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CHAPTER ONE

INTRODUCTION

1.1           Background to the Study

Inventory management and control have been especially difficult for many companies in the last several years, which has had an impact on their overall operational performance. We've seen situations where items were improperly stored and then expired or were out of date, and we've also seen instances when personnel stole materials or deliveries were delayed. Working capital, which comprises inventory, accounts receivable, and accounts payable, is sometimes more than half of a company's total assets (Beheshti, 2010; Darun, Roudaki, & Radford, 2015; Gill, Biger, & Mathur, 2010). A common business concern is that a company's operational effectiveness is significantly impacted by high quantities of working capital spent in inventories (Aktas, Croci, & Petmezas, 2015; Bagchi, Chakrabarti, & Roy, 2012; Charitou, Elfani, & Lois, 2010; Chisti, 2013; Mojtahedzadeh, Tabari, & Mosayebi, 2011). The primary issue facing the company is a lack of effective inventory management tactics among some of the managers (Basu & Wang, 2011; Hatefi & Torabi, 2015). In order to maintain an ideal inventory level of raw materials and saleable goods, manufacturing companies must devise ways to do so.

Setting stock levels for each commodity in the stock management system is the most common way used by manufacturing companies to manage stock by amount. These levels are then used to indicate when certain actions need to be taken. Stock management is critical to the success of most businesses since they cannot function without it. In order to keep stock levels as low as possible while still expediting orders and increasing turnaround times, companies must organize themselves (Harrisson, 2001 cited in to Munyao, Omulo, Mwithiga, & Chepkulei, 2015). According to Bainson and Bainson (2016), stock levels should be carefully received at appropriate intervals, such as quarterly or even monthly, and changed to reflect any changes in conditions, such as price fluctuations. When stock levels are not updated, the system of stock control is rendered ineffective and the initial fixed level is less than planned. The quantity of inventory a manufacturing company keeps in its warehouse has a significant impact on both the company's costs and its profitability. Since stock levels at shops are always changing, this necessitates constant monitoring of these variables.

Order lead times have a significant impact on manufacturing companies' operational effectiveness and customer service. It is possible that increased lead times for obtaining and manufacturing raw materials and finished items may raise the need for safety stock inventories and decrease the responsiveness to unpredictable client needs. Additionally, clients are typically very concerned about order lead times, while suppliers compete by being able to react fast to customer needs. In the end, companies want to cut inventory without affecting customer service. Olinder and Olhager (2008), as referenced by Agbugbla (2014), stress the importance of short lead times for manufacturing firms' operational effectiveness. In order to cut down on lead times, manufacturing companies and other businesses must work very hard (Agbugbla, 2015). Another point raised by Olinder and Olhager (2008) is the ability of organizations that focus on cycle time as a productivity metric to lower delivery times while still enhancing quality. As a result, a short procurement lead time is essential.

 

The success of the manufacturing business relies heavily on the planning and management of inventory and associated operations. In order to stay competitive, managers of firms have been searching for trustworthy and effective inventory methods and systems. Many firms, according to Nsikan, Etim, and Ime (2015), have used basic inventory management strategies or inventory control methods to keep their inventory expenses under control. Inventory management best practices include EOQ, JIT, Vendor Managed Inventory (VMI), Collaborative Planning, forecasting and replenishment, automated replenishment, agile system as well as material demand planning and so on. It has been stated that managers who turn to inventory research may find it of little relevance or believe that it offers nothing in the way of improving inventory processes (Boone, Craighead & Hanna, 2008). (Wagner, 2002). There is a gap between inventory theory and reality in the industrial business, particularly the Nigerian flour milling industry, and the need to bridge this gap is urgent.

 

According to Adeyemi and Salami (2010) and Alao (2010), the Nigerian manufacturing industry, including the Flour milling sub-sector, lacks knowledge and awareness of techniques, their method of operation, and their practical significance. Raw material waste, longer lead-times, reduced sales due to product shortages and backorder penalties as well as higher manufacturing costs and poor quality concerns have all been attributed to this problem. According to Takim (2014), inventory management employees at Nigerian flour milling enterprises failed to execute minimum, reorder, and maximum stock levels during material ordering and delivery, resulting in multiple instances of overstocking and stock-outs. A backlog of orders has resulted from this, as well as the loss of revenues.

 

The Nigerian manufacturing sector has a variety of challenges when it comes to inventory management. Environments in Nigerian manufacturing are severe and troublesome, says Onuoha (2012). Lack of patronage and distress in aggregate demand resulted in huge and unplanned stockpiles. In addition, the devaluation of the Naira versus foreign currencies, exorbitant loan rates, and great difficulty in obtaining working capital all contributed to the high cost of money. In order to prevent operational embarrassments, most Nigerian manufacturing enterprises manage their limited working capital. Imports of raw materials are also impacted by fluctuating currency exchange rates and government monetary policies. Delays at Nigerian ports and poor transportation infrastructure have had a negative impact on raw materials stockpile. Despite the difficulties in Nigeria's manufacturing sector, Atseye, Ugwu, and Takon, (2015) argued that Nigerian enterprises' production runs and deliveries to consumers have been significantly impacted by these issues. There have also been several factory closures, with many people losing their employment as a result.

 

To make matters worse, Nigerian capital and money markets imposed strict criteria on enterprises on the edge of bankruptcy, resulting in a stalemate. The failure of top management officials in the Nigerian manufacturing industry to pay adequate attention to the functions of warehouses and stores, as well as their inability to employ well-qualified store officers to oversee and manage inventory, were both cited as contributing factors in an Aro-Gordon and Gupte (2016) study. In Nigeria, inventory management has been a major problem for many businesses, according to Adamu (2016). Nigeria's manufacturing business needs to enhance inventory management techniques because of the lack of computerization, non-determination of stock level, and the participation of illiterates and unskilled workers (Akindipe, 2014).

 

On the basis of installed capacity, the flour milling sector has 22 participants (Njoku & Kalu, 2015a). Flour Mills of Nigeria Plc, Honeywell Flour Mill Plc, and Northern Nigeria Plc are four of the largest producers in the business, all listed on the Nigerian Stock Exchange (Njoku & Kalu, 2015b). More than half of the market share and more than 85% of the flour mill market in Sub-Saharan Africa are held by these mentioned flour milling businesses, who have a total installed capacity of 15, 360 metric tons per day and control more than half of the market (Njoku & Kalu, 2015a). Studies have shown that most flour milling enterprises in Nigeria are experiencing difficulties in their operational environment and lack a strategic operating system for inventory management and control (Njoku & Kalu, 2015a; Takim, 2014).

 

Flour milling in Nigeria is plagued by inventory management issues, which has resulted in significant waste, according to a research by Fagade (2011) on improving supply chain management. There are also concerns with placing items in the wrong place or identifying them incorrectly which might cause complications when they're required. Poor inventory management also promoted pilfering by the custodian of the supplies, as the laxity was detected, resulting in a waste of resources. Furthermore, Fagade (2011) found that the industry's stocks were improperly procured, stored, and documented. In addition, the business demonstrated a glaring incapacity to hire suitable staff to oversee and manage retail establishments. Njoku and Kalu (2015b) found that the flour milling sector has not given inventory management the attention it deserves, despite the varying relevance of inventory management, in their research of the influence of strategic supply management on the profitability of flour mills in Sub-Saharan Africa. They were also affected by issues with national infrastructure, such as poor roads, unfavorable legislative revisions, high electricity costs for industrial facilities, and very volatile currency rates (Flour Mills Nigeria, 2014).

 

Inventory, according to Nsikan et al. (2015), is the most important element of the current assets of the majority of Nigerian flour milling enterprises. As a result, a significant portion of the company's resources are being invested in the company's inventory. Therefore, inventory management becomes very essential in order to minimize needless costs, back order fines and provide a high level of customer service during times of peak demand by consumers. Flour milling firms in Nigeria also need to ensure that they have the right amount of inventory to keep operating costs low and profits high, since holding on to excess inventory costs a lot of money. As a result of decreasing inventory, more money is available for other uses, resulting in higher cash flow and a higher return on investment.

 

Researchers in Nigeria have concentrated mostly on approaches for regulating inventories, such as the Just-in-Time method and the EOQ model, which are connected with factors like profitability, customer satisfaction, and timely delivery. Many models (deterministic and stochastic) have been used by manufacturing businesses, but an evaluation of the impact on operational efficiency in flour milling enterprises in Nigeria is still absent. Inventory management practices have been linked to various aspects of an organization's performance such as financial and economic performance in previous studies such as Adamu (2016) and Ogbo and Ukpere (2014), Takim (2014) and so on. Most of these studies focused on external inventory management practices. Financial factors were employed by Nsikan et al. (2015) in a specific research on the impact of inventory management methods on the operational performance of flour milling enterprises in Nigeria. Most research on operational performance, such as Kamau and Kagiri (2015), Oballah, Waiganjo and Wachiuri (2015) and Shafi (2015), focused on the solvency and operational performance of enterprises situated in Kenya and India (2014). Research on internal inventory management strategies is scarce. So it's safe to say that there's a vacuum in information about the link between inventory management techniques and operational effectiveness. Internal inventory management procedures and operational performance in Nigerian flour mills are examined in this research in an attempt to close this knowledge gap.

1.2       Statement of the Problem

Inventory management in numerous industrial industries, such as the Nigerian Flour Mill Industry, has been condemned as a cost center throughout the years. The objection is based on the fact that the Purchasing Department was spending money on inventory while the Stores or Warehouses were storing large inventories, preventing money and space from being spent (JerutoKeitany, Wanyioke, & Richu, 2014; Kimaiyo & Ochiri, 2014). However, the majority of industrial companies throughout the globe, including the Nigerian Flour Mills Company, have realized the value of inventory management as a source of competitive advantage, cost savings, and customer satisfaction. This shift in corporate attitude has prompted a growing corpus of academic research aiming to establish a link between inventory management techniques and business success.

It has been established that inventory management systems have been used in enterprises all around the globe (Swaleh & Were, 2014). However, despite the increased emphasis devoted to inventory management in the practical and academic domains, the performance of manufacturing enterprises in Nigeria including Nigerian flour milling industries have been quite unsatisfactory (Njoku & Kalu, 2015a) (Njoku & Kalu, 2015a). The flour milling manufacturing enterprises operating in Nigeria are encountering challenge in identifying optimum inventory level that should be preserved to guarantee that client demands are satisfied and production process is not stopped. Striking a balance between overstocking and running out of stock has been a severe concern for the firms. They are challenged with the issues of stock out of items or materials during manufacturing (Ikon & Nwankwo, 2016; Takim, 2014). (Ikon & Nwankwo, 2016; Takim, 2014). Due to stock-outs, the firms got a lot of complaints and criticism by the consumers, hence this creates a reduced sales and drop in income. Nsikan et al (2015) also stated flour milling enterprises in Nigeria have a problem of erroneous estimates partly because they lack real time inventory information on consumers demand. This has in turn led to late deliveries, insufficient deliveries and lack of consistency in the delivery of items and therefore resulting to loss of customer satisfaction. Further, many flour milling enterprises in Nigeria have been accused of inadequate inventory management procedures and this has substantially damaged their capacity to service their clients (Nsikan et al., 2015; Njoku & Kalu, 2015a) (Nsikan et al., 2015; Njoku & Kalu, 2015a).

Njoku and Kalu (2015a) further noted that Nigerian flour milling enterprises experienced challenges of unpredictability in inventory levels, lower consumers effective demand and high cost of production owing to inadequate inventory management strategies resulting to customers unhappiness. As a consequence, the productivity of the firms have deteriorated, leading loyal customer to migrate to their overseas rivals to find the required goods. Olowe (2007) states that if things are constantly accessible in stock, clients are not likely to purchase them from someplace else. On the other side, if the things are out-of-stock, clients have two alternatives, either to wait till the product is in stock again or to go purchase elsewhere. The latter would result in loss of customer’s goodwill and it is detrimental for enterprises.

 

Nyabwnga and Ojera (2012) in their research emphasized that when confronted with a stock-out, a customer may locate, test, and untimately prefer a replacement product. This customer may be lost permanently, resulting in a negative effect on the long-term value of the firm’s market share. The researchers further highlighted that recurrent stockouts significantly effect merchants via the loss of consumers, and to the manufacturer there are lost of sales, brand switching, and a loss of brand. The researchers determined that roughly half of the clients who sought for an out-of–stock goods eventually ceased the search, hence contributing to the negative impact of stock-outs. The problem of disgruntled consumers as a consequence of missing products on the shelf can cost a business a lot in terms of reputation and trust which in turn result in loss of sales. The issue of inventory shrinkage has not been handled by many flour milling enterprises in Nigeria owing to materials and operational problems amongst others. This issue has resulted to consumer unhappiness and multiple backorders. The degree to which inventory shirinkage influences consumers satisfaction in flour milling business in Nigeria has not been addressed in the literature. How frequently does inventory shrinkage influence customer satisfaction of flour mills firms in Nigeria?

 

Investment in inventory gives opportunities for manufacturing companies to obtain market advantage by outperforming rivals in terms of attracting more consumers with distinctive goods and charge premium pricing (Marfo-Yiadom & Kweku, 2008). (Marfo-Yiadom & Kweku, 2008). According to Barine (2012), investment in inventory is also a function of the cost of keeping such goods, storage, obsolescence, opportunity cost of investments in inventory, rate of return on other equivalent-risk investment options. However, excessive inventory investments might tie up resources that may be put to greater use in other aspects of the firm. Inventory difficulties of too big or too limited amounts on hand caused company failures. In a research conducted out by Peavler (2009) it was noted that most failing enterprises (up to 60 percent ) were of the idea that all or most of their failures were due to inventory difficulties. This notion is reinforced by the research by Adeyeye, Ogunnaike, Amaihian, Olokundun, and Inelo (2016) that manufacturing enterprises in Nigeria are finding it challenging in identifying how much of the inventory is the perfect stock. Therefore, a balance must be established and maintained. Maintaining an acceptable quantity of inventory, according to Shin, Ennis, and Spurlin (2015) is a significant concern to firm’s operational success.

 

The flour milling industry in Nigeria has faced challenges of investments in less vital stocks leading to wasteful expenses, imprecise predictions, and poor response to customers’ orders resulting to fall performance (Njoku & Kalu, 2015). (Njoku & Kalu, 2015). Njoku and Kalu (2015) noticed that most of the flour milling enterprises in Nigeria are at the mature stage of their operations and localized in character consequently making them less competitive. The low investment in inventories have damaged operational performance of flour milling enterprises by missing out on prospective sales, and potential market share as well (Chukwuemeka & Onwusoronyem, 2013). (Chukwuemeka & Onwusoronyem, 2013). As a consequence there is the potential of slipping behind the market which would be damaging to the overall profitability of the organization (Awuor, 2013). (Awuor, 2013). Nwachukwu, Odo, and Nwachukwu (2016) highlighted that flour mills enterprises in Nigeria are confronted with challenges in choosing the ideal levels of account receivable, account payable and inventory that they would choose to keep in order to increase operational performance. In addition to these ideal levels, flour mills businesses were confronted with issue of identifying the most inexpensive approach to finance these working capital expenditures in order to create the greatest potential outcomes. This lead to a considerable loss of clients to rivals in the business. It is vital to manage stocks correctly and efficiently minimize wasteful expenditure. The literature have demonstrated that the issue of insufficient inventory investment in flour mills business in Nigeria has yet to be realistically addressed. Can it thus be deduced that low inventory investment effect Nigeria flour mills businesses competitive advantage?

 

There are several risk concerns linked with the present supply chain environment that have adversely impacted internal supply chain operations of manufacturing organization including flour mills enterprises. Several operations and manufacturing experts have classified these characteristics as supply chain hazards. Thus, for an organization to effectively function and compete in the present dangerous supply chain environment, the business must put into place effective control mechanisms inside its internal supply chain. One of the tactics now implemented by manufacturing firm is establishment of an efficient internal inventory management system (Onchoke & Wanyoike, 2016; Posazhennikova, 2012). (Onchoke & Wanyoike, 2016; Posazhennikova, 2012).

 

The issue of inventory control is one of the most essential topic in organizational management (Ziukov, 2015). (Ziukov, 2015). Research has showed that inventory control was one of the most ignored management areas in most organizations, thereby stressing on a company operations (Mogere, Oloko, & Okibo, 2013). (Mogere, Oloko, & Okibo, 2013). Empirical research has indicated more and more manufacturing enterprises have failed inventory management, and hence sustained losses (Kariuki, 2013). (Kariuki, 2013). Moreover, Jefwa and Everlyn (2015) found that most enterprises have not yet incorporated inventory management tools and systems in their operations. In Nigeria manufacturing business, Gbadamosi (2013) argued that it is significantly more difficult to regulate stocks properly. The explanation was associated with the increase of product ranges and models. Also, it was recognized that most of the components going into the conventional shapes items are obtained as completed pieces, rather than being made from basic materials in the firm’s own shops (Gbadamosi, 2013). (Gbadamosi, 2013). These factors have led to the creation of additional things to be controlled by businesses and resultant rising expenses of operation.

 

Nsikan et al. (2015) noticed that most of the Nigerian flour milling enterprises were still utilizing traditional techniques of inventory management and valuation which was regarded improper and unsophisticated. In addition, Owoeye et al. (2014) responding to the findings accessible from existent literature answered that inventory managers in flour milling enterprises tend to reject change to the modus operandi- manual inventory management. This clearly demonstrates that the duty and effectiveness of inventory control falls largely with senior management of organizations. The consequence is that inadequate inventory management leads to high cost of operations. Anichebe and Agu (2013) claimed that flour milling firms at times do not monitor their inventory holding, resulting in under stocking and leading the organizations to remain off production, hence contributing to large cost overrun. Kilonzo et al. (2016) say that inadequate inventory management leads to outmoded inventory which is a cost and has negative influence on operational performance of a corporation. The results of numerous research consulted on inventory management and control indicated that inventory control systems in flour mills enterprises in Nigeria are still dependent on conventional and mathematical models which frequently leads to higher operating expenses. Can it thus be deduced that inadequate inventory management raise cost related with storage and handling of merchandize or supplies hence limiting cost effectivess of flour mills enterprises in Nigeria?

 

Another inventory management method that might impact organizations commercial and operational success is the inventory turnover. Inventory turnover relates to the efficiency of companies in manufacturing and selling their items (Mburu, 2013). (Mburu, 2013). It is the number of times that inventory “turns over” or cycles through the company in a year (Rao & Rao, 2009). (Rao & Rao, 2009). Controlling inventory turnover has been recognized as one of the quickest techniques to gain more money out of company without needing to boost sales. It has been mentioned in the literature that a high inventory turnover ratio showed how well the business is running economically in selling its items. Inventory turnover is a measure of management’s ability to utilise resources effectively and efficiently. However, in spite of the vast size of Nigeria flour mill sector, the business is suffering from poor level of operational performance. According to Adesiyan (2015), flour milling enterprises are not functioning up to average. Their dismal performance has been attributed to poor inventory turnover, deficient pricing policies, inappropriate inventory investment decisions, capacity underutilization, inability to generate adequate working capital and maintaining existing investments in inventories, and high level of inventories in the stores and warehouses. These has led to poorer operating efficiency (Nwachukwu et al., 2016) (Nwachukwu et al., 2016)

 

 

 

Lawal, Abiola, and Oyewole (2015) established that most managers in the industry fight to increase inventory turnover in a bid to increase profitability without being mindful of the need to speed up the debtor collection period and to delay creditor payment period as far as possible, so as to provide the funds needed to keep the cycle flowing. This puts the firms in weak cash situation and it subsequently lower their operating efficiency. Onyoni (2015) highlighted that poor inventory turnover in flour milling enterprises have retained several things in storage while others have grown outdated, resulting to a stop in output. Njoku and Kalu (2015) stated in their research that most enterprises in the flour mill sector are in the mature stage of their life cycle. There is overcapacity in the flour mills business since capacity considerably surpasses the demand for flour. According to Njoku and Kalu (2015), this condition has seriously affected the operating efficiency of flour mills enterprises in Nigeria throughout the years. The subject of inventory turnover and its implications on operational efficiency of flour mills enterprises in Nigeria has yet to be addressed and researched in the literature. Hence, to what degree has inventory turnover impacts operating efficiency of flour mills enterprises in Nigeria?

 

Research has demonstrated that the issue of inventory record inaccuracy is a prevalent problem impacting manufacturing organizations in attaining their goals and objectives (Oballah et al., 2015). (Oballah et al., 2015). The issue of inventory record accuracy pertains to the difference between recorded inventory and actual inventory (Ruankaew & Williams, 2013). (Ruankaew & Williams, 2013). The issue of inefficient stock records system has persisted for too long in manufacturing organizations and is a general rather than a specific one (Burton, 1989). (Burton, 1989). Research data has demonstrated that stock control in flour milling enterprises in Nigeria are weak and in contradiction with specification (Okiridu, 2014). (Okiridu, 2014). As noted by Okiridu (2014) and Ayomoh, Oladeji and Oke (2004), many firms in Nigerian flour mill industry have not established the central purchasing department, lack computerized stock management and were not able to employ the services of well qualified stores officers to take charge of record management. The challenges have rendered the raw material control policy and internal control measure exceedingly poor. It has also led to the inability to satisfy delivery obligation and associated loss of revenues (slow sales growth) (slow sales growth).

 

Furthermore, inventory record inaccuracy has a major influence on the firm’s cashflow strength and its competitive advantage (Ruankaew & Williams, 2013). (Ruankaew & Williams, 2013). Rajeev (2008) mentioned in Ruankaew and Williams (2013) suggested that the effecct of inventory record error on the company include productivity loss, expedited shipping expenses, possible losses owing to the failure to satisfy customer demand, and irritation. Thiel, Hovelaque and Vo (2010) stated that excessive quantity of inventory (that is, stock pile) in the supply chain as the ways by which management might handle the issue which in turn is a hazard to the company. The topic of inventory record inaccuracy in flour mills enterprises in Nigeria and the associated link with delivey commitment has yet to be given appropriate consideration in the literature. What is the link between inventory record accuracy and customer service delivery of flour mills firms in Nigeria?

 

From the literature, it is recognized that inventory management is a major management problem for manufacturing organizations around the globe (Mukopi & Iravo, 2015). (Mukopi & Iravo, 2015). In order to achieve the advantages of successful inventory management, industrial organizations should seek to automate their inventory management activities (Kitheka, 2012). (Kitheka, 2012). The research by Owoye et al. (2015) and complemented by Nsikan et al. (2015) showed that majority of manufacturing companies in Nigeria and flour mills companies in particular, have not yet adopted computerized inventory management system or automated management system (Kitheka, 2012; Kitheka & Gerald, 2014). (Kitheka, 2012; Kitheka & Gerald, 2014). They have largely focussed on manual and quantitative approaches of inventory management. The research also found that most of inventory managers and staffs responsible for stock management in these firms do not properly have understanding of mechanics and applications of contemporary inventory management models and technologies.

 

The factors cited by studies for the non-adoption of computer system in inventory management include the expense of installation, managerial support, maintenance costs amongst others. These issues do not allow the flour mills firms in Nigeria to adequately forecast output needs (Owoeye et al., 2015). (Owoeye et al., 2015). It further caused minimum utilization of resources, high operational expenses and incorrect planning resulting to poor work efficiency, and low production (Nsikan, et al., 2015; Owoeye et al., 2015). (Nsikan, et al., 2015; Owoeye et al., 2015). Moreover, Chandra (2010) observed that most firms established profit targets but few set productivity goals. The productivity component of inventory management is typically disregarded or is not sufficiently looked after in most of the industrial operations (Chandra, 2010). (Chandra, 2010). Automated inventory management systems have not been substantially accepted by many flour mills enterprises in Nigeria. In addition, prior research on inventory management in flour mills firms in Nigeria have not address the degree to which the inability to implement computerized inventory management has effect the productivity of flour mills companies. Therefore, to what degree has automated inventory management affected productivity of flour mills enterprises in Nigeria?

 

From the foregoing comments, adoption of good inventory management procedures have been a severe barrier to many flour mills enterprises in Nigeria. There have been a lot of issues in identifying the appropriate stock levels that assures a free flow of resources without incurring large expenditures in stocking those commodities and without any stock being made outdated. There have been loss of sales or business of the corporation as a consequence of inadequate stocks of completed items. In addition, there have been low productivity in many flour mills enterprises as a consequence of bad inventory model utilized by the companies. There is insufficient degree of computerization in many flour mills enterprises in Nigeria. Obviously, there is poor management and control of inventory in many flour mills firms contributing to the reduction in their overall operational performance.

 

1.3       Objective of the Study

The general objective of this study is to examine the relationship between inventory management practices and operational performance of flour mills companies in Nigeria.

The specific objectives are to:

1.              determine the effect of inventory shrinkage on customer’s satisfaction of the selected Flour Mills companies in Nigeria;

2.              examine the influence of inventory investment on the competitive advantage of the selected Flour Mills companies in Nigeria;

3.              find out the relationship between inventory control and cost effectiveness of the selected Flour Mills companies in Nigeria;

4.              assess the effect of inventory turnover on the operational efficiency of the selected Flour Mills companies in Nigeria;

5.              identify the relationship between inventory record accuracy and the customer service delivery of the selected Flour Mills companies in Nigeria and

6.              establish the influence of automated inventory system on the productivity of the selected Flour Mills companies in Nigeria.

 

 

1.4       Research Questions

Based on the stated objectives of the study, the following research questions become pertinent:

1.              How does inventory shrinkage affect customer’s satisfaction of the selected Flour Mills companies in Nigeria?

2.              How does inventory investment influence the competitive advantage of the selected Flour Mills companies in Nigeria?

3.              What is the relationship between inventory control and the cost effectiveness of the selected Flour Mills companies in Nigeria?

4.              What effect does inventory turnover have on the operational efficiency of the selected Flour Mills companies in Nigeria?

5.              What is the relationship between inventory record accuracy and the customer service delivery of the selected Flour Mills companies in Nigeria?

6.              How does automated inventory system influence the productivity of selected Flour Mills companies in Nigeria?

1.5       Hypotheses

The study formulates the following null hypothesis:

H₀₁:     Inventory shrinkage has no significant effect on customer’s satisfaction of the selected Flour Mills companies in Nigeria.

H₀₂:     Inventory investment has no significant influence on the competitive advantage of the selected Flour Mills companies in Nigeria.

H₀₃:     There is no significant relationship between inventory control and the cost effectiveness of the selected Flour Mills companies in Nigeria.

H₀₄:     Inventory turnover has no significant effect on the operational efficiency of the selected Flour Mills companies in Nigeria.

H₀₅:     There is no significant relationship between inventory record accuracy and the customer service delivery of the selected Flour Mills companies in Nigeria.

H₀₆:     Automated inventory system does not have significant influence on the productivity of the selected Flour Mills companies in Nigeria.

 

 

 

 

1.5.1    Rationale for Hypotheses

H₀₁: Inventory shrinkage has no significant effect on customer’s satisfaction of the selected Flour Mills companies in Nigeria

 

There are many studies carried out on the area of inventory shrinkage and its implication towards customers’ satisfaction (that is, operational performance) of manufacturing firms. The findings from these studies have been mixed; while some reseachers established positive results, others discovered negative effects of inventory shrinkage on customers satisfaction. The reason for the contradiction was based on level of error acceptable. According to Jacob and Chase (2011), every production system must have agreement, within some specific range, between what the records says is in inventory and what actually is in inventory. Therefore, to keep the production system flowing smoothly without parts shortages and efficiently without excess balances, record must be accurate. Fariza, Rushami, and Rohaizah (2014) discovered that effective inventory management has become a potential way nowadays to improve performance through customers’ satisfaction, matching supply chain practices and competitive advantages in the competitive world. Ogbo and Onekanma (2014) agree that having inventory in firm store has an added advantage for the organization since customers will be satisfied instantly leading to improved performance rating. With inventory in the warehouse, an organization has the advantage of timely delivery and stock out are not experienced. Also, Li, Ragu-Nathan, Ragu-Nathan, and Subba (2006) found out that implementation of inventory management practices have greater impact on achieving customer satisfaction as well as improving a firm’s performance. 

On the other hand, other studies have shown that inventory shrinkage create a huge negative impact to a manufacturer that leads to reduction in the overall performance such as customer’s satisfaction and profitability (Fariza et al., 2014). Oballah et al. (2015) conducted a study on effect of inventory management practices on organizational performance in public health institutions in Kenya. The research findings revealed that losses resulting from medicine expiration leads to increased inventory shrinkage, losses resulting from medicine damages leads to increased inventory shrinkage, losses resulting from medicine obsolesce (medicine purchased not meeting intended purposes leads to increased inventory shrinkage and that losses resulting from medicine theft leads to increased inventory shrinkage. As such inventory shrinkage affects customer satisfaction. Moreover, Fischer and Green (2004) discovered that firms experience a diminishing customer base and thus a further reduction in profits due to the inventory shrinkage. Mazanai (2012) expressed that stock shortages are a headache for most organizations and it leads to customer’s dissatisfaction which eventually leads to low performance of a firm. Furthermore, Afande (2015) noted that running out of stock is risky for production and marketing consequences in shortage cost. In the light of these previous findings, this study proposes that inventory shrinkage has no significant effect on customer’s satisfaction of selected Flour Mills companies in Nigeria.

H₀₂:     Inventory investment has no significant influence on the competitive advantage of the selected Flour Mills companies in Nigeria

 

Empirical research has shown that the objectives of inventory management practices are to minimize inventory investments and to maximize customer service (Kamau & Kagiri, 2015). Naliaka and Namusonge (2015) show that effective inventory management provide opportunities to create sustainable competitive advantage and enhance the competitive position of companies. This entails reduction in cost of holding stocks by maintaining just enough inventories, in the right place and the right time and cost to make the right amount of needed products. Some other studies also supported the findings that inventory investment contributes to the profitability of firms by minimizing costs associated with storage and handling of materials as well as improving firm’s market position (Inyama, 2006; Lysons, 2006; Oballah et al., 2015). In addition, Hansen and Mowen (2007) argued that reducing the inventory level would give organization a competitive advantage due to production of quality products at lowering prices and it will respond faster to customer needs.

Conversely, other studies revealed that inventory investments do not promote competitive advantage (Afande, 2015; Kamau & Kagiri, 2015; Keown, Martin, Petty, & Scott, 2006). Kamau and Kagiri (2015) study on the “Roles of inventory management practices in organizational competitiveness in Kenya” revealed that many business owners have difficulty throwing away products they paid good money for, forgetting that keeping many obsolete products in the store would additionally consume even more investments and space. This view is supported by the study of Keown, Martin, Petty, & Scott (2006) who found out that if  the  size  of  inventory  increases,  consequently  holding  costs  of inventory increases, such as  storage, insurance, cost of goods deterioration, damage and losses, moreover the demand of return on capital investment in inventory is expected more. So the inventory of firm is increased, the risk of running of stock is reduced, but cost of holding inventory rises. Similarly, Afande (2015) argued that holding inventories causes the costs, such as the funds which are tied up in inventories, could not have the interest earnings instead; storage and insurance have to be paid, furthermore, spoilage, damage and loss of goods lead to the costs to firms. Excessive stocking reduce the profitability of firm’s results in holding cost (Afande, 2015). From these arguments and findings, it is hypothesized that inventory investment has no significant influence on the competitive advantage of selected Flour Mills companies in Nigeria.

H₀₃:     There is no significant relationship between inventory control and the cost effectiveness of the selected Flour Mills companies in Nigeria

 

The effect of inventory control systems on cost reduction effectiveness of manufacturing firms have been widely researched by many researchers (Kumar & Suresh, 2008; Mogere et al., 2013). However, the direction of the relationship between inventory control systems and cost reduction effectiveness of business firms has not been cleared (Mathuva, 2013). Furthermore, studies on the relationship between inventory control systems and cost reduction effectiveness had produced mixed results (Gill, Biger, & Mathur, 2010). While some argued that inventory control ensures that the cost incurred in inventories is minimal and promotes economy in purchase (Kumar & Suresh, 2008; Mwangangi, Guyo, & Arasa, 2015), others indicated the possession of inventory, through judicious purchasing and manufacture, can in times of escalating prices generate cost savings (Christopher & Falconer, 2012). Also, Mogere et al. (2013) revealed that some previous studies did not indicate the extent to which inventory control systems reduce cost of the firm. This study proposes that inventory control has no relationship with the cost reduction effectiveness of selected Flour Mills companies in Nigeria.

H₀₄:     Inventory turnover has no significant effect on the operational efficiency of the selected Flour Mills companies in Nigeria

 

Rao and Rao (2009) carried out a research on the inventory turnover ratio as to supply chain performance measure and discovered that information technology, internal operations, customers and supplier relationship and information sharing had significant influence on inventory turnover performance. This finding is supported by results of similar studies which established positive relationship between inventory turnover and operational efficiency in organizations (Kamau & Kagiri, 2015; Oballah et al., 2013). Kamau & Kagiri (2015) found a a statistically significant effect of inventory turnover on the competitiveness of Safaricom Ltd in Kenya. Oballah, et al (2015) in their empirical study on roles of inventory management practices on organizational performance in public health institutions in Kenya, also discovered that inventory turnover have positive effect on service level and low cost of operations.

In contrast, Saravanan, Tarun and Vishal (2015) found a negative financial impact of an excess amount and shortage of inventory eight times more severe for Low Inventory Turnover (LIT) retailers compared to High Inventory Turnover (HIT) retailers in U.S. Similarly, other researchers found no significant influence of inventory turnover on operational efficiency (Ashok, 2013; Chen, Frank & Wu, 2007; Oballah et al., 2015). Chen et al. (2007) found in their study of US retailers and wholesale firms that, the average inventory that the firms carry decrease in manufacturing and wholesale firms, so wholesale firms increased their inventory turnover year by year. The study of Oballah et al. (2015) showed that effect of inventory turnover on a firm depends on the ratio of inventory turns. The higher the turnover the better the performance of the organization and vice versa. Related to Chen et al. (2007) and Oballah et al. (2015), it is reported in the literature that if the inventory performance of a company is poorer than the average, the firm has poor long-term stock market performance. Therefore, it is hypothesized that inventory turnover has no significant effect on the operational efficiency of selected Flour Mills companies in Nigeria.

H₀₅: There is no significant relationship between inventory record accuracy and the customer service delivery of the selected Flour Mills companies in Nigeria

 

The effect of inventory record accuracy on customers service delivery is advocated in the literature (Oballa et al., 2015; Thongori & Gathenya, 2014; Ogonu, Ikegwuru & Nwokah. 2016). Ogonu  et al. (2016) found out that inventory record accuracy has a significant positive impact on customers service delivery in Supermarket Industry in Nigeria. Similarly, Okiridu (2014) discovered inventory record accuracy has positive effect on the performance of Nigeria Engineering works Limited. The findings is also supported by the study of Imeokparia (2013) who found significant relationship between inventory record accuracy and customers service delivery. Also, Aro-Gordon and Gupte (2016) show that the adoption of an appriopriate combination of emerging inventory management approaches will engendered accurate record of inventory leading to the steady flow of materials and customers service delivery.

On the other hand, other studies have shown that inventory record accuracy has an inverse relationship with customers service delivery (Thongori & Gathenya, 2014; Thiel et al., 2010). These studies indicated that a discrepancy between the recorded inventory quantity and the actual inventory quantity physically present on the shelf greatly affected the firm ability to satisfy customers demands. On the basis of these findings, it is hypothesized that there is no significant relationship between inventory record accuracy and the customer service delivery of selected Flour Mills companies in Nigeria.

H₀₆:     Automated inventory system does not have significant influence on the productivity of the selected Flour Mills companies in Nigeria

 

Many studies have been done on the influence of design and implementation of automated inventory system on the productivity of firms (Nsikan et al., 2015; Mbuvi, et al., 2016; Kitheka & Gerald, 2014; Wanjohi, Mugo, & Wagoki, 2013; Namagembe & Munene, 2016; Susan & Joseph, 2015; Kitheka & Gerald, 2014; Haiyan & Sarathchandra, 2015). Haiyan and Sarathchandra (2015) argued that many organizations are still using manual-tracking systems to manage their inventories, which is very time-consuming. But some researchers emphasize that companies that adopted modern technology in managing its inventories succeed more than those who rely on outdated methods of inventory control (Wanjohi, et al., 2013). As noted by Susan and Joseph (2015), automated inventory system could influence all stages of inventory management, as well as counting and monitoring of inventory and anticipating inventory needs, including inventory handling requirements. The influence of automated inventory system on a firm’s operational performance is well documented in the literature. Wanjohi, et al. (2013) found positive linear relationship between electronic inventory system and customer service delivery. Kitheka and Gerald (2014) found that inventory management automation influenced the performance of the Supermarkets in Western Kenya. Susan and Joseph (2015) find out that many business firms have adopted automated inventory system in their operations and it has brought more positive effects than negative effects.

However, other researchers have concluded that automated inventory system usage has had little application in many manufacturing firms which leads to the problems of stock–out and low productivity (Kitheka & Gerald, 2014; Mbuvi & Namusonge, 2016; Namagembe & Munene, 2016). Mbuvi and Namusonge (2016) found out that majority of staff of manufacturing firms do not have adequate skills of information technology and this has slowed down the automation of inventories. It was also found out that automated inventory system with regards financial accessibility was disappointing, resulted into little investments. On the basis of the foregoing, it is hypothesis that automated inventory system does not have statistically significant influence on the productivity of selected Flour Mills companies in Nigeria.

1.6       Operationalization of Variables

The inventory management practices and operational performance of selected flour mills companies in Nigeria have two main variables that have been operationalised for the purpose of this study. These are:

Independent Variable

X = Inventory Management Practices (IMP)

The independent variable (X) can be disaggregated into the following sub-variables:

X = (x₁, x₂, x₃, x₄, x_5, x₆)

Where:

x₁ =  Inventory Shrinkage (INVS)

x₂ = Inventory Investment (INVI)

x₃ = Inventory Control Systems (INVCS)

x₄ = Inventory Turnover (INVTO)

x₅ = Inventory Record Accuracy (INVRA)

x₆ = Automated Inventory System (AINVS)

Dependent Variable

Y = Operational Performance (OPP)

The dependent variable (Y) can further be disaggregated into the following sub-variables:

Y = (y₁, y₂, y₃, y₄, y₅, y₆)

Where:

y₁ = Customers’ Satisfaction

y₂ = Competitive Advantage

y₃ = Cost Effectiveness

y₄ = Operational Efficiency.

y₅ = Customer Service Delivery

y₆ = Productivity

The equation that explains the functional relationship between the two variables can be written as:

Y = f (X)

Where 

Y = Operational Performance(Vector of Dependent Variable)

 X = Inventory Management Practices (Vector of Independent Variable)

The operationalization of the variables for each of the hypothesis can be summarized in these models:

Hypothesis One

y_1i = α₀ + β₁x_1i + ɛ ………………………………………………………………………. (eq.i)

Hypothesis Two

y_2i = α₀ + β₂x_2i + ɛ ………………………………………………………………………. (eq.ii)

Hypothesis Three

y_3i = f(x_3i) …………………………………………………………………………….... (eq.iii)

Hypothesis Four

y_4i = α₀ + β₄x_4i + ɛ ……………………………………………………………………… (eq. iv)

Hypothesis Five

y_5i = f(x_5i) ……………………………………………………………………………… (eq. v)

Hypothesis Six

y_6i = α₀ + β₆x_6i + ɛ ……………………………………………………………………… (eq.vi)

Where:

α₀ = Constant term

β₁ - β₆ = Coefficients of the Independent Variables

ɛ = Error term

Equations i, ii, iv and v were formulated following the empirical studies of Kamau and Kagiri (2015) and Oballa et al. (2015) that inventory management practices influence organizational competitiveness/performance. However, equations iii and vi were added as re-modification of Kamau and Kagiri (2015) and Oballa et al (2015) models. Inventory control and automated inventory systems were added respectively to the existing models. Operational performance is used as dependent variable in this study because it serves as a significant indicator to determine how well Flour Mills company are progressing towards achieving their predetermined objectives. Therefore, equations i to vi formed the equations of this research work that were estimated.

The general econometric model for the study is expressed as follows:

OPPi_t = α₀+ β₁INVSi_t + β₂INVIi_t + β₃INVCSi_t + β₄INVTOi_t + β₅INVRAi_t + β₆AINVSi_t + ɛ_it - (vii)

Where:

            OPP_it   =          Operational Performance

α₀             =          Constant Term

β_{1 –} β₆    =          Parameters to be Estimated

            INVS_it =           Inventory Shrinkage

INVI_it  =          Inventory Investment

INVCS_it =       Inventory Control Systems

INVTO_it =       Inventory Turnover

INVRA_it =       Inventory Record Accuracy

AINVS_it =       Automated Inventory System

ɛ_it         =         Error term      

1.7       Scope of the Study

The study focused on the relationship between inventory management practices and operational performance of selected Flour Mills companies in Nigeria. The research was limited to the four Flour Mills companies that are quoted on the Nigerian Stock Exchange (that is, Dangote Flour Mills, Flour Mills of Nigeria Plc, Honeywell Flour Mill Plc and Northern Nigeria Flour Mill Plc). Out of which three (3) companies constitute the focus of this study. The three selected Flour Mills companies are Dangote Flour Mills, Flour Mills of Nigeria Plc (FMN), and Honeywell Flour Mill Plc (HFM). These companies control over 65% of the market (Leadcapital, 2008). They have a total installed capacity (production) of 15, 360 metric tons per day with Flour Mills of Nigeria Plc controlling 49% (Sterling Capital, 2015). These three flour mills companies are located in Lagos State. The choice of Lagos State was as result of the preponderance of flour milling companies in the State as a result of presence of modern sea ports that facilitate importation and efficient operational handling of wheat, being the major raw material in the industry (Nsikan et al., 2015). The population of the study were the employees (2, 237) of these three selected Flour Mills companies. The sample size was 776 respondents which was derived using table of sample size determination obtained from Research Advisor (2006). A multiple sampling technique was adopted in selecting the sample from the population of this study. This study adopted a cross sectional survey research design which tries to study a group of people or items known as sample to collect and analyze data which are considered representative of a bigger population.

1.8       Significance of the Study

This present study contributes to the existing literature by examining the relationship between inventory management practices and operational performance in manufacturing setting in Nigeria. The study is significant because the results can provide useful insight into minimizing inventory problems for business enterprises by suggesting techniques and methods necessary for effective inventory records and management. The significance of this study to various stakeholders are discussed under the sub-headings:

Flour Mills Companies

The study would help the flour mills companies recognizes the areas where cost can be minimized while ensuring that total efficiencies of the companies are sustained. The study would avail the flour mills companies to develop a method that can be used to improve inventory management policies. It would provide adequate information that flour mills companies in Nigeria needed to improve their operational performance through inventory management practices. In addition, the outcome of this research would help flour mills companies in assessing their level of inventory management practices and also would be a guide on what they need to do in order to outperform their operational performance by using a proper inventory management practices as a tool. Moreover, the outcome of this research would be of great benefits to the inventory control managers who would have to  define how  often  inventory  levels  are  reviewed to determine when and how much to order and whether it is performed on perpetual or periodic basis so as to maximize profit. It would also help the flour mills companies in Nigeria to understand the benefits of using automated or computerized systems in inventory management.

Inventory and operations managers in other firms would find this research useful for knowledge and operational implementation. The outcomes of the study through its findings would enlighten the inventory management practitioners in manufacturing industry on the role of inventory management and the relevance in promoting the operational performance

and would also assist the inventory managers in decision making regarding the appropriate level of inventory to be kept in the firm store in order to guarantee that customers are accorded proper service level. In addition, the outcomes of the study would help finance managers in determining what factors to consider when making inventory decisions.

Government and Policy Makers

This research has the potential to provide important insight for the government and policy makers with regards to making policies and taking the appropriate measures towards designing strategies for improving efficiency and effectiveness of inventory management and control system in the public sector. Inventory control effectiveness would bring about judicious resources utilization leading to the better services to the citizens. This would bring about good performance economy of the country as whole and further contributed to high standard of living of the citizens. Also, the research outcome of the study would help private sectors to adopt inventory management practices that would increase organizational financial and operational performance.

Researchers

Researchers and academicians would find the outcome of this research valuable to their study and advancement of knowledge. This research would provide useful contributions to the literature on the effectiveness of inventory management and control system. Furthermore, it would help to advance academic and scientific knowledge on inventory management practices and operational performance in firms. This research is also intended to fill some of the existing gaps that have been identified in the literature. Moreover, the study would help researchers to build knowledge and set the stage on which future researches could be built in the area of inventory management.

1.9         Definition of Operational terms

The following terms required special conceptual and theoretical definition in this study. Inventory: This is the summative of those items of tangible personal asset of a company which are: held for sale in the day to day activities of the business, such as finished goods; in the process of production for sale; work in progress; are to be currently consumed in the production of goods and services (Robert, 1998). It consists of raw materials, semi-finished goods and finished goods.

Direct inventories – These include items which play a direct role in the manufacturing process and become an integral part of the finished goods. They include raw materials, work in progress inventories, finished goods inventories, spare parts, and many others (Kitheka & Gerald, 2014).

Capacity:  the  total  amount of  things  that  something  can  hold  (Cambridge  Business Dictionary, 2012).

Practices: actual application or use of an idea, belief, or method, as opposed to theories relating to it (William, 2007).

Indirect inventories – include those items necessary for manufacturing but do not become an integral component of the finished product. It include lubricants; machinery/equipment; labour, and so on (Kitheka & Gerald, 2014).

Inventory Management: Refers to the process to define right inventory levels at various nodes within a supply chain network to minimize stock out; wastage of material due to expiry; optimize investment in inventory and storage facilities as per the available budget (Okanda, Namusonge, & Waiganjo, 2016). It deals essentially with balancing the inventory levels.

Inventory Management Practices: Refers to the set of policies and controls that monitor levels of inventory and determine what levels should be maintained, when stock should be replenished, and how large orders should be (Waters, 2003). In this study, Inventory Management Practices Comprises: Inventory Shrinkage, Inventory Investment, Inventory Control, Inventory Turnover, Inventory Record Accuracy, and Automated Inventory System.

Inventory Shrinkage: This is variance in the recorded value of stock in the inventory stock system, which records merchandise received at the store, and the value of actual inventory in the store, as determined by a physical count of inventory (Carl & Shaun, 2014: 101).

Inventory Investments: Refers to the investment in raw materials, work in progress and finished stock (Telsang, 2007).

Inventory Control: These are activities that maintain stockkeeping items at desired levels (Everett, Adam, & Ronald, 2010). It is also involves the procurement, care and disposition of materials (Onchoke & Wanyoike, 2016)

Inventory Turnover: Refers to the number of time that items of stock or inventory turns over or cycles through an organization in a year (Rao & Rao, 2009). It is a measure of management's ability to use resources effectively and efficiently.

Inventory Record Accuracy: This is regarded as the least number, size and values of inventories held in stock (Wild, 2004). It is measured by how closely a firm official inventory records is equal to the physical inventory.

Automated Inventory System: This is a set of hardware and software based tools that automates the process of inventory management (Mbuvi, et al., 2016).

Operational Performance: Refers group of standards and benchmarks that are adopted and used by the organizations to achieve competitive advantage, customer satisfaction, and maximum level of profitability (Saleh, 2015). In this study flour mills companies’ operational performance was measured by the following variables: Customers’ Satisfaction, Competitive Advantage, Operating Cost Reduction, Operational Efficiency, Customer Service Delivery, and Productivity.

Customers’ satisfaction: Refers to the quality of products, service, price performance ratio including when a company meets and exceeds customers’ needs (Eckert, 2005).

Competitive Advantage: This is the capability of an organization to create a defensible position over its competitors (Li, Ragu-Nathan, Ragu-Nathan, & Rao, 2009). It is is obtained when an organisation develops or acquires a set of attributes (or executes actions) that allow it to outperform its competitors.

Cost Effectiveness: This is the extent to which the program has achieved or is expected to achieve its results at a lower cost compared with alternatives (DAC Glossary and IEG evaluation criteria, 2016). In this study, it is referred to as the inventory related costs.

Operational Efficiency: refers to the capability of an organization to deliver products or services to its customers in the most cost-effective manner possible while still ensuring the high quality of its products, service and support (Nasra, 2014).

Customer Service Delivery: refers to the meeting customers’ expectations with regard to order fulfillment through shorter lead times, consistent and on time delivery, complete orders, quicker response to customer requirements and ability to meet unique and special requests of the customers (Chopra & Meindl, 2004).

Productivity: It is an overall measure of the ability to produce a good or service by an organization or firm (Telsang, 2007). Productivity is particularly intended to enhance the ways and means in methods, equipment, and use of materials systems procedure, manpower and application of diagnostic and better techniques.

Stock: It is a wide range of goods or materials such as stationery, office equipment, plant, machinery, consumables, and so on available for use or sale (Aro-Gordon & Gupte, 2016).

Minimum Stock Level: Also known as buffer stock or safety stock. Is the amount expressed in units below which the stock of any given commodity should not be allowed to fall (Munyao, et al., 2015). It is the additional stock needed to allow for delay in delivery or for any higher than expected demand that may arise due to lead time.

Re-order Level: is the amount expressed in units of issue at which ordering action is indicated in time for the materials to be delivered before stock falls to a minimum (Munyao, et al., 2015).

Hastening Stock Level: is the amount expressed in units of issue at which it is estimated that the hastening action is necessary to request suppliers to make early delivery (Munyao, et al., 2015).

Maximum  Stock Level: It is the amount expressed in units of issue above which  the stock should not be allowed to rise (Mogere, Oloko, & Okibo, 2013). It helps avoid excess investments in stock, which is very critical.

Lead time – time between placing an order and actual replenishment of item. Also referred to as procurement time (Mogere, et al., 2013).

Safety Stock: the small extra supply of goods, materials, etc. that a company keeps in case the demand for them is greater than is expected (Cambridge Business Dictionary, 2012).

Setup  Cost;  the  amount  of  money  needed  to  start  a  business,  service,  process,  etc. (Cambridge Business Dictionary, 2012).

Procurement: Is determining order quantity, work processing, store requisitions, issue of  enquiries, evaluation of quotations, supplier appraisal, negotiations, placing of contracts,  progressing  of  deliveries  and clarifying payments (Ogbadu, 2009).

Time horizon – this is the period over which the inventory level will be controlled (Namagembe & Munene, 2016).

Reorder quantity – the quantity of the replacement order (Namagembe & Munene, 2016).

Economic batch quantity – quantity of stock within the enterprise. Company orders form within its own warehouses unlike in EOQ where it is ordered from elsewhere (Naliaka & Namusonge, 2015).

Production Control: Involves forward ordering, arrangement of materials for production, preparation  of  production  schedules and sequences,  issue  of  order  to  production  emergency action  to  meet  material  shortages,  make  or  buy  decisions, quality and reliability, feedback, and adjustment of supplies flow to production lines or sales trends (Ogbadu, 2009).

Buffer Stock: This is used to to compensate for the uncertainties inherent in the timing or

rate of supply and demand between two operational stages (Albert, 2009). It is used in order  to prevent stock out from occurring. It provides an extra level of inventory above that needed to meet predicted demand, to cope with variations in demand over a time period (Albert, 2009).

Service Level: Is a measure of the level of service, or how sure, the organization is that it can supply inventory from stock (Albert, 2009).

Shortage: a situation in which there is less of something than people wants or need (Cambridge Business Dictionary, 2012).

Shortage costs: costs when demand exceeds supply (Stevenson, 2010).

Inventory planning: Is the determination of the type and quantity of inventory items that would be required at future points for maintaining production schedules (Aarti & Dhawal, 2013)

Manufacturing companies:- These are establishments that combine men, materials and machinery in an effective manner with the aim of producing goods for human consumption and also to make profit for the on going of the business (Morgan, 2012).

1.10     Brief Historical Background of the Selected Flour Mills

Dangote Flour Mills Plc

Dangote Flour Mills Plc commenced operations in 1999, as a division of Dangote Industries Limited – one of Nigeria’s largest and fastest growing conglomerates. Following the strategic decision of DIL to unbundle its various operations, Dangote Flour Mills Plc was incorporated in 2006. The restructuring was completed in January,  2006,  when  the  Federal  High  Court sanctioned  a  Scheme  of  Arrangement  wherein  all  the  assets, liabilities and undertakings of the erstwhile flour division of DIL was transferred to Dangote Flour Mills Plc.

From an initial installed capacity of 500 MT per day at its Apapa mill, Dangote Flour has expanded rapidly by opening, in quick successions, three other flour mills in Kano (2000), Calabar (2001) and Ilorin (2005).  Each of the mills started with an installed capacity of 500 MT per day but three of them were subsequently expanded resulting in a total installed capacity of 4,000 MT per day, distributed as follows: Apapa - 1,000 MT per day; Kano - 1,500 MT per day; Calabar - 1,000 MT per day; and Ilorin - 500 MT per day.

These expansions were  in  response  to  a  growing  national  demand  for  flour  and  flour-based  products in addition to the Company’s drive for increased market share. Thus, from a modest beginning, the Company has grown to become one of the industry leaders within a six year period. The Company has 2 wholly owned subsidiaries, namely: i. Dangote Agro Sacks Limited; and, ii. Dangote Pasta Limited.

The Company is in the business of flour milling, processing and marketing of branded flour. Its product portfolio comprises of the following: i. Bread Flour; ii. Pasta Semolina; and, iii. Wheat Offals (Brans). In order to transform wheat into high-quality flour, the deployment of state-of-the-art plant and equipment as well as technical expertise is critical. DFM’s mills across the country are equipped with the latest flour milling technology available in the world. All mills were purchased, installed and commissioned by world-renowned milling equipment supplier- The Buhler Group of Switzerland (“Buhler”). 

Flour Mills of Nigeria Plc (FMN)

Incorporated in September 1960, Flour Mills of Nigeria Plc (FMN) is one of Nigeria's leading food and agro-allied companies which has grown into a diversified group with a broad product portfolio, an iconic brand – “Golden Penny”, and robust distribution network. The Group is primarily engaged in flour milling; production of pasta, noodles, edible oil and refined  sugar; production of livestock feeds; farming and other agro-allied activities; distribution and sale of fertilizer; manufacturing and marketing of laminated woven polypropylene sacks and flexible packaging materials; cement manufacturing; operation of Terminals A and B at the Apapa Port; customs clearing, forwarding agents, shipping agents and logistics; and, management of the mills of Maiduguri Flour Mills Limited  and  Port  Harcourt Flour Mills Limited. 

FMN’s shares were listed on The Nigerian Stock Exchange in 1978 and had a paid-up Share Capital of N1.193 billion and Market Capitalization of N155.1billion on 31st March 2014. With the current ownership structure of 55.73% overseas shareholders and 44.27% Nigerian and institutional investors, there is a broad ownership base with over 77,500 shareholders. The Group employs over 12,000 direct and indirect employees with diverse ethnic, cultural and religious background who work harmoniously together to deliver superior value to customers and other stakeholders. Recently, the Company’s flour operations witnessed major strategic investments in milling technology and gained accreditation to the Quality Standard ISO 9001:2008 recognizing that its flour manufacturing facilities are world class and operating within an internationally recognized Quality System. The Company which delivered  N246  billion Revenue for the year ended 31^st March, 2014 and posted an After Tax Profit of N10.47 billion is poised to continue to deliver meaningful top and bottom line growth.

Honeywell Flour Mills Plc

Honeywell Flour Mills Plc (HFMP) is one of the top three flour milling companies in Nigeria and was initially registered as Gateway Honeywell Flour Mills Limited in 1985. However, in June 1995, a change in the company’s ownership structure led to a change of name to Honeywell Flour Mills Limited (HFML). After its initial public offering (IPO) in 2008, the company became a public liability company and was listed on the Nigerian Stock Exchange (NSE) in 2009.

The entry of the company into the flour milling industry in Nigeria redefined industry standards as its high quality compelled an improvement in the quality of flour products by other players. Over the years HFMP has positioned itself as a market leader in milling, processing & packaging of flour and other wheat based products.

Honeywell Flour Mills Plc (HFM Plc) has its offices in Tin Can Island Port Industrial Estate, Apapa and Mobolaji Johnson Avenue Alausa, Ikeja. The Tin Can Island factory produces Honeywell Superfine Flour, Honeywell Wheat Meal and Honeywell Semolina while the Ikeja Factory produces Honeywell Noodles and Honeywell Pasta. The Company is principally involved in the manufacturing and marketing of wheat based products including flour (i.e. superfine, composite, and brown flour), semolina, whole wheat meal, noodles and pasta. The Company’s products are distributed through many distributors across the country.

As part of its vertical integration strategy, the Company acquired 100% ownership of Honeywell Superfine Foods Limited, manufacturers of pasta and noodles in 2008. However, in March 2013, the Company carried out a business combination in the nature of an internal restructuring with Honeywell Superfine Foods Limited. The business combination was in the form of merger by absorption with Honeywell Flour Mills Plc as the surviving Company while Honeywell Superfine Foods Limited was dissolved.