Inventory Management Practice on Company

Performance

( A case study of Desta Alcohol and liquor factory Plc)

Senior Essay Paper Submitted to Department of Accounting

and Finance, Collage of Business and Economics, and Meklle
University for Award of Degree of Bachelor of Art in Accounting
and Finance (B.A)

By:- Biruk Shiferaw

IDNO:- 0994/03

Under The Guidance Of

Aron Haileselasie, (Msc.)
Accounting and Finance Department
Collage of Business and Economics

Mekelle University
Tigray –Ethiopia
June 2013
 DECLARATION
I Biruk shiferaw, hereby, declare that the project work entitled
“ Inventory management on company performance. A case study of
Desta Alcohol and liquor Factory Plc ’’ submitted by me for the award of
DEGREE OF BACHELOR OF ART IN ACCOUNTIG AND FINANCE OF
MEKLLE UNIVERSITY at Mekelle, is original work and hasn’t been
presented for the award of any other Degree Diploma, Fellowship or other
similar titles of any other university or institution.
Place: Mekelle Signature: _____________________________
Date: June, 2013 Name: Biruk shiferaw
 CERTIFICATION

I certify that the project work entitled “ Inventory management on

company performance: A case study of Desta Alcohol and liquor Factory
Plc ’’ is a bona –fide work by Biruk shiferaw under my guidance. Certified
further, that to the best of my knowledge the work reported here in
doesn’t from part of any other project report or dissertation on the bases
of which a degree or award was conferred on an earlier occasion on this
or any other candidate.
Place: Mekelle Signature: _____________________________
Date: June, 2013 Advisor: Aron Hailesellasie, Msc.
Lecture of Accounting &Finance
Accounting &Finance department
College of Business and Economics
Mekelle University
 ACKNWLEDGEMENT
First and for most I would like to prize the almighty God for his
unspeakable gifts, and his mother st. virgin Merry for her special
motherly contribution and also all saints and angels who protecting me
through all of my voyages without interruption. Next I would like to
express my sincere gratitude to my advisor Mrs Aron H/Sellasie (Msc)
under whose supervision and UN reserved comments this thesis has
been completed. Besides, for his moral and material support from the
beginning of the proposal until the final research.
I am also very great full to Ato Habtie Melese finance manager of DALF to
providing necessary information which was very important for the
accomplishment of this thesis.
My special thanks also goes to my best friends Zekarias Yfru and
Mamaru Gashaw for their invaluable academic comments and supports
on the paper. Oh my beloved family, words cannot describe how
wonderful I fell of have you as a family dad & mom (SHE & BB) and also
my sisters and my brother you have doing all what you could do.
I am always begging my God to pay back all the favors you did for me.
 Abstract

The research was conducted on inventory management practice on company

performance of DALF PLC.
Inventory management refers to planning, organizing, and controlling activities
to insure that inventory are kept at level.
The main objective of this study are to find out problem related with inventory
control and thus provide information and service as to understand and create
awareness of inventory control system.
To achieve this objective the necessary data was collected from both primary
and secondary data source. Finally the data analyzed and interpreted by using
percent, table and Number.
The result of this paper is to understand that inventory control management
system plays major role in attributing to the benefit of the company.
Inventory plays a great role in a company, the management of the company
must give high consideration to the inventory.
 TABLE CONTENT
Contents Page No
Declaration………………………………………………………………………………i
Certification…………………………………………………………………………….. ii

Acknowledgement…………………………………………………………….……… iii

Abstract……………………………………………………………………….………… iv

List of Table……………………………………………………………………….…… viii

Acronomy…………………………………………………………………..…………… ix

CHPTER ONE:

Introduction ------------------------------------------------------------------------ 1

1.1 Back ground of the study ---------------------------------------------------- 1

1.2 Background of the organization-------------------------------------------- 2

1.3 Statement of the problem --------------------------------------------------- 3

1.4 Research question ------------------------------------------------------------ 4

1.5 Objective of the study --------------------------------------------------------- 4

1.5.1 General objectives --------------------------------------------------- 4

1.5.2 Specific objectives----------------------------------------------------4

1.6 Significant of the study -------------------------------------------------------- 5

CHAPTER TWO

Literature review --------------------------------------------------------------- 6

2.1. Review of empirical study

2.2 Definition of inventory management ----------------------------------------9

2.2.1 What is inventory and inventory management? --------------------9

2.2.2 Inventory management control ------------------------------------- 10

 2.2.3 How to improve inventory management control ------------------ 11

2.2.4 Effect of inventory errors on financial statements --------------- 12

2.2.5 Inventory system ------------------------------------------------------ 12

2.2.6 Determining the cost inventory ------------------------------------- 13

2.2.7 Inventory costing methods ------------------------------------------- 13

2.2.8 Inventory types -------------------------------------------------------- 14

2.2.9 Why keep inventory --------------------------------------------------- 15

CHAPTER THREE

3. Research Methodology------------------------------------------------------------ 17

3.1 Research area and population ----------------------------------------------- 17

3.2 Sampling method ---------------------------------------------------------------17

3.3 Source of data collection ------------------------------------------------------ 17

3.3.1 Primary data collection --------------------------------------------- 17

3.3.2 Secondary data collection ------------------------------------------17

3.4 Data collection ------------------------------------------------------------------ 18

3.5 Scope of the study ------------------------------------------------------------- 18

3.6 Limitation of the study--------------------------------------------------------- 18

CHAPTER FOUR

4. Data Analysis and Finding------------------------------------------------------- 19

4.1 Introduction --------------------------------------------------------------------- 19

4.2 Demographic characteristics of respondents ------------------------------ 19

4.3 Adequacy and quality raw materials ---------------------------------------- 20

4.3.1 Adequacy of raw materials ------------------------------------- 20

4.3.2 Quality of raw materials ---------------------------------------- 21

4.4 Inventory management procedure of the company ---------------------- 28

4.4.1 Control procedure ------------------------------------------------ 28

4.4.1.1 Raw materials ---------------------------------------------- 28

4.4.1.2 Work in process --------------------------------------------- 28

4.4.1.3 Finished goods ---------------------------------------------- 29

4.4.2 Raw materials acquisition procedure ---------------------------- 29

4.5 Steps of raw materials received and distributed formats ---------------- 30

CHAPTER FIVE

5. CONCULUSIONS RECOMMENDATION--------------------------------------- 32

5.1 Conclusion ---------------------------------------------------------------------- 32

5.2 recommendations ------------------------------------------------------------- 33

BIBLIOGRAPHY……………………………………………………………….……. 34

Appendix ……………………………………………………………………….……. 35
LIST OF TABLE

Table 1: General information of respondents ----------------------------------- 19

Table 2: Response of employees to raw materials availability --------------- 21

Table 3: Response reaction towards the quality of raw materials ----------- 22

Table 4: Responsible for receiving and assuring the quality

of raw materials-------------------------------------------------------------- 23

Table 5: Stage goods arrival in section is done -------------------------------- 24

Table 6: Rate those items (raw materials) ------------------------------------- 25

Table 7: Wastage of raw materials in the entries ------------------------------ 25

Table 8: View the quality of products -------------------------------------------- 26

Table 9: Reordering methods ------------------------------------------------------26

Table 10: Inventory checks ------------------------------------------------------- 26

 ACRONOMY
GRN Good Receiving Notre

FGNR Finished Goods Receiving Note

IM  Inventory Management

FIFO  First In First Out

LIFO Last In First Out

PLC  Private Limited Company

 CHAPTER-ONE

INTRODUCTION

1.1 BACK GROUND OF THE STUDY

Inventory management refers to planning, organizing, and controlling activities

to insure that inventory are kept at level, which provide maximum service at a
minimum cost. The main objective of inventory control is to insure that stack
out do not occur and that surplus stocks are not accumulated and carried. In
controlling inventories or stock levels are established for standardized
materials, which are regularly used by the firm so that inventory holding can
be controlled. Internal control procedure for inventories affected nearly all the
function involved in producing and disposing of the company’s product,
purchasing, receiving, storing, issuing processing and shipping are the
physical function directly with inventories, the cost accounting system and
perpetual inventory records comprise the recording function. Control
procedures are those policies and procedures that management in order to
provide reasonable assurance goals will be established.

Internal control structural can be divided in to these elements:

 Control procedures 1. Assignment of responsibility

2. Separation of responsibility
3. Proof and security measure
4. Control asset
 Control environment

For control purpose represent on overall attitude and awareness of the

important control by management and employee. (Fees and warren, 2001)
 1.2 Background of the organization

- Desta alcohol and liquors factors PLC was established in the year 2000 in the
name of “Desta Zebib Liquor Factory PLC” by two motivated brothers holding
50-50 shave and aiming at a manufacturing and distribution of alcohol and
alcoholic beverage.

- Phase – 1 blending of liquors (December 2000- June 2002): the main raw
material (ethanol) was bought from Adiss Abeba, which was a sole producer of
ethanol.

- Phase – 2 (July 2002 January 2005): installing equipments and machineries

that can distill a semi-processed technical alcohol supplied from Fincha sugar
factory.

- Phase – 3 (January 2005 up to now): installing equipments and machineries

that can distill and produce alcohol from Molasses (beginning stage) with a
capacity of 6000 liters per day of pure alcohol and 16,000 bottles of different
Liquors per day.

 It has 140 permanent and 9 temporary employees excluding the Quiha

project temporary workers. Its monthly payroll fund accounts birr
78,000. Considering those activities, the city municipality has allowed
and delivered as 27,000 m2 land around Quiha. The company will start
to utilize 1ooy. Its capacity from the year 2001 E.C on wards.
 The vision and mission of Desta alcohol and liquors factory is explain
below clearly.

VISION

To see that Desta alcohol and liquors factory is customer’s first choice in the
alcohol and beverage industry through the provision of customer oriented
products with reasonable price and reliable supply to that earn sustainable
profit and maintain goodwill.
MISSION

To produce quality products to customer with fair price, create Job opportunity
for citizens generate income to the government, and participate on social will
being and related affairs of the community.

1.3 Statement of the problem

In some companies, management stresses internal control over cash and

security but pays little attention to control over inventories. Since many types
of inventories are composed of items not particularly susceptible to theft
management may consider internal control unnecessary in the area. Such
thinking ignores the fact that the internal control performance other functions
that are just in as important as fraud prevention.

Good internal control is the means of providing accurate cost data to be used
by management in setting price and in making other decisions based on
reported profit margin. If the accountants do not furnish a realistic picture of
the cost of goods sold, the financial statement may be grossly misleading both
earning and financial position.

To minimize inventory problem the manager should apply the following

strategies.

 Find the most economical order quantity of each item or group of

items. This depends on demand for the item, the cost to purchase or
manufacture it and the carrying cost of the item.
 Review the entire inventory procurement system to see where
improvements can be made this includes logistics, lead firms,
material, buying incentives etc.

As a result system of internal control is to assure assets that belongs the

business enterprises is used for proper business purpose and not wasted,
misuse or stolen.
  The main real gap what the researcher wants to investigate is that to
assess (examine) the role of internal control, practice over inventory
management. Since the management of the company pays little attention
towards inventory management control system. This research will
conduct in Desta Alcohol and liquors factors PLC to evaluate inventory
control system and its implementation. And tries to draw
recommendation to the organization so as to avoid unnecessary risk.

1.4 Research Questions

 What are the company control procedures for inventory control?

 Are the procedures strong for controlling purpose?
 What types of system applied to control source documents?
 Does inventory control have relationship with company’s performance?
 How much capital is being invested on inventory currently?

1.5 Objective of the study

1.5.1 General objective

The general objective of the study is to evaluate inventory management practice

and policies on the company performance in Desta alcohol and liquors factory
PLC.

1.5.2 Specific Objective

The specific objective is to measure the strength and weakness of the

organization inventory control system taking in to account the following major
points.\

 To evaluate the following control procedure for the document in

relation to inventory system.
 To determine whether the internal control over inventory
procedure being effectively applied.
  To access the strength and weakness of inventory control
system.
 To access the strength and weakness of deliver control system.
 To compare the theory with actual practice of inventory control
system in Desta Alcohol and liquor factory PLC.

1.6 Significant of the study

The study was attempted to find out problem related with inventory control and
this provide information and service at to understand and create awareness of
inventory control system and advice better approach to deal with maintaining
good inventory control in the organization.
 CHAPTER TWO

LITRECHER REVIEW

2.1. Review of Empirical study

Empirical study of inventory management in Malaysian construction firms:

impact on performance

1. Introduction

The researcher was assessed inventory management in Malaysian construction

firms. Managers act rationally in managing their inventory efficiently if they are
convinced that the practice enhancer firm performance.

2. Objective

The main objective of the researcher was to empirically examine the

relationship between inventory management and firm performance and capital
intensity on a sample of financial data for 82 construction firms in Malaysia for
the period 2006-2010.

3. Methodology

The researcher had been used secondary data. The sample frame for this study
was obtained from the data stream database, which consists of financial
statement of listed firms in Bursa Malaysia.

4. Conclusion

The result of the study shows that inventory management is positively

correlated with firm performance. In addition the result indicates that there is
a positive relationship between inventory management capital intensity.
(Salivate Sahari, 2012)
Empirical study of an analysis of process industry production and
inventory management systems in USA.

1. Introduction

The researcher was assessed the process of industry production and inventory
management systems in USA. The process industries, consisting of firms that
added have by mixing, separating forming and chemical reactions by either
batch or continue.

2. Objective

The general objective of the researcher was to identify dimensions that could
discriminate between process industries production and inventory
management systems, determine how these systems differ from one another.

3. Methodology

The researcher had been used primary data. The initial contact with each of 62
potential firms was made by telephone. These efforts resulted in onsite meeting
with 14 different process firms. Of the 48 non-participating firms.

4. Conclusion

In summary, the categorization developed in the researcher study provider an

improved understanding of process industries PDIM. (Daina R. Dennies, 2000)

Empirical Study of working capital management in Ghana

1. Introduction

The researcher assessed working capital management of SMES in Ghana. To

asses this, the researcher has been used stock and credit for the purpose of
performance improvement. This review summarized the main literature used in
developing the construction.
2. Objective

The general objective of the researcher was to assess the extent of working
capital management practice of some selected SMES in Ghana.

3. Methodology

The researcher was conducted with both secondary and primary data. The data
collected was analyzed using a combination of qualitative and quantitative
techniques. The study was qualitative using questionnaire and personal
interview to gather data from fifty (50) participants.

4. Conclusion

The researcher’s finding showed that small business try to manage their
working capital well and their working capital management practice are strong
with the exception of their trade credit and collection aspects of that found to
be weak. Based on the findings, recommendations were given to help improve
the sampled business working capital. (ASIMAHYEBOAH)

Empirical study of inventory management in Indian

1. Introduction

The researcher was intend to analyze in performance from an economic point of

view through production function analysis. Inventory management (IM) have a
decisive role in the enhancement of manufacturing industry’s competitiveness.

2. Objective

The general objective of the researcher was to assess the inventory

management practices affect economic performance an empirical evolution of
the machine tool SMEs in Bangalore.
3. Methodology

The researcher was conducted with primary data collection through a semi
structured questionnaire. The researcher was decided to focus on a maximum
number of 100 SMSs in the sector. From a total of 100 units covered nine units
were eliminated due to incomplete information, inadequacy of data etc. finally
data from 91 SMEs were considered for the final analysis.

4. Conclusion

The paper aimed at analyzing the importance of inventory as an input in the

production process. Consequently, the role of inventory management the
economic performance of SMEs is probed from an economic perspective.
(Rajeev, 2008)

2.2 Definition of inventory, management

2.2.1 What is inventory and inventory management?

Inventory is the supply of raw material, partially finished goods called work in
process and finished goods and organization maintain to meet its operational
needs. As such, I represented a sizeable investment and a potential source of
waste that needs to be carefully contrived. If managers keep to much inventory
on hand they will waste money strong it and lose money if inventory are
damaged or stolen. On the other hand, managers who run out of inventory may
have to stop production until the necessary materials are supplied, wasting
time and labor. To minimize this costs and maintain inventories at optimum
level, numerous mathematical and computer based inventory models have
been developed to help operation managers decide when and much inventory to
order. (Fess and warren, 2001)

Inventory management refers to the process of managing the stock of finished

products, semi finished products and raw materials by a firms.
Inventory management, if do not properly manage, can bring down costs. How
much one should invest in inventory management? The answer to this question
depends on the volume and value of inventory as percentage of the total asset
of a firm. The inventory management process being as soon as one has started
production and ordered raw materials, semi-finished products or any other
thing from supplier. If you are retailer, than this process begins as soon you
have placed your first order with wholesaler. Inventory management helps
affirm to decide in advance this supplier should be stored.
(http://www.Inventorymanagement.com/inventory management blog.html)

2.2.2 Inventory management control

To maintain a stock position of wanted items and to dispose unwanted items, it

is necessary to establish adequate controls over inventory of order and
inventory in stock. There are several proven methods for inventory controls.
They are listed below.

 Visual control enables the manager to examine the inventory visually to

determine if additional inventory is required.
 Tickler sheet control enables the manager to physically count a small
portion of the inventory each day so that each segment of the inventory is
counted so many days on a regular basis.
 Stub control enabler the manager to retail operation of the price ticket
when the item is sold.

As a business grows, it may find a need for a more sophisticated and technical
from of inventory control is done by an outside agency. A manufacturing
representative the large retailer on a schedule basis, taker the stock and
counts and writer the reorder, unwanted merchandise is removed from stock
and returned to the manufacturer.

The principal goal for the money of the methods describe above is to determine
the minimum possible annual cost of ordering and stocking each item.
Two major control values are used:

 The order quantity, this is the size and frequency of order and
 The reorder point, that is, the minimum stock level at which
additional quantities is ordered.
(http://www.inventorymanagment.com)

2.2.3 How to improve inventory management control

Inventory is a major asset on a small business balanced sheet and can tie up
the often- limited capital resources for various periods. Effective inventory
management control requires business to accurately track inventory stock both
in accounting record and by physical count. This in turn provides the basis for
making inventory purchase decision and maintain inventory stocking at an
optimal level to better meet inventory demand. To improve inventory
management control a small business must also evaluates the quality of the
inventory over time to ensure it is stocking the right inventory.

Accounting Records

Maintaining up to date accounting records of the inventory account helps

improve inventory management control. Accurate an hand at any given time
are essential in managing and controlling inventory. Business may use either
the perpetual inventory system; inventory purchases and user are directly
recorded in the inventory country as pulsar and minuses respectively, allowing
a business easy access to inventory information. Under the periodic inventory
system, a separate purchase account is used to record inventory purchaser,
and the inventory account shows only the beginning or ending balance. The
periodic inventory system requires a physical count of ending inventory to help
determine the amount of inventory used during the period.
Physical count

Physical count of inventory is an important measure for improving inventory

management control. No matter what inventory system a business uses and
how well it keeps the inventory records, loser of actual inventory because of
theft, breakage or waste are always a possibility and may not be reported and
recorded in the inventory account in a simply fashion. A year end or period
physical count of inventory helps uncover the difference between the amount of
actual inventory available end the amount of inventory recorded in the
inventory account. Without such information, inventory management control
may be misguided. (Washington state university: AGR business management)

2.2.4 Effect of investment Errors on financial statements

Any errors in the inventory count will assets both the balance sheet and the
income statement. For example, an error in the physical inventory will misstate
the ending inventory, current assets and total assets on the balance sheet. This
is because the physical inventory is the basis for recording the adjusting entry
for inventory shrinkage. Also, an error in taking the physical inventory
mistakes the cost of goods sold, gross profit, and net income on the income
statement. In addition, because net period, owner’s equity will also be
misstated on the balance sheet. This misstatement of owner’s will equal the
misstatement of the ending inventory, current assets, and total assets.

2.2.5 Inventory system

There are two types of inventory system:

1. Periodic inventory system

Is used only the revenue from sales is recorded each time a sales is mad. No
entry is made at the time of the sale to record the cost of the merchandize that
has been sold. Consequently, a physical inventory must be taken in order to
determine the cost of the inventory at the end of an accounting period.
Ordinarily, it is practical to take a complete physical inventory only at the end
of the fiscal year. Such system is often used by retail enterprises that sell many
kinds of low unit cost merchandise, such as groceries, hard ware, and drug.

2. Perpetual inventory system

User accounting records that continually disclose the amount of the inventory.
A separate account for each of merchandise is maintained in a subsidiary
ledger-increase in inventory items are recorded as debits to the proper account,
and decreases as credit.

The balance of the account is called the book inventory of the item on hand.
Regardless of the care with which the perpetual inventory records are
maintain, taking a physical inventory of each type of commodity at least once a
year must test their accuracy. The records are then compared with the actual
quantities on hand and may difference are covered.

2.2.6 Determining the cost of inventory

The cost of merchandize inventory is made up the purchase price and all
expenditures incurred in acquiring such merchandise, including
transportation, customs duties and insurance against loser in transit. The
purchase price can be readily determined, as many some of the other costs if
purchase on the incomes, statement, they should also be dedicated from the
purchase price of item, in the inventory. If it is not possible to determined the
exact amount of discount applicable to each inventory item, a prorate amount
of the total discount for the period may be deducted instead.

2.2.7 Inventory costing method

One of the most significant problems in determining inventory cost comes

about when identical unities of a certain commodity have been at different unit
cost prices during the period. In such cases, it is necessary to determine the
unit price of the still on hand.
The three most common assumption of determining the cost of the
merchandise sold are as follows.

1. First in first out Method (FIFO)

FIFO method of costing inventory is based on the assumption that costs should
be charged against revenue in the order in which they were incurred. Hence,
the inventory remaining is assumed to be made up of the most recent cost.

2. Last in first out Method (LIFO)

LIFO method is based on the assumption that the most recent costs incurred
should be charged against revenue. Hence, the inventory remaining is assumed
to be composed of the earliest cost.

3. Average cost method (moving average)

 This methods sometimes called the weighted average methods is based

on the assumption that cost should be charged against revenue
according to the weighted average unit cost are used in determining the
cost of the merchandise remaining in the inventory. It is determining by
dividing the total cost of the identical unit of each commodity available
for sale during the period by the related number of units of that
commodity. (Warren. Reeve and fess, 1998)

2.2.7 Inventory types

Inventory is defined as or store of goods. There goods are maintained on hand

at near a business location so that the firm may meet demand and falfilits
reason for existence.

Generally, inventory types can be grouped in to 3 classification; raw materials,

work in process finished goods.
1. Raw materials

Raw materials are inventory items that are used in the manufactures
conversion process to produce components, subassemblies or finished
products.

2. Work- in- process

WIP is made up of all the material, parts (components), and assemblies, and
assemblies that are being processed or are waiting to be processed within the
system.

3. Finished goods

A finished good is a complete part that is ready for a customer order. Therefore,
finished goods inventory is the stock of completed products. (Garrison, 1997)

2.2.8 Why keep inventory

Why would a firm hold more inventories than is currently necessary to insure
firms operations? The following is a list of reasons for maintaining what would
appear to be “excess” inventory.

1. Meet demand

In order for retailers to stay in business, it must have the products that the
customer wants on hand when the customer wants them. If not, the retailer
will have to back order the products. If the customer can get the good from
some other source, he or she may choose to do so rather than electing to allow
the original retailer to meet demand later (through back-order). Hence, in many
instance, is a good is not in inventory, a sale is lost forever.

2. Keep operation run

A manufacture must have certain purchase items (raw materials, components,

or subassemblies) in order to manufacturing its products. Running out of only
one item can prevent a manufacture from completing the production of its
finished goods.

3. Lead time

Lead time is the time that elapses between the placing of an order (either a
purchase order or a production order issued to the shop or the factory floor)
and actually receiving the goods ordered.

4. Hedge

Inventory can also be used as a hedge against price increases and inflation.
(www.bookrage.com/research/inventory.)
 CHAPTER THREE

3. Research Methodology

3.1 Research area and population

This paper studies impact of inventory management on company performance

of DALF plc in Mekelle. The researcher’s target populations are employees of
the organization who have direct relation to the research, among these
employees the researcher has been selected 18 of them who give enough
information for the research and source documents was used in the
organization.

3.2 Sampling method

In writing a research, sampling is an important way of gathering the data

required for the research and18 employees has been selected randomly among
those who have direct relation to the adequate information for the researcher.

3.3 Source of Data Collection

3.3.1 Primary data collection

In this method concerned and work related official developed questioner.

Beside personal observation was useful in the researcher data collection
processes.

3.3.2 Secondary data collection

Information was collected through reviewing related documents including data

collection from the interest; in addition to this document of the organization
has been reviewed.
3.4 Data collection

The following data collection floors were used in order to gather the required
information.

Data observation: the researcher was observed the day to day work
arrangements of the organization. It helps to understand fully the existing
system.

Data analysis: After collecting proper data about the procedure and internal
control system of inventory, the researcher has compared that with level of
deviation of the stated from actual performance.

3.5 Scope of the study

The researcher was limited to the study of inventory management practice on

company performance of desta alcohol and liquor factors PLC. This study
would be conducted on detail procedural and practices of inventory control
system in the organization and cover most significant issues that are related to
control system by referring various source documents.

3.6 Limitation of the study

The research was faced some problems in conducting this study some of these
are the following.

 Lack of journal article in the area of study specially in Ethiopia

 Lack of available material in the organization

 CHAPTER FOUR

4. Data analysis and finding

4.1 Introduction

The main purpose of this chapter is to analyzed primary and secondary data.
And also the main findings of the study are presented. The part reveals that
analysis questionnaires, questionnaires are the main instruments to gather in
formations.

4.2 Demographic characteristics of respondents

This demographic characteristic of respondents helped to analyze on what

inventory management performance of Desta alcohol and Liquid factory private
limited company in Mekelle branch.

Table 4.1 General information of respondents

No Description No of respondents percent

1 Age
20-25 years 4 22%
25-30 years 11 61%
30-35 years 3 17%
Above 35 years 0 0%
Total 18 100%
2 Sex
Male 11 61%
Female 7 39%
Total 18 100%
3 Level of education
12 complete 0
Vocation and technical school 2 11%
Diploma 2 11%
B.A degree 14 78%
Total 18 100%
(Source: own survey)

Based on the above table 4.1 the age of respondents are 22% of the
respondents 20-25 years, 61% are 25-30 years, 17% 30-35 years and no one of
the respondents above 35 years. The above that 61% of respondents are males
and 39% are females. So the company have most young and males employee,
this is used to increase the company’s profitability. Regarding to the level of
education 78% of respondents are have B.A degree, 11% of the respondents are
diploma again 11% of the respondents are vocational and technical school and
0% are 12 complete. This indicates that the companies have high educational
level employees. The respondents’ job titles in the company are such as
accountants, auditor, secretary and supply division head. Most of the
respondents experience on the occupation between 3-8 years.

4.3 Adequacy and quality of raw materials

4.3.1 Adequacy of raw materials

Existence of adequate raw materials will have a positive impact in terms of cost
reduction, facilitating the production process, satisfaction of customer demand
adding value to the produced item and ultimately generates additional revenue
to the enterprise. In regards to this the following table show the actual
situation in the enterprise.
Table 4.2 respondents of employees to raw materials availability

Parameter No of respondents Present

Raw materials
Receive in time
Yes 6 33%
No 12 67%
Total 18 100%
Frequency of shortage
Every time - -
Many time 3 30%
Parley 7 70%
Total 10 100%
(Source : own survey )

From the above table we can understand that the availability of raw material
illustrator that 67% of the developments claim that do not receive raw
materials, while 33% of the respondents admit that availability of raw material
is not a problem. This shows that the unavailability of raw materials in the
time required would ultimately hurt the smooth operation of the enterprise in
terms of production delay and cost of production increment.

4.3.2 Quality of raw materials

It is generally accepted that when the quality of raw material is maintained, the
finished product would also show positive response and hence would satisfy
the demand of the customer. On the other hand the available raw material
would not be obsolescing; in effect it would not accurate additional cost to the
enterprise. Accordingly the following table shows reaction of the respondents to
the quality of raw materials in the enterprise.
Table 4.3 Respondents reaction towards the quality of raw materials

Parameter No of respondents Percent

Quality evaluation
Good 9 50%
Average 4 22%
Below average 3 17%
Low 2 11%
Total 18 100%
Change of Quality and
supply
Yes 14 87%
No 4 13%
Total 18 100%
(Source : own survey )

It is interpreted from the respondents that 17% (3), 22% (4) and 50% (9) of the
people haw an opinion of below average, average and good quality respectively.
This implies that the enterprise is trying to keep the quality of raw materials as
much as possible, although the change in quality is happening frequently time
to time (I.e. 87%, of the respondent’s conformation).

This situation would also bring about inconsistency of quality change, which
again affects the product quality. They also confirmed the unsatisfactory
quality raw materials mainly because they don’t find quality raw material raw
materials in the market.
Table 4.4 Responsible for receiving and assuring the quality of raw materials.

Description No of respondents percent

Which department is responsible for
receiving and assuring the quality of
raw materials?
Purchase department 2 11%
Finance department 3 17%
Store department 3 17%
Production and technique department 10 55%
Other, specific 0 0%
Total 18 100%
(Source : own survey )

As indicated the above table the respondents department for receiving and
assuring the quality of raw materials, 11% (2) purchase department, 17% (3)
finance department, 17% (3) store department, 55% (10) production and
technique department and 0% (0) other, specific department. The above result
shows that the responsible department for which receiving and assuring the
quality of raw materials is production and technique department.
Table 4.5 stage goods arrival inspection is done

No Description No of respondents percent

1 What stage goods arrival in
section is done
Before applauding 2 11%
Before storing to final place 4 22%
Combination of all 12 67%
Total 18 100%
2 Do you receive material less
than what is ordered in the
purchase order?
Yes 5 28%
No 13 72%
Total 18 100%
(Source : own survey )

As refer from the above table the stage goods arrival inspection is done
answered as follow by respondents 11% (2) are before applauding, 22% (4) are
before storing to final place, and the remaining 67% (12) of them are
combination of all. The result Shows that the stage goods arrival inspection is
done by combination of all, means most of the time the state goods arrival
inspection done by both before applauding and before storing to final place

Again the above table no 2 shows that receive material less than what is
ordered in the purchase order, is answered by respondents 28% (5) yes, and
72% (13) of no. so the above result shows that most of the respondent said that
no receive materials less than what is ordered in the purchase order. But some
respondent are responded yes, than the remedial action is taken order to
purchase it again and responsible is the purchaser.
According to the respondents, the company used to receive and issue raw
materials in the store receive raw material by checking the items sup play and
record on goods receiving voucher.

Issue raw materials by requesting raw materials to store requisition and

approved it by sup play division head.

Table 4.6 rate those items (raw materials)

No Description No of respondents percent

1 How do you rate those items (raw
materials, which are not used on
time)
High 0 0%
Medium 0 0%
Small 6 33%
Rare 12 67%
Total 18 100%
(Source: own survey )

The above table indicated that 33% (6) of the respondent’s response the rate those
items (raw materials) which are not used on time small,67%(12) are rare, and the
remaining 0% (0) are high and medium. These shows that the rate of raw materials
which are not used on time rare.

Table 4.7 wastage of raw materials in the entries

Description No of respondent percent

1 In How do you see the was taste of
raw materials the entries?
High O 0%
Medium 3 17%
Small 15 83%
Rare 0 0%
Total 18 100%
(Source: own survey )
As mentioned the above table the respondents’ response the wastage raw materials in
the entries indicated that 17% (3) of them are said medium, 83% (15) are small, and
the remaining 0% (0) are high and rare from the general respondents. This analysis
implies that the wastage of raw materials in the entries are small. There for the
company have good performance for the use of raw materials.

Table 4.8 view the quality of product

No Description No of respondents Percent

1 How do you rate view the quality of

your product?
High 4 22%
Medium 14 78%
Small 0 0%
Rare 0 0%
Total 18 100%
(Source: own survey )

Based on the above table 22% (4) of the respondents said that high rate/view the
quality of product, 78% (14) of the respondents said that medium, and the quality of
product in the entries. These show that the quality of product rate is most of the
medium as respondents.

Table 4.9 reordering method

No Description No respondents percent

1 Do you reordering method?
Yes 18 100%
No 0 0%
Total 18 100%
2 What kind of inventory contains
method do you use?
FIFO 5 28%
LIFO 4 22%
Weighted average 9 50%
Total 18 100%
(Source: own survey)
The above table indicated that 100% (18) of the respondents said that use
reordering method. These indicated that the company use reordering method
for they raw materials.

When came to question No 2 indicated that 28% (5) of the respondent side that
FIFO, 22% (4) of the respondents LIFO, and 50% (9) of the respondents side
that weighted average method. These show that the company use from the
three kind of inventory costing method most of the time use weighted average
inventory costing method.

Question 19: what type of inventory do you have? Based on the respondents
response the company have yearly inventory or to control store man periodical.

Table 4.10 inventory checks

No Description No respondents Percent

1 How do you use inventory
checks?
Physically 18 100%
Randomly 0 0%
Total 18 100%
2 Do you think that inventory
management has received
adequate attention in your
enterprise?
Yes 18 100%
No 0 0%
Total 18 100%
(Source: own survey)
As refer from the above table use inventory checks answered as follow by
respondents 100% (18) are physically, and 0% (0) are randomly. This analysis
show that the company to checks the inventory completely use inventory
checks the inventory completely use inventory check method.

Again the above table question No 2 show that inventory management has
received adequate attention in they enterprise is answered by respondents
response 100% (18) are think that inventory management has received
adequate attention in your enterprise.

4.4 Inventory management procedure of the company

4.4.1 Control procedure

As mention above Desta alcohol factory PLC has three types of inventory
system. For all types of inventory the following are the control mechanisms.

4.4.1.1 Raw materials

One of the control systems for raw material is to receive the item by using
G.R.N (goods receivable notes) after checking the quality and the description of
the item. The other mechanism is to reconcile the stock cards which is
prepared by the accountant and the bin cards which is prepared by the by
stock keeper prepared once in every three months. This procedure will help to
control in case the item is lost, detect over age or shortage of items which will
ultimately benefit the organization. The third mechanism is the physical
counter done once in a year. This counting is performed by skilled staffs of the
enterprise including external auditor. This inventory mechanism shows the
strength of the enterprise. (Manual)

4.4.1.2 Work in process

Calculating between the accomplished work and the remaining works to be

done does the control mechanisms for this type of inventory.
Therefore, the difference in percentage and the amount in value the stock
available in the enterprise

4.4.1.3 Finished goods

In most cases the finished products are produced based on the orders received
from customer and when the enterprises win at ender. These products mainly
meet the standards, since it is produced as per the specification submitted by
the customers. All finished products are transported by the enterprise to the
final destinations.

4.4.2 Raw material acquisition procedure

The usual system is acquiring any raw material to be purchased is doen not
based the plan, but materials are purchase, when that material is needed to
procedure a certain output. The purchase procedure is done on the following
basis.

- Production section will fill store requisition from and submit to the store.
- If the required item is not available, the store keeper would fill the
purchase requisition from and submit to the financial manager for
approval and would be sent to purchasing section.
- Once that approval is secured, perform in voice will be collected and
rated by the amount assured and by the quality of the item submitted to
determine the bidder. After the award is given to the bidden purchased,
the store keeper received commodities.

From the above procedure one can understand that the enterprise is not using
a plan to purchase items required on the hand and we can see that the

Procurement process is lengthily on the other hand. In both cases the

enterprise is losing benefits.
4.5 Steps of Raw materials received on distributed formats

Is based on the company format like store requisition, purchase requisition,

goods receiving note, store issue voucher and delivery order.

Desta alcohol and Liquid factory P.L.C is undertaking procurement of various

raw materials. These raw materials are received and distributed to the
concerned department based on the formats, and the functions of these are the
followings.

1. Requisition: is a written format for the store to issue materials to any

person or section, which is entitled to draw materials from the store in the
organization. This format is prepared by different copies and the distributed to
accounts, requisitioned and store. This requisition is valid for drawing
materials from the store.

2. Store issue voucher: if the requested material is available in the store this
format will be prepared. The content of this voucher are date, store requisition
number, to whom the materials is issued, bin card item number, description,
object code quantity issued and cost per unit and total cost, issued and cost
per unit and total cost, after filling this information and signed by the store
keeper, the material is ready to be issued.

3. Purchase requisition: however, if the requested material is not available in

the store, the organization has devised that is purchase requisition, which is
accepted and processed by the purchasing department to make purchase. This
form contains date, department code number, item bin card number,
description object code number, unit and quality requested. Therefore the
process of purchasing is done in the following way:-

The initial purchase requisition is filled by the store keeper based on the item
indicated on the store requisition form. This requisition form, this financial
manager, the form is then received by the purchasing section will review
weather all required formalities and signatures are complete and accurate.
The type after the required raw material is purchased, the stock keeper
received by verifying and quantity of the items as per the initial request. The
store keeper uses and fills goods receiving note for this purpose.

4. Good receiving notes (GRN): formalities standard and accepted format in

the organization for receiving purchased item. The format container data,
purchase order number, letter of credit number, letter of credit number name
of supplier, supplier in voice number, item code number, description, unit of
measure, quality order, in voiced, received, and unit and total price value.
Accordingly the accounts for store recording purchase. In the second copy for
purchasing department and will be kept in the store for record purchase after
the finished goods are produced, the production clerk issued the products to
the storekeeper using finished goods receiving note (FGNR). The store keeper is
responsible to notify to the sales department that finished goods are in the
store. Then it is that the ordered item are produced the customer will take the
goods by preparing delivery order after settling the outstanding balance
required from them.

5. Delivery order: it is another format used for the delivery of finished goods.
The content of this form are date, reference number, credit in voice member,
description, unit of measure, quality, unit cost and total amount. The form also
contains signature, name and identification number of the receiver to confirm
that the items are received in goods conditions. Delivery order form is printed
in different copies and distributed to accounts, sales, stock accounts,
customer, store recording sections, date pass and the last copy will remain in
the pad. All the distributed copies are used for records and follow-up purchase
for each section.
 CHPATER FIVE

5. Conclusion and recommendation

5.1 conclusions

It is be understand that inventory control management system plays major role

in attributing to the benefits of company. Applying this system would
contribute to effective and efficient utilization of resources having these facts,
the following conclusion can be made.

 No having is no inventory in the company. Raw materials are purchase

only when the company store is out of stock. This happened simply
because the company has no any unit to look after the inventory system.
Hence it is observed that this company is not generating adequate
benefits, of one looks from the longer years of existence.
 There is absence of adequate planning. As was discussed in the main
order body of the paper, it was indicated that supply of raw materials
and production of finished body are note done based a plan a company
without adequate and workable doesn’t exist in the competitive market.
 Quality of raw materials and finished body’s. The respondents have rated
that quality to be average in the researcher opinion the cause for this
outcome is mainly attributed to the purchase of low level. And also what
over situation is given the quality of end products is governed by the
quality of inputs. This will drive the company to failure situation. This
type of situation calls for better and effective inventory control system.
 Availability of raw materials. The respondents and interview results
confirm that availability of raw materials is rated us average. The cause
fir this is directly related to the working capital sends inventory
management system profiling in the company. In effect it will create idle
man power. And also privities using short, medium plan which
ultimately decrease the expected revenues of the company.
  It is generally observed that the system of reserving customer in the
enterprise is encouraging. However delivering the finished products are
per the agreed time is lagging behind. In affects this tendency will make
the enterprises to lose the customer. Therefore system showed be in
place so as to retain their customers.

5.2 RECOMMENDATION

Inventory plays a great role in a company. This will become effective if the
management of the organization uses its inventory effectively and efficiently.
The management of the company must give high consideration to the
inventory.

 The company has to appropriate the importance of putting inventory

management system place as part of the functional department in the
company that Desta alcohol and liquor factory PLC the company must
establish management system.
 Desta alcohol and liquor factory PLC showed also given due attention
due to the business led by short, medium, and longer term plan in order
to able compute in the market and hence to derive additional revenue.
 Man power development capacity building program of the company is
non- existent. For example to keep track to the exiting market situation,
there are two ways by which it can maintain its records one is develop
the skill of the existing staffs and the second option would be to recruit
skilled and professional staffs to run the business effectively and
efficiently.
 Give attention for the quality and availability of raw materials to get
quality products and satisfy the customers
 The company raw materials countries system is very good because they
reconcile bin card wish stock card every quarter and there is a physical
count every budget year. This process protect the company from
obsolesce and theft.
 BIBLOGRAPHY
 ASIAMAHYEBOAH, “Assessing working capital management of SMEs in
Ghana using inventory and trade credit”. International Journal of
business and management caver, vol-1 NO 2

 DAINA R.DENNIS, 2000. “An analysis of process industry production and

inventory management system in USA.” Journal of operation
management 18

 FESS. WARRN, 2001 “Principle of accounting” 16th edition western

publish CO

 RAJEEV, N, 2008 “DO inventory management practices affects economic

performance? An empirical evolution of the machine tool SMEs in
Bangalore”. International Journal of management science, vol-3, pp-312-
320

 GARRISON, 1997. “Managerial accounting” 9th edition western publish

CO

 SALAWATI SAHARI, 2012. “Inventory management in Malaysian

construction firms”. SIV Journal of management, vol-2, NO-1 ISSN:
2229-0044.

 (http://www.Inventorymanagement.com/inventory management
blog.html)

 www.bookrage.com/research/inventory
 http//www. Inventory management. Com)
 Washington state university: AGR business management)
 Warren. Reeve and fees 1998 “principle accountings”16th addition
western publish co
 Appendix

Mekelle University

Collage of business and economics

Department of accounting and finance
Research Questionnaire
Dear Respondents
First of all I would like to thanks in advance for your corporation in filling this
questionnaires. Please kindly fill out the following questionnaires, your
remarks and suggestion are very important and it is used only for the partial
fulfillment of the requirements for award of degree of bachelor of Art in
accounting and finance (BA).

The purpose of the questioners is to collect information liquor Factory Plc and
this questionnaire is only designed for the workers and employees of the
company. The research will keep confidential and used for academic purpose.

Thanks you for your cooperative in advance!!

I. General information
1. Age

20-25______

25-30______

30-35______Above 35_______

2. Sex Male_______ Female______

3. What is your educational statues?

12 complete_________

Vocational and technical school______

Diploma________ B.A degree______

 4. Job title__________________

5. How long have you been working in this enterprise?

_______________________________

II. Information about the organization

6. Are you receiving all required raw material in time?

Yes_______ NO____________

7. If the answer to question number 6 is No, how frequent is the shortage?

Every time ___________

Many times____________

Rarely____________

Very rarely_________

8. How do you evaluate the quality of raw material?

Good________

Average________

Below average _______

Very low ______

9. Do you think the quality and supplies of raw materials change from time to
time?

Yes _______

No_______

If yes why? _________

10. Which department is responsible for receiving and assuring the quality of
raw materials?

Purchase___________

Finance___________

Production and technique_________

 Store__________

Other, specify__________

11. At what stage goods arrival inspection is done?

Before applauding___________

Before storing to final place________

Combination of all__________

12. Do you receive material less than what is ordered in the purchase order?

Yes________ No________

If yes, what remedial action is taken? Who is responsible?

______________________________________________________________________________
_______________________________________________

13. How do you receive and issue raw materials in the store?

_______________________________________________

____________________________________________________

14. How do you rate those items /raw materials, which are not used on time?

High____________

Medium__________

Small____________

Rare____________

15. In general, how do you see the wastage of raw materials in the entries?

High ____________

Medium_________

Small___________

Rare____________

16. How do you rate /view the quality of your product?

 High______

Medium_______

Small________

Rare________

17. Do you use reordering method?

Yes _________

No________

If no why? ____________

18. What kind of inventory costing method do you use?

FIFO________

LIFO_______

Weighted average__________

19. What type of inventory do you have?

________________________________________________________________

20. How do you use inventory checks?

Physically______________ Randomly_________

21. Do you think that inventory management has received adequate attention
in your enterprise?

Yes________ No_________

If the answer is no, why?

________________________________________________

22. Do you have any additional comments/suggestions?

_____________________________________________________________

______________________________________________________________

______________________________________________________________