ODA BULTUM UNIVERSIRTY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

EFFECTIVENESS OF INVENTORY MANAGEMENT
PRACTICE IN CASE OF ODA BULTUM UNIVERSITY

By: Hamza Ahmed

Id No :0916/09

Advisor: Mulunesh. (M.A)

Chiro ,Ethiopia

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 TABLE OF CONTENTS

TABLE OF CONTENTS ................................................................................................ii

CHAPTER ONE ............................................................................................................. 1
INTRODUCTION........................................................................................................... 1
1.1 Background of the study ........................................................................................ 1
1.2. Statement of the problem ...................................................................................... 2
1.3. Objectives of the study.......................................................................................... 3
1.3.1. General objectives.......................................................................................... 3
1.3.2. Specific objectives of the study ...................................................................... 3
1.4. Significance of the study ....................................................................................... 4
1.5. Scope of the study................................................................................................. 4
CHAPTER TWO ............................................................................................................ 5
LITERATURE REVIEW ................................................................................................ 5
2.1 Definition of inventory .......................................................................................... 5
2.2. Functions of inventory management ..................................................................... 5
2.3. The need for inventory .......................................................................................... 6
2.4. Inventory stores .................................................................................................... 6
2.5 Alms of inventory management ............................................................................. 6
2.6 Significance of inventory ....................................................................................... 6
2.7 Types of inventories .............................................................................................. 7
2.8. Relevant inventory costs ....................................................................................... 7
2.9. Alternative inventory system ................................................................................ 9
2.10 Inventory costing methods ................................................................................... 9
2.11 Inventory decision ............................................................................................. 10
2.12 Tools of inventory management ......................................................................... 10
2.13 What is inventory control ................................................................................... 10
2.14. Inventory control techniques ............................................................................. 10
2.15 Economic order quantity (EOQ) ........................................................................ 11
2.16 Stock taking ....................................................................................................... 11
2.17 Re-order level .................................................................................................... 12

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CHAPTER THREE ....................................................................................................... 13
RESEARCH METHODOLOGY ................................................................................... 13
3.1. The study area and population............................................................................. 13
3.2. Source of data’.................................................................................................... 13
3.3. Method of data collection ................................................................................... 14
3.4. Sample size and sampling technique ................................................................... 14
3.4.1. Sample size .................................................................................................. 14
3.4.2. Sampling techniques .................................................................................... 15
3.5 Method of data analysis & presentation ............................................................... 15
CHAPTER FOUR ........................................................... Error! Bookmark not defined.
4. TIME AND COST BUDGET ...................................... Error! Bookmark not defined.
4.1. Time Schedule ...................................................... Error! Bookmark not defined.
4.2. Cost Budget .......................................................... Error! Bookmark not defined.
REFERENCES.............................................................................................................. 17

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Acronym

(P) The purchase cost

(C) Ordering or set up cost
(H) Carrying costs or holding costs

(FIFO) First – in first – out

(Llfo) Last – in first – our
(EOQ) Economic order quantity

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 CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The research will be conducted on the assessment of inventory management practice in
Oda Bultum University. The research provides academic knowledge of conducting
research and to give solutions for the University affecting inventory management of the
University. Inventory is the stock of any item or resource in University where as
inventory management is the process of reducing inventory cost, keeping inventory from
under or over stocking and determining order and recorder points in order to achieve
organizational goals.

The main objective of this study is to assess the inventory management practice of Oda
Bultum University.

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1.2. Statement of the problem
Inventory management functions the “integrated process that operation, the firms and the
value chains inventory policy” The reactive, or pull distribution channel. An alternative
philosophy is planning through the productivity schedules products movement and
allocation thought the channel according to demand and product availability.
Over stocking is storing materials over the needed quantity. And it may result in damage
of materials because of limited place to keep it. Under stocking on the contrary is
maintaining small number of material below the demand of the campus it has negative
impact on the over work of the campus to achieve its goals. Bad issuing sometimes also
sending the materials from store without keeping the requisition of user department.
The study will assess the overall activity of Oda Bultum University management section
and also the research will answer.
1. What is the strength of the existing inventory management system?
2. What is the weakness of the existing inventory management system?
3. Did the campus have inventory management professionals?
4. What type of inventory control system the campus used?
5. What factors affect effective inventory management ?
6. What are tools and techniques of inventory control system?
7. What type of stock taking system the University uses?
8. How can the campus determines the re-order level and order level?

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1.3. Objectives of the study
The study has general and specific objectives.

1.3.1. General objectives

General objectives of the study is to assess inventory management practice of Oda
Bultum University and provide possible solutions for the problems that will be identified.

1.3.2. Specific objectives of the study

The following are specific objectives of study
- To identify the types of inventory control systems applied by Oda Bultum
university
- To examine how inventory management function is critical for the firm
- To investigate the strength how the existing inventory management system
- To investigate the weakness how the existing inventory management system
- To identify tools and techniques of inventory control system
- Identify support the management and financial accounting practice of the firm.
- To examine the campus affecting inventory management practice of the
University
- TO Examine How can the campus determines the re-order level and order level

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1.4. Significance of the study
The research is believed to have the following importance.
- The study will show the over all inventory management system
- The study will suggest solutions for the problem related to inventory management
function .
- It enables employees of inventory management evaluate them selves
- It will indicate the strengths and weakness of the firm inventory management
practice.

1.5. Scope of the study

The study will be limited to assess the inventory management practice at specific area of
Oda Bultum University. The time duration of this research will be from April up to
August 2011.

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 CHAPTER TWO

LITERATURE REVIEW

2.1 Definition of inventory

Inventory can be defined as follow
Inventory refers to any kind of resources having economic value and is maintained to full
fill the present and future needs of the main campus.
- Inventory is a physical stock of items that business or production enterprise keeps
in hand for efficient running of affairs or its production.
- Inventory is the quantity of goods, raw materials or other resources that are idle at
any given point of time.
- Inventory control is the means by which materials of the correct quantity and
quality is made available as a when required with due regard to economy in
storage and ordering costs and working capital.
- It is also defined as the systematic location, storage and recording of goods in
such away that desired degree of service can be made to the operating shops at a
minimum ultimate cost” (S.C Sharma (1999). P. 509, 512). Inventory and its
management are related both to materials management and physical distribution
management. Material management and physical distribution management
together constitute logistics management, the process of management both he
movement and storage of materials and materials from their source to the point of
ultimate consumption sons (2006b). P. 315).

2.2. Functions of inventory management

Inventory management cover wide variety of activities in the in venture management
there is some functions the function are
 To carry adequate stock to avoid stock out
 To ensure optimum level of stock so that total inventory cost is minimized (Nair,
2002, PP 575-576)
 To bay the right quantity of perishable items so that loss in cured by unsold items
are minimized.

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  To order sufficiently higher quantity at a time so that repeated ordering and costs
incurred in such manner can be reduced.

2.3. The need for inventory

Inventory is essential for every thing to get their resources efficiently and effectively.
 To gain economies in purchasing beyond current requirements.
 To maintain service stock while replacement stocks are in transit.
 To protect against variations in demand. (S. C. Sharma (1999) P. 509)

2.4. Inventory stores

The words inventory and stores are some times confused these must there fore be clearly
under stood stores means all those articles which are kept in stores while inventory
comprise stores as well as materials in transit materials in products finished products and
stocking company’s shows rooms and distribution centers which have not been sold out.

2.5 Alms of inventory management

There is aims for every thing to do some thing. There fore the aims of inventory
management are: Commented [M1]: Source
https://www.careerride.com/fa-inventory-mangement-objectives.aspx

- Provide both internal and external customers with required service levels in terms
of quantity and order rate fill.
- Ascertain present and future requirements for all types of inventory and to avoid
stocking while avoiding bad in production.
- Keeps cost to minimum by variety reduction economical lot sizes and analysis of
costs incurred in obtaining and carrying inventories.
- Provide upstream and downstream inventory visibility to the supply chain.

2.6 Significance of inventory

The word inventory refers to any stock on hand at a given time. If materials are held for
future use in an idle or unproductive sate waiting its intended purpose.

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The relative importance of inventory management to an organization can b arrange by the
over all investment in inventory and the magnitude of materials costs for all products.
Inventory so late one part of the system from the next to allow each work independently
absorb the stock of for cost errors, and permit the effective utilization of inventory
management to control the lot sizes to that the over all costs associated with the purchase
or manufacture are at a minimum
Poor inventory management implies having enough item available when needed but not
so much that an unnecessarily cost surplus incurred inventories are assort of lubrication
for the supply production supply distribution system that protects it from excessive
friction.

2.7 Types of inventories

It is very important to classify inventory in to different type and classification so as to
help or to make easy in managing or control of inventory at every stage (levels). There
are four basic type of inventories
I. Raw materials
- These are items purchased from supplier to be used as in put to the production
process.
- They will be modified or transformed to the finished goods.

II. Finished goods

Are final product available for sale distribution or storage
III. Goods in process
- Are partially? Completed products that are still in the production process. They
represent the materials waiting fur there processing.
IV. Supplies
- Are inventory items consumed in the normal function of the campus. That are not
part of the final product.

2.8. Relevant inventory costs

The objective of materials management are to minimize inventory investments. To
maximize customer service. It is a plan to see that, the goals cam be inconsistent or even

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indirect conflicts the role of the materials management is thus to balance the objective in
relation to the existing conditions and environmental limitations. The basic object of
inventory management is to maximize customer service through maintaining appropriate
amount of inventory with minimum possible cost. Inventory costs are costs associated
with the operation of an inventory system. Thus the relevant costs included inventory are

a) The purchase cost (P)

The purchase costs of an item are the unit purchase it is obtained from an external source
or the unit production costs it is produced internally. For the purchase items it is the
purchase costless modified for different quantity levels manufacturing items the unit cost
include direct labor or campus overhead.

b) Ordering or set up cost (C)

This is the cost of placing an order. This cost directly with the number of order or setups
placed and not at all weigh the size of the order. The ordering cost included making
analyzing materials inspecting materials follows up orders and doing the processing
necessary to complete the transaction.

c) Carrying costs or holding costs (H)

There are costs of items (inventories) in storage. This cost vary with the level of
inventory and occasionally with the length of item an item is held. The greater the level
of inventory overtime. The higher the caring cost caring casts can be included the costs of
losing the use of funds field up in inventory like storages casts such as rent of building
heating cooling righting security, record keeping, deprecation obsolescence, product
deterioration etc.

d) Stock out cost (shortage cost)

This is the cost as a result of not having items in storage. This can bring looses of good
will profit loss of incur back order cost and delay in the customer service. Establishing
the correct quantity to order from vendors or the size of lots submitted to the firms
productive facilities involves a search for the minimum total cost resulting from the

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combined effects of fewer individual costs holding costs, setup costs ordering costs and
storage costs (Tersine, R.J, 1994. PP. 13-15)

2.9. Alternative inventory system

There are two types of inventory systems that aid to control inventory in stock
A) Perpetual system
Maintenance a continua’s record of the physical quantities inventory. It records the
purchase of each item of inventory. This system is essential if adequate management
planning and control over inventory are to be maintained and stock outs avoided. A firm
uses this system must have physical count at least once a year or to confirm the balance
in the inventory account.

B) Periodic inventory system

A campus using a periodic system doesn’t maintain continues record of the physical
quantities of inventory on hand. It takes physical counts periodically. Commented [M2]: Source

https://www.accountingtools.com/articles/2017/5/13/periodic-inventory-system

2.10 Inventory costing methods

There are three methods of inventory costing method. These are:-

1. First – in first – out (fifo)

This method is based on the assumption that costs should be computed out in the order in
which incurred. Inventory are thus stated in terms of recent costs.

2. Last – in first – our (Llfo)

Is a method based on the assumption that goods should be charged our the latest cost be
the latest cost be the first that are charge out. Inventories are thus stated in terms of
earliest cost. Commented [M3]: Source

https://thelawdictionary.org/last-in-first-out-llfo

3. Weighted average method

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Is a method based on the assumption that goods should be charged out at an average cost
such average being influenced by the number of unites acquired at the price. Inventories
are stated at the same weighted average cost.

2.11 Inventory decision

In the inventory management decision encompasses the principles procures and
techniques for deciding what to order, haw much to order, when it is needed and how and
where to store if there decisions at each of these levees should be consistent with decision
at the other level and should support the campus objective by achieving desired level of
customer crevice and achieving in venture inventory objective (Black store Hoffman
1991).

2.12 Tools of inventory management

There are four tools of inventory management these are Commented [M4]: Source

https://www.gigatrak.com/inventory-tools

1. ABC – analysis
2. Bar-coding
3. Radio frequency identification (RFID)
4. Inventory soft ware

2.13 What is inventory control

Inventory, control may be said to be planned method where by investment in inventories
held in stocks is maintained in such a manner that it ensures proper and smooth flow of
materials needed for production operations as will as sales while at the same time, the
total costs of investment in inventories is kept at minimum (A.K. Data (2001). P. 108).

2.14. Inventory control techniques

There are a number of techniques which play an important role in the inventory control
program. These techniques are very helpful in rationalization of inventory control
approach and assist in formulation of inventory control policies. Commented [M5]: Source

www.yourarticlelibrary.com/inventory-control/6-most-important-techniques-of-inventory

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The following are the important tools and techniques as inventory control: these are
- Determination of stock level
- Determination of safety stock
- Determination of economic order quantity
- Just in time.
- Stock cared and bin card etc.

2.15 Economic order quantity (EOQ)

EOA model as a mathematical tool for determining the order quantity that minimize the
cast of ordering and holding of inventory.
EOQ is the size of order which gives maximum economy in purchasing any material and
ultimately contributed as to wards maintaining the material the optimum level and at
minimum cost. Which setting EOQ ordering cost and carrying casts are taken in to
account. At EOQ level. Ordering cost and cost of carrying are equal when total of these
two casts are lowest. Commented [M6]: Source

https://www.inc.com/encyclopedia/economic-order-quantity-eoq.html

2(annualrequirement)(ostperorder )
EOQ =
Annualholding costperunit

2.16 Stock taking

Stock taking refers to the process of testing or checking the stores record with the actual
items stocked in the store. The store received at any time should Shaw the exact potential
quantity of raw materials and parts which are available for use. Stock taking which
enables to know whether there are any discrepancies between actual count and record
(i.e. It could be shortage of overage) in the postings, whether any pilferage is taking
place, and whether the materials are good in condition. Commented [M7]: Source

https://en.wikipedia.org/wiki/Stock-taking
Stocktaking is also sometimes called internal audit of stores usually external activity is a
must for any organization for conducting check on the account. Commented [M8]: Source

https://en.wikipedia.org/wiki/Stock-taking

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2.17 Re-order level
The replenishment order is given either on out side firm or to the production department.
At the time of issue replacement order stock should be sufficient for each item so that
demand (ether per raw materials by production shops or of finished goods by customers)
can reasonably be met from the stock until replenishment this stock level when
replenishment order is issued is known as re-order level. Commented [M9]: Source

https://www.profitbooks.net/reorder-level-calculation/
This level is determined for each item by compromising between the cost of maintaining
these stocks and the disservice to the customer if this demand is not met in time. Commented [M10]: Source

https://www.profitbooks.net/reorder-level-calculation/

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 CHAPTER THREE

RESEARCH METHODOLOGY

3.1. The study area and population

Chiro town is found in Ethiopia, Oromia region, Western Hararghe Zone. The area is
locate 326 km away from Addis Ababa the capital city of Ethiopia to the eastern direction
and locate between 70 52'15" to 9' 20' 43" Northern latitude and 400 03' 33" to 400 34' 13"
Eastern longitude and also locate in the Amar mountain, it has altitude of 1826 meters
above means sea level. The study will ask a list of question and the total population or the
target population for this study is that 22, 1485 from this113, 235 female and 108,250
male. It is the administrative center of the Western Hararghe Zone. It is bounded on the
South Kuni, on the West by Guba Koricha, on the North West by Mieso, on the North by
Doba, on the North east by Tulo, and the Galetti river which separates it from Mesela and
the East Hararghe Zone ( source western Hararaghe Zone work Micro finance office,
2009).
The research is targeted to study inventory management practice of Oda Bultum
University. The proposals have selected employees from the total population of 750
employees and descriptive method of sample size determination from the available total
population. Our targeted sample size ----------------

3.2. Source of data’

There are two types of data that will be used for this study
1. Primary data is the data that will be collected mainly from employees of inventory
management and related departments of the campus.

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 2. secondary data is the data that will be gathered from written materials of the
campus and others
Like - books
- other researcher
- internets

3.3. Method of data collection

Primary data will be collected by Visual inspection, Observation, Questionnaire assess
the current condition of the study area, field survey will consist of only looking for
where the information found. The survey help to get information about the sources of
data
To get secondary data, different documents from concerned bodies of the main campus
will be referred and in addition other secondary sources like books, internets and other
researches will be used. Secondary data will be conducted design data on existing
scenario and which have already been collected by someone else and which have
already been passed through the statistical process.

3.4. Sample size and sampling technique

3.4.1. Sample size

Even though almost all employees in the University uses materials to perform their
responsibility, because of cost and time constraints the sample will be selected mainly
from inventory management section and related department of the accounting,
management economics.
Sampling is the process of using small number of item or part of large population to make
conclusion about the whole population , In this study ,simple random sampling
techniques will be used i.e. simple random sampling techniques are which an individual
will be selecting randomly base on the appropriate characteristics required for the
members. The techniques need low cost, it is convenient to use, and it will be less time
consuming. .

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From total target population of OBU 100 people (store keeper ,store manger Finance
,accountant,finance Head,Auditor, OBU employees respondents will be selected
purposefully to reach directly concerned target population with the research objectives.
From this, I will select the sample of by the following formula.
n=N/1+(Ne 2)
Where, n = sample size
N= total population
e= margin of error
The proposals have selected merchants from the total population of 80 employees and the
other parties are taken as a sample by using descriptive method of sample size
determination from the available total population.

3.4.2. Sampling techniques

To select the needed number of individuals from employees, convenience sampling of
non-probability sampling will be used. This technique permits the research to have
complete freedom of selecting individual who can provided relevant data.

3.5 Method of data analysis & presentation

After collecting data the collected data will be Processed it will be further described by
using tabulation percentage and graphs so that finding will be easy to be understood by
every one.

Finally the out come of the project will be presented on written material and detailed oral:
presentation

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 Chapter Four
4.1. Schedule and Budgeting
Table3.1. Schedule
No. Activities Timeline

Mar Apr May June July Aug Sep

1 Research Title submission 

2 Proposal draft preparation 

3 Proposal writing  

4 Proposal first draft submission 

5 Proposal final paper submission 

6 Data collection 

7 Data interpretation and analysis  

8 Computer writing 

9 Research paper first draft submission 

10 Research paper final submission 

Table3.2. Budgeting
No. Activities Expenditure in birr

1 Paper 400

2 Transportation and data collection cost 500

3 Writing and printing 1000

4 Miscellaneous expenses 500

Total 2,400

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 economic-order-quantity-eoq.html control/6- https://www.inc.com/encyclopedia/

 fa-inventory-mangement-objectives.aspx https://www.careerride.com/

 inventory-tools https://www.gigatrak.com/
 last-in-first-out-llfo https://thelawdictionary.org/
 Material management, inventory control, 2nd edition A.K. Data (2001),.
 Materials Management an integrated Approach, 24th ed prentice hall of India
private limited P.Gopalakrishamn and M. sundaresan (2003),.
 most-important-techniques-of-inventorywww.yourarticlelibrary.com/inventory-
 net/reorder-level-calculation/https://www.profitbooks.
 Purchasing and supply management text and cases, 6th edition, MC. Graw-Hill.
Dobler, D.D, and Burt D, N (1996)
 Production management, 2nd ed, CBS publishers and Distributions. Ahuja (1998),
Lysons K. and Frringtion (2006).
 Production Management 1st ed Khanna Publishers. (S.C sharm (1999),
 periodic-inventory-system https://www.accountingtools.com/articles/2017/5/13/
 Stock-taking https://en.wikipedia.org/wiki/
 The integrated supply chain process, 1st ed. Tata Mcgraw Hill publishing
company Limited, New Dill. Donald J.Bowersox and David J.closs (1996
 Warehouse Management and inventory control, New Delhiviles. J.P saxena
(2003), K.K.

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