CHAPTER ONE
1.1 INTRODUCTION
Inventory
control involves provision for a flow of goods in and out of a business
organization. Inventory control improves the marketing system by checking
discrepancies and enabling effective planning. It is also applied to all
production activities. Therefore, inventory control is quite useful in a
marketing organization. It is very important to marketing process. Considerable
attention has been given in recent years to viewing manufacturing facilities as
production/inventory system. The framework reorganizes the importance of
inventory.
However, it sometimes happens that
the organization will find itself with more items in inventory than that maximum
that is to say with an excessive inventory. The management of inventory systems
typically involves keeping track of thousands of stock keeping units. Since
competitive and economic advantages exist from efficient control of
inventories, inventory control models have been developed to assist inventory
management.
Inventory control system is based on
recorded or theoretical (not actual) stock levels to determine a set of
parameters that optimize inventory control. These parameters affect both
operational and financial decisions. A recorded stock level, is considered
accurate when the recorded level agrees with the actual stock level, otherwise
there is an error. Inaccurate inventory records may result in out-of-stock
condition that lower the service level and lead to loss of goodwill production
time or sales.
The main objective of inventory
control is to maintain a system which will minimize total cost and determine
the optimum quantity of commodity to order for and when best to make the order.
The two major systems are the “Re-order level system” and the periodic review
system.
Re-order level system: This is the
most commonly used to set quantity of stock for each item. This system which is
more responsive to fluctuations in demand compared with periodic review system
sets the value of three important level of stock as either check or trigger for
management. The three important level of stock are as follows:
i. Re-order level = Maximum usage (per period) x maximum lead time.
ii. Minimum Level (Lmin) = Re-order level – normal
usage average lead time.
iii. Maximum level (Lmax) = Re-order level +
Economic order quantity (EOQ) – (Minimum usage x minimum lead time) where EOQ
is associated with cost of ordering inventory.
Periodic Review system: This system
sets a review period for each stock item at the end of which the stock level of
the item is brought up to a predetermine value. The cost would be saved and
profit is increased, when many items are ordered at the same time or in the
same sequence. There is little or no chance of stock becoming obsolete since it
is reviewed periodically.
INVENTORY GRAPH
Inventory control can be represented
graphically relatively to the information obtained during inventory control
system.
Inventory graph here, represents the
control of the stock from the stores at a steady rate of q1 per T. Here,
the graph can be called a periodic review graph.
Then Average inventory level from the
graph
Since the internal or lead time and
the time of replenishment are equal over the time of stock control.
INVENTORY MODEL
Inventory Model depends on the nature
of the demand of that commodity. The demand may be deterministic (known with
certainty) or probabilistic (described by probability density). Inventory model
includes the following:
a. Single
item static model (shortages not allowed)
b. Single
item static model (Shortages allowed
c. Adapted
model with gradual replenishment.
1.2
STATEMENT
OF PROBLEM
The inventory control system has been
undermined by supermarkets and other business organizations, which has created
room for loss of goods or products and improper record keeping (stock keeping).
As a result the following problems arise:
1. Lack of inventory control in the
supermarkets and other business organizations.
2. Lack of optimum quantity of commodity to be
ordered for and when best to make the order.
3. Improper management of stock in the
supermarkets and other business organizations.
1.3 AIMS
AND OBJECTIVE
The
aims and objective of the study are:
i.
To
examine the nature of stock control measures applied by the three supermarkets.
ii.
To
attempt to provide alternative strategies on effective management of stock,
where necessary in the supermarkets.
iii.
To
determine the optimum quantity of commodity to order for and when best to make
the order.
iv.
To
maintain a system that will minimize total cost
1.4 SIGNIFICANCE
OF THE STUDY
Managing huge stock of a product is
one of the most important jobs of wholesalers. A business must have enough
space for storage purposes, together with a supply management system in place.
a. The study will help to prevent or check
fraudulent activities in the business.
b. it
will help to maintain accurate stock records
c. It will help in checking the expiry date
management of the goods.
d. It will help in determine when the goods
are to be replenished.
e. It help to determine product that is
selling well and which stock of items that need to be reduced.
1.5 SCOPE
OF STUDY
The study is limited to three
supermarkets in Owerri urban, Pick n’ Smile, Noble and Maris supermarkets.
These are market oriented establishment and their sole operation is the
purchase and resale of local and foreign products. These supermarkets are the
points of sales where the demand volumes of customers are relatively high to
other retailers in the markets.