EFFECT OF INVENTORY MANAGEMENT O N ORGANIZATIONAL PERFORMANCE IN

UGANDA. A CASE STUDY OF MICRO AND SMALL ENTERPRISES IN KABWOHE

MUNICIPALITY, SHEEMA DISTRICT

BY
AHUMUZA PRECIOUS

2020/BPSM/009/PS

A RESEARCH PROPOSAL SUBMITTED TO THE FACULTY OF BUSINESS AND

MANAGEMENT SCIENCE AT MBARARA UNIVERSITY OF SCEINCE AND TECHINOLOGY
IN PARTIAL FULFILMENT OF THEREQUIREMENTS FOR THE AWARD OF
BACHELORSDEGREE OF PROCUREMENT
AND SUPPLY CHAIN MANAGEMENT

SUPERVISED BY
ARYATWIJUKA WILBROAD

JANUARY, 2023
 CHAPTER ONE
1.0. Introduction

This chapter presents a detailed background of the study including problem statement, objectives of the
study, research questions, content, area and time scope and significance of the study.

1.1.Background of the study

Inventory has been a big component of management with in so many organizations in dealing with goods
and materials, or those goods and materials themselves, held available in stock by a business. It is also used
for a list of the contents of a household and for a list for testamentary purposes of the possessions of
someone who has died. Costs of production are expenses incurred by a firm when producing its goods and
services. Atnafu, D., & Balda, A. (2018).
Small and medium sized Enterprises (SMEs) have a strategic importance in developing countries like
Uganda; they contribute to national income, employment, exports, and entrepreneurship development.
The development of Small and medium sized Enterprises is the central focus of the Ugandan industrial
development strategy as it is stated in Growth and Transformation Plan. Therefore, in the development
process of any country, the performance of Small and medium sized Enterprises based on competition,
productivity, and efficiency will play a significant role in the economy. It is observed from literature
that making use of formal inventory management practices is one of the ways to acquire competitiveness.

According to Socialiniai tyrimai 45, no. 1 (2022): 91-103, 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 settling on when and how to arrange. 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.

A study conducted in Kenya by Naliaka, V. W., & Namusonge, G. S. (2015), identified that inventory
management affects competitive advantage of manufacturing firms. The same study further concludes that
the firm is able to compete based on quality and delivery of customer orders on time. Competitive
advantage comprises capabilities that allow an organization to differentiate itself from its competitors
and is an outcome of critical management decisions, Lakhal, L. (2009).

The inventory investment for a small business takes up a big percentage of the total budget, yet
inventory control is one of the most neglected management areas in small firms. Many small firms
have an excessive amount of cash tied up to accumulation of inventory sitting for a long period
because of the slack inventory management or inability to control the inventory efficiently. Poor
inventory management translates directly into strains on a company’s cash flow.

As to the knowledge of the researcher, in Uganda the inventory-related aspects of Small and medium
sized Enterprises has not yet attracted the attention of researchers and policy makers. The SMEs,
specially manufacturing enterprises, contribute significantly to the economy in several ways.

An effective and efficient management inventory flow across the value chain is one of the key factors
for success of large and small enterprises. The challenge in managing inventory is to balance the
tradeoff between the supplies of inventory with demand. Ideally a company wants to have enough
inventories to satisfy the demands of its customers no lost sales due to inventory stockouts. On the
other hand, the company does not want to have too much inventory staying on hand because of the cost
of carrying inventory. Inventory decisions are high risk and high impact for the supply chain
management of an organization. According to Gitau, R. W. (2016). inventory management practices
have come to be recognized as a vital problem area needing top priority.

As a rule of thumb in most manufacturing organizations, direct materials represent up to 50% of the total
product cost, as a result of the money entrusted on inventory, thereby affecting the profitability and
competitiveness of the organization. According to Atnafu, D., & Balda, A. (2017)., historically,
however, organizations have ignored the potential savings from proper inventory management, treating
inventory as a necessary evil and not as an asset requiring management. As a result, many inventory
systems are based on arbitrary rules. Inventory management according to Kelkar, N., & Arthur, R. I.
(2022). is a fundamental pillar in an organization and it should be taken seriously.

The inventory investment for a small business takes up a big percentage of the total budget, yet
inventory control is one of the most neglected management areas in small firms. Many small firms
have an excessive amount of cash tied up to accumulation of inventory sitting for a long period
because of the slack inventory management or inability to control the inventory efficiently. Poor
inventory management translates directly into strains on a company’s cash flow.

As to the knowledge of the researcher, in Uganda and Sheema district in particular, the inventory-
related aspects of SMEs have not yet attracted the attention of researchers and policy makers. The
SMEs, specially manufacturing enterprises, contribute significantly to the economy in several ways. In
Uganda, Medium and Small Enterprises sector is the second largest employment-generating sector
following agriculture. The contribution of MSEs is more than double of the manufacturing sector.
However, these enterprises are facing both financial and non-financial problems. Some studies show a
large number of small enterprises fail because of non-financial reasons. Liedholm, MacPherson and
Chuta (1994). Furthermore, study by, Okpara, J. O. (2011). revealed that poor record keeping and lack
of basic business management experience and skills are major contributors to failure of small business.

1.2 Statement of the Problem

Inventory management is believed to be a presenting factor for better firm performance; some firm are not
performing to the owners’ expectations. Information sharing through from the kept records and inventory
management are key important factors for the downstream chain. They enable firms in the supply chain
match demand with supply. However, firms in the downstream of small and medium sized enterprises in
Uganda face problems of lack of inventory management which has affected their ability to satisfy their
customers. (Nsamba 2000) indicates that there are poor returns when it comes to inventory management and
this is displaced due to firms’ failure to meet customer needs in the appropriate times when orders are
placed and this is mainly due to shortages in inventory and other firm requirements as a result of poor
inventory management techniques used by firms. Small and medium (SMEs) manufacturing industries
are in most cases faced with the problems of inadequate inventory of raw materials and spare parts.
These shortages often lead to breaks in production schedule, machine breakdown, and low capacity
utilization and thus constitute a barrier to their effective growth. Taking the scenarios into
consideration, this paper therefore seeks to examine the impact of inventory management practice on
medium sized enterprises competitiveness and performance by targeting medium sized enterprises
such as NUMA FOODS found in Kabwohe Municipality, Sheema district, Uganda. So, basing on the
gaps identified and discussions made, the following basic research questions were formulated.

1.3.Research questions
I. What are the Inventory Management practices followed by medium sized enterprises in
Manufacturing Sub- Sector, a case of NUMA FOODS, kabwohe municipality?
II. How does the Inventory Management practiced by medium sized enterprises affect their
competitiveness and performance, a case of NUMA FOODS?
III. How does the competitive advantage gained through inventory management affect medium
sized enterprises performance in Uganda, a case of NUMA FOODS, kabwohe municipality
Sheema district?
1.4. Purpose of the study
The aim of this study is to examine the impact of inventory management practice on medium sized
enterprises’ competitiveness and performance in Uganda. A case of NUMA FOODS found in
kabwohe municipality, Sheema district.
I.5. Objectives of the study
II. To identify Inventory Management practices followed by medium sized enterprises in
the Manufacturing Sub- Sector in Uganda, a case of NUMA FOODS
III. To identify how different Inventory Management practices by medium sized enterprises in
Uganda affect their competitiveness and performance, a case of NUMA FOODS.
IV. To identify how competitive advantage gained through inventory management affect medium
and small sized enterprises’ performance in Uganda, a case of NUMA FOODS.

1.6 Scope of the Study

The scope of the study is categorized into three areas that is; content, geographical and time scope.

1.6.1 Content Scope

This study will examine the impact of inventory management practice on medium sized enterprises’
competitiveness and performance in Uganda. A case of NUMA FOODS in kabwohe municipality,
Sheema district. Inventory management is the independent variable while SMEs competitiveness is the
dependent variable.
It will mainly focus on influence of inventory management practices, identify ways in which different
inventory management practices affect SMEs performance and also identify how the competitive advantage
gained through inventory management affects medium and small sized enterprises’ performance.

1.6.2 Geographical Scope

The study will be carried out from NUMA FOODS located in kabwohe municipality, Sheema district.
Sheema District is bordered by Buhweju District to the north, Mbarara district to the east, Ntungamo
District to the south, mitooma district to the southwest and Bushenyi District to the west. Kabwohe
municipality , where the research is to be carried out lies approximately 33 kilometers, by road, west
of Mbarara, the largest city in Ankore subregion. The coordinates of the district are: 00 32S, 30 24E1.7.3.
The research has decided to focus on kabwohe municipality because it is easily accessible for the researcher
to collect data.

1.6.3 Time Scope

The study will be carried out from the period of January 2023 to December 2023.This period is considered
because it is current and reliable and is the period for proposal writing, data collection, analysis,
interpretation and writing final report dissertation.

1.7. Conceptual framework.

The conceptual frame work gives the relationship between the dependent and indepent variable. In this case
it provides a relationship on how inventory management practices provide a competitive advantage in
organizational operations hence determining its general performance.
Figure 1: Conceptual framework

Independent variable Dependent variable

Organizational Performance

Profitability

Market Share
Inventory 
Level of Output
Management Practice 
Cost Efficiency
 ABC Analysis
 EOQ Competitive Advantage

 VMI

Price

 Demand Forecasting

Quality

 JIT 
Delivery

 Computerized IM

Inventory management and competitiveness

A study conducted in Kenya by Naliaka and Namusonge (2015) identified that inventory management
affects competitive advantage of manufacturing firms. The study further concludes that the firm is able
to compete based on quality and that it delivers customer orders on time. Competitive advantage
comprises capabilities that allow an organization to differentiate itself from its competitors and is an
outcome of critical management decisions Marinagi, C., Trivellas, P., & Sakas, D. P. (2014). Effective
inventory management provides opportunities to create sustainable competitive advantage and enhance
the competitive position of companies. This entails reduction in cost of holding stocks by maintaining
just enough inventories, in the right place and the right time and cost to make the right number of
needed products.
Competitive advantage and organizational performance
Having a competitive advantage generally suggests that an organization can have one or more of the
following capabilities when compared to its competitors: lower prices, higher quality, higher
dependability, and shorter delivery time. These capabilities will, in turn, enhance the organization’s overall
performance Atnafu, D., & Balda, A. (2018). Competitive advantage can lead to high levels of
economic performance, customer satisfaction and loyalty, and relationship effectiveness. Brands with
higher consumer loyalty face less competitive switching in their target segments thereby increasing
sales and profitability (Kim, W., Kim, H., & Hwang, J. (2020).).

1.8 Significance of the study

The study will be significant to different stakeholders that include; management, the Researcher, Suppliers,
Consumers and Government organizations in the following ways;
The study seeks to uncover many potentially neglected areas in inventory management literature. For
instance, it seeks to answer the call for research seeking more investigation into the relationship of inventory
management with supply management concepts.
It is of paramount importance to the academicians and practitioners as the proposed framework is expected
to uncover many neglected relationships that are of interest to managers of different business enterprises.
The study will be of useful guide to corporate logistic and procurement managers in formulating their
corporate logistic and operational strategies.
The research seeks to provide further grounds for understanding inventory management in practice and
clearly relate the findings to today’s dynamic company thus providing a ground for further research in
institutions of higher learning.
References
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