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.