Inventory Management Techniques and Organizational Productivity in Guinness Cameroon S.A
Department: Transport and Logistics
No of Pages: 86
Project Code: T&L8
References: Yes
Cost: 5,000XAF Cameroonian
: $15 for International students
ABSTRACT
The
main aim of this study was to ascertain the effect of inventory management
techniques on the organisational productivity of Guinness Cameroon S.A.
specifically to evaluate the influence of Economic Order Quantity, Just-In-Time
technique and ABC Technique on the organisational productivity of Guinness
Cameroon.
The
study also made use of extraneous variables like experience and its square to
see if it has a quadratic effect on Guinness Cameroon productivity. It has been
noticed that Guinness Cameroon has failed to meet the increasing demand of
their products in the market.
The
exploratory research design was adopted for the study while the simple random
sampling technique was used to select participants of the study. The study made
use of primary data which was collected through questionnaires from 99
respondents of the workers of Guinness SA in the production centre and
warehouse in Douala and the data collected was analysed using the regression
analysis.
The
findings revealed that Just-In-Time and ABC Techniques have a significant
positive effect on the organisational productivity in Guinness Cameroon S.A.
The extraneous variables experience and its square had a U-shape effect
indicating an increasing effect on Guinness Cameroon productivity.
It
was therefore recommended that Guinness Cameroon should improve on their
techniques by reducing lead time on JIT, properly classifying items in their
ABC Technique while reducing the effort placed on the EOQ so as to improve its
performance.
CHAPTER ONE
INTRODUCTION
1.1 Background to the study
Although
the origins of inventory management techniques are unclear, it is safe to say
that some of the first pioneers of this field were merchants and shop keepers.
Inventory management before the Industrial Revolution was very primitive
(Balda, 2018).
Shop
keepers and merchants had to rely on their hand- written notes and gut feelings
to place orders. It was extremely difficult to account for stolen goods because
it would take shop keepers hours or even days to hand count all physical
inventory to see if anything was missing.
To
be fair, the scale of operations back then was extremely small when compared to
those of today, so there was no push to improve efficiency (Anafu, 2018). The
forerunner to the modern barcode was created in the late 1940s.
In
the 1960s, a group of retailers invented the modern barcode to track inventory.
(David, 2009) Overtime, inventory tracking by hand was replaced by scanning
products and inputting information into computers by hand. In the early 2000s,
inventory management software’s were developed such that barcode readers could
instantly update their databases.
Recently,
International Standards for Inventory Management ISO 9001brings a unified
method for stock control in all categories of companies (small, medium or
large) and sectors of which the brewery industry is no exception.
As
much as the ISO 9001 is a quality management standard, applying the principles
could bring many benefits to a business.
Inventory
is a vital part of current assets mainly in manufacturing organisations that
needs high level of attention.
Inventory
consist of raw materials, work-in- progress and finished products. Huge
findings are committed to inventories as
to ensure smooth flow of production so as to meet up with customer
demands. Inventory management also entails holding or carrying and opportunity
costs
enabling
it to play a crucial role in balancing the benefits and disadvantages
associated with holding inventory. (Okoro, 2016).
Inventory
management as explained by Lavely, (1996) is an active control programme that
permits firms to govern the running of the various departments in the
organisation that is the production, research and development, purchasing, marketing, human resource,
accounting and finance.
Inventory
control and management are pivotal to a firm as such, mishandling of inventory
endangers a firm’s capacity to do practical and useful activities (Sprague et
al, 1996). The financial supremacy and inventory management malfunction may
have a direct influence on the firm’s equity capital, output and customer
services.
The
concept of inventory management suggests that the formation of inventory
positioning and well calculated objectives will improve on the organisational
performance (Vergin, 1998).
Many
brewery companies such as Cantlillon, Mikkeller and Brewdog in Europe have
saved millions of dollars in costs due to the improved inventory management
techniques and decreased inventories at the same time improving efficiency and
customer satisfaction through various inventory management techniques (Chapman
et al, 2000).
Several
companies in Asia, America, Europe and Africa have adopted diverse inventory
management techniques that have tremendously affected organisational productivity.
In
the USA, Inventory management is also a fundamental part of the brewery supply
chain. A lot of research in Supply Chain Management over the last two decades
can be characterised as so- called “multi-echelon inventory optimisation”
(Quayle, 2003) which is practiced by The Coca Cola Company.
This
is an inventory technique in which brewery firms determines where, how much and
what particular inventory item to hold at each inventory stocking location.
This enables Coca Cola to meet the desired service levels while complying with
financial inventory limitations.
Proper
inventory management has in recent years become an important way to enhance the
company’s competitive strength and therefore an important issue for most
companies.
Manufacturing
companies like Coca Cola ensures that, all the activities involved in delivering a product from raw
material through to the customer including sourcing raw materials and parts,
manufacturing and assembly, warehousing and inventory tracking, order entry and
order management, distribution across all channels, delivery to the consumer
are well organised (Li et al, 2006).
Inventory
management techniques is a huge determinant for the prosperity or downfall of a
business for huge reduction of investment in working capital and exceptional
operational performance will affect the organised management and orderly
control of inventories either negatively or positively (Mittal, et al., 2014).
Thus,
according to Gupta (2012), the overall calculated business objective should be
inventory management since it has a remarkable capacity on the performance of
the organisation.
This
is further supported by Chalotra (2013), who states that well established
inventory management levels outcomes by intensifying competitive ability and
market share of firms, companies can experience high-ranking competition and
high-level of financial performance from correctly controlled inventories.
In
present day, supply chain, holding and warehousing inventory plays an important
role in a firm. Logistic cost survey in Europe identified the inventory cost to
be 13% of the entire logistic cost while 24% was accounted for warehousing
(Baker, 2007).
Inventory
management techniques provide great potentials for firms to reduce costs and
improve customer services performance (Jeffrey et al, 2008). Therefore, by
reducing and minimising costs from inventory means saving money which can be
used to increase profit in the firm thereby improving performance.
In
Asia, Khalid and Lim (2018), observed that large brewery companies in China,
PepsiCo in particular, uses three inventory management strategies; Vendor
Managed Inventory (VMI), Material Requirement Planning (MRP), and Just-In-Time
(JIT).
Inventory
strategy is chosen based on real time situation as each inventory is suitable
for different brewery products. Smaller company tends to adopt lesser inventory
management strategy whereas large organisation will have multiple inventory
management strategy to deal with their different type and over loaded raw
materials.
By
adopting theses inventory management practices, there is improvement in the
organisational performance as they are coping up with the current market demand
(Akindipe, 2014).
Husonand
(1995), as sited by Gitau (2016) opined that those firms that embraced Just-In-Time
system as an inventory management techniques enjoyed high and better net income
as an outcome of improved inventory turnover.
Afterwards Lieberman and Demeester (1999), noticed a favourable bond between growth in production and reduction in inventory. The Just-In-Time concept was also reinforced by researchers like Claycomb et al., (1999),
Fullerton and McWatters
(2001), in which Claycomb identified three items that quantify a firm’s
performance such as profit, investment returns and sales return and on the
other hand Fullerton brought forth three indicators of firm’s financial
performance such as assets returns, sales returns and a margin in the cash
flow.
Reviewing
the situation in Africa, Ime (2013), opined that most brewery companies in sub-Saharan
Africa, applies the Just-In-Time inventory management
techniques based on inventory postponement.
Here,
a firm deliberately delays the purchase and the physical possession of
inventory items until demand or usage requirements are known with certainty.
This is an effective supply chain strategy adopted by most manufacturing
organisations by reducing the inventory, and in turn reducing the cost of
obsolete stock.
The
implication of inventory management approaches is that through inventory
postponement, local retailers are frequently waiting for stock to fulfil their requirements,
and in turn puts added pressure on these retailers who faces these inventory
management issues directly with the customers (Akbar, 2013).
The
Cameroon brewery industry is a very lucrative industry (Orga, et al., 2017). In
2019, a total of 6,539,570 hectolitres (653.9 million litres) of beer was sold
in Cameroon. This figure reflects a slight decrease by 0.1% compared to 2018.
The
Brasseries du Cameroun (SABC) which leads the Cameroonian beer market saw a
2.3% drop in sales compared to that of 2018. As a result, the company’s sales
targets fell by 1.5% (Guinness full report 2020).
The
overall low consumption is the result of the current economic crisis, the
unrest in Grand- Nord and Anglophone regions. The other reason is the flow of
products from Nigeria and Equatorial Guinea partly linked to the rise in
locally-produced beer price in 2015 upon higher tax, among others. Guinness
Cameroon, second on the market (16%) sold 1.4% more beer during the period
under review.
Finally, UCB the third-leading company (11% of
market share) improved sales by 13.7% with 712,100 hl (71.2 million litres)
sold (Nielsen, 2019).
Inventory management
in Guinness Cameroon
S.A, represents an
important decision variable at all stages of product manufacturing,
distribution and sales. In addition to being a major portion of total current
assets of the company, inventory consumes as much as 15% of total capital of
the firm (Moore, et al., 2003).
It
may represent 18% of a company’s assets and as much as 70% of working capital
(Sawaya & Graque, 2006). Given that inventory constitutes a major segment
of total investment of the firm, it is essential that Guinness Cameroon S.A
Douala, carries out good inventory management techniques to ensure a high level
of productivity.
1.2 Statement of the Problem
Looking
at existing literature, there is an inclusive view that proper inventory
management techniques will lead to an increase in productivity. At first glance
it seems obvious that implementing proper inventory management techniques will
instantly improve the productivity of any company (David, 1996).
However, a careful assessment of firms that
have implemented proper inventory management techniques show mixed results
since some have been successful while others have failed (Agu, 2016).
Although
Guinness Cameroon is certified under the ISO 9001: 2008, from time to time,
customers often complain about a slight drop in the quality of Guinness
Cameroon’s products (Cameroon Business
Report, 2018).
Could
it be that this slight change in quality is caused by wrong classification of
stock items? This is because classifying stock items wrongly, can cause a
mix-up in the production process leading to low quality products, hence a fall
in productivity.
Guinness
Cameroon S.A requires prompt delivery of raw materials in order to produce
goods on time and achieve their desired level of productivity. However, the
suppliers, at times fail to deliver these materials on time and in adequate
quantity, leading to a reduction in the level of production and their overall
productivity.
Observably
that Guinness Cameroon practice the Just-In-Time technique where its products
are taken directly to the market immediately after production, In such
situation, any sudden increase in the level of demand for these products may
cause a shortage in their supply.
Could
it be that the Regional depots do not maintain sufficient stocks to meet up
with sudden increase in demand? Guinness Cameroon S.A has also been facing
problem’s on determining the right level of inventory to keep at the production
centre (raw materials and work-in-progress) and the various depots (finished
products) that will enable them achieve their desired level of productivity.
The
above circumstances may account for the reason Guinness Cameroon S.A have
failed to lead the brewery market, since there is frequent shortage of their
product in the market to meet up with the increasing demand and hence, low
level of customer’s satisfaction.
As
such, Guinness Cameroon S.A witnessed a 12% decrease in sale revenue between
2015 and 2019, (Guinness full year report 2020). It is therefore against these
backdrops that the researcher decided to investigate on the topic ‘‘Inventory
management techniques and organisational productivity in Guinness Cameroon
S.A’’
1.3 Research Questions
The
main research question of this study is: “To what extend does inventory
management techniques affects the productivity of Guinness Cameroon S.A?”
The
specific questions are;
- To what extend does the ABC technique influence the productivity of Guinness Cameroon S.A
- What is the influence of Economic Order Quantity on organisational productivity of Guinness Cameroon S.A?
- To what extend does Just-In-Time Inventory system affect the productivity of Guinness Cameroon S.A?
1.4 Objectives of the Study
The
objectives of this study will be classified into main and specific objectives.
The main objective of this study is to investigate the effect of inventory
management techniques on the productivity of Guinness Cameroon S.A
The specific objectives
include to;
- Determine the effect of ABC technique on the productivity of Guinness Cameroon S.A.
- Evaluate the influence of Economic Order Quantity on the productivity of Guinness Cameroon S.A.
- Assess the effect of Just-In-Time technique on the productivity of Guinness Cameroon S.A.
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