THE IMPACT OF ICT ON INVENTORY MANAGEMENT AND CONTROL

BY

NOU203091114

TIJANI ADEBISI

ABEOKUTA STUDY CENTRE

A SEMINAR SUBMITTED TO THE DEPARTMENT OF COMPUTER SCIENCE,

FACULTY OF SCIENCE, NATIONAL OPEN UNIVERSITY OF NIGERIA,
ABEOKUTA, NIGERIA

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD

OF THE BACHELOR OF SCIENCE IN COMPUTER SCIENCE,
NATIONAL OPEN UNIVERSITY OF NIGERIA, ABUJA, NIGERIA.

SEPTEMBER 2023

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ABSTRACT

This study will investigate the impact and role of information technology on inventory management.

Supply chain management (SCM) addresses the handling of information and material across the entire

chain that includes the producers to suppliers, retailers, distributors and customers. By increasing focus on

use of rapid and advance technologies in enhancement of supply chain management, the businesses are

seeking to developed and organized material handling system for its use. The purpose of this study is to

examine the effectiveness and role of developed technology in handling of material. This will be a

descriptive type of research. This study will also document the relationship of inventory management on

supply chain management. The questionnaire will be used to gather the data. The KSE list firms will be

used as sample of the study. The advance econometric techniques will be implemented for analysis of

data. The results of study will help in efficient management of inventory of firm.

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 INTRODUCTION

1.0 BACKGROUND OF THE STUDY

In today’s modern word, large and small organizations are using the more advanced technologies

and computerized inventory management systems. Now a days, the IT based technologies is

considered as the prerequisite for control and management of supply chain. A recent study

conducted in U.S revealed that the U.S. based manufacturers were heavily depends on the

benefits brought by IT. These benefits include the advanced supply chain quickness, achieve

higher efficiency, reduce cycle time and deliver products to customers in timely manner

(Shore.B & A.R. Venkatachalam, 2023). The researchers also found that the use of IT is not a

guarantee of better performance of firm (Lucas Jr. H.C & V.K. Spitler, 2019). Some researchers

argued that that adaptation of new technology can be easily duplicated y the other firms

operating in your industry and it cannot provide a sustained competitive edge to the firm (Powell

& A. Dent-Micallef, 2017). The use of IT in supply chain management (SCM) enables the firm

to maintain record of inventory, suppliers and customers. But it does not mean that there is no

outlet using the manual inventory management system.

In fact, the use of computerized inventory management system for small retail outlets,

convenience stores, shoe stores and small manufacturers might be a waste of financial resources.

The use of these advance level of computerized inventory management systems for large

industries that have high volume of raw and finished products have appeared as major and

important element of business strategies that aimed the increasing level of productivity and

maintains the competitiveness. The new powerful computer programs manages the great volume

data and keep the records that needs, including inventory control systems. By keeping in view

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the developments, the business experts can spell and forecast the success and failure in today’s

competitive environment.

Information technology is the key source of competitive power for a number of companies. It

plays the vital role especially in service provider industries like big retailers, airways companies

and transportation companies. The cost can be reduced by timely information for supply chain

management. A number of companies are offering competitive and innovative technologies to

their customers in order to sustain the long term relationships and gain the competitive advantage

over other firms. The innovative service that is offered by a single firm makes its obligation to

other firms in the same industry. According to the research conducted by Subramani (2019), the

relationship-specific intangible investments play a mediating role linking SCM systems use to

benefits.

This study will examine the relationship between the information technology and inventory

management. This is a descriptive research. This study will use the logistic enterprises as the

sample. The primary data will be gathered through questionnaire. The advance econometric

techniques will be used for analysis and interpretation of data. This study will determine the

integration of technology on inventory management. This study will determine the impact of

technology one procurement of inventory. The findings of study will help the employees of firms

to adopt the new technologies and contribute the better performance in the firm. The findings

will also help to managers of firms to gain the customers confidence and can increase the growth

rate and profitability of the firm.

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1.2 Problem Statement

Inventory is often the largest asset after fixed assets. Inventory costs are often the biggest costs in

businesses (Harrington, 2019) and these costs if reduced would yield the greatest benefit in

strengthening the firm’s competitive edge. Effective inventory management which involves

integrating modern ICT allows an organization to fulfill customers’ expectations of product

availability while enhancing the retailer to achieve the golden balance of not holding too much

stock thus minimize inventory costs.

1.3 Aim and Objective of the Study

The Major Purpose of This Study Is the Impact of ICT on Inventory Management and Control

1. To establish the extent of usage of IT systems in inventory management.

2. To determine the impact of IT used on inventory management performance

3. To investigate the challenges faced on the use of ICT during inventory control

1.4 Significance of the Study

The most fundamental importance of this study, as explained in the research objectives, is the

impact of ICT on inventory management and control. The results of this study, manage theories

into practices, the study also add knowledge to the researcher. Furthermore, the study leads to a

better understanding of the existing problems, as it paves a way to other researchers on further

investigation/research on the impact of ICT on effectiveness of Inventory control.

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2.0 LITERATURE REVIEW

2.1 Introduction

This chapter describes integration of ICTs in inventory management systems and their potential

benefits. Further the conceptual framework necessary to address the research question will be

discussed.

2.2 Theoretical Framework

The impact of ICT on inventory management can best be explained by two theories namely the

Transaction Cost Economics (TCE) theory (Maltz, 2019; Skjott-Larsen, 2020) and Resource

Based View (RBV) theory of the firm (Barney, 2011; Pandza, 2023)

2.2.1 Transaction Cost Economics (TCE)

Theory The Transaction Cost Economics (TCE) theory argues that the use of ICT will lead to

reduced transaction costs associated with the management of transactions (Coase, 2017; Alchian

& Demsetz, 2022; Williamson, 2021) and by efficient coordination. Explicitly recognizing the

costs of coordination among economic entities in markets, TCE stresses that a firm’s central task

is to coordinate transactions efficiently (Williamson, 2018). ICT can lower coordination costs,

and in supply chain contexts, digitally enabled integration capability can substantially improve

transactional efficiencies through increased information sharing and communications

capabilities, resulting in improved supply chain performance (Zhu & Kraemer, 2019).

Furthermore, as argued by (Lopez, 2023), ICT resources impact on communication

improvement; this includes internal and external communication and coordination of activities

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and this enables a faster and more efficient use of information both within he firm and with

external agents, such as customers and suppliers. TCE sheds light on the role of the digitally

enabled supply chain management in competitive environments. An important feature of a

competitive environment is the extensive competitive actions in the markets, such as competitive

entry, price change, supplier alliances, and new product introduction (Ferrier, 2021). To improve

performance or even survive in competitive environments, a firm needs to adapt its businesses to

respond to competitive actions (Sambamurthy et al, 2023). If a manufacturer’s operation is

frequently affected by competitors’ actions, it may face greater needs to coordinate with supply

chain partners. For example, a manufacturer that needs to modify the design of its product,

because of market entry or new products launched by competitors, also needs to modify the

design of upstream components that constitute the product; it may also need to rearrange

downstream channels for new product distribution. These may induce considerable coordination

tasks (Bensaou, 2017). Accordingly, technologies that help reduce coordination costs are more

valuable in intensely competitive markets.

2.2.2 The Resource Based View (RBV) Theory

This theory states that to transform a short-run competitive advantage into a sustained

competitive advantage requires that these resources are heterogeneous in nature and not perfectly

mobile. Effectively this translates into valuable resources that are neither perfectly imitable nor

substitutable without great effort. If these conditions hold, the bundle of resources can sustain the

firm’s above average. Barney (2021) argues that the RBV approach has evolved from a nascent,

upstart perspective to one of the most prominent and powerful theories for describing,

explaining, and predicting organizational relationships. The RBV theory attempts to explain how

technology creates value (Zhu & Kraemer 2022, 2020). The RBV theory attributes improvement

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in firm performance to valuable resources or resource bundles (Barney 2021, Peteraf 2023). ICT

creates value to the firm indirectly as it affects other resources or processes which in turn lead to

performance improvement and hence competitive advantage. Therefore, researchers may find it

particularly beneficial to use intermediate-level dependent variables at the business process,

department, or project level (Wade & Hulland 2020). In light of this logic, the study will

particularly address the impact of ICT on inventory management by focusing on the inventory

management practices; supplier relationships, inventory operations, procurement and ordering

processes, warehousing and storage management process, and customer relationships through

which such impact can be felt in the organization. Revenue generation and cost reduction are the

two major dimensions of process performance improvements through supply chain integration

ICT adoption is aimed at process improvement primarily cost reduction and revenue generation

((Mukhopadhyay & Kekre, 2022). Such improvements, seen from the RBV, stem from resource

synergy along the supply chain. Effective SCM aims to synchronize supply, production, and

delivery (Lee et al, 2020). For this to happen, firms needs to leverage the connectivity of the

Internet to create an inter-firm digital platform, enabling real-time information sharing, and

improving coordination of allocated resources across the supply chain (Lee, 2004). The digital

platform helps establish connections among separate resources owned by supply chain partners,

thus translating them into bundles of coexisting resources responsive to each other (Zhu &

Kraemer, 2022). This is consistent with the notion of creating resource synergy as advocated by

the RBV (Conner, 2021)

In inventory management, such value enhancement is manifest in the adoption of innovative

techniques such as vendor managed inventory and business models that rely heavily on

information sharing and collaborative planning. One such model is the Collaborative Planning,

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Forecasting and Replenishment (CPFR) model which takes a holistic approach to supply chain

management and combines the intelligence of multiple trading partners in planning and fulfilling

customer demand by using common metrics, language and firm agreements to improve

efficiency for all participants. CPFR links sales and marketing best practices – category

management, supply chain planning and execution processes to increase availability while

reducing inventory, merchandizing, transportation and logistics costs.

2.3 Information Technology

Development of IT is increasing at a rapid pace in effort to fill gaps in the market that are

identified and which promise to meet needs of users in various fields. New software and

matching equipment have been developed and adapted to daily lives of people. Examples of

developments in ICT tools include smart phones, tablet computers, cloud computing, fast

internet speeds now in Fourth Generation (4G) stage among others. These can be adopted to fit

into operations of supermarkets to increase operational efficiency. Some of the areas where ICT

is applied in a business context include linking business partners and players through network,

fast generation of information and seamless decision making by multiple stakeholders

Today, some organizations are dependent on ICT for deploying e-commerce platforms to

increase business presence and link to customers, data mining where patterns can be used to

guide firms to make timely decisions and simplification of tasks that otherwise could be

unwieldy to manage by humans. Because businesses are dependent on ICT in improvement of

service delivery, they have incorporated it into their strategic plans to give it deserved attention

(Kodama, 2023). Applications of ICT are as wide as are the needs of an organization; they can

range from simple point of sale unit to a whole organization where Enterprise Resource Planning

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system is installed to manage almost every aspect of the organization. Some of these areas

include supply chain management, human resources, customer management and accounts

(Duggan, 2022).

2.4 Inventory Management

The inventory management is regarded as a key element for the reduction and control of total

costs and improvement of the level of service provided by the companies (Wanke, 2022). For

(Roy, 2022), the area plays very important role in the overall cost of operations and supply chain

of any business big or small. For (Han, 2007), inventory is used as a cushion against the supply

and demand uncertainties. In the same vein, for Khunagornniyomrattana et al (2017), inventory

is a double edged weapon, since the lack of inventory leads to loss of productivity, while excess

inventory leads to loss of profitability. Thus, (Oliveira & Rodriguez, 2018) argue that inventory

management has direct and significant effects on operational efficiency (performance) and

company finances and (Roy, 2022) points out that an effective inventory management will

always give a competitive advantage to the business over its competitors.

2.4.1 Economic Order Quantity Model

Economic order quantity (EOQ) is the level of inventory that minimizes total inventory holding

costs and ordering costs. It is one of the oldest classical production scheduling models developed

by Harris F. W. in 1913, but Wilson, R. H. a consultant who applied it extensively, is given

credit for his in-depth analysis (William, 2017). EOQ only applies when demand for a product is

constant over the year and that each new order is delivered in full when the inventory reaches

zero. There is a fixed cost charged for each order placed, regardless of the number of units

ordered. There is also a holding or storage cost for each unit held in storage sometimes expressed

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as a percentage of the purchase cost of the item (William, 2017). EOQ is used to determine the

optimal number of units of the product to order so that to minimize the total cost associated with

the purchase, delivery and storage of the product The required parameters to the solution are the

total demand for the year, the purchase cost for each item, the fixed cost to place the order and

the storage cost for each item per year. Note that the number of times an order is placed will also

affect the total cost; however, this number can be determined from the other parameters

(Heikkila, 2022).

According to Periasamy (2019), the EOQ model assumes that, the ordering cost is constant, the

rate of demand is constant, the lead time is fixed, the purchase price of the item is constant i.e. no

discount is available, the replenishment is made instantaneously, the whole batch is delivered at

once. The overall aim of the EOQ model is thus to determine the optimal number of units to

order in order to minimize costs associated with the procurement process of purchase, delivery,

and storage. However, EOQ essentially a trade-off between the ordering cost and inventory

holding cost is based on unrealistic assumptions which are no longer plausible and in the face of

modern inventory management technologies, the "optimization" outcome bears little or no sense

2.4.2 Inventory Control systems

An inventory system controls the level of inventory by determining how much to order (the level

of replenishment), and when to order. There are two types of inventory control systems; the

continuous or perpetual inventory system and the periodic inventory system. In a periodic

inventory accounting system, the inventory account is updated periodically, usually daily,

monthly or quarterly. GAAP standards require companies to record inventory purchases in a

separate account, possibly titled “Purchases,” continually. However, under the perpetual

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inventory system, inventory accounts are updated automatically and continuously. Advances in

computer and network technology make perpetual inventory systems possible, and implementing

this type of system requires an extensive technology expense. Point-of-Sale systems tied directly

into accounting software packages can update accounting records and other inventory records on

the fly using information from barcode scanners, radio frequency identification tags or cashier

input. Such a system is not only quick and accurate but provides management with continuously

updated information on the status of inventory levels.

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3.0 MAIN SECTION

3.1 Information and Communication Technology

Information and Communication Technology is a technology used in collecting, processing,

storing and transmitting data or information electronically. The components of ICT includes

machines or equipment like phones, computers, routers, switches, television, fax as well as

infrastructure such as landline cables, microwave systems, radio transmitters, satellite ground

stations, digital, fiber optic cables and application software, Bakari, J.K (2021).

According to Anyakoha (2021), information technology is “the use of manmade tools for the

collection, generation, communication, recording, re-management and exploitation of

information. It includes those applications and commodities, by which information is transferred,

recorded, edited, stored, manipulated or disseminated”. ICTs have been the basis for human

existence from time immemorial and this has driven man to continuously seek ways to improve

the processing of information and communicating such information to one another irrespective of

distance and on a real-time basis Ndukwe (2022).

Surviving in the information depends on access to national and global information networks.

ICTs are the bedrock for the survival and development of any nation in a rapidly changing global

environment, and it challenges us to devise initiatives to address a host of issues such as reliable

infrastructure, skilled human resources, open 8 government, and other essential issues of

capacity building, Federal Republic of Nigeria, (2021).

Information and Communication Technology bridges the gap between corporate software

applications such as ERP and Warehouse Management System, and the Programmable Logic

Controllers (PLC) and/or PC-based cell controllers that control the material handling equipment.

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The ICT provides a single point of control to efficiently direct and manage automated material

handling and order processing within the Warehouse. This will enable effective operations, and

optimize current investment in software and material handling equipment. Implementing ICT

software can be a cost effective alternative to adding more efficiency operations of warehouse

movement in the industrial area, Hite (2020).

The role of ICT on Inventory Control

Inventory is the stock of any item or resource used in an organization. An inventory system is the

set of policies and controls that monitor levels of inventory and determine what levels should be

maintained, when stock should be replenished, and how large orders should be. Manufacturing

inventory is typically classified into raw materials, finished products, component parts, supplies,

and work-in-process.

In distribution, inventory is classified as in-transit, meaning that it is being moved in the system,

and warehouse, which is inventory in a warehouse or distribution center. Retail sites carry

inventory for immediate sale to customers. In services, inventory generally refers to the tangible

goods to be sold and the supplies necessary to administer the service, Zipkin (2020).

According to Lysons and Farrington B (2020), narrated some purpose or reasons for keeping

inventory such as reducing the risk of supplier failure or uncertainty that is safety and buffer

stocks are held to provide some protection against force majeure. Meet variation in product

demand is another reason for keeping inventory whereby demand for the product is known

precisely, it may be possible (though not necessarily economical) to produce the product to

exactly meet the demand.

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Usually, however, demand is uncertain, safety or buffer stock must be maintained to absorb

variation. Keeping Inventory is very important because it ensures rapid replenishment of items in

constant demand, hedge against anticipated shortage and price increases, smooth seasonal or

cyclical demand and takes advantage of lots or purchase quantities in excess of what is required

(buy two get one free). Inventory control is one of the most neglected areas of management in

different organization. The entire manufacturing operations, for example can be brought to a

standstill for lack of engineering spare these problems are due to the lack of right flow of

information in the whole process of the supply chain management. Therefore the use supporting

Information and Communication technology is very necessary for effective and efficiency in

Inventory control operations.

Information and Communication technology performs main functions, such as capturing of data

and communication, storage and retrieval of data, and manipulation of data and reporting. The

Enterprise resource planning (ERP), Customer relationship management (CRM) and

Manufacturing execution systems (MES) are examples of the systems that consists combinations

of these functions, Hugos (2020). The primary goal of Information and Communication

Technology in inventory control is to link the point of production and point of delivery and

purchase so as to maintain inventory in future. However the tools of inventory control such as

ABC analysis, bar coding, radio frequency identification (RFID) and inventory software are four

important tools of inventory control, Lysons and Farrington B (2018)

Direct impact of ICT on effectiveness of Inventory Control

ICT investments have clearly played a leading role in accelerating economic growth during the

1990s. Firms have invested substantial resources in new types of ICT enabling them to improve

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efficiency in and coordination of material-handling operations, thereby reducing inventory

levels. In highlighting the role of ICT and the Economic Report of the President (2021) notes

that “technologies that improve the dissemination of information enable companies to react more

promptly to market signals and to economize on inventories (by sharing point-of sales data, for

example).” Likewise, Alan Greenspan, the former Federal Reserve Chairman, noted that “the

remarkable surge in the availability of real-time information in recent years has sharply reduced

the degree of uncertainty confronting business management. This has enabled businesses to

remove large swaths of now unnecessary inventory” (Greenspan, 2019).

Advantages of ICT in inventory management and control functions

Improved communication

Rajagopalan and Malhotra (2021) argued that quick and effective communication is vital to any

business anywhere in the world. Information technology gives an entrepreneur or business the

tools, like email, video conferencing, SMS, etc., essential to communicate efficiently and

effectively. To the business world, and information technology gives your company the

resources it needs to communicate quickly and effectively. Not only do people connect faster

with the help of information technology, but they are also able to identify like-minded

individuals and extend help, while strengthening ties.

Storing and Protecting Information

ICT provides a low-cost business options to store and maintain information that may be

important from a business or service point of view. Virtual vaults and other such security

systems not only store vital data but also allow control over the access to such information. IT

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security systems will also protect virtual data from being hacked or wiped out in case of any

technical failure, (Chen et al. 2020).

Creation of New Jobs

One of the biggest advantages of ICT has been the creation of a whole new field of opportunity

for skilled personnel leading to new and interesting jobs. Hardware and software developers,

computer programmers, web designers, system analyst, the list of new jobs created could go on.

(Barua et al. 1995) Things that were once done manually or by hand have now become easier

and faster due to the advent of a computing technology. Our world today has changed a great

deal with the aid of ICT which has penetrated almost every aspect of our daily lives and society,

from leisure to business. ICT has become a part of our day-to-day lives through the evident use

of PC's, Internet, cell phones, faxes, the list would seem endless. Let us hope that newer

development in the field of ICT can provide benefits to our future generations, just as it has

greatly benefited ours (Chen et al. 2022).

Globalization

Gaur et al. (2018) assets that true globalization has come about only via this automated system.

The creation of one interdependent system helps us to share information and end linguistic

barriers across the continents. The collapse of geographic boundaries has made the world a

'global village'. The technology has not only made communication cheaper, but also possible

much quicker and round the clock. The wonders of text messages email and auto-response,

backed by computer security applications, have opened up scope for direct communication.

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Cost-effective

Computerized, internet business processes have made many businesses turn to the Internet for

increased productivity, greater profitability, clutter free working conditions and global clientèle.

It is mainly due to the ICT industry that businesses have been able to make their processes more

streamlined, thereby becoming more cost-effective and consequently more profitable. People are

able to operate their businesses 24x7, even from remote locations only due to the advent of ICT,

(Frohlich and Westbrook, 2022)

More time

ICT has made it possible for businesses to be open 24 x7 all over the globe. This means that a

business can be open anytime anywhere, making purchases from different countries easier and

more convenient. It also means that you can have your 15 goods delivered right to your doorstep

with having to move a single muscle, (Mukhopadhyay et al. 2019).

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 RECOMMENDATION AND CONCLUSION

4.0 Conclusion

The study concludes of the impact of ICT on inventory management and control should invest

more in modern technologies for example information communication technology in order to

achieve integration, minimize communication costs, enhance efficiency and increase sharing of

information which will eventually lead to improved performance.

4.1 Recommendations

The study recommends that Organization should invest in modern technologies in order to

integrate their inventory management systems. This would minimize communication costs and

increase sharing of information which leads to improved efficiency and performance of

supermarkets in Kenya. The study proposes the need for investigating on appropriate ways to

increase formalization of information technology adoption in order to enhance adoption of

modern technologies in inventory management as a tool to boost performance. This will enable

firms to understand the benefits of information technology in managing their inventory systems

in order to create a need for adoption.

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