Abstract

This study aims to examine “The Effect of Inventory Management on the Performance of Hotels in Buea”. Its specific objectives are to assess the approaches used by hotels to manage their inventory, to evaluate the performance of hotels in Buea and to investigate the relationship between inventory management and performance of hotels in Buea.

The selected businesses here are businesses in the tertiary sector in Buea using inventory management techniques and the random sampling technique was used to choose the sample businesses that will represent our target population.

Primary data was collected with the use of 40 questionnaires that was answered by accountants and other department staffs of the target businesses. Frequencies and percentages were used to analyze data through SPSS and Microsoft Excel and the results were showed on tables, bar charts and pie charts.

The findings indicate  that Just In Time approach of inventory management and Economic Order Quantity is often used by the company to increase flexibility in production thus improving the performance of the hotels to enable them to make available the amount of products required and just when demanded. The results also indicate that proper use of inventory management techniques like application of JIT reduces on ordering costs such as air time costs, in organizations when employed.

Therefore, the study thus recommends that company’s should also fix the stock levels that is, maximum, minimum, and reorder levels for all items in stock in order to avoid inadequate stocks or stock outs suffered by the company. The study further recommends that firms should invest in training of their employees so as to develop their skills and provide them with the basic knowledge pertaining to inventory management so as to avoid poor quality delivery and damages arising from court cases.

CHAPTER ONE

INTRODUCTION

1.1 Background to Study

In reality, service rendering businesses such as hotels occupy a very important place in developing, as well as developed countries’ economy, considering its contribution to national income, employment, exports, and entrepreneurship development (Storey, 1994). Service rendering businesses already contribute significantly to Cameroon’s economy.

At least 90% of enterprises in Cameroon are micro and small businesses and employ nearly 70% of the population (Enumedi, 2013). Given all these credits to service rendering businesses, the enterprises have however been facıng numerous problems including lack of efficient access to finances from the banks and other ending institutions and collapsing of the micro businesses due to mismanagement (Koril et al., 2010).

Equally, it is observed that, poor inventory management has been posted as the main cause of failure on the service rendering enterprises (Longenecker et al., 2006). Bowen (2009) stated that there is a strong link between the performance of businesses and the level of training in business management especially in inventory management, book keeping and business finance record keeping.

In the past, inventory management practice was not seen to be necessary. In fact left-over inventories were considered as indication of wealth, but today firms have started to embrace effective inventory management (Syed et al., 2016). There are several reasons for managing inventory. Excessively stock could result in funds being tied down, increase in holding cost, decline of materials, obsolescence and theft.

On the other hand, deficiency of materials can lead to interruption of products for sales, poor customer relations and underutilize machines and equipment. Inventory management also becomes an important part of supply chain management (SCM). A lot of research in SCM over the last two decades can be characterized as so called “multi-echelon inventory theory”.

Steven (2019) who stressed that inventory management practices has an impact on the functions of service rendering enterprises, particularly in operations, marketing, accounting and finance. He established that there are three motives for holding inventories, which are transaction, precautionary and speculative motives. The transaction motive is said to occur when there is a need to hold stock to meet production and sales requirements.

A firm might also decide to hold extra amounts of stock to cover the possibility that it may have under estimated its future production and requirements. This represents a precautionary motive, which applies only when future demand is uncertain. The speculative motive for holding inventory might entice a firm to purchase larger quantity of material than normal in anticipation of making abnormal profits.

According to Anichebe (2013), inventories are vital to the successful functioning of manufacturing and retailing organizations. They may consist of raw materials, work in progress, spare parts / consumables, semi-finished goods, work in progress and finished goods. An efficient management of inventory is required because a substantial share of a firm’s funds is invested in them.

Every company must ensure that inventory is maintained at desired levels. Too much and too low inventories bring down the level of profitability of an organization. Whether it is a manufacturing organization or a merchandized organization, the goal should always be the same, that is, to ensure the inventory is ready and at the same time the inventory level should be low. Inventory represents an important decision variable at all stages of product manufacturing, distribution and sales, in addition to being a major portion of current assets of many organizations.

A substantial share of an organization’s investment is in the inventories. Inventories often represent as much as 40% of total capital of industrial and service organizations (Moore, Lee & Taylor, 2003). It may represent 33% of an organization’s total assets and as much as 90% of working capital (Sawaya & Giauque, 2003).

According to Ahn (2014), Inventories therefore, need to be controlled in such a manner, as to leverage on organizational productivity and overall performance. Inventory control involved procurement, utilization, controlling and co-ordination of available materials. Inventory control was the direction of activities with the purpose of getting the right materials, at the right quality and quantity, in the right place at the right time and it is directly linked to production function of any organization which implied that, the inventory management system operated, would affect the profitability of an organization, directly or indirectly.

Inventories were the stock of raw materials, work in progress and finished goods held by a business organization facilitated operations in the production process. Therefore, if a company failed to manage its inventory efficiently, it was likely to face profitability problems .The goal of inventory management was to provide the inventories required to sustain operations at minimum costs.

However, Essex (2007) said that managing inventory by organizations got challenges which included the following integrating demand planning and inventory planning, training users of demand planning and inventory management software, change management, dumping those spread sheet and papers, standardized data some companies tripled up by having many definitions for the same data.

This resulted to poor demand planning and inventory planning and control where the organization did not provide accurate services to its customers and had also resulted into loss of data due to damping spread sheets and papers and also lack of clear definition of the data due to many definition hence increasing losses for the organization.

For many organizations, there is no doubt that inventory management enhanced their operations. Baron et al., (2010) suggest that to improve the performance of small businesses, effective inventory management practices need to be adopted. Rajeev (2008) on the other hand proposes that companies should embrace effective inventory management practices to improve their competitiveness in the market.

Inventories are essential for keeping the production wheels moving, keep the market going and the distribution system intact. They serve as lubrication and spring for the production and distribution systems of organizations. Inventories make possible the smooth and efficient operation of manufacturing organizations by decoupling individual segments of the total operation. Purchased parts inventory permits activities of the purchasing and supply department personnel to be planned, controlled and concluded somewhat independently of shop-product operations.

These inventories allow additional flexibility for suppliers in planning, producing and delivering an order for a given products part. Thus, it represents one of the most important assets that most businesses possess and the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company (Prempeh, 2016).

Consequently, the management of an organization becomes very concerned in inventory stocks are high. There for, it should be managed in order to avail the inventories at right time in right quantity. Inventory can be also viewed as an idle resource which has an economic value. So, better management of the inventories would release capital productively.

Inventory control can be done through introduction of different measures so as to prevent the company from incurring unnecessary losses made by different departments measures which can be put in place for example stock-taking which is the accounting of stock at every end of the month, so as to record the lost and available stock, making proper supervisions on sites during construction of buildings so to avoid theft of materials by workers. The company should set up strict rules to procurement officers and store managers which they should follow during purchasing and storing of material so as to avoid loss of inventory in the company (Amahalu et al., 2018).

According to Bierderman (2004), inventory management is important to all most every type of business whether product or service oriented; it is a system which ensured that the right quality of materials was available in right quantity at the right place and at a right time with the amount of investment. Donald (2009) also argued that Inventory management system helped the firm in managing the flow of raw materials, semi-finished products and provided the staff to coordinate various activities for effective inventory management and this would increase demand and supply of products which increased customer satisfaction.

According Lewis (2014), inventory management has become one of the important issues that had to be handled with a lot of care in modern organizations. Inventory management help to ensure that the organization is supplied with all necessary materials required to run a smooth production process furthermore, he Argued that Inventory management was very essential to firms that invested heavily in materials.

Most service organizations invest huge sums of money in terms of supplies the relation for most service firms holding high amounts of Inventory was that they enjoyed quantity discounts, eliminated stick out, met customers’ demand, ensured company’s image and even checked price changes.

In order to manage inventories efficiently, effectively and obtain maximum performance in service rendering enterprises, the hotels must normally have an inventory management system or practice which monitors or controls the flow of inventories so as to ensure that there is neither oversupply nor undersupply in the in enterprise. Several efforts like keeping proper records of inventory, ensuring that there is stable supply of materials through forming strategic alliances with the suppliers and others, yielded less in reducing the costs as the biggest constraint into its profitability.

Performances in service oriented businesses is geared towards; expansion of hotels, profitability, growth of hotels, wide range of products offered to customers, and return on capital employed. Therefore, this study intends to examine the relationship between inventory management and the performance of hotels in Buea.

1.2 Statement of the Problem

Inventories occupy the most tactical position in the structure of working capital of most enterprises. Efficient and effective management of inventory in any service rendering enterprises saves cost and hence saving them from poor quality production, disappointment of seasoned customers, loss of profit and good social responsibility.

One of the key factors for the success of a firm is effective flow management in supply restraints (Prempeh, 2016). The challenge in managing inventory is to balance the supply of inventory with demand. A firm would preferably want to have enough inventories to satisfy the demands of its customers and avoid lost sales due to inventory stock-outs.

Also, the firm does not want to have too much inventory staying on hand because of the cost of carrying inventory. Enough but not too much is the ultimate unbiased (Coyle & Bardi, 2003).

Eshun (2014) points out that, despite the benefits of inventory management, service rendering enterprises have always ignored the potential savings from proper inventory management and end up having more funds invested in inventory than necessary.

They are therefore not able to meet customer demands because of poor distribution of investment among inventory items hence the basis of this study. In majority of service oriented enterprises, inventory constitutes the most significant part of current assets. In this view, the study wishes to assess the effect of inventory management practices on the performance of service oriented enterprises.

Inventory constitutes a very significant portion of the current assets of Hotels because most of their assets are in inventory form and their turnover represents the primary source of revenue and subsequent earnings to them (Prempeh, 2016).

Considering the level of investment required for inventory in Hotels it is essential to manage inventory efficiently and effectively in order to avoid idle or shortage resources and also ensure production continuity. Inefficient management of inventory can lead to under-utilisation of capacity and loss of profit (Mohamad et al., 2016). The under-utilisation of capacity can intensify the unemployment problem in any economy.

Well and efficient control of inventories can contribute to the effective operation of the firm and hence the firms overall profit (Dubelaar, 2000). In many developing economies, service rendering enterprises employ substantial number of the work force Therefore, efficient management of inventory in hotels is very important for meaningful economic growth and or development of any country. This study therefore sought to determine the relationship between inventory control or management and the performance of hotels in the municipality of Buea-Cameroon.

1.3 Research Questions

1.3.1 Main Research Question

How does inventory management affects the performance of hotels in Buea?

1.3.2 Specific Research Questions

1. What are the approaches used by hotels to manage their inventory?
2. What is the performance of hotels in Buea?
3. What is the relationship between inventory management and performance of hotels in Buea?

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