STOCK CONTROL IN A MANUFACTURING ORGANISATION
(A CASE STUDY OF BETA GLASS CO. PLC, UGHELLI)
ABSTRACT
This project was undertaken to establish analytically the need and importance of sound scientific approach to stock control and cost control, in the face of our deteriorating economy and ever increasing cost of material. A case study of Beta Glass Plc. Ughelli was conducted.
The review of literature was comprehensive in chapter two. The significance of efficient materials budgeting and planning, Value Analysis (VA) and Value Engineering (VE) in cost-control was delineated. A typical is purchasing procedures and principles, although particularly suitable for a manufacturing organisation was also highlighted in the literature review.
The storage of supplies and stores control which is an integral aspect of stock cost control was considered in section 2.5 of the literature review. A detailed discussion of stock control methods dealing with quantitative models for materials planning and control was carried out under section 2.5.02 and section 2.5.03 various stock valuation methods were extensively discussion under accounting for stock in section 2.6.
The procedures and method of the study adopted in this research work, was highlighted under the research methodology in chapter three. Primary data were generated through the use of questionnaires and personal oral interview. Secondary data were obtain from journals, monographs of the international federation of purchasing and materials management (IFPMM), the institute of purchasing and supplies (IPS), the institute of Chartered Accountant of Nigeria (ICAN) and textbooks relevant to the need of the
The analysis of the data collected was carried out in four. The various sectors involved in stock control and cost control was empirically evaluated with particular regard to their functions, effectiveness and short comings.
In the light of the general findings and lapses, some recommendation were suggested to enhance the efficiency and effectiveness of stock control and cost control.
TABLE OF CONTENTS
Chapter One
1.1 Introduction
1.2 Statement of problem
1.3 Objective of study
1.4 Significance of study
1.5 Scope of study
1.6 Nature of study
1.7 Research methodology
1.8 Limitations of study
1.9 Definition of terms
Chapter Two
2.1 Historical background
2.2 Nature and classification of stock (materials)
2.3 Budgeting and material planning
2.4 Purchasing procedures
2.5 Material storage
Chapter Three
3.1 Research methodology
3.2 Research design
33 Sources of data
3.4 Sample of the study
3.5 Validity of instrument
3.6 Statistical method for data analysis
Chapter Four
4.1 Data presentation and analysis of response
4.2 Analysis of data
4.3 Statement of hypothesis
4.4 Test of hypothesis
4.5 Source
4.6 Summary of the above analysis
Chapter Five
5.1 Summary and major findings
5.2 Major Findings
5.3 Recommendations
5.4 Conclusion
Reference
Appendix
CHAPTER ONE
1.1 INTRODUCTION
Stock control is the system used in a firms investment in stock, which involves recording and monitoring of stock level, forecasting future demands and deciding when and how many to order to minimize over all cost associated with stock.
This emphasis as managerial area of responsibility which focuses on production on material control, procurement quality control and stock handing. Stock control is thus essentially an activity that is concerned with the efficient procurement and use of material for the attainment of predetermined corporate objectives.
The need for efficient stock control in the face increasing cost of material due to information and our deteriorating economy cannot be over emphasized. Stock constitutes an essential cost element of production in 2 large majority of manufacturing industries, stock cost account for about 65pccentage of the total manufacturing cost of their finished goods.
Obviously, the objective of any business concern among other is the maximization of profit. Profit maximization is the result of optional and efficient utilization at available financial and material resources. In essence, corporate success is measured by increased profit as well as by exploiting opportunities for sustained profit-ability.
Company’s procurement function becomes of paramount importance when its outlay account for high proportion of the total cost of manufacturing and operating process, when a large rang of diverse items are required, and these tends to be scare or unavailable at critical stage of the production cycle ,large ranges of spare parts have to be obtained from important source and their price / cost fluctuation and other international trade barriers.
On positive note, stock control has an important role with regards to profit maximization.
1.2 STATEMENT OF PROBLEMS
The major stock control problem is to maximize profitability by balancing stock investment cost against what is required to sustain smooth operations. Raw material stock which constitutes a vital cost element in manufacturing expenditure of any organization engaged in manufacturing process account for about 65% the total manufacturing cost of most industries.
An increasing high cost of material have been recorded in recent years due to the worsening economic problems of monetary instability and inflation, this high cost of material could also be attributed to material misadministration.
Huge sum of money is lost trough various forms of procurement fraud, large scale materials pilferages by the store and material users department in addition losses through material obsolescence, wastes occasioned by mismanagement and inaccurate balancing of material acquisition with usage also account for high cost materials. Beside, the increased material cost misadministration can lead to supplies disaster of various magnitudes. One of such supplies disaster may be stock —out cost, this present a major problem of disruptions in operations as a result of inaccurate balancing of materials procurement with consumption. The consequences of this may be in the form of breakdown of machines, loss of current sales, premium payment for rush delivery, loss of goodwill and future sales.
1.3 OBJECTIVE OF STUDY
In carrying out this study of stock control in Beta Glass Co. Plc, Ughelli, the following objective will be achieved.
(1) To study the material stock control policies and practices by evaluating analytically the purchasing procedures, material handing methods and various accounting method of costing material issued by valuation of closing inventory stock.
(ii) To investigate, so as to identify the controllable and uncontrollable variables associated with material cost control with a view o f determining ways of keeping them within controllable limits.
(iii) To highlight the need and importance of sound scientific approach to stock control in the face our deteriorating economy and ever increasing cost of stock and materials.
(iv) To analyze the efficiency of their stock holding using economic order quantity (E 0 Q).
1.4 SIGNIFICANCE OF STUDY
Stock control is even more necessary for Nigeria firm especially in period of economic deteriorate on and ever increasing cost of materials consequently causing the folding up of a lot of firm.
Stock constitute a major part of the company’s investment, these is need therefore to control stock because of more than half the company’s incomes used to purchase stock production. Hence there is need to have effective stock control so as to avoid shortage of stock for production and at the same time to much stock which will result in wastage and high holding cost.
The major problem faced by the manufacturing firms as regard stock, that of determining optimum level of stock and evaluation of management policies for ordering stock. unfortunate little or no attention have been given to need for value analysis (V A) cost analysis and purchasing research of material to evolve a more scientific approach and innovation to improve efficiency and effectively talking of inflationary threads.
This research work therefore is intended to fill the gaps that have existed and create aground for future research with attempt to offer practicable suggestion on stock control in Beta Glass Co Plc, Ughelli and to hope that the suggestion we be of benefits to the company and other manufacturing firms. It will go long way to enhance interest in new approaches, concepts and philosophies aimed at better cost — control over material.
1.5 SCOPE OF STUDY
This research work is committed to cover the following area.
(i) To evaluate analytically the procurement stock controls policies and practices of Beta Class Co. Plc. The purchasing procedure of the organization was examined.
(ii) A methodical study for the stores department was particularly carried out on its organization, it various stock control methods as well as its stock level analysis.
(iii) The cost accounting section involvement in stock control and materials accounting system was examined with regard to methods of costing materials issued, stores control ledgers and stock taking and checks.
1.6 NATURE OF STUDY
This study consists of two aspects
(i) The objective aspects which render it — self to cost and statistical analysis.
(ii) The value aspect, which could not readily be, determined by statistical analysis.
1.7 RESEARCH METHODOLOGY
In the course of this study, a research method of data collection based on two main sources was used: they are the primary and secondary data.
The primary data refers to the data that will be collected during the course of field work. This includes personal observations, the use of Questionnaire and personal interview. The administration of questionnaire was carried out at the material users departments, the stores and purchasing department, and the cost accounting office that is involve in the inventory controls record keeping Questions relevant to the need of this study were raised in the questionnaires administered. A personal in was also held with the purchasing manager, the chairman and some members of the committee, the store manager, and the production planning manager.
The secondary data were obtained from the “financial Statement” and the production planning monthly report of Beta Glass Plc, Ughelli. Journals of the institute of purchasing and supplies, the international federation of purchasing and material management (IFPMM), and tests on supplies and stock control were also consulted.
1.8 LIMITATIONS OF STUDY
This study was limited by the following factors:
i. The bureaucratic involved in obtaining data was cumbersome: - Series for approval had to be granted before certain form of data were released. Even after obtaining approval to carryout the research study, the difficulty of eliciting the necessary cooperation of those in place of relevant information was experienced. Some of those approached declined for fear of giving out secret information about the organization. Others assumed this study to be fact - finding exercise into their fraudulent practices and mismanagement, as such declined responds.
ii. Unwillingness to react to questionnaires.
iii. Also to an appreciable extent, the study was limited by the value aspect which could not ready be determined by statistical analysis.
1.8.1 RESEARCH QUESTIONS
Research question enable one to view the essence of literature review to provide the required foundation for undertaking an empirical study on stock control, answer are required to the following research questions.
i How familiar you with the activities of the store and material handling department and purchase and supplies department.
ii. In your own opinion, what are the functions of the store/material holding department and the purchasing / supplies department.
iii. How has the store/material holding department and the purchasing and supplies department improved the Stock control system of the company?
iv. How reliable is your stock control technique?
v. What do you think is the major cause of inefficient and ineffective of stock control in the company?
vi. How efficient is the local purchase order (LPO) committee?
vii. What are the major considerations that are criteria for the selection of a supplier for an order?
viii. How does stock control play an important role in profit maximization of the company?
ix. How reliable is your internal control system?
1.8.2 STATEMENT OF HYPOTHESIS
NULL HYPOTHESIS H0
The material and stock control techniques and internal control system of the company are weak.
ALTERNATIVE HYPOTHESIS: HI
The materials and stock control techniques and internal control system of the company are strong.
1.9 DEFINITION OF TERMS
ABC analysis: a basic technique of stock control, which classified stock according to monetary values. Stock items are this categorized as:
(i) A — item : - High value items for which careful control is needed
(ii) B — item: - Moderate values items
(iii) C — item: - Low value items
Bin card: - A store record showing maximum and minimum quality to be held in-stock and re-order level.
Carry cost: - Costs incurred in maintaining inventories including storage, insurance and cost of funds invested in stock.
Controllable Cost: - These cost which are subject to changes by the action or decision of an individual responsible for the control of costs.
Current Asset: - These asset which can be converted into cash within an accounting year or within the operating cycle.
Identification: - A system symbolizing stock for representing information land the rules associating them to express in a code for easier and correct identification.
Expired Cost: - A cost that has no future revenue — producing potential.
EOQ (Economic Order Quantity): - The optimum quantity of stock that minimizes the carrying costs and ordering cost.
Effectiveness: - The accomplishment of a desired objective, goal or action.
Efficiency: - The accomplishment of a objective goal or action with minimum resources.
Forecast: -. An estimate of what future observations will look live if the underlying process continues as it has been in the past.
FIFO (First-In, First-Out): - A material is issued which assumes that material are issued from order’s stock and accordingly priced.
LIFO (Last-In, First-Out): - A material flow-cost method which assumes that the materials are issued form the most recent received stock and according priced.
Lead-Time: - The interval between the time that the need for the material is determined and the time the material is actually manufactured delivered or received.
MRP (Material Requirement Planning): - A system of planning for availability of stock in time, which presupposes that lead times for all stock items are known and can be supplied to the system, at least as estimates. Thus in possible the calculation of net quantities required without taking into consideration time variation, its tries to ensure materials availability on time phased basis.
Perpetual Inventory: - A continuous record at an item in stock or stores dealt in showing at a glance an accurate picture of the position of stock on hand.
Maximum Stock Level:- The highest prescribed level that stock should not exceed.
Minimum Stock Level: — The smallest determined level below, which stock should not fall.
Non-controllable Costs: - Cost that can not be affected by the action or decisions of an individual.
Re-Order Point: - The stock level where an order must be placed to provide adequate lead time to ensure delivery in time. A replenishment order is made when stock reaches re-order point.
Safety Stock: - The minimum stock level that provides a cushion against running out of stock because of changes in demand or changes in lead time.
Stock — Out Cost: - Losses through idle capacity eased by non availability of materials.
Time Series: - Data classified chronologically, generally to find out the trend or deviation from the trend. A series of figures during successive and equal time intervals.
Variable Cost: — Costs that vary in total in direct proportion to volume.
Value Analysis (VA): - It is an organized creative approach to identify unnecessary cost items, it tries to reduce cost and if possible, ultimately eliminate those unnecessary component of cost, which have no functional utility to those item concerned.