Professional Documents
Culture Documents
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1.2. Background of the organization
The company principles are credo, charter, vision and mission is based on
long- lasting core values and clear strategic framework. The company strategy
builds up on this strong foundation with a focus on continued successful
development of the company. All these principles set district standards of
behavior and provide a high degree of transparency, therefore giving life to the
“spirit of private limited company.
The company vision aspire to see the KK private limited company attained a
significant position in the regional and international trading house, in
supplying and rendering a wide range of commodities and services respectively,
and there by, gain a strong presence in the world wide business area. We will
earn our customers’ enthusiasm through contionus improvement driven by
the integrity, team work and innovation of KK private limited company people.
The mission of the company is together with our customers and partners, we
develop, manufacture, supply and render commodities and services which
acquire, transmit, control and record precess information enabling our
customer to operate and manage processes in a safe reliable economical
profitable and environmentally responsible manner.
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The company mainly purchase its raw materials and other trading items for its
textile factories from well known suppliers in Korea, Indonesia, and Chaina.
Chemicals and other dyestuffs are acquired from European countries like
Germany, Switzerland, Spain, and Belgium. The company sales and
distributions are composed of five sales shops within the capital, Addis Ababa,
two branch offices in Shashemene, Dessie, three big ware houses, about ten
delivery trucks and competent personnel and more than 100 well known
distributors through out the nation.
One of the most produce in KK private limited company blankets these item the
major institutional buyers are ministry of defense, federal polices and Addis
Ababa police, Ethiopian red cross, Oxfam, trade union, associations and other
regional offices. The company of facilitate its business activity and fulfill its
working capital requirement has relation ship with the well known financier of
Ethiopia, these are commercial bank of Ethiopia, Abyssinia bank, Awash
international bank and united bank.
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1.3. Statement of the problem
As the researcher browse the website related to inventory management, hold
the following facts that necessitate for this study to be conducted which has a
research topic of assessment of inventory management in textile industry,
particularly KK textile industry. In the first place inventory management is
the process of tracking product orders keeping adequate amount of products
on hand and organizing products in warehouse and retail location. And also
inventory management is the active control program which allows the
management of sales, purchases and payments with good inventory
management, companies are able to monitor what shipments they have coming
in and going out to customer, allowing them to keep just enough inventory in
stock to meet demand.
Then inventory management lets companies enjoy many benfits which include
achieving inventory balance, using resource wisely, cutting costs, saving time
and becoming more effient and planning a head for seasonal changes in
demand.
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1.4. Objective of the study
1.4.1. General Objective
The main objective of the study is to assess the inventory management of KK
textile industry.
1.4.2. Specific Objectives
1. To examine the industry inventory management in appropriate way.
2. To compare and contrast the actual practice of KK textile industry
inventory management with the theoretical aspects of inventory
management.
3. To determine the industry strength and weaknesses with regarding to
inventory management .
4. To give some constructive suggestions and recommendation based on the
fact of the study.
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1.6. Significance of the study
The researcher has an expectation, the study will provide a clear picture
about the value or importance of inventory management in KK textile
industry and to identify problem concerning inventory management. It is
believed that the study was clearly reflect, what to see any opportunities to
utilize, to give relevant recommendation, suggestion and solution that help top
management as well as the organization to make good decision concerning
about inventory management and help in designing a better systematic form
for inventory management system. In addition, to give an overview of the
factory use of inventory management industry to external bodies.
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1.9. Structure of the study
The study was arranged in four chapters. The first chapter deals with the
introductory part mainly about back ground of the study, background of the
organization, statement of the problem, objective of the study, significance of
the study, scope of the study and limitation of the study. The second chapter
concerned with related literature review describes the detail theoretical aspect
of the study.The third chapter deals with data collection methods and
methodology and the fourth chapter provide data presentation, analysation and
interpretation. Finally, the last chapter provide summary, conclusion and
recommendations.
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Chapter Two: Literature Review
The word inventory has been defined in many ways. Generally three definitions
have been chosen which to be more appropriate to the topic developed in this
study.
Inventory are stock of raw materials, work in process and finished good. That
appear at numberous points throughout a firms production and logistic
channel (Ballsu 2004, p.326). According to chase Jocobs and Aquilando (2004,
p.545) inventory is the stock of any item or resource used in an organization.
Where as Mosich (1988 p.396) inventory is can be defined as the amount of
raw materials, finidhed goods and work in process to be stocked for the smooth
running of a plants operation. So a manufacture company will hold stocks as
the adequate amount of material resource in a transformation system. Many
authors have defined the word management in different ways. Plunket and
Ather 1986 defined management as the process of setting and achieving goals
through the execution of five basic management functions (Planning,
organizing, staffing, directing and controlling that utilize human, Financial and
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material resource. Therefore, inventory management is the process of tracking
product orders keeping adequate amount of products on hand and organizing
products in Warehouse and retail location. And also inventory management is
the active control program which allows the management of sales, purchases
and payments.
Particularly stevenson (1999 p.77) the reason for hold inventories are
discussed in detail in the following paragraphs.
First, inventory helps to project against stock outs, delayed delivers and
expected increase in the risk of shortages lays can occurs because of weather
conditions, supplies stock outs, delivers of wrong materials, quality problem
and soon. The risk of shortage can be reduce by holding safety stock which are
stocks in excess of average demand to compensate for variability in demand
and lead time.
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descriptions more recently, company have taken a closer book at buffer
inventories recognizing the cost and spaces they require and realizing that
finding and eliminating sources of description can greatly decreased the need
for decoupling operations.
Cycle stock is inventory that results from the replenishment process and is
required in order to meet demand under condition of certainty that is when the
firm can predict demand and rends times almost perfectly.
Inventories in transit are items that are in routs from one location to other.
They may be considered parts of cycle stock even through they are not
shipment until after they arrive at the destination.
Dead stock is inventories that no one want at least immediately. The question
is why any organization would incur the costs associated with holding these
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item rather than simply disposing of them. One reason might be that
management expected demand to resume at some point in the future.
Invites three basic cost holding transaction ordering and shortage costs
holding or carrying costs relates to physically having items in shortage costs.
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Are the cost of ordering and receiving inventory they are the cost that vary with
the actual placement on order. These includes determining how much is
needed, preparing invoices, shipping costs, inspecting goods up on arrival for
quality and quantity and motive goods to temporary storage ordering cost are
generally expressed as fixed dollar amount per order regardless of order size
shortage costs result when demand exceed the supply of inventory on hand.
Economic order quantity is that inventory level that minimize the toal ordering
and caring cost.
Economic order quantity is that inventory level that minimize the total ordering
cost and caring (holding) cost. Ordering cost increase with the number of
orders thus the more frequently inventory, on other hand it the firm maintain
large inventory levels there will be few orders placed and ordering cost will be
relatively small thus ordering costs decrease with increasing size of inventory.
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Caring cost vary with inventory size. This behavior is control to that of ordering
costs which decline with increase in inventory size, the economic size of
inventory would thus depend on trade off between caring costs and ordering
costs.
Thus the formula to determine the recording point when safety stock is
maintained as follows:
Maximum level is the material at the lowest rate of consumption which could
be expected, if delivery was received in shortest possible time.
The additional of the reorder quality shows the highest point of material which
would be allowed the formula that determine maximum level is as follows.
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Reorder point is the problem how much to order is solves by descrmining the
economic order quantity. Yet the answer should be thought to the record
problem when to order. This is the problem of determining the reorder point.
The reorder point is that inventory level at which on order should be placed to
replenish the inventory. To determine the order point under certainty to be
should know lead time, average usage and economic order quantity.
Lead time is the normal takes in replenishing inventory after the order has
been placed by cersainty that means usage and lead time do not fluctuate
under such a situation reorder point is simply that inventory level which will
be:-
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quantity job number description etc. when the materials are transferred fom
the store room.
A few years ago there was atendency on the part of many companies to
manufacture all components in house now more and more companies are
adopting the practice out sourcing.
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The following steps are involved in implementing the A,B,C analysis classify the
items of inventories determining the expected use in units and the price per
unit for each item.
1. Determine the total value of each item by multiplying the expexted units
by its units price.
2. Rank the item in according with the total value giving first rank to the
item, with highest total value.
3. Combine items on the basis of their relative value to form three
categories A, B, and C (impandey p. 633)
The inventory turn over ratio indicate the efficiency of the firm in producing
and selling its product. It’s product calculated by:-
One of the most effective of ensuring out investment in inventory under control
is to check all item inventory on regular basic once physical check has been
carried the result can to be compared with theoretical or book inventories any
discrepancies noted and acted on there are two chief method of inventory
checking (Willamson, 1998). These are discussed in detail in the following
subsection paragraph.
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2.7.1. Perpetual inventory
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Analysis of investment in inventory it is a major responsibility of the finical
manager to over see the movement of inventory is an investment decision. The
analysis should therefore, involve an evaluation of the profitability of
investment decision. The goal of the inventory policy will maximize the firm
value at a point the inventory policy will maximize at which intermental or
margional return from the investment in inventory equals the incremental or
marginal cost of funds used to finance the investment inventory.
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Chapter Three: Research methodology and Design
This refer to the variables over which the data for the study has been collected
and the method that used in the data collection, analysis and interpretations.
The researcher used the primary data and secondary data sources but more
focus on primary data because obtained enough information in great depth,
avoid on interpretation of the answer for the question. And also, avoid refusal
to give the right information as well as it is flexible. The primary data source of
this study included the employees and the related departments such as,
purchasing department, production department , store department and also
the management. Besides of primary data source, secondary data source and
also included in this study. These information has been obtained through last
five years for financial statement.
The data were obtained from two types of source. These are primary and
secondary data source. The researcher used the primary data collection
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technique in order to get first hand information from the respondents. And the
primary data can be collected by preparing a questionnaire. The questionnaire
types which the researcher used is structured questionnaire. These types of
questionnaire was used to in value a close ended questions and open ended
questions. And also the researcher widely used direct observation and
unstructured interview method in order to get reliable information because
flexibility of questions to questioning and the researcher is allowed to much
freedom. The researcher in addition used the secondary data collected from
the consecutive last five years (2007-2011) financial statement of the industry.
Using all population for data collection is difficult for one researcher. As
sampling is using small part of large population to make conclusion about the
whole population. The researcher selected 20 respondents from different
department such as store department, production department and purchase
department through establishing judgmental sampling technique..
In this study the sampling method used to acquire the respondents was non-
probability judgmental sampling technique. This technique has been used
sampling method, because to selected respondents that have the expected
good knowledge about the inventory management in the industry as well as the
researcher permit to have complete freedom of selecting individual who can
provide relevant data and to chose sample element according to the researcher
wish/desire.
After the necessary data has been collected from both primary and secondary
sources, the next assignment had data processing and analyzing. Thus, the
researcher was used tabulation and percentage which helps the researcher to
present all the collected information in the simplest form to arrive at effective
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conclusions and possible recommendations. Data processing is an activity
which involves editing, coding and classifying data to make it suitable for
further analysis, then the compiled data has processed. After all the relevant
data has been collected and processed, then they have been analysis has
further transformation of the processed data groups. Finally, the out cocme of
the project would be presented on written material and detailed oral
presentation.
Once the analysis process is completed, the interpretation of all data was
follows, it has been presented using different tools such as table and
percentage to make clear the relation among variable. Finally, the analyzed
data has been presented in easy understand way to draw conclusion and find
out the major factors that affect inventory management.
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Chapter Four : Data Presentation, Analysation and Interpretation
Primary data analysis are collected from the KK textile industry employees on
the basis of structure questionnaire and unstructured interview data. The
respondents was selected based on their employment status who controls
inventory from store department, production department and purchase
department.
In this point of the study the data gathered from primary sources are analysis
and interpret. A total of 16 questions were distributed to the employee of KK
textile company and all respondents are returned.
Sex No Percentage
Male 12 60%
Female 8 40%
Total 20 100%
Table 4.1: Respondents’ Sex distribution
Source: Questionnaire
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As its can been seen from the above information the respondents 60% are
males and 40% are females. From this table the researcher gets that most of
the employees are males.
Alternative No Percentage
Degree and above 6 30%
Diploma 8 40%
Other specify 4 20%
Experience 2 10%
Total 20 100%
Table 4.2: Respondents’ educational level
Source: Questionnaire
As it can been seen from the above information 30% of the respondents have
degree and above 8(40%) diploma 4(20%) other specify and 2 (10%) have
experience. From this information, the researcher gets the organization more
employee by they have diploma and degree and above. Hence, most of the
employees are educated. So that the companies internal control over inventory
is strong.
Age No Percentage
18 – 25 2 10%
26 – 35 12 60%
36 – 41 6 30%
42 – 66 0 0%
Total 20 100%
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Table 4:3: Respondents’ age distribution
Source: Questionnaire
According to this table information 10% of the employees are found at the age
of between 13-25, 60% of age between 26-35, 30% of age between 36-41 and
0% of age between 42-66. as the researcher get the organization is more
employees by age between 26-35. Hence, most of the employees of the company
are young. From this, the researcher conclude that the company have strong
labor force in order to achieve its objective.
Response No Percentage
Yes 16 80%
Do you known the term
No 4 20%
inventory management?
Total 20 100%
Table 4.4: the term inventory management
Source: Questionnaire
Show in table 4.4 16(80%) respondents, response that yes the tem inventory
management question and 4(20%) respondents response do not know the term
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inventory management. From this information, the researcher can conclude
that there is inventory management in the industry.
Response No Percentage
Does your industry has Yes 16 80%
policies and procedures No 4 20%
to keep inventory that Total 20 100%
avoid excess inventory
Table 4.5: the industry policies & procedures
Source: Questionnaire
Shown in table 4.5, 16(80%) respondents response that KK textile industry has
does polices and procedure to keep inventory that avoid excess inventory and
4(20%) respondents said that the industry does not polices and procedure to
keep inventory level that ensure not going out of excess inventory. Hence, the
researcher conclude that, the industry has policies and procedures to keep
inventory that avoid excess inventory.
Response No Percentage
Is there optimal level of Yes 16 80%
inventory management in No 4 20%
the industry? Total 20 100%
Table 4.6: The industry regarding optimal level of inventory.
Source: Questionnaire
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As can be observed from table 4.6, 16 out of 20 or 80% respondents respond
that textile industry has optimal inventory and 4 out of 20 or 20% of
respondents respond that the industry has excess inventory or stocking. From
this information the researcher conclude that there is optimal level of inventory
management, particularly from table 5 the industry follows inventory
management policies, procedures and techniques.
Response No Percentage
Is there production - Delivery on time 18 90%
department delivery - Some time there late
finished goods delivery 2 10%
inventory? - Does not delivery on
0 0%
time
20 100%
Total
Table 4.7: Time delivered finished goods
Source: Questionnaire
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Total
Table4. 8: Coordination among department
Source: Questionnaire
Response No Percentage
Which inventory control Perpetual 0 0%
system does the Periodic 20 100%
industry use? Both 0 0%
Table 4.9: Control system
Source : Questionnaire
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on KK textile industry there is a huge quantities and low unit price of its
inventory.
Response No Percentage
How many time the Quarterly 18 90%
industry count (check) Semi annually 2 10%
its inventory? Annually 0 0%
Total 20 100%
Table 4.10: Checking inventory items
Source: Questionnaire
Response No Percentage
How often is inventory Always 0 0%
returned by customers a Most often 0 0%
result of defect? Few 13 65%
None 7 35%
Total 20 100%
Table 4. 11: Inventory returned by customer
Source: questionnaire
As can be observed from table 4.11, 0 out of 20 (0%) respondents response that
the inventory returned by customers as a result of defect the question for
always and most often, 13 out of 20 or 65% that respondents respond
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inventory returned by customer as a result of defect for the question. Few and
7 out of 20 or 35% the respondents respond inventory returned by customer as
a result of defect for the question none. Hence, the researcher understand that
there is a problem of production efficiency in the production department.
Response No Percentage
Which type of inventory -Economic order quantity 5 25%
management technique - Just in time 4 20%
does the firm follow? - ABC 4 20%
- Stock level 7 35%
- All of the above 0 0%
Total 20 100%
Table 4.12: Inventory management technique
Source: Questionnaire
As can be seen from table 4.12, 5 out of 25% respondents respond the industry
follow economic order quality. This inventory management technique determine
that how mach inventory is add. When inventory replaced and when to order
determine that the recorder point at which an order should be placed an
inventory. 4 out of 20 or 20% respondents respond the industry follow just in
time, and ABC technique, 7 out of 20 or 35% respondents respond the industry
follow stock level its technique in order to guard over stocking or under stock
kept material with the appropriate level of the material by fixing stock level,
0(0%) the inventory management technique follow economic order quantity,
ABC techniques stock level and just in time.
From this information, the researcher understand that the industry follow good
inventory management techniques because in stock level technique there are re
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order level, minimum level maximum level and economic order quantity or
reorder quantity.
Response No Percentage
Does the industry Yes 18 90%
manage it’s inventory in No 2 10%
appropriate way? Total 20 100%
Table 4.13: managing inventory
Source: Questionnaire
As can be observed from table 4.14, 20(100%) respondents respond that the
industry apply very carful to buy the right item, at the right price and in the
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right quantity. So, not any one response (0%) respond. The industry is nothing
to done this question. Hence, the researcher conclude that the industry
purchased the right items and the right quantities. Thus, help to minimize
wastage inventory additionally, industry purchased at the right price that help
to minimize production cost.
To determine how effectively the firm managing inventory and also to gain an
indication of liquidity of inventory, we compute the inventory turn over ratio.
Inventory turn over is one aspect of ration analysis which measure how
effectively managing its inventories.
This ratio tell as how many time inventory is turned over in to receivable
through sale during the year. The higher the inventory turnover, the more
efficient the inventory management of the firm. The following schedules show
the industry is turn over ratio (actual)
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The above table shows the inventory turn over ratio of the industry. The turn
over of inventory in the industry varies from year to year. The inventory turn
over ratio in 2007 was 1.53 times. In 2008 the industry turnover ratio shows in
1.37 times and it is the lowest ratio compared with the rest four years turn
over ratio. Hence, inventory interface with operating efficiency and customer
service additionally, the inventory sold before an expiration date.
Table 4.16 shown that inventory turn over rate and the average of inventory on
the industry are inversely proportion. The higher the inventory turn over ratio,
the lower inversely stay in the industry. In 2008 the industry is stock is turned
with in 262 days and it’s the largest days an inventory stay in the industry
relative to the succeeding for years. In the 2007, the improve in turn over
became apparent which reduce the average age of inventory in industry to 235
days. In 2009, the inventory average age of inventory 246 days.
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The industry experienced high average age of inventory on 2007, 2008 and 246
are with 235,262 and 246 days respectively, this shows that there was saw
stock turnover according to the data obtained from the industry. To the current
year average age of inventory is more better than in which the industry enjoy
high profit resulted from large sale volume. From this information, the
researcher conclude that the amount of holding inventory decrease due to the
increasement of inventory turn over.
In the year 2009 turn over was increases on preceding year and its was 1.46
times. In the two years 2010 and 2011 turn over ratio is 3.09 and 3.93
respectively.
Generally, both the inventory turnover and overage age of inventory point that
there was slow moving items in industry which is turn result a cost problem
lived storage and depreciation in the past four years. Conversely the industry’s
present performance in inventory control is better than the past years, hence
turn over is increased and it derive the inventory interface with operating
efficiency and customer services. The more the numbers of days the inventory
study in the industry, the less the inventory is turned count receivable. This
may arise storage and depreciation cost that will be change against the profit of
the industry perishable goods and age controls must sold before an expiration
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date. The usual simplifying assumptions made in inventory controls that
holding cost are proportional to the size of inventory investment
In this section the researcher conclude the major finding of the study focusing
on the existing strengths and weaknesses of inventory management in KK
textile industry. And also on the basis finding the researcher give suggestions
and recommendations to maintain the strengths and to tackle or reduce the
problem are forwarded.
The main objective of the finding is to assess the crucial problems currently
prevailing in KK textile industry. In KK textile industry there is an effective and
efficient inventory management. The industry has implemented various
technique of control system in controlling raw material in progress and finished
goods inventory. Particularly finished goods are controlled by the concept stock
level item the industry selected this technique in such way that high value item
are strongly controlled and great emphasis is given than lower level items. The
industry selected this method for cost consideration. There are also scientific
technique made by the industry cyclical and fixed order quantities. The former
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concept has been developed for consume able materials which are required by
production section to smoother out of the production activity, while the later
system has been used the control high value items closely to maintain
relatively low investment in inventory.
In the reorder point of inventory level are determine how many inventory are
reorder for a selling and production activity. The industry used the minimum
inventory level used for each store departments and its important the supplier
are leads that products.
The inventory turnover ratio of the five years periods fluctuation was large
variance, the inventory turnover of 2010 (3.93) it indicate the industry effective
and efficient control on inventory. But proceeding years inventory turnover, the
industry experience with relative low turn over. The decline in turn over
indicates the industry has high stock inventory. Generally both the inventory
turn over and the average value show that there was slow moving items in the
industry in turn result a cost problem such as storage and depreciation cost in
the past four years.
5.2. Conclusion
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problem of inventory obsolescent, due to the fact that the inventory is delivered
on time.
Regarding to purchased inventory, the industry purchased the right items and
the right quantities. Thus, help to minimize wastage inventory. Additionally,
industry purchased at the right price that help to minimize production cost.
Second, there is qualified man power, good inventory management polices and
procedures and the industry carefully purchased raw materials select the right
items, the right quantity and the right price that are help to attain its own
objective.
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Finally, the industry are weak practice in producing department because
inventory is returned by customers as a result of defect and to redesign on
inventory should rest with to top management of the industry.
5.3. Recommendation
Based on the finding and conclusion the following recommendation are for
ward in order to solve the problems identified and strength the existing section
for effective inventory management. To solve the problem should take the
following major action.
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Terms, prices, and clearical accuracy of redors invoice should be correct
before payment is all authorized.
Inventory quantity should be adequately protected against losses from
theft, spoilage, unauthorized withdrawal by employee.
The industry should use material requirement plan since its fastness
system thinking and become the corner stone of production system with
the limit of its metrology, if will review what is needed, how many
needed, when they are needed and when they should be order.
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Reference
Duncan Williamson (1998), Cost and management accounting, 6th ed.
New delhi prentice Hal’ india .
Mosich A.N (1988), Intermediate Accounting. 6th ed. United state of
America.
Stephen A. Ross etal (1998), Fundamental of corporate Finance, 6th ed.
United state of Amercia. Van. Hoftman.
Lawrence J.Gitman (1997), Financial management, 8th ed. United state
of America.
Willaistevensson (1999), Operational management. 6th edn. Bitson Mc
Graw hill .
Internet Web sites
Http://www. Inventory Management. Com. Accessed 03/03/2012.
www. Fishbowl. Inventory management. Com . Accessed 05/03/2012
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Appendix
Jimma University
Collage of Business and Economics
Department of accounting
Dear respondents
The purpose of this questionnaire is to collect data for the thesis project tin
requirement for partial fulfillment of B.A degree in accounting in Jimma
University. You genuine response for the following questions is extremely
important for the successful completion of this paper, the information your
provide is used only for the purpose indicated and will be kept highly
confidential.
I would like to thank you in advance for your cooperation and for invuable time.
Part one general information
Education status
Diploma Degree Other specify Experience
Age 18 – 25 26 – 35 36-42 42- 66
Sex : Male Female
Part two
Questions regarding to inventory management in KK textile industry
Instructions
Wherever there is alternative answer tick in the box
If the question require open ended answers write briefly
1. Do you known the term inventory management?
Yes No
2. Does your industry has policies and procedures to keep inventory level
that avoid excess inventory?
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Yes No
3. Is there optimal level of inventory management the industry?
Yes No
4. Does the industry have control inventory in using inventory procedure?
Yes No
5. Is the production department delivery finished goods inventory?
Delivery on time
Some time there is late delivery
Does not delivery on time
6. Is there the coordination among production department, store
department, and purchase department of the industry?
There is strong coordination
There is satisfactory coordination
There is weak coordination
There is low coordination
7. Your answer for the above question 6 other than strong coordination
state the reason
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8. Which inventory system procedure does the industry use?
Perpetual procedure
Periodic procedure
Both
9. How many time the industry count/check its inventory?
Monthly Semiannually Annually
10. How often is inventory returned by customer as result of defect?
Always Most often Few None
11. Which type of inventory management technique does the industry follow?
Economic order quantity Just in time
ABC technique Stock level All the above
12. Does the industry manage it’s inventory in appropriate way?
Yes No
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13. Does the industry very carful to buy the right item, at the right price
and in the right quantity ?
Yes No
14. If no question no. 13 to specify the reason?
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