A RESEARCH ON COCACOLA NAIROBI, KENYA 1

JOMO KENYATTA UNIVERSITY OF AGRICULTURE

AND TECHNOLOGY

BACHELOR OF SUPPLY CHAIN MANAGEMENT

YEAR 3. 2

UNIT CODE: HPS 2305

UNIT NAME: RESEARCH METHODS

LECTURER: DON CONRAD MOGAKA

GROUP 15

PREPARED BY:

OKUMU BRUSE OLUOCH; HDE223-1327/2019

MAINA MARTIN NGANGA; HDE223-1318/2019

ONDICHO SALLY MWANGO; HDE223-1352/2019

GROUP D
A RESEARCH ON COCACOLA NAIROBI, KENYA 2

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Worldwide, inventory is regarded as vital to the successful functioning of any manufacturing

company as it is the lifeblood and the heart of any manufacturing system (Yao, X, 2018).

Inventories are the stocks of raw materials, work in progress, finished goods and supplies

held by a manufacturing company to facilitate operations in the production process (Vrat, P.,

2014). Inventories can either be assets as well as items held in the ordinary course of business

or they can be goods that will be consumed or used in the production of goods to be sold

(Vrat, P., 2014).

Inventory is a significant constituent of a manufacturing company and ought to be managed

prudently considering that it ties up a substantial percentage of an organizational capital. The

main objectives of firms are to boost productivity with fewer resources while also enhancing

quality (Nsikan, Etim & Uduak, 2015). The Inventory Management' implies supervision and

control of the ordering, storage, as well as use of components that a firm used in the process

of producing items it sold over and above supervision and control of quantities of the finished

products. As opined by Muhayimana (2015), the inventory of a firm is one of its chief

resources and embodies a venture that is tied up till the article is sold or used in producing the

final merchandise.

Inventory as a business concept evolved mainly due to the increasing complexity of

supplying one’s business with materials and slipping out products in an increasing globalized

supply chain and inventory management (Muhayimana, 2015). Historically, inventory

management has often been associated with either too much inventory and too little

management or too little inventory and too much management. There can be severe penalties
A RESEARCH ON COCACOLA NAIROBI, KENYA 3

for excesses in either direction. Inventory problems have proliferated as technological

progress has increased the organization’s ability to produce goods in greater quantities faster

and with multiple design variations. The public has compounded the problem by its

receptiveness to variations and frequent design changes (Liu, Y, 2020)

According to studies conducted by Luthubua, (2014) on inventory management states that

inventory storage, tracking, and insurance all cost money. Mismanaged inventories are likely

to cause significant financial issues for a company, whether they result in an inventory

surplus or shortage. Inventory is denoted as the sum of goods or materials held in a store or

any other place at a specific time. The owners of stores should understand the exact number

of items that are held in their stores for the purpose of placing orders or controlling losses.

According to Rajendran, S., & Srinivas, S. (2020), the managers of manufacturing firms

should understand the number of units of their products available for various customers’

orders. In this regard, all types of businesses rely on an inventory count to offer answers.

There are diverse ways that organizations can handle their inventory, but it all depends on

what kind of business enterprise it is.

A RESEARCH ON COCACOLA NAIROBI, KENYA 4

1.1.1 Global Perspective of the Study

The strategic benefits of inventory management and production planning and scheduling have

been apparent. Studies done in Japan, Europe and America have shown the importance of

inventory management to a firm’s effectiveness and efficiency in manufacturing industries.

Japanese firms received much-deserved attention in the global community because of their

remarkable performance on quality and inventory management. The tremendous interest in

Just-in-Time manufacturing indicates that work-in-progress inventory management is also an

area ripe for improvement (Okuda, A., Ishigaki, 2018).

Nevertheless, most of the studies focus on the American firms in the manufacturing sector

because of the many revolutions in inventory policies. ( ) observed that the extent of

emphasis on inventories among American firms reached the financial markets where there

were rules that would reward firm that controlled inventories and punish those that did not do

so. This is because, during the 21 st century, Japanese manufacturing companies made

substantial market share gains in the US markets in a range of industries including most

notably the automobile industry (Koga, K. 2018).

A survey of 351 management accountants by the National Association of Accountants (NAA)

in a cross-section of industries to assess current inventory management practices in the

International Journal of Economics, Commerce and Management, United Kingdom Licensed

under Creative Common Page 1633 U.S indicated that: just-in-time inventory management

techniques are increasing in popularity, as are automated time-phased inventory re-order

system (Munyao, R. M., Omulo, 2015). The survey further established that 85 percent of

respondents have no plans to change their inventory controls and that actual business

experience is relied upon more than inventory quantitative models. Also, the survey

established that some inventory management practices such as assessing inventory levels and
A RESEARCH ON COCACOLA NAIROBI, KENYA 5

balancing stock-out costs against expenses related to higher inventory levels are seldom used

in practice (Munyao, R. M., Omulo, 2015).

According to Lysons (2016), inventory management systems have been implemented in USA

companies which have supported in maintaining raw material supplied from suppliers, work

in progress and finished goods are stored in increasing service delivery and also reduces

costs. They help in maintaining supply and demand where it controls and monitors all orders

done by the procurement department in manufacturing company so as to help to maintain an

uninterrupted flow of goods coming in and out of the manufacturing section, store or

warehouses (Jonsson & Mattsson, 2016).

Effective inventory management processes helps increase operational efficiency of firms;

improves customer service; reduces inventory and distribution costs; and enables businesses

track items and their expiration dates consequently balance between availability and demand.

In recent years, a number of firms have faced numerous challenges especially in inventory

management or material control, thus affecting the performance of manufacturing companies.

There have been cases of materials overstocking which eventually get expired or out dated,

under stocking, lack of stock-taking, theft of materials by workers and delays in deliveries of

materials into the organizations among others.

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1.1.2 Regional Perspective of the Study

In response to the fact that inventory is a separate asset, inventory management in Africa has

grown considerably evolved to address the rising issues in most business units. It was also

discovered that the companies are able to manage its idle stock without incurring extra

expenditures thanks to a well-designed policy. This study also offered a foundation for

inventory planning and control. The study also found that companies need to address various

issues in their inventory management

According to Rajeev (2016) it is high time for manufacturing companies in Africa to

implement effective inventory management systems in order enhance competitive advantage.

Handling of inventories such as raw materials, work in progress, and finished goods are

stored as buffer stock in order to manage running out of goods (Salawati, Tinggi & Kadri,

2015). Too much of handling of stock especially finished goods occupy a lot of space hence

increasing inventory costs such as handling costs and also negatively affects business

operations (Dimitrios, 2016). As Rajeev (2016) argues, there is need for manufacturing

companies in Africa to embrace efficiency inventory management systems as an approach to

enhance their competitiveness.

Inventory decisions are high risk and high impact for the supply chain management of an

organization. According to Dimitrios (2015), inventory management practices have come to

be recognized as a vital problem area needing top priority. Studies conducted in Nigeria by

Anichebe and Agu (2013) show that maintaining optimal replenishment level call for firms to

еnѕurе that buѕinеѕѕеѕ hаvе the right quantity of goods on hand to avoid ѕtock-outѕ, to

prevent ѕpoilаgе/theft, аѕ well аѕ the right proportion of goods for proper accounting and

placement of stocked goods. Firms which neglect the mаnаgеmеnt of invеntoriеѕ will hаvе to

face ѕеriouѕ problems relating to their long-term profitability, growth, and ѕurvivаl.
A RESEARCH ON COCACOLA NAIROBI, KENYA 7

1.1.3 Local Perspective of the Study

A study conducted in Kenya by Naliaka and Namusonge (2015) identified that inventory

management affects competitive advantage of manufacturing firms. The same study further

concludes that a firm is able to compete based on quality and delivery of customer orders on

time. Inventory investment takes up a big percentage of a firm’s total budget yet remains one

of the most neglected management areas in firms (Naliaka and Namusonge, 2015). Providing

the right quantity and quality of raw materials is one of the major goals of managing

inventory efficiently.

However, one mitigation to achieving this goal is knowing when to order, the quantity to

order and frequency of ordering so that the organization always maintains the right level of

raw material and finished product at minimum inventory total costs (Wangari & Kagiri,

2015) without also having shortage or excess of materials. In Kenya, while some

manufacturing firms have adopted the modern inventory management techniques, most of the

firms are still lagging behind relying on the traditional methods despite the many benefits that

are generated from the use of modern inventory management techniques.

The study by (Munyao, Omulo, Mwithiga, & Chepkulei, 2015) was most specifically

objective in finding out the inventory management techniques used by textile, rolling mills

and food beverage manufacturing firms in Mombasa county, Kenya. A sample size of 45

manufacturing firms from 150 was adopted based on the stratified random sampling

technique. Copies of the questionnaire were used as the major instrument for data collection.

Result of the study showed that action level methods, just-in-time, periodic review

technique, material requirement planning 1 and economic order quantity are the most

frequently adopted inventory management technique with action level being the most
A RESEARCH ON COCACOLA NAIROBI, KENYA 8

adopted method notwithstanding the efficiency of material requirement planning 1 in

production performance.

In Kenya, more organizations such as large business enterprises have implemented inventory

management systems in achieving firm performance and competitive advantage (Nyabwanga

& Ojera, 2014). They did a study on 71 manufacturing firms and 129 business companies in

Kisii County where they found out around 70% of the firms and companies selected had

adopted inventory management systems in firm operations hence increasing competitive

advantage. Irungu and Wanjau, 2014 asserted that new upcoming supermarkets are

continuing adopting inventory management systems which improves customer service,

business efficiency and retail firm performance.

Kenya manufacturing companies such as in Eldoret are facing competition from other

manufacturing companies where they need to adopt efficient techniques of controlling and

assessing the inventory is managed by eliminating waste in the production process, reducing

holding costs, ordering costs and many others. Many companies in Kenya have adopted

inventory management systems in improving their business operations but still they

experience challenges in managing of inventory and increasing operation costs. For the

companies to survive in the market they need to implement advance stock management

systems (Kenya Association of Manufactures, 2016). Therefore, it is upon this background

information the study determined how inventory management systems affect performance of

manufacturing companies in Kenya.

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1.1.4 The Coca-Cola Company Kenya

The Coca-Cola Company is the world's largest beverage company, offering over 500

sparkling and still brands to consumers. Coca-Cola is the world's most valuable brand,

including brands such as Diet Coke, Fanta, Sprite, and Coca-Cola Zero. It began operations in

Kenya in 1948 through direct investment, establishing a production factory on a quarter-acre

plot of land in Nairobi, the country's capital city. The company's products became popular

among Kenyans, prompting management to construct a second production line in Mombasa,

Kenya's seaside town.

The company has expanded through joint ventures with strategic partners and franchises. The

Coca-Cola Company Ltd made a decision to build their regional East & Central Africa Office

Headquarters in the Upper Hill area of Nairobi. This head office is the headquarters of their

operations in 27 African countries. Coca-Cola is the country's leading non-alcoholic beverage

company at the moment. The corporation has at least 22 manufacturing lines and 7 factories

around the country. Coca-Cola provides a diverse selection of beverages to the Kenyan

market, including soft drinks such as Coca-Cola, Fanta, Sprite, and Stoney, as well as Dasani

drinking water.

This industry group comprises establishments primarily engaged in manufacturing soft drinks

and ice; purifying and bottling water; and manufacturing brewery, winery, and distillery

products. Therefore being the largest manufacturer of beverages in Kenya Coca-Cola

Company Kenya Nairobi faces a lot of inventory management related issues because of the

stock that it has to frequently keep in order to meet the never ending orders. The company has

to constantly keep a lot pf inventory hence faces numerous of setbacks in managing them
A RESEARCH ON COCACOLA NAIROBI, KENYA 10

1.2 Statement of the Problem

In an ideal inventory control situation, new inventory should come in at the same time old

inventory is depleted. Accomplishing this requires accurate, ip to date shipping and receiving

data. By maintaining this data, a manufacturing company can better understand itt turnover

rate and avoid long term shortages. In an ideal situation, there exists a balanced ordering

enough to meet demand without exceeding predicted turnover. The ABC method of stock

ordering applied using the principle that 80% of a company’s profits come from 20% of its

products. The A items are those 20% while the B & C are those products that receive less

orders. In an ideal situation, tracking inventory is one of the specs all points have accurate

data from which to pull information. This involves two methods that is periodic and

perpetual. Periodic inventory systems involve taking inventory after a given period of time

whereas perpetual inventory control system insists on keeping stock all year round. In an

ideal situation supplies take responsibility for quality problems and move forward to address

it quickly in order to ensure the products meet the set standards and have goals that align the

company’s ethical and regional compliance (Oliver Knack, 2018)

Supply failure results from supplied quantities failing to meet the specifications of clients

who have ordered for them. This is an issue of suppliers’ breach of contracts and failure to

deliver the product that was agreed to be delivered. For instance, when the supplier fails to

deliver on time, the results will be a flawed sourcing strategy. This is contrary to an ideal

situation where suppliers manufacture products that meet the standards and deliver them on

time

The problem to be investigated by the proposed research is that beverage manufacturing in

Kenya are perceived to be failing partly due to a lack of sound inventory-management

practices. Taking into account the fact that a typical manufacturing company’s working
A RESEARCH ON COCACOLA NAIROBI, KENYA 11

capital mostly comprises inventory, and also considering that manufacturing companies are

perceived as the best possible vehicle to reduce unemployment, research is required to obtain

an understanding of Coca-Cola Company, Nairobi, Kenya usage of sound inventory-

management practices. Despite the availability of Government assistance to the

manufacturing companies, there is still a high failure rate. The failure rate raises a question

whether appropriate assistance has been given to the manufacturing companies and in the

right functional areas, such as working capital management in general and in inventory

management in particular.

According to the number of studies, there are six inventory management tools namely the

ABC concept, item control programs, inventory count procedures, disposition procedures,

order quantity determination and vendor rating systems. Theories about the basic functions of

inventory and the objectives of inventory control appear to be well known and understood in

the industry. However, the big gap comes in on how many companies actually use the afore

management tools. The most popularly used is the ABC approach. But can’t the companies

successfully classify their products? Is it possible to use a single inventory management tool

or a combination? The research gaps have not yet been covered and possible answer have not

yet been settled on.

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1.3 Objectives of the Study

1.3.1 General Objective

The main purpose of the study will be to evaluate the role of inventory management

optimization on the performance of food and beverage manufacturing companies in Kenya;

basing our study on Coca Cola Manufacturing Company Kenya.

1.3.2 Specific Objectives

1. To assess the role of inventory control techniques on the performance of Coca-Cola

company Nairobi, Kenya.

2. To analyze the essence of information flow and the effects it has on inventory

management at Coca-Cola Company Nairobi, Kenya.

3. To examine the role of supplier management at Coca-Cola company Nairobi, Kenya.

4. To analyze how lack of proper planning affects inventory management at Coca-Cola

Company Nairobi, Kenya.

1.4 Research Questions.

1. What is the role of inventory control techniques on the performance of Coca-Cola

Company Nairobi, Kenya?

2. Why information flow is essential on inventory management at Coca-Cola Company

Nairobi, Kenya?

3. How supplier management is linked to inventory management at Coca-Cola Company

Nairobi, Kenya?

4. How lack of proper planning affects inventory management at Coca-Cola Company

Nairobi, Kenya?
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1.5 Significance of the Study

Inventory management form an important part of the organization’s plan. It is for this

primary reason that utmost care must be taken into consideration to make sure that efficient

and effective inventory management are adopted. The results of this study would be a useful

tool to the following:

1.5.1 The Researcher

Research expands our knowledge base about the inventory management techniques used in

Coca cola Company Nairobi Kenya .It also builds our personal experience in the field of

production .The study also gives us latest information and discoveries being made to prevent

us from falling behind and giving inaccurate information. Furthermore, it enables formulation

of plans and strategies in supply and proper inventory management so as to compete

favourably and meet customer demands by satisfying their wants.

1.5.2 The Industry, Manufacturing Industry

The results of this study are significant since it would inform consumer goods manufacturing

companies regarding efficiency and effectiveness of inventory management, as well as

recommend actions for improvement. The study would also help the manufacturing

companies to plan and control manufacturing processes in the implementation of the project,

as well as guaranteeing efficient utilization of resources. As a result of the findings and

recommendations offered in the conclusion of this research, the manufacturing industry will

be able to understand the level influence of inventory management on production volume and

take corrective actions.

1.5.3 The Coca-Cola Company Kenya

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The research will assist the Coca-Cola Company Kenya in developing and adapting suitable

inventory control strategies. It will also allow the company to realize the flaws in inventory

management that have always led to its bad performance. This study will assist the company

in determining consumption rates and when extra stock should be ordered through the

placement of orders. As a result of the findings and recommendations offered in the

conclusion of this research, Coca-Cola Company Kenya will be able to understand the level

influence of inventory management on production volume and take corrective actions. The

study will also assist managers in understanding how inventory management and control are

handled and how they affect an organization's sustainability.

1.5.4 The Government

Through the study, the government may advice the various manufacturing on the best way to

manage inventory to ensure self-sustainability in making sound financing and investment

decision as well as to safeguard the health of its citizens from food poisoning and other

atrocities within Kenya. The findings may also be useful to the Ministry of labour

considering that it would enable the ministry to know how the raw materials are converted

into the final products and how they can reach the final consumer in the best condition

possible.

1.5.5 Researchers, Scholars and Academicians

The research’s results would provide practical basis upon which further researches in the

areas of inventory management would be carried out. The research study may also contribute

to area of operations management as well as to the supply chain. This study will also aid

other researchers to build knowledge on inventory management strategies enabling them to

have a better understanding hence enhancing their decision making capabilities. As with any

other study. The findings will be used as a reference for future studies and will promote
A RESEARCH ON COCACOLA NAIROBI, KENYA 15

a better inventory management and manufacturing company sustainability. Lastly, the

engagement with the respondents will increase the researcher's knowledge, abilities, and

comprehension.

1.6 Scope of the Study.

Factors such as the cost of borrowing money to stock enough inventory can greatly influence

inventory management. In this case, your finances may fluctuate according to the economy,

and it is wise to keep an eye on changing interest rates to help plan the company’s spending.

The tax costs associated with stocking inventory is another factor that can influence inventory

management. This is especially salient when preparing for the end of year tax returns.

Suppliers also can have a huge influence on inventory control. Successful businesses require

reliable suppliers in order to plan spending and arrange production. An unreliable or

unpredictable supplier can have huge knock-on effects for inventory control. It can be a good

idea to ensure you have a reliable back up supplier to prevent product shortages or delays in

the manufacturing process. The target population was Coca cola's customer base and the

company’s employees.

Operations management encompasses a range of procedures associated with the use of

available productive resources, the system or production, design, product management,

supply chain management, as well as other processes. Mostly, operations management is

needed for considering the acquisition, development, and use of resources (including

materials and ingredients) needed for delivering a product that customers desire. Coca-Cola,

being one of the most popular companies in the world, has a complex operations management

system, which includes a network of bottlers and production and distribution systems. Thus,
A RESEARCH ON COCACOLA NAIROBI, KENYA 16

operations management at Coca-Cola is done with the help of multiple players. The duration

of the research was six months spanning. From. February to July 2021.

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