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Nventory Policy As A Tool In The Attainment Of Organizational Goals
CHAPTER ONE -- [Total Page(s) 3]
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
One of the major assets of any company or business are their inventories
and they represent a large proportion of total investment of their
business. Inventory constitutes one of the largest controllable assets
of a business. Survey carried out by accountant international study
group in 1968 shows that inventories generally constitutes after assets,
the largest balance sheet item in the financial report of manufacturing
and merchandizing firm expressed as a percent of net total assets.
Managing assets of all kinds is basically an inventory problems. The
inefficiency of an inventory may result in an unbalanced inventory. The
firm may frequently be out of stock of certain type of inventory and
overstock of other type as follows: Raw materials, work in progress and
finished goods.
It is pertinent at this juncture to point out
that inventory policy cannot be established by a single executive. A
sound inventory policy can be obtained by concerted efforts of the films
executive committee. This is because production, marketing, financial
and purchasing department all have a stake in inventory policy is to be
adopted by any organization is as complex as it is important. There is a
optimum level of investment for any inventory be it cash, physical
plant and other inventories. A mistake in inventory policy may result in
either too large or too little of being kept. If production and
delivery of goods were instantaneous there would be need for inventory
policy except as hedge against changes.
Inventory must be
maintained so that the customers may be saved immediately or at least
quickly enough so that he does not turn to another source of supply. On
the other hand, production operations cannot flow smoothly, without
having inventories of work in progress direct materials, finished parts
and supplies.
For the purpose of this study, it is necessary
to distinguish between inventory records and control and correct stores
cards whose balances and physical counts are in agreement. There may be
efficient requisition purchasing receiving and material handling. But
despite all these thing and diligent employees the inventory control
will be inadequate, clerical efficiency therefore is not in arrangement
only major duty as inspection can attain inventory control. The major
inventory problem is to maximize profitability by balancing inventory
investment against what is required to sustain operation.
The
problem of inventory investment policy to non-profit organization like
hospitals armed forces e.tc. and profitability can take the form of
minimizing cost in these organization inventory control and record will
not be needed and or applied unless there is a sound inventory policy.
The big question asked by a number of businessmen and executive faced
with the dilemma and frustration of attempting to maintain stable
production operation, provide customers with adequate service and keep
investment in stocks and equipment at reasonable levels.
Why
are we always out of stock? How often should we re-order or how should
we adjust production when sales are uncertain? What capacity level
should we set for operation? What do we plan as production and
procurement for seasonal sales? The idea of inventory involves the
difficult of determining how big inventory should be. To some people,
inventory should be just big enough but what is ‘BIG ENOUGH’. The
problem is made more difficult because each individual within the
management group tend to answer his questions from his or her own point
of view. He or she fails to recognize cost outside his frame work and
thinks of inventory in isolation from other operations.
It is
unfortunate that business executive are more to view inventories with
dislike as an opportunity unnecessary drain on resources, something that
one has been able to eliminate, but hardly a “productive†asset like a
new machine or tool. They fail to realize that inventories are so
productive in earnings as other types of capital investment. They serve
as lubrication and spicing for production distribution system keeping it
from burning out or breaking down under external shocks. All
organization to survive in this complex system, it must operate
efficiently and inventory policy and management will hold to achieved
this by resulting in relatively high utilization “ratio†how to write
absolute and deteriorated inventories and few instances of work stoppage
or cost of sales due to stock out. All these contribute to high profit
margin high total assets utilization, high rate of return on investment
and a strong stock price.
CHAPTER ONE -- [Total Page(s) 3]
Page 1 of 3
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ABSRACT - [ Total Page(s): 1 ]Inventories policies in manufacturing companies has been a great assistance towards the attainment of organizational goal which aim not only helping the sustenance of manufacturing industries or setting it on a going concern and thereby fostering long term profitability through one of the problems that indeed usually confront manufacturing companies is how to maintain and value their inventories and by so doing achieve opinion inventory. The importance of inventory policy in the attainment of or ... Continue reading---
