THE INVENTORY MANAGEMENT PRACTICES OF MANUFACTURING INDUSTRY IN THE NATIONAL

CAPITAL REGION

A Research Paper Presented to the Faculty of the College of Business Education

Technological Institute of the Philippines

Quezon City

In Partial Fulfillment of the Requirements for the Degree Bachelor of Science in Accountancy

Aquino, Reggie Lyn D.

Bumanlag, Portia G.

Gammag, Dhiodenell F.

Irene, Juan Paulo G.

Javier, Martin John C.

Malana, John Michael T.

Reyes, Christine Rose D.

Venus, Charity Sandra S.

Adviser

Dr. Nelson Abesamis

 TABLE OF CONTENTS

TITLE PAGE

CERTIFICATION AND APPROVAL SHEET

ACKNOWLEDGEMENT

ABSTRACT

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

CHAPTER 1: THE PROBLEM AND ITS BACKGROUND

Introduction

Background of the Study

Statement of the Problem

Significance of the Study

Scope and Limitation

CHAPTER 2: REVIEW OF RELATED LITERATURE

Related Literature and Studies

Local Literature and Studies

Foreign Literature and Studies

 Research Paradigm

Theoretical Framework

Hypothesis

Assumptions

Definition of Terms

CHAPTER 3: METHODOLOGY

Research Methodology Used

Population, Sample Size, and Sampling Technique

Description of Respondents

Research Instrument Used

Validity of Instrument

Data Gathering Procedures

Statistical Treatment of Data

 CHAPTER 1

THE PROBLEM AND ITS BACKGROUND

Introduction

In the fast-moving and busy cities in the metropolis, there leaves no room for errors. Although the

possibility of errors may not be completely eliminated, there now exists ways to prevent its occurrence. The

customers of today not only demands product performance to satisfy them—they also demand immediate

receipt of it in good condition.

Effective inventory management provide opportunities to create sustainable competitive advantage

and enhance the competitive position of companies. This entails reduction in cost of holding stocks by

maintaining just enough inventories, in the right place and the right time and cost to make the right amount

of needed products. High levels of inventory held in stock affect adversely the procurement performance out

of the capital being held which affects cash flow leading to reduced efficiency, effectiveness and distorted

functionality. Inventories are the stock of products a company holds to further its production and sales. Stock

can come in various forms such as raw materials, work−in−progress, finished goods and goods ready for

sale. Inventory represents an important decision variable at all stages of product manufacturing, distribution

and sales, in addition to being a major portion of total current assets of many organizations. Inventory often

represents almost half of the total capital of industrial organizations. Since inventory constitutes a major

segment of total investment, it is crucial that good inventory management be practiced to ensure

organizational growth and profitability.

 Essentially, inventory management involves planning and control. A proficient management of

inventory system requires an appropriate way of making decisions about how much to order and when to

order and a means of keeping track of items in inventory. Decision on inventory in any organization depends

on facts about on-hand stock level, demand information with regards to the forecasted quantity, lead time

and lead time variation, inventory holding costs, ordering cost and shortage cost.

Inventory management is vital in the control of materials and goods that have to be held (or stored)

for later use in the case of production or later exchange activities in the case of services. Inventory

management refers to a science based art of ensuring that just enough inventory stock is held by an

organization to meet demand. It is required at different locations within multiple locations of a supply network,

to protect the regular and planned course of production against the random disturbance of running out of the

materials or goods. Inventory management also concerns fine lines between the replenishment lead time,

carrying costs, asset management, inventory forecasting, valuation of inventory, future inventory price

forecasting, physical inventory, inventory visibility, available space for inventory, quality management,

replenishment, returns, defective goods and demand forecasting. The principal goal of inventory

management involves having to balance the conflicting economics of not wanting to hold too much stock.

Thereby having to tie up capital so as to guide against the incurring of costs such as storage, spoilage,

pilferage and obsolescence and, the desire to make items or goods available when and where required

(quality and quantity wise) so as to avert the cost of not meeting such requirement. Inventory problems of too

great or too small quantities on hand can cause business failures. If a manufacturer experiences stock-out

of a critical inventory item, production halts could result.

A company which neglects inventory management runs the risk of production bottlenecks and will

subsequently be unable to maintain the minimum investment it requires to maximized profit. Inventories that

are inefficiently managed may apart from affecting sales create an irreparable loss in market for companies
operating in highly competitive industry. Invariably, a company must neither keep excess inventories to avoid

an unnecessary tying down of funds as well as loss in fund due to pilferage, spoilage and obsolescence nor

maintain too low inventories so as to meet production and sales demand as at when needed. The role of

inventory management is to coordinate the actions of all business segments, particularly sales, marketing

and production, so that the appropriate level of stock is maintained to satisfy customers’ demands. The goal

of inventory management is to balance supply and demand as closely as possible in order to keep customers

satisfied and drive profits. The processes and controls of effective inventory management are critical to any

successful business. Since it is rarely the case that any business has the luxury of unlimited capital, inventory

management involves important decisions about what to buy or produce, how much to buy or produce and

when to buy or produce within the capital limits. These are “value decisions.” Excessive inventory investments

can tie up capital that may be put to better use within other areas of the business. On the other hand,

insufficient inventory investment can lead to inventory shortages and a failure to satisfy customer demand. A

balance must be maintained.

Inventory control is typically a key aspect of almost every manufacturing business. The ultimate

success of these businesses is often dependent on its ability to provide customers with the right goods, at

the right place, at the right time. Failure to have the right goods in the right place at the right time often leads

the business to lose sales and profits and, even worse, to lose customers.

Background of the Study

Manufacturing comprises more than half of the Philippines's industrial sector and accounts for almost

a quarter of the country's Gross Domestic Product (GDP). From an annual growth rate of 5.4% in 2012, the

manufacturing sector grew by 10.5% in 2013 and 8.1% in 2014.

 Manufacturing industries have higher employment, income and output multipliers relative to the

agriculture and services sectors. Manufacturing also promotes stronger inter-industry and inter-sectoral

linkages, firm productivity, technological development and innovation. As such, the growth of the

manufacturing industry improves the upgrading and diversification in the agricultural sector, as well as drives

demand for higher value-added services. Taking all these into consideration, the Philippines is accelerating

the manufacturing sector's competitiveness towards the achievement of sustainable and inclusive

development in the country.

Metro Manila, officially called National Capital Region is one of the top manufacturing centers in the

Philippines. Composed of 16 cities and one municipality, Metro Manila is the financial, commercial and

industrial center of the Philippines as it accounts for roughly one-third of total GDP. It is an industrial hub for

the manufacture and distribution of various products such as textiles, clothing, food and beverage, chemicals,

and electronics.

Metro Manila benefits from a well-developed transportation and shipping infrastructure. Although

burdened by worsening traffic in recent years due to a rapidly growing car-owning population, most highways

and streets in the metropolis can be relied on to effectively move raw materials and finished products. The

Port of Manila is the primary seaport in the country. One of the busiest in the world, it is used not just by

manufacturers in Metro Manila but by those located in the provinces as well.

Unlike retailers' and wholesalers' inventories, which consist entirely of items ready for sale, a

manufacturing company's inventory will include goods in various stages of production, from raw materials all

the way up to products ready to ship to customers which is why the inventory of a manufacturing company is

more complex and needs more scrutiny.

 Challenges of inventory management and control have been around for a very long time especially

in area of discrepancies, theft, fraud, obsolescence, deterioration and breakages. Organizations at times do

not control their inventory holding, resulting in under stocking and causing the organizations to stay off

production, thereby resulting to organizational ineffectiveness creating relationship problems between

inventory management and organizational productivity, profitability and effectiveness. Too much inventory

consumes physical space, creates financial burden, and increases possibility of damage, spoilage and loss.

If manufacturing companies have low levels of stock it may lead to delivery problems and production

stoppages. On the other hand, manufacturing companies strive to have the lowest level of inventory possible

but still be able to respond to customer demands. If customer demands are not met, manufacturing

companies may lose money due to lost sales. Therefore, it is important for manufacturing firms to have control

over their inventory levels.

Statement of the Problem

The purpose of this study is to determine the practices of the inventory management system to the

manufacturing industry in the National Capital Region.

Specifically, the study aims to determine the following:

1. What kind of manufacturing industry is the respondent in?

2. What is the description of the inventory in the manufacturing industry as to the following variables?

a. Environment of Inventory

b. Inventory Flow System

c. Inventory Count

d. Inventory Management
 e. Quality Control

3. What is the effect of inventory control practices on competitive advantage of manufacturing

industries?

Significance of the Study

The findings of the study would be a significant endeavor in assessing the inventory management

practices of the manufacturing industry. The result of the study would benefit the following:

Manufacturing Companies will be able to identify the proper inventory management system for

their company, whichever is more appropriate in case of effectiveness and efficiency. An inventory

management system helps keep the business more organized. Without tracking and managing your

inventory, it’s difficult to know what the company needs, when the company needs it and in what quantity.

With a quality inventory management system, the company will have detailed records of every asset in the

business. The company will be able to see all of the moving parts in one place and will easily enable it to see

the products that are moving and those that are selling slowly. With it, the company can see if certain

inventory sells at certain times of the year, or even during certain times of the day. We can even set the

system to reorder a certain popular inventory item so it’s never out of stock for its customers. Having all of

this information and capability in one place allows the company to make informed decisions about its needs.

Customers: The company will be able to provide the needs of their customers. Satisfaction of the

customers is one of the main objectives of the company. With accurate inventory management, the company

will be able to track inventory precisely, even if it is en route to the warehouse.

Suppliers of the manufacturing company: With all items being tracked seamlessly, both the

company and the vendor are kept in-the-know of the ordering needs. The company can set up the system
so certain items are automatically re-ordered at specific intervals based on order history. Further, the supplier

can schedule deliveries in a much more systematic and organized way. This keeps relations running smooth,

with both parties knowing exactly what is expected.

Future Researchers will have adequate knowledge about the inventory practices of the

manufacturing companies in the National Capital Region. This study can help them with their research about

inventory management systems.

Scope and Limitation

This study focuses on determining the practices commonly used in inventory management systems

in manufacturing industries. The respondents were asked questions regarding the inventory management

system of their company and its effectivity.

This study is limited to manufacturing industries in the National Capital Region (NCR) within a sample

of respondents. Data are gathered through the use of survey questionnaires which is to be answered by the

respondents.