THE EFFECT OF INVENTORY MANAGEMENT PRACTICES ON THE FINANCIAL

PERFOMANCE.A CASE OF MANUFACTURING COMPANIES IN NAKURU

CITY,KENYA.
MARTIN JUMA
C12/02959/20

A RESEARCH PROPOSAL SUBMITTED TO THE DEPARTMENT OF ACCOUNTING,

FINANCE AND MANAGEMENTSCIENCE IN PARTIAL FULFILLMENT FOR THE
AWARD OF BACHELOR OF COMMERCE DEGREE (ACCOUNTIG) OF EGERTON
UNIVERSITY
FEBRUARY 2024
 CHAPTER ONE
INTRODUCTION
1.1 Background of the study
A sizable amount of the current asset group is made up of stock or inventory. It stands for
financial commitments made in the hopes of earning a profit (Duru, Oleka, & Okpe, 2014).
While excess inventory incurs additional costs that may lower the company's earnings,
inadequate inventory has the ability to negatively impact the seamless operation of the business
(Panigrahi, 2013). Long-term storage of excess goods is not recommended due to the fact that
large inventory levels raise carrying costs and reduce profitability (Priyank & Hemant, 2015).
Therefore, having an appropriate inventory control system in place will help to guarantee that the
companies constantly maintain an ideal level of assets. Releasing frozen quantities held as stocks
or inventories improves the company's resource use efficiency (Ziukov, 2015).Therefore, the
performance of the company as a whole as well as its management is greatly impacted by a well
operating inventory system (Akindipe, 2014). While several studies have examined inventory
management practices in the context of manufacturing industries globally, limited research
specifically focuses on Nakuru City's manufacturing sector. Existing literature often overlooks
the unique challenges and opportunities faced by companies operating in this region. Therefore,
there is a notable gap in understanding the direct implications of inventory management practices
on the financial performance of manufacturing companies in Nakuru City.
The bulk of companies worldwide still do not use inventory management techniques for finished
goods, work-in-progress, and raw materials. Raw materials are the most significant part of the
production rate inventory for Indian iron and steel plants (Singh & Mondal, 2013). Virgin (2012)
states that an organization's working capital, production, and customer services are all directly
impacted by inventory management, and these factors have a big influence on the organization's
competitiveness and financial health. Chalotra (2013) asserts that established inventory
management improves an organization's competitiveness and market share. Businesses in the
United States have implemented inventory management systems, according to Lyson (2016).
These systems have aided businesses in storing completed goods, work-in-progress, and raw
materials from suppliers in order to reduce operating costs and enhance service delivery. They
supervise and keep an eye on every order placed by the procurement department of
manufacturing companies in order to ensure a continuous flow of goods entering and leaving
manufacturing section stores (Jonson & Mattson, 2016). Thanks to globalization, companies may
now target customers from anywhere in the world, regardless of their demographics.
Furthermore, technological advancements have enabled consumers to find out whether specific
items and services are available in other countries. The operating environment of the business
affects the adoption of effective inventory management techniques in order to achieve high and
long-term financial success. Compared to enterprises in Africa, most operate in more structured,
competitive, and friendly business settings such as those found in Germany, the UK, Japan, and
the USA (Timothy, Patrick, Nebat, & Virginia 2013). Due to their competitive nature and well-
organized business environment, businesses in the industrialized world are able to efficiently
manage their inventory because of the environment that promotes inventory planning and
management within the organization. Inventory control has improved in both developed and
developing countries. Excessive inventory costs were a major operational hindrance for the
Ugandan Mukwano group of companies. Some duties had to be abolished as a result of growing
production costs. As a result, inventory control practices are essential to the business's
operations. Inventory management strategies have a significant influence on an organization's
operational efficiency and the caliber of the goods it sells clients, and monitor merchandise while
it's being transported to ensure it reaches clients on time and in the proper state. The company's
reputation is greatly impacted by this, providing it giving it a competitive advantage in the
market and perhaps opening up new opportunities.
Kenyans view manufacturing businesses as major drivers of economic growth because they
generate jobs, encourage innovation, and generate revenue for the government through taxes and
GDP. Mulandi (2019) asserts that inventory contributes significantly to Kenyan business
operations, making up roughly 56% of annual sales and turnover. Because of the speed at which
Kenyan businesses are becoming more competitive, using inventory management techniques is
essential to gaining a competitive edge and greatly enhancing performance. According to
Render, Munson, and Sachan (2017), businesses with effective resource management—including
inventory management—are better positioned to maintain their competitiveness, which boosts
performance. Businesses like Mumias Sugar Limited have experienced problems and financial
difficulties as a result of poor inventory management, which ultimately resulted in the company
being placed into receivership and liquidated. Cement manufacturing businesses contribute 18%
of Kenya's GDP, according to World Bank and OECD estimates from 2017. Prior to this,
Kenya's government was mostly dependent on the importation of finished goods. According to
Commonwealth Network (2016), the manufacturing sector plays a significant role in Kenya's
economy.
It's critical to realize that effective inventory management strategies are essential to success.
Practices in inventory management include inventory control and automation techniques. It's
critical to execute effective inventory management strategies because they play a critical part in a
company's performance. According to Muhammad, Suraidi, Rahman, and Suhaimi (2016),
effective inventory management can have a direct impact on a company's performance. For
inventory management to be effective, a team of subject-matter experts must oversee the system.
According to Nichebe and Agui (2013), the sales department might advocate for a large number
of stocks, whilst the finance department might argue for a lesser amount of shares so that the
remaining funds can be used elsewhere. This reasoning notwithstanding, the highest profit must
come from inventory levels. Concentrated on identifying and evaluating the role that inventory
management strategies play .The focus of Muhayamina (2015) was on determining and assessing
how inventory management techniques contribute to better manufacturing company
management. The poll indicates that inventory management practices have a significant
influence on the operational efficiency of firms, particularly with regard to cost reduction. The
study also demonstrated how IMP helps companies to effectively meet customer needs.
IMP uses a cloud-based inventory management solution to help businesses maintain appropriate
inventory controls, as opposed to traditional manual methods like the line approach. Nyabwanga
(2012) asserts that there is a positive correlation between efficient inventory management and
high performance. Nyabwanga, Ojera, Lumumba, Odondo, and Otieno (2012) discovered that
small-scale enterprises commonly set inventory budgets and check their inventory levels.
Therefore, effective inventory management aids businesses in meeting or exceeding client
expectations, resulting in improved performance. Heizer, Render, Munson, and Sachan (2017)
state that inventory management helps companies minimize tied-up capital and maximize the
value that matters most to shareholders. Song, Hourum, and Mienghem (2019) assert that
inventory management is an essential component of company performance since it helps
companies to meet their set goals for sales or production. Based on these factors, it can be
concluded that there is a favorable correlation between inventory management and performance.
1.2 Statement of the problem
The primary objective of inventory management is to strike a balance between the competing
economic needs of having too much and too little stock on hand at any given time (Kumar &
Bahl, 2018). One of the main responsibilities of the company's financial manager is to maximize
return on investment from inventory, which accounts for a sizeable amount of working capital
(Mathuva, 2019). But most managers tend to consider inventories as a necessary evil rather than
as an asset that needs to be managed, ignoring the potential savings that come from effective
inventory management. Because of this, some businesses fail to manage the amount of inventory
they store, which typically results in understocking and forces the business to halt or reduce
production. Currently, inventory makes up the majority of the company's assets. Because
inventory includes work-in-progress, finished goods, and raw materials, it is essential to the
industrial sector's production process. Averaging 9% annual growth over the last seven years,
manufacturing has expanded. Manufacturing's share of GDP has remained steady at 17%,
accounting for 10% of the industry's overall 27%, which also includes mining, quarrying, power,
and gas. In order for an organization to be able to go on as a going concern, inventory control
helps strengthen internal controls. However, industrial organizations still perform poorly even
with inventory management systems in place. Natabo (2019) conducted research on the influence
of inventory management strategies on the operational effectiveness of manufacturing firms.
According to the report, businesses are concerned about whether they will be able to thrive and
secure the funding needed to develop and market their products. Poor operational performance
led to riskier judgments as opposed to performance that meets or exceeds expectations.
Manufacturing businesses can save between 50% and 60% of total expenditures by using
effective inventory management (Mulumba 2020). Mulandi's (2019) study on the effect of
inventory management techniques on the performance of Kenyan commercial state businesses
indicates a relationship between inventory management and performance. The Investment
Climate Transformation Index (2018) states that industrial enterprises have suffered significant
financial losses as a result of subpar supply chain management strategies, particularly with
regard to inventory management. This is how manufacturing businesses usually operate.
Implementing appropriate procedures within the organization is vital to address the reasons of
poor quality products, litigation, corruption, and cancelation, among others. Muyundo (2018)
states that the corporation needs to put the proper inventory management methods into place in
order to meet and exceed consumers' expectations for demand fulfillment while also increasing
profitability. The Industrial Transformation Plan for Kenya states that between 2017 and 2020,
manufacturing companies contributed 8.7%, 8.4%, 7.9%, and 7.6% of GDP. Despite being
undertaken globally, regionally, and locally, very few studies have been done on the impact of
inventory management techniques on the performance of manufacturing firms. Very few studies
have been done on Nakuru City's manufacturing enterprises; the majority of research has been
done in other regions.
1.3 Objectives of the study
1.3.1General Objective
To analyze how inventory management practices affect the financial performance of
manufacturing companies in Nakuru City
1.3.2 Specific Objectives
i. To ascertain how inventory reduction strategies affect the financial performance of
manufacturing companies in Nakuru City.
ii. To evaluate the impact of inventory turnover rate optimization on the financial performance of
manufacturing companies in Nakuru City.
iii. To assess the effectiveness of just-in-time (JIT) inventory systems on the financial
perfomance of manufacturing companies in Nakuru City.
1.4 Hypotheses of the study
H₀1: Inventory reduction strategies has no significant impact on the financial perfomance of
manufacturing companies in Nakuru city.
H₀2: Inventory turnover rate optimization has no significant impact on the financial performance
of manufacturing companies in Nakuru City.
H₀3: Just-in-time inventory systems has no significant effect on the financial perfomance of
manufacturing companies in Nakuru City.
1.5 Scope of the study
The aim of the research proposal is to determine the impact of inventory management strategies
on the financial performance of manufacturing firms located in Nakuru City. A descriptive
research design will be employed for the investigation. The study's target population consists of
Nakuru City manufacturing enterprises. A straightforward random sampling design will be
employed to select the study's sample size of 15 manufacturing enterprises. Questionnaires will
be utilized in the collection of primary data. The researcher will estimate a budget of 4500
shillings to cover all expenses.
1.6 Justification of the study
This study will be used as a resource by future scholars. It will be useful for academics with an
interest in the same area. Finally, managers of the target organizations will learn how to improve
their inventory management practices. The findings of this study will also help the government
counsel different manufacturing firms on how to effectively manage inventories to increase self-
sustainability and make prudent financial and investment decisions, safeguarding the general
public and all intended consumers from subpar goods. The Ministry of Trade will have a better
understanding of the processes involved in converting raw materials into finished goods and
getting them to customers in the best possible condition.
1.7 Limitation of the study
One of the challenges will be certain management's refusal to grant access to their organization
because of the sensitive nature and nature of the information. The researcher will reassure them
that, their privacy will be maintained and their data will only be used for academic purposes. The
researcher, will also have to deal with the possibility that respondents may not fill out the
surveys for the obvious reason that the individuals supplying the data and the persons granting
permission will not be the same people. In my capacity as a researcher, I shall guarantee to the
participants that the study will be conducted solely for academic purposes and that their identities
will remain confidential.
1.8 Operational Definition of terms
Cloud-based inventory management: the use of software hosted on remote servers (in the
cloud) to track, manage, and optimize inventory levels and processes. (Lee, 2019)
Inventory reduction strategy: the process of reducing the inventory to satisfy customer demand
is known as the inventory reduction strategy. (Gupta, 2017)
Inventory: is the entire list of goods that a company has on hand for sale to make money.
(Smith, 2020)
Just-in-time inventory system: management strategy aimed at reducing waste and improving
efficiency by only ordering and receiving inventory when it's needed for production or sale,
rather than maintaining large stockpiles. (Wang, 2018)
Return on Investment: financial metric used to evaluate the profitability or efficiency of an
investment. (Liao, 2016)
Subpar products: Products that do not meet expected standards of quality, performance, or
value, often resulting in customer dissatisfaction and potential damage to a company's reputation.
(Smith, 2020)
 CHAPTER TWO
Literature review
2.3Empirical literature
An investigation on inventory management and its impact on the organizational performance of
manufacturing companies in Melaka, Malaysia, was conducted by Khalid and Lim (2018).The
purpose of this study was to investigate the relationship between organizational performance and
inventory management in a Melaka manufacturing business. Scholars describe inventory
management differently. For example, they defined an inventory as a list of the products that are
kept in stock, while many people confuse it with the stocks themselves. The study's goals were to
determine how inventory management strategy affects organizational performance, how it
influences organizational performance, and what the most important inventory management
strategy performance is. Vendor Managed Inventory (VMI), Material Requirement Planning
(MRP), and Just-In-Time (JIT) are the three inventory management systems that the researchers
found. In order to achieve good firm performance, increase effectiveness, and increase
efficiency, inventory management was used to optimize the inventory. This is because improper
inventory management on the production floor would result in excess or shortages of raw
materials, which would indirectly affect the company's business performance. The major
objectives of JIT were to provide two main benefits: first, by eliminating inventories, the
organization would be able to control the ordering and delivery process for meeting production
orders and maintaining flexibility; second, by doing away with inventories, the organization
would have very low inventory carrying costs. The investigator employed the qualitative
approach as the research strategy to gather the necessary data and information. The goal of the
study was to modify judgmental sampling in respondent selection. The sample size was
established by limiting the number of responses to those who both directly dealt with inventory
management and had access to organizational performance. The researchers employed
interviews as a means of gathering data. All interview questions were developed based on the
research questions, study objectives, and conceptual framework throughout the deductive method
to data analysis. Researchers came to the conclusion that the study examines how inventory
management strategy affects organizational performance in the Melaka region's industrial sector.
Ultimately, the researchers concluded that training programs that advance staff members'
expertise and abilities are essential for any firm.
A study on the Effect of Inventory Management Practice on Organizational Performance in
Beijing, China's Telecommunication Companies was examined by Kamugisha Derrick Kansime
(2022).Because inventories are so important to most businesses, a large percentage of their
budget goes toward managing them. However, this leads to inadequate inventory control and
planning in telecom companies. The researchers concluded that inventory is the most significant
component of any organization's total assets globally. The research specifically aimed to
determine the impact of inventory management procedures on the performance of
telecommunication firms and investigate the influence of balance score cards on communication
companies' performance. The researcher employed vendor management inventory to keep lines
of communication open with the suppliers. This helps the vendors take over inventory
management duties from the company's procurement department, which improves organizational
performance and makes them more competitive. The study's general methodology was a
descriptive research design, and the paradigm for acquiring data on the impact of inventory
management on organizational performance included both quantitative and qualitative
methodologies. Employees and support personnel in the telecommunications sector made up the
study's target population. They consist of divisions like call centers, technicians, station
managers, and procurement managers. The investigators employed basic random sampling from
every stratum to depict the perspectives of the remaining strata. To eliminate bias, simple
random sampling ensures that every member has an equal and independent chance of being
selected from each category. Due to their expertise in inventory management and profitability,
important informants from the administration, stores, operations/production, and other
departments were also chosen through the use of purposeful sampling. This approach was chosen
since it guaranteed the important elements. 130 persons were chosen as the goal sample size in
order to conduct interviews and gather questionnaire responses. For the study, a questionnaire
was created and distributed to gather data from a sample of informants and responders. The
researchers came to the conclusion that telecom companies should implement EOQ, ABC, JIT,
and VMI techniques to a greater extent and RFID, VMI, and JIT techniques to a lesser extent.
However, this meant that inventory management needed to be improved, for example, by
implementing RFID and vendor management inventory along with appropriate record keeping,
as this would enable to have a significant positive contribution towards telecom companies'
performance. Researchers recommended telecom companies to implement vendor managed
inventory systems, strengthen their strategic relationships with suppliers, and fully share
information in order to increase inventory control efficiency. This would help to cut lead times,
save storage costs because contractors could deliver when needed, and also help with stock level
monitoring. The study also suggested that telecom companies install fuel management systems
technology, particularly in their remote sites, to reduce inventory costs while maintaining the
same level of customer satisfaction and service. This will help to prevent stock outs and
guarantee that inventory, such as fuel for generators, is closely monitored and managed to reduce
the risk of theft. By doing this, the business would maintain its competitiveness in the market and
guarantee improved customer service.
A study on the impact of inventory management on financial performance in Poland's food
industry was carried out by Zbigniew Golas and Anna Bieniasz (2016). From 2005 to 2010, the
food business in Poland was the subject of research on its various branches, or subsectors. The
researchers find that in order to maintain material and raw material inventories, production
rhythmicity must be maintained, the scale of production and supplies may have advantages, there
is less risk associated with uncertain deliveries and supplies, and efforts must be made to limit
the impact of supply and demand seasonality. Inventory management's influence on financial
performance. Verifying the cause-and-effect relationships between financial performance and
inventory management effectiveness was the goal of this investigation. The study employed
regression analysis to ascertain the degree and direction of the impact of inventory management
outcomes, quantified by cycle duration, on financial effectiveness, as measured by three rates of
return. This approach offered more analytical options by enabling investigations at various
inventory aggregation levels. The System of Polish was used to identify the 28 branches of the
research, which covered the years 2005–2010. Of them, 23 branches were in the food production
sector and 5 branches were in the beverage sector. The study examined the relationships between
inventory management effectiveness and financial effectiveness at the branch level using three
financial effectiveness categories and five ratios of inventory management assessment. The
researchers came to the conclusion that businesses maintain inventory because of a number of
factors, including the need to maintain production rhythmicity, economies of scale in terms of
both production and supplies, decreased risk associated with uncertain delivery times and
supplies, the goal of minimizing the impact of supply and demand seasonality, and the need to
maintain sales continuity. Furthermore, they came to the conclusion that the process of
integrating into the European Union would undoubtedly encourage the expansion of research on
the efficacy of inventory management since, in a sense, it forces rationalization of inventory
management and indicates new lines of inquiry for that field of study. The researchers came to
the conclusion that other studies will draw inspiration from this one.
The effect of inventory management techniques on the operational efficiency of Nigerian
manufacturing companies was studied by Natobo (2019). One of the specific goals was to
determine how much manufacturing organizations used inventory management systems.
Determining the link between organizational performance and inventory management strategies,
as well as the challenges associated with putting these strategies into effect. The researcher had
to conduct a study to determine the relationship between inventory management practices and
operational performance in the Mukwano Group of Companies Limited because the research
problem was predicated on the idea that all organizational successes and poor performance were
attributable to inadequate inventory management practices. The researcher employed the
following theories in the investigation: One notion that makes sure expenses are kept to a
minimum all the way through the supply chain is transaction cost analysis. Since one of the
performance metrics in the study was profitability, the study tried to help us understand whether
the inventory management technique used by consumer products manufacturing firms resulted in
enhanced profitability. Managers used inventory management strategies to improve the
organizational performance of consumer goods manufacturing companies in terms of
profitability, quality, efficiency, optimal production, and production targets for on-time delivery.
These choices were made with consideration for the philosophy of strategic choice. The
researcher used an exploratory study design. After stratified sampling was used to determine the
target population, which consisted of 50 manufacturing businesses, simple-random selection was
employed to choose the final respondent. Data was gathered via primary and secondary sources.
Books, journals, and internal annual reports were used as secondary sources in addition to
questionnaires for primary data collection. A quantitative approach was used in the study to
analyze the data. According to the study's findings, inventory management is becoming more and
more popular among businesses worldwide and can have desired effects when implemented
properly. The results also indicated that there was a positive association between the two
variables. It also showed that inventory management is not the only factor that must be
considered in order to improve an organization's operational performance; other factors include
production control, sales and distribution, and stock storage.
The financial performance of brewing businesses listed on the Nigerian stock exchange with
reference to inventory management was studied by Ndumbuisi, Ezechukwu, Uche, and Chinyere
(2018).The purpose of the research was to determine the association between the financial
success of Nigerian stock exchange-listed brewing companies and inventory management during
a seven-year period, from 2010 to 2016. Return on assets, company growth, and return on equity
were utilized as stand-ins for financial performance, while the inventory conversion period
served as a gauge for controlling inventory. Determining the correlation between inventory
management and the financial performance of breweries listed on the Nigeria Stock Exchange
was the primary goal of this study. The particular goals were to: ascertain the relationship
between the Inventory Conversion Period (ICP) and Return on Equity (ROE) of brewery firms
listed on the Nigerian Stock Exchange; ascertain the relationship between the Inventory
Conversion Period (ICP) and Firm Growth (FG) of brewery firms listed on the Nigerian Stock
Exchange; and confirm the relationship between the two. The primary source of data for this
study's research design was historical data. In essence, information was taken from the annual
reports and accounts of the companies that are listed on the Nigeria Stock Exchange
(NSE). Seven (7) brewery firms quoted on the NSE as of December 31, 2016, made up the
study's population. Guinness Breweries Plc, Golden Guinea Breweries Plc, Nigerian Breweries
Plc, Champion Breweries Plc, International Breweries Plc, Jos International Breweries Plc, and
Premier Breweries Plc were among the companies involved. The researchers employed the Just
In Time Model (JIT). The model's objective was to restrict production and assembly to the
materials and work-in-progress inventories that are truly required. The researchers also made use
of the Pareto model, a theory that helps determine what should be prioritized when managing a
company's inventory. Data for the study were gathered orally during interviews and through
questionnaires. According to the report, brewing companies' profitability is significantly
impacted by the procurement and storage of their supplies. The sample size consisted of the
seven (7) brewery enterprises that were quoted. Based on the data that was available for the
study from 2010 to 2016, a purposeful sampling approach was used. The majority of the data
used in this study came from secondary sources. These data came from the examined firms'
seven (7) years' worth of annual reports and accounts from 2010 to 2016. The study came to the
conclusion that brewing companies need to have efficient material management in order to turn a
profit. Regarding the study, the researchers recommended the following: In order to increase
their return on assets, brewing companies should create a policy framework that will expedite the
adoption of Just-In Time and other best inventory management practices. They should also think
about investing in new technology and implementing electronic data interchange (EDI). Since
ICP and ROE have a positive and non-significant relationship, it is advised that top management
place a strong emphasis on appropriate inventory management techniques and the measurement
of efficiency deviations in order to identify weaknesses in the process of managing inventories.
This will lower inventory costs and improve returns, thereby improving the growth of the firm.
In the Wakiso district of Uganda, Tumwebaze Maurice (2019) studied the impact of inventory
management performance on business operations. The issue under investigation was the
Ugachick Company's performance, which had declined sharply between 2017 and 2019 as a
result of inventory expenses rising from 8% to almost 20%. The decline in net profits from
1782301190 UGS in 2016 to 106909146 UGS in 2017—a 40% drop in profitability—and the
management's explanation of higher inventory costs resulting from overstocking inventory and
other operational issues further supported this. Finding out how an inventory management
system affects a company's performance was the primary goal of the research. Three specific
goals were set out in the study: to determine the impact of the reorder point model on business
performance, the effect of the economic order quantity on business performance, and the impact
of the ABC system management on business performance. In addition to the manual method of
handling stock, the researcher employed the following theories in this study: ABC management,
reorder point, and economic order quantity system. The methods have the drawback of being
excessively labor-intensive and slow due to double handling of stock. An exploratory research
design was used in this study. The main goal of descriptive research was to describe state affairs
as they already exist. It comprised surveys and various types of fact-finding inquiries. This was
due to the fact that the researcher occasionally examined and described various points of view
held by other authors in the literature. This was carried out in an effort to fully collect insightful
data from the investigation. A total of 60 employees of Ugachick Company Ltd., including
directors, supervisory management, and the production department, were included in the study.
All of these recognized study-related concerns. Purposive and simple random sampling were
utilized to choose the final respondents from each of the three main categories that made up the
study's population. There were sixty (60) respondents in the sample as a whole. Since the
researcher had no prior knowledge of the study population, the sample size was established using
Slovin's formula for selecting respondents. Utilizing the questionnaire, the interview schedule,
and the process of documentary review, data was gathered. The researcher looks at several
documents in an effort to gather information on the goals of the study. Data analysis was done by
analyzing field data as well as contrasting and comparing the opinions of many writers on the
subject. The study's results were summarized by the researcher, who noted that the company's
usage of inventory management strategies had improved and facilitated the prospect of
automating business processes, particularly those in the stores and warehouse. The findings
regarding the reorder point showed that the two variables—sales performance and company
performance—had a favorable association when this inventory control approach was
adopted. The research and analysis also demonstrated that other elements, such as production
control, selling and distribution, and stock storage, should also be taken into account in order for
an organization to be effective. Regarding the reorder point method, the researcher recommended
that employees be assigned specific tasks to complete. For example, in order-picking procedures
designed to replenish specific inventory in stores, the individuals handling stock receipts should
be distinct from the company's stock issuer.
The study "The Effect of Inventory Management on Organizational Performance among Textile
Manufacturing Firms in Kenya" was examined by Musau, Gregory, Elizabeth, Nambuswa, and
John (2017).Despite the huge number of studies that were found, the researchers surmised that
none of them particularly addressed how inventory management affected performance in the
context of textile companies. The study's goal was to determine how inventory management
affected Kenyan textile companies' supply chains' overall performance. The necessity to
investigate how inventory management affects organizational performance, necessitating a
cautious approach to inventory management, guided the selection of lean theory for this study.
As a result, the theory highlights the potential for variation in the operating systems used to track
stock levels and the variety of goods that can need distinct handling. The convergent parallel
mixed methods design was modified for the project. In order to first describe the conceptualized
supply chain determinants and performance criteria used by textile firms and then attempt to
explain the cause-and-effect relationship between supply chain determinants and procurement
performance, this design combined the qualitative descriptive method with the quantitative
explanatory method. The population for this study consisted of all 15 companies that produce
textiles and clothing, as well as the personnel employed by the procurement departments. The
study employed stratified and simple random sampling techniques to pick procurement
department personnel from separate textile enterprises. The resulting final sample consisted of
124 procurement department employees and 15 heads of procurement departments. The study
made use of both primary and secondary data. In accordance with the two sets of study units that
were selected and the mixed-methods research design that was chosen, questionnaires and
interview schedules were created to gather primary data for the study's objectives. Consistent
with the chosen mixed-methods study design, secondary units were identified. Books on supply
chain management and reputable journals made up the secondary data. First, skewness, kurtosis,
means, standard deviations, and standardized scores were used to prepare and clean the data.
Determining if the percentage of responses was reflective of the intended audience and may help
with decision-making regarding how supply chain drivers affect procurement performance was
the reason behind the examination of the response rate. As a result of their investment in modern
material flow systems and clear procedures in place to oversee seamless and transparent material
flow that can be tracked along a supply chain, the researchers came to the conclusion that textile
companies in Nairobi County are willing to pay for inventory management. Inventory and
material flow can be improved by using systems like ERP, VMI, EOQ, and RFI. In order to
maximize supply chain performance and, consequently, total firm performance, the researchers
advised management to explore opportunities to promote the ongoing usage of contemporary
inventory systems.
The impact of inventory management systems on firm performance was the subject of a study
carried out by Chebet and Kitheka in 2019. According to the study, there is a connection between
the cost-effectiveness strategy employed to increase the company's return on investment,
operational viability, and the usefulness of inventory management in customer-related
concerns. Finding out how inventory management systems affect business performance was the
main goal of this investigation. The study's specific goals were to measure the impact of the just-
in-time inventory control system on the performance of the company, evaluate the effect of
inventory management's economic order quantity on the performance of the company, and
ascertain the relationship between the system's production software and systematic application of
inventory management on the latter two. In this study, the researchers employed lean theory,
economic order theory, and technology diffusion theory. A cross-sectional research survey was
used since the study's hypothesis was that inventory management strategies had an impact on
procurement performance based on a review of the literature. Cross-examining the pertinent
research papers yielded the data. The topic, factors, research approach, and publication year all
influenced the relevance. Following the collection, every pertinent research publication was
examined, and the results were displayed in tables. Research publications indicated a connection
between the success of the company and the SAP inventory management system. The pertinent
journals that were studied demonstrated a strong correlation between the company performance
in the examined cases and the EOQ inventory. The conclusions were predicated on every goal.
The initial goal of the study was to ascertain how the performance of the company was affected
by the SAP inventory management system. An analysis of the literature revealed that the SAP
system had a major impact on the productivity and efficacy of the company. Thus, it was
determined that the SAP system had a major impact on the firm's operational efficiency based on
the research question, which asked whether the system influences firm performance.
Determining the impact of EOQ on the performance of the company was the second goal. An
analysis of the literature revealed that EOQ significantly affects company performance. Based on
an empirical review, the research question concerned how inventory management's EOQ impacts
a firm's performance. Thus, it was determined that EOQ had a major impact on a firm's
operational capability. Determining the impact of Just-In-Time (JIT) on company performance in
the context of an empirical assessment was the aim of the third study. Based on the study
question, which asked how procurement performance is impacted by the period review strategy.
It was determined that JIT has a major impact on the success of the company. On the basis of the
study's chosen objectives, recommendations were made. The initial suggestion was that
companies should use SAP technology effectively to manage their procurement for an efficient
operation, as it was discovered that SAP has a substantial impact on business performance.
Based on the EOQ, the second recommendation was made. Businesses should be sure to order
the suggested lot size as defined by the EOQ since it has been proven that the EOQ is a crucial
approach in inventory management. In conclusion, the study revealed a noteworthy impact of the
periodic review strategy on procurement performance. Therefore, it is recommended that firms
implement this technique while managing inventories to guarantee procurement efficiency.
The effectiveness of inventory management techniques in Nairobi, Kenya, was studied by
Kinyua (2016). The study's goal was to comprehend how manufacturers of consumer goods
employ different inventory management systems to develop certain operational capabilities. The
researcher's specific goals were to ascertain how much Nairobi-based consumer goods
manufacturing companies use inventory management techniques, investigate the effect these
techniques have on the productive performance of these businesses, and identify the challenges
these businesses face in implementing these techniques. The claim. The purported problem was
the lack of comprehensive research on the inventory management techniques employed by
consumer goods producers in Kenya and how these techniques impacted the performance of
these enterprises in a similar setting. The researcher employed the Strategic Choice Theory,
which draws links between managerial decisions, firm performance, and interactions between a
company's internal and external environments. In order to improve organizational performance in
consumer product organizations in terms of profitability, value, effectiveness, optimum
production, and on-time delivery, managers found it easier to select the inventory management
strategies they used. The researcher also made use of the Theory of Economic Order Quantity,
which stresses assembly quantities that minimize cost consistency between inventory holding
costs and reorder costs. The hypothesis was important to the study because it explained how
Nairobi's consumer goods manufacturers applied the EOQ model and how it affected their
bottom line. The study used a descriptive research design. The intensive endeavor aimed to
include fifteen major consumer product manufacturing enterprises with Nairobi County offices,
storage facilities, or other infrastructure. It was intended for a sample of sixty people to respond
to the survey. The study's main source of data was collected through self-administered
questionnaires. The investigation's primary data were assessed quantitatively. The results of the
study show that vendor-managed inventory, EOQ barcoding, and simulation are critical
components for the great majority of consumer product production enterprises in Nairobi
County. The researcher discovered that budgetary concerns, a lack of firsthand experience, and
challenges in obtaining essential information were the main barriers to using the inventory
management technique. The study's conclusions indicate that inventory management practices
have a big impact on how well Kenyan enterprises that make consumer goods function.
An investigation on the impact of inventory control procedures on retail chain store performance
in Nairobi County, Kenya, was carried out by Shajema, I. (2018).A few issues with the study
were noted by the researcher. Performance variations have recently been seen in Kenya's retail
sector. According to a Cytons (2016) analysis, regional retail malls can only provide returns of
up to 11.7%, despite the industrys’ potential. Similar data, ranging from 25% to 30%, is stated in
the African Consumer Insights study (2016) about the market share and penetration rate of retail
chains. Lately, Nakumatt, a large store that has dominated the Kenyan market for almost a
decade, failed, with debts estimated to have exceeded Sh15 billion. Among the reasons given for
the failure were the suppliers' high debt levels as a result of inadequate supplier relationship
management. Firm-level research based on information from the Census of Industrial Production
and the World Bank's Enterprise showed that these negative trends in the performance of the
retail chains were related to structural inefficiencies in the supply chains. Among the study's
goals were to ascertain how Kenyan retail chain stores performed in relation to their vendor
management inventory system; examine how lean practices affected those same stores; ascertain
how Kenyan retail chain stores performed in relation to inventory stock taking; and ascertain
how Kenyan retail chain stores performed in relation to strategic supplier management practices.
In this study, the researcher applied the theories of Economic Order Quantity (EOQ), Lean,
Theory of Constraints, and System Theory of Logistics. A descriptive survey design was used in
this investigation. Nairobi County Statistics, released in 2016 by the Kenya National Bureau of
Statistics, lists 144 retail chain establishments in the county overall. This served as the study's
target population. One procurement officer from each of the 144 retail chain stores served as the
observational unit. To conduct this investigation, a census was chosen. A 5-point Likert scale
was utilized to collect primary data through structured questionnaires, and a data collection sheet
was employed to obtain secondary data on performance. Following the collection of data via
questionnaires, descriptive and inferential statistics were used by the Statistical Package for
Social Sciences (SPSS) to evaluate the data. To determine the significance of the independent
factors' impact on the dependent variable, a multiple linear regression model was employed.
There was the use of several linear regression models. The study came to the conclusion that
using VMI systems, such as integrating ICT with inventory functions, improving systems for
managing suppliers and purchasers, investing in information sharing and order confirmation
systems, investing in cataloguing systems, improving point of sale (POS) systems, creating
contemporary store networks, adopting supplier electronic messaging, and improving stock
tracking systems, significantly improves firm performance. The study also found that a
company's performance can be significantly improved by implementing lean practices, such as
demand management techniques like forecasting, waste elimination techniques, standardizing
goods, seamless collaboration to prevent waste, sourcing client data, adopting value stream
analysis, workplace organization, continuous system improvement to prevent waste, continuous
inspection to eliminate waste, and streamlined sales. Additionally, it was determined that
implementing inventory control procedures, such as creating a new accession register to replace
the outdated one, entering data into an automated system, calculating stock differences every
day, conducting frequent stock reconciliations, developing guidelines and procedures for stock
recording, having receiving staff acknowledge receipt of goods on a form before forwarding it to
the accounts section, barcoding all new stock before it is shelved for easy tracking, verifying
issue requests prior to issuing stocks, and storing supply documents in a secure location
accessible only to authorized staff, greatly improves a company's performance. The study also
came to the conclusion that a company's performance will be greatly improved by adopting
strategic supplier management practices, such as pre-qualifying suppliers before awarding
contracts, forging strong relationships with them, sharing information continuously, improving
the channel of communication between the company and its suppliers, integrating suppliers into
the company's current inventory management policies, and maintaining established
communication systems with them. In order to improve performance, the researcher suggested
that retail chain stores and other companies that manage inventories should invest in improving
their VMI systems. VMI activities include integrating ICT with inventory functions, improving
systems for managing supplier relationships and purchaser-supplier integration, investing in
information-sharing and order-confirmation systems, investing in cataloguing systems,
improving point-of-sale (POS) systems, creating contemporary store networks, adopting
electronic messaging by suppliers, and improving stock-tracking systems. The researcher also
suggested that in order to improve performance, chain stores that handle inventory, like
manufacturing companies, should invest in strengthening their lean methods. Some of the lean
methods that concentrate on demand management include forecasting, methods for eliminating
waste, standardization of goods, seamless cooperation to prevent waste, sourcing of client needs
data, implementation of value stream analysis, workplace organization, ongoing system
improvement to prevent waste, and ongoing inspection to eliminate waste.