CHAPTER ONE

INTRODUCTION

1.0 Introduction

This study intended to study the Impact of inventory management and Control on the Performance of Humanitarian Organization (Lumkef- Cameroon). The Chapter presents a number of issues, which include a background of the study, statement of the problem, purpose of the study, specific objectives of the research, research questions, scope, significance, justification, and definition of key terms.

1.1. Background to the study

The background of the study is sub-divided into historical, theoretical, conceptual and contextual perspectives as indicated below;

1.1.1 Historical background

The history of inventory relates to mid-1980s, the strategic benefits of inventory management and production planning and scheduling have become obvious. The business press has highlighted the success of Japanese, European and North American firms in achieving unparalleled effectiveness and efficiency in manufacturing and distribution. In recent years, many of the firms have raised the bar, yet again by coordinating with other firms in their supply chains for instance, instead of responding to unknown and variable demand, they share information so that the variability of the demand they observe is significantly lower according to Silver et al (1998) as cited in International Journal of Economics, Commerce and Management Vol. III, Issue 5(Anon., 2015).

In the earlier years, Inventory Management was treated as a cost Center, since Purchasing department was spending money on inventory while Stores was holding huge stock of inventory, blocking money and space, Ramakrishna (2005) as cited by Ochiri, (2014). However, with the process of liberalization and opening up of global economy, there has been a drastic change in the business environment, resulting in manufacturing organizations exposed to intense competition in the market place. Service companies worldwide has been working out various strategies to face the challenges and to cut down manufacturing costs to remain competitive (Kimaiyo, 2014)

Globally as cited by Ogbo (2014) argued that in the United States of America and other Western countries, improvement in productivity was achieved through reducing the direct manufacturing labor expenses cost per unit of output. This strategy was justifiable because of the high labor content in many manufactured products. However, the ratio of unit cost due to labor has constantly decreased in recent years. Even large manufacturing firms, such as the United States (US) auto assemblers, purchase up to 60 percent of the value of the product. This implies that management of raw materials inventories is an area that shows great promise for productivity improvement.

Regionally, in Africa, most states have continued to maintain such tight and poor management of businesses as adopted right from the Colonial Era where economies and entrepreneurs export cheap agricultural raw materials and unprocessed goods to Europe instead of controlling their stock to improve on the operational efficiencies of their firms (John, 2009). This is simply because the state of affairs was a result of a number of factors. Firstly, the absence of infrastructures, inventory control, and a base of establishment of business firms which hindered development and operations of business sectors since post-Colonial Era. Secondly African states such as Nigeria, Congo were committed to a policy of industrialization under the restate control of government as a key player in the process of stock control, improvement of business firms and economic development and because of the problems intervened from colonial Administrators and the absence of management skills most of African industries has burst into economic peak (John, 2009).

In South Sudan today, the firms and other business organizations are unable to continuously and consistently follow the progress of their businesses through its inventory management. Uganda internet and E-commerce investment and business guide (Anon., 2013) business organizations doesn’t have up to date information on its inventory management in South Sudan therefore its hoped that this study yields and provide data/information regarding inventory management that is useful for proper management of inventories and measures at firms, and for the performances of a framework for the management actions for the change and improvement of efficient business organizations, non-governmental organizations, private organizations, governmental organizations and for the entire business sectors in Bamenda Cameroon.

1.1.2 Theoretical perspective 

This study was guided by the Transaction Cost Theory (TCT) advanced by Coase (1997).  The theory states that a company has number of contracts within the company itself or within market through which it creates value for the company. Coase says to define a firm in a manner which is both realistic and compatible with the idea of substitution at the margin, so instruments of conventional economic analysis apply. He notes that a firm’s interactions with the market may not be under its control (for instance because of sales taxes), If a firm operated internally under the market system, many contracts would-be required (for instance, even for procuring a pen or delivering a presentation). In contrast, a real firm has very few (though much more complex) contracts, such as defining a manager’s power of direction over employees, in exchange for which the employee is paid. These kinds of contracts are drawn ‘Up in situations of uncertainty, in particular for relationships which last long periods of time. Such a situation runs counter to neo-classical economic theory. The neo-classical market is instantaneous, forbidding the development of extended agent-principal (employee-manager) relationships, of planning, and of trust. Coase concludes that “a firm is likely therefore to emerge in those cases where a very short-term contract would be unsatisfactory,” and that “it seems improbable that a firm would emerge without the existence of uncertainty.

Inventory control involves the actual control of inventory; this can mean inventory of raw materials, works-in-progress or finished goods. Regardless of the type of inventory in question, inventory requires storage, and there is always a cost associated with that storage. Therefore, inventory control theory is concerned with all actions related to the storing of items and the consequences, both positive and negative, thereof. One of the most common applications of inventory control theory is in the determination of the optimal quantity of inventory to be held. There are several mathematical models in use that contact as a useful tool in inventory control. These models strive to balance storage costs with order costs; the cost of shortages is also considered. While inventory control theory tends to be a bit short sighted regarding the non-monetary costs of storage, and it makes assumptions regarding future demand and delivery that could not be known, inventory control theory is still a cost-saving tool, and is considered part of good business practice in manufacturing environments. (O’Farrell 2010).

In this study context, transaction cost theory aims to answer the question of when activities would occur within the market and when they would occur within the firm (Williamson, 1991). More specifically, transaction cost theory predicts the effect of effective inventory management on reduced discrepancies and damages within the firm.

1.1.3 Conceptual background 

In a world of intense competition fueled by globalization, increasing consumer awareness, and technological improvement, organizations should be keen towards large scale success at all times. According to Kotler and Keller (2006), inventory is defined as a stock of raw materials, work in progress, finished goods and supplies held by an organization to facilitate operations, and they add on that inventory should be managed effectively and efficiently by application of vendor managed inventory systems so as to attain higher customer service levels. Inventory control involves the coordinating of materials availability, controlling, utilization and procuring of materials.

Wisner and long (2011), defined inventory management as the process of efficiently overseeing the constant flow of units into and out of an existing inventory. This process usually involves controlling the transfer of units in order to prevent inventory from becoming too high, or dwindling to levels that could put the operations of a company into jeopardy. Akintoye (2014) found that inventory management led to improved performance of German service firms. Mehra (2014) and Lapide (2010) also concluded that use of technology in inventory management improved efficiency of manufacturing firms and service firms. An unhealthy inventory management system is associated with inaccurate stock records, decisions on order frequency and order quantity, and a lack of systematic performance monitoring.

According to Miller (2010), the aim of inventory control is to ensure constant or continuous supply of materials. It helps in maintaining sufficient stock of materials in periods of short supply and anticipated price changes, and in minimizing the carrying costs. The scope of inventory management covers the following elements: replenishment lead time, ordering and carrying costs, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory balance, available physical space for inventory, quality management replenishment, returns and defective goods, demand forecasting. When these requirements are balanced in any organization, it achieves an optimal inventory level, which is an on-going process

Inventory constitutes a major portion of current assets especially in manufacturing companies and retail/trading firms. In order to maintain inventory levels of such magnitude, huge financial resources are committed to them (Mittal, 2014). As such, inventory also constitutes a major component of working capital. Largely, the success or failure of a business depends upon its inventory management performances. Inventory management, therefore, should strike a balance between too much inventory and too little inventory (Gupta & Gupta, 2012). The efficient management and effective control of inventories help in achieving better operational results and reducing investment in working capital. It has a significant influence on the profitability of a concern thus inventory management should be a part of the overall strategic business plan in every organization (Gupta & Gupta, 2012).

Inventory plays a significant role in the growth and survival of an organization 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). Efficient and effective management of inventories also ensures business survival and maximization of profit, which is the cardinal aim of every firm. More so, an efficient management of working capital through proper and timely inventory management ensures a balance between profitability and liquidity trade-offs (Aminu, 2012). Specific performance indicators have been proved to depend on the level of inventory management practices (Lwiki et al., 2013).

Inventory management is recognized as a vital tool in improving asset productivity and inventory turns, targeting customers and positioning products in diverse markets, enhancing intra and inter-organizational networks, enriching technological capabilities to produce quality products thereby imparting effectiveness in inter-firm relationships. Proper inventory management even results in enhancing competitive ability and market share of small manufacturing units (Chalotra, 2013). Well-managed inventories can give companies a competitive advantage and result in superior financial performance (Isaksson and Seifert, 2013). Management of inventory is also fundamental to the success and growth of organization as the entire profitability of an organization is tied to the volume of products sold which has a direct relationship with the quality of the product (AnichebeandAgu, 2013).

Inventory control is the direction of activities with the purpose of getting the right inventory value in the right place at the right time and in the right quantity and it’s directly linked to production function of any organization which implies that the inventory management system operated will affect the profitability of an organization directly and indirectly, (Alm, 2000) as cited in (Namutebi, 2011).

The primary objective of determining or controlling the stock levels in any organization is to strike a balance between the need for the materials and minimizing the stock ordering and holding/carrying costs. It helps to achieve a reasonable balance between holding costs on the one hand, and purchasing and shortage costs on the other. In order to maintain this balance, the relevant costs need to be identified and quantified, and then examined to know how they interrelate. It also helps in ascertaining inventory theft and expiration, knowing when inventories should be replenished, and determining the quantity of the necessary safety stock depending on the length of the lead-time (Joffery 2012).

Bourne et al, (2005) state that performance measurement is traditionally concentrated on financial measures. In this context, organizational performance is a measure of change of operations of a firms or their outcome resulting from use of inventory control systems. According to Department of public works (2006) it is significant that what measured is not only important to the business firm but should also cover all core areas. Organizational performance provides the basis for a firm to assess how well it is progressing towards its predetermined objectives.

According to Atrill (2014) there is need to analyze the costs of maintaining certain levels of inventory as there are costs involved in holding too much stock and there are also costs involved in holding too little inventory. In the cost structure of most of the products manufactured, the cost of materials exceeds 50% of the total cost (Ramakrishna, 2013). Ramakrishna (2005), argues that inventory control systems provides an opportunity to reduce manufacturing costs and be treated as a profit center, this may affect the performance of a firms.

Organizational performance comprises the actual output or results of an organization as measured against its intended output. According to Richard et al, (2009), organizational performance encompasses three specific areas of a firm’s outcomes: financial performance includes profits, return on assets and return on investment; product market performance includes sales and market share; and shareholder returns include total shareholder returns and economic value added on organization side; customer satisfaction, customer care and royalty. The biggest challenge to organizational performance is the external environment. All organizations operate within some external environment. The challenge that may arise from the external environment include political, economic, socio-cultural, environmental and technological (Snider and Rendon, 2001)

However, Mathuva, (2013) points that the direction of the relationship between inventory management and performance of business firms had not been clear. Furthermore, studies on the relationship between inventory control systems and sustainability had produced mixed results (Gill, et al, 2010). This acts as the fundamental concept behind the present study. The performance of organizations has existed during recession right from World War 1 that hit American companies hard that revealed basic deficiencies in the operational management of large manufacturing firms of which none had anticipated the onset of the recession and most industries responded slowly to it Mansel (2012). Historically Since the mid-1980’s inventory management, many of the firms had raised the bar yet again by coordinating with other firms in their supply chains. For instance, instead of responding to unknown and variable demand, they share information so that the variability of the demand they observe is significantly lower Render, (2006) as cited in (Ogbo, 2014).

Non-governmental organization (NGO) is any non-profit, voluntary citizens’ group, which is organized on a local, national or international level. Task-oriented and driven by people with a common interest, NGOs perform a variety of service and humanitarian functions, bring citizen concerns to Governments, advocate and monitor policies and encourage political participation through provision of information (Kumar and Suresh 2009). Some are organized around specific issues, such as human rights, environment or health. They provide analysis and expertise, serve as early warning mechanisms and help monitor and implement international agreements. Their relationship with offices and agencies of the United Nations system differs depending on their goals, their venue and the mandate of a particular institution.

1.1.4 Contextual perspective

Save the Children International, formerly known as the International Save the Children Alliance, is a worldwide non-profit organization, which aims to improve the living of children. There are 30 Save the Children member organizations’ around the world.

In South Sudan formerly under the then Sudan until when it separated from the later in 2011 through a referendum, Save the Children has worked for over 29 years, since 1991. The organization works throughout the country, supporting the most vulnerable and marginalized communities. From refugees fleeing brutal wars to children in remote rural villages and pastoralist societies, we aim to ensure that no child is left behind. Its vision is a world in which every child attains the right to survival, protection, development and participation. While its mission is to inspire breakthroughs in the way the world treats children, and to achieve immediate and lasting change in their lives. The organization covers four priority areas: Education; Health and Nutrition; Child Protection and Child Rights Governance; and Livelihoods.

The Save the children International supply chain mission stipulates that “the supply chain function is accountable for getting the right goods and services to the place of need at the required time in a cost effective way, enabling the delivery of our programs in humanitarian and development contexts. And specifically in the Warehouse and Distribution

Save the children International work in some of the most complex environments around the world with the most vulnerable populations. To do this work effectively inevitably requires the storage and distribution of goods that are vital for the success of the programs.

Save the children International work to design, deploy and manage a fit for purpose, system enabled distribution network to cost effectively distribute the ordered goods to the defined place within agreed performance parameters.

Save the children International, have more than 400 warehouses around the world where they stock emergency supplies. The quicker they can distribute their supplies to children and families affected by disaster, the more likely the children are to stay healthy and safe.

The key principles that serve as the guide in the Supply Chain Management (procurement) policy objectives of the NGOs were as follows:

• Achieving best value for money
• Transparency and accountability
• Fair competition and equal treatment of suppliers

Therefore, the study aims at analyzing whether the above objectives have been achieved through inventory management and control;

1.2 Statement of the Research Problem

Efficient and effective inventory management and control is crucial in successful running of organizations 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, plus customer dissatisfaction (Agu, et. Al, 2016). This could be moderately attributed to deprived inventory management and deterioration in performance which may be explained by poor organizational learning philosophies where owners do not learn from past business experiences and take long to adapt to business environment changes, (Jessop, 2001). NGO, Donors has always invested huge sums of money to inventories in order to enhance effective service delivery and meet the victims demand as much as possible. However, maintaining inventory also involves holding or carrying costs along with opportunity cost.

Despite efforts by different stakeholders and managers to provide support to the victims as well as Save the Children in order to attain performance sustainability through different inventory management techniques, still there has been minimal negligible improvement caused in the performance of (UNICEF, 2016). Therefore, it has reduced the target millennium goals on both local and international levels (Save the Children Report, 2017). Thus it calls for the need to validate these in the context of the developing countries and in specific the non- government organizations in the developing countries like Cameroon, thus the  Student researcher investigated the relationship between Inventory Management and control on the performance of Non- Governmental Organizations like the case of LUKMEF-Bamenda.

1.3 Research Question

1.3.1 Main Research Question

What is the role of Performance measurement in a Non-Governmental Organizations during, and after relief operation? 

 1.3.2 Specific Research questions

From the above study the following questions were formulated;

1. What is the impact of stock valuation and control on the performance of Non-Governmental Organization?
2. What is the relevancy of stocktaking and control on the performance of Non-Governmental Organizations?
3. How do stock records and control influence the performance of Non-Governmental Organizations?

1.4 Research Objectives

1.4.1. Main research objectives

 The main purpose of the study was; “To investigate the impact of inventory management and control on the performance of Non-Governmental Organization

  1.4.2 Specific Objectives of the study

The study was guided by the following objectives;

1. To establish the impact of stock valuation and control on the performance of Non-Governmental Organizations
2. To assess the relevancy of stocktaking and control on the performance of Non-Governmental Organizations.
3. To examine how stock records and control influences the performance of Non-Governmental Organizations.