Assessment of inventory management Essay Example

establishment was apparently in response to increased demand for shoes, which must have been triggered by the presence of sizable Italian occupation army that invaded the country. The main factory premises and administration office are conveniently located in center of Addis Baby, Lidded Kef Ketene. The factory has one branch production unit known as MAMBO Branch in Eastern part of Addis Baby.

Anabases has from time to time made renovation of old equipment and installation of new advanced machinery. This as enable the factory to increase TTS capacity following the implementation of expansion project, the designed production capacity of the company has now reached 4500 pair of shoes per day in 8 hours shift. The two major markets are the local market and the export market which the company is recently embarked on. It uses its 17 retailing shops which are founded across the county in selected major towns t distribute its products for local market.

Though the major markets have been dominated by local market share for the past many years, due to the export oriented market is taking the helm over the local.

It uses a whole sale for distributing its rodents to the international market. The main export destination of the company is Italy through which it covers the European market. Anabases has accomplished a lot for the past few years and motivating results has also been achieved since the government of Ethiopia has also made export market its priority. Anabases is getting all support it needs to export its products. Anabases has designed and put in effect an expansion project with the aim to changer its all manufacturing facilities with new

machineries and plant facility lay out so tat it can produce export standard finished shoe using its full capacity. The company have now a newly established factory employing state - of - the art technology with a product capacity of 3000 pairs of export standard leather foot wear an del 500 pair for local market The company now producing world class model using he best technology adapted from Italy.

Anabases exporting its products to the European market through Italy and it also supplying the same quality products to local market using it 17 retailing shops (Company Profile) 1. 3 Statement of the Problem Flow control of control of materials requires a proper handling operations and physical distribution in many stages of its production operation and after rods. Inventory is a major cost centers, materials management must ensure that materials are physically distributed at the right time with a minimum of handling and maintaining the physical flow of materials in continuous fashion.

An organization is a living system, both socio economic and socio technical, a coalition of individuals and groups for maintain and improvement of interests. In such a system, the efficiency and economy of transfer and conversion of in putt out put are of paramount importance for optimum economic result. In many organizations cost and materials constitute a large oration for production the case is true for Anabas Shoe S.

C. This indicates that the inventory control management should be given the most priority.

The nature f inventory management control in Anabases Shoe S. C is not effective and 3 efficient as it regards to be. There is an escalated cost of inventory and poor

control system this research was tray to explore and answer the following research Questions. 1.

4 Basic Research Questions 1 . What inventory methods/systems adopted in the company? 2. To what extent does the inventory system help the Organization? L. In minimizing costs? I. In timely availability of raw material for production? II. In timely availability of products t the marketing?

IV.

In protecting materials and products from damage and waste? 3. Problems associated with the company inventory practice? 4. Weakness observed in the control system? 5. How does the company administer obsolete inventories? 6. Is there proper protection of inventories? 7.

Is there Proper procedure for transfer of materials? 8. Does the company give consideration for scrap? 9. What could be done to improve the overall effectiveness of the company inventory practice? 1. 5 Objectives of the Study 1.

5. General Objective The general objective of this study to investigate inventory related management problems. 1. 5. 2 Specific Objectives 1 . To evaluate the internal control of inventory procedure of the company.

4 2. To find out problems in relation to lack of enough stock. 3. To explain factors that is related to the problem 4. Based on these findings some recommendation will be forwarded for future improvement. 5.

To provoke others for further study on inventory control system. 1. 6 Scope of the Study The study was focused on how the company manage and control its inventory.

While the research was conducted mainly focused on storage systems, inventory controlling management and over all inventory management process with in the company. 1.

7 Research Design and Methodology To full fill the research requirement and

accomplishment of the study descriptive survey type of research was used. 1. 7. 1 Types of data Both primary and secondary data was collected 1 . 7.

2 Method of Data Collection I. Primary Data - Tools of observation, questionnaire, and interview were used to collect primary data. Ii.

Secondary Data - such as a company manual, Reference materials (books), and internet media was used. 1. 73 Data analysis Method 5 The data was collected is qualitative and quantitative Frequency count of espouses is undertaken such as percentage, ratio and proportion was used in analyzing the data.

1. 7. 4 Population Populations for this study were from production department cost and budget department property handling and supply department and sales and distribution department. In the above departments the total staff member were 70 employees.

1 . 7. Sample size 21 employees were selected for questionnaire from the population and interview was conducted to department and division heads from the total population. 1. 7. 6 Sampling Technique 30% of staff from the total population was selected on the basis of simple and sampling technique.

1. 8 Organization of the Study The study is organized in to four chapters. The first chapter of the Study concerned with the Background of the problem cited, Objectives significance of the Study, Scope and limitation of the Study. The second chapter concerned with presenting the literature review in related to the topic.

The third chapter concerned with presentation and Analysis Of the Data. The fourth chapter presents Recommendation.

6 summery of Conclusion and CHAPTER TWO LITERATURE REVIEW 2. 1 Introduction about Inventory Inventories consist of goods by a business and a

held either for use in the manufacture of products or as a product awaiting sales. We typically think of inventories as raw materials, Work in process, finished goods, or merchandise held by retailer But depending on the company s business, inventory may consists of virtually any tangible goods or materials.

An inventory might consist of component pieces of equipment, bulk commodities such as wheat or milling flour, fuel oil a waiting sale or unshed storage space. Machinery and equipment, for example are considered operational assets by the company that them, but before sale they are part of the inventory of the manufacture who made them.

Even a building during its construction period, is on inventory' item for the builder. (Decent teal, 1 938; 399) 7 2. 2. The need of inventory and its control Inventories of materials are needed by all organization big or small.

But inventories tend to become big with out proper control.

Materials and inventories serve some social purpose in industries which items from some social motives. The two motives are important here. The transaction motives results from the desire to match inflow and out flow of materials under certain controlled condition precautionary motives arises out of the inability o predict future demand precisely and getting the materials ready in time without incurring some extra costs. Thus, there also arises the need to maintain some safety or butter stock in order to maintain the smooth flow of materials with out impairing production.

But, as more and more stock of materials are held, this is not only entails grater investment, but carrying and associated cost increase peril passed. On the other hand it

minimum inventory is held, with the increase in frequently of buying the cost of ordering and processing increase. Also the cost of stock out poses economic problem. Thus inventory control is a major material management function, which requires the reduction in material costs with out impairing operational efficiency and there fore, needs careful attention. The analytical approach to inventory control is fundamental based on cost study.

It is balancing of some opposite costs that well enunciated in economic order quantity formulation but further refinements are necessary as the situation dictated. Some times, there are several costs associated with inventors, but there is always one in one direction. The resolution of the problem generally requires two basic questions to be answered. I. How often to order How much and when Determining these two basic question answers precisely requires cost information, and solution lies in balancing opposite costs in order to find on optimal solution.

Not all inventory problems however demand that these questions be answered. Some times, the inventory problem is so complex that if may not 8 be possible to obtain all information necessary. The either case, if may be satisfied with a sub-optimal solution, which seeks to improve the existing condition with out concern for the optimal course of action. In practice it might effect larger saving with out necessary going through on optimal ours of action. Iii. Thus, while inventory control is a major part of materials activity redacting inventory does not always ensure operational efficiency.

Thus is where it must strike a balance (A. K DATA, 2003:193-194) 2. 3 Classification of Inventory Inventories are classified as:l . Merchandise inventory 2. Manufacturing inventory

a. Raw materials b.

Work in process c. Fished goods d. Manufacturing supplies Miscellaneous 3. Merchandise inventory Represents goods on hard purchased for resale by a retailer or trading company such as on importer for resale.

Generally goods acquired are not hectically altered by the purchaser company; the goods are in finished from when they leave the manufacturers plant.

In some instance, parts are acquired and then further assembled in to finished products. Manufacturing inventory consists of several categories including a) Raw materials inventories 9 Raw material inventories are tangible goods purchased or obtained in other ways leg by mining) and on hand for direct used in the manufacture of goods for resale. B) Work in process inventory Work in process inventory are goods requiring further processing before completion and sale work in process, also called goods in process, inventory includes the cost of direct material, labor, allocated manufacturing over head costs incurred to date.

) Finished goods inventory Finished goods inventory are manufactured items completed and held for sale. Finished goods inventory costs includes the costs of direct material, labor manufacturing overhead related to manufacture. D) Manufacturing supplies inventory Include lubrication oils for the machinery cleaning materials and other items that make up on in significant part of the finished product. Miscellaneous inventories Include items such as office, janitorial and supplied inventories of this type re typically used in the near future and are usually recorded as selling or generals expense when purchased.

. 4 Function of inventory with in a firm 1 . Support production requirement One of the primary reason for inventory is to support the production requirement Of a firm ten

in one era of just - in time purchasing and manufacturing almost all firms still hold some level of production inventory, 10 which may include bulk supply of raw materials, semi finished goods, or material to support the packaging and shipping of finished product. Production inventory has historical represented a major source of inventory in investment.

For this reason, firms emphasize the development of system designed to control and reduce the amount of production related inventory maintained at any given time.

Firms recognized that the reduction of production inventory (particularly work in process results in lower inventory investment costs. The needs to support production requirement is still a primary reason why firms hold physical material inventory. 2) Support Operational requirement Nearly every firm carries MR.- maintenance, repair and operating supplies to support operations. This category includes the item required to keep a facility operating and Machine running.

MR. item usually represent a large inventory investment, especially in process- related industries such as shoes production or paper production. 3) Hedge against market place uncertainty Purchasers are incentive to changes in supply market, including changes in the availability of material supply as well as price changes when purchasers anticipate material shortage or price increases, they often increases purchase quantity as a hedge against this uncertainty. Increasing inventory levels in response to a legitimate threat of a shortage can be a good reason, at least in the short run, for holding additional material.

One of the primary objective of purchasing is to support the continued, an interacted flow of production. If this requires increased inventory to avoid a material shortage. (Monocle teal, 1998; 585-587). 2. 5 Factors leading

to in inventory Waste 1) In accurate or uncertain Demand forecasts 11 This is a common sure of uncertainty affective inventory levels, particularly for firms that manufacture products in anticipation of future order.

Some firms simply have a accurate inventory for casting system, when this is the case, a firm may increase inventory level to protect itself against for casting in accuracy.