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1.1              Background to the Study

In recent years, many firms in the world have faced several challenges particularly in inventory management and control, thus affecting their operational performance. There have been cases of materials overstocking which eventually got expired or out dated, under stocking, lack of stock-taking, theft of materials by workers and delay in delivery of materials into the organizations among others. Many manufacturing firms have more than 50% of total assets invested in working capital, which includes inventory, as well as accounts receivable and accounts payable (Beheshti, 2010; Darun, Roudaki, & Radford, 2015; Gill, Biger, & Mathur, 2010). The general business problem is that excessive levels of working capital invested in inventory negatively affect a company’s operational performance (Aktas, Croci, & Petmezas, 2015; Bagchi, Chakrabarti, & Roy, 2012; Charitou, Elfani, & Lois, 2010; Chisti, 2013; Mojtahedzadeh, Tabari, & Mosayebi, 2011). The basic business problem is that some managers lack strategies for efficient inventory management (Basu & Wang, 2011; Hatefi & Torabi, 2015). Hence, there is a need by manufacturing firms to develop strategies for managing and maintaining optimal inventory level of raw materials and saleable products.

The basic method of managing stock by quantity by manufacturing firms are by means of fixing for each commodity stock levels which are recorded in the stock control system and subsequently used as a means of indicating when some actions are necessary. Most firms cannot work properly without stock and therefore they have to consider its management. There is a need for organization to maintain a minimum, ordering, hastening and maximum stock levels (Harrisson, 2001 cited in to Munyao, Omulo, Mwithiga, & Chepkulei, 2015). Bainson and Bainson (2016) argue that stock levels should be carefully received at suitable intervals, such as quarterly, monthly or even weekly and adjusted to meet any changes in circumstances. If this is not done, the original fixed level will be less than expected, become outdated and the system of stock control is rendered ineffective. The amount of stocks held at the warehouse of manufacturing firms can drastically affect cost and hence finances. This therefore, demands strong monitoring of the changing conditions of stock levels in stores.

In addition to the foregoing facts, order lead times play a substantial effect on operational performance and customer service of manufacturing firms. Longer lead times for procuring and producing materials and finished goods can increase safety stock inventory requirements and reduce the responsiveness to uncertain customer requirements. Added to the price and quality attributes of goods, customers are often highly sensitive to order lead times, while suppliers often compete based on the ability to quickly respond to consumer requirements. The goal of firms, however, is to reduce inventories without hurting the level of service provided to customers. Olinder and Olhager (2008) cited by Agbugbla (2014) emphasize that the requirement for short lead times are vital to the realization of manufacturing firm’s operational performance. This implies that manufacturing firms and other firms must put in significant efforts to reduce lead times (Agbugbla, 2015). Olinder and Olhager (2008) further added firms that concentrate on cycle time as a measure of productivity other things being equal, are able to reduce delivery time and by so doing, improving quality and ultimately, creating a satisfied customer. Therefore, the need to have an efficient procurement lead time.

The planning and control of inventories and related activities are critical to the success of manufacturing industry. Managers of organizations have sought reliable and effective inventory practices and systems to remain competitive. Nsikan, Etim, and Ime (2015) assert that various organizations have employed the basic inventory management techniques or inventory control methods to keep their inventory costs in check. The various inventory management best practices that have been adopted by organizations include Economic Order Quantity model (EOQ), Just In Time (JIT), Vendor Managed Inventory (VMI), Collaborative Planning (CP), forecasting and replenishment, automatic replenishment, agile system, and material requirement planning and so on. However, some researchers have suggested that managers who turn to inventory research may find it to be of little significance (Boone, Craighead, & Hanna, 2008) or conclude that it has little to offer in terms of enhancing inventory practices (Wagner, 2002). This implies that a gap exists between inventory theory and practice in the manufacturing industry including the Nigerian flour milling industry, and the need to bridge the theory-practice gap is imperative.

Adeyemi and Salami (2010) and Alao (2010) in their studies attributed the gap to the lack of knowledge and understanding of the practices, their mode of operation, and practical relevance in the Nigerian manufacturing industry; including the Flour milling sub-sector. In addition, this problem has accounted for the rising increase in raw material wastages, longer lead-time, lost sales, product shortages, backorder penalties, increasing production cost, and poor quality issues currently ravaging the industry. It was also stated by Takim (2014) that during materials ordering and supply, staff of flour milling companies in Nigeria responsible for inventory control do not implement minimum, reorder and maximum stock levels, as a result, several incidents of over stocking and stock-outs have occurred. This has resulted into back-ordering, backlogging and lost of sales.

There are various perspectives to the problems of inventory management by Nigerian manufacturing industry. According to Onuoha (2012), the Nigerian manufacturing industry’s environments are problematic and harsh. There were high and unplanned inventories caused by lack of patronage and distress in aggregate demand. Also, there was high cost of funds arising from depreciation of the Naira against major currency coupled with high lending rates and extreme difficulties in accessing credit for working capital. The small working capital available to the majority of Nigerian manufacturing firms is managed by them to avoid operational embarrassments. Also, raw material inputs, mostly imported, are affected by unstable foreign exchange market and monetary policies of the government. Raw materials inventory are then affected by inadequate foreign exchange for importation, delays in clearing at the Nigerian ports, and poor transportation network. Atseye, Ugwu, and Takon, (2015) lamented that the problems facing the manufacturing industry have negatively affected the production runs of Nigerian firms and delivery of finished goods to customers. In addition, many factories have been either temporarily or completely shut down whilst many workers have lost their jobs.

The problem was further aggravated by the bottlenecks created by Nigerian capital and money markets with harsh requirements that could not be easily met by the companies that are at the verge of collapse. In a study carried out by Aro-Gordon and Gupte (2016), it was further gathered that the problems of inventory management in the Nigerian manufacturing industry was attributed to the failure on the part of the top management officials, to give a deserved attention to the function of warehouses and stores as well as their inability to employ the services of a well qualified store officers to take charge of inventory supervision and management. Adamu (2016) added that inventory management has been a serious challenge to many business organizations in Nigeria. Therefore, inventory management practices in Nigeria manufacturing industry deserves significant improvement, given the poor level of computerization, non-determination of stock level, the involvement of illiterates and unskilled personnel in the management of inventory (Akindipe, 2014).

The flour milling industry comprised of 22 players segmented on the bases of their installed capacity (Njoku & Kalu, 2015a). The industry consists of four (4) major producers quoted on the Nigerian Stock Exchange which include: Larfage Dangote Flour Mills Plc, Flour Mills of Nigeria Plc., Honeywell Flour Mill Plc., and Northern Nigeria Plc (Njoku & Kalu, 2015b). These quoted flour milling companies have a total installed capacity of 15, 360 metric tons per day and control over 50% of the market share as well as over 85% of the flour mill market in the Sub-Saharan African with a wider distribution network that covers most of the countries in the Sub-Saharan African region (Njoku & Kalu, 2015a). However, studies have reported that majority of the flour milling companies in Nigeria are suffering from operating environment problems and lacks a strategic operating system for inventory management and control (Njoku & Kalu, 2015a; Takim, 2014).

In a study on enhancing supply chain management in flour milling industry in Nigeria, Fagade (2011) indicated that the industry faces a big challenge with inventory management; this in turn has led to a sizeable wastage. Also identified as associate problems include: putting materials in wrong location, wrong labeling that come with difficulties when such materials are needed. It was also established that the effect of this poor inventory management is not only felt on resources wastage, it also encouraged pilfering by the custodian of the materials as the laxity was discovered. In addition, Fagade (2011) established that there was wrong procurement, inappropriate storage and poor documentation of inventories in the industry. The industry also displayed gross inability to employ qualified personnel to handle stores supervision and management. Njoku and Kalu (2015b) discovered from the study of the effect of strategic supply management on the profitability of flour mills in the Sub-Saharan Africa that flour milling industry has not given inventory management the prominence it deserves despite the varied importance of inventory management. They also suffered from national infrastructural problems like bad roads; unfavourable policy reforms; high cost of powering manufacturing plants; and very high exchange rate movements (Flour Mills Nigeria, 2014).

Nsikan et al. (2015) assert that inventory constitutes the most significant part of the current assets of majority of the Nigerian flour milling companies. Therefore, due to the relative largeness of inventories maintained by the companies, considerable sum of the company’s funds are being committed to them. It therefore becomes absolutely imperative to manage inventories effectively so as to avoid unnecessary cost, back order penalties during periods of peak demand by customers and ensure high level of customer service. It is also essential for the management of flour milling companies in Nigeria to maintain an optimum investment in inventory because it costs a lot of money to hold down capital in excess inventory which increases operating costs and reduces profit of the companies. In other word, when inventories are reduced, their value is converted into cash, which improves cash flow and return on investment.

The studies on the relationship between inventory management practices and performance of manufacturing companies in Nigeria have focused majorly on the techniques for controlling inventories such as EOQ model, Just-in-Time technique, associated with variables such as profitability, customer satisfaction, and efficient delivery. Also, despite several models  (both deterministic and stochastic) that have been adopted in practice by manufacturing firms, an assessment of the effect of internal inventory management practices in enhancing operational efficiency of flour milling companies in Nigeria are currently lacking. Previous studies such as Adamu (2016), Ogbo and Ukpere (2014), Takim (2014) and so on, have related inventory management practices with various aspects of organizational performance such as financial and economic performance, and most of these studies have focused on external inventory management practices. Specific study exclusively on the effects of inventory management practices on operational performance of flour milling companies in Nigeria by Nsikan et al (2015) did not basically use operational performance variables, rather used financial variables. In addition, most studies that attempted to focus on operational performance concentrated on solvency and operating performance of firms based in Kenya and India such as Kamau and Kagiri (2015), Oballah, Waiganjo and Wachiuri (2015), and Shafi (2014). Very limited studies have been carried out on internal inventory management practices. It is therefore evident that knowledge gap exists on the specific relationship between internal inventory management practices and operational performance. This study intends to bridge this gap by determining the relationship between internal inventory management practices and operational performance of flour mills companies in Nigeria.

1.2       Statement of the Problem

Over the years the inventory management in most manufacturing industry like the Nigerian Flour Mill Industry is often criticized for being a cost centre. The criticism is raised because Purchasing Department was spending money on inventory while Stores or Warehouses were holding huge stock of inventory, blocking money and space (JerutoKeitany, Wanyioke, & Richu, 2014; Kimaiyo & Ochiri, 2014). However, majority of the manufacturing firms throughout the world including the Nigerian Flour Mills Company have recognised the importance of inventory management, to be a source of competitive advantage, costs reduction, and customer satisfaction. This change in the mindset of companies today has spurred an increasing body of academic research attempting to reveal a relationship between inventory management practices and firms performance.

It has been confirmed that organizations worldwide have adopted inventory management systems into their operations (Swaleh & Were, 2014). However, despite the increasing attention given to inventory management in the practical and academic fields, the performance of manufacturing firms in Nigeria including Nigerian flour milling companies have been very disappointing (Njoku & Kalu, 2015a). The flour milling manufacturing firms operating in Nigeria are facing problem in determining appropriate inventory level that should be kept to ensure that customer needs are met and production process is not interrupted. Striking a balance between overstocking and running out of stock has been a serious challenge for the companies. They are confronted with the challenges of stock out of goods or materials during production (Ikon & Nwankwo, 2016; Takim, 2014). Due to stock-outs, the companies received a lot of complaints and criticism by the customers, so this causes a lower sales and decrease in revenue. Nsikan et al (2015) also indicated flour milling companies in Nigeria have a problem of inaccurate forecasts mainly because they lack real time inventory information on customers demand. This has in turn led to late deliveries, inadequate deliveries and lack of consistency in the delivery of products and thus leading to lack of customer satisfaction. Further, more flour milling companies in Nigeria have been accused of poor inventory management techniques and this has greatly affected their ability to satisfy their customers (Nsikan et al., 2015; Njoku & Kalu, 2015a).

Njoku and Kalu (2015a) further explained that Nigerian flour milling companies faced problems of instability in inventory levels, reduced customers effective demand and high cost of production due to poor inventory management techniques leading to customers dissatisfaction. As a result, the productivity of the companies have declined, making loyal consumer to switch to their foreign competitors to find the desired product. Olowe (2007) explains that if products are always available in stock, customers are not going to buy goods from somewhere else. On the other hand, if the items are out-of-stock, customers have two options, either to wait until the product is in stock again or to go buy elsewhere. The latter would result in loss of customer’s goodwill and it is unfavourable for businesses.

Nyabwnga and Ojera (2012) in their study expressed that when faced with a stock-out, a consumer may find, try, and untimately prefer a substitute product. This consumer may be lost forever, resulting in a negative impact on the long-term value of the firm’s market share. The researchers further explained that repeated stockouts negatively affect retailers through the loss of customers, and to the manufacturer there are lost of sales, brand switching, and a loss of brand. The researchers concluded that almost half of the customers who looked for an out-of–stock commodity finally stopped the search, thereby leading to the negative effect of stock-outs. The issue of dissatisfied customers as a result of missing items on the shelf often cost an organisation a fortune in terms of reputation and trust which in turn result in loss of  sales. The problem of inventory shrinkage has not been resolved by many flour milling companies in Nigeria due to materials and operational challenges amongst others. This problem has led to customer dissatisfaction and several backorders. The extent to which inventory shirinkage affects customers satisfaction in flour milling industry in Nigeria has not been addressed in the literature. How often does inventory shrinkage affects customer satisfaction of flour mills companies in Nigeria?

Investment in inventories creates opportunity for manufacturing organisations to gain market advantage by outperforming competitors in terms of attracting more customers with distinguished products and charge premium prices (Marfo-Yiadom & Kweku, 2008). According to Barine (2012), investment in inventory is also a function of the cost of holding such inventory, storage, obsolescence, opportunity cost of investments in inventory, rate of return on other equivalent-risk investment opportunities. However, excessive inventory investments can tie up capital that may be put to better use with other areas of the business. Inventory problems of too great or too small quantities on hand caused business failures. In a study carried out by Peavler (2009) it was observed that most failed businesses (up to 60%) were of the opinion that all or most of their failures were due to inventory problems. This view is supported by the study of Adeyeye, Ogunnaike, Amaihian, Olokundun, and Inelo (2016) that manufacturing firms in Nigeria are finding it difficult in determining how much of the inventory is the ideal stock. Therefore, a balance must be struck and maintained. Maintaining an appropriate level of inventory, according to Shin, Ennis, and Spurlin (2015) is a key issue to firm’s operational performance.

The flour milling companies in Nigeria has had problems of investments in less critical stocks leading to unnecessary costs, inaccurate forecasts, and poor responsiveness to customers’ orders leading to decline performance (Njoku & Kalu, 2015). Njoku and Kalu (2015) observed that majority of the flour milling companies in Nigeria are in the mature stage of their operations and localized in nature thereby making them less competitive. The poor investment in inventories have undermined operational performance of flour milling companies by losing out on potential sales, and potential market share as well (Chukwuemeka & Onwusoronyem, 2013). As a result there is the danger of falling behind the market which would be detrimental to the overall profitability of the company (Awuor, 2013). Nwachukwu, Odo, and Nwachukwu (2016) added that flour mills companies in Nigeria are faced with issues in determining the optimal amounts of account receivable, account payable and inventory that they will choose to maintain in order to enhance operational performance. In addition to these optimal amounts, flour mills companies also faced with challenge of determining the most economical way to finance these working capital investments in order to produce the best possible results. This resulted to a significant loss of customers to competitors in the industry. It is necessary to manage inventories effectively and efficiently avoid unnecessary investment. The literature have shown that the problem of poor inventory investment in flour mills industry in Nigeria is yet to be practically addressed. Can it then be inferred that poor inventory investment influence Nigeria flour mills companies competitive advantage?

There are numerous risk factors associated with the current supply chain environment that have negatively affected internal supply chain operations of manufacturing company including flour mills companies. Several operations and production professionals have described these factors as supply chain risks. Thus, for an organization to successfully operate and compete in the current risky supply chain environment, the organization must put into place effective control measures within its internal supply chain. One of the strategies currently adopted by manufacturing company is development of an effective internal inventory control system (Onchoke & Wanyoike, 2016; Posazhennikova, 2012).

The problem of inventory control is one of the most important concept in organizational management (Ziukov, 2015). Research has shown that inventory control was one of the most neglected management areas in most firms, thus straining on a business operations (Mogere, Oloko, & Okibo, 2013). Empirical evidence has shown more and more manufacturing firms have failed inventory control, and therefore suffered losses (Kariuki, 2013). Moreover, Jefwa and Everlyn (2015) indicated that most firms have not yet adopted inventory control tools and systems in their operations. In Nigeria manufacturing industry, Gbadamosi (2013) explained that it is far more difficult to control inventories effectively. The reason was linked with the expansion of product lines and models. Also, it was realized that most of the components going into the typical forms products are purchased as assembled parts, rather than being produced from basic materials in the firm’s own shops (Gbadamosi, 2013). These  factors have led to the growth of more items to be managed by firms and subsequent high costs of operation.

Nsikan et al. (2015) noted that most of the Nigerian flour milling companies were still using traditional methods of inventory control and valuation which was considered inappropriate and unsophisticated. In addition, Owoeye et al. (2014) reacting to the observations available from extant literature responded that inventory managers in flour milling companies tend to shun change to the modus operandi- manual inventory management. This clearly depicts that the responsibility and success of inventory control lies majorly with top management of firms. The implication is that poor inventory control leads to high cost of operations. Anichebe and Agu (2013) stated that flour milling companies at times do not control their inventory holding, resulting in under stocking and causing the organizations to stay off production, thereby resulting to high cost overrun. Kilonzo et al. (2016) assert that poor inventory control leads to obsolete inventory which is a cost and has negative effect on operational performance of a firm. The findings of several studies consulted on inventory management and control revealed that inventory control systems in flour mills companies in Nigeria are still based on traditional and mathematical models which often leads to higher operational costs. Can it then be inferred that poor inventory control increase cost associated with storage and handling of merchandize or materials thereby impeding cost effectivess of flour mills companies in Nigeria?

Another inventory management system that could influence organizations business and operational performance is the inventory turnover. Inventory turnover refers to the efficiency of firms in producing and selling its products (Mburu, 2013). It is the number of times that inventory “turns over” or cycles through the firm in a year (Rao & Rao, 2009). Controlling inventory turnover has been affirmed as one of the fastest ways to get more money out of business without having to increase sales. It has been reported in the literature that a high inventory turnover ratio indicated how best the firm is operating economically in selling its products. Inventory turnover is a measure of management’s ability to use resources effectively and efficiently. However, in spite of the large size of Nigeria flour mill industry, the industry is suffering from low level of operational performance. According to Adesiyan (2015), flour milling companies are not performing up to average. Their dismal performance has been attributed to poor inventory turnover, deficient pricing policies, inappropriate inventory investment decisions, capacity underutilization, inability to generate adequate working capital and maintaining existing investments in inventories, and high level of inventories in the stores and warehouses. These has led to lower operational efficiency (Nwachukwu et al., 2016)

Lawal, Abiola, and Oyewole (2015) established that most managers in the industry fight to increase inventory turnover in a bid to increase profitability without being mindful of the need to speed up the debtor collection period and to delay creditor payment period as far as possible, so as to provide the funds needed to keep the cycle flowing. This puts the companies in poor liquidity position and it consequently reduce their operational efficiency. Onyoni (2015) added that low inventory turnover in flour milling companies have kept many items in stock while others have become obsolete, leading to a halt in production. Njoku and Kalu (2015) reported in their study that most firms in the flour mill industry are in the mature stage of their life cycle. There is overcapacity in the flour mills industry as capacity far outweighs the demand for flour. According to Njoku and Kalu (2015), this situation has severely undermined the operational efficiency of flour mills companies in Nigeria over the years. The problem of inventory turnover and its effects on operational efficiency of flour mills companies in Nigeria is yet to be addressed and investigated in the literature. Hence, to what extent has inventory turnover affects operational efficiency of flour mills companies in Nigeria?

Research has shown that the issue of inventory record inaccuracy is a common problem affecting manufacturing firms in achieving their goals and objectives (Oballah et al., 2015). The problem of inventory record accuracy relates to the discrepancy between recorded inventory and physical inventory (Ruankaew & Williams, 2013). The problem of ineffective stock records system has existed for too long in manufacturing firms and is a universal rather than a peculiar problem (Burton, 1989). Research evidence has shown that stock control in flour milling companies in Nigeria are inadequate and in conflict with specification (Okiridu, 2014). As noted by Okiridu (2014) and Ayomoh, Oladeji and Oke (2004), many firms in Nigerian flour mill industry have not established the central purchasing department, lack computerized stock management and were not able to employ the services of well qualified stores officers to take charge of record management. The problems have made the raw material control policies and internal control measure very weak. It has also led to the failure to meet delivery commitment and consequent loss of sales (slow sales growth).

Furthermore, inventory record inaccuracy has a significant effect on the firm’s cashflow strength and its competitive advantage (Ruankaew & Williams, 2013). Rajeev (2008) cited in Ruankaew and Williams (2013) indicated that the effecct of inventory record inaccuracy on the organization include productivity loss, expediting shipping costs, potential losses due to the inability to meet customer demand, and frustration. Thiel, Hovelaque and Vo (2010) proposed that excessive amount of inventory (that is, stock pile) in the supply chain as the means by which management could address the problem which in turn is a danger to the firm. The problem of inventory record inaccuracy in flour mills companies in Nigeria and the its relationship with delivey commitment is yet to be given adequate attention in the literature. What is the relationship between inventory record accuracy and customer service delivery of flour mills companies in Nigeria?

From the literature, it is observed that inventory management is a critical management issue for manufacturing companies across the world (Mukopi & Iravo, 2015). In order to realize the benefits of effective inventory management, manufacturing firms should attempt to automate their inventory management operations (Kitheka, 2012). The research by Owoye et al. (2015) and complemented by Nsikan et al. (2015) showed that majority of manufacturing companies in Nigeria and flour mills companies in particular, have not yet adopted computerized inventory management system or automated management system (Kitheka, 2012; Kitheka & Gerald, 2014). They have majorly concentrated on manual and mathematical models of inventory management. The studies also reported that majority of inventory managers and staffs responsible for stock management in these companies do not adequately have knowledge or mechanics and applications of modern inventory management models and tools.

The reasons highlighted by researchers for the non-adoption of computer system in inventory management include the cost of installation, management support, maintenance costs amongst others. These challenges do not enable the flour mills companies in Nigeria to properly predict production requirements (Owoeye et al., 2015). It further created minimal utilization of resources, high operating costs and inappropriate planning leading to poor work efficiency, and low productivity (Nsikan, et al., 2015; Owoeye et al., 2015). Moreover, Chandra (2010) lamented that most companies set profit goals but few set productivity goals. The productivity aspect of inventory management is often overlooked or is not adequately looked after in most of the industrial undertakings (Chandra, 2010). Automated inventory management systems have not been extensively embraced by many flour mills companies in Nigeria. In addition, existing studies on inventory management in flour mills companies in Nigeria have not address the extent to which the failure to adopt computerized inventory management has influence the productivity of flour mills companies. Therefore, to what extent has automated inventory management influence productivity of flour mills companies in Nigeria?

From the above discussions, adoption of effective inventory management practices have been a serious challenge to many flour mills companies in Nigeria. There have been a lot of difficulties in determining the desired stock levels that ensures a free flow of materials without incurring heavy expenses in stocking those materials and without any stock being rendered obsolete. There have been loss of sales or business of the company as a result of insufficient inventories of finished goods. In addition, there have been low productivity in many flour mills companies as a result of poor inventory model used by the companies. There is poor level of computerization in many flour mills companies in Nigeria. Obviously, there is ineffective management and control of inventories in many flour mills companies leading to the decline in their general operational performance.

1.3       Objective of the Study

The general objective of this study is to examine the relationship between inventory management practices and operational performance of flour mills companies in Nigeria.

The specific objectives are to:

1.                  determine the effect of inventory shrinkage on customer’s satisfaction of the selected Flour Mills companies in Nigeria;

2.                  examine the influence of inventory investment on the competitive advantage of the selected Flour Mills companies in Nigeria;

3.                  find out the relationship between inventory control and cost effectiveness of the selected Flour Mills companies in Nigeria;

4.                  assess the effect of inventory turnover on the operational efficiency of the selected Flour Mills companies in Nigeria;

5.                  identify the relationship between inventory record accuracy and the customer service delivery of the selected Flour Mills companies in Nigeria and

6.                  establish the influence of automated inventory system on the productivity of the selected Flour Mills companies in Nigeria.

1.4       Research Questions

Based on the stated objectives of the study, the following research questions become pertinent:

1.                  How does inventory shrinkage affect customer’s satisfaction of the selected Flour Mills companies in Nigeria?

2.                  How does inventory investment influence the competitive advantage of the selected Flour Mills companies in Nigeria?

3.                  What is the relationship between inventory control and the cost effectiveness of the selected Flour Mills companies in Nigeria?

4.                  What effect does inventory turnover have on the operational efficiency of the selected Flour Mills companies in Nigeria?

5.                  What is the relationship between inventory record accuracy and the customer service delivery of the selected Flour Mills companies in Nigeria?

6.                  How does automated inventory system influence the productivity of selected Flour Mills companies in Nigeria?

1.5       Hypotheses

The study formulates the following null hypothesis:

H01:     Inventory shrinkage has no significant effect on customer’s satisfaction of the selected Flour Mills companies in Nigeria.

H02:     Inventory investment has no significant influence on the competitive advantage of the selected Flour Mills companies in Nigeria.

H03:     There is no significant relationship between inventory control and the cost effectiveness of the selected Flour Mills companies in Nigeria.

H04:     Inventory turnover has no significant effect on the operational efficiency of the selected Flour Mills companies in Nigeria.

H05:     There is no significant relationship between inventory record accuracy and the customer service delivery of the selected Flour Mills companies in Nigeria.

H06:     Automated inventory system does not have significant influence on the productivity of the selected Flour Mills companies in Nigeria.

1.5.1    Rationale for Hypotheses

H01: Inventory shrinkage has no significant effect on customer’s satisfaction of the selected Flour Mills companies in Nigeria

There are many studies carried out on the area of inventory shrinkage and its implication towards customers’ satisfaction (that is, operational performance) of manufacturing firms. The findings from these studies have been mixed; while some reseachers established positive results, others discovered negative effects of inventory shrinkage on customers satisfaction. The reason for the contradiction was based on level of error acceptable. According to Jacob and Chase (2011), every production system must have agreement, within some specific range, between what the records says is in inventory and what actually is in inventory. Therefore, to keep the production system flowing smoothly without parts shortages and efficiently without excess balances, record must be accurate. Fariza, Rushami, and Rohaizah (2014) discovered that effective inventory management has become a potential way nowadays to improve performance through customers’ satisfaction, matching supply chain practices and competitive advantages in the competitive world. Ogbo and Onekanma (2014) agree that having inventory in firm store has an added advantage for the organization since customers will be satisfied instantly leading to improved performance rating. With inventory in the warehouse, an organization has the advantage of timely delivery and stock out are not experienced. Also, Li, Ragu-Nathan, Ragu-Nathan, and Subba (2006) found out that implementation of inventory management practices have greater impact on achieving customer satisfaction as well as improving a firm’s performance. 

On the other hand, other studies have shown that inventory shrinkage create a huge negative impact to a manufacturer that leads to reduction in the overall performance such as customer’s satisfaction and profitability (Fariza et al., 2014). Oballah et al. (2015) conducted a study on effect of inventory management practices on organizational performance in public health institutions in Kenya. The research findings revealed that losses resulting from medicine expiration leads to increased inventory shrinkage, losses resulting from medicine damages leads to increased inventory shrinkage, losses resulting from medicine obsolesce (medicine purchased not meeting intended purposes leads to increased inventory shrinkage and that losses resulting from medicine theft leads to increased inventory shrinkage. As such inventory shrinkage affects customer satisfaction. Moreover, Fischer and Green (2004) discovered that firms experience a diminishing customer base and thus a further reduction in profits due to the inventory shrinkage. Mazanai (2012)

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