THE IMPACT OF INVENTORY MANAGEMENT AND PROFITABILITY OF MANUFACTURING ENTERPRISES (A CASE STUDY OF CHAMPION BREWERIES, UYO)

CHAPTER ONE Introduction   1.1 Background of the study

Profitability is a commonly used indicator of firm performance. Consequently, it is in the best interest of every  organization to maximize their return rate to satisfy shareholders, attract new capital and to ensure continued operations. Studying the determinants of profitability has thus been the focus of numerous scientific disciplines and continues to grow in popularity. The profitability of a firm is significantly influenced by its internal resources and assets; namely property, machinery and employees.

Inventories represent those items which are either accumulated for sale or they are in the process of manufacturing or in the form of materials, which are yet to be utilized. An inventory system is the set of policies and controls that monitor levels of stocks and determine what levels should be maintained, when stock should be replenished, and how large orders should be, thus, inventory management be defined as the system used by a firm to control its investment in inventory for profitability.

It involves the recording and monitoring of stock level, forecasting future demand and deciding on when and how to order (Adeyemi and Salami, 2010). The primary goal of inventory management, therefore, is to have adequate quantities of high quality items available to serve customer needs, while also minimizing the costs of carrying inventory (Brigham and Ehrhard, 2005). Inventory constitutes the most significant part of current assets of majority of Nigerian manufacturing firm.

Because of the relative largeness of inventories maintained by manufacturing firms, a considerable amount of organization’s fund is being committed to holding inventory. It thus becomes essential to deploy cutting-edge techniques to manage inventories efficiently so as to avoid lost sales, costs of changing production rates, over time cost, sub-contracting, unnecessary cost of sales and back order penalties during periods of peak demand (Chen, 2005).

Effort must also be made by the management to strike an optimum investment in inventory since it costs much money to tie down capital in excess inventory. Inventory management is a critical management issue for most companies –large companies, medium-sized companies, and small companies. Effective inventory flow management in supply chains is one of the key factors that enhances firm’s profitability. The challenge in managing inventory is to balance the supply of inventory with demand.

A company would ideally want to have enough inventories to satisfy the demands of its customers. On the other hand, the company does not want to have too much inventory staying on hand because of the cost of carrying inventory. Enough but not too much is the ultimate objective (Coyle, Bardi, and Langley, 2003). The role of inventory management is to ensure faster inventory turnover. It increases inventory turnover by ten (10) and reduces costs by 10% to 40%.

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Inventory management is necessary at different locations within an organization or within multiple locations of a supply chain, to protect the production department from running out of materials or goods. Adequate inventories kept in manufacturing companies will smooth the production process. The wholesalers and retailers can offer good customer services and gain good public image by holding sufficient inventories.

A study by (Jiasinghani, 2015) found evidence that investing in research and development projects contributes significantly to the profitability rate of a firm. Another investigation by (Slater & Olson, 2002) identified level of competition and macro-economic factors to be the main contributors of profitability. As mentioned, this study is not the first to investigate profitability determinants of publicly listed firms. Research by
(Margaretha & Supartika, 2016) examined the influence firm size, age, sales growth, productivity and industry affiliation have on profitability rate for manufacturing firms.

(Salman & Yazdanfar, 2012) conducted a similar investigation by focusing on growth of sales, firm size, productivity, turnover, and age and their impact on a firm’s profit. Subsequently, the research by (Goddard, Tavakoli, & Wilson, 2005) analyzed the profitability determinants of European manufacturing firms. This study differs from previous research by exploring the implications of research and development intensity, current ratio, leverage and net asset turnover on profit within the manufacturing industry.

Thus, a detailed portrayal of profitability and the influence of firm specific factors is established. Although there has been a significant amount of research conducted on profitability in general, most empirical investigations focus on small and medium-sized firms. Furthermore, past studies tend to concentrate on firms that operate in developing countries, such as Indonesia, India and China. Other studies have used non-current data from the 1990s and earlier, weakening the relevance of their outcomes in today’s conditions.

The significance of industry affiliation is also commonly neglected, failing to distinguish between financial, medical and industrial firms. There has thus been a lack of empirical research conducted the profitability determinants specifically relevant to industrial firms. This study aims to address these limitations and investigate the significance of profitability factors presented as the independent variables.

1.2 Statement of the problem

This study is relevant because modern businesses are operating in a more complex landscape due to increasing competition. Sustaining profit has thus become a difficult objective for all firms, especially for manufacturing firms. A large portion of contracts is thus awarded to foreign competitors, making it difficult for domestic manufacturers to stay competitive and profitable.

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This makes them exceptional samples for studying profitability determinants as manufacturing firms operate under similar conditions, with the identical goal of generating profit.  The significance of industrial firms is that they are often considered to be the backbone of the economy, making up over one-third of the national GDP.

These organizations play a key role in terms of providing employment, supplying quality goods and services, and addressing stakeholder concerns in the landscape. Due to the industry’s importance, the government is working to implement tariffs and taxes on imports to stimulate growth for domestic firms. The profitability of industrial firms is therefore crucial to the national economy and continued development.

1.3 Objective of the study

In the light of the inconsistent nature of prior studies, the main objective of this study is to examine the impact of inventory management and profitability of manufacturing enterprises, using Champion Breweries, Uyo as a case study. Moreover, the following are the specific objectives of this study:
  1. To examine the effects of inventory planning on profitability of manufacturing enterprises.
  2. To examine the effects of inventory optimization on profitability of manufacturing enterprises.
  3. To find out the effects of inventory control on profitability of manufacturing enterprises.

TABLE OF CONTENTS

PAGES

Title Page    –        –        –        –        –        –        –        –        –        i

Approval Page     –        –        –        –        –        –        –        –        ii

Certification         –        –        –        –        –        –        –        –        –        iii

Dedication  –        –        –        –        –        –        –        –        –        iv

Acknowledgement         –        –        –        –        –        –        –        –        v

Abstract      –        –        –        –        –        –        –        –        –        vii

List of Tables       –        –        –        –        –        –        –        –        viii

Table of Contents          –        –        –        –        –        –        –        –        ix

 

CHAPTER ONE

INTRODUCTION

  • Background of the Study –        –        –        –        –        –        1
  • Statement of the Problem –        –        –        –        –        3
  • Objectives of the Study – –        –        –        –        –        4
  • Research Questions –        –        –        –        –        –        4
  • Statement of Hypothesis –        –        –        –        –        –        5
  • Significance of the Study –        –        –        –        –        5
  • Scope of the Study –        –        –        –        –        –        6
  • Limitations of the Study –        –        –        –        –        –        6

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  • Organization of the Study –        –        –        –        –        7
  • Definition of Terms –        –        –        –        –        –        8

 

           CHAPTER TWO

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           REVIEW OF RELATED LITERATURE

2.1      Conceptual Framework –        –        –        –        –        –        9

2.1.1   Meaning of inventory    –        –        –        –        –        –        9

2.1.2   Inventory planning on profitability of manufacturing

Enterprises                   –        –        –        –        –        –        –        10

2.1.3   Inventory optimization on profitability of manufacturing

Enterprises           –        –        –        –        –        –        –        15

2.1.4   Inventory control on profitability of manufacturing

Enterprises           –        –        –        –        –        –        –        17

2.1.5   The need for inventory management          –        –        –        –        19

2.1.6   Inventory control techniques   –        –        –        –        –        20

2.1.7   Problems militating against inventory management

and control           –        –        –        –        –        –        –        21

2.2      Theoretical Framework           –        –        –        –        –        24

2.2.1   Lean Theory                  –        –        –        –        –        –        –        24

2.3      Empirical Framework    –        –        –        –        –        –        25

2.3.1   Inventory management practice and the performance of

quoted firms in Nigeria            –        –        –        –        –        26

 

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CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1     Research Design   –        –        –        –        –        –        –        27

3.2     Population of the Study          –        –        –        –        –        –        28

3.3     Sampling Technique      –        –        –        –        –        –        28

3.4     Sample Size                   –        –        –        –        –        –        –        29

3.5     Instrumentation    –        –        –        –        –        –        –        30

3.6     Plan for Data Analysis –        –        –        –        –        –        30

3.7     Problems of Data Collection   –        –        –        –        –        32

 

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

 

  • Analysis of Research Questions –        –        –        –        33
    • Research Question One –       –        –        –        –        –        33
    • Research Question Two         –        –        –        –        –        –        34
    • Research Question Three –        –        –        –        –        35
  • Test of Hypotheses –        –        –        –        –        –        36
    • Test of Hypothesis One –        –        –        –        –        –        36
    • Test of Hypothesis Two –       –        –        –        –        –        39

 

PAGES

  • Test of Hypothesis Three  –       –        –        –        –        41

4.3     Discussion of Findings            –        –        –        –        –        44

 

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS

5.1     Summary of Findings    –        –        –        –        –        –        46

5.2     Conclusion –        –        –        –        –        –        –        –        46

5.3     Recommendations         –        –        –        –        –        –        –        47

References

Appendix I

Appendix II

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