CHAPTER ONE

1.0  INTRODUCTION

1.1     BACKGROUND OF THE STUDY

One of most topical functions in most organizations in terms of its role and integration into the overall organizational framework is the material or inventory management function. In spite of increasing awareness of the importance of material management in comparison with other business functions such as production, engineering, finance, marketing, personnel, etc. it is in this regard that some of the key concepts of materials or inventory management are to be examined with a view to determining its role in the achievement of overall corporate objectives.

Notably, for he purpose of clarity and better understanding, inventory management and materials management will be used synonymously in this work.

However, it is pertinent to first address the question of why should an organization attach any importance to materials management at all. The central objective of most business organizations is to maximize profit. All activities are usually tailored towards the realization of this objective materials management is also important in non-profit organizations such as government agencies, armed forces etc.

However, the focus of this research is on business organizations and manufacturing organizations in particular since they usually require more dynamic approaches to materials management as economic agents operating under ever changing economic and business environments. This is because the challenge for more integrated approach towards materials management is certainly more for the average business organization than that of government agency.

Inventory management involves all the processes needed to plan, acquire, store, control and distribute inventories or materials at minimal costs to the organization. This talkes us to the inventory management cycle, which comprises the systematic stages involved in inventory management, which includes:

1.          The management

2.          The purchasing department

3.          The vendor

4.          The stores

5.          The finance and accounts department

6.          The audit

7.          The review process

The management: The management appoints purchasing officers and other key offices, approves stock purchasing budget, issues policy guidelines on material requisition, purchasing, receipts and accounting system, approves tenders, defines roles and responsibilities of actions, sets inventory management objective and approves the store guide.

The purchasing department: The purchasing department carryout prices survey/negation, issues purchase order – prepares stock requisition, prepares budgets, both quantitatively and financially seek approvals from management for fresh request  and receives orders into the store.

The vendor:  Issues quotations, receives purchase orders, supplies goods, issues invoice and goods delivery note (3 copies) and receives payments for acceptable delivery.

The stores: Receives goods/ orders, check order against purchase order and delivery note, raises store receipt vouches, signs the venders good received note and sends to management, considers store requisitions from end users, update stock ledgers/bin cards, carryout store layout and ensure security of store items

Finance and Accounts: Checks invoices against order, goods received note and inspection note, raise payment voucher and finally effect payment based on the authority to incur expenditure. 

The audit: Inspects the order on delivery, issues inspection note, examines the payment vouchers, authenticate, check pass and authorize payments and reports to management where necessary.

The review process:  Involves the consideration of the reports submitted by the board of survey, the audit and any other person(s) assigned to report on the inventory management system, and the establishment of control measures to ensure that the inventory management objectives are realized in future cause of action.

Indeed, inventory management is commonly referred to as the last Goldmine” for business executives in view of its potentials for direct contribution towards profit improvement (The Guardian Feb. 23, 2002).  Unlike most business functions, nay savings made in material cost goes directs into profits since most other costs are either fixed or semi-fixed.

For example, if a manufacturing company makes a turnover of N’000m and its profit is 15% turnover or N’5m the company spends say 50% of its turnover on inventor6y and is able to effect a 7.5% savings in inventory costs, the level of profit improvement in relation to efficient inventory management can be calculated as follows:

N’000m sales at 15% profit   -      N15m

N50m on inventory at 7.5%

Savings in material costs       -      N3.75m

                                         N18.75m

Now if the above savings in materials cost was not achieved, it would have been necessary to increase turnover by 25% (N125m) to achieve the same level of profitability. Thus, 7.5% savings in inventory cost equates with 25% increase in sales turnover ratio as the one analyzed above.

In practice, most companies are unable to record up to 15% profit on sales turnover and as such inventory cost savings are expected to contribute more significantly to profit improvement than increase in turnover.

One of the problems facing many organizations today is how to determine the best out of the various system of  management inventories. How to integrate the inventory management processes into the overall organization structure in order to achieve corporate objectives.

Generally, the choice of inventory management system will depend on the organization, the nature of her business, the operating environment, the level of professionalism exhibited by key materials personnel and experience of the chief executive officer / policy maker. In all cases, the central focus of the organization should be on which concept will reduce inventory costs to the barest minimum. In other words, which system guarantees the most substantial savings in materials costs. However, in practice, it has been discovered that in the absence of any corporate policy on the organization of the inventory management function, top management values bear an overriding influence on the choice of an inventory management concept.

Some organizations embark on decentralized materials management approach which may well, have its own merits. It is generally agreed by practitioners that the central objective of cost minimization in materials management is better achieved through a centralized materials management approach under a qualified and experience materials manger (The Guardian March 2, 1999). The materials management function can be performed as a single activity or subdivided into various activities depending on the organization. 

For large organization with many product lines requiring diversified materials sourcing. It is more appropriate to subdivide the functions into three units in which case there will be three units mangers viz; purchasing manger, planning and control manager and warehouse / sores manger all reporting to a departmental manager; the materials manager. Such a company may also decide to bring in the physical distribution unit under a centralized logistics management concept.

However, expert for operational problems, the cost savings advantage derivable from efficient materials management can be obtained in both cases. In very large organization, the materials manager and the physical distribution manager could report directly to the logistics manager so as to reduce operational problems. The advantage of appoint a top manager in form of materials or logistics manager to supervise materials incremental costs in that the is now in a better position to look at the organization as a single unit just like the chief executive. Areas of conflict that usually arise between purchasing, production, stores and materials control etc are substantially reduced. Duplication of functions, delays and wastages that lead to increased materials cost are therefore reduced. Over all management efficiency is most like to increase.

Some organizations prefer to decentralize the materials management department with each sub-department given some measure of autonomy as a means of checking abuses that could arise when one person is vested with authority over all material associated costs. As earlier stressed, the structure of material management function at any point in time depends on the organization in question. Eg. In a building construction company where there is no finished goods inventory in the conventional meaning, the logistic mangers will be dong almost the same job with the materials manager and as such there will no need to run a logistic management concept as defined in the content unless some other functions not included in the concept are brought under logistic management.

However, in all cases, any of the above concepts that promote cost savings, professionalism and management efficiency will always be ideal for each organization.

BRIEF HISTORICAL BACKGROUND OF ANAMMCO

Mercedes-Benz Anammco is a joint venture between the federal government of Nigeria and Diamler – Benz AG of Germany. MB-ANAMMCO manufactures of commercial vehicles and leads in the commercial vehicle market in Nigeria with five tons play load and above, the plant, which occupies a sprawling 300,000m2 sites at Emene, near Enugu is veritably a shining example of a profitable and viable economic and technological co-operation between the government and people of Nigeria and Germany.

MB-ANAMMCO LTD was incorporated on January 17, 1977 and the foundation stone laid on may 12, 1978. The official commissioning of the plant was on July 8, 1980 by the first executive president of Nigeria, Alhaji Shehu Shagari. It started formal production operation on January 1981, and has to date made an enviable mark on the nation’s industrial growth, adding over 20,000 vehicles to the nation’s transport sector backed up effectively with a network of over 36 after sales service points and spare parts supply depots. The company’s central spare parts depot in Enugu stocks over 45,000 lines of items.

 The Diamler-Benz controls 40% of the total share capital the remaining 60% of which is distributed among the Nigerian shareholders thus:

Federal ministry of finance 35%

Enugu state of finance 10.5%

Anambra state ministry of financier2.0%

Rivers state ministry of finance 3.4%

IMO state ministry of finance 1.3%

Abia state ministry of finance 1.2%

Nigerian citizens and associates 6.6%

MB-ANAMMCO had staff strength of 794 (12 expatriates) as at 2001 but has now risen to over 800 employees.

MB-ANAMMCO PRODUCT RANGE:

The multi-million-naira plant was initially planned to produce trucks for the Nigerian market. But today, the plant ahs diversified its production range to include the full range of commercial vehicle for the rapid industrialization of the country. It not only produces trucks as originally planed, but also has gone a step further in fabrication, manufacturing and production of buses and other utility vehicles. Part of its product-range today include MBO 131, L 608 D, MBO 1520, MBO 911, MBO 809, fire fighting vehicles, Ambulances, mobile clinics, collector and other various specialized types of producing a new inter-city Bus (MBO 1635). It should be noted that MB-ANAMMCO has achieved over 65% local content in some of these vehicles, especially in buses.

As a formidable representative of MB-AG in Nigeria, MB-ANAMMCO brings Mercedes Benz Technology and know-how to Nigeria while at the same time creating over 260 employment opportunities for Nigerians.

MB-ANMMCO has actively participated in the federal government assisted mass transit programme. It has supplied over 800 units of different bus models to the federal urban mass transit agency and state and local government mass transit companies. These buses are still going strong as they are supported by the ubeatable after-sales services of the company and their renowned distribution and dealers.

In the area of training and manpower development, the MB-ANAMMCO training center, which was commissioned in 1982, has lived up to its billing in producing high caliber middle level technical manpower for the company, and the nation in general.

Staff welfare is not left out. MB-ANAMMCO continues to live up to its social responsibilities in all ramifications. It takes care of its over 800 employees by offering them highly subsidiaries food at its modern canteen, providing free medical services to its employees and their dependents and offering recreational facilities.

The company has continued to maintain a high level of resilience in its attempt to survive the harsh economic climate and live up to the most historical, traditional and successful auto company in the world, Mercedes-Benz AG.

1.2     STATEMENT OF THE PROBLEMS

Inventory is lifeblood of any organization. This is because inventory contributes directly to the profitability of an organization and as such the growth of any organization depends on its ability to manage its inventory efficiently.

Based on this fact, the following problems are to be examined by the researcher:

1.          The inventory management system that can best achieve organization profit objective.

2.          The extent effective and efficient inventory management can contribute to organization profitability.

3.          The best approach of valuing material issues.

4.          The best way to minimize acquisition costs and fraud to achieve economy of operation.

5.          The impact of efficient inventory management on organizational performance.

6.          The way to improve productivity with a typical inventory management system.

7.          How material deterioration and wastes can be minimized.

8.          Performance efficiency and inventory management.

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