THE IMPACT OF INVENTORY ON PERFORMANCE OF MANUFACTURING INDUSTRY.

A CASE OF SERENGETI BREWERY LIMITED.

PREPARED BY:

MADELINE NEEMA LUCAS MOSHA.

A RESEARCH PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT OF REQUIREMENT FOR THE BACHELOR

IN PROCUREMENT AND SUPPLY CHAIN MANAGEMENT (BPSCM) OF MZUMBE UNIVERSITY.

2023
 LIST OF ACRONYMS

JIT Just in time.

EOQ Economic order Quantity.

IRN Internal Requisition note.

MRP Material Requirement planning.

SAP System application product.

 TABLE OF CONTENT.

CHAPTER ONE

1 .0 Introduction ........................................................................................................................

1 .1 Background of the Study ...................................................................................................

1 .2 Statement of the Problem ..................................................................................................

1.3 Purpose of the Study .........................................................................................................

1.4 Objectives of the Study .....................................................................................................

1.5 Research Questions ...........................................................................................................

1.6 Scope of the Study .............................................................................................................

1.7 Significance of the Study ..................................................................................................

Conceptual Model ..................................................................................................................

CHAPTER TWO

2.0 LITERATURE REVIEW .......................................................................................................

2.1 Introduction ....................................................................................................................

2.2 Definition of Concepts ......................................................................................................

2.2.1 Inventory ........................................................................................................................

2.2.2 Inventory Management ..................................................................................................

2.2.3 Objectives of Inventory Management ...........................................................................

2.2.4 Motives of Holding Inventory .......................................................................................

2.2.3 Inventory Managements Systems .................................................................................

2.3 .1 Just in Time (JIT) Technique ........................................................................................

2.3.2: Two Bin System ...........................................................................................................

2.3.3 ABC Analysis .................................................................................................................

2.3.4 Order Cycling System ....................................................................................................

2.3 .5 Economic Order Quantity ..............................................................................................

2.3.6: Minimum-Maximum Stock Levels ..................................................................................

2.3.7: Stockless Purchasing ......................................................................................................

2.3.8: Material Requirement Planning (MRP) .........................................................................

2.3.9 Stock Control Chart .........................................................................................................

2.4 Performance .....................................................................................................................

2.4.1 Definition of Performance ...........................................................................................

2.4.2 Performance Measurement ..........................................................................................

2.4.3 Aims of Performance Measurements ..........................................................................

2.5 Relationship Between Inventory Management and Performance of the firm ...............

2.5.1 inventory Valuation ......................................................................................................

2.5 .2 Just in Time ...................................................................................................................

2.5.3 Safety Stock ..................................................................................................................

CHAPTER THREE

3 .0 RESEARCH METHODOLOGY ..............................................................................................

3 .1 Introduction ......................................................................................................................

3 .2 Research Design ................................................................................................................

3 .3 Sources of Data ................................................................................................................

3.3 Data Analysis ......................................................................................................................

3.4 Data Presentation ...............................................................................................................

3 .5 Measurement of Variables ................................................................................................

 CHAPTER ONE

INTRODUCTION.

1.1 Introduction

This chapter will present the following contents; Background of the study, Statement of the problem,
Research objectives, Research question, Significance of the study and scope of the study together with
limitation of the study and contribution of the study.

1.2Background of the Study.

1.2.1 Problem background

Inventory management is defined as procedures used in a firm to control the firm’s investment in stock.
It includes monitoring and recording of stock levels. Forecasting future demands and deciding on how
and the time for making an order.

The goal of effective inventory management is to minimize the total costs both direct and indirect costs
that are associated with holding inventories. However, the importance of inventory management to the
enterprise depends upon the extent of investment in inventory. Inventory planning and management
must be responsive to the needs of the enterprise (www.Nextlevel purchasing.com). Inventory control
and planning directly affect both the value of assets used in the enterprise and the quality of service
given to customers. (Baily, 1998).

Managing inventory is important to organization because it help in proper planning for materials needed
so as to identify the gap between the desired and the actual level of materials, allocation of resources,
purchasing, sales and employment of staff and everything concerned to human resources management
all of which reduces on the cost incurred by the organization in the production departments in
improving performance of the firm.

An inventory control management is the combination of hardware and software that is technology,
processes and procedures that helped to control and monitor and maintenances of stoked products like
company assets, raw materials, finished productive to final consumers. According to Indira page
69(2018) says “Inventory control system are technology solutions that integrate all aspects of
organization inventories tasks including shipping, purchasing, receiving, warehouse storage turnover,
racking and reordering”

Performance is the ability of an enterprise to use the available resources to generate revenue in terms
of production, market share and profits) Draft, 1991). Performance is measured using indicators such as
acceptability, flexibility, achievability, cost as well as continuity (Lysons and Gillingham, 2003).
Therefore, inventory 1 performance measurement is a necessity as it would indicate how good or bad is
the inventory management being carried out by an enterprise. It would also give opportunity to
compare various performance indicators with those of the benchmark company in similar industry
(file://f:/organizational performace.htm) The concept of inventory management has to a greater extent
affected the performance of many enterprises. Although inventory control does not add value to the
product, it usually adds a significant element of cost to the product. With this view, inventory cost must
be kept at minimum (Pandey, 1995). This therefore calls for more research to be done in order to
examine the effect of inventory management on the performance of enterprises.
1.2 STATEMENT OF THE PROBLEM.

The main objective of this study was to examine the impact of inventory management the industry
competitiveness and performance. The results of the study indicate that higher levels of inventory
management practice can lead to an enhanced competitive advantage and improved organizational
performance. The study also found competitive advantage maintained, though the inventory
management practice has a direct positive impact on organizational performance.

Therefore, it is recommended that the owners and managers are to promote the inventory
management practice by using different scientific tools which will result in increasing their
competitiveness and organizational performance.

According to Stevenson (2010), Inventory Management is a framework employed in firms in controlling

its interest in inventory. On the other hand, Deveshwar and Dhawal (2013) proposed that inventory
management is a method that companies use to organize, store and replace inventory to keep an
adequate supply of goods at the same time minimizing cost.

An effective and efficient management inventory flow across the value chain is one of the key factors for
success of large and small firms. I will look for the challenges faced while managing inventory is to
balance the tradeoff between the supplies of inventory with demand. Inventory decisions are high risk
and high impact for supply chain management of the firm. According to Dimitrios (2008), inventory
management practices will be recognized as a vital problem area needing top priority.

1.3 Purpose of the Study.

The overall purpose of the study will be to examine the effect on inventory management on the general
performance of enterprises.

1.4 Objectives of the Study.

a) To assess the techniques of inventory management in the firm.

b) To analyze the competence possessed by the staff.

c) To establish the relationship that exists between inventory management and the firm’s performance.

d) To identify the challenges faced in managing inventory.

e) To establish the performance measures employed by production industry.

1.5 Research Questions

a) What inventory management controls are used in the firm?

b) What performance measures are employed by the firm?

c) What is the relationship between inventory management versus performance of the firm.
1.6 Scope of the Study

The study covered techniques of inventory management. performance measures employ by the
industry and the relationship between inventory management and performance of the firm. It involves
managing various aspects of inventory including purchases, storages, shipping and customer
satisfaction. Determination and maintain an optimum level of investment in inventory in order to
achieve required operational performance. Sila (2006) elaborated that inventory management of
inventory control is to meet customer demand.

1.7 Significance of the Study

A. The study was of great importance in contributing to the existing knowledge to the inventory
management.

B. The study helped management to overcome the difficulties of inventory management that have been
encountered in the recent years.

C. The study acted as guide for managers for better inventory management practices and hence
improve on the performance of enterprises.

D The study also helped managers to acquire better skills in inventory management.

E. The study enables the management to maximum amount of profit from least amount of investment
in stock without affecting customer satisfaction.

F. The study helps the company to assess their current state concerning assets, account balances and
financial reports.

Conceptual Model.

Conceptual frame work defines the topic at research through explanation of the variables within the
topic. We have the independent variable dependent variables and intervening variables Independent
variables determine, predict and control dependent variable intervening variables are those which work
hand in hand with independent variables to influence dependent variables for the purpose of my
research, the independent variables could be inventory management (control) and the dependent
variable would be performance of Serengeti breweries limited (SBL). Intervening variables may include
government policies, infrastructure, climatic conditions and society’s culture.
 CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 INTRODUCTION.

This chapter covers the theoretical reviews and all definitions of inventory management, types of
inventory, why inventory is held, inventory costs together with its management problems and objectives
of the study.

THEORITICAL

2.2.1 Inventory.

According to Stevenson, Inventory management is defined as a framework employed in firms in

controlling its interest in inventory. It includes the recording and observing of stock level, estimating
future request, and setting on when and how to arrange (Adeyemi&Salami,2010). On the other
hand,Deveshwar and Dhawal(2013)proposed that inventory management is a method that a firm uses
to organize store and replace inventory, to keep adequate supply of goods at the time minimizing
cost.Choi(2012)indicate that effective inventory management is essential in the operation of the
business.Thus,keeping stock is used as an important strategy by companies to meet customers’ needs
without taking risk of frequent shortages while maintaining high services level.

As Axsater (2006) describes, inventories make high cost, both in the sense of tied up capital and also
operating and administrating the inventory itself. It is argued that time from ordering to delivering of
replenishing the inventory, referred to as the lead time is often long and demand from customers is
almost never completely known (Axsater,2006). Therefore, managers should consider how to achieve
the balance between good customer service and reasonable cost, which is purpose of inventory
management involving the time and volume replenishment.

To this end, inventory in many small business owners is one of the most visible and tangible aspects of
doing business. Raw materials, goods in process, and finished goods all represents money tied up until
the inventory leaves the company as purchased products. Likewise, merchandise stocks in a retail store
contribute to profits only when their sale puts money into cash register. In a literal sense, inventory
refers to stocks of anything necessary to do business. These stocks represent a large portion of the
business investment and must be well managed in order to maximize profits. In fact, many small
businesses cannot absorb the types of losses arising from poor inventory management. Unless
inventories are controlled, they are unreliable, inefficient and costly. Inventory is an idle stock of
physical goods that contain economic value and are held in various forms by an organization in its
custody awaiting packing, processing, transformation, use or sale in future point of time. Ballon (2004)
defined inventories as stockpiles of raw materials, supplies, components, work in process, and finished
goods that appear at numerous points throughout a firm’s production and logistics channels. Inventory
is the stock of any item or resource used in a firm.
Inventory is generally made up of three elements such as raw materials, work in progress(WIP) and
finished goods(Arnold 2008:Cinnamon,Helweg-Larsen,&Cinnamon,2010:Gitman,2009).Raw materials
are concerned with goods that have been delivered by the supplier to purchaser’s warehouse but have
not been taken into production area for conversion process(Cinnamon et al.,2010).WIP concerns are
when the product has left the raw material storage area, until it is declared for sale and delivery to
customers. In this process, the working capital must be considered in terms of reducing the buffer
stocks, eliminating the production process reducing the overall production cycle time. The raw materials
and finished goods must be minimized in the production areas must be careful examined to justify how
long it takes for products to be cleared for sale. This stage is normally done by quality control
procedures (Birt et al.,2011 Cinnamon et al.,2010). Finished goods refer to the stock sitting in the
warehouse waiting for sale and delivery to customers.

There are theories utilized in carrying clarity to the investigation of the role of stock administration on
operational performance. The major theories include the theory of Constraints and Lean Theory to build
critical concerns regarding the impact of inventory management approaches on the profitability of
manufacturing firms.

THEORY OF CONSTRAINTS.

The theory of constraints is an administration reasoning that looks to expand manufacturing throughput
proficiency evaluated on the bases of recognizable proof of those procedures that are obliging the
industrial system. There are various challenges experienced in the application of this theory. For
instance, there is a long lead time. significant number of unsatisfied requests, irregular state of
meaningless inventory or non-existence of appropriate inventories, wrong materials request, expensive
number of crisis requests and endeavor levels, absence of clients’ engagement, on- attendance of
control identified with need orders which suggests on timetable clashes of the assets.

The theory focuses on adequately dealing with the limit and ability of those limitations and enhance
efficiency and this can be accomplished by manufacturing firms applying fitting inventory control
practices. Theory of constraints is an approach whose proposition is connected to generation aimed at
achieving a reduction of the firm’s inventory.

LEAN THEORY.

Lean theory is an argumentation of thoughts of JIT. The theory disposes of buffer stock and minimizing
waste in production procedure. Inventory leanness decidedly influences the productivity of the business
firm and is the best inventory control tool.

The theory expounds on how manufacturers’ adaptability in their requesting choices diminish the
supplies of stock aimed at eliminating cost associated with the transportation of inventory. Feedback
presented against the theory insinuates that materials must be available when dealing in long haul
cooperation constituting data and information sharing and the exchange of accomplices between firms.

2.2.2 Inventory Management

Nail (1995) defines inventory management as process management as process of planning,
controlling and conducting of all activities coned with the flow of material into the
organization. Inventory management in a process of ensuring that inventory of adequate
qualities, good qualities and at fair price are procured, stored properly and issued for sale
with minimum amount of capital tied up (Lucy, 1995)

2.2.3 Objectives of Inventory Management

Pandey (1995) gives the following objectives
• Maintain sufficient stock of raw materials in periods of shorter supply and anticipate
price changes

To ensure continuous supply of raw materials to facilitate un interrupted production

. Maintain semibent finished goods inventory for smooth sales operations and
efficient customer services. Balunywa (1998) asserts that holding and maintaining
inventory is aimed at avoiding production stoppages, customer dissatisfaction and loss
of revenues.

2.2.4 Motives of Holding Inventory

Pandey (1998) and Dury (1993) suggest three general reasons of holding stock, which are transaction,
precautionary and speculative motives.

The transaction motives

This emphasizes the need to maintain inventory to facilitate smooth production and sales
production.

Precautionary motives
This necessitates holding of inventory to guard against the risk of unpredictable
changes in demand and supply forces and other factors.

Speculative motives
It brings about decisions whether to increase or reduce inventory levels to take
advantage of prices fluctuations.

2.3 Inventory Managements Systems

This refers to the way in which inventory can be controlled in an enterprise. Stoner et al
(2002) states that regardless of the type of industry, inventory control methods must be
adapted to the type of material involved and that methods of controlling invent01Y of
perishable products are not adaptable to those products capable of prolonged storage.

2.3 INVENTORY MANAGEMENT TECHNIQUES.

Inventory management is very vital to a firm since it is custom -made to reducing costs or proliferating
profits while satisfying customer’s demands by guaranteeing that balanced items of stock are sustained
at the right quality, quantity and that are obtainable at the right time and the right place. This section
will review the literature on the techniques used in inventory management.

2.3.1 Just in Time (JIT).

Technique Weele (2005), states that stock can be controlled using just in time management technique
which means that all material and production process, not sooner and not later but exactly on time and
in exactly the right quantity. The major objective underlying this approach is to continuously tackle and
solve manufacturing bottlenecks within the manufacturing industry.

2.3.2: Two Bin System.

A manufacturing industry could apply methods like in its storage bin, where the first is emptied, more
stock is ordered to replace it before the second bin is used. However, since this is not based on any
formal analysis, it may result in holding too much or too little stock (ACCA, 1997).

2.3.3 ABC Analysis.

A manufacturing industry could apply methods like the ABC analysis to determine the management,
quality of materials or inventory to be held in by the firm (Baily, 1987). It should be noted that those
items with the highest value have the biggest share of inventory control.

"A items" constitute of stock which is necessary for the proper functioning and operation of the
business firm with it making 80% of the business and 20% in terms of stock (Pandey, 1995).

"B items" represent relatively least values and are under simple management. They represent 15% of
the value of enterprise and 50% of stock (Lucey 1994).

"C items" represent the least value and account for only 10% of the demand in the monetary tens and
therefore would be under simple control. ABC analysis reduces both administrative costs of controlling
stock, for instance A items can be ordered once a month, B items every five months and Class C items
once a year.
Percentage
Cost

Percentage items

Source: Pandey (1995)

Figure 3.1 Graphical Representation of ABC Analysis. Percentage Cost B C 0 Percentage items Source:
Pandey (1995)

2.3.4 Order Cycling System.

(Stephen Danks et al (1996) stated that the method of stock control is also likely to vary with the size of
the industry concerned. Although many industries need to know how much stock they have at any time
and when they needed to re-order many small do not keep a lot of stock and often buy small quantities
on a regular basis to avoid trying up too much cash.

The owner often keeps an eye on stock levels and judges when to buy more. This however, involved a
lot of guess work and therefore may not be accurate.

2.3.5 Economic Order Quantity.

Economic Order Quantity (EOQ) Bachetti et al, (2010) argues that inventory management need to be
organized in a logical way so that the organization can be able to know when to order and how much to
order. This can only be achieved through the Economic Order Quantity (EOQ) computation. Economic
order quantity enables the industry to plan their inventory replenishment on a timely basis such as
monthly, quarterly, half yearly or 18 yearly basis. By so doing, it enables firms to have minimal storage
costs or zero within their warehouses since inventory is coming in and going out immediately. Thus,
helps in having zero holding costs, (Schonberger, 2008).

Thus, as a manufacturing industry try to improve on the inventory management, the Economic Order
Quantity (EOQ) and Re-order Point (ROP) are important tools that the firm can use to ensure that
inventory supply does not hit a stock out as explained by Gonzalez and Gonzalez (2010). Over time, the
firm will be maintaining their inventory in a haphazard manner which has necessitated a change in the
way firms conduct their business. Stock outs have been experienced adversely leading to customer
dissatisfaction hence; firms are changing their approach to be able to remain relevant by employing
Economic Order Quantity (EOQ) and Re-order Point (ROP) for customer satisfaction.
 Exactly same quantity is ordered each time a purchase is made. Price will remain constant throughout
the year and quantity discount is not involved. There are several ways of calculating EOQ and the basic
formula is:

EOQ = 2DS/H

Where;D-Annual anticipated Demand

S-Ordering Cost per order
C-Cost of an item
I-Annual carrying cost
EOQ-Economic Order Quantity

Total costs

Stock holding costs

Ordering cost
Minimum Quantity
Cost

Source: Lysons (2006)

2.3.6: Minimum - Maximum Stock Levels.

EOQ Total costs Stock holding costs Quantity Render and Stain (1994) point out that for effective
inventory control, enterprises should use methods like minimum-maximum stock levels. In this system a
safety factor.

2.3.7: Stockless Purchasing.

This is where the purchaser's stock is taken over or kept at the premises to avoid need for safety stock
on the purchase premises since delivery is fast and so reliable is fast and so reliable. This system does
not only reduce stock levels but also purchasing, receiving, handling, invoicing and payment costs
(Lenders 2003).

2.3.8: Material Requirement Planning (MRP)

James H. Donnelly et al (I 998) states that in recent years, this method has been developed to control
inventories with defendant demand. MRP uses supplicated computer software to plan and control
inventory costs. This method enables management to combine a vast number of interlocking decisions
related to ordering, scheduling, handling and using inventories of parts and supplies that are of the final
products. MRPO is an approach for coordinating the planning of material acquisition and production.
MRP is a flow control system in the sense that it orders the components required to maintain the flow.
This approach uses tools such as the master production schedule, bills of materials and inventory
records (Lalla and Jan, 2000) he established, which becomes a minimum point below which the
inventories should not fall under normal circumstances. It consists if safety factors plus the correct
ordering of quantities. This method is particularly adapted to materials that are comparatively standard
in character, the prices of which do not fluctuate widely, and that are used in substantially regular
quantities.

2.3.9: Master Production Schedule

Simply details the planned quantities of finished goods to be produced during a given particular time
period and are based on the firm’s strategic and production plan.

Bills materials.
Defines the required components as those items of inventory that have dependant demand.

Inventory records
These show the current status of each component sub assembly and finished good items that
must be available and they are updated to reflect current usage and replenishment.

Figure 3.3 Elements of an NIRP system

Strategic Plan

Production on Plan

Bills of materials Master Production Inventory

record
s

Lead times and

Safety stock
Requirements

Source: Lalla and Jan (2000).

2.3.9 Stock Control Chart

Jan Mar Course et al (2003) states that one way an enterprise can control its stock situation
is using the control charts. These line graphs look at the level of stock in the enterprise
overtime. Managers will be able to see how stock levels have changes during the period
and will be able to note any unusual events with which they may need to be concemed.

i. Stock levels
This shows how stock levels have changed over time and the stock is used up, the
level of stock gradually falls from left to right when delivery is made; however, the
stock keeps upward in a vertical line. The greater the rise in the vertical line the more
the stock has been delivered.
ii. Maximum levels.
This shows the maximum stock of the firm is either willing or able to hold in stock.

iii. Re-order level

Represents a level at which it becomes necessary to initiate purchase orders for fresh supplies. It is a key
important decision Minimum point that triggers a new order.

iv. stock level/safety stock.

It is also known as "buffer stock" the enterprise will want to keep a maximum stock level to prevent
stock outs. It represents the quantity below which the stock of an item should not be allowed to falL

2.4 Performance
2.4.1 Definition of Performance
Draft (1991) performance is the ability of the firm to attain its goals using resources at hand and assets
that effective performance achieves its projected goals and objectives. Performance is the quantitative
and qualitative assessment of the degree to which an organization function and those employed there
have achieved the general or specific objective assigned to them (Lysons and Gilingham2003)

Performance is the act of doing something successfully using the knowledge as distinguished from
processing it (Lenan, 2010)

2.4.2 Performance Measurement.

Lysons and Gillingham (2003) states that the methods used to measure performance should be chosen
after consideration of the following principles.

Acceptability: This method of measuring performance should be discussed with and accepted by all the
concemed staff of the firm.

Achievability: The method must use realistic standards of performance otherwise staff
will not be motivated to attain them.

Appropriateness: The methods and factors must be relevant to the work of staff and the industry.
Flexibility: Methods of measurement must be capable of adoption to meet changing circumstances.
Continuity: The methods used should be retained over a reasonable period to facilitate comparison
between past and present performance.
 Comprehension: the methods adopted should be uncomplicated so that easily be communicated to staff.
Credible: the more credible the performance measure, the more acceptable it will be
both to those whose performance is being measured and those who are measuring the
performance.

Cost: The cost of measuring performance should not be out of proportion to the persevered
benefit of the exercise.

However, according to Pandey, Performance is measured in terms of profitability, liquidity and

efficiency.

Liquidity
According to Pandey (1995), liquidity is the ability of a firm to meet its current
obligations. A company should ensure that it does not suffer from lack of liquidity,
and also that it does not have excess liquidity this it is necessary to strike a proper
balance between high liquidity and lack of liquidity.

Failure of the firm to meet its obligations due to lack of liquidity will result in a
poor creditworthiness, loss of creditor's confidence or even firm’s closure. The
liquidity position is measured using the current ratio and the quick ration.

Current ratio. This indicates availability of current assets to meet short term
liabilities as they fall due. A company with a ratio of less than 2 to I may be doing
well, while companies range between 2 to I or even higher current ratios may be
struggling to meet their obligations. This is because the current ratio is a test of
quantity, not quality

Quick ratio. This provides an acid test of whether the manufacturing industry have
sufficient resources to settle their liabilities. An industry with a high value of quick
ratio may suffer from a shortage of funds if they slow- paying, doubtful and long
outstanding debtors while enterprises with a low value of quick ratio may really be
prospering.

Profitability
The main objective of enterprises is to earn profits to survive and grow over a long
period of time. Profits are the ultimate "output' of the enterprises and it will have no
future if it fails to make sufficient profits (Pandey, 1995).

The most relevant ratio is the return on capital expenses (ROCE), which will
compare pre-tax profits plus interests to assets employed. Other ratios include gross
profit margin, net profit margin and profit after tax (Kakuru, 2001

The profitability ratios are calculated to measure the operating efficiency of enterprises
and the most common way is to compare net profit.

Net profitability Margin %= Net profits

Net sales

Productivity is the measure of the ratio between output and input, between benefits
and costs and between effectiveness and efficiency. If this ratio is negative, the
enterprise is having problems and therefore, the management efficiency is judged by
the greater this ratio is. Production focus activities always use output assessment
measures to determine their performance (Pandey, 1995)

There are little inputs usually made to cater for a long period of time or no input
costs in all. Management has no alternative other than looking at the output to assess
the performance. Efficiency is determined using inventory turnover ratio among
others

Inventory turnover= Cost of sales

Inventory
This ratio shows how many times closing inventory could have been sold in a year
inventory turnover varies with the nature of enterprises and therefore enterprises have
to strike a balance between being able to satisfy customer requirements out of
inventory and the cost of having too much capital tied in inventory-
2.4.3 Aims of Performance Measurements
To compare actual with planned performance
To improve on decision making
To ensure a consensus between individual, functional and corporate aims and objectives

To ascertain preventable and non-preventable reasons for substandard performance and

provide basis, where required, for improvement.

To provide feedback to staff which can improve motivation and encourage the search
for improvement

Performance measures should focus on;

The firm.
Policies and procedures set up.
Products and services to internal or external customers.
To quality of the products and services provided.

However, there are other factors affecting performance either negatively or

positively other than inventory management and these include; the level of
technology used, taxes, inflation, staff quality of products or services, competition,
political factors, government policy among others.

2.5 Relationship Between Inventory Management and Performance of Enterprises

2.5.1 Inventory Valuation.

Inventory of finished goods is valued at the lower of cost and net realizable value by either
using the first in first out (FIFO) method or the weighted average cost method

(Gillingham, 2003)

First in first out assumes that materials are issued out in the order in which they were
delivered into stock. This method of pricing is logical because it represents what is
physically happening and it avoids problems of obsolescence. The value of closing
stock in final account will fairly reflect the current market values at the most current
prices. However, in a situation of falling prices, cost of materials charged to
production tends to be high. As results, prospective sales may be lost due to high
quotations and hence poor performance of enterprises (Dobbins, 2017).
2.5.2 Just in Time
Weele (2012) defined JIT as a technique used to avail materials and products to customers at the
moment when they are needed and in the right quantities Kaplan (2010) asserted that JIT is basically
concemed with reducing production costs and production delays. In practice this means producing
components only when they are needed in the quantity that is needed. Achievements includes zero
inventory, zero defects, 100% on time deliveries and lead time reduction. This improves performance
of enterprises

However, each manufactured products have a designed routing and the proceeding process suppliers
parts to the subsequent process without consideration being given to whether the next process is ready
to work on the parts or not. The system does not consider whether there is demand at the end of the
process (Lucey. T, 2013)

2.5.3 Safety Stock

This represents the quantity below which stock of an item should not be allowed to
fall and the firm will want to keep a minimum stock level to prevent stock outs (Ian
Mar, 2012).

Stock outs are costs of being out of stock and these include: redundancy costs, loss of future
sales associated with urgency, replenishment orders (Pandey, 1995.

Redundancy Costs. These include costs of heat, lighting, rent, stoppages, and these
costs will continue to be incurred by a firm yet no income is earned from use of such
facilities, this affects performance negatively.

Loss of future sale. This is as a result of customers switching to other benchmark

companies is similar industries where services are favorable. Therefore, the loss of
customers means loss of sales in the future and hence poor performance.
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1. INTRODUCTION.
This chapter includes explanation concerning the area of the study, research design,
types of data and information required. It also explains about sampling procedures,
sample size, data collection techniques or instrument, data analysis and expected
results (Kothari 2012) defined research methodology as a science of studying on how
the research is been conducted scientifically; likewise, he defined research methods
as all those methods/techniques that are used for conducting the research.

3.2 RESEARCH DESIGN.

The research design was a case study because a single case was extensively studied
in a specific context in specific period. The choice of this design is incidental. The
design was deliberately chosen because knowing the impacts rise in managing the
stock inventory. It provides opportunity to investigate thoroughly different factors
that contribute to mismanagement if the resources.

The method of data collection was flexible because the researcher was completely
free to approach the problem from any angle desired, It saves time and cost. The
methodology enabled participants in the research process examples interviewers to
gives their inner insight about the issues at the same time the researcher was able to
explore other issues outside the research context.

This approach provides the participants are engaged in checking in and reciprocally
revising interpretive there by enabling them to alter their own need interpretations
and to discover common generalizable interests. The methodology will be base on
communicative action (Warren 2012)
3.3 RESEARCH APPROACH.

The research approach outlines the general strategy that will be used to address the
research objectives. For the study, a mixed methods approach will be adopted,
combining quantitative data analysis with qualitive insights. This approach will
provide a comprehensive understanding of the influence of inventory management
practices by considering both numerical data and contextual factors.

3.4 AREA OF THE STUDY.

The area of the study for this research is Serengeti Breweries Limited located
Kilimanjaro. This specific location was selected as it represents a relevant setting for
examining the relationship between inventory management practices and financial
performance with the manufacturing industry.

3.5 TARGETED POPULATION.

The targeted population includes all individuals and stores and finance departments
such as Engineering store and Raw materials store. This includes managers,
inventory control personnel, financial analysts and other relevant stakeholders.

3.6 SAMPLE AND SAMPLING TECHNIQUES

3.6.1. Sample size.
The sample size refers to the number of participants or units included in the study.
The sample size will be determined based on the principles of statistical power and
adequacy. A representative sample will be selected to ensure the findings can be
generalized to a larger population. The specific sample size will be determined during
the data collection stage based on the nature and scope of the study.

3.6.2. Sampling Techniques.

The sampling techniques refers to the method used to select participants from the
targeted population. In this study a combination of purposive sampling and stratified
sampling will be employed. Purposive sampling will be used to select key informant
who possess relevant knowledge and expertise in inventory management and
financial performance. Stratified sampling will be employed to ensure representation
from different department and levels of organization.

3.7 SOURCES OF DATA.

Multiple sources of data will be utilized in this study. Primary data will be collected
through structured surveys, interviews, and observations conducted within the
targeted population. Secondary data will be obtained from internal company
reports, financial statements, stock records and relevant literature.

3.8 VADILITY AND RELIABILITY.

Validity and reliability are essential consideration in research methodology. Validity

ensures that the data collected accurately measures the intended variables while
reliability ensures consistency and stability in data collection. To enhance validity the
survey questionnaire and interview protocols will be developed based on established
measurement scales and expert input. To ensure reliability, will pretest and pilot-test
before the actual data collection.

3.9 ETHICAL CONSIDERATIONS.

Ethical consideration involves ensuring the rights and well being of the participants
and adhering to ethical guidelines. In this study, informed consent will be obtained
from all participants and their privacy and confidentiality will be maintained. Any
potential risks or conflicts of interests will be addressed and the ethical approval will
be sought from relevant institutional review boards, if required.

3.10.DATA ANALYSIS TECHNIQUES.

Data analysis techniques will depend on the nature of data collected. Quantitative
data obtained from surveys will be analyzed using statistical methods such as
descriptive statistics, correlation analysis and regression analysis Qualitative data
from interviews.