Local Literature About Huge Variance of Inventory

Topics: Inventory, Economic order quantity, Operations research Pages: 14 (4784 words) Published: March 5, 2012
© Kamla-Raj 2010

J Soc Sci, 23(2): 135-142 (2010)

Inventory Management: A Tool of Optimizing Resources in a Manufacturing Industry A Case Study of Coca-Cola Bottling Company, Ilorin Plant S. L. Adeyemi* and A. O. Salami** *Department of Business Administration, University of Ilorin, P.M.B 1515, Ilorin, Kwara State, Nigeria **Department of Management Science, Ladoke Akintola University of Technology, Ogbomoso, P.O.BOX 4000, Oyo State, Nigeria KEYWORDS Optimization. Resources. Efficiency. Economic Order Quantity. Demand and Sales. Production ABSTRACT Inventory constitutes the most significant part of current assets of larger majority of Nigerian manufacturing industries. Because of the relative largeness of inventories maintained by most firms, a considerable sum of an organization’s fund is being committed to them. It thus becomes absolutely imperative to manage inventories efficiently so as to avoid the costs of changing production rates, overtime, sub-contracting, unnecessary cost of sales and back order penalties during periods of peak demand. The main objective of this study is to determine whether or not inventories in the Nigeria Bottling Company, Ilorin Plant can be evaluated and understood using the various existing tools of optimization in inventory management. The study methods employed include the variance analysis, Economic Order Quantity (EOQ) Model and the Chi-square method. The answer to the fundamental question of how best an organization which handles inventory can be efficiently run is provided for in the analysis and findings of the study. Consequently, recommendations on the right quantity, quality and timing of material, at the most favourable price conclude the research study.

1. INTRODUCTION Inventory management is pivotal in effective and efficient organization. It is also vital in the control of materials and goods that have to be held (or stored) for later use in the case of production or later exchange activities in the case of services. The principal goal of inventory management involves having to balance the conflicting economics of not wanting to hold too much stock. Thereby having to tie up capital so as to guide against the incurring of costs such as storage, spoilage, pilferage and obsolescence and, the desire to make items or goods available when and where required (quality and quantity wise) so as to avert the cost of not meeting such requirement. Inventory problems of too great or too small quantities on hand can cause business failures. If a manufacturer experiences stock-out of a critical inventory item, production halts could result. Moreover, a shopper expects the retailer to carry the item wanted. If an item is not stocked when the customer thinks it should be, the retailer loses a customer not only on that item but also on many other items in the future. The conclusion one might draw is that effective inventory management can make a significant contribution to a

company’s profit as well as increase its return on total assets. It is thus the management of this economics of stockholding, that is appropriately being refers to as inventory management. The reason for greater attention to inventory management is that this figure, for many firms, is the largest item appearing on the asset side of the balance sheet. Essentially, inventory management, within the context of the foregoing features involves planning and control. The planning aspect involves looking ahead in terms of the determination in advance: (i) What quantity of items to order; and (ii) How often (periodicity) do we order for them to maintain the overall source-store sink coordination in an economically efficient way? (ii) How often (periodicity) do we order for them to maintain the overall stock coordination in an economically efficient way? The control aspect, which is often described as stock control involves following the procedure, set up at the planning stage to achieve the above objective. This may include...
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