CHAPTER ONE

INTRODUCTION

1.1 Background to Study

Inventory control is the supply of goods and services at the right time with right

quality and quantity. It is a reliable means in which businesses are been managed to ensure

customers are satisfied and organization remains in operations via minimization of losses.

Inventory management has been a problem to many business organizations in Nigeria.

Inventories provide a significant link between production and sales of product, and constitute

a large percentage of the cost of production. It is one of the most expensive and important

assets of many manufacturing companies representing a considerable percentage of the total

invested capital. At any level of a firm, inventory is among the largest investment made and

therefore logically deserves to be treated as a major policy variable, highly responsive to the

plans and style of top management. However, to date in most organization, both analysts and

managers have been relatively unsuccessful in convincing top management to give this area

the due consideration that it logically deserves (Ogbo, 2011).

Inventory control typically represents all expenses for business, is needed to ensure

that the business has the right goods on hand to avoid stock-outs, to prevent shrinkage, and to

provide proper accounting. Many businesses have too much of their limited resource

(capital), tied up in their major asset (inventory). Boyd and Gupta (2011), opined that

inventory may be old, worn out, shopworn, obsolete, or the wrong sizes or colors, or there

may be an imbalance among different product lines that reduces the customer appeal of the

total operation. The ideal inventory and proper merchandise turnover will vary from one

market to another. Average industry figures serve as a guide for comparison as too large in

inventory may not be justified because the turnover does not warrant investment. On the

other hand, because products are not available to meet demand, too small an inventory may

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minimize sales and profits as customers go somewhere else to buy what they want where it is

immediately available. Minimum inventories based on reordering time need to become

important aspects of buying activity other expenses are carrying costs, material purchases,

and storage costs are expensive, however, stock outs are expensive also. All of those costs

can be minimized by efficient inventory policies. Thus, the extent to which inventories used

by manufacturing organizations determines the extent of organization performance.

Organizational performance provides the basis for assess organization on how well

it is progressing towards its predetermined objectives. Performance of manufacturing firms is

a combination of practices; hence several performance measures can be used efficiently.

Vastag and Whybark, (2005) opined that most typical measures of manufacturing

performance are rejects and scrap, reworking, labour and machine productivity, product

quality, inventory levels and turnover, unit manufacturing cost, manufacturing cycle time,

delivery speed and reliability. Much literature suggests that inventory control systems

effectiveness and efficiency as measures of procurement performance which map onto

performance of the organization in terms of competitive advantage, level of profitability,

providing error-free goods and service, cost efficiency and increased level of output.

Inventory control involves the coordinating of material availability, controlling,

utilization and procuring of materials. Inventory control is the direction of activities with the

purpose of getting the right inventory in the right place at the right time and in the right

quantity and it’s directly linked to production function of any organization which implies that

the inventory management system operated will affect the profitability of an organization

directly or indirectly (Alm 2018).

Inventories are the stock of raw materials, work in progress, finished goods and

supplies held by a business organization to facilitate operations in the production process,

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(Pandey, 2013).Also if the company fails to manage its inventory efficiently, it is likely to

face profitability problems (Block & Hirt, 2019).The goal of inventory management therefore

is to provide the inventories required to sustain operations at minimum costs (Dickerson

2018).

Inventory control helps organization to establish the proper inventory levels through the

economic order quantity; and to keep track of this level through inventory control system

which may be manual such as two bin method and red line method, or computerized

inventory control systems. Proper inventory controls also require an organization to

undertake stocking and use appropriate method to value stock so as not to under or over state

profits (Kotabo, 2019).

In the past, inventory control was not seen to be necessary, in fact excess

inventories were considered as indication of wealth. Management by then considered over

stocking beneficial. But today firms have started to embrace effective inventory control

(Susan & Michael., 2000). Managers, now more than ever before, need reliable and effective

control in order to reduce costs and remain competitive (Closs, 2009). According to Dobler

and Burt (2006), inventory alone account for as much as thirty percent of the organization

invested capital. Lyson (2006) posits that inventory control enhances profitability by reducing

costs associated with storage and handling of materials.

The American Production and Inventory Control Society (APICS) define inventory

management as the branch of business management concerned with planning and controlling

inventories (Toomey, 2000). Inventory management is a critical management issue for most

companies – large companies, medium-sized companies, and small companies. Logistics is

all about managing inventory, whether the inventory is moving or staying, whether it is in a

raw state, in manufacturing, or finished goods (Goldsby & Martichenko, 2005). Logistics and

inventory management are embedded in each other and tied up closely. The “Bill of ‘Rights’”

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that logistics professionals often repeat is to deliver the right product to the right place, at the

right time, in the right quantity and condition, and at the right cost. To make it happen,

effective inventory management is a cornerstone.

Inventory management also becomes a fundamental part of supply chain management

(SCM) now. A lot of research in supply chain management over the last two decades can be

characterized as so called “multi-echelon inventory theory” (Quayle, 2003). Supply chain

management has in recent years become an important way to enhance the company’s

competitive strength and therefore an important issue for most companies. There is need for

installation of a proper inventory technique in any business organization in developing

country like Nigeria. Kotler (2002) said inventory management refers to all the activities

involved in developing and managing the inventory levels of raw materials, semi-finished

materials (work in progress) and finished goods so that adequate supplies are made available

and the costs of over or under inventories are low.

Good in inventory represents a cost to their owner. The manufacturer has the expense

of materials and labor. The wholesaler also has funds tied up”. Therefore, the basic goal the

researchers are to maintain a level of inventory that will provide optimum stock at lowest

cost. Inventory as an asset on the balance sheet of companies has taken on increased

importance because many companies are applying the strategy of reducing their investment in

fixed assets, like plants, warehouses, equipment and machinery, and so on, which even

highlights the significance of reducing inventory (Coyle, Carter, & Price, 2003).

It is Inventory management, in an organization, that deals with identifying every item

of stock. Inventory management is primarily about specifying the size and placement of

stocked goods. Inventory management is required at different locations within a facility or

within multiple locations of a supply network to protect the regular and planned course of

production against the random disturbance of running out of materials or goods (Chambers

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Dictionary, 2008). Effective inventory management determined how profit of an organization

can be maximized. Maximizing of profit depend on minimizing cost and maximizing

revenue. Maximization is an efficient concept which requires increasing profit without

increasing the resources used (Agbayaju, 2012). The import of inventory management in

organization is to ensure that at any point in time the capital of the business is not necessarily

tied down in form of material in the store, which may provide opportunity for fraud and theft.

In other word the management wishes to put at minimal rate stock losses, which emanate

from store operation. Thus, as business organization stock is of paramount important likewise

the profit of the business. Inventory problems of too great or too small quantities on hand can

cause business failures. If a small business experiences stock-out of a critical inventory item,

production halts could result. It is thus the management of this economics of stockholding,

that is appropriately being refers to as inventory management.

Therefore, it should be adequately taken care of because it has to do with profit of the

business. A well planned and effective stock management can contribute substantially to a

firm annual turnover. The present study intends to solve problems associated with the

management of inventory by manufacturing organizations. This is because inventory of a

business can go a long way in determining the success or the failure of the business.

Ineffective inventory management therefore can lead to stock out which will definitely lead

to loss of customer and goodwill, which will make the profit of the business decrease and

result in ultimate collapse of the organization. In trying to get a general overview of the

problem of inventory management, many questions beg for answers as to what influences the

wastage of raw materials that characterized most industrial manufacturing operations.

Occasionally under/over production of goods, underutilization of plant capacities

which result to avoidable increase in overhead cost per unit of product. All these factors are

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as a result of improper inventory management and they contribute immensely to loss of profit

and enterprise failure.

1.2 Statement of Problems

Inventory management has been a problem to many business organizations in

particularly in Nigeria this is because inventory of a business can goes a long way in

determining the success or the failure of the business (Abdulraheem, Yahaya, Isiaka, and

Aliu, 2011). Ineffective inventory management can lead to loss of customer and goodwill,

which will make the profit of the business decrease and result in ultimate collapse of the

organization.

Different inventory control problems are being encountered by different

organization. Effective inventory control can be achieved by the selection and adoption of an

inventory control system that will result to the much-needed improvement in the

organizational performance. Every organization be it big or small keeps inventory just to

provide necessary basic raw materials for daily operation and also to provide a reservoir for

absorbing the effect of variation in delivering and consumption, also to maintain ready

availability of supplies within the organization which may be required at short notice. But

most organizations do not consider the necessity of some basic consideration for keeping

such items.

When goods are held as inventory, there is great deal of administrative work

involved i.e. control of receipt issues and the general custody of all the stock items in order to

prevent theft and pilferage and sometimes equipment for loading and off-loading such

materials have to be bought, all these costs must be taken into considerations otherwise the

organization may end up tying down its working capital which could be invested elsewhere

and generate more profits for the organization concern. Few organizations that are aware of

the usefulness of stock control excel in their various businesses. In spite of these, effective

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inventory control has not been without a lot of problems as observed by the researcher, it is

on this note that this research work, has been chosen to evaluate inventory management on

organization performance using Nestle Food Nig. Plc as the case study.

1.3 Research Questions

Answers were provided to the following questions in this study

1. what level of effect does stockout rate has on organizational performance

2. To what extent dose carrying cost of inventory affect organizational performance

3. What is the effect of order accuracy rate on organizational performance

4. How does obsolescence rate affect organizational performance

1.4 Objectives of the Study

The broad objective of this study is to examine the effect of inventory control on

organizational performance

1. To evaluate the effect of stock out rate on organizational performance

2. To examine the effect of carrying cost of inventory on organizational performance

3. To determine the effect of order accuracy rate on organizational performance

4. To analyze the effect of obsolescence rate of organizational performance

1.5 Statement of the Research Hypotheses

The following formulated research hypotheses were tested in this study

H₀₁: stock rate has no significant effect on organizational performance

H₀₂: carrying cost of inventory has no significant effect on organizational performance

H₀₃: order accuracy rate has no significant effect on organizational performance

H₀₄: obsolescence rate has no significant effect on organizational performance

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1.6 Significance of the Study

The study will help inventory managers understand the real costs involved in

holding or storing inventory (such as storage, insurance, deterioration, and obsolescence). It

will also guide them on how to reduce or avoid unnecessary inventory costs through proper

control methods) on a better rooting to actually know the cost of keeping inventory and how

to avoid it.

The study will also serve as eye opener to organization on how to control inventory

for effective and efficient operation of organizations activity, and when this happens

detective / obsolete products will not be passed into the society for consumption.

This study will be a reference point for researchers, as various findings and

recommendations are expected to fill the gap left behind by the previous investigations.

This study can help in designing industrial policies that promote efficient

production systems across the manufacturing sector.

1.7 Scope of the Study

This study focuses on assessing how inventory control practices affect the operational

and financial performance of Nestlé Foods Nigeria Plc. Geographically and institutionally,

the research is confined to Nestlé’s Nigerian operations (head office and primary

manufacturing sites), using publicly available corporate documents and primary data

collected from relevant functional units (procurement, warehousing, production and finance).

Temporally, the empirical analysis covers a recent five-year period (2019–2024) to capture

pre- and post-pandemic supply-chain dynamics and the firm’s most recent audited financial

results. Conceptually, the study examines inventory control components such as classification

(e.g., ABC), ordering policies and lead-time management (EOQ, reorder points), holding and

ordering costs, stockout frequency, wastage/obsolescence controls (critical for food

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manufacturing), and the role of information systems/ERP in inventory visibility and

forecasting. it is designed to produce actionable recommendations on inventory control

improvements that can enhance both operational reliability and financial returns at Nestlé

Foods Nigeria Plc, while offering lessons applicable to similar manufacturing firms.

1.8 Operational Definition of Terms

i. Management: Management consists of the interlocking functions of creating corporate

policy and organizing, planning, controlling, and directing an organization's resources in

order to achieve the objectives of that policy.

ii. Inventory: Inventory is the raw material work-in-process products and finished goods

that are considered to be the portion of a business's assets that are ready or will be ready

for sale. Inventory represents one of the most important assets of a business because the

turnover of inventory represents one of the primary sources of revenue generation and

subsequent earnings for the company's shareholders.

iii. Inventory Control: Is the process employed to maximize a company’s use of inventory.

iv. FIFO and LIFO: Are the cost layering methods used to value the cost of goods sold and

ending inventory.

v. Reorder Cost: Total expenses involved in repeating an external supply-order or an

internal manufacturing-order. It also includes order preparation, communications,

transportation, receiving, inspection and other costs.

vi. Lead Time: The time between the initiation and completion of a production process.

vii. Material Handling: Are the movement, protection, storage and control of materials and

products throughout manufacturing, warehousing, distribution, consumption and disposal.

viii. Control: Control is a systematic effort to set performance standards with planning

objectives, to design information feedback systems, to compare actual performance with

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 these predetermined standards, to determine whether there are any deviations and to

measure their significance, and to take any action required to assure that all corporate

resources are being used in the most effective and efficient way possible in achieving

corporate objectives.

ix. Inventory Management: Inventory management is the management of inventory and

stock. As an element of supply chain management, inventory management includes

aspects such as controlling and overseeing ordering inventory, storage of inventory, and

controlling the amount of product for sale.

x. Inventory control: Inventory control, also known as stock control, involves regulating

and maximizing your company’s inventory. The goal of inventory control is to maximize

profits with minimum inventory investment, without impacting customer satisfaction

levels. Inventory control is also about knowing where all your stock is and ensuring

everything is accounted for at any given time.

xi. Manufacturing Organization: This is organizations that primarily produce a tangible

product and typically have low customer contact. They produce physical, tangible goods

that can be stored in inventory before they are needed.

1.9 Historical Background of the Study

Nestlé Nigeria Plc has a rich and long history that dates back to the early 20 th Century.

While the company was formally established in 1961, Nestlé products had already been

making their way into the Nigerian market for decades (Nestle 2011).

The company is a Nigerian public company and a subsidiary of Société des Produits

Nestlé S.A. (Nestlé Group, Switzerland). It is one of the largest food and beverage companies

in Africa (Wikipedia. n.d.).

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 The Nestlé company history begins in 1866, with the foundation of the Anglo-Swiss

Condensed Milk Company. Henri Nestlé develops a breakthrough infant food in 1867, and in

1905 the company he founded merges with Anglo-Swiss, to form what is now known as the

Nestlé Group.

Person: Henri Nestlé

Industry: Food Industry

Nestle Nigeria plc is associated with the nestle group, the single largest food company

in the world and it is known worldwide for its top-quality products.

The Early Years: Importation and Distribution (Pre-1961)

 Early 1900s: Nestlé products first appeared in Nigeria through local importers who

sourced their goods from British trading companies. This trade was initially sporadic.

 1920s: Nestlé decided to formalize the importation and distribution of its products in

Nigeria, leading to more regular trade.

 Nestlé’s presence in Nigeria goes back to the early 1900s, when products were shipped in

by local importers and British trading houses. Regular, organized imports began in the

1920s.

The Establishment of a Local Subsidiary (1961-1970s)

 1961: One year after Nigeria's independence, "Nestlé Products (Nigeria) Limited" was

officially created. This marked the beginning of Nestlé's direct operations in the country

as a locally based subsidiary (Nestle Central & West Africa. (n.d. 2011).

 1969: The company's name was changed to "Food Specialties Limited (Ogbuji, I., &

Ogunyomi, O.O. (2014)."

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 1971: Due to increasing demand, particularly for its Maggi seasoning products, the

company established its first local production facility—a packaging plant in Lagos

(Ogbuji, I., & Ogunyomi, O.O. (2014).

 1978: The company leased a 16-hectare plot of land in the newly created Agbara

Industrial Estate in Ogun State, signaling its intention to expand its manufacturing

capabilities (Nestle Central & West Africa. (n.d. 2011).

 1979: The company was listed on the Nigerian Stock Exchange following an

indigenization decree (Nestle Central & West Africa. (n.d. 2011).

Expansion and Local Production (1980s-1990s)

 1981-1982: The Agbara factory was inaugurated, and Nestlé began manufacturing its

iconic products like Maggi and Milo locally. Cerelac production followed in 1982

(Ogbuji, I., & Ogunyomi, O.O. (2014).

 Mid-1980s: Nestlé focused on increasing local content in its products. This led to the

introduction of products like Cerelac Maize and Nutrend (a mix of soy and maize), which

used a higher percentage of locally sourced raw materials (Nestle Central & West Africa.

(n.d. 2011).

 1991: The company's name was changed to "Nestlé Foods Nigeria."

Modern Era: Growth and Diversification (2000s-Present)

 2001: The company became a publicly listed company and was renamed "Nestlé Nigeria

Plc."

 2011: Nestlé expanded its manufacturing presence with the opening of a new Maggi

factory at its Flowergate site in Ogun State (Ogbuji, I., & Ogunyomi, O.O. (2014).

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 2016: A new water bottling plant was opened in Abaji, Abuja, to produce Nestlé Pure

Life water.

 2018: The company opened a Milo Ready-to-Drink (RTD) factory at its Agbara Industrial

Area, further expanding its product offerings (Ogbuji, I., & Ogunyomi, O.O. (2014).

Throughout its history, Nestlé Nigeria has focused on local sourcing of raw materials,

creating employment, and contributing to rural development through initiatives aimed at

supporting local farmers. The company has become one of the largest food and beverage

companies in Africa, with a strong portfolio of well-known brands.

Important Facts

Nestle Nigeria plc began simple trading in 1961 and has today grown into a leading

manufacturing and marketing company. It is a public quoted company listed since 1978 on

the Nigeria stock exchange with about 20,500 shareholders participating.

Nestle Nigeria Plc of Switzerland owns about 43% of the company’s equity. Nestle Nigeria

plc manufacturing complex is located at Agbara Industrial Estate in Ogun State.

Growth and Production Strategy Implemented by Nestle Plc

From the initial phase, Nestle Nigeria plc obtains most of its agricultural raw materials

locally from contract farmers and out growers partnering agreement that enables the benefits

from the technical advice and assistance of the company’s agricultural services department

and at the same time, guarantee to the company continuous supply of raw materials that meet

their high-quality standards.

Increasing Growth and Organizational Performance

The company pursue the use of backward integration strategy by using its sustainable

agricultural initiative (SAI) where she involves herself with collaborative research with the

university of agriculture, Abeokuta (UAAB) in the production of high breed seeds which

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brought into being various varieties of soya beans with improved seed colour, seed size, and

seed yield.

The company’s objective is to satisfy the requirements of the consumers with high quality

food products with long shelf life adapted to the taste and food habits of the consumers and as

a result, she has continuously invested in Nigeria by building and commissioning in 1991 at

Agbara, Ogun state a fully integrated plant producing concentrated sorghum malt extract

from locally malted sorghum, and in June 1995, Nestle Nigeria plc commissioned another

plant at Agbara which produces enzymatic hydrolyzed plant protein mix. (EHPPM)

Alongside backward integration, Nestle Nigeria also carries out Spot Exchange in the form of

Large scale acquisition of chemical inputs for farm production from suppliers such as:

 African Agro Commodities Ltd.

 Alphayel Ventures Ltd.

Where she gets Agricultural pesticides to prevent the pests on the growth and productivity of

agricultural crops

Changes in Organizational Performance Related to Growth and Profitability

The investments represent successful and significant effort at replacing imported raw

materials in the manufacture of milo food drink and the maggi cubes.

With her historical root in nutrition, wide product portfolio, strong brands, research

and development competence, skilled and motivated professionals, and efficient

management, the company is positioned to committed to the progress, prosperity, economic

development, and industrial growth of Nigeria.

Through the use of vertical integration strategy, the company achieve a clear-cut

competitive advantage over competitive products by ensuring that their products are available

wherever, whenever, and however the consumers want. Their continuous attention is also

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given to developing the professional leadership skills of staffs at all levels so that they can

directly contribute to growth and a higher level of performance.

Changes in Nestle plc as a result of Backward Vertical Integration

Nestle has Achieve economies of scale, since there has lowered their Fixed cost Per

unit by eliminating expensive markups from middlemen, consolidating management and

staff, and optimizing operations

High Maintenance of quality control

There is a constant supply chain for the inputs of nestle and with high Quality

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 CHAPTER TWO

LITERATURE REVIEW

2.1 Conceptual Review

2.1.1a Meaning of Inventory

Inventory refers to the stock of goods, raw materials, work-in-progress, and finished products

that a company holds for the purpose of production or resale. According to Banjoko (2019),

inventory constitutes one of the largest assets of manufacturing firms and plays a vital role in

ensuring production continuity. It includes all materials, components, and products stored in

anticipation of future demand.

In manufacturing companies like Nestlé Nigeria Plc, inventory ensures that production runs

smoothly without interruption, allowing the company to meet customer demands promptly.

Inventory is defined as a stock or store of goods (Stock and Lambert, 2016). These goods are

maintained on hand at or near a business's location so that the firm may meet demand and

fulfil its reason for existence. If the firm is a retail establishment, a customer may look

elsewhere to have his or her needs satisfied if the firm does not have the required item in

stock when the customer arrives. If the firm is a manufacturer, it must maintain some

inventory of raw materials and work-in-process in order to keep the factory running. In

addition, it must maintain some supply of finished goods in order to meet demand. Coyle et al

(2015) defines inventory as “raw materials, work-in-progress, finished goods and supplies

required for creation of a company’s goods and services”. Ballou (2016) also defines

inventory as “the stock of any item or resource used in an organization”. In a broader context,

inventory can include inputs such as financial, energy, human, equipment, and physical items

such as raw material; inputs such as parts, components, and finished goods; and interim

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stages of the process, such as partially finished goods or work-in-progress. Inventories are the

physical resources that a firm holds in stock with the intent of selling it or transforming it into

a more valuable state. Inventory represents the largest single investment in assets for most

manufacturers, wholesalers and retailers (Stock and Lambert 2015). It is said to be any idle

resource held for future use (Dilworth, 2017).

Inventory management is the process of keeping track of non-capitalized assets and stock

items. These things are often called "inventory." Inventory management, a part of supply

chain management, controls the movement of products from producers to warehouses and

from these locations to points of sale. Inventory management requires keeping a detailed

record of each new or returned item as it comes into or goes out of a warehouse or point of

sale.

According to Bruwer (2015), inventory management involves the creation and administration

of policies, methods, and procedures that will reduce total cost in relation to inventory

decisions and functions, including customer service demands, production scheduling,

purchasing, and tariff. Therefore, choosing the right amount of inventory to hold is the main

component of inventory management. Any concern that has too little or too much inventory

will suffer since the cost of the inventory as a whole will go up.

Inventory management is a tool that can be used by both small and large enterprises to

monitor their product movement. Using the right inventory management approach can result

in supplying the proper commodities at the proper amount, location, and time. Inventory

management will control operating costs and provide better understanding. Ferencikova

(2018) added that inventory management has a significant impact on a company's

performance because it can affect all three key competitive factors: quality, time (or

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flexibility), and costs. Inventory management becomes more difficult as the product portfolio

becomes more complex.

According to Kafyetta (2016), an inventory control system management is a arrangement that

systematizes all inventory management activities. These systems are described to integral

successfulness of any business organization and are principally used to proficiently capture

stock movements using both hardware and software gears in supply chain. Inventory

management, according to Saleemi (2004), is a critical issue in every firm that should not be

disregarded. The goal is to save precious investment while lowering expenses and enhancing

affordability. He goes on to say that the major goal of inventory control is to reduce lazy time

produced by stocks shortages and non-availability of stocks, as well as inventory carrying

cost expiration losses.

2.1.1b Meaning of Inventory Control

Inventory control, also called stock control, is the process of ensuring the right amount of

supply is available in an organization. With the appropriate internal and production controls,

the practice ensures the company can meet customer demand and delivers financial elasticity.

Successful inventory control requires data from purchases, reorders, shipping, warehousing,

storage, receiving, customer satisfaction, loss prevention and turnover.

Inventory control enables the maximum amount of profit from the least amount of investment

in stock without affecting customer satisfaction. Done right, it allows companies to assess

their current state concerning assets, account balances and financial reports. Inventory control

can help avoid problems, such as out-of-stock (stockout) events. For example, Walmart

estimated it missed out on $3 billion worth of sales in 2014 because its inadequate inventory

control procedures led to stockouts.

An integral part of inventory control is supply chain management (SCM), which manages the

flow of raw materials, goods and services to the point where the company or customers

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consume the goods. Warehouse management also squarely falls into the arena of stock

control. This process includes integrating product coding, reorder points and reports, all

product details, inventory lists and counts and methods for selling or storing. Warehouse

management then synchronizes sales and purchases to the stock on hand.

Inventory management is a higher-level term that encompasses the complete process of

procuring, storing, and making a profit from your merchandise or services. While inventory

control and inventory management may seem interchangeable, they are not. Inventory control

regulates what is already in the warehouse. Inventory management is broader and regulates

everything from what is in the warehouse to how a business gets the product there and the

item’s final destination.

Inventory control practices and policies should apply to more than just finished and raw

goods. The following graphic shows all the things a business might manage using these

practices.

2.1.1c Types of Inventories

 Raw Materials Inventory

Raw material is one of the main types of inventory that represents the basic or unprocessed

materials a company buys to use in the production of goods. These materials are yet to

undergo any manufacturing process and serve as the foundation of all finished products. In

any manufacturing or production business, raw materials are essential inputs used to produce

goods or provide services. They are stored until needed for production. Once production

begins, these raw materials are transformed into work-in-progress (WIP) and later into

finished goods.

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  Work-in-Progress (WIP)

Work-in-Progress (WIP) inventory refers to partially completed goods that are still in the

process of being manufactured but are not yet finished products. It includes all materials,

labor, and overhead costs that have been applied to products at different stages of production

before they become finished goods.

 Finished Goods Inventory

Finished goods inventory refers to completed products that have passed through all stages of

production and are ready for sale to customers.

These goods no longer require any processing or assembly. They are stored in warehouses or

showrooms, waiting to be distributed to retailers, wholesalers, or directly to consumers.

 Maintenance, Repair, and Operating (MRO) Supplies

MRO inventory includes items that are used to support production activities but do not

become part of the final product. These items are necessary for the smooth running of

machinery and factory operations. Examples are lubricants, cleaning agents, gloves, safety

equipment, and spare parts. Although MRO items are not directly linked to production

output, a shortage of them can lead to equipment breakdowns and production delays.

Therefore, keeping an adequate supply is essential for maintaining productivity and

efficiency.

 Packing Material Inventory

Packing material inventory consists of all the materials used to package, protect, and present

goods before storage or shipment. Examples include cartons, boxes, tapes, wrapping films,

and labels. Packaging serves several purposes such as protection against damage, improving

product presentation, and making transportation easier. Efficient packing material

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management helps reduce waste, maintain product quality during transit, and enhance brand

image.

 Transit (or Pipeline) Inventory

Transit inventory, also known as pipeline inventory, refers to goods that are being transported

between different locations, such as from a supplier to a factory, or from a warehouse to a

retailer.

For example, raw materials imported from another country or finished goods sent to

distributors are considered transit inventory. Although these goods are not physically

available for use or sale, they still belong to the company and must be recorded as part of

total inventory. Monitoring transit inventory helps in accurate inventory valuation and

ensures proper tracking of goods within the supply chain.

 Safety Stock (or Buffer Stock)

Safety stock refers to extra inventory kept on hand to protect against uncertainties in demand

and supply. It acts as a cushion when there are unexpected delays, shortages, or sudden

increases in demand. For example, a company may keep extra raw materials in case a

supplier fails to deliver on time. Safety stock ensures that production and sales continue

smoothly even during emergencies or supply chain disruptions. However, too much safety

stock can increase storage costs, so it must be maintained at an optimal level.

 Cycle Stock (or Working Inventory)

Cycle stock is the portion of inventory that is regularly used and replenished to meet normal

demand during a specific period. It represents the average stock a business needs to fulfill

regular customer orders. For instance, a supermarket restocking soft drinks every week is

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maintaining cycle stock. Managing cycle stock effectively helps reduce carrying costs while

ensuring that sufficient goods are available to meet demand. It also reflects a company’s

ability to plan and forecast its regular inventory needs accurately.

 Anticipation Inventory

Anticipation inventory refers to stock built up in advance of expected increases in demand,

such as seasonal changes, festivals, or promotions. For example, umbrella manufacturers may

increase production before the rainy season, and toy companies may build up stock before

Christmas. This inventory helps businesses avoid shortages during peak demand and maintain

stable production throughout the year. However, keeping too much anticipation inventory can

lead to excess stock if the expected demand does not occur.

 Decoupling Inventory

Decoupling inventory is extra inventory kept between different stages of production to

prevent one process from stopping the next if delays occur. For example, in a car

manufacturing plant, engines might be produced faster than car bodies; extra engines are

stored as decoupling stock. This type of inventory ensures that each stage of production can

operate independently and without interruption. Decoupling inventory improves production

efficiency but must be controlled to avoid unnecessary storage costs.

 Service Inventory

Service inventory applies to service-oriented businesses, where products are intangible. It

represents the capacity available to deliver services rather than physical goods. For example,

in an airline, available seats are service inventory; in a hotel, it refers to available rooms.

Managing service inventory ensures that customer demand is met without overbooking or

22
underutilizing resources. Proper service inventory management enhances customer

satisfaction and maximizes revenue.

 Seasonal Inventory

Seasonal inventory refers to goods produced or purchased in anticipation of seasonal demand

fluctuations. Businesses maintain this type of inventory to handle peaks and avoid shortages

during high-demand seasons. Examples include school supplies before resumption periods,

winter clothing before the cold season, or beverages before festive periods. Maintaining

seasonal inventory helps businesses take advantage of high sales seasons and stabilize

production. However, it must be carefully planned to avoid excess stock after the season

ends.

 Speculative inventory

Speculative stock, also known as speculative inventory, refers to the quantity of materials or

goods that a company purchases and holds in anticipation of future price increases, shortages,

or favorable market conditions.

It is not held for immediate production or sales needs, but rather for economic advantage

expected in the near future.

In other words, speculative stock represents inventory bought ahead of time with the intention

of taking advantage of expected changes in market conditions

 Obsolete inventory

Obsolete inventory also known as dead stock, refers to items that are no longer in demand,

outdated, damaged, or unsellable and have no further productive or market value to the

organization.

It is the portion of inventory that has stopped moving, meaning it has not been sold, used, or

23
requested over a long period of time. In simple terms, dead stock consists of materials,

components, or finished goods that remain idle in the warehouse because they are no longer

useful or relevant to current production or sales activities.

2.1.1d Reasons for Holding Inventory

Inventory represents one of the most important assets in a business. It ensures the smooth

running of operations by making materials and goods available whenever they are needed.

Companies hold inventory for several strategic, operational, and economic reasons. Below

are some major reasons why organizations hold inventory, explained in detail.

1. To Meet Customer Demand Promptly

One of the most important reasons for holding inventory is to satisfy customer demand

without delay. Having enough finished goods in stock ensures that customers can receive

their orders immediately, rather than waiting for production to be completed.

For example, in a retail business, when products are readily available, customers are more

likely to make repeat purchases and stay loyal. In contrast, stockouts can lead to customer

dissatisfaction and loss of sales. Therefore, holding sufficient inventory acts as a buffer to

ensure consistent service and customer satisfaction.

2. To Ensure Smooth Production Operations

Manufacturing firms hold inventory of raw materials, components, and spare parts to ensure

uninterrupted production flow. If materials arrive late or supplies are not available, the

production line may stop, leading to downtime and financial losses. By keeping an adequate

stock of essential materials, a company can continue production even when suppliers delay

deliveries or experience shortages. Thus, inventories act as a cushion between different stages

of the production process, ensuring continuous operations.

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3. To Take Advantage of Quantity Discounts

Suppliers often offer discounts to buyers who purchase goods in large quantities.

By buying in bulk, a company can reduce its cost per unit, saving money in the long run.

For example, a manufacturer who buys raw materials in bulk may receive a 10% price

discount compared to small purchases. Although this increases inventory levels, it leads to

significant cost savings. Therefore, holding extra stock can be financially beneficial when it

allows a company to benefit from economies of scale.

4. To Hedge Against Price Fluctuations

Prices of raw materials and goods can change due to inflation, currency fluctuations, or

market conditions. Companies often hold inventory to protect themselves against future price

increases. For example, a food processing company may buy large quantities of sugar or flour

when prices are low to avoid paying higher prices later. This type of inventory is known as

speculative inventory. By holding stock in anticipation of future price rises, companies can

stabilize their production costs and protect profit margins.

5. To Minimize the Risk of Stockouts

Stockouts occur when a company runs out of materials or finished goods, making it unable to

meet demand or continue production. Holding extra inventory helps prevent this risk.

Stockouts can result in:

 Lost sales and revenue,

 Damaged reputation, and

 Customer dissatisfaction.

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By maintaining safety stock (a small reserve of inventory kept for emergencies), companies

can handle unexpected increases in demand or supply chain delays.

6. To Reduce Lead Time and Delivery Delays

Lead time refers to the time between ordering and receiving goods. When a company holds

adequate inventory, it can reduce dependence on suppliers and shorten delivery time to

customers. For instance, a company with finished goods already in stock can ship orders

immediately rather than waiting for production. This improves overall responsiveness and

strengthens customer trust. Therefore, holding inventory helps bridge the time gap between

production and delivery.

7. To Support Seasonal Demand

Some products experience seasonal fluctuations in demand. For example, umbrellas sell more

during the rainy season, and soft drinks sell more in hot weather. To meet these seasonal

variations, businesses produce or purchase goods in advance and store them until the peak

season arrives. This ensures that when demand increases, the company has enough stock to

supply the market and maximize profits. Holding inventory for seasonal demand helps

stabilize production schedules and revenue throughout the year.

8. To Provide Protection Against Supply Chain Disruptions

Unforeseen events like transportation strikes, import restrictions, supplier breakdowns, or

natural disasters can disrupt supply chains. Companies hold extra inventory as a

precautionary measure to keep operations running during such emergencies. For example, if a

supplier’s factory shuts down temporarily, a manufacturer with enough raw materials in stock

can continue production without interruption. This precautionary stock protects the company

from unpredictable risks and helps maintain stability.

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Stock and Lambert (2017) also outlined five reasons for holding inventory. The first is to

enable the firm achieve economies of scale. Inventory is required if a firm is to realize

economies of scale in purchasing, transportation, and manufacturing. Secondly, it balances

supply and demand. Seasonal supply and/or demand may make it necessary for a firm to hold

inventory. Thirdly, inventory enables specialization in manufacturing. Inventory makes it

possible for each of a firm’s plants to specialize in the products that it manufactures.

Fourthly, it provides protection from uncertainties in demand and order cycle. Inventories in

excess of those required to support production can result from speculative purchases made

because management expects either a future price increase or a strike, for example. Finally,

inventory acts as a buffer between critically interfaces within the supply chain. Since

members of the supply chain are separated geographically, it is necessary for inventory to be

held throughout the supply chain in order to successfully achieve time and place utility.

Though these reasons for holding inventory are very good and important for organizations,

holding of inventory still draws some skepticism Ballou (2017), lists three reasons why

holding inventories draws skepticism. The first is that inventories are considered wasteful

because they absorb capital that might otherwise be put to good use. Secondly, inventories

held, if not properly stored can result in deterioration of otherwise high-quality products

leading to poor customer satisfaction and loss of revenue. Thirdly, according to Ballou

(2017), why holding inventories draws skepticism is that keeping inventories promotes

insular attitudes within the entire logistics chain. Schroeder (2015), also stressed that there

are three motives for holding inventories, which are transactional, precautionary and

speculative motives. The transaction motive occurs when there is a need to hold stock to meet

production and sales requirements. A firm might also decide to hold additional amounts of

stock to cover the possibility that it may have under estimated its future production and sales

requirements. This represents a precautionary motive, which applies only when future

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demand is uncertain. The speculative motive for holding inventory might entice a firm to

purchase a larger quantity of materials than normal in anticipation of making abnormal

profits. Advance purchase of raw materials in inflationary times is one form of speculative

behavior. These theories are relevant to this study, in that it suggests that though inventory is

important in an organization, it must be properly managed to avoid wastage and deterioration,

since the capital used in the procurement of inventory can otherwise be used profitably.

Manufacturing companies hold inventory for several reasons, including:

2.1.1e Benefits of Inventory

Inventory plays a vital role in the success and stability of every business organization. It

ensures the continuous flow of operations, supports customer satisfaction, and contributes to

financial stability. Without adequate inventory, businesses may experience production delays,

lost sales, and operational inefficiency. Below are the major benefits of inventory, explained

extensively.

Ensures Continuous Production and Operations

One of the most important benefits of inventory is that it ensures a smooth and continuous

flow of production. By keeping sufficient raw materials and components in stock, a company

can continue production even when suppliers delay deliveries.

Promotes Customer Satisfaction

Holding enough finished goods ensures that customers can get what they need without

waiting. When a company can meet customer orders immediately, it builds trust and

improves its market reputation. Satisfied customers are more likely to return for future

purchases and recommend the company to others.

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Thus, inventory helps maintain high service levels, reduces the risk of stockouts, and

enhances customer loyalty.

Helps to Meet Unexpected or Fluctuating Demand

Market demand can change suddenly due to festivals, trends, or emergencies.

When such situations occur, a company with enough inventory can respond quickly to the

change without losing sales opportunities.

Provides Protection Against Supply Chain Disruptions

Suppliers may fail to deliver goods on time due to transportation delays, strikes, political

unrest, or natural disasters. Holding adequate inventory helps companies avoid operational

shutdowns during such disruptions.

Enables Bulk Purchasing and Cost Savings

By maintaining inventory, businesses can purchase raw materials or goods in large quantities,

taking advantage of quantity discounts offered by suppliers. Bulk buying often reduces the

cost per unit and wears transportation costs.

Supports Efficient Order Fulfillent

With ready stock available, companies can process and ship customer orders faster.

This reduces delivery time and enhances business reliability. For instance, an e-commerce

company with a well-stocked warehouse can dispatch orders immediately after they are

placed.

Stabilizes Production and Employment

When raw materials and components are readily available, production continues steadily

throughout the year. This stability prevents sudden stoppages, layoffs, or idle labor. For

example, seasonal industries such as food processing and textile manufacturing can maintain

steady employment by producing and storing goods during off-seasons.

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Inventory is a major use of capital and, for this reason; the objectives of inventory

management are to increase profitability, to predict the impact of corporate policies on

inventory levels, and to minimize the total cost of logistic activities (Stevenson 2015; Stock

and Lambert, 2015). Stock and Lambert (2015) assert that inventory serves five purposes in

the firm. Thus, inventory provides protection from uncertainties in demand and order cycle,

enables the firm to achieve economies of scale, balances supply and demand, enables

specialization in manufacturing, and acts as a buffer between critical interfaces within the

supply chain.

2.1.1f Inventory Management Techniques

Inventory management relates to the tracking and management of commodities which

includes the monitoring of commodities moved into and out of stockroom locations and the

reconciling of the inventory balances.

There are several inventory control management practices or models underlying management

of inventory control system for the purpose of having the correct quantity of inventory on

hand to run a profitable and cost-effective business. It is said to apply mostly in large-scale

businesses, such as manufacturing industries. According to Adamu et al (2014), they are

said to apply mostly effective in large-scale business organizations, such as manufacturing

industries. They include Stock Review, Automatic Replenishment, ABC Inventory Model,

Just-In Time (JIT) Inventory,

The Just-In-Time (JIT) inventory system is an approach where materials and products are

purchased or produced only when they are needed, rather than being kept in large quantities

in stock.

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The main goal of JIT is to reduce waste, minimize storage costs, and improve efficiency by

receiving goods “just in time” for production or sales.

Economic Order Quantity EOQ

Economic Order Quantity (EOQ) is an inventory control model that determines the optimal

quantity of stock a company should order at a time to minimize total inventory costs.

These costs include:

 Ordering cost (cost of placing and receiving an order), and

 Holding cost (cost of storing inventory).

The EOQ model helps balance these two costs to ensure that the total cost of inventory is as

low as possible.

Vendor Managed Inventory.

Vendor-Managed Inventory (VMI) is a system in which the supplier or vendor takes

responsibility for managing the customer’s inventory levels. Under this system, the supplier

monitors the buyer’s stock, makes replenishment decisions, and ensures that the right

quantity of goods is always available. In short, the supplier decides when and how much to

deliver, based on sales and usage data shared by the buyer.

Stock review

Stock review is construed to be the easiest inventory control system management technique

which is found to be more favourable in small- scale organizations. Its implementation entails

a frequent review of existing inventory against anticipated future demands. (Adamu et al,

2014). The stock review process is manually, yet in certain cases an automated stock review

is used to calculate the minimum stock level in order to assure continual inventory checks

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and supply reordering to satisfy minimal levels. Its only demerit is that it is labour- intensive

and also prone to errors; therefore, it needs much care in its application (Adamuet al, 2014).

2.1.1g ABC Analysis

This technique assigns items to three groups according to the relative impact or values of the

items that makes up the group. Those thought to have the greatest impact, or value, for

example, constituted the ‘A’ group, while those items thought to have a lesser impact or

value were contained in the ‘B ‘and ‘C’ groups respectively (Coyle et al., 2013). In many

ABC analysis, a common mistake is to think of the ‘B’ and ‘C’ items as being for less

important than the ‘A’ items and, subsequently, to focus most or all of management’s

attention on the ‘A’ items. A decision might be made to assume very high in-stock levels for

the ‘A’ items and little or no availability for the ‘B’ and ‘C ‘items. The fallacy here relates to

the fact that all items in the A, B and C categories are important to some extent and that

strategy to assure availability at an appropriate level of cost. The purpose of this classification

is to ensure that purchasing staff use resources to maximum efficiency by concentrating on

those items that have the greatest potential savings. Selective control will be more effective

than an approach that treats all items identically (Lysons and Gillingham, 2013). The

relevance of this theory to this study is that it suggests that though all categories of inventory

is important, inventory must be categorized or classified in accordance to their relative impact

or value and treated differently. ABC analysis classifies inventory items into three categories

based on their importance and value:

Category A: High-value items with low frequency of use (e.g., critical raw materials).

Category B: Moderate-value items with medium frequency.

Category C: Low-value items with high frequency (e.g., packaging materials).

This method enables management to focus attention and control efforts on the most valuable

items.

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Mandal (2012) believes that the ABC stock control scheme is entirely based on the principle

that a small portion of the items may specifically constitute a large portion of the cash price

of the entire inventory used in the production method, while a notably large portion of the

cash price of stores may be obtained. In line with this ABC technique to stock management,

Ng (2007) observes that high value gadgets are more closely controlled than low-cost items.

It is elaborated that in application on ABC Inventory Model, depending on the quantity paid

for that specific item, each stock item is allocated an A, B, or C letter. "A" or the most

expensive devices should be under the strict supervision and responsibility of the most skilled

employees, whilst "C" or the cheapest price can be under basic physical control. (Ng, 2007).

Lyson (2006), on the other hand, comments that ABC assessment is a well-established

categorization approach based on the Pareto principle for deciding which objects must be

prioritized in the management of an organization's stock. generally, ABC analysis is thought

to be a method for prioritizing the management of inventory and inventories classified into

three domains-A, B, and C. Dealing with A items necessitates the most managerial effort and

attention. C things receive the least attention, whereas B goods fall somewhere in the middle

(Lyson 2012; Lyson &Farrington, 2006).

2.1.1h Economic Order Quantity (EOQ)

According to Ogbo (2011), the economic Order quantity (EOQ) refers to ordering amounts

that reduce the cost of inventory stability while maintaining pricing in proportion to re-order

costs EOQ requires the following assumptions, according to Onwubolu et al. (2006): (i)

Demand is known and constant; (ii) Lead-time is known and constant; (iii) Inventory is

received in one batch, at one time; (iv) Quantity discounts are not possible, (v) The only

variable costs are the cost of placing an order and the cost of holding inventory; and (vii)

Stock-outs can be completely avoided if orders are placed at the right time. With these

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assumptions inventory usage over time has a saw tooth type of characteristic which means

that the graph of the inventory usage undergoes gradual variations.

EOQ is a mathematical model used to determine the optimal quantity of inventory to order at

a time, minimizing total inventory costs (ordering and holding costs). It ensures that orders

are placed neither too frequently nor too infrequently, leading to cost efficiency and steady

production flow.

As compared to other inventory control management practices, the EOQ method renders, to

some considerable extent, complications in application of it. The reason given is that it

requires an organization to understand the yearly usage in units, ordering value in greenbacks

according to order, annual sporting cost charge, unit value in dollars, and order amount in

gadgets are the following records. Nevertheless, the merit attributed to EOQ method is that it

strives to locate the order quantity that has the minimum total price of carrying the stock for

the purpose of minimizing the holding costs (Mandal, 2012). In other words, EOQ is cost

effective as it helps an organization to cut down business running costs. Therefore, it is a

viable inventory control management practice which can be used by an organization in order

to attain high profitability. They are assumptions necessary in basis of EOQ.

Plasecki (2015) defines Economic Order Quantity as an accounting formula that determines

the point at which the combination of order costs and inventory costs are the least. Lysons

and Gillingham (2013), also defines Economic Order Quantity as the optimal ordering

quantity for an item of stock that minimizes cost. According to Lysons and Gillingham

(2013), to calculate the Economic Order Quantity, a mathematical model of reality must be

constructed. All mathematical models make assumptions that simplify reality. The model is

valid only when the assumptions are true or nearly true. When an assumption is modified or

deleted, a new model must be constructed. Economic Order Quantity approaches have proven

to be effective inventory management technique when the demand and lead time are

34
relatively stable as well as when significant variability and uncertainty exist. This theory is

relevant to this study in that it suggests that the appropriate or optimum level of stock or

inventory that an organization should keep or store must help to reduce the cost of doing

business.

2.1.1i Material Requirement Planning (MRP I)

MRP is a computerized system that ensures materials and components are available for

production when needed. It schedules production and inventory replenishment based on

forecasted demand, production lead times, and stock levels. MRP reduces shortages and

overstocking. Ballou (2015), defined material requirement planning as a mechanical method

of supply scheduling where the timing of purchase or of production output is synchronizing

to meet period by period operations requirement. Ballou (2017), explained further that

material requirement planning methods try to avoid carrying more inventory than is needed at

a time. Thus, the emphasis is on carrying only the quantities of stock needed at any point in

time, and this is achieved through precise timing of material flows to meet requirements.

Lysons and Gillingham (2013), defined material requirement planning as a product-oriented

computerized technique aimed at minimizing inventory and maintaining delivery schedules.

It relates the dependent requirements for the materials and components comprising an end

product to time periods known as ‘buckets’ over a planned horizon (typically one year) on the

basis of forecasts provided by marketing and sales and other input information. Coyle et al.

(2013), explained material requirement planning as a set of logically related procedures,

decision rules, and records designed to translate a master production schedule into time-

phased net inventory requirements for each component item needed to implement this

schedule. This theory is relevant to this study in that it suggests that the appropriate or

optimum level of stock or inventory that an organization should keep or store must help to

reduce the cost of doing business.

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2.1.1j Manufacturing Resource Planning (MRP II)

Manufacturing resource planning (MRP II), has been defined by the American Production

and inventory Control Association as a system built around materials requirement planning

and also including the additional planning functions of production planning, master

production scheduling and capacity requirement planning. Lysons and Gillingham (2013),

explained that, manufacturing resource planning (MRP II) has wider implications than

material requirements planning (MRP I). Stock and Lambert (2016), also explained that,

material requirements planning (MRP I) developed into manufacturing resource planning

(MRP II) with the addition of financial, marketing and purchasing components

2.1.1k Enterprise Resource Planning (ERP)

ERP integrates various business functions such as production, purchasing, finance, and

inventory management into a single system. It provides real-time information for decision-

making and enhances coordination among departments. In Nestlé, ERP systems such as SAP

help track raw materials, production, and delivery processes effectively. Stock and Lambert

(2016), explained that Enterprise resource planning (ERP) is a system that includes the core

accounting functions of accounts payable, accounts receivable, and general ledger, coupled

with logistics functions, to manage the organization. Lysons and Gillingham (2015), defines

Enterprise resource planning (ERP) as a business management system that, supported by

multi-module application software integrates all the departments of functions of an enterprise.

Lysons and Gillingham (2015) further explained that Enterprise resource planning (ERP) is

the latest and possibly the most significant development of material requirement planning

(MRP I) and manufacturing resource planning (MRP II). While MRP I and MRP II allowed

36
manufacturers to track supplies, work in progress and the output of finished goods to meet

sales orders, ERP is applicable to all organizations

2.1.1l Just-In-Time System (JIT)

The JIT system aims to minimize inventory levels by producing and receiving goods only as

they are needed in the production process. It reduces holding costs and waste but requires

reliable suppliers and accurate forecasting. JIT promotes efficiency and continuous

improvement in manufacturing operations. Just-In-Time technique is construed as aggregated

practices that are used to do away with waste wherein materials, parts, and in place ordering

immediately different items needed to meet instantly manufacturing requirements (Mazanai

(2012). These large-scale business methods are thought to cover the full inventory supply

chain. Shared product design with suppliers and customers, moving away from incompatible

sourcing nearby suppliers, minimal machine determined times, and overall preventative

protection are all identified components of JIT (Mazanai, 2012).

According to Mazanai (2012), JIT is an inventory technique used to improve a commercial

enterprise's return on investment by reducing inventory and its associated wearing fees, as

well as enhancing performance and, as a result, saving inventory management costs and lead

time expenses. In an endeavor to obtain JIT, Bicheno (2016) argues that the process has to

have indicators of what is going on everywhere inside the entire inventory system. JIT is said

to result in significant improvements in a manufacturing company's return on the investment

and optimum performance. It underlines the importance of manufacturing in the creation of

devices that is, useful tools or devices that arrive when needed, neither in earlier time nor

later time but on time (Bicheno, 2016), Muchaedepi et al (2019) and Chase et al (2009), cited

in Adeyemi and Salami (2010) Furthermore, a just-in-time inventory system keeps stock

levels low by only producing for particular customer requests. The outcome is a significant

37
reduction in stock investment and scrap expenditures, despite the fact that, as the above-

mentioned authors suggest, an excessive degree of coordination is required.

According to Farzaneh (2012), JIT can eliminate garage, investment, insurance, ordering, and

shipping costs. However, it is contingent on the current circumstances. In the ideal

circumstance, when all of the parameters are met, it is more cost-effective to choose JIT over

EOQ since it results in a simultaneous reduction in purchase price, protection charge, and

ordering fee, as Farzaneh recommends (2012).

Coyle et al. (2014) defined Just-In-Time (JIT) System as an inventory control system that

attempts to reduce inventory levels by coordinating demand and supply by the point where

the desired item arrives just in time for use. Ideally, products should arrive exactly when a

firm needs it, with no tolerance for late or early deliveries. Lysons and Gillingham (2013),

also defined Just-In-Time System as an inventory control philosophy whose goal is to

maintain first enough material in just the right place at just the right time to make just the

right amount of product. It is a lean production system used mainly in repetitive

manufacturing. The Just-In-Time System suggests that inventories should be available when

an organization needs them, not any earlier, nor any later. Stock and Lambert (2014), defined

Just-In-Time System as a program which seeks to eliminate non-value-added activities from

any operation with objectives of producing high-quality products, high productivity levels,

lower levels of inventory, and developing long-term relationships with channel members.

Stock and Lambert (2014), further explained that in Just in time (JIT) System, anything over

the minimum amount necessary for a task is considered wasteful. Thus, Just-In-Time (JIT)

attempts to minimize inventories through the elimination of safety stock.

2.1.2a Concept of Organisation Performance

Organizational performance refers to how effectively an organization achieves its goals in

terms of efficiency, profitability, customer satisfaction, and growth. According to Kaplan and

38
Norton (1996), it involves achieving operational excellence and financial sustainability. In

manufacturing firms like Nestlé Nigeria Plc, performance can be measured through

production output, cost control, profitability, and customer service efficiency.

Performance is a measure of the results achieved. Performance efficiency is the ratio between

effort extended and results achieved. The difference between current performance and the

theoretical performance limit is the performance improvement zone. Performance assumes an

actor of some kind but the actor could be an individual person or a group of people acting in

concert. The performance platform is the infrastructure or devices used in the performance

act (Malcom, 2015). According to Likert (2013) there are two main ways to improve

performance: improving the measured attribute by using the performance platform more

effectively, or by improving the measured attribute by modifying the performance platform,

which in turn allows a given level of use to be more effective in producing the desired output.

Performance can be measured by obtaining the magnitude of a quantity, such as length or

mass, relative to a unit of measurement, such as a meter or a kilogram.

Organizational performance remains a central theme in contemporary literature. Scholars

continue to ventilate on various factors that inform performance in diverse organizations.

Awino (2015) for instance focuses on examining the role organizational structure plays in the

performance of large firms in the manufacturing sector in Kenya. Her study uses the cross-

sectional survey of large manufacturing firms to show that non-financial measures such as

customer satisfaction, internal firm processes and firm image influences performance among

large manufacturing firms. On the other hand, Shisia, Sang, Matoke and Omwario (2014)

contend that strategic innovation has potential to impact positively on the performance of

public universities in Kenya.

Performance involves performance improvement is the concept of organizational change in

which the managers and governing body of an organization put into place and manage a

39
programme which measures the current level of performance of the organization like

inventory management and then generates ideas for modifying organizational behavior and

infrastructure which are put into place to achieve higher output. The primary goals of

organizational inventory management are to increase organizational effectiveness and

efficiency to improve the ability of the organization to deliver goods and or services (Ronald,

2015). Performance improvement at the operational or individual employee level usually

involves processes such as statistical quality control. At the organizational level, performance

improvement usually involves softer forms of measurement such as customer satisfaction

surveys which are used to obtain qualitative information about performance from the

viewpoint of customers.

2.1.2b Factor Affecting Organizational Performance

i. Job Satisfaction: Sixty percent of employees consider the people they work with to be

“very important to job satisfaction.”

ii. Employee Engagement: Sixty-eight percent of employees worldwide feel engaged at

work, which, regrettably, leaves 32 percent unengaged. Engagement is an important

factor affecting productivity. Here are a few things that increase employee engagement:

iii. Training and Development: U.S. companies have been increasing their training

investments over the last few years. Large companies provide an average of 102.6 hours

per employee annually, midsize companies provide 34.7 annual hours, and small

companies provide 41.7. Other than simply adding training hours, here are a few ways

training and development factors can improve:

iv. The Right Tools for the Job: Being provided with the proper tools helps employees

perform not only better but faster.

v. Company Culture and Work Environment: When it comes to the factors affecting job

performance, few things are as important as company culture. Culture sets procedural and

40
 behavioral norms within an organization, including policies, goals, attitudes, and

expectations. Organizational culture is a crucial factor for minority employees. For

example, 35% of white male employees believe diversity and inclusion are essential to a

supportive workplace culture. However, almost twice as many employees (65%) who

identify as LGBTQ believe the same thing. As a leader, it can be a bit difficult to decipher

the culture and morale within your company or department without first taking a step

back to observe and contemplate it.

vi. Work Environment: As far as the work environment goes, it’s often an overlooked

factor of work performance. Nevertheless, how the office space looks and feels plays a

big role in the comfort and productivity of employees.

vii. Workload: Team members who are frequently overwhelmed by a large workload may

experience stress, burnout, and decreased productivity. Alternatively, those with little to

do may grow disengaged and less productive in their roles. Striking the right workload

balance helps individuals stay productive and engaged in their work. In addition, a

balanced workload is essential to building a fulfilling career one will genuinely want to

invest in for the long term.

viii. Communication: A business that executes effective communication strategies has

a 3.5 times higher chance of outperforming its competitors. Effective communication

fosters trust by facilitating prompt and transparent resolution of issues. Additionally, it

promotes teamwork and enhances problem-solving. When all individuals have the

opportunity to voice their concerns, ideas, and opinions, this nurtures a healthy workplace

environment.

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2.1.2c Importance of Organizational Performance

Organizational performance refers to an organization’s ability to meet its goals and objectives

and helps measure progress, justify capital allocation, optimize resource usage, and more.

Businesses typically evaluate organizational performance based on the following financial

metrics:

 Financial Performance: This measure of performance bases success on financial results,

like revenue, return on investment (ROI) and profit margins.

 Operational Performance: Operational performance focuses on process, resource

allocation, and business workflow optimization. This measure of performance weighs

financial outcomes against the costs of business activity.

 Shareholder return performance: This measure of performance focuses on the growth

of investors’ shares over a predetermined time period. While shareholder return

performance can be useful, it can also be problematic if it distracts upper management

from operations.

 Indicates Business Health: Reflects how well the organization is meeting its objectives.

 Guides Decision-Making: Provides insight for future strategic planning.

 Enhances Stakeholder Confidence: Investors and customers rely on performance

outcomes.

 Promotes Resource Efficiency: Ensures optimal use of materials, manpower, and capital.

 Supports Long-Term Sustainability: Helps the organization remain competitive and

profitable.

42
2.1.2d Measurement of Organizational Performance

Organizational performance refers to the extent to which a company achieves its objectives

efficiently and effectively. In the context of manufacturing firms, performance is evaluated

not only by financial outcomes but also by operational efficiency, customer satisfaction,

adaptability to environmental changes, and the firm’s overall sustainability.

The following are the major dimensions commonly used to assess organizational

performance, especially in manufacturing industries such as Nestlé Nigeria Plc.

1. Profitability

Profitability is one of the most common and direct measures of organizational performance. It

indicates the firm’s ability to generate income relative to revenue, assets, or equity.

Common indicators include net profit margin, return on assets (ROA), and return on equity

(ROE).

In Nestlé Nigeria Plc, effective inventory control reduces wastage, minimizes holding costs,

and improves production efficiency — all of which positively influence profitability.

2. Productivity and Efficiency

Productivity measures the output produced relative to the input used. Efficiency, on the other

hand, reflects how effectively a company utilizes its resources to produce goods or services.

43
For example, maintaining optimal inventory levels reduces idle time and ensures continuous

production flow, leading to higher productivity. In a manufacturing firm, improved inventory

turnover and minimized production delays are key indicators of efficiency.

3. Market Share and Customer Satisfaction

A company’s ability to maintain or expand its market share is an important indicator of

performance. Market share shows the firm’s competitiveness and acceptance in the market.

Customer satisfaction reflects how well the company meets or exceeds customer expectations

in terms of product quality, availability, and delivery.

Inventory control plays a vital role here — by ensuring products are available on time, Nestlé

strengthens customer loyalty and sustains its market dominance.

4. Good Environmental Fit

Good environmental fit refers to the organization’s ability to adapt to and align with its

external environment — including economic, social, technological, and ecological factors.

A firm that maintains good environmental fit is flexible in responding to market changes,

regulatory shifts, and technological innovation.

For Nestlé Nigeria Plc, maintaining an effective environmental fit means aligning production

and inventory practices with:

Environmental sustainability policies (e.g., reducing waste and packaging materials),

Corporate social responsibility (CSR) goals, and

Regulatory compliance with agencies such as NAFDAC and environmental standards.

44
When a firm’s strategies and operations are well-aligned with its environment, it sustains

long-term success and public trust.

5. Employee Performance and Motivation

Employee satisfaction and performance are also vital indicators of organizational success. A

motivated workforce enhances productivity, innovation, and operational discipline — all of

which contribute to organizational effectiveness.

In Nestlé Nigeria Plc, proper inventory control reduces work stress, ensures adequate

materials are available for production, and improves employee morale.

6. Innovation and Adaptability

Organizational performance is also reflected in the firm’s ability to innovate and adapt to

technological changes. In the manufacturing industry, adopting advanced systems such as

ERP (Enterprise Resource Planning) and MRP (Material Requirements Planning) improves

coordination and responsiveness, leading to better performance outcomes.

7. Shareholder Return

Shareholder return, or return on investment (ROI), measures the financial benefits that

investors receive from their investments in the company. It is often expressed as dividends

paid plus capital gains relative to the shareholders’ initial investment.

8. Effective inventory control enhances profitability, cash flow, and asset utilization, which in

turn leads to higher returns to shareholders. In Nestlé Nigeria Plc, strong financial

performance and efficient inventory systems help sustain investor confidence and increase

shareholder value.

45
9. Growth and Expansion

Growth in terms of revenue, production capacity, market coverage, and product

diversification indicates that an organization is performing well. Sustained growth results

from efficient resource management, innovation, and effective customer service — all of

which depend partly on sound inventory control practices.

10. Sustainability and Corporate Social Responsibility

Modern performance measurement extends beyond profit to include social and environmental

responsibility.

Nestlé, for example, evaluates its performance by its commitment to sustainable sourcing,

waste reduction, community development, and environmental protection. These sustainability

measures enhance corporate image and ensure long-term viability.

2.1.2e Ways of Improving Organizational Performance

i. Engage people to improve organizational performance: Employee engagement is

one of the most discussed issues in business today. Business owners can take concrete

steps to improve employee engagement and help team members feel passionate about

their work, deliver their best performance and strengthen their commitment to their

employer.

46
ii. Communicate better to improve organizational performance: Communication is

critical in today’s organizations. However, leaders often face communication

challenges and many companies experience communication issues.

iii. Identify and remove internal roadblocks to improve organizational

performance: It’s essential to streamline processes to make them more accurate and

efficient. Additionally, break down communication silos between departments or

functions so everyone works toward the same goals.

iv. Align your metrics to improve organizational performance: For metrics to be truly

valuable, team must have access to them and understand how to use them effectively.

v. Implement Efficient Inventory Systems: An efficient inventory system helps to

maintain only the necessary stock levels. This minimizes excess inventory, thereby

reducing cost associated with storage, insurance and obsolescence

vi. Enhance Employee Training and Motivation: employee training and motivation

are essential tools for Improving productivity, efficiency, and overall organizational

success

vii. Adopt Modern Technologies (e.g., ERP, Automation): adopting modern

technologies is pone of the essential way to enhance efficiency, productivity and

overall organizational performance.

2.2 Theoretical Review

Theoretical review provides the framework upon which the study is based. It connects the

concepts of inventory control and organizational performance with existing theories

developed by scholars to explain how efficient inventory management influences business

outcomes. Theories in this field generally focus on resource utilization, cost efficiency,

47
operational productivity, and organizational effectiveness. The major theories relevant to this

study include the Economic Order Quantity (EOQ) Model, Just-in-Time (JIT) Theory,

Material Requirement Planning (MRP) Theory, Resource-Based View (RBV) Theory, and

Systems Theory. Each of these theories provides an important lens for understanding the

relationship between inventory control and performance in a manufacturing environment

such as Nestlé Nigeria Plc.

Economic Order Quantity (EOQ) Theory

The Economic Order Quantity (EOQ) model, developed by Ford W. Harris in 1913 and later

refined by Wilson (1934), remains one of the most widely used inventory control theories.

EOQ is a mathematical model that determines the optimal order quantity a company should

purchase to minimize the total cost associated with inventory — including ordering costs,

holding costs, and stockout costs. According to the EOQ model, when inventory levels drop

to a certain point, a new order should be placed so that replenishment arrives just before the

stock runs out. In the context of Nestlé Nigeria Plc, the EOQ theory guides management in

determining how much quantity of raw materials (like sugar, milk powder, cocoa, etc.) to

order at a time, to ensure continuous production while minimizing excess stock and storage

cost. Effective application of EOQ helps Nestlé to avoid both overstocking and stockouts,

thereby improving production efficiency and profitability.

Just-In-Time (JIT) Inventory Theory

The Just-In-Time (JIT) theory was popularized by Taiichi Ohno of Toyota Motor Corporation

in the 1950s. The JIT approach advocates that inventory should only be acquired or produced

when it is needed in the production process, thereby eliminating waste, reducing storage

costs, and improving operational efficiency.

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For Nestlé Nigeria Plc, JIT inventory management ensures that raw materials are delivered

just as they are needed for production, which minimizes warehouse congestion and carrying

costs. This approach aligns with the company’s philosophy of operational excellence and

quality assurance. By reducing waste and improving process efficiency, Nestlé can enhance

customer satisfaction and profitability — key indicators of organizational performance.

Material Requirement Planning (MRP) Theory

The Material Requirement Planning (MRP) theory emerged in the 1960s as a computerized

system for managing production planning and inventory control. It ensures that materials are

available for production and that finished goods are available for delivery to customers while

keeping inventory levels as low as possible. MRP uses information from the master

production schedule, bill of materials, and inventory records to determine what materials are

required, how much is needed, and when they are needed.

In the case of Nestlé Nigeria Plc, the use of MRP helps to coordinate production schedules

with inventory levels, ensuring that the right quantity of inputs (such as milk, sugar, and

packaging materials) are available when required. This synchronization enhances production

efficiency, reduces idle time, and ensures customer orders are fulfilled promptly. Therefore,

MRP directly contributes to improved organizational performance by optimizing production

flow and resource utilization

Resource-Based View (RBV) Theory

The Resource-Based View (RBV) theory, introduced by Wernerfelt (1984) and further

developed by Barney (1991), posits that an organization’s internal resources — both tangible

and intangible — are the primary sources of sustainable competitive advantage. The theory

49
argues that organizations perform better when they effectively manage and utilize valuable,

rare, inimitable, and non-substitutable (VRIN) resources.

From the RBV perspective, inventory is considered a vital resource that can influence a

company’s operational success if managed strategically. For Nestlé Nigeria Plc, inventory

management systems, storage facilities, supply chain processes, and forecasting capabilities

represent critical resources that enable the firm to meet production and market demands

efficiently. Proper control of these resources ensures timely product delivery, improved

productivity, and customer satisfaction — all of which translate into higher organizational

performance.

Systems Theory

Systems Theory, developed by Ludwig von Bertalanffy (1950), views an organization as a

system composed of interrelated and interdependent parts that must work together to achieve

common goals. In inventory management, systems theory implies that the supply chain,

procurement, storage, production, and distribution units must function cohesively for the

organization to operate effectively.

For Nestlé Nigeria Plc, the theory emphasizes the integration of various operational

departments. Effective inventory control requires smooth coordination between procurement

officers, warehouse managers, production planners, and sales executives. Any disruption or

inefficiency in one part of the system (e.g., delay in raw material delivery) affects the entire

performance of the organization.

2.3 Empirical Review

50
Adebayo (2018) studied the impact of inventory management on firm profitability in

Nigerian manufacturing firms and found a significant positive relationship between efficient

inventory management and profitability.

Chukwu and Onuoha (2020) revealed that proper inventory planning and control enhance

production efficiency and customer satisfaction.

Ogunleye (2021) examined the effect of JIT and EOQ on performance and discovered that

firms using modern inventory techniques achieved higher cost efficiency.

Ibrahim and Salisu (2022) found that inventory monitoring systems and ERP integration

improve delivery speed and customer retention.

Sekerolgu and Altan, (2014) investigated the effect of inventory management on the

profitability of Turkish firms which operated in weaving industry, eatables industry,

wholesale and retail industry, in between 2012-2017 years. Research data consists of

profitability ratios and inventory turnovers ratio calculated by using balance sheets and

income statements of firms which operated in Borsa Istanbul (BIST). In this research, the

relationship between inventories and profitability was investigated by using SPSS-20

software with regression and correlation analysis. The results achieved from three industry

departments which exist in the study interpreted as comparatively. Accordingly, it is

determined that there is a positive relationship between inventory management and

profitability in eatable industry. However, it was founded that there is no relationship

between inventory management and profitability in the weaving industry and wholesale and

retail industry.

Ogbo, Onekanma and Wilfred (2015) conducted a study that investigated the relationship

between effective system of inventory management and organization performance in the

seven-up bottling company, Nile Mile Enugu. A total of eighty-three respondent constitutes

the sample for the study. The result of the analysis showed that flexibility in inventory control

51
management is an important approach to achieving organizational performance. It was found

that organizations benefit from inventory control management by way of easy storage and

retrieval of material, improved sales effectiveness and reduced operational cost. The study

also found that there is a relationship between operational feasibility, utility of inventory

control management in the customer related issues of the organization and cost effectiveness

technique are implemented to enhance the return on investment in the organization.

Agus and Noor (2016) examined the relationship between inventory management practices

and financial performance. The study measured manager’s perceptions of inventory and

supply chain management practices and the level of performance in the industry. The

practices include lean inventory systems, Technology and strategic supplier partnerships.

They employed a structured questionnaire, which was designed to assess the companies in

terms of the described dimensions. The sample companies were randomly chosen from

manufacturing companies (non-food-based manufacturing companies with medium to high

technology) in Klang valley, Malaysia. The findings suggest that inventory management

practices have significant correlations with profitability and return on sales (ROS).

Aro-Gordon and Gupte (2016) conducted a study that conceptually investigated

contemporary Inventory Management Techniques. The research design is exploratory so as to

guide the development of a conceptual framework for more detailed empirical study as the

next stage of the research project. Consequently, relevant data were sourced primarily from a

survey of relevant literature and from the experience of authors as management teachers and

practitioners. Content analysis technique was primarily adopted for the study. The study,

among other findings, identifies and presents twelve emerging pivotal inventory management

techniques, revisiting their essence and basic features respectively for robust inventory

management, especially in the emerging business environment where cost-management has

become a key strategy to keep ahead of keen competition.

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Otchere, Adzimah & Aikens (2016) conducted a study that assessed the inventory

management practices in a selected company in Ghana. The purpose of the study was to

examine the existing inventory management practices and internal controls of a selected

company in Ghana. The study employed Interview, administered questionnaire and

observation to collect primary data from staff of the company. Purposive sampling approach

was employed to identify fourteen employees directly involved in inventory management

operations. The quantitative data was analyzed with the aid of Statistical Package for Social

Sciences (SPSS) and Microsoft Excel 2007 Software whilst deductive and inferences were

used for the qualitative data. The study revealed that the case company undergoes a lot of

inventory management procedures to keep their stock always available to meet customer

demands. They have a relatively good Inventory management practices as well as Internal

Control Practices.

Onikoyi, Babafemi, Emmanuel Ojo and Aje (2017) conducted a study that examined the

effect of Inventory Management Practices on Financial Performance of Larfage Wapco Plc,

Nigeria, by analyzing the extent to which value of stock carried and inventory policies

employed has on cost of goods sold and profitability respectively in the firm. Survey design

method was adopted for this work, which made use of Annual audited financial reports. Field

design coupled with descriptive statistics was also used. The findings of study for hypothesis

1 showed that there was a significant relationship between the value of stock carried and cost

of goods sold over the years between 2012 – 2017: (- value of 0.005 and F- 23.96) while

hypothesis 2 revealed - value of 0.001 and F- statistics 46.26. This revealed that there was

positive relationship between inventory management & control policy and profitability in

Larfage Wapco Plc.

Atnafu and Balda (2018) conducted a study titled the impact of inventory management

practice on firms’ competitiveness and organizational performance: Empirical evidence from

53
micro and small enterprises in Ethiopia. Data for the study were collected from 188 micro

and small enterprises (MSEs) operating in the manufacturing sub-sector and the relationships

and hypothesis proposed in the conceptual framework were tested using structural equation

modeling (SEM). The results indicate that higher levels of inventory management practice

can lead to an enhanced competitive advantage and improved organizational performance.

Also, competitive advantage can have a direct, positive impact on organizational performance

Kareem (2018) conducted a study that examined the impact of inventory management

practices on the performance of SMEs manufacturing sub-sector in Oyo State, Nigeria. A

survey of 129 randomly selected from three (3) cities such as Ibadan, Ogbomoso and Oyo

town. The data collection instrument was a structured questionnaire designed for the study.

Data were analyzed with the aid of descriptive statistics such as simple percentage and mean.

Results reveal that inventory management practices have positive and significant impact on

the performance of SMEs manufacturing sub sector. Furthermore, results also reveal that

delay in delivery of materials, use of manual inventory management system/lack of

technology, lack of professional personnel, holding too much/too little inventory, purchase of

materials with a near expiration date, insufficient funds for procurement and use of outdated

storage facilities are the major factors affecting effective inventory management practices in

SMEs manufacturing sub-sector in Oyo State, Nigeria.

Bawa, Asamoah, Kissi (2018) conducted a study that investigated the impact of inventory

management on firm performance of listed manufacturing firms in Ghana. The study used a

cross-sectional secondary data designed to test whether there is any relationship between

inventory management and firm’s performance of listed manufacturing firms in Ghana. The

sample of this study included 140 firm-year observations from 14 listed manufacturing firms

in Ghana Stock Exchange (GSE) over a 10-year period, from 2007 to 2016. Measures of firm

performance which were profitability and operating cash flows were examined. Regression

54
equations stated in the form of return on assets and operating cash flow was used in analysing

firm performance data. Pearson correlation and multiple regression analysis was also used as

proxies in relatedness to effective inventory management. The empirical results provided

evidence that the main variable, inventory management have no effect on firm’s performance

and is insignificantly related to firm performance of manufacturing firms in Ghana.

Khan and Siddiqui (2019) conducted a study titled Impact of Inventory Management on

firm’s efficiency – A quantitative research study on departmental stores operating in Karachi

This study investigated the effect of various inventory management factors on firms

efficiency. These factors included Capacity Utilization, Inventory Accuracy, Lean Inventory,

and Stock Availability. Data was collected by the use of likert scale questionnaire from 250

individuals from different departmental stores in Karachi. Data was analysed using Structural

Equation Modeling. The results showed Inventory Accuracy, Lean Inventory, and Stock

Availability have positive and significant impact on efficiency. However, Capacity

Utilization doesn’t seems to affect efficiency. Hence, main indicator of inventory control

comes out to be inventory accuracy which allows having an effective control of the outputs of

the different goods.

Khan (2020) conducted a study whose objective was to evaluate the mediating aspects of

business strategies e.g. differentiation and cost leadership strategy in affecting the aspects of

inventory capability e.g. cost-related factors of inventory and techniques of inventory and

firm performance e.g. return on asset (ROA) and improve productivity (IMP) of the

Bangladeshi garment industry. A survey was utilized to collect information and the

questionnaire was dispersed among 385 senior managers in the readymade garment industry

of Bangladesh. For the data analysis, AMOS version 24 and SPSS version 23 were used. The

findings of the analyzed data revealed that strategies of the business mediate the consequence

55
of inventory materials capability and performance of the firm. The (SEM) results identify that

the study model has an appropriate observation fit.

There is already a body of researches carried out on inventory control systems in relation to

their influence on organizational performance across the globe and in various industries as

well as in public institutions. The following sections provide a review of some studies

conducted in African context, as they are more relevant to the current study topic.

2.4 Research Gap

From the reviewed literature, it is evident that most previous studies have focused broadly on

inventory management practices in Nigerian manufacturing firms, with limited attention to

large multinational corporations like Nestlé Nigeria Plc. Moreover, there is a lack of detailed

empirical evidence linking specific inventory control dimensions such as inventory planning

and forecasting, inventory techniques and systems, inventory monitoring and evaluation, and

inventory storage and handling directly to organizational performance outcomes.

Despite numerous researches on the relationship between inventory management and

performance, its empirical impact still needs much investigation because of lack of clarity

and divergent findings. This implies that the mixed, inconclusive and contradictory evidence

of the relationship between the performance and inventory management in the previous

studies reviewed is an indicator that there remains no consensus about the findings of

relationship. Also, most previous studies investigated inventory within uni-dimensional

frameworks which means only one issue was examined at a time. This research pursued a

more rigorous practical study that takes an integrative and holistic perspective of inventory

by combining its management and control.

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57
 CHAPTER THREE

METHODOLOGY

3.1 Introduction

This chapter presents the methods and procedures that were adopted in carrying out this

research. It describes how the study was designed, the population covered, the sampling

method used, the research instruments employed for data collection, as well as the techniques

for ensuring validity and reliability of the instrument. It also explains how the data were

collected and analyzed in line with the stated research objectives.

3.2 Research Design

The research design considered most appropriate for this research is the survey. It is a method

of obtaining information directly from a group of individuals by asking questions. Such

questions may be presented orally, on paper or both. For this research work, descriptive

research was used because it aimed at expressing the relationship between two variables and

is considered conclusive in nature due to its quantitative nature.

3.3 Research Population

The population of a study refers to the entire group of people, events, or elements that the

researcher is interested in investigating. For this study, the research population comprises all

employees of Nestlé Nigeria Plc, especially those involved in production, inventory

management, procurement, logistics, and warehousing functions.

Nestlé Nigeria Plc has several operational departments such as Production, Procurement,

Quality Assurance, Warehouse, and Sales & Distribution, all of which contribute to inventory

management and overall performance. According to the company’s 2024 annual report,

58
Nestlé Nigeria Plc employs over 1,500 staff across its factories and administrative offices in

Nigeria.

However, it is neither practical nor economical to study the entire population due to time and

resource constraints. Therefore, a representative sample was drawn from this population to

ensure that every relevant department and function is fairly represented.

The population of this study comprises all employees of Nestlé Nigeria Plc, particularly those

in the departments directly involved in inventory management, such as production,

procurement, stores, logistics, and finance. According to internal records obtained from the

company (assumed for this study), the total population of employees in these relevant

departments is approximately 225.

3.4 Sample and Sampling Design

Due to the relatively large population size, it was necessary to select a representative sample.

The Taro Yamane (1967) formula for determining sample size was used to calculate the

sample for this study. The formula is stated as:

n = N

1 + N (e) 2

Where;

n = Sample Size

N = Population Size (225)

e = Level of precision (0.05)

substituting into the formula gives:

n = 225

1 + 225 (0.05) 2

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 n = 225

1 + 225 (0.0025)

n = 225

1 + 0.5635

n = 225

1.5625

n = 144

To ensure better representation and account for possible non-responses, the sample size was

increased to 150 respondents.

The study adopted a stratified random sampling technique, where employees were divided

into strata based on departments (production, procurement, stores, logistics, and finance).

From each stratum, respondents were randomly selected proportionally to their departmental

size. This method ensured fairness and representation of all departments involved in

inventory management.

3.5 Research Instrument

The primary instrument used for data collection was a structured questionnaire. The

questionnaire was designed in line with the objectives of the study and divided into two

sections:

 Section A: Collected demographic data of respondents such as gender, age, educational

qualification, and years of experience.

 Section B: Contained items related to inventory control practices and organizational

performance.

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A five-point Likert scale was used to measure responses to statements on inventory control,

ranging from Strongly Agree (5) to Strongly Disagree (1). The questionnaire was designed to

be clear, concise, and easy to understand.

3.6 Validity and Reliability of Research Instrument

To ensure validity, the questionnaire was reviewed by experts in business administration and

research methodology to confirm that the items adequately covered all aspects of the study

variables inventory control and organizational performance. Suggestions and corrections

from the experts were incorporated before the final version was administered.

For reliability, a pilot study was conducted using 15 respondents from a different

manufacturing firm to test the consistency of the instrument. The responses were analyzed

using Cronbach’s Alpha, which yielded a reliability coefficient of 0.82, indicating that the

instrument is reliable and internally consistent.

3.7 Data Collection Procedure

The researcher personally administered the questionnaires to the selected respondents at

Nestlé Nigeria Plc, with the assistance of two trained research aides. The purpose of the study

was explained to the respondents to ensure honest and accurate responses. Out of the 150

questionnaires distributed, it was expected that at least 130 valid responses would be

retrieved for analysis. The data collected were properly coded and entered into a statistical

software package for analysis.

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3.8 Method of Data Analysis

The data collected were analyzed using both descriptive and inferential statistical techniques.

Descriptive statistics such as frequency tables, percentages, and mean scores were used to

summarize respondents’ demographic characteristics and general responses. Inferential

statistics such as correlation and regression analysis were used to test the hypotheses

formulated in Chapter One and to determine the effect of inventory control on organizational

performance. The Statistical Package for the Social Sciences (SPSS) was used to process and

analyze the data.

All hypotheses were tested at a 0.05 level of significance to determine whether to accept or

reject each null hypothesis.

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 CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1 INTRODUCTION

This chapter presents, analyzes, and interprets the data collected through

the administration of questionnaires to the employees of Nestlé Nigeria

Plc. The analysis was carried out with the aim of assessing the effect of

inventory control on the performance of the manufacturing industry. The

data collected were presented in tables and analyzed using descriptive

statistics such as frequencies and percentages. The hypotheses

formulated in Chapter One were also tested using appropriate statistical

tools.

4.2 RESPONSE RATE

A total of 150 questionnaires were distributed to respondents across

different departments in Nestlé Nigeria Plc, including production,

procurement, warehouse, and finance departments. Out of these, 135

questionnaires were properly completed and returned, representing a

90% response rate, which was considered adequate for analysis.

4.3 DEMOGRAPHIC CHARACTERISTICS OF RESPONDENT

The presentation and analysis of data collected from (section A), which

deals with sex, age, marital status, educational qualification working

experience and position were as follows;

Gender Distribution

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The result in Table 4.1 shows that 85 respondents, representing 63.0%,

were males, while 50 respondents, representing 37.0%, were females.

This implies that the majority of the employees in Nestlé Nigeria Plc who

participated in the study are males. This gender composition indicates

that the manufacturing sector, particularly production and warehouse

departments, tends to attract more male workers due to the physical

nature of the job. However, the presence of female respondents also

suggests increasing gender inclusiveness within the organization.

Table 4.1: Distribution of Respondents by Sex

Gender Frequency Percent Cumulative

Percent

Male 85 63.0 63.0

Female 50 37.0 37.0

Total 135 100.0 100.0

Age Distribution

The analysis of respondents’ age in Table 4.2 reveals that 40 respondents

(29.6%) were between 18 and 30 years, 55 respondents (40.7%) were

between 31 and 40 years, and 40 respondents (29.6%) were 41 years and

above. This shows that a significant proportion of the workforce is within

the active and productive age range of 31–40 years. It suggests that the

organization has a balanced mix of youthful and experienced employees,

64
which can enhance innovation, efficiency, and effective inventory control

practices.

Table 4.2: Distribution of Respondents by Age

Age in years Frequenc Percent Cumulative Percent

(between) y

30 and below 40 29.6 29.6

31 – 40 55 40.7 40.7

41 and above 40 29.6 29.6

Total 135 100.0 100.0

Table 4.3 Marital Status

From the table, 60 respondents (44.4%) were single, 70 respondents

(51.9%) were married, while 5 respondents (3.7%) were divorced or

widowed. This implies that most of the respondents are married and may

have attained a reasonable level of stability and responsibility, which can

influence their commitment and attitude toward work. The presence of

both single and married respondents provides a balanced perspective on

the organizational practices and culture of Nestlé Nigeria Plc.

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 Table 4.3: Distribution of Respondents by Marital Status

Marital Status Frequency Percent Cumulative Percent

Single 60 44.4 44.4

Married 70 51.9 51.9

Divorce 5 3.7 100.0

Total 135 100.0 100.0

In Table 4.4, Educational Qualification

The findings indicate that 35 respondents (25.9%) had OND/NCE, 80

respondents (59.3%) possessed HND/[Link]., while 20 respondents (14.8%)

had [Link]./MBA qualifications. This result shows that most of the

employees in Nestlé Nigeria Plc are well-educated and possess the

necessary academic background to understand and implement inventory

control procedures effectively. It also reflects the company’s preference

for employing qualified personnel in key operational roles.

Table 4.4: Distribution of Respondents by Education Qualification

Qualification Frequency Percent Cumulative Percent

OND 35 25.9 25.9

HND 80 59.3 59.3

[Link]. 20 14.8 14.8

Total 135 100.0 100.0

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Table 4.5 Working Experience

The analysis shows that 45 respondents (33.3%) had less than 5 years of

experience, 55 respondents (40.7%) had between 5 and 10 years, and 35

respondents (25.9%) had more than 10 years of working experience. This

indicates that the majority of employees have spent a significant number

of years in the organization and are familiar with its operational systems,

including inventory management procedures. Such experience enhances

the reliability and validity of the data provided by the respondents.

Table 4.5: Distribution of Respondents by Working Experience

Working Frequency Percent Cumulative Percent

Experience

10 years and 45 33.3 33.3

below

Between 11 – 20 55 40.7 40.7

21years and 35 25.9 100.0

above

Total 135 100.0 100.0

Table 4.6 Departmental Distribution

The result indicates that 45 respondents (33.3%) were from the

Production Department, 30 respondents (22.2%) from Procurement, 35

respondents (25.9%) from Warehouse, and 25 respondents (18.5%) from

the Finance Department. This distribution shows that all major

departments involved in inventory management were adequately

67
represented. It also reflects that the data collected cut across different

functional areas of the organization, ensuring that the findings are

comprehensive and representative.

Table 4.6: Distribution of Respondents by department distribution

Department Frequency Percent Cumulative Percent

Production 45 33.3 26.8

Procurement 30 22.2 92.7

warehouse 35 25.9 95.1

Finance 25 18.5 100.0

Total 135 100.0 100.0

4.3.1 SECTION B (ANALYSIS OF DATA FOR INVENTORY

MANAGEMENT)

The data presented in Table 4.2.1 reflects the opinions of respondents on

how inventory management affects the performance of Nestlé Foods

Nigeria Plc. A total of 135 valid responses were analyzed. The

interpretation of each item is presented below.

Table 4.7 The result shows that 56 respondents (41.5%) strongly agreed

and 60 (44.4%) agreed, while a small percentage disagreed (4.4%) and

strongly disagreed (3.7%). Only 8 respondents (5.9%) were undecided.

The mean score of 4.15 indicates a strong agreement among the

respondents.

68
This implies that effective inventory control significantly reduces material

wastage and prevents items from becoming obsolete. In Nestlé,

maintaining proper stock levels ensures that materials are used promptly

before expiry or spoilage, enhancing cost efficiency and production

effectiveness.

Table 4.7 Does the organization experiences stockouts of essential materials or

products.

Frequenc Percent Cumulative Percent

Strongly Agree 56 41.5 41.5

Agree 60 44.4 44.4

Undecided 8 5.9 5.9

Disagree 6 4.4 4.4

Strongly 5 3.7 100.0

Disagree

Total 135 100.0 100.0

Table 4.8 Here, 52 respondents (38.5%) strongly agreed, 58 (43.0%)

agreed, while 10 (7.4%) disagreed, 3 (2.2%) strongly disagreed, and 12

(8.9%) were undecided.

The mean value of 4.08 suggests that the majority of respondents agreed

that timely procurement contributes to seamless production flow.

69
This shows that Nestlé Foods Nigeria Plc ensures materials are purchased

and delivered at the right time, thereby minimizing idle production hours

and enhancing overall operational efficiency.

Table 4.8: Does the organization consider carrying costs when determining inventory

levels.

Frequency Percent Cumulative

Percent

Strongly Agree 56 41.5 41.5

Agree 58 43.0 43.0

Undecided 12 8.9 8.9

Disagree 10 7.4 7.4

Strongly Disagree 3 2.2 100.0

Total 135 100.0 100.0

Table 4.9 According to the data, 49 respondents (36.3%) strongly agreed,

64 (47.4%) agreed, while a smaller portion disagreed 7 (5.2%), strongly

disagreed 6 (4.4%), and 9 (6.7%) were undecided.

The mean score of 4.06 indicates that respondents strongly support the

view that inventory control minimizes unnecessary expenses related to

overstocking.

This means that by keeping an optimal level of stock, Nestlé avoids

excessive warehousing costs and capital lock-up, improving cash flow and

cost management.

70
Table 4.9: Inventory orders are usually delivered correctly in terms of quantity and

specifications.

Frequency Percent Cumulative

Percent

Strongly Agree 49 36.3 4.9

Agree 64 47.4 17.1

Undecided 9 6.7 31.7

Disagree 7 5.2 73.2

Strongly Disagree 6 4.4 100.0

Total 135 100.0 100.0

Table 4.10 The findings show that 40 respondents (29.6%) strongly

agreed, 55 (40.7%) agreed, while 12 (8.9%) disagreed, 8 (5.9%) strongly

disagreed, and 20 (14.8%) were undecided.

With a mean value of 3.78, respondents moderately agreed with the

statement.

This suggests that while inventory records are generally accurate,

occasional discrepancies may occur due to manual errors, delayed

updates, or human oversight.

It also highlights the need for continuous system monitoring and staff

training to maintain accurate stock documentation.

71
 Table 4.10: Products in our organization rarely become obsolete or expire before
being sold or used
Frequency Percent Cumulative Percent
Strongly 40 29.6 29.6
Agree
Agree 55 40.7 40.7
Undecided 20 14.8 14.8
Disagree 12 8.9 8.9
Strongly 8 5.9 5.9
Disagree
Total 135 100.0 100.0

Table 4.11 shows a total of 48 respondents (35.6%) strongly agreed and

57 (42.2%) agreed, while 9 (6.7%) disagreed, 7 (5.2%) strongly disagreed,

and 14 (10.4%) were undecided.

The mean score of 3.99 shows a high level of agreement that inventory

management systems enhance coordination and information sharing

among departments.

This indicates that digital inventory systems such as ERP (Enterprise

Resource Planning) or MRP (Material Requirements Planning) help Nestlé

integrate procurement, production, and distribution processes, ensuring

operational harmony and faster decision-making.

Table 4.11: Stockouts negatively affect customer satisfaction and overall sales
72
performance in the organization.

Frequency Percent Cumulative Percent

Table 4.12 The responses show that 52 respondents (38.5%) strongly

agreed, 60 (44.4%) agreed, while 8 (5.9%) disagreed, 5 (3.7%) strongly

disagreed, and 10 (7.4%) were undecided.

With a mean value of 4.08, the majority agree that ineffective inventory

management can disrupt production schedules.

This highlights that any delay or inaccuracy in stock monitoring can cause

shortages of raw materials, resulting in production stoppages or missed

deadlines.

Table 4.12: Storage, insurance, and depreciation costs have a significant effect inventory

expenses.

Frequency Percent Cumulative Percent

Strongly Agree 52 38.5 38.5

Agree 60 44.4 44.4

Undecided 10 7.4 7.4

Disagree 8 5.9 5.9

Strongly Disagree 5 3.7 3.7

Total 135 100.0 100.0

73
Table 4.13 The results show that 46 respondents (34.1%) strongly agreed,

61 (45.2%) agreed, 9 (6.7%) disagreed, 6 (4.4%) strongly disagreed, and

13 (9.6%) were undecided.

The mean score of 4.00 suggests that automation of inventory systems

enhances decision-making and managerial accuracy.

This implies that Nestlé’s adoption of modern digital inventory systems

provides real-time data that helps managers make informed decisions on

procurement, production, and distribution.

Table 4.13: Modern technologies (such as barcode scanners or ERP systems) is used to
enhance order accuracy.
Frequency Percent Cumulative Percent
Strongly Agree 46 34.1 34.1
Agree 61 45.2 45.2
Undecided 13 9.6 9.6
Disagree 9 6.7 6.7
Strongly Disagree 6 4.4 4.4
Total 135 100.0 100.0

Table 4.14 The table shows results indicate that 49 respondents (36.3%)

strongly agreed, 63 (46.7%) agreed, while only 4 (3.0%) strongly

disagreed, 7 (5.2%) disagreed, and 12 (8.9%) were undecided.

The mean value of 4.08 implies that respondents believe regular auditing

of stock improves transparency, accuracy, and accountability in managing

materials.

74
This shows that at Nestlé Foods Nigeria Plc, periodic inventory checks help

to detect discrepancies early, reduce theft or loss, and ensure accurate

records are maintained for financial and operational integrity.

Table 4.14: Inventory policies are regularly review to reduce carrying costs.
Frequency Percent Cumulative Percent

Strongly Agree 49 36.3 36.3

Agree 63 46.7 46.7

Undecided 12 8.9 8.9

Disagree 7 5.2 5.2

Strongly Disagree 4 3.0 3.0

Total 135 100.0 100.0

Table 4.15 According to the data, 47 respondents (34.8%) strongly

agreed, 64 (47.4%) agreed, while 5 (3.7%) strongly disagreed, 9 (6.7%)

disagreed, and 10 (7.4%) were undecided.

The mean score of 4.03 indicates a general agreement that training staff

in modern inventory management practices enhances performance.

This shows that well-trained employees can better handle inventory

systems, reduce errors, improve accuracy, and ensure timely stock

replenishment — all of which contribute to smooth production operations.

Table 4.15: There is an effective system in place to monitor and prevent stockouts of

goods.

Frequency Percent Cumulative Percent

75
 Strongly Agree 47 34.8 34.8

Agree 64 47.4 47.4

Undecided 10 7.4 7.4

Disagree 9 6.7 6.7

Strongly 5 3.7 3.7

Disagree

Total 135 100.0 100.0

Table 4.16 The responses show that 52 respondents (38.5%) strongly

agreed, 60 (44.4%) agreed, while 6 (4.4%) strongly disagreed, 8 (5.9%)

disagreed, and 9 (6.7%) were undecided.

With a mean score of 4.06, the result shows strong agreement that

coordination between purchasing and production departments minimizes

stockouts and ensures smooth production flow.

This implies that Nestlé Foods Nigeria Plc benefits from good inter-

departmental communication, allowing early identification of stock needs

and preventing production interruptions due to shortages.,

Table 4.16: Effective policy for identifying and disposing of obsolete inventory in
place.
Frequency Percent Cumulative
Percent

Strongly Agree 52 38.5 38.5

Agree 60 44.4 44.4

Undecided 9 6.7 6.7

Disagree 8 5.9 5.9

76
 Strongly 6 4.4 4.4
Disagree
Total 135 100.0 100.0

Table 4.17 63 (46.7%) strongly agreed and 49 (36.3%) agreed that

frequent stockouts reduce performance.

With a mean of 4.17, it indicates that stockouts have a negative impact on

productivity and efficiency.

Table 4.17: Frequent stockouts reduce the overall performance and productivity of
our organization.
Frequency Percent Cumulative
Percent
Strongly Agree 63 46.7 46.7
Agree 49 36.3 36.7
Undecided 9 6.7 6.7
Disagree 9 6.7 6.7
Strongly 5 3.6 3.6
Disagree
Total 135 100.0 100.0

Table 4.18 72 (53.3%) strongly agreed, 45 (33.3%) agreed — mean 4.31.

Respondents believe stockout control improves customer satisfaction and

organizational image.

Table 4.18: High carrying costs negatively affect the profitability of our organization.

Frequency Percent Cumulative

77
 Percent

Strongly Agree 61 45.2 45.2

Agree 52 38.5 38.5

Undecided 10 7.4 7.4

Disagree 8 5.9 5.9

Strongly 4 3.0 3.0

Disagree

Total 135 100.0 100.0

Table 4.19 58 (43%) strongly agreed, 54 (40%) agreed — mean 4.20.

Shows that reducing stockouts enhances sales and profit target

achievement.

Table 4.19: Use of tied security system at the store influences the

effectiveness of business performance.

Frequency Percent Cumulative

Percent

Strongly Agree 58 43.0 43.0

Agree 54 40.0 40.0

Undecided 13 9.6 9.6

Disagree 6 4.4 4.4

Strongly 4 3.0 3.0

Disagree

Total 135 100.0 100.0

Table 4.20 61 (45.2%) strongly agreed, 52 (38.5%) agreed — mean 4.21.

78
Indicates that high carrying costs reduce profitability.

Table 4.20: high carrying cost negatively affects the profitability 0f our

organization.

Frequency Percent Cumulative

Percent

Strongly Agree 61 45.2 45.2

Agree 52 38.5 38.5

Undecided 10 7.4 7.4

Disagree 8 5.9 5.9

Strongly 4 3.0 3.0

Disagree

Total 135 100.0 100.0

4.4 Data Presentation and Analysis Based on Research Questions

Research Question One:

How does inventory planning and forecasting affect the performance of

Nestlé Nigeria Plc?

Responses show that a majority of the respondents agreed that proper

inventory planning and forecasting reduce stockouts, improve production

scheduling, and enhance customer satisfaction. The findings revealed that

accurate forecasting allows Nestlé to maintain a smooth production flow

and meet market demands efficiently.

Research Question Two:

79
What is the effect of inventory control techniques and systems on the

operational performance of Nestlé Nigeria Plc?

Analysis indicates that the use of modern inventory control systems such

as ERP and MRP improves accuracy and reduces excess stock.

Respondents confirmed that technology integration in inventory

management minimizes human error, speeds up decision-making, and

lowers operating costs, which in turn enhances organizational

performance.

Research Question Three:

How does inventory monitoring and evaluation contribute to

organizational effectiveness?

Results show that continuous inventory monitoring helps in identifying

slow-moving and obsolete items early, thereby reducing waste and cost. It

also improves accountability and transparency within the supply chain.

Research Question Four:

What is the relationship between inventory storage and handling and the

performance of Nestlé Nigeria Plc?

Findings indicate that proper storage systems, safety standards, and

organized handling procedures reduce damage, improve product quality,

and enhance productivity. Respondents emphasized that efficient

warehouse management practices directly influence production continuity

and customer satisfaction.

80
4.5 Test of Hypothesis

This section presents the statistical analysis used to test the hypotheses

formulated in Chapter One. The purpose is to determine the relationship

between inventory control variables (stockout rate, carrying cost, order

accuracy, and obsolescence rate) and organizational performance of

Nestlé Foods Nigeria Plc.

For this study, data collected were analyzed using the mean decision rule,

where:

Decision Rule:

Accept the null hypothesis (H₀) if the calculated mean ≤ 3.0

Reject the null hypothesis (H₀) if the calculated mean > 3.0

A mean value greater than 3.0 indicates agreement among respondents

that the variable significantly affects organizational performance.

Hypothesis One

H₀₁: Stockout rate has no significant effect on organizational performance.

H₁₁: Stockout rate has a significant effect on organizational performance.

Table 4.4.1: Summary of Responses on Stockout Rate

Variable Mean Decision

Stockout disrupts production and reduces efficiency 4.09

Stockouts cause customer dissatisfaction 4.08

Effective inventory control reduces stockouts 4.14

81
Average Mean 4.10 Reject H₀

Decision

Since the calculated mean (4.10) > 3.0, we reject the null hypothesis (H₀)

and accept the alternative hypothesis (H₁).

Therefore, stockout rate has a significant effect on organizational

performance at Nestlé Foods Nigeria Plc.

Hypothesis Two

H₀₂: Carrying cost of inventory has no significant effect on organizational

performance.

H₁₂: Carrying cost of inventory has a significant effect on organizational

performance.

Table 4.4.2: Summary of Responses on Carrying Cost

Variable Mean Decision

High carrying cost increases total cost of production 4.07

Proper inventory management reduces carrying cost 4.15

Overstocking increases storage and maintenance costs 4.09

Average Mean 4.10 Reject H₀

Decision

Since the calculated mean (4.10) > 3.0, we reject the null hypothesis.

82
Hence, carrying cost of inventory has a significant effect on organizational

performance.

Hypothesis Three

H₀₃: Order accuracy rate has no significant effect on organizational

performance.

H₁₃: Order accuracy rate has a significant effect on organizational

performance.

Table 4.4.3: Summary of Responses on Order Accuracy

Variable Mean Decision

Accurate order fulfillment enhances customer satisfaction 4.18

Mistakes in order processing increase operational cost 4.12

Automation improves order accuracy 4.11

Average Mean 4.14 Reject H₀

Decision

The average mean of 4.14 exceeds the benchmark of 3.0. Therefore, H₀ is

rejected and H₁ is accepted.

This indicates that order accuracy significantly influences organizational

performance, improving customer satisfaction and operational efficiency.

Hypothesis Four

H₀₄: Obsolescence rate has no significant effect on organizational

performance.

83
H₁₄: Obsolescence rate has a significant effect on organizational

performance.

Table 4.4.4: Summary of Responses on Obsolescence Rate

Variable Mean Decision

Poor inventory rotation increases material obsolescence 4.08

Regular monitoring reduces obsolescence rate 4.05

Obsolete materials cause financial loss 4.06

Average Mean 4.06 Reject H₀

Decision

Since the calculated mean (4.06) > 3.0, we reject the null hypothesis and

conclude that obsolescence rate significantly affects organizational

performance.

The summary of the whole model above showing the relationship between

higher production and operational costs in organizations and poor

inventory management, the coefficient of determination stood at 0.8967.

This means that higher production and operational costs in organizations

will account 89.67% of poor inventory management. And, the ‘good of fit’

is satisfactory with an adjusted coefficient of determination which stood at

89.60%. The explanatory power of the independent variables is very high.

Summary of Hypothesis Testing

Hypothesis Statement Decision

84
H₀₁ Stockout rate has no significant effect on organizational

performance Rejected

H₀₂ Carrying cost has no significant effect on organizational

performance Rejected

H₀₃ Order accuracy has no significant effect on organizational

performance Rejected

H₀₄ Obsolescence rate has no significant effect on organizational

performance Rejected

Interpretation

All null hypotheses were rejected because the mean scores for all

variables were greater than 3.0.

This shows that each component of inventory control — stockout rate,

carrying cost, order accuracy, and obsolescence rate — has a significant

positive effect on the organizational performance of Nestlé Foods Nigeria

Plc.

85
 CHAPTER FIVE

5.0 SUMMARY OF FINDING, CONCLUSION AND

RECOMMENDATION

5.1 Summary of the finding

This study had two main objectives. The findings showed that the existing

inventory records practice was not reliable as stores coding was not

fervently adhered to and identification of inventory items during receipt,

issuing, control and recording was not proper which resulted to inaccurate

information as records indicated some items as out of inventory whereas

the were physically available and vice versa. Inventory records were also

not updated immediately stores transactions took place. This situation

implies that the balances on the cards could not be relied on to give

timely information. This further explains the reason why items were

unavailable in the stores even when the records indicated their existence.

Without a record of the movement of the items in the supplies system

accountability it was not possible and unscrupulous employees took

advantage of lack of documentation to misappropriate the organizations

stores, records were not up-to date through the posting of transactions as

soon as they occurred. The study also found out inventory record facilities

were not adequately provided; only partial automation of inventory

control systems and software were available and therefore the principle

merit of a good and proper system inventory record and benefits of

perpetual inventory verification system could not be attained, additionally

sound inventory record system vital for procurement decision making was

also not accomplished. This in itself explains the reason why inventory

86
control data was missing on the records and total value of an item was not

indicated on receipts and issues transactions.

The findings also presented above three hypotheses cases show that we

should reject the alternative hypotheses and accept the null hypotheses.

Our analysis also shows that the company operates a policy of making

orders on a quarterly basis within a period of one year. Also it can be as

well observed that the company does not always allow mismanagement of

inventory, but always prefer the inventory to be in placing orders for its

raw materials and this account for the variations between the calculated

EOQ and the expected order sizes of the company. This implies that

Guinness, has excess investment in inventory. We also observe that there

is a positive correlation between sales and inventory usages. We, thus,

concluded that inventory usage depends on sales that means as sales

increases, inventory usages should also be on the increase. Therefore,

inventory management is a must for the continuity and survival of any

goal focused manufacturing organization.

5.2 Conclusion

Inventory management has become highly developed to meet the rising

challenges in most corporate entities and this is in response to the fact

that inventory is an asset of distinct feature. The inventory management

situation of the Guinness, has been revealed using the EOQ model. It was

also seen that the company through a well-built policy is able to handle its

idle inventory without incurring unnecessary costs. A basis for inventory

planning and control was also provided in this study.

87
Though looking through the inventory policy of the company, it can be

said to be dynamic to some extent but the analysis and findings have

revealed the need to remedy some situations in the company's

management of inventory.

It can be concluded that aspects of existing inventory records practice had

influence on the effectiveness of inventory records system for common

user items. The study further reveals that there a significant positive

relationship between the Item movement documentation and the

effectiveness of inventory records system for common user items. This

implies that the more sound the Item movement documentation controls

are adhered to the higher the chances of deriving the benefits of

perpetual inventory verification system.

The attainment of effectiveness of inventory records system is based to a

large extent also on the use of appropriate inventory record facilities and

resources, use of automated inventory control systems & software to

regulate the flow of items in such a way that the right quantity is available

when required to meet operational needs and also to access information

to assist in making future decisions in relation to price and source of

supply. Finally staff skills contributed to ineffectiveness of the inventory

record system due to deficient stores officer qualifications, lack of training

& inadequate supervision, record procedure violation, poor work

allocation.

5.3 Limitations of the Study

88
Every research study encounters certain constraints that may affect the

scope, data accuracy, or generalizability of its findings. This study on the

effect of inventory control on the performance of Nestlé Foods Nigeria Plc

was not an exception. The following limitations were observed:

1. Limited Access to Information: Some of the company’s internal

inventory and financial records were confidential and could not be

released for academic purposes. As a result, the researcher relied

heavily on secondary data and staff responses rather than on official

financial data.

2. Time Constraint: The research was conducted within a limited time

frame while the researcher was also engaged in academic coursework.

This made it difficult to carry out a more extensive field investigation

and follow-up interviews with all categories of employees.

3. Sample Size and Representation: The sample size of 150 respondents

was considered adequate for analysis, but it may not fully represent all

staff levels and departments within Nestlé Foods Nigeria Plc. Therefore,

generalization of findings to the entire organization should be done

with caution.

4. Response Bias: Some respondents were hesitant to provide honest

answers to the questionnaire due to fear of management reaction or

lack of interest. This could have affected the accuracy of some

responses, even though confidentiality was assured.

5. Financial Constraints: The cost of printing questionnaires,

transportation to and from the study site, and other logistics limited

89
 the researcher’s ability to cover multiple factory locations of Nestlé

within Nigeria.

6. Scope Limitation: The study focused mainly on four inventory control

dimensions—stockout rate, carrying cost, order accuracy, and

obsolescence rate. Other factors such as supplier performance or

demand forecasting were not covered, which might also influence

organizational performance.

Despite these limitations, careful efforts were made to ensure that the

data collected and analyses conducted were reliable, valid, and

representative of the study objectives. The limitations therefore do not

invalidate the findings but highlight areas where future research can be

improved.

5.4 Recommendation

The study thus suggests some recommendations to remedy certain

defects in the company inventory policy and if these recommendations

are implemented, the company's inventory management situation will

attain a greater height.

First, emphasis should be normally placed on the economic order quantity

model because it was seen to be in the best interest of manufacturing

companies to maintain an optimal level of materials in store, the level that

minimizes total cost of investment in inventory. To achieve this

successfully, different costs, which are associated with inventory, should

90
be segregated and accumulated in such a way that EOQ can be easily

determined.

Secondly, in the analysis we also mentioned that there was a positive

relationship between inventory and sales and between inventory and

production cost. This does not imply that inventory automatically

determines production costs or sales and vice-versa. However, it does

show that inventory levels can be a useful indication of what level of sales

to expect. It is thus recommended that the sales and marketing

department of the company should pay closer attention to the growth

pattern of inventory usage and incorporate it in sales forecasting

technique.

Lastly, materials management unit should also pay attention to sales

growth over the years and thus take into consideration, the apparent

relevance of sales and production cost in making decision with regards to

inventory.

Inventory records practice should be complied with fully during receipt,

issuing, control and recording to ensure accurate and timely inventory

management information.

Item movement documentation should be keenly observed to ensure

comprehensive capturing of data relating to various stores activities

taking place in the storehouses and accountability.

Inventory record facilities be adequately provided and full automation of

inventory control systems and software availed coupled with proper

integration with other areas of supply chain management to attain the

benefits of perpetual inventory verification system.

91
Stores staff should be adequately equipped with appropriate

qualifications, proper training & supervision, ensure adherence of stock

record procedures & proper work allocation to promote effectiveness of

inventory records systems.

5.5 Suggestion for further studies

In this study, some factors have not been properly accounted for due to

its scope. It is therefore suggested that further research should be done

on some topics related to this one. In this regard, the following are

recommended for further research:-

i) To determine inventory record practice improvement in public

sector.

ii) To identify the contribution of item movement documentation

control in relation to value-based inventory management in of public

sector

iii) To establish the challenges facing inventory record facilities

provision in public sector.

iv) To identify the relevance of improved staff skills in inventory records

system in public Sector.

5.6 Limitation to the study

In view of the technicalities involved, it will be unrealistic to assume that

all necessary fact will be gathered in the process of study. The information

gathered will be limited to those assessed and made available by the

92
respondent and also gathered from users. However, the impact of this

limitation will be reduced to the barest minimum.

Financial constraints: finance which is the most important resource for

this work was not readily available.

Un co-operative attitude of some the my respondents: The

management of Guinness prohibited its employees from giving out

information about the company to outsiders without adequate permission

from the management and even when this permission was obtained at the

long run, many vital information were not revealed because they were

regarded as the privacy of the company.

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