The effects of inventory management on the growth of small and medium-sized enterprises in the municipality of Buea
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This study was conducted to examine the effect of inventory management on the growth of small and medium-sized enterprises (SMEs) in the Buea municipality. The study was guided by three specific objectives which were (i) to find out the techniques of inventory management used by SMEs, (ii) to examine the relationship between inventory management and growth of SMEs, and (iii) to find out the challenges faced by SMEs in managing the inventories. The study used a descriptive survey to sample 20 SMEs randomly in Buea to examine how inventory management affects their growth. With regard to objective one, the study found that majority of the small and medium-sized enterprises do not have a specific inventory management technique they use; they use whichever seem appropriate at the time of need. Most of them however indicated that they mostly use economic order quantity (EOQ). With regard to objective two, results show that there is a weak (r=0.131) and statistically insignificant (p<0.583) relationship between inventory management techniques and growth of small and medium-sized enterprises in Buea, and as concerns objective three, findings show that in the quest to keep profitability quantity of inventory, most of these enterprises end up losing urgent high demand. Also, the results of the multiple regression analysis show that inventory management and related components do not significantly affect the growth of small and medium-sized enterprises in Buea. It further reveals that the challenges faced by these small and medium-sized enterprises in managing inventories do not affect their growth. In this light, the study concludes that inventory management techniques adopted by small and medium-sized enterprises in Buea do not have any significant impact on the growth of these enterprises. As such, the study recommends that management of small and medium-sized enterprises in Buea should emphasize on proper inventory management techniques and measuring of efficiency deviations to identify weaknesses in the process of managing inventories.
Keywords: Small and medium-sized enterprise, Inventory management, growth
1.1 Background to the Study
Inventories constitute a substantial portion of the current assets of the current assets group. It represents investments made for obtaining a return. Inadequate inventory has an adverse potential effect on the smooth running of the business. While excess inventory involve extra cost, this can reduce the firm’s profit. Excessive stock is not desirable for longer periods because high inventory levels increase carrying cost and as inventory increase; the profitability and growth rate falls (Priyank and Hermant 2015). Hence, a suitable inventory control system strategy will help in ensuring that the firm always keeps an optimal amount of assets. Freeing frozen amonts in the form of inventory increases the firm’s efficiency in the use of its resources (Zuikov 2015). As such, a well-functioning inventory system has a great effect on total firm’s growth.
Inventories are part of the current assets which are convertible to other forms of working capital (cash and other receivables) in less than one year. The theory of inventory management involves making decisions that are in line with basic trade off among firm’s objectives, costs and other constraints (Mathuva 2013). The economic order quantity (EOQ) suggest that firms should maintain the quantity of inventory which provide the lowest total holding cost and acquiring cost. Thus inventory management is vital for an effective and efficient firm. It is also important since it helps the firm in the determination of the optimal amount of materials and goods a firm can hold at any point in time (kumar and Bahl 2014).
Organisational growth can easily be maximised with the help of an effective inventory management system in place. A firms growth depends on how well costs can be minimised and revenues maximised. An effective inventory management improves the firm’s total performance through matching inventory management practices and competitive advantage especially now that most firms operate in more competitive industries r sectors all over the world (Mahidin et al 2015). The main goal and objective of inventory management is to keep the necessary required inventory at any time so that production runs smoothly without interruption whatsoever (panigrahi 2013).
Inventory management refers to keeping or maintaining the firms stock at a level that the firm will only incur the least cost consistent with other management sets of objectives or targets. Inventory management is about ensuring that inputs or materials of production available to the firm are maintained at a level where production is not interrupted as well as ensuring that operational cost is kept at a minimal level without effecting operation efficiency. Inventory management entails planning, organising, controlling and directing.
All these coordinated efforts are meant to ensure achievement of efficiency in all operations of the firm. Such operations may include procurement, stocking and transportation. Mismanagement of inventory may lead to a significant financial problem for a firm. Inventory management is of high importance in financial management decision. This is because excess or shortage of inventory may bring danger to the company. Inventory management involves creating a purchasing plan which will help to ensure that all items or material are available when needed as well as tracking of existing inventories and its use. Organisational growth is the key to sustainability of any organisation. There are many strategies used for organisational growth such as introducing new products, entering new markets with an intention to increase revenue, acquiring and merging with other firms, and developing internal skills. However, there are certain factors which are critical for organisational growth. Such factors include effective leadership, committed employees, expert power and effectiveness, sense of purpose and direction, and profitability.
However, profitability is considered to be the main measure for organisational growth as it embodies effectiveness and efficiency of all other factors. For a firm to be profitable, it must adopt an effective inventory management system so as not to tie down capital in stock. Also, the more capital available in the form of stock, the more holding cost and risk of material damage.
Small and medium sized enterprises constitute the bulk of Cameroon enterprises. In fact, law No 2010/010 of 13th April 2018 on the promotion of small and medium sized enterprises in Cameroon and other legal institutional instruments paved the way for the sector with many such enterprises of being created.
According to the ministry of small and medium sized enterprises, social economy and handicraft (MINPMEESA), small and medium sized enterprises constitute 95% of Cameroon’s enterprises with sectors in agriculture and animal husbandry, general commerce, construction and public works and most recently information and communication technology (ICT).
61366 Small and medium sized enterprises in Cameroon were created between 2010 and 2016 of which majority (59200) were local and the rest (2166) were foreign. Small and medium sized enterprises are considered by MINPMEESA as the main engine of Cameroon’s economic growth.
One problem faced by most of these enterprises in Cameroon is that they have a short life span. A good chunk of these enterprises die naturally while still at an incubator stage. This is as a result of poor or absence of market research as well as the good choice of area of speciality (niche).
1.2 Research Problem
The main goal of inventory management is all about balancing the conflicting economics of not wanting to hold less stock or too much stock at any point in time (Kumar and Bahl 2014). Return on investment of inventories present a considerable proportion of the firm’s working capital which is a key function of the firm’s financial manager (Mathuva 2013). However, most managers ignore the saving potential that arise from proper management of inventories , trying to treat inventory as an evil and not as an asset that require to be managed. As such some firms do not or ignore to control their inventory holding, this usually leads to under stocking and causing the firm to stop or slow production. This finally results to the firm’s ineffectiveness (Anichebe & Agu). According to Schreibfeder(2016) many organisations usually fail to examine its investment in inventory. They focus on maximisation of return.
The rationale for the study was to find out whether modern inventory management techniques can facilitate in improving the growth of small and medium sized enterprises in Buea Cameroon.
1.3 Research questions
1.3.1 Main research questions
The main research questionn for this study is;
- Does inventory management affect the growth of small and medium sized enterprises in the municipality of Buea?
1.3.2 specific questions
This main research question is divided into the following specific research questions:
- What are the techniques of inventory management used at SMEs in Buea?
- What is the relationship between inventory management and performance of SMEs in Buea?
- What are the challenges faced SMEs in Buea in managing inventories?
1.4 Research Objective.
The main objective of this study is to examine the effects of inventory management on the growth of small and medium-sized enterprises in the municipality of buea.
This is achieved through the following specific objectives:
- To find out the techniques of inventory management used by SMEs
- To examine the relationship between inventory management and growth of
- To find out the challenges faced by SMEs in managing the inventories
- To make recommendations based on the study findings on the effect of inventory management on the growth of SMEs