The effect of inventory management on operational performance in Bota Port, Limbe

ABSTRACT

The focal point of the study was conducted to examine the effect of Inventory management in warehousing firms at Bota Wharf, Limbe.

A cross-sectional research design was implemented and Data was collected from 30 respondents or participants from the population of warehousing firms and workers at Bota wharfself-administered questionnaires which were established by Likert scale of five points.

Data was analysed using Statistical Package of Social Sciences 21Version of descriptive statistics and Pearson correlation analysis was further used to estimate the parameters of reliability and validity of the effect of inventory management on operational performance at Bota wharf.

Furthermore, the analysis was adopted to test the hypothesis using 5% level of significant. Our findings show that inventory management was positive and insignificant. 5% change in the independent variable will lead to a positive change in the operational performance of warehousing firm.

Based on the findings that The value of 0.071 explains the fact that 7.1% of the variance in the model (operational performance) can be predicted from inventory management.

Therefore 92.9% of the variation in operational performance can be predicted from other factors. Therefore, the following recommendation were made;The study recommends that, the firms should operates an effective, efficient and properly inventory management and control systems.

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

Before the industrial revolution, merchants basically had to write down all the products they sold every day Lavey et al (1996). Then they had to order more products based on their hand-written notes and their gut feelings. This was an incredibly inefficient and inaccurate way of doing business. Merchants couldn’t really account for stolen goods unless they did time consuming physical counts on a regular basis. They had trouble making sure they had the right products when orders came in because of sparse record keeping. But it was the best could.

 Luckily, in 1889, a man name Herman Hollerith invented the first punch card(Barcodedirect.com) that could be read by machines by feeding sheets of papers that have little holes in specific places, people could record complex data for a variety of purposes from census taking to clocking in and out of work. This was basically the precursor to computers that can read data in tiny microchips. And Hollerith’s company even went on to form the world’s first computer. Harvard University took Hollerith’s idea in 1930s and created a punch card system for businesses. Companies could tell which products were being ordered and also record some inventory and sales data base on punch card customers will fill out for catalogue items (Johnson & Elder, 2004). Unfortunately, other management system use to cost too much and was too slow to keep up with rising business challenges (Koh et al, 2008).

In the 1960s, a group of retailers (grocery stores at first)got together and came in with a method for taking inventory: the barcode. There were several competing types of barcode before they were standardized with the universal product code(UPC)in 1974.it is still the most use barcode in the United States(Norlte et al, 2000 & Power et al, 2007).

As computers become more efficient and cheaper, UPCs grew in popularity. In the mid1990s, companies started experimenting with inventory management software that will record data as products were scan in an out of the warehouses. The technology evolved into comprehensive inventory management solution by the early 2000s Koh et al,( 2007), Sprague (1996). Now even small and medium size businesses can find affordable inventory management software to meet their needs.

Inventories are vital to the successful functioning of manufacturing and retailing organizations. They may consist of raw materials, work in progress, spare parts/consumables and finished goods. It is not necessary that an organization has all these inventory classes. But whatever may be the inventory items, they need efficient management as, generally a substantial share of its funds is invested in them. Different departments within the same organization adopt different attitude towards inventory Coyle, Bardi & Langley,( 2003). This is mainly because the particular functions performed by a department influence the department’s motivation. For example, the sales department might desire large stocks in reserve to meet virtually every demand that comes. The production department similarly will ask for tasks of materials so that production system runs uninterrupted Lwiki et al,(2013). On the other hand, the finance department would always argue for a minimum investment in stocks so that the funds could be used elsewhere for other better purposes Vobra, (2008). Inventory represents an important decision variable at all stages of product manufacturing, distribution and sales, in addition to being a major portion of total current assets of many organization represents as much as 40% of total capital of industrial organizations Moore, Lee and Taylor, (2003). It may represent 33% of a company’s assets and as much as 90% of working capital Sawaya Jr & Graque, (2006). Since inventory constitute a major segment of total investment, it is essential that good inventory management be practiced to ensure organization growth and profitability.

According to Temeng  et al, (2010),historically however, organizations have ignore the potential savings from proper inventory management, treating inventory as a necessary evil and not as asset requiring management. As a result, many inventory systems are based on arbitrary rules. Unfortunately, it is not un usual for some organizations to have funds invested in inventory and still not be able to meet customers demand because of poor distribution of investment among inventory items Temeng Eshun & Essey,(2010).

Managing assets of all kind can be viewed as inventory problem, for the same principles apply to cash and fixed assets Koumanakos, (2008). The trade-off between ordering costs and holding costs characterizes the transaction approach to inventory management represented by EOQ model of inventory developed many decades ago Koumanakos, (2008). In the recent years, as the field of operation management has developed, many new concepts have been added to the list of relevant inventory control topics Capku, (2009).

These more management oriented concepts include material requirement planning(MRP)system, Just-In-Time(JIT)while another emerging stream of studies postulate the characteristics of a firm’s demand and marketing environment also play an important role .In determination of optimal corporate inventories, notwithstanding the theoretical and practical short comings inherent in these concepts and techniques, their application in real business life should have an effect on a firm’s performance Koh et al (2007).

Inventory management and control are crucial to a firm because mismanagement of inventory threatens the firm’s viability Sprague and Wacker,(1996). Too much inventory consumes physical space in the warehouse, creates financial burden and increases possibility of damage, spoilage and loss. On the other hand, too little inventory often disrupts manufacturing operations and increase the likelihood of poor customer service.

Inventory management is a critical management issue for manufacturing companies; inventories are vital to successful functioning of manufacturing of manufacturing organizations. According to Buffa and Sarin,(2007), there are several reasons for keeping inventory. Too much stock could result in fund being tied down, increase in holding costs, deterioration of materials, obsolescence and theft. On the other hand, shortage of materials can lead to interruption of products for sale; poor customer relations are underutilized.

Inventory management as explained by Lavely,(1996) as active control program that permits to govern its running of the various departments in a firm. This includes the production, research and development (R&D), purchasing, marketing, and human resource, accounting and finance. Inventory control and management are pivotal to a firm for mishandling of inventory endangers a firm’s capability to do practical and useful way Sprague & Wacker,(1996) and also affects a firm’s financial supremacy and one-upmanship for inventory management approach taken directly influence the equity capital, output and client service Ng et al, (1993); Vergin,(1998).The concept of inventory management suggest that the formation of inventory positioning and well calculated objectives Sprague & Wacker,(1996).

1.2 Statement of the Problem                   

Inventory is a vital part of current assets mainly in manufacturing concerns. Huge funds are committed to inventories as to ensure smooth flow of production and to meet customer’s demand. However, maintaining inventory also involves holding or carrying a lot of costs Coyle et al, (2003). Inventory management therefore plays a vital role in balancing the benefits and disadvantages associated with holding inventory. Efficient and efficient inventory management goes a long way in the successful running and survival of the warehouse. When organizations fail to manage their inventory effectively; they are bound to experience stock out the decline in productivity and profitability, customer dissatisfaction. Due to slit completive that exist in every industry, inventory management has become mandatory on each and every manager responsible for production in an organization. Inventory is one vital resource that any organization requires and just like any other resource that is scare and that requires effective management rather than neglect. The cost of acquiring these inventories is also important for the fact that too much of it will mean tying down capital and risk of becoming obsolete while having little could lead to shortage and production bottleneck.

Warehouse managers face the challenge of maximizing performance while balancing trade-offs under certain conditions. But in developed countries like Canada, the USA, & Russia just to name a few, the cause is not so reason being that, there are well-equipped personnel and even equipment which can be put in place in order to effectively and efficiently manage inventory. Looking the case of Cameroon, there are hindrances to inventory management which as a result leads to stock out Sawaya Jr et al, (2006) and lead time. With respect to Bota Wharf, goods come in huge quantities but there is no good inventory management approach to see into it that the goods are being put in the warehouse properly. As such, an effective inventory management system will help you have products stocked the moment the last of your product leaves the warehouse.

Alongside these arguments, it is important to say that the performance of warehousing firms at Bota is as a result of inventory management needs to be investigated so as to help improve the profitability of the firm. The firm seems to keep incorrect data and as such produce a regrettable performance which is not good for the business.

1.3 Research Questions

• To what extent has lead time affected the performance of warehousing at Bota Wharf Limbe?

• What is the effect of stock out on the operational performance of the warehousing firm at Bota wharf?

1.4 Objectives of the Study

Main objective

To examine the effect of inventory management on the operational performance of warehousing at Bota wharf Limbe.

Specific objectives

To assess the effect of lead time on warehousing firms at Bota wharf.

To examine the effect of stock out on the operational performance of warehousing.