ABSTRACT

This study aims to examine the effect of inventory control on the performance of small and medium sized enterprises in Bamenda. Specifically, the study aimed to pursue the following objectives: to examine the effect of perpetual inventory management on the performance of small and medium sized enterprises, to determine the effect of just in time inventory management on the performance of small and medium sized enterprises and to assess the extents to which the ABC inventory management affect the performance of small and medium sized enterprises. To carry out this study, a population size of 120 respondents was targeted, out of which 120 were realised using small and medium sized enterprises in Bamenda through the purposive sampling technique. The descriptive research design was adopted for the study. The results from the study indicated that, there is a positive and significant relationship between the perpetual inventory management and the performance of small and medium sized enterprises, a positive and insignificant relationship between just in time inventory management and the performance of small and medium sized enterprises and a positive and insignificant relationship between the ABC inventory management and the performance of small and medium sized enterprises. This study also recommends the management of small and medium sized enterprises to develop effective strategic policies and guidelines on inventory management to guide the staff to ensure they hold optimal inventory levels.

Keywords: Inventory Control, Performance, Small and Medium Sized Enterprises

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Small and medium enterprises (SMEs) are recognised as instruments for economic growth and employment generation. SMEs assist in reducing unemployment and provide for products that larger firms are not able to deliver to the customers (Benzazoua et al., 2015). Although the SMEs contribute to the creation of economic growth through employment creation, they are faced with various challenges in delivering effective and professional services to their customers. Their failure to deliver services to their customers at a micro level due to challenges such as lack of enough funding for their business has therefore resulted in heated debates on whether they are sustainable in creating economic development at a macro level (Bowen et al., 2009). The globalisation of commerce and trade has led to the involvement of SME’s in the global value chains which has allowed SME’s to participate into the global economy. They play a fundamental role in service provision, trade and manufacturing. SME’s have also led to improve in technology advancement and innovation as well as enlargement of product lines at national, regional and global levels. The significant of the SME sector is not uniform throughout the world as it differs from country to country in accordance with the level, pattern and rate of change in economic development.

SME’s face challenges and consequences in development in communications, computing and information, which then lead to increased competition and threats (Thakkar et al., 2012). According to Nachtmann et al., (2006), effectiveness of an IM system depends on information quality that is taken in and company’s ability on the Information Technology. Thus, making information that is used in the business more efficient. The sizes of batch become smaller and inventory levels lower when material is only purchased when they are required for production process. SMEs use just in time (JIT) system of inventory when they only want to satisfy an already available demand. Garrison et al., (2006) asserts that JIT gives many advantages when used which include saving on carrying cost, handling, and storage costs, but a business can be placed in a vulnerable position when there are disruptions in the supply chain. Most clear that JIT has advantages it its operations, but strong relationships with the suppliers are needed to ensure the systems effectiveness.

The profitability of any business organization depends largely on the ability of management to exercise effective purchasing and efficient material control. Ogbo et al., (2014) reported that, in most organizations both analysts and manager have been relatively unsuccessful in convincing top management to give inventory management the due consideration that it logically deserves. The concept of inventory management has been visualized differently by different authors, academicians and researchers. According to Kolter (2007), inventory management refers to all the activities involved in developing and managing the inventory levels of raw materials, working in progress and finished good so that adequate supplies are available and the costs of over or under stocks are low. Smaros et al., (2003) in their study involving the impact of increasing demand visibility on production and Inventory control efficiency also pointed out that Inventory management involves planning organizing and controlling the flow of materials from their initial purchase unit through internal operations to the service point through distribution.  Inventory management keeps the most economical amount of one kind of asset in order to facilitate an increase in the total value of all assets of the organization such as human and material resources.

Before the industrial revolution, merchants basically had to write down all the products they sold every day. Then they had to order more products based on their hand written notes and their guts feelings. This system of theirs was basically inefficient and inaccurate in doing business. Merchants could not account on stock losses at all such as stolen goods unless they get involve in time consuming physical count on a regular basis. They also had a lot of problems making sure that they get the right number of products when orders came in. but this was the best they could do.

Luckily, in 1889 a man named Herman Hollerith invented the first punch card that could be read by machines. By feeding sheet 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 precursors to computers that can read data in tiny microchips. Hollerith’s computers even went on to form the world’s first computer company IBM.

Harvard University took Hollerith’s idea in the 1930s and created a punch card for organizations and businesses. Companies could tell what products were being order and also record some inventories and sales data base on punch cards customers will fill out for catalog items. Unfortunately, Harvard’s order management system cost too much and was too slow to keep up with rising business challenges

 In the 1960s a group of retailers got together and came up with a new method for tracking inventory; the modern barcode. There were several competing types of barcodes before they were standardized with the Universal Product Code (UPC) IN 1994. It is still the, most barcode used in the world today. As computers become more efficient and cheaper, UPCs grew in popularity. In the mid-1990s, companies started experimenting with inventory management software that would record data as products were scanned in and out of the warehouse. The technology involved in to a comprehensive inventory management solution by the early 2000s. And now even small and medium size businesses can find affordable inventory management software to meet their needs.

 All these problems of designing better ways of inventory control was faced because effective and efficient management control of inventories is a vital aspect to the successful functioning of manufacturing, warehouse and retailing organizations and in addition to constituting a major portion of current assets of many organizations, inventory represent an important decision variable at all stages of manufacturing, distribution and sales. It represents about 33% of company assets as much as 90% of working capital (Sawaya and Giauque, 2016). Keller, (2006) confirms that inventories make up every significant portion of the current assets of every business enterprise. Inventory control is vital in the management of materials and goods that have to be held or stored for later use in the case of production or later exchange activities in the case of services. However, for business to excel in a competitive environment, they have to design and operate material management and product distribution functions effectively (Kazim, 2008). Inventory control and it system enable a business to determine and maintain an optimum level of investment in inventory.

 In order to achieve required operation performance Sila, Ebrahimpour and Birkholz, (2006), express that the aim of inventory control is to meet customers demand. Miller (2010) asserted that the profitability of any organization directly and indirectly is affected by the inventory control system. The real problem is not the deduction of the size of the inventory as a whole but to secure a scientifically determined balance between several items that make up the inventory. 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 general, a sustainable share of its funds is invested in them.

In the 1980s, inventories of raw materials, work-in-progress, components and finished goods were kept as buffer stock against the possibilities of running out of needed items (Salawati, Tingil, & Kadri 2012). However, large buffer inventories consume valuable resources and generate hidden cost (Salawati, Tingii and Kadri, 2012). Hence, too much inventory consumes physical space, create financial burden, and increase the probability of damages, spoilages and losses (Naubwanga & Ojera, 2012). On the other hand, too little inventory usually disrupt business operations (Domitrois, 2008). (Chen, Frank, & Wu 2005) observed that the firms with abnormally high inventories have abnormal poor returns. They further argued that firms with slightly lower than average inventories perform best over time.

Since inventory constitute a major segment of total investment, it is crucial for good inventory management to be practice so as to ensure organizational growth and profitability. Inventory control and its system enable a business to determine and maintain optimum level of investment in inventory in order to achieve required operational performance. The aim of inventory control is to meet firms demand, and to meet, firms have to ensure that stock out are avoided without incurring high inventory cost. Robert Spector, assets that are critical factors for retailers and ought to have good inventory system. If the retailers fail to get themselves a good inventory system, they will not be able to forecast demand and any kind of accuracy. This might result in them running out of stock and incurring losses and cost every now and then (Levinson, 2005). In addition, Magad and Amos (1989) Remark that the primary objective of inventory control is to improve customer’s service; this is done through protection against stock outs due to demand variability in the market place. In addition, Magad and Amos argued that the key issues to be considered in formulating inventory policy are cost minimization.

1.2 Statement of the Problem          

Inventory is not only considered one of the most important current assets in a business because it makes up a huge part of company’s capital investment but also because it is usually the primary source of income generation for most businesses. Regrettable, many businesses have too much of their limited resources, like capital, tied up in inventory. In addition, some kind of their capital tired up in the wrong kind of inventory for long periods of time and they eventually sell out of season because they over-stocked. As a result, their capital is being tied down in excessive levels of inventory which eventually consume the funds of the business and consequently, the business cannot make potential future investment in order business areas or even perform better on it operations. However, some businesses do acquire the right inventory but often encounter shortage or stock-out before reordering. As a result, the business becomes incapable of satisfying customer demand leading to low sales and profits which inevitably have an adverse effect on its performance.

  Managing assets of all kind can be viewed as an inventory problem, for the same principles applied to cash and fixed assets as to inventory themselves. Traditionally, the academic literature of stock focuses on production and procurement as the principal determinants of corporate  inventory policy and management .in this sense, the trade-offs between ordering cost and holding cost characterizes the transactions approach to inventory management represented  by the Economic order quantity (EOQ) and the Ss’ model of inventory developed many decades ago. In recent years, as the field of operations management has developed, many new concepts have been added to the list of relevant inventory topics. These management oriented topics include the materials requirement planning system (MRP)just in time  (JIT) and ERP method while another emerging stream of studies postulates that the characteristics of a firms demand and marketing environments also  play an important role in determining optimal corporate stocks.

Businesses do incur significant costs in the procurement and maintenance of stock, these costs include carrying cost also known as holding cost, ordering cost and stock-out cost. If inventory levels and inventory are not properly managed, this could very well hinder cash flow, chalk up holding cost, time and labour wastage, inefficiency in supply, disappointed customers, and lost sales. The aim of sound inventory control system is to secure the best balance between keeping too much or too little, that is too much or too little inventory level in the organization both have negative effects on the performance of the organization. Ineffective stock control may result in unbalance inventory with some items being out of stock and others overstocked, necessitating excessive investment in relation to holding cost. These inefficiencies ultimately will have adverse effects on performance.

Effective inventory is of paramount importance in the running of a business (Basin, 1990). Customers want dynamism and SME’s have to face the competition to survive the market. Due to this competition, only the firm with the best logistics management would be able to out-compete other companies. Inventory being the most important aspect of logistics, has taken SME’s to implement various inventory management techniques that best suit their organisations to maximise on the best results and manage their inventory (Beck & Demirguc, 2006). Most SME’s in the manufacturing sector are failing to accurately synchronize demand and supply which leads to excess stock or stock outs. Various inventory management systems are used by manufacturing companies but pose to affect their performance. There has been a huge wall of disparity between theoretical and practical inventory management systems carried out in the small and medium sized enterprises and there is need to bridge up the gap between the two.

1.3 Research Questions        

In carrying out this research, the following research questions will be asked in an attempt to provide answers to the problem highlighted above.

1.3.1        Main Research Question

The main research question to be answered in this study is: What is the effect of inventory control on the performance of small and medium sized enterprises in Bamenda?

1.3.2 Specific Research Questions

1. What is the effect of perpetual inventory management on the performance of small and medium sized enterprises in Bamenda?
2. Is there an effect of just in time inventory management on the performance of small and medium sized enterprises in Bamenda?

• To what extent does the ABC inventory management affect the performance of small and medium sized enterprises in Bamenda?

1.4 Objectives of the Study

1.4.1 Main Objective

The main objective in this study is to assess the effect of inventory control on the performance of small and medium sized enterprises in Bamenda.

1.4.2.   Specific Objectives

To achieve the main objective above, the following specific objectives will be pursued:

1. To examine the effect of perpetual inventory management on the performance of small and medium sized enterprises in Bamenda.
2. To determine the effect of just in time inventory management on the performance of small and medium sized enterprises in Bamenda.

• To assess the extents to which the ABC inventory management affect the performance of small and medium sized enterprises in Bamenda.