ABSTRACT

This study was focus on the Effect of Inventory management on the growth of small and medium size enterprises in Bamenda III with the objective to investigate the effects of Inventory management on the growth of small and medium size enterprises in Bamenda III. The researcher employed a quantitative research design  for this study focusing on gathering and analyzing numerical data through the utilization of questionnaires’he information obtain through the administering of the questionnaire was analysed using the statistical package for social science (SPSS) software, the result was display on tables, express in percentage. In this study, 40 questionnaires were administered, a total of 38 questionnaires were returned and 2 were not returned, constituting 95% return rate and 5% non-return rate. The study was carried out to investigate the effects of Inventory management on the growth of SME’s in Bamenda III. The analysis revealed a positive, but not statistically significant, relationship between the implementation of Economic Order Quantity (EOQ) and SME performance, with a regression coefficient of 0.452 (p=0.053). In contrast, the study found a statistically significant negative relationship between the use of Just-in-Time (JIT) Analysis and SME performance, with a regression coefficient of -0.615 (p=0.009). The relationship between ABC Analysis and SME performance was positive but not statistically significant, with a regression coefficient of 0.030 (p=0.796). Based on these findings, the study recommends that SMEs in Bamenda III should exercise caution in adopting JIT Analysis, as it appears to have a detrimental impact on their performance.

Key words: Inventory Management, Economic Order Quantity (EOQ), Just in Time (JIT), Always Better Approach (ABC), Small and Medium Size Enterprises (SME’s), Growth.

CHAPTER ONE

INTRODUCTION

1.1. Background Of Study

Inventory management is the process of ordering, handling, storing, and using a company’s non-capitalized assets. Agu et al (2016) Inventory management is a critical management issue for most companies. Large companies, medium-sized companies, and small companies. Effective inventory flow management in supply chains is one of the key factors for success. A company would ideally want 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 Management is critical in the financial performance of a business since it is at the top rank in the most valuable physical assets in the balance sheet Chow et al (2006). For this reason, Inventory management should be well managed and apply replenishment rules for each item such as the strategies mentioned. The right stock should be available in the right place and in the right quantity, acquired at the lowest price possible Brigham et al (2013). Stock-outs mostly occur when there is demand in the market and there is little stock for fast selling items, which would lead to lost sales and customer loyalty. High stock in the company than needed leads to higher storage costs, handling costs and interests from the short-term borrowings. Eventually when selling, a loss can be experienced once materials are sold at a lower price than normal Libby et al (2004). Lynch, K. (2005) is of the assertion that the main goal of IM is minimizing total inventory costs and ensure maximum profits in operations. Many cases have been experienced where IM and inventory planning decisions have been effective with the assistance also of inventory planning models developed and implemented Pandey (2004). A balance has to be achieved between costs of acquiring and that of holding inventory as they are the ones that significantly affect the company’s’ profitability. The Inventory Management systems make specifications on the order quantity and re-order point with the intention to make profits. Morse, (1981). EOQ should be ordered at once which then affects the inventory ordering and holding cost. This will have an effect on the profitability of the company. That is if few large orders are made, annual ordering costs tend to be lower, but the annual holding costs are high. Conversely, frequent small orders increase the ordering costs, but holding costs tend to be lower. Hence for a company to be profitable there is need to increase the order size and obtain volume discounts and off-set by lowering holding costs. Profitability of a company would be achieved at optimum level of relevant costs which are holding and ordering costs.

Since the primary role of inventory management is to maintain a desired stock level of defined products or items Toomey, (1996), the role of inventory in operations management cannot be overemphasized. History has shown that organizations that have neglected or failed to consider the importance of inventory management have lived to regret it. According to Tanthatemee et al

(2012), inventory management helps to improve customer service and to cope with demand uncertainty. Demand uncertainty is a potential challenge that results in high inventory levels and high carrying costs, which can lead to higher prices and low customer satisfaction, and thus a less profitable business.

Inventory plays a significant role in the growth, survival and the performance of SMEs in the sense that ineffective and inefficient management of inventory will mean that the organization loses customers and sales will decline. Prudent management of inventory reduces depreciation, pilferage, and wastages while ensuring availability of the materials as at when required (Ogbadu, 2009). A retail business is useless without its inventory. And so while it may not be the most exciting subject, inventory management is vitally important to your business’s longevity. Good inventory management helps with Customer experience, improving cash flow, Avoiding shrinkage and Optimizing fulfillment.

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). According to the European Union SME is defined by its number of employees and its turnover.

According to World Bank doing business (2015), Medium enterprises are conceived as enterprises which have at most 300 employees and an annual turnover not exceeding 15 million US dollars. Also, there is the distinction of small enterprises having fewer than 50 staff members and up to 3 million US dollars turnover while micro-enterprises have up to 10 persons and $100,000 turnover.

In the UK, sections 382 and 465 of the Companies Act 2006 define an SME for the purpose of accounting requirements. According to this, a small company is one that has a turnover of not more than £5.6 million, a balance sheet total of not more than £2.8 million and not more than 50 employees. A medium-sized company has a turnover of not more than £22.8 million, a balance sheet total of not more than £11.4 million and not more than 250 employees.

According to Ogbo (2017), the flow of information between centers of the factories in an enterprise is inadequate contributing significantly to high operational costs. Inventory is a requirement for the efficient operational performance; hence, inventory needs proper control as it is one of the largest assets of the factory. Other inventory management practices include just in time, economic order quantity, first in first out, last in first out economic production quantity.

Inventory control can be done through introduction of different measures so as to prevent the company from incurring unnecessary losses made by different departments measures which can be put in place for example stock-taking which is the accounting of stock at every end of the month, so as to record the lost and available stock, making proper supervisions on sites during construction of buildings so to avoid theft of materials by workers. The company should set up strict rules to procurement officers and store managers which they should follow during purchasing and storing of material so as to avoid loss of inventory in the company Amahalu et al, (2018).

Inventory managers are concerned with cost, criticality and contribution of their holdings. Ordering and maintaining inventory has several costs. These include capital costs, administrative expenses, storage charges, shrinkage, taxes and insurance. Most of these vary directly with the average quantity of inventory held. An obvious strategy for cost avoidance would be to reduce or eliminate inventories. That probably cannot be done in very many cases. Most SMEs in USA, West and Eastern Europe determine the level of inventory necessary to provide an acceptable level of customer service and manage that size inventory as efficiently as possible.

According to (Mwachiru, 2019) Firms uses Just in Time method of inventory management hence keep zero or very minimal inventory at all. The inventory policy of distributors and retailers is strongly influenced by the nature of the demand for their goods. Special goods consumers are willing to wait for special orders to provide exactly the product they want, therefore an extensive inventory is not required which is what is experienced locally in most African countries Cameroon being included.

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 and control 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

Without accurate inventory information, it can be very difficult to make decisions that affect your business. Inventory is a vital part of current assets mainly in manufacturing concerns. Huge funds are committed to inventories as to ensure smooth flow of production and to meet consumer demand. However, maintaining inventory also involves holding or carrying costs along with opportunity cost. Inventory management, therefore, plays a crucial role in balancing the benefits and disadvantages associated with holding inventory. Efficient and effective inventory management goes a long way in successful running and survival of a business firm, when organizations fail to manage their inventory effectively, they are bound to experience, stock out, the decline in productivity and profitability, customer dissatisfaction.

Some problems arise due to the approaches of inventory used. This is so because The EOQ model is based on several assumptions that may not hold true in real-world scenarios. For example, it assumes constant demand, fixed ordering and holding costs, and instantaneous replenishment. In reality, demand may fluctuate, costs may vary over time, and there may be lead times associated with ordering and replenishment, the model also provides a static solution based on fixed parameters. It may not adequately adapt to changes in market conditions, such as seasonal fluctuations, product obsolescence, or shifts in customer preferences. As a result, it may not be able to respond effectively to dynamic situations, leading to suboptimal inventory decisions.

The JIT approach relies on a tightly synchronized supply chain, where inventory is delivered just in time to meet production or customer demands. Somer et al (2023) However, any disruptions in the supply chain, such as delays in deliveries, quality issues, or natural disasters, can quickly disrupt production and lead to stock outs. The lack of buffer inventory in the JIT system makes it more vulnerable to supply chain disruptions and Lack of flexibility of the JIT approach as it operates on the principle of producing goods or delivering inventory at the exact time they are needed. This leaves little room for flexibility or accommodating unexpected changes in demand or production schedules. If there are sudden shifts in demand patterns, new product introductions, or changes in customer preferences, the JIT system may struggle to adapt quickly, leading to stockouts or excess inventory.

GEP (2024) The ABC method of inventory management presents some challenges, such as difficulty in accurately classifying items into the ABC categories, difficulty in obtaining accurate and up-to-date data on the items, and difficulty in determining the exact inventory levels that are needed for the A, B, and C items.

Due to the current instabilities in the economy of Cameroon precisely in Bamenda III municipality, SMEs are faced with the extreme changes in customers’ demands for their products. SMEs will ideally want to have enough stocks to satisfy the demand of its customers. On the other hand they do not want to have too much inventory staying on hand because of the cost of carrying inventory.

1.3. Research Objectives

1.3.1. Main Research objective

• To investigate the effect of Inventory Management on the performance of small and medium size enterprises in Bamenda III

1.3.2. Specific Research Objectives

• To determine the effect of Economic Order quantity approach of inventory management on the performance of SMEs in Bamenda III
• To determine the effect of Just in time approach of inventory management on the performance of SMEs in Bamenda
• To ascertain the effect of Always Better Control (ABC) approach on the performance of SMEs in Bamenda

1.4. Research Question

1.4.1. Main Research Question

• What are the effects of Inventory Management on the performance of small and medium size enterprises in Bamenda III

1.4.2. Specific Research Questions

• What is the impact of the economic order quantity approach of inventory management on the performance of SMEs in
• What is the impact of just in time approach of inventory management on the performance of SMEs in Bamenda
• What is the impact of the Always Better Controll (ABC) approach on the performance of SMEs in Bamnnda

1.5. Hypothesis of the study

• Inventory management has no significant effect on the performance of SMEs in Bamenda III
• Economic order quantity approach of inventory has no significant effect on the performance of SMEs in Bamenda III
• Just in time approach of inventory has no significant effect on the performance of SMEs in Bamenda III