INVENTORY MANAGEMENT AND SUPPLY CHAIN …chss.uonbi.ac.ke/sites/default/files/chss/F-Anthony Gakinya-D61...i inventory management and supply chain performance of non-governmental organizations

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INVENTORY MANAGEMENT AND SUPPLY CHAIN

PERFORMANCE OF NON-GOVERNMENTAL

ORGANIZATIONS IN THE AGRICULTURAL SECTOR,

KENYA

BY

ANTHONY GAKINYA MWANGI

A RESEARCH PROJECT SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENT FOR THE

AWARD OF THE DEGREE OF MASTERS OF BUSINESS

ADMINISTRATION, SCHOOL OF BUSINESS,

UNIVERSITY OF NAIROBI

OCT 2013

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DECLARATION

This research project is my original work and has not been submitted for the award of

degree in any other university.

Signed_________________________ Date_________________________________

Anthony Gakinya

D61/63039/2011

This research project has been submitted for examination with my approval as the

University Supervisor.

Signed_________________________ Date_________________________________

Mr. Michael Chirchir

Lecturer,

Department of Management Science

School of Business

University of Nairobi

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ACKNOWLEDGEMENT

My heart felt gratitude goes to my supervisor Mr. Michael Chirchir for his overwhelming

support, guidance, counsel, selfless dedication, patience, understanding, encouragement

and above all his availability for consultation. This project was made possible through his

direction and consultation. I acknowledge contributions from the University of Nairobi

fraternity, my classmates and the department of Management Science staff. Dr. J. Njihia

the Chairperson of Department of Management Science and the Moderators for the

success of this project.

I sincerely want to thank my gorgeous wife Lilian M. Gakinya, my parents and the entire

family for their moral support and encouragement. It’s not been easy and hard work was

required with long hours spending so much time away from my family in the library but

without them, I would not have made it this far.

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DEDICATION

This research project is dedicated to the Almighty God for giving me the grace and

strength to see that I have completed this research project successfully. I also dedicate it

to my ever caring wife Lilian M. Gakinya who has encouraged me through this academic

journey and to my dear parents, Mr. William M. Gakinya and Mrs. Mary N. Gakinya for

always pushing me to attain high academic goals. I dedicate it to my brother Mr. David

Karienye and my sister Ms. Jacqueline Muthoni. I am deeply honored because of the

overwhelming support that I have received throughout my project journey.

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ABSTRACT

Inventory management techniques are tools used by organizations to achieve supply

chain performance. Thus, this study sought to establish the relationship between

inventory management techniques and supply chain performance. The study was guided

by three objectives: to determine the extent of inventory management techniques

application in non-governmental organizations in the agricultural sector in Kenya, to

determine the impact of inventory management techniques on the supply chain

performance of non-governmental organizations in the agricultural sector in Kenya and to

establish the challenges of inventory management implementation techniques in non-

governmental organizations in the agricultural sector in Kenya. The research

methodology adopted was descriptive research design of cross sectional type for all NGO

studied and data collected using structured questionnaire were administered by drop and

pick while others that were unreachable were via email. Objective one was analyzed

using descriptive statistics of mean and standard deviation, objective two was analyzed

using regression analysis to identify the relationship between inventory management

techniques and supply chain performance and objective three was analyzed using mean

score and ANOVA. The results were presented in tables and pie chart. The study

recognized that the NGOs studied were eager to embrace inventory management

techniques since that had operated for more than ten years. It was evident that there was

significant relationship between inventory management techniques and supply chain

performance represented by R2

value of 0.732 which translates to 73.2% variance

explained by the independent variables of EOQ, JIT, marginal analysis, order batching,

vendor managed inventory, simulation and ABC analysis. Further research study can be

conducted in other NGOs in Kenya to establish if inventory management techniques have

an impact on supply chain performance of NGOs in Kenya. It has also been

recommended that NGOs in the agricultural sector should embrace inventory

management techniques so that they can reap from the immense benefits accrued from

inventory management implementation. Also, it was evident that close partnership with

customers or partners, prequalification of suppliers, holding safety stock, lack of

inventory management techniques, e-procurement tools, JIT, stringent grant agreements

and knowledge in inventory management techniques should be encouraged to attain high

supply chain performances.

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Table of Contents

DECLARATION ............................................................................................................................. ii

ACKNOWLEDGEMENT .............................................................................................................. iii

DEDICATION ................................................................................................................................ iv

ABSTRACT ..................................................................................................................................... v

ABBREVIATIONS ........................................................................................................................ ix

CHAPTER ONE: INTRODUCTION .............................................................................................. 1

1.1 Background ............................................................................................................................ 1

1.1.1 Inventory Management .................................................................................................. 2

1.1.2 Organizational Supply Chain Performance ..................................................................... 5

1.1.3 Non-Governmental Organizations in the Agricultural Sector in Kenya ......................... 6

1.2 Statement of the Problem ....................................................................................................... 8

1.3 Objectives of the Study ........................................................................................................ 12

1.4 Importance of the Study ...................................................................................................... 13

CHAPTER TWO: LITERATURE REVIEW ................................................................................ 14

2.1 Introduction .......................................................................................................................... 14

2.2 Inventory Management ........................................................................................................ 14

2.3 Inventory Management Techniques .................................................................................... 16

2.3.1 Re-Order Level .............................................................................................................. 17

2.3.2 Economic Order Quantity ............................................................................................. 17

2.3.3 Just-In-Time ................................................................................................................... 19

2.3.4 Marginal Analysis .......................................................................................................... 19

2.3.5 Vendor Managed Inventory .......................................................................................... 20

2.3.6 Activity Based Costing Analysis ..................................................................................... 20

2.4 Organizational Supply Chain Performance .......................................................................... 21

2.4.1 The Balanced Scorecard ................................................................................................ 23

2.4 Inventory Management Challenges ..................................................................................... 23

2.5 Conceptual Framework ........................................................................................................ 25

2.5.1 Theoretical Proposition ................................................................................................. 25

CHAPTER THREE: RESEARCH METHODOLOGY ................................................................ 27

3.1 Introduction .......................................................................................................................... 27

3.2 Research Design................................................................................................................... 27

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3.3 Population and Sampling Design ......................................................................................... 27

3.4 Data Collection .................................................................................................................... 28

3.4 Data Analysis ....................................................................................................................... 28

CHAPTER FOUR: DATA ANALYSIS AND PRESENTATION OF FINDINGS ...................... 30

4.1 Introduction ......................................................................................................................... 30

4.2 Demographic Characteristics ............................................................................................... 30

4.2.1 Response Rate ............................................................................................................... 30

4.3 Extent of Inventory Management Technique Application ................................................... 33

4.4 Descriptive for extent of inventory management techniques application .......................... 34

4.4.1 Gender and extent of Inventory Management Techniques application ...................... 34

4.5 Impact of inventory management techniques on supply chain performance .................... 35

4.5.1 T Test ............................................................................................................................. 36

4.5.2 R2 Determination Coefficient ........................................................................................ 38

4.5.3 F Test ............................................................................................................................. 38

4.6 Challenges of Implementing Supply Chain Techniques ....................................................... 39

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS ...................... 41

5.1 Introduction .......................................................................................................................... 41

5.2 Summary of the Findings and Discussion............................................................................ 41

5.3 Conclusion and Recommendations ...................................................................................... 42

5.4 Limitations of the Study and Suggestions for Further research ........................................... 43

References ...................................................................................................................................... 44

Appendices ..................................................................................................................................... 51

Appendix 1: Questionnaire ............................................................................................................ 51

Appendix II: Agricultural Non-governmental Organizations in Kenya ........................................ 55

Appendix III: Letter of Introduction for Data Collection .............................................................. 59

Table of Tables

Table 2.5.1: Theoretical Proposition-------------------------------------------------------------25

Table 4.2.1: Response Rate------------------------------------------------------------------------30

Table 4.2.2: NGO Duration of operation--------------------------------------------------------31

Table 4.2.3: Respondents Positions--------------------------------------------------------------31

Table 4.2.4: Years Worked------------------------------------------------------------------------32

Table 4.2.5: Education Level----------------------------------------------------------------------33

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Table 4.3: Inventory Management techniques--------------------------------------------------33

Table 4.5.1: Coefficients---------------------------------------------------------------------------37

Table 4.5.2: Regression Model Summary-------------------------------------------------------38

Table 4.5.3: Analysis of Variance----------------------------------------------------------------39

Table 4.6: Mean and Analysis of Variance------------------------------------------------------40

Table of Figure

Figure 4.2.1: Respondents Gender---------------------------------------------------------------32

Figure 4.4.1: Inventory Management Techniques and Gender------------------------------35

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ABBREVIATIONS

ABC – Activity Based Costing

AKDP - Aga Khan Development Programme

ANOVA – Analysis of Variance

CIMMYT – International Maize and Wheat Improvement Centre

DFID - Department for International Development

EOQ – Economic Order Quantity

EU – European Union

GoK – Government of Kenya

IAPWG – Interagency Procurement Working Group

ICARDA – International Centre for Agricultural Research in the Dry Areas

ICRAF – World Agroforestry Centre

ICRISAT – International Crops Research Institute for the Semi-Arid Region

IFAD - International Fund for Agricultural Development

JIT – Just-In-Time

ILRI – International Livestock Research Institute

IWMI – International Water Management Institute

KARI – Kenya Agricultural Research Institute

NGO – Non-Governmental Organization

PEN – Poverty Eradication Network

ROL – Re-order Level

UNEP – United Nations Environmental Programme

SCM – Supply Chain Management

SKU – Stock Keeping Unit

TQC – Total Quality Control

VMI – Vendor Management Inventory

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CHAPTER ONE: INTRODUCTION

1.1 Background

Inventory is a critical asset in any organization though according to Barnes (2008)

inventory is looked at as a liability under the just-in-time control system but he agrees

with the way accountants treat it as an asset to the organization. In the statement of

financial position, inventory appears under the current assets of the organization

regardless whether it’s profit or not for profit organization. Inventory plays a major role

and its management goes a long way in helping a firm grow as it relates to its external

and internal customers (Gibson, 2013).

Inventory management is important because firms will ensure assets and stock are well

managed and demand forecasting is greatly enhanced to avoid unplanned procurement.

Inventory can double up as stock and assets. Therefore, when an organization employs

demand forecasting, it will minimize operational costs and improve customer satisfaction

(Hines and Bruce 2007). This will enable the organization plan for the future as it applies

various variables that the organization can use for its goal achievement namely: demand

and supply, cost and personnel requirements. Non-Governmental organizations (NGOs)

inventory fall into the two categories of stock and asset (Blanchard, 2010). Stock

inventory in the NGOs in the agricultural sector are field supplies namely buff manila

tags, pollination bags and fertilizers and inventories that fall under the asset category are

motor vehicles, tractors and office furniture. These inventories require proper

management to avoid misuse which will affect the budget by increasing costs.

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1.1.1 Inventory Management

Organization’s inventory is an important component and its management is vital to the

success and cost reduction of the firm’s expenditure. Wild, (2002) recommends, proper

warehousing of inventory so that when goods are ordered, they are held at the warehouse

for the least time possible minimizing holding cost of inventory. Consequently, other

operational costs may increase inventory management costs like through the balance of

ordering costs, holding costs, safety stock and stock outs (Palevich, 2012) and (Wisner,

Tan and Leong 2011). Once an organization realizes this, it can develop online inventory

management tool to monitor its inventory information by breaking it down into groups by

correlating the categories with its customers.

Beamon and Kotleba (2006) explain that Re-order level (ROL) is critical for

humanitarian organizations to achieve optimal efficiency and be effective. They need to

have two reorder levels one that is normal whereas a second one that is for emergency

cases in case of disaster. This improves performance and customer satisfaction.

Bachetti, Plebani, Saccani and Syntetos (2010) argue that inventory management need to

be organized in a logical way to facilitate the organization knowledge of when to order

and quantity to order. Economic order quantity enables organizations plan their inventory

replenishment on a timely basis such as monthly, quarterly, half yearly or yearly basis.

As organizations try to improve on the inventory management, Economic Order Quantity

(EOQ) and Re-order Point (ROP) are important tools organizations can use to ensure that

inventory supply does not hit a stock out as explained by Gonzalez and Gonzalez (2010).

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Just-in-time (JIT) contributes greatly to an organization’s positive performance and

customer satisfaction. A study undertaken between 1981 and 2000 in the US to analyze

inventory management and was found out that organizations that kept too much inventory

in their warehouse operated an inefficient supply chain, while those that kept minimal

inventory in their warehouse were very efficient (Lai and Cheng 2009). It was found out

that keeping moderate inventory is good and it enables an organization operate minimal

expenses of holding and setup costs, eliminate unwanted lead time and produce goods as

per customers order. This enables an organization achieve total quality control (TQC) as

efficient and effective supply chain management are implemented in a firm’s value chain

(Kumar and Suresh 2009) and (Datta, 2007).

Marginal analysis is important for perishable good and it is highly desirable for NGOs in

the agricultural sector. This is because it helps procurement officer know when to make

the next order and recommend the optimal stock level (IAPWG, 2006).

Simulation is also an important aspect that NGOs can adopt in their operations. This

enables the organizations map out their inventory management before the real situation

happens (Denise, Duncan, Gribko, Kolachina and Lee 2009). Batching of inventory helps

NGOs save on their transport cost which will eventually save on their total supply chain

total cost (Prasad and Tata 2010).

Management of inventory determines the way an organization will thrust itself to high

performance efficiency. Some organizations have resulted to vendor managed inventory

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(VMI) systems which aid the supplier to monitor customer’s inventory usage. Through

this VMI system, customers will avoid stock outs because the suppliers will have already

replenished their inventory. The key aspect here is communication which should be

planned well from the beginning of business relations between the supplier and the

customer. Moreover, we now have Joint Managed Inventory (JMI) which is an advance

level of vendor managed inventory (VMI). It seeks to integrate the supplier more firmly

into the customer’s organization by using the point of sale (POS) which allows the

supplier to see the real time data of its customer’s inventory (Frahm, 2003).

Inventory management techniques and organizational performance need to be scrutinized

so that the organization does not utilize a huge chunk of its budget on holding inventory.

Hence, the total cost model needs to be balanced by ensuring purchase costs, ordering

costs and holding costs are minimal so that the firm can reap good profits and maintains

its budgetary allocation for non-governmental organizations (Kavulya, 2004).

Value chain management is important because it helps proper agricultural inputs

procurement suiting the economic order quantity and marginal analysis (Amarnath,

2007). This can only be possible through maintaining good management practices

through zero holding costs, minimum purchasing costs and minimum ordering costs.

Managing supply chain cost is the most important aspect of an organization; to achieve

this, an organization has to employ qualified professional who understand inventory

management techniques. These techniques are six sigma, total quality management, just-

in-time, Lean and theory of constraints as advanced by (Mackay, 2013).

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1.1.2 Organizational Supply Chain Performance

Inventory management techniques and organizational supply chain performance need to

be looked into keenly to avoid organizations use of huge chunk of its budget on holding

inventory. It should ensure that customers are satisfied with its services by providing

feedback and ensuring the concept of time, place and costs are maintained at optimal

levels. Hence, the total cost model needs to be balanced by ensuring purchase costs,

ordering costs and holding costs are minimal so that the firm can reap good profits or it

maintains its budgetary allocation for non-governmental organizations (Kavulya, 2004).

Managing supply chain cost is the far most important aspect of an organization and to

achieve this, an organization has to bring on board qualified professional who understand

the technical background of inventory management. Inventory management technics are

six sigma, total quality management, just-in-time, Lean and theory of constraints as

advanced by Mackay (2013). Supply chain management need to be highly enhanced in

the modern world because firms are engaging each other with high level of competition.

Efficiency is required and to achieve this, highly qualified staff should be hired and

utilize the latest technology such as the use of Enterprise Resource Planning (ERP) and

Material Requirement Planning (MRP). By so doing, organization performance will be

achieved when the staff fully understands how to apply inventory management

techniques which will necessitate demand planning, forecasting and location (Silver,

2007). Silver (2007) agrees that organizations need to align their supply chain in a

competitive manner so that inventory management and supply chain performance can be

achieved with efficiency and effectiveness.

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Consequently, organizational supply chain performance is an amalgamation of three

important measurements specifically efficiency, effectiveness and adaptability

(Wakhungu 2010). Thus, NGO supply chain performance can be measured by way of

poverty reduction and increased productivity in the farm through growing better varieties

of crop which have high yield and rewarding returns. A case in study is that of Priscilla

Mutie of Eastern who retired as a teacher to concentrate on farming through ICRISAT an

NGO in Kenya, initiative to offer improved variety of pigeon pea seeds that brought in

increased income to Priscilla Mutie when she was a teacher. She engaged in daily

farming where she increased her income even further (Sridharan, 2010) and accessing the

impacts achieved. By monitoring and managing budgetary allocation as well as staff

motivation through yearly performance appraisals which increases staff morale resulting

in organizational supply chain performance. The government on the other hand works

hand in hand with the NGOs to ensure smooth flow of policy implementation is achieved

and that the Kenyan citizens get value from the supply chain. Kenya Agricultural

Research Institute (KARI) plays a key role by ensuring farmers get good seeds to

maximize on their yields which in turn put more food and money on their table

(Sridharan, 2011).

1.1.3 Non-Governmental Organizations in the Agricultural Sector in Kenya

Non-governmental organizations (NGOs) are important and they play a critical role in

today’s world due to their ability of achieving impacts faster than the governments of the

day. The development of NGOs have aided and relieved the government of its pressure to

deliver to the citizens of their countries (Ombati, 2010). Thus, due to the importance they

provide nations, their inputs and establishment is necessary because they help reduce the

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gap for unemployed. In Kenya, NGOs have enhanced a well-oiled job market though

there is still a lot that needs to be done for the employment gap to be bridged.

Kenya’s economy is highly reliant on agriculture and needless to say it is its biggest

earner. Therefore, the government needs to do a lot in order to be self-reliant on

agriculture and for export purposes. KARI, a government body management by the

Ministry of Agriculture has partnered with NGOs in the agricultural sector such as

ICRAF, ICRISAT, CIMMYT and ILRI to be able to be self-reliant on food reserves. This

has been made possible by ensuring improved varieties resistant to diseases are promoted

and farmers in various sector within agriculture adopt the new varieties. Thus, KARI’s

work is to adopt and enhance the policies for the government to adapt and pass them as

law for the benefit of the Kenyans (Achayo, 2012).

Kenya has benefited a lot from development partners who have aided a smooth working

relationship with the Kenyan government. Kenya being an agricultural state, there are

quite a number of non-governmental organizations that have partnered to work with the

government in order to alleviate poverty by improving people’s livelihood. This is due to

their ability to focus keenly on poverty alleviation by drafting development projects that

are tailor made for specific goals and objective (Edwards and Hulme, 1996). Kasimbu

(2007) and Falex (2011) states that NGOs are those firms established outside the

government operation to aid smooth flow of operation for the government in the interest

of the public. Some notable NGOs are International Crops Research Institute in the Semi-

Arid Tropics (ICRISAT) and World Agroforestry Centre (ICRAF) (AKDP, 2007).

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Ledgerwood (2000) concurred with the fact that NGOs do play a critical role in advising

the government and in our case here in Kenya, the main objective is to increase

productivity in the country. As productivity increases, inventory management needs to be

handled with utmost professionalism since NGOs receive funding from donor institutions

such as Rockefeller Foundation, World Bank, International Fund for Agricultural

Development (IFAD) and Department for International Development (DFID among

others. Thus, there is need to have accountability by following laid down procurement

procedures in the grant agreements with the various donor funding institutions. Inventory

management technics within the NGO sector are highly desirable and this ensures that

inventory is well managed using good supply chain technics which include demand

forecasting such as qualitative methods and quantitative methods. Also, inventory to

order, warehousing, location decision and simulation will come in handy when doing

inventory management for NGO sector (Leslie, 2002).

1.2 Statement of the Problem

A number of organizations collapse due to poor planning and corruption which drives

firms to closes down their operations. This can be stopped if proper inventory

management is practiced and the technique thoroughly utilized for the benefit of the firm.

Gonzalez and Gonzalez (2010) noted that management and staff have minimal

knowledge on how to apply the economic order quantity which negates the success of an

organization. NGOs in the agricultural sector ought to train their staff who engage in

procurement since systems cannot work by themselves. Once the organization has

qualified personnel who understand how to apply prudent inventory management

techniques, the organization’s supply chain performance is achieved. The study

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conducted by Gonzalez and Gonzalez (2010) shows that forecasting techniques

utilization for demand planning helps organizations plan for their inventory adequately

avoiding regular stock outs. The shortcomings identified showed that lack of use of EOQ

and ROP by firms led to utilization of more funds but their utilization led to customer

satisfaction and cash savings for the organization. The study did not address supply chain

performance as a result of utilizing efficient inventory management techniques.

Inventory management according to Onyango (2011) is a fundamental pillar in an

organization and it should be taken seriously. Firms ought to be adequately prepared with

the changing environment and as NGOs in Kenya operate in a multiple global

environment, sourcing and delivery of goods and services needs to be well managed.

Some of the goods and services required may not be readily available within the country

thus NGOs have to apply global sourcing. Due to this, a robust supply chain is required to

be in place to ensure timely delivery and quality standards are observed. The study found

that supply chain management led to improved organizational supply chain performance

through quality products and services, minimal inventory levels, improved partnerships

and communication and demand forecasting. Integrated supply chain practices in the

policies were important too as well as supplier’s alliance. Notably, middle level

management empowerment was also a key factor in improved supply chain performance.

The shortcoming found was the model used gave 50% variance in performance implying

that some factors were left out during the study that could have given an improved

analytical model of the study. The study did not address, extent of inventory management

techniques application that improve firm’s supply chain performance.

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A study conducted by Maghanga (2011) established that for the tea processing firms to

survive they need to embrace the changing competitive trends in the market. Best

business practices need to be adopted for the business to remain relevant and competitive.

However, the study did not cover the need to assess the management of the supply chain

on the larger agricultural sector by looking at impacts of firms supply chain performance.

Falex, (2011) observed that NGOs are constantly facing immense challenges like

increased output mandates which in our case is improved agricultural outputs and poverty

eradication. This is achieved through improved varieties released after thorough research

has been done. NGOs are pulling out their operations from Kenya leaving a gap that the

government is unable to fill and KARI has an uphill task to achieve food sustainability

where an NGO operated effectively. Falex, (2011), Spar and Dail (2002) found out that

assessing NGO’s supply chain performance was difficult and some NGO’s had pulled out

their operations and no investigations had been carried out to ascertain why this was

happening. Thus, sustainable programs backed by strong relationships were critical as

synergies derived from local NGO offices that support headquarter offices located

elsewhere. This helped project implementation easier and impacts to be felt more (Falex,

2011). Consequently, NGO needs to manage their assets more keenly and ensure mission

achievement is met. However, the study did not look into how the synergy that local

NGO office offers their headquarters located in other countries and how this synergy and

sustainability improves supply chain performance when inventory is managed well.

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Transparency in inventory management techniques is absolutely important because it

eliminate corruption, biased procurement process, procuring substandard good for the

organization that proof to be extremely costly (Githui, 2012). The government found

itself practicing unethical supply chain management practices as well as lacking in

transparency and fairness. Thus, inventory management techniques in Kenya needs

ethical practices that promote good corporate governance among procurement managers.

Also, virtue ethics promotes integrity, utilitarian principle appreciates happiness

promotion and reverse of wrong doing, Kantian theory on the other hand states that an

individual doesn’t benefit personally but promotes the goodwill of the organization and

the Kantian theory promoted moral agents for supply chain management. The gap Githui,

(2012) identified was analysis of government procurement officers on integrity and

therefore the study did not cover the knowledge and application of inventory

management technique by procurement officers to gauge supply chain performance.

Stock shortages are a headache for most organizations as expressed by Githendu,

Nyamwange and Akelo (2008) and it leads to customer’s dissatisfaction which eventually

leads to low performance of a firm. Organizations ought to ensure that their inventory is

monitored from time to time to avoid stock outs. Due to the manual system of checking

and validating, the stochastic nature of demand and lead time is not achieved. Also, lack

of automated systems, stock outs are experienced often and replenishment is done

hurriedly leading to costly inventory management and likewise low performance

standards. The study conducted by Githendu, Nyamwange and Akelo (2008) indicated

that firms that have centralized stock holding have an advantage because they are able to

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control the stocks and avoid stock duplication in their subsidiaries. Since high value

stocks are held, there are instances where the organization will have too much stock in

their warehouse implying a huge part of their cash is tied down with stocks. Also, a

proper inventory management system is lacking causing frequent stock outs for the

organization. The study did not address inventory management techniques that enhance

service levels ensuring stocks are distributed on time and at the right place meeting

customer’s demands.

To the best knowledge of the researcher, no study has been done concerning inventory

management and organizational supply chain performance of NGOs in the agricultural

sector in Kenya. Thus, this study aims to answer the following research questions: What

is the extent of application of inventory management techniques in the non-governmental

organizations in the agricultural sector? What is the impact of inventory management

techniques on the supply chain performance of non-governmental organizations in the

agricultural sector in Kenya? and, What are the challenges in the implementation of

inventory management techniques in the non-governmental organizations in the

agricultural sector?

1.3 Objectives of the Study

i. To determine the extent of inventory management techniques application in non-

governmental organizations in the agricultural sector in Kenya.

ii. To determine the impact of inventory management techniques on the supply chain

performance of non-governmental organizations in the agricultural sector in

Kenya.

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iii. To establish the challenges of inventory management implementation techniques

in non-governmental organizations in the agricultural sector in Kenya.

1.4 Importance of the Study

The aim of the study is to provide adequate information NGOs in Kenya can use to

improve on their performance by managing inventory adequately. Thus supply chain

professionals and finance managers will find this research useful for knowledge and

operational implementation.

The government will benefit indirectly in that as these NGOs streamline their inventory

management, the Kenyan public will benefit tenfold through agricultural technologies

that the NGOs will use as they rationalize their supply chain.

Donor funding institutions will also benefit from this study and they will know how to

streamline their grant agreements with future project run by NGOs so that impacts are felt

and funds donated don’t go to waste.

Academicians and scholars will also find this research valuable to their study and

advancement of knowledge. They will be able to improve on the studies done under

inventory management.

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CHAPTER TWO: LITERATURE REVIEW

2.1 Introduction

This chapter focuses on the review of the literature to the purpose of the study ensuring

relevance to the research problem. The review was undertaken to bring out the gaps and

enhance knowledge of better and efficient ways of managing inventory and improving

organizational performance. Also, to ascertain and educate managers and professionals

on inventory management techniques and their use and application in their non-

governmental organizations in the agricultural sector.

2.2 Inventory Management

Inventory management is a branch of management that deals with management of fixed

and current assets. Also, it entails the management of daily operational supplies and in

our case, agricultural inputs and outputs. Inventory is also a critical asset in any

organization though according to Barnes (2008) inventory is looked at as a liability under

the just-in-time (JIT) control system. He agrees with the way accountants treat inventory

as an asset to the organization. In the statement of financial position, inventory appears

under the current assets of the organization regardless whether it’s for profit or not for

profit organization. Inventory plays a major role and its management goes a long way in

helping a firm to grow as it relates to its external customers as well as the internal

customers (Gibson, 2013). Therefore, inventory is essential in the operation of NGOs in

the agricultural sector since they may hold inventory as finished goods, work in progress

or raw materials for further processing (Fellows and Rottger (2005) and Shapiro (2009)).

Shapiro, (2009) also advises that inventory plays a vital role when it comes to demand

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planning and as a result, the organization needs to be versatile in its management of its

inventory when it comes to periodic or seasonal inventories.

Managers cannot avoid inventory management because it forms the basis of their overall

performance through elimination of uncertainties in their management. For the boards

and management of NGOs to ascertain that they are performing above standards,

inventory management metric measures should be above board so that they may maintain

the management’s confidence (Shapiro, 2009). Hence, Just-in-time concept has been

found to have some unwarranted hidden cost that increase the cost of doing business in

some cases such as small suppliers to large companies in the mechanized and aerospace

industries. Inventory management on the other hand faces numerous barriers when it

comes to holding costs, shortage costs and demand distributions for products under the

detailed stock keeping unit (SKU) level (Porter and Montgomery, 1991).

However, the management of inventory is important because the firm will be keen to

ensure that its assets and stock are well managed and demand forecasting is enhanced to

avoid unplanned procurement. Inventory can double up as stock and assets respectively.

Therefore, when an organization enhances demand forecasting, it enables the

minimization of operational costs as well as customer satisfaction (Hines and Bruce,

2007). When this is done, it enables an organization plan for the future hence applying

various variables that an organization can use for its goal achievement namely: demand

and supply, cost and personnel requirements. Inventory falls into two categories of stock

and asset in the NGO sector (Blanchard, 2010). Examples of stock inventory in the NGOs

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in the agricultural sector are: field supplies such as buff manila tags, pollination bags,

fertilizers such as DAP, CAN and Urea among others. Those inventories that fall under

the asset category are: motor vehicles, tractors, office furniture such as office desks,

office chairs, computers, printers and scanners. These inventories do require proper

management to avoid misuse which will affect the budget by increasing costs.

Incorporation of inventory management and supply chain decision helps organizations

rationalize their operations through ensuring the total supply chain cost is well managed.

This may be an uphill task since integration of inventory management decisions and

supply chain optimization model involves parameters and associations such as market

demand variance, delivery time and stock outages impacts which are not easily signified

in optimization model (Heckmann, Shorten and Engel, 2003) and (Shapiro, 2009).

2.3 Inventory Management Techniques

Inventory management techniques are extremely important for business operations

because their success and cost reduction of the firm’s expenditure necessitate improved

supply chain performance and knowledge to the employees (Lambert, 2008). These

techniques are critical and knowledge in them is highly desirable thus, managers and

procurement staff need to be able to apply the techniques for the benefit of the

organization (Fellows and Rottger, 2005).

Wild (2002) recommends, proper warehousing of inventory so that when goods items are

ordered, they are kept at the warehouse for the least time possible minimizing holding

cost of inventory. Consequently, other operational costs may increase inventory

17

management costs. The way an organization is able to maintain its costs at low levels the

better it is for the year end profits (Palevich, (2012), Wisner, Tan and Leong (2011)).

Organizations buy and sell their inventory; there always arises balance at the end of the

year which ought to be carried over to the next year. Once an organization realizes this, it

can develop online inventory management tool to monitor its inventory information by

breaking it down into groups by correlating the categories with its customers. Since

organizations operates differently in different fields, the inventory can be classifies by

either seasons or economic year end of your most significant customers hence, demand

forecasting need to be employed to have an efficient supply chain (Poiger, 2010).

2.3.1 Re-Order Level

As organizations strive to achieve efficiency, they should be able to understand their Re-

Order Levels (ROL) which enables them know when to order and when not to order. This

can be achieved through the use of quantitative methods which necessitate proper

inventory management (Apte, 2010). Re-Order level is critical for NGOs to achieve

optimal efficiency and be effective leading to high supply chain performance and

customer satisfaction, then they need to have two reorder levels one that is normal

whereas the other is an emergency one in case of disaster (Beamon and Kotleba, 2006).

2.3.2 Economic Order Quantity

Bachetti, Plebani, Saccani and Syntetos (2010) argues that inventory management need to

be organized in a logical way so that the organization can be able to know when to order

and how much to order. This can only be achieved through the Economic Order Quantity

(EOQ) computation. Economic order quantity enables organizations to plan their

inventory replenishment on a timely basis such as monthly, quarterly, half yearly or

18

yearly basis. By so doing, it enables firms to have minimal storage costs or zero within

their warehouses since inventory is coming in and going out immediately. Thus, this

tends towards the just in time concept of supply chain management adopted by Toyota

motor Corporation in Japan which helps in having zero holding costs, (Schonberger,

2008). Thus, as organizations try to improve on the inventory management, the Economic

Order Quantity (EOQ) and Re-order Point (ROP) are important tools that organizations

can use to ensure that inventory supply does not hit a stock out as explained by Gonzalez

and Gonzalez (2010). Over time, organizations have been maintaining their inventory in a

haphazard manner which has necessitated a change in the way firms conduct their

business. Stock outs have been experienced adversely leading to customer dissatisfaction

hence; firms are changing their approach to be able to remain relevant by employing

Economic Order Quantity (EOQ) and Re-order Point (ROP) for customer satisfaction.

Moreover, Kenya as a country has come a long way and as discussed through a paper by

GoK (2011) report, the government is doing immense work to ensure that poverty is

reduced. This it does through partnership with private sector as well as development

partners. Hence, a lot has been done to ensure that the value chain is managed

appropriately and through this, agricultural inputs are procured and managed to suit the

economic order quantity as well as marginal analysis (Amarnath, 2007). USAID Kenya,

(2012) in its compendium report agree that by partnering with seed companies and

agricultural input companies, the non-governmental organizations in Kenya have a

chance of ensuring that its value chain is credible by maintaining its total cost model at

bare minimum. This can only be possible through maintaining good management

practices through zero holding costs, minimum purchasing costs and minimum ordering

19

costs. Determining the economic order quantity will ensure that the supply chain of these

organizations are replenished on a timely basis and delivered to the final consumer.

2.3.3 Just-In-Time

Just-in-time (JIT) contributes greatly to the positive performance of an organization thus;

inventory management needs to be undertaken with utmost keenness taking into account

good procurement practices. A study was undertaken between 1981 and 2000 in the US

to analyze inventory management and was found out that organizations that kept too

much inventory in their warehouse operated an inefficient supply chain, while those that

kept very few inventory in their warehouse were very efficient (Lai and Cheng, 2009).

Thus, it was found out that keeping moderate inventory is good and it enables an

organization operate minimal expenses of holding costs as well as keep setup cost at bare

minimum, eliminate unwanted lead time and produce goods as per customers order.

Eventually, this enables an organization achieve total quality control (TQC) as efficient

and effective supply chain management are employed within a firm’s value chain (Datta,

2007).

2.3.4 Marginal Analysis

Marginal analysis is important for perishable good and it will be highly desirable for

NGOs in the agricultural sector because it helps procurement officer know when to make

the next order as well as recommend the optimal stock level. This is critical because

perishable good can cost an organization a lot of money, (IAPWG, 2006). Moreover,

simulation is also a technique that NGOs can use for their advantage so that they can be

able to map the actual orders and deliveries before it actually happens. Hence, inventory

batching will save total supply chain cost for the NGOs by reducing their transport cost.

20

2.3.5 Vendor Managed Inventory

Management of inventory determines the way an organization will thrust itself to high

performance efficiency. Some organizations have resulted to vendor managed inventory

(VMI) systems which aid the supplier to monitor customer’s inventory usage. Through

this VMI system, customers will avoid stock outs because the suppliers will have already

replenished their inventory. The key aspect here is communication which should be

planned well from the beginning of business relations between the supplier and the

customer (Frahm, 2003). Vendor managed inventory saves an organization immense

finance and time since the supplier will be able to monitor its customer’s inventory levels

and make a point of replenishing them. As the customer and supplier interact, the

communication channel needs to be clear and fast so that they may avoid instances of

stock outs. Where the customer anticipates having an abnormal order levels, they should

notify the supplier so that they can adjust their production to cater for the demand.

Moreover, we now have Joint Managed Inventory (JMI) which is an advance level of

vendor managed inventory (VMI). It seeks to integrate the supplier more firmly into the

customer’s organization by using the point of sale (POS) which allows the supplier to see

the real time data of its customer’s inventory (Frahm, 2003).

2.3.6 Activity Based Costing Analysis

Fellows and Rottger (2005) agree that having inventory in your store has an added

advantage for the organization since customers will be satisfied instantly leading to

improved performance rating. With inventory in your warehouse, an organization has the

advantage of timely delivery and stock out are not experienced. Thus, NGOs need to

ensure that they have adequate stock for their operations and distribution. One way they

can achieve this is thorough the “Pareto Analysis” also known as Activity Based Costing

21

(ABC) analysis. ABC analysis is where stocks are classified into three categories namely:

A – stock items that are of high value and material to the organization but low volume

such as land, building and motor vehicles; B – stock items which are of medium value

and medium volume; C – stock items baring minimal value but are of great volume such

as pollination bags which are packed in thousands, farm fertilizers, daily farm products,

medicine for live stocks and farm chemicals.

2.4 Organizational Supply Chain Performance

Organizations are constantly seeking to improve their supply chain performance in order

to stay afloat in business and stay clear from extensive competition from their

competitors. Non-governmental organization’s performance is quantified by way of

milestones achieved and impacts achieved (Sridharan, 2011). Porter (1980) explains that

organizations are judged on performance according to their achievements over the years.

If an organization has been performing through the years, then its performance is rated

favorably (Wakhungu, 2010).

As the business arena takes a paradigm shift, we are now seeing improvements in supply

chain performance where firms are focusing on the overall firm’s supply chain

performance other than individual company supply chain performance. Competition has

necessitated organizations to improve on their service delivery, customer satisfaction,

forecasting demand and ensuring that response time is efficient. The original company

boundaries have been broken and the level play ground is the same where functional

groups now play a central role in advancing supply chain performance (Hausman, 2013).

22

Non-governmental organization’s performance measures are depicted by their outputs

and more so on achievement of their goal which is agriculture. This is enhanced by the

technologies they adopt to increase agricultural productivity and the research they

undertake to come up with better varieties. Kamau (2011) observes that organizational

performance can be viewed under four key areas which include: customer service,

corporate social responsibility, employee’s loyalty and financial performance. NGOs in

the agricultural sector cannot desist from these key areas because it will determine how

much they get from their donors.

NGOs performance is very important and they are looked at differently from those of the

private sector. Performance for NGOs is measured by the compliance of donor reports

presented to the donor following the laid down grant agreements (Ryfman, 2007).

Likewise, over expenditure on budget allocation should not be seen since it depicts lack

of leadership and planning. Therefore, NGOs should ensure their customers who are their

project partners and farmers are treated with utmost respect and work together to improve

the livelihood of the poor (Maalin, 2007).

NGOs on the other hand can adopt key performance indicators (KPI) to measure their

supply chain performance. Key performance indicators are a yardstick for tracking

progress and also it’s a tool to achieve a goal. KPIs encompass all areas of business

which are demand management, supply conversion and delivery (Water, 2003). Measures

of performance comprises ongoing monitoring and reporting of activities, particularly

progress towards pre-established goals along the supply chain. It involves comparing the

23

expected versus the actual performance achievements along the supply chain and

introduction of correction measures to deal with the performance variances. (Lambert,

2008). The measure of performance depicts the way an organization can monitor its

operations and make plans for managing it inventory levels by ensuring that

replenishments are done in good time without any delay. These measures go a long way

in cutting operational and logistical costs for the organization thus saving time and

energy for the management (Stelth and Roy, 2009).

2.4.1 The Balanced Scorecard

The balanced scorecard has been used to assess the quality of inventory supply chain

performance measure and its improvement. However, the balance scorecard complements

financial measures of past performance with measures of drivers of future performance.

The objectives and measures for organizational supply chain performance come from

four perspectives; financial, customer, internal process and learning and growth (BPP,

2008). Consequently, NGOs Balance scorecard in relation to logistics and transport

management has been molded to enhance its transport and logistics requirements owing

to the fact that it has multi-discipline functionalities in its operations. The performance

management of NGOs has been enhanced and improved to foster smooth running of the

institutions across different continents by ensuring that clients who are the farmers are

treated well. This is done through distribution of improved products (Sutherland, David

and Alistair, 2002).

2.4 Inventory Management Challenges

Management usually encounters challenges that normal business go through while

managing inventory. Needless to say, most organizations are now outsourcing inventory

24

management to third party level service (3PL) providers. As this trend gains prominence,

inventory management also has to be managed with utmost accuracy. Stock counts on a

daily basis, weekly, monthly, quarterly, half yearly and yearly basis are highly

encouraged because this stock is money for the organization (Management Study Guide,

2013). Therefore, inventory management systems need to be up to date and the

management ought to be aware of their current status at a click of the button. This is only

possible by having a seamless Enterprise Resource Planning (ERP) or Material Resource

Planning (MRP).

Sandeep K. et al (2007) states that inventory management can bring unwarranted losses if

the organization always has stock outs, lack of proper warehousing plans, delivering the

wrong goods to the customers as well as lack of proper documentation for goods

procured. The staff needs to understand and apply the inventory management techniques

to ensure that the organization gets value for its money. Vendor managed inventory can

help by letting the supplier managed its inventory and the management on its end should

ensure proper communication channels are utilized. Wal-Mart is a good example of an

organization using VMI and has its store spread across the globe (Aberdeen Group, 2004)

and (National Treasury, 2004).

25

2.5 Conceptual Framework

Source: Author (2013)

2.5.1 Theoretical Proposition

It is expected that the application of Economic Order Quantity, Marginal Analysis, Just-

in-Time, Simulation, Order batching, Vendor Managed Inventory and ABC Analysis will

improve NGOs performance. As the NGOs staff understands the strengths of having

these techniques, then the unnecessary costs incurred will be avoided. Therefore, the

techniques will improve performance in the following ways:

Table 2.5.1: Theoretical Proposition

No Inventory Management

Techniques

How Performance Improvement will be

achieved

i Economic Order Quantity Ability to know how much and when to

replenish inventory

ii Marginal Analysis Reduce loss for inventory that is perishable

within a short period of time by ensuring they

are ordered at the right time.

iii Just-in-time Ordering inventory when they are required thus

reducing storage/holding costs

iv Simulation Capability of laying out inventory management

plans for the organization

v Order Batching Minimizing on unnecessary costs on transport

Independent Variable Dependent Variable

Supply Chain

Performance of

Non-governmental

organization

Inventory Management

Techniques

Inventory Management Techniques

Indicators

1. Economic Order Quantity

2. Marginal Analysis

3. Just-In-Time

4. Simulation

5. Order Batching

6. Vendor Managed Inventory

7. ABC Analysis

26

vi Vendor Managed Inventory Improving on inventory management systems

by engaging outsourced suppliers to

management inventory monitoring and

replenishment.

vii ABC Analysis The organization is able to account for each

inventory according to its classification and this

can be achieved through the Pareto analysis.

27

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction

This chapter presents the research methodology that was used in conducting the study. It

explains the research design, target population, sampling design, data collection and data

analysis.

3.2 Research Design

This study used a descriptive research design of cross sectional type because it enabled

the researcher make a comparison from a broad category of NGOs. Comparative study

was done to bring out the status and preferences of these NGOs (Kothari, 2004). Hence,

measures of central tendencies were applied to bring out comparable results among

different organization (Cooper and Schindler, 2006). Descriptive research assists the

researcher to collect data from a population by way of observation, description,

recording, analyzing and reporting the conditions operating at that moment (Cooper and

Schindler, 2006). This design assists to describe features, behavior, attitudes and

principles of the study (Mugenda and Mugenda, 1999). Gitau (2011), Gwaro (2011),

Murage (2011) and Wandabwa (2010) successfully applied the design chosen in similar

studies.

3.3 Population and Sampling Design

The target population consisted of non-governmental organizations in the agricultural

sector in Kenya and they were 24 in number (appendix II). These NGOs are registered

under the Council of NGOs in Kenya and the Government of Kenya through the Ministry

of Agriculture and Ministry of Foreign Affairs. Since the population is relatively small, it

was proposed that a census be conducted.

28

3.4 Data Collection

Data collection was conducted by way of primary data collection from one of the

following respondent; the Finance Manager, Procurement Manager, Field Manager or

Stores Manager. The target respondents were the most competent to answer questions on

inventory management. The data collection instrument used was a structured

questionnaire which was distributed by drop and pick method, where the firm was

accessible and by email for the others. This gave the researcher first hand primary data

which was reliable and accurate for analysis (Kothari, 2004). The questionnaire rating

scale adopted was the Likert format depicting responses on a scale of 1 to 5. There were

four sections namely: section I gathered the bio data and company profile, section II

found out the extent of inventory management techniques application in the non-

governmental organizations in the agricultural sector, section III found out the impact of

inventory management techniques on the performance of non-governmental

organizations in the agricultural sector in Kenya, Section IV established the challenges of

inventory management techniques implementation in non-governmental organizations in

the agricultural sector and Section V established the supply chain performance

importance for management and organizational growth for non-governmental

organizations in the agricultural sector in Kenya.

3.4 Data Analysis

Data analysis was done through descriptive statistics by applying measures of central

tendency for objective one; to determine the extent of inventory management techniques

application in the non-governmental organizations in the agricultural sector; regression

analysis was used for objective two; to determine the impact of inventory management

29

techniques on the supply chain performance of non-governmental organizations in the

agricultural sector in Kenya with inventory management techniques as the independent

variables and supply chain performance as the dependent variable. Descriptive and

ANOVA was used to assess the variability of inventory management techniques for

objective three; to establish the challenges of inventory management techniques

implementation in the non-governmental organizations in the agricultural sector. Data

collected was analyzed using Statistical Packages for Social Sciences (SPSS) software.

The following regression model was used to show impact of inventory management

techniques on supply chain performance Y = a + b1X1 + b2X2 + b3X3 + b4X4 + b5X5 + b6X6

+ b7X7 + e Where Y = Supply chain performance measured by responses on effects of

inventory management techniques on supply chain performance; a = Y intercept that is

the value of Y when X is equal to zero; b1, b2, b3, b4, b5, b6 and b7 are regression weights

coefficients attached to the variables; X1 = Economic Order Quantity, X2 = Marginal

Analysis, X3 = Just-in-time, X4 = Simulation, X5 = Order batching, X6 = Vendor Managed

Inventory, X7 = ABC Analysis and e = Error Term.

30

CHAPTER FOUR: DATA ANALYSIS AND PRESENTATION

OF FINDINGS

4.1 Introduction

This chapter presents the findings of the study. The chapter provides descriptive statistics

of the respondents before presenting the findings of inventory management and supply

chain performance of non-governmental organizations in the agricultural sector in Kenya

and the challenges.

4.2 Demographic Characteristics

The demographic study sought to ascertain information about the respondents’

background mainly position held, working period, education level, organization operation

period and the gender. This ensured that the respondents were well informed on the study

area and were able to respond appropriately to the questions fronted on inventory

management techniques.

4.2.1 Response Rate

The study targeted 24 NGO institutions with 24 questionnaires administered. However,

only 20 of them responded as indicated in the table 4.2.1 below depicting a response rate

of 83%. 17% of the respondent NGOs did not respond. Mugenda and Mugenda (1999)

indicate that a 50% response rate is adequate whereas 60% is good and 70% is excellent.

The response rate achieved by the researcher in the study was made possible by constant

followups through telephone calls, personal visits and email communication reminders.

Table 4.2.1: Response Rate

Frequency Percentage

Responded 20 83%

Did not respond 4 17%

31

Total 24 100% Source: Author (2013)

The researcher sought to establish how long the respective non-governmental

organization had operated. The study revealed that 35% of NGOs had operated for 11 –

15 years and above 25 years. This shows that the NGOs have had a wide utilization of

inventory management techniques for more than 10 years.

Table 4.2.2: NGO Duration of operation

Frequency Percent

Below 5 years 1 5

Between 16-20 years 1 5



Above 25 years 7 35


Total 20 100


The researcher sought to establish the position held by the respondents and the duration

they had worked in the positions they held. The study found out that 45% of the

respondents were procurement managers confirmed by table 4.2.3 below. This confirmed

that they were well conversant with the study subject of inventory management. It was

clear that 40% of the respondents had served for 2 – 10 years. Inventory management is

evolving and it explains why the respondents have engaged with inventory management

techniques for such a short time.

Table 4.2.3: Respondents Positions

Frequency Percent

Field Manager 3 15.0

Finance Manager 8 40.0

Procurement Manager 9 45.0

Total 20 100.0


32

Table 4.2.4: Years Worked

Frequency Percent

Below 2 years 4 20.0

Between 2-5 years 8 40.0

Between 6-10 years 8 40.0

Total 20 100.0


Figure 4.2.1: Respondents Gender


The researcher sought to find out the gender distribution of the respondents and it was

found out that 55% of the respondents were female representing 11 in number while male

were 45% representing 9 in number as shown in table 4.2.5 below. This is a clear

indication that NGOs in the agricultural sector in Kenya promote equality in job

distribution and female gender is given priority.

It was evident from the study that most respondents had a university degree and this

represented 85% of the respondents as indicated in the table 4.2.6 below. This is a clear

55%

45%

Gender

Female (F=11) Male (F=9)

33

indication that the respondents were well vast with the inventory management techniques

and their feedback was highly reliable and relevant.

Table 4.2.5: Education Level

Frequency Percent

College Diploma 1 5.0

Graduate Degree 2 10.0

University Degree 17 85.0

Total 20 100.0


4.3 Extent of Inventory Management Technique Application

The researcher sought to establish the extent to which non-governmental organizations

have applied inventory management technique. The responses were tabulated on a five

point Likert scale of 1 – 5 where 1 signified strongly agreed and 5 strongly disagree.

The study found out that non-governmental organizations strongly agreed that vendor

managed inventory, simulation, just-in-time, activity based costing and marginal analysis

were applied as indicated by the mean score 2.9, 2.5, 2.45, 2.2 and 2.1 respectively in

table 4.3 below. Their respective standard deviations were 1.021, 1.051, 1.099, 1.281 and

1.119. This implied that inventory management techniques are being applied in non-

governmental organizations to a large extent as efficiency is achieved.

Table 4.3: Inventory Management techniques

Mean

Std.

Deviation

Vendor Managed Inventory 2.90 1.021

Simulation 2.50 1.051

Just-In-Time 2.45 1.099

Activity Based Costing analysis 2.20 1.281

Marginal Analysis 2.10 1.119

Order Batching 1.85 0.813

Economic Order Quantity 1.70 0.865


34

4.4 Descriptive for extent of inventory management techniques

application

The researcher sought to establish what extent gender applies inventory management

techniques in non-governmental organizations. Also, the study sought to find out if there

was any significance.

4.4.1 Gender and extent of Inventory Management Techniques

application

The study revealed that vendor managed inventory, ABC analysis, JIT and simulation

had a good performance better than other inventory management technique namely EOQ,

marginal analysis and order batching. Female strongly agreed that the extent of inventory

management techniques were applied successfully. This is depicted in the mean scores

for VMI, ABC, JIT and simulation which were 2.91, 2.73, 2.56 and 2.55 respectively.

Male gender also strongly agreed and agreed respectively and their mean score was

slightly lower than female gender and the means were 2.89, 1.56, 2.36 and 2.44 for VMI,

ABC, JIT and simulation respectively. Thus, ABC was significant as depicted by

ANOVA at 0.038 and this is seen in its high mean of 2.73 by the female gender. This

shows that the female employees are more resilient and proficient when it comes to

application of inventory management techniques.

35

Figure 4.4.1: Inventory Management Techniques and Gender

*ANOVA was Significant for ABC Analysis at 0.038


4.5 Impact of inventory management techniques on supply chain

performance

The study sought to establish the impact of inventory management techniques on supply

chain performance in non-governmental organizations in the agricultural sector in Kenya.

This was achieved by conducting a regression analysis to determine if there was any

impact of inventory management techniques on supply chain performance. The

regression model adopted was a linear one to depict the impact and the variables above:

Y = a + b1X1 + b2X2 + b3X3 + b4X4 + b5X5 + b6X6 + b7X7 + e. Where Y = Supply chain

performance measured by responses on effects of inventory management techniques on

1.91

1.44

2.11 2.09

2.56 2.36

2.55 2.44

2.09

1.56

2.91 2.89 2.73

1.56

0

0.5

1

1.5

2

2.5

3

3.5

Female (F=11) Male (F=9)

Me

an S

core

s

Gender

Gender and Extent of Inventory Management Techniques Application

Economic Order Quantity Marginal Analysis Just-In-Time

Simulation Order Batching Vendor Managed Inventory

Activity Based Costing

36

supply chain performance; a = Y intercept that is the value of Y when X is equal to zero;

b1, b2, b3, b4, b5, b6 and b7 are regression weights attached to the variables; X1 = Economic

Order Quantity, X2 = Marginal Analysis, X3 = Just-in-time, X4 = Simulation, X5 = Order

batching, X6 = Vendor Managed Inventory, and X7 = ABC Analysis. These independent

variables were measured using responses on each variable acquired from the respondents.

Table 4.6 below illustrates the results obtained from the respondents.

4.5.1 T Test

The findings in table 4.6.1 below indicated that as the regression model tends to zero all

factors held constant, supply chain performance changes by 0.714. Consequently, all

other factors held constant, when application of EOQ improves organizational supply

chain performance increases by one unit, supply chain performance decreases by 0.338 ,

ABC analysis application necessitates organizations to attain optimal supply chain

performance increases by one unit, supply chain performance decreases by 0.003,

perishable goods require keen management and application of marginal analysis helps in

attaining organizational supply chain performance increases by one unit, supply chain

performance increases by 0.381, JIT helps organizations cut on holding cost and improve

customer satisfaction increases by one unit, supply chain performance decreases by

0.427, inventory planning helps organizations achieve optimal supply chain performance

in simulation both financially and on service delivery increases by one unit, supply chain

performance decreases by 0.668, order batching helps organizations save on transport

cost increases by one unit, supply chain performance increases by 0.426 and vendor

management inventory system eases management’s work for inventory replenishment

increases by one unit, supply chain performance increases by 0.062. This is an indication

37

that competition among the NGOs is a suitable predictor variable of the dependent

variable Y.

Table 4.5.1: Coefficients

Model Unstandardized

Coefficients Standardized Coefficients t Sig.

B Std. Error Beta

(Constant) .714 1.086 .657 .526

Application of Economic Order

Quantity helps improve organizational

supply chain performance

-.338 .350 -.193 -.965 .357

Activity Based Costing (ABC) analysis

application necessitates organizations to

attain optimal supply chain performance

-.003 .411 -.002 -.008 .994

Perishable goods require keen

management and application of marginal

analysis helps in attaining organizational

supply chain performance

.381 .329 .261 1.157 .274

Just-in-time helps organizations cut on

holding cost and improve customer

satisfaction

.427 .147 .568 2.903 .016

Inventory planning helps organizations

achieve optimal supply chain

performance in simulation both

financially and on service delivery

-.668 .334 -.458 -2.000 .073

Order batching helps organizations save

on transport cost .426 .329 .293 1.296 .224

38

Vendor management inventory system

eases management’s work for inventory

replenishment

.062 .213 .064 .293 .776

Years worked .293 .139 .501 2.104 .062

Gender -.359 .379 -.208 -.949 .365

a. Dependent Variable: Competition from other non-governmental organizations


4.5.2 R2 Determination Coefficient

Table 4.6.2 below indicates R2 value as 73.2% implying that the seven independent

variables explains 73.2% of the variance in supply chain performance of non-

governmental organizations. The independent variables are the advantages enjoyed by the

NGOs in the agricultural sector as a result of utilizing the inventory management

techniques. It is therefore true to say that the variables contributes immensely as per

respondents feedback to achieve optimal level of supply chain performance. Thus, as

supply chain performance gains prominence in the NGO organizations, a lot remains to

be done since the unexplained variance is 26.8%.

Table 4.5.2: Regression Model Summary

Model R R Square Adjusted R Square

Std. Error of the Estimate

Change Statistics

R Square Change

F Change df1 df2

Sig. F Change

1 .855a .732 .490 .630 .732 3.029 9 10 .050


4.5.3 F Test

Table 4.6.3 below indicates computed F statistic at 1.203 and at 5% level confidence, the

numerator df is equal to 9 and denominator df is equal to 10. This implies that the

regression model is sufficiently significant and can be used to explain the impact of

inventory management techniques on supply chain performance.

39

Table 4.5.3: Analysis of Variance

Model Sum of Squares df Mean Square F Sig.

Regression 10.828 9 1.203 3.029 .050b

Residual 3.972 10 .397

Total 14.800 19


4.6 Challenges of Implementing Supply Chain Techniques

The researcher sought to establish the challenges facing non-governmental organizations

in inventory management technique application. The responses were tabulated on a five

point Likert scale of 1 – 5 where 1 signified strongly agreed and 5 strongly disagree.

The study indicated that the respondents strongly agreed that subcontracting with a mean

score of 3.05 and standard deviation of 0.887 was an important aspect in improving

supply chain performance and it was significant at 0.045 as depicted by ANOVA and it

had a high F statistic of 3.732. Also, respondents strongly agreed that organizations

which are just there to receive funding and not implement any project for the attainment

of supply chain performance had a mean of 2.80 and a standard deviation of 1.105.

Nevertheless, respondents also strongly agreed that outsourcing and lack of adequate

funding contributed to challenges faced in inventory management techniques

implementation in the NGOs and they had a mean of 2.45 and 2.15 and standard

deviation of 1.191 and 0.875 respectively. This implied that NGOs are facing immense

challenges in the implementation of inventory management techniques in the area of

subcontracting, NGOs which are just formed to receive funds and neglect inventory

management implementation, outsourcing and NGOs which lack adequate funds for

inventory management implementation.

40

Table 4.6: Mean and Analysis of Variance

Mean

Std.

Deviation F Sig.

*Subcontracting is critical for improving inventory

management and supply chain performance 3.05 0.887 3.732 0.045

Organizations receiving funding only 2.80 1.105 1.849 0.188

Outsourcing is critical for improving inventory


Funding Inadequacy 2.15 0.875 0.230 0.797

Tough Grant Agreements 1.90 0.788 0.903 0.424

Just-In-Time is critical for improving inventory


Lack of partnership hinders Inventory Management

Techniques optimal Supply Chain Performance 1.80 0.616 0.855 0.443

E-Procurement is critical for improving inventory


Holding Safety Stock is critical for improving inventory


Prequalifying suppliers is critical for improving

inventory management and supply chain performance 1.50 0.889 0.544 0.590

Lack of Inventory Management Techniques leads to

poor Supply Chain Performance 1.45 0.605 1.080 0.362

Close partnership for partners or customers is critical for

improving inventory management and supply chain

performance

1.30 0.470 0.713 0.504

Employees Training and development Enhances Supply

Chain Performance 1.25 0.444 0.063 0.939

*ANOVA Significant for Subcontracting at 0.045


41

CHAPTER FIVE: SUMMARY, CONCLUSION AND

RECOMMENDATIONS

5.1 Introduction

This chapter presents the discussion of the research findings, summary, conclusions and

recommendations of the study.

5.2 Summary of the Findings and Discussion

The objective of the study was to determine the extent, establish the challenges of

implementing inventory management techniques and access the impact of inventory

management techniques on supply chain performance. It was found out that most of the

NGOs studied had operated for more than 10 years implying that inventory management

was a vital component and a tool that the NGOs used to achieve optimal supply chain

performance. However, the study revealed that majority of the respondents had worked

for 2 – 10 years and they had university degrees implying that they were well equipped to

understand the inventory management techniques. This was evident with finance and

procurement managers unlike the field managers who had a low response rate.

The study also found out that these inventory management techniques were very

important and for NGOs to achieve supply chain performance, the techniques had to be

implemented a view shared by Frahm (2003). It was also evident from the study that

NGOs have been able to utilize inventory management techniques to achieve service

delivery to the customer, forecast demand, and ensure competition is kept at bay. This

hold true according to Hausmann (2013).

It was evident that there were challenges faced by the NGOs in implementing inventory

management techniques in non-governmental organizations. Subcontracting, NGOs

42

formed to receive donor funds, outsourcing and lack of adequate funding greatly

challenged inventory management techniques, (Sandeep K. et al, 2007). It was evident

that there is need to improve and introduce efficiency in the management of inventory.

This is notable because most respondents have worked for 2 – 10 years and they are

injecting new ideas in the management of inventory. Also, majority of the respondents

are female and they prefer to plan ahead and do their work efficiently and effectively.

It was evident that the independent variable of EOQ, JIT, marginal analysis, order

batching, vendor managed inventory, simulation and ABC analysis explained 73.2% of

the variance in supply chain performance. Thus, the unexplained variance is 26.8%.

5.3 Conclusion and Recommendations

This study sort to answer the questions what is the extent of inventory management

techniques application, how to determine the impact and challenges of inventory

management techniques on supply chain performance and how to determine the

challenges of inventory management techniques in NGOs in the agricultural sector. This

was achieved through relationship establishments between the inventory management

techniques and supply chain performance. It was established that most NGOs have

operated for more than ten years meaning they have been growing and embracing

inventory management techniques implementation. Thus, the study recommends that the

NGOs in the agricultural sector should embrace inventory management techniques so that

they can reap from the immense benefits accrued from implementation.

43

It was evident that close partnership with customers or partners, prequalification of

suppliers, holding safety stock, lack of inventory management techniques, e-procurement

tools, JIT, stringent grant agreements and knowledge in inventory management

techniques should be encouraged to attain high supply chain performances.

5.4 Limitations of the Study and Suggestions for Further research

The researcher encountered numerous huddles while collecting data where some

respondents took too long to give their feedback. It took numerous follow ups via email,

personal visits and telephone calls to get the feedback. Other respondents had forgotten

and misplaced the questionnaire given to them.

The findings presented in this study can be improved to ascertain if supply chain

performance has a direct effect on individual NGO inventory management techniques.

Also, further studies can be conducted on NGOs in the agricultural sector in Kenya to

find out why and how they manage their inventory by having one centralized inventory

management unit that serves a range of NGOs.

44

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Appendices

Appendix 1: Questionnaire

The structured questionnaire presented is purely for data collection on inventory

management techniques and performance of non-governmental organizations in the

agricultural sector in Kenya. Data collected shall be treated with utmost confidentiality

and the overall purpose is for academic furtherance.

Section I: Bio data

1. Position held:

Please tick (√) where appropriate

Finance Manager Procurement Manager Stores Manager

Field Manager Others

2. How long have you worked in this position


Below 2 years Between 2-5 years Between 6-10 years

Between 11-15 years Between 16-20 years Above 20 years

3. What is your education level?

4. How long has the organization been in operation?


Below 5 years Between 6-10 years Between 11-15 years

Between 16-20 years Between 21-25 years Above 25 years

5. Gender

6. Name of Institution

Section II: Extent of inventory management techniques application in non-governmental

organizations in the agricultural sector in Kenya

Please indicate by ticking (√) the extent to which the following inventory management

techniques are applied in your organization as per the following scale of 1 - 5

1 – Strongly Agree, 2 – Agree, 3 – Neutral, 4 – Disagree, 5 – Strongly Disagree

Secondary College

Diploma

University

Degree

Graduate

Degree Others

(Specify

)

Male Female

52

No. 1 2 3 4 5

1. Economic Order Quantity

2. Marginal Analysis

3. Just-in-time

4. Simulation

5. Order batching

6. Vendor Managed inventory

7. Activity Based Costing (ABC) Analysis

8. Others: Please specify: i.

ii.

iii.

Section III: a. Impact of inventory management techniques on the supply chain

performance of non-governmental organizations in the agricultural sector in Kenya.

Please indicate by ticking (√) on the appropriate statement as per the scale below:

1 – Strongly Agree, 2 – Agree, 3 – Neutral, 4 – Disagree, 5 – Strongly Disagree

No. 1 2 3 4 5

1. Application of Economic Order Quantity helps improve

organizational supply chain performance by way of quantities

required and when they are required.

2. Activity Based Costing (ABC) analysis application necessitates

organizations to attain optimal supply chain performance.

3. Perishable goods require keen management and application of

marginal analysis helps in attaining organizational supply chain

performance.

4. They say Just-in-time helps organizations cut on holding cost

and improve customer satisfaction. Does this hold for your

organization?

5. Inventory planning helps organizations achieve optimal supply

chain performance in simulation both financially and on service

delivery.

53

6. Order batching helps organizations save on transport cost.

7. Vendor management inventory system eases management’s

work for inventory replenishment.

8. Has competition from other NGOs affected your supply chain

performance?


ii.

iii.

Section III: Challenges of implementing inventory management techniques in non-

governmental organizations in the agricultural sector in Kenya.

Please indicate by ticking (√) the extent you agree on the statement below for control as

per the scale of 1 – 5: 1 – Strongly Agree, 2 – Agree, 3 – Neutral, 4 – Disagree, 5 –

Strongly disagree

No. 1 2 3 4 5

1. Lack of inventory management techniques has contributed to

poor supply chain performance.

2. Training and development of employees will enhance supply

chain performance of your organization.

3. Lack of partnership with suppliers ails organizations in attaining

optimal supply chain performance.

4. Lack of adequate funding hinders inventory management

techniques implementation.

5. Stringent donor grant agreements hinder inventory management

techniques implementation.

6. Some organizations are just there to receive funding and not

implement any project rendering supply chain performance

attainment irrelevant.

7. The following are critical for your organization to improve

inventory management and supply chain performance:

i. Close partnership with customers / partners

54

ii. Just in time supply

iii. E-procurement (MRP/ERP)

iv. Outsourcing

v. Subcontracting

vi. Holding safety stock

vii. Pre-qualifying suppliers


ii.

Thank you for your valuable contribution

55

Appendix II: Agricultural Non-governmental Organizations in

Kenya

N

o

Name of NGO Contact Area of

Interest

Location

1 Afforestation Agriculture

Livestock Improvement &

Soil Conservation

Programme

Josphat C. Lumeagi

0722287757

Agriculture &

Conservation

Riziki Plaza

1st Floor

Kisii-Migori

Road,

Nyanza

2 African Agricultural

Technology Foundation.

Africaine Pour Les

Technologies Agricoles

(AATF)

P.O. Box 30709, 00100

Nairobi

Tel: +254 20

4223700/3731

Url: aatf-africa.org

Agriculture &

Technology

ILRI

Campus,

Nairobi

3 Arican Biotechnology

Stakeholders Forum

(ABSF)

Prof. Norah Olembo,

Executive Director

P.O. Box 6609, 00800

Nairobi

Tel: 4444558/4448762

Cell:

0720223244/0734333283

Email:

[email protected]

URL: www.abneta.org

Agriculture

Research,

Biotechnology

Nairobi

4 African Conservation

Tillage Network (ACT)

P.O. Box 10375, 00100

Nairobi

Tel: +254 20 4444252

Cell: +254 722751208

Email: info@act-

africa.org

URL: www.act-africa.org

Conservation

Agriculture for

Improved

Livelihood and

Better

Environment

KARI-

NARL,

Waiyaki

Way,

Westlands

5 Africa Crop Science-

Kenya Chapter

Faculty of Agriculture –

University of Nairobi

Agricultural

Research

Nairobi

6 African Harvest Biotech

Foundation International

(AHBFI)

Josephine Kilei, Senior

Administrator

P.O. Box 642, 00621

Nairobi

Tel: +254 20

4441113/5/6

Cell: +254

733635260/0724 256977

URL:

www.africaharvest.org

Research &

Agricultural

Development

White Field

Place, School

Lane,

Westland, 3rd

Floor

entrance B

7. African Network For

Agriculture, Agro-Forestry

Email: [email protected] Forestry &

Agricultural

United

Nations

mailto:[email protected]

http://www.abneta.org/



http://www.act-africa.org/

http://www.africaharvest.org/


56

& Natural Resources

Education (ANAFE)

Research Avenue,

Gigiri C/o

ICRAF.

Nairobi

8. African Seed Trade

Association(AFSTA)

P.O. Box 2428,00200

KNH, Nairobi

Tel: +254 20

2727853/2727860

Email: [email protected]

URL: www.afsta.org

Agri-Business Utumishi Co-

op House, 1st

Floor,

Mamlaka

Road

9. Community Based

Development Agency

(CBDA)

Pascal D. Lewa

P.O. Box 99, 80108,

Kilifi

Cell: +254 720

803390/733 883090

Email:

coba_developmentagenc

[email protected]

Agriculture Kilifi

10

.

FARM Africa (Food &

Agricultural Research

Management – Africa)

Helen Altshul, Regional

Director

P.O. Box 49502, 00100

Nairobi

Tel: +254 20

2731664/2732203/27320

44

Cell:+254

721576531/0734721208

Email: info@farm-

africa.org

URL:

www.farmafrica.org.uk

Innovative

Agricultural

Technologies,

Practices and

access to

markets

Argwing

Kodek Rd.

Studio

House, 4th

Floor,

Nairobi

11

.

IFDC (International Centre

For Soil Fertility &

Agricultural Development)

P.O. Box 30772, 00100

Nairobi

Tel: +254 20 8632724/20

Cell:+254 711965024

URL: www.ifdc.org

Agricultural

Development

ICIPE

Duduvile

Campus,

Kasarani,

Thika Road

12

.

International Centre for

Research in Agroforestry

(ICRAF). World

Agroforestry Centre

Jacinta Kimwaki,

Information Officer

P.O. Box 30677, 00100

Nairobi

Tel: +254 20

7224000/4178

Email:

[email protected]

URL:

www.worldagroforestryc

Transforming

Lives and

Landscape

United

Nations

Avenue,

Gigiri


http://www.afsta.org/





http://www.farmafrica.org.uk/

http://www.ifdc.org/


http://www.worldagroforestrycentre.org/

57

entre.org

13

.

International Livestock

Research Institute (ILRI)

P.O. Box 30709, 00100

Nairobi

Tel: +254 20 4223000

Email: ilri-

[email protected]

URL: www.ilri.org

Livestock

Research

Old Naivasha

Road

14

.

International Plant Genetic

Resource Institute (IPGRI)

– IPGRI-BIOVERSITY

Abigael Odanga, Senior

Administrator

P.O. Box 30677, 00100

Nairobi

Tel: +254 20

7224000/4500/4514

Email:

[email protected]

URL:

www.ipgri.cgiar.org

Plant Genetic

Resource and

Research

United

Nations

Avenue,

Gigiri C/o

ICRAF.

Nairobi

15

.

Kazi Mashambani

Development Programme

(KAMADEP)

Morris M. Isiye

Tel: +254 056 30775

Cell:+254 721405630

Email:

[email protected]

Agricultural

Development

Milimani

Estate,

Opposite Star

Academy,

Western

16

.

Kenya Organic Agriculture

Network (KOAN)

Eustace Kiarie, National

Coordinator

P.O. Box 72461, 00200

Nairobi

Tel: +254 20 2610863

Cell:+254 722

2076301/0735721376

Email:

[email protected]

URL: www.koan.co.ke

Organic

Agriculture

ICIPE

Campus

complex,

Kasarani

17

.

The African Forest Forum

(AFF)

G. Kowero

P.O. Box 30677, 00100

Nairobi

Tel: +254 20 7224000

Email:

[email protected]

Afforestation United

Nations

Avenue,

Gigiri C/o

ICRAF.

Nairobi

(Shah, 2012)

No Name of NGO Contact Area of

Interest

Location

1 International Center

for Tropical

Agriculture (CIAT)

CIAT Africa Coordination

P.O. Box 823-00621

Nairobi, Kenya

Phone: +254 20 8632800,

Tropical

Agriculture

ICIPE.

Duduville

Campus

Off

http://www.worldagroforestrycentre.org/



http://www.ilri.org/


http://www.ipgri.cgiar.org/



http://www.koan.co.ke/


58

+254 721574967

Fax: +254 20 8632001

E-mail:

[email protected]

Kasarani

Road.

2 Center for

International

Forestry Research

(CIFOR)

P.O. Box 30677, 00100

Nairobi

Tel: +254 20 7224000

Forestry

Research

United

Nations

Avenue,

Gigiri C/o

ICRAF.

Nairobi

3 International Maize

and Wheat

Improvement Center

(CIMMYT)

Philip Doyo, Finance

Manager

P.O. Box 30677, 00100

Nairobi

Tel: +254 20 7224000

Maize and

wheat

Research

United

Nations

Avenue,

Gigiri C/o

ICRAF.

Nairobi

4 International Potato

Centre (CIP)

P.O. Box 30709, 00100

Nairobi

Tel: +254 20 4223000

Email: [email protected]

URL: www.ilri.org

Root and

Tuber

research.

Agricultural

research for

Development

ILRI at Old

Naivasha

Road

5 International Crops

research Institute for

The Semi-Arid

Tropics (ICRISAT)

Said Silim, Director

Eastern and Southern Africa,

ICRISAT

P O Box 39063 Nairobi,

Kenya

http://www.icrisat.org/

Tel: +254 20 7224555

Fax:+254 20 7224001

E-mail: [email protected]

Cereals and

Legumes

United

Nations

Avenue,

Gigiri C/o

ICRAF.

Nairobi

6 Agricultural

Research

Development

(CIRAD)

P.O. Box 30677, 00100

Nairobi

Tel: +254 20 7224000


Tel: +254 20 7224555

Fax:+254 20 7224001

E-mail: [email protected]

Agricultural

Research

United

Nations

Avenue,

Gigiri C/o

ICRAF.

Nairobi

7 International

Institute of Tropical

Agriculture (IITA)

c/o ICIPE

P.O. Box 30772-00100

Nairobi, Kenya

Tel: +254-20-8632900

Agriculture ICIPE.

Duduville

Campus

Off

Kasarani

Road.

(Voices from the Field: Science for the poor in Kenya. 2003, 2003)



http://www.ilri.org/





59

Appendix III: Letter of Introduction for Data Collection

INVENTORY MANAGEMENT AND SUPPLY CHAIN …chss.uonbi.ac.ke/sites/default/files/chss/F-Anthony Gakinya-D61...i inventory management and supply chain performance of non-governmental organizations

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