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Wollo University: Collage of Business and Economics
Wollo University: Collage of Business and Economics
DEPARTMENT OF MANAGEMENT
Prepared by: ID NO
1, LIZB TESHAGER……………………………………………………………0305/11
JUNE, 2014
Dessie, Ethiopia
Table of Content
Reference -----------------------------------------------------------------------
Abstract
This research paper will be tried to assess inventory managements practice in
Ethiopian Electric Power Corporation (EEPC0). It will address three basic
research questions designed to assess inventory management performance of
the company. For this study the researcher will use both primary and secondary
data, but much focused on in the primary data in which more information will be
obtained by conducting unstructured interview and structure questionnaires.
Specifically the study will try to examine the company inventory management, to
assess the company inventory management objective and to know the kind of
inventory that kept in the company. Accordingly, the study will have relevance at
least for the organization to identify problems and strengths related to its
inventory management and practice, to look as any opportunity and treat and in
turn to have a good inventory management and practice. The interpretation
focuses on the result of prevalent data under consideration. Relevant
recommendation that helps the company to redesign the current system and
other areas the company have give specials attention will be made.
Chapter One:
Introduction
Inventory consists of the most important element of any system dealing with
the supply, manufacture and distribution of goods and service. The concept of
inventory management is very old but it came in light when harrieF.W
published his work on classical order size model and the work was extended by
ray mend F.F (1991) and Wilson R.M (1934). But only after the second world
war with the development of operational research and computer technology
that the theoretical concepts got a practical application.
The Ethiopian Electric Light and Power Authority (EELPA) were established in
1955, and having under gone reconstructing in 1997 has been reorganized as
the Ethiopian Electric Power Corporation (EEPCE).
-street light
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1.2 .Statement of the problem
As the researcher browse the website related to inventory management, hold
the following facts that necessitate for this study will be conducted which a
research topic of assessment of inventory management practice in Ethiopian
Electric Power Corporation (EEPCO) particularly, Dessie branch. In the first
place inventory management is the process of tracking product orders keeping
adequate amount of products on hand and organizing products in warehouse
and retail location. And also inventory management is the active control
program which allows the management of sales, purchases and payments.
With good inventory management, companies are able to monitor what
shipments they have coming in and going out to customer, allowing them to
keep just enough inventory in stock to meet demand. Then inventory
management lets companies enjoy many benefits which include achieving
inventory balance, using resource wisely, cutting costs, saving time and
becoming more effective and planning a head for seasonal changes in demand.
(Http://www.inventory management.Com.)
According to the above facts this study will be emphasized on how Ethiopian
Electric Power Corporation (EEPCO) performs the activity to come up with a
good result along with attaining the main objective of the company.
The researcher intends to answer the following research questions.
The main objective of the study will to assess the inventory management
practice of Ethiopian Electric Power Corporation (EEPCO) particularly, Dessie
branch.
The researcher will have an expectation, the study will provide a clear picture
about the value or importance of inventory management in Ethiopian Electric
Power Corporation (EEPCO), and to identify problem concerning inventory
management. It is believed that the study will be clearly reflect, what to see
any opportunities to utilize, to give relevant recommendation, suggestion and
solution that help top management as well as the organization to make good
decision concerning about inventory management and help in designing a
better systematic form for inventory management system. In addition, to give
an overview of the corporation use of inventory management to external
bodies.
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1.3. Scope of the study
Since the main objective of the study will be the assessment of inventory
management in Ethiopian Electric Power Corporation particularly, Dessie
branch, the study will be delimited to examining store department, production
department and purchasing and finance department of the company in order to
investigate the issue in-depth and to make the study manageable.
The study will be arranged in five chapters. The first chapter deals with the
introductory part mainly about back ground of the study, background of the
organization, statement of the problem, objective of the study, significance of
the study, scope of the study. The second chapter concerned with related
literature review describes the detail theoretical aspect of the study. The third
chapter deals with data collection methods and methodology and the fourth
chapter provide data analyzation and interpretation. Finally, the last chapter
provides summary, conclusion and recommendations.
Chapter Two
Literature Review
Inventory is stock of materials, work in process and finished goods that appear
at numerous points throughout a firm’s production and logistic channel
(Billisu 2004, p326). Inventory is the stock of any item or resource used in an
organization (chase Jacobs and aqulando 2004, p545). Inventory can be
defined as the amount of raw materials, finished goods and work in process to
be stocked for the smooth running of a plant operation (Mosich 1988, p396).
Cycle stock: is inventory that results from the replenishment process and is
required in order to meet demand under condition of certainty that is when the
firm can predict demand and rends times almost perfectly.
Inventories in transitare items that are in routs from one location to other.
They may be considered parts of cycle stock even though they are not shipment
until after they arrive at the destination.
Dead stock: Are inventories that no one wants at least immediately. The
question is why any organization would incur the costs associated with holding
this item rather than simply disposing of them. One reason might be that
management expected demand to resume at some point in the future
2.5. Role of inventory management in EEPCO
Particularly Stevenson (1999 p.77) the reason for hold inventories are
discussed in detail in the following paragraphs.
First, inventory helps to project against stock outs, delayed delivers and
expected increase in the risk of shortages lays can occurs because of weather
conditions, supplies stock outs, delivers of wrong materials, quality problem
and soon. The risk of shortage can be reducing by holding safety stock which is
stocks in excess of average demand to compensate for variability in demand
and lead time.
The problem is resolved, firms have used buffers from supplies and finished
goods inventory to buffer sale operation from manufacturing descriptions more
recently, company have taken a closer look at buffer inventories recognizing the
cost and spaces they require and realizing that
Finding and eliminating sources of description can greatly decrease the need
for decoupling operations.
Invites three basic cost holding transaction ordering and shortage costs holding
or carrying costs relates to physically having items in shortage costs.
Are the cost of ordering and receiving inventory they are the cost that vary with
the actual placement on order. These includes determining how much is
needed, preparing invoices, shipping costs, inspecting goods up on arrival for
quality and quantity and motive goods to temporary storage ordering cost are
generally expressed as fixed dollar amount per order regardless of order size
shortage costs result when demand exceed the supply of inventory on hand.
Economic order quantity is that inventory level that minimizes the total
ordering and caring cost. Economic order quantity is that inventory level that
minimizes the total ordering cost and caring (holding) cost. Ordering cost
increase with the number of orders thus the more frequently inventory, on
other hand it the firm maintain large inventory levels there will be few orders
placed and ordering cost will be relatively small thus ordering costs decrease
with increasing size of inventory.
Caring cost vary with inventory size. This behavior is control to that of ordering
costs which decline with increase in inventory size, the economic size of
inventory would thus depend on tradeoff between caring costs and ordering
costs.
Thus the formula to determine the recording point when safety stock is
maintained as follows:
Maximum level is the material at the lowest rate of consumption which could
be expected, if delivery was received in shortest possible time.
The additional of the reorder quality shows the highest point of material which
would be allowed the formula that determines maximum level is as follows.
Maximum level is as follows:
Reorder point is the problem how much to order is solves by describing the
economic order quantity. Yet the answer should be thought to the record
problem when to order. This is the problem of determining the reorder point.
The reorder point is that inventory level at which on order should be placed to
replenish the inventory. To determine the order point under certainty to be
should know lead time, average usage and economic order quantity
Lead time is the normal takes in replenishing inventory after the order has
been placed by certainty that means usage and lead time do not fluctuate
under such a situation reorder point is simply that inventory level which will
be:-
A few years ago there was a tendency on the part of many companies to
manufacture all components in house now more and more companies are
adopting the practice out sourcing.
Rank the item in according with the total value giving first rank to the
item, with highest total value.
The inventory turnover ratio indicates the efficiency of the firm in producing
and selling its product. Its product calculated by:-
Average inventory
One of the most effective of ensuring out investment in inventory under control
is to check all item inventory on regular basic once physical check has been
carried the result can to be compared with theoretical or book inventories any
discrepancies noted and acted on there are two chief method of inventory
checking (Willamson, 1998). These are discussed in detail in the following
subsection paragraph.
Research methodology
The type of research for this study will be both quantitative and qualitative type
of research design.
The target population of this study will be all employees of Ethiopian Electric
Power Corporation particularly, Dessie branch. Using all population for data
collection is difficult for one researcher. As sampling is using small part of large
population to make conclusion about the whole population, the researcher
selected 20 respondents from 500 constant employees of the company, from
different department such as store department, production department and
purchase and finance department through establishing judgmental sampling
technique.
In this study will be the sampling method used to acquire the respondents
will be non-probability, judgmental, sampling technique This technique will
use as sampling method, because to select respondents that have the
expected good knowledge about the inventory management in the company
as well as the researcher is permitted to have complete freedom of selecting
individual who can provide relevant data and to choose sample element
according to the researcher wish/desire.
The data will be obtained from two types of source. These are primary and
secondary data source. The researcher will use the primary data collection
technique in order to get firsthand information from the respondents. And the
primary data will be collected by preparing a questionnaire, which consists of
both close ended questions and open ended questions. And also the researcher
widely used direct observation and structured interview method in order to get
reliable information because flexibility of questions to questioning and the
researcher is allowed too much freedom. The researcher in addition will use the
secondary data collected from the consecutive last five years (2009-2013)
financial statement of the company.
After the necessary data will be collected from both primary and secondary
sources, the next assignment will data processing and analyzing. Thus, the
researcher will use tabulation and percentage which helps the researcher to
present all the collected information in the simplest form to arrive at effective
conclusions and possible recommendations. Data processing is an activity
which involves editing, coding and classifying data to make it suitable for
further analysis, then the compiled data will be processed.
After all the relevant data will be collected and processed, then they have been
analysis has further transformation of the processed data groups.
Finally, the outcome of the project will be presented on written material and
detailed oral presentation.
Once the analysis process is completed, the interpretation of all data will be
follows, it will be presented using different tools such as table and percentage
to make clear the relation among variable. Finally, the analyzed data will be
presented in easy understand way to draw conclusion and find out the major
factors that affect inventory management.
4. Work plan
The tentative plan (time table) activities in the study will be guide by the following time
schedule.
1 T i t l e s e l e c ti o n
2 P r o p o s a l w r i ti n g
4 I n s t r u m e n t c o n s t r u c ti o n
5 D a t a c o l l e c ti o n
6 Data analysis
7 R e p o r t fi r s t
8 R e p o r t fi n a l
5. Budget plan