ABSTRACT

The study was the effect of inventory management on the performance of small and medium size enterprises in Buea Municipality. The objectives of the study were to examine the effect of net transaction on the performance of small and medium size enterprises in Buea. The objectives of the study were to examine the effect of economic order quantity on the performance of small and medium size enterprises in Buea . The objectives of the study were to examine the effect of just in time on the performance of small and medium size enterprises in Buea .The study had three hypothesis that is net transaction significantly affect the performance of SMEs in Buea, economic order quantity significantly affect the performance of SMEs in Buea, just in time significantly affect the performance of SMEs in Buea. A sample of 40 questionnaires was taken and the primary method was use to carry out the study all the questionnaires were close ended. The descriptive and regression analysis wereused to analysis the study and from the results it was shown that inventory management significantly affect the performance of SMEs in Buea. This study of inventory management on the performance was conducted on a few small and medium size enterprises in the municipality of Buea. The study used primary data that was collected entirely using a questionnaire. Future studies ought to be conducted to cover many small and medium size enterprises and other sectors like the effect of inventory management on large scale enterprises’ performance. Future studies should also be conducted using both primary and secondary data. There is also need to carry out further studies by review of empirical studies.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Small and medium size enterprises have been identified as one of the driving forces of modern economies, mainly due to their contributions to job creation and innovation in both developed and developing countries. SMEs constitute more than 95% of all firms, contribute approximately 50% of GDP and contribute to 60 to 70%of total employment (European commission 2014). In reality performance constitute one of the factors that occupy a very important role in developing as well as developed countries in the world. Performance requires a comprehensive vision of interdependence between internal and external parameters, quantitative and qualitative technical and human, physical and financial management Alazard&Separi, (2001). Overall performance is the aggregate of economic performance, social performance and environmental performance Reynaud, (2003).

Performance is a broad concept in corporate discussions that refers to the extent to which a firm meets its objectives, goals, targets or the level to which it gears itself towards the organizational vision. Financial performance is concerned efficiency in asset utilizations to generate revenue. The concept of financial performance is the objective to ensure firms overall financial health going status Penman & Penman, (2007).

The Performance of SMEs in Cameroon is determined by several internal and external factors such as capital structure, motivation, the size of the enterprise and inventory control. Capital structure is the combination of debt and capital that a company uses to finance its business Damodaran, (2001).

Scholars have also argued a case in support of financial performance. The ratios have been classified for which profitability plays a vital role. According to Sahel et al (2003), financial institutions behave more cautiously when providing loans to SMEs which are of high interest rates, high collateral and loan guarantees thus a major problem to SMEs in Buea municipality. According to Tomlin (2008), economists argue that the resources smaller companies direct towards tax compliance are resources that could otherwise be used for investment facilities which thus hinder performance.

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 in order 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 firms overall profit Dubelaar, (2000). In many developing economies, small and medium scales enterprises employ substantial number of the work force. Therefore, efficient management of inventory in small and medium scale enterprises is very important for meaningful economic growth and or development of any country.

In Cameroon, just like many developing economies, SMEs occupy a central place in the economy and play a major role in stimulating growth and development. Abor&Adjasi (2007) articulated that SMEs contribute about 85 per cent of businesses in the country. Small enterprises have been identified as the catalyst for the economic growth of the country as they are a primary source of income and employment Mensah, (2012). In a developing economy like Cameroon, the share of business activity represented by the SE sector has increased considerably over the last decade of the 21st Century Abor&Adjasi and play an important role in achieving the Sustainable Development Goals Appah, (2015). The long-term goal is for SEs to maximize their contribution to the country’s economic and social development of production, income distribution, employment and the closer integration of women and people in rural areas within the national economy. Given their significance to a nation’s economic growth and the role that they play in the fight against poverty, an understanding of the problems which negatively affect these businesses particular small cosmetics enterprises in Douala which are the focus of this paper is a vital first step in managing inventory and avoiding their massive failure.

The  concept  of  inventory  management  has  been  visualized differently  by  different   authors, academicians  and   researchers.  According to Kolter(2007).  Inventory  management  refers to  the  activities  involved  in  developing  and  managing  the  inventory  levels  of  raw materials,  work  in  progress  and  finished  goods  so  that  adequate  supply  are  available  and the  costs  of  over  or  under  stocks  are  low  Pandey (2005).  Considering  the  level  of investment  required  for  inventory  in  Small  and  Medium  Scale  Enterprises  it  is  essential to  manage  inventory  efficiently  and   effectively  in  order  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. 

The  efficient  management  of  inventory in small and medium scale enterprises is very important  for  meaningful  economic  growth  and  or  development of any country. According to Otuya&Akporien (2017).  Large  number  of  SMEs  performs  poorly due to incompetent  management in recent years SMEs have encountered a lot of challenges in inventory  management  thus  affecting  the  financial  sector.

The inventory investment for a small business takes up a big percentage of the total budget, yet inventory control is one of the most neglected management areas in small firms. Many small firms have an excessive amount of cash tied up to accumulation of inventory sitting for a long period because of the slack inventory management or inability to control the inventory efficiently. An effective and efficient management inventory flow across the value chain is one of the key factors for success of large and small enterprises. The challenge in managing inventory is to balance the tradeoff between the supplies of inventory with demand. Ideally a company wants to have enough inventories to satisfy the demands of its customers no lost sales due to inventory stock-outs. On the other hand, the company does not want to have too much inventory staying on hand because of the cost of carrying inventory. Inventory decisions are high risk and high impact for the supply chain management of an organization.

According to Dimitrios (2008), inventory management practices have come to be recognized as a vital problem area needing top priority. 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. This is mainly because the particular functions performed by a department influence the department’s motivation. For example, the sales department might desire large stock in reserve to meet virtually every demand that comes. The production department similarly would ask for tasks of materials so that the production system runs uninterrupted. 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 organizations represents as much as 40% of total capital of industrial organizations Moore, Lee & Taylor, (2003). It may represent 33% of a company’s assets and as much as 90% of working capital Sawaya&Graque, (2006). Since inventory constitutes a major segment of total investment, it is essential that good inventory management be practiced to ensure organizational growth and profitability.

Inventories make up an important part of a manufacturing firm’s production process as they facilitate continued production. The manner in which inventories are managed affects the performance of an organization because it contributes to the cost of production which later affects profitability in the small and medium scale enterprises. In order 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 which monitors or controls the flow of inventories so as 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 system include; economic order quantity, net transaction approach, just in 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 the performance in small and medium scale enterprises.

1.2 Statement of the Problem

Performance contributes to one of the factors that hinder SMEs in Cameroon. The situation has been of great concern to the government, citizens, operators, practitioners and the organized public sector year in year out. Irrespective of the effort made by the government of Cameroon through the ministry with H.E. AchilleBassilekin III being the Minister of Small and Medium-Sized Enterprises, Social Economy and Handicrafts, as well as chamber of commerce to support the growth of SMEs sector by creating and enabling good business environment through appropriate legal and regulatory procedures. Regardless of the fact that banks have recently made loan credit accessible to SMEs, there is still no sign that the sector is growing. For the past years in the South West region specifically in Buea municipality, the performance of some SMEs has dropped drastically. This has been the alternate reason why some of them have reduced their employment capacity, laid off some workers, inability to grow and have branches elsewhere, drop down in market share, fall in profits, inadequate cash, less diversification as well as a reduction in the return on capital employed. So the researcher is eager to know why the situation is the way it is and is looking for possible solution to these listed problems.

Furthermore, from observations and collection of data from The Ministry of Small and Medium-Sized Enterprises, Social Economy and Handicrafts (MINPMEESA) which was created in December 2004 by Presidential Decree No. 2004/320, The researcher discover that, the poor performance observed in these micro and small enterprises are as a result of the poor Performance practices. That is, these enterprises face a lot of challenges in their performance management practices. For instance, in the financial planning, they face problems like, having a very vague estimation of the amount of cash they will have in the next month, they did not have a proper plan for their expected cash inflows and cash outflows. For the cash budgeting, the problem observed is that they fail to practice sound cash forecasting to know when they will experience the peaks and slump of the business cycle. As it was found out my Mong (2011:33-34) that, only 28% of the small businesses drew up cash budget. With the case of cash control, theses owners cited that, they do not have good safeguarding cash procedures as well as sound recordkeeping procedures and equally at times fails to issue receipts on their invoices issued to customers. On the part of cash collection, the researcher noticed that these SMEs face issues of bad debts as well as late payment of debts from debtors. As it is stipulated that, sound receivable timing helps for business success. The poor performance of SMEs in the face of numerous policies by different groups like governments, non- governmental organizations and other donor countries means that if Cameroon wants to achieve an appreciable success toward attaining the vision 2035goals then one way would be to vigorously pursue the development of its SMEs properly. The underperformance of SMEs may indeed make Cameroon’s vision to be a mirage unless there is a turnaround of our SMEs fortunes sooner than later. The time is now to do something surgical operation to the situation of our enterprises given the aggravating level of poverty in Cameroon and the need to meet up with the vision 2035 goals. It is therefore out of this vision the researcher seeks to ascertain the underperformance of SMEs in Buea as a result of poor inventory management.

Inventory occupies the most tactical position in the structure of working capital of most enterprises. Efficient and effective management of inventory in any small and medium scale enterprises saves cost and hence saving SMEs from poor quality production, 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 inventory. Enough but not too much is the ultimate unbiased Coyle &Bardi, (2003).

Challenges are faced by many countries today because of inconsistent inventories, wrong estimate, poor reaction to customers demand and lack of proper accounting recording systems thus resulting to low level of performance Mohamed (2006).

Agyei-Mensah, (2010). Mentioned   the  fact  that  inventory  management  practices  are  among  the  principal  causes  of  SMEs  failure  observing  that  most  SMSs  lack  a  formal  working  capital  management  system,  therefore  rely on  subjective  working  capital  management  decisions  Howorth&Westhead  (2003).

Similarly,  Abdulrasheed,  Khadijat, Sulu &Olanrewaju (2013).observed that companies also faced problems of inconsistent deliveries, reduced customer effective demand and high cost of production due to poor inventory management techniques leading to poor performance.

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 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 size enterprises.

A number of studies have been carried out in this area of performance and inventory management in small and medium size enterprises. Globally on studies of improving inventory management in small and medium size enterprises, Koumanakos, (2008). Studied the effect of inventory management on firm performance in manufacturing firms in Greece.Asare&Prempeh (2016) studied the impact of efficient inventory management on profitability in selected manufacturing firms in Ghana. Augustine &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.

1.3Research Questions

How does inventory management affect the performance of SMEs in Buea municipality?

The specific questions include:

1. How Net Transactions of inventory management affect the performance of SMEs in Buea?
2. How Economic Order Quantity affects the performance of SMEs in Buea?
3. How Just in Time affects the performance of SMEs in Buea?

1.4 Research Objectives

The main objective of this study is:

To assess how inventory management affects the performance of SMEs in Buea.

Its specific objectives include:

• To examine how Net Transactions of inventory management affects the performance of SMEs in Buea.
• To evaluate how Economic Order Quantity affects the performance of SMEs in Buea.
• To assess how Just in Time affects the performance of SMEs in Buea.

1.5 Hypotheses

H₁: Net Transaction has a significant effect on the performance of SMEs in Buea

H₂: Economic Order Quantity has a significant effect on the performance of SMEs in Buea

H₃: Just In time Inventory management has a significant effect on the performance of SMEs in Buea.