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volume 4 issue 9 september 2019 international journal of innovative science and research technology issn no 2456 2165 effects of inventory management system on firm performance an empirical study 1 ...

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             Volume 4, Issue 9, September – 2019                                           International Journal of  Innovative Science and Research Technology                                                 
                                                                                                                                                                           ISSN No:-2456-2165 
                       Effects of Inventory Management System on Firm 
                                                Performance – An Empirical Study 
              
                                                                                                   1                                   2
                                                                             Everline Chebet  and Dr. Samson Kitheka  
                                                            1.
                                                                Lecturer, School of Business, Technical University of Mombasa 
                                                            2.
                                                                Lecturer, School of Business, Technical University of Mombasa 
                                                                                                            
             Abstract:-  The  study  was  guided  by  the  following                                              production. The elevated workforce levels in many produced 
             objectives:  to  find  out  how  the  systematic  application                                        products  have  justified  this  approach.  In  latest  years, 
             production in data processing (SAP), just in time system                                             however, the labour unit cost ratio has reduced steadily. Even 
             and  economic  order  quantity  affect  the  organization                                            big     production  companies,  such  as  US  automotive 
             performance.  Literature  review  indicated  that  previous                                          assemblers, buy up to 60% of the product value. This means 
             studies have brought out both positive relations and weak                                            that  the  management of inventories of raw materials is an 
             relations  between  the  inventory  management  practices                                            area where productivity can be greatly improved. 
             and the operational performance of firms. The researcher                                              
             used an empirical evidence to analyze the findings. The                                                      Mangolo,  (2016),  has  suggested  that  inventory 
             study  established  that  systematic  application  and                                               management improves its activities for many organisations in 
             production  in  data  processing  affect  performance  of                                            Africa. High quality manufacturers can deliver a variety of 
             organization. The study concluded that Economic order                                                products  and  create  fast  delivery  from  their  backyards  to 
             quantity  should  be  continuously  reviewed  were  by                                               clients (Stanton, 2014). (Stanton, 2014). The management of 
             inventory control system is closely monitored at all time                                            companies  in  Africa  was  asked  about  the  effectiveness  of 
             to make it more effective.On recommendations, the first                                              stock  management processes in place as a consequence of 
             recommendation made was that since SAP was found to                                                  inconsistence of stock rates leading to different flaws, such as 
             be  significantly  affects  firm  performance,  organizations                                        losses arising from over-extended stocking, under-inventory, 
             should  appropriately  use  the  SAP  technology  in                                                 expiry  of  inventories,  inability  to  achieve  the  business 
             managing their procurement for an efficient operations.                                              members ' objectives and low morality. These overcrowded 
             The second recommendation was based on EOQ. Since                                                    businesses make it hard to obtain late, departmental products 
             EOQ  was  found  to  be  an  important  technique  in                                                from  a  warehouse  keeper,  resulting  in  bad  stock  service 
             inventory management, firms should ensure to order the                                               delivery (Wood, 2014). 
             recommended lot size as determined by the EOQ.                                                        
                                                                                                                          The Effect of Inventory Management on Profitability of 
             Keywords:-           Economic          Order        Quantity,        Operational                     Cement Manufacturing Companies in Kenya, study done by 
             Efficiency,  Systematic  Application  Production  in  Data                                           Edwin and Florence (2015), the research results establish an 
             Processing.                                                                                          adverse connection with the business ' profitability between 
                                                                                                                  inventory  turnover,  stock  conversion  and  storage  costs. 
                                    I.        INTRODUCTION                                                        Furthermore, the inventory level has been discovered to be 
                                                                                                                  directly  linked  to  company  size  and  storage  costs  and 
                     Blanks (2014) research on the concept of leadership in                                       suggested that companies in Kenya strive to guarantee that 
             Europe discovered that inventory control was not seen as an                                          the  appropriate  stock  in  their  stores  is  kept  safe  from 
             indicator       of     wealth  as  needed  surplus  inventories.                                     excessive expense of holding and inventories. 
             Management was then taken into account in terms of storage.                                           
             However, today companies have begun to take over efficient                                             Concept of Inventory Management 
             inventory  control  (Susan  &  Michael,  2015).  In  order  to                                               Inventory  is  a  dormant  inventory  of  physical  objects 
             decrease cost and stay competitive (Closs, 2012), managers                                           containing  economic  value  that  are  kept  under  different 
             now need reliable and efficient inventory control more than                                          custody by an organization waiting in time in the future to be 
             ever before. Inventory alone accounts for up to 30 per cent of                                       packaged,  processed,  converted,  used  or  sold  (Selleemi, 
             the  investing  capital  of  Dobleer  and  Burn  (2014)  in  the                                     2014).  In  order  to  satisfy  customer  service  demands  and 
             company.  This  is  why  Europe  (2013)  has  established                                            expectations, the choice concerning the quantity of inventory 
             processes  and  methods  for  adequate  inventory  control                                           that a business should take and its place within the company's 
             through its Supplies Manual.                                                                         network is extremely important. Inventory management is the 
                                                                                                                  choice and control of operations to get the correct stock in the 
                     Colling,  (2015)  argues  that  productivity  enhancement                                    correct  location  and  at  the  correct  moment  at  the  correct 
             has been accomplished in the United States of America and                                            price, (Lyson & Farrington, 2014). 
             other western countries by decreasing labour cost per unit of                                         
              
             IJISRT19OCT1632                                                                           www.ijisrt.com                                                                                91 
             Volume 4, Issue 9, September – 2019                                           International Journal of  Innovative Science and Research Technology                                                 
                                                                                                                                                                           ISSN No:-2456-2165 
                     Inventory  management  is  a  key  task  that  determines                                            In  Kenya, a case study of Safaricom on influence of 
             both the health of the supply chain and the impact of the                                            inventory         management             practices        on      organization’s 
             balance  sheet  on  economic  health.  Every  company  strives                                       competitiveness has been carried out by Kamau and Kagiri, 
             constantly  to  preserve  the  best  stock  in  order  to  satisfy  its                              (2015). The research found that stock management practices 
             demands and to prevent  an  inventory  which may  have  an                                           impact a company's profit maximisation, satisfaction of its 
             effect  on  its  finances.  Continuous  and  careful  evaluation,                                    customers         and       development  in             market        share      and 
             planning  and  evaluation,  and  control  over  inventory                                            consequently  impact  its  competitiveness.  In  particular, 
             management  require  external  and  internal  considerations.                                        Safaricom  Ltd's  performance  was  impacted  by  inventory 
             Most organizations have separate departmental functions or                                           shrinkage,  stock  investment  and  turnover.  The  study 
             jobs  called  inventory  planners  which  track  the  stock  and                                     recommended that increasing forecast accuracy and use of a 
             interface  with  manufacturing,  procurement  and  finance                                           vendor managed inventory system would lead to lower out of 
             departments, continually and continually (Saleemi, 2014).                                            stock incidences, lower costs and increased customer service 
                                                                                                                  levels.  The  study  recommended  use  of  an  inventory 
                     Chandra,        (2014)        has     indicated        that     inventory                    management  practice  that  tackles  issues  of  information 
             management is likely to comprised activities such as demand                                          management  such  as  the  Systematic  Application  and 
             management  which  ensured  that  required  operation  and                                           Production software (Kamau & Kagiri, 2015). It however did 
             maintenance of supplies are available at the right time in the                                       not  explore  the  impact  of  these  systems  on  organization 
             right quantity. Reviewing safety stock levels and controlling                                        performance.  
             minimum and maximum amount of inventory  in terms  of                                                 
             both  quantity    and  value  ,implementing  lean  inventory                                                 Naliaka  and  Namusonge,  (2015)  explored  inventory 
             policies  such  as  JIT  contract  to  minimized  investment  in                                     management  and  its  role  on  competitive  advantage  of 
             inventory liaising with purchasing to ensure that supplies are                                       manufacturing firms. The study also identified IT, inventory 
             replenish  in  accordance  with  cooperate  and  procurement                                         control systems and inventory management practices as key 
             policies,  developing  cost  effective  system  and    procedure                                     factors  impacting  a  manufacturing  firm’s  competitiveness. 
             relating to the ordering, procurement budgeting of supplies,                                         The sole focus of this study was manufacturing firms hence 
             controlling  the  receipt  inspection  ,recording  location    and                                   the  findings  cannot  be  generalized  to  the  retail  sector. 
             issue of supplier to the user (Chandra, 2014).                                                       Therefore this study intends to bridge this gap by establishing 
                                                                                                                  the  effect  of  inventory  management  practices  on  firm 
                     II.         STATEMENT OF THE PROBLEM                                                         performance.  
                                                                                                                   
                     Inventory is a key business consideration in the attempt                                                III.         THE GENERAL OBJECTIVE 
             to  achieve  supply  chain  optimization.  In this  complex and                                       
             dynamic market a firm should be able to come up with varies                                                  The general objective of this study was to determine the 
             techniques of having efficient inventory levels that would be                                        effect      of     inventory        management  systems  on  firm 
             economical to the firm if they were to hold stock (Chandra,                                          performance. 
             2014).  Poor  inventory  management  brought  about  capital                                          
             being tied up as stock and hence impact negative on the firm                                         A.  Specific Objective 
             by having to incur storage and carrying cost which prove to                                            To find out how Systematic Application and Production 
             be  very  expensive  to  the  organization  at  large  (Mwangi,                                           software of inventory management system affects the firm 
             2015).  The  store  department  is  also  faced  with  some                                               performance, an empirical review.  
             challenges of inaccurate forecasting whereby they are unable                                           To  assess  the  effect  of  economic  order  quantity  of 
             to anticipate future changes in external or internal forces that                                          inventory  management  on  the  firm  performance,an 
             affect the inventory level of the firm (Ngugi, 2014).                                                     empirical review. 
                                                                                                                    To determine the effect of Just in time inventory control 
                     The effect of inventory management on organisational                                              system on the firm performance, an empirical review. 
             performance  was  assessed  in  local  research.  Ogbo  and                                           
             Onekanma  (2014)  noted  that  organisations,  by  attaining                                         B.  Research Questions 
             lowered  operating  costs  and  enhanced  sales  efficiency,                                           Does Systematic Application and Production Software of 
             benefitted  from  inventory  control  management.  The  study                                             inventory management system affectsfirm performance?  
             also  established  that  there  exists  a  relationship  between                                       Do Economic Order Quantity of inventory management 
             operational  feasibility,  utility  of  inventory  management  in                                         affects firm performance? 
             customer related issues and the cost effectiveness technique                                           Does Just in Time Inventory control system of inventory 
             used to enhance the return on investment of the company.                                                  management affects firm performance?  
             The study recommended further research on the impact of                                               
             personnel training and use of advanced technology to firm’s                                           
             inventory control success.                                                                            
                                                                                                                   
              
             IJISRT19OCT1632                                                                           www.ijisrt.com                                                                                92 
             Volume 4, Issue 9, September – 2019                                           International Journal of  Innovative Science and Research Technology                                                 
                                                                                                                                                                           ISSN No:-2456-2165 
                            IV.          LITERATURE REVIEW                                                        that e inventory management and suppliers relationships have 
                                                                                                                  excellent  implications  for  supply  chain  efficiency  in  the 
                     Anichebe  &  Agu  (2013)  performed  in  chosen                                              manufacturing            sector      while      order      management  and 
             organisations  in  Enugu,  Nigeria,  the  impact  of  inventory                                      warehouse management have a mild effect. This study shows 
             management  on  organisation's  effectiveness.  Data  was                                            that  the  suggested  strategy  is  practically  and  effectively 
             produced by means of surveys, oral interviews, comments,                                             harmonised through this study, decision makers be presented 
             books, newsagents and the Internet. From the analyzes, it was                                        with  procurement  performance  and  valid  solutions  for 
             found  that,  whatever  the  fact  that  companies  studied,  they                                   harmonization of inventory management (Koin, Cheruiyot & 
             painted the picture that they applied the principles of good                                         Mwangangi, 2014). 
             inventory  management,  they  occasionally  found  that                                                
             inventory problems were inadequate. The result was that the                                                  A  research  on  the  impact  of  an  efficient  stock 
             manufacturing of one brand of its goods was scarce and thus                                          management scheme on organizational performance of the 
             negatively  impacted  their  profitability  and  consequential                                       seven-up bottling business, Nile Mile Enugu was conducted 
             efficiency.  The  management  of  stocks  has  an  important                                         by  Ogbo,  Onekanma  and  Wilfred  (2014).  The  researchers 
             impact on the productivity of organization. The relationship                                         were  encouraged  to  undertake  this  research  to  show  the 
             between  excellent  stock  management  and  corporate                                                significance  of  an  efficient  organisational  performance 
             profitability  is  extremely  positive.  The  Anichebe  and  Agu                                     inventory  control  scheme  in  the  bottling  company.  The 
             research  (2013)  found  that  inventory  management  is  very                                       sample for the research consists of a total of 83 respondents. 
             important for organizational achievement and development.                                            It  was  discovered,  by  simple  storage  and  recuperation  of 
             The full profits of an organisation are linked to the volumes                                        material, increased sales efficiency and decreased operating 
             of products sold, which relate directly to the quality of the                                        cost, that organisations benefit from inventory management. 
             product. The research suggested that organizations diversify                                         The  research  also  discovered  that  there  is  a  link  between 
             their  inventory  systems  to  meet  particular  requirements  of                                    operational  feasibility,  the  utility  of  inventory  control 
             manufacturing and manage their inventory system carefully                                            leadership in organization-related client questions and cost-
             to preserve manufacturing consistency.                                                               effectiveness techniques to improve the company's return on 
                                                                                                                  investment.  Effective  inventory  management  should  be 
                     A case study of the listed cement companies in Kenya,                                        acknowledged  as  one  area  for  managing  an  organisation. 
             Edwin  and  Florence,  2015:  The  impact  of  inventory                                             Organizations were advised to embrace the highest inventory 
             management on the profitability  of  Cement  manufacturing                                           technique  of  their  activities  (Ogbo,  Onekanma  &  Wilfred, 
             companies in Kenya. Given Kenya's milestone contribution                                             2014). 
             to  the  Kenyan economy, this study is needed to assess the                                           
             impacts  of  inventory  management  on  Kenyan  cement                                                          V.         THEORETICAL FRAMEWORK 
             companies  '  profitability.  An  assessment  of  the  annual                                         
             accounts  for  the  three  sampled  companies  listed  on  the                                         Technology Diffusion Theory 
             Nairobi  Securities  Exchange  (NSE)  was  completed  using                                                  Rogers ' Innovation Theory is intended by proposing 
             cross-sectional data from 1999 to 2014. In order to create a                                         five  innovation  characteristics  that  are  "observability, 
             connection         between         inventory        conversion,         inventory                    compatibility,  capacity  to  test,  comparative  benefit  and 
             concentrations,  inventory  costs,  company  size,  gross  profit                                    complexity" in the theory, which explain how innovation was 
             margin  and  return  on  investments  and  development,  the                                         adopted for fresh concepts as well as for innovations (Rogers, 
             common lower squares (OLS) were employed in information                                              1965). There is a comparative benefit to an attribute when it 
             analyzing  as  multi-regression  modelling.  The  findings                                           is seen that fresh inventions are better than the prior concept 
             provide  a  adverse  relation  with  the  profitability  of  the                                     that they replace. The theory of Rogers points out that it is 
             business  between  inventory  sales,  stock  conversion  period                                      simpler  for  innovations  to  be  implemented,  which 
             and storage costs. Moreover, stock levels were directly linked                                       demonstrate  an  increased  benefit  over  the  one  before  and 
             to the size and storage costs of the company. The study by                                           facilitate  adoption.  In  addition,  Greenhalghet  al.,  (2014) 
             Edwin and Florence (2015) suggested that cement companies                                            states  that  consumers  do  not  embrace  innovations  with  no 
             in  Kenya  try  to  guarantee  that  they  maintain  the  correct                                    comparative benefit. An innovation's capacity to be accepted 
             inventory in their stocks to protect themselves from excessive                                       readily  is  that  it  must  be  consistent  with  a  prior  concept, 
             expense of holding and supplies.                                                                     satisfy  its  past  experience  and  fulfil  current  values.  This 
                                                                                                                  means that if it is more consistent, an innovation can be taken 
                     Koin, Cheruiyotand Mwangangi, (2014) carried out a                                           more likely. An innovation which is considered difficult to 
             survey  on  the  impact  of  stock  management  on  the                                              use  and  comprehend  is  said  to  be  complicated.  New 
             performance of an organization. The study will also employ a                                         innovations,  which  define  the  significance  of  users,  are 
             descriptive  research  design  that  will  make  the  study                                          classified from simple to intricate and readily implemented 
             population  459  and  will  guarantee  that  the  available                                          (Greenhalgh, 2014). It is called testing capabilities if the user 
             population  sampled  is  considered  significant  to  inform  the                                    is  able  to  experiment  with  an  innovation  in  a  minimum 
             scientist of the research targets formulated. The results show                                       period  of  time,  and  if  the  user  can  check  the  item  in  full 
              
             IJISRT19OCT1632                                                                           www.ijisrt.com                                                                                93 
             Volume 4, Issue 9, September – 2019                                           International Journal of  Innovative Science and Research Technology                                                 
                                                                                                                                                                           ISSN No:-2456-2165 
             before its implementation saves them resources, energy and                                           be used to illustrate the relationship between JIT lot sizing 
             valuable time. The visibility of the results of innovation as                                        and  the  cost  related  to  determine  the  procurement 
             seen  by  adopters  is  called  observability,  where  innovation                                    performance in an organization.  
             becomes better acceptable if the findings are positive.                                               
                                                                                                                    Lean Theory 
               Economic Order Theory                                                                                     Heizer  and  Render  (2014)  indicate  that  “inventory 
                     The  role  of  the  Model  Economic  Order  for  the                                         management or “inventory planning and control” refers to the 
             reduction of costs of inventory of raw materials in a dairy                                          on-going  provision  of  standard  items  with  independent 
             farm project was evaluated by Kisaka (2016). The project-                                            demand, where some speculative quantity should always be 
             employed method compared the total cost of the raw material                                          on  hand.  Therefore,  lean  theory  concentrates  on  cost 
             inventory  with  the  total  costs  of  the  inventory  of  raw                                      optimization  in  stock  systems.  Decisions  on  production, 
             materials that the application for EOQ could have induced.                                           storage and overall supply chain matters can be accelerated 
             Kisaka,  (2016)  discovered  that  cost  savings  could  be                                          by  this  theory  (Tempelmeier,  2015).  It  is  suggested.  The 
             achieved by using the EOQ model. Wisner, Tanand Leong,                                               theory is based on the financial quantity (EOQ) model, which 
             (2014)  poised  that  inventory  administration  includes                                            seeks to optimize the amount of each ordered product.  
             adjustments between customer service, or item accessibility,                                          
             and cost of stock.  Wisner, Tanand Leong, (2014) indicated                                                   Choice of Lean Theory for this study was informed by 
             further that there are factors influencing the uncertainty of the                                    the need to examine how inventory management influences 
             quantity of inventory to be kept in the store at a particular                                        organizational  performance  thereby  calling  for  a  prudent 
             time;  cost  factors  and  the  uncertainty  factor,  which                                          approach  to  inventory  management.  The  theory  therefore 
             incorporates demand uncertainty and time uncertainty. Tayur                                          brings  to  the  fore,  the  possibility  of  diversity  in  operating 
             (2012)  discovered  that  procurement  efficiencies  can  be                                         systems used to monitor levels of stock, and the difference in 
             improved by controlling stock purchases and stock storage so                                         items that may and Nadler, (2014), elaborates just in time as 
             that the flow of products is even and excessive investment in                                        a  pull-based  scheme  to  align  manufacturing  and  business 
             stock can at the same moment be maintained. Theory linked                                            processes across the supply chain in a timely way. The effect 
             to improving the balance or balance between the expenses of                                          of  lean  theory on economic performance was evaluated by 
             maintaining stock versus the advantages of holding inventory                                         Green and Inman (2005). Theory is that buffer stocks may be 
             in chambers, Lacey, (2015), when evaluating EOQ within a                                             eliminated and waste in manufacturing processes reduced to 
             service  company.  The  advantage  of  an  inventory  is  that                                       a  minimum.  Eroglu  and  Hofer  (2011)  discovered  that 
             products  are  accessible  as  necessary.  Chambers  &  Lacey                                        leanness has a positive impact on a company's profitability. 
             2015 The main cost of a stock is the capital chance cost used                                        You  claim  that  lean  inventory  is  the  best  instrument  for 
             for  financing  the  stock,  ordering  expenses  and  the  storage                                   controlling  inventory.  The  theory  examines  how  producers 
             charges.  Similarly,  as  indicated  by  Brigham  and  Daves,                                        can  achieve  flexibility  in  ordering  choices,  decrease 
             (2014) inventory  management  seeks  to  maximize on the                                             inventory  stocks  retained  on  site  and  eliminate  carrying 
             net benefit Brigham and Daves, (2014) has indicated further                                          expenses in inventory. On the overall level, both the timing 
             that  financial    managers    have  an    obligation    both    for                                 and the magnitude of adoption are the empirical strength of 
             raising  the  capital  expected  to  convey  inventory  and for                                      the lean account. In theory, however, inventory restricts the 
             the  organizations  performance.  The  concept  of  EOQ                                              capacity of a company to react to demand changes. Studies 
             guarantees  the  inventory  administration  a  balance  between                                      show that businesses are effectively optimizing stock via lean 
             the inventories expected to manage activities are and on the                                         supply  chain  methods  and  technologies  in  order  to  attain 
             same  hand  holding  the    expenses    of    ordering    and                                        greater rates of asset use and client satisfaction that lead to 
             conveying  inventories  to  the  least  conceivable level. Since                                     enhanced  business  development,  profitability,  and  market 
             inventory is emphatically identified with customer service, it                                       share (Green & Inman 2015). 
             is worth close consideration (Rakesh, 2016).  Rakesh, (2016)                                          
             analyzed EOQ inventory as a feature of association's general                                                   VI.          CONCEPTUAL FRAMEWORK 
             cost regulation systems and several organizations used it as a                                        
             strategy  to  manage  a  balance  in  cost  element  on  the                                                 In this section, the conceptual framework is presented 
             inventory.  KuoHsien(2015)  while  analyzing EOQ, indicted                                           in a schematic interpretation as shown in figure 1 below. It 
             that the optimal order size and optimal backorder level for                                          identifies  the  variables  that  when  put  together  explain  the 
             each  order  cycle  can  be  minimized  by  administering  JIT                                       issue of concern. It is formulated from the reflection of ideas.  
             concept and the lot size calculated by EOQ model. EOQ will 
                                                                                                            
              
             IJISRT19OCT1632                                                                           www.ijisrt.com                                                                                94 
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...Volume issue september international journal of innovative science and research technology issn no effects inventory management system on firm performance an empirical study everline chebet dr samson kitheka lecturer school business technical university mombasa abstract the was guided by following production elevated workforce levels in many produced objectives to find out how systematic application products have justified this approach latest years data processing sap just time however labour unit cost ratio has reduced steadily even economic order quantity affect organization big companies such as us automotive literature review indicated that previous assemblers buy up product value means studies brought both positive relations weak inventories raw materials is between practices area where productivity can be greatly improved operational firms researcher used evidence analyze findings mangolo suggested established improves its activities for organisations africa high quality manufac...

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