Abstract

The study was based on the impact of inventory management on the performance of small and medium size enterprises. The main objective of the research was to examine the impact of inventory management on the performance of SMEs; the study was based on three specific objectives, the impact of just in time on the performance of SMEs, the impact of economic order quantity on the performance of SMEs, and the impact of vendor management on the performance of SMEs.

The research was carried out using a survey design and questionnaires was used to carry out the research since it was a quantitative research study. Descriptive and inferential statistics were used to analyze the data. The data collected were classified and analyzed using the linear regression analysis with the help of Statistical Package for Social Sciences (SPSS) version 26 to examine the relationship between the independent variable (inventory management) and the dependent variable (performance).

A random sample of 40 questionnaires were administered, and the hypothesis were tested which shows that just in time significantly affect the performance of SMEs,  vendor management significantly affect the performance of SMEs, This study therefore rejects the Null hypothesis and concludes that inventory management has a significant impact on the performance of small and medium sized enterprises.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In the past, inventory management practice was not seen to be necessary. In fact left-over inventories were considered as indication of wealth. Management by then considered over stocking usefulness. But today firms have started to embrace effective inventory management (Syed, Nurul, Nabihah & Raja, 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 SMEs, particularly 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.

 

Inventory constitutes a very significant portion of the current assets of Small and Medium Scale Enterprises because most Small and Medium Scale Enterprises’ assets are in inventory form and their turnover represents the primary source of revenue and subsequent earnings to Small and Medium Scale Enterprises (Prempeh 2016). According to the European Union SME is defined by its number of employees and its turnover.

According to World Bank doing business (2015), Medium enterprises are conceived as enterprises which have at most 300 employees and an annual turnover not exceeding 15 million US dollars. Also, there is the distinction of small enterprises having fewer than 50 staff members and up to 3 million US dollars turnover while micro-enterprises have up to 10 persons and $100,000 turnover. In the UK, sections 382 and 465 of the Companies Act 2006 define an SME for the purpose of accounting requirements.

According to this, a small company is one that has a turnover of not more than £5.6 million, a balance sheet total of not more than £2.8 million and not more than 50 employees. A medium-sized company has a turnover of not more than £22.8 million, a balance sheet total of not more than £11.4 million and not more than 250 employees

According to Ogbo (2017), the flow of information between centers of the factories in an enterprise is inadequate contributing significantly to high operational costs. Inventory is a requirement for the efficient operational performance; hence, inventory needs proper control as it is one of the largest assets of the factory. Other inventory management practices include just in time, economic order quantity, first in first out, last in first out economic production quantity.

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, Nweze, Nwere & Obi, 2018).

Inventory managers are concerned with cost, criticality and contribution of their holdings. Ordering and maintaining inventory has several costs. These include capital costs, administrative expenses, storage charges, shrinkage, taxes and insurance. Most of these vary directly with the average quantity of inventory held. An obvious strategy for cost avoidance would be to reduce or eliminate inventories.

That probably cannot be done in very many cases. Most SMEs in USA, West and Eastern Europe determine the level of inventory necessary to provide an acceptable level of customer service and manage that size inventory as efficiently as possible. According to (Mwachiru Mathias, 2019) Firms uses Just in Time method of inventory management hence keep zero or very minimal inventory at all.

The inventory policy of distributors and retailers is strongly influenced by the nature of the demand for their goods. Special goods consumers are willing to wait for special orders to provide exactly the product they want, therefore an extensive inventory is not required which is what is experienced locally in most African countries Cameroon being included.

In order to manage inventories efficiently, effectively and obtain maximum performance in small and medium scale enterprises, the small and medium scale enterprises must normally have an inventory management and control 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 small and medium scale enterprises.

Inventory includes; inventory of raw materials, inventory of semi-finished products, inventory of work in progress and inventory of finish products. Inventory management practices or system include; economic order quantity, net transaction approach, just in time management system and vendor managed inventory system. While performances in SMEs will include; expansion of small and medium scale enterprises, profitability, growth of SMEs and return on capital employed. Therefore, this study intends to examine the relationship between inventory management and the performance in small and medium scale enterprises.

1.2 Statement of the problem

Due to the current instabilities in the economy of Cameroon precisely in Buea municipality, consumable goods SMEs are faced with the extreme changes in customers’ demands for their products. SMEs will ideally want to have enough stocks to satisfy the demand of its customers. On the other hand they do not want to have too much inventory staying on hand because of the cost of carrying inventory.

The implications are: Out of stock of critical material leading to hasty buying because of low stock levels, i.e. difficulties in determining average amount of stock necessary to satisfy production requirement, suggested by Okoye et al 2016. Unnecessary tying down of funds as well as loss of fund due to pilferage, spoilage and obsolescence of stock maintain of too low inventories so as to meet demand as at when needed.

High cost of materials purchased and rate of wastage are also main concerns that affect productivity, sales and profitability of SMEs. The concern is not only to shareholders but also to management and the growth of the nation. One of the key factors for the success of a firm is effective flow management in supply restraints. 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.

A number of studies have been carried out in this area of inventory management in small and medium scale enterprises. Globally on studies of improving inventory management in small and medium scale enterprises,(Emmanuel, Tunde ,& Felix Ebun ,2021) certain the relationship between effective inventory management practice and firms performance of selected consumable goods firms on Nigeria stock exchange for a ten (10) year period from 2009-2019,( Suphattra  and Kong, 2020) examine  inventory management practices especially in regard to the sustainability of new SMEs, Asare and Prempeh (2016) studied the impact of efficient inventory management on profitability in selected manufacturing firms in Ghana, (Zbigniew Gołaś, 2020) studied the causative link between inventory performance and profitability of food companies. Therefore for purposes of this study focus will be on inventory management and its impact on the performance of SMEs in Buea. The study will provide us with answers to the following research questions

1.3 Research Questions

1.3.1 Main research question is;

What is the effects of inventory management on the performance of SMEs in Buea?

1.3.2 Specific research question

1. What is the impact of just in time approach of inventory management on the performance of SMEs in Buea?
2. To what extend does the vendor management approach of inventory management on the performance of SMEs in Buea?
3. What is the impact of the economic order quantity approach of inventory management on the performance of SMEs in Buea?
4. To what extent do stocks out affect the performance of SMEs?

Check Out: Accounting Project Topics with Materials