inventory management project final
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Inventory Management Project FinalTRANSCRIPT
CATHOLIC UNIVERSITY OF EASTERN AFRICA
FACULTY OF COMMERCE
DEPARTMENT OF ACCOUNTING AND FINANCE
Project title: Achieving effective inventory management systems;
A case study of A-One Electronics
A project submitted to the Faculty of Commerce in the partial fulfillment of a Bachelor of
Commerce Degree in Accounting.
Presented by;
MAKAU ANTHONY MAITHYA
And
TERRENCE OSCAR CHANZU
APRIL 2010
DeclarationWe, the undersigned, hereby declare that this project is our original work and has not been
published or submitted to any other university for any academic award. This project was
accomplished through extensive reading, research and personal dedication.
Makau Anthony
Sign …................................................................................................................................
Date....................................................................................................................................
Terrence Chanzu
Sign …................................................................................................................................
Date …................................................................................................................................
This project has been submitted with my approval as the university supervisor
Mr. William Kinai
Sign ….................................................................................................................................
Date …................................................................................................................................
This project has been submitted to me the head of the accounting and finance department
Madam Lillian Makoma
Sign ………………………………………………………………………………………………
Date ……………….......................................................................................................................
AcknowledgementWe would like to express our gratitude to our supervisor Mr. William Kinai for accepting to
supervise this project, his support, advice, guidance and assistance.
We like to acknowledge our parents for sponsoring our studies.
We extent our gratitude to our brothers and sisters for their prayers, support, and assistance they
offered to us.
We recognize the support of our friends, relatives and respondents who made our research a
success.
God bless you all.
AbstractThis study comprehensively discusses ways of achieving an effective inventory management
system at A-One Electronics.
In chapter one, we have given a general introduction on inventory management, a background of
the study and the statement of the problem together with the research questions. The significance
of the study and definition of terms completes the first chapter.
In chapter two, the literature review talks about issues in inventory management, empirical
studies that have been carried out and the knowledge gap.
Chapter three gives the research methodology. Under this the research site is given. This research
was carried out in six branches of A-One Electronics. The data was collected using
questionnaires.
Chapter four is an analysis of the collected data using tables and figures. The figures used are
pie-charts and graphs.
The study concludes by giving the summary of the findings and recommendations on how A-
One Electronics should improve on matters relating to inventory management systems.
ContentsDeclaration.................................................................................................................................................. ii
Acknowledgement...................................................................................................................................... iii
Abstract...................................................................................................................................................... iv
Contents......................................................................................................................................................v
List of tables...............................................................................................................................................vii
List of Figures............................................................................................................................................viii
CHAPTER ONE..........................................................................................................................................1
Introduction.............................................................................................................................................1
1.0 Preamble........................................................................................................................................1
1.1 Background of the study................................................................................................................1
1.2 Statement of the problem...............................................................................................................3
1.3 Research questions........................................................................................................................4
1.4 Significance of the study................................................................................................................4
1.5 Assumptions of the study...............................................................................................................5
1.6 Delimitation and scope of study.....................................................................................................5
1.7 Definition of key terms..................................................................................................................5
CHAPTER TWO.........................................................................................................................................6
2.0 Literature Review..............................................................................................................................6
2.1 Introduction...................................................................................................................................6
2.2 Review of Theories........................................................................................................................6
2.3 Empirical studies.........................................................................................................................19
2.4 Knowledge Gap...........................................................................................................................22
CHAPTER THREE...................................................................................................................................23
3.0 Research Design and Methodology.................................................................................................23
3.1 Introduction.................................................................................................................................23
3.2 Research design...........................................................................................................................23
3.3 Target Population........................................................................................................................23
3.4 Sample size and sampling design.................................................................................................24
3.5 Data description and collection methods.....................................................................................24
3.6 Data analysis method...................................................................................................................25
CHAPTER FOUR.....................................................................................................................................26
4.0 Presentation Discussion and Interpretation of Findings..................................................................26
4.1 Presentation of the findings.........................................................................................................26
4.2 Discussion of the findings............................................................................................................40
4.3 Interpretation of findings.............................................................................................................41
CHAPTER 5..............................................................................................................................................42
5.0 Summary, Conclusions and Recommendations...............................................................................42
5.1 Summary.....................................................................................................................................42
5.2 Conclusions.................................................................................................................................43
5.3 Recommendations.......................................................................................................................44
References:................................................................................................................................................46
Appendices................................................................................................................................................48
Questionnaire........................................................................................................................................48
List of tablesTable 1 Gender..........................................................................................................................................26Table 2 Age of respondents.......................................................................................................................27Table 3 Education level..............................................................................................................................28Table 4 Period of time working at A-One Electronics................................................................................29Table 5 Availability of inventory management systems............................................................................30Table 6 Type inventory management system............................................................................................30Table 7 Objectives of using inventory management systems....................................................................31Table 8 Development of systems responsibility........................................................................................32Table 9 Responsibility of carrying inventory management systems..........................................................33Table 10 Clarity and formalization of inventory planning process.............................................................34Table 11 Stock keeping and storage facilities............................................................................................35Table 12 Transport and payment of inventory..........................................................................................36Table 13 Transport and payment of inventory..........................................................................................36Table 14 Challenges experienced..............................................................................................................38Table 15 Improvement of inventory management....................................................................................39
List of FiguresFigure 1 Gender.........................................................................................................................................27Figure 2 Age of respondents......................................................................................................................28Figure 3 Education level............................................................................................................................29Figure 4 Type of inventory management system......................................................................................31Figure 5 Objectives of using inventory management systems...................................................................32Figure 6 Responsibility of developing systems..........................................................................................33Figure 7 Clarity and formalization of inventory planning process.............................................................34Figure 8 Store keeping and storage facilities.............................................................................................35Figure 9 Inventory storage.........................................................................................................................37
CHAPTER ONE
Introduction
1.0 Preamble
Small scale businesses are mostly involved in transacting with already finished products which
are ready for selling. In transacting with these types of merchandise, the business should always
have enough stock to enable an effective and reliable supply of the products to their customers.
Lack of enough stock in place may lead to loss of customers to the competition and hence a loss
in the proceeds of the business. To avoid loss of customers due to stock-outs, a system should be
put in place to control the stock level of goods and ensure an adequate supply of goods and
ensure an adequate supply and minimize the costs involved in providing enough and reliable
stock of goods to the customers. This is the overall objective of inventory management.
A-One Electronics is a small scale business that deals with selling of electronic products. It
transacts in selling solar panels, batteries, radios, television sets and assorted solar electrical. The
purpose of this study is to determine the role played by inventory control systems in achieving
effective inventory management in small scale businesses.
1.1 Background of the study
Organizations are nowadays taking a great look at inventory being the asset that provides a
sustained competitive advantage in the business environment. Changes in business environment
have led to increased importance of managing inventory. The changes that have brought great
concern in the business environment includes an increase in globalization, changing
demographic patterns, diversified cultures, changes in the economic variables, changes in
sociology and the influx of technology in the global scene. In this case, a store and purchasing
department that lacks strategic integration fails to provide the highly needed competitive
advantage for the survival in the dynamically changing business environment. Thus the role
played by inventory management in small scale businesses is of great importance.
Internationally, most small scale businesses have adopted various techniques of enabling
sustained supply of their products even to the remote most parts of the globe. This has led to a
wide sourcing of products internationally (Gordon et al., 1982).
Manufacturers of products have played a great role of providing their goods to all parts of every
continent. Through this international break, complex networks of international alliances have
been developed. These have spread the advantage of expertise and offering of particular products
for participants in the small scale business. Internationalization has therefore provided a number
of services such as lowering of psychological barriers, increased awareness of opportunities
other markets and an increased international small scale business expertise, (Mue 2007).
Regionally, the impact of a single global market has taken face with the ever changing business
environment. Many businesses have been established across the different nations. In east Africa
for instance, every country depends on each other for supply and demand of the different
products needed. Most businesses have branches established in the different countries. This
enables the provision of goods and services to each part of the countries.
In Kenya, many businesses are located in the major town centers which have a considerable
population size to provide demand for products. The population of the country has increased
considerably from that of previous decades and it is anticipated to clock 40 million from last
year’s national census. This provides an affluent market for merchandise and a likely growth in
small scale businesses. The economy of the country is in an upward growth from a decreased
economic activity during the past post-election violence that rocked most of the major towns of
the country. Small scale business development has greatly benefitted from the fact that in recent
year, the government has made considerable headway in terms of making the business
environment in Kenya more attractive to investors. Many small scale businesses have been
established in all major towns. Nairobi having the bulk of small businesses is seen as the most
lucrative location for opening of small scale stores. Nevertheless, opportunities in Nairobi’s
central business district seem to have become exhausted with supermarkets and small scale
business stores. Recent trends have shown that some of the larger businesses are beginning to
open stores in sub-urban districts which have longer term potential (Mue, 2007).
With a secured flow of income from small scale businesses, focus has been shifted from the bulk
of stock in place, to determining what level of stock should be kept and avoid the high losses in
the businesses due to stock shortages. The stock shortage is the difference between the amount of
merchandise that is believed to exist in the store as stock according to records and the amount of
stock that the physical inventory actually reflects to be in stock. Therefore it is important for
small scale businesses to control losses due to stock shortages and theft.
1.2 Statement of the problem
In an effort to embrace inventory management, many firms are providing information and
strategy planning with a clear understanding of the facts of the business. Informed decision can
be undertaken in order to improve inventory control system.
One of the biggest challenges, that most small scale business face is developing effective
inventory control system, which matches their organizational goals for maximum profitability of
the business.
i. Green and MischaDick (2001) focused on inventory level as a strategy for maximizing
profit and they found that just like any investment in business; inventory needs to serve
the purpose of maximizing profit.
ii. Green and MischaDick (2002) also focused on inventory value using six-sigma, which
considered the value addition or utilization of existing equipment considered outdated to
produce high quality product efficiently. They found out that old equipment are viewed
as not worth understanding and improving for operations, however, replacement cost can
be staggering.
iii. Khor and Thomas (2007) focused on the raw materials procurement and ordering
methods. The study was based on the accuracy of the investigation on the methods to
improve procurement and inventory control.
Small scale businesses experience high losses due to stock shortages and theft, this is as result of
mistakes that have been made in keeping track of inventory, which means that the discrepancy is
due to recording error or actual theft of merchandize. Some bookkeeping errors are bound to
happen because people make mistakes. Far more serious, though is theft by employees or by
customers stock damage is greatest during the holiday season and during special sales when
customers are rushed and handle merchandize carelessly. These losses may also be due to
increased competition which has led to reduction in market share, lack of enough capital for
expansion and reliable suppliers.
1.3 Research questions
This study will address the following questions:
1. To what extent has the adoption of inventory management led to success of small scale
business
2. How do we lower holding costs and carrying costs of stock
3. What challenges face adoption of effective inventory management controls
1.4 Significance of the study
The study is intended to help understand the effectiveness and role of inventory management and
its effect on the operation of the business. This study therefore aims at evaluating the
effectiveness and the success of inventory controls. This study is therefore so significant because
management, suppliers of the products/materials, the public at large are going to benefit.
In this case the manager will be enlightened on alternative ways of inventory control and
problems associated with inventory management and application of inventory control systems.
The suppliers will be able to ascertain the amount of material or product that a certain
organization will demand or need at a particular period of time, thus they are able to plan for
their production level.
The study will also help the society in such a way that they will know how to manage their asset
especially the inventory they have. In the business situation customers will be assured of
continuous flow of goods and services thus their needs will be satisfied, as the organization
serves as a purchasing agent for the community.
1.5 Assumptions of the study
Assumptions
A major accounting issue arises when identical units of merchandise are acquired at different
unit costs during a period. In such cases, when an item is sold, it is necessary to determine its
unit cost using a cost flow assumption so that proper accounting entry can be recorded.
There are 3 common inventory cost flow assumptions used in business, each identified with an
inventory costing method:
a. Cost flow is in the order in which the costs were incurred.
b. Cost flow is in the reverse order in which the costs were incurred.
c. Cost flow is an average of the costs.
1.6 Delimitation and scope of study
The study will look at the role played by inventory management control systems in small scale
businesses, and the case study will be on A-ONE ELECTRONICS; an electronics dealing shop
located in Nairobi city along Luthuli Avenue and with branches in Athi-river town and
Machakos town.
1.7 Definition of key terms
1.7.1 Inventory
Inventories are the assets that are held; for sale in the ordinary course of business or in the
process of production for such sale or in the form of materials or supplies to be consumed in the
production process or rendering of services (Kagiri 2006).
1.7.2 Inventory management
Inventory management encompasses the planning, organizing and control of activities that
focuses on the flow of inventory into or from the organization (Charles etc 1997).
CHAPTER TWO
2.0 Literature Review
2.1 Introduction
This chapter explains the theoretical and empirical evidence about inventory management. In
theory, features of effective inventory management systems are explained, how the use of
computers affects the organizations use of inventory management systems, the need for controls
and how to much demand with supply. In practice the chapter tries to look at previous studies
done on the inventory management. It also establishes the knowledge gap.
Successful inventory management involves balancing the costs of inventory with the benefits of
inventory. Many small business owners fail to appreciate fully the true costs of carrying
inventory, which include not only direct costs of storage, insurance and taxes, but also the cost of
money tied up in inventory.
2.2 Review of Theories
Inventory control is not a Science, more nearly it is a set of methods for figuring out how much
stock to order, when and how to receive it (Tibur, 2008). It is one of the roles that management
has to play by putting a system of keeping track of items in inventory.
A powerful inventory management system is the base of the every good retail software package.
An inventory management system lets you know what our important needs, with inventory
management systems are, you can get minors to majors report on what you have in stock, on
order transit. Retailer’s software with an inventory management system eliminates the guesswork
from running your retail business.
The system can be set up to automatically notify you when it is time to order more inventories
such as when stock falls below a prearranged level. By always having your hottest items in stock,
you will be sure to not sell due to out-of- stock items. Many retail software packages will even
generate purchase orders, further streamlining inventory management. In addition to increasing
your sales, retail software with an inventory management system drastically reduce your
operating costs by reducing the time spent manually counting inventory and creating purchases.
It will also track which items are selling and which are not. By identifying your less moving
items you can adjust their position, pricing or other issues earlier. You can also see which items
are often purchased in pairs and can group them consequently in the store. Keeping inventory
cost low is vital to competitive benefits.
2.2.1 Features of inventory management system
In inventory management, different theories have been developed to support the different
methods of inventory management. These methods have been based on various features that can
be adopted in inventory management. These features include;
i. Get Your (Ware) House in Order
ii. Replenishment, Order Point and the Line Point
iii. Lead time
iv. The Economic Order Quantity
v. Balancing, inventory and costs
i. Get Your (Ware) House in Order
This is where proprietor(s) of the business should ask themselves why they are in business. This
helps them to focus on the aims and goals of their business hence are able to predetermine profits
and anticipate losses when times are harsh. Under getting the (ware) house in order, a theory on
inventory management was developed called the triangle of cooperation.
The Triangle of Cooperation
The triangle of cooperation, developed by Jon Schreibfeder (2008), illustrates that most
companies want to achieve the goal of effective inventory management:
Effective Inventory Management allows a company to meet or exceed customers' expectations of
product availability with the amount of each item that will maximize net profits or minimize
costs. But whose responsibility is it to accomplish this goal? Often it is left to one person or
department but it has found that effective inventory management takes support and acceptance of
responsibility by sales, purchasing/replenishment, and warehouse personnel. He - (Jon
Schreibfeder) referred to this as the "triangle of cooperation":
Without the active participation of each of the triangle's sides, achieving effective inventory
management is impossible. Here is a brief outline of specific responsibilities for salespeople,
purchasing or replenishment, and warehouse people necessary to achieve this goal.
Salespeople
Determine what products should be stocked in each branch or warehouse; salespeople
should be in almost constant communications with customers. They are probably in the
best position to determine what must be in inventory to meet customers' expectations. It
means that the customers' impression towards inventory is that it should meet their needs
than the stock of your competitors.
Help develop the forecast of future sales of each product. The salespeople are also in the
best position to observe customers' changing needs over time. They should help
determine why there was a large discrepancy between a forecast and what was actually
sold in a specific week or month. For example, why did a customer buy an unusually
large quantity of an item? Will this be a new ongoing requirement or was it a one-time
only sale? Studying unusual sales activity can provide salespeople with valuable
information for increasing future sales!
Help keep inventory records accurate. Salespeople are usually very empathetic with their
customers. They often will go to great lengths to meet a customer's needs. However, they
must follow the established rules for properly recording all material disbursements. For
example, salespeople should not take material out of a warehouse without properly
recording it in your computer system.
Purchasing or Replenishment People
Make sure that inventory is available to meet the sales or usage forecast. While accomplishing
this primary and most important goal, buyers must replenish stock in such a way as to minimize
the "total cost" of each piece. If you minimize your total cost of inventory, you will maximize
your profits! Decisions involved in minimizing the total cost of inventory include:
Decide the best source of supply for each product in each stocking location. Do you buy
it? If so, from what vendor? Are replenishment quantities transferred from a central
warehouse or distribution center? Do you assemble a product from component parts in
this warehouse?
Determine the economic order quantity for each product. The economic order quantity
(i.e., "EOQ") balances the cost of the material with the carrying cost of inventory and the
cost of issuing and receiving replenishment orders (Jon Schreibfeder, 2008).
Warehouse Personnel
Warehouse people make up the third side of the triangle of cooperation and responsibility. They
must:
Organize stock in the warehouse to minimize the cost of filling orders. It makes sense to
store material to maximize the efficiency of the order fulfillment process.
Keeping inventory records accurate. If the quantity in the computer system does not agree
with what is in the warehouse, salespeople won't know what is available for sale, and
buyers will not replenish inventory at the right time. This task probably will involve
conducting full physical inventories or cycle counting certain products each day.
Ensure that all material movement (both receipts and disbursements) are properly
recorded. This will ensure that quantities in your warehouse remain accurate. After all,
you can have an accurate forecast and bring material in such a way to minimize your total
cost. But if it isn't properly recorded in your computer system, you will probably
experience problems such as:
o Bringing in unnecessary stock because previous stock receipts weren't correctly
posted and you actually have more inventory than your system reports.
o Unexpected stock outs due to unrecorded material disbursements, substitutes,
damaged parts, and other "sloppy" procedures.
Protect inventory from breakage, spoilage, misplacement, and theft. Inventory is
valuable, and all employees must realize that their paychecks result from the sale of
inventory. If inventory is "lost," it must be paid for out of the company's profits. This
means that fewer profit dollars are available to pay employees. (Jon Schreibfeder,2008)
Achieving effective inventory management is probably one of the most effective undertakings to
increase your company's profitability. But it cannot be accomplished by just one person or
department. It takes cooperation and commitment from everyone in sales, purchasing, and the
warehouse. You must implement and maintain the "triangle of cooperation and responsibility."
Protect the company against theft – Make sure that the only people in your warehouse belong in
your warehouse. Pilferage is a larger problem than most distributors realize.
Establishing an approved stock list for each warehouse –Order only the amount of non-stock or
special order items that your customer has committed to buy. Before adding an item to inventory,
try to get a purchase commitment from your customer. If this is not possible, inform the
salesperson who requests the tem that he or she is personally responsible for half the carrying
cost of any part of the initial shipment that isn’t sold within nine months (Jon Schreibfeder,
2008).
Assign and use bin locations – Assign primary and surplus bin locations for every stocked item.
All picking and receiving documents should list the primary bin location (in either characters or
a bar code). With correct bin locations on documents, order picking is probably the least
complicated job in your warehouse. Assign inexperienced people to this task and your most
experienced warehouse workers to receiving inventory and stock management.
Recording all material leaving the warehouse– There should be appropriate paperwork for every
type of stock withdrawal. Under no circumstances should material leave the warehouse without
being entered in the computer. Eliminate "no charge/no paperwork" material swaps. Product
samples should be charged to a salesperson’s account until they are either returned to stock or
charged to the customer.
Process paperwork in a timely manner – All printed picking documents should be filled by the
end of the day. Stock receipts should be put away and entered in the computer system within 24
hours of arrival.
Set appropriate objectives for the buyers – Buyers should be judged and rewarded based on the
customer service level, inventory turns, and return on investment for the product lines for which
they are responsible. Ensure that stock balances are accurate and will remain accurate –
Implement a comprehensive cycle counting program. A good cycle counting program can
replace your traditional year-end physical inventory.
ii. Replenishment, the Order Point and the Line Point
Replenishment of inventory is normally based on safety stock quantities, order points, line
points, and standard order quantities:
• Safety Stock Quantity: This is the level of inventory maintained in stock to protect stock outs
resulting from unexpected customer demand or vendor shipment delays.
• Order Point: The Safety Stock Quantity plus predicted demand during the anticipated lead time
gives the point at which inventory should be replenished.
• Line Point: The Order Point plus predicted demand during the supplier review or order cycle
the normal length of time between typical replenishment orders with the supplier.
• Standard Order Quantity: This is the minimum quantity that can be ordered once (Horngren, et
al, 1997).
Replenishment orders are typically placed with a supplier when the Replenishment Position (On
Hand - Committed on Current Outgoing Orders + On Current Incoming Replenishment Orders)
of an item is between its Order Point and Line Point Stock receipts for the replenishment orders.
This will normally be received when the replenishment position is somewhere between a point
equal to the Line Point -
Line point
QuantityDemand during order
cycle
Order
issued
Order pointDemand during
anticipated lead time
Safety Stock Safety Stock
Line point
QuantityDemand during order
cycle
Stock
Received
Order pointDemand during
anticipated lead time
Safety Stock Safety Stock
Anticipated Lead Time Demand and the Safety Stock quantity:
For example, if a product is ordered when its replenishment position is just below the line point,
shipment would be received when the available stock quantity equals the Line Point minus
Anticipated Lead Time Demand. But if the product is not ordered until the replenishment
position equals the Order Point, the receipt would probably arrive when the available inventory
equals the Safety Stock. Therefore it can be estimated that the “average” quantity on hand at the
time of stock receipt will be the average of the Line Point - Anticipated Lead Time Usage and
the Safety Stock quantity.
The stock receipt of products with recurring usage will normally be equal to the specified
Standard Order Quantity (SOQ) of the product. The average quantity of this SOQ on hand during
the time it takes to consume the entire SOQ will be equal to half the SOQ:
Therefore the ideal average on hand quantity of an item with recurring usage should be equal to
the average quantity on hand at the time of stock receipt plus half the SOQ:
[(Line Point - Anticipated Lead Time Usage) + Safety Stock]/2 + SOQ/2
Ideal average on hand quantity of each item with recurring usage can be multiplied with its
average cost and compare it with the current inventory value of the product to determine whether
there is currently over stocking or under stocking.
iii. Lead time and just in time inventory management
Lead time is the time that elapses between the placing of an order (either a purchase order or a
production order issued to the shop or the factory floor) and actually receiving the goods ordered
(Daniel et al, 1999)
If a supplier (an external firm or an internal department or plant) cannot supply the required
goods on demand, then the client firm must keep an inventory of the needed goods. The longer
the lead time, the larger the quantity of goods the firm must carry in inventory.
A just-in-time (JIT) is a philosophy that advocates the lowest possible levels of inventory. JIT
espouses that firms need only keep inventory in the right quantity at the right time with the right
quality. The ideal lot size for JIT is one, even though one hears the term "zero inventories" used.
Small scale business can maintain extremely low levels of inventory. However, a firm may have
a lead time of up to three months. That means that a firm that uses goods produced through a
process of three months must place orders at least three months in advance of their need. In order
to keep their operations running in the meantime, an on-hand inventory of three months’
requirement would be necessary.
iv. Economic order quantity
It is the level of inventory that minimizes the total inventory holding costs and ordering costs. It
is one of the oldest classical production scheduling models. The framework used to determine
this order quantity is also known as the Wilson EOQ Model or the Wilson Formula. The model
was developed by F. W. Harris in 1913.
The required parameters in determining the EOQ are the total demand for the year, the purchase
cost for each item, the fixed cost to place the order and the storage cost for each item per year.
The number of times an order is placed will also affect the total cost; however, this number can
be determined from the other parameters (Schwartz, 2009).
Assumptions of the EOQ model
1. The ordering cost is constant.
2. The rate of demand is constant
3. The lead time is fixed
4. The purchase price of the item is constant i.e. no discount is available
5. The replenishment is made instantaneously; the whole batch is delivered at once.
EOQ is the quantity to order, so that ordering cost + carrying cost finds its minimum. (A
common misunderstanding is that formula tries to find when these are equal.)
Variables
Q = order quantity
Q * = optimal order quantity
D = annual demand quantity of the product
P = purchase cost per unit
C = fixed cost per order (not per unit, in addition to unit cost)
H = annual holding cost per unit (also known as carrying cost or storage cost) (warehouse
space, refrigeration, insurance, etc. usually not related to the unit cost)
At EOQ Ordering Cost And Carrying Cost Are Same.....
The Total Cost function
The single-item EOQ formula finds the minimum point of the following cost function:
Total Cost = purchase cost + ordering cost + holding cost
- Purchase cost: This is the variable cost of goods: purchase unit price × annual demand quantity.
This is P×D
- Ordering cost: This is the cost of placing orders: each order has a fixed cost C, and we need to
order D/Q times per year. This is C × D/Q
- Holding cost: the average quantity in stock (between fully replenished and empty) is Q/2, so
this cost is H × Q/2
.
To determine the minimum point of the total cost curve, set its derivative equal to zero:
.
The result of this derivation is:
.
Solving for Q gives Q* (the optimal order quantity):
Therefore:
Note that interestingly, Q* is independent of P, it is a function of only C, D, H.
v. Balancing inventory and costs
There are three types of costs that together constitute total inventory costs: holding costs, set-up
costs, and purchasing costs.
Holding costs
Holding costs, also called carrying costs, are the costs that result from maintaining the inventory.
Inventory in excess of current demand frequently means that its holder must provide a place for
its storage when not in use. This could range from a small storage area near the production line
to a huge warehouse or distribution center. A storage facility requires personnel to move the
inventory when needed and to keep track of what is stored. If the inventory is heavy or bulky,
forklifts may be necessary to move it around.
Storage facilities also require heating, cooling, lighting, and water. The firm must pay taxes on
the inventory, and opportunity costs occur from the lost use of the funds that were spent on the
inventory. Also, obsolescence, pilferage (theft), and shrinkage are problems. All of these things
add cost to holding or carrying inventory.
If the firm can determine the cost of holding one unit of inventory for one year (H) it can
determine its annual holding cost by multiplying the cost of holding one unit by the average
inventory held for a one-year period. Average inventory can be computed by dividing the
amount of goods that are ordered every time an order is placed (Q) by two. Thus, average
inventory is expressed as Q/2. Annual holding cost, then, can be expressed as H (Q/2).
Set-up costs
Set-up costs are the costs incurred from getting a machine ready to produce the desired good. In
a manufacturing setting this would require the use of a skilled technician (a cost) who
disassembles the tooling that is currently in use on the machine. The disassembled tooling is then
taken to a tool room or tool shop for maintenance or possible repair (another cost). The
technician then takes the currently needed tooling from the tool room (where it has been
maintained; another cost) and brings it to the machine in question.
There the technician has to assemble the tooling on the machine in the manner required for the
good to be produced (this is known as a "set-up"). Then the technician has to calibrate the
machine and probably will run a number of parts, that will have to be scrapped (a cost), in order
to get the machine correctly calibrated and running. All the while the machine has been idle and
not producing any parts (opportunity cost). As one can see, there is considerable cost involved in
set-up.
If the firm purchases the part or raw material, then an order cost, rather than a set-up cost, is
incurred. Ordering costs include the purchasing agent's salary and travel/entertainment budget,
administrative and secretarial support, office space, copiers and office supplies, forms and
documents, long-distance telephone bills, and computer systems and support. Also, some firms
include the cost of shipping the purchased goods in the order cost.
If the firm can determine the cost of one set-up (S) or one order, it can determine its annual
setup/order cost by multiplying the cost of one set-up by the number of set-ups made or orders
placed annually. Suppose a firm has an annual demand (D) of 1,000 units. If the firm orders 100
units (Q) every time it places and order, the firm will obviously place 10 orders per year (D/Q).
Hence, annual set-up/order cost can be expressed as S(D/Q).
Purchasing Cost
Purchasing cost is simply the cost of the purchased item itself. If the firm purchases a part that
goes into its finished product, the firm can determine its annual purchasing cost by multiplying
the cost of one purchased unit (P) by the number of finished products demanded in a year (D).
Hence, purchasing cost is expressed as PD.
Total = Holding cost + Set-up/Order cost + Purchasing cost
or
Total = H(Q/2) + S(D/Q) + PD
2.2.2 Need for inventory control records
A comprehensive inventory control record system is relevant in order that:-
a) Goods sold can be recorded and balances in both physical and monetary terms calculated.
b) Checks can be implemented on regular or random basis to minimize losses due to
pilferage or damage in stores.
c) Goods can be recorded on a receipt in relation to both quantity and price, by use of highly
effective integrated computer system besides the manual system.
d) Replacement of stock can be ordered when re-order level is reached.
e) Records can be examined in order to highlight slow moving inventory which may
deteriorate or become obsolete.
f) Inventory can be charged to the appropriate department code when issued from store.
g) Returns to store can be properly recorded/ accounted for.
h) Rightful quality and quantity duly signed for and recorded in Goods Received Note
(GRN).
i) Stock taking procedure at a given time is done efficiently.
j) The valuation of stock for balance sheet and profit measurement purposes can be
accurately implemented (Kagiri, 2006).
2.3 Empirical studies
2.3.1 Strategy for resolving maximum profit for inventory minimization
Green and MischaDick (2001) found out that just like any investment in business; inventory
needs to serve the purpose of maximizing profit. However, in many cases inventory has turned
into a major cash flow constraint thus making it necessary to optimize inventory using analytical
and statistical methods in an integrated approach.
One of the biggest challenges in optimizing inventory is the fact that it is merely an output of
many inter-organizational processes, all too often organization attempt to lower inventory using
non-analytical approaches which lower service levels.
The study was conducted through a case study of a major US corporation, where Green and
MischaDick identified two-step approach of significant value; optimizing inventory levels while
viewing the existing order fulfillment process as a given constraint and changing the
fundamental order fulfillment process across the entire system. The first step was used to make
quick and successful cash availability. The second step was used to generate breakthrough
business results and provide a robust order fulfillment process that was to perform at lower
inventory levels while providing extraordinary service levels.
The real world constraint is taken into account prior to deciding on the appropriate changes.
Simulations are conducted to verify the appropriateness of the analytical models using actual
process data.
Cash flow problem is identified, further analysis reveals that inventory levels are high and turns
are below most major competition.
This study has not focused on the systems necessary for inventory management; they have only
taken into consideration inventory level as a strategy for maximizing profit.
2.3.2 Inventory value using six- sigma
Green and MischaDick (2002) found out that old equipment are viewed as not worth
understanding and improving for the operations, however, replacement cost can be staggering.
Certainty purchasing new equipment is necessary at times. However, frequently it is possible to
produce good product with existing equipment. Properly characterizing existing equipment using
statistical methods can yield significant improvements.
The research was carried out through a case study to a major US manufacturer, made the
decision to stop providing critical components. The supplier made the decision because the
equipment was the 30-40 years old, yields had traditionally run at 60% and the margins were
low, a baseline of the extrusion process was performed and a vast list of potential factors was
identified during process mapping. It was also determined through measurement system studies
that the measurement systems were not capable of measuring the parts. The measurement
systems were improved and several screening designed experiments were conducted. Results
showed a few key factors to be important. Follow-up optimization experiments were run. The
process was producing 100% yield within 3 months on existing numbers. The next step was to
produce parts that had not been previously produced. The first parts off of the new die met the
desired specification, although slightly off target.
This study has only considered the value addition or utilization of existing equipment considered
outdated to produce high quality product efficiently, therefore it did not consider the systems
necessary for inventory management
2.3.3 The study of inventory management of raw materials for a pharmaceutical company
Khor and Thomas (2007) focused on the raw materials procurement and ordering methods. The
study is based on the accuracy of the investigation on the methods to improve procurement and
inventory control.
The study used a case study of TCG a multinational pharmaceutical company, they used a two-
factor classification method to rank the thirty eight types of raw materials in the warehouse in
terms of their importance based on their past procurement cost and the amount of warehouse
space they occupied.
They proposed a just-in-time approach for the nine most important items by having timely orders
that much closely to the production schedule. A continuous review model was used for the next
eleven items of low importance and periodic review model was used for the remaining eighteen
items, which are of the least importance. They provided recommendation on how to improve
inventory control based on observation of the current practices. They found out that it might be
possible to reduce the amount of space occupied by raw materials from the current average of
1076 pallet by 72%.
The study focused on the inventory management of raw materials and ordering methods. It is
also based on the accuracy of demand forecast for finished products and investigates the methods
to improve procurement and inventory control using two-factor classification method i.e.
continuous and periodic review. However, it does not say how these control systems are applied
in various organizations. The researcher will concentrate on the inventory management system
practice by retail firms which represent the general inventory oriented organization.
2.4 Knowledge Gap
While earlier researches, on the area of inventory management have focused on the strategy for
maximizing profit by maintaining the necessary inventory level. They have also focused on the
utilization of existing equipment considered outdated to produce high quality product efficiently
and therefore it did not consider the systems necessary for inventory management. These earlier
studies have also focused on inventory management of raw materials and ordering method which
is based on the accuracy of demand forecast for finished products and has also investigated on
the methods for improving procurement and inventory control using 2-factor classification
method i.e. continuous and periodic review. The implementation of RFID tagging in the
inventory management of retailing store in order to control cost has also been considered.
Therefore the past researches have focused on the systems necessary for inventory management;
there have not been any considerations as to the extent of application in various organizations.
This study having the limited scope of major retail store in Nairobi will be able to capture the
data appropriate for effective adoption of inventory management in the most inventory oriented
firms in the country; as a result any conclusion reached can hold to other industries which are
represented by the firms in practice.
CHAPTER THREE
3.0 Research Design and Methodology
3.1 Introduction
Under this section the chapter will show the methods and techniques that will be used to collect
and analyze data during research. The research to be carried out is on enhancing effective
inventory management to a small-scale business. Areas to be touched on include research design,
target population, types of data, sources of data, tools to be used to collect data and the sampling
design to be used.
3.2 Research design
The research will use a case study. This design shows the analysis of the variables relevant to the
subject under study because it will focus its attention on the individual study and not the whole
population of small scale businesses.
3.3 Target Population
The study targets the employees, the records keepers and the directors of A-One Electronics.
Primary data will be collected through questionnaires which will be the main source of data and
secondary data will be used to assist the evaluation of data to be collected in the field. Data
collected in the field will be tested and results will help to write a report upon completion of
analysis. The table below shows population of the study.
Target population
Category Population Population %
Employees 24 80%
Records keeper 4 13.3%
Directors 2 6.7%
Total 30 100%
Source (Author 2010)
3.4 Sample size and sampling design
The sample of the study will consist of employees from six branches which will include; one
branch in Nairobi, two branches in Athi River and three branches in Machakos town.
A convenience sampling technique is used to select the sample due to proximity of the branches
to the researcher. The questionnaires will be issued, one to each of the branches of the selected
outlets.
3.5 Data description and collection methods
The study will use both primary and secondary data. The primary data will be collected through
a structured questionnaire administered on a drop and pick basis. The questionnaire will have
two parts A and B which are open-ended questions.
The questionnaires are aimed at collecting data on awareness of the concept of inventory
management as well as the level of application in the target population. The secondary data will
be from published sources such as the journals, books and online available information.
3.6 Data analysis method
The data will be checked for accuracy and completeness of recording of the responses, this data
will then be coded and checked for coding errors and omissions. The data will be single entered
into a Microsoft Excel packages. Once all the data would have been entered, we will verify the
Excel for accuracy and completeness of the entry. The data will then be run through the
statistical package for social science (SPSS). SPSS helps in summarizing the data by use of
descriptive statistics such as tables and percentages and prediction for numerical outcome using
linear regression. It will then be presented in form of pie chart, bar graphs and line graphs where
possible. Data analysis provides an easy way of interpreting information and hence arriving at
more accurate conclusions.
CHAPTER FOUR
4.0 Presentation Discussion and Interpretation of Findings
4.1 Presentation of the findings
This chapter presents analysis and findings of the research, from the study population target of 10
respondents, who were the respondents to the questionnaire, constituting 80% response rate. The total
number of males is five constituting 62.5% while the females’ number is 3 constituting 37.5%.
Gender
Table 1 GenderFrequency Percent
Male 5 62.5
Female 3 37.5
Total 8 100
Source: Research Data
The above table shows there were more males than females as represented by the figure below.
Figure 1 Gender
Male63%
Female38%
Source: Research Data
Table 2 Age of respondentsAge Frequency Percent
20-29 4 50
30-39 3 37.5
40-49 1 12.5
Total 8 100
Source: Research Data
The above table reveals that the majority of the respondents were 20-29 years old as compared to 30-39
and 40-49 years old. The figure below was used to present this information.
Figure 2 Age of respondents
20-2950%
30-3938%
40-4913%
Education level
Table 3 Education levelFrequency Percent
Post graduate 1 12.5
Graduate 4 50
Secondary 3 37.5
Total 8 100
Source: Research Data
The table above shows the education level of the respondents. Majority of that number is of the graduate
level compared to secondary level of education and the post graduate level of education as represented in
the figure below.
Figure 3 Education level
Post graduate13%
Graduate50%
Secondary38%
Source: Research Data
On the education level of the respondents, the researcher found out that the majority of respondents were
graduate compared to post graduate and diploma/college certificate.
Period of time working at A-one electronics
Table 4 Period of time working at A-One ElectronicsPeriod Frequency
1 month- 1 year 1
1 year- 2 years 1
2years- 3 years 3
Above 3 years 3
Source: Research Data
The above table shows that most of the employees have been at A-one electronics for 3 years and above
and also 2year to 3 years. Only a few have worked for 2 years and below.
Availability of inventory management systems
Table 5 Availability of inventory management systemsFrequency Percent
Yes 8 100
Total 8 100
Source: Research Data
According to the above table, the entire respondent says that they have inventory management systems in
their organization and also have written guidelines on inventory management.
Type of inventory management system
Table 6 Type inventory management systemType Frequency Percentage
1. Classification system 0 0
2. Counting system 2 25
3. Internal control systems 3 37.5
4. Accounting systems 3 37.5
Total 8 100
Source: Research Data
The table shows the type of inventory management system used in the different branches.
Figure 4 Type of inventory management system
Classifi
cation sy
stem
Counting syst
em
Internal
contro
l syste
ms
Accounting s
ystem
s0
5
10
15
20
25
30
35
40
Type of inventory management system
Source: Research Data
Objectives of using inventory management systems
Table 7 Objectives of using inventory management systemsFrequency Percent
Keep track of available inventory 5 62.5
Increase sales 1 12.5
As an internal control tool 1 12.5
Make a requisition for more inventory 1 12.5
Total 8 100
Source: Research Data
In the above table, the study sought to investigate the objectives of carrying out inventory management
systems.
Figure 5 Objectives of using inventory management systems
Keep tr
ack of a
vaila
ble inve
ntory
Increase
sales
As an in
ternal
contro
l tool
Make a
requisiti
on for m
ore inve
ntory0
10
20
30
40
50
60
70
Objectives of using inventory management systems
Source: Research Data
Responsibility of developing inventory management systems
Table 8 Development of systems responsibilityFrequency Percent
Stores and purchasing manager 2 25
A project team from within 2 25
Departmental managers 4 50
Employees themselves 0 0
Total 8 100
Source: Research Data
In the above table the study sought to investigate from the respondents who developed inventory
management system as represented by the figure below.
Figure 6 Responsibility of developing systems
Stores
and purch
asing m
anag
er
A projec
t team
from w
ithin
Depart
mental
man
agers
Employe
es them
selve
s0
10
20
30
40
50
60
Responsibility of developing inventory management sys-tems
Source: Research Data
Responsibility of carrying out inventory management systems
Table 9 Responsibility of carrying inventory management systemsFrequency Percent
Supervisor 5 62.5
Peers 0 0
Group supervisor 2 25
Branch manager 1 12.5
Total 8 100
Source: Research Data
According to the findings in the above table, the majority of the respondent said that supervisors are
responsible for carrying out inventory management system compared to the others.
How clear and formalized the inventory planning process is
Table 10 Clarity and formalization of inventory planning processFrequency Percentage
Yes 6 75
No 2 25
Total 8 100
Source: Research Data
The table outlines how the inventory planning process is clear and its formalization.
Figure 7 Clarity and formalization of inventory planning process
Yes75%
No25%
Source: Research Data
From the above table, majority of the respondents say the stock planning process is clear and formalized
compared to whom think that the stock planning process is unclear and not formalized.
Stock keeping and storage facilities
From the findings the businesses have a store keeper and they do have inventory storage facilities.
Table 11 Stock keeping and storage facilitiesFrequency Percentage
Is there a store keeper 8 50
Does the business have storage
facilities
8 50
Source: research data
The table determines whether there is store keeping and the existence of storage facilities as depicted in the figure below.
Figure 8 Store keeping and storage facilities
Is there a store keeper50%
Does the business have storage facilities
50%
Source: Research Data
Transport and payment of inventory
Table 12 Transport and payment of inventoryHow is stock transported to business premises? Percentage
By pickups 100%
Payment for transport
When Goods are delivered 100%
Source: Research Data
The data indicated that the firm’s stock is transported by use of pick-ups and that payment is done when
the goods are received.
Inventory storage
Table 13 Transport and payment of inventoryfrequency Percentage
Stored within the shops 2 25
Stored in a warehouse 5 62.5
Stored in owners residence 1 12.5
Total 8 100
Source: Research Data
From the data collected, most of the branches had a warehouse for storing stock compared to storing
stock within the shop outlets and in the owner`s residence.
Figure 9 Inventory storage
Stored within the shops25%
Stored in a warehouse63%
Stored in owners residence13%
Source: Research Data
Challenges experienced in the adoption of inventory management systems
Table 14 Challenges experiencedVery
Strongly
Agree
Strongly
Agree Agree Disagree
Strongly
Disagree
Factors % % % % %
Do the systems you use in your company
conflict with each other? 0 12.5 37.5 37.5 12.5
Do your suppliers supply goods on time? 0 25 75 0 0
Do customers shop lift stock/inventory
from the shelves? 0 25 50 12.5 12.5
Loss of inventory through theft by
employees 0 12.5 25 25 37.5
Does it take time to reconcile the
systems that you use? 50 25 25 0 0
Are there damages of inventory/stock by
employees and customers? 12.5 25 12.5 62.5 0
Source: Research Data
The above table shows the findings on the challenges experienced in the adoption of inventory
management systems. From the findings, the researcher found out that in the majority of the organization,
the system used conflict with each other, suppliers supply goods on time, customers do shoplift stock in
the shelves, there is less theft by employees, it takes time to reconcile the system and there are minimum
damages of inventory by both employees and customers as shown above.
Improvement of inventory management system
Table 15 Improvement of inventory management
Very
Important
Importan
t
Not
Importan
t
Factors % % %
Have strong security controls to avoid shop lifters and theft
by customers and employees
75 25 0
The managers and team members should co-operate 37.5 62.5 0
The lead time for stock should be short to avoid stock out
and damages
75 25 0
Dealing with inventory/stock problems quickly as they occur 62.5 37.5 0
Use of computers at the sales and purchasing points and
stock taking
62.5 37.5 0
Handling inventory/stock with care by all concerned 75 25 0
Source: Research Data
The above table shows the action to be taken in order to improve inventory management systems. From
the findings, respondents’ suggestions to improve the management systems were that majority of the
organization strong security controls to avoid shop lifting and theft by both customers and employees, it is
important for both manager and team member should corporate, lead time for stock should be short to
avoid stock out and damages, dealing with problems as they occur, use of computers at the sale and
purchasing point and handling inventory with care by all concerned as shown above.
4.2 Discussion of the findings
From the analysis and data collected the following discussion was made. Guided by the objectives in the
summary, the study shows that the respondents of the different branches of A-one electronics had some
reasonable awareness of the practice of inventory management.
62.5 percent of the respondents were males and 37.5 percent were females. Of the total population
majority of the respondents were aged between 20 and 29 years. 50 percent of the respondent had a
graduate degree as the rest had post graduate and secondary certificate. The six branches that were
undertaken in the survey were drawn from different geographical areas. These were from Nairobi, Athi-
River and Machakos.
Extent of inventory management adoption that has led to success of small scale business
The study found out that the inventory management practices were practiced in all the branches surveyed.
The reasons for using the inventory management system were varied but included to keep track of
available inventory, increase sales, internal control tool and making a requisition for more inventories.
The stores and purchasing manager, departmental managers and project team from within were
responsible for development of inventory management system in the organizations. The supervisor, group
supervisor and branch managers were responsible for carrying out inventory systems.
Determination of lowering holding and carrying costs that small scale business should incur to
maximize profits
The study also revealed that in the majority of the branches, the inventory planning process was clear and
formalized, objectives and tasks were clearly stated, inventory problems dealt with as they arise,
performance by employees improved with inventory management, the cash and carry method of buying
led to the improved inventory management, the customer services improved with adoption of inventory
management, both managers and team leaders provided constructive feedback as required, had improved
security systems, they used bar coding, both customers and employees handled stock with care.
Challenges that faced the adoption of effective inventory management controls
In terms of meeting the challenges in adopting an effective inventory management system, the factor that
was most met, was dealing with problems as they arose. The challenge that was most experienced by the
organization in the adoption of inventory management system was shoplifting of inventory by customers.
Most of the branches should use computer at the point of sale and purchasing as well as handle inventory
with care by all concerned.
4.3 Interpretation of findings
Extent of inventory management adoption that has led to success of small scale business
The researcher found out that majority of the organization systems conflict with each other, supplier
supplied goods on time, there was theft and shop lifting by customers, it took average time to reconcile
the systems, there were little damages of stock by employees and customers and customers were satisfied
as a result of ordering the right quantity.
Challenges that faced the adoption of effective inventory management controls
The study revealed that in the majority the organization, security should be strong to avoid shop lifting
and theft by customers, both managers and team member should cooperate, the lead time for stock should
be shorter to avoid stock out and damages.
Stock should be stored within the firm and the firm should adopt just in time inventory system to avoid
high storage costs.
The firm should also deal with inventory problems as they occur, computers should be used at the point of
sales and purchasing and stock should be handled with care by all concerned. From the research it was
also noted that managers should ensure that employees are educated and understand the importance of
efficient stock management.
CHAPTER 5
5.0 Summary, Conclusions and Recommendations
Introduction
This study was designed with these questions in mind:
To what extent has the adoption of inventory management led to success of small scale
business?
How do we lower holding costs and carrying costs of stock incurred by small scale
businesses and maximize their profits?
What challenges face adoption of effective inventory management controls?
5.1 Summary
5.1.1 Extent of the adoption of inventory management in small scale business: Case A-One
electronics
The researchers established that small scale businesses mostly used inventory management
systems and mostly practiced accounting system and internal control system both by 37.5
percent. Classification system and counting system were least used because of time consumption,
a lot of paper work involvement and changes in technology.
5.1.2 Determination of lowering holding and carrying costs that small scale businesses
should incur to maximize profits: Case A-One electronics
The researchers established that the business used storage facilities for storing stock. With these
storage facilities the business incurred costs of storing stock and holding costs of stock. The
business incurred transport costs relating to stock. This is the cost of carrying stock from the
storage facilities to the business premises.
5.1.3 The challenges experienced in the adoption of inventory management system: Case A-One Electronics
From the research findings, it is established that small scale businesses are facing various
challenges. The businesses usually have difficulty in reconciling the systems that they use the
failure of suppliers to supply goods on time, conflicting systems, theft, shoplifting and damages
of stock by employees and customers.
5.2 Conclusions
From the findings in chapter four and the summary in this chapter, it can be concluded that
majority of the organizations in small scale business practice inventory management system. It
can be concluded from results that companies are adopting different types of inventory
management ranging from classification system, counting system, internal control system and
accounting systems.
In A-One electronics, the types of inventory management system used were internal control
systems and accounting systems which were both represented by 37.5% followed by the
counting system which recorded 25%.
Also, we found out that the objectives of using inventory management systems, was to keep
track of available inventory – as represented by 62.5% of the respondents.
Stock holding costs and stock carrying costs are incurred in businesses that deal with ready
merchandise. This is evidenced by the existence of warehouses and stock transport means,
shown by the storage and transport infrastructure represented by 62.5% and100% respectively.
Stock holding costs and stock carrying costs are incurred in businesses that deal with ready
merchandise. This is evidenced by the existence of warehouses and stock transport means.
It can also be concluded that small scale businesses are faced with a number of challenges that
bar the adoption of effective inventory management systems and which can be resolved by the
given remedy actions. The research study reveals also that a number of further actions can be
undertaken to achieve an effective inventory management systems. The actions are discussed in
the recommendations of the study.
5.3 Recommendations
In light of the above, the following recommendations are made:
Inventory management should be incorporated in all functions of an organization
Inventory management should be driven by the line managers with the objectives of
developing the systems all round
Inventory management should be owned by all the employees for it to benefit the entire
organization.
Training the employees on ways of handling and managing inventory as well as new
employees on stock management and handling.
Training the managers on internal control.
Laying out formal procedures of inventory management of effective inventory
management.
Making sure employees and management are involved in the stock management.
Improvement of storage facilities.
Setting clear inventory controls as well as account for stock on regular periods.
Introduction of effective computer systems.
The study of inventory management is a new concept because inventory management is a new
practice of management in the store and purchasing management. As seen in the background of
this study, it is more practical in the western world than in Kenya and it has yielded good results.
It therefore needs to be explored further in Kenya and clear practice put in place to ensure proper
management of the stock for maximum productivity and success as in the western world.
5.4 Limitations
The business in question – A-One electronics – did not give full information on inventory
systems in place in its organization and also the full role the systems play in enhancement of
achieving the overall objective of the business, that is, what level of profitability is achieved,
fearing exposing confidential information about the business to competitors who are many and
are lined up along the same business centre / street.
Areas for further studies as well as suggestions
The research has revealed that there is inadequate use of the day technology.
Further research is recommended in the following areas;
Adoption of technology in the small scale businesses
Impact of customer satisfaction on sales
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Appendices
Questionnaire
SECTION A: GENERAL INFORMATION
1. Name: (optional) _________________________________________________________
2. Position held ____________________________________________________________
3. Age: Below 20 ( ) 20-29 ( )
30-39 ( ) 40-49 ( )
50-59 ( ) 60-69 ( )
4. Gender: Male ( ) Female ( )
5. Level of education:
Primary ( ) Diploma ( )
Secondary ( ) Graduate ( )
Post Graduate ( ) Doctorate ( )
1. How long have you worked at A-ONE electronics?
……………………………………………………………..
……………………………………………………………..
PART B: INVENTORY/ STOCK MANAGEMENT ISSUES
Success of inventory management systems
1. Does your firm have inventory/ stock management policies?
Yes [ ]
No [ ]
2. What inventory/ stock management system do you practice? (please tick where
appropriate)
a) Classification system [ ]
b) Counting system [ ]
c) Internal control systems [ ]
d) Accounting system [ ]
e) Others (specify) _____________________________________________
3. Who oversees inventory/ stock systems in your firm?
a) Supervisor [ ]
b) Peers [ ]
c) Group supervisor [ ]
d) Branch manager [ ]
e) Others (specify) __________________________________________
4. Do you have written guidelines on inventory/ stock management for managers and
individual?
Yes [ ]
No [ ]
5. Who developed the inventory/ stock management in your firm?
a) The stores and purchasing manager [ ]
b) A project team from within [ ]
c) Departmental managers [ ]
d) Employees themselves [ ]
e) Any other (state) _________________________________________
6. What role does stock management achieve?
a) To keep track of the available inventory/ stock [ ]
b) To increase sales [ ]
c) As an internal control tool [ ]
d) To make a requisition for more inventory/ stock [ ]
e) Any other (specify) ________________________________________
Lowering holding and carrying costs
7. Are the inventory/ stock planning process clear and formalized?
Yes [ ]
No [ ]
8. Who is in charge of stock keeping?
a) A store keeper [ ]
b) A clerk [ ]
c) An accountant [ ]
9. Does the business have storage facilities?
Yes [ ]
No [ ]
10. How is inventory stored?
a) Stored within the shop outlets [ ]
b) Stored in a warehouse in a different area [ ]
c) Stored in the owners residence [ ]
11. How is stock transported to the business premises?
a) By handcarts [ ]
b) By saloon cars [ ]
c) By pick up cars [ ]
d) By Lorries [ ]
12. How is payment for transport done?
a) When goods are delivered [ ]
b) Before goods are delivered [ ]
c) For a period of time in a year [ ]
d) Once in a year [ ]
Challenges that bar adoption of effective inventory management
Please tick where appropriate using the following scale: 1-Very strongly agree 2-Strongly
agree 3-Agree 4-Disagree 5-Strongly disagrees
Challenges experienced in
the adoption of
inventory/stock
management systems
1 2 3 4 5
13. Do the systems you use in
your company conflict with
each other?
14. Do your suppliers supply
goods on time?
15. Do customers shop lift
stock/inventory from the
shelves?
16. Loss of inventory though
theft by employees
17. Does it take time to
reconcile the systems that you
use?
18 Are there damages of
inventory/stock by employees
and customers?
Please tick where appropriate using the following scale: 1-Very important 2-Important 3-Not
important
What can be done to
improve inventory/stock
management systems in the
company
1 2 3
19. Have strong security
controls to avoid shop lifter
and theft by customers and
employees
20. The managers and team
members should co-operate
21. The lead time for stock
should be short to avoid stock
out and damages
22. Dealing with
inventory/stock problems
quickly as they occur
23. Use of computers at the
sales, purchasing points and
stock taking
24. Handling inventory/stock
with care by all concerned
25. How can inventory management at A-One electronics be improved?
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