Abstract

This study was aimed at assessing the impact of inventory management on the growth of Telcar cocoa company, Tombel. The population consisted of the complete staff of the company and through purposive sampling, 40 employees of the company were chosen for the study and data was collected with the use of structured questionnaires which led to 33 questionnaires fully answered and returned.

Data was analysed with the use of SPSS version 20.0 software and demographic characteristics of the respondents were presented on frequency tables while least square regression and Pearson correlation were used to capture the causal effect of inventory management on organizational growth.

Findings revealed that, inventory management has a positive and significant effect on organizational growth. It was recommended that the company should device efficient ways of managing its inventory in order to ensure continuous growth of the organization.

CHAPTER ONE

INTRODUCTION

1.1. Background to the Study

Inventory management is pivotal in effective and efficient organization. It is also vital in the control of   materials and goods that have to be held (or stored) for later use in the case of production or later exchange activities in the case of services. The principal goal of inventory management involves having to balance the conflicting economics of not wanting to hold too much stock.

Inventory problems of too great or too small quantities on hand can cause business failures. If a manufacturer experiences stock-out of a critical inventory item, production halts could result. Moreover, a shopper expects the retailer to carry the item wanted. If an item is not stocked when the customer thinks it should be, the retailer loses a customer not only on that item but also on many other items in the future. The conclusion one might draw is that effective inventory management can make a significant contribution to company’s profit as well as increase its return on total assets. It is thus the management of this economics of stockholding, that is appropriately being refers to as inventory management.

The reason for greater attention to inventory management is that this figure, for many firms, is the largest item appearing on the asset side of the balance sheet. Yang et al (2006) argued that supply chains have evolved from traditional forecast-driven push to demand driven pull systems over time, and that postponement is playing an increasingly important role in a supply chain.  Wanke (2004) states that inventory management approaches are a “function of product, operational and demand related variables such as delivery time, obsolescence, coefficient of variation of sales and inventory turnover” and that logistics managers are more likely to decentralise inventory in order to stock product close to the customer’s facility if the customers demand a reduced delivery time.

Graman (2006) argued that today, the cost of holding inventory, extensive product proliferation and the risk of obsolescence, especially in rapidly changing markets, make the expense of holding large inventories of finished goods excessive and that high demand items naturally have safety stock assigned to them but in many organisations there are so many very-low demand items that keeping any stock of these items is unreasonably expensive, so they argue that companies must now provide good service while maintaining minimal inventories. Therefore, inventory management approaches are essential aspects of any organisation

As technology continuous to improve and the market place continue to expand, the management of inventory will continue to increase the growth of the cocoa companies in Cameroon. The notion of inventory management in the past years has called for the attention of people in academia and industries (Prempeh, 2015, 2016; Fosu, 2016; Mensah, 2016; Mwanzi 2016).

For instance, “the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company” (Prempeh, 2016). As more than half of the investment’s firms are into current assets and inventory constitute one of the most significant components, the quantity of inventory availability at the right time is important (Carter, 2002; Prempeh 2016). Because of the economic importance of inventory, capital productivity is enhanced if inventory levels are effectively managed as inventories are idle resources of firms (Prempeh, 2016).

In an effort to accelerate inventory management on organizations growth, many decisions are being taken to provide a direction and strategy for competitiveness and productivity. Empirical studies have had diverse findings conducted globally on inventory management. For instance, Prempeh (2016) reported that there is a significant positive relationship between inventory management and profitability.

Evidence from previous studies (Luwumba, 2013; Appiah, 2014; Mwangi, 2016; Bingilar, 2016) also supported the direct relationship between inventory management and profitability. In contrary, Hornbrinck (2013), Mensah (2015) and Sitienei and Memba (2015) studies showed a negative relationship. However, almost all these studies fail to acknowledge the fact that inventory management also has an effect on firms operating cash flows

According to Kotler (2000) inventory management refers to all activities involve in developing and managing inventory level of raw materials, semi-finished materials (work in progress) and finished goods so that adequate supply are available and the cost of over or under stock is completely wiped out or low. Rosenblatt (1977) says that, the cost of maintaining inventory is included in the final price of the product which is being paid by the consumer of the product. Therefore, the basic goal of the researchers is to maintain a level of inventory that will provide optimum inventory at a lowest cost.

Schroeder (2000) stresses that inventory management have an impact over all business functions, particular operations, marketing, accounting, and finance. He established that there are three motives or reasons for holding inventories which are; the transaction motive, the precautionary motive and the speculative motive.

The transaction motive occurs when there is need to hold inventory to meet production and sales requirements. a company may also decide to hold additional amount of inventory to cover the possibility that it may under estimate its future production demand is uncertain. The speculative motive for holding inventory might encourage or influence a company to buy large quantities of materials than normally in anticipation of making abnormal profits.

Effective inventory management is all about knowing what is on hand, where it is in use and how much finisher products results. Inventory management is therefore the process of efficiently overseeing the constant flow of the unit into and out of an existing inventory.

Historically, Inventory management globally has often meant too much inventory and too little management or too little inventory and too much management. There can be severe penalties for excesses in either direction.

Inventory problem has reduced, as technological progress has increased the organization ability to produce goods in greater quantities, faster and with multiple designs.

For many organizations, there is no doubt that inventory management enhances their operations. Organizations with high levels of inventories such as raw material, work in process and finished good; can sustain production, ensure free flow of materials and offer a wide range of products, which makes easy the delivery of goods to the customers.

Inventories therefore, need to be controlled in such a manner that the organization will increase productivity and overall performance. Inventory control involves procurement, utilization, controlling and co-ordination of available materials.

Inventory control helps to pave the way for 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 influenced with the production function of any organization which implies that, the inventory management system operated, will affect the profitability of an organization, directly or indirectly (Ahn, 200). Inventories are the stock of raw materials, work in progress (semi-finished goods), and finished goods held by a business organization to facilitate operations in the production process (Pandey, 1995).

In this note, if a company fails to manage its inventory in an efficient manner, it is likely to face profitability problems (Block and Hirt, 1987). The objective of inventory management is to provide the inventories required to sustain operations at minimum costs (Dickson 1995).

Inventory control assist organizations to establish the proper inventory levels through the economic order quantity and to keep track of this level through inventory control system, of which many are manual such as Two Bin Method and Red Line Method, or computerized inventory control systems.

Proper inventory control requires an organization to undertake stocking and use appropriate method to value stock, so as to avoid under or over estimation of profits (Kotabo, 2002). Companies experience substantial costs in the taken and maintenance of inventories, which cost form a large portion of production costs.

Inventory costs include carrying costs such as storage and insurance, ordering costs like transportation and store placement, as well as stock out costs like redundancy and loss of sales. A company cannot achieve an outstanding performance without proper and efficient control. Efficient management of inventory concerns most managers of marketing and supply businesses, whether they are retail, wholesale, or service oriented (Weele, 2000).

Successful and well-organized businesses rely heavily on inventory management systems to make sure that adequate inventory levels are made available to satisfy their customer’s demand (Awatey, 2014). Every company has its own inventory where each company manages its stocks using different methods, but the purpose of the inventory system is the same which is to reduce cost.

Famurewa and Orekoya (2009) said that it is imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment as success or failure of any business depends on its inventory management system. The study was undertaken to ascertain the effect of inventory management on the organizational growth of cocoa companies in Cameroon.

1.2 Statement of the Problem

Organizations are more concerned with inventory control because a lot of funds are invested in inventory control and the inventory funds are an important and major investment. Despite most organizations carry out inventory control through stock taking, surprise checks and other methods there is always a difference between the actual results and the records kept in by the organizations, thus exposing them to inventory related cost that can affect the organizational growth.

The importance of efficient management of inventory cannot be over emphasized. Inventory management plays an important part in every company as inventory management system positions the firm to gain more customers and sales. An effective inventory management is able to generate more sales for the company which will positively affect the performance of the company.

With the expanding change in customer life style, the use of inventory management system becomes even more complex as organization fight intensely to meet the expectation of the customer. By so doing, organizations engage in designing different ways in inventory management patterns which often are rendered worthless due to customer change of life style.

In addition to the changing life style of customer is a consistent demand on the part of shareholders on incremental expansion of the organization through gaining higher market shares and improved profitability. Shareholders, in a bid to see high performance of the organization regardless of the state of competition, install various inventory systems which might be inefficient in creating higher profitability in the long run.

Considering the Potential of the cocoa industry to contribute to Cameroons GDP has led to the leveraging of the country’s vision for industrialization on the industry. The problems of inventory management and control have been around for a very long time. The need to collect food when it is readily available and then store it for times of shortage has being the fundamental stock holding problem, which was tackled long ago by man. Nowadays, we think of stocks being held by organizations to allow efficient and continuous operations. Inventory is a very important part of current assets mainly in manufacturing industries. Large amount of funds is being diverted to inventories so as to ensure smooth flow of production and to meet consumers demand.

However, keeping inventory also involves holding or carrying costs along with opportunity cost. Inventory management, therefore, plays a crucial part in keeping the advantages and the

Disadvantages associated with holding inventory. Efficient and effective inventory management goes a long way in successful running and survival of a business firm, when organizations fail to manage their inventory effectively, they are forced to experience, stock out, the decline in Productivity and profitability, customer dissatisfaction.

In spite of the large number of studies, none of them specifically focus on the effect of inventory management on the organizational growth of the cocoa industry or company. Explaining growth in cocoa industries requires that key supply chain factors should be identified and addressed. However, the present study therefore sought to assess the effect of inventory management on the organizational growth of the cocoa industries in Cameroon.

1.3. Research Questions.

1. To what extent does inventory control affect the growth of Telcar cocoa company in Tombel?
2. What is the effect of Just – in- time on the growth of the Telcar cocoa company in Tombel?

1.4 Research Objectives.

The broad objective of this study is to evaluate the effects of inventory management on the organizational growth of cocoa industries in Cameroon, while the specific objectives are: -To assess the extent to which inventory control affects the growth of Telcar cocoa Tombel

1. To assess the extent to which just-in-time affects the growth of Telca cocoa Tombel
2. To assess the extent to which just-in-time affects the growth of Telca cocoa company Tombel

1.5. Research Hypothesis.

H0: Inventory management has no significant effect on organizational growth

H1: Inventory management has a significant effect on organizational growth