Declaration - Makerere University
45
Declaration I Ninsiima Asaph here by declare that inventory management and financial performance of quality super market Ntinda is entirely my original work, and it has not been submitted before to any university or institution of higher learning for the award of a degree. Signature…………………………………… Date………………………………… Ninsiima Asaph
Transcript of Declaration - Makerere University
Declaration
I Ninsiima Asaph here by declare that inventory management and financial performance
of quality super market Ntinda is entirely my original work, and it has not been submitted
before to any university or institution of higher learning for the award of a degree.
Signature…………………………………… Date…………………………………
Ninsiima Asaph
Approval
This research report has been submitted for examination with my approval as the
candidate‟s university supervisor.
Signature……………………………………….. Date…………………………….
Name……………………………………
Dedication
I dedicate this book to entire family of James Kabakunya
Acknowledgement
I give my great thanks to God Almighty for his favour upon my life, His protection,
provision, love and grace.
Special thanks go to my supervisor Mr. Christopher Muganga for his academic guidance
and willingness to assist me whenever approached. Iam also thankful to entire staff of
quality supermarket Ntinda for cooperating with me
My deep gratitude goes to my parents Mr. and Mrs. John Kafuniza for moral, material
and financial assistance rendered to me. I also give special thanks to Mr. and Mrs.
Tindyebwa Justus who have made it possible for me to produce this work through their
contribution in various ways.
LIST OF ACRONYMS
DRP- DISTRIBUTION REQUIREMENT PLANNING
ERP- ENTEPRISE RESOURCE PLANNING.
EOQ- ECONOMIC ORDER QUANTITY.
OPT- OPTIMISED PRODUCTION TECHNOLOGY.
MRP- MATERIALS REQUIREMENT PLANNING.
JIT- JUIST IN TIME.
Abstract
The research was carried out on inventory management and financial performance of
quality super market Ntinda as a case study. The objectives of the study were;
To asses the effectiveness and efficiency of inventory management
To identify the indicators of financial performance and,
To establish the relationship between inventory management and financial performance
Across sectional research design was used in the study, the sample size comprised 50
staff members of quality supermarket. The main types of data used in the study were
primary and secondary. The questionnaires led to the collection of primary data while
text books and journals led to the collection of secondary data.
The data collection method used for the study was survey and questionnaires as a tool.
Data analysis was conducted as a simultaneous activity with data collection was
presented using tables, frequencies and percentages.
The findings of the study were analyzed and presented in this research report and
conclusion drawn from the research emphasized on inventory management and financial
performance of quality supermarket Ntinda and it was found that the relationship between
the two is positive and strong. However the correlation was not up to the required
standards.
In conclusion it can be deducted that improved inventory management system leads to
financial performance. The findings also indicate that inventory management system is
not up to the required standards. The research recommends that quality super market
needs to review its inventory management system.
CAHPTER ONE
INTRODUCTION
This study focuses on the effectiveness and efficiency of inventory management system,
indicators of financial performance and the relationship between inventory management
system and financial performance at quality supermarket Ntinda.
Inventory can be defined as the value or quality of row materials, components,
assemblies, consumables, work in progress (WIP) and finished goods, stock that are kept
or stored for use as the need arises (Kenneth Lyons 2000).
Therefore inventory management involves controlling of stock levels with the physical
distribution function to balance the need for minimizing stock holding and handling
costs.
It is concerned with the provision of sufficient space for proper handling and storage of
company inventories. It is also aimed at ensuring that the stores operations are carried out
effectively and efficiently.
The chapter includes the back ground of the study, statement of the problem, purpose of
the study, objectives of the study, research questions, and scope of the study and
significance of the study.
Background of the study
In the present supermarket business there is a growing need for inventory management.
The financial performance of supermarkets is as a result of proper inventory management
system like re-order quantity , economic order quantity , re-order level , just in time
purchasing, optimized production technology, vendor managed inventory (VMI),the
ABC analysis , stock taking and stock valuation. (Kenneth lysons 2003). The study
therefore aims at evaluating the impact of inventory management on the financial
performance of quality supermarkets.
Inventory management is seen as a away through which the owners of supermarkets
(shareholders) are informed about the financial position of their business.
The role of inventory management is to ensure faster inventory turn over. It increases
inventory turn over by ten (10) and reduce costs by 10% to 40%. The so called inventory
turn over is not yet right to sell products on the shelves based on the principle of FIFO
cycle (Kenneth lysons and Michael gilligham, 2003).
Inventory is classified basing on the business undertaking from organization to
organization. Common criteria used and are nature of inventory for example
manufacturing, sale or retail, purpose for which inventory is being held in stock or
function and the related usage in the supply chain. Typical classifications are raw
materials (items in unprocessed state awaiting conversion e.g. timber, steel and coffee
seeds), components and sub-assembles. These are for incorporation into the end product
e.g. side mirrors, glasses for car assembling company and monitors or keyboards for a
computer assembling company), consumable (all supplies in an undertaking which are
classified as indirect and which do not form part of saleable product. (Divided into
production, maintenance, office and welfare). Proper classification of inventory and its
control improve the financial position of a business (David Jessop and Alex Morrison
1994).
Therefore the study seeks to analyze the impact of inventory management on the
financial performance of quality supermarket Ntinda which is located in Ntinda at Ntinda
shopping centre Nakawa division Kampala city.
Quality supermarket has a gigantic departmental store on Ntinda shopping center where
the owners and managers of the supermarket try to manage inventory so as to improve
the financial performance that has been declining for the few years due to stock outs and
overstocking.
Statement of the problem
Inventory composes of the biggest percentage of the current assets of all supermarkets in
Uganda. Various inventory management techniques have been employed but the financial
performance of quality supermarket Ntinda has been declining for the past few years.
This may be due to stock outs and overstocking due to poor inventory management
system. Therefore this study seeks to analyze the impact of inventory management on the
financial performance.
Purpose of the study
The purpose of the study is to examine the relationship between inventory management
and the financial performance of quality supermarket Ntinda.
Objectives of the study
The objectives of the study include:
i).To assesses the effectives and efficiency of inventory management system at quality
supermarket Ntinda.
ii) To identify the indicators of financial performance at Quality Supermarket Ntinda.
iii) To establish the relationship between inventory management system and the financial
performance of quality supermarket Ntinda.
Research questions
The research questions will be:
i) How effective and efficient is the inventory management system at Quality
supermarket Ntinda?
ii) What are the indicators of financial performance at Quality Supermarket Ntinda?
iii) What is the relationship between inventory management and the financial
performance of quality supermarket?
Scope of the study
The study is to be conducted at quality supermarket Ntinda Nakawa division Kampala. It
will focus on the effective and efficiency of inventory management system, indicators of
financial performance management and the relationship between inventory management
and the financial performance of supermarkets. It will take a time of four months from
March to June 2011.
1.7. Significance of study
The study will help the owners and managers of supermarkets by employing proper
management techniques. Therefore the significance of the study is to help managers
develop appropriate, sound and effective inventory management systems.
CHAPTER TWO: LITERATURE REVIEW
2.0. Introduction
This chapter reviews the literature related to the study variables inventory management
and the financial performance of quality supermarket. It deals with inventory
management and the financial performance.
2.1. Inventory management.
Inventory management means controlling of stock or inventory levels with the physical
distribution to balance the need for minimizing sock holding and handling costs (Kenneth
Lysons, 2000).
Bolter, (1976) defines inventory as the physical determination of inventories while in
storage. Inventories are the stock pile of the product, a business enterprise is offering for
sale and the component that make up the product.
Inventory exists in all business enterprises as business and non business, inventory being
held in stores by business enterprises is in liquid form and solid form.
Donnelley, (1990), stipulates that non business inventory is costly and therefore needs
proper inventory management techniques like fixed order point system and periodic
review system.
Inventory management practices are useful in cost and management control because costs
associated with stores operation (rent, rates, power, space waste) and (not) holding
inventory can be properly analyzed, and means to control or reduce such costs identified
and applied (Pandey, 1993).
2.1.2 Objectives of inventory management.
The objectives of inventory management are;
i). To provide both internal and external customers with the required services levels
especially with quantity.
ii). To ascertain present and future requirements for all types of inventories to avoid both
over stocking and under stocking (bottlenecks) in business operations.
iii). To keep costs at a minimum variety reduction, economic lot size and analysis of
costs incurred in obtaining and holding/ carrying inventories.
2.1.3. Effects of stock taking on inventory management.
Stock taking is the physical counting of stock (items) at a given time to check whether the
results obtained correspond with the entries in the stock control ledgers (records). It is the
process of verifying the quality balances of the entire range of items held in stock.
Stock taking leads to accuracy of stock records, value of stock shown in the balance sheet
is supported by stock taking and possibility of fraud or theft or loss is disclosed. This is
due to physical verification.
2.1.4. Nature of inventory.
Inventory is in form of raw materials that is, items in an unprocessed state awaiting
conversion such as steel, timber and coffee seeds.
Consumables and sub consumables which are items for incorporation into the end
product like side mirrors and glasses for a car assembling company. Keyboards and
monitor for a computer assembling company.
Consumables including all supplies in an undertaking which are classified as indirect and
which do not form part of a sealable product. They are divided into production like
detergent, maintenance like lubricating oil, office like stationary and welfare like first aid
supplies.
2.1.5. Inventory management models.
There is several inventory management models used which include economic order
quantity, just in time and ABC analysis.
2.1.6. Economic order quantity.
This is the optimal quantity for an item of stock that minimizes cost while maximizing
the benefits of holding inventory.
At this point
Total holding costs = Total ordering costs
Total cost is at minimum, δƪ/ƪ=0
Graphical illustration
Total cost
Total
Costs
Holding costs
Ordering costs
Order quantity
Eoƪ
Economic order quantity is based on the following assumptions;
- The demand is uniform, that is, certain, constant and continuous over time.
- The lead time is constant and certain and that periodical replenishment of order is
done instantaneously.
- There is no limit on order size due to either to stores or other constraints.
- The cost of placing an order is independent of size of the order, the delivery
charge is also independent of the quantity ordered.
- The cost of holding a unit of stock (carrying cost per unit of inventory) does not
depend on the quantity in stock.
- All prices are constant and certain. There are no bulk purchase discounts.
- Exactly the same quantity is ordered each time that a purchase is made
Economic order quantity is determined by
Eoq = 2CoD
Ho
Where q=order quantity in units
D=annual demand usage in units
Co=ordering costs (acquisition costs) per order
Ho=holding cost peer unit.
2.1.7Just in time (JII) purchase
Lee white (4) defines JIT as an inventory control philosophy whose goal is to maintain
just enough material in just the right time to make just the right amount of product. It is
the exact adjustment of production to quantity held.
It works when there is,
-Limited number of supplies to encourage partnerships.
-Reliable transport and communication means for quick delivery to both production
points and consumer/buyer points.
-Short lead times.
-Quality assurance and control measures to enable high quality inputs.
-Production in small lots i.e. batch production, produce when orders come.
JIT limitations are;
-It‟s restricted to batch production not continuous production.
-Its prone to errors in forecasting (there is inability of suppliers to move quickly to
changes in demand).
-Its prone to transport and communication breakdown.
-Requires substantial investment in organizational change for example training.
- High dependence on suppliers.
-Benefits of holding inventory are eliminated.
2.1.8 The ABC analysis
This suggests that there are a few items which contribute most of the inventory costs and
a large number of items whose costs are relatively low, according to ABC analysis items
are classified as A, B, and C items.
„A‟ items.
These constitute of every few „high impact‟ items. They require the most managerial
attention and review. Every stick control is required for this item category. The items
should if possible, be economic order quantity (batches).
„B‟ items
These constitute many “moderate impact” items (some times most of the items fall under
this category). There is automated control with management. The rules used here can be
used for “A” items as well. Moderate control should be used for this category.
“C” items.
This category constitutes most of the items. It constitutes of items that make up minor
impact. The control systems used here need to be as simple as possible. The items are
basically of low usage value, because of low demand or low costs. Therefore strict
control is not important, as it is more economic to hold these items in quantities large
enough to make the possibility of stock out negligible.
2.2Financial performance
Financial performance of any business enterprise is determined by the increase in sale,
high level of profitability and lower operational costs. Therefore proper inventory
management must be employed so as to enhance financial performance of the business
enterprise.
2.3 Relationship between financial performance and inventory management
The financial perform of the company is due to many factors of which inventory
management is inclusive. The inventory management process begins from the purchase
of items which are stored, put on display, until they are sold to earn revenue. This has a
direct link to the financial performance of accompany where efficient and effective
inventory management system must be put in place.
Handree (2001) points out that too much inventory causes dormant deposits to build up
that reduce flow and impair operational efficiency. Cash flow inadequacy leads to the
decline of an organization.
Inventory management allows an enterprise or accompany to meet or exceed customers
expectations of the product available while maximizing the net profits or minimizing the
costs. (Schreifeder 2005). This consequently improves the financial performance of a
company.
Pandy, (1879) believes that investment in inventories should be just sufficient at the
optimum level. Over investment in inventory leads to,
i) The unnecessary tied up of the firms fund and loss of profits.
ii) Excessive carrying costs.
iii) The risk of liquidity.
The excessive levels of inventories consume a lot of fund of the firm due to costs like the
carrying costs such as cost of storage, handling insurance, recording and inspection. This
leads to poor financial performance of an organization.
Also inventory management in real life consists of items which range from expensive
ones to in expensive ones and therefore a lot of emphasis should be put on items that are
responsible for increase in capital costs since inventory is idle capital (Shogan1981).
Poor inventory management leads to a decline in the financial performance of the
company and a good inventory management system which leads to an increase in the
financial position of a company. So the relationship between inventory management and
financial performance is perfect which means that improving an independent variable
(inventory management leads to increase in the dependent variable (financial
performance).
2.4 In conclusions
Therefore, it can be seen that it is impossible for any business enterprise to prosper in
finance without first improving on its inventory management. This study therefore
intends to fill the gaps especially on the linkage between management and financial
performance
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
This chapter presents a description of the research techniques that were used to get data
for the study; it gives the research design, study population, sample selection and size,
data collection and data analysis. Limitations of the study are also looked at in this study.
3.1 Research design
The study used a cross sectional descriptive research design because it aims at
establishing the relationship between inventory management and the financial
performance. The fact that the study tries to assess the effectiveness and efficiency of
inventory management and to identify indicators of financial performance also makes it
across sectional descriptive research design.
3.2 Sample size
The elements for the study were obtained from the survey population. They consisted 5
officials from the top level management, 10 store keepers, 6 accountants, 15 supervisors,
8 officials from the procurement department, 3 security personnel and 3 stock takers.
Table 1 below shows the summary of the sample composition and size.
Table 1: Sample composition and size
Department Sample size
Top level managers 5
Store keepers 10
Accountants 6
Supervisors 15
Procurement 8
Security 3
Supervisory 3
Total 50
Source: By the researcher
3.4 Sampling design and procedure
Purposive sampling technique was employed to select the respondents. This was due to
the fact that the selected respondents had prior knowledge on the study topic. After the
selection of the respondents and ensuring that data collection instruments were ready, the
researcher got an introductory letter from the institute of Adult and continuing education
Makerere University. The letter was presented to the General Manager Quality
supermarket Ntinda who then provided another letter to the researcher copied to the
heads of various departments of the supermarket to cooperate and assist the researcher to
gather data from their departments. This helped the researcher to get the required data.
3.5 Data collection
3.5.1 Data collection methods and tools
The researcher used a number of methods and tools in the collection of data and
information for the study. These include questionnaires, interview guides, and
documentary review.
The researcher designed questionnaires which were distributed to the staff of the Quality
supermarket. The compelled questionnaires were collected back after two days. This
helped the researcher to compare answers of each respondent.
In a quantitative way using tables, frequencies and percentages, this increased the
response rate hence the researcher was able to get a crucial and independent data.
The study also used interview guides to gather data for the study. This was used where
respondents preferred a face to face discussion. The researcher was deeply involved in
discussion with the respondents hence he was able to get direct and first hand
information.
The researcher went a head and used documentary review to gather data for the study.
The intention of employing documentary review was that the researcher wanted
secondary data. This was obtained from the already existing literature both published and
un published from different texts related to the topic under study. These mainly included
journals and text books from the main library at Makerere University.
3.6 Data analysis
After data collection data was edited to ensure it was accurate and consistent. Data was
analyzed using tables frequencies and percentages..
3.7 Limitation of the study
A handful of draw backs and problems were encountered during the course of the study.
These include the following;
It was impossible to get exact data in terms of costs, as this data was regarded
confidential. This therefore affected information gathered on the effectiveness and
efficiency of inventory management system.
Limited finance especially transport in that the researcher made several visits to
Quality supermarket Ntinda
Time frame for completion of the study.
CHAPTER FOUR
4.0 PRESENTATION, DISCUSSION AND INTERPRETATION OF FINDINGS
This chapter presents, discusses findings interprets on effectiveness and efficiency of
inventory management system on factors like inventory carrying costs, customer
satisfaction and supplier performance. It also presents, discusses and interprets findings
on the indicators of financial performance like increase in sales, reduction in inventory
carrying costs and management It further presents, discusses and interprets findings on
the relationship between inventory management and financial performance
4.1 Effectiveness and efficiency of inventory management system at quality supermarket
Ntinda
Assessing the effectiveness and efficiency of inventory management system at quality
supermarket Ntinda was one of the objectives of the study. This was done by assessing
the factors that affect inventory management. These include inventory carrying costs,
customer satisfaction, and supplier performance.
4.1.1 Inventory carrying costs.
These include costs proportional to the value of inventory like financial costs which
include insurance, loss in value due to deterioration and interest on capital tied up in
inventory. They also include costs proportional to the physical characteristics of
inventory like storage costs and labours costs.
Respondents were asked whether inventory management was effective and efficient in
regard to inventory carrying costs and their responses are shown in the table below
Table 2, Response to effectiveness and efficiency of inventory management system
on inventory carrying costs
Respondents Frequency Percentage
Strongly Agree 20 40
Agree 8 16
Not sure 5
10
Disagree 5 10
Strongly disagree 12
24
Total 50
100
Source: Primary data
Results in table 1 above show that, 56% of the respondents agreed that inventory
management is effective and efficient. This is due to appropriate techniques for inventory
management and control like fixed order point system and periodic system. 34% of the
respondents disagreed that inventory management system is effective and efficient .This
is because of limited techniques for inventory management and control and 10% were not
sure probably because they were not aware of the topic.
4.1.2 Customer satisfaction
The responses on whether the inventory management is effective and efficient or not in
regard to satisfying customers expectations were sought from respondents and their
responses are indicated in table 2 below.
Table 3: Responses on effectiveness and efficiency of inventory management system
on customer satisfaction
Response Frequency Percentage
Strongly agree 18 36
Agree 19 18
Not sure 5 10
Disagree 8 16
Strongly disagree 10 20
Total 50 100
Results in Table 2 above show that 54% of the respondents agreed that the system was
effective and efficient in regard to customer satisfaction. This is because of low customer
complaints and faster inventory turnover. 36% of the respondents disagreed that the
system was effective. This is due complaints by customers and 10% of the respondents
were not sure whether the system was effective and efficient
4.1.3 Supplier performance
Respondents were asked whether inventory management system was effective and
efficient as far as supplier performance is concerned with quality supermarket. This is
shown in table 3 below
Table 4: Responses on the effectiveness and efficiency of inventory management in
regard to supplier performance
Response Frequency Percentage
Strongly agree 9 18
Agree 7 14
Not sure 5 10
Disagree 4 8
Strongly disagree 25 50
Total 50 100
Source: Primary data
Results table 3above show that 58% of the respondents disagreed that the system was
effective and efficient in regard to supplier performance. This is because suppliers
receive late payments. 32% of the respondents agreed that inventory management is
effective and efficient on supplier performance. This is due fair prices given to suppliers.
.
4.2 Indicators of financial performance
Several indicators of financial performance were pointed out by the respondents. These
include increase in sales, profits, inventory carrying costs and management.
4.2.1 Increase in sales
Respondents were asked whether increase in sales was an indicator of financial
performance of quality supermarket. Their responses are summarized in table 4 below.
Table 5: Responses on increase in sales as an indicator to financial performance of
quality supermarket
Response Frequency Percentage
Strongly agree 16 32
Agree 7 14
Not sure 2
4
Disagree 15
30
Strongly disagree 10
20
Total 50 100
Results in Table 4 above show that 50% of the respondents disagreed that increase in
sales is an indicator to financial performance. This is due to poor customer care and high
costs. 46% of the respondents agreed that an increase sales is an indicator to financial
performance. Thus is because of customer care and low costs. 4% of the respondents
were not sure .This due to the fact that they did not know any thing about the topic.
4.2.2 Inventory carrying costs
Carrying costs are costs associated with holding inventory in the store. Responses were
sought from respondents on whether reduction in inventory carrying costs was an
indicator to financial performance. Their responses are shown in table 5 below.
Table 6: Responses to whether reduction in inventory carrying costs is an indicator
to financial performance
Response Frequency Percentage
Strongly agree 10 20
Agree 5 10
Not sure 9 18
Disagree 8
16
Strongly disagree 18
36
Total 50
100
Results in Table 5, above show that 52% of the respondents at quality supermarket
disagreed that reduction in inventory carrying costs was one of the indicators of financial
performance. This is due to the fact that since the supermarket did not have an intensive
marketing of its products in 2009, there is a n increase in inventory carrying costs. Of the
respondents 30% agreed that reduction in inventory carrying cost is an indicator of
financial performance while 18% were not sure.
4.2.3 Management
Management plays an important role in very many business enterprises. In regard to
financial performance through planning, controlling and coordinating. For the case of
quality supermarket respondents were asked whether management is an indicator to
financial performance. The responses are summarized in table 6 below
Table 7: Responses to whether management is an indicator to financial performance
Response Frequency Percentage
Strongly agree 20 40
Agree 9
18
Not sure 00
00
Disagree 12
24
Strongly disagree 9
18
Total 50
100
Results in Table 6, above show that 58% of the respondents agreed that management is
an indicator to financial performance. This is due to competent managers especially in the
stores department. 42% disagreed that management is an indicator to financial
performance. All respondents were sure about the topic.
4.3 The relationship between inventory management and the financial performance
at quality supermarket Ntinda
The major objective of the study was to establish the relationship between inventory
management and the financial performance. The study thus established that there is a
direct relationship between inventory management and financial performance. At quality
supermarket inventory management under purchase activities, marketing and storage of
stock have s significant impact on the financial performance as indicated below.
4.3.1 Purchase activities
Purchase is the starting point of inventory management and it mainly focuses on stock.
The study discovered that the purchase procedure at quality supermarket was transparent
to ensure quality stock that is highly valuable so as to earn enough revenue. The
implication of this is that with poor stock (inventory management), financial performance
will deteriorate.
4.3.2 Marketing activities
The study also noted that a slow down of marketing activities due to little advertisement
impacts negatively on the financial performance. This led decreasing of sales of products
hence low financial performance.
4.3.3 Storage
The storage of stock impacts greatly on the financial performance. At quality
supermarket stock is stored in good and well maintained stores. This ensured that stock is
in good condition to trigger off a good financial performance.
To determine the strength of the relationship between the two variables i.e. inventory
management and financial performance, the researcher went ahead to calculate
spearman‟s rank correlation which is given by the formula
r = 1─ 6∑d2
n (n2─1)
The researcher assigned ranks to the respondents who strongly agree, Agree, Not sure,
Disagree and strongly disagree in the two variables and then calculated rank correlation
coefficient as shown below.
Inventory
Management (x)
Financial
Performance (y)
Rx
Ry
d
d2
Strongly Agree
9.4
9.2
1
1
0
0
Agree
4.8
4.2
3
4
-1
1
Not sure
3
2.2
5
5
0
0
Disagree
3.4
7
4
3
1
1
Strongly disagree
9.4
7.4
1
2
-1
1
∑d2=3
r = 1─ 6∑d2
n (n2─1)
r = 1 ─ 6*3
5(25─1)
r = 1─ 18
120
r = 1─0.15
r = 0.85*100
r = 85%
From the above there is appositive strong relationship (r = 85%) between inventory
management and financial performance at quality supermarket Ntinda. This means that
the financial performance depends on inventory management. But to make the
relationship extremely perfect there is a need to improve on the inventory management
techniques by employing the methods of inventory planning, management and control
like management requirement planning( MRP)distribution requirement
planning(DRP),enterprise resource planning(ERP),economic order quantity(EOQ),vendor
managed inventory(VMI) and optimized product technology( OPT).
However the remaining percentage (15%) can be explained by other factors like
employment motivation, supply chain activities and sales promotion.
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
Main finding are summarized in this chapter. Conclusions for further research are made
while discussing the findings. It‟s also important to reflect on the objectives of the study
before proceeding to the summary findings as stated in 1.4, the study had the following
objectives;
To assess the effectiveness and efficiency of inventory management at quality
supermarket Ntinda
To identify the indicators of financial performance at quality supermarket Ntinda
To establish the relationship between inventory management system and the
financial performance of quality supermarket Ntinda
5.1 The summary of the major findings is discussed below
5.1.1 Major findings on the effectiveness and efficiency of inventory management
The respondents revealed that there are a number of factors that affect inventory
management system such as inventory carrying costs, customer satisfaction, and asset
utilization and supplier performance. However findings go ahead to assert that there is a
need to manage these factors so as to improve on the financial performance of the super
market.
High inventory carry cost were found to be an over whelming constraint to financial
performance. The study also revealed that lack of customer satisfaction due poorly stored
stock was found to be another factor that discourage the would be customers hence
diminishing the levels of sales and financial performance
5.1.2 The major findings on the indicators of financial performance.
Having looked at financial performance in aspects of increase in sales, reduction in
inventory carrying costs and management, respondents revealed that the financial
performance of quality supermarket Ntinda was good, through not up to required
standards. Respondents argued that it was basically due to lack of enough inventory
management system in place.
5.1.3 Major findings on the relationship between inventory between management
system and financial performance.
On the relationship between the variable, it was found out that there is a positive and
strong relationship between inventory management and the financial performance of
quality supermarket Ntinda (r=85%). This means that application of enough inventory
management techniques would make the financial performance extremely perfect.
5.2 Conclusions
From the research findings it can be deducted that the existing inventory management
system at quality supermarket Ntinda is favorable for financial performance but this is
not adequate enough to bring extreme financial performance.
5.3 Recommendations
Following the discussion of the findings in chapter four and conclusion made, the
researcher recommends the following.
5.3.1 Recommendations on the effectiveness and efficiency of inventory
management system.
From the findings there is need for management of quality supermarket to improve and
renew its inventory management system. The researcher thus recommends that
management of quality supermarket should employ methods of inventory planning like
material requirement planning (MRP), distribution requirement planning.
(DRP), enterprise resource planning (ERP), economic order quantity (EOQ), vendor
management inventor, optimized product technology (OPT)
Also there should be a proper review of the techniques for inventory management and
control so as to get techniques that are suitable.
5.3.2 Recommendations on the financial performance
The department of quality supermarket need to be reviewed and commitment of quality
products should be given a priority. Team work is very important and also be given
priority and this will help the owners of quality supermarket to move towards achieving
goals and objectives geared towards financial performance.
5.3.3 Recommendations on the relationship between inventory management and the
financial performance.
There is need to provide adequate information to the employees of quality supermarket
about new inventory manage techniques. This will help them understand the benefits
from inventory management.
There is also a need to create customer relations that will purchase stock in time. This
will help in hosting the level of sales hence financial performance.
5.4 Area of further research
This study has examined inventory management and financial performance at quality
supermarket Ntinda. However it has not discussed other factors that affect the financial
performance of supermarkets like record keeping. It would thus be of interest, if further
research was carried to investigate record keeping with documents like vouchers,
receipts, cash books, delivery notes and the financial performance of quality
supermarkets.
In addition to the above, a research should be carried out on the influence of stores
automation on the financial performance of quality supermarket.
REFERENCE
Kakuru E (2000), financial management accounting, Makerere University press Kampala.
Pandey I.M (1993), financial management 7th Edition vikas publishing house.
Donnelly Gibson (1990), Financial and management accounting prentice hall of London.
Bolten, SE (1976); managing finance, Houghton Mifflin co. USA.
Shogan, s (1981) study of Toyota production system from industrial Engineering point of
view. Japanese management association Tokyo.
Schreibfeder, J (2005) achieving effective inventory management 3rd
Edition south
Denton USA.
Handree, M. (2000) “inventory management” 101; Apics – The performance.
Pandey, I.M (1979), financial management, 3rd
Edition. Vikas publishing house PVT ltd,
new sethi India.
APPENDIX
QUESTIONNAIRE
MAKERERE UNIVERSITY
DEPARTMENT OF DISTANCE EDUCATION
Questionnaire guide
Dear respondent
This questionnaire is designed to collect information on the subject.
Inventory management and the financial performance of quality supermarkets quality
supermarket Ntinda It‟s an academic research of the degree of bachelor of commerce.
The findings from the research will help owners of supermarkets on the best way to
employ inventory management techniques and determine the relationship that exists
between inventory management and the financial performance of supermarket.
In order for a successful study or research you are requested to complete this
questionnaire. Your contribution towards the study is highly appreciated. Thank you in
advance for your cooperation.
Section A. Biodata
Enterprise information
1. Name of the enterprise
2. Physical address
3.Type of business
4. Number of employees
Please tick appropriately
1. Sex Male Female
2. To which age category do you belong?
0-8yrs 19-28yrs 29-39yrs 40yrs and above
3. Highest level of education
Primary Secondary Certificate Diploma
Degree and above .Non
4. Business location
Central Ntinda Kobold Kikubo Bugolobi
Kampala city
5. Main activity of the company
Service Supermarket Manufacturing Trading
Others
Section B: Inventory management
In each of the following tick where applicable the extent to which you agree with the
statement.
1. My supermarket and I understand what inventory management is.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
2. According to our company inventory management is a confusing concept
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
3. Our supermarket is progressing with inventory management.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
4. The factors affecting inventory management are favorable.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
5Uganda investment authority and private sector foundation have guided supermarket
business.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
6The inventory management models are attainable and understandable.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
7. We have gained a lot of sales by the inventory management system.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
8. Supermarkets are meant for developed countries and economies and not the young
Ugandan economy.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
9. For fully functioning of the supermarket inventory management system , the
techniques and a clear system should be defined.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
10. Inventory management is not performing well because Ugandans do not know how to
employ it.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
11. Supermarkets will increase their sales if they employ inventory management.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
12. How often do you carry out stock taking?
Every year every week twice a week monthly
13. And why do you choose to stock take using the above mentioned schedule?
………………………………………………………………………………………………
14. In simple terms how do you define inventory management in relation to your
company?
………………………………………………………………………………………………
Section C: Financial performance
1. Sales have increased when we employed inventory management.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
2. There is a positive relationship with profitability ration and the level of inventory
management.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
3. The turn over of the supermarket has increased with the level of inventory
management.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
4. It is expensive to maintain when the supermarket employs inventory management
system.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
5. All supermarkets should employ inventory management system for the better
performance in there activities.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
6. Inflation affects the financial performance of supermarket that employs inventory
management.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
7. The supermarket is affected negatively by increased inventory carrying costs.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
8. All sales from January to December are the same.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
9. Management of the supermarket has improved with inventory management system.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
11. What are the indictors of financial performance?
1……………………………………………………………………………………………..
2……………………………………………………………………………………………..
3……………………………………………………………………………………………..
Section D: Relationship between inventory management and the financial performance of
quality supermarket.
1. An increased level of inventory management leads to a positive performance of the
supermarket.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
2. Failure to appropriately implement inventory management disfavors the full operation
of supermarket activities.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
3. Supermarkets do not employee inventory management because they fear increased
inventory carrying costs.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
4. Proper inventory management advertises the supermarket name to greater heights.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
5. The effectiveness and efficiency of inventory management system is the one that still
favors the financial performance of a supermarket.
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
6. Sensitization of supermarkets and the business community will improve inventory
management and thus improve the financial performance of supermarkets
Strongly agree
Agree
Not sure
Disagree
Strongly disagree
7. What suggestions do you have regarding the effectiveness and efficiency of inventory
management towards the financial performance of supermarkets?
………………………………………………………………………………………………
Thank you for maximum cooperation.
TABLE OF CONTENT
Declaration .................................................................................................................. 1
Approval ..................................................................................................................... 2
Dedication ................................................................................................................... 3
Acknowledgement ....................................................................................................... 4
Abstract ....................................................................................................................... 6
CAHPTER ONE ........................................................................................................ 7
INTRODUCTION ....................................................................................................... 7
Background of the study .............................................................................................. 7
Statement of the problem. ............................................................................................ 9
Purpose of the study. ................................................................................................... 9
Objectives of the study ................................................................................................ 9
Research questions ...................................................................................................... 9
Scope of the study ....................................................................................................... 9
1.7. Significance of study .......................................................................................... 10
CHAPTER TWO: LITERATURE REVIEW ........................................................ 11
2.0. Introduction ........................................................................................................ 11
2.1. Inventory management. ....................................................................................... 11
2.1.2 Objectives of inventory management. ............................................................... 11
2.1.3. Effects of stock taking on inventory management. ........................................... 12
2.1.4. Nature of inventory. ......................................................................................... 12
2.1.5. Inventory management models. ........................................................................ 12
2.1.6. Economic order quantity. ................................................................................. 12
2.1.7Just in time (JII) purchase .................................................................................. 14
2.1.8 The ABC analysis ............................................................................................. 15
2.2Financial performance .......................................................................................... 16
2.3 Relationship between financial performance and inventory management ............. 16
2.4 In conclusions ...................................................................................................... 17
CHAPTER THREE ................................................................................................. 18
RESEARCH METHODOLOGY ............................................................................... 18
3.0 Introduction ......................................................................................................... 18
3.1 Research design ................................................................................................... 18
3.2 Sample size .......................................................................................................... 18
3.4 Sampling design and procedure ........................................................................... 19
3.5 Data collection ..................................................................................................... 19
3.5.1 Data collection methods and tools ..................................................................... 19
3.6 Data analysis ....................................................................................................... 20
3.7 Limitation of the study ......................................................................................... 20
CHAPTER FOUR ................................................................................................... 21
4.0 PRESENTATION, DISCUSSION AND INTERPRETATION OF FINDINGS ... 21
4.1.1 Inventory carrying costs. ................................................................................... 21
4.1.2 Customer satisfaction ........................................................................................ 22
4.1.3 Supplier performance ........................................................................................ 23
4.2 Indicators of financial performance ...................................................................... 24
4.2.1 Increase in sales ................................................................................................ 24
4.2.2 Inventory carrying costs .................................................................................... 25
4.2.3 Management ..................................................................................................... 26
4.3 The relationship between inventory management and the financial performance .. 27
4.3.1 Purchase activities ............................................................................................ 28
4.3.2 Marketing activities .......................................................................................... 28
4.3.3 Storage ............................................................................................................. 28
CHAPTER FIVE ..................................................................................................... 31
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ................................ 31
5.1 The summary of the major findings is discussed below ........................................ 31
5.1.1 Major findings on the effectiveness and efficiency of inventory management ... 31
5.1.2 The major findings on the indicators of financial performance. ......................... 32
5.1.3 Major findings on the relationship between inventory between management ..... 32
5.2 Conclusions ......................................................................................................... 32
5.3 Recommendations ............................................................................................... 32
5.3.1 Recommendations on the effectiveness and efficiency of inventory management
.................................................................................................................................. 32
5.3.2 Recommendations on the financial performance ............................................... 33
5.3.3 Recommendations on the relationship between inventory management and the . 33
5.4 Area of further research ....................................................................................... 33
REFERENCE ............................................................................................................ 34
APPENDIX ............................................................................................................... 35
QUESTIONNAIRE ................................................................................................... 35
LIST OF TABLES
Table 1: Sample composition and size ....................................................................... 18
Table 2, Response to effectiveness and efficiency of inventory management system on
inventory carrying costs ............................................................................................. 22
Table 3: Responses on effectiveness and efficiency of inventory management system
on customer satisfaction ............................................................................................ 23
Table 4: Responses on the effectiveness and efficiency of inventory management in
regard to supplier performance .................................................................................. 24
Table 5: Responses on increase in sales as an indicator to financial performance of
quality supermarket ................................................................................................... 25
Table 6: Responses to whether reduction in inventory carrying costs is an indicator to
financial performance ................................................................................................ 26
Table 7: Responses to whether management is an indicator to financial performance. 27
