INTERNATIONAL JOURNAL OF SCIENTIFIC & TECHNOLOGY RESEARCH VOLUME 6, ISSUE 08, AUGUST 2017 ISSN 2277-8616

Inventory Management Strategies For Productivity

Improvement In Equipment Manufacturing Firms
T.T Amachree, E.O.P. Apkan, E.C. Ubani, K.A. Okorocha, A. C. Eberendu

Abstract: This study examined and developed Inventory Management Strategies (IMS) which could be creatively employed for Productivity
Improvement in Equipment Firms (PIEMF) Equipment manufacturing projects suffer from declining productivity and inability to effectively satisfy
customized order batch quantity within schedules, budgeted cost and quality specifications due to lack of robust and well defined IMS as well as none
code classification of vast number of inventory item. Survey and expost-facto research designs were adopted on the four identified IMS in three EMF.
The method used for primary data collection and measurement on four IMS and inventory management parameters was questionnaire modelled into
likert five point scale from the target respondents being experts in the subject matter. The secondary data was obtained from the computerised inventory
status file of the three equipment manufacturing firms. The methods of primary data analysis and test of research used were Pearsons product moment
correlation coefficient and oneway. Analysis of variance (ANOVA) computer software via Statistical Program for Social Science (SPSS) version 17 ABC
analysis and classification of materials was used for code categorization of secondary data, also with the aid of Microsoft excel. The results of the
analyses highlighted and isolated ―A‖ class of inventory items which are 137 out of 543 for Siemens Nig. Ltd, 154 out of 551 for Dresser-Rand Nig. Ltd
and 162 of 551 for Nigerian Engineering Works Ltd. The results of Pearson product moment correlation analysis and test of research hypotheses
indicate that Materials Requirements Planning (MRP) followed by Supply Chain Management (SCM) are the most significant IMS as they correlate
strongly with PIEMF. The study recommends IMS adoption by code classification of materials; in which MRP or SCM could be deployed for
management of ―A‖ class of inventories while classical IMS could be used for management ―B‖ and ―C‖ classes of inventory items.

Keywords: Productivity Improvement in Equipment Manufacturing Firms (PIEMF)

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INTRODUCTION finished goods or finished sub-assemblies may be held so

Inventory plays a vital role in the operation of an that the company can respond to customer‘s demand in less
organizations. On the average, inventory constitutes about than the lead time required to obtain the inputs and produce
sixty percent of the current assets in most manufacturing the products. Finished goods inventories also protect a
organizations (Hills, 2000). Since manufacturing firms company from errors of under forecasting demand or in
maintain a large size of inventory, a considerable amount of cases when the demand is higher than the production
funds is required to commit to them. The high risk of investing quantity at the particular period. Inventories of inputs protect
such large percentage of funds justifies the need for firms to a company against interruption of supply due to strikes,
implement effective and efficient inventory management weather, or other natural disasters. Companies now try to
strategies so as to expect high return on investment and reduce the risk, instead of just looking for the suppliers with
productivity improvement. Inventory management is the lowest price, they look for suppliers that response to
concerned with the efficient management of stock to achieve actual demand. The importance of adequate control of
an optimum level of inventory in the firm‘s working capital. inventories become very paramount especially in this period
Inventory is divided into three major types: raw materials, of our economic life (as a supplier or manufacturer) when
semi-finished goods and finished goods. The management of capital for business use is not easy to come by. Therefore, it
inventory involves two close related functions, planning and becomes unnecessary to tie down the little capital by holding
control of inventory. This has to be done efficiently and unnecessarily large inventory. This is due to the fact that the
effectively to avoid unnecessary investment in inventory. inventory of a typical industrial firm comprises of about
Careful planning and coordination is required to optimize 10,000 to 50,000 different items (Imaga 2003). Imaga (2003)
investment in inventory. This is necessary because the further states that a study of corporate balance sheets shows
financial manager, marketing manager, production manager that a firm inventory commonly constitutes from 15 to 25
and the purchasing manager all have peculiar but different percent of its invested capital and therefore a critical function
interests in inventory management and how it could be requiring professional managerial skills. Inventory
managed to contribute to productivity improvement. management is pivotal in effective and efficient organizational
According to Stevenson (2007), manufacturing firms for management. It is also vital in the control of materials and
instance carry supply of raw materials, purchase parts, partial goods that have to be held (or stored) for later use in the
items and finished goods as well as spare parts for machine case of production or later exchange activities in the case of
tools and other supplies. Fleming (2003), opines that many services. The principal goal of inventory management
procurements are routine and simply requires that someone involves having to balance the conflicting economics of not
tracks the orders to make sure that commodities arrive in wanting to hold too much stock or having to run out of stock,
time to support the project schedule and are inspected to therefore, having to tie up capital so as to guide against the
make sure that they work and meet all quality standards. incurring of costs such as storage, spoilage, pilferage and
Many of the problems of running out of materials and obsolescence and, the desire to make items or goods
products are obvious, which is a reason why companies available when required (quality and quantity wise) so as to
sometimes carry more than they need. Too much inventory avert the cost of not meeting such requirement. (Adeyemi
causes excessive holding cost, extra space requirements, and Salami 2010). Inventory problems of too much or too
and product obsolescence, and it hides other problems, the small quantities on hand can cause business failures. If a
company should find the enabling strategies to solve in order manufacturer experiences stock-out of a critical inventory
to improve productivity. Manufacturing firms or companies items, production halts could result. Moreover, a shopper
hold inventories for a variety of reasons. Inventories of expects the retailer to carry the item wanted. If an item is not
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stocked when the customer thinks it should be, the retailer ii. To statistically establish the levels of correlation between
loses a customer not only on that item but also on many inventory management strategies and productivity of
other items in the future. The conclusion one might draw is EMFs.
that effective inventory management can make a significant
contribution to a company‘s profit as well as increase its RESEARCH QUESTIONS
return on total assets. It is thus the management of this i. What are the most valuable inventory items to be given
economic of stockholding that is appropriately being referred tight control for PIEMF?
to as inventory management. The reason for greater attention ii. What are the levels of correlation between inventory
to inventory management is that this figure, for many firms, is management strategies and productivity in the EMFs?
the largest item appearing on the asset side of the balance
sheet. Essentially, inventory management, within the context RESEARCH HYPOTHESES
of the foregoing features involves planning and control. The following research hypotheses were formulated to test
and establish the significant levels of correlationship between
STATEMENT OF THE PROBLEM Inventory Management Strategies (IMS) and Productivity in
Poor inventory management is the bane of manufacturing Equipment Manufacturing Firms (EMFs).
firm‘s performance as it has resulted to the low output ratio
on the resource expended. A cursory survey indicates that H01 The level of correlation between ABC system of IMS and
manufacturing firms such as, Dresser-Rand Nig. Ltd, Productivity in EMF is not significant
Siemens Nig. Ltd, and Nigerian Engineering Work Ltd are H02 There is no significant correlation between Inventory
suffering from low productivity of materials, capital, time and Management Strategies (IMS) and Productivity in EMFs.
energy management among others which could be attributed
mostly to poor inventory management strategies. It could be REVIEW OF RELATED LITERATURES
on this premises that Prepeh (2015) avers that in the Inventory constitutes a very significant part of the current
manufacturing companies, nearly 60%-70% of the total funds assets of a manufacturing company. Managers of business
employed are tied up in current assets, which inventory is the organizations have come to realize the significance of
most significant component. The Equipment Manufacturing exercising some degree of control on the quantity of
Firms (EMF) have no scientific method of classifying inventory a company should acquire and keep during any
inventories and adopt no specific inventory management given period of time. For most firms, the investment in
strategy, rather they rely on rule-of thumb. As a result, they inventory is substantial because maintaining inventory allows
are characterized by poor business result, low Return on the firm to independently perform the key activities of
Investment (ROI) and low productivity due to loss order in production, selling and purchasing. Functional area
sales, inability to satisfy customers demand and low capacity managers in the purchasing, production, and sales
utilization. There are incessant cases of inventory surpluses departments typically have considerable managerial control
and shortages cost, such as depreciation, pilferage, of various inventories. Unfortunately, because of the nature
materials/component parts depreciation and obsolescence, of their jobs, they may not view inventory management from
spoilage, breakages etc. shortages of raw materials inventory a financial management perspective. A cardinal objective of
have resulted in interrupted production, and incessant stock- any efficient system of stores control is to ensure that
out, idle facilities and manpower as well as low capacity inventories are available as, and when required for
utilization etc. These have resulted to the failure of the firms production and sales but at the same time ensuring that too
to satisfy the performance objectives of customized order much inventories are not carried in stock. While continuous
quality in the manufacturing projects. availability of inventory is absolutely essential for any
uninterrupted production and sales flows, a company will not
OBJECTIVES OF THE STUDY just maintain any quantity of inventory without considering the
The aim of the study is to develop inventory management financial implications of such an action (Braide, 2005). The
strategies that will be creatively employed to boost economic environment of Nigeria as it concerns the
productivity in equipment manufacturing firms in order to manufacturing organizations has been turbulent due to its
satisfy the performance objectives of equipment changing characteristics. This change, due to economic
manufacturing firms vis-a-vis; performance and quality, forces such as technology, political instability, social and
budget and time to completion. According to Lock (1997), competition require management foresight to formulate
with respect for new product development or to produce a organizational strategies. For many organizations, inventory
piece of equipment of machinery, ship, aircraft, land vehicle, control perhaps is the single most important control technique
or some other items of specially designed hardware that have direct relationships with production, marketing,
manufacturing projects are often conducted in a factory or purchasing and financial policy, (Lucy, 2000). Telsang (2010)
other home-based environment, where the company should asserts that a manufacturing firm generally carries the
be able to exercise on the spot management and provide an following types of inventories.
optimum environment. The specific objectives, geared  Raw materials: Raw materials are those basic
towards better management of raw materials inventory for unfabricated materials which have not undergone any
productivity improvement are as follows: operation since they are received from the suppliers, e.g.
i. To classify and isolate the most valuable (A class) round bars, angles, channels, pipes etc.
inventory items so as to exercise tight control on them in  Bought Out Parts: These parts refer to those finished
the course of procurement and accounting by using parts, sub-assemblies which are purchased from outside
optimal IMS for PIEMF. as per the company‘s specifications.

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 Work-in-Process Inventories (WIP): These refer to the Goods in inventory represent a cost of their owner. The
items or materials in partially completed condition of manufacturer has to spend on materials and labour. The
manufacturing e.g., semi-finished products at the various wholesaler also has funds tied up when hold inventory.
stages of manufacture. Therefore, the basic goals of the manufacturers are to
 Finished Goods Inventories: These refer to the maintain a level of inventory that will provide optimum stock
completed products ready for dispatch. of lowest cost.
 Maintenance, Repair and Operating Inventories: Normally
these inventories refer to those items which do not form Purposes of Inventory Control and Major
the part of the final product but are consumed in the Classification
production process, e.g., spare machine part, oil, grease. The following are the purposes of inventory control to:
 Tools Inventory: Includes both standards tools and i. Minimize cost
special tools. ii. Maximize profit
 Miscellaneous Inventories: Miscellaneous inventories iii. Maximize the return on investment
include office stationeries and other consumable items. iv. Avoid running out of stock
v. Prevent surplus stock that are unnecessary
Definition of inventory, reasons, objectives and purposes of vi. Keep inventory with an available storage capacity
holding inventories have been discussed by many authors vii. Control capital investment in order to avoid
such as Anichebe and Agu (2013), Waters (1989), Telsang mismanagement and misappropriation of funds
(2010) and Ubani (2012) because inventories are vital to the viii. Maximize sales etc
successful functioning of manufacturing organizations. This is
because many companies hold inventories as part of their FACTORS INFLUENCING INVENTORY
business operation. Inventories make up the most significant
CONTROL
part of current assets of most companies especially the
Two fundamental questions always arise in inventory control:
manufacturing companies. The need for management to
 How much to buy at one time
ensure inventory control if properly managed cannot be over
 When to buy this quantity
emphasized. A firm neglecting inventory management will be
jeopardizing its long run profitability and it may end up failing
There are four factors that govern the answers to questions.
in its business. The definition of inventory has been defined
1. Requirements: This has to do with item, time, sales,
by professional bodies and scholars in different ways.
forecasts and production schedule.
However, for inventory management control to be effective
2. Quantity in stock order: This stores usually provide such
there must be a plan which is the development of objectives
information as inventory status through the stock ledger
in an organization and preparation of various budgets to
balances and unfulfilled purchase orders.
achieve these objectives. Planning of inventory is very
3. Procurement time or Lead-Time: This is the total length
essential in an organization. A firm should be able to
of time required to obtain the material. It consists of two
determine its optimum level of investment in inventories. This
parts – the administrative lead-time and the procurement
situation can only be possible when the company ensures
time.
that stocks are sufficient to meet the requirements of
4. Obsolescence: There should be provision made for
production and sales, and the company must avoid holding
possible design changes or other factors which would
surplus inventories and at the same time, it is expensive to
make the material obsolete.
have more inventories that are unnecessary because it
5. Profitability: As will be seen from what has been stated
increases the risk of obsolescence. Against this, a company
earlier, holding inventories is often very expensive. More
cannot afford loss of sales because of insufficient inventories
inventories mean more costs and this has a direct impact
and at the same time, it is expensive to have more
on the profitability of any organization.
inventories on hand than necessary. Various departments
within the same company adopt different views and attitude
However, holding stock for a reasonable period though may
towards inventories. For instance, the sales department of a
be expensive but sometimes it creates security that may give
company might desire large inventory in reserve to meet
rise to product price increase and the resultant effect will be
virtually every demand that comes. The production
high turnover and profitability. It therefore requires competent
department within the same company would similarly ask for
inventory management to be able to make profit while holding
large inventories of materials so that the production system
stock(s).
will not be interrupted. On the other hand, the finance
department would always request for a minimum investment
in investment in inventories so that the fund can be used
Factors Influencing Productivity
somewhere else for other purposes. Therefore, inventory Factors influencing productivity can be classified broadly into
control involves the recording and monitoring of stock levels, two categories as examined by Hyder (2011), Telsang (2010)
determining the optimal levels and forecasting future and Stevenson (2007) to include:
demands and decision. The main aim of inventory control is  Controllable or internal factors and
to minimize cost associated within stock. According to Kotler  Non-controllable or external factors
(2000), inventory management control 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
available and the costs of over or under stocks are low.

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It could be obvious that we cannot talk of performance

without mentioning productivity; in some cases productivity
and performance are interchanged. Productivity is the
product of work, though, not a measure of how hard we work
but of how we use our skills, our intelligence, imagination and
our resources such as human resource, materials and capital
to efficiently produce outputs. The term productivity has been
identified in many ways though showing difference in
terminology than opinions. In Pandey (1999) productivity is
the output per man hour. One of the pervasive and enduring
objectives of production and operations managers is to
improve productivity, thus reducing the cost per unit of
output, or increase output with a stable amount of input like
material through stock control and other inputs. This will lead
to cost reduction and increase in returns. In the words of
Controllable Factors (Internal Factors) Hyder (2011), ―productivity is the first test of management
competence‖. This can be achieved through effective
Product factor: productivity means the extent to which the inventory management. Productivity is a measure of the
product meets output requirements. Product is judged by its efficiency of the transformation process. It is however
usefulness. The cost benefit factor of a product can be possible to consider productivity in terms of various basic
enhanced by increasing the benefit at the same cost or by resources used in the industries and the total revenue
reducing cost for the same benefit. accruing from total output of goods and services. From the
Plant and equipment: These play a prominent role in above, inventory management can contribute to high
enhancing the productivity. The increased availability of the productivity which will lead to cost and time reduction in
plant through proper maintenance and reduction of idle time production processes thus assisting the organization to
increases the productivity. Productivity can be increased by achieve its objectives. Every organization must have a goal
paying proper attention to utilization, age, modernization, to achieve. Without setting a goal for an organization, it will
cost, investment etc. be difficult to measure or evaluate productivity. Hence,
Technology: Innovative and latest technology improves according to Allison (2000) is an aid to performance.in every
productivity to a greater extent. Automation and information organization, inventory management is crucial to maintain
technology help to achieve improvements in material corporate performance because without effective inventory
handling, storage, communication system and quality control. management production will be affected which result to idle
The various aspects of technological factors to be considered time and marketing unit will have less finished goods to
are: satisfy customer demands. To measure performance
 Size and capacity of the plant involves ascertaining, the level of accomplishment of a given
 Timely supply and quality of inputs activity or goal and attempts made to determine the actual
 Production planning and control level of task accomplishment. Production and volume of
 Repairs and maintenance sales can be measured to indicate the level of performance
 Waste reduction for the firm. How frequently measurement is done will depend
 Efficient material handling systems on the organization. According to Jaja (2004), to determine
performance gap involves comparing measured performance
Material and Energy: Effort to reduce materials and energy against established standard. In this controlling task, actual
consumption bring about considerable improvement in performance computed will be expected performance to
productivity. The factors that are to be considered are; ascertain whether they match or they do not. Matching
selection of quality material and right materials, control of implies there exists no difference between set standards and
wastage and scrap, effective stock control, development of performance. But, where they do not match, their difference
sources of supply, optimum energy utilization and energy constitutes the performance gap, which must be filled through
savings. the next plan. Constant inventory stocks and regular supplies
Human Factors: Productivity is basically dependent upon are taken into consideration when setting performance
human competence and skill. Ability to work effectively is standard in any organization. Good performance is an
governed by various factors such as education, training, indication of the productivity of the firm.
experience, aptitude etc. of the employees. Motivation of
employees will influence productivity. Indices of Productivity
Work Method: Improving the ways in which the work is done This simply has to do with the yardstick made to measure
(methods) improves productivity. Work study and industrial how a company or an organization has performed within a
Engineering techniques and training are the areas, which given period of time. Some of the indices we would like to
improve the work methods which in term enhances examine here include Profit, Sales, Output, Market share,
productivity. Earnings per share, and Profitability ratios. A company
Management Style: This influences the organizational should earn profits to survive and grow over a long period of
design, communication in organization, policy and time. Profits are essential, but it would be wrong to assume
procedures. A flexible and dynamic management style is a that every action initiated by management of a company
better approach to achieve higher productivity. should be aimed at maximizing profits irrespective of social
consequences, Profitability ratios are calculated to measure

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the operating efficiency of the company. Besides production running smoothly while maintaining minimum
management of the company, creditors and owners are also inventory levels. Designed to answer what is needed, how
interested in the profitability of the company. Creditors want much is needed and when it is needed, this model works
to get interest and repayment of principal regularly. Owners backward from the planned finished product to determine the
want to get a required rate of return on their investment. This components and raw materials needed to create it. While
is possible only when the company earns enough profits. costly to implement, MRP systems help manages plan for
Generally, two major types of profitability ratios are capacity needs and allocate production times. MRP is what
calculated: Scutter (2014) and Telsang (2010) also described as Push
 Profitability in relation to sales inventory management strategy. Most companies have a
 Profitability in relation to investment better profit and satisfy customers when inventory managers
develop an effective and efficient inventory management
Sales have to do with the total number of products that are strategy such as JIT.
sold during a particular period of time. It is one of the indices
of corporate performance. When a company makes huge Hybrid Push – Pull (HPP) Strategy or Lean Inventory
sales it is an indication that it is performing effectively and Strategy 3
efficiently, and vice versa. Output is important indices of Some businesses use a hybrid push-pull method to properly
corporate performance. It is the amount of goods or work manage inventory (Scutter 2014). According to Scutter
produced by a company within a given period of time. If (2014), to be successful, companies require a sophisticated
output is big enough, the company is assumed to be effective inventory control system to track products and supplies
and efficient. However, if output is small, this will be an currently in stock with the ability to properly forecast future
indication of low productivity. Market share is also used to demand. This model is also known as a lean inventory
examine the success and growth of a company within a given strategy in which companies rely heavily on forecasting and
time period. It simply has to do with the percentage of sales constantly adjust inventory levels based on actual sales.
in a market that a company has in comparison with the Stevenson (2007) defines lean operation as a highly
shares of other similar and competing companies. coordinated system that uses minimal resources and
produces high-quality good or service.
Inventory Management Strategies
The success of a supply chain business often relies on the Supply Chain Management (SCM) STRATEGY 4
effectiveness of its inventory strategy. Without a strong plan SCM is a strategic coordination of business function within a
in place, companies may run shortage or end up with surplus business organization and through its supply chain for the
inventory on hand. To increase efficiencies and meet purpose of integrating supply and demand management
customer demand, these business should educate (Stevenson 2007). According to Ubani (2012), the primary
themselves on which of the different models of inventory objective of SCM is to reduce risks and uncertainties into
strategies available best meets their need (Dubois 2016). supply chain, thereby positively affecting inventory levels,
This is an indication that inventory management strategies operations and production cycle times, processes and
could correlate to increase efficiencies and productivity ultimately end users service levels. The focus is on system
improvement. There are classical and non-classical inventory optimization and enhancement of performance effectiveness.
management strategies. The classical inventory management
strategies are; Conventional Manufacturing Strategy (CMS), Method and Materials
Economic Order Quantity (EOQ) and Economic Production Equipment Manufacturing Firms (EMF) were used to study
Quantity (EPQ). The non-classical inventory management and analyze the level of correlations or influence inventory
strategies are Material Requirements Planning (MRP), Just- management strategies have on productivity improvement.
in-Time (JIT) and Hybrid Push-Pull (HPP) or Lean Inventory According to Waters (1989) and Stevenson (2007)
Strategies. However, it could be said that classical inventory manufacture of one-off-item and equipment are typical
management strategies are gradually being phased out by projects The Firms are Dresser-Rand Nigeria Limited,
some manufacturing firms due to some limitations such as Siemens, and Nigerian Engineering works. Combinations of
downtimes and idle capacity while waiting for replenishment primary and secondary data were used for the study. Primary
of inventories or due to congestion as a result of inventory data was captured with the instrument of well-structured and
surpluses. well standardized questionnaire and oral interview
administered to the staff and management of DRR, SIE and
Just-in-Time (JIT) STRATERGY 1 NEW firms and technical partners involved in inventory and
The term JIT is used to refer to an operations system in production management of equipment manufacturing in
which materials are moved through the system and services Rivers State. The target respondents were production
are delivered with precise timing so that they are delivered at managers, materials / inventory managers, instrumentation /
each step of the process just as they are needed-hence the electronics engineers, cost accountants, and mechanical
name just-in-time (Stevenson 2007). Initially, the term JIT engineers. Similarly, the secondary data was obtained from
referred to the movement of materials, parts and semi- the inventory data base which included list of raw material
finished goods within a production system inventory, the annual demand of raw material inventory, order
lead time, unit cost of most valuable raw materials inventory
Material Requirements Planning (MRP) STRATEGY 2 etc. The instrument of data collection was questionnaire
Materials requirements planning employ computer software modeled in Likert five point scale. Also, secondary data were
applications to manage inventory. MRP applications break collected from the EMF from their computer-assisted
down inventory requirements into specific periods to keep inventory status file. The data collection was done in two
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stages. The first stage involved data collection for the total inventories. These items require rigid and strict
purposes of determining the; ―A‖ class of materials, strength control and need to be stocked in smaller quantities.
and direction of correlation existing between IMS and PIEMF, These items are to be procured frequently and each time
and relative influence of inventory management less quantity is procured. The inventory of A class items
factors/requirements on PIEMF. The second stage was after is kept at minimum.
establishing the most significant, strongest and positive IMS ii. ‗B‘ types of inventories are second to most valuable
on PIEMF. The optimal IMS were used to obtain data set so materials. They represent 30 percent of the materials in
as to validate and assess the level of effectiveness of the inventory and 20 percent of the total value of the
optimal IMS on the productivity improvement of the three inventories and therefore require moderate control.
EMF studied. The population of the following category of These items represent 20 percent of the total
experts were obtained from the EMF. Production managers, expenditure on materials. These are intermediate items.
material/inventory mangers, instrumentation/ electrical/ The control on these items should be intermediate
electronic engineers, mechanical engineers and cost between A and C items.
accountants. These categories of experts were the target iii. The ‗C‘ type of inventories represents 50 percent of the
respondents and provided the relevant production and materials in inventory, the least valuable and represents
inventory information based on their intuitive opinion for data 10 percent of the total value of the inventories. Therefore
generation and hence form the population size N of the ‗C‘ type of inventories requires loose control. These are
study. Investigative interview with human resource about 50 percent in number and constitute only 10
departments of the three EMF gave N as: DRR = 51, SIE = percent of total expenditure on materials.
44, and NEW = 40.
These items being expensive do not require strict control.
Data Analysis and Discussions These are ordered in bulk as against infrequent ordering of A
The data analyses were done in two stages. The first stage class items. This approach helps the manager to exercise
used ABC analysis and classification of materials to obtain selective control and focus his attention only on a few items.
―A‖ class of materials, correlation analysis to obtain the most By exercising strict control on A class items, the material
significant (optimal) IMS and RII of inventory factors that manager is able to show the results within a short period of
influence PIEMF. time. It results in reduced clerical costs, saves time and effort
and results in better planning and control and increased
(1) ABC Classification and Analysis of Materials inventory turnover. ABC analysis, thus, tries to focus and
ABC analysis and classification of materials or Pareto direct the effort based on the merit of the items and, thus,
analysis will be used to classify and isolate ‗A‘ class of becomes an effective management control too. However,
materials usually called capital materials and are most ABC analysis has limitation as follows: ABC analysis is a
valuable so as to examine their effects and correlations on fundamental tool for exercising selective control over
productivity improvement. According to Ubani (2012), numerous inventory items but in present form, do not permit
Telsang (2010) and Waters (1989), ABC analysis and precise consideration of all relevant problems of inventory
classification for inventory management principle used for management. ABC analysis is not one time exercise and
inventory management problems. In this analysis, the items are to be reviewed and re-categorized period
inventories (i.e. the goods) are classified according to their
annual usage in terms of money values. The inventories are (2) Correlation Analysis
divided into three categories: A, B, C. The inventory of an The Statistical tool that was used for data analysis and test of
industrial organization generally consists of thousands of hypothesis is correlation analysis. Computer-based
items with varying prices, usage rate and lead time The correlation analysis software via SPSS was used to
concept applied to inventory control is called ABC analysis determine the level of correlations between inventory
(Telsang 2010). Statistics reveal that just a few items account management strategies and productivity improvement in
for bulk of the annual consumption of the materials. These EMF. Correlation analysis is a technique used in measuring
few items are called ‗A‘ class which hold the key to business. the closeness of the relationship between variables or among
The other items known as B and C which are numerous in variables. For instance, correlations between variables X and
number but their contribution is less significant. ABC analysis Y can be estimated regardless of whether X affects Y or vise-
thus tends to segregate the item into three (3) categories A, a-vise, both affect each other; neither affects the other, or
B and C on the basis of their annual usage. The they move together because some third variable influence
categorization is made to pay right attention and control both. Anichebe and Agu (2013) used Pearson product
demanded by items based on their importance or value. The moment of correlation coefficient and linear regression to
raw materials inventory of the EMF will be classified into A, B study the effects of inventory management on organizational
and C class so as to examine and isolate A class of materials effectiveness and found that inventory management
for better control for productivity improvement. The ABC significantly affects productivity improvement with r = 0.614, t
classes of materials are discussed below to provide insight = 11.175, p<0.05. Therefore, correlation coefficient ‗r‘
on their relationship with productivity, efficiency and measures the strength of the relationship between variables,
profitability indicators. and cannot give any information on causation.
i. ‗A‘ type of inventories are most valuable, represents only
20 percent of the materials in inventory and 70 to 80
percent of the total value of the inventories. Therefore ‗A‘
type of inventories requires tight and close control. That
is to say that, these items constitute 20 percent of the

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because of its two major unique characteristics of dependent

demand and requirements explosion resulting to generation
of bill of materials needed to satisfy the specific customized
order quantity as well as satisfies the performance objectives
of manufacturing projects in EMF. The demand for items in
MRP is derived from plans to make certain products, as it is
with raw materials, parts, subassemblies etc used in
producing customized order quantity of finished products.
The aggregate contribution of these performance indicators
could adduced the reasons for the ordered ranking positions
of IMS which indicates that MRP (IMS2) is the most
significant and favourable IMS for PIEMF. MRP therefore
favours the achievement of customized order quantity of
products within the scheduled time, budgeted cost and
quality specifications. The research indicates that MRP, when
creatively employed in EMF, almost rigorously follow and
concur with theoretical concepts and available empirical
evidence in terms of performance level of success in
productivity, profitability and effectiveness, but not without
Quantitative Data Analysis and Test of Research few criticisms. MRP has been used by many researchers in
Hypotheses EMF and other related companies with impressive success in
The methods used in this stage were: cost reduction, time savings, productivity improvement,
profitability etc.
(i) ABC analysis and classification of materials for
categorization of materials inventory. FINDINGS
According to Table 4. The most valuable inventory items in Based on the research methodology and methods of data
ranking order that indicated approximately 70% of total analysis adopted for the study, the research findings are
inventory cost, when compared with the theoretical summarized into phases as follows: Identifications of Four
foundation shows that Siemens Nig. Ltd is very close to the Non-classical Inventory Management Strategies. The study
theoretical distribution pattern of 20% of total units to 70% of identified and examined four non-classical Inventory
total value. This is followed closely by inventory items at Management Strategies; (IMS) namely: Just-In-Time (JIT),
Dresser. Rand Nig. Ltd and Nigerian Engineering Works Ltd. Material Requirement Planning (MRP), Lean and Supply
The distribution pattern of their inventory items as per ABC Chain Management (SCM).
do not vary too much from the theoretical values. According
to Waters (1989) in materials management, the ABC analysis Development of two most favourable IMS for PIEMF
(or selective inventory control) is an inventory categorization
i. Out of four non classical IMS identified for the study, vis-
technique. ―A items‖ require very tight control and accurate
à-vis Just-in-Time (JIJ), Material Requirements Planning
records, ―B items with less tight control and good record and
(MRP), Lean System (Lean) and Supply Chain
―C‖ items with simplest control minimal record. This analysis
Management (SCM), only MRP and SCM were found to
has provided a mechanism for the EMF in identifying items
correlate strongly with PIEMF.
that will have significant impact on overall inventory costs for
ii. The method of Pearson product moment correlation
tight control and management so as to boost PIEMF. ―A
analysis was used and the result indicated that MRP
items‖ are very important for the EMF. Because of the high
followed by SCM are the most significant IMS for PIEMF.
value of these ―A items‖ frequent value analysis is required
JIT and lean, were not found to be significant IMS for
as well as to choose appropriate order pattern. Example of
PIEMF. MRP and SCM strategies have the capacity to
ABC class are that
effectively manage inventory items in manufacturing
projects so as to satisfy the customized customers batch
(ii) Pearson product moment correlation analysis for test
order quantity within schedule, budget cost and quality
of research hypotheses
specifications. Categorization of inventory materials
Summary of paired sample Pearson Product Moment
items and isolating the most critical materials usually
Correlation Analysis results with four IMS in the three EMFs
referred to as ―A class‖ or capital materials.
According to table 5 IMS2; MRP ranked first with mean values
iii. ‗‘A‘‘ class of inventory requires proper attention, tight
of Pearson Product Moment with Correlation Coefficient (R) =
control and therefore necessitates the deployment of the
0.849 and p – value = 0.0001. The results could attest to the
most favourable optimal inventory management
fact that MRP effectively determines what components are
strategies on them for Productivity Improvement in
needed, how many are needed, when they are needed and
Equipment Manufacturing Firms (PIEMF).
when they should be ordered so that they are available as
needed. Also, MRP insist on the right quality and well
The secondary data of inventory data file from the three EMF
calculated order size, all these combinations provide savings
indicate that they operate with large quantity of inventory
in costs, time, labour, materials and energy, hence
items which could be impossible to track and control each of
productivity improvement. Unlike JIT, MRP can handle large
them at a time if without code classification. From tables 4
quantity of inventories, better control of in-process inventory
respectively, the number of manufacturing materials
and stock and maintain large quantity of customized order
inventory items three for the EMFs‘ Siemens Nig. Ltd (SIE),
quantity of finished products. The performance of MRP is
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Dresser-Rand Nig. Ltd (DRR) and Nigerian Engineering revolutionizing the way businesses track goods in their
Works (NEW) are 543, 551 and 551 respectively. The study supply chains. RFID is a technology that uses radio
adopted the technique of ABC analysis and classification of waves to identify objectives such as goods in supply
materials and identified, highlighted and isolated the number chains.
of most valuable a class of materials in each EMF as follows: iv. There should be collaborative planning, forecasting and
SIE = 137, DRR = 154 and NEW = 162. The study reduced replenishment, which is a supply chain initiative that
the inventory items to manageable size based on usage focuses on information sharing, among supply chain
value so as to facilitate and position them for close and tight trading partners in planning, forecasting and inventory
control. They account for more than 70% procured frequent replenishment, as these will favour effective operations in
and stock in smaller quantity. These items are usually manufacturing projects.
procured frequently and stock in smaller quantity. They v. There should be human resource development in the
account for more than 70% of the total money spent on areas of cost estimations for efficient utilization of
inventory. Deployment and management of these ―A class‖ working capital, economy of purchasing and
item with robust Inventory Management Strategy (IMS) will manufacturing projects. It should be recalled that
boost PIEMF by reducing cost, time, labour and energy while accurate estimation of inventory costs significantly
increasing profit. influence PIEMF.
vi. Scheduled productions of items should be integrated into
CONCLUSION the MRP logic while taking into considerations production
The study has examined and delved into IMS for PIEMF. and materials order lead times respectively.
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