The effective and efficient functioning of a productive system requires the regular demand and supply of inventory at the input transformation and output phases of the production process.
Management is also seen as the effective and efficient utilization of resources for the achievement of organization objectives. To ensure the achievement of the objective three must be free flow of material, unencumbered at every stage of the production process (Alexander, O’Connor, and Stafford, 2011).
In Nigeria today, there are many soft drink production companies in the beverage industry and they all source their raw materials from few of not the same market. With the present economic melt down, organization are after these scare resources to product their product. Therefore, the urgency for the effective and efficient management of inventory in form of raw material, work-in-progress and finished goods constitute significant proportion of assets of most organization (Igwenagwu, 2007).
But why is it pertinent to keep an eye on these items in other words, why do we engage in inventory management?
Inventory items cost money to acquire, they cost money to store and to look after, which means storage facilities has to be provided so as to make sure that these materials or items do not get spoilt until they are turned into sellable goods, they do not produce money (Ezzelle, 2008).
When stocks are held, it means tying down capital that would have been used in other areas, so it all represent cost and should be managed properly to acquire efficiently.
We must however, hold stocks to meet production needs and sales needs. This is because if we do not hold stocks in sufficient quantities west and the risk of running out of stock. Similarly, if we short of finished good, we may disappoint our customers. Inventory shortage in both these forms will likely lead to loss of customers and money. For the organization not to have above problems they should strike a balance between too much stocks (over inventory) and carrying too little stock. (Under inventory) (Hilton, 1999).
This is essentially the importance of inventory management, managing assets of all kinds is basically an inventory problem, the same method of analysis applies to cash and fixed assets as to inventories themselves.