The Effect of Inventory Management on Organizational Performance Among Textile Manufacturing Firms in Kenya

Abstract

The study sought to ascertain the extent at which inventory control affect the productivity of selected manufacturing firms, to determine the nature of the relationship between demand management and customer satisfaction of selected manufacturing firms and to determine the effect of Just – in-time on the growth of selected manufacturing firms. The study had a population size of 996, out of which a sample size of 285 was realized using Taro Yemeni's formula at 5% error tolerance and 95% level of confidence. The instrument used for data collection was primarily questionnaire and interview. Out of 285 copies of the questionnaire that were distributed, 270 copies were returned while 15 were not returned. The descriptive survey research design was adopted for the study. The hypotheses were tested using Pearson product moment correlation coefficient and simple linear regression statistical tools. The findings indicate that inventory control significantly affects productivity of selected manufacturing firms (r = 0.849; t = 27.726; F= 768.754; p< 0.05) .There is a positive relationship between demand management and customer satisfaction of selected manufacturing firms (r =.799, P < 0.05).The study concluded that inventory management is essential in the operation of any business. Inventory as an asset on the balance sheet of companies has taken on increased importance because many companies are applying the strategy of reducing their investment in fixed assets. The study recommended that Organizations should train their personnel in the area of inventory control management that will empower them to be in charge for the smooth running of the inventory management activities or program. INTRODUCTION Inventory management is a critical management issue for most companies – large companies, medium-sized companies, and small companies. Effective inventory flow management in supply chains is one of the key factors for success. The challenge in managing inventory is to balance the supply of inventory with demand. A company would ideally want to have enough inventories to satisfy the demands of its customers-no lost sales due to inventory stock-outs. On the other hand, the company does not want to have too much inventory staying on hand because of the cost of carrying inventory. Enough but not too much is the ultimate objective (Coyle, Bardi, and Langley, 2003). The role of inventory management is to ensure faster inventory turnover. It increases inventory turnover by ten (10) and reduces costs by 10% to 40%. The so-called inventory turnover is not yet right to sell products on the shelves based on the principle of FIFO cycle(http://www.academia.edu/). Inventory management is necessary at different locations within an organization or within multiple locations of a supply chain, to protect (the production) from running out of materials or goods. Adequate inventories kept in manufacturing companies will smooth the production process. The wholesalers and retailers can offer good customer services and gain good public image by holding sufficient inventories. The basic objective of inventory management is to achieve a balance between the low inventory and high return on investment (ROT). (Johson et al, 1974). Inventory levels have been seen as one of the most interesting areas for improvement in organization materials management (Kumar Ordamar, Zhang, 2008). Inventory plays a significant role in the growth and survival of an organization in the sense that ineffective and inefficient management of inventory will mean that the organization loses customers and sales will decline. Prudent management of inventory reduces depreciation, pilferage, and wastages while ensuring availability of the materials as at when required (Ogbadu, 2009). Inventory management is critical to an organization's success in today's competitive and dynamic market. This entails a reduction in the cost of holding stocks by maintaining just enough inventories, in the right place and the right time and cost to make the right amount of needed products. High levels of inventory held in stock affect adversely the procurement performance out of the capital being held which affects cash flow leading to reduced efficiency, effectiveness and distorted functionality (Koin, Cheruiyot , and Mwangangi , 2014) Statement of Problem Inventory is a vital part of current assets mainly in manufacturing concerns. Huge funds are committed to inventories as to ensure smooth flow of production and to meet consumer demand. However, maintaining inventory also involves holding or carrying costs along with opportunity cost. Inventory management, therefore, plays a crucial role in balancing the benefits and disadvantages associated with holding inventory. Efficient and effective inventory management goes a long way in successful running and survival of a business firm, when organizations fail to manage their inventory effectively they are bound to experience, stock out, the decline in productivity and profitability, customer dissatisfaction . Thus the study seeks to investigate the effect of inventory management on the organizational performance of the selected manufacturing firms.