APPRAISAL OF INVENTORY MANAGEMENT AND VALUATION IN A MANUFACTURING COMPANY (A STUDY OF SEVEN-UP BOTTLING COMPANY)

n appraisal of inventory management and valuation in manufacturing companies in Nigeria, using Seven-up bottling company as a case study. This study was carried out with the view to critically appraise the efficiency of inventory management with special emphasis to Seven-up bottling company. As we are all aware, inventory management and stock valuation is very crucial to the survival of Seven-up bottling company, hence the importance of accurate records keeping of stocks. In order to achieve the above objective, the following research hypotheses were used: – there is no significant relationship between the absence of observation of  economic order  quantity (EOQ)  in  inventory  management and performance;   there   is   no   significant   relationship   between   equipment   and production of inventories in Seven-up bottling company; there is no significant relationship  in  inventory  management  and  valuation  in  Seven-  up  bottling company. The simple random sampling technique was used for the study. It was however, discovered that poor planning in Seven-up bottling company resulted to inadequate inventory management and that adequate stock management played a greater role in the continual existence of the company. Based on these, the key recommendations made include the procurement and use of raw materials should be channeled towards profitability as well as the satisfaction of customers. To achieve this, the planning department and distribution/sales departments should work-in harmony so as to make healthy sales forecast. On the issues of stock valuation, the method to be used at any point in time should be that which will portray the time and fair view of the company in question. The first-in-first-out method which is recommended by Statement of Accounting Standard No. 4 and International Accounting standard No. 2 for stock valuation should be favored while the lower market cost method should be favored in the purchase of material so as to check the increasing rate of inflation. It concluded that companies should ensure  that competent and devoted staffs are  involved in  the  management of inventories. It is also necessary to involve the accounts department in the inventory management process.  Seminars  and  workshops  should  be  organized  for  store personnel to equip them on stock handling.

CHAPTER ONE INTRODUCTION

1.1          BACKGROUND TO THE STUDY

Inventor management and skills have radically changed in recent years. The title of an article which appeared in “Inventory Men Move Up”: might well set the stage for  a  discussion  of  inventory  management.  The  past  several  decades  have witnessed  marked  and  steadily increasing changes  in  management disciplines. Numerous planning and controlling activities, formally performed in a routine

manner by clerks, have evolved sophisticated functions with far reaching effects on company  profits.  Inventory  control,  a  vital  element  in  the  management  of materials, is one of these functions. Business faces a containing squeeze on profits. At the same time, development of analytical techniques a computer capability now permits more sophisticated analysis of inventory cost problems. These two phenomena have combined to transform inventory control into a critical function requiring professional managerial skills (Imaga, 1993).

Nevertheless, inventory too many business owners are one of the more visible and tangible aspect of doing business. Raw materials, goods in progress and finished goods all represent various forms of inventory. Inventory has observed over the years is seen to constitute significant part of current asset of manufacturing companies in Nigeria and the world in general. Moreover, in most industrial outlet, raw materials inventories account for over 50% of company’s cost of production. Inventories (stock) of various types represent money tied up until the inventory leaves the company as purchased product.

A  second  startling issue  in  inventory  management is  valuation. An  inventory valuation allows a company to provide a monetary value for item that makes up their inventory. Inventories are usually the largest current asset of a business, and proper valuation of them is necessary to ensure accurate financial statement. If

inventory is not properly valuated, expenses and revenue cannot be properly matched and a company could make poor business decisions.

However, Seven-up bottling company plc is not an exception.  As a public liability company, incorporated in Nigeria and licensed to operate in the food and beverage manufacturing sector of the economy, practice inventory management and valuation. While the nature and practices varies considerably from firm to firm, numerous studies  made by consultant and  manufacturing firms reviews that a typical manufacturing company incurs inventory carrying cost of from 17-24 of average inventory value peculiar to Seven-up bottling company.

Thus, the goodwill and stature which the company enjoys today can be attributed to inventory management and valuation, always making it amenable to change amongst other factors. Most of its products have being franchised by many companies, a relationship which ha s helped to enforce world best practices in the manufacturing business. This has in turn made the product of the company to compete favorably in quality terms with product of international rating.

To this end, this study intends to focus on the appraisal of inventory management and valuation in the company using Seven-up bottling company limited as a case study.

1.2          STATEMENT OF PROBLEM

Seven-up bottling company plc is a public limited liability company incorporated in Nigeria in the year (1967). Since its inception, available records reviews that the company have performed creditable well as a result of its high performance in inventory management and  valuation of  its stocks. These credits given to the company made it come up among the top gainers in the Nigeria stock exchange until recent times when it started witnessing decline in turn over.

Some people have argued that it  is  as a result of the  use of poor processes, practices and antiquated support system while some others sees it as poor knowledge of staff in the department about inventory management and how to evaluate the stocks, lower customer service, higher costs and excessive inventory, including pricing  method  such  as  LIFO,  FIFO,  Average  cost,  EOQ,  amongst others.

Against these backdrops of conflicting claims of existing realities, some pertinent questions need to be asked as a guide to the study.

1.3     OBJECTIVES OF THE STUDY

It is important to note that for the survival of Seven-up bottling inventory management, proper records keeping and adequate valuation of inventories should be taken into consideration as these will lead to increase in turn over and savings in the materials usage.

Specifically, the purpose of this study is;

        To appraise inventory management in terms of turnover made in Seven-up bottling company.

        To determine the kind of material costing method use in Seven-up bottling company.

        To find out the kind of equipment in use in use by the company.

        To  proffer  solutions  on  the  problems  of  inventory  management   and valuation in Seven-up bottling company.

1.4     RESEARCH QUESTION

i)       How does the absence of observation of economic order quantity (EOQ) in inventory management contribute to poor performance in seven-up bottling company?

ii)      What are the effects of the equipment on production of inventories in seven- up bottling company?

iii)     What type of valuation method is in use in seven-up bottling company?

iv)     How is inventory management and valuation appraised in Seven-up bottling company?

1.5     RESEARCH HYPOTHESES

Ho: there is  no significant relationship between the absence of observation of economic order quantity (EOQ) in inventory management and performance.

H1: There is relationship between the absence of observation of economic order quantity (EOQ) in inventory management and performance.

Ho: there  is  no  significant relationship between equipment and production of inventories in Seven-up bottling company

H1: Inadequate equipments affect production of inventories in Seven-up bottling company.

Ho: There is no significant relationship in inventory management and valuation in

Seven- up bottling company.

H1:  Ineffective  inventory  management and  valuation affect  Seven-up  bottling company.

1.6     SIGNIFICANCE OF STUDY

The study of the work is significant to the users of financial statement which include the management, shareholders, customers and competitors. It is also important to the public as it is a venue for subsequent research works to be done.

1.7     SCOPE OF THE STUDY

The study is focused on the appraisal of inventory management and valuation in manufacturing companies with particular reference to seven-up bottling company.

1.8     LIMITATIONS OF THE STUDY

The work was limited due to the following reasons:

Paucity of information which was due to inability to lay hands on some vital documents because of the documents are classified,

Uncooperative attitude of staff especially top management to release basic information for fear of selling their aged long established strategies. Also, the interaction did not offer any important information. This really expended much of the researchers time and energy as the people who had the information hid them for fear that the researcher was on espionage.

In addition to that, due to the distance between the researchers place and the company’s location, and having to go to the company for sufficient information, time and finance were added limitations.

1.9     DEFINITION OF TERMS

INVENTORY: – it is defined as assets that are intended for sale, in process of being produced for sale or are to be used in producing goods. It could also mean

the list of goods and materials themselves, especially those held available in stock by a business.

FIFO: – FIFO fully means first in first out. It regards the first unit that arrived in inventory as first one sold.

LIFO: – this fully means last in first out. It considers the last unit arriving in inventory as the first one sold.

EOQ: – this is by definition, the size of a particular inventory item to buy (or produce) at any given time to minimize annual inventory costs (I.e. carrying costs plus ordering costs) (Kodjo,2009).

AVERAGE COST: –This method is quite straightforward; it takes the weighted average of all units available for sale during the accounting period and then uses that average cost to determine the value of COGS and ending inventory.

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