CHAPTER ONE

GENERAL INTRODUCTION

This chapter is made up of general introduction, the background to the study, problem statement, research objectives, research questions, hypothesis, significance of the study, justification of topic, the scope of study, organisation of the study and operational definition of terms.

1.1. Introduction

Inventory management refers to the process of ordering, storing, using, and selling a company’s inventory. This includes the management of raw materials, components, and finished products, as well as warehousing and processing of such items. Inventory is the accounting of items, component parts and raw materials that a company either uses in production or sells. As a business leader, you practice inventory management in order to ensure that you have enough stock on hand and to identify when there’s a shortage (Coyle et al, 2003). There are 12 different types of inventory: raw materials, work-in-progress (WIP), finished goods, decoupling inventory, safety stock, packing materials, cycle inventory, service inventory, transit, theoretical, excess and maintenance, repair and operations (MRO). Some people do not recognize MRO as a type of inventory.  An inventory management system is an amazing system that keeps track of sales, orders, inventory levels as well as deliveries. Generally, inventory management systems helps in keeping inventory organized and sorted no matter how large or small the business is. Essential features of the inventory management system include; centralized inventory management, tagging and bar-coding, backup and security inventory, forecasting of the inventory. The inventory management process starts when a company receives a customer order and continues until the order ships. Other parts of the process include analysing sales trends and organizing the storage of products in warehouses.

 The goal of inventory management is to understand stock levels and stock’s location in warehouses. Inventory management software tracks the flow of products from supplier through the production process to the customer. In the warehouse, inventory management tracks stock receipt, picking, packing and shipping. Some inventory management techniques use formulas and analysis to plan stock. Others rely on procedures. All methods aim to improve accuracy. The techniques a company uses depend on its needs and stock of which include; ABC analysis, batch tracking, bulk shipments, consignment, cross-docking, demand forecasting, economic order quantity, FIFO and LIFO, just in time inventory, minimum order quantity, six sigma, lean six sigma. Inventory management is vital to a company’s health because it helps make sure there is rarely too much stock on hand, limiting the risk of stock outs and inaccurate records.

The two main benefits of inventory management are that it ensures you’re able to fulfil incoming or open orders and raises profits. Inventory management also; saves money, improves cash flow, satisfy customers. The primary challenges of inventory management are having too much inventory and not being able to sell it, not having enough inventories to fulfil orders, and not understanding what items you have in inventory and where they’re located. Other obstacles include; getting accurate stock details, poor processes, changing customers demand, using ware house space well.

1.1.1. Background to the study

Before the industrial revolution, merchants basically had to write down all the products they sold every day (Lavely 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.

 Luckily, in 1889, a man named Herman Hollerith invented the first punch card 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 used barcode in the United States. .As computers become more efficient and cheaper, UPCs grew in popularity. In the mid 1990`s, companies started experimenting with inventory management software that will record data as products were scan in an out of the warehouses. Now even small and medium size businesses can find affordable inventory management software to meet their needs.

 According to Temeng Eshun & Essey (2010), organizations have ignored 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 unusual 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 et al, 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 & Wacker, 1996). Too much inventory consumes 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 distribution companies; inventories are vital to successful functioning of distribution organizations. According to (Buffa & 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 products can lead to interruption of products for sale; poor customer relations are underutilized.

Inventory management as explained by Lavely, (1996) is kwon as an active control program that permits to govern its running of the various departments in a firm. This includes the production, research and development 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).The concept of inventory management suggest that the formation of inventory positioning and well calculated objectives (Sprague & Wacker, 1996).

So inventory management should take into consideration the above cost and should try to minimize that cost. The organization should take into consideration:

• The value of the items in storee. firms keeping more than one kind inventory should consider the value of the various inventory in store and if some need special care (ABC analysis).
• The capacity of the warehouse. This relate to the cost of keeping stock and what quality can be contained in that warehouse.
• The control system put in place from the ordering right to the reception of the goods ordered and what quantity should they order, the various documents required in the process from the purchase requisition, purchase order right to the mode of payment. After evaluating the above cost, the firm now decides on which inventory system of the stock management should be used. There exist various methods of inventory management which include; the first in first out (FIFO) method, the last in first out (LIFO) method, the average cost method, the just-in- time (JIT) system of inventory management etc.

1.2. Delimitation of the Study

Geographic Scope

This study was carried out at Bamenda III which is located between latitude 6’₁₅ and 6’₂₅N and longitude _{10’02 and 10’15E} of Green which Meridian; the Sub Division is the gateaway to and from Boyo, Ngoketunja, Bui and Donga Mantung Divisions. It is bounded by Tubah Sub Divisional Council to the West, Bameda I Sub Divisional Council to the North, Bamenda II Sub Divisional Council to the East and Bafut Sub Divisional Council to the South. It has a total surface area of 6_7.9km² and a population estimated at 1500,000 inhabitants. Two automous villades, Nkwen and Ndzah make up the Bamemda III Municipality. There are 46 quarters in Nkwen and 9 in Ndazh village. . This study was carried out at Nkwen because Nkwen is the site where STS is located which I could carry out visibility study of my research to have relevant information.

Thematic Scope

The study was interested in understanding the techniques of inventory management used at Sande Topline Services (STS) LTD the relationship between inventory management and performance of Sande Topline Services (STS) LTD and the challenges faced by STS in managing the inventories

Conceptually, the focus of this study was the impacts of inventory management on the organizational performances. The study will also cover valuable theories like inventory, inventory management, inventory control, profit and stock management technique. The method used to organized the data is in the form of chapters, running from chapter  one which is the general introduction right up to chapter five which is for summary, recommendations and conclusion. The data in this work was gathered through interviews, and some in-depth researched carried out

Time Scope

 The study considered information relating to the period of 5 years that is 2016-2021. This range of years was considered as sales at Guinness have been showing a decline despite of the many technique used in the process of inventory management.

1.3. Statement of Problem

Inventory management is a very vital concept as far as a company’s performance is concerned. Without inventory management, it will be difficult to minimize the total ordering and holding cost, therefore it is necessary and absolutely important for a warehouse manager to carefully manage inventory in order to facilitate the movement of goods in the warehouse. The inventory management techniques put in place is not competent enough to resolve warehousing problems in organizations. Managers try to minimize ordering and holding cost as low as possible by applying the best inventory management techniques so as to have better optimization as far as organizational performance of a company is concerned.

Despite the marvel of computer, automation and scientific management, the process of production and marketing activities cannot be effective without the use of inventory management as advances in information technology have drastically changed possibilities to apply efficient inventory control techniques.  Furthermore, the recent progress in research has resulted in new and more general methods that avoid overstating and understating profits (Kotabo, 2002). The study therefore aims at establishing the impacts of Inventory management techniques on organizational performance and suggests better and new techniques that can go a long away to ensure better management of the firm as well as its profits. Due to the gap identified on the impacts of inventory management on the organizational performance of STS the following research questions are formulated:

1.4. Research Question

1.4.1. Main Research Question

• What impacts does inventory management have on the organizational performance of Sande Topline Services?

1.4.2. Specific Research Questions

1. What are the techniques used in carrying out inventory management in Sande Topline Services?
2. What is the relationship between inventory management and organizational performance in Sande Topline Services?

• What are the challenges of inventory management on the organizational performance in Sande Topline Services?

1. What strategic measures can be proposed in order to improve on the organizational performance of Sande Topline Services?

1.5. Objectives of Study

1.5.1. Main Objective

• To assess the impacts of inventory management on the organizational performance of Sande Topline Services

1.5.2. Specific Objectives

1. To identify the techniques used in carrying out inventory management and organizational in Sande Topline Services.
2. To examine the relationship between inventory management and organizational performance in Sande Topline Services.

• To bring out the challenges of inventory management on the organizational performance in Sande Topline Services.

1. To propose pragmatic measures which can be put in place to improve on the organizational performance of Sande Topline Services?