Topics: Inventory, Cost accounting, Management accounting Pages: 46 (13927 words) Published: May 16, 2013
1. Background of the study

Over the past decade, organizations have been trying to improve customer service while lowering stocks and increasing the speed of material flow through their supply chain.

Today, most companies take serious action to plan and control their inventory. The most important objective of inventory control is to determine and maintain an optimal level of investment in the inventory.

Inventory management and inventory control must be designed to meet the dictates of the market place and support the company's strategic plan.

1.1 The benefits of sound inventory management are:
• Help reduce purchasing and inventory costs.
• Improving customer satisfaction
• Gain visibility in to inventory process
• Reduce time
• And more

It is a true fact that the absence of a modern inventory management system is risky. Poor inventory management and inventory control results in over or under investment in inventories. Besides, poor plan and control and bad decision in inventory will be fatal for any companies.

Thus the many changes in market demand, new opportunities due to world wide marketing, global sourcing of material and new manufacturing technology means many companies need to change their inventory management approach and change the process of inventory control.

1.2 History and founders of the business
Kotebe Metal Tools Factory (KMTF) the former Ethiopian Metal Tools Factory (EMTF) was established by Polish and Ethiopian owners as private limited company in 1969 and is engaged in the manufacturing of various types of hand tools. The plant was nationalized in 1975, by the Military Government and put under the ex-National Metal Works Corporation (NMWC). The NMWC was dissolved in the current Ethiopian government. The supervision of the KMTF was hence finally given to the Privatization and Public Enterprises Supervising Agency until it was sold and handed over to Nigat Mechanical Engineering S.C. as of March 1, 2006.

At present, KMTF is a manufacturing enterprise under Nigat Mechanical Engineering S.C. (Nigat), which was conceived on the 7th Annual Congress (November 2002) of the Ethiopian Society of Mechanical engineers (ESME), when member mechanical engineers decided to set up a company that can better utilize their capabilities. Nigat was legally formed in August 2004 under the laws of Ethiopia. Its founding members are all professionals, the vast majority being practicing mechanical engineers. Nigat currently has over 110 shareholders, of which majority shareholders are Awash International Bank S.C., Engineer Mergaye Azeze, Feba Engineering and Sintec Ethiopia Pvt. Ltd. Co.

KMTF is organized as a dedicated manufacturing enterprise under Nigat Mechanical Engineering S.C. (Nigat). It is managed by a team of management accountable to the Board of directors of Nigat, which, in turn is accountable to the General Meeting of its shareholders.

Generally, KMTF produce any various types of hand tools from small to medium size. The product range that has been in the production line so far numbers about 30. However, the major products of the factory are pick axe, axe, spade, hammer, crowbar, door holt, hoe, machete and sickles.

2. Statements of the problem
Existence of proper inventory management system is vital to facilitate production and marketing activities by providing material at the right time and at the right amount. Absence of modern inventory management system may result in over or under investment in inventories.

Over investment in inventories are unnecessary tie up at the firm fund. It causes decrease in profit, increase carry costs, and risk of liquidity.

The maintenance of low inventory level may result lost in sale and a decrease in revenue. This intern harms operation.

At the Kotebe Metal Tools Factory, there are symptoms of a problems in its inventory management system such as unavailability of requested materials, delays...
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