CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND
OF THE STUDY

The
most significance and most valuable assets of any existing enterprise are
inventory management because for an enterprise to be able to give accurate measurement
and good description of her asset, inventory becomes the first to mention. This
is of course, is so because the sale of inventory at a price is greater than
total cost indicates an efficient merchandising, which is however is the
primary source income generation.

These
inventories are both assets and items held in the ordinary course of business
or goods that will be consumed or used in the production of goods to be sold.

Several
authors have provided definitions on stock management. Thus the amount of worth
carried out on the study of stock management in the Hotel is to a great extent
important for the economic survival of the hotel Management.On his note, Greene
[1979] defined stock management as the whole Development and administration of
stock policies as well as procedures by They are implemented. He then
classified stock into these headings: raw Material, work-in-progress, finished
products, complementary parts and Suppliers.

Geoffrey
Merdith (1982) defined stock management as inventory operations as the
combination of systems and processes involved with inventory management as well
as the physical aspects of storage and material handling. The direction and
control of activities with the purpose of getting the risk inventory in the
right place, at the right cost. Effective stock management and security are
imperative and must cover the whole supply chain through to the final
distribution to customers.

From
the clear point of view, inventories in management constitute and important
asset. However, stock management is an area of accounting and financial data of
goods being sold. The stock management is an area of accounting and financial
data of goods being sold. The stock management system should ensure that
initial low quantity of goods can be put best use.

Graham
Buxton| (1979) looked at stock management as the ability of a firm to ensure
that stocks of a company’s products are made available on a consistent basis in
the light of the company’s service policy to its market demand. Stock
management is extremely important. The investment of inventories, the largest
current assets in manufacturing and retail establishments and may also be a
material portion of the company’s total assets. 

Nuolom[2000]
says that the maintenance of stocks allows the production and marketing
function to operate in an autonomous and economic manner. It means that
quantity produced and the timing of the production are determined in the main
by immediate production consideration. Inventory for production are held for
the following four reasons:

1.   
To maintain lot-size inventory.
2.    To avoid possible loss of sales or production time through
variable in delivery time. This is achieved by maintaining a safety stock.
3.    To avoid disruption in production.

Richard
R [2000] According to him, stock are in effect, reservoir of goods held in
anticipation of marketing sales, the of filling demands from further down along
the incoming channel. Incoming quantities of the product ready for sale arrive
usually at irregular intervals and are added to the inventory reservoir. The
outgoing product flow is more continuous but still fluctuates considerably. The
volume in the inventory reservoir pulsates but not always with a regular rhyme
from day to day. Changes occur in the rate and quantities of input and output.
Therefore in deciding on inventory size, management must determine both maximum
and minimum allowable inventory. In setting these upper and lower limits both
sales and cost considerations are involved.

Sales
considerations: The main purpose in maintaining inventory is to meet market
demand, ie to make sales and to fill customers order. Since stock are kept in
anticipation of market demand, the upper and lower control limits should be attained
for forecasted sales. Thus, the more accurate, the sales forecast the greater
opportunity to maximize gains from economically stock operations. The less the
accurate, the forecast, the greater need for substantial buffer stock and some
notion of its probable accuracy, a decision maker is prepared to set the
control limits.

Another
factor also must be taken into account it relates to what management considers
an acceptable level of customer service. Experience shows that in a typical
business, about eighty percent [80%] more inventory needed to fill ninety five
percent [95%] of the customer’s order out of stock on hand than to just fill
eighty percent[80%]. Each firm must strike a balance between what it considers
reasonable customers service and costs in line with management goals. It should
also recognize consistency of delivery at least as unimportant as speed of
delivery.
Turner P.H [2001] says that unless an organization has an effective system of
controlling the quantities of items in stock, it soon finds itself in
difficulties.
On the other hand, nothing ruins goodwill and reputation more quickly than
being unable to supply customers with the orders because of goods are out of
stock. On the other hand, overstocking means pointlessly typing up capital and
unnecessary cramping of goods that are valuable.

1.2
STATEMENT OF THE PROBLEM