THE INVENTORY MANAGEMENT AND ORGANIZATIONAL PERFORMANCE: A CASE STUDY OF MUKWANO GROUP OF COMPANIES.
BY BAGONZA HILLARY 1153-05084-00772
A RESEARCH REPORT SUBMITTED TO THE COLLEGE OF ECONOMICS AND MANAGEMENT IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF BACHELORS DEGREE OF SUPPLY AND PROCUREMENT MANAGEMENT OF KAMPALA INTERNATIONAL UNIVERSITY.
NOVEMBER 2018 DECLARATION
This is to declare that this report is my original work and has never been submitted to any other university or institution of higher learning for examination.
Signature ~ Date BAGONZA HILLARY 1153-05084-00772 APPROVAL
This is to certify that the research of BAGONZA HILLARY whose registration number is 1153-05084-00772 has been under my supervision and it’s now ready to be submitted to the department of Human Resource and Supply Management. Signature Date MR. MASABA RICHARD
11 DEDICATION
Special dedication goes to my dearest and loving father Mr. Byaruhanga Mugema Fred and my dearest mother Mrs. Mbabazi Evelyn, brothers and Sister Tumusiime Kennedy, Mugisa Edwin, Byensi Gloria respectively and friends like Wamani Johnson, Isingoma Jackson, for their endless guidance and contribution towards the success of this report may God bless you abundantly.
This research is also a dedication to Najjuka Susan and Tibabihanga Harriet for their endless affection and inspirations.
111 ACKNOWLEDGEMENT First and foremost, I thank the Almighty God for giving me strength and courage throughout the period of my studies and for His guidance towards completion of my research.
I have a considerable obligation of gratitude to my supervisor Mr. Masaba Richard of Kampala International University, without him this research would have not been possible, his willingness to share knowledge, experience, guidance and encouragement, it was a significant privilege and honor to work with him.
My sincere gratitude to my father Mr. Byaruhanga Mugema Fred whose affection, patience, protection, inspiration and moral support contributed greatly to the success of my research and studies.
Finally, I would like to express my gratitude and appreciation to my colleagues and friends like Kaboyo Ivan. They have all been supportive and encouraged me and their inputs greatly contributed towards the preparation of this research.
iv TABLE OF CONTENTS
DECLARATION APPROVAL DEDICATION ACKNOWLEDGEMENT iv TABLE OF CONTENTS v LIST OF TABLES viii LIST OF FIGURES ix ABBREVIATIONS x ABSTRACT xi
CHAPTER ONE 1 1.0 Introduction 1 1.1 Background of the Study 1 1.1.1 Inventory Management 2 1.2 Background of Mukwano group of companies 3 1.3 Statement of the Problem 4 1.4 The Purpose of the study 4 1.5 Objectives of the study 4 1.6 Research Questions 4 1.7 The scope of the study 5 1.7.1 Subject scope 5 1.7.2 Geographical scope 5 1.7.3 Time scope 5 1.8 Significance of the Study 5
CHAPTER TWO: LITERATURE REVIEW 6 2.0 Introduction 6 2.1 Theoretical Review 6 2.1.1 Strategic Choice Theory 6 2.1.2 Transaction Cost Analysis 6 2.1.3 Theory of Economic Order Quantity (Wilson’s EOQ Model) 7 2.2 Inventory Management 8 2.2.1 Economic Order Quantity (EOQ) Model 8
v 2.2.2 Just in time (J.I.T) Model .9 2.2.3 ABC Analysis 10 A B C CATEGORIES 10 2.2.4 Vendor Managed Inventory (VMI) 11 2.2.5 Material requirement planning (MRP 1) 11 2,2.6 Bar-coding 12 2.2.7 Enterprise Resource Planning (ERP) 13 2.2.8 Simulation 13 2.2.9 Radio Frequency Identification system (RFIS) 14 2.2.10 E-Procurement 15 2.2.11 Perpetual Inventory System 15 2.2.12FIFO 16 2.2.13 Periodic Review or Stock-taking 16 2.3 Relationship between Inventory Management and organizational Performance 16 2,4 Challenges of Implementing Inventory Management 18 2.5 Conceptual Framework 19
CHAPTER THREE: RESEARCH METHODOLOGY 20 3.0 Introduction 20 3.1 Research design 20 3.2 Study population 20 3.3 Sample size 20 3.4 Sampling methods procedure 21 3.SDatasource 21 3.5.1 Primary data 21 3.5.2 Secondary Data 21 3.6 Research instrument 21 3.7 Data processing and analysis 21 3.8 Data analysis 22 3.9 limitations and delimitations 22
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS 23 4.0 Introduction 23 4.1 General personal information 23
vi 4.1.1 Gender of the respondents .23 4.1.2 Age of the respondents 24 4.1.3 Level of education 25 4.1.4 Duration in the organization 25 4.2 Relationship between inventory management and organizational performance 27 4.3 Methods of inventory management Used In organizations 30 4.4 Challenges Faced by organizations in Managing inventory 32
CHAPTER FIVE: SUMMARY, RECOMMENDATIONS, CONCLUSION AND AREAS FOR FURTHER RESEARCH 34 5.0 Introduction 34 5.1 Summary of the major findings 34 5.1.1 The relationship between inventory management and organizational performance 34 5.1.2 The inventory management methods used in MGCs 35 5.1.3 The Challenges faced by MGCs in Managing inventory 36 5.2 Conclusions 37 5.3 Recommendations 37 5.4 Areas for further Research 38
REFERENCES 39 APPENDICES 41 APPENDIX I: QUESTIONNAIRE 41
vii LIST OF TABLES Table 1: Sample size 20 Table 2: Distribution of respondents by gender 23 Table 3: Distribution of respondents by age 24 Table 4: Respondent’s level of education 25 Table 5: Duration of the respondents in the organization 25 Table 6: Showing the relationship between inventory management and the performance of Mukwano group of companies 27 Table 7: Showing the methods of inventory management techniques used in MGCs 30 Table 8: Showing the challenges faced by MGCs in managing inventory 32
vni LIST OF FIGURES Figure 1: Conceptual Framework 19 Figure 2: Distribution of respondents by age 24 Figure 3: Duration in employment 26
ix ABBREVIATIONS
EOQ — Economic Order Quantity.
VMI — Vendor Managed Inventory.
ERP — Enterprise Resource Planning. ISO International Standard Organization.
JIT — Just In Time.
MGCs — Mukwano Group of Companies.
ABC — Activity Based Costing.
E-PROCUREMENT — Electronic Procurement.
MRP 1 — Material Requirement Planning.
FMCGs — Fast Moving Consumer Goods.
FIFO — First In First Out.
RFIS — Radio Frequency Identification Systems.
EPOS — Electronic Point of Sale.
TCA — Transaction Cost Analysis
x ABSTRACT The purpose of the study was to establish or examine the relationship between inventory management and organizational performance in Mukwano group of companies basing on the following objectives, to determine the inventory management techniques used by Mukwano Group of Companies, to determine the challenges of implementing inventory management in Kampala, to determine the relationship between inventory management and organizational performance. The researcher used descriptive and quantitative research designs. The sample size of 35 respondents were selected using stratified random sampling. Self-administered questionnaires were used to collect data. Primary data was collected through use of questionnaires, interviews and secondary data was collected from magazines, journals and articles. Data was collected, edited and analyzed. According to the findings, the organization involves in production planning, inventories are reviewed periodically which improves organizational performance. The study showed positive relationship between inventory management and organizational performance. It was also concluded that inventory management techniques were effectively considered in Mukwano Group of Companies. It was recommended that management of MGCs should provide support to workers in order to improve or proper implementation of inventory management techniques that are up-to date. Also was recommended that management of MGCS should ensure that inventory management techniques are practiced by people with trained qualifications and skills.
xi CHAPTER ONE 1.0 Introduction This chapter is comprised of the background of study, background of Mukwano group of companies, statement of the research problem, the purpose of the study, the research questions, the scope of the study, and the significance of the study.
1.1 Background of the Study in the world today, every organization wants not only to mitigate the system wide cost, but also to maintain minimum inventories along the supply chain while maximizing the service level requirements of the customer (Sandeep, 2007). This however cannot be achieved without modern technologies. The advancement of technology and innovation has shortened the product life cycle and thus improved inventory management systems of firms. This has led to reduced costs, increased efficiency and thus boosted performance of firms. In some organizations it has led to demand variability and thus strengthened the need to maintain proper inventory for improved supply chain performance.
Dryden and Brownell (2012) posit excess inventory in the supply chain blocks the cash flow and this might negatively affect organizational performance. Managing customer and vendor relationships is a critical aspect of managing supply chains. In many cases, the collaborative relationship concept has been considered the essence of supply chain management. Bicheno (2011) indicates that a closer examination of supply chain relationships, particularly those involving product flows, reveals that the heart of these relationships is inventory movement and storage. Eckert (2012) argues that much of the activity involved in managing relationships is based on the purchase transfer, or management of inventory.
Brigham and Gapenski (2013) argue that inventory management is important because firms will ensure assets and stock are well managed and accurate demand forecasting is maintained to avoid unplanned procurement processes. This will assist the firm in executing successful procurement processes that match demand and supply forces.
Agus and Noor (2010) points out that demand forecasting helps the organization to minimize operational costs, increased efficiency and on time delivery of goods and services. This enables the organization to plan for the future demand by meeting the growing needs of
1 customers. This highly contributes to improved customer satisfaction due to quality of goods and services offered.
1.1.1 Inventory Management Wisner and Leong (2011) define inventory management as a process of efficiently overseeing the constant flow of units into and out of an existing inventory. This process usually involves controlling the transfer in of units in order to prevent the inventory from becoming too high, or dwindling to levels that could put the operation of the company into jeopardy.
According to Richard J, Tersine 2006, in order to meet customer orders the product has to be available in stock although some firms are unable to arrange deliveries just in time. If the organization does not have enough of the necessary inventory to meet the orders, this can lead to loss of sales and a damaged organizational reputation. This is sometimes called stock out. 1-Ic adds that just in time is a method where items are delivered when they are in need and used immediately. The organization has to make sure that it does not run out of stock. It is important therefore that an organization either holds sufficient inventory to meet actual and anticipated orders, or get inventory quickly enough to meet those orders. For a high street retailer in practice this means having products on the shelves. According to MC I-Jill, 2008, there are many costs of holding inventory, so a business should not hold too much inventory either. He mentioned the costs of holding inventory as; the opportunity cost of working capital tied up in stock that could have been used for another purpose. Agus and Noor (2010) proper inventory management also seeks to control the costs associated with the inventory, both from the perspective of the total value of goods included and the tax burden generated by the cumulative value of the inventory.
Dryden et al. (2012) argue that inventory management involves keeping accurate records of finished goods that are ready for shipment. This often means posting the production of newly completed goods to the inventory totals as well as subtracting the most recent shipments of finished goods to buyers. The relevance of inventory management is that they make it possible to quickly convey information to sales personnel as to what is available and ready for shipment at any given time.
2 Brigham et al. (2013) posit that the firm should design and develop an inventory management system that balances the demand and supply. This is intended to reduce inventory costs, reduce the cycle time and improved sharing of information. Therefore, the firm can effectively manage its inventory and coordinate its supply chain system leading to improved performance.
Inventory management techniques are activities and functions used by organizations to manage stocks of finished products, semi-finished products and raw materials. Proper implementation of these activities enables the firm to minimize waste, costs and increase revenue (Zer and Wei, 2006). Some of the inventory management techniques used in this study will include; economic order quantity, radio frequency identification systems, vendor managed inventory, enterprise resource planning, Just In Time, ABC Analysis, E procurement, bar-coding system among others as it will be seen later.
1.2 Background of Mukwano group of companies. Mukwano Group of Companies commonly known as Mukwano Group is one of the leading conglomerate in East and Central African based in Uganda. The company’s origins go back to 1910 when members of the family first set foot in East Africa and established a trading Company. The group was established in 1986, although it did not start operations until 1989. The Groups headquarters are located on Mukwano Road (Bypass Road) plot 30 in the central
Division Kampala on coordinates 0018 ‘45 .0”N, 32°3 5 ‘27.0”E (latitude:0.3 12500; Longtitude:32.590840). As of October 2016, the group is involved in six main areas of business that is manufacturing, Real Estate investments, bulk storage and shipment, Cargo clearing and forwarding, Agricultural and financial services .It attained regional recognition for production of a wide range of high quality and affordable Fast Moving Consumer Goods (FMCGS) ranging from laundry and toilet soaps, edible oils and fats, powder detergents, domestic and industrial plastics and packaged drinking water.
Mukwano is certified by ISO 9001:2008, Uganda National Bureau of Standards (UNBS), the Halal Bureau and also ISO 22000:2005 for its water production and it employees an excess of 7,000 staff. Mukwano’s vision and mission is “To become the supplier of choice for FMCGs in East and Central Africa” and “They are committed to produce safe and quality brands that enrich the lives of people in East and Central Africa every day,” respectively.
3 1.3 Statement of the Problem. To continue serving the demand of customers most firms have realized the need to maintain proper inventory management. Proper management of inventory enables organizations to mitigate inventory costs, reduce lead time and on-time delivery of goods and services. According to Wisner et al (201 1) organizations that maintain proper inventory of raw materials are more likely to complete their production on time. Inventory management control is part of the inventory management that helps to maintain continuity of production operations by maintaining a smooth flow of raw materials without shortages (Shapiro, 2009). Many organizations fail to control their inventory needs in the right quantity, quality and at the right time because they have poor inventory management systems. They use outdated or complicated computer software which gives them inadequate information which they use for tracking inventory levels, making orders and issuing stock. This leads to overstocking with its negative effects such as inventory costs, reduced organization’s profits and under stocking that leads to failure to meet the customers’ demands. Despite this challenge on the inventory management and organizational performance. The researcher used Mukwano group of companies to explore these gaps by examining the inventory management and organizational performance.
1.4 The Purpose of the study. The purpose of the study was to examine the relationship between inventory management and organizational performance.
1.5 Objectives of the study. I. To determine the inventory management techniques used by Mukwano Group of Companies. II. To determine the relationship between inventory management and performance of organizations in Kampala, Uganda. III. To determine the challenges of implementing inventory management in organizations in Kampala.
1.6 Research Questions. I. What is the relationship between inventory management and organizational performance? II. What are the methods of inventory management techniques used in organizations?
4 III. What are the challenges faced by organizations in managing inventory?
1.7 The scope of the study. The scope of the study contained the subject scope, geographical scope and time scope;
1.7.1 Subject scope The study focused on the inventory management and organizational performance. Inventory management was the independent variable and performance was the dependent variable. It focused on determining the inventory management techniques used by Mukwano Group of Companies, methods of inventory management techniques used in organizations and challenges faced by organizations in managing inventory.
1.7.2 Geographical scope. The study was conducted from Mukwano Group of Companies and it covered the main branch which is located on plot 30 Mukwano Road, Kampala-Uganda. The area of the study was chosen because of accessibility.
1.7.3 Time scope. The study was estimated to cover a period of three months to get more relevant and analytical data following the trend of performance so as to arrive at conclusions and recommendation.
1.8 Significance of the Study > The findings of the study may assist all the organizational managers know the significance of inventory management on organizations. ~ The study will provide academic research institutions with the knowledge to determine the methods of inventory management. > The study will provide more knowledge to workers about the benefits of inventory management. ~ The findings may help the future researchers who may want to carry out further research on inventory management techniques.
5 CHAPTER TWO LITERATURE REVIEW 2.0 Introduction This section covers the inventory management models/theories, the conceptual framework, inventory management techniques, the relationship between inventory management and organizational performance, challenges of implementing inventory management techniques.
2.1 Theoretical Review. Therefore, the following theories discuss inventory management.
2.1.1 Strategic Choice Theory The strategic choice theory points out the link between the choices of management and the performance of a firm as well as relations of the firm’s internal and external environment. The theory emphasizes on the magnitude of the decisions made by management on the performance of firm (Child, 1972). Campling and Michelson (1998) established a strategic choice model that demonstrates the inter-reliance between the environment and organizations, actions and general business performance. The model focus on attaining a higher performance level so as to enhance efficiency especially in the face of limited resources; however, the strategic theory was unsuccessful in giving a more importance on contextual aspects, including environment, technology as well as the degree of operation into account and merely considered how the structure of a firm help in the performance of a business.
Inventory management techniques are among the choices that the management considers while making decisions as regards how to improve the performance of an organization. This research study aimed at helping us understand the choices of inventory management techniques that are made by managers in order to improve the organizational performance of consumer goods manufacturing firms in terms of profitability, quality, efficiency, optimal production, production targets and on time delivery.
2.1.2 Transaction Cost Analysis Transaction Cost Analysis (TCA) is a theory that guarantees expenses of the supply chain are maintained to a minimal level (Hall dorssonet al., 2007). TCA is widely adopted in a number of areas, specifically in the study of economics and organizational structures and
6 performance. In the beginning of 1 970s, the mathematicians and economist, Williamson, integrated TCA into the model of general equilibrium and established his transaction costs economics in the novel theory of an organization. Williamson (1981) argues that firms can reduce their costs of transaction via vertical integration, as well as enhancing the degree of trust simultaneously. This type of integration is likely to decrease the expenses of inventory management whilst escalating the service level of the internal and external customers even as releasing capital to be utilized in other quarters of a business.
The reduction of costs, which include the transaction costs experienced across the supply chain, is one of the key objectives of an organization. Commonly, the reduction of transaction costs results in an increase in the level of profitability. On the other hand, as explicated previously, the inventory management techniques are expected to play a major role in enhancing the efficiency of the supply chain management. Since one of the performance measurements in this study is profitability, this study aimed at helping us to understand whether inventory management techniques adopted by organizations led to an enhanced profitability.
2.1.3 Theory of Economic Order Quantity (Wilson’s EOQ Model) Coleman (2002) and Ogbo (2011) delineate the EOQ model as one that is focused on ordering portions that minimizes the stability of the cost between the inventories holding costs and the re-order costs. On the other hand, Ogbo (2011) defined the EOQ model as assumptions that are critical to compute, EOQ has provided: the costs of holding stock are known, and are considered constant; there are ordering costs which are perceived to be constant; the level of demand is known and is regarded to be constant; that the lead time cycle is well-known and considered constant; the price per unit is also considered constant; the replenishments made immediately, the entire batch is delivered promptly and that the stock-outs are not allowed. One challenge of EOQ is that it tends to ignore the necessity to have shield stocks, which are preserved in order to cater for deviations during lead-time and demand making, and as such, it makes it complex to be practiced. The EOQ model demands that for each item that is preserved in a store, it is critical to establish the point of ordering, which is considered the most cost operative quantity of ordering. The model makes an assumption that all other variables are constant and disregards the fact that uncertainties are frequent and ordinary in all firms. For instance, uncertainty comprises of change in the level of demand, damage while transporting an item and holdups during the delivery process. In
7 this case, uncertainty in the level of demand would consequently compel EOQ to be attuned so as to shield against uncertain business situation. Due to doubts experienced in business environment, adjusted economic order quantity is an EOQ model that should be adopted in the event fluctuation in demand is a widespread phenomenon in this study, it is crucial to understand to what extent EOQ model is implemented by consumer goods manufacturing firms in Kampala, as well as the impact of EOQ model on organizational performance in Uganda.
2.2 Inventory Management. According to Zhang (2005) inventory management process begins as soon as the organization has started production and ordered raw materials, semi-finished products or any other thing from a supplier. The inventory management that were discussed in this study included: Economic Order Quantity, MRP, Radio Frequency Identification Systems, Vendor Managed Inventory System, Enterprise Resource Planning, Just-In-Time, ABC Analysis, E-procurement. And other inventory management techniques as discussed below;
2.2.1 Economic Order Quantity (EOQ) Model Economic order quantity inventory management is the level of inventory that minimizes the total inventory holding costs and ordering costs .This model applies where the demand for a product is constant over the year and that each new order is delivered in full when the inventory reaches zero, there is a fixed cost charged for each order placed regardless of number of units ordered, there is also holding or storage cost for each unit held in storage.
The optimal number of units can be determined by the product so that total cost can be minimized associated with purchase delivering and storage of the product the required parameters to solution are the total demand for the year the purchase cost for each item , the fixed cost to place the order and the storage cost for each item per year. Note. Number of items an order is placed will also affect the total cost, however this number can also be determined from the parameters Andrew & John, (2010). According to Jessop, (2004) the following are identified as the fundamental assumption of basic EOQ model. Assumptions >~ The ordering cost is constant
8 > The lead time is fixed ~ The purchase price of the item is constant that is no discount is available. > Assumes that replenishment is made instantaneously, the whole batch is delivered at once. According to Lysons, (2000) one order to arrive at economic order quantity the formula below is used. EOQ= 2DS CR
D — Annual anticipated demand.
S — Order cost per order.
C — Cost of item.
R — Annual carrying cost (holding cost). rrtal cost function.
Total cost ~purchase + ordering cost + holding cost.
2.2.2 Just in time (J.I.T) Model. This is based on cost of zero wastage, according to this system a business should order inventory which is needed to carry on their immediate production in other words manufacturing units should not store any extra inventory as it leads to additional carrying costs, for example a door manufacturing industry needs to make 100 doors besides other part it keeps around 150 doors stored as inventory to apply this inventory management technique a clear understanding of how much raw materials are needed at a given time to maintain proper flow of production should be there for this time taken by raw materials to reach manufacturing facility from the supplier should be known and the life of raw materials should be clearly determined before, procedures should be formulated to ensure that raw materials arrive just in time before the production starts so that little to no storage time is needed (Kamukam2006).
Just in time is advantageous in that it reduces the operational costs of the business thus increasing the profits and return on investment, also it eliminates the possibility of making a mistake in production process. Rowever, if the raw material that is ordered is not of good quality or gets damaged the production will have to be stopped as there is no extra stock of raw materials available; this leads to time wastage (Dogra2OlO).
9 According to (Poundy200S) different goals of JIT are to produce the required items , required quantity at the right time seeking to achieve elimination of non-valuable activities such as zero inventories zero defects, zero break downs and 100% on delivery. Lysons (2000) in his book using this technique of inventory management posit that it aims at maintaining just enough materials at right place and time to make just the right amount of a given product.
2.2.3 ABC Analysis. It is a business term used to define inventory categorization technique often used in materials management; it is also called selective inventory control or pareto’s 80/20 rule. A B C analysis provides a mechanism for identifying items that will have a significant impact on overall inventory cost while also providing a mechanism for identifying different categories of stock that require different management controls, the A B C analysis Suggests that inventory of an organization are not of equal value, thus the inventory is grouped into 3 categories i.e. A, B & C in order of their estimated importance. “A” items are very important •for an organization because of high value of these items frequently value analysis are required , in addition to that an organization needs to choose an appropriate order pattern for example (just in time) to avoid excess capacity. “B” Items are important but of course less important than “A” items and more important than “C” items, there “B” items are inter grouped. “C” items are marginally important. A B C CATEGORIES. ~ “A” Items 20% of items accounts for 80% of the annual consumption value of items ~ “B” Items 30% of items accounts for 15% of the annual consumption value of items. > “C” Items 50% of items accounts for 5% of the annual consumption value of the items. J Young pharmacists, (2010) Lysons (2000) also goes ahead to indicated that A B C can be used to arrange goods according to level of spending, priority, importance, annual sales and profitability and on other grounds. A B C technique in general helps to save time, fasten planning, improve stores lay out, improve management of stores, on the centrally however, it could be misleading to some
10 extent since it does not address deep issues of stock control and requires technical competences on the side of store staff Richard Drafi, (2003).
2.2.4 Vendor Managed Inventory (VMI). Vendor managed inventory is an inventory replenishment arrangement whereby the supplier either monitors customers inventory with own employees or as business models in which the buyer of the product provides certain information to a supplier of the product and the supplier takes full responsibility for maintaining an agreed inventory of the material, usually at the buyers consumption location . A third party logistics provider can also be involved to make sure that the buyer has the required level of inventory by adjusting the demand.
Advantages of VMI VMI relationships attempt to solve these problems by sharing the burden of inventory management between the buyer and the seller. Improved customer experience, the vendor managed inventory program ensures that the retailer who is the organization, person selling to the end customer always has just the right amount of stock isn’t just a financial advantage.
Challenges of VMI The accuracy of your forecast is limited, so you risk buying too much or too little stock. You purchase and own the inventory, regardless of whether you sell it. You have limited visibility into whether your supplier can even fulfill your order.
2.2.5 Material requirement planning (MRP 1). This is production planning and inventory control system used to manage manufacturing processes; MRP 1 is Marjory intended to meet three objectives. > Ensure materials are available for production and production are available for delivery to customers. > Maintain the lowest possible level of inventory. > Plan manufacturing activities delivery schedules and purchasing activities. The basic function of MRP 1 system includes inventory control bill of material processing and elementary scheduling. MRP 1 helps organizations to maintain low inventory levels it is used to plan, manufacturing, purchasing, and delivering activities, companies need to control the types and quantities and ensure that they are able to meet current and future customer
11 demand, at all the lowest possible cost making bad decision in any of these areas will make the company lose money. MRP 1 is a tool to deal with these problems and provides answers to several questions. > What items are required? ~ How many are required? > When are they required? The major problem with MRP 1 system is the integrity of the data if there are any errors in the inventory data. The bill of materials (BOM) data or the master production schedule, then the outputted data will also be incorrect. Data integrity is also affected by in accurate cycle count adjustments, mistakes in receiving input and shipping output and the scrap note reported waste damage, box count errors and system issues many of these types of errors can be minimized by implementing pull systems and using bar code scanning. Another problem with MRP 1 is requirement that the user specify how long it will take a factory to make a product from its component parts WJ Hopp & ML spearman, (2004).
According to Lysons, (2000) MRP 1 is a computerized time phase requirement planning system which aims at holding zero stock of an item un less its required for current production. The system calculates the total quantity of each item that needs to be ordered establish the lead time in the system and send this information to stores, procurement department and supplier stores. In his book purchasing and supply chain management (lysons 2000) stipulates the following assumption upon which MRP 1 is based demand must be uniform, the organization must practice planning in all sectors, master production schedules must be present, and demand must be dependent. Jessop (2003), there are various steps in material requirement planning system includes sales forecast , mastering production schedule, stock record file, and purchase required.
2.2.6 Bar-coding Bar-coding is the most popular used method of tracking a product for purposes of understanding the level of inventory, reorder and deliveries or sales; this enables to avoid issues of stock outages or overstocking. Bar-coding helps to track a particular item at any specific time. The staffs in the stores along with overseer scan use bar-coding systems to ensure that work orders are linked, and that the purchase orders are thoroughly linked to the level of stock which is replenished, and that all auxiliary parts in addition to equipment are tracked. Once items leave the store, they are instantly recorded in the system thus making it
12 possible to understand which stock is running low and the items to be replaced So as to guarantee that the data processed by the barcode is helpful, the ERP (Enterprise Resource Planning) system, utilized as the pillar for the bar-coding system, has to be precise at the moment of roll-out in order to ensure the data is significant and effortlessly analyzed (Eroglu, Brent and Wailer, 2011).
According to Lyson (2000), Bar-coding helps to accelerate the flow of products and information throughout the business. For example EPOS which is when retail sales are recorded by scanning product bar-codes at checkout tills. It verifies, checks and charges transactions, provides instant sale reports, monitors and charges prices and send intra and inter-store messages and data.
2.2.7 Enterprise Resource Planning (ERP) Lambert (2011) puts forth that enterprise resources planning (ERP) system is part of the integrated supply chain management system of an organization that integrates all the supply chain partners.
Watson and Zhang (2005) argue that an enterprise resources planning package is a database allowing a company to develop data to be used in all the applications. Such data base together with equipment for developing and extracting can ensure effective information movement in the organization. This improves decision making process since the supply chain partners can share information. This minimizes communication costs in the supply chain leading to supply chain performance (Song and Zipkin, 2011)
2.2.8 Simulation The uses of simulation in inventory management usually occur for purpose of responding to the wish for a proper decision making process that would take into consideration the complexities and variances within the environment of a system. A majority of simulation researches regarding inventory systems endeavored to establish the most appropriate arrangement for the inventory system in order to attain the predetermined goals. A small number of simulation models were established to address the inventory system optimization. A number of researches used simulation to establish an inventory control approach associated with tracking signals to assess performance. The other established models aimed at special situations of inventory state (Eckert, 2007).
13 Badri (1993) established a simulation based decision-support system for controlling and managing inventory by taking into consideration the impact of changes in demand, the point of reordering, the control of the stock level, period between the reviews, as well as the lead time. Nonetheless, the approach took into consideration just the case of one product inventory model. In this research, the replica established by Badri (1993) was expanded to integrate a generalized multi-product inventory system. The model recognizes all important expenses: cost associated with purchase, expenses relating to ordering, the holding inventory’s expenses, the expense related to back ordering, as well as the cost of reviews, and cost associated with the lost sales.
2.2.9 Radio Frequency Identification system (RFIS). According to Casey Reader, 2010, RFISs allows a business to identify individual products and components and to track them throughout the supply chain from production to point of sale.
RFIS is a technology that uses waves for communication between a tag and a reading device. The tag usually consists of a microchip attached to an antenna. The reader is usually capable of reading data from and writing data to the tag.
RFIS tag is tinny microchip, plus a small aerial, which contains a range of digital information about a particular item. Tags are encapsulated in plastic, paper or similar material and fixed to the product or its packaging, to a pallet or container or even to a van or delivery track. The tag is interrogated by an RFIS reader which transmits and receives radio signals to and from the tag. Readers can range in size from a hand held device to a portal through which several tagged devices can pass at once. E.g. on a pallet.
The information that the reader collects is collected and processed using special computer software. Readers can be placed at different positions within a factory or warehouse to show when goods are moved, providing continuous inventory control.
Using RFIS tagging for stock control offers several advantages over other methods such as barcodes.
14 Tags can be read remotely, ofien at a distance of several meters. Several tags can be read at once, enabling an entire pallet lead of products to be checked simultaneously. Tags can be given unique identification codes, so that individual products can be tracked. Certain types of tag can be overwritten, enabling information about items to be updated e.g. when they are moved from one part of company to another.
Advantages of RFIS Prevents overstocking or under stocking a product. For stock security, by positioning tag readers at points of high risk, such as exists, and causing them to trigger alarms. For quality control, particularly if the stock items have a limited shelf life. According to Drury, the costs associated with RIFS tagging have fallen over the recent years, and continue to do so to being the process with the reach of more business. The benefits of more efficient stock control and improved security make it particularly attractive to retailers, wholesalers or distributors who stock a wide range of items and to manufacturers who produce volume runs of products for different customers.
2.2.10 E-Procurement. Lysons (2000) define e-procurement as use of internet to operate transaction aspects of requisitioning, authorizing orders, receiving and payment processes for goods and services .It is typically a focus of local business administrators (business-to-business) network system by which organizations can be connected to suppliers for purposes of procuring goods and services at the lowest cost. Therefore this system essentially replaces the offline version called tendering and will enhance order monitoring, processing time, transparency, inventory reduction hence lower operating costs.
2.2.11 Perpetual Inventory System It refers to the way of maintaining the record of inventory in such a way that the stock on hand can be ascertained at any time. It emphasizes the day to day checking of stock and maintains the up to date record. It is a method of recording inventory after every receipt and issue to facilitate regular checking and obviate the stocking. It provides the percent stock control as we can easily find out and verify the level band position of stock lying in the store at any moment by physical counting. Some definitions of perpetual inventory systems are given below. Perpetual inventory systems helps to ascertain the balance of each and every
15 stock in terms of physical quantity as well as monetary value held in store at all time. For this, a company may maintain bin card, in which separate receipt and issue of material and balance of stock are recorded.
2.2.12 FIFO. First-In, First-Out (FIFO) is one of the methods commonly used to calculate the value of inventory on hand at the end of an accounting period and the cost of goods sold during the period. This method assumes that inventory purchased first is sold first and newer inventory remains unsold. Thus cost of older inventory is assigned to cost of goods sold and that of newer inventory is assigned to ending inventory. The actual flow of inventory may not exactly match the first-in, first-out pattern (Watson and Zhang, 2005).
22.13 Periodic Review or Stock-taking. This is also another technique for inventory management, under this technique, items inventory position is reviewed periodically rather than at a fixed order point, the period or interval at which stock levels are reviewed depends on the importance of stock item, available quantity will be ordered at each reviewed to bring the stock level back to the maximum . This technique is important in that there is greater chance of elimination of obsolete items, also the purchasing load may be spread more evenly with possible economies of scale ordered from the supplier at the same time, in this technique large quantity discounts may be negotiated when arrange of stock items are ordered from the same supplier at the same time , there is also production economies however, if the usage rate changes shortly after review period stock out may occur before the next review date (Lysons 2000).
Use of this technique increases the chances of enjoying economies of scale especially when depending on one supplier; there would be also a sense of better utilization of organizational resources for scheduling (Ikiror, 2008). Periodic system inventory would be calculated once in a month or 6 months or a year, periodic means that the inventory would not be continually watched but instead would be assessed periodically the period being predicated by the cOmpany (Arjun 2010).
2.3 Relationship between Inventory Management and organizational Performance Proper management of inventory enables the organization to mitigate its inventory costs for example holding costs, stock out costs, lead time among others. Also, the organizations is
16 able to improve on its delivery time leading to quick delivery of goods and services. According to Walter (2013) integration is one of the inventory management tools used to achieve efficiency. In an integrated system, the organization and the supplier can be able to share information. This helps the supplier to know when the organization is out of stock, and this improves supply chain performance since the supplier is able to deliver goods and services on time.
To successfully manage inventory, top management and the employees should be actively involved in key decisions on supply of goods and services (Drurry, 2011). The organization should provide facilities and resources to manage inventory management (Eckert, 2012).This will help the organization to improve on efficiency and thus improve on supply chain performance Lapide (2010) established that most organizations that invest in modern technologies for example: vendor managed inventory, just in time systems and integration were efficient in their operations. It was further revealed that there existed a positive relationship between integration and supply chain performance.
A study by Schonberger (2008) on 50 manufacturing firms in America, found that supplier partnering contributes to supply chain performance. This is because supplier partnering improves on efficiency and minimizes inventory costs. Also, it reduces the cycle time by reducing the lead time. Gonzalez and Gonzalez (2010) did an analysis of an economic order quantity and re-order point inventory control model for service firms. It was found that most organizations that had well managed inventory systems exhibited efficient supply chain systems. This was as a result of use of modern technologies and competent employees who had adequate skills and knowledge in inventory management.
Inventory management models have helped organizations to become more competitive in terms of how they manage their inventories. The availability of technologies has made it possible for firms to conduct businesses on a daily basis with fewer inventories (Akintonye, 2014). Increased competitiveness in transportation has led to greater opportunities for shippers to purchase high-quality as well as customized services, thus reducing the need to carry large inventories. Lapide (2010) posit that overall sensitivity to the incurring of excess and non-value added cost has motivated many firms to identify ways to reduce and even eliminate unnecessary levels of inventory leading to improved supply chain performance.
17 2.4 Challenges of Implementing Inventory Management. implementation of inventory management is coupled by a myriad of challenges especially by organizations in developing countries; Schonberger (2008) found that inadequate resources for implementing inventory management is majorly a problem to most firms. Companies which fail to invest in inventory management technology and infrastructure lack effective inventory management systems. The firm should put proper infrastructure to maintain maximum and minimum levels of inventory. This enables the firm to save holding costs, stock out costs and lead time costs.
Song and Zipkin (2011) explains that lack of commitment by the top management of the organization is a major contributor to poor inventory management systems. In most cases the management fails to provide the required support to their subjects for effective implementation of inventory management for example the top management might fail to involve its supply chain partners in inventory management decisions. This brings about poor coordination, increased communication costs which negatively impact on the supply chain performance of the organization. Shapiro (2009) argues that if the management fails to provide facilities and resources required to effective manage inventory in the organization leads to failure to implement inventory management techniques.
According to Drurry (2011) some organizations especially in the developing economies the top management is reluctant to invest in modern technologies and equipment to facilitate inventory management this inhibits effective management of stocks. This prolongs the cycle time and delay delivery of goods and services to the final consumer and thus may negatively impact on supply chain performance. This causes lack of cooperation between the suppliers and the organization which eventually leads to delayed delivery of goods and services or no delivery in extreme cases. To succeed in inventory management the organization should ensure that it has reliable suppliers to supply goods and services on time.
Storing excess inventory can cost a lot of money and reducing the amount of inventory you keep on hand can reduce your carrying costs as well as the number of warehouses they maintain, or even allow them to eliminate those warehouses altogether. According to Dai and Kauffman (2001) lack of trained and competent professionals who understand the concept of inventory management is a major challenge to most organizations that seek to effectively manage their inventory systems.
18 2.5 Conceptual Framework The conceptual framework adopted for this study shows that inventory management influences organizational performance. These techniques include: Economic order Quantity, Radio Frequency Identification System, vendor managed inventory, enterprise resource planning, Just-In-Time, ABC analysis and E-procurement. The dependent variable was organizational performance. Therefore, the conceptual framework shows that organizational performance depend on inventory management used as presented in Figure 1.
Inventory Management Organizational performance (Independent variables) (Dependent Variables).
EOQ analysis o On time delivery.
a Cost reduction.
RFIS o Reduced lead time
o Supplier reliability Bar- coding ______— a Reduced stock out costs
VMI a Reduction of waste ______• Efficiency
a Optimal production
o Meets unexpected demands.
JIT
ABC Analysis
E- Procurement
[Th~RPi
Source; Author (~2018). Figure 1: Conceptual Framework
19 CHAPTER THREE RESEARCH METHODOLOGY
3.0 Introduction This chapter presents a description of research design, sampling design that was used to present data. It was collected in terms of data source and data collection methods and analyzed. It also suggested how data was processed and analyzed, limitations and delirnitations that were encountered.
3.1 Research design The research was descriptive in nature involving quantitative methods which was administered using questionnaires. The design was preferred because the researcher based on the views of respondents to reach at conclusions and made recommendations.
3.2 Study population The study covered Mukwano Group of Companies’ employees who were divided into departments and these included stores department, finance department, management and customer relations department.
3.3 Sample size The total sample comprising of 35 respondents was got from the departments selected above. And the sample size from the identified population is as shown in table 1 below.
Table 1: Sample size DEPARTMENT RESPONDENTS Stores department 10 Finance department 10 Management 5 Customer relations department 10 Total 35
20 3.4 Sampling methods procedure Stratified method was used to select the respondents from different departments of Mukwano Group of Companies; these included stores and procurement department, Accounting and finance and administration department. Stratified sampling was used because it gave every respondent in the survey population equal chances of being selected.
3.5 Data source Due to nature of the study both primary and secondary data sources were used. This was because the study based on both first-hand information and already existing data, this implied that the researcher opted to use primary and secondary data.
3.5.1 Primary data The researcher focused on Mukwano Group of Companies to collect primary data. Primary data comprised of ideas, opinions, comments and suggestions from the respondent through observations and questionnaires. Therefore the researcher used self-administrated questionnaires while collecting data from the respondents.
3.5.2 Secondary Data. For secondary data the researcher used secondary sources like text books, journals, articles, magazines, presentations concerning the subject matter of the study. These sources were consulted at the length to extract required information to answer the research questions. Therefore sources were extracted from internet and Mukwano Group of Companies to acquire more information pertaining the research questions.
3.6 Research instrument A questionnaire was prepared and administered to respondents. It was designed in a simple worded relatively short but comprehensive and closed ended so as to facilitate a high response rate and compliance of the clients.
3.7 1)ata processing and analysis: Data collected was edited, sorted, coded and tabulated to ensure accuracy, consistency, completeness and reliability.
21 3.8 Data analysis Data analysis was carried out using frequency distribution tables, graphs and percentage derived from the relationship between inventory management and organizational performance.
3.9 limitations and delimitations > Financial constraints. A lot of funds were needed to conduct the research study like printing, typing, buying published documents, calls and transport. This was reduced by soliciting funds from family members, friends, relatives and closest friends. > Time. There was limited time available to carry out the study extensively and yet the research had a lot to be covered. On the issue of time, the researcher utilized all the free time he had in addition to missing leisure so as to concentrate on research. And more so some respondents required having enough time to respond to the questions or to fill them at their leisure time. They delayed the research process. The researcher obtained telephone contacts of the respondents which made him get in touch in order to remind them to finish filling in the questionnaires in time. ~ The researcher faced the problem of non-response from respondents due to bias this was solved by humble and soft approach towards the respondents. ~ The researcher was denied some information especially in staff members fearing that the researcher can reveal such information like how tenders are awarded as well as purchase of some equipment however the researcher assured the respondents some confidentiality.
22 CHAPTER FOUR DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS
4.0 Introduction. This chapter consists of the presentation, analysis and interpretation of findings. The study was carried out at Mukwano group of companies’ located plot 30 Mukwano road Kampala-Uganda. The main objective was to examine the inventory management and organizational performance. Employees were expected to provide data related to the relationship, challenges and methods of inventory management in Mukwano Group of Companies. The employees from all departments were approached and interviewed and given questionnaires to fill to help collect information on inventory management.
SECTION A 4.1 General personal information. The background information of the respondents which was analyzed in this study included gender, age, educational qualifications, and duration in the organization.
4.1.1 Gender of the respondents Table 2: Distribution of respondents by gender
Gender —~ Frequency Percentage Male 23 65.7 Female 12 34.3 Total 35 100 Source: Primary data The results from the table 1 above show 65.7%, (23) of the respondents were male while 34.3% (12) of the respondents were female. This shows that the organization employees more men than females.
23 4.1.2 Age of the respondents Table 3: Distribution of respondents by age Age Frequency Percentage 18-25 10 28.6 26-35 10 28.6 36-45 5 14.3 46-55 5 14.3 S6and above 5 14.3 Total 35 100 Source: Primary data The findings from table 3 and figure 2 show that majority of the respondents were in the age bracket of 18-25years comprising of 10 (28.6%) respondents and 26-35 years followed by others of 36-45 years with 5 (14.3%)respondents, 46-55 years with 5(14.3%) respondents and 56 and above had 5(14.3%) respondents. This shows that that organization employees more youth.
Figure 2: Distribution of respondents by age
12
10
8
6 ii No of respondents
4
2
0 18-25 26-35 36-45 46-55 56 and more
Source: Primary data
24 4.1.3 Level of education Table 4: Respondent’s level of education Level of education Frequency Percentage PhD 02 5.7 ~ 05 14.3 Bachelor’s Degree 18 51.4 Diploma 05 14.3 Certificate 05 14.3 Total 35 100 Source: Primary data From the results in table 4, it is observed that 51 .4%(1 8) ,of the respondents had attained a Bachelor’s degree then 14.3%(5) of the respondents had diplomas, respondents who had attained master’s degree were represented by 14.3%(5) ,those who had certificates comprised of 14.3%(5) and the least were respondents with PHDs 5.7% (2). This shows that the organization employees more people with bachelor’s degree and this shows that the results were obtained from competent employees who were in good position to assess the inventory management techniques and performance of organizations.
4.1.4 Duration in the organization Table 5: Duration of the respondents in the organization No. of employees Duration in employment Percentage 10 Above 10 years 28.6 15 6-9 years 42.6 5 3-5 years 14.3 3 2 years 8.6 2 Below 2 years 5.7 ~_5 100 Source: Primary data The findings from the table 5, figure 3 show that majority of the respondents had been in employment for 6-9 years, 42.9% (15), these where followed by respondents who had been in employment with the organization for more than 10 years, 28.6% (10), While 8.6% (3) of the respondents had spent two years with the organization and 5.7% (2) of the respondents had spent less than two years with the organization.
25 This results show that majority of the respondents had been in the organization for more than a year which implies that they had enough experience about the activities of the organization.
Figure 3: Duration in employment
45
40
35
30
25 II Percentage 20
15
10
5
0 10 15 5 3 2
Source: Primary data
26 SECTION B 4.2 Relationship between inventory management and organizational performance. Using the scale below, please tick the most appropriate of your choice. Strongly disagree~1, Disagree2, Not sure3, Agree=4, strongly disagree=5 Table 5. Showing the relationship between inventory management and the performance of Mukwano group of companies.
Table 6: Showing the relationship between inventory management and the performance of Mukwano group of companies. Extent of Agreement 1 2 3 4 5 Total F% F% F% F % F% F %
Inventory management 01 (2.9) 03 ( 8.6) 08(22.9) 05 (14.3) 18 ( 51.4) 23 ( 65.7 leads to on time delivery in an organization inventory management 02 (5.7) 05(14.3) 03 (8.6) 10(28.6) 15 (42.9) 25 (71.5) helps to meet unexpected demand of customers Inventory management 02 (5.7) 03 (8.6) 10(28.6) 14( 40) 05 (14.3) 19 (54.3) reduces lead time. ~ Inventory management 0 ( 0) 03 (8.6) 02 (5.7) 10(28.6) 20 (57.1) 30 (85.7) helps to reduce stock obsolescence Inventory management 0 ( 0) 03 (8.6) 03( 8.6) 14 (40) 15 (42.9) 29 (82,9) minimizes stock outs Inventorymanagement 02(5.7) 03 (8.6) 08(22.9) 05(14.3) 18 (51.4) 23 (65.7 leads to optimal production Inventory management 0 (0) 02 (5.7) 03 (8.6) 10(28.6) 20 (57.1) 30 (71.4) is associated with various
27 carrying/holding costs
Effective inventory 03(8.6) 02 (5.7) 10(28,6) 10(28.6) 10 (28.6) 20 (85.7) management reduces supply disruptions or leads to increased supplier reliability Inventory management 03 (8.6) 02 (5.7) 10(28.6) 5 (14.3) 15 (42.9) 20 (57.2) leads to continuity of organizations inventorymanagement 0 (0) 03(8.6) 02(5.7) 10(28.6) 20 (57.1) 30 (85.7) has resulted into costs reduction Source: Primary data According to table 6 above, 51.4% (18) strongly agreed that inventory management improves employee motivation, 14.3 % (5) agreed, 22.9% (8) were not sure, 8.6% (3) disagreed and 2.9% (01) strongly disagreed. A total of 65.7% (23) were in agreement. This implies that inventory management leads to on time delivery in an organization like MGCs. The results showed that 42.9% (15) strongly agreed that inventory management helps to meet unexpected demands of customers, 28.6% (10) agreed as compared to 14.3% (5) who disagreed, 5.7% (2), who strongly disagreed and 8.6% (3) were not sure. This implies that inventory management helps to meet unexpected demand of customers. 14.3% (5) of the respondents strongly agreed that inventory management reduces lead time, 40% (14) agreed, whereas 8.6% (3) disagreed, 5.7% (2) strongly disagreed and 28.6% (10) were not sure. A total of 54.3% were in agreement. This implies that inventory management reduces lead time. The findings revealed that inventory management reduces stock obsolescence as revealed by 57.1 respondents who strongly agreed and 28.6% who agreed. This implies that inventory management reduces obsolescence of stock since stock will be kept at minimum. As to whether inventory management minimizes stock out situation, 42.9% (15) respondents strongly agreed, 40%(14) agreed as compared to 8.6% (3) who disagreed and 8.6% were not sure respectively. This implies that the organization can overcome situations of running out
28 of stock if inventory is well controlled. This helps to minimize costs associated with stock outs. The results showed that 51 .4%(1 8) strongly agreed that inventory management leads to optimal production, 14.3% (5) agreed as compared to 8.6% (3) who disagreed and 22.9% were not sure. A total of 65.7% respondents were in agreement. This implies that inventory management leads to optimal production at Mukwano group of companies. 57.1%(20) of the respondents strongly agreed that there are various costs associated with inventory management, 28.6% agreed, whereas 5.7% (2) disagreed, 8.6% (5) were not sure. This implies that there are various carrying costs associated with inventory management. 28.6% (10) of the responds strongly agreed that inventory management reduces supply disruptions, and 28.6% (10) agreed whereas 5.7% (2) disagreed, 8.6% (3) strongly disagreed and 28.6% (10) were not sure. A total of 85.7% (30) were in agreement. This shows that inventory management ensures steady supply of raw materials and other inputs, thereby reducing costs of disrupting production. 57.1% (20) of the respondents strongly agreed that inventory management has led to cost reduction, 28.6% (10) agreed, whereas 8.6% (3) disagreed and 5.7% (2) were not sure. A total of 85.7% (30) respondents were in agreement. This implies that inventory management largely contributed to cost reduction at Mukwano group of companies. 42.9% (15) of the respondents strongly agreed, 14.3% (5) agreed, 5.7% (2) disagreed and 8.6% (3) strongly disagreed. A total 57.2% of the respondents were in agreement. This implies that inventory management leads to continuity of organizations.
29 SECTION C 4.3 Methods of inventory management Used In organizations. Using the scale below, please tick the most appropriate response of your choice. Strongly disagree 1, disagree 2, not sure= 3, agree=4, strongly agree=5
Table 7: Showing the methods of inventory management techniques used in MGCs. Methods of 1 2 3 4 5 Total inventory F % F % F % F % F % F % management Economic order 2 (5.7) 3 (8.6) 5 (14.3) 5 (14.3) 20(57.1) 25 (71.4) quantity ABC Analysis 3 (8.6) 0 (00) 5 (14.3) 17(48.6) 10(28.6) 27 (77.2) VMI 5 (14.3) 5 (14.3) 10 (28.6) 10(28.6) 5 (14.3) 15 (42.9) Material requirement 3 (8.6) 10 (28.6) 2 (5.7) 10(28.6) 10(28.6) 20(57.1) planning Enterprise Resource 3 (8.6) 2 (5.7) 10(28.6) 5 (14.3) 15(42.9) 20 (57.1) Planning Just in time 10 (28.6) 10 (28.6) 5 (14.3) 5 (14.3) 5 (14.3) 10 (28.6) Periodic review 2 (5.7) 3 (8.6) 5 (14.3) 5 (14.3) 20(57.1) 25 (71.4) systems. Bar-coding 1 03 (8.6) 15 (42.9) 5 (14.3) 10(28.6) 2 (5.7) 12 (34.3) Source: Primary data According to table 7. Above 57.1% (20) of the respondents strongly agreed that economic order quantity is the method used at Mukwano group of companies, 14.3% (5) agreed whereas 8.6% (3) disagreed, 5.7% (2) strongly disagreed and 14.3% (5) were not sure. A total of 71.4% (25) were in agreement. This implies that economic order quantity is the method used to control inventory at MGCs. 28.6% (10) of the respondents strongly agreed that ABC Analysis is used in inventory management, 48.6% (17) agreed whereas 8.6% (3) strongly disagreed. A total of 77.2% Of the respondents were in agreement. 14.3% (5) of the respondents strongly agreed that VMI is used as a method of inventory management, 28.6% (10) agreed, whereas 14.3% (5) disagreed. 14.3% (5) strongly disagreed
30 and 28.6% were not sure. A total of 42.9% (20) were in agreement. This implies that material resource planning is used as a method of inventory management. 28.6% (10) of the respondents strongly agreed MRP 1 is used as a method of inventory management, 28.6% (10) agreed, whereas 28.6% (10) disagreed, 8.6% strongly disagreed and 5.7% (2) were not sure. A total of 57.2% (20) were in agreement. This implies that MRP is also used as a method of inventory management in MGCs. 42.9% (15) of the respondents strongly agreed that ERP is used as a method of inventory management, 14.3% (5) agreed whereas 8.6% (3) strongly disagreed, 5.7% (2) disagreed and 28.6% (10) were not sure. 14.3% (5) of the respondents strongly agreed that Mukwano group of companies uses JIT, 14.3% (5) agreed whereas 28.6% (10) disagreed, 28.6% (10) strongly disagreed and 14.3% (5) were not sure. A total of 28.6% were in agreement. This implies that Mukwano group of companies uses JIT. 57.1% (20) of the respondents strongly agreed that Mukwano group of companies uses Periodic Review systems, 14.3% (5) agreed whereas 8.6% (3) disagreed, 5.7% (2) strongly disagreed and 14.3% (5) were not sure. A total of 7 1.4% were in agreement. This means that MOCs uses Periodic Review system.
31 SECTION D 4.4 Challenges Faced by organizations in Managing inventory Using the scale below, please tick the most appropriate choice of your choice. Strongly disagree 1, disagree 2, not sure= 3, agree= 4 and strongly agree= 5
Table 8: Showing the challenges faced by MGCs in managing inventory. Challenges incurred during 1 2 3 4 5 Total ~ inventory management F % F % F % F % F % F % Orderingcosts 2(5.7) 3 (8.6 5(14.3) 10(28.6) 15(42.9) 25 (71.5) Stock-out costs 3 (8.6) 2 (5.7) 6 (17.1) 10(28.6) 14 (40) 24 (68.6) Insurance costs 2 (5.7) 5(14.3) 3 (8.6) 10(28.6) 16 (45.7) 26 (74.3) Materials handling costs 0 (0) 2 (5.7) 3 (8.6) 10(28.6) 20 (57.1) 30 (85.7) Depreciationcosts 2(5.7) 5(14.3) 3(8.6) 10(28.6) 15(42.9) 25(71.4) Inappropriate inventory 1 (2.9) 10(28.6) 5 (14.3 9 (25.7) 10 (28.60) 19 (54.3) management skills and knowledge Poorstafftraining 2(5.7) 3 (8.6) 5(14.3) 4(11.4) 15(42.9) 19(54.3) Poor communication 0 (0) 1 (2.9) 9(25.7) 10(28.6) 14(40) 24 (68.6) Insufficient man power 2 (5.7) 5 (14.3) 4 (11.4) 10(28.6) 16 (45.7) 26 (74.3) Poor planning 2 (5.7) 3 (8.6) 5 (14.3) 10(28.6) 15 (42.9) 25 (71.5) Lack of top management 0 (0) 1 (2.9) 5 (14.3) 10(28.6) 19 (54.3) 29 (82.9)
~i~__ Source: Primary data According to table 8. Above, 42.9% (15) strongly agreed that ordering costs are incurred as a challenge, 28.6% (10) agreed, whereas 8.6% (3) disagreed, 5.7% (2) strongly disagreed and 14.3% (5) were not sure. A total of 71.5% were in agreement. This shows that ordering cost is a challenge at Mukwano group of companies. The results showed that 40% (14) strongly agreed that there are stock-out costs associated with inventory management, 28.6% (10) agreed, 5.7% (2) disagreed, 8.6% (3) strongly disagreed and 17.1% (3) were not sure. A total of 68.6% (24) were in agreement; meaning that there are stock- out costs incurred. 45.7% (16) Of the respondents strongly agreed that insurance costs was a challenge at Mukwano group of companies, 28.6% (10) agreed whereas 14.3%(5) disagreed,5.7%(2)
32 strongly disagreed, 8.6%(3) were not sure. A total of 74.3% were in agreement. This implies that the organization incurs insurance costs as a challenge. 57.1 % (20) of the respondents strongly agreed that materials handling costs was a challenge at Mukwano group of companies, 28.6% (10) agreed, whereas 5.7% (2) disagreed and 8.6% (3) were not sure. A total of 85.7% was in agreement. This implies that Mukwano group of companies incurs materials handling costs. 42.9% (15) of the respondents strongly agreed that depreciation costs was a challenge in managing inventory management, 28.6% agreed as compared to 14.3% (5) who disagreed, 5.7% (2) strongly disagreed, 8.6% (3) were not sure. A total of 7 1.4% were in agreement. This implies that depreciation costs are a challenge faced in managing inventory at Mukwano group of companies. The results show that 28.6 % (10) strongly agreed that inappropriate inventory management skills and knowledge as a challenge in managing inventory, 25.7(9) agreed whereas 28.6 % (10) disagreed, 2.9% (01) strongly disagreed, 14.3% (5) were not sure. A total of 54.3% was in agreement. This implies that Mukwano group of companies faces a challenge of inappropriate inventory management skills and knowledge in managing inventory. 42.9% (15) of the respondents strongly agreed that poor staff training as a challenge in managing inventory management, 11.4 % (4) agreed, a total of 54.3% was in agreement. This implies that poor staff training is a challenge at Mukwano group of companies. 40 %( 14) of the respondents strongly agreed that poor communication was a challenge at Mukwano group of companies, 28.6% (10) agreed. A total of 68.6 % (24) were in agreement. This implies that insufficient communication is a challenge at Mukwano group of companies. 42.9 % (15) of the respondents strongly agreed that poor planning was a challenge at Mukwano group companies, 28.6 % (10) agreed, 8.6%(3) disagreed, 02 (5.7%) strongly disagreed and 14.3% (5) were not sure. A total of 71.5 %( 25) were in agreement. This implies that poor planning is a challenge at Mukwano group of companies. 54.3 % (19) of the respondents strongly agreed that lack of top management support was a challenge at Mukwano group of companies, 28.6% (10) agreed, 2.9% (1) disagreed and 14.3% (5) were not sure. A total of 82.9% was in agreement. This implies that Mukwano group of companies faces a challenge of lack of top management support
33 CHAPTER FIVE SUMMARY, RECOMMENDATIONS, CONCLUSION AND AREAS FOR FURTHER RESEARCH. 5.0 Introduction This chapter gives precise summary of the maj or findings of the study draws appropriate conclusions as well as recommendations, the purpose of the study to examine relationship between inventory management and organizations performance E.g MGCS
5.1 Summary of the major findings The summary of the major findings briefly highlights on the outcome of the research objectives as well as answering research questions.
5.1.1 The relationship between inventory management and organizational performance. The findings with regard to this objective reveal that the majority of the respondents agreed that inventory management leads to cost reduction. This means that inventory management contributes to increased cost effectiveness in an organization.
The study results revealed that effective inventory management reduces supply disruptions in the organization. This meant that inventory management helps to ensure steady supply of raw materials and other inputs thereby reducing costs of disrupting production. This view is in line with Nixon (2006) who posits that the aim of inventory management is to ensure that material required for production are supplied as when needed.
The study also found out that inventory management minimizes stock-out situations in the organization. This meant that the organization can overcome situations of running out of stock if stock is well controlled thereby minimizing costs associated with stock-outs. Similarly, Ogbo (2011) posits that the major objective of inventory management is to inform managers how much of a good to re-order, when to reorder the good, how frequently orders should be placed and what the appropriate safety stock is, for minimizing stock-outs.
The findings reveal that inventory management helps to meet unexpected demand of customers. This meant that by carrying out inventory management, the organization is aware of its customers and the services they need. This helps the organizations in the following
34 ways: improve its services, know its inventory turnover i.e. how fast suppliers can complete a particular process.
Furthermore, the findings revealed that another benefit of effective inventory management is reduction of stock obsolescence. It was noted that inventory management helps to avoid stock getting obsolete since minimum levels of stock are kept by an organization. Therefore, stock does not spend a lot of time in the store. These findings concur with assertions by Agha (2010) that inventory management eliminates overstocking, hence reducing a tie up of capital losses due to obsolescence or depreciation.
5.1.2 The inventory management methods used in MGCs The findings reveal that the major technique used in inventory management is Economic order quantity (EOQ). The study found out that this method involves using stock at hand to determine the reorder point. This enables the organization to maintain minimum stock levels thereby avoiding surpluses and stock-outs. This view concurs with assertions by Saxes (2003) that the economic order quantity (EOQ) attempts to reconcile the problem of how much stock should be added when stock is replenished. It is primarily used for purchase-to-stock distribution and makes purchase-to-stock manufacturers (Longer man, 2001).
The study found that another major technique which was used is Activity Based Costing Analysis (ABC Analysis). According to the findings, it was noted ABC analysis enables the organization to grade different items in the store according to their importance. Similarly, Fuller (2000) agrees that it is possible to utilize the concept of ABC model in formation of rational stock policy which should give the best possible service level to production while minimizing investment costs.
The findings showed that MGCs uses materials requirement planning (MRP I). These findings confirm assertions by Fuller (2000) that the main function of material requirement planning is to guarantee material availability that is used to procure the requirement quantities on time both for internal purpose and for sale and distribution.
Finally, the findings showed that MOCs uses periodic review systems. This technique helps organizations to minimize stock obsolescence, pilferage and stock-outs. Ogbo (2011) posits that the maj or objective of inventory management is to inform managers how much of a good to re-order, when to reorder the good, how frequently orders should be placed and what the appropriate safety stock is, for minimizing stock-outs.
5.1.3 The Challenges faced by MGCs in Managing inventory ~i’he study reveals several challenges that hinder the effective inventory management at MGCs; Accordingly, the findings revealed that most management problems originate from inaccurate demand forecasting. This leads the organization to stock more or less of the product hence leading to both surpluses and stock outs reactively. This view concurs with miller (2010), who points out that stock control problems stem from inaccurate forecast demand. In addition, the findings showed that effective inventory management is affected by poor communication in the stores which leads to stocking goods that are either below or above the minirnuiTi quantity.
The findings further revealed that a maj or problem hindering inventory management is poor planning. This leads to supply shortages hence interrupting production. These findings agree with Letinkaya & Lee (2000) who note that many inventory management problems are the result of poor execution, poor communication, and or poor decision making. This also in line with Jacobs and chase (2008) who observes that poor planning is endemic at all levels of inventory management and is often the result of poor execution and communication.
The study found out that another maj or hindrance to inventory management is inappropriate knowledge and skills in inventory management. This was noted to result into poor decision making, over stock replenishment and ordering hence causing stock outs and surpluses in the long run. This observation was equally supported by Achua (2011) who found that poor staff training and development to have created deficiencies such as taking wrong directions to reach decisions, process control errors and poor performance.
The findings also agree with Ruankaew and Williams (2013:207) from the United States who found that poor staff training and development is significantly associated with inventory inaccuracy.
36 5.2 Conclusions Managers are able to spend more time focusing on delivering high standards of quality, service and cleanliness, Customers are happy because they can be sure the item they want is on the menu that day.
Efficient inventory management is essential to any business. It enables the business to operate in a responsible way. Efficient use of materials means that society’s resources are being used well with very few wasted products. For example, fewer materials end up as waste in landfill sites. This leads to a reduction in costs, due to lower costs, the benefits can be passed on to customers, providing better service and lower prices. The reduction of waste provides a winlwin situation to the customers and wider society. inventory control system is a system to manage the inventory of stock (or out) in place of manual systems (or half automatic ones).The system will help the organization to keep track on its suppliers, customers and the item movement, be it stock in or out, or between different branches, or from the customers. The suggested system is easy to navigate through because it has a simple graphical user interface, thus giving the user the flexibility in his work to enhance and increase his production, which is what the organization wants.
5.3 Recommendations Basing on the study, a number of steps can be taken to improve inventory management in organizations.
The management should adopt more advanced inventory management techniques such as just in time (JIT) purchasing and Vendor managed inventory (VMI).
The management should install enough computers and ensure that these computers are supported with appropriate technology and should also adopt the use of mechanized material handling technique.
The management should put in place appropriate channels of communication throughout the organization so that user departments communicate their needs in the procurement and stores department.
37 Management of MGCS needs to ensure that inventory management techniques are practiced by people with trained qualification and skills.
Management of MGCS needs to provide support to workers in order to improve or proper implementation of inventory management techniques that are up-to-date.
5,4 Areas for further Research The researcher suggests that the following areas could be adopted for further study: The effect of stores management on service delivery in organizations. Warehousing management and cost effectiveness in organizations. ~l’he impact of supply chain information systems on organizational efficiency.
3 REFERENCES Kenneth’s Lysons purchasing and supply management book. David Piaseck, March (2009), “Optimizing safety stock” Available at http:// WWW. Inventory ops. Corn Accessed Oct 2009 I)emand forecasting, inventory management purchasing &Replenishment, Technology by Fritsch August 3 2015. Foundations of inventory management MC Graw —Hill, 2000 Agha, N.C. (2010). Inventory management and cost control in manufacturing industries in Nigeria. The Nigeria Journal of management research, 5(2): 173-188. Asef-Vaziri, A. & Laporte, G (2005). Loop based fricility planning and material handling. European journal of operational Research. 164. Chakravorty, S.S (2009). Improving distribution operations: Implementation of material handling systems. International journal of production Economics, n. 122. Chan, F.T.S.; IP, R.W.L. &H (2001). Integration of expect system with analytic hierarchy process for the design of material handling equz~ment selection system. Journal of material processing Technology, n. 116.
Fearon, H. E., D. W. Dobler and K.H.Killen. (1993).The purchasing Handbook. 5t1~ edition New York: McGraw-Hill, Inc. 8 19-820. Gamberi, M., Manzini, R. & Regattieri, A (2009). A new approach for the automatic analysis and control ofmaterial handling systems: Integrated layout flow analysis (ILFA). The international journal of Advanced manufacturing Technology, 41(1). Groover, M. P (2001). Automation. Production systems, and computer-integrated
manufacturing, 2h1d1 edition. New Jersey: Prentice-Hall. Loannou, G (2007). An integrated model and a decomposition-based approach for concurrent layout and material handling system. Computers & Industrial Engineering, n.52. Jacobs, F.R and chase, R.B. (2008). Operations and supply management: The core. McGraw- Hill/Irwin.
Kamukama Nixon. (2006) “Cost and management accounting” 1st edition. Bhatia H (1996), Operations management, Macmillan process ltd. Kent, (2002). Effect of stock control on profit of an organization. American production and inventory control society. Kulak, O.A (2005). Decision support system for fuzzy multi-attribute selection of material handling equipments. Expert systems with Applications, n. 29.
39 Le- Anh, T., & De Koster, M.B.M. (2006). A review of design and control of automated guided vehicle systems. European journal of operational research, 171(1), 1-23. Letinkaya, S. &Lee, C.Y.(2000). Stock Replenishment and shipment scheduling for vendor management inventory system management science, 46(2): 26-32. Lindkvist, R.G (Ed.).( 1985). Handbook of materials handling. West Sussex. Ellis Harwood. Bedford, United Kingdom: IFS Publications Ltd. Lonergan E. (2001) CLPS guide, “Introduction supply and materials management,” Gps London. Mach line, C (2008). A new kind of operations inventory: the preassembled kit. Journal of operations and supply chain management, 1(1). Malmborg, C and K. Altassan (2003). Analysis of storage assignment policies in less than unit load warehousing systems. International journal of production research, 36.
40 APPENDICES APPENDIX I: QUESTIONNAIRE
My name is Bagonza Hillary, a student of Kampala International University, pursuing a bachelor’s degree in Supply and Procurement management and I am carrying out a research on “The Inventory management and Organizational performance. A case study of Mukwano Group of Companies, Kampala district, Uganda”. You have been selected as one of the respondents for the study and the information you will give will be treated confidential and used purely for academic purposes. SECTION A: GENERAL PERSONAL INFORMATION (Tick where Appropriate) 1. Gander Male Female
2. Age range 1 8-25yrs 26-35yrs 36~45yrs 46-55yrs 56 & above
3. Level of education
Less than 2 years 3-5 years 6-9 years 10 & Above
41 SECTION B: THE RELATIONSHIP BETWEEN INVENTORY MANAGEMENT AND ORGANIZATIONAL PERFORMANCE. Using scale below, please tick the most appropriate response of your choice. Strongly disagree=l, Disagree=2, Not sure=3, Agree 4, Strongly Agree=5 RELATIONSHIP BETWEEN INVENTORY MANAGEMENT
AND ORGANIZATIONAL PERFORMANCE 1 2 a) Inventory management leads to on time delivery in an organization b) Inventory management helps to meet unexpected demand of customers c) Inventory management reduces lead-time d) Inventory management helps to reduce stock obsolescence e) Inventory management minimizes stock-outs f) Inventory management leads to optimal production ~ liwentory management is associated with var~us carrying/holding costs. h) Effective inventory management reduces supply disruptions or leads to increased supplier reliability
i) Inventory management leads to continuity of organization j) Inventory management has resulted into cost reduction
42 SECTION C. THE INVENTORY MANAGEMENT TECHNIQUES USED IN MGCs. Using the scale below, Please tick the most appropriate response of your choice. Strongly disagreel. Disagree2, Not sure3, Agree4, strongly Agree=5 INVENTORY MANAGEMENT 1 2 3 4 I 5 TECHNIQUES USED a) Economic order Quantity b) ABC analysis c) Vendor managed inventory d) Materials requirement planning e) Enterprise resource planning f) Just in time (JIT) g) Periodic review system
--~_ ~--~ -___~~li
SECTION 1): THE CHALLENGES HINDERING EFFECTIVE INVENTORY MANAGEMENT AT MUKWANO GROUP OF COMPANIES. Using the scale below, Please tick the most appropriate response of your choice. Strongly disagree~l. Disagree2, Not sure=3, Agree=4, strongly Agree=5 CHALLENGES HINDERING INVENTORY 1 2 3 4 5 MANAGEMENT a) Ordering costs b) Stock out costs c) Insurance costs
— d) Material handling costs e) Depreciation costs I) Inappropriate inventory management skills and knowledge g)Poor staff training h) ~mmunication i) Insufficient manpower j) Poor planning k) Lack of top management support
END.
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