Inventory Management As A Panacea Towards Organization Profitability

INVENTORY MANAGEMENT AS PANACEA
TOWARDS ORGANIZATION PROFITABILITY

A Study of Dangote Flour Mill, Ilorin Kwara State
BY
ADEKOYA YUSUF GBENGA

BA/HND/F18/4979
SUBMITTED TO
THE DEPARTMENT OF BUSINESS ADMINISTRATION

SCHOOL OF BUSINESS AND MANAGEMENT STUDIES, THE
FEDERAL POLYTECHNIC OFFA KWARA STATE
IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE

AWARD OF HIGHER NATIONAL DIPLOMA (HND) IN
BUSINESS ADMINISTRATION, FEDERAL POLYTECHNIC
OFFA
SEPTEMBER 2020
i
DECLARATION
I ADEKOYA YUSUF GBENGA (BA/HND/F18/4979) from the Department of Business
Administration, School of Business and Management Studies, Federal Polytechnic Offa
Kwara State, hereby declare that this research work is written and produced by me and that
to the best of my knowledge it contains no material previously published by another
person.
________________________ ____________________
Adekoya Yusuf Gbenga Date
ii
CERTIFICATION
This is to certify that this research work has been completely read through and approved as
meeting the requirement of the department of Business Administration, Federal
Polytechnic Offa for the award of Higher National Diploma (HND) in Business
Administration of the Federal Polytechnic Offa Kwara State.
________________________ ____________________
Dr. E.I Ebeloku Date
Project Supervisor
________________________ ____________________
Mrs. B.A. Ajibade Date
Head of Department
________________________ ____________________
External Examiner Date
iii
DEDICATION
This project is dedicated to the Almighty Allah for given me the strength, wisdom,
patience; encouragement and knowledge go this far in my life, and also to my parent Mr.
and Mrs. Adekoya.
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ACKNOWLEDGEMENTS
I gave all the glory, adoration, praise and thank to Almighty Allah (SWT) his
majestic and the planner of the universe who has spared my life and gave me the
opportunity of writing this project. I appreciate His mercy and favour over me throughout
my programme in Federal Polytechnic Offa, Glory is to His mighty name.
My sincere appreciation goes to my amiable supervisor Dr. A.I. Ebeloku for his
super correction and advises which has contributed immensely to the success of the project.
May Almighty God continue to be with you and your family. I also appreciate the effort of
my honourable H.O.D Mr. B.AS. Ajibade and other lecturers of Business Administration
department. May almighty God be with you all (Amen).
My appreciation also goes to my parent Mr. and Mrs. Odukoya for their support and
parental care, they stand by me and brought me up, He‟s my prayer that God‟s mercy ,
favour and blessing continually bestowed upon you. (Amen).
I also give thanks to my Engr. Taju Olanipekun for his support may Allah guide and
support your in all your ramifications. I cannot forget to appreciate my able brother Segun
Odukoya and my dear sister, Sister Bukola thanks soo much for your support, may Allah
guide, protect and provide for you abundantly.
Also to my dear wife Olabisi may god live us together. I appreciate Boss Issa, Ziko,
Jibril and Idris thanks you all. I also give thanks to all my friends both in my department
and school generally for their support throughout my studies.
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ABSTRACT
This research study is on inventory management as a panacea toward organizational
profitability with particular reference to Dangote four Mill Ilorin Kwara State. The
research was guided by the following objectives: (i) to examine the effect of proper
counting and recording on organizational profitability (ii) to sees the effect of up-to-date
store record on organizational profitability (iii) to examine the relationship between stock
procurement and organizational profitability and (iv)to identify the effect of inventory
planning and scheduling on organizational profitability. Various research methods were
adopted in order to get relevant data and information. The methodologies adopted are
primary and secondary data. The research also makes use of questionnaire and personnel
interview in order to make inference of the data collected. After thorough analysis, the
researcher discovered that inventory management is one of the remedy towards
organization profitability. Through inventory management, new invention or innovation
are embarked upon hence increasing the performance and profitability of the company. So
in conclusion it will be noted that inventory management has indeed helped in building the
market share of the various product of Dangote Four Mills Ilorin Kwara state.
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TABLE OF CONTENTS
Title page - - - - - - - - - i
Declaration - - - - - - - - - ii
Certification - - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgement - - - - - - - - v
Abstract - - - - - - - - - vi
Table of contents - - - - - - - - vii
List of Tables - - - - - - - - ix
List of Figures
List of Appendices
CHAPTER ONE: INTRODUCTION

1.1 Background to the Study - - - - - - 1
1.2 Statement of the Problem - - - - - - 3
1.3 Research Questions - - - - - - - 4
1.4 Objectives of the Study - - - - - - 5
1.5 Statement of Hypotheses - - - - - - 5
1.6 Significance of the Study - - - - - - 5
1.7 Scope of the Study - - - - - - - 6
1.8 Definition of Operational Terms - - - - - 7
1.9 Historical Background of Dangote Flour Mills, Ilorin Kwara State - 8
CHAPTER TWO: LITERATURE REVIEW

2.0 Introduction - - - - - - - - 10
2.1 Conceptual Framework - - - - - - 10
2.1.1 Concept of Inventory Management - - - - - 10
2.1.2 Classification of Inventory - - - - - - 12
2.1.3 Types of Inventory - - - - - - - 13
2.1.4 Inventory Management Practices - - - - - 15
2.1.5 Importance of Inventory Practices - - - - - 17
2.1.6 Concept of Profitability - - - - - - 19
2.1.7 Benefits of Making Profit in an Organization- - - - 21
2.1.8 Factors Affecting Profitability of firms - - - - 22
2.1.9 Relationship between Inventory Management and Organizational
Profitability - - - - - - - - 25
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2.2 Theoretical Framework - - - - - - 26
2.2.1 Queuing Theory - - - - - - - 26
2.2.2 Agency Theory - - - - - - - 26
2.2.3 Theory of Resources and Capacities - - - - - 27
2.3 Empirical Review - - - - - - - 27
CHAPTER THREE: METHODOLOGY

3.1 Introduction - - - - - - - - 31
3.2 Research Design - - - - - - - 31
3.3 Population of the Study - - - - - - 31
3.4 Sampling Design - - - - - - - 32
3.5 Research Instrument - - - - - - - 33
3.6 Validity and Reliability of Research Instrument - - - 33
3.7 Data Collection Procedure - - - - - - 33
3.8 Method of Data Analysis - - - - - - 33
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND

INTERPRETATION
4.1 Introduction - - - - - - - - 35
4.2 Response Rate - - - - - - - - 35
4.4 Data Presentation and Analysis of Research Questions - - 35
4.3 Demographic Characteristics of the Respondents - - - 37
4.5 Test of Hypothesis - - - - - - - 44
4.6 Discussion of Findings - - - - - - 50
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary - - - - - - - - 51
5.2 Conclusion - - - - - - - - 53
5.3 Limitations of the Study - - - - - - 53
5.4 Recommendations - - - - - - - 54
5.5 Suggestion for Further Studies - - - - - 56
References
Appendix
viii
LIST OF TABLES
Table 4.2.1
Table 4.3.1: Background of respondents
Table 4.4.1 Inventory planning and scheduling contribute to organization profit target
Table 4.4.2 Proper inventory planning and scheduling attract customers to the
organization
Table 4.4.3 Inventory planning and scheduling allows for proper stock availability
Table 4.4.4 Inventory Planning and scheduling does not allow for disruption of services
to customers
Table 4.4.5: Accurate up-to-date store record has key effects on store management
Table 4.4.6 Inventory record reduce errors of stock management
Table 4.4.7 Inventory recording Cycle counting increase organizational profitability
Table 4.4.8 Inventory control system lead to reduction in cost incurred
Table 4.4.9: Inventory control helps in minimizing cost and carrying cost
Table 4.4.10: Inventory control helps to maintain sufficient stock for smooth production
Table 4.4.11: Inventory control contribute in minimizing cost and maximizing profit
Table 4.4.12: Inventory valuation helps in determining the price tag of stock
Table 4.4.13 Inventory valuation has negative effects on value of stock
Table 4.4.14: Physical inventory counting enables for correspondence of records
Table 4.4.15: Inventory counting has positive effect on organization profitability
Table 4.5.1: Test of Hypothesis One
Table 4.5.2: Test of Hypothesis Two
Table 4.5.3: Test of Hypothesis Three
Table 4.5.4: Test of Hypothesis Four
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CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Researchers and practitioners continue to face the age-old challenges associated
with inventory level setting and replenishment. However, the realities of the environment
in which these challenges must be met, is evolving. The popular formula, which the
competitive battleground is shifting from organization vs. organization to supply chains vs.
supply chain, is now perceived to be a reality (Srinivasan, Srinivasan, & Choi, 2010).
Effective management has become a prerequisite to gaining and retaining a competitive
advantage and organizational performance in order to meet profitability objectives of the
organization. (Moberg, Cutler, Gross, & Speh, 2012).
With increasing need for effective operations management, organizations now
requires that costs and cost centers be well managed and controlled. Consequently stores as
a cost centers must be well managed. Organizations spend an inordinate amount of
resources i.e. time and money managing and directing their suppliers to ensure that critical
inventory/ stock levels are maintained and the vital flow of product needs for operations
continue (MLG, 2010).
Inventories represent those items which are either stocked for sale or they are in the
process of manufacturing or they are in form of materials which are yet to be utilized. The
interval between receiving the purchased parts and transforming them into finished
products varies from industries to industries depending upon the cycle time of manufacture.
It is therefore, necessary to hold inventories of various kinds to act as a buffer between
supply and demand for efficient operation of the system (Kumar & Suresh, 2016).
Inventory management is primarily about specifying the size and placement of
stocked goods. Inventory management is required at different locations within a facility or
1
within multiple locations of a supply network to protect the regular and planned course of
production against the random disturbance of running out of materials or goods. The scope
of inventory management also concerns the fine lines between replenishment lead time,
carrying costs of inventory, asset management, inventory forecasting, inventory valuation,
inventory visibility, future inventory price forecasting, physical inventory, available
physical space for inventory, quality management, replenishment, returns and defective
goods and demand forecasting (Wilberforce, 2017). The aim of inventory management is to
hold inventories at the lowest possible cost, given the objectives to ensure uninterrupted
supplies for ongoing operations. When making decision on inventory, management has to
find a compromise between the different cost components, such as the costs of supplying
inventory, inventory-holding costs and costs resulting from insufficient inventories (Hugo,
Baden horst- Weiss and Van Rooyen 2012).
In the management of inventory, the firm is always faced with the problem of
meeting two conflicting needs; maintaining a large size of inventory for efficient and
smooth production and sales operations, and maintaining a minimum level of inventory so
as to maximize profitability (Pandey, 2013). Both excessive and inadequate inventories are
not desirable. On the other hand, inventory control is a planned approach of determining
what to order, when to order, how much to order and how much to stock so that costs
associated with buying and storing are optimal without interrupting production and sales
(Martand, 2015).
According to Wild (2012), inventory control is the activity which organize the
availability of items to the customers. It coordinates the purchasing, manufacturing and
distribution functions to meet the marketing needs. This role includes the supply of current
sales items, new products, consumables; spare parts, obsolescent items and all other
supplies. Inventory enables a company to support the customer services delivery, logistic or
2
manufacturing activities in situations where purchasing or manufacturing is too protracted,
or because quantities cannot be provided without stocks.
Due to unpredicted demand in market trends, organizations holds stock to enable
the meet its daily needs and in so doing, to meets two conflicting needs: whether to
maintain low or high levels of stock. However, both situations are undesirable because
excessive stock levels leads to increased holding costs, which leaves organization funds
idle and hence reduced profitability. On the other hand, low levels of stock leads to stock
outs and their related costs such as loss of client‟ good will and disruption in the operation
schedules, which ultimately would lead to poor organization performance. It‟s therefore
important for the organization stores to manage inventory efficiently and effectively so as
to improve on the organization‟s performance and meet up with the set up profitability
target. The objective of this research work is to investigate the evolving role of inventory
management in organizations in solving the problem of profitability objectives.
1.2 Statement of the Problem
One of the problem in organizations today are the ability to provide quality services
to the customers whose root cause lies in poor inventory management (Manjrekar,
Bhonsale & Kamath, 2018). The main challenge today among of organizations is the need
to enhance efficiency while at the same time achieving effectiveness (MLG, 2010).
However, organizations have been accused of poor inventory management techniques and
this has greatly affected their ability to satisfy their customers and make sufficient profit
(Sheila, 2010; Mutua, 2010).
Managers are aware of the vital roles inventory plays in the activities of
organizations. In most organizations, direct materials represent up to 50% of the total
product cost, as a result of the money entrusted on inventory thereby affecting the
profitability of the organization. Firms at times do not control their holding, resulting in
3
under stocking and causing the organizations to stay off production, thereby resulting to
organizational ineffectiveness. This therefore creates relationship problems between
inventory management and organizational productivity, profitability and effectiveness
(Anichebe & Agu, 2013).
The control and maintenance of inventory is a problem that is common to
organizations in different sectors of the economy. Inventory problems have proliferated as
technological ability to produce goods in greater quantities and at factor rate. Cash invested
in inventories could be used somewhere else for profit making, debt servicing in
investment in other revenue generating assets.
According to Nigel, Chambers & Robert (2007), Inventory ties up money in the
form of working capital, damaged, incur storage cost and also involve administrative and
insurance cost. Managers of organizations are faced with the challenge of maintaining
optimum quantity of inventory to enhance their production.
The study therefore sought to carryout an investigation on the role of inventory
management on organizational as a panacea towards organizational profitability with
particular reference to Dangote four mill, to get insight on their experienced on profitability
as a result of inventory management system.
1.3 Research Questions
The following questions will be used to guide the study
i. How does proper inventory accounting and recording affect organizational
profitability?
ii. To what extent does up-to-date stores record affect organizational profitability?
iii. What is the relationship between stock procurement and organizational
profitability?
iv. How does Inventory Planning and Scheduling affect organizational profitability?
4
1.4 Objectives of the Study
The objective of this study are as follows:
1. To examine the effect of proper accounting and recording on organizational
profitability
2. To assess the effect of up-to-date stores record on organizational profitability
3. To examine the relationship between stock procurement and organizational
profitability
4. To identify the effect of inventory planning and scheduling on organizational
profitability
1.5 Statement of Hypotheses
Hypothesis is formulated for the purpose of rejecting or accepting a statement.
Hypothesis can be categorized into;
The following research hypotheses were formulated for the study:
Ho1: There is no significant effect between proper accounting and recording and
organizational profitability
Ho2: There is no significant relationship between up-to-date stores record and
Ho3: There is no significant relationship between stock procurement and organizational
profitability
Ho4: There is no significant relationship between inventory planning and scheduling and
organization profitability
1.6 Significance of the Study
This research study will be of paramount benefit to the following stakeholders.
The organization: This research work will help the management of the organization in
efficient and effective management and control of inventory which will enhance flow in
5
production thereby increasing it profit potentials. It will aid them in cost minimization by
striking a balance between inventory ordering and carrying cost. Also it will help
management decision making.
Government: It is the desire of Government for corporate organizations to pay tax
promptly and adequately. Profit made by the organization from efficient and effective
inventory management will be taxed by the Government.
Academic: This study will add more contributions to the existing Body of knowledge in
the field of management hence research is cumulative.
The community/public: It is ethical for corporate organization to be socially responsible
despite economic goal as a major aim of existence. The organization should give back to
the society where it operates. The organization will improve the living condition of it host
community by administering it corporate social responsibility objective from the profit it
generate from the community even without the society buying from them.
Customers: Without production, the demand of the customer will not be satisfied.
Inventory management and control will lead to satisfaction of the customer through
uninterrupted production, quality products and availability of products at all times.
The Researcher: This research study will be beneficial to the researcher because it will
lead to award of Higher National Diploma (HND) in Business management as it is a partial
fulfillment of the requirement for the award of Higher National Diploma.
1.7 Scope of the Study
The scope of this study is limited to inventory management and its panacea towards
organizational profitability with particular reference to Dangote flour Mill Iloin, Kwara
State. The study seeks to look into the concept of inventory management, classification,
techniques of inventory management and also the concept of organizational profitability,
benefit of profitability, and also factors affecting profitability in an organization.
6
1.8 Definition of Operational Terms
In the course of the study the researcher defined some terms peculiar to the study.
These are:
Inventory: A stock of goods for production and distribution. This includes raw materials,
finished goods, component parts and semi processed goods.
Inventory Management and Control: It is the art and science of ensuring there is no over
and under supply of inventory to enhance smooth production and distribution.
Profitability: This is a measure of the amount by which a company‟s revenue exceeds its
relevant expenses.
Application: Is the art of putting something to a special use or purpose
Adequate: Is seen as where something able to satisfy a requirement where it is suitable or
sufficient for its purpose.
Department: This is the importance division or branched off different work in a company
such account department, purchasing department, sales department etc.
Environs: This is defining the neghbourhood surrounding of a particular town
Effective: Is producing or adopted to produce the desired impression or response
Goal: Are target aims by the company organization to be achieved at a certain future time.
Manufacturing Inventory This is the inventory that makes or produce well contracted
with the materials on a large scale industrial operation
Managerial: These are people who control business such as director‟s managers etc.
Plant: This can be defined as the company‟s machine apparatus which used electricity. The
company uses them for their production
Raw Materials: This is also natural substance from which all products is made.
Scrap: It is the materials supplied for use which is in the store temporarily before the
company request for it.
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1.9 Historical Background of Dangote Flour Mills, Ilorin Kwara State
It all started back in 1999, when one of the biggest and fastest growing
conglomerates in Nigeria Dangote Industries Ltd opened a new division by the name of
Dangote Flour Mills. The company began with a single mill in Apapa, which produced 500
metric tons per day. However, it soon expanded, as the year 2000 saw the opening of the
new mill in Kano. Then, another mill was opened in Calabar in 2001. In 2005, Dangote
Flour Mills expanded to Ilorin.
A year after that, Dangote Industries decided to unbundle its operations, which was
why in 2006, Dangote Flour Mills was incorporated. Thus, according to the scheme of
arrangement sanctioned by the Federal High Court, in January 2006, Dangote Industries
transferred its liabilities, undertakings and assets of the flour division to Dangote Flour
Mills.
What started as a single mill in Apapa quickly grew along with the demand for
flour and flour-based products. Today, the four mills have a cumulative capacity of 5,000
metric tons per day (Kano produces 500 metric tons, Apapa and Ilorin - 1,000, Calabar -
1,500. In addition to that, Dangote Flour Mills also has three subsidiaries, which are fully
owned. These are: Dangote Noodles Ltd, Dangote Pasta Ltd, and Dangote Agro sacks Ltd
The company has significantly grown over the years and will most likely continue
to grow, as long as there is the demand for its products. The main focus of Dangote Flour
Mills is, of course, flour. The company mills, processes and markets branded flour. The
products of the Dangote Flour Mills include: Confectionery flour, Bread flour, Bran (wheat
offal), and Semolina. If we include the products of its subsidiaries, then it also produces
instant noodles, spaghetti and macaroni.
The mills use state-of-the-art equipment accompanied by quality technical expertise
to produce the best product possible. Dangote Flour Mills import the raw material from the
8
United States via ships. The product in question is Hard Red winter wheat №2. From the
ports, the wheat is conveyed to the inland mills with the Dangote Industries-owned wheat
silo trucks.
9
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter presents a review of the literature related to the present study in order
to make available background information and reasons for the study. Although copious
literature exists on inventory management and organizational profitability written by
diverse authors within different context.
This chapter has three sections, the first section deals with conceptual framework
where dependent and independent variable are extensively discuss and the relationship that
substitute between them are established. The second section deals with theoretical
framework were different school of thoughts that are relevant to the research work were
review and the third section which is empirical review.
2.1 Conceptual Framework
2.1.1 Concept of Inventory Management
Inventory management is a discipline primarily about specifying the shape and
placement of stocked goods (Adola, (2012). It is required at different locations of a supply
network to precede the regular and planned course of production and stock of materials.
The word “inventory” has been defined in many ways, as indicated in the literature.
“Inventories are stockpiles of raw materials, suppliers, components, work in process, and
finished goods that appear at numerous points throughout a firm‟s production and logistics
channel”.(Ballou, 2014)
According to Chase, Jacobs and Aquilano (2014), inventory is the stock of any item
or resource used in an organization. An inventory system is the set of policies and controls
that monitor levels of inventory and determine what levels should be maintained, when
stock should be replenished, and how large orders should be. Also, Pycraft et al (2010)
10
defined inventory or stock as “the stored accumulation of material resources in
transformation system. So a manufacturing company will hold stocks of materials, a tax
office will hold stocks of information and a theme park will hold stocks of customer (when
it is customers which are being processed we normally refers to the stocks of them as a
queues”).
Inventory management involves providing the required inventory levels that will
sustain the organization‟s daily operations at minimum costs. This covers issues like
determining the level of stock to order, when to order, establishing receipt and inspection
procedures and providing proper storage facilities. Without proper stock control procedures
in place, firms are likely to face two undesirable inventory levels. That is to say excessive/
high levels of inventory or inadequate/low levels of inventory. (Dickerson 2015)
Nwaorgu (2015), posits that inventory can be defined as a tangible property held to
resale in the ordinary course or business, in the production for sale, to be consumed in the
production of goods and services. According to Jain (2009), inventory is the aggregate of
these items of intangible property which are held for sale in the ordinary cause of the
business, held in the process of production for such sales to be currently consumed in the
production of goods and services to be made available for sale. According to Warsee
(2016), inventory is a general term describing goods which are held in the store house and
stock yards, the bulk of which is usually intended for the connection with production or
operation activities and also finished products awaiting dispatch to customers.
However, AMA, (2000), posits that inventory is the stock of goods a firm is
producing for sale and the components that make up the goods. A key decision in
manufacturing and retail is how much inventory to keep on hand. Once an inventory level
is established, it becomes an important input to the budgeting system.
11
2.1.2 Classification of Inventory
Inventory varies in various organizations but the most common stock is stock of
raw materials, work in progress, finished goods and inventory in supplies such as stationery
and fuel. According to Kakuku (2007), raw materials inventories are those inputs from
suppliers that have not yet entered the manufacturing or transformation process. Those
inventories are essential in helping a firm/ organization to overcome problems faced by
purchasing departments. Suppliers often fail to deliver expected inputs to their internal
inefficiencies.
The business itself may fail to acquire inputs in time because its procurement
function is sluggish and inefficient. Sometimes, the problems may be due to environmental
factors well beyond the suppliers and the business itself. If there were no inventories of raw
materials, any disruption in supply would be automatically passed on to operations
functions. Operations would stall, as there would be no inputs to transform.
According to Pandey (2002), work in progress (WIP) is products that have been
partially finished. These are semi-finished products at various stages of production and
these inventories provide a link between input and output stages. They represent products
that need more work before they become finished products. Finished goods are completed
products, which are ready for sale. They link production to marketing or consumption for
unanticipated failure in production and also meet unpredictable variables in customer
demand (Pandey, 2002). Finished goods inventory allows the firm flexibility in its
production scheduling and in its marketing.(Van Horne 2002)
According to stock and Lambert (2001), said that inventories can be categorized
into six distinct forms that are: Cycle stock is inventory that results from the replenishment
process and is required in order to meet demand under conditions of certainty, that is, when
the firm can predict demand and replenishment times (lead times) almost perfectly: In-
12
transit inventories. In-transit are items that are en route from one location to another. They
may be considered part of cycle stock even though they are not available for sale and /or
shipment until after they arrive at the destination: Speculation stock. Speculation stock is
inventory held for reasons other than satisfying current demand.
For example, materials may be purchased in volumes larger than necessary in order
to receive quantity discounts, because of a forecasted price increase or materials shortage,
or to protect against the possibility of a strike: Seasonal stock. Seasonal stock is a form of
speculative stock that involves the accumulated of inventory before a season begins in
order to maintain a stable labour force and stable production runs or, in the case of
agricultural products, inventory accumulated as the result of a growing season that limits
availability throughout the year: Dead stock is inventory that no one wants, at least
immediately. The question is why any organization would incur the costs associated with
holding these items rather than simply disposing of them. One reason might be that
management expects demand to resume at some point in the future. Alternatively, it may
cost more to get rid of an item that it does to keep it. But the most compelling reason for
maintaining these goods is customer service for good service delivery toward an
organization. Perhaps an important buyer has an occasional need for some of these items,
so management keeps them on hand as a goodwill gesture.
2.1.3 Types of Inventory
Nigel, Chambers & Robert (2017) classified inventories into different types because
of an imbalance between the rates and demand different points in any operation. These
are:-
Buffer Inventory – this is an inventory that compensates for unexpected fluctuations in
supply and demand. It can also be called safety inventory. This minimum level of inventory
13
is there to cover against the possibility that demand will be greater than expected during the
time taken to deliver the goods.
Cycle Inventory- inventory that occurs when one stage in a process cannot supply all the
items it produces simultaneously and so has to build up inventory of one item while it
processes the others. For example, suppose a baker makes three types of bread each of
which is equally popular with its customers. Because of the nature of the mixing and
baking process, one kind of bread can be produced at any time. The baker would have to
produce each type of bread in batches.
De-coupling Inventory- this is the inventory that is used to allow work centres or
processes to operate relatively independent. Each of these areas can be scheduled to work
relatively independent to maximize the local utilization and efficiency of equipment and
staff. As a result, each batch of work-in-progress inventory joins a queue, awaiting its turn
in the schedule for the next processing stage.
Anticipation Inventory- anticipation inventory is most commonly used when demand
fluctuations are large but relatively predictable. This is the type of inventory that is
accumulated to cope with expected future demand or interruptions in supply. A good
example is in the canning or freezing of seasonal foods.
Pipeline Inventory- this inventory exists because material cannot be transported
simultaneously between the point of supply and the point of demand. If a retail store orders
a consignment of items from one of its suppliers, the supplier will allocate the stock to the
retail store in its own warehouse, pack it, load it onto its truck, transport it to its destination
and unload it into the retailer‟s inventory.
Stock Rotation: Stock rotation means to arrange the oldest units in inventory so they are
sold before the newer units. For example, a grocery store will restock its shelves by putting
the oldest units to form part of the shelves. The newest units will be placed in the back of
14
the shelves. The hope is that the customer will select the most convenient older) units from
the front of the shelf. It is important to rotate stock in all areas retail display area,
warehouse, factory etc. the reason to rotate stock is to reduce the losses from deterioration
and obsolescence. Ideally, when a company rotates its stock the units are physically lowing
first in first out (FIFO). However, in the accounting for the cost of inventory and the cost of
the goods sold, the company may use a cost flow assumption which is different from the
flow of the physical units. For example a U.S. company may use the last in, first out
(LIPO) cost flow assumption even though if diligently rotates its stock of goods.
2.1.4 Inventory Management Practices
In order to achieve the objectives of minimizing stock related costs, firms should maintain
adequate levels of stock in order to enable smooth business operations. A number of
practices have therefore been advanced to handle these costs. Kalyango (2001) highlights
the following practices that minimize stock related costs;
Inventory Planning and Scheduling: This is how units of stock are required by an
organization in a given period to enable smooth business operations. A good stock plan set
in advance will enable planners to set procurement/ purchase dates and quantities that are
consistent with the plan to avoid disruptions due to inventory shortages .(Dilworth 1992)
Inventory Recording: Accurate and up-to- date stores records are keys to effective stores
management. The basic procedures include counting and recording promptly after receipt
or production and whenever there is a store transaction, issue of stores should be properly
authorized and show details such as code number, quantity of the transaction and the
voucher reference. (Muller, 2003). Inventory recording is undertaken by organizations to
reduce the errors of stock management and to ensure accurate and reliable stock records. It
involves spot checks/ surprise checks, stock taking, which is the physical counting and
measuring of quantity of each item in stock and recording the results .(Brooks et al 2007)
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Inventory Valuation: It is also a stock control technique, which refers to the establishment
of the value of stock and therefore its implication on the profits. Lacey (1994) identified the
following methods of stock valuation; First in First out (FIFO), Last in First out LIFO) and
the average price method.
First in First out (FIFO) is a method whereby prices of goods are determined by depending
on the oldest stock until all the units are finished and then the second oldest is used to
determine the prices and the trend continues. According to (Kamukama, 2006) FIFO
method follows the principle that materials received first are issued first. After the first lot
or batch of materials purchased is exhausted, the next lot is taken up for supply. The
inventory is priced at the earliest costs. This means that the unused raw materials (closing
stock) are constituted by the goods which were not recently purchased.
Physical Inventory Counts: The inventory value should be provided to UIS Accounting
Office within one week after the fiscal year end. Adjustments to correct discrepancies must
be adequately documented by management. (Piasecki, 2003)
Inventory control: Inventory control is the activity which organizes the availability of
items to the customers of the organization. It co-ordinates the purchasing, manufacturing
and distribution functions to meet the marketing needs. This role includes the supply of
current sales items, new products, consumables, spare parts, obsolescent items and all
others supplies (wild, 2002) Lysons and Gillingham (2003) write that inventory/stock
control refers to the techniques used to ensure that stocks of raw materials, WIP and
finished goods are kept at levels which provide maximum service levels at minimum costs.
An effective Inventory Control System should; Minimize time and carrying costs, Maintain
sufficient stock for smooth production, sales operation and on sufficient customer service.
And control investment in inventories or keep an optimum level (Pandey, 2002). Different
16
business concerns may apply different inventory practices to meet specific requirements
and circumstances to help in containing the costs associated with inventory.
ABC Analysis: This has already been covered before, but is also regarded as a material
control tool. It‟s considered as the best approach and based on the principle of selective
control. The maxim is “put your effort where the results are maximized. (Kamukama,
2006) ABC analysis: Brown (Bloomberg, Lemay and Hanna 2002) notes that the ABC
analysis categorizes products based on importance. Importance may come from cash flows,
lead time, stock outs, sales volume, or profitability. Once the ranking factors is chosen,
break points are chosen for classes A, B, C and soon.
The 80-20 concept is particularly useful in distribution planning when the products are
grouped or classified by their sales activity. The top 20 percent might be called A times, the
next 30 percent B items, and the remainder C items. Each category of items could be
distributed differently. For example, A items might receive wide geographic distribution
through many warehouses with high levels of stock availability , whereas C items might be
distributed from a single, central stocking point(e.g. a plant) with lower total stocking level
than for the A items. B items would have an intermediate distribution strategy where few
regional warehouses are used. (Ballou 2004)
2.1.5 Importance of Inventory Practices
Inventory plays an important role in the growth and survival of an organization in
the sense that failure of an effective and efficient management of inventory, will mean that
the organization will lose customers leading to poor services delivery and sale will decline
which will result to decline in profit. Emphasizing on the importance of inventory on the
balance sheet of companies, Coyle, Bardi and Langley (2013) state that “inventory as an
asset on the balance sheet of companies that has taken an increased significance because of
17
the strategy of many firms to reduce their investment in fixed assets, that is plants, ware
houses, office buildings, equipment and machinery, and soon.
There are many reasons why organizations maintain inventory of goods. The
fundamental reasons for doing so is that, it is either physically impossible or economically
unsound to have goods manufactured whenever they are demanded for. Without inventory,
customers would have to wait until the goods they ordered for are manufactured.
According to Martand (2008), the following are the reasons for keeping inventories. These
include;
To stabilize production- the demand for an item fluctuates because of the number of
factors. E.g seasonally, production schedule. The inventories (raw materials and
components) should be made available to the production as per the demand failing which
results in stock out and production stoppage takes place for want of materials.
To take advantage of price discounts- usually the manufacturing offer discount for bulk
buying and to gain this price advantage, the materials are bought in bulk even though it is
not required immediately.
To meet the demand during the replenishment period- The lead time for procurement
of materials depends upon many factors like location of the source, demand, supply
condition. So inventory is maintained to meet the demand during the procurement
(replenishment) period.
To prevent loss of orders (sales)- in this competitive scenario, one has to meet the
delivery schedules at 100% service level, means they cannot afford to miss the delivery
schedule which may result in loss of sales. To avoid this, organizations have to maintain
inventory.
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To keep pace with changing market conditions- the organization have to anticipate the
changing market sentiments and they have to stock materials in anticipation of non-
availability of materials or sudden increase in prices.
Sometimes the organization have to stock materials due to other reasons like
suppliers minimum quantity condition, seasonal availability of materials or sudden increase
in prices.
In support of Martand (2008), Pandey (2013) summarizes the reasons for keeping
inventory into three general motives. These are transactional motive, precautionary motive
and speculative motive. Transaction motive emphasizes the need to maintain inventories to
facilitate smooth production and sales operations. Precautionary motive necessitates
holding of inventories to guard against the risk of unpredictable changes in demand and
supply forces and other factors. Speculative motive influences the decision to increase or
reduce inventory levels to take advantage of price fluctuations.
2.1.6 Concept of Profitability
Sometimes, the terms Profit and Profitability are used interchangeably. But in real
sense, there is a difference between the two. Profit is an absolute term, whereas profitability
is a relative concept. However, they are closely related and mutually interdependent,
having distinct roles in business. Profit refers to the total income earned by the enterprise
during the specified period of time, while profitability refers to the operating efficiency of
the enterprise. It is the ability of the enterprise to make profit on sales. It is the ability of
enterprise to get sufficient return on the capital and employees used in the business
operation.
As Benson (2015) rightly notes “to the financial management profit is the test of
efficiency and a measure of control, to the owners a measure of the worth of their
investment, to the creditors the margin of safety, to the government a measure of taxable
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capacity and a basis of legislative action and to the country profit is an index of economic
progress, national income generated and the rise in the standard of living”, while
profitability is an outcome of profit. In other words, no profit drives towards profitability.
Firms having same amount of profit may vary in terms of profitability.
According to Nimalathasan (2009), profit and profitability are two different terms.
Profit means an absolute measure of earning capacity while profitability is relative measure
of earning capacity. Profit is defined by Iyer (2015) as „excess of return over outlay‟ while
profitability is defined as „the ability of a given investment to earn a return from it use‟.
The word profitability is composed of two words „profit‟ and „ability‟. Profit has been
defined but the meaning of profit differs according to use and purpose of the enterprise to
earn the shareholders, creditors, prospective investors, bankers and government alike
(Nimalathasan, 2009).
Profitability ratios measure the firm‟s ability to generate profits and central
investments to security analysis, shareholders and investors. Profitability is the primary
measure of the overall success of an enterprise.
Profitability is reported on the income and expense statement. Basically, the
accrued net income is the profit a firm has generated for the fiscal period being reported. It
is very important to use the accrued income and expense statement to calculate profit and
not a cash statement. Profitability measures the size of the profit relative to the gross and
net capital invested in the business. Profitability ratios are used to compare the performance
or efficiency of a business to a set of established standards (or benchmarks) for the industry
or sector, or by comparing one business against others. The gross capital of a business is
the total assets, and the net capital in a business is the total equity the firm owner has in his
business.
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2.1.7 Benefits of Making Profit in an Organization
Johnson (2019), stated that the success of business organizations depends on its
ability to continually earn profits. Profit equals a company‟s revenues minus expenses.
Earning a profit is important to a small business because profitability impacts whether a
company can secure financing from a bank, attract investors to fund its operations and
grow its business. Companies cannot remain in business without turning a profit. A
business owner must understand the importance of profitability in business management
and develop strategies that give the company the best chance at remaining profitable.
Business Operations Expansion: Making a profit is essential for a business that desires to
expand its operations. Earning a profit allows you to open other business locations, acquire
another business, target other markets and expand your operations into foreign territory.
The purpose of business expansion is to further increase your profits. Earning a profit is not
the only factor that influences the decision of whether to expand your business, however. If
you desire to grow your business, your management and back office team should be able to
take on additional responsibility. You should create a business plan for expansion and
analyze trends and economic factors that affect your business.
Ability to Borrow Money: Many small businesses depend on debt financing to operate.
Debt financing obligates a business to repay the money borrowed to the creditor with
interest. Debt financing for a small business typically includes borrowing money from a
bank. A company‟s profitability plays an important role in whether a bank lends the
company money. In addition to profit, a business owner‟s credit score and collateral are
determining factors in lending decisions. A company that cannot turn a profit is typically
seen as a risk for default by a lender.
Attract Investors Financing: Some small businesses choose to bring in private investors
to secure funding for their operations. A company that earns continual profits is seen as a
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potentially good investment option because the investor believes there is a good chance to
earn an attractive return on his investment. Attracting investors depends on your ability to
show the monetary benefits of investing in your business. As a business owner, you should
prepare to show potential investors your ability to generate profits in previous years and
your plans to continue to earn profits in the future.
Hire More Employees: Part of growing a small business includes hiring additional
employees who can handle the growing responsibilities within the company. A small
business that is profitable has a better chance of affording to pay new employees‟ salaries
than a company that is struggling financially. Hiring new employees is an important
element of running a small business because employees are typically given more
responsibility in smaller companies. A business owner must allocate resources to defining
open job positions, developing a hiring process and creating training programs
2.1.8 Factors Affecting Profitability of firms
1. The degree of competition a firm faces: A part of growing a small business
includes hiring additional employees who can handle the growing responsibilities
within the company. A small business that is profitable has a better chance of
affording to pay new employees‟ salaries than a company that is struggling
financially. Hiring new employees is an important element of running a small
business because employees are typically given more responsibility in smaller
companies. A business owner must allocate resources to defining open job
positions, developing a hiring process and creating training programs. If a firm has
monopoly power then it has little competition. Therefore demand will be more
inelastic. This enables the firm to increase profits by increasing the price. For
example, very profitable firms, such as Google and Microsoft have developed a
degree of monopoly power, with limited competition. However, in theory,
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government regulation may prevent monopolies abusing their power, e.g. the OFT
can stop firms colluding (to increase price) Regulators like OFGEM can limit the
prices of gas and electricity firms. If the market is very competitive, then profit will
be lower. This is because consumers would only buy from the cheapest firms. Also
important is the idea of contestability. Market contestability is how easy it is for
new firms to enter the market. If entry is easy then firms will always face the threat
of competition; even if it is just “hit and run competition” – this will reduce profits.
2. The strength of demand: For example, demand will be high if the product is
fashionable, e.g. mobile phone companies were profitable during the period of
rising demand and growth in the market. Products which have falling demand like
Spam (tinned meat) will lead to low profit for the company. Some companies, like
Apple, have successfully carved out strong brand loyalty making customers demand
many of the new Apple products. However, in recent years, profits for mobile
phone companies have fallen because the high profit encouraged oversupply,
negating the increase in demand.
3. The state of the economy: If there is economic growth then there will be increased
demand for most products especially luxury products with a high-income elasticity
of demand. For example, manufacturers of luxury sports cars will benefit from
economic growth but will suffer in times of recession.
4. Advertising: A successful advertising campaign can increase demand and make the
product more inelastic demand. However, the increased revenue will need to cover
the costs of the advertising. Sometimes the best methods are word of mouth. For
example, it was not necessary for YouTube to do much advertising.
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5. Substitutes: if there are many substitutes or substitutes are expensive then demand
for the product will be higher. Similarly, complementary goods will be important
for the profits of a company.
6. Relative costs: An increase in costs will decrease profits; this could include labour
costs, raw material costs and cost of rent. For example, a devaluation of the
exchange rate would increase the cost of imports, and therefore companies who
imported raw materials would face an increase in costs. Alternatively, if the firm is
able to increase productivity by improving technology then profits should increase.
If a firm imports raw materials the exchange rate will be important. A depreciation
making imports more expensive. However, a depreciation of the exchange rate is
good for exporters who will become more competitive.
7. Economies of scale: A firm with high fixed costs will need to produce a lot to
benefit from economies of scale and produce on the minimum efficient scale,
otherwise average costs will be too high. For example in the steel industry, we have
seen a lot of rationalization where medium-sized firms have lost their
competitiveness and had to merge with others.
8. Dynamically efficient: If a firm is not dynamically efficient then overtime costs
will increase. For example, state monopolies often had little incentive to cut costs,
e.g. get rid of surplus labour. Therefore before privatization, they made little profit,
however with the workings and incentives of the market they became more
efficient.
9. Price discrimination: If the firm can price discriminate it will be more efficient.
This involves charging different prices for the same good so that the firm can
charge higher prices to those with inelastic demand. This is important for airline
firms.
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10. Management: Successful management is important for the long-term growth and
profitability of firms. For example, poor management can lead to a decline in
worker morale, which harms customer service and worker turnover. Also, firms
may suffer from taking wrong expansion plans. For example, many banks took out
risky subprime mortgages, but this led to large losses. Tesco suffered from
expanding into unrelated business, like garden centre. This led to over-stretching
the company and losing sight of their core business.
11. Objectives of firms: Not all firms are profit maximizing. Some firms may seek to
increase market share, in which case profits will be sacrificed to gain market share.
For example, this is the strategy of Walmart and to an extent Amazon.
12. Exchange rate: If a firm relies on exports, depreciation in the exchange rate will
increase profitability. A fall in the exchange rate makes exports cheaper to foreign
buyers. Therefore, the firm can sell more or choose to have a bigger profit margin.
If the firm imports raw materials, depreciation will increase costs of production.
2.1.9 Relationship between Inventory Management and Organizational Profitability
Inventory represents an important decision variable at all stages of product
manufacturing, distribution and sales, in addition to being a major portion of current assets
of many organizations. Too much and too low inventories bring down the level of
profitability of an organization. Therefore, whether it is a manufacturing or merchandized
organization, the goal should always be the same that is, to ensure the inventory is ready
and at the same time inventory is at a low level.
In the management of inventory the firm is always faced with the problem of
meeting two conflicting needs: - maintaining a large size of inventory for efficient and
smooth production and sales operations and maintaining a minimum level of inventory so
as to maximize profitability (Pandey, 2008). Both excessive and inadequate inventories are
25
not desirable. The dangers of excessive inventories are that stockholding costs are too high
and as a result the firm‟s profitability is reduced. According to Mohammad (2011)
managers can create value for shareholders by means of decreasing inventory levels.
However, maintaining inadequate level of inventory is also dangerous because ordering
costs are too high. It may also lead to stock out costs. The economies of scale to be gained
through quantity and trade discounts, less risks of deterioration and obsolescence, and
reduced cost of insurance among others. A study carried out by Mathuva (2010) on the
influence of working capital management components on corporate profitability found that
there exists a highly significant positive relationship between the period taken to convert
inventories into sales and profitability. This meant that firms maintained sufficiently high
inventory levels which reduced costs of possible interruptions in the production process
and loss of business due to scarcity of products.
2.2 Theoretical Framework
This theory will guide the study in investigating the relationship between inventory
management and organizational effectiveness.
2.2.1 Queuing Theory
Is a mathematical study of waiting for lines or queues (Shingo 2005). The theory
enables mathematical analysis of several related processes, including arriving at the back of
the queue, waiting in the queue (a storage process) and being served in front of the queue.
The theory permits the derivation and calculation of several performance measures
including the average waiting time in the queue or the system the expected number waiting
or receiving services, and the probability of encountering the system/
2.2.2 Agency Theory
This was put forward by Jensen and Meckling (2000). They proposed that when a
firm issues outside equity. It creates agency cost of equity that reduce the value cooperate
26
assets: Jensen free cash flow theory alleges that if management is not closely monitored
they will invest in capital projects and acquisitions that do not provide sufficient expected
returns. Jensen and Meckling (2010) continue to argue that debt financing can help
overcomes the agency costs of external equity. The effect of employing external debt rather
than equity financing is that it can have an adverse effect on the value of the firm. With
debt outstanding, the most of excessive perks consumption will result in managers loosing
control of the company due to default and bondholder seizure of the company assets.
Thus external debt serves as a bonding mechanism for manager to convey their
good intensions to outside shareholders. Because taking on debt validates that managers are
willing to risk losing control of their firm if they fail to perform effectively, shareholder are
willing to pay a higher price for the levered firm.
2.2.3 Theory of Resources and Capacities
As from the theory of resources and capacities it is habitual to consider that those
sources are in internal and external factors of the enterprises. The entrepreneur, by means
of the strategy combines these factors establishing his distinctive competences. As from the
theory of resources and capacities it is habitual to consider that those sources are in internal
and external factors of the enterprises.
Brown (2009) interpretation of multiple resources theory was that timing involves
verbal resources at the perceptual central stages, whereas search and tracking are 9 spatial
tasks. The central executive controls attention and coordination functions, such as
allocating attention between dual tasks.
2.3 Empirical Review
This section presents the review of related literature in order to establish a basis for
the investigation of the impact of inventory management and control on the profitability.
27
The review covered previous empirical studies conducted in various countries on this
subject matter.
Victoire (2015) investigated the impact of inventory management on profitability
in Rwanda using a manufacturing company as case study. The findings indicate that
inventory management had significant impact on the company‟s financial performance.
The study is inadequate as it was restricted to Rwanda and that circumstances in Nigeria
could be different from that of Rwanda. More so the study was not carried out on Top
choice bakery hence the reason for this study.
Prempeh (2015) studied the impact of efficient inventory management on the
profitability of manufacturing firms in Ghana, using raw material inventory management
and profit as variables. Cross sectional data from the annual reports of four manufacturing
firms listed on the Ghana Stock Exchange were analyzed using Ordinary Least Squares
(OLS) and multiple regression techniques. The study found a significantly strong and
positive relationship between raw material inventory management and profitability. In a
related study, Sitienei and Memba, (2015) using similar analysis techniques examined the
effect of inventory management on the profitability of cement manufacturing companies in
Kenya. Their study findings revealed that inventory turnover, inventory conversion period,
and inventory storage costs were negatively related to profitability. Their study is however
inadequate because it focused only on firms in Kenya and the case with Nigeria may be
different and the study did not emphasize inventory management and control.
Sekeroglu & Altan (2014) investigated the effect of inventory management on the
profitability of firms in the weaving, food, wholesale and retail industries in Turkey from
2003 to 2012. The study employed regression and correlation techniques using the
computer software SPSS 20 version to analyze data collected from the income statements
of the selected firms. The results showed positive relationship between inventory
28
management and profitability in the food industry, but no relationship in the weaving,
wholesale and retail industries. The study does not apply to all firms since few firms were
selected for the study and the findings may not be applicable to every firm.
Lwiki, Ojera, Mugenda & Wachira (2013) examined the impact of inventory
management on the financial performance of sugar manufacturing firms in Kenya. Both
primary and secondary data collected were analyzed using descriptive statistics and
correlation analysis, and they found inventory management had positive correlation with
financial performance. There is gap between the study and the current study because the
earlier study focused on sugar manufacturing firms in Kenya only. In a related study,
Panigrahi (2013) examined the relationship between inventory conversion period and the
profitability of cement companies in India for the period 2001 to 2010. The study adopted
gross operating profit as the dependent variable and proxy for profitability and inventory
conversion period as the independent variable. In addition, current ratio, size of the firm
and financial debt ratio were used as control variables. The study found significant
positive linear relationship between inventory management and profitability. This study
did not take cognizance of other countries hence the inadequacy of the study.
Augustine & Agu (2013) studied the effect of inventory management on
organizational effectiveness and profitability of manufacturing companies in Nigeria.
Using Pearson product moment correlation coefficient and linear regression techniques,
the study found positive correlation between inventory management and profitability.
Okwo & Ugwunta (2012) studied the impact of input costs on firm profitability of
the breweries industry in Nigeria. The study adopted the ratios of selling and general
administrative expenses, cost of goods sold (inventory), receivables, payables and
depreciation as independent variables; and profitability as dependent variable. Using
29
Ordinary Least Squares and multiple regression techniques, they among others found that
cost of goods sold (inventory) had positive significant relationship with profitability.
Amichebe and Agu (2013). Inventory management on organizational effectiveness
was carried out to assess the impact of proper inventory management on organizational all
in Enugu, Enugu State. Descriptive research method, especially survey. The population of
the study is 658. Sample size of 248 was derived using the taro Yamane Formula for
sample size determination from a finite population. Data were generated using
questionnaire, oral interviews, observation, books, journals and the internet. Data were
presented in tables and analyzed using simple percentages person product. Moment
correlation coefficient and linear regression were used in the hypothesis testing. From the
analysis, it was discovered that irrespective of the fact that the organizations studied,
painted the picture that they were apply\ the tenets of inventory management. They from
time to time run into the problem of inventory inadequacy. This consequently affected their
production, leading to the scarcity of one brand of the product or other, thereby affecting
their profitability and consequential effectiveness negatively. The findings indicated that
there is a significant relationship between good inventory management and organizational
effectively. Inventory management has a significant effect on organizational productivity.
There is a highly positive correlation between good inventory management and
organizational profitability. The study concluded that inventory management is very vital
to the success and growth of organization.
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CHAPTER THREE
METHODOLOGY
3.1 Introduction
This chapter presents the methodology that was used in the study; it gives a
description of the study area and the methods that were used to collect data from the field.
It gives a summary of the research design, sample population and size, data collection
instruments, data type, data processing and presentation and the problems encountered
during the process of data collection and analysis.
3.2 Research Design
Research design is the plan for a research project. It provides guidelines which
direct the researcher towards solving the research problem and it may vary depending on
the nature of the problem being studied (Saunders et al (2013).
For the purpose of this study the researcher has adopted survey research design. The
researcher adopts survey research design because it enables the researcher to go to the field
and observe and/or source for response from experts and other respondents. Among other
things, the choice of a survey design is informed by the fact that it is economical. It also
allows inference and generalization to be made from the representatives sampled to target
population which would be rather too expensive to investigate as a whole.
3.3 Population of the Study
Target population is defined as a compute set of individuals, cases/objects with
some common observable characteristics of a particular nature distinct from other
population. According to Ngechu (2014), a population is a well-defined or set of people,
services, elements, events, group of things or households that are being investigated. This
definition ensures that population of interest is homogeneous. The population for the study
is staffs of Dangote Flour Mills Ilorin Kwara State. The total population was around 250
31
staff members of Dangote Flour Mills Ilorin Kwara State. The population comprises of five
(5) management staff, fifty (50) senior staff, and one hundred and ninety five (195) junior
staff which sum up to two hundred and fifty staff (250) of the total population of Dangote
Flour mills, Ilorin, Kwara State.
3.4 Sampling Design
According to Kottrari (2011), a sample is that part of the whole which is selected
for purpose of investigation. In other words, the term “sample” refers to the representative
portion or part of the population that the researcher chooses for the study.
Key participants of the study comprise of respondents from the stores department,
purchasing department and top management staff from various departments. These were
selected using both stratified and purposive sampling techniques. Using the purposive
sampling technique, the researcher selected three (3) management staff, twenty five (25)
from the senior staff while seventy five (75) were selected from the junior staffs of
Dangote flour mills, Ilorin Kwara State. The researcher used a sample size of 103
respondents because as it was large enough or the study to obtain reliable information. The
study determined the sample size of the respondents by using the following formulae.
P= (F/N) x n.
Where;
F= Number in the category
N = Total population.
P = Number of respondents in the category obtained from the group
n = Total number of the respondents
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3.5 Research Instrument
The data used in this research were collected using questionnaire. The researcher
used the closed ended questions in administering his questionnaires. The questionnaires
were administered directly to the target sample in order to get first-hand information from
the respondents. Also the secondary data were gathered through the examination of
journals, articles the consultation of the internets.
3.6 Validity and Reliability of Research Instrument
According to Agburu (2011), validity of research instrument depends on what
extent it will provide information or data that is relevant and appropriate for the research
work. Questionnaires are predominantly the source of data for this work.
Reliability, according to Jones (2014), has to do with the extent to which the items
in an instrument generate consistent responses over several trials with different audiences
in the same setting or circumstances”. The reliability of the instruments and data were
established following a pre-test procedure of the instruments before their use with actual
research respondents.
3.7 Data Collection Procedure
The data for this study was collected from both primary and secondary
sources. The primary data were collected via the administration of questionnaire to the
staffs of Dangote flour mills Ilorin, Kwara state personally by the researcher in order to get
substantial required information
Secondary documents used in this study were gathered from relevant textbooks,
articles, and internet.
3.8 Method of Data Analysis
After collecting all the necessary data, these data were coded and edited, analyzed
and rephrased to eliminate errors and ensure consistency. It would involve categorizing,
33
discussing, classifying and summarizing of the responses to each question in coding
frames, basing on the various responses.
The raw data collected from the primary source was presented using tables and
simple percentages. The hypothesis was tested using chi-square statistical techniques.
Decision rule for hypothesis were to accept either null or alternative hypothesis base on
0.05 level of significance.
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CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Introduction
This chapter deals with the presentation of collected data from the questionnaire
and also analysis. The chapter is more concerned with the methods by which the researcher
caries statistical analysis of his findings of investigation. The questionnaire method was
designed for the collection of response and option for the respondents to either chose or
gives his response freely. Therefore after investigation the data was analyzed by using a
percentage system and presents.
4.2 Response Rate
In collection of data, a total number of 103 questionnaires were distributed while
100 were able to be collected and useful for the research work.
Table 4.2.1
Response Percentage (%)
Administered 103 100
Retrieved 101 98.1
Useful 100 97.1
Sources: Field survey, 2020
This shows that 101 of the questionnaire were retrieved from which 100 is useful which
form 97.1% of the administered questionnaire.
4.3 Demographic Characteristics of the Respondents

Table 4.3.1: Background of respondents
Background Distribution Frequency Percentage (%)
Gender Male 75 75
Female 25 25
Age 15 – 20 years - -
21 – 30 years 40 40
35
31 – 40 years 40 40
41 – 50 years 10 10
51 years above 10 10
Marital status Single 75 75
Married 25 25
Divorced - -
Educational WAEC/NECO - -
background
ND/ A LEVEL 30 30
HND/B.SC 40 40
MBA/MSC 30 30
Length of service 1 – 4 years 8 8
5 – 8 years 12 12
9 – 10 years 20 20
11 years an above 60 60
Source: Field survey, 2020
From the 4.3.1 table above, 75 respondents representing 75% were male while 25
respondents representing 25% were female in the company.
It also shows that the age of the respondents range from 15 years to 51 years and
above. The respondents between ages of 21 to 30 years were 40 respondents representing
40%, the respondents between age of 31 to 40 years were 40 respondents representing
40%. It is clearly shown that those respondents that are between 21 to 30 years to 40 years
are very strong to work.
The table also shows that 75 respondents representing 75% were single, while 25 of
the respondents representing 25% were married. It shows that the majority of the staff was
single that they will work to meet the company‟s target.
From the table, it also shows that 30 respondents representing 30% were ND/A
LEVEL certificate holder, 40 respondents representing 40% were HND/B.Sc certificate
36
holder while 30 respondents representing 30% were holder of MBA/MSC or its equivalent
holder. It shows that this company employs those that have knowledge at the work.
It shows that 8 respondents representing 8% were 1 – 4 years, 12 respondents were
5 – 8 years representing 16% 20 respondents were 9 – 10 representing 20%, 60 respondents
were 11 years and above representing 60%.
4.4 Data Presentation and Analysis of Research Questions

Table 4.4.1 Inventory planning and scheduling contribute to organization profit
target
Alternative No of respondent Percentage (%)
Strongly agreed 40 40
Agreed 10 10
Undecided 18 18
Disagreed 20 20
Strongly disagree 12 12
Total 100 100
From table 4.4.1, it is clearly shown that there were 40 respondents strongly agreed
in the table for the study representing 40% 10 agreed representing 10%, 18 undecided
representing 18% 20 disagreed representing 20%, 12 strongly disagreed representing 12%.
This means that the highest percentage (40%) strongly agree that inventory planning and
scheduling contribute to organization profit target.
Table 4.4.2 Proper inventory planning and scheduling attract customers to the
organization

Agreed 36 36
Undecided 6 6
Disagreed 10 10
Total 100 100
37
From table 4.4.2, it is clearly shown that there were 38 strongly agreed in the table
for the study representing 38%, 36 agreed representing 36%, 6 undecided representing 6%,
10 disagreed representing 10%, and 10 strongly disagreed representing 10%. This means
that the largest proportion of the staff strongly agreed 38% that proper inventory planning
and scheduling attracts customers to the organization.
Table 4.4.3 Inventory planning and scheduling allows for proper stock availability
Agreed 14 14
Undecided 10 10
Disagreed 20 20
Total 100 100
for the study representing 40%, 14 agreed representing 14%, 10 undecided representing
10%, 20 disagreed representing 20%, and 16 strongly disagreed representing 16%. The
largest proportion of individual strongly agreed 40 representing 40% that inventory
planning and scheduling allows for proper stock availability in and organization.
Table 4.4.4 Inventory Planning and scheduling does not allow for disruption of
services to customers
Agreed 40 40
Undecided - -
Disagreed 18 18
Total 100 100
38
for the study representing 30%, 40 agreed representing 40%, 18 disagreed representing
18%, and 12 strongly disagreed representing 12%. Most of the individuals agreed that
inventory planning and scheduling does not allow for disruption of services to customers.
Table 4.4.5: Accurate up-to-date store record has key effects on store management
Agreed 15 15
Undecided 9 9
Disagreed 10 10
Total 100 100
10 disagreed representing 10%, and 18 strongly disagreed representing 18%. It shows that
the largest proportion are of the opinion that accurate up-to-date store record has key
effects on store management which is 48%.
Table 4.4.6 Inventory record reduce errors of stock management

Agreed 30 30
Undecided 16 16
Disagreed 4 4
Total 100 100
39
16%, 4 disagreed representing 4%, and 6 strongly disagreed representing 6%. This means
that strongly agreed have the largest proportion which is 44 representing 44%.
Table 4.4.7 Inventory recording Cycle counting increase organizational profitability

Agreed 12 12
Undecided 2 2
Disagreed 16 16
Total 100 100
that individual strongly disagree 60 which represent 60% have the highest number.
Table 4.4.8 Inventory control system lead to reduction in cost incurred

Agreed 20 20
Undecided 18 18
Disagreed 14 14
Total 100 100
18%, 14 disagreed representing 14%, and 8 strongly disagreed representing 8%. It means
that 40 respondents strongly agree which represent 40% that inventory control system leads
to reduction in cost incurred.
40
Table 4.4.9: Inventory control helps in minimizing cost and carrying cost
Agreed 34 34
Undecided 8 8
Disagreed 10 10
Total 100 100
most of the respondents agreed that inventory control helps in minimizing cost of carried.
Table 4.4.10: Inventory control helps to maintain sufficient stock for smooth
production
Agreed 36 36
Undecided 10 10
Disagreed 6 6
Total 100 100
10%, 6 disagreed representing 12%, and 6 strongly disagreed representing 6%. This means
that 42 strongly agreed that inventory control helps to maintain sufficient stock for smooth
production.
41
Table 4.4.11: Inventory control contribute in minimizing cost and maximizing profit
Agreed 8 8
Undecided 26 26
Disagreed 16 16
Total 100 100
strongly agreed 40 which represent 40% which have the highest proportion which supports
that inventory control contribute in minimizing cost and maximizing profit.
Table 4.4.12: Inventory valuation helps in determining the price tag of stock
Agreed 40 40
Undecided - -
Disagreed 12 12
Total 100 100
12%, and 10 strongly disagreed representing 10%. It means that 40 agreed that inventory
valuation helps in determining the price tag of stock.
42
Table 4.4.13 Inventory valuation has negative effects on value of stock
Agreed 10 10
Undecided - -
Disagreed 20 20
Total 100 100
20%, and 42 strongly disagreed representing 42%. It means that strongly disagree with the
above statement.
Table 4.4.14: Physical inventory counting enables for correspondence of records

Agreed 32 32
Undecided - -
Disagreed 8 8
Total 100 100
for the study representing 48%, 32 agreed representing 32%, 8 disagreed representing 8%,
and 12 strongly disagreed representing 12%. The largest proportions is 48% strongly
agreed that physical inventory counting enables for correspondence of records.
43
Table 4.4.15: Inventory counting has positive effect on organization profitability
Agreed 36 36
Undecided 8 8
Disagreed 12 12
Total 100 100
that 36% agreed that inventory counting has positive effect on organization profitability.
4.5 Test of Hypothesis

This section deals with how to test and validate the hypotheses formatted in chapter
one. The statistical test method used is chi-square method (x2), the hypothesis is measure at
5% or 0.05 level of significance which specifies the possible error that the researcher may
commit when making statistical decisions.
The chi-square formular is given below

X2 = ∑(Ox - Ei)2
Ei
Oi = Observed number of cases (respondents)
Ei = Expected number of cases (respondents)
X2 = Chi-square compacted
Oi – Ei = Difference between observed and expected value.
Hypothesis One
Ho: Proper counting and recording has no significant effect on organizational
profitability
44
Hi: Proper counting and recording has significant effect on organizational profitability
This hypothesis is tested using (table 4.4.2)
Table 4.4.2
Agreed 36 36
Undecided 6 6
Disagreed 10 10
Total 100 100
Expected frequency (E) = Total no of respondents Ei = 100
No of alternative 5 = 20
Table 4.5.1: Test of Hypothesis One

Alternative Oi Ei Oi – Ei (Oi - Ei)2 (Oi - Ei)2
Ei
Strongly agreed 38 20 18 324 16.2
Agreed 36 20 16 256 12.8
Undecided 6 20 -14 196 0.2
Disagreed 10 20 -10 100 5
Strongly disagreed 10 20 -10 100 5
Total 100 39.2

X2 = 39.2
Degree of freedom (Df) = (C - 1) (R – 1)
= (5 – 1) (5 - 1)
(4) (4)
= 16
At 0.05 level of significance = 9.49
45
Decision rule: If calculated value of x2 is greater than critical value of x2 reject Ho.
Therefore, since x2 is 39.2 is greater than 9.49 (table or critical table); then we reject
Ho. and accept alternative.
Hypothesis Two
Ho: There is no significant relationship between up-to-date stores record and
Hi: There is significant relationship between up-to-date stores record and organizational
profitability
Table 4.4.5
Agreed 15 15
Undecided 9 9
Disagreed 10 10
Total 100 100
Table 4.5.2: Test of Hypothesis Two
Ei
Agreed 15 20 -5 25 1.25
Undecided 9 20 -11 121 6.05
Disagreed 10 20 -10 100 5
46
Strongly disagreed 18 20 -2 4 0.2
Total 100 51.7

X2 = 51.7
= (5 – 1) (5 - 1)
(4) (4)
= 16
Decision: Therefore, since x2 is 51.7 is greater than 9.49 (table or critical table); then we
reject Ho.
Hypothesis Three
Ho: There is no significant relationship between stock procurement and organizational
profitability
Hi: There is significant relationship between stock procurement and organizational
profitability
Table 4.4.12
Agreed 40 40
Undecided - -
Disagreed 12 12
Total 100 100
47
Table 4.5.3: Test of Hypothesis Three
Ei
Agreed 40 20 20 400 20
Undecided - 20 -20 400 20
Disagreed 12 20 -8 64 3.2
Strongly disagreed 10 20 -10 100 5
Total 100 64.4

X2 = 64.4
= (5 – 1) (5 - 1)
(4) (4)
= 16
reject Ho.
Hypothesis Four
Ho: There is no significant relationship between inventory planning and scheduling and
organization profitability
Hi: There is significant relationship between inventory planning and scheduling and
organization profitability.
48
Table 4.4.1
Agreed 10 10
Undecided 18 18
Disagreed 20 20
Total 100 100
Table 4.5.4: Test of Hypothesis Four

Ei
Strongly agreed 40 20 20 400 20
Agreed 10 20 -10 100 5
Undecided 18 20 -2 4 0.2
Disagreed 20 20 - - -
Strongly disagreed 12 20 -8 64 3.2
Total 100 28.4

X2 = 28.4
= (5 – 1) (5 - 1)
(4) (4)
= 16
49
reject Ho.
4.6 Discussion of Findings
The result from the research findings indicates as follows:
Hypothesis revealed that there is proper counting and recording has significant effect on
organizational profitability Since the calculated value of X2 is greater than critical value of
X2 reject Ho. Therefore X2 is 39.2 is greater than 9.49 the critical table, then reject Ho.
The second hypothesis revealed that there is significant relationship between up-to-
date stores record and organizational profitability. Hence the calculated value of X2 is
greater than critical value of X2 reject Ho, Therefore X2 is 51.7 is greater than 9.49 the
critical table, then reject Ho.
The third hypothesis revealed that there is significant relationship between
warehouse flow and organizational effectiveness. Hence the calculated value of X2 is
greater than critical value of X2 reject Ho, Therefore X2 is 64.4 is greater than 9.49 the
critical table, then reject Ho.
The fourth hypothesis revealed that there is significant relationship between process
auditing and organizational effectiveness. Hence the calculated value of X2 is greater than
critical value of X2 reject Ho, Therefore X2 is 28.4 is greater than 9.49 the critical table,
then reject Ho.
50
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary
The study investigated into the inventory management practices used by Dangote
Flour Mills, Ilorin kwara State. The reason was to establish the strategies adopted by the
organization in its quest to ensure proper organizational profitability. The researcher first
asked respondents whether there are various Inventory management practices used by
Dangote Flour Mills Ilorin Kwara State.
The study established that accurate stores records were one of the inventory
management practices used by the organization. It was revealed that the employees at the
organization take recording as an important component of their management and that this
had improved their performance and profitability.
It was established that a good stock plan helps in organizational efficiency and is a
component of inventory management. This was cited by the respondents during the study.
Proper accounting records Peer counseling has many advantages to the client, the counselor
and the community. It emerged from the study that positive surprise checks constitutes an
important strategy in inventory management. First and foremost, all employees in the
organization and more so top managers should work towards ensuring that all their
subordinates comply with the set rules and standards in the organization. These study
findings can be compared with Pandey (1995) who argued that since most organizations
maintain different types of materials with different value, minimum attention is devoted to
different items with the highest value. The difference involves of the different classes of
inventory leads to the inventory control model by importance and exception or ABC
analysis (Rich mond 1969).
51
The ABC analysis involves the following:-Classify the items of inventory
determining the expected used in units and price per unit for each item, determine the total
value of each item by price and units, rank items according to value, and determine
percentage ratio or units of each item to total items and value.
Dangote Flour Mills Ilorin, management should create opportunities where all
employees in their respective departments will feel as part of the systems. Proper stores
management thus was established to be an important practice that leads to organizational
efficiency in the organization. However, Halachmi and Bouckart, (2005) argued that
inventory management process is the science-based art of controlling the amount of stock
held in various forms, within a business to meet economically the demands placed up one
that business. The aim of inventory control system is to maintain the quantities of stock
held by a business at a level which optimizes some management criteria such as
minimizing the costs incurred by the whole business enterprise for improved performance.
From the findings, it was evident that inventory management leads to efficiency and
effectiveness by avoiding over stocking and under stocking. To ensure this stock taking is
carried out to determine the stock levels and hence determine the organizations worth. It
also helps to determine the balance of stock and check for any variances and make
reconciliations to make sure that the physical stock corresponds with what is within the
records. The above study findings can be related with Ronald, H.(1999), who reported that
inventory exists for this reason alone, the relevance of the decision to be made. Carrying,
holding or possession costs. These include handling charges, labour and operating costs,
insurance premium, breakage, pilferage, obsolescence, taxes and investment or opportunity
costs. In short any cost associated with having as opposed to not having inventory is
included. Other costs may include ordering costs, or purchase costs, set-up costs, stock out
and price variation costs.

52
5.2 Conclusion
In conclusion from the analyzed data the inventory management as a tool for
organizational profitability has become as indispensable factor far as growth and
development of Nigeria economy is concerned. Going by the different views expressed by
the respondents and as analyzed by the researcher the inventory management in the
countries development is paramount. Therefore, the stability of the business is based upon
the capacity of inventory management control.
Dangote Flour Mills Ilorin Kwara State should hold stock in order to maximize
economies of scale, balance supply and demand, specialization and presentation from
uncertainties. Inventory is a significant asset in organizations. Its effective management is a
key task with in the auspices of operations and viewers of organization. Inventory control
in an organization co-ordinates the purchasing, manufacturing and distribution functions to
meet the marketing needs and ensures that organizations efficiency is in line with the set
objectives and centers on customer satisfaction. Inventory management challenges interfere
with a company‟s profits and customer service. They cost an organization more money and
lead to an excess of inventory overstock that is difficult to move.
Inventory management is one of the important key activities of any organization. It
is important in logistics planning and control, production process, purchasing and
satisfaction of customer‟s services all of which are important in organizational
performance. Inventory management helps organizations to meet higher than expected
demand. This helps the organization to protect against running out of inventory
5.3 Limitations of the Study
Much problem has been encountered in the course of writing this project. In spite
the effort, the researcher to go into the area of this researcher work. Like any other
53
company in Nigeria, some of the company document have been classified as “secrete” and
therefore could be released to the researcher which understand as a limitation of this study.
Time is another problem. The limited time available to the researcher is a major
irrigation because of the academic work load in the school, hence the researcher has lease
to share his time between this work and other course has lease to share his time between
this work and other course been offered by the researcher. The financial resources at the
disposal did not provide room for wide coverage for the study. As well a result of each was
limited to Dangote Flour Mill Ilorin Kwara State.
5.4 Recommendations
Prevention is better than cure. To minimize breaking down of machineries to more
easy productivity the convenient time the consumer want a product, to improve goods in
stock, the following recommendation should be adapted to effective inventory control.
The stores should be enlarged and tidy so as to ensure maximum usage of space
among others. There is need to segregate duties of receipt and recording of stock in order to
reduce fraud and theft.
There is need to computerized package to deal with recording of inventory so as to
avoid unintentional errors. Inventory management practices are the key factor in ensuring
continuous improvement in turnover growth. In this regard this recommended that
companies should carry out efficient inventory monitoring and operate good inventory
information management system to ensure realistic inventory forecasts and high turnover.
Considering the importance of demand forecasting in achieving a good turnover,
information that is required as input to demand forecasts must be consistent and based on
customer needs. Therefore companies must strive to see that there is continuous monitoring
of inventory, such that the decision rules that include safety stock, reorder points and EOQ
54
on which forecasts are based are up to date and are based on historical data from past sales
but also analyzed customer based information.
Employees other than stores officers should not be allowed into the stores unless it
is strictly on business. The habit of employees using the store area for their lunch break
should be discouraged by organizations. Stores ledger comprising all items of stock held in
various stores located from the physical stock itself should be kept. The detailed entries of
all issues should be reflected in such ledgers. The serves as checks and balances on all the
sub stores, and as a good source for audit purposes.
To avoid duplication of records due to price variance, the FIFO (first in first out)
and LIFO (last in first out) system of issues should be adopted. This will ensure the
elimination of the need to open several cards for single items because of price variation. All
receipt and issues should be numbered serially and recorded with duplicates and
distribution to appropriate section of the organization.
For easy identification of materials in the stores and to reduce fatigue, appropriate
coding system should be employed. This can be done by using letters, figures or a
combination of both. The system could be based upon the nature of the stores items, the
purpose for which items are bought, or on any other basis regarded as suitable for the
business.
There should be inventory management for smooth production flows in an
organization and improve performance of the organization. There is need for inventory
management since it helps organizations to meet higher than expected demand. This helps
organizations from running out of inventory.
55
Competent Staff: Management of organization should employ competent staff that
has experience and skill in Inventory Management. They should also consider training their
employees on inventory management practices and the system in place.
In addition, the study recommends managers in organizations especially those in
developing countries like Uganda to always undertake forward production planning, this is
because they will be able to know when the incoming sales orders can be scheduled for
delivery and also takes into account current backlogs so that production and delivery
schedules are realistic which will minimize inventory management costs.
It is also recommended that whether or not a perpetual/continuous stock
control system is maintained, there should be continuous annual stocks take at the
company. To this, procedures can be prescribed for this with emphasis on identifying
damaged, slow moving, and obsolete stock and cut-off procedures.
5.5 Suggestion for Further Studies
This research work focused on the inventory management as a tool for
organizational effectiveness. Further research should be done in the areas of; The role of
inventory management towards service delivery. The role of record management towards
proper inventory management The Importance of inventory management practices on the
performance local governments. The importance of inventory control systems on the
performance of organizations.
56
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Management in Nigeria, Lagos.
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Quality on Customer Retention
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Anderson, E.W, Fornell, C, and Mazvancheryl, S.K. (2004), Customer Satisfaction and
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Armstrong M. (2007). Human Resource management Practice New Delhi; Kogan Page
India.
Badaki F. And Matanmi S. (2011). Personnel Management Ilorin: Matami Publishing

House.
Boone L and Kurtz D. (2006). Management New York, Random House Incorporation
Brains William (2001) inventory management planning and control model finances journal.
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Cacio W.F. Managing Human Resources Productivity. Quality of Work life Profit. New
York McGreand Hill Publishers.
Clodlfer, M. A., (2003). Identifying opportunities for improving Teradyne's service-parts

Logistics system. Interfaces, 29(4), 1-18.
Closs, (1989 )purchasing and supply management 11th edition, Rob Zunettler,
CSCMP, Terry C. Esper, Mathew A. Waller (2014)
Donnelly J.H et al (2011). Foundation of Management. Boston Irwin Publishing Company
Godana, B.E and Ngugi, K. (2014), Determinants of Effective Inventory Management of

Knoll Kobil Limited European Journal of Business Management, I (11, 341 – 361).
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Henry F. 920080 “General Introduction Management Concept and Procedure” Delhi
Inventory and Logistics Operations, CIPs Study Materials proffer Publishing 2012
Koontz H. and Wehrich H. (2003). Management Singapore McGraw Hill Book Company.
Kotler P. (2009). Marketing Management Analysis, Planning Implementation and Control.

New Delhi Practice-Hill of India Limited.
Lucy T. (2006): Costing, 5th Ed. DP Publication Great Britain.
Lysons and Gillingham (2003) financial management and policy 11th Edition: London
prentice hall Inc
Mc Laughlin, John A; & Jordan Gretchen B. (2010) Using Logic Models. In Joseph DS.
Wholey Harry P. Hatry & Kathryn E-Newcomer (Eds.) Handbook of Practical
Programe Evaluation (3rd ed). San Francisco, CA: Jossey-Bass
Mitchell George E. (2012). The construct of Organizational effectiveness.
Ovuric J. (2015). Effective Communication Management in Business Times. An

Economies and Financial Review, Vol. 22 No 3, Jan 20th Wikipedia (200). Span of
Control www.wikipedia.com
Pandey, I.M., (2002): Financial Management. 8th Edition, Vikas Publishing House PVT,
Ltd.
Pandy I.M. (2005): Elements of Financial Management, Vikas publishing House PVT Ltd
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Management, USA. Von Hoffman Press, Inc.
58
APPENDIX I
School of Business and Management Studies

Department of Business Administration
Federal Polytechnic
P.M.B 420
Offa.
Dear Sir/Madam,
LETTER OF INTRODUCTION
I am a final year student in the Department of Business Administration, School of
Business and Management Studies of the above named institution.
I am conducting a research work on the inventory management as panacea towards
organizational profitability for presentation to my department as part of my course work for
the award of Higher National Diploma in Business Administration.
I would be very grateful in adequate response could be given to questionnaire
attached here and regard any supplied information you, confidentially will be maintain
Yours faithfully,
ADEKOYA YUSUF GBENGA

BA/HND/F18/4979
59
APPENDIX II
QUESTIONNAIRE
SECTION A: BIO DATA
Instruction: Please tick in the appropriate boxes below to indicate correct response to the
questions.
1. Gender
Male ( ) Female ( )
2. Age distribution
15 – 20 years ( ) 21 – 30 years ( )
31 – 40 years ( ) 41 – 50 years ( )
3. Marital Status
Single ( ) Married ( )
Divorce ( )
4. Educational Background
WAEC/NECO ( ) ND/ A LEVEL ( )
HND/BSC ( ) MBA/M.SC ( )
5. Length of diplomat
1 – 4 years ( ) 5 – 8 years ( )
9 – 10 years ( ) 11 years above ( )
SECTION B
Instruction: Please tick in the appropriate boxes below to indicate correct response to the
questions.
6. Inventory planning and scheduling contribute to organization profit target

Strongly agreed ( )
Agreed ( )
60
Undecided ( )
Disagreed ( )
Strongly disagreed ( )
7 Proper inventory planning and scheduling attract customers to the organization
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
8. Inventory planning and scheduling allows for proper stock availability
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
9. Inventory Planning and scheduling does not allow for disruption of services to
customers
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
10. Accurate up-to-date store record has key effects on store management
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
11. Inventory record reduce errors of stock management
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
61
12. Inventory recording Cycle counting increase organizational profitability
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
13 Inventory control system lead to reduction in cost incurred
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
14 Inventory control helps in minimizing cost and carrying cost
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
15. Inventory control helps to maintain sufficient stock for smooth production
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
16. Inventory control contribute in minimizing cost and maximizing profit
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
17. Inventory valuation helps in determining the price tag of stock
Strongly agreed ( )
62
Agreed ( )
Undecided ( )
Disagreed ( )
18. Inventory valuation has negative effects on value of stock
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
19. Physical inventory counting enables for correspondence of records
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
20. Inventory counting has positive effect on organization profitability
Strongly agreed ( )
Agreed ( )
Undecided ( )
Disagreed ( )
63

Inventory Management As A Panacea Towards Organization Profitability

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INVENTORY MANAGEMENT AS PANACEA

TOWARDS ORGANIZATION PROFITABILITY

ADEKOYA YUSUF GBENGA

THE DEPARTMENT OF BUSINESS ADMINISTRATION

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE

I ADEKOYA YUSUF GBENGA (BA/HND/F18/4979) from the Department of Business

Administration, School of Business and Management Studies, Federal Polytechnic Offa

to the best of my knowledge it contains no material previously published by another

meeting the requirement of the department of Business Administration, Federal

Administration of the Federal Polytechnic Offa Kwara State.

and Mrs. Adekoya.

my programme in Federal Polytechnic Offa, Glory is to His mighty name.

department. May almighty God be with you all (Amen).

favour and blessing continually bestowed upon you. (Amen).

guide, protect and provide for you abundantly.

and school generally for their support throughout my studies.

CHAPTER ONE: INTRODUCTION

CHAPTER TWO: LITERATURE REVIEW

CHAPTER THREE: METHODOLOGY

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION

Table 4.3.1: Background of respondents

Table 4.4.6 Inventory record reduce errors of stock management

Table 4.4.7 Inventory recording Cycle counting increase organizational profitability

Table 4.4.8 Inventory control system lead to reduction in cost incurred

Table 4.4.13 Inventory valuation has negative effects on value of stock

Table 4.4.14: Physical inventory counting enables for correspondence of records

Table 4.4.15: Inventory counting has positive effect on organization profitability

Table 4.5.1: Test of Hypothesis One

Table 4.5.2: Test of Hypothesis Two

Table 4.5.3: Test of Hypothesis Three

Table 4.5.4: Test of Hypothesis Four

1.1 Background to the Study

Researchers and practitioners continue to face the age-old challenges associated

Effective management has become a prerequisite to gaining and retaining a competitive

advantage and organizational performance in order to meet profitability objectives of the

organization. (Moberg, Cutler, Gross, & Speh, 2012).

With increasing need for effective operations management, organizations now

a cost centers must be well managed. Organizations spend an inordinate amount of

continue (MLG, 2010).

It is therefore, necessary to hold inventories of various kinds to act as a buffer between

Inventory management is primarily about specifying the size and placement of

stocked goods. Inventory management is required at different locations within a facility or

carrying costs of inventory, asset management, inventory forecasting, inventory valuation,

inventory visibility, future inventory price forecasting, physical inventory, available

Baden horst- Weiss and Van Rooyen 2012).

availability of items to the customers. It coordinates the purchasing, manufacturing and

or because quantities cannot be provided without stocks.

Due to unpredicted demand in market trends, organizations holds stock to enable

management in organizations in solving the problem of profitability objectives.

1.2 Statement of the Problem

(Sheila, 2010; Mutua, 2010).

organizations. In most organizations, direct materials represent up to 50% of the total

organizational ineffectiveness. This therefore creates relationship problems between

inventory management and organizational productivity, profitability and effectiveness

(Anichebe & Agu, 2013).

The control and maintenance of inventory is a problem that is common to

organizations in different sectors of the economy. Inventory problems have proliferated as

investment in other revenue generating assets.

optimum quantity of inventory to enhance their production.

The study therefore sought to carryout an investigation on the role of inventory

management on organizational as a panacea towards organizational profitability with