CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Inventories occupy the most strategic position in structure of working capital of most business enterprises. It constitutes the largest component of current asset in most business enterprises. In the sphere of working capital, the efficient control and management of inventory has paired the most serious problem to the health institutions. The turnover of working capital is largely governed by the turnover of inventory, that is the rate of working capital is largely governed by the amount of inventory which is largely provided by the government. It is therefore quite natural that inventory which helps to maximize profit occupies the most significant place among current and profit assets.
The American usage of the word ‘inventory’ is synonymous with the British use of the word ‘stock’, this synonym is evident in the definitions of inventory and stock by the Oxford Dictionary. The Oxford English Dictionary defined inventory as follows:
1. A list, catalogue, detailed account
2. A lot or stock of goods, etc which are or may be made the subject of an inventory.
3. The aggregate of goods and some specified kind of goods which a trader has on hand as provision for the possible future requirement of customers.
The American Institute of Certified Public Accountants (AICPA) defined inventory thus, the term inventory in used to designate the aggregate of those terms tangible personal property which are held for sale in the ordinary course of business, in the process of production for such sale or currently consumed in the production of goods and services to be available for sale.
According to the Nigerian Accounting Standard Boards (NASB) stock includes those finished goods and livestock waiting sale, work-in-program, raw materials and supplies to be consumed in the production of goods and rendering of services.
Many understand the word inventory as a stock of goods, but the generally accepted meaning of the word ‘goods’ in the accounting language is the stock of finished goods only. In a manufacturing organization, however, in addition to the stock of finished goods, there will be stock of partly finished goods; there will be stock of partly finished goods, raw materials and stores. The collective name of these entire items is ‘inventory’.
Inventory management is aimed at maintaining a minimum investment in operations to maximize profitable operations. To maintain a large stock of investment to ensure a smooth and efficient operation of the firm.
The effect of inventory management on government health institutions like UNTH Enugu cannot be over emphasized; this is because asset of many institutions represents considerable percentage of the total invested capital. The control, accounting and management of an efficient inventory management system is of a special interest to both management, suppliers and other users of accounting information.
Therefore, poor inventory management leads to expiration of drugs, loss of quality sequel to poor storage system with resultant reduction in efficacy of the drug. This might even lead to death of some patients. There may be stock out and lot more effect of poor inventory control and management.
Inventory control is concerned with the acquisition, control, handling and use of inventories so as to ensure the availability of inventory whenever needed, providing adequate provision for contingencies, deriving maximum economy and minimizing wastages and losses.
Hence, inventory control refers to a system, which ensures the supply of required quantity and quality of inventory at the required time. Inventory control can make or break a company. This explains the usual saying that inventories are the grave yard of business.
The aim of a sound inventory control system is to ensure the best balance between two much and too little. Too much inventory carries financial rises and too little reacts adversely on continuity of sequence.
In health institutions such as UNTH Enugu, inventory control is more than just procurement and usage. The proper controls and processes can save millions in health care cost by enabling health institutions to efficiently order and store just the right amount of supplies needed for patient care while tackling cost, tier pricing and patient charges associated with supplies.
Inventory management and control helps facilities identify, control and manage their inventories by keeping accurate records of all inflow, outflow and movement of inventory (drugs) in a user friendly environment. The proper tracking data allows for accuracy in patient charges and on audit trail to identify cist charges.
The intention of this research work therefore aimed at studying the management and control of inventories (drugs) in government health institutions with special reference to University of Nigeria Teaching Hospital, Enugu.