Effect Of An Efficient Inventory Management On The Profitability Of A Firm

Effect Of An Efficient Inventory Management On The Profitability Of A Firm

Abstract

Effect of inventory management on a firm’s profitability is the topic of this project work, which specifically mentions Nigerian Breweries Plc. The study looked at how inventories affected Nigerian Breweries Plc’s net profit after taxes. the degree to which inventories affect Nigerian Breweries Plc’s return on assets. the impact of inventory on Nigerian Breweries Plc’s retained earnings. Journal articles about the study’s topic matter and the bank’s annual report served as the study’s data sources. Using SPSS, the data that was gathered was examined. The study’s findings demonstrate that, at the 0.05 level of significance, the computed t-statistics for inventory (t = -0.675) are bigger than the tabulated t-statistics. The regression equation also showed that for every unit decrease in inventory, Net profit after tax accounted for -0,422 units. The change in Net Profit After Tax accounts for 57% of the variation in the inventory drop, according to the coefficient of determination (R2) of 0.568. Inventory and Net Profit After Tax have a strong, positive, and statistically significant association (r=0.754, p0.05). The overall goodness of fit of the regression model is statistically significant (f = 0.439, p 0.05). As a result, the analysis accepts the alternative hypothesis, which states that inventories significantly affect Nigerian Breweries Plc’s net profit after taxes. Additionally, it was shown that Nigerian Breweries Plc’s inventories have a significant impact on return on assets. The researcher also found that Nigerian Breweries plc’s retained earnings are significantly impacted by inventory. The researcher suggests that, in light of the findings, ii. The business use the economic order quantity approach when placing orders. The essential expenses related to ordering and maintaining inventory are taken into consideration by the economic order quantity model. Every corporate organization strives to keep costs as low as possible, and using the economic order quantity approach of placing orders is one way to do this. In order to prevent stock-outs, adequate stock should be kept on hand so that there will be enough to fulfill orders when demand is high.

Chapiter 1

Introduction

1.1 The study’s history

Inventory makes up a sizable component of current assets, particularly in manufacturing and retail/trading businesses. Huge financial resources are devoted to maintaining inventory levels of this magnitude (Mittal, 2014). As a result, inventory also makes up a sizable portion of working capital. The effectiveness of an organization’s inventory management practices heavily influences whether it succeeds or fails. As a result, inventory management should find a balance between having too much and not enough inventory (Gupta & Gupta, 2012). Achieving better operational results and spending less on working capital are made possible by the efficient management and effective control of inventories. Inventory management should be a part of every organization’s overall strategic business strategy because it significantly affects a company’s profitability (Gupta & Gupta, 2012).

In the sense that poor inventory management would result in clientele loss and declining revenues, inventory management is crucial to the development and survival of an organization. When inventories are managed carefully, depreciation, theft, and waste are reduced while materials are always available when needed (Ogbadu, 2009). Inventory management that is efficient and effective also guarantees business sustainability and profit maximization, which is the primary goal of every company. A balance between profitability and liquidity trade-offs is further ensured by effective working capital management, which is achieved through accurate and timely inventory management (Aminu, 2012). It has been established that certain performance metrics are influenced by the sophistication of inventory management techniques.

Inventory management is understood to be a crucial tool for enhancing asset productivity and inventory turns, focusing on customers and positioning products in various markets, enhancing intra- and inter-organizational networks, and enhancing technological capabilities to produce high-quality products, all of which contribute to the effectiveness of inter-firm relationships. Even modest manufacturing units’ competitiveness and market share are improved by proper inventory management (Chalotra, 2013). According to Isaksson and Seifert (2013), well managed inventories can give businesses a competitive edge and improve their financial performance. As the profitability of an organization is entirely dependent on the volume of goods sold, which is directly correlated with the quality of the goods, inventory management is essential to the success and expansion of an organization (Anichebe & Agu, 2013).

Inventories are current assets that are anticipated to be turned into cash or accounts receivable within a year. As a result, it makes up a large portion of the assets for business firms. The items that are stored and have a resale value in order to make a profit are actually considered inventories. It displays the trading companies’, wholesalers’, and retailers’ highest costs. Typically, it represents 20–30% of the firm’s overall investment. Thus, it should be handled to make the inventory available at the appropriate time and in the appropriate quantity. The stock of the resources stored for sales and/or upcoming production is referred to as inventory. It can also be seen as an underutilized resource with economic value. Therefore, better inventory management would allow for the productive release of capital. regulating inventory entails coordinating acquiring, using, and regulating materials. Because it is closely related to manufacturing, it also serves the objective of obtaining the appropriate inventory at the appropriate location, at the appropriate time, and in the appropriate quantity.

1.2 Description of the issue

Studies from the past have demonstrated that businesses have consistently overlooked the potential savings from effective inventory management, viewing inventory as a necessary evil rather than an asset that needs to be managed. Among the issues with standardizing data for inventory management in an organization are: Too many definitions for the same data, such as purchase orders and product classifications, have caused problems for some businesses. Building an architecture that functions across divisions and locations requires standardizing data definitions.

Choosing only the demand planning and inventory management modules that are appropriate for your company: The components you require will depend on the particulars of your demand. A well-honed demand planning tool that is updated with real-time sales data is crucial since shipping goods internationally can be expensive and delays can reduce revenue gains. Inventory management software, however, deserves additional consideration if the majority of your sales are significant transactions.

It is both a requirement and an opportunity that the industry has not adequately addressed to integrate specialist demand and inventory planning software with one another and to related systems like ERP. Vendors acknowledge that integrating their technologies into current supply chain management (SCM) systems takes a significant amount of time.

Training demand planning users: Forecasting will be a completely new discipline for some people. Inventory management software implementation companies emphasize how crucial it is to teach the underlying principles before distributing the program.

The word about your company’s new planning techniques can be communicated through webinars, slide presentations, and classroom training. One of the quickest and least expensive ways to get staff accustomed to inventory management software is a train-the-trainer strategy.

When choosing between providers, ease of use should be at the top of your list of considerations. However, don’t ask users to take on too much at once. Let them begin with the fundamentals and progress from there.

Getting rid of the outdated spreadsheets and paper: Inventory managers may be hesitant to renounce their ingrained practices. To convince staff to transition to new inventory management software, for instance, you might need to restrict the use of spreadsheets. Sit down with users and show them the benefits to make the shift easier and to foster trust. Ironically, for individuals who have never switched from paper to software, Microsoft Excel can emulate the program. Easy-to-use software and executive champions on the business and IT sides can also increase buy-in and facilitate cultural transformation.