ABSTRACT
This study took into consideration the relationship between stock management and organization profitability in Nigeria Bottling Company. The researchers were motivated to embark on this study, in order to bring to fore the importance of effective stock control system on organizational profitability as it relates to the bottling company. A total of forty respondent constitute the sample for the study. Three research questions and one hypotheses were generated and tested at 5% (that is 0.05) significant level using descriptive statistics and non-parametric test (chi-square). The result of the analysis showed that flexibility in inventory control management is an important approach to achieving organizational profitability. It was found that organizations benefits from stock management by way of easy storage and retrieval of material, improved sales effectiveness and reduced operational cost. The study also found that there is a relationship between stock management in the customer related issues of the organization and cost effectiveness technique are implemented to enhance the return on investment in the organization. Effective stock control management is recognized as one of the areas management of any organization should acquire capability. It is recommended that organizations should adopt the stock keeping method that best suit their operations.
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Historically, Stock management has been referred to as excess Stock and inadequate management or shortage of Stock and adequate management practice. Several penalties could be apportioned to excesses in either direction. Stock management problem has escalated as progress in technology increases the ability of organizations to produce goods faster in multiple design variation and greater quality (Letinkaya and Lee, 2000).Since the mid-1980’s Stock management, production planning and scheduling has become the obvious strategic benefit (Larrson et al., 2005). In recent years, many of the firms have raised the bar yet again by coordinating with other firms in their supply chains. For instance, instead of responding to unknown and variable demand, they share information so that the variability of the demand they observe is significantly lower (Jainand Render, 2006). Colling (2000) argue that in the United States of America and other Western countries, improvement in productivity was achieved through reducing the direct manufacturing labor expenses cost per unit of output. This strategy was justifiable because of the high labor content in many manufactured products. However, the ratio of unit cost due to labor has constantly decreased in recent years. Even large manufacturing firms, such as the United States (US) auto assemblers, purchase up to 60 percent of the value of the product. This implies that management of raw materials stock is an area that shows great promise for productivity improvement.
Stock management is a critical management issue for most companies – large companies, medium-sized companies, and small companies. Effective Stock flow management in supply chains is one of the key factors for success. The challenge in managing Stock is to balance the supply of Stock with demand. A company would ideally want to have enough stock to satisfy the demands of its customers- no lost sales due to Stock stock-outs. On the other hand, the company does not want to have too much Stock staying on hand because of the cost of carrying Stock. Enough but not too much is the ultimate objective (Coyle, Bardi, and Langley, 2003). The role of Stock management is to ensure faster Stock turnover. It increases Stock turnover by ten (10) and reduces costs by 10% to 40%. The so-called Stock turnover is not yet right to sell products on the shelves based on the principle of FIFO cycle (http://www.academia.edu/). Stock management is necessary at different locations within an organization or within multiple locations of a supply chain, to protect (the production) from running out of materials or goods. Adequate stock 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 stock. The basic objective of Stock management is to achieve a balance between the low Stock and high return on investment (ROT). (Johson et al, 2004). Stock levels have been seen as one of the most interesting areas for improvement in organization materials management (Kumar Ordamar, Zhang, 2008). Stock plays a significant role in the growth and survival of an organization in the sense that ineffective and inefficient management of Stock will mean that the organization loses customers and sales will decline. Prudent management of Stock reduces depreciation, pilferage, and wastages while ensuring availability of the materials as at when required (Ogbadu, 2009). Stock management is critical to an organization’s success in today’s competitive and dynamic market. This entails a reduction in the cost of holding stocks by maintaining just enough stock, in the right place and the right time and cost to make the right amount of needed products. High levels of Stock held in stock affect adversely the procurement profitability out of the capital being held which affects cash flow leading to reduced efficiency, effectiveness and distorted functionality (Koin, Cheruiyot and Mwangangi 2014).
However, Lau and Snell (2006) argued that Stock management is primarily about specifying the size and placement of stocked goods. Stock management is required at different locations within a facility or 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 for improved profitability. The scope of Stock management also concerns the fine lines between replenishment lead time, carrying costs of Stock, asset management, Stock forecasting, Stock valuation, Stock visibility, future Stock price forecasting, physical Stock, available physical space for Stock, quality management, replenishment, returns and defective goods and demand forecasting.
Poor Stock management had become an issue of great concern since profitability is regarded as the main stream for development of organizations. A truly effective Stock management system minimizes the complexities involved in planning, executing and controlling a supply chain network which is critical to business success. The opportunities available by improving a company’s Stock management can significantly improve bottom line business profitability.
According to Jayeff (2008) argued that from a financial perspective, Stock management is no small matter. Oftentimes, Stock is the largest asset item on a manufacturer’s or distributor’s balance sheet. As a result, there should be a lot of management emphasis on keeping stock. The objectives of Stock reduction and minimization are more easily accomplished with modern Stock management processes that are working effectively for improved profitability.
1.2 STATEMENT OF THE PROBLEM
Stock is a vital part of current assets mainly in manufacturing concerns. Huge funds are committed to stock as to ensure smooth flow of production and to meet consumer demand. However, maintaining Stock also involves holding or carrying costs along with opportunity cost. Stock management, therefore, plays a crucial role in balancing the benefits and disadvantages associated with holding Stock. Efficient and effective Stock management goes a long way in successful running and survival of a business firm, when organizations fail to manage their Stock effectively they are bound to experience, stock out, the decline in productivity and profitability, customer dissatisfaction . Thus the study seeks to investigate the effect of Stock management on the organizational profitability of the selected manufacturing firms.
Stock management at Nigeria Bottling Company plant is mostly seen in arrangement of crates at the plant, bottles packing, buying of raw materials, supply of customers, issuing of raw materials for use in the plant departments. This is because the company uses different systems in Stock management including integrated system (System Application and products) responsible for management information system which helps to make serious decisions on their stock, material requirement points, and over stock brands for the fast moving products.
However these techniques for Stock management in NBC, profitability of the company had reduced from 80% to 60% in the years 2008 and 2009 respectively. Based on the above information, Nigeria Bottling Company has registered decline in sales profitability over time (Arinaitwe, 2009). The study is set to assess Stock management on profitability of Nigeria Bottling Company.
1.3 OBJECTIVE OF THE STUDY
The main objective of this study is to assess the impact of stock management on the profitability of organization; specifically the study intends to:
i. To point out the techniques of Stock management and effect on the Nigeria Bottling Company.
ii. To examine the importance of Stock management and profitability of Nigeria Bottling Company.
iii. To find out the challenges faced by Nigeria Bottling Company in managing the stock.
1.4 RESEARCH QUESTIONS
i. What are the techniques of stock management used at Nigeria Bottling Company
ii. Is there any significant importance between stock management and profitability of Nigeria Bottling Company?
iii. What are the challenges faced by Nigeria Bottling Company in managing their stock?
1.5 RESEARCH HYPOTHESIS
Ho: There is no significant relationship betweenstock management and profitability of Nigeria Bottling Company
Hi: There is significant relationship betweenstock management and profitability of Nigeria Bottling Company
1.6 SIGNIFICANCE OF THE STUDY
The study findings may be significant in the following ways;
It is hoped that study findings may be used as basis for further research and investigations in form of literature.
This findings may provide information to managers in different organizations especially on knowing how to compare actual profitability and stock management.
The findings may also be beneficial to other upcoming researchers to investigate further about the impact of stock management on organizational profitability of other organizations other than Nigeria Bottling Company.
The study may further encourage government to set up educational institutions to provide training on how to manage stock in organizations.
1.7 SCOPE OF THE STUDY
In this study we are concentrating mainly on the stock management practices in Nigeria Bottling Company PLC, Lagos, quality and availability of raw materials used in production; the length of time it takes to procure the materials and how the raw materials are stored will be review.The study will also try to understand the techniques of stock management used NBC, relationship between stock management and profitability of NBC and the challenges faced by NBC in managing the stock
1.8 DELIMITATION OF THE STUDY
However, in the course of carrying out this research work, the researcher can foresee some limitations which include; insufficient financing, insufficient data for the research work and the time required for the project to be concluded.
1.9 DEFINITION OF TERMS
Assessment: the action of assessing someone or something.
Stock Management: Stock management is the practice of ordering, storing, tracking and controlling inventory.
Profitability: the degree to which a business or activity yields profit or financial gain
Organization: an organized group of people with a particular purpose, such as a business or government department