CHAPTER 1: THE ROLE OF INVENTORY MANAGEMENT ON CUSTOMER SATISFACTION: THE MANAGEMENT SYSTEM THAT CAN BEST ACHIEVE THE PROFITABILITY OBJECTIVE

CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY:
            The aim of any business organization is to regulate the inventory in order to attain effectiveness by meeting the customer needs. This is to enable the organization meet economically both its internal and external demand commitments.
            However, one of the most topical functions in most organization in terms of its role and integration into the overall organizational framework is the material or inventory.

Inventory management is mainly about identifying the amount and position of the goods that a firm has in their inventory. It is imperative as it helps to defend the intended course of production against the chance of running out of important materials or goods. Management function, in spite of increasing awareness of the importance of material management in comparism with other business functions such as production, engineering, finance, marketing, personnel etc.
            Some companies have wound up due to improper and unprofitable philosophies of inventory management. Therefore, it is wise to employ this medium to review some  literature on this subject and to visit a manufacturing company, so as to study their techniques of inventory management. However, 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. Consequently, the focus of this work is on manufacturing companies for the role of inventory management on customer satisfaction among such companies.
            The liberalization of markets across the globe has led to an increase in competition especially among the manufactured  goods and  services. (Shafie, 2004, Verstege and Amstel, 1991). The competiveness of companies in the future will largely depend on how they respond to the needs of the customers at the end of a supply chain better than their competitors (Hogstron and Grigojev, 2003) pressure is mounting on firms to reduce their time to market, manage risks in their supply  chains,  reduce the total supply chain costs and ensure provision of quality services to the customers across the globe. By doing so, firms are likely to be rewarded through an increased market share.
            A research carried out by Sheila (2010), shows that manufacturing  firms such as Bata shoe company, East Africa Breweries (EABL), British American Tobacco (BAT)  have a problem of inaccurate forecasts mainly because they lack real time inventory information on customers demand, this has in turn led to late deliveries, inadequate deliveries and lack of consistency to lack of customer satisfaction and responsiveness to the market signals. (Daugherty and Autry 1999).


1.2 STATEMENT OF THE PROBLEMS.
            Inventory is the life blood 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 and respond to the need of the customers.
2.      The extent of effective and efficient inventory management can contribute to organization profitability.
3.      The best approach of valuing material issues.
4.      The best way of minimizing 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 detoriation and wastes can be minimized.
8.      Performance, efficiency and inventory management on customer satisfaction in a company.
According to Toomey (2000), the ultimate aim of inventory is to serve the customer. As explained by Viale, (1991),  Inventory is a very expensive asset in an organization, however, this expensive asset can be replaced by inventory information which is less expensive. Some of the problems facing manufacturing companies today are ability to provide quality services to the customers whose root cause lies in poor inventory management (Manjrekax, Bhonsale and kamath, (2008). The main challenge today among firms in Nigeria is the need to enhance efficiency while at the same time achieving effectiveness (customer satisfaction) (Heikila, 2002). However, firms in Nigeria have been accused of poor inventory management techniques and this has greatly affected their ability to satisfy their customers (Sheita, 2010, Mutua, 2010). The study therefore sought to carryout an investigation on the role of inventory management on customer satisfaction among manufacturing firms (Case study of Anambra Motor Manufacturing Company (ANAMMCO)
1.3 OBJECTIVES OF THE STUDY
            The objective of this study, inventory management, is to examine the management system that can best achieve the profitability objective in the area of study. Identifying effective and efficient inventory management, this can contribute to the organization’s profitability and customer satisfaction. Determining the best approach of valuing material issues in the organization. To find out the best way of minimizing acquisition costs, fraud in the organization to achieve economy of operation.


The main objective of the study:
a.      The general objective of the study is to investigate the role of inventory management on customer satisfaction among the manufacturing company in Nigeria, using Anambra Motor Manufacturing Company (ANAMMCO) as a case study.
The specific objectives of the study were:
1.         To determine the role of inventory levels on customer satisfaction among the manufacturing firms in Nigeria.
2.            To highlight the immense importance of efficient stock management in manufacturing companies.
3.            Finding the likely consequence of overstocking and under stocking in the benefit attributed to having stock at its optimum levels in attaining to customer satisfaction.   
1.4 RESEARCH QUESTIONS
a.      Does Manufacturing Company appreciate the importance of efficient inventory management?
b.      Does overstocking introduce unnecessary carrying and ordering cost tying up of capital?
c.      Is inventory management of any important to a manufacturing company in determining its role on customer satisfaction?


1.5  STATEMENT OF HYPOTHESES
            To test these research questions, research questions are formulated in order to carry out a research work.
a.         H0: Efficiency in production is not a function of efficient stock management.
          H1: Efficiency in production is a function of efficient stock management.
b.      H0: Efficiency inventory management is not a major tool for cost reduction and increasing profitability.
H1: Efficiency inventory management is a major tool for cost reduction  
and increasing profitability.
c.      H0: Overstocking and under stocking in manufacturing company does not
     have its benefit attributed to having stock at its optimum levels in   
     attaining to customer satisfaction
H1: Overstocking and under stocking in manufacturing company have its benefits attributed to having stock at its optimum levels in attaining to customer satisfaction.
1.6 SIGNIFICANCE OF THE STUDY.
            The research work can be of great help to those who have little or no knowledge in the manufacturing business. It will be valuable to people who are interested in the manufacturing business and want to make it their career.
            The study will also help the management of Anambra Motor Manufacturing Company (ANAMMCO), to appreciate areas where improvement is needed in her inventory operation so as to boost her profitability and consequently increase her shareholder’s wealth.
            Indeed, this will in no little way have a favourable effect on the national income of Nigeria, Again, it is hoped that this work will be of immense use to future researchers.
            It is also hoped that by improving the profitability of these, the study will benefit the economy as a whole. With good inventory management, firms should avoid plunging their business into financial and operating difficulties.
1.7 LIMITATIONS AND DELIMITATION OF THE STUDY.
            Inventory management is a wide area of study, unfortunately, time and financial constraint or general state of economy, would not allow the researcher to cover so many organization in different industries, however, the study is limited to the manufacturing company. The focus is on the selected company, Anambra Motor Manufacturing Company, Enugu.
            Time as a constraint to this research work, is the most pronounced factor that militates against this work. The research work however, inter-locked with other academic works of the researcher such that some important discussions and appointment, which would have yielded positive  result towards this work, were hindered. The analysis and compilation of this work were done at the detriment of other activities offered by the research. Consequently, it should be stated that management staff regards all information concerning the company as private and exclusive. The researcher for this reasons, was denied access to certain information and data.

1.8 DEFINITION OF TERMS.
            In this research work, some technical words which are purely related to be used for easy comprehensive exploration of this work are given below.
a.      Ordering cost: This usually consists of clerical cost of preparing a purchase order or production order and special processing and receiving cost relating to number of order processed.
b.      Carrying cost: This is a desired rate of return on the investment in inventory and cost of storage. Breakage obsolesce determination insurance and personal property tax.
c.      Economic order quantity: Inventory order quantity is that size of inventory that wins result in minimum total annual cost at the item in question.
d.      Re-order level: This is the point of level that automatically higher on new order. It is dependent on expected usage during lead time.
e.      Lead time: This is the time lag between the day an order is placed and the day the ordered stock is taken into stock of the buyer. 
f.       Buffer stock or base stock: This is the balance of inventories over and above the normal use by the company. They serve as a cushion or insurance against unforeseen contingencies. They are helpful when production demand exceed the anticipated level or delivery date.
g.         Inventory control: This is an operation of continuously arranging receipts and issues so that inventory balances are adequate to support the current rate of consumption, with due regard to economy.
h.      Stock out: This is associated with a situation where there is no sufficient stock to satisfy the demand by the customer or when needed by the production department for the continuous production in order to meet up with the demand of customers. When sales are lost due to stock- out, the firms profit margin reduces.
i.        Excessive stocking: This is the opposite of stock-out. It is a situation where the inventories held at a time is in excess of the quantities that would have been economically held. This involves the tying down of capital that would have been economically employed in other ventures.
 

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