THE EFFECT OF INVENTORY MANAGEMENT PRACTICES ON OPERATIONAL EFFICIENCY IN UGANDA: A CASE STUDY OF CROWN BEVERAGES LTD
CHAPTER ONE
- Introduction
The study will intend to investigate the effect of inventory management practices on operational efficiency in Crown beverages ltd. This chapter presents the background to the study, statement of the problem, purpose of the study, objectives of the study, research questions, scope of the study and significance of the study.
1.1 Background of the Study
Globally, Inventory Management was treated as a cost Centre, since Purchasing Department was spending money on inventory while Stores was holding huge stock of inventory, blocking money and space, Ramakrishna (2005).However, with the process of liberation 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 (Blomqvist, 2006).
Agadjanian, (2014) of Nigeria stated that Inventory management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different locations within a facility or within multiple locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods. According to him, with a just-in-time inventory system, items are not produced until they are needed by customers. Benefits to this system include reduced overhead and minimum storage requirements. There is also less waste when perishable items are involved. Manufacturers of extremely expensive services, such as airplanes, use a just-in-time inventory system, but it is also employed for items at the other end of the spectrum custom floral arrangements, for example, or wedding cakes.
In East Africa including Uganda, Kenya, Tanzania and Rwanda, inventories of raw materials, work-in-progress components and finished goods were kept as a buffer against the possibility of running out of needed items. However, large buffer inventories consume valuable resources and generate hidden costs. Consequently, many companies have changed their approach to production and inventory management. Since at least the early 1980s, inventory management leading to inventory reduction has become the primary target, as is often the case in just-in-time (JIT) systems, where raw materials and parts are purchased or produced just in time to be used at each stage of the production process. This approach to inventory management brings considerable cost savings from reduced inventory levels. As a result, inventories have been decreasing in many firms (Ellram, Tate, & Billington, 2004).
Crown beverages ltd holds stock to enable it meet its daily needs just like other institutions. This enables it to meet two conflicting needs i.e. either to maintain high levels of stock or low levels of stock. Too much stock ties up space and cash and makes the government funds to remain idle (Kanyunyuzi, 2011). However, too little stock creates the problem of the likelihood of running out of stock materials and these results in disruption in operations schedules, emergency buying and hence leading to poor operational efficiency. It is vital for Crown beverages ltd stores to manage inventory effectively and efficiently in order to improve on the organization’s performance (Kanyunyuzi, 2011). The study therefore seeks to examine the impact of inventory management practices on operational efficiency.
1.2 Statement of the Problem
Despite the fact that Crown beverages ltd has succeeded in adopting the various inventory management techniques in its operations, it still faces challenges in its operations such as increased operation costs, valuable time and human capital is being spent completing tasks a system could manage among others which has led to its poor performance in terms of stock obsolescence, stock-outs, and delayed deliveries among others (Kanyunyuzi, 2011). It is therefore upon this that the researcher was prompted to examine the effect of inventory management practices on operational efficiency.
1.3 Purpose of the study
The purpose of the study was to investigate the effect of inventory management practices on operational efficiency.
1.4 Objectives of the study
- To find out the techniques of inventory Management used by Crown beverages ltd
- To find out the challenges faced by Crown beverages ltd in managing its inventories.
- To find out the relationship between Inventory Management and the performance of Crown beverages ltd
1.5 Research Questions
- What techniques of inventory Management are used by Crown beverages ltd?
- What are the challenges faced by Crown beverages ltd in managing its inventories?
- What is the relationship between Inventory Management and Performance of Crown beverages ltd?
1.6 The Scope of the Study.
1.6.1 Content scope
The study focused on the techniques of inventory Management used by Crown beverages ltd; the challenges faced by Crown beverages ltd in managing its inventories and the relationship between Inventory management and Performance of Crown beverages ltd.
1.6.2 Geographical scope
The study was conducted from Crown beverages ltd headquarters, Sironko district in Eastern Uganda. Sironko District is a district in the Eastern Region of Uganda. The district was created in 2000 and had previously been part of Mbale District. Sironko is the main commercial town in the district. Sironko District is bordered by Bulambuli District to the north, Kapchorwa and Kween Districts to the north-east, Kenya to the east, Bududa District to the south-east, Mbale District to south-west, and Bukedea District to the west. Sironko is approximately 22 kilometres (14 mi), by road, north-east of Mbale, the largest city in the Bugisu sub-region.
1.6.3 Time scope
The period under study considered 2000 to 2017 as the period of data to be considered in the organization. This period was chosen because increasing stock costs were experienced especially due to stock obsolescence, stock-outs among others and thus the District set up efforts to control them.
1.7 The Significance of the study
The study may be very significant to the different stakeholders that include; management, the Researcher, Suppliers, Consumers and Government organizations in the following ways;
The study may be very significant to the different stakeholders that includes; District management, consumers of the district services and government organizations in that the study will help the district management to develop an organized thinking on the importance of inventory management practices in an organization.
The study in the process seeks to uncover many potentially neglected areas in inventory management literature. For instance, the study can also be seen as an answer to the call for research seeking more investigation into the relationship of inventory management with supply management concepts.
The study is of paramount importance to academicians and practitioners as the proposed framework is expected to uncover many neglected relationships that are of interest to managers in the local government. In addition, specific patterns of inventory management practices would also be revealed which would further encourage district managements to implement this technique and possibly improve their organization’s performances. The study seeks to systematically address this issue.
The Research may enable the researcher to understand in details inventory management practices and relate the findings to the real situation. Other stakeholders who need knowledge about stock control can use the Research as a reference.
1.8 Definition of key terms
For purposes of this research, the following terms were defined;
Inventory
Piasecki (2003) defined inventory as the amount of goods, materials or parts carried in stock or store house example, work in progress (W.I.P), raw materials, financial goods for resale, MRO items among others.
Inventory management
According to Garry, J.Z, (1997), inventory management involves the planning, ordering and scheduling of the materials used in the manufacturing process. It exercises control over three types of inventories i.e. raw materials, work in progress, and finished goods. Purchasing is primarily concerned with control over the raw materials inventory, which includes; raw materials or semi-processed materials, fabricated parts and MRO items (maintenance, repair and operations).
Inventory control
Piasecki (2003) defines inventory control to be the process whereby the investment in materials and parts carried in stock is required within pre-determined unit set in accordance with inventory policy established by management.
A technique
It refers to the ways which may be adopted in order to minimize on the uncertainties or outcomes of poor inventory levels like stockless purchasing system, determining order quantities and inventory levels (Gwynne, 2014).
