CHAPTER ONE

INTRODUCTION

1.1  Background of the study 

The process of managing inventory is a delicate matter, and a difficult task in any business. Displaying misleading or distorted information within financial statements, which are considered to be the most reliable sources of information, relied upon to make sound decisions, leads to their inability to reflect in an honest and fair manner the result of the activity and the financial position of the company or economic unit for those periods of time. The interest in developing accounting practices has increased to include sufficient disclosures in order to provide an honest and fair picture of the outcome of the activity, as well as the financial position of the economic unit (Traina, 2018). Inventory of all kinds represent a major component of capital, and the success or failure of a business depends on the performance of its inventory management, since effective inventory management not only helps to solve the liquidity problem, but also increases the company’s profitability (Panigrahi, 2013).

According to Anichebe (2013). 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. An efficient management of inventory is required because a substantial share of a firm’s funds is invested in them. Every company must ensure that inventory is maintained at desired levels. Too much and too low inventories bring down the level of profitability of an organization. Whether it is a manufacturing organization or a merchandized organization, the goal should always be the same, that is, to ensure the inventory is ready and at the same time the inventory level should be low. Inventory represents an important decision variable at all stages of product manufacturing, distribution and sales, in addition to being a major portion of current assets of many organizations. A substantial share of an organization’s investment is in the inventories. Inventories, often represent as much as 40% of total capital of industrial organizations (Moore, Lee & Taylor, 2003).

It may represent 33% of an organization’s total assets and as much as 90% of working capital (Sawaya & Giauque, 2003). According to Anichebe & Agu, (2013). Inventory management refers to all activities involved in developing and managing the inventory levels, whether the inventory is raw materials, semi-finished materials or finished goods, so that adequate supplies must always be available and the form must make sure that the cost of over or under stocks are always low According to Mohamad, Suraidi, Rahman and Suhaimi (2016) an effective inventory management is able to generate more sales for the company which directly affects the performance of the company. For inventory management to be effective, there must be a system which is managed by a group of employees who are experts in this area. The sales department may argue for a large amount of stock but the finance department may on the other hand argue for a minimal amount of stock so that the spare finance can be utilized elsewhere (Anichebe & Agu, 2013).

Whichever, the case the inventory level must be able to generate the highest profit possible inventory also plays an important role in determining the financial positions of these organizations, and it effectively contributes to determining their profitability. Since the inventory represents one of the most important elements of the financial position list, especially for commercial companies, as it represents the largest value of their assets, any defect in determining the cost of that stock or its evaluation is offset by incorrect financial statement outputs (Osadchy et al., 2018). It is inventory management in an association that manages the recognition and recording of each item in stock. Inventory management is essentially about verifying the size and situation of stocked goods, and it is vital within various areas within an office or organization in order to secure the ordinary and organized course of creation, compared to the irregular yet troubling influence of running out of materials or goods. Powerful inventory management determines how the advantage of an organization can be augmented.

The expansion of benefits relies upon limiting expenses and amplifying income. Amplification is a productive concept which involves growing value without increasing the assets being developed. Consequently, as a business association, stock is of central significance, and in like manner the benefit of the business as well. Inventory issues with regards to having excessively high or too little amounts of available products can cause disappointments for the business. On the off chance that a private venture encounters a stock-out of a critical inventory item, output failures could result Torky (2020). Several efforts like keeping proper records of inventory, ensuring that there was stable supply of materials through forming strategic alliances with the suppliers and others, yielded less in reducing the costs as the biggest constraint into its profitability. Inventory management techniques got a strong impact on the operational performance of an organization, improved on the nature of the product, and created deeper connections to customers improved on the capability of the supplier which had a direct impact on the operational performance of an organization Natabo (2019).

Financial performance refers to the emotional proportion of how appropriately a firm can utilize assets from its fundamental techniques of big business in order to produce deals. The term is also used to describe a general proportion of an organization’s overall monetary wellbeing over a guaranteed time span, and can be used to investigate competitive firms throughout a comparative industry (Stevenson, 2011). While one example from the literature demonstrates that there is a positive connection between the two, others show that there is no huge connection between inventory execution and financial execution. This paper proceeds to study inventory management as follows. The first section will examine the literature review on financial performance brought about by inventory management. This will be followed by another section that discusses the importance of inventory management, details with regard to inventory control, methods of inventory control, and side limitations on financial statements caused by errors when assessing inventory. It will also look at the related features that cause setbacks in inventory control. Finally, the paper will discuss the results from the case study and provide a conclusion Torky (2020).

1.2 Statement of the problem

Although inventory management involved activities such as controlling of stock and distribution of stock at the right time, poor performance existed in manufacturing firms. Organizations were concerned more with survival and securing the needed resources to develop their product and market in the right way. However, Poor operational performance led to riskier choices than performance that met or exceeded aspirations. Managers in firms threatened by organizational failure focused on a survival level. The inventory management practices that are implemented by organizations are associated with various advantages and disadvantages. As such, Agus (2012) argued that it was critical to evaluate how an organization is impacted by various inventory management techniques in order to advise the most suitable technique.

In fact, intensive competition and low volume sales collaborate with importance of product availability and increasing of stock-out cost to weaken the growth of organizations’ market-power. According to Blazenko (2016) Organizations often mitigate weak market-power by holding more inventories of which holding more inventories is expected to affect performance negatively given that organizations have always experienced fluctuated demand, relatively small ordering quantity, and limited choices either in possibilities for purchasing or in supplier selection. All the success and poor performance of an organization was attributed to the Poor Inventory Management Practices, which formed the basis of the study to seek and establish the relationship between Inventory Management Practices and performance of Fokou enterprise in Bamenda specifically in Fokou enterprise Company located in Bamenda

1.3 Research question

1.3.1 Main research question

• What are the effects of inventory management on performance of Fokou Enterprise in Bamenda?

1.3.2 Specific research question

• What are the effects of stock coverage on the performance of Fokou Enterprise in Bamenda?
• What are the effects of day sales inventory on the performance of Fokou Enterprise located in Bamenda?
• What are the effects of material requirement planning on the performance of Fokou enterprise in Bamenda?

1.4 Research objective

1.4.1 Main research objective

• To examine the effect of inventory management on the performance of Fokou enterprise   in Bamenda

1.4.2 Specific research objective

• To evaluate the effects of stock coverage on the performance of Fokou enterprise in Bamenda
• To determine the effect sales inventory on the performance of Fokou enterprise in Bamenda
• To investigate the effect of material requirement planning on the performance of Fokou enterprise in Bamenda