THE EFFECT OF WAREHOUSE MANAGEMENT ON THE PERFORMANCE OF SELECTED BREWERY COMPANIES IN LAGOS STATE (A Case Study of Brewery Companies in Lagos State)
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CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
All over the world, there is a growing appreciation of the importance of warehousing to the profitability and sustainability of any organization. This is so because the effective and efficient management of any organization requires that all its constituent elements operate effectively and efficiently as a unit with warehousing been a critical element that constitutes the make-up of any organization (Alan, Phil & Peter, 2010). More so in Nigeria where there are various companies offering the same or similar products which creates a lag between production and consumption, warehousing is key to the profitability and the sustenance of an organization (Ogbo, Onekanma, & Wilfred, 2014). This is true especially in the manufacturing industry in Nigeria with various companies producing homogenous goods that compete in the same market coupled with the fact that the entry barrier in the manufacturing industry is low this has made warehousing critical to the survival and the continued existence of any manufacturing organization in Nigeria (Anichebe & Agu, 2013).
According to Alan, Phil and Peter (2010), globally manufacturing companies both large and small enterprises face severe challenges when it comes to warehouses due to the skyrocketing costs associated with it. This has led to manufacturing organizations scrambling to find cost-cutting measures and higher operating efficiencies (Teece, 2010). Furthermore, large enterprises continue to seek to reduce the number of stocking locations and drive more productivity from the remaining distribution centers. Furthermore, in Nigeria, the cost of real estate has increased this has also affected the cost associated with warehouse management in Lagos. As a result many manufacturing organizations have incurred severe losses when they fail to clear out their stock on time. This has negatively affected their organizational productivity going forward (Anichebe & Agu, 2013).
Furthermore, manufacturing organizations around the world have struggled when it comes to controlling their stock. Stock control has to do with checking the stock available at any given time, and the methodology of tracking the available stock (Hershey & Blanchard, 2018). It also has to do with ensuring that appropriate amounts of stock are maintained by a business, so as to be able to meet customer demand without delay. In majority of large manufacturing companies in the world, digital inventory systems make up the bulk of the stock control devices (Chand, 2013). However, according to Anichebe and Agu (2014) most manufacturing companies in Nigeria still engage in crude methods of stock control which include using pen and paper to track their stock availability. This has led to many errors in stock control and which negatively impacted on the ability for brewery companies to carry out key operations like production on schedule and effectively. This has negatively affected the organizational effectiveness of brewery companies.
In addition, manufacturing companies globally face issues when it comes to distribution planning. The unpredictable nature of transportation all around the globe has made it difficult for companies to envisage the appropriate methods and means of delivering goods to customers. More so in Nigeria, due to the poor infrastructural nature of our transport systems manufacturing companies often have had challenges planning their distribution (Anichebe & Agu, 2013). According to Odepidan (2015) many manufacturing companies have as a result of these distribution challenges left their distribution planning and execution to third party logistics companies, some of whom consistently fail to deliver the products to customers on time. As such, the poor distribution planning of brewery companies has led to poor logistic performances.
These challenges have impeded the organizational performance of manufacturing companies in Nigeria has led to many manufacturing companies closing up. This has discouraged both foreign and domestic investor from investing in the manufacturing sector in Nigeria. Thus there is a need to determine how warehousing can be managed to ensure excellent organizational performances from manufacturing companies. It is against this background, that the study will aim to determine the effect of warehouse management on the performance of selected brewery companies in Lagos state.
1.2 Statement of the Problem
The major aim of any business organization is to attain a high organizational performance. For manufacturing companies to achieve this aim, they more often than not need to increase their production capacity in order to fully take advantage of the growing demand in the market. The increase in production capacity often times leads to an increased need for an appropriate warehouse management systems. However, many manufacturing companies in Nigeria especially brewery companies in Lagos suffer from poor warehouse management which has led to a downturn in their financial performance (Odepidan, 2015). According to Okafor (2017), over a hundred manufacturing firms have closed down in the past five years in Lagos with many of the companies citing poor warehouse management as a factor for shutting down.
According to Charnov (2005), the main of aim of any brewery company is to increase profitability while reducing costs. However, Anichebe and Agu (2013) noted that many brewery companies in Lagos are no longer profitable due to the increasing costs of warehouse management. According to Akanbi, Oluleye and Onanuga (2018) the cost of warehouse management in Nigeria can be as much as ₦ 6 million annually due to the rise in real estate costs, insurance costs, payment of warehousing staffs and the cost of depreciation if the product is not sold on time. This has negatively affected the organizational productivity of brewery companies in Lagos.
Furthermore, according to Ogbo, Onekanma and Wilfried (2014) most brewery companies in Lagos are yet to integrate digital inventory systems into their stock control methods. This means that majority of brewery companies in Lagos still use inefficient and crude techniques for stock control such as noting the availability of raw materials or product with biro and paper. This has often led to costly errors in terms of knowing the stock availability of raw materials or finished products and has negatively affected the organizational effectiveness of brewery companies in terms of production and distribution in Lagos (Somuyiwa, 2010).
Additionally, the poor state of infrastructures of the transportation system in Lagos has made it difficult for brewery companies to be able to transport goods from the point of production to location where there are demands for the products (Anichebe & Agu, 2013). This has affected their ability properly plan and execute their distribution to the end users of the products in the supply chain. This has led to delayed deliveries or cancelation of orders by the company due to the inability to meet up with the demands making customers unhappy and unsatisfied (Odepidan, 2015). This poor distribution planning has negatively affected the logistics performance of brewery companies in Lagos.
Therefore, this study aims to solve these determine the effect of warehouse management on the performance of selected brewery companies in Lagos state.
1.3 Research Objectives
The general objective of the study will be to determine the effect of warehouse management on the performance of selected brewery companies in Lagos state. The specific objectives are to:
- determine the effect of warehouse costs on the organizational productivity of selected brewery companies in Lagos state.
- determine the relationship between stock control and organizational effectiveness of selected brewery companies in Lagos state.
- determine the relationship between distribution planning and logistics performance of selected brewery companies in Lagos state.
1.4 Research Questions
The research will aim to answer the following questions:
- What is the effect of warehouse costs on the organizational productivity of selected brewery companies in Lagos state?
- What is the relationship between stock control and organizational effectiveness of selected brewery companies in Lagos state?
- What is the relationship between distribution planning and logistics performance of selected brewery companies in Lagos state?
1.5 Research Hypotheses
The following hypotheses will be tested
H01: There is no significant effect of warehouse costs on the organizational productivity of selected brewery companies in Lagos state.
H02: There is no significant relationship between stock control and organizational effectiveness of selected brewery companies in Lagos state.
H03: There is no significant relationship between distribution planning and logistics performance of selected brewery companies in Lagos state.
1.6 Operationalization of Variables
The variables adopted by this study are: Warehouse Management and Organizational performance. The study will seek to investigate the impact of Warehouse Management; the independent variable, on the dependent variable; Organizational performance.
The variables for this research are consequently operationalized as follows:
Y = f(X)
Y = Organizational Performance
X = Warehouse Management
where Y = Dependent variable
X = Independent variable
y = f (x1, x2, x3…xn)
x1= Warehouse Costs
x2= Stock control
x3= Distribution planning
y = (y1, y2, y3)
y1= Organizational Productivity
y2= Organizational Effectiveness
y3= Logistics Performance
y= f(x1) __________________ (1)
y = f(x2) __________________ (2)
y = f(x3) __________________ (3)
The study will focus on equation (4) above.
Based on regression, we have
y1 = α0 + β1x1 + μ…. (1)
y2 = α0 + β2x2 + μ…. (2)
y3 = α0 + β3x3 + μ…. (3)
Where, α is the constant of the equation, β is the coefficient of X the independent variable where μ is the error or stochastic term in the equation.
1.7 Scope of the Study
The study will focus on the effect of warehouse management on the performance of selected brewery companies in Lagos State. The target population are the employees of Nigerian Breweries plc, Sona Breweries plc and Guinness Nigerian plc. The study will adopt the simple random sampling technique while data will be analysed using the regression analysis and correlation analysis. The geographical location of the study will be Lagos State. Lagos was chosen as the geographical location for the study due to the fact it is commercial capital of Nigeria and has a high concentration of brewery companies. As such it will represent a good sample location for the study. Finally, the study would be carried out between September 2018 and April 2019 (8 months).
1.8 Significance of the Study
The study will be significant to the management of brewery companies in Lagos as it will educate the companies on how they can overcome warehouse management challenges and effectively improve their warehouse management. It will show them techniques and method that can be applied to improve their warehouse management. The study will also be significant in showing the importance of warehouse management to organizational performance of brewery companies in Lagos.
It will help the brewery industry understand the importance of effective warehouse management in improving the performance of the brewery industry. It will show how effective warehouse management can improve the performance of the brewery industry in Lagos as a whole and regenerate investors’ interest in the industry.
The study will be significant to government as it will show them the need to improve the infrastructure in Nigeria in a bid to enhance the performance of the manufacturing sector as it is a crucial determinant of economic growth.
The study will also be significant to researchers as it gives them a platform for further studies into warehouse management and organizational performance in Lagos state.
1.9 Definition of Operational Terms
Warehouse management: Warehouse management is a system that is designed to support and optimize warehouse functionality and distribution center management (Hershey & Blanchard, 2017).
Organizational Performance: Organizational performance comprises the actual output or results of an organization as measured against its intended outputs (Hershey & Blanchard, 2017)
Warehouse Costs: These are the costs associated with warehousing such as depreciation costs, insurance costs etc. (Hershey & Blanchard, 2017)
Stock Control: Stock control is a series of procedures intended to manage the flow of goods through manufacturing environments (Hershey & Blanchard, 2017).
Distribution Planning: Distribution resource planning (DRP) is a method used in business administration for planning orders within a supply chain (Hershey & Blanchard, 2017).
Organizational Effectiveness: Organizational effectiveness is the concept of how effective an organization is in achieving the outcomes the organization intends to produce (Hershey & Blanchard, 2017).
Organizational Productivity: Productivity is termed as a measure of the capability or performance of a person, machine, organization etc., in converting inputs into valuable outputs. The success of an organisation has a linear relationship with employee productivity (Hershey & Blanchard, 2017).
Logistics Performance: The Logistics Performance Index is an interactive benchmarking tool created by the World Bank to help countries identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve their performance (Hershey & Blanchard, 2017).
1.10 Historical Perspective of the Research Context
The Nigerian Breweries plc, Sona Breweries plc and Guinness Nigeria plc was chosen for the study. They were chosen due to the fact that they are brewery companies that are currently having distress when it comes to warehouse management.
Nigerian Breweries Plc.
Nigerian Breweries was incorporated in 1946. its first bottle of beer, STAR Lager, rolled off the bottling lines of its Lagos brewery in June 1949. As the company expanded into other regions, other breweries were subsequently commissioned by the company, including Aba Brewery in 1957, Kaduna Brewery in 1963. By 1971, the company was one of the largest industries within the country in terms of capital investment. It later added a brewery in Ibadan in 1982. In September 1993, the company acquired its fifth brewery in Enugu, and in October 2003, its sixth brewery, sited at Ameke in Enugu. Ama Brewery began brewing on the 22 March 2003 and at 3 million hectolitres is the largest brewery in Nigeria.
Nigerian Breweries plc are the producer of Star Lager, Gulder Lager Beer and Turbo King Stout.
Sona Breweries plc
The construction work of Sona Breweries Plc started in 1980 on the present site KM 40, Lagos-Abeokuta Exp Way, Sango-Otta, Ogun state. Actual production started in 1982 specifically in February, with the rolling out of bottles of Gold Lager Beer. The brewery started with an initial capacity of 500,000 hectoliters per annum and this was later expanded to 850,000 hectoliters.
Our brands won several NIS awards in Bronze, silver and Gold categories. The company was forced to close down in 1994 due to unfavorable political and economic climate. The company reopened again in January 1995 under new ownership and management. The easy digestive Maltonic contains vitamins A, B1, B2, B6 & C. It is one of the popular refreshing drink. Sona Breweries plc produces Tusk Lager Beer, Maltonic Non-alcoholic and Wilfort dark ale.
Sona Breweries plc is been committed to excellent and high environmental standards. In line with the desire to maintain good environment at all levels of operations, the Management of Sona breweries Plc has made it a policy that all staff are involved in laboratory operations, production process, packaging process and other services should be properly educated about their responsibilities in maintaining the set environmental standards
Guinness Nigeria Plc
Guinness is an Irish dry stout that originated in the brewery of Arthur Guinness at St. James’s Gate, Dublin, Ireland, in 1759. It is one of the most successful beer brands worldwide, brewed in almost 50 countries and available in over 120. Sales in 2011 amounted to 850 million litres (220,000,000 US gal).
Guinness’ burnt flavour derives from malted barley and roasted unmalted barley, a relatively modern development, not becoming part of the grist until the mid-20th century. For many years, a portion of aged brew was blended with freshly brewed beer to give a sharp lactic acid flavour. Although Guinness’s palate still features a characteristic “tang”, the company has refused to confirm whether this type of blending still occurs. The draught beer‘s thick, creamy head comes from mixing the beer with nitrogen and carbon dioxide. It is popular with the Irish, both in Ireland and abroad. In spite of declining consumption since 2001, it is still the best-selling alcoholic drink in Ireland where Guinness & Co. Brewery makes almost €2 billion worth of the beverage annually.
The company moved its headquarters to London at the beginning of the Anglo-Irish Trade War in 1932. In 1997, Guinness plc merged with Grand Metropolitan to form the multinational alcoholic drinks producer Diageo
Guinness Nigeria, a subsidiary of Diageo Plc of the United Kingdom was incorporated in 1962 with the building of a brewery in Ikeja, the heart of Lagos. The brewery was the first Guinness operation outside Ireland and Great Britain. Other breweries have been opened over time Benin City brewery in 1973 and Ogba brewery in 1963. Some of the products produced by Guinness Nigeria plc include Foreign Extra Stout, Harp Lager Beer, Guinness Extra Smooth, Satzenbrau, Harp Lime
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