Local Literature About Huge Variance of Inventory
© Kamla-Raj 2010
J Soc Sci, 23(2): 135-142 (2010)
Inventory Management: A Tool of Optimizing Resources in a Manufacturing Industry A Case Study of Coca-Cola Bottling Company, Ilorin Plant
S. L. Adeyemi* and A. O. Salami** *Department of Business Administration, University of Ilorin, P.M.B 1515, Ilorin, Kwara State, Nigeria **Department of Management Science, Ladoke Akintola University of Technology, Ogbomoso, P.O.BOX 4000, Oyo State, Nigeria
KEYWORDS Optimization. Resources. Efficiency. Economic Order Quantity. Demand and Sales. Production ABSTRACT Inventory constitutes the most significant part of current assets of larger majority of Nigerian manufacturing industries. Because of the relative largeness of inventories maintained by most firms, a considerable sum of an organization’s fund is being committed to them. It thus becomes absolutely imperative to manage inventories efficiently so as to avoid the costs of changing production rates, overtime, sub-contracting, unnecessary cost of sales and back order penalties during periods of peak demand. The main objective of this study is to determine whether or not inventories in the Nigeria Bottling Company, Ilorin Plant can be evaluated and understood using the various existing tools of optimization in inventory management. The study methods employed include the variance analysis, Economic Order Quantity (EOQ) Model and the Chi-square method. The answer to the fundamental question of how best an organization which handles inventory can be efficiently run is provided for in the analysis and findings of the study. Consequently, recommendations on the right quantity, quality and timing of material, at the most favourable price conclude the research study.
1. INTRODUCTION Inventory management is pivotal in effective and efficient organization. It is also vital in the control of materials and goods that have to be held (or stored) for later use in the case of production or later exchange activities in the case of
J Soc Sci, 23(2): 135-142 (2010)
Inventory Management: A Tool of Optimizing Resources in a Manufacturing Industry A Case Study of Coca-Cola Bottling Company, Ilorin Plant
S. L. Adeyemi* and A. O. Salami** *Department of Business Administration, University of Ilorin, P.M.B 1515, Ilorin, Kwara State, Nigeria **Department of Management Science, Ladoke Akintola University of Technology, Ogbomoso, P.O.BOX 4000, Oyo State, Nigeria
KEYWORDS Optimization. Resources. Efficiency. Economic Order Quantity. Demand and Sales. Production ABSTRACT Inventory constitutes the most significant part of current assets of larger majority of Nigerian manufacturing industries. Because of the relative largeness of inventories maintained by most firms, a considerable sum of an organization’s fund is being committed to them. It thus becomes absolutely imperative to manage inventories efficiently so as to avoid the costs of changing production rates, overtime, sub-contracting, unnecessary cost of sales and back order penalties during periods of peak demand. The main objective of this study is to determine whether or not inventories in the Nigeria Bottling Company, Ilorin Plant can be evaluated and understood using the various existing tools of optimization in inventory management. The study methods employed include the variance analysis, Economic Order Quantity (EOQ) Model and the Chi-square method. The answer to the fundamental question of how best an organization which handles inventory can be efficiently run is provided for in the analysis and findings of the study. Consequently, recommendations on the right quantity, quality and timing of material, at the most favourable price conclude the research study.
1. INTRODUCTION Inventory management is pivotal in effective and efficient organization. It is also vital in the control of materials and goods that have to be held (or stored) for later use in the case of production or later exchange activities in the case of
References: Dervitsiotis KN 1981. Operations Management. USA: McGraw-Hill series in Industrial Engineering and Management Science. Drury C 1996. Management and Cost Accounting. London: International Housan Business Press Keth L, A Muhlemen, J Oakland 1994. Production and Operations Management. London: Pitman Publisher. Kotler P 2002. Marketing Management. 2nd Edition. The Millennium Edition. New Delhi: Prentice Hill of India Lucey T 1992. Quantitative Techniques. 4 th Edition. London: Ashford Colour Press. Lucey T 1996. Costing. 5 th Edition. London: Ashfrod Colour Press. Company does not make use of Economic order quantity [EOQ] optimization model to evaluate their inventory using concentrates as parameter for measurement. Using crown cork /bottles as parameter, table 6 depicts the χ2 calculated value of 1.0765, which of course is lower when compared with table value of chi-square (χ2) of 9.488. The null hypothesis was thus accepted Coca-Cola Bottling Company does not make use of Economic order quantity [EOQ] optimization model to evaluate their inventory using crown cork / bottles as parameter for measurement. 4.4 Findings The findings as presented above in all the three cases show that we should reject the alternative hypotheses and accept the null hypotheses. Our analysis also shows that the company operates a policy of making orders on a quarterly basis within a period of one year. Also it can be as well observed that the company does not always adopt the EOQ model in placing orders for its raw materials and this account for the variations between the calculated EOQ and the expected order sizes of the company. For at least three years out of the five years under study, the expected value was greater than the observed value for each product. This implies that the Nigeria Bottling Company, Ilorin Plant has excess investment in inventory. We also observe that there is a positive correlation between sales and inventory usages. We, thus, concluded that inventory usage depends on sales that means as sales increases, inventory usages should also be on the increase. Therefore, inventory management is a must for the continuity and survival of any goal focused manufacturing organization. 5. CONCLUSION AND RECOMMENDATIONS Inventory management has become highly developed to meet the rising challenges in most corporate entities and this is in response to the fact that inventory is an asset of distinct feature. The inventory management situation of the Nigeria Bottling Company, Ilorin Plant has been revealed using the EOQ model. It was also seen that the company through a well-built policy is able to handle its idle stock without incurring 142 Monks JG 1996. Operations Management. Schaum’s Outline of Theory and Problems. 2nd Edition. USA: McGraw Hill Companies Inc. Morris C 1995. Quantitative Approach in Business Studies: London: Pitman Publisher. Nigeria Bottling Company. 2004. Annual Report. Rosenblatt BS 1977. Modern Business- A Systems S. L. ADEYEMI AND A. O. SALAMI Approach. 2 nd Edition, Boston: Houghton Mifflin Co. Schroeder RG 2000. Operations Management- Contemporary Concepts and Cases. USA: International Edition. Thomas CK, Kenneth LB 1990. Principles of Marketing. 3rd Edition, USA: Scott Foresman and Co.