INTRODUCTION
Overview of the Study
From time immemorial, inventories have constituted the most significant element of the current assets of a large majority of firms around the globe. For any company that sells merchandised, inventory is an extremely important asset. According to Needles, et al (2007: 332) “Managing this asset is a challenging task. It requires not only protecting goods from theft or loss but also ensuring that operations are highly efficient”. Base on the above analogy, the evaluation of inventory system of Agilet Solar Energy Limited tends to be a little bit different from evaluating inventory in a merchandizing or a manufacturing firm, because the subject matter of discussion is a construction firm. As such, what may be inventory for it may not necessarily be inventory for manufacturing and merchandizing firm. According to Anwana (2009:3),
We are made to understand that conventional fuel source have created a myriad of environmental problems, such as global warming, acid rain, smog, water pollution, rapidly filling waste disposal sites, destruction of habitat from fuel spilling. Solar energy system otherwise referred to as photo-voltaic (PV) system does not pose these environmental problems. Today, the majority of PV modules use silicon as their major component. The silicon cells manufactured from one ton of sand can produce as much electricity as burning 500,000 tons of coal. Photovoltaic technology also creates jobs. In 2005, the solar industry directly employed at least 55,000 people in jobs such as research manufacturing development and installations. Also the PV installation market grew 34% worldwide in 2005. The field is growing and there is a need for qualified installation professionals.
According to Wikipedia, (2014:3) “Economists have predicted that photovoltaic will be the most rapidly growing form of commercial energy after 2030, with sales exceeding $100 billions. In fact, the use of solar renewable energy is expected to double by the year 2010, which would create more than 350,000 new jobs in countries in around the globe. Thus, photovoltaic system is no surprise the clean, reliable source of electric power regarded as the future of energy production”. It is on the backdrop of this important and revealing finding that this research was undertaken not just to evaluate the inventory system of the firm involved, but also to create and make recommendation of inventory practices that conforms with the conventional inventory system. According to Weygandt, et al (2012: 220), “the amount of inventory carried by a company has significant economic consequences. Inventory management is a double-edged sword that requires constant attention. On one hand, management wants to have a great variety and quantity on hand so that customers have a wide selection to choose from and items are always in stock. But such a policy may incur high carrying costs, e.g. investment, storage, insurance obsolescence and damage. On the other hand, low inventory levels lead to stock outs and lost sales”.
It should be noted that the fact that the elements of inventory may not necessary be the same between a merchandising, manufacturing and construction firm. As such, it becomes imperative to highlight what these entails in this context. For instance, inventories of manufacturing concerns are made of raw materials, work-in-progress (WIP) and finished goods while that of the merchanding firm embraces whatever that could be procured for resale to customers by way of finished goods. However, the case study which is a construction company that deals with designing, sizing and installation of solar energy for homes, offices, roads and firms etc, its inventory consists of mostly work in progress and finished goods. Based on this fact, it becomes ensuring that the right quantity and quality of inventory is provided at the right time and at the right place. As such this calls for good inventory management.
Just like Horngren, et al (2002: 764) puts it, “inventory management extends to stock valuation or inventory methods, in that a particular method affects income statement as well as balance sheet”. Deducing from the above, it becomes imperative to comprehend that good inventory management is crucial to the success of companies around the globe. To be at the top of the game of business, good inventory management is the key to bothretailing, wholesaling, manufacturing and construction firms. In Agilet, inventory system is integrated with the designing, sizing and installation facet of the firms working life cycle. So it becomes necessary for solar energy firms to strive for inventory control system and imperative for proper stock valuation and consistency in the use of a chosen method, so as to avoid distortion in the financial statements and other books of account. Based on this components, history and works of this research, construction, firms need an orderly inventory valuation system to efficiently and effectively plan and control its inventories in order to enhance profitability measurements.
Statement of Problem
According to Anwana (2009:4) “Solar energy industry is made up of three aspects which are designing, sizing and installation”. Agilet solar energy limited does all three of this aspect and as such relates with inventories as Siamese twins. They work in pari-passu, any attempt to separate them will to a great extent pose serious challenges to the management of the company. These inventories which include work tools, materials, inverters, solar panels, etc; represent high investment in all ramification of the firm’s transaction. Due to the large size of inventories maintained, not entirely by choice but by necessity. a considerable amount of funds is committed to inventories.
Judging from the above, it implies that failure to maintain good internal control and inventory system would impair the liquidity position of the company by causing a decrease in the growth prospects and low profitability if pragmatic decisions are not taken and are not fully or efficiently and effectively implemented to act as a basis for the theoretical decisions of the firm.
In reality majority of solar energy companies including Agilet Solar Energy Limited suffers the following setbacks in the realm of business practices.
High Operating cost
Materials shortages
Excessive inventories
Use of unstandardized practices, processes and antiquated support system.
The listed setback of inventory management above defines the problem of the study.
Objectives of the Study
Choosing this topic was necessitated by the following objectives:
To find out the type of inventory management systems use by Agilet Solar Energy Limited, Uyo.
To evaluate the inventory management systems used by Agilet Solar Energy Limited
To ascertain the impact of inventory management on the firms profitability
To analyze the problems associated with inventory management in Agilet Solar Energy Limited
To determine the causes of their high cost, materials shortages and excessive.
To ascertain if there is consistency in their chosen inventory management, control and valuation system.
1.3 Research Questions
To assist and guide the researcher in achieving the stated objectives and addressing the problems of the study, the following questions are deduced:
What type of inventory management system is used by Agilet Solar Energy Limited?
How effective and efficient is the inventory management system used by Agilet Solar Energy Limited?
How consistent in the use of the chosen inventory management, control and valuation method?
What are the challenges associated with inventory management in Agilet Solar Energy Limited?
What are the possible remedies to the challenges associated with inventory management in Agilet Solar Energy Limited?
1.4 Research Hypotheses
1. The company employs a standard inventory management system.
2. The inventory management, control and valuation systems are consistently used.
Significance of the Study
It is believed that at the end of this study, this work would be significant in the following ways:
Agilet Solar Energy Limited’s management and the management of other construction concern will be able to understand the proper ways of effectively and efficiently managing their stocks.
The dividends and benefits that accrue to a well managed inventory system will be revealed.
It will create awareness and enlightenment to the students, the general public and all solar energy company in particular on the effect of good inventory management system.
This research will act as a reference guide or point to those who have the intention of carrying out further research work in this area of study.
1.6 Scope/Limitations of the Study
The research is expected to span across the entire Agilet Solar Energy Limited, Uyo. To find out specific raw materials used by the company, profit level say for 2 or 3 years, business growth since the last 3 years, number of contract so far executed and number of outstanding ( yet to be completed) contract. Although the coverage is limited by a number of factors which include:
(i) Fund: The financial cost incurred during the course of the study is an hindrance considering the fact that the researcher is a student and unemployed.
(ii) Time Span: The limited time available to the researcher for the completion of this study serves as a constraint as the researcher cannot claim to have covered the field within the time frame.
(iii) Respondent’s Knowledge: The knowledge possess by the respondents as regards the subject matter is limited and as such sets as a constraint to the research.
Organization of the Study
The research is divided into five (5) chapters for easy accessibility and comprehension. The first chapter is the introductory chapter which gives an overview of the study, statement of problem, objectives of the study, significance of the study, research questions, research hypotheses scope/limitations of the study, organization of the study, definition of terms used in the study.
Chapter two (2) deals with the review of related literature. In this chapter, the conceptual framework of the study as well as opinions, suggestions and arguments of different authorities and professionals on the subject matter were presented.
Chapter three (3) presents the research methodology, which will show how the data for the study were generated and also a brief historical background of Agilet Solar Energy Limited, Uyo, Akwa Ibom State. Chapter four (4) focuses on data presentation, analysis and interpretation.
Finally, chapter five (5) presents the summary of findings, conclusion and recommendations on the research work.
Definition of Terms used in the Study
As stated by Agara (2005: 111) stock (inventory) refers to the “physical units of inventory, i.e. goods that a business trades on or manufactures for sale. Stock also includes all items required for proper packaging and raw materials”. The basic types of inventory therefore, include:
Raw Materials
Work in progress: Partly finished goods/materials and sub assemblies held between manufacturing stages.
Finished goods: Completed products ready for sale or distribution.
Lead – Time or Delivery Period: This is the time between when an order is placed and when the supplier delivers the goods to the store. A lead time of 20 days will mean that it takes a period of 20 days for goods to be ordered and received into the store (Agara, 2005: 111).
Minimum/Maximum Delivery Period: According to Agara (2005: 111). The earliest time possible for delivery to get to the organization is known as minimum delivery period while the longest period for delivery to reach the organization is known as the minimum time. The maximum delivery periods is called normal delivery period.
Minimum Stock Level: Agara (2005:112) “also states that this is the stock level below which the company maybe running at risk of stock out it is normally kept to ensure that the safety stock is maintained and enough stock to cover minimum usage during the average delivery period. Management after considering the minimum consumption during the minimum delivery period normally fixes this level”.
Inventory Control System: Inventory control is the method of ensuring that the right quantity and quality of the relevant stock is available at the right time and at the right place (Adeniji, 2008:268).
Cycle Time: This is the time between when an order is received and another order is placed (Adeniyi, 2008:270).
Inventory Costs: The total cost component represented as the summation of ordering cost (co), carrying cost (cc), stock outs cost (cl), and the cost of inventory (ci) (Adeniyi, 2008:268)
Photovoltaics: According to www.wikipedia.com (2014) Photovoltaics (Pv) is a method of generating electrical power by converting solar radiation into direct current electricity using semi-conductors that exhibit the photovoltaic effects.
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