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OGBU, OGBONNAYA B.

PG/MBA/07/46834

EVALUATION OF USEFULNESS OF INVENTORY ANAGEMENT


(A STUDY OF SOME SELECTED BEVERAGE COMPANIES)

A THESIS SUBMITTED TO THE DEPARTMENT OF ACCOUNTANCY, FACULTY OF


BUSINESS ADMINISTRATION, UNIVERSITY OF NIGERIA ENUGU CAMPUS

Accountancy

UNIVERSITY OF NIGERIA
2008

Digitally Signed by Webmasters Name


DN : CN = Webmasters name O= University of Nigeria, Nsukka
Webmaster OU = Innovation Centre
TITLE PAGE

EVALUATION OF USEFULNESS OF INVENTORY MANAGEMENT

(A STUDY OF SOME SELECTED BEVERAGE COMPANIES)

BY

OGBU, OGBONNAYA B.
PG/MBA/07/46834

DEPARTMENT OF ACCOUNTANCY
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA
ENUGU CAMPUS

DECEMBER 2008
CERTIFICATION

The work embodied in this project report is original and has not

been submitted in part or in full for any other diploma of this any other

university.

OGBU, OGBONNAYA B.
LPG/MBA/07/46834

This is to certify that OGBU, OGBONNAYA B. a postgraduate

student in the Department of Accountancy and with Registration

Number PG/MBA/07/46834 has satisfactorily completed the

requirements for project research in partial fulfillment of the

requirements for the award of Masters of Business Administration

(MBA) in Accountancy.

... .
DR. MRS. R.G. OKAFOR DR. MRS. R.G. OKAFOR
SUPERVISOR HEAD OF DEPARTMENT

DATE. DATE.

DEDICATION
I dedicate this work to my creator, God Almighty for His infinite

mercies and grace upon my life, and also to my beloved brothers who

made me to ascend this height.

ACKNOWLEDGEMENT
I am grateful to my supervisor, Dr. Regina Okafor, who at a
very short notice accepted the challenges to take over that
supervision of t his project work despite her numerous official and
domestic engagements.
I am also indebted to Mr. R.N. Ugwoke and other lecturers of
Accountancy Department and Mrs. J. N. Igwillo for their pieces
advices that made this research work and entire programme possible.
I acknowledge the assistance of staff of Nigeria Mineral Water
industries Limited, Enugu and Onitsha especially, Mrs. Ugwuaja and
Sunny Agam are the staff of pepsicola Nigeria Plc Enugu and those
of Coca-Cola Plc, Enugu. Again, I appreciate the kind assistance of
Mr. Uche Michael, the Treasurer of Ndufu Ikwo LGA who always
allows me the time whenever needed to run around for this work.
My appreciation goes to my parents and other relations who
understood my position during this time of work.
I extend my grace to my colleagues in the Department of
Accountancy, Esom Stanley, Angela, Betty, Ozotangbo Chris and
others for their personal materials and contributions which I found
quite useful for my research.
Finally, all the glory, honour and majesty should always go the
Almighty God for his gift of knowledge and protection during the
period of this programme and the research.

OGBU OGBONNAYA B.
DECEMBER, 2008
ABSTRACT
It has been generally accepted that for any organization to produce and satisfy its
stakeholders, such organization must have good management team that
manages the resources of the organization using some laid down rules. In
manufacturing concerns, inventories constitute a greater proportion of assets.
The management of inventories usually involves a lot of problems which range
from the right tome to place order to maximization of profits for the stakeholders.
Thus, the research undertaken this research work entitled. Evaluation of
usefulness of inventory management. A study of some selected Beverage
Companies including: Coca-Cola Nigeria Plc, Pepsicola Nigeria Plc and Nigeria
Mineral Water Industries Limited.
The objective of this work includes: To determine whether profit is maximized
and cost minimized due to the application of the efficient inventory management.
To determine also whether manufacturing concerns in our country manage
inventories effectively by using inventory management techniques e.g. Economic
Lot Size, Just-in-Time etc.
Data were collected using questionnaire method, and were analyzed using chi-
square (X2) Pearson product moment, correlation co-efficient (r) and regression
analysis.
The result therefore shows that they place order at the right time and right
quantity overcoming the setbacks of lead time. The companies also minimize
costs of holding inventories and maximize their profits. The findings showed that
manufacturing concerns in Nigeria meet the target requirement of their
customers, stakeholders, and the society where they operate.
The research recommends that: all staff of the manufacturing concerns should be
made to have the thorough knowledge of inventory management as this will
enable them to work towards their stock protection and cost minimization. The
manufacturing concerns should get the recent developed software on inventory
management and use to update their knowledge of inventory management on
regular bases.

TABLE OF CONTENTS
Title page i

Certification ii

Dedication iii

Acknowledgement iv

Abstract vi

Table of contents viii

CHAPTER ONE

1.1 Introduction 1

1.2 Statement of Problem 5

1.3 Objectives of the Study 6

1.4 Research Questions 8

1.5 Statement of Hypotheses 9

1.6 Significance of Study 10

1.7 Scope of Study 11

1.8 Limitation of the Study 12

1.9 Definition of Terms 13

References 15

CHAPTER TWO
REVIEW OF RELATED LITERATURE

2.0 Introduction 16

2.1 Evaluation of kinds of inventories and methods of

checking inventories 20

2.2 Basic types of inventory management techniques in

manufacturing concerns 27

2.3 determination of economic order quantity (EOQ) or economic

Lot size (ELS) of inventories 36

Analysis of cost minimization by the use of efficient inventory

management 40

2.5 Profit maximization through efficient inventory management 43

2.6 Customers satisfaction due to the use of inventory

management 45

2.7 Possibility of Hitch free production due to application of

inventory management by manufacturing concerns 47

2.8 Liquidity control through efficient inventory management 49

References 51

CHAPTER THREE
3.0 Research methodology 53

3.1 Research Design 53

3.2 Sources of data 54

3.3 Method of data collection 54

3.4 Population and sample size 55

3.5 Techniques on data analysis 59

3.6 Chi-square distribution 60

References 62

CHAPTER FOUR

4.0 Presentation and analysis of data 63

4.1 Percentage determination of questionnaires responses in

tabular costs 64

4.2 Analysis of the ordering and holding cost as percentage of the

total costs 82

4.3 Analysis of economic lot size (ELS) ans Production level 83

4.4 Analysis of customer satisfaction through production and sales

levels 84

4.5 Analysis of cost minimization by the use of economic lot size

(Economic Order Quantity) 86


4.6 Test of hypothesis by Chi-square (X2) 87

4.7 Measurement of linear correlation 94

CHAPTER FIVE

5.1 Summary of findings 107

5.2 Conclusion 108

5.3 Recommendation 110

Bibliography 112

Appendix I 115

Appendix II 116

CHAPTER ONE

1.1 INTRODUCTION
Every Organization has to its own purpose of operation. The

level of actualizing the objectives or goals determines how efficient

and effective that organization is. But for the goals of any

organization to be achieved, such entity must observe some

stipulated or laid down principles for its effective performance. When

these rules are followed simultaneously, then the usefulness of such

principles or concepts will be achieved.

In general term, management has been recognized as that

which plans, direct and as well control the effective use of

organizational resources to achieve its objective.

Akpala (1987) as in Onuoha (1991:4-5) defines management

as the process of combining and utilizing or of allocation of

organizations input (men, materials and money) by planning,

organizing, directing and controlling for the purpose of producing

output (goods and services) desired by the customers so that the

organizational objectives / goals are accomplished.

In evaluating a topic as this, one ma start by analyzing the key

words in it, such as usefulness, inventory, and management as they

relate to the manufacturing concerns.


Something is said to be useful when it is achieving the best

objective, purpose aim or goal of its wage. And also when using the

laid down rules and resources available, achieves the best desired

goals without wasting the available resources.

According to Ama (2001:470), inventory is the stock o goods a

firm is producing for sale and the component that make up the goods.

Again, Hilton (1994:13-14) defines inventory as: an itemized list

of goods or valuables with their estimated worth, specifically, the

annual accounting stock taken in any business.

Therefore, from the above definitions inventory is the totality of

all the stock, which includes: raw materials, work-i-progress and

finished goods that enable an organizational to produce. It could also

said to be the total amount of goods and or materials contained in a

store or factory at any given time.

But the question is: are there ways of handling these

inventories for the purpose of achieving the best thereof? The answer

is simply yes! The inventories must be managed and controlled in

order to achieve their usefulness.

In doing this, the production manager, purchases manager and

the sales manager of the organization always put heads together to


design suitable ways of handling the level of stock purchases,

production stock requirement and sales using some feedbacks to

exercise controls in order to synchronize result with the standard set.

According to Lucey (1989:29), inventory management is the

system used in a firm to control the firms investment in stock. The

system involves recording and monitoring of stock levels, forecasting

future demands and deciding when and how to order with overall

objective of minimizing in total, the cost associated with stock.

However, inventory management is the ability of an

organization to use all the techniques at its disposal to hold the

quantity of stock (inventory) that will be enough to produce its

required goods needed by the customers at the appropriate time and

at least cost to the organization with the view to maximize profit.

Thus, Ama (2001:475) states the following as the usefulness of

inventory management to the organization.

- Reduction in cost incurred due to inventory holding.

- Maintenance of certain level of customer services that are

excellent.
- Sustenance of a large size of inventory for efficient and smooth

production and sale operation.

- Maximization of profit.

- Sustenance of minimum investment level in inventories.

- Avoidance of risk of losses due to theft, frauds, waste or

carelessness due to large stock holding.

- Production of adequate and accurate information regarding

inventory to management of effective decision making about

the firm.

- Boost of customers holding.

Organizational resources ate always limited in supply ad the

resources are best utilized when wasteful organizational practice(s)

are avoided. It is therefore, the aim of this work to evaluate how

beverage companies as part of manufacturing concerns have been

avoiding wastages in inventory by using efficient inventory

management and control techniques like Economic Order Quantity

(EOQ), Just-In-Time (JIT), Quick Response Manufacture (QRM),

among others to render efficient services to their customers,

maximize their profits, a avoid production hold-ups in factories ad

eliminate risk of liquidity crunch, etcetera. To achieve the above


objectives, some beverage companies like Seven Up Bottling

Company, Limca Bottling Company (Eastern Bottlers LTD) and Coca-

Cola Nigeria Bottling Company were selected for this study.

1.2 STATEMENT OF PROBLEM

The main problem of this research work is that the inventory

management techniques that operate efficiently in other countries of t

eh world like Britain, Japan, United States of America; among others

do not do so in Nigeria local environmental factors through the needs

of the models to operated effectively. The specific problems are as

follows:

- Cost of obtaining and holding inventories is always high and

this affects the price of the finished products the concerns

thereby making it difficult for the common people to get or buy

them.

- That manufacturing concerns due to poor transportation system

and unreliable delivery services that hold well in Nigeria find it

difficult to determine or forecast workable lead time and

inventory levels that can enable them place order at the right

time and get replenishments.


- Due to production hitches suffered by the manufacturing

concerns, their customers who are the suppliers to the final

customers find it difficult to obtain their required orders

especially during festive periods like Christmas and New years,

among others, thereby causing scarcity of the products and

increase in price.

- It is difficult in Nigeria for the operators in the manufacturing

concerns to determine the quantity of inventory to order which

is economical due to variations in environmental factors such

as price changes or products due to constant petroleum price

fluctuations that affect other facets of economic production.

The above problems among others have made the researcher

to embark on this work to evaluate how efficient the inventory

management techniques are operating in the manufacturing concerns

in Nigeria.

1.3 OBJECTIVES OF THE STUDY

The general objective of this work is to evaluate the application

of inventory management in Nigeria manufacturing concerns, so as to


know whether they operate efficiently like in other countries of the

world such as Japan, United States of America and Britain among

others.

While the specific objectives are to:

(a) Determine if manufacturing concerns place orders at the right

time and obtain quantities of inventories that are economical

through the use of inventory management.

(b) Determine whether the companies do not have enough

inventory size or quantity that help them have hitch-free/smooth

production and sales to their customers.

(c) Ascertain whether the use of inventory management enables

the concerns to reduce the cost of inventories ad thereby

improve on their liquidity.

(d) Ascertain whether the companies maximize their profit for the

full benefits of their stakeholders.

(e) Assess if the organizations render efficient services to their

customers through prompt delivery of their orders at attractive

prices.

1.4 RESEARCH QUESTIONS


For a meaningful research work to be carried out on the

usefulness of inventory management in manufacturing concerns, a

number of questions must be asked and answered. The following are

therefore, some of the research questions:

(i) Do manufacturing concerns use efficient inventory

management techniques such as: economic order quantity

(economic lot size) and just-in-time, among others?

(ii) Does economic lot size technique in particular assist

manufacturing concerns to hold sustainable size of inventory,

for efficient and smooth production?

(iii) Has the inventory management and control techniques help

them to minimize their costs of inventories?

(iv) How have the manufacturing concerns contributed to the

economic growth of their host communities in particular and the

country, Nigeria at large?

(v) Does efficient inventory management help the manufacturing

companies to maximize their profits?

(vi) To what extent have the customers of manufacturing concerns

received satisfactory services from the manufacturing

companies?
These question will be structured in such a way that the

respondents will state whether they strongly agree, agree or are

neutral or disagree in their responses. The answers from these

questions will form the basis of the analysis.

1.5 STATEMENT OF HYPOTHESES

A research hypothesis is a generalized and verifiable statement

about a state of phenomena which may be true or false.

According to Onu (1996:13), the validity of a hypothetical

statement is subject to verification which must be based on adequate

information on which decisions could be objectively based for either

to accept or reject such a hypothesis. Thus, a research hypothesis is

defined further as a rule of accepting or rejecting the validity of a

statement on the basis of random samples from the chosen

population.

Therefore, these research null hypotheses will be empirically

tested in this research work.

1. Ho: Manufacturing concerns do not minimize costs of

inventories through the use of economic lot size (economic

order quantities).
2. Ho: Just-in-Time (JIT), Economic Lot Size and Quick Response

Manufacture (tools of inventory management) do not assist

manufacture concerns to hold sustainable size of inventories for

efficient and smooth production.

3. Ho: Economic Lot Size (ELS), Just-in-Time material

Requirement Planning (MRP) and Quick Response

Management (QRM) tools of inventory management do not

help manufacturing concerns to maximize profit.

1.6 SIGNIFICANCE OF THE STUDY

Having gone through the statement of the research problem,

the significance of this research work are as follows:

(i) It will enable manufacturing concern to discover and

maintain optimum level of investment in inventory.

(ii) It will enable the manufacturing concerns attend to their social

responsibilities as their hoist countries constitute part of their

stakeholders.

(iii) It will enable inventory managers to know the ideal quantity of

stocks to order that is economical to the organization and when

to order for it.


(iv) It will assist the organizations to maximize their profits and

reduce their risk of liquidity.

(v) It will enable the manufacturing companies obtain the right size

of inventories that will always support their smooth and hitch

free production and sales operations

(vi) It will assist the organizational managers know that level of

inventory that will be kept to cover errors in forecasting the lead

time or the demand during the lead time.

(vii) Customers goodwill towards the organization will be maintained

as it enables delivery committed to be met all the time.

(viii) It will provide a base for other research works that might be

carried out on stock management in any other sector.

(ix) Lastly, it will help reduce business failure in our society as

inventory constitutes one of the core pillars of business

operation.

1.7 SCOPE OF STUDY

This research work is intended to evaluate the usefulness of

inventory management in manufacturing concerns but the field of

manufacturing is very vast and for this reason the researcher based
this study on some selected beverage companies in Nigeria namely:

Coca-cola Nigeria PLC, Pepsi cola Nigeria Plc and Nigerian Mineral

Water Industries Limited.

The research also x-rayed how the usefulness of inventory

management has assisted manufacturing companies to reduce cost

of inventories obtained the size of inventory that is economical and

that supports hitch free production, maximize the profit for t he

stakeholders and render efficient services to their customers,

etcetera.
1.8 LIMITATION OF THE STUDY

In conducting this research work, the researcher encountered

some difficulties such as the following:

(a) Secrecy: Manufacturing concerns as a principle always held

tightly to their methods and data generated from their

operations. This is perhaps not to allow people know their

technical know-how, and their performances. They hold this

view because they argued that they operate in a competitive

industry. As a result of this, obtaining information from them.

However, were some of the data needed cannot be supplied for

security reasons; they were extrapolated from the supplied ones in

order to prove the concept of this research work.

(b) Finance: The researcher found it difficult to finance this work

because of the attitude of manufacturing companies which in a

bid to protect their information always use many strategies to

cause somebody seeking for information from the to repeat as

many times as possible in their office looking for a single item of

data. Again, putting the assembled materials n the accepted

standard cost much.


(c) Paucity of Relevant Literatures: The concept of inventory and

its management have been of old. But the way in which

manufacturing concerns treasure information on their

inventories has made it almost difficult for relevant literatures to

be seen easily on this area of study as compared in other fields.

Because of this, the researcher found it hard in obtaining

relevant literatures while conducting this research.

However, the researcher laid his hands on were enough to

evaluate and make conclusion on this topic.

Nevertheless, the researcher was able to surmount the above

hurdles and at the end put up a research work whose output is

reliable, testable and verifiable at any standard.

1.9 DEFINITION OF TERMS

MANAGEMENT: The term management is used in various ways. It

could refer to a group of people in an organization, or could also refer

to the process of accomplishing a given task. Various scholars define

management in various ways. However, management is the

coordination of an organizations resources aimed at achieving a

predetermined goal or objective.


INVENTORY: Inventory is the total amount of good and/or materials

contained in a store or factory at any given time. The word inventory

can refer to both the total amount of goods and the act o counting

them. Many companies take an inventory of their supplies on a

regular basis in order to avid running out of popular items.

ECONOMIC ORDER QUANTITY (EOQ): A standard formula used to

arrive at a balance between holding too much so too little stock.

FIRST IN, FIRST OUT: A system to ensure that perishable stock is

used efficiently so that it doesnt deteriorate. Stock is identified by

date received and moves on through each stage of production in

strict order.

JUST IN TIME (JIT): This aims to reduce costs by cutting stock to a

minimum.

STOCK REVIEW: This is a regular review of stock. At every review

you place an order to return stock to a predetermined level.


REFERENCES

Akpala, A. (1987), Management Search for Nigeria


System (unpublished). In: Onuoha, B.C.
(1991). Fundamental of Business Management
In Nigeria. Aba: Unique Press Limited, P.322.

Ama, G.A.N. (2001), Management and Cost Accounting:


Current Theory and Practice. Aba: Amasoa
Publishers, P.758.

Asika, N. (1991), Research Methodology in the


Behavioural Sciences. Lagos: Longman
Nigeria, P.562

Horngren, T.C. and Sundem, G. (1990), Introduction to Management


Accounting. Eight Edition,
USA: Prentice Hall Inc., P.826.

Joseph, D. (2002), Just-in-Time Inventory: A


Financial Perspective, www.staresdemon.co.uk.
Theory and Concepts / Beyond Jit. Intm.
CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.0 INTRODUCTION

The goal of every business organization is to operate

profitability, expand and attain the highest mark in the industry. In

order to achieve this, there as resources needed such as man,

machines and materials which must be effectively managed to avoid

waste in order to a attain the goals of such organization.

In manufacturing organizations, inventories form the most

proportionate asset in which large capital of the concerns is invested.

Thus, the careful attention always given to its management and

control.

Lucey (1989), states that inventory management is the system

used in a firm to control the firms investment in stock. The system

involves recording and monitoring of stock levels, forecasting future

demands and deciding when and how to order with the overall

objective of minimizing in total the costs associated with stock.

Also, inventory management is the practice of planning,

directing and controlling inventory so that it contributes to the


business profitability. Inventory management helps business to be

more profitable by lowering their cost of goods sold and increasing

sales. It is also the act of making sure that items of stock are

available when customers call for it, but not too much stock so that

inventory turnover goals are met.

According to Hilton (1994), inventory management is the art

and science of managing to have the right product at appropriate time

and place in exactly the right amount and at the best possible price.

From the above analysis of the meaning of inventory

management, it could be seen that managing inventory is

encumbered with problems of cost reduction, the right time to order

for inventory, the right quantity to order, how to maximize profits,

satisfy the customers and produce at maximum capacity, among

others.

In this review, the following sub-topics were considered.

(a). evaluation of the kinds of inventories and methods of

checking/supervising inventories for efficient inventory

operations.

(b). different types of inventory management techniques and their

operations in Nigeria.
(c). determination of the economic order quantity or lot size

through the use of both graphical and mathematical methods.

(d). analysis of cost minimization through the use of different types

of inventory management models.

(e). assessment of profit maximization of the manufacturing

concerns through inventory management for the benefits for

the stakeholders.

(f). evaluation of the free flow/smooth production process due

to assistance of inventory models that provide for holding enough

size of inventories at any time, among others.

(g). analysis of customers satisfaction through the assistance

of inventory management that enables cost of production and price of

the finished goods to be reduced.

In the course, of reviewing the literature, there was no much

departure of the operations of the inventory management and control

models from how they operate in the manufacturing concerns in

Nigeria. However, where the researcher does not agree in totality

with some of the models operation is in the area of not considering

the local environment of the manufacturing companies.


This is because there are some inventory management and

control models like Just-In-Time that requires efficient transportation

system, reliable delivery methods, short distance between the

manufacturing companies and their supplies, high level security that

would avoid external environmental disturbance such as the

September 11, 2001 terrorists attack in United States of America.

Again, Quick Response Manufacture (QRM) involves

application of computer to aid manufacture. In this case, computer is

used to re-engineer the whole production process, reduce the waiting

time, movement time, production process time, set-up time and

avoiding rework and inspection that will not add direct values to the

products produced.

So, in Nigeria where the above requirements of Just-In-Time

are still finding their grounds, its full utilization involves using the

concept (JIT) along side with other models like economic lot size. The

Quick Response Manufacture is a good inventory management and

control innovation but still requires more aggressive pursuits of the

development of Nigerians technology for its full maximization and this

is why the companies apply it jointly with other models to achieve

their desired goals.


Lastly, as Nigeria is trying to keep abreast of the other

developed countries of the world, the manufacturing concerns

operating in Nigeria are also following the pace set by their

counterparts in the industrialized countries of the world.

2.1 EVALUATION OF KINDS OF INVENTORIES AND METHODS

OF CHECKING INVENTORIES

In manufacturing concerns different kinds of inventory materials

are used in order to produce and sell to the customers the products

that they require. These material inventories are the raw materials,

Work-in-Progress and Finished goods.

According to Ama (2001), the forms of inventories in a

manufacturing firm include raw materials, work-in-progress and

finished goods. Raw materials are those basic input materials that are

converted into finished product through the manufacturing process.

Work in-Progress (W.I.P) are those partly manufactured goods or

products that represent product that require further job before they

become finished goods.

Pandy (1988), states that finished goods inventories are those

completely manufactured products which are ready for sale. He also


added that they are those ones needed for easy marketing

operations.

Horngren and Sundem (1990), posit that the classes of

inventories include: Direct materials inventory which are materials on

hand awaiting use in the production process. Work-in-progress

inventories are goods that undergo the production process but

inventory are those fully completed but not yet sold.

According to Nweze (2000), stocks (otherwise known as

inventories) are items of value held for use or sale by an enterprise

and usually comprise: raw materials and supplies used in production,

Work-in-progress and finished goods.

Stocks from the above statements of the various authorities are of

three categories namely-the raw materials, the work-in-progress and

the finished goods. It is vital that manufacturing the level of

inventories they hold very carefully.

Some of these methods used to check inventories are the

perpetual inventory control, actual counting method look it over

method, re0order level and periodic review methods, among others.

Lucey (1989), states that the basic prerequisite is that stock

movements (issue and receipts) are accurately recorded, and the


most frequently used methods are BIN CARDS, Stock record cards

and perpetual inventory system.

According to Nweze(2000), the two systems of stock taking are

generally in use namely: Perpetual and Periodic. Perpetual

inventory checking method is that in which complete data recorder

kept on each item of inventory and additions and subtractions are

made with order or transaction. Here, there is an inventory balance

plus a receipt of sale minus the actual sale to reflect the quantity at

hand. Actual counting method is used to check inventories. It is used

to actually court inventory item by item. Looking it over method is

such in which the items of inventories are not properly and actually

counted from time to time and is always full of errors because it is

hard to pinpoint the inventory levels, the item that need to be ordered,

and that which the firm is overstocking.

2.1.1 Re-Order Level System

The recorder level system which is also called the two BIN

systems is such in which a predetermined re-orders level of stock is

set for each item of inventory. When the stock level falls to the re-

order level, a replenishment order is issued. The replenishment re-


order quantity is at times economic lot size (economic order quantity).

It should be noted that this method of checking inventory is also

called two BIN systems because the stock is segregated into two

bins. Stock initially drawn from the first bin and a replenishment order

issued when it becomes empty from the second bin. Most of the

organizations operate the re-order level which triggers off the

required replenishment order. The mathematical illustration bellows

can help to show how re-order level system is used.

An efficient organization uses the following data on a particular

inventory to check its inventory levels by using it, the maximum and

minimum levels of inventory, the re-order level are determined.

Normal usage - 220 units per day

Minimum anticipated usage - 100 units per day

Maximum usage - 280 units per day

Lead time 50-60 days

EOQ (Economic Order Quantity)

(Previously calculated) - 10,000 units

(i). Re-order level = maximum usage x maximum lead time

= 280 x 60 units

= 16,800 units
(ii). Minimum level = Re-order level Average usage for lead time

= 16,800 (220x(50+60/2)

= 16,800 (220 x 55) units

= 16,800 -12,100 units

= 4,700 units

(iii). Maximum level = Re-order level + EOQ (minimum anticipated

usage x minimum lead time)

= (16,800+10,000) (100x50) units

= 26,800 - 5000 units

= 21,800 units

Source: Ama (2001)

The three levels: re-order, maximum and minimum are usually

entered on a record card and comparisons made between the actual

inventory and the control levels each time an entry is made on the

card. The re-order level shows when stock should be replenished, the

minimum level tells management on when demand is above average

and needs careful watching. Maximum level warns management that

demand is at minimum and that inventory level is likely to rise above

the desired maximum.


This method of checking inventory has its merit which is the

ability of being responsive to changes in demand and generates

automatically replenishment order at the appropriate time by

comparing inventory levels against re-order level.

However, where many different types of stock are used jointly

for production different items may reach re-order level at the same

time thereby overloading the re-order system.

2.1.2 Periodic Review System

Periodic inventory review system is just like physical courting

method in which stocks are cross-checked and updated from time to

time.

Ama (2001), states that periodic review system is such in which

stock level for all parts are reviewed at fixed intervals, for instance,

every week, month or year. Where necessary a replenishment order

quantity which is variable quantities ordered at fixed intervals and he

EOQ is not previously calculated but is based on demand, the

present inventory level and the lead-time.

Periodic inventory review system as a method of checking

inventories has the following merits;


All inventory items are reviewed periodically so that there is

more chance of outdated items to be eliminated

Economics in placing order may be gained by spreading the

purchasing firms load more evenly.

Because orders will always be in the same sequence, there

may be production economics due to more efficient production

planning being possible and lower set up cost.

Because orders will always be in the same sequence, there

may be production economics due to more efficient production

planning being possible and lower set up cost.

Large quantity discounts may be obtained when a range of

inventory items is ordered at the same time from a supplier.

Nevertheless, this method of checking inventory is less

responsive to change in consumption, if the rate of usage changes

shortly after review, stock out may occur before the next review.

Unless, demands are reasonably consistent, it is somewhat

difficult to set appropriate periods for review.

Lastly, manufacturing concerns use these methods to check

and supervise the levels of their stock in order to avoid over-stocking


or running out of stock as all these could tell much on the

performance of the organization.

2.2 BASIC TYPES OF INVENTORY MANAGEMENT

TECHNIQUES IN MANUFACTURING CONCERNS

The aim of a manufacturing concern to the manage its inventories are

as follows:

To establish and maintain an adequate inventory level at a

minimum cost

To reduce the cost of managing inventory

To ensure the production is not interrupted due to lack of

inventory and that inventories are not used through excess

stock by fixing re-order and stock levels.

To minimize overstocking and under-stocking.

Lucey (1989), defines inventory management or control as; the

system used in a firm to control the firms investment in stock. The

system typically involves the recording and monitoring off stock

levels, forecasting future demands and deciding when and how many

to order. The overall objective of inventory management is to

minimize, in total, the costs associated with stock.


In order to achieve the objective of inventory management, the

organizations determine the optimum level by

The ordering costs on the order hand are the cost of placing for

replenishment stocks or inventories. It is believed that when bulk

quantities of stock are ordered, the ordering cost will reduce but

holding cost will also increase.

According to Luecy (1989), ordering costs includes:

Transport costs

The set-ups and tooling costs associated with production run

The clerical and administrative costs associated with the

purchasing, accounting and goods received.

According to Hilton (1994), ordering costs are the following:

Receiving cost (e.g. unloading and inspection)

Clerical costs of preparing purchase orders

Transportation costs

Sum spent finding suppliers and expediting order

However, the holding costs include:

Deterioration, theft spoilage or obsolescence costs of storage

space (e.g. warehouse)

Forgone interest on working capital tied up in inventory


Security

Shortage costs includes:

Loss of quantity discounts on purchase

Disrupted production when raw materials are unavailable

Lost sales resulting from dissatisfied customers

Idle worker, extra machinery setups.

Ama (2001), enumerated inventory out-costs as follows:

(a). Labour frustration over stoppages

(b). extra costs associated with urgent and often small quantity

replenishment purchases.

(c). lost contribution through the lost sale.

(d). cost of production stoppages caused by inventory out of work-

in-progress of raw materials.

(e). loss of customers goodwill

(f). loss of future sales because of customers going elsewhere.

Therefore, when all the above cost elements are considered,

the question will be how will inventory management method minimize

them in order for the organization to thrive?

The answer is by using the order quantity of inventory that

minimizes the cost of procuring and holding inventory. This stock


order is called economic order quantity, EOQ or economic lot size

(ELS).

2.5 PROFIT MAXIMIZATION THROUGH EFFICIENT INVENTORY

MANAGEMENT

Organizations have limited resources and this always pose

problems to the extent of result normally achieved. According to

Copland and Dascher (1979) as cited in Nweze (2000) common

organizational goals include: maximization of profit or achieving

satisfactory levels of performance (profit satisfaction), achieving

contained growth or ensuring the survival of the organization among

others.

To maintain profitability, the most important requirements are

preventing wastage of time and raw materials, not leaving the

machine capacity idle and under utilization of labour force.

Specifically, the major asset in the enterprise which affects efficiency

of operations is inventory. Both excess of inventory and its shortage

affect the productive activity and the profitability of an organization.


In order to maximize profit, manufacturing concerns always try

to reduce both holding costs and ordering costs by using optimum

order quantities called economic order quantity or lot size.

According to Fe News Services (1998), the holding costs such

as interest on capital invested in inventories, insurance cost,

obsolescence, wastage resulting from storing inventories, and costs

attributed to not holding the inventories such as re-ordering cost, lost

sales cost, lost production cost, orders not executed, customers

dissatisfaction and threat to lose the market share, burden of fixed

costs and wage payment to idle workforce and underutilized machine

capacity have the capacity to reduce profit of a manufacturing

concern when not handled properly.

When inventory management is applied, costs are drastically

reduced and the rate of turnover is increased due to attention to

production and customers satisfaction.

This Fe News Service (1998), states thus: economic order

quantity or lot order size of inventories is suggested to reduced the

costs associated with acquiring and carrying the

inventories. The size of the order should be such which ensures the

desired level of inventory at minimum acquisition and carrying costs.


However, costs reduction due to application of sound inventory

management principles resulted in very significant increase in net

income (profit). This is achieved as stated earlier by using optimum

stock quantity that gives more turnover to keep sales on as

customers demand. Inventory management is also about balancing

the two opposing cost factors for optimum profitability.

2.6 CUSTOMERS SATISFACTION DUE TO THE USE OF

INVENTORY MANAGEMENT

Manufacturing concerns produce for the public who consumes

their products. These products are in some cases purchased directly

from them or through middlemen. However, what keeps the

manufacturing concerns in sound business base is the level of their

sales. The sales made are high when the customers needs are

attended to as and when due.

To achieve the above goal, manufacturing concerns do

everything possible to keep in stock the kinds of products needed by

their customers at all time. Therefore, the issue of out-of-stock is not

there and production stoppages do not come in.


Hence, the pillar behind the success and excellent services

cum satisfaction to the customers is the ability of the concerns to

apply the techniques of inventory management very well in their

organizations are always ordered and used at reduced cost, so as to

sell at affordable prices to the customers.

Lucey (1989), states that firms are integrating their

manufacturing activities more closely with purchasing and sales thus

dramatically reducing or even eliminating excessive stock-holdings. In

achieving all these, Just-In-Time (JIT), and Manufacturing

Requirement Planning (MRP) methods are used.

Microsoft Business Solution (2003), states that customers are

more important than ever, and they expect better services and more

competitive prices than ever before. To survive, manufacturing

concerns need to keep customers satisfied. Firms cannot afford to

miss an order because an item is no in stock. When customers know

that the organization is geared towards serving their needs, such

organization becomes more than just todays supplier of goods but

becomes a long term partner. This is achieved by reduction in

excessive in excessive inventory and encouraging optimum

production.
Therefore, inventory management plays much role in

determining that manufacturing concerns produce at reduced costs

by helping them to reduce the holding costs and ordering costs so as

to sell to the customers at reduced prices and regularly as the

customers demand, due to hitch-free production.

2.7 POSSIBILITY OF HITCH-FREE PRODUCTION DUE TO


APPLICATION OF INVENTORY MANAGEMENT BY
MANUFACTURING CONCERNS
Production is the act off transforming raw materials and work in

progress into finished goods for the satisfaction of human wants.

Onuoha (1991), states that production is changing the form of

things, changing raw materials into finished goods, changing

substance by chemical actions, assembling many parts to make

something such as a watch or a motorcar and the distribution of the

products to the final consumers.

The above definition shows that raw materials, work-in-

progress, materials are used for the production of finished goods.

When these raw materials are not available, production is stopped or

disrupted. The disruption hinders not only production but the level of

sales that determines the profit of the organization.


Also, when production suffers, the customers are lost to the

competitors. When excessive inventories are stocked, capital is not

only tied the organization. And so, it is only through the process of

efficient inventory management can enable the economic order lot

sizes to be obtained that allows efficient production to be achieved.

Ama (2001), posits that inventory management is a veritable

key to hitch-free production in manufacturing concerns that ensures:

Uninterrupted supply to the customers.

Provides a buffer between production processes

Ensures production processes that flow smoothly and efficiently

Prevent loss of customers goodwill

Prevent loss of future sales

Prevents labour frustration over stoppages

2.8 LIQUIDITY CONTROL THROUGH EFFICIENT INVENTORY

MANAGEMENT

Organizations in the course of their business operations apply

all or some of their capital resources to acquire assets to be held for

either capital appreciation, income generation or production activities

to secure trading advantages geared towards profit.


Okafor (1983), states that investment refers to economic

activities designed to increase, improve or maintain the production

quality of the existing stock capital.

Some times, manufacturing concerns over invest in stock in

order to maintain production, avoid stock-outs and satisfy their

customers. But when this investment is done without regards to

efficient inventory management, a lot of capital resources of the

concerns are large holding costs. At that point, liquidity which is the

ability of an organization to meet its repayment demand as they fall

due will be affected.

According the BBP/CIB OAK publishers limited (1991), the

most liquid asset is cash, the most liquid assets are short term

investments (bills). Debtors are fairly liquid assets as they can pay

their bills in near future. Stocks are the least liquid current assets

because they must first be sold (perhaps on credit) and the

customers given credit period before they can be converted into cash.

Efficient inventory management directs the economic order

quality that should be ordered at any time to reduce the capital that is

tied down in stock.


Therefore, in as much as manufacturing firms cannot do without

investment that will avoid disrupted production, minimize costs,

increase customers satisfaction, high profit and balanced liquidity

position in order to maintain the integrity of the firms in the eyes of

their creditors.

Finally, the essence of liquidity control cannot be

overemphasized as pointed by Loyd and Rosenfield (1979) a

company may be high profitable, yet be on the verge of bankruptcy

because of shortage of liquid assets such as cash and accounts

receivables.
REFERENCES

Ama, G.A.N (2001), Management and Cost Accounting: Current


Theory and Practice. Amsson publishers, Aba.

Copeland, R.M and Dascher, P.E. (1979), Management


Accounting. 2nd edn, In: Nweze (2000), Profit Planning: A
Quantitative Approach. Mcal Communication International,
Enugu.

Hilton, R.W. (1994), Management Accounting. Mcgraw Hill Inc. USA

Horgren, T.C. and Sundern, G. (1990). Introduction to


Management Accounting. 8Ed, Prentice Hall Inc. USA

ICAN Distance Learning (1999), Management Accounting (PEI)


Study and Progress Text. Accountancy Training and
Publication Ltd Lagos.

Joseph, D. (2002), Just-In-Time Inventory: A Financial


Perspective, www.stares.demon.co.uk/Theory and
concepts/beyond Jit.htm.

Lucey, T. (1989), Costing. DP Publications Ltd. London,

Nweze, A.U (2000), Quantitative Approach to Management


Accounting. Computer Edge Publishers, Enugu.

Okafor, F.O. (1983), Investment Decisions: Evaluation of Project and


Securities. Cassel Ltd. London.

Onuoha, B.C. (1991), Fundamentals of Business Management in


Nigeria. Unique Press Ltd. Aba.
Pandy, I.M. (1988), Financial Management. New Delhi: Vikas
Publishing House Pvt ltd.

Ranjan, K. (1976), A Manuel of Sampling Technique.


Heinemann, London.
CHAPTER THREE

3.0 RESEARCH METHODOLOGY

Research is a systematic process of finding out acquiring and

using knowledge (Udo, 2004:2). Research methodology therefore

refers to the arrangement of conditions for the collections and

analysis in a manner that aims to combine relevance of the research

purpose with economy of procedure. It also considers the various

sources adopted in gathering information relevant to the study.

3.1 RESEARCH DESIGN

Research design means the structuring of investigation aimed

at identifying variables and their relationship to one another (Asika,

2001:27). Research design shows how data relating to a research

problem should be collected and analyzed. The process involves the

structuring of investigation to identify variables and their relationship

with one another as well as providing procedural outline for the

conduct of the investigation.


Anigbo (1997:56), posits that research design is the plan,

pattern, blue print, paradium that stipulates how the data for the

solution of research problem(s) will be colleted and analyzed.

Thus, in this research study, questionnaire was used to elicit

the views of the workers/operators of inventory management in

beverage companies which are subset of manufacturing concerns. A

study of the economic order quantities, production, costs and sales

made by some of the selected beverage firms were done to

understand better, the usefulness of inventory management

techniques.

3.2 SOURCES OF DATA

Because numerical data are the raw material of statistical

investigation, one of the first steps in any statistical study must be the

collection of suitable data (Freund and Williams, 1979:6). A corollary

to the above is the notion of the sacredness of data to any research

work, and the integrity of the collections process. This made the

researcher to show greath care in collecting relevant data for this

study, via primary and secondary sources.


3.3 METHOD OF DATA COLLECTION

The data used for this study are the primary and secondary

data. Structured questionnaire is used for collecting the primary data.

In the structured questions, the respondents were expected to tick

any option that applied to them between four options/responses of

strongly agree, agree, neutral and disagree.

Nineteen (19) questions were asked for the purpose of the

study. Out of the nineteen, five (5) were on personal data of the

respondents, while fourteen (14) questions were on the study proper.

In constructing the questionnaire, the objectives that were

expected to be accomplished were appropriately identified and put

into consideration. This is information on the usefulness of inventory

management and control in manufacturing concerns.

The secondary data were collected from textbooks and other

printed materials like financial magazines and journals.

3.4 POPULATION AND SAMPLE SIZE

A population consists of all conceivably or hypothetically possible

observations relating to a given phenomenon. While a sample is

simply a part of a population, Freund and Williams (1982:85). It is


important to determine the group of persons or things to study. The

target population for this study is some selected beverage

companies, accessible staff that dutifully record and manage daily

inventory orders, economic lot size quantities, production, sales and

costs associated with the organizational activities of the

manufacturing concerns.

However, since it will be cumbersome to asses the entire

population due to time and financial constraints, a sample size was

computed.

3.4.1 DETERMINATION OF SAMPLE SIZE

Table 3.1 Total Number of Staff in the accessible population

S/N Beverage Company No of Staff

1 Coca-Cola Nigeria Plc Enugu 45

2 Nigeria Mineral Water Industries Ltd 40

(Limca), Onitsha

3 Pepsicola Nigeria Plc Enugu 43

Total 128

Source: (Coca-Cola Nigeria Plc, Pepsicola Plc and Limca Ltd).


Sample Size

To determine the sample size, Taro Yamanes formula was

used thus

n= N
1+N(e)2

Where N = Total Population = 128

E = Level of error of tolerance = 5%

1 = Constant

n = Total Sample Size

Source: Yamane (1964:280)

Substituting the various surveyed population in the above formula:

N = 128
1+128(0.05)2

= 128
1.32

n = 97 respondents

In order to allocate the sample among the various beverage

companies nh1 to nh3, Bowleys proportion formula was used thus:

nh = NH x n
N

Where nh = number of units/categories allocated to each

organization
N = Overall population of Study

NH = No of population in each organization of Study

n = Total sample size obtained

Source Ranjan (1976:137)

Substituting in the above expression

Nh1 = 45 x 97
128 1 = 34

Nh2 = 40 x 97
128 1 = 30

Nh3 = 43 x 97
128 1 = 33

The Sample Size: The computed sample size allocations as

shown above are tabulated below:

Table 3.2 Sample size

Beverage Company Population Sample

Coca-Cola Nigeria Plc Enugu 45 34

Nigeria Mineral Water Industries Ltd 40 30

(Limca), Onitsha

Pepsicola Nigeria Plc Enugu 43 43

Total 128 128

Sources: (Coca-Cola Nigeria Bottling Plc, Pepsicola Nigeria Plc


and Limca Ltd).
Out of the ninety-seven (97) copies of questionnaire distributed,

twelve (12) copies were not returned. The researcher was left with

eighty five (85) valid questionnaire to work with the formed the basis

for the data analysis. The method entails dividing the population into

strata on the basis of variable significantly correlated with some

dependent variables. The strata got are as follows:

Table 3.3 Sample size


Beverage Company Population Sample

Coca-Cola Nigeria Plc Enugu 34 30

Nigeria Mineral Water Industries Ltd 30 28

(Limca), Onitsha

Pepsicola Nigeria Plc Enugu 33 27

Total 97 85

Sources: (Coca-Cola Nigeria Bottling Plc, Pepsi cola Nigeria Plc


and Limca Ltd).

3.5 TECHNIQUES OF DATA ANALYSIS

Data collected in the course of this study will be presented and

analyzed using statistical tools. The data collected will be presented

in tabular form and analyzed using the Chi-square (X2) test,

correlation co-efficient and regression analysis.


3.6 CHI-SQUARE DISTRIBUTION

Chi-square (X2) statistic will be used to test hypotheses two and

three of this work as stated in the statement of hypotheses of chapter

one. While correlation co-efficient and regression analysis will be

used to test hypotheses cone. To use chi-square (X2) to do the test,

the relevant questions that applied to each of the hypotheses and the

responses of the respondents will be used to compute the chi-square

statistic. Chi-square (X2) formula is mathematically expressed thus:

X2 = (O-E)2
E

Where X2 = Chi-Square

O = Observed frequencies

E = Expected frequencies

= Summation.

In testing the hypothesis, chi-square (X2) calculated and

tabulated (X2) will be compared. Decision for accepting or reject the

hypotheses will depend on the decision rules stated thus:

(i). Accept null hypotheses {Ho) if X2 calculated is less than or

equal to the tabulated X2, hence reject the alternative hypotheses (Hi)
(ii). Reject null hypotheses (Ho) if X2 calculated is greater than or

equal to the tabulated X2, hence accept alterative hypotheses (Hi)

The above two rules are mathematically express thus:

(i). Accept Ho, if X2 Cal < X2tab, hence reject Hi

(ii). Accept Ho, if X2 Cal > X2tab, hence accept Hi


REFERENCES

Anigbo, L. C. (1997), Research Desigh. In Eze, A.E., Umebe S.E.,


and Ezike, H.O. (Eds, 1997). Foundations of Research in
Education. Rojoint Communication Ltd. Enugu.

Asika, N. (2001), Research Methodology in the Behavioural


Science. Longman publishers Plc, Ikeja Lagos

Freund John, and Williams Frank J. (1979), Modern Business


Statistics 2nd Ed. London Pitman Ltd.

Nwabuokei, P.O. (1986), Fundamentals of Statistics. Koruna


Books, Enugu.

Taro, Y. (1964), Statistics: An Introductory Analysis. 3rd Ed.


Harpers and Row Publishers, New York.

Udo, G.O. (2004), A Guide to Modern Research Methods.


Institute of Development Studies, University of Nigeria
Enugu Campus.
CHAPTER FOUR

4.0 PRESENTATION AND ANALYSIS OF DATA

In this chapter, the research presented both the quantitative

and qualitative data collected during the field work. These data

include the responses from the interview conducted by the

researcher, the personal observations, the information elicited with

the questionnaire and other relevant data collected from the manuals

supplied by the beverage companies of study.

The analysis of the findings followed a systematic approach of

providing answers to each of the research questions. The results and

discussion of the findings in the study are presented to reflect the

general evaluation of the usefulness of inventory management in

manufacturing concerns. It is also aimed at establishing in particular

the efficacy or otherwise of the techniques in minimization of costs for

more productivity in the manufacturing sector.


4.1 PERCENTAGE DETERMINATION OF QUESTIONNAIRE

RESPONSES IN A TABULAR FORM

The responses of the respondents as elicited from the

questionnaires were presented in a tabular form as shown below and

at the end, the total scores for each class of the responses and their

percentages were determined.

4.1.1 ANALYSIS OF GENERAL CHARACTERISTICS OF THE

RESPONDENTS

Table 4.1.1: Percentage Analysis of Sex of the Respondents

SEX COCA- PEPSI LIMCA LTD TOTAL PERCENTAGE

COLA PLC COLA PLC

Male 22 20 18 60 70.59

Female 8 7 10 25 29.41

Total 30 27 28 85 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

From the above table, the number of male is 60 which is

70.59% while that of female is 25 or 29.41%. This shows that

manufacturing concerns make more use of male in their production.


Table 4.1.2 Percentage Analysis of Ages of Respondents.

AGE COCA- PEPSI- LIMCA TOTAL PERCENTAGE

COLA COLA LTD

20-30 14 11 12 37 43.53

31-40 8 7 6 21 24.71

41-50 3 5 4 12 14.11

51-60 3 2 3 8 9.41

60 and 2 2 3 7 8.24

above

Total 30 27 28 85 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

The age distribution of respondents showed that 37 or 43.53%

was of the age bracket of 20-30 years. 21 or 24.71% was of the age

bracket of 31-40 years. 12 or 14.11% was of the age bracket of 41-50

years. 8 or 9.41% was of the age bracket of 51-60 years. 7 or 8.24%

was of the age bracket of 61 and above. This shows that the

concerns employ more of the able bodied employee who are

energetic.
Table 4.1.3 Percentage Analysis of Educational Qualifications of

Respondents

EDUCATIONAL COCA- PEPSI LIMCA TOTAL PERCENTAG

QUALIFICATIONS COLA PLC COLA LTD E

PLC

SSCE/GCE O 10 15 9 34 40.00

Level

OND/NCE 8 5 7 20 23.53

B.Sc/HND, 7 4 10 21 24.71

M.Sc/MBA

Degree and 5 3 2 10 11.76

Others

Total 30 27 28 85 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

The above analysis of the educational qualifications of the

respondents shows that 34 of 40.00% are with SSCE certificates, 20

or 23.53% has OND/NCE certificates, 21 or 24.71% has first degrees

or Higher National Diploma, while 10 or 11.76% has Masters Degree

and others such as professional certificates.


Table 4.1.4 Percentage Analysis of Job Schedule of the

Respondents

JOB COCA- PEPSI COLA LIMCA TOTAL PERCENTAGE

QUALIFICATION COLA PLC PLC LTD

Personnel 4 5 6 15 17.65

official/staff

Production 8 7 9 24 28.24

officer/staff

Inventory 4 3 2 9 10.58

officer/staff

Sales 9 8 5 22 25.88

officer/staff

Accounts 5 4 6 15 17.65

officer/staff

TOTAL 30 27 28 85 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

The analysis shows that the personnel staff of the concerns

was 15 or 17.65%, production official/staff 24 or 28.24%, inventory


official staff 9 or 10.58%, sales official/staff 22 or 25.88% and

accounts official/staff 15 or 17.65%.

Table 4.1.5 Percentage Analysis of Position/Rank of

Respondents

JOB COCA- PEPSI LIMCA TOTAL PERCENTAGE


COLA COLA LTD
QUALIFICATION PLC PLC

Junior/Intermediate 15 16 11 42 49.41

staff

Senior staff 8 6 9 23 27.06

Management staff 5 4 6 15 17.65

Others 2 1 2 5 5.88

TOTAL 30 27 28 85 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

The analysis above shows that 42 or 49.41% of the

respondents were the junior/intermediate (cadre) staff of the

workforce of the concerns. 23 or 27.06% was the senior staff, 15 or

17.65% was the management staff while 5 or 5.88% was in the cadre

that was unclassified.


TABLE 4.1.2 FREQUENCY DISTRIBUTION AND

PERCENTAGE ANALYSIS OF MANUFACTURING

CONCERN RESPONDENTS ON THE

USEFULNESS OF INVENTORY MANAGEMENT.

Table 4.1.6 Percentage Analysis of Use of Inventory by

Manufacturing Concerns.

STATEMENTS CATEGORY OBSERVED PERCENTAGE PERCENTAGE PERCENTA


OF FREQUENCY OF OF GE OF
RESPONSES OF RESPONSES% RESPONDEN RESPONDE
RESPONSES TS WHO NTS WHO
AGREE WITH DISAGREED
THE ITEM % WITH THE
ITEM %
Manufacturing Strongly 55 73.33

organization Agree

use stock or Agree 20 26.67

inventory in Neutral 0 0.00 100 0.00

their Disagree 0 0.00

production

Total 75 100.0

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)


The analysis shows that about 100.00% of the respondents

consented to the fact that manufacturing organization use inventory

for their production. While none of the respondents disagreed.

Table 4.1.7 Percentage Analysis of the Specific Raw Materials


Used by the Beverage Companies for their
Production.
STATEMENTS CATEGORY OBSERVED PERCENTAGE PERCENTAGE PERCENTAGE
OF FREQUENCY OF OF OF
RESPONSES OF RESPONSES% RESPONDENTS RESPONDENTS
RESPONSES WHO AGREE WHO
WITH THE ITEM DISAGREED
% WITH THE ITEM
%
Beverage Strongly 60 73.17
companies
Agree
use
Agree 18 21.95
concentrates
mea Neutral 1 1.22 95.12 4.88
solutions,
Disagree 3 3.66
sugar, water
and other
raw
materials for
their
production
TOTAL 82 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)


About 95.12% agreed that beverage companies use

concentrates, mea solution, sugar and water among others for their

production while 4.88% disagreed. This disagreement may be due to

their ignorance of the materials in use by the companies.

Table 4.1.8 Percentage Analysis of the Type of Products

Produced by Beverage Companies

CATEGORY OBSERVED PERCENTAGE PERCENTAGE PERCENTAGE


OF FREQUENCY OF OF OF
STATEMENTS
RESPONSES OF RESPONSES% RESPONDENTS RESPONDENTS
RESPONSES WHO AGREE WHO
WITH THE ITEM DISAGREED
% WITH THE ITEM
%
The products Strongly 65 81.25
manufactured
Agree
by beverage
Agree 15 18.75
companies
which you Neutral 0 0.00 100.00 0.00
work in and
Disagree 0 0.00
around you
include Coca-
cola, 7up,
Limca, Gold
Spot, Fanta,
Pepsi etc
Total 80 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)


From the analysis, the whole respondents (100%) agreed that

the beverage companies produce Coca-Cola, 7up, Limca, Gold Spot,

among others.

Table 4.1.9 Percentage Analysis of the Use of Inventory

Management Techniques by the Manufacturing

Concerns to Manage their Inventories.

STATEMENTS CATEGORY OBSERVED PERCENTAGE PERCENTAGE PERCENTAGE


OF FREQUENCY OF OF OF
RESPONSES OF RESPONSES% RESPONDENTS RESPONDENTS
RESPONSES WHO AGREE WHO
WITH THE ITEM DISAGREED
% WITH THE ITEM
%
Manufacturing Strongly 50 60.93
organizations Agree
use inventory Agree 25 30.49
in management Neutral 5 60.09 91.47 8.53
techniques to Disagree 2
manage their
inventory
levels.
Total 82 100
Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

The analysis shows that 91.47% of the respondents agreed that

manufacturing concerns use inventory management to manage their

inventories. While about 8.53% disagreed perhaps, they believe that

management style is the same everywhere. The percentage that


agreed which is 91.47% is much and therefore proves to a great

extent that despite the harsh environmental factors that hinder

effective use of all the various kinds of inventory management

techniques such as JIT, QRM and MRP, that Nigerian manufacturing

concerns are tactically applying them with the workable ones. Such

as EOQ to achieve all their organizational goals such as cost

minimization, profit maximization and smooth production among

others just like the United States of America, Japan and Britain, etc

Table 4.1.10 Percentage Analysis of the Use of Economic Order


Quantity Model to Determine the Quantity of
Inventory to Order.
CATEGORY OBSERVED PERCENTAGE PERCENTAGE PERCENTAGE
STATEMENT OF FREQUENCY OF OF OF
RESPONSES OF RESPONSES% RESPONDENTS RESPONDENTS
RESPONSES WHO AGREE WHO
WITH THE ITEM DISAGREED
% WITH THE ITEM
%
Beverage Strongly 48 57.83

companies Agree

use the Agree 30 36.14

technique of Neutral 2 2.41 93.97 6.03

Economic Disagree 3 3.62

Lot Size of

Economic

Order
Quantity of

Inventory to

order and

when to do

so.

83 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

The analysis of the responses shows that 93.97% of the

respondents agreed that Economic Order Quantity (EOQ) model is

used to produce the right order quantity of inventory and at the right

time, while 6.03 which disagreed may be hoping on other models

such as Just-In-Time, among others.


Table 4.1.11 Percentage Analysis of the Use of EOQ to Minimize

Cost of Inventories.

STATEMENTS CATEGORY OBSERVED PERCENTAGE PERCENTAGE PERCENTAGE


OF FREQUENCY OF OF OF
RESPONSES OF RESPONSES% RESPONDENTS RESPONDENTS
RESPONSES WHO AGREE WHO
WITH THE ITEM DISAGREED
% WITH THE ITEM
%

The use of Strongly 60 71.43

Economic Agree

Order Agree 18 21.43

Quantity or Neutral 4 4.76 92.76 7.14

size to Disagree 2 2.33

minimize the

cost incurred

in inventory

procurement.

Total 84 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)


The analysis shows that 92.86% of the respondents agreed that

Economic Order Quantity is used to minimize costs of inventories

while 7.14% disagreed.

Table 4.1.12 Percentage Analysis of the Use of Inventory

Management Techniques of JIT, EOQ, QRM to

maximize profit by the Manufacturing Concerns.

STATEMENTS CATEGORY OBSERVED PERCENTAGE PERCENTAGE PERCENTAGE


OF FREQUENCY OF OF OF
RESPONSES OF RESPONSES% RESPONDENTS RESPONDENTS
RESPONSES WHO AGREE WHO
WITH THE ITEM DISAGREED
% WITH THE ITEM
%

The use of Strongly 42 50.00


just-in-time
(JIT), Agree
Economic
Lot Size Agree 28 33.33
(ELS) and
Quick Neutral 4 4.76 83.33 16.67
Response
Manufacture Disagree 10 11.91
help the
concerns to
minimize
their profits.
Total 80 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)


The analysis shows that 83.33% agreed that inventory

management models of Just-In-Time (JIT), Economic Lot or Order

Size, Quick Response Manufacture are used by the manufacturing

concerns to maximize their profits while 16.67% was not of the same

view which may be because they believe that the maximization of

profit is just by chance.

Table 4.1.13 Percentage Analysis of the Use of Economic Order

Quantity, Just-In-Time and Material Requirement

Planning and Quick Response Manufacture to

obtain and Hold Enough Size of Inventories for

Smooth and Hitch Free Production.

STATEMENTS CATEGORY OBSERVED PERCENTAGE PERCENTAGE PERCENTAGE


OF FREQUENCY OF OF OF
RESPONSES OF RESPONSES% RESPONDENTS RESPONDENTS
RESPONSES WHO AGREE WHO
WITH THE ITEM DISAGREED
% WITH THE ITEM
%
Economic Lot Strongly 20 23.81
Size, Just-In-
Time (JIT), Agree
Material
Requirement Agree 47 55.95
Planning
(MPR) tools Neutral 9 10.71 79.76 20.24
of inventory
management Disagree 8 9.53
assist
manufacturing
concerns to
hold
sustainable
size of
inventories for
smooth and
hitch free
production
Total 84 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

The analysis shows that 79.76% agreed that the inventory

management models of Economic Lot Size (Order Quantity), Just-In-

Time (JIT), Quick Response Manufacture (QRM) and Material

Requirement Planning (MPR) assist manufacturing concerns to hold

enough inventories to support smooth and hitch free production. On

the other hand 20.24% of the respondents disagreed.

Table 4.1.14 Percentage Analysis of the Use of Inventory

Management Techniques to minimize unnecessary

Investments in Inventory.

STATEMENTS CATEGORY OBSERVED PERCENTAGE PERCENTAGE PERCENTAGE


OF FREQUENCY OF OF OF
RESPONSES OF RESPONSES% RESPONDENTS RESPONDENTS
RESPONSES WHO AGREE WHO
WITH THE ITEM DISAGREED
% WITH THE ITEM
%
Inventory Strongly 41 50.00
management Agree
assists Agree 36 43.90
manufacturing Neutral 2 2.44 93.90 6.10
companies to Disagree 3 3.66
minimize
unnecessary
investments in
inventory.
Total 82 100
Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

This analysis shows that inventory management assist

manufacturing concerns to minimize unnecessary investments in

inventory as shown by the size of respondents (93.90) that support

the view.

Table 4.1.15: Percentage Analysis of the Use of Inventory

Management Techniques to Manage, Supervise

Inventory Items.

STATEMENTS CATEGORY OBSERVED PERCENTAGE PERCENTAGE PERCENTAGE


OF FREQUENCY OF OF OF
RESPONSES OF RESPONSES% RESPONDENTS RESPONDENTS
RESPONSES WHO AGREE WHO
WITH THE ITEM DISAGREED
% WITH THE ITEM
%
Assistance in Strongly 33 39.29

making better Agree


position of Agree 40 47.62

manufacturing Neutral 5 5.95 86.91 13.09

organizations. Disagree 6 7.14

Total 84 100

Strongly 24 30.86

Periodic and Agree


physical
counting of Agree 43 53.09
stock items in
the warehouse
help to reduce Neutral 2 2.47 83.95 16.05
pilfering,
obsolesces
and Disagree 11 13.58
deterioration of
inventory
items.

Total 81 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)


Table 4. 1.17

S/N STATEMENTS CATEGORY OBSERVED PERCENTAGE PERCENTAGE PERCENTAGE


OF FREQUENCY OF OF OF
RESPONSES OF RESPONSES% RESPONDENTS RESPONDENTS
RESPONSES WHO AGREE WHO
WITH THE ITEM DISAGREED
% WITH THE ITEM
%
17 Inventory Strongly 42 51.22
management
help to disagree
improve the
sales of the agree 30 36.58 87.80 12.20
manufacturing
companies Neutral 3 3.66

Disagree 7 8.54

Total 82 100

18 Consumers of Strongly 48 57.83


manufacturing
companies disagree
are always
happy and agree 29 34.94 92.77 7.23
satisfied when
they are
supplied what Neutral 0 0.00
they needed
at the right
time Disagree 6 7.23
Total 83

19 Suppliers are Strongly 20 24.39 87.80 12.20


always willing
to supply the disagree
raw materials
to agree 52 63.41
manufacturing
concerns. Neutral 3 3.66

Disagree 7 8.54

Total 82 100

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

Table 4.1.15 shows that about 86.91% of the respondents

agreed that inventory management assists to make better the liquidity

position of the manufacturing companies 87.80% also was of the

opinion that it improves the sales of the companies and 92.77%

agreed that it helps to render efficient services to the customers and

87.80% attested to the fact that suppliers of the raw materials do not

fail that the reliability needed of the servers by the clients [the

manufacturing concerns] for some of the models to function efficiently

obtains.
However, some of the respondents disagreed to the above views

e.g. 16.05% believed that inventory management prevent pilfering

and deterioration of inventories while 12.20% believe that sales do

not improve due to efficient inventory management.

4.2. ANALYSIS OF THE ORDERING AND HOLDING COST AS

PERCENTAGE OF THE TOTAL COST.

TABLE 4.2. Percentage Determination of the Ordering and

Holding costs to the Total costs.

YEAR TOTAL ORDERING PERCENTAGE HOLDING PERCENTAGE


COST COST OF TOTAL COST TO TOTAL
COST COST
1998 2,486,004 1,231,359 10.51 10.71

1999 1,939,793 907,336 7.74 932,454 7.96

2000 2,160,270 1,132,770 9.67 1,027,500 8.77

2001 2,436,900 1,196,077 10.21 1,240,823 10.58

2002 2,794,050 1,388,353 11.85 1,405,697 12.00

TOTAL 11,717,017 5,855,898 49.98 5,861,119 50.02

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)


The above percentage analysis of the ordering and holding

costs to the total cost shows that the beverage companies are using

inventory management to administer their inventories. Holding cost is

50.02% while ordering cost is 4949.98% with difference of only 0.04%

with which the holding cost is more. This could be attributed to

human factor in handling the machine set-ups that made the

inventories to linger in the warehouse.

However, the companies are managing their inventories well

and this resulted to reduction of the total cost which in turn helps in

the general performance of the organization as shown in the

responses of 85 respondents of the companies studied.


4.3. ANALYSIS OF ECONOMIC LOT SIZE [ELS] AND

PRODUCTION LEVEL

TABLE 4.3. ANALYSIS OF ECONOMIC LOT SIZE

[ECONOMIC ORDER QUANTITY] AND PRODUCTION LEVELS

YEAR EOQ COCA-COLA LIMCA NIG. PEPSICOLA TOTAL


UNITS NIG. PLC PLC NIG. PLC PRODUCTION
PRODUCTION PRODUCTION PRODUCTION (UNITS)
(UNITS) (UNITS) (UNITS)
1998 5,606 731,061 562,320 646, 668 1,940,004

1999 4,197 1,059,503 815,002 937,252 2,811,757

2000 4,937 1,306,916 1,005,320 1,156,118 3,468,354

2001 6,098 1,758,120 1,352,400 1,555,260 4,665,780

2002 8,022 2,125,773 1,635,210 1,880,492 5,641,475

TOTAL 28,860 6,981,328 5,370,252 6,175,790 18,527,370

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

From the above table, the organizations always increase the

quantity of inventory orders they place in order to meet their

production needs. Therefore, it could be seen that the production

levels increased steadily from 1998 to 2002.


This is because the organizations did not allow any production

stoppages resulting have helped them to retain their markets and

their customers goodwills.

Therefore, with efficient inventory management, production

interruptions and shortage costs resulting from unavailability of raw

materials, idle workers and under utilization of machine capacities

are avoided.

4.4. ANALYSIS OF CUSTOMER SATISFACTION THORUGH

PRODUCTION AND SALES LEVELS

TABLE 4.4. PRODUCTION AND SALES LEVELS OF THE

ORGANIZATION OF STUDY

YEAR PRODUCTION SALES (NAIRA)


(UNITS)
1998 1,940,004 1,688,051
1999 2,811,757 3,330,340
2000 3,368,354 3,682,351
2001 4,665,780 3,904,684
2002 5,641,475 6,890,806
TOTAL 18,527,370 19,496,232
Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

The table above shows the levels of production and sales of the

beverage companies studied [Coca-Cola Plc, Pepsi Cola Plc, and

Limca Plc]. The outputs of production show that production has been
constantly on the increase since 1998 to 2002. This shows that the

demand of the customers had been taking seriously in order to render

excellent services to them.

The above observation is supported by the level of sales that

has also remained steady since 1998, for instance, in 1998, the total

sales was N1,688,051 while in 2002, total sales was N6,890,806

difference of N5,202,755.

Therefore, it could be concluded here that the customers

patronage of the companies product is a mark of satisfaction they

receive from the services rendered to them and also for the products

sold to them.
4.5. ANALYSIS OF CUSTOMER SATISFACTION THORUGH

PRODUCTION AND SALES LEVELS

TABLE 4.5 ANALYSIS OF COST MINIMIZATION BY THE USE OF

ECONOMIC LOT SIZE [ECONOMIC ORDER QUANTITY]

TABLE 4.5 EOQ AND INVENTORY COS TFOR THE FIVE YEARS

PERIOD

YEAR EOQ ORDERING HOLDING TOTAL


(UNITS) COST N COST N COST N
1998 5,606 5,606 1,254,645 2,486,004
1999 4,197 4,197 932,454 1,839,793
2000 4,947 4,947 1,027,500 2,160,270
2001 6,098 6,098 1,240,823 2,436,900
2002 8,022 8,022 1,405,697 2,794,050
TOTAL 28,860 28,860 5,861,119 11,717,017

Source: (Coca-Cola Nigeria Bottling Company Plc, Pepsi-Cola

Nigeria Plc, and Limca Nigeria Ltd.)

The table above shows the total cost of inventories of raw

materials incurred by the companies studied. This cost is divided into

ordering and holding cost. From the table above, using the Economic

Lot Size quantities of inventories had helped the companies much in

minimizing the costs incurred in procuring inventories.

If these organizations had used other levels of inventories

instead of the EOQ units above, the cost of inventories could have
been higher. Therefore, the techniques of using efficient inventory

management in handling the cost of inventories cannot be over

emphasized in manufacturing concerns. This is because it has

multiple advantages which range from cost minimization to high profit

posting for the companies.

4.6. TESTING OF HYPOTHESIS BY CHI-SQUARE [2X]

Hypothesis who and there as stated in the statement of

hypothesis in chapter one were tested using chi-square [2X] static.

The acceptance and rejection rule remained as stated in chapter

three of this research work. In testing the hypotheses, questions

twelve and thirteen were used and these procedures were adopted

as shown below.

4.6.1. HYPOTHESIS TWO

Ho: Just In Time [JIT], Economic Lot Size and Quick Response

Manufacture [tools of inventory management] do not assist

manufacturing concerns to hold sustainable size of inventories for

efficient and smooth production.

Hi: Just In Time [JIT], Economic Lot Size and Quick Response

Manufacture [tools of inventory management] do assist


manufacturing concerns to hold sustainable size of inventories for

efficient and smooth production.

TABLE 4.6.1. EVALUATION OF HYPOTHESIS TWO

Company/Option S/A A N D/A Total

Coca-Cola Nig. 7 20 4 5 36

Plc

Pepsi Cola Nig 7 6 5 2 20

Plc

Limca Ltd 6 21 0 1 28

Total 20 47 9 8 84

TABLE 4.6.2. OBSERVED AND EXPECTED FREQUENCIES

Company/Option S/A A N D/A Total

Coca-Cola Nig. 7 20 4 5 36

Plc O

E [8.6] [20.1] [3.9] [3.4]

Pepsi Cola Nig 7 6 5 2 20

Plc O
E [4.8] [11.2] [2.1] [1.9]

Limca Ltd O 6 21 0 1 28

E [6.6] [15.7] [3.0] [2.7]

Total 20 47 6 8 84

Where S/A = Strongly agree, A = agree, N = Neutral, D/A = Disagree.

According to Nwabuokei [1986:272

Expected frequency [E] = Row total x column total


Overall total

Therefore, the above expected frequencies were computed

using the above formula. The expected frequencies were enclosed in

bracket while the observed frequencies as in table 4.6.1 were also

shown.

In order to calculate the chi-square [X2] the formula:

X2 = (O-E)2
E

Where O = Observed frequencies

E = Expected frequency

X2 = Chi- square

= Summation

Substituting in X2 = (O-E)2 table 4.6.3. was got.


E
TABLE 4.6.3.
X2 COMPUTATION
O E O-E (O-E)2 X2 = (O-E)2
E

7 8.6 1.6 2.56 0.30


20 20.1 0.1 0.01 0.00
4 3.9 0.1 0.01 0.00
5 3.4 1.6 2.56 0.75
7 4.8 2.2 4.84 1.01
6 11.2 5.2 27.04 2.41
5 2.1 2.9 8.41 4.00
2 1.9 0.1 0.01 0.01
6 6.6 0.60 0.36 0.05
21 15.7 5.3 28.09 0.79
0 3.0 3.0 9.00 3.0
1 2.7 1.7 2.89 1.07
Total 84 X2 Cal. = 14.39

4.6.2. Determination of Tabulated Chi-square (X2)

The tabulated Chi-square (X2) is determined thus: Alpha [ ]

value = 5% or 0.05. According to Nwabuokei P.O.

[1986:273].

The number of degree of freedom in a contingency table is

determined by the formula [r-1][k-1].


In the above formula, r = number of rows and

K = number of columns in any

given contingency table

Therefore degree of freedom [df] = [R-1][K-1]

df = [3-1] [4-1] = 2x3

df = 6 [table 4.6.1.]

From Chi-square table [plate 1] X2 at , value of 0.05 and 6 df

X2 tab = 12.592

Decision rule: Accept Ho if X2 cal X2 tab. Hence reject Hi

Conclusion: Since X2 cal [14.39] X2 [12.592] the Null hypothesis is

rejected while the alternative hypothesis is accepted. This shows that

the use of economic lot size. Just-in-time material requirement

planning [MRP], and Quick Response manufacture [QRM], tools of

inventory management and control assist manufacturing concerns to

hold sustainable size of inventories for efficient and smooth

production.
4.6.3. HYPOTHESIS THREE TESTING

Ho: Economic Lot Size [ELS], Just-In-Time [JOT], Material

Requirement Planning [MRP] and Quick Response

manufacture [QRM], tools of inventory management do not help

manufacturing concerns to maximize profit.

Hi: Economic Lot Size [ELS], Just-In-Time [JOT], Material

Requirement Planning [MRP] and Quick Response

manufacture [QRM], tools of inventory management do help

manufacturing concerns to maximize profit.

TABLE 4.6.4 EVALUATION OF HYPOTHESIS THREE

Company/Option S/A A N D/A Total

Coca-Cola Nig. 16 9 0 4 29

Plc O

Pepsi Cola Nig 12 7 4 0 23

Plc O

Limca Ltd O 14 12 0 6 32

Total 42 28 4 10 84
TABLE 4.6.5: OBSERVED AND EXPECTED FREQUENCIES

Company/Option S/A A N D/A Total


Coca-Cola Nig. 16 9 0 4
Plc O
E [14.50] [9.6] [1.4] [3.5] 29
Pepsi Cola Nig 12 7 4 0
Plc O
E [11.50] [7.7] [1.10] [2.7] 23
Limca Ltd O 14 12 0 6 32
E [16.00] [10.70] [1.50] [3.8] 32

Total 42 28 4 10 84

TABLE 4.6.3. X2 COMPUTATION


O E O-E (O-E)2 X2 = (O-E)2
E

16 14.50 1.50 2.25 0.16


9 9.60 -0.40 0.16 0.02
0 1.40 -1.40 1.96 1.40
4 3.50 0.50 0.25 0.07
12 11.50 0.50 0.25 0.02
7 7.70 -0.70 0.49 0.07
4 1.10 2.90 8.41 7.65
0 2.70 -2.70 7.29 2.70
14 16.00 -2.00 4.00 0.25
12 10.70 1.30 1.69 0.16
0 1.50 -1.50 2.25 1.50
6 3.80 2.20 4.48 1.04
Total 84 X2 Cal. = 15.04
4.6.4. Determination of tabulated Chi-square [X2] using alpha level of

0.05 and 6 df, the tabulated X2 = 12.592 [Refer to plate 1 for

Chi-square table.

Decision rule: Accept Ho if X2 tab, hence reject Hi but X2 cal.

15.05 X2 tab 12.592

Conclusion: since, the X2 calculated is greater than X2 tabulated

[15.04 12.592], the null hypothesis is rejected and the alternative

hypothesis is accepted. This confirms the assertion that the use of

Just-In-Time [JIT] Economic Lot Size [ELS] and Quick Response

manufacture [QRM] tools of inventory management help

manufacturing concerns to maximize their profits.

4.7. MEASUREMENT OF LINEAR CORRELATION

4.7.1. Correlation Co-efficient [r]

Correlation coefficient measures the degree of co-variability of

tow or more variables. It is this measurement of the degree of

correlation or relationship that is used to test the first hypothesis

stated in chapter one of this work. This correlation statistic is used to

test the relationship between economic lot sizes or economic order

quantities [X] and their associated costs [Y].


In carrying out this test, correlation co-efficient must be

explained further for easy assimilation. It assumes values that vary

from 1 to +1. When correlation co-efficient [r] is positive X and Y

move in the same direction, that is they tend to increase or decrease

together. Correlation co-efficient when negative, X and Y change in

opposite directions, that X increase while Y decreases and vice

verse.

Therefore, if correlation co-efficient [r], after computation has

values between -1 and +1, the alternative hypothesis is accepted,

showing that manufacturing concerns maximize costs of inventories

by the use of economic lot size while the null hypothesis will be

rejected.

4.7.2. HYPOTHESIS ONE TESTING

Ho: Manufacturing concerns do not minimize cost of inventories

through the use of economic lot sizes. [Economic order quantities].

Hi: Manufacturing concerns do minimize cost of inventories

through the use of economic lot sizes. [Economic order quantities].


4.7.3. COMPUTATION OF CORRELATION CO-EFFICIENT [r]

In order to compute the value of correlation co-efficient [r], this

mathematical formula is used.

r = nxy- xy
(nX2) (X)2 (nY2) (Y)2

where n = the number of years


X = the economic lot sizes
Y = total cost of inventories for each year
XY = summation of the production X and Y
X = Summation of X
Y = Correlation co-efficient
TABLE 4.7.1. Below is used to determine the value of each of
the elements in the formula above

Year Economic Total cost Xy X2 Y2

lot size [Y] N

UNITS [000]

1998 5,606 2,486,004 13,936,516.00 31,427,236 6180196

1999 4,197 1,839.793 7,721598.63 17614809 3384827.24

2000 4,397 2,160.270 19,665,252.99 2437396.90 4666766.74

2001 6,098 2,436,900 14,860,216.20 37185604 5,938481.61

2002 8,022 2,794,050 22,413,869.10 64352484 780615.40

Total 28,860 11,717.01 69,597,452.92 174917529.90 27,976986.99


Substituting in the expression

r = nxy- xy
(nX2) (X)2 (nY2) (Y)2

r= 5(69,597,452.92) (28,860) (11,717.01)


(5(174,917,592.90) (288602) (5(27976986.99) 11717.02)2

r = 347987,264.60 338152908.60
(41,688,049.50) (2,596,611.70
r = 9834456
(6456.63) (1611.40)

r = 9,834356
10,404213.58

r = 0.95(2.d.p)

The result of r = 0.95 shows that there is high

relationship between economic lot size (economic order quantity) and

costs of inventories. Hence, the result proves the alternative

hypothesis valid and is thus accepted. The acceptance shows that

manufacturing concerns use efficient inventory management

techniques to minimize the cost of their inventories.


4.7.4. CO-EFFICIENT OF DETERMINATION [R2]

Co-efficient oaf determination [R2] estimates the amount of

variance or change in dependent variable [Y] which is explained by

the change in the independent variable, [X] here it shows the

proportion of change in costs [Y] that can be explained by the

economic lot sizes [economic order quantity], [X].

4.7.5. COMPUTATION OF CO-EFFICIENT OF DETERMINATION


[R2]

Table 4.7.3. was used for this computation the formula shown below
is used.

R2 aY+bXY n(Y)2
(Y2) - n(Y)2

R2 958.12(11717.01)+0.24(69,597452.92)-5(2343.40)2
27976986.99 - 5(2,343.40)2

R2 = 11226301.62 16703388.70 2745615.80


27976986.99 27,457,617.80

R2 = 27929690.32 - 27457617.80
27976986.99 27457617.80
R2 = 472072.52
519369.19

R2 = 0.91 or 91%

The result of R2 = 91% shows that 91% of total variation of cost

of inventories [y] of the manufacturing concerns were explained by its

relationship with the use of economic lot size [X]. The remaining 9%

can be attributed to other factors [chance].

4.7.6. REGRESSION ANALYSIS

Regression analysis is designed to reveal the true relationship

connecting variables together. So, that the nature and extent of their

relationship can easily be seen. In this analysis, the researcher

seeks to find the relationship between Economic Lot Size [order

quantity], X which is the independent variable and the cost of

inventories (Y) which is the independent variable. Economic order

quantity or lot size is that quantity of inventory procured by

manufacturing concerns that minimizes the costs of ordering and

holding inventories. Costs of inventories and holding them in the

warehouse until such inventories are used in the production process.

The regression equation that comments the two variables, X

and Y is shown thus:


Y = a + bx

Where a = Y-intercept or constant

b = regression coefficient of Y on X [the

slope of Y on X]

y = cost of inventories

x = economic order quantities

4.7.7. REGRESSION EQUATION

This is a simple linear equation, as stated before, b represents

the regression co-efficient, which can be calculated with the formula:

Where b = nxy - XY
(nX2) - (X)2

a = Y-bx

Where Y and X are the means of Y and X respectively

b = the slope of the line of[regression co-efficient

of Y on X]

a = constant [representing the Y intercept]


n = number of years
= summation

TABLE 4.7.3 REGRESSION ANALYSIS

Year Economic Total cost Xy X2 Y2


lot size [Y] N

UNITS [000]

1998 5,606 2,486,004 13,936,516.00 31,427,236 6180196

1999 4,197 1,839.793 7,721598.63 17614809 3384827.24

2000 4,397 2,160.270 19,665,252.99 2437396.90 4666766.74

2001 6,098 2,436,900 14,860,216.20 37185604 5,938481.61

2002 8,022 2,794,050 22,413,869.10 64352484 780615.40

Total 28,860 11,717.01 69,597,452.92 174917529.90 27,976986.99

Mean of EOQ [X] = 28860


5 = 5772

Mean of EOQ [y] = 11717.01


5 = 2,343.40

But the formula for b = nxy-bXY


(nY2) - (X)2

Substituting in the formula above:

b = 5(69,597,452.92) (28,860) (11,717.01)


5(174,917,592.90)-(28860)2

b = 347987,264.60-338152908.60
874587649.50-832899600
b = 983456
41688049.50
= 0.24

The formula for obtaining [a] is thus a = y-bx substituting in the

above formula

a = 2,343.40 0.24(5,772)

a = 2343.40 1385.28

a = 958.12

Substituting in the regression analysis formula

y = a + bx

y = 958.12 + 0.24x

The equation, y = 958.12 + 0.24 x regresses y on x a(that is

cost on EOQ). The result shows that when there is no application of

efficient inventory management by the manufacturing concerns in

handling the cost of their inventories that total cost of inventory will

increase by N958.12 x 1,000 which isN958.120 per annum. The cost

value of N958.12 also shows that if the cost and EOQ are

represented on the graph, the curve will cut the y-axis at a point of

N958.12 above the origin.

Furthermore, the most essential thing is the minimization of

cost that is attributable to the use of inventory management, which is


0.24 [coefficient of regression]. This means that the total cost of

inventories of what it used to be when inventory management

techniques was not used. In other words, with an increase of 1000

units in inventory, cost will only increase by an average of N240.

Therefore, manufacturing organizations stand to gain more in

terms of profitability and expansion by minimization of cost invented

in inventories by the use of inventory management.

4.7.8. REGRESSION GRAPH

The regression graph shows the relationship between

economic lot size [economic order quantity] [X] and cost of

inventories [Y] on a graph. This is done by determining values of at

certain given value of X using the regression formula: Y = a+bx

assuming the value of Y is needed to be extrapolated at the following

values of X: 1500,2500,3500 units respectively. The above formula Y

= a+bx will be used thus

Given that a = 958.12

b = 0.24 [from previous calculation]

Y1 = 958.12 + 0.24 [1500]

= 958.12 +360
= 1318.12

Y2 = 958.12 + 0.24 [2500]

= 958.12 + 600

= 1,558.12

Y3 = 958.12 + 0.24 [3500]

= 958.12 + 840

= 1,798.12

representing the above three levels of EOQ and their

extrapolated total costs on a graph, we would have:

Total

3500
3000

2500

2000

Cost (N) 1500

1000

500

1500 2500 3500

Figure 4.7.1: Regression graph of Total cost [Y] against economic


order quantity [EOQ] [X]

Scale: 2cm = 500 units on x axis


2cm = N500 on y axis

From the graph above the y-intercept [which is equal to

calculated a] is about 958.12 and at a point where the curve cuts y-

axis. The graph gives credence to the fact that efficient inventory

management minimizes the costs of inventories purchased by the

manufacturing concerns. This is so, because the graph established

that there is relationship between EOQ and cost.

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS
5.1 SUMMARY OF FINDINGS

The research actually revealed the following findings:

(a) The companies maximized their profits through more sales and

cost reduction due to the use of efficient inventory management

techniques.

(b) The inventory models help the companies to maintain hitch-free

production and thereby remove all process wastes by making

inventories of raw materials to be available at all time.

(c) That inventory is one of the most essential assets of

manufacturing concerns and a lot of capital is invested in it.

(d) Inventory management models are used by manufacturing

concerns and they order for their raw materials inventories at

the right time, reduce costs of their inventories and improve on

the liquidity position of their establishments.

(e) A coefficient correlation of 95% or 0.95 indicates a strong

positive correlation between Economic Order Quantity (EOQ)

and cost of inventories. This shows that EOQ and other

inventory management models assists the concerns reduce

their cost of investment in inventories.


(f) The customers of the organizations patronize them very well

due to the nature of service rendered to them as there was no

report of out of stock syndrome.

(g) The employees always receive high salaries and promotions,

shareholders receive high dividends and increase in their share

prices due to efficient management of using the inventory

management tool.

5.2 CONCLUSION

Inventory management has really assisted manufacturing

concerns in coordinating their inventories and their overall

performance.

The organizations have put on record reduction of cost of their

inventories and that of production thereby increasing their total

revenues and general profitability. As a result of this, the

organizations pay high dividends to their shareholders and cause

imperative prices of their shares at the stock exchange market,

thereby attracting more potential investors to themselves.

The establishments have built strong customer patronage due

to the nature of services they provide to them because production is


always smooth and hitch free. This results to high contribution margin

to the establishments and no cases of losing the customers to fellow

competitors.

Thorough supervision of the inventories in the warehouse has

been achieved and cases of pilfering of stock items and lack of

accurate date for forecast are things of the past. This has made for

safety of the stock items and removal of obsolescence.

Also, it is established that there is strong relationship between

inventory model of economic order quantity and cost reduction. And

manufacturing concerns have used it to minimize their costs and

maximize their profits.

Again, efficient inventory management has enabled the

concerns to know when to order for the replenishment of their stocks

and the right quantity to order. This has helped them to overcome the

issue of over-stocking or under-stocking of inventories in their

warehouses with its attendants costs implications.

The organization have done well in the area of social

responsibilities as they support sports competitions, award

scholarships and educational endowments and construct roads in the

areas of operation. They also provide employment opportunities to


citizens of Nigeria. All these are due to the use of effective tools of

inventory management to manage their key asset inventories of their

organizations.

5.3 RECOMMENDATIONS

This research work has revealed that a lot of gains accrue from

efficient inventory management by the manufacturing companies in

Nigeria. However, the manufacturing concerns will perform better and

compete effectively with their foreign counterparts in this era of

globalization and internationalization if the following

recommendations are put into consideration:

(a) Manufacturing companies in Nigeria should map out fund for

research works both in the areas of manufacture and other

sectors of the economy.

(b) All staff of the manufacturing concerns should be made to have

the thorough knowledge of inventory management as this will

enable them to work towards their stock protection and cost

minimization.
(c) There should be adequate study and understanding of the

holding cost by all the staff of manufacturing companies

handling inventories so, as to keep watch over it all the times.

(d) The organizations on their own should stop being too secretive

in releasing their information that would support meaningful

research works in manufacturing industry.

(e) Manufacturing concerns should get the recent developed

software on inventory management so as to update their

knowledge of inventory management on a regular basis.


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Microsoft Business Solution. Can Customers be Satisfied Using


Efficient Inventory Management?

www.google.com/search?Q=cache:4dhrmbi.13 March, 2003 P. 2

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Prentice Hall Inc. USA.
School of Post Graduate Studies
Department of Accountancy,
University of Nigeria,
Enugu Campus.
Dear Sir/Madam,

RESEARCH QUESTIONNAIRES

I am a Masters Degree Student of Accountancy in the above

university. This questionnaire is meant to help me complete a

research I am conducting on the topic: Evaluation of the

Usefulness of Inventory Management in Manufacturing

Concerns: A study of some selected beverage companies in

Nigeria.

This research is in partial fulfillment of the requirements for the

award of Masters Degree (MBA) in Accounting. The choice of your

organization is in recognition of its large inventory usage, which is

purely the area of this research work.

This research does not have any espionage undertone but

purely for academic purpose. I promise that any information obtained

in this questionnaire will be treated with utmost confidentiality.

Thanks for your cooperation.

Yours faithfully,

Ogbu Ogbonnaya B.
THIS SECTION SEEKS INFORMATION ABOUT YOU AND YOUR

COMPANY

Please, you are requested to tick ( ) in the box appropriate to

your answer.

1. Sex of respondent

(a) Male [ ]

(b) Female [ ]

2. Age of Respondent

(a) 20 - 30 [ ]

(b) 31 40 [ ]

(c) 41 50 [ ]

(d) 51 60 [ ]

(e) 61 and above [ ]

3. Educational Qualifications

(a) SSCE/GCE/O Level [ ]

(b) ND/NCE [ ]

(c) B.Sc/HND [ ]
(d) Masters Degree and Above [ ]

5. Which of the following do you belong?

(a) Personnel Official/Staff [ ]

(b) Production Official/Staff [ ]

(c) Sales Official/Staff [ ]

(d) Accounts Official/Staff [ ]

6. Position:

(a) Junior/Intermediate Staff [ ]

(b) Management Staff [ ]

(c) Senior Staff [ ]

(d) Others [ ]

QUESTION STRONGLY AGREED NEUTRAL DISAGREED

AGREED

Manufacturing

organization

use stock or

inventory in

their
production.

Beverage

companies

use

concentrates,

mea solution,

sugar, water

and other raw

materials for

their

production.

The products

manufactured

by beverage

companies

which you

work in and

around you

include coca-

cola, 7up,
lima, Fanta,

Pepsi etc.

Manufacturing

organizations

use

techniques to

manage their

inventory

levels.

Beverage

companies

use the

technique of

Economic Lot

Size of

Economic

Order

Quantity of

Inventory to

order and
when to do

so.

The use of

Economic Lot

Size

(Economic

Order

Quantities)

minimizes the

cost income.

The use of

just-in-time

(JIT),

Economic Lot

Size (ELS)

and Quick

Response

Manufacture

(QRM) tools

of inventory
management

help

manufacturing

concerns to

minimize their

profits.

Economic Lot

Size, Just-In-

Time (JIT),

Material

Requirement

Planning

(MPR) tools

of inventory

management

assist

manufacturing

concerns to

hold

sustainable
size of

inventories for

smooth and

hitch free

production.

Inventory

management

assists

manufacturing

companies to

minimize

unnecessary

investments

in inventory.

The use of

inventory

management

makes better

the liquidity

position of
manufacturing

organizations.

Periodic and

physical

counting of

stock items in

the

warehouse

help to reduce

pilfering,

obsolesces

and

deterioration

of inventory

items.

Inventory

management

helps to

improve sales

of the
manufacturing

companies.

Customers of

manufacturing

companies

are always

happy and

satisfied when

they are

supplied what

they needed

at the right

time.

Suppliers are

always willing

to supply to

the

manufacturing

companies

the raw
materials they

use for

production at

the right time.

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