EFFECTS OF INVENTORY MANAGEMENT ON OPERATIONAL EFFICIENCY IN AN ORGANIZATION
1.0 INTRODUCTION
This chapter presents the Background of the study, problem statement, Purpose of the study, general objectives, specific objectives, and research questions, Significance of the study, scope of the study and definition of key terms.
1.0 Background of the study
The main aim of inventory management is to ensure that organizations hold inventories at the lowest cost possible while at the same time achieving the objective of ensuring that the company has adequate and uninterrupted supplies to enhance continuity of operations, (Mpwanya, 2005). A study carried out by Bhausaheb & Routroy, (2010) shows that companies are keen in managing their inventory so as to reduce costs, improve the quality of service, enhance product availability and ultimately ensure an improved organizational performance. Results of a study carried out by Rosenfield&Simchi-levi (2010) shows that inventory management has a huge financial implication on the performance of an organization.
High levels of inventory increases the probability that the customers are likely to get what they want, increases sales and service levels (Cachon&Terwiesch, 2006). High inventory levels however lead to both stock holding costs and in-store logistics errors. This is because it becomes difficult for the employees to perform shelving and replenishment which makes goods physically available in the store but the employees cannot trace those (phantom products) (Ton & Raman, 2005).
Maintaining optimum levels of inventory is important in an organization because excess inventory results in stock holding costs (rental charges, opportunity costs, obsolescence costs, breakages, pilferage) and inadequate inventory (stock outs) is also costly as customers may leave to competitors (Berling, 2011). For each sale that an organization does loose as a result of stock outs, the company not only looses profits but also the general performance of the organization becomes poor in the longrun, (Knights, 2008).
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. It is not necessary that an organization has all these inventory classes. But, whatever may be the inventory items, they need efficient management as, generally, a substantial share of its funds is invested in them different departments within the same organization adopt different attitude towards inventory This is mainly because the particular functions performed by a department influence the department’s motivation. For example, the sales department might desire large stock in reserve to meet virtually every demand that comes. The production department similarly would ask for stocks of materials so that the production system runs uninterrupted. On the other hand, the finance department would always argue for a minimum investment in stocks so that the funds could be used elsewhere for other better purposes however an organizational reduces the costs associated with inventory management performance of an organization is likely to improve substantially, (Vohra, 2008:427).
Inventory represents an important decision variable at all stages of product manufacturing, distribution and sales, in addition to being a major portion of total current assets of many organizations, Inventory often represents as much as 40% of total capital of industrial organizations in this case inventory management plays a significant role towards the better performance of an organization, (Moore, Lee and Taylor, 2003:321).
Crown Beverages uses modern techniques of inventory management relying mainly on computerized systems but with an aim of reduction of unnecessary costs, improved values for money, reduction of stock outs in order to achieve better organizational performance, this study therefore intends to investigate into the effects of inventory management on operational efficiency in an organization with specific reference to Crown Beverages ltd.
1.2 Statement of the problem
Inventory management is instrumental to the success of an organization as it enables an organization to implement Just in time technique so that its able to reduce costs, and ensure faster response to customers’ needs apart from that this technique also helps an organization in planning by calculating the available stock against the predicted demand, easy management of an organization stock and improvement in organizations quality of goods by elimination of expiry of inventory, (Hyatt, 2007).
Crown beverages has of recent been experiencing numerous inventory management challenges including; increased expiry of stock, increased loss of inventory while in the store, mishaps in the organizational data concerning stored goods and the production data and above the contradiction with procurement records, slow response to customer needs, increased customer complaints this has continued to puzzle management as to what could be the cause. Therefore based upon the above the researcher intends to investigate into effects of inventory management on operational efficiency in an organization with specific reference to Crown Beverages ltd.
1.3 PURPOSE OF THE STUDY
The purpose of the study is to assess effects of inventory management on operational efficiency in an organization at Crown Beverages limited.
1.4 OBJECTIVES OF THE STUDY.
- To assess the Benefits of inventory management at crown beverages ltd.
- To explore factors hindering inventory management at crown beverages ltd.
- To assess effects of inventory management on organizational performance at crown beverages ltd.
- To investigate the other factors affecting organizational performance at crown beverages ltd.
1.5 RESEARCH QUESTIONS
- What are the Benefits of inventory management at crown beverages ltd?
- What are the factors hindering inventory management at crown beverages ltd?
- What are the effects of inventory management on organizational performance at crown beverages ltd?
- What is the other factors affecting organizational performance at crown beverages ltd?
1.6 SCOPE OF THE STUDY
1.6.1 Content scope
The study will include, benefits of inventory management, factors hindering inventory management and relationship between inventory management and organizational performance.
1.6. 2 Time scope
The researcher will carry out all this study from February to August 2016.
1.6.3 Geographical scope
The study will be carried out in crown beverages ltd , this is because crown beverages is one for the few companies in Uganda with modern inventory management system and above all the organization is also near the university so the researcher wont incur high transportation costs.
1.7 SIGNIFICANCE OF THE STUDY
The study will help future researchers with information regarding benefits of inventory management in an organization.
The study will help management of crown beverages have information regarding better ways of inventory management in an organization
The study will further enable the researcher to have information on factors which affect organizational performance.
1.8 Definitions of key terms
1.8.1 Inventory
This refers to the goods or materials that an organization holds for a specific purpose like resale, production purposes.
1.8.2 Management
Inventory management is a science primarily about specifying the shape and percentage of stocked goods.
