INVENTORY MANAGEMENT PRACTICES AND OPERATIONAL PERFORMANCE OF SELECTED FLOUR MILLS COMPANIES IN NIGERIA

ABSTRACT
Inventory management is one of the most important functions of manufacturing firms.The flour mills companies operating in Nigeria are facing the problems of determining appropriate inventory level that should be kept to ensure that customer needs are met and production process is not interrupted. Striking a balance between overstocking and running out of stock has been a serious challenge to the flour mills companies in Nigeria. As a result of the negative effects of inventory shrinkage, poor management and control of inventories, operations are hampered, customers are dissatisfied and consistent drop in the productivity of the companies are recorded. This study examined the relationship between inventory management practices and operational performance of flour mills companies in Nigeria.
The study adopted cross-sectional survey and causal research design. The target population comprised 2,237 staff of the selected flour mills companies. A stratified random sampling technique was used to select the sample size of 776. A structured self-administered survey questionnaire was adapted, validated and used for collecting data for the study. The Cronbach’s alpha coefficients for the constructs ranged between 0.783 and 0.971. The response rate to the 776 copies of the questionnaire administered was 82.6%. Data were analyzed using descriptive and inferential (Pearson Product Moment Correlation and Regression) statistics.
Findings revealed that inventory shrinkage had a significant negative effect on customers’ satisfaction of the selected flour mills companies in Nigeria (B = -.134; F(1,640) = 82.196; R2 = .114, p<0 .05="" .590="" advantage="" and="" companies="" competitive="" f="" flour="" had="" in="" influence="" investment="" mills="" nigeria="" nventory="" of="" on="" positive="" selected="" significant="" sub="" the="">(1,639)
 = 9.754; r = 0.723; R2 = .522, p<0 .05="" .339="" a="" and="" between="" companies="" control="" cost="" effect="" effectiveness="" efficiency="" f="" flour="" had="" here="" in="" inventory="" mills="" nigeria="" of="" on="" operational="" p="" positive="" r="0.775," relationship="" selected="" significant="" sub="" the="" turnover="" was="">(1,639) = 6.948; R2 = .364, p<0 .05="" .614="" accuracy="" and="" automated="" between="" companies="" customer="" delivery="" f="" flour="" had="" in="" influence="" inventory="" mills="" nigeria="" of="" on="" p="" positive="" productivity="" r="0.559," record="" relationship="" selected="" service="" significant="" sub="" system="" the="" there="" was="">(1,639) = 62.805; r = 0.691; R2 = .477, p<0 .05="" o:p="">

The study concluded that inventory management practices significantly influenced operational performance of flour mills companies in Nigeria. It recommended that the companies should ensure that stocks were sufficient to meet production requirements and customer demands at all times and avoid holding unnecessary surplus stocks that might increase holding costs and thus ensure enhanced customer satisfaction.

CHAPTER ONE
INTRODUCTION
1.1              Background to the Study
In recent years, many firms in the world have faced several challenges particularly in inventory management and control, thus affecting their operational performance. There have been cases of materials overstocking which eventually got expired or out dated, under stocking, lack of stock-taking, theft of materials by workers and delay in delivery of materials into the organizations among others. Many manufacturing firms have more than 50% of total assets invested in working capital, which includes inventory, as well as accounts receivable and accounts payable (Beheshti, 2010; Darun, Roudaki, & Radford, 2015; Gill, Biger, & Mathur, 2010). The general business problem is that excessive levels of working capital invested in inventory negatively affect a company’s operational performance (Aktas, Croci, & Petmezas, 2015; Bagchi, Chakrabarti, & Roy, 2012; Charitou, Elfani, & Lois, 2010; Chisti, 2013; Mojtahedzadeh, Tabari, & Mosayebi, 2011). The basic business problem is that some managers lack strategies for efficient inventory management (Basu & Wang, 2011; Hatefi & Torabi, 2015). Hence, there is a need by manufacturing firms to develop strategies for managing and maintaining optimal inventory level of raw materials and saleable products.
The basic method of managing stock by quantity by manufacturing firms are by means of fixing for each commodity stock levels which are recorded in the stock control system and subsequently used as a means of indicating when some actions are necessary. Most firms cannot work properly without stock and therefore they have to consider its management. There is a need for organization to maintain a minimum, ordering, hastening and maximum stock levels (Harrisson, 2001 cited in to Munyao, Omulo, Mwithiga, & Chepkulei, 2015). Bainson and Bainson (2016) argue that stock levels should be carefully received at suitable intervals, such as quarterly, monthly or even weekly and adjusted to meet any changes in circumstances. If this is not done, the original fixed level will be less than expected, become outdated and the system of stock control is rendered ineffective. The amount of stocks held at the warehouse of manufacturing firms can drastically affect cost and hence finances. This therefore, demands strong monitoring of the changing conditions of stock levels in stores.
In addition to the foregoing facts, order lead times play a substantial effect on operational performance and customer service of manufacturing firms. Longer lead times for procuring and producing materials and finished goods can increase safety stock inventory requirements and reduce the responsiveness to uncertain customer requirements. Added to the price and quality attributes of goods, customers are often highly sensitive to order lead times, while suppliers often compete based on the ability to quickly respond to consumer requirements. The goal of firms, however, is to reduce inventories without hurting the level of service provided to customers. Olinder and Olhager (2008) cited by Agbugbla (2014) emphasize that the requirement for short lead times are vital to the realization of manufacturing firm’s operational performance. This implies that manufacturing firms and other firms must put in significant efforts to reduce lead times (Agbugbla, 2015). Olinder and Olhager (2008) further added firms that concentrate on cycle time as a measure of productivity other things being equal, are able to reduce delivery time and by so doing, improving quality and ultimately, creating a satisfied customer. Therefore, the need to have an efficient procurement lead time.
The planning and control of inventories and related activities are critical to the success of manufacturing industry. Managers of organizations have sought reliable and effective inventory practices and systems to remain competitive. Nsikan, Etim, and Ime (2015) assert that various organizations have employed the basic inventory management techniques or inventory control methods to keep their inventory costs in check. The various inventory management best practices that have been adopted by organizations include Economic Order Quantity model (EOQ), Just In Time (JIT), Vendor Managed Inventory (VMI), Collaborative Planning (CP), forecasting and replenishment, automatic replenishment, agile system, and material requirement planning and so on. However, some researchers have suggested that managers who turn to inventory research may find it to be of little significance (Boone, Craighead, & Hanna, 2008) or conclude that it has little to offer in terms of enhancing inventory practices (Wagner, 2002). This implies that a gap exists between inventory theory and practice in the manufacturing industry including the Nigerian flour milling industry, and the need to bridge the theory-practice gap is imperative.
Adeyemi and Salami (2010) and Alao (2010) in their studies attributed the gap to the lack of knowledge and understanding of the practices, their mode of operation, and practical relevance in the Nigerian manufacturing industry; including the Flour milling sub-sector. In addition, this problem has accounted for the rising increase in raw material wastages, longer lead-time, lost sales, product shortages, backorder penalties, increasing production cost, and poor quality issues currently ravaging the industry. It was also stated by Takim (2014) that during materials ordering and supply, staff of flour milling companies in Nigeria responsible for inventory control do not implement minimum, reorder and maximum stock levels, as a result, several incidents of over stocking and stock-outs have occurred. This has resulted into back-ordering, backlogging and lost of sales.
There are various perspectives to the problems of inventory management by Nigerian manufacturing industry. According to Onuoha (2012), the Nigerian manufacturing industry’s environments are problematic and harsh. There were high and unplanned inventories caused by lack of patronage and distress in aggregate demand. Also, there was high cost of funds arising from depreciation of the Naira against major currency coupled with high lending rates and extreme difficulties in accessing credit for working capital. The small working capital available to the majority of Nigerian manufacturing firms is managed by them to avoid operational embarrassments. Also, raw material inputs, mostly imported, are affected by unstable foreign exchange market and monetary policies of the government. Raw materials inventory are then affected by inadequate foreign exchange for importation, delays in clearing at the Nigerian ports, and poor transportation network. Atseye, Ugwu, and Takon, (2015) lamented that the problems facing the manufacturing industry have negatively affected the production runs of Nigerian firms and delivery of finished goods to customers. In addition, many factories have been either temporarily or completely shut down whilst many workers have lost their jobs.
The problem was further aggravated by the bottlenecks created by Nigerian capital and money markets with harsh requirements that could not be easily met by the companies that are at the verge of collapse. In a study carried out by Aro-Gordon and Gupte (2016), it was further gathered that the problems of inventory management in the Nigerian manufacturing industry was attributed to the failure on the part of the top management officials, to give a deserved attention to the function of warehouses and stores as well as their inability to employ the services of a well qualified store officers to take charge of inventory supervision and management. Adamu (2016) added that inventory management has been a serious challenge to many business organizations in Nigeria. Therefore, inventory management practices in Nigeria manufacturing industry deserves significant improvement, given the poor level of computerization, non-determination of stock level, the involvement of illiterates and unskilled personnel in the management of inventory (Akindipe, 2014).
The flour milling industry comprised of 22 players segmented on the bases of their installed capacity (Njoku & Kalu, 2015a). The industry consists of four (4) major producers quoted on the Nigerian Stock Exchange which include: Larfage Dangote Flour Mills Plc, Flour Mills of Nigeria Plc., Honeywell Flour Mill Plc., and Northern Nigeria Plc (Njoku & Kalu, 2015b). These quoted flour milling companies have a total installed capacity of 15, 360 metric tons per day and control over 50% of the market share as well as over 85% of the flour mill market in the Sub-Saharan African with a wider distribution network that covers most of the countries in the Sub-Saharan African region (Njoku & Kalu, 2015a). However, studies have reported that majority of the flour milling companies in Nigeria are suffering from operating environment problems and lacks a strategic operating system for inventory management and control (Njoku & Kalu, 2015a; Takim, 2014).
In a study on enhancing supply chain management in flour milling industry in Nigeria, Fagade (2011) indicated that the industry faces a big challenge with inventory management; this in turn has led to a sizeable wastage. Also identified as associate problems include: putting materials in wrong location, wrong labeling that come with difficulties when such materials are needed. It was also established that the effect of this poor inventory management is not only felt on resources wastage, it also encouraged pilfering by the custodian of the materials as the laxity was discovered. In addition, Fagade (2011) established that there was wrong procurement, inappropriate storage and poor documentation of inventories in the industry. The industry also displayed gross inability to employ qualified personnel to handle stores supervision and management. Njoku and Kalu (2015b) discovered from the study of the effect of strategic supply management on the profitability of flour mills in the Sub-Saharan Africa that flour milling industry has not given inventory management the prominence it deserves despite the varied importance of inventory management. They also suffered from national infrastructural problems like bad roads; unfavourable policy reforms; high cost of powering manufacturing plants; and very high exchange rate movements (Flour Mills Nigeria, 2014).
Nsikan et al. (2015) assert that inventory constitutes the most significant part of the current assets of majority of the Nigerian flour milling companies. Therefore, due to the relative largeness of inventories maintained by the companies, considerable sum of the company’s funds are being committed to them. It therefore becomes absolutely imperative to manage inventories effectively so as to avoid unnecessary cost, back order penalties during periods of peak demand by customers and ensure high level of customer service. It is also essential for the management of flour milling companies in Nigeria to maintain an optimum investment in inventory because it costs a lot of money to hold down capital in excess inventory which increases operating costs and reduces profit of the companies. In other word, when inventories are reduced, their value is converted into cash, which improves cash flow and return on investment.
The studies on the relationship between inventory management practices and performance of manufacturing companies in Nigeria have focused majorly on the techniques for controlling inventories such as EOQ model, Just-in-Time technique, associated with variables such as profitability, customer satisfaction, and efficient delivery. Also, despite several models  (both deterministic and stochastic) that have been adopted in practice by manufacturing firms, an assessment of the effect of internal inventory management practices in enhancing operational efficiency of flour milling companies in Nigeria are currently lacking. Previous studies such as Adamu (2016), Ogbo and Ukpere (2014), Takim (2014) and so on, have related inventory management practices with various aspects of organizational performance such as financial and economic performance, and most of these studies have focused on external inventory management practices. Specific study exclusively on the effects of inventory management practices on operational performance of flour milling companies in Nigeria by Nsikan et al (2015) did not basically use operational performance variables, rather used financial variables. In addition, most studies that attempted to focus on operational performance concentrated on solvency and operating performance of firms based in Kenya and India such as Kamau and Kagiri (2015), Oballah, Waiganjo and Wachiuri (2015), and Shafi (2014). Very limited studies have been carried out on internal inventory management practices. It is therefore evident that knowledge gap exists on the specific relationship between internal inventory management practices and operational performance. This study intends to bridge this gap by determining the relationship between internal inventory management practices and operational performance of flour mills companies in Nigeria.

1.2       Statement of the Problem
Over the years the inventory management in most manufacturing industry like the Nigerian Flour Mill Industry is often criticized for being a cost centre. The criticism is raised because Purchasing Department was spending money on inventory while Stores or Warehouses were holding huge stock of inventory, blocking money and space (JerutoKeitany, Wanyioke, & Richu, 2014; Kimaiyo & Ochiri, 2014). However, majority of the manufacturing firms throughout the world including the Nigerian Flour Mills Company have recognised the importance of inventory management, to be a source of competitive advantage, costs reduction, and customer satisfaction. This change in the mindset of companies today has spurred an increasing body of academic research attempting to reveal a relationship between inventory management practices and firms performance.......

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Item Type: Ph.D Material  |  Attribute: 269 pages  |  Chapters: 1-5
Format: MS Word  |  Price: N3,000  |  Delivery: Within 30Mins.
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