The effect of inventory management on the performance of small and medium scale enterprises in the municipality of Buea

CHAPTER ONE

GENERAL INTRODUCTION.

1.1 Background of the Study

In reality, Small and Medium Enterprises occupy a very important place in developing, as well as developed countries’ economies, considering their contribution to national income, employment, exports, and entrepreneurship development (Storey D. J. 1994).

Inventory constitutes a very significant portion of the current assets of Small and Medium Scale Enterprises because most Small and Medium Scale Enterprises’ assets are in inventory form and their turnover represents the primary source of revenue and subsequent earnings to Small and Medium Scale Enterprises (Prempeh 2016). 

Considering the level of investment required for inventory in Small and Medium Scale Enterprises it is essential to manage inventory efficiently and effectively to avoid idle or shortage resources and also ensure production continuity.

Inefficient management of inventory can lead to under-utilisation of capacity and loss of profit. The under-utilisation of capacity can intensify the unemployment problem in any economy.

Well, and efficient control of inventories can contribute to the effective operation of the firm and hence the firm’s overall profit (Dubelaar, 2000)

. In many developing economies, small and medium scales enterprises employ a substantial number of the workforce Therefore, efficient management of inventory in small and medium scale enterprises is very important for meaningful economic growth and or development of any country.

Inventories make up an important part of a manufacturing firm’s production process as they facilitate continued production.

How inventories are managed affects the performance of an organization because it contributes to the cost of production which later affects profitability in small and medium scale enterprises.

To manage inventories efficiently, effectively and obtain maximum performance in small and medium scale enterprises, the small and medium scale enterprises must normally have an inventory management system or practice that monitors or controls the flow of inventories to ensure that there is neither oversupply nor undersupply in the in small and medium scale enterprises.

Inventory includes; inventory of raw materials, inventory of semi-finished products, inventory of work in progress and inventory of finish products.

Inventory management practices or systems include; economic order quantity, net transaction approach, just in the time management system and vendor managed inventory system.

While performances in SMEs will include; expansion of small and medium scale enterprises, profitability, growth of SMEs and return on capital employed. Therefore, this study intends to examine the relationship between inventory management and performance in small and medium scale enterprises.

1.2 Statement of problem and justification of the study

Inventories occupy the most tactical position in the structure of the working capital of most enterprises.

Efficient and effective management of inventory in any small and medium scale enterprise saves cost and hence saves SMEs from poor quality production, the disappointment of seasoned customers, loss of profit and good social responsibility.

One of the key factors for the success of a firm is effective flow management in supply restraints.

The challenge in managing inventory is to balance the supply of inventory with demand. A firm would preferably want to have enough inventories to satisfy the demands of its customers and avoid lost sales due to inventory stock-outs.

Also, the firm does not want to have too much inventory staying on hand because of the cost of carrying an inventory.

Enough but not too much is the ultimate unbiased (Coyle & Bardi, 2003)

Eshun (2014) point out that, despite the benefits of inventory management, SMEs have always ignored the potential savings from proper inventory management and end up having more funds invested in inventory than necessary.

They are therefore not able to meet customer demands because of poor distribution of investment among inventory items hence the basis of this study.

In the majority of small and medium scale enterprises, inventory constitutes the most significant part of current assets. In this view, the study wishes to assess the effect of inventory management practices on the performance of small and medium scale enterprises. 

Several studies have been carried out in this area of inventory management in small and medium scale enterprises.

Globally on studies of improving inventory management in small and medium scale enterprises, Koumanakos (2008) studied the effect of inventory management on firm performance in manufacturing firms in Greece.

Asare and Prempeh (2016) studied the impact of efficient inventory management on profitability in selected manufacturing firms in Ghana.

Augustine and Agu (2013) examined the effect of Inventory Management on organizational effectiveness in Nigeria, Ndunge (2013) examined inventory management and productivity of small and medium scale enterprises.

Mwangi (2013) examined inventory management and supply chain performance of non-governmental organizations in the agricultural sector.

This study, therefore, sought to determine the relationship between inventory control or management and the performance of small and medium scale enterprises in the municipality of Buea-Cameroon.

The study will provide us with answers to the following research questions.

The general research question is, What is the effect of inventory management on the performance of small and medium scale enterprises in the municipality of Buea?

The specific research question include;

• How does the Net transactions approach of inventory management affect the performance of small and medium scale enterprises in the Buea municipality?
• How does the Economic Order Quantity approach of inventory management affect the performance of small and medium scale enterprises in the municipality of Buea?
• How does the Just in Time (JIT) approach of inventory management affect the performance of small and medium scale enterprises in Buea municipality?
• What are the various challenges or obstacles faced by the small and medium scale enterprise in the management of its inventory?

1.3 Objectives of the study

The main objective of this study is to determine how inventory management affects the performance of small and medium scale enterprises.

The following specific objectives are important in achieving the main objective of this study,

• To determine the effects of the net transactions approach of inventory management on the performance of small and medium scale enterprises in the municipality of Buea.
• To determine the effects of the Economic Order Quantity approach of inventory management on the performance of small and medium scale enterprises in the municipality of Buea
• To make a recommendation on the effect of the Just In Time approach of inventory management on the performance of small and medium scale enterprises in the municipality of Buea.
• To determine the various challenges or obstacles faced by the small and medium scale enterprise in the management of its inventor

The hypothesis of the Study

Hypothesis one

• Null hypothesis (H0): Net Transactionapproach of inventory management has no significant effect on the performance of small and medium scale enterprises.
• Alternative hypothesis (H1); Net Transaction approach of Inventory management has a significant impact on the performance of small and medium scale enterprises

Hypothesis two.

• Null hypothesis (H0); Economic Order Quantity approach of inventory management does not affect the performance of small and medium scale enterprises
• The alternative hypothesis (H1); the Economic Order Quantity approach of inventory management affects the performance of small and medium scale enterprises

Hypothesis three

• Null hypothesis (H0); Just In Time approach of inventory management has no significant effect on the performance of small and medium scale enterprises
• The alternative hypothesis (H1); the Just In Time approach of Inventory management has a significant impact on the performance of small and medium scale enterprises.

Further reading: THE EFFECTS OF INVENTORY MANAGEMENT ON THE GROWTH OF SMALL AND MEDIUM-SIZED ENTERPRISES IN THE MUNICIPALITY OF BUEA