EFFECTS OF INVENTORY MANAGEMENT PRACTICES ON FINANCIAL

PERFORMANCE OF PRIVATE COMPANIES.

CASE STUDY OF CENTURY BOTTLING COMPANY LTD.

i
 DECLARATION

I, Ahumuza Precious, hereby declare that I carried out this research study myself with the help of
my research supervisor, Dr. Aryatwijuka Wilbroad specifically for partial fulfillment for the
award of the degree of Procurement and Supply Chain Management of Mbarara University of
Science and Technology.

Signature: ................................ Date: ...............................

i
 APPROVAL

This is to certify that this research report titled “Inventory Management a n d Performance of
Numa Feeds, Uganda” has been submitted for examination with my approval as the university
supervisor.

Signature:_________________________________ Date: ___________________

Dr. Aryatwijuka Wilbroad

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 DEDICATION

My efforts in achieving academic success through writing this research report is dedicated to my
family, friends and relatives. My gratitude also goes to my supervisor Dr. Aryatwijuka Wilbroad.
Thank you so much for seeing me through and May the LORD bless you abundantly.

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 ACKNOWLEDGEMENTS

I wish to thank the Almighty God for keeping me alive and providing me with the capacity and
courage to go through the three-year course successfully.

Firstly, I thank all the staff of the Faculty of Business and Management Science of Mbarara
University of Science and Technology, for equipping me with the knowledge and tools that
enabled me to do this research. I appreciate the work done by my supervisor Dr. Aryatwijuka
Wilbroad. Thank you very much for all your guidance, knowledge, advice, and the time you
accorded to me during the completion of the research report.

Special thanks further goes to the staff of NUMA FEEDS for welcoming me and unconditionally
responding to my questionnaires. Thanks for all the support you gave me through the course.

My heartfelt gratitude goes to my family members. Thank you for being there for me at all times.

Lastly, this work was not by my efforts alone. I register appreciation to my friends and
classmates for their limiting support and understanding. Thanks a lot.

TABLE OF CONTENTS
iv
DECLARATION..............................................................................................................................i

APPROVAL.....................................................................................................................................ii

DEDICATION................................................................................................................................iii

ACKNOWLEDGEMENTS............................................................................................................iv

TABLE OF CONTENTS.................................................................................................................v

LIST OF TABLES........................................................................................................................viii

ABSTRACT...................................................................................................................................ix

LIST OF ACRONYMS...................................................................................................................x

CHAPTER ONE: INTRODUCTION AND BACKGROUND TO THE STUDY...................1

1.0 Introduction..........................................................................................................................1

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

1.2 Statement of the Problem.....................................................................................................3

1.3 Purpose of the Study............................................................................................................4

1.4 Objectives of the Study........................................................................................................4

1.5 Research Questions..............................................................................................................4

1.6 Scope of the Study...............................................................................................................4

1.6.1 Content Scope......................................................................................................................4

1.6.2 Geographical Scope.............................................................................................................5

1.6.2 Time Scope..........................................................................................................................5

1.8 Significance of the study......................................................................................................5

1.8 Definition of Key Terms......................................................................................................6

CHAPTER TWO: LITERATURE REVIEW.............................................................................7

2.0 Introduction..........................................................................................................................7

2.1 The Concept of Inventory Management..............................................................................7

2.1.1 Types of Inventory...............................................................................................................8

2.1.2 Reasons for Holding Inventory............................................................................................9

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2.2 Techniques of Inventory Management...............................................................................12

2.3 Concept of Performance....................................................................................................17

2.4 Performance Indicators......................................................................................................18

2.5 The Challenges faced by Company in managing the inventories......................................19

2.6 The relationship between Inventory Management Techniques and Company

Performance.......................................................................................................................24

CHAPTER THREE: METHODOLOGY.................................................................................28

3.0 Introduction........................................................................................................................28

3.1 Research Design.................................................................................................................28

3.2 Study Area..........................................................................................................................28

3.3 Study Population................................................................................................................29

3.4 Sample Size........................................................................................................................29

3.5 Sampling Techniques.........................................................................................................30

3.6 Data Sources......................................................................................................................30

3.7 Data Collection Instruments..............................................................................................30

3.7.1 Interview Guide.................................................................................................................30

3.7.2 Questionnaire Tool.............................................................................................................31

3.8 Data Quality Control (instruments’ validity and reliability)..............................................31

3.9 Data Collection Procedures................................................................................................31

3.10 Data Analysis and Presentation..........................................................................................32

3.11 Ethical Consideration.........................................................................................................32

3.11.1 Ethical Issues.....................................................................................................................32

3.11.2 Confidentiality...................................................................................................................32

3.11.3 Informed Consent...............................................................................................................33

3.12 Limitations of the Study.....................................................................................................33

CHAPTER FOUR: DATA ANALYSIS, PRESENTATION AND DISCUSSIONS................34

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4.0 Introduction........................................................................................................................34

4.1 General Findings................................................................................................................34

4.2 Findings of the Study.........................................................................................................35

4.2.1 Findings on the Background Characteristics of Respondents............................................35

4.2.2 The inventory management techniques applied by Century Bottling Company Ltd.........38

4.2.3 The challenges faced in managing inventory at Century Bottling Company Ltd..............47

4.2.4 Relationship between Inventory Management and Performance of Century Bottling

Company Ltd.....................................................................................................................51

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSIONS AND

RECOMMENDATIONS.............................................................................................................53

5.0 Introduction........................................................................................................................53

5.1 Summary of Findings.........................................................................................................53

5.1.1 The Inventory Management Techniques applied by Century Bottling Company Ltd.......53

5.1.2 The challenges faced in managing inventory at Century Bottling Company Ltd..............54

5.1.3 Relationship between Inventory Management and Performance of Century Bottling

Company Ltd.....................................................................................................................54

5.2 Conclusion.........................................................................................................................55

5.3 Recommendations..............................................................................................................55

5.4 Suggested areas for Further Researcher.............................................................................56

REFERENCES............................................................................................................................57

APPENDICES..............................................................................................................................60

Appendix A: Questionnaire to Respondents..................................................................................60

LIST OF TABLES

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Table 3.1: Study Population and Sample Size Distribution......................................................29

Table 4.1: Response Rate..........................................................................................................34

Table 4.2: Respondents’ Category by Gender...........................................................................35

Table 4.3: Age of Respondents..................................................................................................36

Table 4.4: Highest Level of Education attained by Respondents..............................................36

Table 4.5: Categorization of Respondents by Departments of Work........................................37

Table 4.6: Respondents’ tenure of services in the company......................................................38

Table 4.7: Whether Century Bottling Company has formal techniques in managing its
inventory...................................................................................................................39

Table 4.8: Items that generate more inventories in the company..............................................40

Table 4.9: The Inventory Management Techniques applied by Century Bottling Company....41

Table 4.10: The Inventory Management Techniques applied by Century Bottling Company
(Continued…)...........................................................................................................45

Table 4.11: Whether Century Bottling Company Ltd face an challenges in managing its
inventory...................................................................................................................47

Table 4.12: The challenges faced in managing inventory at Century Bottling Company Ltd....48

Table 4.13: Relationship between Inventory Management and Performance of Century Bottling
Company Ltd............................................................................................................51

viii
 ABSTRACT

The study was carried out to establish the effects of inventory management practices on financial
performance of private companies focusing on Century Bottling Company Ltd. The study
objectives included: to find out the inventory management techniques applied by Century
Bottling Company Ltd, to find out the challenges faced in managing inventory at Century
Bottling Company Ltd and to establish the relationship between inventory management practices
and financial performance of Century Bottling Company Ltd.

The was conducted as an exploratory survey. It adopted a descriptive research design using both
quantitative and qualitative methods. The researcher used a qualitative technique to collect and
analyze verbal data while quantitative technique was used to collect and analyze numerical data
in establishing frequency counts and percentages. The researcher arranged a list of all categories
of the identified population of the study to facilitate a purposive selection of individual
participants. By use of the staff establishments list where all employees of the company are
recorded in accordance with departments and position/level or designation. A total sample of 70
Century Bottling Company staff stores department, procurement and logistics department,
operations department, finance and accounts department as well as marketing and sales
department were stratified and purposively selected from different levels to participate in this
study.

Study findings revealed that there is a strong positive relationship between inventory
management and company performance at Pearson correlation coefficient r=0.997**, p=0.00.
And therefore this means that if inventories are well managed performance improves. It was
however established that the exercise of inventory management in entirely challenging. The
study found out that. The study found out that limited resources, practices related to inventory
planning, oversell in stores, maintaining skilled personnel to manage inventory, limited space in
stores influence more challenges in managing inventory at Century Bottling Company Ltd.

The study concluded that, hardly can a company survive in business with commendable
performance with no dedicated efforts to ensure an effective trend in managing its inventories.
The study thus recommends top management in most organizations to emphasize proper
inventory management techniques and measuring of efficiency deviations to identify weaknesses
in the process of managing inventories.
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 LIST OF ACRONYMS

EOQ - Economic Order Quantity

MRP - Material Requirement Planning

JIT - Just in time

Ltd. - Limited

FIFO - First in First out

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 CHAPTER ONE

INTRODUCTION AND BACKGROUND TO THE STUDY

1.0 Introduction

This chapter of the study presents the background of the study, statement of the problem,
general objective, specific objectives, research questions, scope of the study, significance
of the study and definition of key terms

1.1 Background of the Study

In traditional settings, inventories of raw materials, work-in-progress components and

finished goods were kept as a buffer against the possibility of running out of needed
items. However, large buffer inventories consume valuable resources and generate hidden
costs. Consequently, many companies have changed their approach to production and
inventory management. Since at least the early 1980s, inventory management leading to
inventory reduction has become the primary target, as is often the case in just-in-time
(JIT) systems, where raw materials and parts are purchased or produced just in time to be
used at each stage of the production process. This approach to inventory management
brings considerable cost savings from reduced inventory levels. As a result, inventories
have been decreasing in many firms (Chen et al., 2005), although evidence of improved
firm performance is mixed (Kolias, 2011).

Companies face a dilemma in today’s competitive marketplace, where on one hand,

customers demand customized products and services and require that their orders are
filled quickly, but on the other hand they do not want to pay a premium for this
customization and availability (Graman & Magazine, 2006). Therefore, organizations are
exploring ways toward postponement strategy in response to constantly changing
demands (Yang, 2004).

Graman & Magazine (2006) argued that today, the cost of holding inventory, extensive
product proliferation and the risk of obsolescence, especially in rapidly changing
markets, make the expense of holding large inventories of finished goods excessive and
that high demand items naturally have safety stock assigned to them, but in many

1
organizations there are so many very-low-demand items that keeping any stock of these
items is unreasonably expensive, so they argue that companies must now provide good
service while maintaining minimal inventories. Therefore, inventory management
approaches are essential aspects of any organization.

According to Kothari (2009), inventory refers to the raw materials, work in progress
goods (WIP), completely finished goods that are considered to be the portion of a
business’s assets that are ready or will be ready for sale. Thus it is a significant part of the
assets for the business, Normally it consists of 20%-30% of the investment of the total
investment of the firm, Thus it should be managed in order to avail the inventories at the
right time in right quantity, This implies that the profitability of the firm is directly or
indirectly affected by the inventory management practices practiced by the firm.

According to Silver and David (2008), inventory management is a system concerned with
integration of information, transportation, acquisition, inspection, material handling, ware
housing, packaging and control of supplies and ensuring security of inventory. Inventory
management aims at discovering and maintaining optimal level of investment in all types
of inventories and maximizing the flow of goods, information and other related resources
like people and energy from the period of origin to the point of final consumption. It is
important that managers in organization who deal with inventory to have in mind the
objectives of satisfying customer needs and keeping inventory costs at a minimum level.

Peter (2000) notes that in recent years; a number of private manufacturing companies
have faced numerous challenges especially in inventory management or material control
thus affecting the performance of manufacturing companies. There have been cases of
material overstocking which eventually get expired or out dated, under stocking, lack of
stock taking, theft of materials by workers and delays in deliveries of materials into the
organization. Managing assets of all kind can be viewed as an inventory problem, for
some principles that apply to cash and fixed assets, the tradeoff between ordering costs
and holding costs characterizes the transactions approach to inventory management
represented by the EOQ models of inventory developed many decades ago.

Koumanokos (2008) in the recent years has developed many new concepts have been
added to the list of relevant inventory control topics. These more management oriented
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 concepts include the material requirement planning systems (MRP), Just in time (JIT)
that are the characteristics of a firms demand and marketing environment also play an
important role In determination of optimal corporate inventories outstanding the
theoretical and practical short coming inherent in these concepts and techniques, their
application in real business life should have an impact on the company’s performance.

Building on this situation the purpose of this study is to investigate the relationship, if any
between inventory management practices and financial performance of private
companies. Inventory management is viewed as a significant blend of the key
performance determinant variable in bottling companies, Inventory management and
control are crucial to a firm because mismanagement of inventory threatens a company’s
viability (Wacker, 2006). Too much inventory consumes physical space, creates financial
burden, and increases possibility of damage, spoilage and loss. In this context the lean
production principle pioneered by Womack (2010) has been linked to reduced inventories
on the other hand, too little inventory often disrupts manufacturing operation and increase
the likelihood of poor customer service.

1.2 Statement of the Problem

Inventory management at Century Bottling Company is mostly seen in arrangement of

crates at the plant, bottles packing, buying of raw materials, supply of customers, issuing
of raw materials for use in the plant departments. This is because the company uses
different systems in inventory management including integrated system (System
Application and products) responsible for management information system which helps
to make serious decisions on stock, material requirement points, and over stock brands
for the fast moving products (Supply Chain Manual, Century Bottling Company Ltd.,
2009). However, even with the above inventory management techniques in place at
Century Bottling Company Ltd, performance of the company has reduced from 80% to
60% in the years 2013-2014 respectively, this is evidenced by the decline in sales
performance over time. The study was set to investigate the relationship between
inventory management on performance of Century Bottling Company Ltd.

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1.3 Purpose of the Study

The purpose of this study was to establish the effects of inventory management practices
on financial performance of private companies focusing on Century Bottling Company
Ltd

1.4 Objectives of the Study

The study was guided by the following objectives:

i). To find out the inventory management techniques applied by Century Bottling
Company Ltd
ii). To find out the challenges faced in managing inventory at Century Bottling
Company Ltd.
iii). To establish the relationship between inventory management practices and
financial performance of Century Bottling Company Ltd.

1.5 Research Questions

The study was guided by the following research questions:

i). What are the inventory management techniques applied by Century Bottling
Company Ltd?
ii). What are the challenges faced in managing inventory at Century Bottling
Company Ltd?
iii). What is the relationship between inventory management practices and
financial performance of Century Bottling Company Ltd?

1.6 Scope of the Study

1.6.1 Content Scope

The study focused on establishing the effects of inventory management practices on the
financial performance of private companies particularly Century Bottling Company Ltd.
The study was limited to finding out the inventory management techniques applied by
Century Bottling Company Ltd, finding out the challenges faced in managing inventory

4
 at Century Bottling Company Ltd and establishing the relationship between inventory
management practices and financial performance of Century Bottling Company Ltd.

1.6.2 Geographical Scope

The study was carried out at Century Bottling Company Ltd. Century Bottling Company
Ltd is located in Namanve, in the East of Kampala district between Seeta trading centre
and Bweyogerere trading centre; approximately 0.8km along Kampala-Jinja high way.
The company holds different kinds of inventories in form of raw materials, semi-finished
and finished products among others.

1.6.2 Time Scope

The study considered information relating to the period of five years of business at
Century bottling company that is from 2010-2015. This range of years was considered as
sales at century bottling Company Ltd has been shown a decline despite use of a series of
techniques in managing the company’s inventory. Furthermore, the time was enough to
provide more information for the study upon which conclusions and recommendations
are based.

1.8 Significance of the study

The findings of the study would be significant in the following ways;

i). Management of manufacturing companies would use the findings of the study
to improve the inventory management to effectively improve their financial
and sales performance.
ii). The study would be of benefit to business developers and managers especially
those in the area of inventory departments for example management that is
responsible for the formation of policies relating to inventory management,
store keepers, production managers and accountants.
iii). The study findings would supplement on the existing body of literature
currently available on the inventory management practices and financial
performance.

5
 iv). Future researchers would use the findings of the study as references to their
work.

1.8 Definition of Key Terms

Inventory: is the amount of goods, materials or parts carried out in stock or store house
for example, Work in Progress, Raw Materials, Financial Goods Resale, MRO items
(Womack, 2010).

Inventory Management: it involves the planning, ordering and scheduling of the

materials used in the manufacturing process. It exercises control over three types of
inventories i.e. raw materials, work in progress, and finished goods. Purchasing is
primary concerned with control over the raw materials inventory, which includes; raw
materials or semi-processed materials, fabricated parts and MRO items (maintenance,
repair and operations) (Garry, 2007).

Inventory Control: refers to the process whereby the investment in materials and parts
carried in stock is required within pre-determined unit set in accordance with inventory
policy established by management (Koumanokos, 2008).

A customer: also client, buyer or purchaser is the buyer or user of the paid products of an
individual or organization, mostly called the supplier or seller. This is typically through
purchasing or renting goods or services. It is also the person or group that is the direct
beneficiary of a project or service (Silver & David, 2008).

Profit: is the making of gain in business activity for the benefit of the owners of the
business. It is also defined as returns received on a business undertaking after all
operating expenses have been met (Womack, 2010).

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 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter focuses on the review of the related literature in line with the study variables
and objectives. The researcher mainly obtained the theoretical and written data by
different authors about the themes under the study.

2.1 The Concept of Inventory Management

The word inventory has been defined in many ways, as indicated in the literature. Three
definitions have been chosen seem to be more appropriate to the topic developed in this
dissertation. Inventories are stockpiles of raw materials, suppliers, components, work in
process, and finished goods that appear at numerous points throughout a firm’s
production and logistics channel (Ballou, 2004).

According to Chase, Jacobs & Aquilano (2004), inventory is the stock of any item or
resource used in an organization. An inventory system is the set of polices 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. Pycraft (2000) defined
inventory or stock as “the stored accumulation of material resources in transformation
system. So a manufacturing company will hold stocks of materials, a tax office will hold
stocks of information and a theme park will hold stocks of customer (when it is
customers which are being processed we normally refers to the stocks of them as a
queues).

Inventory management involves providing the required inventory levels that will sustain
the organization’s daily operations at minimum costs. This covers issues like determining
the level of stock to order, when to order, establishing receipt and inspection procedures
and providing proper storage facilities. Without proper stock control procedures in place,
firms are likely to face two undesirable inventory levels. That is to say excessive/ high
levels of inventory or inadequate/ low levels of inventory (Dickerson, 2005).

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2.1.1 Types of Inventory

Inventory varies in various organizations but the most common stock is stock of raw
materials, work in progress, finished goods and inventory in supplies such as stationery
and fuel.

According to Kakuku (2007), raw materials inventories are those inputs from suppliers
that have not yet entered the manufacturing or transformation process. Those inventories
are essential in helping a firm/ organization to overcome problems faced by purchasing
departments. Suppliers often fail to deliver expected inputs to their internal inefficiencies.
The business itself may fail to acquire inputs in time because its procurement function is
sluggish and inefficient. Sometimes, the problems may be due to environmental factors
well beyond the suppliers and the business itself (Chase, Jacobs & Aquilano, 2004). If
there were no inventories of raw materials, any disruption in supply would be
automatically passed on to operations functions. Operations would stall, as there would
be no inputs to transform.

According to Pandey (2002), work in progress (WIP) is products that have been partially
finished. These are semi finished products at various stages of production and these
inventories provide a link between input and output stages. They represent products that
need more work before they become finished products.

Finished goods are completed products, which are ready for sale. They link production to
marketing or consumption for unanticipated failure in production and also meet
unpredictable variables in customer demand (Pandey, 2002). Finished goods inventory
allows the firm flexibility in its production scheduling and in its marketing (Van Horne
2002)

According to stock and Lambert (2001), said that inventories can be categorized into six
distinct forms that are: Cycle stock is inventory that results from the replenishment
process and is required in order to meet demand under conditions of certainty, that is,
when the firm can predict demand and replenishment times (lead times) almost perfectly:
In-transit inventories. In-transit are items that are en route from one location to another.

8
 They may be considered part of cycle stock even though they are not available for sale
and /or shipment until after they arrive at the destination: Speculation stock. Speculation
stock is inventory held for reasons other than satisfying current demand. For example,
materials may be purchased in volumes larger than necessary in order to receive quantity
discounts, because of a forecasted price increase or materials shortage, or to protect
against the possibility of a strike: Seasonal stock. Seasonal stock is a form of speculative
stock that involves the accumulated of inventory before a season begins in order to
maintain a stable labour force and stable production runs or, in the case of agricultural
products, inventory accumulated as the result of a growing season that limits availability
throughout the year: Dead stock is inventory that no one wants, at least immediately. The
question is why any organization would incur the costs associated with holding these
items rather than simply disposing of them (Chase, Jacobs & Aquilano, 2004). One
reason might be that management expects demand to resume at some point in the future.
Alternatively, it may cost more to get rid of an item that it does to keep it. But the most
compelling reason for maintaining these goods is customer service for good service
delivery toward an organization. Perhaps an important buyer has an occasional need for
some of these items, so management keeps them on hand as a goodwill gesture (Pandey,
2002).

2.1.2 Reasons for Holding Inventory

Virtually every enterprise finds it necessary to hold stocks (or inventory) of various items
and materials (Pandey, 2002). That is because it would be practically impossible to
operate with only one of each item to be sold or used in manufacture or used in office
work. A reserve or a fund or inventory of each item or material used or sold frequently is
therefore maintained, so that as items or materials are sold or used they can be replaced
or replenished from the stocks held in reserve.

Due to uncertainty in future demand, and because of the unguaranteed availability of

supplies, stock is therefore held to ensure an availability of goods to minimize the overall
costs associated with the management of stock. The purpose of holding stock by a firm is
for three motives that is the precautionary, transaction and speculative motives (Drury,
2000).

9
Precautionary Motives: According to Gittinger (2005), precautionary motive means that
stock held to guard against risk of unpredictable changes in demand and supply. In most
cases, the level of demand of goods and the time required for supply cannot be known
with certainty. Therefore, to ensure product availability, the organization maintains
additional amount of safety stock to meet regular production and market needs. Firms
should invest in stock control for precautionary motive to act as a buffer or link between
demand and supply so that production can be geared to a more constant output.
Precautionary motive necessitates holding of inventories to guard against the risk of
unpredictable changes in demand and supply forces and other factors (Pandey, 2002).

Transaction Motive: Balloon (2007) stated that inventories should be held to improve
customer service and therefore goods should be spotted at a place where customers can
get them in the quantities they wish. The transaction motive is aimed at facilitating
smooth operations on daily basis. According to Pandey (2002) Transaction motive
emphasizes the need to maintain inventories to facilitate smooth production and sales
operation.

Speculative Motive: Firms should maintain back up inventory either in excess or low
levels to take advantage of current and future demands or price fluctuations. They should
therefore purchase goods and stock them in advance when they anticipate price increase
in future and also prepare for contingencies that may befall a company, for instance,
strikes, prices, goods among others (Kakuru, 2000).

Speculative motive influences the decision to increase or decrease inventory levels to

take advantage of price fluctuations (Pandey, 2002). The above reasons in addition to
encouraging production purchases and transportation economies will influence firms to
hold stock to allow smooth operations in the organization.

According to Kenneth & Brian (2006), the reason for keeping inventory includes the
following reason: Reduce the risk of supplier failure or uncertainty- safety and butter
stocks are held to provide some protection against such as strikes, transport breakdowns
due to floods or snow, crop failures, wars and similar factors, Protect against lead time
uncertainties, such as where supplier’s replenishment and lead time are not known with
certainty; in such case an investment in safety stocks is necessary if customer services is
10
to maintain at acceptable levels, Meet unexpected demands or demands for customization
of products as with agile production and smooth seasonal or cyclical demand, Take
advantage of lots or purchase quantities in excess of what is required for immediate
consumption to take advantage of price and quantity discounts, Hedge against anticipated
shortage and price increases, especially in times of high inflation or as a deliberate policy
of speculation and Ensure repaid replenishment of items in constant demand, such as
maintenance supplies and office stationery.

Bloomberg, Lemay & Hanna (2002) have identified five reasons for holding stock,
namely:

i). Economies of scale. A firm can realize economies of scale in manufacturing,

purchasing and transportation by holding inventory. If the business buys large
amounts, it gets quantity discounts. In turn, transportation can move larger
volumes and get economies of scale through better equipment utilization.
Manufacturing can have loner production runs if more material is inventoried,
allowing per units fixed cost reductions.

ii). Balancing supply and demand. Some firms must accumulate inventory in
advantage of seasonal demand. A toy manufacturer see some demand year –
round, but 60 percent or more of sales will come in the Christmas season. By
manufacturing to stock, production can be kept throughout the year. This
reduces idle plant capacity and maintains a relatively stable workforce,
keeping costs down. If demand is relatively constant but input materials are
seasonal, such as in the production of demand fruits, then finished inventory
helps meet demand when the materials are no longer available.

iii). Specialization. Inventory allows firms with subsidiaries to specialize. Instead

of manufacturing a variety of product and then ship the finished products
directly to customers or to a warehouse for storage. By specializing, each
plant can again economies of scale through long production runs.

iv). Protection from uncertainties. A primary reason to hold inventory that is to

say to offset uncertainties in demand. If demand increases and raw material

11
 stocks run outs, the production line shuts down until more material is
delivered. Likewise, a shortage of work in process means the product can not
be finished. Finally, if customer order outstrips finished goods supply, the
resulting stock outs could lead to the lost customers leading the poor services
delivery to the organization.

v). Buffer interface. Inventory can buffer key interfaces, creating time and
places utility. Key interfaces include [1] supplier and purchasing, [2]
purchasing and production, [3] production and marketing, [4] marketing and
distribution, [5] distribution and intermediary, and [6] intermediary and
customer. Having inventory at these interfaces helps ensure that demand is
met and stock outs are minimized.

2.2 Techniques of Inventory Management

In order to achieve the objectives of minimizing stock related costs, firms should
maintain adequate levels of stock in order to enable smooth business operations. A
number of techniques have therefore been advanced to handle these costs. Kalyango
(2001) highlights the following techniques that minimize stock related costs;

Inventory Planning and Scheduling: This is how units of stock are required by an
organization in a given period to enable smooth business operations. A good stock plan
set in advance will enable planners to set procurement/ purchase dates and quantities that
are consistent with the plan to avoid disruptions due to inventory shortages (Dilworth,
2002).

Inventory Recording: Accurate and up-to- date stores records are keys to effective
stores management. The basic procedures include counting and recording promptly after
receipt or production and whenever there is a store transaction, issue of stores should be
properly authorized and show details such as code number, quantity of the transaction
and the voucher reference (Muller, 2003). It is undertaken by organizations to reduce the
errors of stock management and to ensure accurate and reliable stock records. It involves
spot checks/ surprise checks, stock taking, which is the physical counting and measuring

12
of quantity of each item in stock and recording the results (Brooks, 2007). The documents
used in inventory include but not limited to;

i). Purchase requisition note: Document raised by either the storekeeper or user
department to the purchasing officer requesting for inventory /materials need
for use.
ii). Goods received note: Document prepared on receipt of stock to the stores.
iii). Stock record card/Bin cards: used for recording materials received and used in
the store. Bin card has three columns which include the receipt column, issue
column and Balance column.
iv). Materials return note: These permit the unused materials to be returned to the
store from the production department and other user departments.
v). Shortages note: This is a document issued by the stores department to
requisitioned information him/her that materials required are in short supply
or not available in the store.
vi). Scrap note: This is a document used for recording scrap generated and it
allows such a scrap to be handed over to the store department in exchange for
good materials (Kamukama, 2006).

Inventory recording is undertaken by organizations to reduce the errors of stock

management and to ensure accurate and reliable stock records. It involves spot checks/
surprise checks, stock taking, which is the physical counting and measuring of quantity of
each item in stock and recording the results (Brooks, 2007).

Inventory recording is undertaken to reduce the error relating to inventory accountability

and accuracy in a firm’s investment in inventories. Wood Frank (2006) indicates that
stock accounting is important in any firm as it registers the changes in the level of stock
held to realize maximum value and avoid misuse of funds. Inventory recording may take
it form of stock taking and sport checks which are a process of physically counting,
weighing or otherwise measuring the quality of each item in stock and recording system
should reduce the discrepancies between stock in record and the physical stock

Inventory Valuation: It is also a stock control technique, which refers to the

establishment of the value of stock and therefore its implication on the profits. Lacey
13
(2004) identified the following methods of stock valuation; First in First Out (FIFO), Last
in First out LIFO) and the average price method.

First in First out (FIFO) is a method whereby prices of goods are determined by
depending on the oldest stock until all the units are finished and then the second oldest is
used to determine the prices and the trend continues. According to (Kamukama, 2006)
FIFO method follows the principle that materials received first are issued first. After the
first lot or batch of materials purchased is exhausted, the next lot is taken up for supply.
The inventory is priced at the earliest costs. This means that the unused raw materials
(closing stock) are constituted by the goods which were not recently purchased.

ABC Analysis: This has already been covered before, but is also regarded as a material
control tool. It’s considered as the best approach and based on the principle of selective
control. The maxim is put your effort where the results are maximized (Kamukama,
2006). Bloomberg, Lemay & Hanna (2002) notes that the ABC analysis categorizes
products based on importance; importance may come from cash flows, lead time, stock
outs, sales volume, or profitability. Once the ranking factors is chosen, break points are
chosen for classes A, B, C and soon. The 80-20 concept is particularly useful in
distribution planning when the products are grouped or classified by their sales activity.
The top 20 percent might be called A times, the next 30 percent B items, and the
remainder C items. Each category of items could be distributed differently. For example,
A items might receive wide geographic distribution through many warehouses with high
levels of stock availability , whereas C items might be distributed from a single, central
stocking point(e.g. a plant) with lower total stocking level than for the A items. B items
would have an intermediate distribution strategy where few regional warehouses are used
(Ballou, 2004).

Material Requirements Planning (MRP)

According to Feredath (2011), materials requirement planning approach has been

developed as a means of managing inventory. The system is used for controlling
inventories of raw materials, work in progress, component parts and sub assemblies;
material requirement planning inventory has been proven to be a very powerful tool in
planning and control of manufacturing firms. Material requirement planning is basically
14
an information system in which sales are converted directly into loads on the facility by
sub unit and time period. Materials are scheduled more closely there by reducing
inventories and delivery times become shorter and more predictable, and only fervors
smaller firms and computer system is only part of the total project which is long term.
Godon (2009) explains MRP allows for input of sales forecast from sales and marketing.
These forecasts determine the raw materials demand.

Economic Order Quantity (EOQ)

Economic Order Quantity attempts to reconcile the problem of storage costs and ordering
costs. Ford Harris when working as a member of Westing House, derived Economic order
quantity model in 1915, its function is to determine the optimal order that minimizes
quantity that will minimize carrying costs and ordering costs. EOQ is therefore the order
quantity that will minimize both carrying costs and ordering costs Florence (2009). EOQ
is the quantity which minimizes the sum of acquisition cost and inventory carry out cost,
EOQ minimizes the total annual cost. Nicole (2006) argues that possession of high
amount of inventory for a long period of time is not usually good for a business because
there are inventory obsolescence and spoilage costs. However possessing not enough
inventory is not good either because runs the risk of losing out potential sales and
markets.

Just-in-time (JIT) System: This is a demand pull system under which products are only
manufactured to satisfy a specific customer order (Horngren, 2009). As the name
suggests the idea is that inventories are acquired and inserted in production at the exact
times they are needed, this requires efficient purchasing, very reliable suppliers and an
efficient inventory handling system. In this system supplier delivers the components and
parts of the production line just in time to be assembled. Other names for this or very
similar methods are zero inventories and stockless (Koonzt, 2003). Just-in-time inventory
management is an approach which works to eliminate inventories rather than optimize
them. The inventory of raw materials and work-in-process falls to that needed in a single
day. This is accomplished by reducing set-up times and lead times so that small lots may
be ordered. Suppliers may have to make several deliveries a day or move close to the user
plants to support this plan (Muckstade, 2010).

15
Periodic Review Approach

According to Joseph & Merilla (2012), it will be appreciated that under the action level of
provisioning, commodities are ordered at unspecified intervals from day today as and
when ordering levels are reached. This means that order can only be placed usually for
one item at a time and this may not produce the best purchase prices.

Salleme (2009) call this approach theoretical inventory control model. As pointed out, for
normal inventory operation, the inventory moves up and down between minimum and
maximum levels. Inventory crossing the maximum level means overstocking and when it
goes below the minimum level, it could result into a stock out. The reorder level should
be set between the maximum and minimum levels and an order for replenishment only
when the inventory reaches the reorder point. The order quantity is equal to the working
capital. By the time inventory reaches the maximum level the quantity ordered is received
on receipt of the ordered quantity of the material, the inventory which have reached the
minimum level increases to the maximum level and consumption cycle restarts.

According to this model the reorder point is by keeping in view the lead time for
obtaining the items and making the same available for use. This control model helps to
avoid stock-outs with its costs and overstocking which again may tie-up working capital
and may also lead to deterioration of stock.

Two bin system: This method is common used when materials are relatively inexpensive
or non-essential. The inventory is divided and placed in two separate compartments or
bins. The first bin contains quantity of items that will be used between the time an order
is received and the cover the usage between the dates of placing an order to the date of
delivery. New supply is ordered as soon as the first bin is empty (Axsater, 2006).

Figure 1: Two-Bin System

16
 As shown in Figure1, the two-bin method for replenishing material is easy to implement
and equally easy to use for tracking usage. In the Part A diagram, items are used from the
first section of the bin only. When all the material is used, the second section of the bin is
opened for use and an order is placed with the vendor for a refill. In the Part B diagram,
the item is placed in a barrel or keg. When the item level falls to the lower section of the
keg, the item is reordered.

2.3 Concept of Performance

Performance is a measure of the results achieved. Performance efficiency is the ratio

between effort extended and results achieved. The difference between current
performance and the theoretical performance limit is the performance improvement zone.
Performance assumes an actor of some kind but the actor could be an individual person
or a group of people acting in concert. The performance platform is the infrastructure or
devices used in the performance act (Malcom, 2005).

According to Likert (2003) there are two main ways to improve performance: improving
the measured attribute by using the performance platform more effectively, or by
improving the measured attribute by modifying the performance platform, which in turn
allows a given level of use to be more effective in producing the desired output.
Performance can be measured by obtaining the magnitude of a quantity, such as length or
mass, relative to a unit of measurement, such as a meter or a kilogram.

Performance involves performance improvement is the concept of organizational change

in which the managers and governing body of an organization put into place and manage
a programme which measures the current level of performance of the organization like
inventory management and then generates ideas for modifying organizational behavior
and infrastructure which are put into place to achieve higher output. The primary goals of
organizational inventory management are to increase organizational effectiveness and
efficiency to improve the ability of the organization to deliver goods and or services
(Ronald, 2009). Performance improvement at the operational or individual employee
level usually involves processes such as statistical quality control. At the organizational
level, performance improvement usually involves softer forms of measurement such as

17
 customer satisfaction surveys which are used to obtain qualitative information about
performance from the viewpoint of customers.

2.4 Performance Indicators

According to Halachmi & Bouckart (2005) argued that financial ratios are useful
indicators of a firm's performance and financial situation. Most ratios can be calculated
from information provided by the financial statements. Financial ratios can be used to
analyze trends and to compare the firm's financials to those of other firms. In some cases,
ratio analysis can predict future bankruptcy. Financial ratios can be classified according
to the information they provide. According to Halachmi & Bouckart (2005), the
following types of ratios frequently are used:

Liquidity ratios provide information about a firm’s ability to meet its short-term financial
obligations. They are of particular interest to those extending short-term credit to the
firm. Two frequently-used liquidity ratios are the current ratio (or working capital ratio)
and the quick ratio. The current ratio is the ratio of current assets to current liabilities.
Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders
may prefer a lower current ratio so that more of the firm's assets are working to grow the
business. Typical values for the current ratio vary by firm and industry. For example,
firms in cyclical industries may maintain a higher current ratio in order to remain solvent
during downturns.

One drawback of the current ratio is that inventory may include many items that are
difficult to liquidate quickly and that have uncertain liquidation values. The quick ratio is
an alternative measure of liquidity that does not include inventory in the current assets.
The current assets used in the quick ratio are cash, accounts receivable, and notes
receivable. These assets essentially are current assets less inventory. The quick ratio often
is referred to as the acid test. Finally, the cash ratio is the most conservative liquidity
ratio. It excludes all current assets except the most liquid: cash and cash equivalents. The
cash ratio is an indication of the firm's ability to pay off its current liabilities if for some
reason immediate payment were demanded.

18
 Asset turnover ratios indicate how efficiently the firm utilizes its assets. They sometimes
referred to as efficiency ratios, asset utilization ratios, or asset management ratios. Two
commonly used asset turnover ratios are receivables turnover and inventory turnover.
Receivables turnover is an indication of how quickly the firm collects its accounts
receivables. The receivables turnover often is reported in terms of the number of days that
credit sales remain in accounts receivable before they are collected. This number is
known as the collection period. It is the accounts receivable balance divided by the
average daily credit sales. Another major asset turnover ratio is inventory turnover. It is
the cost of goods sold in a time period divided by the average inventory level during that
period. The inventory turnover often is reported as the inventory period, which is the
number of days worth of inventory on hand, calculated by dividing the inventory by the
average daily cost of goods sold.

Financial leverage ratios provide an indication of the long-term solvency of the firm.
Unlike liquidity ratios that are concerned with short-term assets and liabilities, financial
leverage ratios measure the extent to which the firm is using long term debt. Debt ratios
depend on the classification of long-term leases and on the classification of some items as
long-term debt or equity. The times interest earned ratio indicates how well the firm's
earnings can cover the interest payments on its debt. This ratio also is known as the
interest coverage.

Profitability ratios offer several different measures of the success of the firm at generating
profits. The gross profit margin is a measure of the gross profit earned on sales. The gross
profit margin considers the firm's cost of goods sold, but does not include other costs.
Dividend policy ratios provide insight into the dividend policy of the firm and the
prospects for future growth. Two commonly used ratios are the dividend yield and payout
ratio. However, a high dividend yield does not necessarily translate into a high future rate
of return. It is important to consider the prospects for continuing and increasing the
dividend in the future. The dividend payout ratio is helpful in this regard.

2.5 The Challenges faced by Company in managing the inventories.

Inventory management challenges can interfere with a company’s profits and customer
service. They can cost a business more money and can lead to an excess of inventory
19
overstock that is difficult to move. Most of these problems are usually due to poor
inventory processes and out-of-date systems (Gourdin, 2001).

According to Lambert (2001), a number of challenges in inventory management which

include: unqualified employees in charge of inventory, using a measure of performance
for their business that is too narrow, a flawed or unrealistic business plan for a business
for the future and not identifying shortages ahead of time. Having people in charge of
inventory without adequate training, experience or who neglects the job will lead to
inventory problems that will result into poor organizational performance. The use of a
measure of performance for business that is too narrow. This is a situation where the
performance measure are not wide enough and do not encompass all the aspects of the
organization. Many areas get overlooked and can lead to either inventory shortages or
inventory stockpiling.

A flawed or unrealistic business plans leads to failure in predicting how well a company
may do in the future. This affects inventory management because if a company predicts
more growth than they actually experience, it can lead to an overstock of inventory. The
opposite is true if forecasters do not predict enough growth and are left with not enough
inventories. Failure to identify shortages a head leads to lack of enough products in stock
to meet customer demands which spoil customer relations. The staff in charge of
inventory management should look over their inventory on a regular basis to make sure
enough products are in stock (Braglia, 2004; Montanari, 2004).

According to Braglia (2004) and Montanari (2004) there are bottlenecks and weak points
in delivery which slows down deliveries and systems; “bullwhip effect” an over-reaction
by an organization to changes in the market that leads to un necessary over overstocking;
distressed stock in inventory; excessive inventory in stock and unable to move it quickly
enough; inaccurate computer assessment of inventory items for sale and complicated
computer inventory systems. The above challenges lead to over stocking, under stocking
and Inventory costs which reduces the working capital required. Holding stock is an
expensive business; it estimated that the cost of holding stock each year is 1/3 of its
production or purchasing (Johnson, 2008). The cost include: interest on capital invested
in stock, storage space-rent, lighting, heating, refrigeration and air conditioning,

20
Insurance and security, deterioration and obsolescence, loss of future sales and labor
frustrations over stoppages (Granville, 2007).

In the United States, some of the largest concerns of small business owners are insurance
costs (such as liability and health), rising energy costs and taxes. In the United Kingdom
and Australia, small business owners tend to be more concerned with excessive
governmental red tape. Another problem for many small businesses is termed the
'Entrepreneurial Myth or E-Myth. The mythic assumption is that an expert in a given
technical field will also be expert at running that kind of business (Ronald, 2007).

According to Kabuye-Kagimu (2004), small businesses often face a variety of problems

related to their size. A frequent cause of bankruptcy is undercapitalization. This is often a
result of poor planning rather than economic conditions; it is common rule of thumb that
the entrepreneur should have access to a sum of money at least equal to the projected
revenue for the first year of business in addition to his anticipated expenses. In addition
to ensuring that the business has enough capital, the small business owner must also be
mindful of contribution margin (sales minus variable costs). To break even, the business
must be able to reach a level of sales where the contribution margin equals fixed costs
(Mayanja, 2002).

Lucay (2004) observes that excessive levels of stock are undesirable because they
increase the risks of inventory becoming obsolete, stock loss through damage and theft,
increased storage costs like rent, insurance and unnecessary tie up of the firm’s funds. He
further state that a firm would be foregoing profits when it continues maintaining
excessive levels of inventory, which implies that the probability position of the firm is
being threatened in the long run since funds are not being invested in other profitable
ventures. Gupta (2004) observes that organizations should establish proper inventory
control procedures, efficient and effective information system regarding stock so that
they are able to balance the costs and risks of inventory control against the benefits got
from having inventory readily available for smooth operations.

Lower levels of inventory are also undesirable because it interrupts production, loss of
good will and high ordering costs especially when ordering is frequent. Inadequate

21
inventory levels leads to business closure due to shifting of customers to other efficient
suppliers as a result of production/ operation interruptions (Gittinger, 2005).

According to Kenneth and Brian (2006) said that there are four aims of inventory
management which include the following; provide both internal and external customers
with the required services levels in terms of quantity and order rate fill; ascertain present
and future requirements for all types of inventory to avoid over-stocking while avoiding
“bottlenecks” in production; keep costs to a minimum by variety reduction, economical
lot sizes and analysis of costs incurred in obtaining and carrying inventories and to
provide upstream and downstream inventory visibility in the supply chain.

Transport costs; this is the most important costs that every company must incur, because
it is very essential as far as proper inventory management is concerned. This is due to
poor roads and high prices of fuel. The most common modes of transport used by most
manufacturing firms especially coca cola are road transport, railway, transport among
others. Allowing different inventory flow assumptions means that two businesses with
identical operating results can report dramatically different amounts of profit. To avoid
this possibility, GAAP would have to require that all firms use the same inventory flow
assumptions. As desirable as it might be for GAAP to reduce the number of acceptable,
but widely divergent inventory flow assumptions, this is not likely to happen any time
soon. This means that financial statement users must be aware of the effect of these flow
assumptions in comparing one firm’s performance to another (Masiko, 2005).

Storage and Handling; examples of storage costs would include the actual space required
to contain the inventory, the climate control, shelving and furniture (for the inventory
personnel), and utility costs. Are the costs associated with the storage space real? Yes,
because the organization pays to rent or own that space which could be used for another
purpose. Facilities that are bursting at the seams certainly understand these costs better
than others. Also organizations that must expand existing storage space for an expanding
inventory also understand these costs. Examples of handling costs would include the
personnel time associated with receiving and stocking parts, organizing the inventory
room, issuing parts, and producing the paperwork for each of these tasks. How many
individuals are required to accomplish these tasks? These costs may be more difficult to

22
identify if no one is dedicated full time. However, the costs are present even if the tasks
only take part of a person’s time. (Masiko Hirary, 2005).

Insurance and Taxes; coverage of inventory is part of any general business insurance
policy. If the inventory is significant enough in value, separate coverage may be required.
Specific taxes on inventory and property taxes (yes, inventory is considered as property)
can vary by state. Identifying the taxes by each state is beyond the scope of this article
but do recognize that taxes do exist (Tumugumye, 2005).

Obsolescence; costs associated with obsolescence can occur for a variety of reasons but
one of the more common ones is holding on to inventory for a long period of time. Our
industry may seem like it moves at a snail’s pace when it comes to technology changes
but be assured that change does occur. For example, service bulletins and directives can,
in some cases, render an item obsolete immediately. What if you have many of those
items on your shelf? What if your fleet changes? Do you still have items associated with
the old aircraft, for which you can only get cents on the dollar? Avionics has changed
significantly recently. Do you still have old instruments that are worth little when
compared to the original purchase price? Upon closer examination, obsolescence is
probably more common than first realized. (Kanyandago, 2004).

Theft and Damage; Rather than dwell on the unpleasant subject of theft suffice it to say
that if the proper controls are not in place, an organization is exposed to the risk of theft.
Damage can occur in a variety of ways; parts are not stored properly, climate control is
not reliable, procedures for moving heavy parts are not clearly defined, and parts remain
in inventory long periods of time (Masiko, 2005).

Cost of Money; this is one of those categories that people may disagree with and believe
that this involves less than “real” money. Rather than argue that point, recognize that an
organization has limited resources and through proper management allocates those
resources to efforts that will yield the greatest return on their investment. Inventory might
be one of those investments. But if the money was not invested in inventory, the
organization could invest its money elsewhere and make a return. A simple example is if
an organization took its money and invested it conservatively in something like
Certificates of Deposits, it would realize a modest return. Is that returning better than
23
 investing in inventory? If the answer is yes, then the money should not be allocated to
inventory (Kanyandago, 2004).

Adam & Ebert (2009) state that carrying or holding cost is the real out of pocket cost
associated with having inventory on hand. The cost is directly proportional to quantity
per order. Carrying cost contains costs that are quantity and time dependent such as cost
of storage, space, light, heat maintenance, rent, pilferage, deterioration, spoilage,
handling & packages. It also has cost that are value and time dependent such as capital
cost, insurance cost and cost of obsolescence and depreciation. Carrying cost for mot
organizations is normally between 20% to 25%. They (Adam & Ebert, 2009) not that
shortage or Stock out cost is cost associated with demand when stocks have been
depleted. They take the form of lost sales, cost or back order costs. When demand of
inventory is greater than supply of inventory, then shortage takes place. It is the cost of
not having inventory. The cost of shortage include payment of overtime due to stock-outs,
special administrative expenses due to stock outs, loss of sales and loss of goodwill.

2.6 The relationship between Inventory Management Techniques and Company

Performance

Inventory plays an important role in the growth and survival of an organization in the
sense that failure to an effective and efficient management of inventory, will mean that
the organization will lose customers leading to poor services delivery and sale will
decline. Emphasizing on the importance of inventory on the balance sheet of companies,
Coyle, Bardi & Langley (2003) refer inventory as an asset on the balance sheet of
companies and recognize its significance on company performance.

Virtually every enterprise finds it necessary to hold stocks (or inventory) of various items
and materials. That is because it would be practically impossible to operate with only one
of each item to be sold or used in manufacture or used in office work. A reserve or a fund
or inventory of each item or material used or sold frequently is therefore maintained, so
that as items or materials are sold or used they can be replaced or replenished from the
stocks held in reserve. Due to uncertainty in future demand, and because of the
unguaranteed availability of supplies, stock is therefore held to ensure an availability of

24
goods to minimize the overall costs associated with the management of stock (Drury,
2000).

Gittinger (2005) argues that precautionary motive is one of the central roles of inventory
management. Accordingly, precautionary motive means that stock held to guard against
risk of unpredictable changes in demand and supply. In most cases, the level of demand
of goods and the time required for supply cannot be known with certainty. Therefore, to
ensure product availability, the organization maintains additional amount of safety stock
to meet regular production and market needs. Firms should invest in stock control for
precautionary motive to act as a buffer or link between demand and supply so that
production can be geared to a more constant output. Precautionary motive necessitates
holding of inventories to guard against the risk of unpredictable changes in demand and
supply forces and other factors (Pandey, 2002)

According to Kenneth & Brian (2006) keeping inventory includes the following reason:-
reduce the risk of supplier failure or uncertainty, safety and butter stocks are held to
provide some protection against such as strikes, transport breakdowns due to floods or
snow, crop failures, wars and similar factors: protect against lead time uncertainties, such
as where supplier’s replenishment and lead time are not known with certainty. In such
case an investment in safety stocks is necessary if customer service is to maintain at
acceptable levels and meet unexpected demands or demands for customization of
products as with agile production and smooth seasonal or cyclical demand.

Balloon (2007) illuminates that inventories should be held to improve customer service
and therefore goods should be spotted at a place where customers can get them in the
quantities they wish. The transaction motive is aimed at facilitating smooth operations on
daily basis. According to Pandey (2002) transaction motive emphasizes the need to
maintain inventories to facilitate smooth production and sales operation. Firms should
maintain back up inventory either in excess or low levels to take advantage of current and
future demands or price fluctuations. They should therefore purchase goods and stock
them in advance when they anticipate price increase in future and also prepare for
contingencies that may befall a company, for instance, strikes, prices, goods among
others (Kakuru, 2000).

25
In managing inventories, the firm’s objectives should be in consonance with the wealth
maximization principle. To achieve this, the firm should determine the optimum level of
inventories efficiently controlled with sound inventory management practices make the
firm flexible. Inefficient inventory control techniques result in unbalanced inventory; the
firm may be some times out of stock and sometimes may pile un necessary stocks. This
increases the level of investment and makes the firm unprofitable (Pandey, 2002).

Kabali (2006) agrees that inventories represent investment of the firm’s funds and
therefore the objective of inventory management should be to maximize the firm’s valve
in terms of financial performance. This shows that in a way or the other a inventory
management practices or a combination leads to the achievement of the primary
objectives of inventory control as earlier discussed. It also directly leads to the
achievement of some financial objectives.

According to Saleemi (2007), achievement of the primary objectives of inventory control

will result in more return on capital which is materially the prime objective of an
organization whether commercial or industrial. He further states that, profit margins
depend on external factors like competition over which management has little control,
however she goes on to ascertain that competitiveness can be achieved through the
control of inventories. Total capital in any organization is of two types that is ; capital
invested in fixed assets such as buildings, plant, machinery among others. Is termed as
fixed capital and a cut in this cannot be affected, but a reduction in working capital, a
high percentage of which is locked up in inventories, is possible and there is a definite
scope of increasing profit earning capacity of the organization.

Thus efficient management of inventories may result in high profit margin since it will
reduce the operational and inventory costs resulting in reduction of production costs more
competitive capacity, heavy turnover and increases profitability. Surpluses cause financial
hardships, because they tie up capital on shortages lead to poor operational results. But
satisfactory and scientific inventory control/management eliminates these shortcomings
and thus proves their importance inventories constitute the most significant part of
current assets of a large majority of components by composing of approximately 60% of

26
the current assets. In most cases the closing stock of the organization represented in the
financial statement is a composition of inventories.

The financial manager is always faced with a problem of conflicting objectives in

inventory management; to maintain a large size of inventories for efficient and smooth
production and sales operation; to maintain a minimum investment in inventory to
maximize profitability.

To solve the above conflicting objectives of inventory management Kabali (2006)

suggests that financial managers should therefore avoid excessive and inadequate levels
of inventory and should thus maintain an optimum level of inventory that will facilitate
the smooth production and sales operation. The achievement of this will however be
controlled by the type of inventory management practices chosen and its soundness
Pandey (2002).

The decision to determine or change the level of inventory is an investment decision, the
analysis should therefore involve an evaluation of the profitability if investment in
inventory. Pandey (2002) agrees with the fact that inventory management policy have a
direct impact on the financial performance of a firm, Pandey further states that the
inventory policy will thus maximize the firm’s valve at a point, which incremental or
marginal returns from investment in the inventory equals the incremental or marginal cost
of funds used to finance the investment in inventory. The above statement agrees with the
theory of returns on investment. In this case of inventories, the measure of performance is
based on the asset turnover ratio, this measures how efficient asset (ROA) ratio measures
the net income generated by all assets, after labor has been compensated but before
interest payment; divided by total assets.

27
 CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter presents the research methods and instruments which were used in carrying
out the study. It specifically covers the description of the research design, study
population, sample size, source of data, data collection instruments, reliability and
validity of research instruments, data quality control, data collection process, data
analysis and limitations of the study.

3.1 Research Design

According to Hernon & Schwartz (2009), a research design is an action plan for the
research to be conducted. This study was conducted as an exploratory survey. It adopted a
descriptive research design using both quantitative and qualitative methods. The
researcher used a qualitative technique to collect and analyze verbal data while
quantitative technique was used to collect and analyze numerical data in establishing
frequency counts and percentages.

3.2 Study Area

The study about the effects of inventory management practices on financial performance
of private companies was carried out at Century Bottling Company Ltd. Century Bottling
Company Ltd is located in Namanve, in the East of Kampala district between Seeta
trading centre and Bweyogerere trading centre; approximately 0.8km along Kampala-
Jinja high way. The company holds different kinds of inventories in form of raw
materials, semi-finished and finished products among others. Choice of this case study
depended upon the fact that, the company is one of the few in Uganda that have built a
strong reputation and commendable financial performance from its endless
innovativeness and creative inventory management techniques, despite the slightly fading
trend in the customer base in the past years, the company has been able to maintain its top
position in the industry.

28
3.3 Study Population

Hernon & Schwartz (2009), define population is a group of elements sharing the same
sentiment. They added that, it is a large pool from which sampling elements are drawn
and to which the researcher generalize the findings. The population of this study was
drawn from staff and personnel at Century Bottling Company Ltd. Focus was particularly
put on three (5) company departments namely; stores department, procurement and
logistics department, operations department, finance and accounts department and
marketing and sales department. According to the Company Enrolment Report as of
2015, the company employs 22 personnel in the stores department, 18 in the procurement
and logistics department, 11 in operations department, 10 in the finance and accounts
department and 28 in the marketing and sales department. The above summed up formed
a total population of 89 personnel to study. These were chosen because they posses
reliable information and are generally knowledgeable and in charge of either inventory
management and or finance of the company.

3.4 Sample Size

Given a population of 89 people; personnel in the stores department, procurement and

logistics department, operations department, finance and accounts department and
marketing and sales department at the company, the researcher applied the Krejcie and
Morgan table for establishing sample size to establish as sample of 70 respondents to be
used in this study. These were distributed according to departments as below;

Table 3.1: Study Population and Sample Size Distribution

Category Population Sample Size

Stores Department 22 18
Procurement and Logistics Department 18 14
Operations Department 11 8
Finance and Accounts Department 10 8
Marketing and Sales Department 28 22
Total 89 70

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3.5 Sampling Techniques

The sampling techniques provide information required about the selection of the samples.
It also provides a detailed foundation where the research sample can be drawn, and for a
population that is enough for a high quality selection of the participants (Lewis and
Ritchie, 2003). The researcher arranged a list of all categories of the identified population
of the study to facilitate a purposive selection of individual participants. By use of the
staff establishment list where all employees of the company are recorded in accordance
with departments and position/level or designation. Century Bottling Company staff in
the above departments were stratified and purposively selected from different levels to
participate in this study.

3.6 Data Sources

Both primary and secondary sources of data were used for the study. The secondary
sources were extracted from information that was obtained mainly from different reports,
bulletins, websites and literatures, which were found relevant to the topic under study.
The primary sources of data were field results from questionnaires and interview
responses distributed and conducted respectively.

3.7 Data Collection Instruments

3.7.1 Interview Guide

An interview is verbal questioning. As a research tool of data collection, interview is

different from general interviewing with regard to its preparation, construction and
execution. This difference is that: research interview is prepared and executed in a
systematic way, it is controlled by the researcher to avoid bias and distortion and it is
related to a specific research objectives and a specific purpose. An interview guide was
used to collect the necessary data from the considered and sampled Century Bottling
Company Ltd staff (only those who were not able to fill questionnaires because of time
and other reasons). Here, questions were imposed to respondents on issues under

30
 investigation so as to acquire first hand information. This instrument was used because it
is a quick method of data collection and can easily be interpreted by respondents.

3.7.2 Questionnaire Tool

A questionnaire is the structured or non-structured set of questions usually sent by mail,

though sometimes it is delivered by hand also, or can be described as a document that
contains a set of questions, the answers to which are to be provided personally by the
respondents. Sets of questionnaires were issued out to respondents (Century Bottling
Company Ltd staff) specifically those that found it convenient to make their responses
through this means. The questionnaire was structured in such a way that it covered both
open-ended questions and closed-ended questions. The use of a closed-ended
questionnaire enabled respondents to select responses from a list of choices using yes or
no and/or selecting from multiple-choice answers. In open-ended questions, respondents
used their own words in answering. These open-ended questions kept respondents free
from limitation of answers when answering questions and entirely eliminated biases and
gave the respondents the chance to elaborate on responses. To avoid misinterpretations of
the questionnaire, the researcher translated some questions for the respondents to avoid
inaccuracy.

3.8 Data Quality Control (instruments’ validity and reliability)

The researcher was involved in testing the validity and reliability of data collection
instruments prior to data collection, the instruments were piloted for content concurrency,
validity and reliability. The researcher was involved in constantly checking and verifying
the questions and any other collected information during the process of data collection to
ensure completeness and accuracy. This involved constant editing of the data and the
results to ensure that there is a minimal error rate. After obtaining results from the pilot
study, the researcher measured validity of the instruments because they entirely provided
findings for which the study was intended for.

3.9 Data Collection Procedures

After preparing the research instruments to the satisfaction of the research supervisor, a
letter of introduction was obtained from the institution to help the researcher solicit
31
 placement from the company where she pursued her research. The researcher then paid a
visit to Century Bottling Company Ltd to be granted permission to carry out research
from the company. After securing permission, the researcher then embarked on issuing
questionnaires to the respondents who gave her a specific date when to collect them. On
collecting the questionnaires, the researcher carried out interviews to a few staff who
failed to fill in questionnaires for various reasons.

3.10 Data Analysis and Presentation

Data analysis involves a process adjusting the established information to meaningful

patterns. The process involved producing tallies captured from respondents as per posed
question. Tallies were counted/ calculated on the sheet for each question and the total
number was written for each answer on each question. The calculated figures were then
captured into the MS Excel Spread which was designed in line with the questionnaire.
The categorized data was later captured under SPSS (Statistical Package of the Social
Scientist) software package version 20. The researcher finally developed tables, pie charts
and graphs and then copied them to chapter four of the MS Word document for proper
analysis.

3.11 Ethical Consideration

3.11.1 Ethical Issues

The researcher assured the informants of confidentiality. The information that was given
to the researcher was used solely for the purposes of research. The researcher avoided
using any kind of enticement for the purpose of obtaining information. Throughout the
period of the study, it was crucial that ethical issues are taken into consideration to ensure
reliability and accuracy of data.

3.11.2 Confidentiality

Anonymity and confidentiality were strictly observed during description and reporting of
findings. From the beginning of the research, the researcher made sure that the
respondents’ privacy is respected. The researcher had to protect respondents against

32
 potentially harmful effects of participation, for example stress through participation and
loss of self-esteem.

3.11.3 Informed Consent

Respondents were informed about the procedures of the study and made their decision to
participate. The researcher provided information on the purpose of the study, benefits to
the respondents, expected duration of participation and procedures that were followed.

As part of the ethical issues, the researcher sought the consent of the participants and also
informed these participants who were willing to participate that their involvement in the
study was purely voluntary. The researcher assured the willing participants that the
information they provided was not be exploited during and after the research.

3.12 Limitations of the Study

The research faced the following limitations:-

The unwillingness of the respondents to supply the right response was a limiting factor.
The respondents felt that there was no benefit in giving the right answers to the questions
and feared that other institutions would use the same to achieve their goals. The
researcher however obtained the consent of company staff. This was done by an official
letter from the university and an introductory letter from the researcher.

33
 CHAPTER FOUR

DATA ANALYSIS, PRESENTATION AND DISCUSSIONS

4.0 Introduction

In this chapter, data is presented, analyzed and discussed. The above i.e. presentation,
analysis and discussions are done in line with the study objectives that included: to find
out the inventory management techniques applied by Century Bottling Company Ltd, to
find out the challenges faced in managing inventory at Century Bottling Company Ltd
and to establish the relationship between inventory management practices and financial
performance of Century Bottling Company Ltd.

4.1 General Findings

Data was extracted from staff/ personnel working with Century Bottling Company
Limited in the stores department, procurement and logistics department, operations
department, finance and accounts department and marketing and sales department. Using
a questionnaire as a major study tool, a total of 70 questionnaires were distributed to the
sampled Century Bottling Company Ltd. staff from the five (5) described departments.
Out of the 70 distributed questionnaires, 66 questionnaires representing 94.3% were
received back fully answered, whereas 4 questionnaires representing 5.7% were not
received back or were never received back. The table below illustrate the response rate of
respondents.

Table 4.1: Response Rate

Frequency Percent Valid Cumulative
Percent Percent
Received back 66 94.3 94.3 94.3
Valid Not received back 4 5.7 5.7 100.0
Total 70 100.0 100.0
Source: Primary Data [Century Bottling Company, 2016]

34
 As stated earlier, data presented in table 4.1 show that 66(94.3%) of the study instruments
(questionnaires) distributed were received back fully answered, whereas 4(5.7%) were
either received back not answered or were not received back at all.

4.2 Findings of the Study

4.2.1 Findings on the Background Characteristics of Respondents

Under this section the respondents’ difference in terms of gender, age, level of education,
department of work, and tenure of service are presented and analyzed. Tables below
summarize the findings on background characteristics of respondents.

Table 4.2: Respondents’ Category by Gender

Frequency Percent Valid Cumulative

Percent Percent

Male 42 63.6 63.6 63.6

Valid Female 24 36.4 36.4 100.0

Total 66 100.0 100.0

Source: Primary Data [Century Bottling Company, 2016]

From the table above, 42(63.6%) of the respondents studied are male whereas 24(36.4%)
are female. The findings indicate that male respondents generated the majority group i.e.
they accounted for 42(63.6%). Although the findings might have a clear representation of
the gender inequality in the distribution of staff/ personnel in the five departments
studied, the difference is also illustrative of the level of willingness to participate in this
study; which was seen more in the male personnel compared to females.

35
Table 4.3: Age of Respondents

Frequency Percent Valid Cumulative

Percent Percent
<25 years 2 3.0 3.0 3.0
26-35 years 14 21.2 21.2 24.2
Valid
36-45 years 28 42.4 42.4 66.6
46-55 years 18 27.3 27.3 93.9
>56 years 4 6.1 6.1 100.0
Total 66 100.0 100.0
Source: Primary Data [Century Bottling Company, 2016]

Findings presented in table (4.3) above show that 2(3.0%) of the respondents studied
were aged <25 years, 14(21.2%) were aged 26-35 years, 28(42.4%) were aged between
36-45 years, 18(27.3%) were aged 46-55 years and 4(6.1%) were aged 56 and above
years. The study findings indicate that the mature group i.e. individuals with 35 and
above years generated the majority group i.e. 50(75.8%). The study findings on this
aspect imply that responsibilities of running affairs of the company in the studied
departments are in hands of the mature personnel, under normal working circumstances
the mature group have commendable capacities, capabilities based on the level of
experiences they have earned as a result of working in the field for reasonably longer
periods.

Table 4.4: Age of Respondents

Frequency Percent Valid Cumulative

Percent Percent
Certificate 3 4.5 4.5 4.5
Diploma 4 6.1 6.1 10.6
Valid
Bachelors Degree 33 50.0 50.0 60.6
Masters Degree 22 33.3 33.3 90.9
Other 4 9.1 9.1 100.0
Total 66 100.0 100.0
Source: Primary Data [Century Bottling Company, 2016]

36
Respondents here were asked to establish the highest level of education they have
attained. According to the findings, 3(4.5%) of the respondents studied are certificate
holders, 4(6.1%) are diploma holders, 33(50.0%) are bachelors degree holders, 22(33.3%)
are masters degree holders whereas 4(9.1%) have attained other education qualifications
not described; these were mainly post graduate diplomas/ degrees and doctorate holders.
The findings indicate that the highest percentage of respondents studied have at least
attained a bachelors degree indicating that an educated group of personnel is in charge of
running company activities in the departments studied. Educated personnel are usually
productive workers and are usually guided by principles; they are great innovators and in
a company setting, the educated are a strong instrument to effective services.

Table 4.5: Categorization of Respondents by Departments of Work

Frequency Percent Valid Cumulative

Percent Percent
Stores Department 17 25.8 25.8 25.8
Procurement and Logistics
14 21.2 21.2 47.0
Department
Valid
Operations Department 8 12.1 12.1 59.1
Finance and Accounts
7 10.6 10.6 69.7
Department
Marketing and Sales Department 20 30.3 30.3 100.0
Total 66 100.0 100.0
Source: Primary Data [Century Bottling Company, 2016]

Results in table 4.5 above indicate that 17(25.8%) of the respondents were extracted from
the company’s Stores Department, 14(21.2%) were staff in the Procurement and Logistics
Department, 8(12.1%) were company employees in the Operations Department, 7(10.6%)
from the Finance and Accounts Department and 20(30.3%) were from the Marketing and
Sales Department. The researcher chose to limit the study to the above five (5)
departments because they are directly affiliated to inventory management in the company.

37
 Table 4.6: Respondents’ tenure of services in the company

Frequency Percent Valid Cumulative

Percent Percent

< 5 years 9 13.6 13.6 13.6

6-10 years 26 39.4 39.4 53.0

Valid
11-25 years 24 36.4 36.4 89.4

>26 years 7 10.6 10.6 100.0

Total 66 100.0 100.0

Source: Primary Data [Century Bottling Company, 2016]

A question was posed requiring respondents to establish the amount of time (in years)
they have spent working for the company (Century Bottling Company Ltd). Results
indicate that 9(13.6%) have been working with the company for <5 years, 26(39.4%)
have worked for Century Bottling Company for 6-10 years, 24(36.4%) have worked for
the company for 11-25 years and 7(10.6%) have been company employees for more than
26 years. Results presented in the above table show that more than three quarters of
respondents studied have been working with the company for close to 10 years. This not
only indicate that respondents have shared a degree of experience in what their work
demand but also give an implication that they are knowledgeable of their work
obligations and responsibilities; these are prerequisite factors to consider in management
at any level.

4.2.2 The inventory management techniques applied by Century Bottling Company Ltd

This section presents, analyses and discusses findings on the first objective to this study.
It presents, analyses and discusses findings on the inventory management techniques
applied by Century Bottling Company Ltd. Findings presented hereunder include:
whether Century Bottling Company Ltd has formal techniques in managing its inventory
and the kind of items that generate more inventories at Century Bottling Company Ltd. In
the same section a list of statements describing inventory management techniques applied
by Century Bottling Company Ltd are stated and respondents were required to give their
ratings on whether each of the techniques has been adopted by their company. The
38
ranking was done in a Likert scale requiring respondents to reveals the levels of
agreement or disagreement from ‘strongly agree’ to ‘strongly disagree. Findings on this
section are presented and analyzed below.

Table 4.7: Whether Century Bottling Company has formal techniques in

managing its inventory.

Frequency Percent Valid Cumulative

Percent Percent
Valid Yes 66 100.0 93.6 93.6
Total 66 100.0 100.0
Source: Primary Data [Century Bottling Company, 2016]

When respondents were asked to establish whether the company (Century Bottling
Company) has formal techniques in managing its inventory. The findings show that all
respondents 66(100.0%) collectively agreed that there are observable formal techniques
in place at the company in managing the inventories. The findings indicate that the
company attaches great value on ensuring that inventories are effectively managed as a
prerequisite to its improved performance. As Eric (2010) mentions, to ensure
commendable performance every firm need to rely on ensuring that there is a flow of
effective management of inventories, he alleges that inventory management techniques
creates a strong relationship between the company and customers, improves on the nature
of the product, and creates deeper connections to customers improves on the capability of
the supplier which has a direct impact on company’s overall performance. He adds that
well managed inventories strike an effective balance between inputs and outputs of a
given process of production or trade creating a platform for a company to avoid wastage
and effectively produce.

Tersin (2001) adds in agreement that companies should focus on ensuring that there are
effective mechanisms of managing inventories all the time. He believes that, there is a
strong relationship between inventory management and performance of the company; he
noted that any under taking neglecting the management of inventories will be
jeopardizing its long term profitability and may fail ultimately.

39
Table 4.8: Items that generate more inventories in the company

Frequency Percent Valid Cumulative

Percent Percent
Raw materials 18 27.3 27.3 27.3
Finished goods 26 39.4 39.4 66.7
Valid
Work-in-progress 16 24.2 24.2 90.9
Maintenance, repair and
4 6.1 6.1 97.0
operating inventory
Others 2 3.0 3.0 100.0
Total 66 100.0 100.0
Source: Primary Data [Century Bottling Company, 2016]

A question was again posed to respondents requiring them to establish items that generate
more inventories in the company stores and warehouses. Findings indicate that
18(27.3%) revealed that company raw materials generate more inventories, 26(39.4%)
referred to finished goods, 16(24.2%) said work-in-progress, 4(6.1%) referred to
maintenance, repair and operating inventory whereas 2(3.0%) referred to other forms of
inventories. Although it might be concluded that finished goods generate comparably
more inventories in the company compared to others, the findings most importantly give
an out-lay of the forms of inventories managed in the company and portray the
importance of ensuring an effective trend of their management; because for instance if
raw materials, finished goods and others are not effectively managed, what will the
company be left with in its trend of production. This indicates why inventory
management is a more sensitive and thus an important an aspect in the company.

In the same section, a list of statements describing the inventory management techniques
applied at Century Bottling Company Ltd are stated and respondents were required to
give their ratings on whether each of the technique has been adopted by their company.
The ranking was done in a Likert scale requiring respondents to reveals the levels of
agreement or disagreement from ‘strongly agree’ to ‘strongly disagree. Findings on this
section are presented and analyzed below.

40
 Table 4.9: The Inventory Management Techniques applied by Century Bottling Company

Inventory Management Techniques RATING

Strongly Agree Not Dis- Strongly Mean Std.
Agree Sure agree Disagree Dev.
a). Perpetual Inventory Management Technique
Perpetual inventory management technique is a conducive Freq 28 32 3 2 1 2.90 1.17
technique to improve company performance % 42.4% 48.5% 4.5% 3.0% 1.5%
Under perpetual inventory management technique, ordering is Freq 28 29 3 3 3 2.38 1.36
automatic which saves time and labour. % 42.4% 43.9% 4.5% 4.5% 4.5%
Perpetual inventory management technique has a better Freq 22 28 4 7 5 2.19 1.42
responsiveness to demand for company good. % 33.3% 42.4% 6.1% 10.6% 7.6%
b). Periodic Review Inventory Management Technique
The company uses periodic review to measure and gauge the Freq 32 31 1 1 1 2.69 1.06
level of performance. % 48.5% 47.0% 1.5% 1.5% 1.5%
The company maintains greater chance of elimination of absolute Freq 33 30 1 1 1 2.24 1.40
stock with periodic reviews. % 50.0% 45.5% 1.5% 1.5% 1.5%
In periodic review technique large quantity discounts are Freq 32 31 1 1 1 2.41 1.39
negotiated when a range of stock items are ordered from the % 48.5% 47.0% 1.5% 1.5% 1.5%
same supplier at the same time.
c). JIT (Just-In-Time) Inventory Management Technique
Just in time is taken into consideration in order to retain high Freq 28 32 3 2 1 2.24 1.37
levels of company performance. % 42.4% 48.5% 4.5% 3.0% 1.5%
Just in time technique ensures that materials arrive Just in time Freq 32 31 1 1 1 2.29 1.38
before the production starts. % 48.5% 47.0% 1.5% 1.5% 1.5%
Just in time eliminate the possibility of making mistakes in Freq 33 33 0 0 0 2.12 1.29
production process % 50.0% 50.0% 0.0% 0.0% 0.0%
Source: Primary Data [Century Bottling Company, 2016]

41
From table 4.9, the study findings indicated that the highest percentage of respondents
agreed with the statements: that under perpetual inventory management technique its
account is balanced at the end of the day which yield positive inventory and this
improves company overall performance as indicated by 60(90.9%); that with perpetual
inventory management technique the company gains a better responsiveness to demand
indicated by 50(75.6%); and that with perpetual inventory management technique
ordering is made automatic which saves time and labour represented by 57(86.4%). The
findings indicate that perpetual inventory management technique is in place at the
company and frequently employed in the management of its inventory. The findings
indicate that through this technique the company can effectively ensure that time and
labour are saved since ordering is made automatic, and that the company gains a better
responsiveness to demand all the above are prerequisite indicators of the influence of this
technique on company performance.

In agreement with the above findings, Lysons, (2000) writes that, the perpetual inventory
system is best suited for the enterprises that usually keep a high inventory and have a
high turnover, it is also well suited for type of industries where there is no much
processing to do so the inventory exists at only one level for sale rather than at the three
levels (raw material work in progress) and for sale. This technique is also well suited for
the fact that inventory checking is an important part of operation of the industry. He adds
that, perpetual management technique has better responsiveness to demand compared to
periodic reviews, ordering is automatic which saves time and labour thereby ensuring
better control of stock.

Chase, Aquilano & Jacobs (2003) adds that, a perpetual inventory system has the
advantages of both providing up-to-date inventory balance information and requiring a
reduced level of physical inventory counts. However, the calculated inventory levels
derived by a perpetual inventory system may gradually diverge from actual inventory
levels, due to unrecorded transactions or theft, so you should periodically compare book
balances to actual on-hand quantities, and adjust the book balances as necessary. They
(Chase, Aquilano & Jacobs, 2003) ascertain that, perpetual inventory is by far the
preferred method for tracking inventory, since it can yield reasonably accurate results on
an ongoing basis, if properly managed. The system works best when coupled with a
42
computer database of inventory quantities and bin locations, which is updated in real time
by the warehouse staff using wireless bar code scanners, or by sales clerks using point of
sale terminals. It is least effective when changes are recorded on inventory cards, since
there is a significant chance that entries will not be made, will be made incorrectly, or
will not be made in a timely manner.

From the same table i.e. table 4.9 above, findings show that most of the respondents were
at least in agreement with the following statements: the company uses periodic review to
measure and gauge the level of performance, the company maintains greater chance of
elimination of absolute stock with periodic reviews and that in periodic review technique
large quantity discounts are negotiated when a range of stock items are ordered from the
same supplier at the same time as indicated by 63(95.5%), 63(95.5%) and 63(95.5%)
respectively. The findings indicate that the company relies a lot on the periodic review
technique in managing its inventories. The technique according to findings is attached to
effective gauging of the company performance, elimination of absolute stock levels, and
negotiation of large quantity discounts especially when a range of company stock items
are ordered from the same supplier at the same time.

Ikiror (2008) writes in agreement with the findings under periodic review, items
inventory position is reviewed periodically rather than at a fixed order point, the period
or interval at which stock levels are reviewed depends on the importance of stock item,
available quantity will be ordered at each reviewed to bring the stock level back to the
maximum. He writes that this technique is important in that there is greater chance of
elimination of absolute items owing to periodic review of stock, also the purchasing load
may be spread more evenly with possible economies of scale ordered from the supplier at
the same time, in this technique large quantity discounts may be negotiated when arrange
of stock items are ordered from the same supplier at the same time.

Arjun (2010) adds in agreement that, use of this technique increases the chances of
enjoying economies of scale especially when depending on one supplier; there would be
also a sense of better utilization of organizational resources for scheduling.

43
From the same table, the highest number of respondents were recorded in agreement with
the following statements: just in time is taken into consideration at the company in order
to retain high levels of company performance 60(90.9%), Just In Time technique ensures
that materials arrive just in time before the production starts 63(95.5%), and that Just In
Time eliminates the possibility of making mistakes in production process at the company
66(100.0%). The findings evidence use of the technique by the company in managing its
inventory. The technique (i.e. Just In Time) according to the findings is attached to
ensuring that materials needed by the company arrive just in time before the production
starts, eliminating the possibility of making mistakes in production process at the
company and generally influencing the company’s overall performance.

Kamukama (2006) in agreement refer to the technique to be based on cost of zero

wastage, according to him, through this technique a business orders inventory which is
needed to carry on their immediate production in other words, manufacturing units do not
store any extra inventory as it leads to additional carrying costs. Braglia& Zavanella
(2003) also contend in agreement that, Just in Time is advantageous in that it reduces the
operational costs of the business thus increasing the profits and return on investment, also
it eliminates the possibility of making a mistake in production process. However, if the
raw material that is ordered is not of good quality or gets damaged the production will
have to be stopped as there is no extra stock of raw materials available; this leads to time
wastage.

Chan & Chan (2006) referring to the above findings also wrote that different goals of JIT
are to produce the required items , required quantity at the right time seeking to achieve
elimination of non valuable activities such as zero inventories zero defects, zero break
downs and 100% on delivery. In his book, using this technique of inventory management
aims at maintaining just enough materials at right place and time to make just the right
amount of a given product.

44
 Table 4.10: The Inventory Management Techniques applied by Century Bottling Company (Continued…)

Inventory Management Techniques RATING

Strongly Agree Not Dis- Strongly Mean Std.
Agree Sure agree Disagree Dev.
d). ABC Inventory Management Technique
ABC technique provide mechanism for identifying inventory Freq 28 32 3 2 1 2.70 1.27
that will have significant impact in overall inventory cost % 42.4% 48.5% 4.5% 3.0% 1.5%
ABC techniques is used to arrange goods according to their level Freq 33 30 1 1 1 2.71 1.26
of importance spending priority and profitability % 50.0% 45.5% 1.5% 1.5% 1.5%
ABC techniques helps to save time fasten planning in an Freq 32 31 1 1 1 2.12 1.22
organization which has impact on performance. % 48.5% 47.0% 1.5% 1.5% 1.5%
b). EOQ Inventory Management Technique
EOQ minimize the total inventory holding cost and ordering Freq 32 31 1 1 1 2.02 1.26
costs % 48.5% 47.0% 1.5% 1.5% 1.5%
EOQ is applied when the demand for the products is constant for Freq 22 26 5 7 6 2.92 1.60
over the years % 33.3% 39.4% 7.6% 10.6% 9.1%
Economic order quantity time is fixed and ordering cost is Freq 24 24 2 9 7 2.98 1.69
constant which has direct impact on performance. % 36.4% 36.4% 3.0% 13.6% 10.6%
c). Material Requirement Planning Inventory Management Technique
MRP maintains the lowest level of inventory which has an Freq 23 21 2 9 10 2.98 1.47
impact on performance. % 34.8% 31.8% 3.0% 13.6% 15.1%
MRP is computerized which aims at holding zero stock of an Freq 28 32 3 2 1 2.29 1.48
item unless its required for current production % 42.4% 48.5% 4.5% 3.0% 1.5%
Ensures materials are available for production and product are Freq 24 24 2 9 7 2.98 1.49
delivered to customers % 36.4% 36.4% 3.0% 13.6% 10.6%
Source: Primary Data [Century Bottling Company, 2016]

45
From table 4.10 above, study findings indicate that, majority of the respondents at least
agreed with the following statements with regard to use of ABC inventory management
technique: that ABC technique provides a mechanism for identifying inventory that will
have significant impact in overall inventory cost in the company 60(90.9%), that ABC
technique is used to arrange goods according to their level of importance, spending,
priority and profitability 63(95.5%) and that ABC technique helps the company to save
time, fasten planning in the company which has impact on performance 63(95.5%). The
findings indicate the company entirely relies on ABC inventory management technique to
at least ensure that there is a reliable mechanism for identifying company inventory that
will significantly impact on overall inventory cost, to ensure that all goods are arranged
in accordance to level of importance, priority and profitability and to save time, fasten
planning all of which greatly impacts on the company’s overall performance.

Chan & Chan (2006) write in agreement with the above findings that, ABC analysis
provides a mechanism for identifying items that will have a significant impact on overall
inventory cost while also providing a mechanism for identifying different categories of
stock that require different management controls. They add that, the ABC analysis
suggests that inventory of an organization are not of equal value, thus the inventory is
grouped into 3 categories i.e. A, B & C in order of their estimated importance.

From the same table i.e. table 4.10 above findings on the level of usage of the EOQ
inventory management technique at Century Bottling Company Ltd are presented. The
findings indicate that the highest percentage of respondents was recorded at least in
agreement with items like: the company uses EOQ to minimize the total inventory
holding cost and ordering costs 63(95.5%), at the Century Bottling Company Ltd EOQ is
applied when the demand for the products is constant for over the years and that through
EOQ time is fixed and ordering cost is constant which has direct impact on company
overall performance.

The findings further highlight that most of the respondents at least agreed that, Century
Bottling Company Ltd uses MRP to maintain the lowest level of inventory which has an
impact on performance 44(66.7%), at Century Bottling Company Ltd MRP is
computerized which aims at holding zero stock of an item unless its required for current

46
 production 60(90.9%) and that the company uses the MRP technique to ensure that
materials are available for production and product are effectively delivered to customers
48(72.7%). The findings indicate that the company invests more in both EOQ and MRP
techniques in managing its inventory. According to the findings the above techniques are
attached to minimizing inventory holding costs and ordering costs, maintaining low
levels of inventory which impacts on company performance and ensuring that materials
are available for production and ensuring that products are delivered to customers on
time.

4.2.3 The challenges faced in managing inventory at Century Bottling Company Ltd.

The section presents, analyses and discusses findings on the second objective of this
study. It presents findings on the challenges faced in managing inventory at Century
Bottling Company Ltd. Findings captured in this section relates to respondents
knowledge of the challenges related to inventory management in the company. It
concludes with a presentation, analysis and discussions on the respondents’ rating of the
inventory management challenges done on a Likert scale, respondents revealed their
levels of agreement or disagreement from ‘strongly agree’ to ‘strongly disagree. Findings
on this section are presented and analyzed below.

Table 4.11: Whether Century Bottling Company Ltd face an challenges

in managing its inventory.

Frequency Percent Valid Cumulative

Percent Percent

Valid Yes 66 100.0 93.6 93.6

Total 66 100.0 100.0

Source: Primary Data [Century Bottling Company, 2016]

Findings as presented in table 4.11 above show that all respondents studied i.e.
66(100.0%) collectively agreed that the company face varying challenges in managing its
inventory. The findings give a picture that despite importance, the activity of managing
inventory is greatly challenging.

47
Table 4.12: The challenges faced in managing inventory at Century Bottling Company Ltd.

Challenges RATING
Strongly Agree Not Dis- Strongly Mean Std.
Agree Sure agree Disagree Dev.
Conflict of interest at century bottling company Ltd hinders Freq 11 11 4 20 20 3.50 1.37
inventory management. % 16.7% 16.7% 6.1% 30.3% 30.3%
Poor evaluation and monitoring hinders inventory management Freq 14 13 3 17 19 3.71 1.46
at century bottling company Ltd % 21.2% 19.7% 4.5% 25.8% 28.8%
Strain on resources at century bottling company Ltd is a Freq 22 29 5 5 5 3.02 1.32
challenge to inventory Management. % 33.3% 43.9% 7.6% 7.6% 7.6%
Weak management systems at century bottling company Ltd is a Freq 10 8 6 20 22 3.02 1.36
challenge to in inventory management practices % 15.2% 12.1% 9.1% 30.3% 33.3%
Bureaucratic constraints at century bottling company Ltd hinders Freq 10 11 6 19 20 3.70 1.51
the operation of inventory management systems % 15.2% 16.7% 9.1% 28.8% 30.3%
It usually becomes hard to integrate demand planning and Freq 20 26 5 9 6 2.98 1.29
inventory planning. % 30.3% 39.4% 7.6% 13.6% 9.1%
The company usually faces challenges resulting from oversell in Freq 21 25 5 8 7 2.98 1.27
its stores. % 31.8% 37.9% 7.6% 12.1% 10.6%
It is usually a challenge to maintain an excellent warehouse/ Freq 22 22 4 8 10 2.29 1.28
stores team. % 33.3% 33.3% 6.1% 12.1% 15.2%
Maintaining enough space for inventory becomes a challenge Freq 20 26 5 9 6 2.98 1.29
sometimes in the company. % 30.3% 39.4% 7.6% 13.6% 9.1%
There is usually higher productivity requirements and fewer Freq 22 29 5 5 5 2.86 1.22
resources at the company. % 33.3% 43.9% 7.6% 7.6% 7.6%
Source: Primary Data [Century Bottling Company, 2016]

48
Results in table 4.12 presents the responses on the challenges faced by Century Bottling
Company Ltd in managing its inventory. Findings indicate that inventory management at
Century Bottling Company Ltd is attached to the following challenges: strain on
resources 51(77.3%), it usually becomes hard to integrate demand planning and inventory
planning 46(69.7%), the company usually faces challenges resulting from oversell in its
stores 46(69.7%), it is usually a challenge to maintain an excellent warehouse/ stores
team 44(66.7%), maintaining enough space for inventory becomes a challenge sometimes
in the company 46(69.7%), and there is usually higher productivity requirements and
fewer resources at the company 51(77.3%). The findings indicate that limited resources,
practices related to inventory planning, oversell in stores, maintaining skilled personnel
to manage inventory, limited space in stores influence more challenges in managing
inventory at Century Bottling Company Ltd.

Gourdin (2001) wrote in agreement with the above findings that, inventory management
challenges can interfere with a company’s profits and customer service. They can cost a
business more money and can lead to an excess of inventory overstock that is difficult to
move. Most of these problems are usually due to poor inventory processes and out-of-
date systems. He observed that, excessive levels of stock are undesirable because they
increase the risks of inventory becoming obsolete, stock loss through damage and theft,
increased storage costs like rent, insurance and unnecessary tie up of the firm’s funds. He
further state that a firm would be foregoing profits when it continues maintaining
excessive levels of inventory, which implies that the probability position of the firm is
being threatened in the long run since funds are not being invested in other profitable
ventures.

Gupta (2004) added in agreement that organizations should establish proper inventory
control procedures, efficient and effective information system regarding stock so that
they are able to balance the costs and risks of inventory control against the benefits got
from having inventory readily available for smooth operations. He recognized that, small
businesses often face a variety of problems related to their size. A frequent cause of
bankruptcy is undercapitalization. This is often a result of poor planning rather than
economic conditions; it is common rule of thumb that the entrepreneur should have
access to a sum of money at least equal to the projected revenue for the first year of
49
business in addition to his anticipated expenses. In addition to ensuring that the business
has enough capital, the small business owner must also be mindful of contribution margin
(sales minus variable costs). To break even, the business must be able to reach a level of
sales where the contribution margin equals fixed costs.

Braglia (2004); Montanari (2004) add that, a flawed or unrealistic business plans leads to
failure in predicting how well a company may do in the future. This affects inventory
management because if a company predicts more growth than they actually experience, it
can lead to an overstock of inventory. The opposite is true if forecasters do not predict
enough growth and are left with not enough inventories. Failure to identify shortages a
head leads to lack of enough products in stock to meet customer demands which spoil
customer relations. The staff in charge of inventory management should look over their
inventory on a regular basis to make sure enough products are in stock

Lambert (2001) recognized a number of challenges in inventory management which

include: unqualified employees in charge of inventory, using a measure of performance
for their business that is too narrow, a flawed or unrealistic business plan for a business
for the future and not identifying shortages ahead of time. Having people in charge of
inventory without adequate training, experience or who neglects the job will lead to
inventory problems that will result into poor organizational performance. The use of a
measure of performance for business that is too narrow. This is a situation where the
performance measure are not wide enough and do not encompass all the aspects of the
organization. Many areas get overlooked and can lead to either inventory shortages or
inventory stockpiling.

However, findings recognized that challenges related to: conflict of interest, poor
evaluation and monitoring, weak management systems and bureaucratic constraints are
less observed to constrain effective management of inventory at Century Bottling
Company Ltd.

50
4.2.4 Relationship between Inventory Management and Performance of Century Bottling
Company Ltd.

The results in the section below were generated so as to establish the relationship
between inventory management and performance of Century Bottling Company Ltd.
Descriptive statistics employing the Pearson’s Correlation was used to establish the
relationship between the variables.

Table 4.13: Relationship between Inventory Management and Performance of

Century Bottling Company Ltd.

Inventory Performanc
Management e
Pearson Correlation 1 .997**
Inventory Management Sig. (2-tailed) .000
N 70 70
Pearson Correlation .997** 1
Performance Sig. (2-tailed) .000
N 70 70
**. Correlation is significant at the 0.01 level (2-tailed).

Table 4.13 above, findings reveal that there is a strong positive relationship between
inventory management and company performance at Pearson correlation coefficient
r=0.997**, p=0.00. And therefore this means that if inventories are well managed
performance improves. Findings thus evidence that effective inventory management
influences effective inventory planning and scheduling, cost reduction, effective stores
management, internal coordination, customer service, improves cash flows and enables
the company to maintain optimal stock levels all these are influence in improving the
performance of the company.

Coyle, Bardi & Langley (2003) agree with the findings when they wrote that effective
inventory management plays an important role in the growth and survival of an
organization in the sense that failure to an effective and efficient management of

51
inventory, will mean that the organization will lose customers leading to poor services
delivery and sale will decline.

Drury (2000) added that, virtually every enterprise finds it necessary to hold stocks (or
inventory) of various items and materials. That is because it would be practically
impossible to operate with only one of each item to be sold or used in manufacture or
used in office work. A reserve or a fund or inventory of each item or material used or sold
frequently is therefore maintained, so that as items or materials are sold or used they can
be replaced or replenished from the stocks held in reserve. Due to uncertainty in future
demand, and because of the unguaranteed availability of supplies, stock is therefore held
to ensure an availability of goods to minimize the overall costs associated with the
management of stock.

Gittinger (2005) argues also in agreement with the above findings that precautionary
motive is one of the central roles of inventory management. Accordingly, precautionary
motive means that stock held to guard against risk of unpredictable changes in demand
and supply. In most cases, the level of demand of goods and the time required for supply
cannot be known with certainty. Therefore, to ensure product availability, the
organization maintains additional amount of safety stock to meet regular production and
market needs. Firms should invest in stock control for precautionary motive to act as a
buffer or link between demand and supply so that production can be geared to a more
constant output. Precautionary motive necessitates holding of inventories to guard against
the risk of unpredictable changes in demand and supply forces and other factors.

Kenneth & Brian (2006) added that, keeping inventory includes the following reason:-
reduce the risk of supplier failure or uncertainty, safety and butter stocks are held to
provide some protection against such as strikes, transport breakdowns due to floods or
snow, crop failures, wars and similar factors: protect against lead time uncertainties, such
as where supplier’s replenishment and lead time are not known with certainty. In such
case an investment in safety stocks is necessary if customer service is to maintain at
acceptable levels and meet unexpected demands or demands for customization of
products as with agile production and smooth seasonal or cyclical demand.

52
 CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSIONS

AND RECOMMENDATIONS

5.0 Introduction

This chapter summarizes and gives conclusions to the findings of the study as presented
in chapter four. The summary was done in line with the objectives of the study in relation
to the data presented in previous chapter. This chapter is therefore giving a summary of
findings, conclusion and recommendations of the study.

5.1 Summary of Findings

5.1.1 The Inventory Management Techniques applied by Century Bottling Company Ltd

Study findings highlighted six major techniques employed by Century Bottling Company
Ltd in managing its inventory namely: perpetual inventory management technique,
periodic review inventory management technique, Just In Time (JIT) inventory
management technique, ABC Analysis inventory management technique, Economic
Order Quality (EOQ) inventory management technique and Material Requirement
Planning (MRP).

The findings indicate that perpetual inventory management technique is in place at the
company and frequently employed in the management of its inventory. The results
indicated that through this technique the company can effectively ensure that time and
labour are saved since ordering is made automatic, and that the company gains a better
responsiveness to demand all the above are prerequisite indicators of the influence of this
technique on company performance.

In addition, the findings indicated that the company relies a lot on the periodic review
technique in managing its inventories. The technique according to findings is attached to
effective gauging of the company performance, elimination of absolute stock levels, and
negotiation of large quantity discounts especially when a range of company stock items
are ordered from the same supplier at the same time.

53
 In the same manner, results evidenced use of the technique by the company in managing
its inventory. The technique (i.e. Just In Time) according to the findings is attached to
ensuring that materials needed by the company arrive just in time before the production
starts, eliminating the possibility of making mistakes in production process at the
company and generally influencing the company’s overall performance. Results also
showed that the company entirely relies on ABC inventory management technique to at
least ensure that there is a reliable mechanism for identifying company inventory that will
significantly impact on overall inventory cost, to ensure that all goods are arranged in
accordance to level of importance, priority and profitability and to save time, fasten
planning all of which greatly impacts on the company’s overall performance.

Conclusively, the company was found to invest more in both EOQ and MRP techniques
in managing its inventory. According to the study results the above techniques are
attached to minimizing inventory holding costs and ordering costs, maintaining low
levels of inventory which impacts on company performance and ensuring that materials
are available for production and ensuring that products are delivered to customers on
time.

5.1.2 The challenges faced in managing inventory at Century Bottling Company Ltd.

Study results indicated that inventory management at Century Bottling Company Ltd is
attached to the following challenges: strain on resources, it usually becomes hard to
integrate demand planning and inventory planning, the company usually faces challenges
resulting from oversell in its stores, it is usually a challenge to maintain an excellent
warehouse/ stores team, maintaining enough space for inventory becomes a challenge
sometimes in the company and there is usually higher productivity requirements and
fewer resources at the company.

5.1.3 Relationship between Inventory Management and Performance of Century Bottling

Company Ltd.

Study findings revealed that there is a strong positive relationship between inventory
management and company performance at Pearson correlation coefficient r=0.997**,
p=0.00. And therefore this means that if inventories are well managed performance

54
 improves. Findings evidenced that effective inventory management influences effective
inventory planning and scheduling, cost reduction, effective stores management, internal
coordination, customer service, improves cash flows and enables the company to
maintain optimal stock levels all these are influence in improving the performance of the
company.

5.2 Conclusion

From the above findings it can be concluded that, hardly can a company survive in
business with commendable performance with no dedicated efforts to ensure an effective
trend in managing its inventories. Study findings highlighted that the process influence
effective inventory planning that usually influence, effective inventory scheduling, cost
reduction, effective stores management, internal coordination, customer service,
improvement in cash flows and enables the company to maintain optimal stock levels all
these are influence in improving the performance of the company.

5.3 Recommendations

In light with the above study findings and conclusions, the following recommendations
are made:

i). Since inventory management techniques do not normally lead to immediate

efficiency of the company for improved performance, the study recommends
management in manufacturing companies to always forward planning,
centralize the purchase and store function, carry out stock taking exercise
periodically as if such factors are adopted together then performance and
efficiency of the company will be greatly influenced positively.
ii). The study also recommends top management in most organizations to
emphasize proper inventory management techniques and measuring of
efficiency deviations to identify weaknesses in the process of managing
inventories.
iii). In addition, the study recommends managers in organizations especially those
in developing countries like Uganda to always undertake forward production
planning, this is because they will be able to know when the incoming sales

55
 orders can be scheduled for delivery and also takes into account current
backlogs so that production and delivery schedules are realistic which will
minimize inventory management costs.
iv). It is also recommended that whether or not a perpetual/continuous stock
control system is maintained, there should be continuous annual stocks take at
the company. To this, procedures can be prescribed for this with emphasis on
identifying damaged, slow moving, and obsolete stock and cut-off procedures.
v). In addition, inventories at Century Bottling Company should be continuously
checked with actual stocks held by independent officials, and inquires made
into all reconciling differences. If this done, theft challenge associated with
inventory management will be minimized at the company premises.

5.4 Suggested areas for Further Researcher

The study was set to find out the effect of inventory management and performance of
private companies a case study of Century Bottling Company Ltd. Although the study
was successfully carried out, the researcher feels there is need for further studies in the
following areas:
i. To analyze the challenges facing the companies in implementing inventory
management techniques as a way of improving on performance.
ii. And general challenges faced in company stores.

56
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 APPENDICES

APPENDIX A: QUESTIONNAIRE TO RESPONDENTS

Dear Respondent,

I am ____________________, Reg. No. ___________, a student at Mbarara University of

science and technology pursuing a Bachelor’s Degree of Procurement and supply chain
Management. I am carrying out research titled “INVENTORY MANAGEMENT AND
PERFORMANCE OF NUMA FOODS.” You have been chosen to take part in this study by
giving responses to questions below. You are therefore kindly requested to assist in your own
capacity to answer the questions given below. Your responses will be kept with utmost
confidentiality and used for only for academic purposes.

SECTION A:
BACKGROUND CHARACTERISTICS OF RESPONDENTS
Please tick/Circle ONE of the options you feel most apply to your situation or FILL in
appropriately.
1. Indicate your gender.
a). Male b). Female

2. Under which age bracket do you belong?

a). <25 years b). 26-35 years c). 36-45 years d). 46-55 years
e). >56 years

3. What is your education level?

a). Certificate b). Diploma c). Bachelors d). Degree e). Masters Degree
Other [Specify]...........................................................................

4. Under which department do you work?

a). Finance and Accounts Department b). Stores Department
c). Procurement and Logistics Department d). Operations Department
e). Marketing and Sales Department
Other [Specify]...................................................

5. For how long have you worked at Century Bottling Company Ltd?
a). < 5 years b). 6-10 years c). 11-25 years d). >26 years

60
SECTION B:
THE INVENTORY MANAGEMENT TECHNIQUES APPLIED BY NUMA FOODS

Please tick/Circle ONE of the options you feel most apply to your situation.
6. Does NUMA FOODS have formal techniques in managing its inventory?
a). Yes b). No c). I don’t know

7. What kind of items generate more inventories at the company?

a). Raw materials b). Finished goods/ products c). Work-in-Progress
d). Maintenance, repair and operating inventory

Please tick the box that best describes your response on the Inventory Management
Techniques applied by NUMA FOODS.
NB: 5(Strongly Agree), 4(Agree), 3(Not Sure), 2(Disagree), 1(Strongly Disagree).
No Statement Level agreement/disagreement
5 4 3 2 1
The Inventory Management Techniques applied by NUMA FOODS
a) Perpetual inventory management technique
1 Perpetual inventory management technique is a
conducive technique to improve company
performance
2. Under perpetual inventory management technique,
ordering is automatic which saves time and labour.
3. Perpetual inventory management technique has a
better responsiveness to demand for company good.
b). Periodic review inventory management technique
4. The company uses periodic review to measure and
gauge the level of performance.
5. The company maintains greater chance of elimination
of absolute stock with periodic reviews.
6. In periodic review technique large quantity discounts
are negotiated when a range of stock items are ordered
from the same supplier at the same time.
c). Just in time inventory management technique
7. Just in time is taken into consideration in order to
retain high levels of company performance.
8. Just in time technique ensures that materials arrive
Just in time before the production starts.
9. Just in time eliminate the possibility of making
mistakes in production process
d). ABC Analysis inventory management technique.

61
 10 ABC Analysis inventory management technique
provide mechanism for identifying inventory that will
have significant impact in overall inventory cost
11 ABC techniques is used to arrange goods according to
their level of importance spending priority and
profitability
12 ABC Analysis inventory management techniques
helps to save time fasten planning in an organization
which has impact on performance.
e). Economic order quality inventory management technique (EOQ)
13. EOQ minimize the total inventory holding cost and
ordering costs
14. EOQ is applied when the demand for the products is
constant for over the years
15. Economic order quantity time is fixed and ordering
cost is constant which has direct impact on
performance.
f). Material requirement planning (MRP)
16. MRP maintains the lowest level of inventory which
has an impact on performance.
17. MRP is computerized which aims at holding Zero
stock of an item unless its required for current
production
18. Ensures materials are available for production and
product are delivered to customers

SECTION C:
THE CHALLENGES FACED IN MANAGING INVENTORY AT NUMA FOODS.
Does the company face any challenges in managing its inventory?
a). Yes b). No c). I don’t know
Please tick the box that best describes your response on the challenges the company is
facing or faces in managing its inventory.
NB: 5(Strongly Agree), 4(Agree), 3(Not Sure), 2(Disagree), 1(Strongly Disagree).

No Statement Level agreement/disagreement

5 4 3 2 1
Challenges of Managing NUMA FOODS’ Inventory
1. Conflict of interest at NUMA FOODS hinders
inventory management.
2. Poor evaluation and monitoring hinders inventory
62
 management at NUMA FOODS
3. Strain on resources at NUMA FOODS is a challenge
to inventory Management.
4. Weak management systems at NUMA FOODS is a
challenge to in inventory management practices
5. Bureaucratic constraints at NUMA FOODS hinders
the operation of inventory management systems
6. It usually becomes hard to integrate demand planning
and inventory planning.
7. The company usually faces challenges resulting from
oversell in its stores.
8. It is usually a challenge to maintain an excellent
warehouse/ stores team.
9. Maintaining enough space for inventory becomes a
challenge sometimes in the company.
10. There is usually higher productivity requirements and
fewer resources at the company.

SECTION D:

THE RELATIONSHIP BETWEEN INVENTORY MANAGEMENT AND

PERFORMANCE OF NUMA FOODS
Please tick the box that best describes your response on the following statements rating the
relationship between Inventory Management and the performance of NUMA FOODS.

NB: 5(Strongly Agree), 4(Agree), 3(Not Sure), 2(Disagree), 1(Strongly Disagree).

No Statement Level agreement/disagreement
5 4 3 2 1
Relationship between Inventory Management and the performance of NUMA FOODS.
1. Inventory Management helps in inventory planning
and scheduling at NUMA FOODS
2. Cost reduction at NUMA FOODS is a result of
inventory management.
3. Inventory Management helps in effective stores
management at NUMA FOODS
4. Internal coordination at NUMA FOODS can be
improved by inventory management
5. Improved customer service can be realized with
inventory management
6. Inventory management has also helped the company
improve its cash flows
63
7. Through effective inventory management the
company has been able to maintain optimal stock
levels.
8. The company has been able to balance its inventory
through maintain an effective inventory management
systems.
9. The company realizes a commendable stores
organization.
10. Through effective inventory management the
company has maintained repeat customers.
11. Inventory management has remained a great time-
saving tool in the company.
12. Through effective inventory management the
company is saved from wastage of money on slow-
moving products.

**END**

Thank you for your Contributions!!

64