AN APPRAISAL OF INVENTORY MANAGEMENT TECHNIQUES IN SELECTED SMALL AND MEDIUM SCALE ENTERPRISES IN UYO

AN APPRAISAL OF INVENTORY MANAGEMENT TECHNIQUES IN SELECTED SMALL AND MEDIUM SCALE ENTERPRISES IN UYO

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ABSTRACT

The absence of good inventory management practices in Small and Medium-Scale Enterprises (SMEs) causes business uncertainties and failures. This, therefore, necessitates a study to assess and determine the actual reasons for poor application of inventory management techniques in the small and medium scale enterprises. Using questionnaire and personal interview, relevant data were gathered from respondents in three (3) selected enterprises (Assur Investment Ltd, Usmer Venture Nig. Ltd, and Nteps Shopping Mall) in Uyo, Akwa Ibom State. These data were analysed using descriptive and statistical analysis tools. It was discovered that the application of inventory management techniques, valuation methods and processing methods in arriving at sound or effective inventory decisions in SMEs is generally very low due to the inexperienced staff, inadequate data, lack of awareness of relevance to their operations, lack of emphasis on a structured inventory processing method, record imbalances and errors and low level of Information and Communication Technology (ICT) in the SMEs. These are clear indications that inventory decisions taken by most SMEs are based on rule of thumb. It is recommended that inventory management should be treated as a strategic activity and it must be included in the overall strategy of the firm.  More so, SMEs should institute structures as well as training programmes to improve the knowledge of their personnel about using inventory management techniques. Lastly, SMEs should make the application of ICT for inventory management a priority.

CHAPTER ONE

INTRODUCTION

1.1    Background to the Study

Small and Medium-Scale Enterprises (SMEs) are important to almost all economics in the world, especially to developing countries like Nigeria with major income discrepancies between the rich and the poor and massive unemployment.  Small and medium-scale enterprises contribute to output by participating in the mainstream economy, and creating jobs to many nations.  Besides, SMEs facilitates redistribution of income, rural development, innovation and creativity, utilization of resources, export, linking different sectors of the economy in most developing as well as developed countries (Writters, 2010). All these make the small and medium enterprises the biggest employer of substantial number of work force and distributor of income to close the inequality between the rich and the poor.

On the other hand, small and medium enterprises are a nursery for the larger firms of the future, more and more firms started as small and medium enterprises before they grew large.  It is therefore with this regard that small and medium enterprises are the next and important step up for expanding micro enterprises: they contribute directly and often significantly to aggregate savings and investment for any nation, and they are also involved in the development of appropriate technology (Writters, 2010).

In recent years, a number of emerging issues are posing serious challenges to the small and medium enterprises in Nigeria.  These challenges include: financial constraints, high turnover, low motivation among employees, globalization, lack of human capital building, lack of inventory management and control and more other challenges, but this research is focused on the lack of inventory management and control.

According to Simons (1981:50), “Inventory is designation of goods held for sale in normal course of business, as well as for goods in production stages or to be used in the factory for production”.  Inventory exists to allow business meet customers’ requirements and to smoothen the flow of goods through the production process.  Different types of inventory exist, ranging from raw materials, work-in-process, finished goods, components parts, consumable and supplies.  However, the types of inventory available differ depending on the nature of business undertaking.

A manufacturing firm will have a very high level of all kinds of inventory, while a merchandising firm will have a very high level of finished goods inventory which is also known as “merchandise inventory”.  Merchandise refers to more than goods on hand in the merchandising operation: it also represents goods that must be in transit for arrival after the goods in the store are sold.  Merchandise inventory is the engine that drives the retail machine: it represents a major portion of the retailers’ assets base. Thus, like all other engines, managers cannot escape the needs to manage their inventory or stock for smooth retail operation.

The management of inventory is concerned with the management’s prime responsibilities, which lie in the area of earning the highest profits while safeguarding the company’s assets. Thus, “the inventory management is that active control programme which allows a firm to manage its manufacturing, sales, purchase, distribution and payments” Krajewski and Ritzman (1999:543). In a merchandising business, merchandise or inventory management is the process by which a retailer attempts to offer the right quality of the right merchandise in the right place at the right time, while meeting the company’s financial goals Levy and Weitz (1998:338).

In this context, “the merchandising firms are faced with the problem of meeting two conflicting needs:

-        To maintain a large size of inventory for efficient and smooth production and sales operation.

-        To maintain a minimum investment in inventories to maximize profitability” (Adeniji 2012:310).

          Maintaining a large size of inventory ensures customer satisfaction and high level of sales, but equally results in excessive losses or expenses that make it uneconomical. Also maintaining a minimum investment in inventory ensures profit maximization, yet, it results in financial loss due to loss of sales from failure to meet delivery commitments.

          It is therefore obvious that management of inventory can be a daunting task and if it is not done properly it could cost the firms much resulting in failure to achieve the objectives.  However, in order for a firm to find out and maintain an optimum level of inventory that will meet customer requirement, improve asset turnover, and the overall financial performance, efficient and effective inventory management techniques are required.

1.2    Statement of the Problem

The rate at which merchandising firms collapse in Akwa Ibom State is alarming, particularly, in the small and medium enterprises. This situation is attributable to high level of inventory mismanagement, careless attitude and sharp practices exhibited by some entrepreneurs and other employee (Ogofia, 2011). These practices include errors caused by incorrect recording and calculation, incorrect coding causing the wrong part to be issued or wrong card to be altered, under or over issues not noted, open stock room which allows stores items to be removed unnecessarily, items, returned to the warehouse not documented, misplacement of store items etc.

Many small and medium enterprises have been found not to be driven by recommended techniques and practices of managing the inventories at all, when formulating business strategies, many do not treat inventory management and control as a critical or strategic activity (Chase & Aquiliano, 1985). However, mismanagement of inventory or not managing inventory at all, causes either over-investment or under-investment in inventories thereby resulting in accuracies in inventories (excess or shortages).

          Other consequencies include:

-      Unnecessary increase in working capital – idle capital

-      Lower availability of goods and higher delivery time

-      Unnecessary overheads in operating a business as a result of long period of storage.

-      Low demand or customers due to dissatisfaction

-      Financial loss due to loss of sales.

Based on these observations, which showed the extent to which mismanagement of inventory and lack of application of the necessary techniques could affect the merchandising firms, the researcher is motivated to undertake a study of inventory management techniques in small and medium enterprises in Uyo as the case study.

1.3    Objectives of the Study

Generally, the study is to assess whether the inventory management techniques in small and medium enterprises are effectively applied to ensure inventory investment stability and profitability. Specifically, the study intends to focus on the following objectives.

a)           To evaluate the importance of effective inventory management to the enterprises.

b)           To find out the type of inventory management strategies adopted by the enterprises.

c)           To identify the challenges in adopting these strategies for inventory management

d)           To find out those methods adopted in over-coming these challenges.

1.4    Research Questions

The following research questions were formulated to guide the work.

a)           What are the importance of inventory management?

b)           What are the strategies adopted for inventory management?

c)           Are there challenges in adopting the strategies for inventory management?

d)           How can these challenges be overcome?

1.5    Significance of the Study

The study on “the appraisal of inventory management in small and medium enterprises” is important because of the following reasons:

i)             It will serve as useful information to the management and staff of the selected enterprises to evaluate performance and enable them to identify the areas of strength and weaknesses in their inventory management techniques.

ii)            It will broaden the researcher’s knowledge on the role or importance of inventory management to merchandising firms and expose the researcher on how to manage an inventory warehouse.

iii)          It will serve as a useful guide to students and future researchers on related topics.

iv)          The study will aid in stabilizing the inventory management and control system in the merchandizing firms.

1.6    Scope and Limitation of the Study

The study focuses on the appraisal of inventory management techniques in selected small and medium enterprises in Uyo, Akwa Ibom State. This is because it would be very cumbersome to carry out a study on all the small and medium enterprises in Akwa Ibom State. Therefore, carrying out a study on selected enterprises makes the work easier and goal-oriented.  

However, the major constraint or factors which may likely initiate against this study include:

a)      The time-frame within which the work is to be completed.

b)      Indifferent attitudes of some of the staff towards the questionnaire and,

c)      Insufficient funds to cover all costs involved.





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