Simon Onowa Owizy (2013) 1 had done a study on “Effectiveness of Inventory Management in a Manufacturing Company” in his study examines the essence of effective inventories control and management to manufacturing companies with particular emphasis on Ama Greenfield Breweries plc, and he was discovered that inventory management plays a vital role in the manufacturing company. A well functional inventory management following the recommendations can bring about proper management thereby enhancing proper and effective production and it will equally ensure the effective, efficient and adequate use of materials and resources in the manufacturing company. Lawrence Imeokparia (2013) (2) had done a study on “Inventory Management System and Performance of Food and Beverages Companies in Nigeria”. With the objectives of, the relationship between inventory control systems and how it affects the success of the company, the relationship between the financial performance of a company and its inventory control system, and he found that It has been shown that inventory management approaches from manufacturing organizations can be improved through highest ranking requirement is customer satisfaction, and through an example of inventory postponement, there are situations where inventory is not available and part delivery is delayed and orders cannot be fulfilled on time. In order to meet these requirements, the high manufacturing organization needs to have more accurate forecasting, and to strengthen its communication with its customers. In order for the manufacturing industry to
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Simon Onowa Owizy (2013)1 had done a study on “Effectiveness of Inventory Management in a
Manufacturing Company” in his study examines the essence of effective inventories control and
management to manufacturing companies with particular emphasis on Ama Greenfield Breweries
plc, and he was discovered that inventory management plays a vital role in the manufacturing
company. A well functional inventory management following the recommendations can bring
about proper management thereby enhancing proper and effective production and it will equally
ensure the effective, efficient and adequate use of materials and resources in the manufacturing
company.
Lawrence Imeokparia (2013)(2) had done a study on “Inventory Management System and
Performance of Food and Beverages Companies in Nigeria”. With the objectives of, the
relationship between inventory control systems and how it affects the success of the company,
the relationship between the financial performance of a company and its inventory control
system, and he found that It has been shown that inventory management approaches from
manufacturing organizations can be improved through highest ranking requirement is customer
satisfaction, and through an example of inventory postponement, there are situations where
inventory is not available and part delivery is delayed and orders cannot be fulfilled on time. In
order to meet these requirements, the high manufacturing organization needs to have more
accurate forecasting, and to strengthen its communication with its customers. In order for the
manufacturing industry to work out how to incorporate inventory postponement and inventory
speculation to incorporate consumer demand and to align this consumer demand with the
organization’s supply chain, the forecasting and planning processes needs to be improved This
“can be achieved, and the supply chain performance metrics (and overall firm performance) will
be maximized if the demand forecasting processes are collaborative, sophisticated, oriented
towards the product life cycle, and developed using non-constrained consumer demand data. The
implication of inventory management approaches is that through inventory postponement,
customers are frequently waiting for stock to fulfill their requirements, and in turn puts added
pressure on to the third party logistics provider who faces these inventory management issues
directly with the customers. The implications of this can be negative feedback and negative
customer relationships, as opposed to positive customer relationships if the inventory
management approach adopted a level of inventory speculation, where forecasting would
increase the inventory and would be more likely be available to fulfill the customer’s
requirements.
Kariuki James Ng’ang’a (2013)(3) the study was “an assessment of the factors influencing
effectiveness of inventory control; Ministry of State for Provincial Administration and Internal
Security; Nairobi”. The key findings from the study revealed that: delays in procurement of
goods, frequent stock outs and uncertain change of prices were some of the effects of long
bureaucratic procurement procedure. According to the study inadequate and untimely dispatch of
funds has an effect in inventory control. The study also revealed that unavailability of
stationeries/stores records, lack of specific time or date for both posting stores records, lack of
adequate qualified and well trained staff hinders effective performance. The researcher
recommends that too much red tape and rigid rules and policies should be avoided; current
inventory control practices and procedure need to be reviewed and redesigned. Only qualified
and adequate personnel should be are involved in stock control while adequate funds should be
dispatched on timely manner. Key
Aarti Deveshwar and Dhawal Modi (2011)(4) had done a study on “Inventory Management
Delivering Profits through Stock Management”, with the objectives of key reasons causing
Inventory losses in an Organization, and he has found that the major reason for the problems are
that Unqualified employees in charge of inventory, the mismanagement of inventory and the
unsystematic way o pricing.
Niranjan Mandal and Dutta Smriti Mahavidyalaya, (2010)(5) in their study makes an attempt
to provide an insight into the conceptual side of working capital and to assess the impact of
working capital management on liquidity, profitability and non-insurable risk of ONGC, a
leading public sector enterprise in India over a year period (i.e. from 1998-99 to 2006-07). It
also makes an endeavor to observe and test the liquidity and profitability position of the
enterprise and to study the correlation between liquidity and profitability as well as between
profitability and risk. They may be concluded that working capital management is very much
useful to ensure better productive capacity, good profitability and sound liquidity of an
enterprise, specifically the PSE in India, for managerial decision making regarding the creation
of sufficient surplus for its growth and survival stability in the present competitive and complex
environment.
Jasmine Kaur (2010)(6) did a study which is concerned with the problems that arise in
attempting to manage the Current Assets, Current Liabilities and the interrelation that exists
between them. This is a two-dimensional study which examined the policy and practices of cash
management, evaluate the principles, procedures and techniques of Investment Management,
Receivable and Payable Management dealt with analyzing the trend of working capital
management and also to suggested an audit program to facilitate proper working capital
management in Indian Tyre Industry. He revealed that there is a standoff between liquidity and
profitability and the selected corporate has been achieving a tradeoff between risk and return.
Efficient management of working Capital and its components have a direct effect on the
profitability levels of tire industry.
Kesseven Padachi (2010) (7) in his study used return on total assets as a measure of profitability
and the relation between working capital management and corporate profitability, which is
investigated for a sample of 58 small manufacturing firms, using panel data analysis for the
period 1998 – 2003. The regression result of his study indicates that high investment in
inventories and receivables is associated with lower profitability. The key variables used in the
analysis are inventories days, accounts receivables days, accounts payable days and cash
conversion cycle. His study also reveals significant relationship between working capital
management and profitability has been found in previous empirical work. An analysis of the
liquidity, profitability and operational efficiency of the five industries shows significant changes
and how best practices in the paper industry have contributed to performance. The findings also
reveal an increasing trend in the short-term component of working capital financing.
Andrew Blather wick (2010)(8) in his article stresses the balancing stock inventories, service
delivery mechanisms and retaining requisite profit margin while ensuring customer loyalty. He
admits that one of the highest costs is the stock and requires immediate attention in order to
retain the profit margin. He brings out the problems of lack of involvement and consideration of
marketing and sales department in the inventory system management. They do not give enough
information and feedback regarding the theme or strategy for the inventory department to
prepare for the seasoned promotion. This results in poor customer service, as the customers
cannot get the products they required. He mentions that good inventory management is the
management of inventory to optimize services and profit and required a sophisticated modeling
technique to determine what is the best economic order quantity and the appropriate service
level. The limitation of the literature is that it does not specify how to determine the quantity of
stock and the service level required in order to attain the required profit.
B.J. Grablowsky, (2005) (9) in his paper “Financial management of inventory” surveyed small
business inventory management practices and compared with techniques commonly employed
by large corporations. It appears that smaller firms rely on simple controls. Large businesses
rely more on quantitative techniques, such as EOQ and linear programming, to provide
additional information for decision-making, while small firms are more likely to use
management judgment without the quantitative back-up. Of those small firms which did not use
quantitative methods for determining inventory order and stock levels, the most common
qualitative methods were "past experience" and "executive judgment,".
Vikram Tiwari, SrinageshGavirneni, (2005) (10) in their article “Recoupling Inventory Control
Research and Practice: Guidelines for Achieving Synergy” focused on the widening disconnect
between inventory-control research and practice, people debate the value of incremental theory
building. While practitioners make decisions in a complex and uncoordinated environment,
researchers often adopt a simplistic environment for the sake of rigorous analysis. The
stakeholders‟ mismatched objectives and motivations may cause this lack of synergy.
Controlling and reducing this disconnect would benefit both practitioners and researchers. The
existing empirical analysis of companies‟ business improvements based on academic inventory-
management theories is inconclusive. Even so, some businesses have successfully implemented
inventory theory; however, in most cases, they have greatly modified the inventory models
developed by academics.
Gulsen Aydin Keskin and Coskun Ozkan(2005)(11) in their article “Multiple criteria ABC
analysis with FCM clustering” found a multiple criteria ABC analysis with FCM clustering. The
number of stock keeping units (SKUs) possessed by organizations can easily reach quite a few.
An inventory management policy for each individual SKU is not economical to design. ABC
analysis is one of the conventionally used approaches to classify SKUs. In the classical method,
the SKUs are ranked with respect to the descending order of the annual dollar usage, which is the
product of unit price and annual demand. the few of the SKUs that have the highest annual dollar
usage are in group A and should be taken into account mostly; the SKUs with the least annual
dollar usage are in group C and should be taken into account least; the remaining SKUs are in
group B. In this study, we proposed fuzzy c-means (FCM) clustering to a multicriteria ABC
analysis problem to help managers to make better decision under fuzzy circumstances. The
obtained results show that the FCM is a quite simple and an easily adaptable method to inventory
management.
S. M. Disney and D. R. Towill (2003)(12) in their research “The effect of vendor managed
inventory (VMI) dynamics on the Bullwhip Effect in supply chain” compares the expected
performance of a vendor managed inventory (VMI) supply chain with a traditional “serially
linked” supply chain. The emphasis of this investigation is the impact these two alternative
structures have on the “Bullwhip Effect” generated in the supply chain. We pay particular
attention to the manufacturer's production ordering activities via a simulation model based on
difference equations. VMI is thereby shown to be significantly better at responding to volatile
changes in demand such as those due to discounted ordering or price variations. Inventory
recovery as measured by the integral of time absolute error performance metric is also
substantially improved via VMI. Noise bandwidth, that is a measure of capacity requirements, is
then used to estimate the order rate variance in response to random customer demand. Finally,
the paper simulates the VMI and traditional supply chain response to a representative retail sales
pattern. The results are in accordance with “rich picture” performance predictions made from
deterministic inputs.
Dave Piasecki (2001)(13) in his article he presents an inventory model for calculating optimal
order quantity that used the Economic Order Quantity (EOQ) method. He points out that many
companies are not using the EOQ method due to poor results received resulted from inaccurate
data input. He clarifies that many errors resulted in the calculation of EOQ in the computer
software package are due to the failure of the users in understanding how the data inputs and
system setup that control the output. He says that EOQ is an accounting formula that determines
the point at which the combination of order costs and inventory cost are the least. He highlights
that the EOQ method would not conflict with the Just in Time (JIT) concept. In fact, he explains
that JIT is actually a quality initiative to eliminate wasted steps, wasted material, wasted labor
and other costs; EOQ method is used to determine which components would fit into the JIT
model and what level is economically advantageous for the operation.
Shin, Seungjae; Ennis, Kevin L.; Spurlin, W. Paul (2000)(14) had done a study on “Effect of
Inventory Management Efficiency on Profitability: Current Evidence from the U.S.
Manufacturing Industry"the paper examines financial statement data for U.S. manufacturing firms to
explore the relationship between inventory management efficiency and firm profitability. The results
show that a lower ratio of inventory to sales for a firm is associated with higher profit margin for the firm.
In addition, small size firms can receive a larger benefit (as measured by profitability) from increased
inventory efficiency when compared to medium and large size firms.
Niranjan Mandal and Dutta Smriti Mahavidyalaya, (2000)(15) in their study makes an attempt
to provide an insight into the conceptual side of working capital and to assess the impact of
working capital management on liquidity, profitability and non-insurable risk of ONGC, a
leading public sector enterprise in India over a year period (i.e. from 1998-99 to 2006-07). It
also makes an endeavor to observe and test the liquidity and profitability position of the
enterprise and to study the correlation between liquidity and profitability as well as between
profitability and risk. They may be concluded that working capital management is very much
useful to ensure better productive capacity, good profitability and sound liquidity of an
enterprise, specifically the PSE in India, for managerial decision making regarding the creation
of sufficient surplus for its growth and survival stability in the present competitive and complex
environment.
Fanzine Faze (1999)(16) in his article presents a mathematical model to assist companies in their
decision to switch from the economic order quantity (EOQ) to the Just in Time (JIT) purchasing
policy. He starts by emphasizing the pressure for the companies to change the traditional EOQ
purchasing order to JIT purchasing order. He defines JIT as “to produce and deliver finished
goods just in time to be sold, sub-assemblies just in time to be assembled in goods and purchased
material just in time to be transformed into fabricated parts.” He highlights that the economic
order quantity model focuses on minimizing the inventory costs rather than on minimizing the
inventory. From the mathematic model presented by him, he concludes that JIT can eliminate the
storage, capital, insurance, ordering, and transportation costs. However, it depends on certain
conditions. Under the ideal condition, whereby all the conditions meet, it is economically better
off to choose JIT over EOQ because it results in a simultaneously reduction in purchase price,
holding cost and ordering cost. Nevertheless, in reality the manufacturers produce a large
quantity of items even though they may deliver them in very small quantities to fulfill customers
need. In brief, he explains that JIT will become viable only if the annual demand of inventory
items is lower than the break-even point of the model. The limitation of the literature is that he
only compares the cost saving and the required quantities for choosing the system. However, he
does not compare the turnover and profit resulted from the required quantities.
Peter Wanke (1999)(17) in his study “A Conceptual Framework for Inventory Management:
Focusing On Low- Consumption Items”, evaluates the premise of demand adherence to normal
distribution in inventory management models, showing that this can lead to significant
distortions, mainly to stock control of very low and low consumption items, in an attempt to
illustrate the benefits of adopting probability density functions that are more adequate to product
demand characteristics, in terms of total costs of stocks.
C. Clifford Defee, Brent Williams, Wesley S. Randall, Rodney Thomas, (1999) (18) in their
research paper “An inventory of theory in logistics and SCM research", analyzed the theoretical
categories and presented to explain the type and frequency of theory usage. They concluded that
over 180 specific theories were found within the sampled articles. Theories grouped under the
competitive and microeconomics categories made up over 40 per cent of the theoretical
incidences. This does not imply all articles utilize theory. The research found that theory was
explicitly used in approximately 53 per cent of the sampled articles.
James Healy (1999) (19) in his article he highlights that the distributors carry ten to thirty percent
of additional inventory that is unnecessary. These cause unnecessary carrying cost, loss of
customers, lost sales and lost profit due to sloppy and inefficient inventory management. He
points out that there is a need to set out procedures to control physical inventory, to determine
the true cost of carrying inventory and an accurate running report to measure the turns of
inventory. He suggests an inventory optimization method to overcome the above shortfalls. He
then explains that inventory optimization is a process that let distributors reduce the amount of
inventory they carry while improving service levels, ensuring that the right stock is available
when and where it is needed, increasing turns and reducing lost sale opportunities. He further
points out some misconceptions of inventory management such as the adequacy of the Enterprise
Resource Planning System (ERP) in handling the inventory, the importance of turns in
measuring the success of the inventory system and the confidence on profitability of using the
inventory optimization method. He also points out keys to achieve the inventory optimization
goals. The limitation of this article is that it does not give reasons for the causes of the
unnecessary inventory. It gives a general statement and does not explain in details the reasons
behind any cost and profit.
Pradeep Singh (1999)(20) in his study made an attempt to examine the inventory and working
capital management of Indian Farmers Fertilizer Cooperative Limited (IFFCO) and National
Fertilizer Limited (NFL). He concluded that the overall position of the working capital of IFFCO
and NFL is satisfactory. But there is a need for improvement in inventory in case of IFFCO.
However inventory was not properly utilized and maintained by IFFCO during study period. The
management of NFL must try to properly utilize the inventory and try to maintain the inventory
as per the requirements, so that liquidity will not interrupt.
Q. Feng, G. Gallego (1999) (21) had done a Periodic-Review Inventory Model with three
consecutive delivery modes and forecast updates. This paper is concerned with a periodic-review
inventory system with three consecutive delivery modes (fast, medium, and slow) and demand
forecast updates. At the beginning of each period, the inventory level and demand information
are updated and decisions on how much to order using each of the three delivery modes are
made. It is shown that, there is a base-stock policy for fast and medium modes which is optimal.
Furthermore, the optimal policy for the slow mode may not be a base-stock policy in general.
Pawan Kumar (1996) (22) in his article says that Inventories in are viewed by most of the
business world as a large potential role and not as a measure of wealth as was prevalent in old
days. The inventory stocked in excess of demand may lead to drastic price cuts, so as to be
saleable before it becomes worthless because of obsolescence. The inventory stocked less than
the demand may lead to the business out of the market. There is a constant fear in the minds of
businessmen because of uncertainty in the market situations, whether to stock or not to stock.
With rather tight monetary market, optimization of resources through proper inventory control
becomes one of the major challenges for the material managers in every organization. Widening
gulf between theory and practice has become remarkable phenomena in this age of science and
technology. When the frontiers of knowledge are widening and the theory is developing at fast
rate, the practice is lagging far behind. This is probably true about all branches of knowledge and
especially true for inventory management area. Inventories play essential and pervasive role in
almost every sector.
R.L Ballard (1996)(23) in his article presents how inventory can best be monitored and measured
in the warehouse. He mentions that inventory control is treated as the management function,
whereas the monitoring of stock is regarded as supervisory function. However, he highlights that
the monitoring and measurement process is often overlooked and thus resulted in unreliability of
the data for the decision making of management. He further stresses that the need for rapid and
accurate monitoring and measurement of inventory becomes vital in these competitive business
world. He explains that monitoring and measuring of inventory is not just stock checking, but is
about knowing at all time, everything that needs to be known about the stock to ensure the
effective control of inventory. The whole process should be known rather than just the stock. In
addition, he categorizes the stock information into fixed information, variable information and
derived information in order to describe the properties, status, quantity and location of inventory.
The limitation of the literature is that it doesn’t consider the monitoring and measurement of the
damage, obsolete or stolen inventory. It also fails to explain the cost incurred and profit gain
resulted from the effective monitoring and measuring process.
Donald S. Allen(1995)(24) His study support the anecdotal evidence that inventory management
methods in the United States have changed significantly over the past decade or two, which is
evident in the reduced business inventory-to-sales ratio, driven almost entirely by lower
inventories of work-in-process, and materials and supplies rather than finished goods. The
impact of these changes in inventory management techniques on business cycles is ambiguous.
All other things being equal, inventory management innovations should reduce the probability of
unintended accumulation. But as long as firms overestimate or underestimate future demand,
inventory cycles will persist. And if cutbacks in production are required to reduce inventory then
the resulting reduction in income could result in lower demand and further inventory buildup.
Inventory management innovations are not a panacea for all the business cycles. In the long run
these innovations in Inventory management can contribute to a faster response of production to
changes in demand. It can in turn reduce the boom-bust cycle in the economy.
Richard A. Lancioni& Keith Howard (1978) (25) in their study considers the inventory
management as an extremely important function to any business, the inadequacies in control can
result in serious problems. If inventories are managed in an inefficient manner, it is likely to
result in delays in production, dissatisfied customers, or curtailment of working capital.
Reference
1. Simon Onowa Owizy (2013) Effectiveness of Inventory Management in a Manufacturing
Company pp.(220-240)
2. Lawence ImekpariaIOSR Journal of Mathematics (IOSR-JM) e-ISSN: 2278-5728.