ADMAS UNIVERSITY COLLEGE

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OFACCOUNTING AND FINANCE

TITLE: ASSESMENT OF INVENTORY MANAGEMENT PRACTICE

FROM ACUUISITION UP TO END OF PRODUCTION

A RESEARCH PROPOSAL SUBMITTED TO DEPARTMENT OF

BUSINESS FOR THE PARTIAL FULFILLMENT OFREQUIRMENT OF BA DEGREE IN
ACCOUNTING AND FINANCE

GROUP NAME: ID NO:

HELINA ASHINE 1121/1
DAGMAWIT MENGISTU 1323/15
MEKIDES TEKALIGN 1011/15
YENENSH BIRUK 2327/15

ADVISOR: MEBRAHATU G.

MAY, 2019

ADDIS ABABA, ETHIOPIA

 Abstract

The Ethiopian industrial sector both large and medium scale manufacturing show a
decline trend and stag nation over time in their productivity, profitability and growth.
Inventory controlling system has its own impact on the performance of the company
because any manufacturing company need inventory either for the purpose of future
production or for selling purpose, in this case sufficient inventory is needed because both
shortage and excess of material has a negative impact on the achievement of goal.

The necessary information obtained from primary sources data from purchasing and
warehouse management and production and marketing department through questionnaire
and secondary source of data that are gathered from company manual and computerized
inventory record documents the data obtained from respondent is analyzed through
percentage and finally a careful conclusion and recommendation is included in the study.
 Chapter one

1. Introduction

1.1 Back ground of the study

Inventory management is adecipline concerned with the managment of different
inventories item for the smooth running of an organization .Good inventory managment is
essential to successful opration of all organizations.
A question of managing inventories arises only when the company hold inventories.
Holding inventories involving tying up of the companyies funds due to storege and holding
costs. If it is expensive to maintain inventories ,it is unnecessary.
A company should maintain enough stock of materials for contnue supply to the
company for an interrupted production. It is not possible for acompany to produce raw
materials when ever needed. A time lag arises between demandfor materials and
itssupplies. Also there exist where uncertainty in producing raw materialsin time on many
occasions.

1.2 Back ground of the study area

ASBM Industrial Plc is a Family based on private company owned and Ethiopian
Entrepreneur owners of Textile Sector Established and registered privet Limited company
According to Ethiopian commercial Law by the year 10 /01/1998 G.C and Received an
operational license from Minister of trade and industry.

ASBM Industrial Plc is also a VAT Registered company a VAT No 81315 of TIN No
0001571933. The company has commenced its operation With Registered starting capital
7,997,625.00(Seven million nine Hundred ninety Seven thousand six Hundred twenty five)
ETB. The headquarter of company is situated in Addis Ababa sub city bole Woreda 05
house no 019 Around bole Medanialem Church Near to Edna mall Building and the
production factory located at SendafaTawon 30 km away from Addis Ababa toward north.
The factory lay over plot total Area 5000m2 Holding

The company produces garments item in Various Design ,style and color reference
which are made of 100% cotton fabric based on Recent customer Demand and Market
assessment the company produce few of them are Shirt, polo Shirt T Shirt, Lady Top, kids
ware, in addition to the above item basis up on customer demand.

1.3 Statement of problem

All organizations knows inventory is one of the most expensive Asset of the
campany. All organization should maintain the Effective and Efficient Inventory control
system In their organization. So the survival of any organization depend upon Effective
and Efficient handiling and usage of Inventories . This help the organization to acheive
their long run and short run objectives and to sustain their function and profitablity with
out any problem. From this we can understand that Inventory is thelife blood of the
organizations.
However the organiztion may not give enough attention to their Inventory control
system. Like other organization ASBM Industrial Plc may face similar problem in
connection to its Inventory management and controling system . Therefore this study will
mainly tries to Assess the Inventory controling system of a company by answering the
following question.

 for what purpose does the company keep Inventory in ware house ?
 what type of inventory valuation the company use ?
 what are the inventory controling techniques used by the company ?
1.4 General and specific objectives
The objective of this study will be on inventory controling system of ASBM Industrial Plc
and it has the following objectives.

1.4.1 General objective

The general objectives of this paper will be to assess Inventory Control system of the company
at the Previous activity in the company Warehouse and assets adequate inventory system also
the method of inventory issuance and inventory valuation used by the company on the other
way to indicate misleading of inventory report and controlling system as well as the
performance of the organization.

1.4.2 specific objectives

The specific objective of this research paper will be
To identify the type of inventory controling system used by the organization.
 To asses the type of iventory valuation method used by the company.
To examine the material classification and codification of the company .
 To give sugestion to the company inventory controling techniques.

1.5 Significance of the study

This study will yield important idea for the development of effectiveness and efficent
inventory controling system by identifying the problems of inventory controlling system
and then by making conclussion and recomandation this paper provide the following main
importance.
 It will provide abetter awarness and understanding to employees on the current inventory
controling systems.
 It will also provide afeed back to the company about adequacy of their inventory control
system.
 1.6 Scope of the study

The study will mainly focus and see proper inventory controlling system of ASBM
Industrial Plc by mentioning the following main points:
 Assessing the importance of inventory valuation that is used by the company
Assessing theinventory control system in acompany interms of effectiveness and
efficiency.
 The result of the study will be expected to recomened the advantage and problem of
inventory control systems and also to show what steps should be followed while
controlling inventory.

1.7 Limitation of the study

It is obvious that a research work requires sufficient time, money and other resources.
So time constraint will be the main factor affecting the research work. In addition the
willingness of the concerned organization representative to give the required adequate
information and also lack of research work experience by the researcher will be also
another limitation.
 CHAPTER 2

REVIEWS OF RELATED LITERATURES

2. 1 Theoretical literature review

Inventory is defined as any usage resources either raw material or finished goods of
the company.It is aphysical stock of goods,kept for future use.In factory the inventory may
be in the form of raw materials,parts,semi finished goods.Inventory also include
furniture,materials etc.
(operation research of inventory second editions.kalavathy page 327)

The world invenrory refer to any kind of resource having economic value and is maintained
to fulfil the present and future need of an organization.fred hansman,defined inventory as
an iddle resource of any kind provided such resource has economic value. Such resource
may be classification to three catagories.
(1)physical resources such as raw materials, semi finished, goods spare parts and lubricants
etc.
(2)human resources such as un used labor (man power and financial).
(3)financial resource such as working capital etc.

Inventory of resources held to desirable service to customer (user) and to achive sales
turn over target.Investment in large inventories adversly affect the organization cash flow
and working capitals as investment in inventory present substantial portion of total capital
investment and the cost of maintaining it so as to determine an optional level of inventory
In each resources so the total cost is minimum.
(operation research of inventory second editions j.k sharma page 557)
2.2 Empirical literature review

Inventory control system apear complicated,howeverthere are only a few basic

questions to answer for an effecient control of inventory and the most important are:
what items should stock ?
Holding of stock is expensive so control are needed to ensure the stock level as long as
possible.this means
 stock of existing item is kept at reasonable level
 un neccessary item are not added to the inventory
 all items which are no longer use are removed from inventory .
Stock should be controled in rational policies to balance between holding cost and
demand that is comparision should be made between cost and benifit of holding an item in
stock. Check should also be made on usage of items already in stock and if it is cheaper to
discontinue to hlding of certain items, then they should be removed as quickly as possible.

2.3 conclusion and knowledge gap

There are three different approaches to check status of inventory . First the periodic
review system in which order are placed at regular interval of time Fixed order quantity
system in which level of inventory is placed. Variations in demand is allowed by changing
the time between the orders.
Optional replenishement system combine aperiodic review system which a minimum
order quantity restriction.if the calculated order is placed. This avoids the placement of
small orders.

2.3.1 How much should ordered in each replenishment ?

Every time an order is placed there are certain cost incurred on account of administration,
transportation, inspection etc. If a larger frequent order are placed, the cost of ordering
and delivery are kept low, but stock level and average inventory value are high. If small
frequent order are placed the cost of ordering and delivery are high, but average stock
level is low. Thus need to trade off these to option to minimize the over all total cost
various types of Inventory cost are there however order quantity normally depend on:-
 Depend pattern
 Price of an item including discount for orders, implementing price rise etc..
 The market inflation and deflation
 Lead time
 Variuos Inventory cost

2.3.2 ELEMENTS OF INVENTORY CONTROL MODEL

There are various elements of Inventory control model.These are maximum level,
minimum level, saftey stock, lead time and reorder level.
Maximum level
Maximum level is a control point to avoid any extra stock. An attempt is made to avoid
excessive purchasing that may result in crossing the maximum level and to ensure that the
money is not blocked unnecessarily.How ever , in practice there are situations when
maximum level is crossed internationally to avoid other benifits such as alterative
discounts,saving on transportation freight charge or strategic buying decision.
Fail to control the maximum level may result in a non moving item and obssolescence .
Inventory turn over would be adversely affected if maximum level is not controlled.

MINIMUM LEVEL
The minimum level is the level become which inventory level is not allowed to fall. Incase
for any reason,the stock goes below the minimum level,the matter is reported immidiately
and action is taken to ensure that the material is recived at the earliest with extra effort,for
example,the item could be purchased from any other sourceeven at ahigher cost,or the item
are recieved by afaster mode of transportsay by air or courier service. Infact reaching
minimum level is an indication of the danger of alikely stock-out situation.It is essential to
keep an eye on all item, which have reached the minimum level.

2.3.3 REASON’S FOR MAINTAINING INVENTORIES

The need of managment to make decission regarding inventory arises because of the
various alternative course of action available with the enterprise. It is essential for an
interprise to have inventory due to the following reasons.
It helps in the smooth and efficient running of business.
 It provide adquate raw material as the future
 It provide adquate service to the customer.
 It helps to sustainable operations or production.
 It reduce the possibility of duplication of orders.
 It helps in maintaining economy by absorbing some of fluctuations when the
demand of an item fluctuates or is seasonal.

Though the inventories are essential and provide an alternative to production,purchase

in the future,if also locks up the capital of the enterprise.It include the expense of
stores,equipement,personnel,insurance etc.
Inventory has been viewd as aneccessary evil(non-larning asset)that can not be
elliminated.It is termed evil because maintaining inventories ties up money which could
have been used for alternative purposes and it also increases caring cost.However,it is
considered neccessary investment to acheive workable system of production,distribution
and marketing of physical goods
 CHAPTER 3
REASERCH METHODOLOGY

3.1 Research Design

This study is based on two sources these are primary and secondary source of
data.primary source include mainly questioners to the selected and avialable business
excutives and their subordinates (such as finance head ,cost head,stock controlers and
others)on the other hand secondary source include published materials like books,
journals, magazins and various documents that are specific to the organization.

3.2 Research approach

The data that is required to achieve the objective of the study will be primary like
questionnaires and secondary data respectively. Secondary data will be collected from
organization published and unpublished documents. Published documents are financial
report for the organization that is used by external users and unpublished documents are
different accounting report that is not published to the general public and internal analysis.

3.3 Types of source of data

The report is prepared on the basis of data gathered personnel judgment. The research
will apply both qualities and quantitative method in order to analyst data. These methods
(techniques) will be entirely descriptive in nature. The researches will analyst the
collected data by using deceptive statistical towns like table because of their simplicity in
nature and emailing to facilitate interpretation.
.
 3.4 methods of data collection
Information we gather can come from a range of sources. Likewise, there are a variety of
techniques to use when gathering primary data. Listed below are some of the most
common data collection techniques.

 Interviews

 Questionnaires

 Observations

Documents

The necessary information obtained from these departments is through questionnaires or

oral, which the company inventory controlling structures and inventory counting
periodically or sequence as the purchased and issued of raw material is property presented
and interpreted at the record of the company inventory record is of the company used
according to accounting information system and traditional recording system.

3.5 popularity of the study

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