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INTRODUCTION
BACKGROUND OF THE
STUDY
One of most topical
functions in most organizations in terms of its role and integration into the
overall organizational framework is the material or inventory management
function. In spite of increasing awareness of the importance of material
management in comparison with other business functions such as production,
engineering, finance, marketing, personnel, etc. it is in this regard that
some of the key concepts of materials or inventory management are to be
examined with a view to determining its role in the achievement of overall
corporate objectives.
Notably,
for he purpose of clarity and better understanding, inventory management and
materials management will be used synonymously in this work.
However,
it is pertinent to first address the question of why should an organization
attach any importance to materials management at all. The central objective
of most business organizations is to maximize profit. All activities are
usually tailored towards the realization of this objective materials
management is also important in non-profit organizations such as government
agencies, armed forces etc.
However,
the focus of this research is on business organizations and manufacturing
organizations in particular since they usually require more dynamic
approaches to materials management as economic agents operating under ever
changing economic and business environments. This is because the challenge
for more integrated approach towards materials management is certainly more
for the average business organization than that of government agency.
Inventory
management involves all the processes needed to plan, acquire, store, control
and distribute inventories or materials at minimal costs to the organization.
This talkes us to the inventory management cycle, which comprises the
systematic stages involved in inventory management, which includes:
1.
The management
2.
The purchasing department
3.
The vendor
4.
The stores
5.
The finance and accounts department
6.
The audit
7.
The review process
The management:
The management appoints purchasing officers and other key offices, approves
stock purchasing budget, issues policy guidelines on material requisition,
purchasing, receipts and accounting system, approves tenders, defines roles
and responsibilities of actions, sets inventory management objective and
approves the store guide.
The purchasing
department: The purchasing department carryout
prices survey/negation, issues purchase order – prepares stock requisition,
prepares budgets, both quantitatively and financially seek approvals from
management for fresh request and
receives orders into the store.
The vendor: Issues quotations, receives purchase orders,
supplies goods, issues invoice and goods delivery note (3 copies) and
receives payments for acceptable delivery.
The stores: Receives
goods/ orders, check order against purchase order and delivery note, raises
store receipt vouches, signs the venders good received note and sends to
management, considers store requisitions from end users, update stock
ledgers/bin cards, carryout store layout and ensure security of store items
Finance and
Accounts: Checks invoices against order, goods
received note and inspection note, raise payment voucher and finally effect
payment based on the authority to incur expenditure.
The audit:
Inspects the order on delivery, issues inspection note, examines the payment
vouchers, authenticate, check pass and authorize payments and reports to
management where necessary.
The review process:
Involves the consideration of the reports
submitted by the board of survey, the audit and any other person(s) assigned
to report on the inventory management system, and the establishment of control
measures to ensure that the inventory management objectives are realized in
future cause of action.
Indeed,
inventory management is commonly referred to as the last Goldmine” for
business executives in view of its potentials for direct contribution towards
profit improvement (The Guardian Feb. 23, 2002). Unlike most business functions, nay savings
made in material cost goes directs into profits since most other costs are
either fixed or semi-fixed.
For
example, if a manufacturing company makes a turnover of N’000m and its profit
is 15% turnover or N’5m the company spends say 50% of its turnover on
inventor6y and is able to effect a 7.5% savings in inventory costs, the level
of profit improvement in relation to efficient inventory management can be calculated
as follows:
N’000m sales at 15%
profit - N15m
N50m on inventory
at 7.5%
Savings in material
costs - N3.75m
N18.75m
Now if the above
savings in materials cost was not achieved, it would have been necessary to
increase turnover by 25% (N125m) to achieve the same level of profitability.
Thus, 7.5% savings in inventory cost equates with 25% increase in sales
turnover ratio as the one analyzed above.
In practice, most
companies are unable to record up to 15% profit on sales turnover and as such
inventory cost savings are expected to contribute more significantly to
profit improvement than increase in turnover.
One of the problems
facing many organizations today is how to determine the best out of the
various system of management inventories.
How to integrate the inventory management processes into the overall
organization structure in order to achieve corporate objectives.
Generally, the
choice of inventory management system will depend on the organization, the
nature of her business, the operating environment, the level of
professionalism exhibited by key materials personnel and experience of the
chief executive officer / policy maker. In all cases, the central focus of
the organization should be on which concept will reduce inventory costs to
the barest minimum. In other words, which system guarantees the most
substantial savings in materials costs. However, in practice, it has been
discovered that in the absence of any corporate policy on the organization of
the inventory management function, top management values bear an overriding
influence on the choice of an inventory management concept.
Some organizations
embark on decentralized materials management approach which may well, have
its own merits. It is generally agreed by practitioners that the central
objective of cost minimization in materials management is better achieved
through a centralized materials management approach under a qualified and
experience materials manger (The Guardian March 2, 1999). The materials
management function can be performed as a single activity or subdivided into
various activities depending on the organization.
For large
organization with many product lines requiring diversified materials
sourcing. It is more appropriate to subdivide the functions into three units
in which case there will be three units mangers viz; purchasing manger,
planning and control manager and warehouse / sores manger all reporting to a
departmental manager; the materials manager. Such a company may also decide
to bring in the physical distribution unit under a centralized logistics
management concept.
However, expert for
operational problems, the cost savings advantage derivable from efficient
materials management can be obtained in both cases. In very large
organization, the materials manager and the physical distribution manager
could report directly to the logistics manager so as to reduce operational
problems. The advantage of appoint a top manager in form of materials or
logistics manager to supervise materials incremental costs in that the is now
in a better position to look at the organization as a single unit just like
the chief executive. Areas of conflict that usually arise between purchasing,
production, stores and materials control etc are substantially reduced. Duplication
of functions, delays and wastages that lead to increased materials cost are
therefore reduced. Over all management efficiency is most like to increase.
Some organizations
prefer to decentralize the materials management department with each
sub-department given some measure of autonomy as a means of checking abuses
that could arise when one person is vested with authority over all material
associated costs. As earlier stressed, the structure of material management
function at any point in time depends on the organization in question. Eg. In
a building construction company where there is no finished goods inventory in
the conventional meaning, the logistic mangers will be dong almost the same
job with the materials manager and as such there will no need to run a
logistic management concept as defined in the content unless some other
functions not included in the concept are brought under logistic management.
However, in all
cases, any of the above concepts that promote cost savings, professionalism
and management efficiency will always be ideal for each organization.
BRIEF HISTORICAL
BACKGROUND OF ANAMMCO
Mercedes-Benz
Anammco is a joint venture between the federal government of Nigeria and
Diamler – Benz AG of Germany. MB-ANAMMCO manufactures of commercial vehicles
and leads in the commercial vehicle market in Nigeria with five tons play
load and above, the plant, which occupies a sprawling 300,000m2
sites at Emene, near Enugu is veritably a shining example of a profitable and
viable economic and technological co-operation between the government and
people of Nigeria and Germany.
MB-ANAMMCO LTD was
incorporated on January 17, 1977 and the foundation stone laid on may 12,
1978. The official commissioning of the plant was on July 8, 1980 by the
first executive president of Nigeria, AlhajiShehuShagari. It started formal
production operation on January 1981, and has to date made an enviable mark
on the nation’s industrial growth, adding over 20,000 vehicles to the
nation’s transport sector backed up effectively with a network of over 36
after sales service points and spare parts supply depots. The company’s
central spare parts depot in Enugu stocks over 45,000 lines of items.
The Diamler-Benz controls 40% of the total
share capital the remaining 60% of which is distributed among the Nigerian
shareholders thus:
Federal ministry of
finance 35%
Enugu state of
finance 10.5%
Anambra state
ministry of financier2.0%
Rivers state
ministry of finance 3.4%
IMO state ministry
of finance 1.3%
Abia state ministry
of finance 1.2%
Nigerian citizens
and associates 6.6%
MB-ANAMMCO had
staff strength of 794 (12 expatriates) as at 2001 but has now risen to over
800 employees.
MB-ANAMMCO PRODUCT
RANGE:
The
multi-million-naira plant was initially planned to produce trucks for the
Nigerian market. But today, the plant ahs diversified its production range to
include the full range of commercial vehicle for the rapid industrialization
of the country. It not only produces trucks as originally planed, but also
has gone a step further in fabrication, manufacturing and production of buses
and other utility vehicles. Part of its product-range today include MBO 131,
L 608 D, MBO 1520, MBO 911, MBO 809, fire fighting vehicles, Ambulances,
mobile clinics, collector and other various specialized types of producing a
new inter-city Bus (MBO 1635). It should be noted that MB-ANAMMCO has
achieved over 65% local content in some of these vehicles, especially in
buses.
As a formidable
representative of MB-AG in Nigeria, MB-ANAMMCO brings Mercedes Benz
Technology and know-how to Nigeria while at the same time creating over 260
employment opportunities for Nigerians.
MB-ANMMCO has
actively participated in the federal government assisted mass transit
programme. It has supplied over 800 units of different bus models to the
federal urban mass transit agency and state and local government mass transit
companies. These buses are still going strong as they are supported by the
ubeatable after-sales services of the company and their renowned distribution
and dealers.
In the area of
training and manpower development, the MB-ANAMMCO training center, which was
commissioned in 1982, has lived up to its billing in producing high caliber
middle level technical manpower for the company, and the nation in general.
Staff welfare is
not left out. MB-ANAMMCO continues to live up to its social responsibilities
in all ramifications. It takes care of its over 800 employees by offering
them highly subsidiaries food at its modern canteen, providing free medical
services to its employees and their dependents and offering recreational
facilities.
The company has
continued to maintain a high level of resilience in its attempt to survive
the harsh economic climate and live up to the most historical, traditional
and successful auto company in the world, Mercedes-Benz AG.
STATEMENT OF THE
PROBLEMS
Inventory is
lifeblood of any organization. This is because inventory contributes directly
to the profitability of an organization and as such the growth of any
organization depends on its ability to manage its inventory efficiently.
Based
on this fact, the following problems are to be examined by the researcher:
1.
The inventory management system that
can best achieve organization profit objective.
2.
The extent effective and efficient
inventory management can contribute to organization profitability.
3.
The best approach of valuing material
issues.
4.
The best way to minimize acquisition
costs and fraud to achieve economy of operation.
5.
The impact of efficient inventory
management on organizational performance.
6.
The way to improve productivity with
a typical inventory management system.
7.
How material deterioration and wastes
can be minimized.
8.
Performance efficiency and inventory
management.
PURPOSE OF STUDY
The purpose of this
study includes:
1.
To examine the management system that
can best achieve the profitability objective in the area of study.
2.
To identify effective and efficient
inventory management can contribute to the organization’s profitability.
3.
To determine the best approach of
valuing material issues in the organization.
4.
To find out the best way of
minimizing acquisition costs fraud in the organization to achieve economy of
operation.
5.
To ascertain the impact of efficient
inventory management in the organization
6.
To determine how productivity can be
improved with a typical inventory management as the area of study.
7.
To identify how material
deterioration and wastes can be minimized.
8.
To find out performance efficiency in
the organization’s inventory control.
SCOPE OF THE STUDY
The
scope of this study borders on efficient inventory management, its effect on
the performance of business organization and manufacturing industries in
particular.
Also,
many areas such as inventory management systems, contribution of efficient
inventory management to profitability, material issues, costs minimization
and economy of operation, the impact of efficient inventory management
especially as it concerns the area of study.
RESEARCH QUESTION
1.
What inventory management approach
can best achieve the organization’s objective on profitability?
2.
To what extent can effective and
efficient inventory management contribute to the profitability of the
organization?
3.
How best can material issues be
evaluated to prevent material deterioration and wastages for better
utilization of available materials in the organization?
4.
How best can acquisition costs and
fraud be minimized to gain economy of operation in the organization?
5.
To what extent has efficient
inventory management impacted on the performance of the organization?
6.
How can productivity be improved in
an inventory management arrangement as Anammco?
7.
How can material deterioration and
wastages be minimized in an inventory control system?
8.
To what extent has the organization
achieved efficiency in operation through it inventory control?
SIGNIFICANCE OF THE
STUDY
This research work
can be of great help to those who have little or on knowledge in the
manufacturing business. It will be valuable to people who are interested in
the manufacturing business and want to make it their career.
This
study will also help the management of Anambra motor manufacturing company
(ANAMMCO) to appreciate areas where improvement is needed in her inventory
operations so as to boost her profitability and consequently increase her
shareholder’s wealth.
Indeed, this will
in no little way have a favoruable effect on the national income of Nigeria.
Again, it is hoped that his work will be of immense use to future
researchers.
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