CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND OF THE STUDY
In any business organization be it
public or private, inventory management serves as an important role on
productivity. It helps organizations to
maintain maximum or minimum stock level so as not to over stock or under stock.
This research will show that stocks handled
by the company under study ranges from production, maintenance, repairs,
operating supplies in processed and finished goods.
It will also show that the company
will be involved in the forecasting of store requirement. The sources of inventories of power Holding
Company of Nigeria (PHCN) includes direct Imports Local Sources and Central depots.
1.1 HISTORICAL BACKGROUND OF PHCN
Power Holding Company Nigeria Plc
(PHCN) was incorporated in year 2005 as part of the provision contained in the
electricity reform Act, which was recently signed into law by the
president. PHCN is to take over the
Assets and liabilities of NEPA to facilitate the privatization of NEPA. NEPA, which was established by Decree was
primarily to provide electricity to the populace at a very subsidized rates.
The organization was part of government social responsibilities and welfares to
the general populace. To ensure even
distribution of facilities and social services, the government establishes
PHCN. PHCN helps to control private
monopoly of power and helps to combat the unhealthy rural –urban drift of the
population.
Stock controls is an important
functional branch of PHCN as an organization and needs more attention that it
is actually being presently given. It has
been viewed in some quarters as an unnecessary activity that really costs money
while in some other quarters is regarded as being vital, and a sophisticated
method of control is adopted to protect the inventories.
There are organizations where the
buying department does not have responsibility for the stores or even the stock
control function. Despite this, the role
of buying is still linked with both functions.
All organizations have some stock, which must be cared for, because they
represent money. In a manufacturing
organization where large units items are produced daily for instance, large
quantities of materials and component parts have to be provided daily as
well.
This obviously means a lot of money
and it is therefore to organize store function so that investment cost is kept
to the specific standard system of stock control, which can be universally
recommend or applied, but in the course of time, certain principles and
practices of more or less general application have been evolved.
The term materials as used in this
write-up has the same meaning as inventory or stock. It is necessary to bring out the points at
this stage because in financial accounting materials is often known as stock or
inventory. As on accounting category,
material stock is a current asset represented by goods owned by the business at
a particular point in time and help for the purpose of future sale or for the
manufacturing of goods for sale.
Materials management is concerned
basically with planning and control of materials. Control is a process by which events are made
to conform to a plan. Therefore to
control materials, there must be a store, where to buy, when to buy, and how much
to buy. The items to be stored will be dictated by the basic functions of the
firm and the customers it serves. The
suppliers to be selected will be influenced by such factor as the ability of
the supplier to supply the quantity of the right quality at the right time and
at the right price (right from the point of view of the purchaser).
The figures so obtained by continuous
stock taking are compared with the corresponding figures on the bin card and
store ledger cards. The exercise should
not be aware of the balances on the bin cards or store ledger card before the
exercise.
Government plays an important role
with the total amount invested with the Federal government, state government,
local authorities and public corporations for high part profit is not the main
determinant, but political and social factors.
Although, cost benefit analysis is used to evaluate the differing
projects which a government might consider.
Government had used public work as a means to expand or retain the
economy and the commitment of full employment for the private sector
industrialist, the factor rather anticipated profitability of the project. The profitability can be said to depend on
the expected future returns
obtained from the purchase of
the equipment. The later is known before a decision is
taken, which the former can be thought as nothing more than a calculated or is
inspired guess.
However, whether is s a private or
public sector, the acquisition, storage, insurance, and usage of stock in the
running of the business must be involved for effectiveness, efficiency and
productivity of the business. Therefore,
functional machinery should be put in place for the proper control of stock or
inventory of the organization.
1.2
STATEMENT OF PROBLEM
Inefficient maintenance of inventory
management lead to the poor productivity of Power Holding Company of Nigeria
(PHCN) through.
i.
Mis-management
of the organization
ii.
The
use of unqualified staff
iii.
Lack
of proper stock taking in the organization.
It will be difficult for
power holding company of Nigeria
1.3
SIGNIFICANT OF THE STUDY
The issue of inventory management is
of importance to the success of any organization and is one of the significant
determinants of the continuity and efficient production of the organization. This study is significant in many ways, first
, it is hoped that the study will
provide further insight into the understanding of stock control management of
PHCN as minimum and maximum stock levels and the economic order quality (EOQ)
of the company would be examined by the study.
By using the PHCN as a case
study, the study will make an
interesting contribution to the understanding of the general and specific
effect of inventory control in other public utilities.
In addition to helping the public
utility sector in taking serious decision on stock management , will also serve
the interest of private sector organizations as well as the general public a
source of knowledge since it will enrich corpus of existing literature on
management of stock.
The supervising ministry, the
ministry of power and Steel would also benefit from this study.
1.4
OBJECTIVE/PURPOSE OF THE STUDY
Everybody sees a public property as a
national cake, which belongs to all and everybody must benefit from it whether
or not they have authority to use it besides, public property does not belong
to anybody. Thus, there exist the
Laissez-faire and lackadaisical attitude towards public priority. Coupled with
this there is also the problem of proper management and control of stock. These are some of the problems confronting of
the economics of the world. It is
therefore the intention of this research work:
1.
To
examine the nature and usage of inventory management measures applied to PHCN
2.
To
determine the nature and extent of problems affecting management of stock in
the public sector organizations with particular reference to PHCN.
3.
To
determine the viability of such inventory management measures
4.
To
attempt providing alternative strategies on effective management of stock,
where necessary.
1.5
STATEMENT OF HYPOTHESIS
In order to facilitate the process of
data collection and analysis, the following hypothesis would be tested in the
study.
H0: efficient inventory management
does not contribute to efficient running and success of the organization.
H1: Effective inventory management
contribute efficient running and success of the organization.
1.6
SCOPE AND LIMITATION OF THE STUDY
The research project intends to look
into the management of stock or
inventory in energy industry with
particular reference for the distribution and marketing sectors of PHCN. The study will cover PHCN activities that sum
up the role of effective stock control, store procedure and various control
mechanism. The public sector is wide and
complex, and this worth is basically expository. Though relevant, references may be made
to other areas, the basic area of focus
remains the power Holding Company of Nigeria (PHCN) Kaduna State
A research work is not an easy task
to overcome. There are occasions when
research encounter problems, which are basic and unavailable. This research work is not an exception
considering the magnitude of time and financé involve in the study and
considering also the difficulties of data collection from other public
utilities, the study will only be limited to PHCN, because of the time and
financial constraints.
1.7
DEFINITION OF TERMS
The following terms are frequently
used, in the specific sense they have been defined: Load
or procurement time: The period of time, expressed in days, months, etc
between ordering (either externally or internally) and replenish i.e, when the
goods are available for use.
Demand: The
amount required by sales productions etc. usually expressed as a rate of demand
per week, month, etc. estimates of the rate of demand during the lead time are
critical factors in inventory management systems.
ECONOMIC ORDER QUANTITY (EOQ) ECONOMIC BATCH QUANTITY (EBQ)
This is a calculated ordering quantity,
which minimize, the balance of cost between inventory holding cost and re-order
cost.
Physical Stock: The number of items physical in
stock at a given time.
Free stock: Physical
stock plus standing replenishment orders minus unfulfilled requirements.
Buffer stock or minimum or safety stock: A stock allowance to cover errors in
forecasting the lead-time or the demand during the lead-time.
Maximum stock: A
stock level selected as the mopeium disable which is used as indicator to show
when stock have risen to high.
Re-order level: The level of stock of which a further replenishment order should be
placed. The re-order level is dependent
upon the lead-time and the demanding during the lead time.
Re-order quantity: The quantity of the replenishment order.
In some types of inventory control systems this is the EOQ, but in some
order systems a different value is used.
Continue stock checking; Is the checking by counting of physical quantities of
materials in store regularly, a few at a time until items are checked at least
once a year.