European Journal of Business and Management www.iiste.

org
ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online)
Vol.9, No.8, 2017

Effect of Inventory Management Practices on Financial

Performance of Larfage Wapco Plc. Nigeria.
ONIKOYI, IDRIS ADEGBOYEGA PhD, FCA FCIT AMNIM
BABAFEMI, EMMANUEL AKINSANMI PhD, FCA FCMA FCIT, MNIM, ocp, rpa
OJO, SOLOMON PhD
AJE, CATHERINE OLUYEMI PhD
Post office box: P.O. Box 1350, Surulere, Lagos, Nigeria

Abstract
This research examines effect of Inventory Management Practices on Financial Performance of Larfage Wapco
Plc, Nigeria, by analyzing the extent to which value of stock carried and inventory policies employed has on cost
of goods sold and profitability respectively in the firm. Survey design method was adopted for this work, which
made use of Annual audited financial reports. Field design coupled with descriptive statistics was also used. The
findings of study for hypothesis 1 showed that there was a significant relationship between the value of stock
carried and cost of goods sold over the years between 2005 – 2013: ( - value of 0.005 and F- 23.96) while
hypothesis 2 revealed - value of 0.001 and F- statistics 46.26. This revealed that there was positive
relationship between inventory management & control policy and profitability in Larfage Wapco Plc. It is
recommended that cement manufacturing firms develop a policy framework to facilitate faster implementation of
the best inventory management practices such as JIT, MRP and EOQ. The firm should also strengthen the
supplier relation to the level of partnerships. This will facilitate implementation of programmes such as Vendor
Managed Inventory (VMI). The company should diversify their inventory system to suit specific needs of
production.
Keywords: Inventory Management, Business Performance, Stock out,

Introduction
In the past, inventory control was not seen to be necessary. In fact excess inventories were considered as
indication of wealth. Management by then considered over stocking beneficial. But today firms have started to
embrace effective inventory control (Susan & Michael, 2000). Managers, now more than ever before, need
reliable and effective control in order to reduce costs and remain competitive. Lyson (1996) posits that inventory
control enhances profitability by reducing costs associated with storage and handling of materials. There are
several reasons for keeping inventory. Too much stock could result in funds being tied down, increase in holding
cost, deterioration of materials, obsolescence and theft. On the other hand, shortage of materials can lead to
interruption of products for sales, poor customer relations and underutilize machines and equipment.
Inventory management also becomes a fundamental part of supply chain management (SCM). A lot of
research in SCM over the last two decades can be characterized as so called “multi-echelon inventory theory”
(Quayle, 2003). SCM has in recent years become an important way to enhance the company’s competitive
strength and therefore an important issue for most companies. There is need for installation of a proper inventory
technique in any business organization in developing country like Nigeria. Kotler (2002) said inventory
management refers to all the activities involved in developing and managing the inventory levels of raw
materials, semi-finished materials (work in progress) and finished goods so that adequate supplies are made
available and the costs of over or under stocks are low. Inventory represents a cost to their owner. The
manufacturer has the expense of materials and labour. Therefore, the basic goal the manufacturer is to maintain a
level of inventory that will provide optimum stock at lowest cost. Effective inventory management is essential in
the operation of any business. Hankinson and Persson (2004) identifies three different trends in the development
of logistics solutions within industry, one trend is concerned with the increased integration of logistics activities
beyond organization boundaries with an aim to reduce cost items such as capital costs for inventory and handling
costs of flows.
Drury (1996) defined inventory as a stock of goods that is maintained by a business in anticipation of
some future demand. This definition was also supported by Schroeder (2000) who stressed that inventory
management has an impact on all business functions, particularly operations, marketing, accounting and finance.
He established that there are three motives for holding inventories, which are transaction, precautionary and
speculative motives. The transaction motive is said to occur when there is a need to hold stock to meet
production and sales requirements. A firm might also decide to hold additional amounts of stock to cover the
possibility that it may have under estimated its future production and requirements. This represents a
precautionary motive, which applies only when future demand is uncertain. The speculative motive for holding
inventory might entice a firm to purchase larger quantity of material than normal in anticipation of making

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abnormal profits. Advance purchase of raw materials in inflationary times is one form of speculative behavior.
Donald (2003), describe that holding stock is expensive and problems of inventory control almost
universal. Over the past decades organizations have been trying to improve customer service while lowering
stocks and increasing the speed of material flow through their supply chains. There is a need to review current
thinking on inventory management, so as to emphasize on the growth of e-commerce, and the trend away models
based on economic order quantities and towards dependent demand system.
Stock management is that aspect of business activity that deals with planning for purchasing, receiving,
handling, storing, and releasing of materials for use in production with effective control measures. Materials are
industrial goods that will become part of another physical product. Drury (1996) has classified materials for use
in manufacture under three headings:
-Raw materials primarily from agriculture and the various extractive industries e.g. mineral resources, fruits, and
vegetables sold to processor.
-Semi finished goods and processed materials to which some work has been applied or value added e.g. rods,
wires, paper, chemicals, etc.
- Component parts and assemblies that are completely finished products of one manufacture, which can be used
as part of more complex product by another manufactures.
It is Inventory management, in an organization, that deals with identifying every items of stock.
Inventory management is primarily about specifying the size and placement of stocked goods. Inventory
management is required at different locations within a facility or within multiple locations of a supply network to
protect the regular and planned course of production against the random disturbance of running out of materials
or goods. Effective inventory management determined how profit of an organization can be maximized.
Maximizing of profit depend on minimizing cost and maximizing revenue. Maximization is an efficient concept
which requires increasing profit without increasing the resources used. The import of inventory management in
organization is to ensure that at any point in time the capital of the business is not necessarily tied down in form
of material in the store, which may provide opportunity for fraud and theft. In other word, the management
wishes to put at minimal rate stock losses, which emanate from store operation. Thus, as business organization,
stock is of paramount importance, likewise the profit of the business. Inventory problems of too high or too
small quantities on hand can cause business failures. If a small business experiences stock-out of a critical
inventory item, production halts could result. It is thus the management of this economics of stockholding, that is
appropriately being refers to as inventory management.
Therefore, it should be adequately taken care of because it has to do with profit of the business. A well
planned and effective stock management can contribute substantially to a firm annual turnover. The present
study intends to proffer solutions to problems associated with the management of inventory by manufacturing
organizations. This is because inventory of a business can go a long way in determining the success or the failure
of the business. Ineffective inventory management therefore can lead to stock out which will definitely lead to
loss of customer and goodwill, which will make the profit of the business decrease and result in ultimate collapse
of the organization.
The primary objective this research work is to examine the importance of inventory management on
manufacturing industries profitability. In trying to get a general overview of the problem of inventory
management, many questions beg for answers as to what influences the wastage of raw materials that
characterized most industrial manufacturing operations as in the case of Lafarge Cement WAPCO Nig plc.
Occasionally, under/over production of goods, underutilization of plant capacities which result to avoidable
increase in overhead cost per unit of product. All these factors are as a result of improper inventory management
and they contribute immensely to loss of profit and enterprise failure.

Statement of the problems

Due to the current fluctuations in the economy of Nigeria, manufacturers are faced with the extreme changes in
customers’ demands for their products. This means the problems that need to be solved and information
necessary to find the solution should be discussed before undertaking any research. The implications are: Out of
stock of critical material leading to hasty buying because of low stock levels, i.e. difficulties in determining
average amount of stock necessary to satisfy production requirement. Unnecessary tying down of funds as well
as loss of fund due to pilferage, spoilage and obsolescence of stock maintain of too low inventories so as to meet
demand as at when needed.
High cost of materials purchased and rate of wastage are also main concerns that affect organizations
productivity, sales and profitability.

Objectives of the study

The major objective of this study is to examine how stock management is used as an essential tool for
profitability and growth in a manufacturing industry and examine the extent to which insufficient inventory of

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finished goods cause loss of sales to the company and affect profitability, by providing solutions to those
elements that posit problems to the effectiveness of stock control in an organization. Other objectives are as
follows: Minimizing the cost of carrying stock to reduce production stoppages and minimize the risk of
shortages that could cause customer dissatisfaction that might lead to loss on organization’s profit. To make
analytical demonstration in finding strategic management that will prevent excessive stock level and
consequently tying up of capital on cost of goods sold by reviewing the organization inventory policy.

Research Hypothesis
Hypothesis 1
Ho: There is no significant relationship between the value of stock carried and the cost of goods sold in
manufacturing organization
H1: There is a significant relationship between the value of stock carried and cost of goods sold in manufacturing
organization.
Hypothesis 2
Ho: There is no significant impact of inventory management and control policy on the manufacturing firm’s
profitability
H1: There is a significant impact of inventory management and control policy on the manufacturing firm’s
profitability.

Literature Review
The Concept of Inventory Management
Installation of a proper inventory control system in any organization in developing countries like Nigeria is of
paramount necessity. Inventory management is defined as a science based art of ensuring that just enough
inventory stock is held by an organization to meet demand (Coleman, 2000; Jay & Barry, 2006).). Inventory is
the availability of any stock or resources used in an organization. Inventory systems is the set of policies that
controls and monitor inventory level and determine what level should be maintained, how large an order should
be made and when stock should be replenished. Inventory control is the supervision of the storage, supply and
accessibility of items to ensure an adequate supply without excessive oversupply.
Inventory control means availability of materials whenever and wherever required by stocking adequate
number and kind of stocks. The sum total of those related activities essential for the procurement, storage, sales,
disposal or use of material can be referred to as inventory management. Inventory managers have to stock-up
when required and utilize available storage space resourcefully so that available storage space is not exceeded.
Maintaining accountability of inventory assets is their responsibility. They have to meet the set budget and
decide upon what to order, how to order and when to order so that stock is available on time and at the optimum
cost (Benedict and Margeridis, 1999). Hence, Inventory management involves planning organizing and
controlling the flow of materials from their initial purchase unit through internal operations to the service point
through distribution (Smaros S.J., Lehtonen, J.M. Appelquist, P. & Holmstrom, J. ,2003).
Inventory constitutes one of the largest and most tangible investments of any retailer or manufacturing
organization. Intelligent inventory management strategies can not only help boost profit but they can mean the
difference between a business thriving or barely surviving. Holding inventories at the lowest possible cost and
giving the objectives to ensure uninterrupted supplies for on-going operations is the aim of inventory
management. When making decisions on inventory, management has to find a compromise between the different
cost component, such as the cost of supplying inventory, inventory holding cost and cost resulting from
sufficient inventories (Peterson and Silver, 1998; Zipkin, 2000). According to Miller (2010), inventory control is
the activity which organizes the availability of item to the customers. It coordinates the purchasing,
manufacturing and distribution functions to meet the marketing needs.
This role include the supply of current sales items, new product, consumables, spare parts, obsolescent
items and all other supplies. Inventory enables a company to support the customer’s services, logistics or
manufacturing activities in situation where purchasing or manufacturing of the items is not able to satisfy the
demand. Inventory plays an ineligible row in the growth and survival of an organization in the sense that failure
to an effective and efficient management of inventory, will mean that the organization will lose customers and
sales will decline. In other to attain its organizational objectives, a business is to meet customer’s needs.
Customer desire has always been a vital issue in a company not only to maintain sales but also to increase it
(Tersine, 1994; Potilen & Goldsby, 2003). Kotler (2002), posits that inventory management refers to all the
activities involved in developing and managing the inventory levels of raw materials, semi-finished materials
(working-in-progress) and finished good so that adequate supplies are available and the costs of over or under
stocks are low.
Inventory management is primarily about specifying the size and placement of stocked goods.
Inventory management is required at different locations within a facility or within multiple locations of a supply

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network to protect the regular and planned course of production against the random disturbance of running out of
materials or goods. The scope of inventory management also concerns the fine lines between replenishment lead
time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory
visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality
management, replenishment, returns and defective goods and demand forecasting. Balancing these competing
requirements leads to optimal inventory levels, which is an on-going process as the business needs shift and react
to the wider environment (Ghosh and Kumar, 2003).
Magad and Amos (1989) assert that the primary objective of inventory management is to improve
customer service. This is done through protection against stock out due to demand variability in the market place.
Kothari (1992) asserts that the aim of inventory management is to increase production efficiency. Closely related
to the function of production control, maintaining an inventory allows for efficient materials management.
Magad and Amos (1989) argued that the key issue to be considered in formulating inventory policy is cost
minimization. Therefore the objective of inventory management is to minimize inventory investment. One
benefit of good inventory control is improved managerial efficiency in all functional areas of management.
These objectives are outlined as follows;
• To maintain adequate stocks and thus minimize the risk of shortage which could disrupt production or
cause customer dissatisfaction.
• To avoid excessive stock level and consequent tying up of capital.
• To relieve management of taking frequent procurement decision for each item maintained in the store.

Concept of Profitability
According to Bourne, Kennerley, & Franco-Santos (2005) performance measurement is traditionally
concentrated on financial measures. In this context operational performance is a measure of change of operations
of tea processing firms or their outcome resulting from use of inventory control systems. Business performance
provides the basis for a tea processing firm to assess how well it is progressing towards its predetermined
objectives.
According to Atrill, and McLaney (2006), there is need to analyze the costs of maintaining certain
levels of inventory as there are costs involved in holding too much stock and there are also costs involved in
holding too little inventory.
According to Lardenoije, Van Raaij, & Van Weele (2005) financial measures ignore market dynamics
and increased complexity in acquisition of goods and services for business firms. They are of contrary opinion
that firms have to assess the complexity of acquisition of inventory and on how to control in order to improve
operational performance of the firm. The study challenges the entrepreneurs to find formula to reduce inventory
without compromising production and without increasing cost.
The present study has slightly different variables. Dettoratius, Raman, & Craig, (2013) state that a lot of
revenue is lost due to stock-outs induced inventory inaccuracy. Salawati, Tinggi, & Kadri, (2012), analyzed the
impact of inventory management on performance. They empirically examined the relationship between
inventory management and firm performance on a sample of financial data for 82 construction firms in Malaysia
for a period 2006-2010. They employed regression and correlation technique to analyse their findings. Their
finding was that inventory management is positively correlated with firm performance. Their study focused only
on general performance of the firms using financial change as a performance indicator.
According to Ogbadu, (2009) profit is an index for measuring performance. Manufacturing operational
performance is a combination of practices; hence several performance measures can be used efficiently.
According to Vastag and Whybark, (2005), the most typical measures of operational performance are rejects and
scrap, reworking, labour and machine productivity, product quality, inventory levels and turnover, unit
manufacturing cost, manufacturing cycle time, delivery speed and reliability. Much literature suggest that
inventory control systems effectiveness and efficiency as measures of procurement performance which map onto
operational performance of the organization in terms of competitive advantage, level of profitability, providing
error-free goods and service, cost efficiency and increased level of output.

Empirical Framework
There have been numerous attempts to explain financial performance of companies in the fields of strategic
management, accounting, finance, marketing and management science. Naturally each of these areas
concentrates on different explanatory variables and therefore this study limits the survey to papers that are
perceived as immediately relevant. In the US, Sanghal (2005) studied the effect of excess inventory on long term
stock price performance. The study estimated the long-run price effects of excess inventory using 900 excess
inventory announcements made by publicly traded firms during 1990-2002. These announcements are clear and
unambiguous acknowledgement by affirm that it is suffering from excess inventory.
Examples include instances of production curtailment, temporary shutdowns, price mark downs,

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promotion to liquidate inventory and inventory write- offs to deal with excess inventories. He found evidence
suggesting that stock market partially anticipates excess inventory situations and that firm do not recover quickly
from negative effects of excess inventory. He further noted that the negative effect of excess inventory is
economically and statistically significant.
In Malaysia, Agus and Noor (2006) examined the relationship between inventory management practices
and financial performance. The study measured manager’s perceptions of inventory and supply chain
management practices and the level of performance in the industry. The practices include lean inventory systems,
Technology and strategic supplier partnerships. They employed a structured questionnaire, which was designed
to assess the companies in terms of the described dimensions. The sample companies were randomly chosen
from manufacturing companies (non- food based manufacturing companies with medium to high technology) in
Klang valley, Malaysia. The findings suggest that inventory management practices have significant correlations
with profitability and return on sales (ROS).
Roumiantsev and Netessine (2005) investigated the association between inventory management policies
and the financial performance of affirm. The purpose of the study was to assess the impact of inventory
management practices on financial performance across the period 1992-2002. They used conventional firm
specific variables (inventory levels, margins, and lead times) as explanatory variables. They found no evidence
that smaller relative levels are associated with financial performance as measured by return on assets.
Eckert (2007) examined inventory management and role it plays in improving customer satisfaction. He
found a positive relationship between customer satisfaction and supplier partnerships, education and training of
employees, and technology.
In Greece, Koumanakos (2008) studied the effect of inventory management on firm performance of 135
manufacturing firms operating in three industrial sectors in Greece, food, textiles and chemicals were used in the
study covering 2000 – 2002 period. The hypothesis that lean inventory management leads to an improvement in
a firm’s financial performance was tested. The findings suggest that the higher the level of inventories preserved
(departing from lean operations) by a firm, the lower the rate of return. In conclusion, most of the studies
reviewed concentrated on conventional firm level variables such as inventory levels, demand and lead time.
Little attempt was made to capture the perceptions of managers about the impact of inventory
management practices on firm financial performance. Agus and Noor (2006) did measure the perception of
managers about the impact of inventory management practices on financial performance of manufacturing firms
in Malaysia. Adeyemi and Salami (2010) studied inventory management as a tool to optimizing resources in a
manufacturing industry. They were of the opinion that inventory constitutes the most significant part of current
assets of target majority of Nigerian manufacturing industries. Because of the relative largeness of inventories
maintained by most firms a considerable sum of an organization’s fund is being committed to them. It thus
becomes absolutely imperative to manage inventories efficiently so as to avoid the costs of changing production
rates, overtime, subcontracting, unnecessary cost of sales and back order penalties during periods of peak
demand.
Ogbadu (2009) report that one of the problems facing manufacturing company is the growing trend
towards the higher cost of materials and services and constant shut down of factory, which erode business profit.
The objective of this paper is to identify problems of material management, which if corrected can
result in profitability. The paper also examines and outlines the roles and benefits of materials management.
Secondary data and primary data were utilized in this study. The finding shows that there is need to recognize
the materials management function and it has been suggested that for a firm to achieve profitability, the goal of
materials should be properly carried out.
Sekerolgu and Altan (2014) investigated the effect of inventory management on the profitability of
Turkish firms which operated in weaving industry, eatables industry, wholesale and retail industry, in between
2003-2012 years. Research data consists of profitability ratios and inventory turnovers ratio calculated by using
balance sheets and income statements of firms which operated in Borsa Istanbul (BIST). In this research, the
relationship between inventories and profitability was investigated by using SPSS-20 software with regression
and correlation analysis. The results achieved from three industry departments which exist in the study
interpreted as comparatively. Accordingly, it is determined that there is a positive relationship between inventory
management and profitability in eatable industry. However, it was founded that there is no relationship between
inventory management and profitability in the weaving industry and wholesale and retail industry.
Lwiki, Ojera, Mugend, and Wachira (2013) reported that Manufacturing firms apply various techniques
in the management of their inventories. The practices adopted have a significant impact on returns, profitability
and volume of sales. Manufacturing firms that efficiently apply these practices have an excellent financial
performance. This paper examines the impact of inventory management practices on the financial performance
of sugar manufacturing firms in Kenya, by analyzing the extent to which lean inventory system, strategic
supplier partnership and technology are being applied in these firms. The research survey was conducted in all
the eight operating sugar manufacturing firms from the period 2002- 2007. The results indicate that there exists a

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positive correlation between inventory management and Return on Sales (r =0.740) and also with Return on
Equity (r =0.653) which were found to be statistically significant at 5% level.

Method
Survey design method was adopted for this work, which made use of financial annual reports. Field design
coupled with descriptive statistics was also used. This is to allow for a detailed analysis of selected company for
this studies. It also allows for an appropriate analytical comparison of the company stock management procedure
as it affects organizational profitability.
Table 1: Data Specification
Years Inventory Profit before taxation Profit after taxation Cost of sales Profitability
2005 7,863,872 3,424,762 3,032,866 10,117,533 1,492,904
2006 9,314,403 12,119,592 10,964,204 13089139 2,747,402
2007 11,368,802 12,536,431 10,678,652 16293388 9,482,904
2008 10,083,288 13,033,219 11,252,030 18058651 12,581,736
2009 12,517,380 9,237,328 5,055,398 20631990 15,927,680
2010 9,728,462 8,464,365 4,881,363 24858184 19,003,217
2011 10,282,629 10,234,566 8,524,680 23682941 21,936,752
2012 12,880,397 21,164,003 14,611,259 38538105 30,011,585
2013 11,645,619 27,443,083 14,711,676 41199890 50,628,605
Source: Annual Report of Lafarge Africa Cement Plc. (2005-2013)
This study used Regression, Qualitative and ANOVA analyses to analyze the data collected from the
annual report from 2005 – 2013. The Data for this study were collected purely through secondary sources by
extracting the relevant figures from the Annual Report and Accounts of the Lafarge cement Africa Plc., Nigeria
from 2005 to 2013.

Results
Hypothesis 1
Ho: There is no significant relationship between the value of stock carried and the cost of goods sold in
manufacturing organization
H1: There is a significant relationship between the value of stock carried and cost of goods sold in manufacturing
organization
Table 2:Standardized Regression Analysis of Inventory and Cost of goods sold
Null Hypothesis (Ho) R square Adjusted R2 Decision
There is no significant relationship between the value stock 0.940 0.920 Reject Ho
carried and cost of goods sold
Source: Author compilation (2016).
Table 3: Coefficient value of the variable measured
ANOVA Beta coefficients t value Sig. F

Value Stock .215 4.121 0.005 23.96

Source: Author compilation (2016).
Table 3 shows positive coefficient of standardized beta value of 4.121 for cost of goods sold on value of
stock. The variable does statistically significant at neither 95% nor 99% confident limits. Table 2 also reflects R2
value of 0.92. The table shows that there is a strong relationship between value of stock and cost of goods sold.
value of stock accounted for 94.0% variance in the cost of goods sold. Since the > 0.005 Sig .005 and F-
statistics 23.96, therefore reject Null hypothesis (Ho) and the study therefore concludes that there is a significant
relationship between the value of stock carried and cost of goods sold over the years between 2005 - 2013.
Therefore, the cost of goods sold has positive effect on the production value as a result of value of stock ,
inventory which has been properly prepared and accurately recorded for strong profitability for the organization.
This means that value of stock can control the cost of goods sold.
Hypothesis 2
Ho: There is no significant impact of inventory management and control policy on the manufacturing firm’s
profitability
H1: There is a significant impact of inventory management and control policy on the manufacturing firm’s
profitability.

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Table 4: Standardized Regression Analysis of Inventory management and control policy employed and
profitability
Null Hypothesis (Ho) R square Adjusted R2 Decision
Inventory management and control policy employed by an 0.939 0.929 Reject Ho
organization has no significant effect on profitability
Source: Author compilation (2016).

Table 5: Coefficient value of the variable measured

ANOVA Beta coefficients t value Sig. F

Inventory Policy 5.69 2.203 0.001 46.26

Source: Author compilation (2016).
Table 5 shows positive coefficient of standardized beta value of 2.203 for inventory policy used on
profitability. The variable is statistically significant at 99% confident limits. Table 4 also reflects R2 value of
92% in the table shows that there is a strong impact that inventory policy has on profitability through cost of
goods sold. Profitability revealed 93.9% variance on inventory policy employed. Since the > 0.005 Sig .001
and F- statistics 46.26, < 0.001, therefore Null hypothesis (Ho) will be rejected therefore, the result explained
the significant relationship between the inventory policy employed and profitability level over the years between
2005 - 2013.

Discussion
In this study, the result of hypothesis 1 revealed that there is significant relationship between value of stock
carried and cost of goods sold in the firm under study. The coefficient of determination represented by r-squared
is 94% for the firm explaining that the variation in cost of goods sold was signified by cost of carrying inventory
up to 98% for the cement manufacturing firms while the remaining 6% is determined by other factors, such as;
trade discount, cost of storing products, depreciation which were not captured by the model. Since the > 0.005
Sig .005 and F- statistics 23.96, <0.005, therefore reject Null hypothesis (Ho) and the study therefore
concludes that there is a significant relationship between the value of stock carried and cost of goods sold over
the years between 2005 – 2013 in the understudy firm. Finding from the first hypothesis shows that for
manufacturing organization aiming for a better position of cost of goods sold that would yield profit for the firm,
cost of carrying and holding inventory must be given proper attention. This specified cost include; cost of capital
tied down, utility costs, rent, and cost of deterioration.
The second tested hypothesis: Inventory policy by an organization has no significant effect on
profitability. Profitability revealed 93.9% variance on inventory policy employed. Since the > 0.005 Sig .001
and F- statistics 46.26, < 0.001, therefore Null hypothesis (Ho) will be rejected therefore, the result explained
the significant relationship between the inventory policy employed and profitability level over the years between
2005 - 2013. The recent information above proves the relationship that exists between inventory policies made
towards profitability through costs of goods sold by proper inventory management. This leads to immediate
efficiency of the organization for improved performance through profitability resulting from inventory
management and control.
The results show that there is positive relationship with between inventory management and
organization growth and profitability. That is, profitability of cement firms increases when effective inventory
management is carried out, as inventory consists of major current assets of the firm. The findings have far
reaching implications for the inventory policies of the cement manufacturing firms on profitability. This is
because the results were consistent with prior findings of the research understudy by Ogbadu, (2012).

Conclusion.
There are two bases of findings, this include qualitative and quantitative findings.
Qualitative findings were theoretical research on the study of stock management and its effect on
growth and profitability of an organization. Inventory from the findings occupy the most strategic position in the
structure of working capital of most cement manufacturing firms. It constitutes the largest component of current
asset.
The value of carrying stock will vary from company to company. For instance, if a company has a large
cash balance with no attractive investment options, has excess space storage, and its product have a low
probability for deterioration or obsolescence, the company’s cost are very low. A company with enormous debt,
little space, and products subject to deterioration will have high carrying value which will have positive effect on

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the cost of goods sold and affect the firm profitability.

From the analysis, a weighted value was represented in inventory policy employed. Inventory control
techniques, fixation of norms of inventory, stock level sub system, perpetual inventory control system, and
pricing of raw materials are the inventory policy to be managed in the understudy firm. From the findings growth
and profitability can be maximized with much emphasis on inventory policy using different approaches in an
attempt to solve the problem associated with inventory management.
Quantitatively, coefficient of standardized beta value of 0.215 for cost of goods sold on value stock
shows positive relationship between the two variables.
The present study on inventory management in manufacturing industry would certainly complement
and supplement the existing knowledge on stock management. This strongly advocates the cost of sales, carrying
cost, inventory policy, which made it to be growing from strength to strength increasing the productivity
capacity in spite of the economic problem in Nigeria. This research work found out that there is a positive
relationship between Inventory management and profitability of the firm. The more inventories converted into
money, the more profitability ratios included in analysis. If the firms operating in this sector sustain their
inventory management policies effectively, they increase their profits.
Prudent management of materials reduces depreciation, pilferage and wastages while ensuring
availability of the materials as at when required, would lead to improved Financial Performance of Lafarge Plc.
in particular and Cement Industry in general. Given the problem that arises as a result of the inefficiencies,
breakdown and shut down of the plant and carrying cost of materials, it becomes very necessary to re-organize
the materials management department, establish good relationship with suppliers of spare parts in order to
minimize losses arising from frequent breakdown and improve profitability.
Inventory management has become highly developed to meet the rising challenges in most corporate
entities and this is in response to the fact that inventory is an asset of distinct feature. The inventory management
situation of Lafarge plc has been revealed using a well-built inventory policy to handle its idle stock without
incurring unnecessary cost by also minimizing associated carrying cost.

Recommendations
This study thus suggests some recommendations to remedy certain defects in the company inventory policy and
if these recommendations are implemented, the company’s inventory management situation will attain a greater
height and improve the firm financial position.
Firstly, as analyzed of positive relationship between inventory and cost of goods sold and value of
carrying stock. This does not imply that inventory automatically determines production costs or sales and vice-
versa. However, it does indicate that inventory levels can be of useful indication of what level of sales and
profitability to expect. Thus, organization sales and marketing department of the company should pay attention
to the growth pattern of inventory usage and incorporate it in sales forecasting technique. It is important to
determine the incremental holding costs for a year.
Secondly, it is recommended that cement manufacturing firms develop a policy framework to facilitate
faster implementation of the best inventory management practices such as JIT, MRP and EOQ. Thirdly, the firm
should also strengthen the supplier relation to the level of partnerships. This will facilitate implementation of
programmes such as Vendor Managed Inventory (VMI).
Fourthly, the company should diversify their inventory system to suit specific needs of production
Inventory management should maximize space and timely delivery to avoid staying off production.
Management should closely monitor and manipulate their inventory system to maintain production
consistency for organizational profitability and effectiveness.
Fifthly, the flow of information should be increased and should be circulated adequately in order to
enhance adequate updates of inventory records.
Sixthly, the company should try by all means to adhere to inventory policies made. A situation whereby
materials or items are allowed to leave the stores without proper requisition, this shows the internal control is
weak. In order to ensure that the company adheres to inventory policies, under no circumstance should items of
inventory be allowed to leave stores without proper requisition. To avoid duplication of records due to price
variance, the FIFO (first in first out) and LIFO (last in first out) system of issues should be adopted. This will
ensure the elimination of the need to open several cards for single items because of price variation. Sufficient
stock should be held in order to avoid stock-out so that when the ordering level is high; there will be enough
stock to be delivered.
Lastly, stock management unit should also pay attention to sales growth over the years and thus take
into consideration, the apparent relevance of sales, production cost and profitability.

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About the Authors

Onikoyi, Idris Adegboyega [Ph.D. FCA, FCIT, AMNIM] is a Lecturer in the Department of Business
Administration, Faculty of Management Sciences, Osun State University, Okuku Campus, Osun State, Nigeria.
His main research interests are Mergers and acquisitions, corporate planning, management technique adoption
strategies and strategic management. Some of his recent publications can be found in the Global journal of
Commerce and Management; and International Journal of Management and Network Economics.

Babafemi, Emmanuel Akinsanmi [Ph.D, FCA, FCIT, FCMA, MNIM, rpa, ocp] doubles as the Managing
Partner of Akinsanmi Babafemi & Co, (Chartered Accountants) and Managing Consultant of Clear Concept
Consultants. He is a Committee member, resource person and reviewer for Institute of Chartered Accountants of
Nigeria (ICAN) Academic Conference on Accounting and Finance (ACAF) of 2015 and 2016. His research
areas of interest are: Financial & Strategic Management, Marketing Communication, Organisational Behaviour
and Corporate Reporting.

Aje, Catherine Oluyemi [Ph.D.] is a Lecturer in the Department of Business Administration, Faculty of
Management Sciences, Osun State University, Okuku Campus, Osun State, Nigeria. Her main research interests
include Entrepreneurial Studies and E-Business.

OJO, SOLOMON [PhD] is a Lecturer in the Department of Human Resources Development, Faculty of
Management Sciences, Osun State University, Okuku Campus, Osun State, Nigeria. His main research interests
include Human Resources Management and Psychology.

Mail Address
P.O. Box 1350, Surulere, Lagos, Nigeria

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