be meticulously handled, more organized to meet
the demand of all units or department that constitute the organization for
optimum performance. The primary function of inventory control is to provide
for efficient inventory and handling of goods to be redistributed to the
ultimate user, this activity when carried out with the use of Information
Technology (I.T) will make re-ordering of materials easy as the information are
already in the computer. The use of information technology in controlling of
inventory eliminates time wastages. This provision of services to the operating
function must be fully appreciated. All other activities although they have
their own relative importance are subordinate to this primary responsibility.
The above central objective can be analyzed as follows:
i. To make available a balance flow of raw
materials components, tools, equipment and any other item necessary to meet
operational requirement.
ii. To provide maintenance materials spare part
to general stores as required.
iii. To receive and issue work in progress and
finished products.
iv. To accept and store scraps and other material
as it arises.
v. To
account for all receipt and issue of goods in the store.
Thus in any
institution, private or public, some substantial amount is spent on the
acquisition of materials, equipment etc. which are kept in the store house for
future use. These items represent an equivalent amount of cash and have to be
looked after, protected against unauthorized usage, until they are used for the
intended purpose and duly accounted for.
A lot of
costs are associated with keeping of inventory despite that; we must however
hold stock to meet production needs and sales needs. This is because if we do
not hold stock in sufficient quantity we stand the risk of running out of stock
and incurring all the cost associated with stock out. Therefore, for an
organization not to have the above mentioned problem it is important that they
strike a balance between carrying too much stock (over stocking) and carrying
too little stock (under stocking). The importance of profitability cannot be
overstated, because that is the reason why organizations are in business, if
inventory control is carried out properly, there will be increase in production
and sales thereby increasing profitability for the organization.
Therefore,
this study attempts to find out how inventory control can be effectively used
to reduce time wastage, theft, obsolescence and pilferage in the organization
so as to achieve their goals of profitability.
1.2 Statement of the Problem
Empirical
research has shown that the study of inventory control or administration
started late, unlike the study of other fields of human endeavour, such as
medicine, engineering, and law, accounting and public administration to mention
but few. This is not to say that it did not exist at all but this field has not
attracted people as the belief that anybody can work in that area (inventory).
Every year organization prepared and implements one type of economic
policies/budget whereby a large sum of money is spent on acquisition of
materials without making and adequate planned effort to provide for inventory
facilities. These lapses coupled with improper stock control system and lack of
trained personnel account for the ineffectiveness of inventory function in the
public and private sector.
One is
baffled to see that things bought for use such as capital equipments are left
in the open during training reasons in which the outcome is usually
deteriorated materials, a waste of effort and money.
Inventory
control has problems in general, especially in area of discrepancies, theft,
fraud, obsolescence, deterioration and breakages. All these constitute a great
loss to the establishment coupled with this, is also the problem of excess
stock of some items with its affendant consequences of tying down of capital in
inventory. Thefts usually occur with materials which are small in nature but of
very high value. These materials are usually stolen because there is no proper
method of control. These problems are not limited to a single establishment
rather, they are universal problems still facing many establishment.
1.3 Objectives of the Study
The aim of
this study is to examine the impact of inventory control on the profitability
of Turners Building Product (Arewa) ltd Kaduna, with the following specific
objectives:
1) To find
out methods of operating stores in a private sector, such as Turner’s building
product (Arewa) Kaduna.
2) To
determine whether inventory control has help in increasing the profit of
Turners
3) To advice
the company in the method adopted in inventory operations, if it is not
consistent to the existing knowledge.
4) To find
out how stock are kept in the store house.
5) To
identify factors that militates against successful implementation of stock
control system in the organization.
1.4 Significance of the Study
The
significance of inventory control in profitability covers various aspects of
the organization as a result its importance cannot be overlooked in particular
the organization of Tuners Building Product (Arewa) Kaduna.
The
significance of compiling this research is to make researchers and historians
who may need to know or get vital information about inventory control and it
impact on profitability of Turner Building Product, and to give quick guide or
easy access to the retrieval of information
The essence
of this research work to the organization is to enable them know more about
what is going on in the inventory control room, there problems and possible
solution to tackle them. As a problem solving topic, the researcher however,
believes that the study will help prospective inventory mangers to know more
about this topic. It is also a requirement in partial fulfillment for the award
of Higher National Diploma in purchasing and supply department.
1.5 Scope of the Study
The scope is
limited to all aspect of inventory control as it affects profitability of
Turners Building Product (Arewa) LTD Kaduna. The research work covers the
following
i. What is inventory control
ii. The importance of inventory control
iii. Control of stock by value
iv. The
Economic Order Quantity (EOQ) model
v. Stock level
vi. Material
Requirement Planning MRP
vii.
Cyclical provisioning
The scope
will be restricted to the purchasing, account and production department of
Tuners.
1.6 Research Question
The research
will be conducted base on the following questions
1. What
inventory control system is in use in the organization?
2. Does
inventory control have any impact on profitability?
3. Does the
organization keep proper store records for inventory control?
4. Do the
organizations have adequate storage facilities?
5. What are
the factors militating against successful implementation of stock control
system in the organization?
1.7 Historical Background of Turners Building
Product (Arewa) Kaduna
Tuners
Building Product (Arewa) limited Kaduna is an associate of New Nigeria
Development Company (NNDC). The company was established in Northern part of
Nigeria precisely in Kakuri Kaduna state in the year 1965. The company was
established as a depot to the mother factory at Emene in Enugu state. It
eventually came into full operation in 1972. the company was formerly known as
Turners Asbestos (North) limited but the name was changed to Tuners Building
Product (Arewa) limited in 1972 when it began its full operation.
Turners
Building Products (Arewa) limited also known as TBP (A) limited, started its
production using one factory and producing building materials of various types
these include roofing sheets made from asbestos and of different classes
namely:- Big six corrugated sheets, standard corrugated sheets, Trafford tiles,
self supporting sheets, ceiling beard popularly called flat sheets, (4×4 and
2×2) also made from asbestos, and also they produce interlocking stones.
The
organization is made up of seven (7) departments, and these are the general
administrative, account, production, maintenance, purchasing, audit and sales
departments.
1.8 Definition of Terms
For the
purpose of this project, the following terms are defined:
Code: a
process of assigning numbers, alphabets or combination of both for identification
purpose.
Deterioration:
a situation where items are becoming less of value or worse in quality.
Identification:
is the process of systematically defining and describing all items of inventory
held in the store.
Stock or
inventory: are raw materials that have been purchased for use in the operation
of business semi-finished plants or partly processed raw materials awaiting
further processing, finished products that are awaiting distribution to
customers in warehouse at production site or in other location.
Issue/dispatch:
is the process of receiving demands selecting the items required and handling
them over to users.
Materials:
are components, spare parts, raw materials that are kept in the store houses.
Scrap: means
materials, products or replaced parts that have been used and no longer useful
to the organization.
Receipt: is
the process of accepting from all sources, all materials equipment and parts
used in the organization including supplies for manufacturing or operating
process.
Inspection:
means the examination of incoming consignment for quality and quantity.
Obsolete:
materials that are out of date or use.
Obsolescence:
materials that are getting out of date or use.
Stores
vocabulary: is a document in which all items held in the store are described.
Redundant:
when the quantity of an item in stock is more than is reasonably necessary to
provide an adequate service to the production or operational activity, the
excess over the normal holding is said to be redundant.
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