Inventory management of unilever Nepal limited

Abstract

Industrial sector is emerging as a driving force for promoting economic activities and national growth. Industrialization is a base of country's rapid economic and social progress. Now a days industrialization is considered as an essential for the economic development of the country. It facilitates effective mobilization of resource such ascapital and skill of unutilized and underutilized manpower. It also acts as a vehicle for fostering innovation and technological improvement for industrial development, thus,has a multiplier effect on the economy. It is believed that in order to achieve security, stability and high standard of living the country must be industrialized.The most important reason for embarking on a performance of industrialization is to increase the national income (Baryle,1969:396).The manufacturing sectors have to face various problems which have acted constraintsin the growth of manufacturing industries. Such problem arises due to the country being landlocked and under developed, lack of trained and skilled manpower, financial resources, in convenience in transport and communication networks, non availability of assured energy at reasonable rate, shortage of capital, small size of the market,un awareness of the industrial potential, higher cost of production, low productivity of inputs, technology, instability in government policies etc (Pradhan, 1994: 181). Nepal is a poor developing country with per capita of about $724per year (Economic Survey Report-2068/69). Annual economic growth rate in Nepal is about 4.48%(Economic Survey Report-2068/69). The rate must be substantially increased for the sake of rapid economic development. Due to various factors it is not developed in termsof many indicators used to measure the level of development of a nation in the present day world. So it has characteristic of developing country like shortage of capital, industrial backwardness, shortage of materials, lack of technological know-how, use of low level of technology in production, under utilization of natural resources, prevalence of unemployment, low productivity, etc. The industrialization started very late in Nepal, only after the second world war. Industrialization is a comparatively new phenomenon in Nepal. Biratnagar Jute Mill set up in 1936, marked the beginning of the organized industry in the country. After the Second World War, the shortage of essential consumer goods in the market, the promoters of these industries could reap windfall profits with a short period of time. Within a period of 10 years (1936-1946) as many as 63 industrial units were opened in the country. In Nepalese context both import substitution and export-promoting industries are needed. Our first attention is towards the establishment of import substitution industries. Both the import substitution industries and export-promoting industries have great importance to our economy. Import substitution industry will help to minimize the importof the goods as well as local resources such as capital, material, labor, etc will get employment within the nations. Besides this, these industries will generate revenue more to the government and export promoting industries will maximize the export of goods and will generate income to the nations fund. Industrial development in Nepal however started getting regular attention of the government under the ages of development plan after the dawn of democracy in 1951. Several industries were established in public sector mostly with the financial and technical assistance of USSR and China. The government gave much emphasis on the development of public enterprises, after the adoption of first five-year plan in 1956, the government established different public enterprises during various plan periods. Lack of sufficient raw material of mainly unsatisfactory utilization of capacity is thefailure of public sector manufacturing companies in Nepal. Due to which some of them have been liquidated, amalgamated and privatized. As the study concentrated over inventory management study followed in Unilever Nepal Ltd. It is necessary to know exactly what is inventory. Inventory can be in form of raw materials, work in progress and finished goods. Inventory constitutes the most significant part of current assets oflarge company. Hence considerable amount of funds is required to fulfill them. It is there fore absolutely imperative to manage inventories efficiently and effectively in orderto avoid unnecessary inventory. A firm neglecting the management of inventory will beloosing the long run profitability and may collapse ultimately.

Inventory management is an integral part of financial management. Or it is the determination of how much inventory there should be on hand to serve for the purpose of the business most economically. Inventory management and controlled system followed by manufacturing companies are ABC analysis, perpetual inventory management system (physical checking), EOQ etc. In the company, there are different types of inventories, like RM, WIP, finished goods and stores and spare parts. Purchasing is the first step of inventory management of manufacturing companies. Whenall items of inventories are received by purchasing department they are passed into the store. So these items are handled and managed carefully. There are various problems like political crisis, strikes lockout and transportation problem facing by the manufacturing companies regarding the management of inventories. The company has not been adopting appropriate inventory policy because inventory constitutes the higher proportion than that of other items of current assets. The company has not followed any type of inventory policies. The fluctuation in stock of RM during the study period is very high. Defective purchasing policy and poor planning of raw materials are the main responsible factors for such fluctuation. There is no fixed policy of purchasing materials. Demand and sales of company (UNL) are very fluctuating. The main reason of such fluctuation is lack of appropriate inventory policy and ineffective demand forecast. The correlation between sales and net profit is 0.7861. Therefore, there is significant relationship between sales and net profit and it is concluded that the change in sales results change in net profit. The correlation between inventory and net profit is 0.9337, so it becomes clear that there is positive and high degree of correlation between inventory and net profit. 'T'statistics also indicate that correlation coefficient between inventory and net profit is significant. EOQ is not similar during the study period. This type of fluctuation is due to variation of ordering cost and fluctuation in demand but the company has not used EOQ model to manage and control of the inventory. UNL is using bin card technique andABC analysis to control and manage the store in order to minimize the cost of holdingmaterials. The bin-cards are maintained by storekeeper.