THE IMPACT OF INVENTORY CONTROL SYSTEM ON PUBLIC ENTERPRISES PERFORMANCE IN NIGERIA: A CASE STUDY OF ABUJA URBAN MASS TRANSPORT COMPANY.
SCHOOL OF BUSINESS AND HUMAN RESOURCES MANAGEMENT NATIONAL OPEN UNIVERSITY OF NIGERIA, ABUJA, NIGERIA.
THE IMPACT OF INVENTORY CONTROL SYSTEM ON PUBLIC ENTERPRISES PERFORMANCE IN NIGERIA: A CASE STUDY OF ABUJA URBAN MASS TRANSPORT COMPANY.
BEING AN ORIGINAL RESEARCH PROJECT SUBMITTED TO THE SCHOOL OF MANAGEMENT STUDIES IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF PGD PUBLIC ADMINISTRATION PROGRAMME OF NATIONAL OPEN UNIVERSITY OF NIGERIA ABUJA, NIGERIA.
I, ---------- do hereby declare that this dissertation is entirely my own composition. All references made to works of other persons have been duly acknowledged.
This is to certify that this research work was carried out under strict supervision and has been approved for submission to the National Open University Abuja, Nigeria in partial fulfillment of the requirement for the award of post graduate diploma in public administration.
------------------------------- Academic Adviser Project Supervisor.
This work is dedicated to God Almighty.
It is a known fact that a good research work involves many days of critical thinking and brainstorming. To make this work a reality there were intellectual, moral and physical contribution from different quarters.
First and foremost, glory to the Almighty God who provided necessary enabling conditions needed for this work.
I also express sincere appreciation to my project supervisor, -----for his through intellectual guide in the course of this research work.
I thank my family especially parents for their support and encouragement.
I also wish to acknowledge my classmate for his all round support and for making this work a reality.
I wish to acknowledge my siblings and colleague at work for their encouragement and support.
This research work explores the impact of inventory control system on public enterprises, using the Abuja Urban Mass Transport Company as case study. As investment in business enterprise inventory needs to serve the purpose of maximize resources utilization. Inventory constitutes the most significant part of current assert of larger majority of Nigeria enterprises ventures. Because of the relative largeness of inventories maintained by organizations, considerable sum of an organization’s funds is being committed to them. It thus become absolutely/imperative to manage inventories efficiently so as to avoid the cost of changing production rates, sub-contracting, unnecessary lost of sales and back order penalties during peak demand. The problem of poor system of inventory control have been identified to include overstatement of gross margin, overstatement of net income, over-statement of current assets, poor decision making, procurement challenges etc. This problem may eventually lead to organizational failure and poor return on resources investment. The main objective of this study is to determine whether or not inventories in the Abuja Urban Mass Transport company can be evaluated and understood using the various existing tools to optimization in inventory control. The study methods employed include the chi-square method. It is observed that inventory control has continued to play a leading role in determining the survival of any organization. To a great extent a highly proportion of human, material and financial is usually tied up in inventory. Inventory is classified into raw materials, work – in – progress, finished goods and assets, the process of effective inventory management involve the determination of the value of inventory transparency and accounting purposes. In conclusion, a proper control of inventory has a positive impact on an organization performance and productivity, this is because inventory control improves the efficiency, effectiveness and enhances prudency in managerial decision making. 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 in regular physical verification of stock through the use of perpetual inventory system is made, enlightenment on the importance of proper inventory control system to all supervisors and timing of material, at the most favorable price conclude the research study.
TABLE OF CONTENTS
Title page - - - - - - - - - - -
Certification - - - - - - - - - - -
Dedication - - - - - - - - - - -
Acknowledgement - - - - - - - - - -
Abstract - - - - - - - - - - -
Table of content - - - - - - - - - -
List of figures - - - - - - - - - - -
CHAPTER ONE: INTRODUCTION
1.1 Background To The Study - - - - - - - -
1.2 Statement Of Research Problem - - - - - - -
1.3 Objective Of The Study - - - - - - - -
1.4 Research Question - - - - - - - - -
1.5 Statement Of Hypothesis - - - - - - - -
1.6 Significant Of The Study - - - - - - - -
1.7 Scope And Delimitation Of The Study - - - - - -
1.8 Definition Of term - - - - - - - -- -
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction - - - - - - - - - -
2.2 Conceptual Clarification - - - - - - - -
2.3 Theoretical Framework - - - - - - - -
2.4 Literature on the Subject Matter - - - - - - -
CHAPTER THREE: METHODOLOGY
3.1 Research Design of the Study - - - - - - -
3.2 Population - - - - - - - - - -
3.3 Sample Size - - - - - - - - - -
3.4 Sampling Technique - - - - - - - - -
3.5 Instrumentation - - - - - - - -
3.6 Instrument Validation - - - - - - - -
3.7 Reliability of The Research Instrument - - - - - - -
3.8 Procedure For Data Collection - - - - - - -
3.9 Method of Data Analysis - - - - - - - -
CHAPTER FOUR: DATA PRESENTATION ANALYSIS AND INTERPRETATION
4.1 Results and Data Analysis - - - - - - - - -
4.2 Test of Hypothesis - - - - - - - - -
4.3 Discussion of Finding - - - - - - - -
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary - - - - - - - - - -
5.2 Conclusion - - - - - - - - - -
5.3 Recommendation - - - - - - - - -
5.4 Suggestion For Further Research - - - - - - -
Bibliography - - - - - - - - - -
Appendix I: Letter of Introduction - - - - - - -
Appendix II: Questionnaire - - - - - - - -
1.1 BACKGROUND TO THE STUDY
Just like any investment in enterprises every public or private organization requires resources to carry out its activities and set objectives. These resources play vital role in the survival and success of any organization. These resources could be human or material. The material resources are known as inventories and there are of three types in the manufacturing or services business and enterprises:- Raw materials, goods – in process, services, finished goods, infrastructure inventory (Ihunda, 2000).
Inventory control of pivotal in effective and efficient organizations, 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 service. The principle goal of inventory control involves having to balance the conflicting economic of not wanting to hold so as to guide against the incurring of cost 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 (Anyanwu and Chima, 1999).
Drury (1996) defines inventory as a stock of goods that is maintained by a business in anticipation of some future demand. This definition was also supported by Schroeder (2000) who stressed that inventory control has an impact on all business functions, particularly operations, marketing, services accounting and finance.
Meigs (1987) defines inventories as the aggregate of those items of tangible property which are:
1. Held for sale in the ordinary course of business:
2. Are in process of production for sale:
3. To be currently consumed in the production of goods and service to be available for sale.
Inventory control has a very important effect on an organizations finance corporate performance and human resources on firm or public enterprises.
Hermanson (1992) stated that an organization can only prepare accurate income statement, statement of owner’s equity, statement of cost of goods manufactured and balance sheet only if the organization has correctly values it inventory.
Net income, for a merchandising organization depends on the valuation and control of ending inventory and for a manufacturing firm, on the valuation of the finished goods and services inventory will lead to an over statement of cost of goods sold. This would eventually result in an overstatement of Gross Margin and Net Income, Current Assets, Total Assets and owner’s capital. Moreover, when an organization misstates its ending inventory in the current year, the organization carried misstatement into the next years, the beginning inventory amount for next year. Also an error in one periods ending inventory automatically causes an error in the opposite direction in the next period (Braid, 2000).
The above underscores the important role played by inventory valuation in determine the performing of a public enterprises. Every public enterprises has the objective of welfare service, not for profit making but the management put in a lot of effort in order to effective achieve this objective.
According to Inanga (1990) in a business organization, the underlying motive of its economic activities is profit making. It is the return received on a business organization undertaking after all operating expenses have been met and deducted from the sales made for a specific period “profit occurs when there is excess of the value of output over the cost of inputs (resources) used by an organization. When the reverse happens. It is a loss profit is the main objective of business organization like public enterprises that are set up for charitable or welfare purpose and is classified as “non-profit organization”.
The performance of an organization is dependent on a number of factors (both internal and external) inventory control, being one of the tools that internally determine the performance and profitability of public enterprises, also determines how efficient an organization management achieve it goals. It against this backdrop that we undertake this research work. This research work will, therefore examines the impact of inventory control system on public enterprises performances in Nigeria, using the Abuja Urban Mass Transport Company. The main purpose of this study is to determine the effect of inventory system on public enterprises performance. Public enterprises could benefit more inventory control system as it brings about cost control and efficiency of both human and material resources.
1.2 STATEMENT OF THE PROBLEM
Due to the current rate of business failure there is an upsurge of interest to why some public enterprises succeed and why some fails. As the blood of an organization, how can inventory be properly valued? Also, what role does this control of inventory play in enhancing the performance and managerial efficiency of public enterprises? Many business organization due to lack of proper inventory control suffer great loses. Some organizations have gone under due to the negative impact of either over-control or under –control of their inventory.
The aim of an inventory system is to minimize the cost of an inventory that is holding whilst at the same time maintaining a certain level of customer services. Clearly, there are some problems in having either too little inventory or high inventory. Basically, there are three reasons why inventory should be control and held. These are: Transaction motives, precautionary motives and speculative motives. These motives are pattered towards the Keynesian theory of holding money which entails that: business hold inventory in form of stock for transaction in order to meet the day to day demand of their customers, and precautionary so as to avoid situation of stock out and
lastly speculative in order that they may gain out of an unprecedented situation. Speculative and precautionary motive are both vital to the Abuja Urban Mass Transport Company.
This research work intends to solve the problems that are associated with the keeping of either a low level of inventory or a high level of inventory. It has been observed that there are problems associated with either of the levels. A further problem in inventory control system is the cost that is incurred in providing service to customers. This work however intends to highlight the probable solution to this. Inventory control systems are primarily held to ensure nothing is out of stock, for service or sale. The problems now arise of either to hold high – level of stock. Lastly, the problem of estimating the cost of inventory is a major constraint on inventory control system. As there are several method of stock, resources estimation or valuation.
Hence, for public enterprises to excel in performance efficiency, profitability and managerial protectiveness in decision – making, there is need for the inventories of that organization to be properly controlled. There is also a need for a relationship to exist between inventories control efficiency of a public enterprises management.
1.3 OBJECTIVES OF THE STUDY
The general objectives of the study is to determine the effect that intervention valuation has on the performance, managerial efficiency and customers satisfaction of the Abuja Urban Mass Transport Company with a view to suggestions some measure of improving inventory control system.
To meet it general objective, the study will focus on the following specific objectives;
1. To inquire the inventory control system used in Abuja Urban Mass Transport Company.
2. To find out the level of consistency in the sued of this system and to see if it conforms to generally accepted inventory country principles.
3. To ascertain the impact of different inventory control system on an organizational performance and managerial efficiency.
4. To determine the problems associated with inventory control at Abuja Urban Mass Transport Company.
1.4 RESEARCH QUESTIONS
i. Does the inventory control system used by an public enterprises affect the public enterprises performance?
ii. Does inventory control system affect management decision making?
iii. How consistent do public enterprises in Nigeria use inventory control system.
iv. What are the problems associated with inventory control in Abuja Urban Mass Transport Company?
1.5 RESEARCH HYPOTHESIS
In order to ensure objectives of the research and also provide answer to the research problems, the following research hypotheses are formulated:-
1. Ho: Inventory control system does not improve the Abuja Urban Mass Transport Company performance.
H1: Inventory control system improves the Abuja Urban Mass Transport Company performance.
2. Ho: Inventory control system does not enhanced efficiency in managerial decision making.
H1: Inventory control system enhances efficiency in managerial decision.
1.6 SIGNIFICANCE OF THE STUDY
Inventory control system is an important aspect of running any business organization be it manufacturing, service oriented or merchandising. This is because when there is a proper control
of inventory, the organization will be successful while improper inventory control system would lead to severe losses. Therefore, inventory control system is of primary importance in the affair of any public enterprises or corporation.
This research will show the various method and their effects on managerial efficiency and public enterprises performance. This will help the management of the Abuja Urban Mass Transport Company the government, manufacturing, merchandising, individuals, researcher and other interested users to select and apply suitable inventory control system.
This study would be of further great value as a reference material to student, researcher and other interested persons who may wish to carry out a research on inventory system in any form.
1.7 SCOPE AND RECOMMENDATION
The study is restricted to the Abuja Urban Mass Transport Company. It will deal only with inventory control system and its corresponding effects on the management efficiency and performance of Abuja Urban Mass Transport Company. This research will likewise be created on the relevant department if the public enterprises namely; purchasing, stores human resources, customers service, accounting among others.
The research of this magnitude is not without some limitations. The speed and cost of getting material /data have limited effect on the study, to this end, the bottle neck associated with some of the organization contacted for materials actually slowed down data gathering and analysis.
The above limitations does not however in any way nullify the validity and reliability of the conclusions that have been reached in this research, it only makes room for unavoidable errors.
1.8 DEFINITION OF TERMS
INTERVENTORY: Is seen as the aggregate of those items of tangible property which are to be currently consumed in the production of goods and service to be available
for sale or servicing. It also includes raw materials, work in progress and finished goods.
INTERVENTORY CONTROL: Is defined as one of means to determine internally the performance and profitability of an organization it is the whole process by which materials are made available when and where it is required. It is the system acquisition, management and requisition of stock in an organization.
PERFORMANCE: This about employee input-output measured relationship. Performance is employee productivity.
MANAGEMENT: This is made up of top and middle level management. Top management includes shareholders, boards of directors and managing director while the middle management includes heads of department, managers, deputy and assistant managers.
TOP MANAGEMENT: This is management paradigm in which decision starts from highest echelon to the lowest echelon of an organization, the participation of employees in decision making extremely or does not exist.
BOTTOM-UP MANAGEMENT: This is modern management paradigm in which decision making starts from the lowest echelon to the highest echelon of the organization. This encourages brainstorming between the management and the employees before decisions are taken on a particularly issues, sentiment it is called industries democracy.
MOTIVATION: This describes the level of desire workers feel to perform, regardless of the level of joy or happiness.
HUMAN CAPITAL: This refers to the skills, knowledge and experience possessed by an individual, this formed the terms of terms of value or cost to an organization.
DECISION MAKING: It is cognitive process resulting in the selection of a belief or a course of action among several alternative possibilities.
STOCK KEEPING UNIT: It is a unique combination of all the components that are assemble into the purchasable item.
PRODUCTIVITY: This is a measure of the efficiency of production, that is of production’s capability to create income, which is measured by the formula real output value minus real input value.
EFFICIENCY: It about time management and limiting wastages in resource
EFFECTIVENESS: It also about quality use of resources and obtaining good result
Anyanwu, A. and Chima, B.O (1999) Introduction to Business Administration. Enugu: Dran Alobe Publication.
Braid, J.J (2000) The theory and practice of cost accounting: London Spring field Publishers.
Drury, C. (1987) Management and cost Accounting (3rd ed) London Chairperson and Hall.
Hermanson, S.T (1992) Management Performance Index and Public Enterprises. New York: Friesland Spring Books.
Ihunda, C.C (2000) Management Information System, Springfield Publishers.
Inanga, P. (1990) Organizational Profitability and Managerial efficiency, Lagos: Host Print Book.