CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Inventory control is one of the key management areas in organizations. This is because of the

internal roles inventory control plays in the organizations such as facilitation of continuous

production, smoothening of operations and enhancement of customer service (Singh, 2013).

Other than the internal benefits, inventory management is considered by Chief Supply Chain

Officer (CSCO) Insights as the core determinant of supply chain management excellence.

Another reason why inventory control is considered critical in management is the costs involved

its management. According to Service Corps of Retired Executives (2002), inventory control

accounts for 45% to 90% of total organizations’ expenses. Organizations hold numerous types of

inventories ranging from; raw materials, assembles, sub-assemblies, semi processed materials,

finished products, and consumables. The type of inventory held by an organization depends on

the nature of the organization; for service organizations, high percentage of inventory is

composed of consumables, for processing and manufacturing, raw and semi processed inputs

while for assembly organizations, sub-assemblies (Service Corps of Retired Executives, 2002;

Zipkin, 2000). Inventories are held to ensure continuity in organizational processes, to help in

production and to be sold in case of finished products (Kiisler, 2014). Based on the reasons why

inventories are held, Zipkin (2000) categorized inventories into; cycle inventory; held to satisfy

predicted demand between replenishments, safety inventory; held to take care of uncertainties,

speculative demand; held to take advantage of some future situation in the market and dead

inventory; stock of obsolete items. However, whichever the reason an organization holds

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inventory, there must be in place an effective inventory management system and

processes/strategies (Schreibfeder, 2014).

Managing assets of kinds by organizations across the world can be viewed as an inventory

challenge to public as well as private organizations. The most observed challenge is that poor

inventory can lead to under stocking while over stocking may result in increased total costs of

inventory (Koumanakos, 2008). Organizations can overcome the challenge by utilizing sound

control techniques or systems such as economic order quantities (EOQ) model to ensure effective

inventory supervision, which in turn may lead to purchasing favorable quantities of raw materials

for input in the production process. However, is mostly afforded by large organizations due to

large capital investment and use of sophisticated technology.

Regardless of level of sophistication of control system, it is argued that inventory has to be

leveled down in order to maximize storage costs and to boost up inventory to the level of

customers’ demand in the target market (Medard 2017; Atnafuand Balda 2018). One of the

plausible ways is to avoid placing a lot of capital in inventory but this may subsequently lead to

dwindling of profitability and cash flow. It thus implies that the chain supply inventory personnel

need to have competence in procurement process as deficiency of or limited facts and skills in

procurement. Furthermore, an inventory control system is vital because it ensures that assets and

stock are adequately managed and that precise demand forecasting is maintained to minimize

unexpected procurement operations. This will help the company execute effective procurement

procedures that meet market demand and supplier factors (Brigham & Gapenski, 2013).Agus &

Noor (2010) also stated that precise forecasting of demand allows the business to reduce

operating expenses, improved efficiency and on time supply of products and services for the

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future requirements by fulfilling the growing expectations of customers. This leads to increased

consumer fulfilment as the outcome of the best value of products and services provided, also

improved organizational effectiveness. In a similar vein, previous studies have established that

improper inventories control management may cost an organization a loss ranging from 25

percent to 40 percent of the expected value, resulting from lost sales as a direct consequence of

customer dissatisfaction. Thus efficient inventory control system is part and parcel of supply

chain activities to enable the organization to have sustainable competitive edge in the market and

to improve firm’s profitability as well. In spite of the importance of inventory control systems in

organizations, such as Tanzanian manufacturing firms including food and beverage production

companies, there is paucity of empirical research of the effect of inventory control system on

organizational performance.

The process of control and management of inventory is a very important factor in the success or

failure of any business. In addition to raw materials and finished goods, many companies also

maintain items of assets, property, inventories of work in progress, office supplies, business firms

and general operation supplies. Inventory has created a great impact on the profitability of the

manufacturing firm ABC analysis is an inventory categorization method which consists in

dividing items into three categories, A, B and C: A being the most valuable items, C being the

least valuable ones. This method aims to draw managers' attention on the critical few (A-items)

and not on the trivial many (C-items). The ABC inventory control technique is based on the

principle that a small portion of the items may typically represent the bulk of money value of the

total inventory used in the production process, while a relatively large number of items may from

a small part of the money value of stores. The money value is ascertained by multiplying the

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quantity of material of each item by its unit price. According to this approach to inventory

control high value items are more closely controlled than low value items. Each item of

inventory is given A, B or C denomination depending upon the amount spent for that particular

item. “A” or the highest value items should be under the tight control and under responsibility of

the most experienced personnel, while “C” or the lowest value may be under simple physical

control.

1.2 Problem Statement

Inventory control has been used by organizations not just to achieve organizational economy but

also to enhance customer service. Organizations use various strategies to manage inventory with

the aim of achieving economy, efficiency and better customer service. While organizations invest

heavily on the strategies, some do not necessarily experience the expected outcomes. The

problem was therefore that most organizations adopt these strategies with limited information as

whether adoption of these strategies could directly lead to improved performance or the expected

organizational benefits. In particular, there was very limited literature on the relationship

between inventory control strategies and inventory record accuracy. Limited literature was as a

result of limited research that has been conducted to link the two variables. There was therefore

need to conduct further research and build literature on the relationship between inventory

control strategies and inventory record accuracy. In the working capital structure of the majority

of businesses and companies, inventories have the most crucial position (Ndunge, 2019). In

every manufacturing company, effective inventory management protects the company from low

production quality, displeased repeat consumers, lost profits, and excellent social responsibility.

The success of a company is largely dependent on how well supply networks are managed.

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Maintaining a balance between inventory supply and demand is the primary problem in

inventory management. The ideal situation for a business would be to have adequate inventory to

meet consumer needs and prevent lost revenues as a result of stock-outs. Also, due to the expense

of keeping inventory, the company does not want to have an excessive amount of inventory on

hand. The ultimate goal is to have just enough but not too much. A successful inventory

management system balances the two goals to a business' maximum benefit, firms have

consistently overlooked the potential savings from good inventory management despite the

advantages of doing so, resulting in overspending on inventory. As a result of their inefficient

investment allocation among inventory goods, they are unable to satisfy client requests, which

forms the premise of this research. Inventory is the largest component of current assets in the

majority of industrial firms (Songet, 2017). Similar to this, scholars have determined that an

organization's employee performance has a significant impact on its overall performance. Yet,

relatively few writers have attempted to demonstrate the impact of staff performance, inventory

control, and management on an organization's performance. So, this research will assess the

inventory control and organizational structure on employee productivity in Universities in Ekiti

State.

1.3 Aims and objectives of the Study

The main aim of the study is to assess the impact of inventory control and organizational

structure on employee productivity in Universities in Ekiti State.

The objectives of the research are to:

i. examine the effect of ABC analysis on employee productivity in Universities in Ekiti

State organizational growth.

productivity in Universities in Ekiti State organizational growth.

iii. examine the effect of norms of inventory system on employee productivity in

Universities in Ekiti State organizational growth.

1.4 Research Questions

The following research questions will guide the study:

i. What is the effect of ABC analysis on employee productivity in Universities in Ekiti State

organizational growth?

ii. What is the relationship between perpetual inventory system and employee productivity

in Universities in Ekiti State organizational growth?

iii. What is the effect of norms of inventory system on employee productivity in Universities

in Ekiti State organizational growth?

1.5 Justification for the Research

The finding and suggestion from this study will be beneficial to inventory control managers to

choose whether inventory levels are checked periodically or perpetually in order to decide when

and how much to purchase. Inventory managers put into practice two distinct organizational

philosophies: one distributes inventory based on anticipated demand for product availability,

while the other uses consumer demand to move merchandise through the distribution channel.

This research sheds further light on it and will be very helpful to inventory managers since all of

these calls for in-depth understanding of inventory management. Finally, this study will aid

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researchers in expanding their knowledge and identifying areas for potential future studies on the

impact of inventory control systems.

1.6 Research Scope

This study covers the impact of inventory control and organizational structure on employee

productivity in Universities in Ekiti State organizational growth. This study will be limited to

Universities in Ekiti State Enterprises within the institution will be the main focus of the study,

this includes the FUOYE printing press, FUOYE water factory, EKSU printing press, EKSU

water factory. This study will examine the effect of ABC analysis on Universities in Ekiti State

organizational growth. The choice of choosing FUOYE and EKSU as a case study is due to the

closeness of the researcher area and the availability of inventory control managers with the

institution.