The Impact of Inventory Management and Control on the Performance of Kingsway Shoes, Owerri

Chapter One of The Impact of Inventory Management and Control on the Performance of Kingsway Shoes, Owerri

BACKGROUND OF THE STUDY

Inventories constitute the most significant part of current events of a large majority of companies in Nigeria and indeed many other part of the world. Because of the large size of inventories maintained by firms, a considerable amount of fund is required to be committed to them. Therefore, the efficient and effective management of inventories becomes imperative in order to achieved unnecessary turnover or to minimized the cost associated with keeping inventories. The neglect of inventory management and control by a firm will amount to jeopardizing its long run profitability and may even cause the firm to fail ultimately.

Inventory is defined as the stock of any item or material used in an organization. Therefore, an inventory management is the set of policies and control that monitor levels of inventory and determines the following:-

i.      What level should be maintain
ii.     When stock should be replenished.
iii.    How large order should be

However, inventory can include input such as human resources, financial, equipment e.t.c and output such as parts or component.

It is possible for a company to reduce its level of inventories to a considerable degree without any adverse effect on production and sales by using inventory planning and control techniques.

The reduction in excessive inventory carries a favourable impact on company profitability (Pandey 1999) in doing this however, care should be taken to avoid under stocking which directly affect production causing stoppage, loss of sales, loss of good will. etc.

Inventory forms a link between production and sales of a product. A manufacturing company must maintain a certain level of inventory in the form of raw materials, work in progress and finished goods. Raw materials inventory gives the firm flexibility in its purchase, without it, a manufacturing company must exist on a hand-to- moth basis buying raw materials in keeping with its production schedule. Work-in- progress are items of stock that are subjected to further processing to produced the finished product. finished goods inventory allows the firm flexibility in its production scheduling and in its marketing thus there is on incentive to maintain large stocks of all three types of inventory.

In an inflationary environment like Nigeria, there is the need to adopt a realistic inventory valuation method in order to give correct value of inventory in the profit and loss account and in the balance sheet which would have otherwise show an appropriate financial position of the organization and thus negating the purpose of accounting which is the provision of accurate financial information to investors, shareholders, management, government and her agencies and other related interested parties in order to assist them in taking decision about the organization.

It is in view of this that the need arises for an appropriate management and control measure to maintain the most accurate level of stock that will assist management of the organization carryout business in such a way that it does
not portray the organization in bad shape.

STATEMENT OF THE PROBLEM

The wide distance between the source of raw material and factories in Nigeria today has posed a great problem to management. Thus the management may not predict with certainty to delivery date of materials. How then does the management ensure that there is no hitch and delay in the supply of raw material to satisfy their day to day requirements without necessarily keeping excessive stock of raw materials and finished goods which represent investment from which no return is expected immediately.