THE INFLUENCE OF INVENTORY MANAGEMENT ON ORGANISATIONAL PERFORMANCE CASE STUDY: G3-BIZ GUINNESS LIMBE

CHAPTER ONE

INTRODUCTION

1.1Background of the Study

With the consistent increase in the demand for products and services in various facets of the economy, different management practices have been recognized in easing the process of effective and efficient service delivery to both customers as well as stakeholders.

One of such management practices is the utilization of inventory management system in maintaining adequate stock in an organization.

Inventory management is increasingly regarded as a tool for optimal use of resources in achieving overall organizational efficiency across industries (Akindipe, 2014).

Inventory in organizations today, is a key area that has attracted scholars from the business world.

Ballou (2000) opines that worldwide inventory is vital to the successful functioning of any manufacturing firm as it is the lifeblood and the heart of any manufacturing system.

Lysons (2006) therefore says that, inventory management involves a process of efficiently overseeing the constant flow of units into and out of an existing inventory.

This process usually involves controlling the transfer of units in order to prevent the inventory from becoming too high, or dwindling to levels that could put operation of the company into jeopardy.

Inventory system in the words of Ali, Madaan, Chan, and Kannan (2012) is used for analyzing product sales, detect popular item in stock and ready to instantly fulfill any customer’s order.

Ali et al., (2012) further revealed that inventory management system enable organization to detect special orders, sell on occasion and available products in a limited quantity to keep inventory costs down and to develop a positive reputation for quickly filling special orders.

Ali et. al (2012) state that a good inventory system implies that organizations have an accurate information on inventory count at all times, giving good customer service, giving accurate information to customer and improving image of the organizations.

Meanwhile, Roy (2012) points out that an effective inventory management will always give a competitive advantage to the business over its competitors.

Globally, inventory management remain an important aspect of every company as poor inventory system could result in loss of customers and sales while an effective inventory management is able to generate more sales for the company which directly affects the performance of the company (Mohamad, Suraidi, Abd. Rahman&Suhaimi, 2016).

Oliveira and Rodrigues (2008) argue that inventory management has direct and significant effects on organizational efficiency (performance) and company finances.

Sumil and Sameer (2007),conclude that it is vital for an organization to have a sound, effective and well-coordinated inventory control management procedures to help it perform and to have a competitive advantage in the current competitive business environment.

In consistent effort to ensure optimal customer and shareholders satisfaction, available evidence suggested that modern management recognize that a constant review of inventory can reduce capital tied up without hampering cost and customers’ goodwill (Kareem, 2007).

Efficient management of inventory concerns most managers of marketing and supply businesses, whether they are retail, wholesale, or service oriented (Weele, 2000).

Successful and well-organized businesses rely heavily on inventory management systems to make certain that adequate inventory levels are available to satisfy their customer’s demand (Awatey, 2014).

Every company has its own inventory where each company manages its stocks using different ways, but the purpose of the inventory system is the same which is to reduce cost.

Inventory management systems are however described as complex systems to develop (Jones & Riley, 1985).

This is attributed to the fact that inventory management spans through most of the departments within an institution each having its own heterogeneous functions (Angulo, 2009).

Power (2005) similarly notes that developing integrated inventory systems is one of the challenges that organisations face as they develop inventory systems.

Cagliano, DeMarco, Rafeleand Volpe (2011) point out that the adoption of inventory management systems has huge initial cost implications for the firm but the firm stands to benefit in the long run.

Some of the benefits cited in the study include: increased operational efficiency, lower institutional and operational costs, shorter lead-times and reduced inventory (Cagliano et al. 2011).Eneje, Nweze&Udeh, (2012) hold that a firm which neglects its inventory management will be jeopardizing its long-run profitability and may subsequently fail.

They further posit that it is possible for a company to reduce its levels of inventories to a considerable degree without it having any adverse effect on production and sales.

Panigrahi,(2013)identifies that when poor management of working capital occurs, funds may be unnecessarily tied up in idle assets which will reduce liquidity and make the company not to be in a position to invest in productive assets like plant and machinery.

Famurewa and Orekoya (2009) opine that it is imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment as success or failure of any business depends on its inventory management system.

1.2 Statement of The Problem

The relevance of efficient management of inventory cannot be over emphasized. Inventory management plays an important role in every company as inventory management system positions the firm to gain more customers and sales.

An effective inventory management is able to generate more sales for the company which will directly affect the performance of the company.

Efficient inventory management system provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal
activities and communicate with customers.

Inventory management system has come to be recognised as a vital problem area needing attention in Buea municipality due to increased demand from customers and shareholders.

With the expanding change in customer life style, the use of inventory management system becomes even more complex as organization fight intensely to meet the expectation of the customer.

By so doing, organizations engage in designing different inventory management patterns which often are rendered worthless due to customer change of life style.

Meanwhile redesigning a new system is a complex process today that involves time and other resources like the human capital which its process of redesigning might result to ineffective inventory management thereby influencing the growth possibility of organizations.

In addition to the changing life style of customer is a consistent demand on the part of shareholders on incremental expansion of the organization through gaining higher market shares and improved profitability.

Shareholders, in a bid to see high performance of the organization regardless of the state of competition, install various inventory systems which might be inefficient in creating higher profitability in the long run.

This invariable could result to poor sales turnover, low profitability as well as stalled growth of the organization. The importance of these departmental stores makes it imperative to study the impact of inventory management in Buea municipality.

Objectives of the Study

The broad objective of this study is to evaluate the effects of inventory management on the effectiveness of Manufacturing organizations in Buea. While the specific objectives are: –

1. To examine the nature of relationship between inventory management and organizational effectiveness.
2. To determine the effect of inventory management on organizational productivity.
3. To evaluate the nature of correlation between inventory management and organizational profitability.

• Research Questions

The following questions will guide the study;

1. What is the nature of relationship between inventory management and organizational effectiveness?
2. What is the effect of inventory management on organizational productivity?
3. To what extent does inventory management correlate with organizational profitability?

• Research Hypotheses

The following research hypotheses were formulated for the study;

H1: There is significant relationship between inventory management and organizational effectiveness.

H_0:  There is no significant relationship between inventory management and organizational effectiveness_.

H₁: There is significant positive effect inventory management on organizational productivity

H_0:There is no significant positive effect inventory management on organizational productivity

H₁: There is positive correlation between inventory management and organizational profitability

H_0:There is no positive correlation between inventory management and organizational profitability
There is positive correlation between inventory management and organizational profitability