INVENTORY MANAGEMENT PRACTICES AND PRODUCTIVITY · 2018-12-07 · inventory management practices...

INVENTORY MANAGEMENT PRACTICES AND PRODUCTIVITYOF LARGE MANUFACTURING FIRMS IN NAIROBI, KENYA

BY

FLORENCE NYAMBERE NGUMI

A RESEARCH PROJECT SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR AWARD OF THE

DEGREE OF MASTER OF BUSINESS ADMINISTRATION,

SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI

NOVEMBER 2015

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DECLARATION

This is my original work and has never been presented for a degree in any other

university.

Signature………………………………Date……………………………………………

Florence Nyambere Ngumi

D61/64527/2013

This project has been submitted for examination with my approval as University

Supervisor.

Signature:…………………………………Date:………………………………..

Dr. Peterson Obara Magutu

Department of Management Science

School of Business,

University of Nairobi

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ACKNOWLEDGEMENTS

First, I thank the almighty God for giving me the Grace to finish this research paper. My

special and sincere thanks go to my supervisors Dr. Peterson Obara Magutu and Mr.

Michael K. Chirchir for their guidance, support, suggestions, useful comments and

constructive critique which were all instrumental to the successful completion of this

research work. I also wish to appreciate the support and encouragement from my friends

and family during the tough times in the entire process, to all of you I am very thankful

and God bless.

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DEDICATION

This project is dedicated to my parents Fredrick Ngumi Ngai and Eunice Wangechi

Ngumi, and my dear brothers Guston Ngai Ngumi and Kevin Muriithi Ngumi for their

overwhelming support, inspiration, encouragement, understanding and prayers towards

the successful completion of this course. Your steadfast prayers towards completion of

my studies have indeed been answered. I pay glowing tribute and gratitude to the

Almighty God who has given me the wisdom to undertake this course.

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TABLE OF CONTENTS

DECLARATION............................................................................................................ ii

ACKNOWLEDGEMENTS ......................................................................................... iii

DEDICATION............................................................................................................... iv

LIST OF TABLES ........................................................................................................ ix

LIST OF FIGURES ....................................................................................................... x

ABBREVIATIONS AND ACRONYMS..................................................................... xi

ABSTRACT.................................................................................................................. xii

CHAPTER ONE ............................................................................................................ 1

INTRODUCTION.......................................................................................................... 1

1.1 Background of the Study .......................................................................................... 1

1.1.1 Inventory Management Practices....................................................................... 2

1.1.2 Firm’s Productivity ............................................................................................ 3

1.1.3 Large Manufacturing firms in Nairobi, Kenya .................................................. 4

1.2 Research Problem ..................................................................................................... 5

1.3 Research Objectives.................................................................................................. 6

1.4 Value of the Study .................................................................................................... 7

CHAPTER TWO ........................................................................................................... 8

LITERATURE REVIEW ............................................................................................. 8

2.1 Introduction............................................................................................................... 8

2.2 Theoretical Framework of Inventory Management Practices................................... 8

2.2.1 Theory of Constraints ........................................................................................ 8

2.2.2 Lean Theory ....................................................................................................... 9

2.3 Inventory Management Practices.............................................................................. 9

2.3.1 Activity Based Costing Practices..................................................................... 10

2.3.2 Just-In-Time Management Practices................................................................ 10

2.3.3 Economic Order Quantity Practices................................................................. 11

2.3.4 Materials and Requirements Planning Practices .............................................. 12

2.3.5 Vendor Managed Inventory Practices.............................................................. 12

2.3.6 Distribution Requirements Planning Practices ................................................ 13

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2.3.7 Barcoding Practices ......................................................................................... 14

2.3.8 Radio Frequency Identification Practices ........................................................ 14

2.4 Firm’s Productivity ................................................................................................. 15

2.5 Inventory Management Practices and Firm’s Productivity .................................... 15

2.6 Summary of Literature Review and Research Gap................................................. 16

2.6.1 Conceptual Model ............................................................................................ 17

CHAPTER THREE..................................................................................................... 18

RESEARCH METHODOLOGY ............................................................................... 18

3.1 Introduction............................................................................................................. 18

3.2 Research Design...................................................................................................... 18

3.3 Population of the study ........................................................................................... 18

3.4 Sample Design ........................................................................................................ 19

3.5 Data Collection ....................................................................................................... 20

3.6 Data Analysis .......................................................................................................... 20

CHAPTER FOUR........................................................................................................ 22

DATA ANALYSIS, FINDINGS AND INTERPRETATION .................................. 22

4.1 Introduction............................................................................................................. 22

4.2 Response Rate ......................................................................................................... 22

4.3 Demographic and Respondents Profile................................................................... 22

4.3.1 Job Designation................................................................................................ 22

4.3.2 Length of continuous service in the current work position.............................. 23

4.3.3 Education Level ............................................................................................... 24

4.3.4 Duration of operation of the Organization....................................................... 24

4.3.5 Operation in other countries outside Kenya..................................................... 25

4.3.6 Firm’s view on Inventory Management........................................................... 26

4.4 Inventory Management Practices Adopted by Large Manufacturing Firms .......... 26

4.4.1 Just-In-Time Management Practices in large manufacturing firms in Nairobi,Kenya ........................................................................................................................ 27

4.4.2 Activity Based Costing Practices in large manufacturing firms in Nairobi,Kenya ........................................................................................................................ 29

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4.4.3 Economic Order Quantity Practices in large manufacturing firms in Nairobi,Kenya ........................................................................................................................ 30

4.4.4 Vendor Managed Inventory Practices in large manufacturing firms in Nairobi,Kenya ........................................................................................................................ 32

4.4.5 Materials and Requirements Planning Practices in large manufacturing firms inNairobi, Kenya.......................................................................................................... 34

4.4.6 Distribution Requirements Planning Practices in large manufacturing firms inNairobi, Kenya.......................................................................................................... 36

4.4.7 Bar coding Practices in large manufacturing firms in Nairobi, Kenya............ 38

4.4.8 Radio Frequency Identification Practices in large manufacturing firms inNairobi, Kenya.......................................................................................................... 40

4.5 Firm’s Overall Productivity .................................................................................... 41

4.5.1 Inventory Costs ................................................................................................ 42

4.5.2 Customer Service ............................................................................................. 43

4.5.3 Stock outs......................................................................................................... 44

4.5.4 Inventory Turnover .......................................................................................... 45

4.6 Inferential Statistics ................................................................................................ 45

4.6.1 Regression Analysis......................................................................................... 45

4.6.2 ANOVA ........................................................................................................... 46

4.6.3 Regression Coefficient..................................................................................... 47

CHAPTER FIVE ......................................................................................................... 50

SUMMARY, CONCLUSION AND RECOMMENDATIONS ............................... 50

5.1 Introduction............................................................................................................. 50

5.2 Summary of the Findings........................................................................................ 50

5.3 Conclusion .............................................................................................................. 53

5.4 Study Limitations.................................................................................................... 55

5.5 Recommendations................................................................................................... 55

5.6 Suggestions for Further Studies .............................................................................. 57

REFERENCES............................................................................................................. 58

APPENDIX I ................................................................................................................ 61

Research Questionnaire............................................................................................... 61

APPENDIX II............................................................................................................... 70

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Large Manufacturing Firms in Nairobi, Kenya........................................................ 70

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LIST OF TABLES

Table 3.1: Sample Size ..................................................................................................... 19Table 4.1 : Position in the organization ............................................................................ 23Table 4.2: Operation in other countries outside Kenya .................................................... 25Table 4.3: Firm’s view on Inventory Management .......................................................... 26Table 4.4.1: Findings of Just-In-Time as a practice in the manufacturing firms.............. 27Table 4.4.2: Findings of Activity Based Costing as a practice in the manufacturing firms........................................................................................................................................... 29Table 4.4.3: Findings of Economic Order Quantity as a practice in the manufacturingfirms .................................................................................................................................. 31Table 4.4.4: Findings of Vendor Managed Inventory as a practice in the manufacturingfirms .................................................................................................................................. 32Table 4.4.5: Findings of Materials Requirements Planning as a practice in themanufacturing firms.......................................................................................................... 34Table 4.4.6: Findings of Distribution Requirements Planning as a practice in themanufacturing firms.......................................................................................................... 36Table 4.4.7: Findings of Bar coding as a practice in the manufacturing firms................. 38Table 4.4.8: Findings of Radio Frequency Identification as a practice in themanufacturing firms.......................................................................................................... 40Table 4.5: Firm’s Overall Productivity.......................................................................... 41Table 4.5.1: Inventory Costs............................................................................................. 42Table 4.5.2: Customer Service.......................................................................................... 43Table 4.5.3: Stock Outs..................................................................................................... 44Table 4.5.4: Inventory Turnover ....................................................................................... 45Table 4.6.1: Model Summary ........................................................................................... 46Table 4.6.2: ANOVA (Analysis of Variance) .................................................................. 46Table 4.6.3: Regression Coefficients ................................................................................ 47

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LIST OF FIGURES

Figure 2.1 : Conceptual Model ..........................................Error! Bookmark not defined.Figure 4.1: Length of continuous service in the current work position ............................ 23Figure 4.2: Education Level.............................................................................................. 24Figure 4.3: Duration of operation ..................................................................................... 25

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ABBREVIATIONS AND ACRONYMS

SCM: Supply Chain Management

SKU: Stock-keeping units

AUV: Annual Usage Value

ROP: Re-order Point

EPOS: Electronic Point of Sale

EOQ: Economic Order Quantity

JIT: Just-in-time

ABC: Activity Based Costing

MRP: Materials Requirements Planning

VMI: Vendor Managed Inventory

DRP: Distribution Requirements Planning

RFID: Radio Frequency Identification

SPSS: Statistical Package for Social Sciences

KAM: Kenya Association of Manufacturers

GDP: Gross Domestic Product

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ABSTRACT

The past 20 years have seen an increase in research focusing on operational issuesrelating to supply chain management. Most of the research has been related to multi-echelon inventory models. Inventory plays a big part in the manufacturing firms as itaccounts for more than 50% of the annual turnover. The motivation of the study wasbased on the fact that long term success and survival of any organization depends entirelyon how well organizations are managing their costs. The study focused on answering thefollowing research questions; what inventory management practices are being used inlarge manufacturing firms in Nairobi, Kenya? Is there any relationship between inventorymanagement practices and productivity of large manufacturing firms in Nairobi, Kenya?The study was based on theory of constraints and Lean theory. The Research design usedwas descriptive design. The population of study comprised of large manufacturingcompanies that are based in Nairobi. According to the Kenya Association ofManufacturers, there are a total of 499 large manufacturing companies operating inNairobi. The sample size of the study included 50 large manufacturing companies. Thestudy used primary data which was collected using a questionnaire and data was analyzedusing descriptive statistics including mean and standard deviation by use of the relevantcomputer packages such as Microsoft Office Excel and Statistical Package for SocialSciences (SPSS) program. The study concluded that inventory management practicespositively affect the productivity of large manufacturing firms in Nairobi, Kenya.Effective inventory management has become a critical issue for firms’ productivity.Large manufacturing firms have saved millions of dollars in costs and decreasedinventories while improving efficiency and customer satisfaction though inventorymanagement practices. Inventory management has resulted to integration of betterproduction methods to minimize costs and wastages. The study recommends thatinventory management should to be recognized as a top management function; controlmeasures should be taken on stock by fully adopting lean inventory systems that greatlyimprove the performance of the procurement function; strategic supplier relationshipsshould be maintained by adopting Vendor Managed Inventory; firms should adoptinformation technology in inventory management; and adhere to the legal policies inplace as they will help the procurement function to manage its inventory and improve onperformance because of the legal framework that is provided.

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CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

In today’s world of intense competition fueled by globalization, increasing consumer

awareness, and technological improvement, organizations that are keen towards large

scale success must at all times hype its service availability as consumers can very easily

divert their interests elsewhere (Sharma, 2009). Consequently, managing inventory

efficiently has become an important operational weapon for products and service firms

wishing to survive the competitive pressures. Most of these firms hold inventory so as to

meet their customers’ needs. Inventory therefore constitutes the most significant part of

current assets of these firms and because of the relative largeness of inventories

maintained by the firms, a considerable amount of fund is being committed to holding

inventory. It thus becomes essential to deploy cutting-edge techniques to manage

inventories so as to avoid lost sales, costs of changing production rates, overtime costs,

sub-contracting, unnecessary cost of sales and backorder penalties during periods of peak

demand (Chen, 2005).

Inventory management has enabled firms to have adequate quantities of high quality

items available to serve customer needs, while also minimize the costs of carrying

inventory (Brigham & Ehrhard, 2005).However, managing these inventories in order to

achieve their objectives has posed a great challenge to the firms. Many firms have not yet

established how much to invest in inventories and the right inventory levels to hold so as

satisfy customers. Too much inventory consumes physical space, creates a financial

burden, and increases the possibility of damage, spoilage and loss. On the other hand, too

little inventory often disrupts manufacturing operations, and increases the likelihood of

poor customer service. In many cases good customers may become irate and take their

business elsewhere if the desired product is not immediately available. Effort must be

made by management to decide on the optimum investment in inventory since it costs

more money to tie down capital in excess inventory (Lysons & Farrington, 2006).

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Inventory management has also become a fundamental part of supply chain management.

Supply chain management coordinates and integrates all the supply chain activities into a

seamless process. During the process, inventory holding and warehousing play an

important role in supply chains. As well as being significant in terms of cost, inventory

holding is important in terms of customer service since the product is made available to

the customer when needed, and warehousing being critical to the success or failure of

many supply chains (Frazelle, 2002).

The interest of management in better inventory management is much more than it was a

few years back. Temeng et al (2010) points out that, in the past, organizations have not

treated inventory as an asset that requires management and have therefore ignored the

potential savings from proper inventory management. As a result, many inventory

systems have been based on arbitrary rules. Unfortunately, some organizations end up

having more funds invested in inventory than necessary and are therefore not able to meet

customer demands because of poor distribution of investment among inventory items.

Managers, both in the public and private sector, are increasingly accepting the validity of

the practices of inventory management for improving the operational performance of

their undertakings.

1.1.1 Inventory Management PracticesInventory is an accounting term for the value or quantity of raw materials, components,

assemblies, consumables, work-in-progress and finished stock that are kept or stored for

use as the need arises (Lysons, 2000). It is economically unsound and physically

impossible to have goods arrive in a system exactly when demand for them occurs.

Without stock at hand customers would have to wait for long periods before their orders

are fulfilled. Inventory is therefore vital to the successful functioning of manufacturing

firms and occupies the most strategic position in the structure of working capital. To

ensure organizational growth and productivity, it is important that good inventory

management be practiced since a substantial share of fund is invested in a firm’s

inventory (Kruger, 2005). Better management of inventories would release capital for use

elsewhere productively thus improving the productivity of an organization (Ghosh and

Kumar, 2003)

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In today global business environment which is characterized by numerous competitive

pressures and sophisticated customers demanding speedy solutions, manufacturing firms

are progressively turning to inventory management practices. Inventory management

enables the firm to control materials used and stored in the company with the objective of

providing exactly what is required where and when it is required employing a minimum

of residual stock thus incurring the least possible cost (Agha, 2010). Miller (2010) reveals

that the profitability of any organization directly and indirectly is affected by the

inventory management system operated by that firm.

The concept of inventory management practices basically focuses on the techniques used

to ensure that stock of raw materials or other supplies, work-in-progress and finished

goods are kept at levels which provide maximum service levels at minimum costs

(Lysons, 2000). Inventory management practices addresses two important questions of

how much to order/deliver and when to order thus helping an organization become more

productive and efficient than before, gravitate towards stock control, and quality control.

Some of these practices include Activity Based Costing, Economic Order Quantity,

Vendor Managed Inventory, Materials and Requirements Planning, Distribution

Requirements Planning, Just-in-time purchasing, Barcoding, and Radio Frequency

Identification.

1.1.2 Firm’s ProductivityInventory management is attractive to senior management because it directly affects the

productivity of the firm. Productivity is an index that measures output (goods and

services) relative to the input (labor, materials, energy, and other resources) used to

produce it. It is measured by comparing the quantity of output with the quantity of one or

more inputs used to produce that output, expressed as the ratio of output to input (Jurison,

1997). A productivity measure describes how well the resources of an organization are

being used to produce goods and services. A firm with high productivity requires less

input to produce more output. The firm will then be able to charge a lower price and

consequently increase its market share. Jurison (1997), broadly classifies productivity

measures as single factor productivity measures (relating a measure of output to a single

measure of input), multifactor productivity measures (relating a measure of output to a

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bundle of inputs), and total productivity measures (relating a measure of output to all

inputs).

Effective inventory management has become a critical issue for firms’ productivity.

Inventory management is essential in the operation of any business that wishes to achieve

efficiency in production. Many large manufacturing firms have saved millions of dollars

in costs and decreased inventories while improving efficiency and customer satisfaction

though various inventory management practices (Chapman et al., 2000). This is because

inventory management results to integration of better production methods to minimize

costs and wastages.

1.1.3 Large Manufacturing firms in Nairobi, Kenya

Manufacturing is an important sector in Kenya’s economy since it makes a substantial

contribution to the country’s economic development. With solid growth continuing in the

manufacturing industry, Kenya is poised to be among the fastest-growing economies in

East Africa, according to the World Bank Group’s economic analysis for the country.

However, as a share of GDP, Kenya’s manufacturing sector has been stagnant in recent

years. Low overall productivity and large productivity differences in firms across

subsectors point to lack of competition.

Manufacturing firms in Kenya are characterized by elongated or overextended chains of

retailers which, in turn, mean long chains of transactions between chain members and

consumers (Amoro, 2011). World firm (2007) showed that leading manufacturing firms

in Kenya are faced with problems of wrong forecasting due to lack of enough inventory

management information. New KCC was for example affected by poor inventory

management related cases leading to low performance. This caused erratic deliveries in

the firm, late deliveries and inflexibility hence affecting customer satisfaction (KAM,

2013). Unavailability of integrated inventory management has affected productivity at

manufacturing firms leading to reduced profits. To sustain growth and increase the

contribution of the manufacturing sector to GDP, firms should boost their level of

productivity to help the sector regain its competitiveness by managing the flow of stock.

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1.2 Research Problem

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 firm would ideally want to have enough inventories to satisfy the demands of

its customers and avoid lost sales due to inventory stock-outs. On the other hand, the firm

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 & Langley,

2003). The secret of a good inventory control system thus lies in balancing the two

objectives to optimum advantage. Despite the benefits of inventory management,

Temeng, Eshun and Essy, (2010) point out that organizations have continuously ignored

the potential savings from proper inventory management and end up having more funds

invested in inventory than necessary. They are therefore not able to meet customer

demands because of poor distribution of investment among inventory items hence the

basis of this study

In majority of manufacturing industries, inventory constitutes the most significant part of

current assets (Songet, 2006). Manufacturing firms attain significant savings from

effective inventory management which amounts between 50% - 60% of total costs. A

potential 6% saving on total cost through effective inventory management is achievable

(Chen, 2005). In this view, the study wishes to assess the effect of inventory management

practices on productivity of large manufacturing firms in Nairobi, Kenya.

A number of studies have been done in the area of inventory management practices: Bai

and Zhong (2008) found out that inventory management is crucial for most companies

but is especially crucial for small businesses because of their limited resources. Proper

inventory management enhances a firm’s competitive strength and profitability due to

minimized costs, and customer satisfaction. This study was not conducted on large

manufacturing firms and does not show the relationship between inventory management

practices and the productivity of a firm. Kitheka (2010) in his study found out that

inventory management automation affects the performance of supermarkets since it leads

to improved customer service delivery levels and reduced operational costs. This study

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was not on large manufacturing firms and did not show how inventory management

practices impacts on the productivity of a firm.

Ndunge (2012) found out that inventory management applications enabled edible oil

firms to minimize wastage of inventory and also minimize their costs. Implementation of

inventory management enabled the firm record higher profits; become more responsive to

their customers and suppliers needs and keen on capacity utilization. This study however

did not show how the practices of inventory management affect productivity of large

manufacturing firms. Gakinya (2013) found out that inventory management can influence

a firm’s supply chain performance by achieving service delivery to the customers,

meeting forecast demands and gaining a competitive edge. But this study however was

not on large manufacturing firms and did not show the impact of inventory management

practices on a firm’s productivity.

Anichebe and Agu (2013) in their research found out that the organizational effectiveness

can be improved by good inventory management. There is adequate inventory for

production, customer satisfaction and high profitability of the firm. However, this study

was not on how inventory management practices affects the productivity of a firm. Etim,

John and Ime (2014) established that inventory management practices can improve the

operational performance of a firm through efficiency in capital utilization, increased

service level, and reduced lead time and that firms that implement inventory management

models are able to handle material shortages, product stock outs, and component pile up.

But this study did not research on how inventory management practices impacts on firm’s

productivity. This study therefore sought to answer the following research questions:

what inventory management practices are being used in large manufacturing firms in

Nairobi, Kenya? Is there any relationship between inventory management practices and

productivity of large manufacturing firms in Nairobi, Kenya?

1.3 Research Objectives

The study objectives include:

a) To establish Inventory Management Practices commonly used by large

manufacturing firms in Nairobi, Kenya.

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b) To establish the relationship between Inventory Management Practices and

productivity of large manufacturing firms in Nairobi, Kenya.

1.4 Value of the Study

The study will be beneficial to various stakeholders; it will be a source of information for

the large manufacturing firms that will help in understanding inventory management

practices, their mode of application and the practical relevance in the firm. The study will

also provide a framework for sound decision making as far as inventory management is

concerned.

The study will enable policy makers obtain knowledge of manufacturing industry

dynamics and the appropriate inventory management practices to be implemented. It will

also provide guidelines for policy makers for designing appropriate policies that will

regulate the industry.

To the academicians, the study will form a basis for further studies in the field of

inventory management and productivity of organizations, especially in the manufacturing

sector. This will probably generate and develop new knowledge and ideas to narrow the

gap in the area of inventory management.

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CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter explores relevant literature on inventory management practices that affect

productivity of large manufacturing firms. The review was undertaken to bring out the

gaps and enhance knowledge of better and efficient ways of managing inventory and

improving the productivity of an organization. It captures the concept of inventory

management practices, firm’s productivity, empirical review and a summary of the

literature review.

2.2 Theoretical Framework of Inventory Management Practices

Different theories have been employed to help bring clarity to the study of the effects of

inventory management practices on productivity of manufacturing firms. The study

borrows from the theory of constraints and lean theory to build the critical concerns on

effects of inventory management practices on productivity of large manufacturing firms.

2.2.1 Theory of Constraints

The theory of constraints is a management philosophy that seeks to increase

manufacturing throughput efficiency measured by sales through the identification of

those processes that are constraining the manufacturing system. The difficulties in the

theory of constraints are: very long lead times, large number of unfulfilled orders, high

level of unnecessary inventories or lack of relevant inventories, wrong materials order,

large number of emergency orders and expedition levels, lack of customers engagement,

absence of control related to priority orders which implies on schedule conflicts of the

resources (Goldratt, 2004). The theory emphasizes focus on effectively managing the

capacity and capability of these constraints to improve productivity and this can be

achieved by manufacturing firms applying appropriate inventory control practices.

Theory of constraints is a methodology whose basis is applied to production for the

minimization of the inventory (Cooper, 2006).

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2.2.2 Lean Theory

Lean theory is an extension of ideas of just in time. The theory eliminates buffer stock

and minimizes waste in production process (Green & Inman, 2005). Inventory leanness

positively affects the profitability of a business firm and is the best inventory control tool.

Firms that are leaner than industry average generally see positive returns to leanness

(Eroglu & Hofer, 2011). The theory elaborates on how manufacturers gain flexibility in

their ordering decisions, reduce the stocks of inventory held on site and eliminate

inventory carrying costs. Scholarly studies indicate that companies successfully optimize

inventory through lean supply chains practices to achieve high levels of asset utilization

and customer satisfaction leading to improved growth, profitability and market share

(Waller, Tangari & Williams, 2008). Criticism leveled against the theory is that it can

only be applicable when there is a close and long-term collaboration and sharing of

information between a firm and its trading partners.

2.3 Inventory Management Practices

Inventory management is very crucial to a firm because it is tailored to minimizing costs

or maximizing profits while satisfying customer’s demands by ensuring that balanced

items of stock are maintained at the right quantity, quality and that are available at the

right time and in the right place (Jay & Barry, 2006). The two essential questions to

address in inventory management are ‘When to order/deliver?’ and ‘How much to

order?’, that is, one time-related and one quantity-related. There are a number of

inventory management practices which answer these two questions in different ways and

can be categorized as working with dependent or independent demand. Inventory

management practices refers to the techniques used to ensure that stocks of raw materials

or other supplies, work-in-progress and finished goods are kept at levels which provide

maximum service levels at minimum costs (Lysons, 2000). They concern balancing

supply and demand, that is, the initiation, control and monitoring of manufacturing and

purchasing orders so as to maintain an uninterrupted material flow and value-adding

activity in manufacturing and warehouses (Jonsson & Mattsson, 2003).

10

2.3.1 Activity Based Costing Practices

Activity Based Costing is an Inventory classification system that allocates time and

money in inventory management and allows firms to deal with multiple product lines and

multitude of stock-keeping units (Bloomberg et al, 2002). ABC inventory classification

enables manufacturing firms to assess the status of every item kept in inventory in

addition to determining what specific attention is required by each group of inventory

(Banjoko, 2004).

By dividing a company’s inventory into different classifications- A, B, or C, Onwubolu et

al. (2006) indicates that managers can focus on the items that account for the majority of

the inventory. Banjoko (2004), describes, generally, the A items include approximately

10 percent of the items in inventory, with 50 percent of the monetary value generated.

The B items, includes roughly 40 percent of the items with 40 percent of the monetary

value. The C items, account for only 10 percent of the monetary value, yet include

approximately 50 percent of the items. This classification also allows for policies and

controls to be established for each class, for example, the purchasing resources expended

on supplier development should be much higher for A items than C items; A items should

have tighter physical inventory control such as more secure area; forecasting A items

may warrant more care than forecasting other items. Better forecasting, physical control,

supplier reliability, and an ultimate reduction in safety stock can all result from ABC

inventory management practices.

2.3.2 Just-In-Time Management Practices

JIT is a Philosophy of manufacturing based on planned elimination of all waste and

continuous improvement of productivity Young (2002). JIT production according to

Eckert (2007) is making what the customer needs, when it is needed and in the quantity

needed using the minimum resources of people, material, and machinery. The primary

elements of JIT include having only the required inventory when needed; to improve

quality to zero defects; to reduce lead time by reducing set-up times, queue lengths and

lot sizes; and to accomplish these things at minimum cost.

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In order to achieve this, the process must have signals of what is going on everywhere

within that process. JIT emphasizes that production should create items that arrive when

needed, neither earlier nor later. Quick communication of the consumption of old stock,

which triggers new stock to be ordered, is key to JIT and inventory reduction. This saves

warehouse space and costs. The basic philosophy of JIT is that inventory is defined as

waste. The technique was first used by Ford Motor Company. It was subsequently

adopted and publicized by Toyota Motor Corporation of Japan in the 1950s (Lysons &

Gillingham 2003).

2.3.3 Economic Order Quantity Practices

The Economic Order Quantity (EOQ) is the optimal ordering quantity for an item of

stock that minimizes cost. It is the level of inventory that minimizes the total of the

inventory holding cost and ordering cost (Lysons & Farrington 2006). According to this

model, ordering costs decline with inventory holdings, while holding cost rises. The total

inventory-associated cost curve has a minimum point and this is the point where total

inventory costs are minimized.

Economic order quantity practices enable manufacturing firms to estimate how much of

an item should be ordered and when it should be ordered. The firm is able to plan its

inventory replenishment on a timely basis such as monthly, quarterly, half yearly or

yearly therefore minimizing storage costs within the warehouses since inventory is

coming in and going out immediately. Thus, this tends toward the just-in-time concept of

inventory management (Schonberger, 2008). EOQ can hence be used to determine what

items fit into the JIT model and what level of JIT is economically advantageous to the

particular organization (Lysons & Farrington, 2006).As manufacturing firms try to

improve on inventory management, they should consider Economic Order Quantity

practices as important tools they can use to ensure that supply of inventory does not hit a

stock out (Gonzalez, 2010).

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2.3.4 Materials and Requirements Planning Practices

Materials requirement planning is a practice that makes available either purchased or

company manufacturing assemblies just before they are required by the next stage of

production or for delivery. It enables orders to be tracked throughout the entire

manufacturing process and assists purchasing and control departments to move the right

supplies at the right time to manufacturing or distribution points (Jacob, Berry, Whybark

& Volkmann, 2011).

The MRP system assists manufacturing firms in the detailed planning of production and

inventory management. The system is based on the recognition that demands for an item

may be dependent on the demand for other inventory items. The emphasis is on the end

product into which related parts are incorporated. The inventory quantities required are

specified on the basis of future demand. The demand for inventory items is precisely

determined from the master production schedule for the end products. In principle, the

approach attempts to control the flow of supplies to meet planned requirements, rather

than simply replenishing stocks as they are consumed (Saunders, 1997).

The operation of a lean MRP inventory system is very useful to manufacturing firms

since it results to relatively low inventory levels. The warehousing costs and material

handling costs are significantly reduced. This increases return on assets through

decreased conversion costs (Lysons & Gillingham, 2003).

2.3.5 Vendor Managed Inventory Practices

Vendor-managed inventory is a practice in which inventory replacement decisions are

centralized with upstream manufacturers or distributors (Frahm, 2003). It is a new feature

of supplier partnership in which emphasis is on good working relations between

customers and suppliers. The manufacturer enters into a collaborative or partnership

agreement with the distributor, under which the latter agrees to stock a specified range of

items and meet specified service levels. In return, the customer undertakes to buy the

specified items solely from the distributor and no longer keeps the items in stock.

Brownell (2005), states that this partnership enables manufacturing firms reduce chances

13

to defective items and the risk of obsolescence because the supplier is involved and for

this to work, proper communication is an important factor. It enhances working capital

due to the reduced inventory levels and obsolescence and enhanced stock turn with

improved cash flow.

VMI practices enables manufactures or distributors to eliminate the need for customers to

reorder, reduce or exclude inventory and obviate stock outs. It relieves the customer of

much of the expense of ordering, shipping the materials, counting inventory and stocking

low-value items. By passing these costs normally managed by the customer on the

supplier, the customer is able to reduce the overall cost of product and increase on

margins (Loughrin, 2008).There’s also reduced lead times with enhanced sales and a

reduction of lost sales due to stock outs (Irungu & Wanjau, 2011).

2.3.6 Distribution Requirements Planning Practices

Distribution Requirements planning is a practice for forecasting or projecting

requirements for finished products at the point of demand (Farrington & Lysons, 2006).

DRP system takes forecast demand and reflects this through the distribution system on a

time-phased requirement (Bailey, Farmer, Barry, Jessop, & David, 2008). From these

projections, requirement schedules for each echelon in the distribution system can be

derived. DRP practices acts by pulling the product through the distribution system once

demand has been identified. It is used to plan orders within a supply chain enabling the

firm to set certain inventory control parameters (like a safety stock) and calculate the

time-phased inventory requirements (Rushton, Croucher & Baker, 2011).This practice

works to the elimination of inventory and tries to combine the need for lower inventory

investment with improved customer service.

It is used as a method of handling stock replenishment in a multi-echelon environment

where, instead of independent control of the same item at different distribution points

using EOQ formulae, the dependent demand at a higher echelon (such as a central

warehouse) is derived from the requirements of lower echelons (such as regional

warehouses). DRP serves as a central role in coordinating the flow of goods inside the

14

factory with the system modules that place the goods in the hands of the customers

(Lysons & Farrington, 2006).

2.3.7 Barcoding Practices

Barcodes accelerate the flow of products and information throughout business. An

Electronic Point of Sale (EPOS) system verifies, checks and charges transactions,

provides instant sales reports, monitors and changes prices and sends intra- and inter-

store messages and data (Lysons & Farrington, 2006). Manufacturers use barcode

labeling to better manage their inventories, proving that a relatively simple, cost-effective

system provides up-to-date information on inventory status. When integrated into an

existing information system, barcoding allows the firm to track merchandise and to

conduct both full-scale inventories cycle counts. Inventory can be reconciled within a

short time. It provides more accurate data while saving both time and costs (Ogbabu,

2009).

Barcoding is applied in counting raw materials and finished goods inventories;

production reporting; warehouse applications including receiving, put away, picking and

shipping; identification of production bottlenecks; package tracking; and lot tracking

(Vastag & Whybark, 2005).

2.3.8 Radio Frequency Identification Practices

An RFID tag contains a silicon chip that carries an identification number and an antenna

able to transmit the number to a reading device. This means improved inventory

management and replenishment practices, which, in turn, results in a reduction of

interrupted production or lost sales due to items being out of stock (Farrington & Lysons,

2006). Individual components and products are identified and tracked throughout the

supply chain from production to point-of-sale and ensures that the right goods are

available in the right place with no discrepancies and zero errors. RFID makes the supply

chain considerably more precise and improves the efficiency and reliability of the entire

chain. As real-time information is made available, administration and planning processes

can be significantly improved (Hardgrave, Langford & Waller, 2008).

15

2.4 Firm’s Productivity

Productivity measures the relationship between products manufactured and the resources

used to create them. It is measured by comparing the quantity of output, that is, desired

results with the quantity of one or more inputs, that is, resources used, to produce that

output (Jurison, 1997) expressed as the ratio of output to input (Roach & Stephen,

1998).Productivity indicates how effectively resources are being used in the production

of various goods and is increased by producing more with fewer amounts of resources or

producing the same amount with fewer resources (Jurison, 1997).

Productivity measurements serve as scorecards of the effective use of resources by

determining if the organization is progressing well and providing information on how

effectively and efficiently the organization manages its resources (Roach & Stephen,

1998).Productivity relates to competitiveness: if two firms both have the same level of

output but one requires less input because of higher productivity, that one will be able to

charge a lower price and consequently increase its share in the market. Or that firm might

elect to charge the same price, thereby reaping a greater profit (Ondiek & Odera, 2012).

It is crucial that every firm develops and uses a comprehensive set of productivity

indicators that allows them to closely measure the extent to which an undertaking has the

right quantity of inventory in the right place at the right time, that is, the productivity of

their investment in inventory. This indicators measure the firm’s progress against

established target values for those indicators, as a way of measuring their effectiveness.

They include customer service levels which are closely related to safety stock; Inventory

costs; number of stock outs; rate of stock turn; return on investment; and lead times

(Schreibfeder, 2009, Lysons & Farrington, 2006).

2.5 Inventory Management Practices and Firm’s Productivity

Inventory management has significant for any relevant enterprise in an inventory

intensive manufacturing industry because effective practices in inventory management

will allow a firm to minimize inventory costs and avoid the consequences that come with

a shortage of material resources. Inventories are significant portions of current assets to

16

any business enterprise. Holding inventory ensures operational activities proceed

uninterrupted (Kotler & Keller, 2006). Therefore, to achieve high productivity

manufacturing firms apply various practices of inventory management to determine and

maintain an optimum level of investment in inventory that meets customer demands and

reduces inventory costs.

There have been numerous attempts to explain the relationship between inventory

management practices and the productivity of a firm. Rajeev (2010) argues that inventory

management practices are a way of acquiring competitiveness. Variables of his study

were inventory management practices as independent variable, and cost reduction as

dependent variable. The findings of the study indicated positive relationship between the

variables. Koumanakos (2008) studied the effect of inventory management on firm

performance of manufacturing firms operating in Greece. The hypothesis that lean

inventory management leads to an improvement in a firm’s financial performance was

tested. The findings suggest that the higher the level of inventories preserved by a firm,

the lower the rate of return. Eckert (2007) examined inventory management and the role

it plays in improving customer service levels. He found a positive relationship between

inventory management practices and customer satisfaction due to reduced number of

stock-outs.

2.6 Summary of Literature Review and Research Gap

The concept of inventory management has been expounded both in literature as well as

from the empirical studies done on the subject area. It is evident that management of

inventory has become a common practice among large manufacturing firms worldwide

and this is due to the various benefits that accrue to a firm as a result of managing its

inventories. Firms manage inventory to determine and maintain an optimum level

investment in inventory in order to achieve required operational performance. Firms have

continuously managed their inventory in order to improve their operations and meet

customer demand. To meet customer demand, firms have to ensure that stock-outs are

avoided without incurring high inventory costs. However, the various studies covered

have not extensively delved into inventory management practices in relation to the

17

productivity of large manufacturing firms. As a result, this study sought to explore

inventory management practices in the productivity of large manufacturing firms in

Nairobi, Kenya.

2.6.1 Conceptual Model

In this section, the identified variables to be investigated for interrelationship are

indicated. The study would seek to establish how adoption of the independent variable,

the inventory management practices can lead to realization of the dependent variable,

firm’s productivity.

Figure 2.1: Conceptual Model

Independent Variable Dependent Variable

Source: Researcher, (2015)

Inventory Management Practices

Activity Based Costing

Just-in-time

Economic Order Quantity

Materials Requirements Planning

Vendor Managed Inventory

Distributions Requirements Planning

Radio Frequency Identification

Barcoding

Firm’s Productivity

Customer Service Level

Number of stock outs

Rate of stock turn

Inventory costs

Return on investment

Lead time

18

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This chapter discusses the research methodologies employed to answer the research

questions of the study. It describes the proposed research design, the target population,

the sample design, data collection instruments and procedures, and the techniques for

data analysis.

3.2 Research Design

The research adopted a descriptive survey research design in trying to focus on large

manufacturing firms operating in Nairobi, Kenya as it permits an in-depth investigation

of the problem under study (Yount, 2006). The design accurately describes an association

between variables minimizing bias and maximizing the reliability of the data (Kothari,

2004). Descriptive studies provide simple summaries about the sample and the

observations that have been made (Prem, 1995). This ensured that appropriate answers

are obtained for the research questions.

3.3 Population of the study

The population of the study in this research comprises of large manufacturing companies

that are based in Nairobi. In determining the size of the firm, several different measures

have been used and accepted as appropriate. Some of these measures are number of

employees in the firm, capital employed, volume of sales turnover and level and type of

technology used (Kenya Industrial Research and Development Institute (KIRDI).

However, this study used the list of large manufacturing firms in Nairobi, Kenya obtained

from KAM directory. According to the Kenya Association of Manufacturers, there are a

total of 499 large manufacturing companies operating in Nairobi. The 499 manufacturing

companies represented the study population. Due to their high numbers, they were

sampled according to various sectors under which they operate. The Nairobi area has

19

been chosen because it is where most of the manufacturing firms in various sectors are

concentrated thereby giving a big population where a proportionate sample was derived.

3.4 Sample Design

Stratified Random sampling as described by Cooper and Schindler (2006), was applied to

come up with the sample size. This is because the population of large manufacturing

firms is heterogeneous, implying that a simple random sample was unrepresentative of

the population. Using stratified random sampling ensured that each manufacturing firm is

represented in the sample for fair comparison and generalization of the findings. The

sample size of the study included 50 large manufacturing companies. This is arrived at

through a formula developed by Kelley and Maxwell (2003), which is, 0.101 as the

sample size multiplied by total population (0.101* 499). This formula is derived from a

series of samples assuming non-zero probability and is appropriate when the population

of the study is large. Table 3.1 shows how the sample size was arrived at.

Table 3.1: Sample Size

Sector No. of firms % Respondents

Building, mining & construction 20 4 2

Chemical& Allied sector 70 14 7

Energy, electrical & electronics 34 6.8 3

Food & beverages 71 14.2 7

Leather & footwear 7 1.4 1

Metal & Allied sector 66 13.2 7

Motor vehicle & Accessories 27 5.4 3

20

Paper & Board sector 63 12.6 6

Pharmaceutical & medical equipment 21 4.2 2

Plastics & rubber 68 13.6 7

Textile & Apparels 35 7 4

Timber, wood & furniture 17 3.4 2

Total 499 100 50


3.5 Data Collection

The study used primary data that was collected using a self-administered questionnaire. It

consists of both open and closed ended questions that are designed to elicit responses for

qualitative and quantitative analysis respectively. The questionnaire designed for this

study comprises of two sections. The first section obtained information on the profile of

the manufacturing firm; second section sought information related to the research

objectives.

Likert questions asked the respondents to indicate the extent to which the variables are

practiced. The self-administered questionnaires were sent through official e-mails and

others were dropped at the respondent’s office where possible. The study picked

inventory manager, purchasing manager and the chief procurement officer or the

equivalent from each of the manufacturing firms to participate in the study. Role of

inventory management on productivity of manufacturing firms and its application are

relevant at these levels prompting the choice of the respondent.

3.6 Data Analysis

Data was analyzed using descriptive statistics including mean and standard deviation by

use of the relevant computer packages such as Microsoft Office Excel and Statistical

21

Package for Social Sciences (SPSS) program. This was done by tallying up responses,

computing percentages of variations as well as describing and interpreting the data in line

with the study objectives. Two methods of data analysis were therefore adopted to enable

the researcher conduct a comprehensive analysis. Objective one was analyzed through

descriptive statistics in the form of frequencies and percentages; and regression analysis

was used for objective two.

The information was displayed by use of bar charts, graphs, pie charts and tables to

search for any correlation between the variables. The following regression equation used

to show the relationship between inventory management practices and productivity of

large manufacturing firms.

y = α + β1X1 + β2X2 + β3X3 + β4X4 + β5X5 + β6X6+β7X7+β8X8+ ε

Where: y = Firm’s Productivity

α = Constant; y intercept, that is, the value of y when x is equal to zero

β1….β8 = the slope representing degree of change in independent variable by one unit

variable

X1 = Activity Based Costing practices

X2= Just-in-time management practices

X3= Economic Order Quantity practices

X4= Materials and Requirements Planning practices

X5= Vendor Managed Inventory practices

X6 = Distributions Requirements Planning practices

X7 = Radio Frequency Identification practices

X8 = Barcoding practices

ε = error term

22

CHAPTER FOUR

DATA ANALYSIS, FINDINGS AND INTERPRETATION

4.1 IntroductionThis chapter sought to establish the relationship between inventory management practices

and productivity of large manufacturing firms in Nairobi, Kenya. The chapter covers the

demographic information and the findings of the analysis based on the objectives of the

study. Descriptive and inferential statistics have been used to discuss the findings of the

study. Data was collected from inventory managers, purchasing managers and the chief

procurement officer or the equivalent from each manufacturing firm. The findings are

presented in the following sections.

4.2 Response RateThe study targeted a sample size of 50 respondents from which 44 filled in and returned

the questionnaires in good time giving a response rate of 88%. This response rate was

sufficient to make conclusions for the study as it acted as a representative. According to

Mugenda and Mugenda (1999), a response rate of 50% is adequate for analysis and

reporting; a rate of 60% is good and a response rate of 70% and over is excellent. Based

on the assertion, the response rate was excellent.

4.3 Demographic and Respondents Profile

4.3.1 Job Designation

Job position of the respondents and how long they had worked in that position in the

same organization ensured that the survey results were valid and reliable. Role of

inventory management on productivity of manufacturing firms and its application is

relevant at certain levels. Respondents were asked to indicate whether they held the

positions of inventory management, chief procurement officer, procurement manager or

purchasing manager. The findings are given in Table 4.1.

23

Table 4.1: Position in the organization

Frequency Percentage

Inventory manager 16 36

Chief procurement officer 11 25

Procurement manager 9 21

Purchasing manager 8 18

Total 44 100

Source: Research Data, (2015)

From Table 4.1, majority (36%) of the respondents were inventory managers, 25% were

chief procurement officers, 21% were procurement managers and 18% were purchasing

managers. This means that majority of the respondents were inventory managers and

chief procurement officers and were in a good position to give relevant information on

the effects of inventory management practices on firm’s productivity.

4.3.2 Length of continuous service in the current work positionThe respondent’s working experience based on the number of years they had worked in

that particular work position was useful for the study. The respondents were asked to

indicate whether they had worked in that particular position for less than five years, 5-10

years or over 10 years. The findings are shown in Figure 4.1.

Figure 4.1: Length of continuous service in the current work position


24

Figure 4.1 shows that, majority of the respondents (51.3%) indicated to have worked

while holding the same position in the organization for more than 10 years, 32.6 %

indicated to have worked for a period of 5 to 10 years while 16.1 % indicated to have

worked in that position for not more than 5 years. This implies that majority of the

respondents had worked for a considerable period of time and that they were in a good

position to give credible information relating to this research.

4.3.3 Education LevelThe level of education attained by the respondents was also useful for the study. The

respondents were asked to indicate level of education attained in terms of graduate

degree, university degree and college diploma. The findings are shown in Figure 4.2.

Figure 4.2: Education Level


On the level of education, Figure 4.2 revealed that majority of the respondents (46%)

held a bachelor’s degree, 34% of the respondents held college diplomas while 20 % of

the respondents had a master’s degree. This illustrates that the respondents were highly

educated in their field of operation owing to the amount of knowledge acquired from

school. This enabled them to give credible information relating to this research.

4.3.4 Duration of operation of the OrganizationNumber of years the firm has been in operation ensured that the survey results were valid

and reliable. This enabled the study to compare the impact of inventory management

25

practices on productivity over the years. The respondents were asked to indicate how

long the firm had been in operation and the findings are as stipulated in Figure 4.3.

Figure 4.3: Duration of operation


Figure 4.3 shows that 48.3% of the manufacturing firms have been in operation for more

than 16 years, 31.7% for between 11 to 15 years while 20% of the manufacturing firms

have been in operation for 6 to 10 years. This is an indication that most of the

organizations have had more that 10 years to interact with SCM functions and thus can be

in a good position to measure the relationship that exists between inventory management

practices and productivity of the firm.

4.3.5 Operation in other countries outside KenyaOperation in other countries was also useful for the study since inventory management

practices adopted by a firm largely depends on multinational operations. The respondents

were asked to indicate whether the firm operates in other countries outside Kenya and the

findings are as stipulated in Table 4.2.

Table 4.2: Operation in other countries outside Kenya

Opinion Frequency Percentage

Yes 39 88.6

No 5 11.4

Total 44 100


26

From Table 4.2, majority (88.6%) of the manufacturing firms operates in other countries

outside Kenya while 11.4% of the firms operate in Kenya only. This implies that both

multinational and local manufacturing firms were equitably engaged in this research.

4.3.6 Firm’s view on Inventory Management

Inventory management has enabled manufacturing firms to have adequate quantities of

high quality items available to serve customer needs, while also minimize the costs of

carrying inventory. The respondents were asked to indicate whether the firm viewed

inventory as one of the most expensive and important asset that requires proper

management so as to minimize costs and maximize profits. The findings are as stipulated

in Table 4.3.

Table 4.3: Firm’s view on Inventory Management

Opinion Frequency Percentage

The firm views inventory as one of the most

expensive and important asset that requires

proper management which is tailored to

minimizing costs and maximizing profits

while satisfying customers’ demands.

Yes 37 84.1

No 7 15.9

Total 44 100


From Table 4.3, majority of the respondents (84.1%) agree while 15.9% were of the

contrary opinion. This implies that majority of the manufacturing firms view inventory as

one of the most expensive and important asset that requires proper management in an

effort to minimize costs and maximize profits while satisfying customers’ demands.

4.4 Inventory Management Practices Adopted by Large Manufacturing

FirmsInventory management practices ensure that stocks of raw materials, work-in-progress

and finished goods are kept at levels which provide maximum service levels at minimum

27

cost. Inventory management practices include Activity Based Costing, Economic Order

Quantity, Vendor Managed Inventory, Materials and Requirements Planning,

Distribution Requirements Planning, Just-in-time, Barcoding, and Radio Frequency

Identification.

The respondents were asked to indicate to what extent the firm has adopted inventory

management practices in an effort to improve on productivity. A number of questions

were fronted to the respondents who gave their responses on a Likert scale of 1 to 5,

where 1 represented “Very small extent” and 5 represented “Very great extent”. The

results are presented as follows.

4.4.1 Just-In-Time Management Practices in large manufacturing firmsin Nairobi, KenyaJust-in-time is one of the inventory management practices used in large manufacturing

firms in Nairobi, Kenya for planned elimination of all waste and continuous improvement

of productivity. The respondents were asked to indicate to what extent they agreed with

the statement in relation to Just-in-time management practices in large manufacturing

firms and they responded to various aspects under the variable on a five-point Likert

Scale (5=very great extent, 4=great extent, 3=moderate extent, 2=small extent, and

1=very small extent). The research findings are as in Table 4.4.1 showing the resultant

means and standard deviations of the variables.

Table 4.4.1: Findings of Just-In-Time as a practice in the manufacturing firms

Just-In-Time PracticesMean Std

deviation

The firm creates items that arrive when needed, neither

earlier nor later;

4.39 0.28

The firm saves warehouse space and costs by managing

inventory using Just-in-time practice;

4.30 0.27

The firm applies Just-in-time practice to reduce lead time by

reducing set-up times, queue lengths and lot sizes;

4.27 0.25

The firm uses Just-in-time practice to reduce the frequency 4.25 0.24

28


To a great extent (4.39≤mean≥4.07) Just-in-time practices were being undertaken by the

manufacturing firms. The respondents agreed to a great extent that the firm creates items

that arrive when needed, neither earlier nor later ,that the firm saves warehouse space and

costs, the firm applies Just-in-time practice to reduce lead time by reducing set-up times,

queue lengths and lot sizes, the firm is able to reduce the frequency of ordering, the firm

manufactures products based on planned elimination of waste and continuous

improvement of productivity, the firm reduces inventory and its associated carrying cost

by using Just-in-time, the firm has only the required inventory when needed, that the firm

uses Just-in-time practice to timely replenish inventory, the firm makes what the

customers need, when it is needed and in the quantity needed using the minimum

resources, and that the firm uses Just-in-time practice to improve quality of products to

zero defects.

The finding is in line with the Young (2002) study, that Just-in-time is a Philosophy of

manufacturing based on planned elimination of all waste and continuous improvement of

productivity and further concurs with Eckert (2007), that Just-in-time improves quality to

of ordering;

The firm manufactures products based on planned

elimination of waste and continuous improvement of

productivity;

4.25 0.25

The firm reduces inventory and its associated carrying costs

by using Just-in-time practice;

4.20 0.22

The firm has only the required inventory when needed; 4.16 0.23

The firm uses Just-in-time practice to timely replenish

inventory;

4.15 0.26

The firm makes what the customers need, when it is needed

and in the quantity needed using the minimum resources;

4.14 0.21

The firm uses Just-in-time practice to improve quality of

products to zero defects.

4.07 0.20

Overall Mean 4.28

29

zero defects; reduces lead time by reducing set-up times, queue lengths and lot sizes and

accomplishes these things at minimum cost.

4.4.2 Activity Based Costing Practices in large manufacturing firms inNairobi, KenyaActivity Based Costing is an inventory management practice used in large manufacturing

firms in Nairobi, Kenya to allocate time and money in inventory management in an effort

to improve on productivity. The respondents were asked to indicate to what extent they

agreed with the statement in relation to Activity Based Costing practices in large

manufacturing firms and they responded to various aspects under the variable on a five-

point Likert Scale (5=very great extent, 4=great extent, 3=moderate extent, 2=small

extent, and 1=very small extent). The research findings are as in Table 4.4.2 showing the

resultant means and standard deviations of the variables.

Table 4.4.2: Findings of Activity Based Costing as a practice in the manufacturingfirms

Activity Based Costing PracticesMean Std

deviationThe firm uses Activity Based Costing practice to assess the status

of items in inventory;4.51 0.25

Activity Based Costing practices enables the firm to deal with

multiple product lines and multitude of stock-keeping units;4.45 0.25

The firm uses Activity Based Costing as an inventory classification

system to allocate time and money in inventory management;4.43 0.25

The firm uses Activity Based Costing classification to develop

policies and controls for each class of inventory;4.41 0.24

The firm uses Activity Based Costing practice to determine the

specific attention required by each group of inventory;4.41 0.25

The firm divides inventory into different classifications of A, B or

C;4.39 0.24

The firm focuses on the items that account for the majority of

inventory;4.29 0.24

30


To a great extent (4.51≤mean≥4.27) Activity Based Costing practices were being

undertaken by the manufacturing firms. The respondents agreed to a very great extent

that the firm uses Activity Based Costing to assess the status of items in inventory and

that Activity Based Costing enables the firm to deal with multiple product lines and

multitude of stock-keeping units. Further, the respondents agreed to a great extent that the

firm uses Activity Based Costing as an inventory classification system to allocate time

and money in inventory management , the firm uses Activity Based Costing classification

to develop policies and controls for each class of inventory, the firm uses Activity Based

Costing to determine the specific attention required by each group of inventory, that the

firm divides inventory into different classifications of A, B or C and then focuses on the

items that account for the majority of inventory, and that the firm uses Activity Based

Costing for ultimate reduction of safety stock.

This finding concurs with the Banjoko (2004) study that product cost determination under

Activity Based Costing is more accurate and reliable because it focuses on the cause and

effect linkage of costs and activities in the context of producing goods.

4.4.3 Economic Order Quantity Practices in large manufacturing firms

in Nairobi, KenyaEconomic Order Quantity is one of the inventory management practices used in large

manufacturing firms in Nairobi, Kenya in an effort to improve on productivity by

determining the optimal ordering quantity for an item of stock that minimizes cost. The

respondents were asked to indicate to what extent they agreed with the statement in

relation to Economic Order Quantity practices in large manufacturing firms and they

responded to various aspects under the variable on a five-point Likert Scale (5=very great

extent, 4=great extent, 3=moderate extent, 2=small extent, and 1=very small extent). The

The firm uses Activity Based Costing practice for ultimate

reduction of safety stock.4.27 0.23

Overall Mean 4.39

31

research findings are as in Table 4.4.3 showing the resultant means and standard

deviations of the variables.

Table 4.4.3: Findings of Economic Order Quantity as a practice in themanufacturing firms

Economic Order Quantity Practices Mean Std

deviation

Economic Order Quantity practice enables the firm to plan

for its inventory replenishment on a timely basis;4.52 0.27

The firm uses Economic Order Quantity to ensure that

inventory comes in and goes out immediately;4.50 0.26

The firm maintains that level of inventory that minimizes

the total of inventory holding costs and ordering cost;4.48 0.25

The firm orders the optimal ordering quantity for an item of

stock that minimizes cost;4.45 0.26

The firm uses Economic Order Quantity practice to ensure

that supply of inventory does not hit a stock out;4.36 0.24

Economic Order Quantity practice helps the firm in

deciding when to order an item of stock;4.32 0.25

The firm uses Economic Order Quantity practice to estimate

how much of an item to order;4.27 0.25

The firm uses Economic Order Quantity practice to

determine what items fit into the just-in-time model;4.26 0.25

The firm minimizes storage costs within the warehouse by

use of Economic Order Quantity practice.4.25 0.27

Overall Mean 4.37


To a great extent (4.52≤mean≥4.25) Economic Order Quantity practices were being

undertaken by the manufacturing firms. The respondents agreed to a very great extent

that Economic Order Quantity enables the firm to plan for its inventory replenishment on

a timely basis, that the firm uses Economic Order Quantity to ensure that inventory

32

comes in and goes out immediately, the firm maintains that level of inventory that

minimizes the total of inventory holding costs and ordering cost, and that the firm orders

the optimal ordering quantity for an item of stock that minimizes cost. Further,

respondents agreed to a great extent the firm uses Economic Order Quantity practice to

ensure that supply of inventory does not hit a stock out, Economic Order Quantity

practice helps the firm in deciding when to order an item of stock, the firm uses

Economic Order Quantity practice to estimate how much of an item to order, the firm

uses Economic Order Quantity practice to determine what items fit into the Just-in-time

model, and that the firm minimizes storage costs within the warehouse by using

Economic Order Quantity.

This finding supports the argument by Lysons & Farrington (2006), that Economic Order

Quantity practice calculates the most economical number of items that a business should

order to minimize costs and maximize value when re-stocking inventory.

4.4.4 Vendor Managed Inventory Practices in large manufacturing

firms in Nairobi, KenyaVendor Managed Inventory is one of the inventory management practices used in large

manufacturing firms in Nairobi, Kenya that centralizes inventory replacement decisions

with upstream distributors. The respondents were asked to indicate to what extent they

agreed with the statement in relation to Vendor Managed Inventory practices in large





Table 4.4.4: Findings of Vendor Managed Inventory as a practice in themanufacturing firms

Vendor Managed Inventory Practices Mean Std

deviation

The firm uses Vendor Managed Inventory practice to 4.45 0.26

33

maintain timely delivery;

The firm uses Vendor Managed Inventory practice for

supplier partnerships;4.43 0.25

The firm reduces the overall cost of product and increases

on margins by passing costs of ordering and shipping to the

supplier;

4.43 0.26

The firm buys specified items solely from the distributor

and no longer keeps items in stock;4.34 0.23

The firm uses Vendor Managed Inventory to reduce

chances to defective items and risk of obsolescence;4.34 0.24

The firm uses Vendor Managed Inventory practice to

achieve flexibility to responses;4.32 0.25

The firm enhances working capital by reducing inventory

levels with use of Vendor Managed Inventory practice;4.31 0.24

The firm uses Vendor Managed Inventory practice to

reduce lead times with enhanced sales;4.27 0.25

The firm centralizes inventory replenishment decisions

with upstream distributors;4.23 0.26

Vendor Managed Inventory practice enables the firm to

eliminate the need to reorder and avoid stock outs.4.22 0.26

Overall Mean 4.33


To a great extent (4.45≤mean≥4.22) Vendor Managed Inventory practices were being

used by the manufacturing firms. The respondents agreed to a very great extent that the

firm uses Vendor Managed Inventory practice to maintain timely delivery. Further, the

respondents agreed to a great extent that the firm uses Vendor Managed Inventory for

supplier partnerships, the firm uses Vendor Managed Inventory to reduce the overall cost

of product and increase on margins by passing costs of ordering and shipping to the

supplier, that the firm buys specified items solely from the distributor and no longer

keeps items in stock, the firm uses Vendor Managed Inventory to reduce chances to

34

defective items and risk of obsolescence, the firm uses Vendor Managed Inventory

practice to achieve flexibility to responses, the firm enhances working capital by reducing

inventory levels with use of Vendor Managed Inventory practice, the firm uses Vendor

Managed Inventory practice to reduce lead times with enhanced sales, the firm

centralizes inventory replenishment decisions with upstream distributors, and that Vendor

Managed Inventory practice enables the firm to eliminate the need to reorder and avoid

stock outs.

This finding supports the study by Brownell (2005) that partnership enables

manufacturing firms reduce chances to defective items and the risk of obsolescence

because the supplier is involved and for this to work, proper communication is an

important factor. It enhances working capital due to the reduced inventory levels and

obsolescence and enhanced stock turn with improved cash flow.

4.4.5 Materials and Requirements Planning Practices in large

manufacturing firms in Nairobi, KenyaMaterials and Requirements Planning is one of the inventory management practices used

in large manufacturing firms in Nairobi, Kenya that results to relatively low inventory

levels and reduced warehousing and material handling costs. The respondents were asked

to indicate to what extent they agreed with the statement in relation to Materials and

Requirements Planning practices in large manufacturing firms and they responded to

various aspects under the variable on a five-point Likert Scale (5=very great extent,

4=great extent, 3=moderate extent, 2=small extent, and 1=very small extent). The

research findings are as in Table 4.4.5 showing the resultant means and standard

deviations of the variables.

Table 4.4.5: Findings of Materials and Requirements Planning as a practice in themanufacturing firms

Materials and Requirements Planning Practices Mean Std

deviation

35

Materials and Requirements Planning assists the firms in the

detailed planning of production and inventory management;4.52 0.27

The firm uses Materials and Requirements Planning to track

orders throughout the entire manufacturing process;4.48 0.25

The firm increases return on assets through decreased

conversion costs by using Materials and Requirements

Planning;

4.48 0.25

The firm reduces inventory levels by using Materials and

Requirements Planning;4.48 0.26

The firm uses Materials and Requirements Planning to reduce

warehousing costs and material handling costs;4.45 0.25

The firm uses Materials and Requirements Planning to reduce

the amount of idle time;4.43 0.25

The firm uses Materials and Requirement Planning to control

the flow of supplies to meet planned requirements;4.36 0.24

Materials and Requirements Planning enables the firm to

move the right supplies at the right time to manufacturing

points;

4.34 0.24

Materials and Requirements Planning enables the firm

achieve efficiency of information flow;4.20 0.24

The firm makes available assemblies just before they are

required by the next stage of production or for delivery.4.14 0.22

Overall Mean 4.38


To a great extent (4.52≤mean≥4.14) Materials and Requirements Planning practices were

being undertaken by the manufacturing firms. The respondents agreed to a very great

extent that Materials and Requirements Planning assists the firms in the detailed planning

of production and inventory management, the firm uses Materials and Requirements

Planning to track orders throughout the entire manufacturing process, the firm reduces

inventory levels by using Materials and Requirements Planning , the firm increases return

36

on assets through decreased conversion costs by using Materials and Requirements

Planning, and that the firm uses Materials and Requirements Planning to reduce

warehousing costs and material handling cost. Further, the respondents agreed to a great

extent that the firm uses Materials and Requirements Planning to reduce the amount of

idle time, the firm uses Materials and Requirement Planning to control the flow of

supplies to meet planned requirements, Materials and Requirements Planning enables the

firm to move the right supplies at the right time to manufacturing points, Materials and

Requirements Planning enables the firm to achieve efficiency of information flow, and

that the firm makes available assemblies just before they are required by the next stage of

production or for delivery.

This finding is in line with the Saunders (1997) study that Materials and Requirements

Planning inventory system is very useful to manufacturing firms since it results to

relatively low inventory levels and significantly reduced holding and handling costs.

4.4.6 Distribution Requirements Planning Practices in large

manufacturing firms in Nairobi, KenyaDistribution Requirements Planning is one of the inventory management practices used in

large manufacturing firms in Nairobi, Kenya to project requirements for finished goods at

the point of demand. The respondents were asked to indicate to what extent they agreed

with the statement in relation to Distribution Requirements Planning practices in large





Table 4.4.6: Findings of Distribution Requirements Planning as a practice in themanufacturing firms

Distribution Requirements Planning PracticesMean Std

deviation

37

Distribution Requirements Planning serves as a central role

in coordinating the flow of goods inside the factory;

4.45 0.26

The firm uses Distribution Requirements Planning as a

method of handling stock replenishment in a multi-echelon

environment;

4.44 0.26

Distribution Requirements Planning acts by pulling the

product through the distribution system once demand has

been identified;

4.43 0.25

The firm plans orders within a supply chain by using

Distribution Requirements Planning;

4.42 0.26

The firm uses Distribution Requirements Planning to

forecast requirements for finished products at the point of

demand;

4.39 0.24

The firm uses Distribution Requirements Planning to reduce

lead time;

4.39 0.24

The firm uses Distribution Requirements Planning for

lower investment in inventory;

4.29 0.27

The firm uses Distribution Requirements Planning to

improve customer service delivery;

4.28 0.26

The firm uses Distribution Requirements Planning to set

inventory control parameters like a safety stock.

4.23 0.22

Overall Mean 4.36


To a great extent (4.45≤mean≥4.23) Distribution Requirements Planning practices were

being undertaken by the manufacturing firms. The respondents agreed to a very great

extent that Distribution Requirements Planning serves as a central role in coordinating the

flow of goods inside the factory. The respondents further agreed to a great extent that the

firm uses Distribution Requirements Planning as a method of handling stock

replenishment in a multi-echelon environment , Distribution Requirements Planning acts

by pulling the product through the distribution system once demand has been identified,

38

that the firm plans orders within a supply chain by using Distribution Requirements

Planning, the firm uses Distribution Requirements Planning to forecast requirements for

finished products at the point of demand, that the firm uses Distribution Requirements

Planning to reduce lead time, the firm uses Distribution Requirements Planning for lower

investment in inventory, Distribution Requirements Planning is used to improve customer

service delivery, and that the firm uses Distribution Requirements Planning to set

inventory control parameters like a safety stock.

This finding is in line with the Baily, Farmer, Barry, Jessop, & David (2008) study that

Distribution Requirements Planning helps to forecast demand and reflects the distribution

system on a time-phased requirement.

4.4.7 Bar coding Practices in large manufacturing firms in Nairobi,

KenyaBarcoding is an inventory management practice used in large manufacturing firms in

Nairobi, Kenya that accelerates the flow of products and information in an effort to

improve on productivity. The respondents were asked to indicate to what extent they

agreed with the statement in relation to barcoding practices in large manufacturing firms

and they responded to various aspects under the variable on a five-point Likert Scale

(5=very great extent, 4=great extent, 3=moderate extent, 2=small extent, and 1=very

small extent). The research findings are as in Table 4.4.7 showing the resultant means

and standard deviations of the variables.

Table 4.4.7: Findings of Barcoding as a practice in the manufacturing firms

Barcoding Practices Mean Std

deviation

The firm uses barcoding to reconcile inventory within a short time thus

saving both time and costs;4.48 0.25

The firm uses barcoding to verify, check and charge transactions; 4.48 0.26

Barcode allows the firm to track merchandise and conduct inventory

cycle counts;4.43 0.25

39

The firm uses barcoding to accelerate the flow of products and

information;4.41 0.24

Barcoding practices are used by the firm for package tracking and lot

tracking;

4.39 0.27

The firm applies barcording in counting raw materials and finished

goods inventory;4.38 0.25

The firm applies barcoding in warehouse applications of receiving, put

away, picking and shipping;4.32 0.23

Barcode labeling enables the firm to provide up-to-date information on

inventory status;4.27 0.22

Barcoding enables the firm to identify production bottlenecks. 4.27 0.21

Overall Mean 4.38


To a great extent (4.48≤mean≥4.27) barcoding practices were being undertaken by the

manufacturing firms. The respondents agreed to a very great extent that the firm uses

barcoding to reconcile inventory within a short time thus saving time and costs, and that

the firm uses barcoding to verify, check and charge transactions. The respondents further

agreed to a great extent that barcoding allows the firm to track merchandise and conduct

inventory cycle counts, that the firm uses barcoding to accelerate the flow of products

and information, barcoding practices are used by the firm for package tracking and lot

tracking, that the firm applies barcording in counting raw materials and finished goods

inventory, the firm applies barcoding in warehouse applications of receiving, put away,

picking and shipping, barcode labeling enables the firm to provide up-to-date information

on inventory status, and that barcoding enables the firm to identify production

bottlenecks.

This finding is in line with the Lysons & Farrington (2006) study that barcoding uses an

Electronic Point of Sale (EPOS) system that verifies checks and charges transactions,

provides instant sales reports, monitors and changes prices and sends intra- and inter-

store messages and data.

40

4.4.8 Radio Frequency Identification Practices in large manufacturing

firms in Nairobi, KenyaRadio Frequency Identification is one of the inventory management practices used in

large manufacturing firms in Nairobi, Kenya in an effort to improve inventory

management and replenishment practices. The respondents were asked to indicate to what

extent they agreed with the statement in relation to Radio Frequency Identification

practices in large manufacturing firms and they responded to various aspects under the

variable on a five-point Likert Scale (5=very great extent, 4=great extent, 3=moderate

extent, 2=small extent, and 1=very small extent). The research findings are as in Table

4.4.8 showing the resultant means and standard deviations of the variables.

Table 4.4.8: Findings of Radio Frequency Identification as a practice in themanufacturing firms

Radio Frequency Identification PracticesMean Std

deviation

The firm uses Radio Frequency Identification to provide real-time

information about inventory;4.33 0.27

Radio Frequency Identification ensures that the right goods are

available in the right place with no discrepancies and zero errors;4.30 0.23

Real time information from Radio Frequency Identification enables

the firm to improve planning processes;4.28 0.23

Radio Frequency Identification enables the firm to identify

components and products throughout the supply chain;4.27 0.22

The firm uses Radio Frequency Identification to track components

and products throughout the supply chain;4.27 0.25

The firm uses Radio Frequency Identification to transmit the

number of an item of stock to a reading device;4.14 0.24

Radio Frequency Identification enables the firm to avoid

interrupted production or lost sales due to items being out of stock;4.11 0.21

The firm uses Radio Frequency Identification practices to handle

stock replenishment.4.05 0.22

Overall Mean 4.21

41


To a great extent (4.33≤mean≥4.05) Radio Frequency Identification practices were being

undertaken by the manufacturing firms. The respondents agreed to a great extent that the

firm uses Radio Frequency Identification to provide real-time information about

inventory, Radio Frequency Identification ensures that the right goods are available in the

right place with no discrepancies and zero errors, that real time information from Radio

Frequency Identification enables the firms to improve planning processes, Radio

Frequency Identification enables the firm to identify components and products

throughout the supply chain, the firm uses Radio Frequency Identification to track

components and products throughout the supply chain, the firm transmits the number of

an item of stock to a reading device, Radio Frequency Identification enables the firms to

avoid interrupted production or lost sales due to items being out of stock, and that the

firm uses Radio Frequency Identification practices to handle stock replenishment.

This finding is in line with the Farrington & Lysons (2006) study that a Radio Frequency

Identification tag contains a silicon chip that carries an identification number and an

antenna able to transmit the number to a reading device. This means improved inventory

management and replenishment practices, which, in turn, results in a reduction of

interrupted production or lost sales due to items being out of stock.

4.5 Firm’s Overall ProductivityProductivity measures the relationship between products manufactured and the resources

used to create them. It is measured by comparing the quantity of output, that is, desired

results with the quantity of one or more inputs, that is, resources used, to produce that

output. Respondents were asked to indicate their firm’s overall productivity in terms of

whether it was excellent, above average or below average and the findings are

summarized in Table 4.5.

Table 4.5: Firm’s Overall Productivity

Rate Frequency Percentage

Above average 22 50.0

42

Excellent 18 40.9

Below average 4 9.1

Total 44 100


From Table 4.5, majority (50%) of the respondents agreed that the firm’s overall

productivity was above average, 40.9% of the respondents indicated that it was excellent

while 9.1% of the respondents indicated that the firm’s overalls productivity was below

average. This implies that though productivity of many firms was above average there

was need for large manufacturing firms to improve their productivity by adopting proven

practices among them inventory management practices.

This finding is in line with Chapman et al. (2000) study that effective inventory

management has become a critical issue for firms’ productivity. Many large

manufacturing firms have saved millions of dollars in costs and decreased inventories

while improving efficiency and customer satisfaction though various inventory

management practices. This is because inventory management results to integration of

better production methods to minimize costs and wastages.

4.5.1 Inventory CostsInventory costs is one of the productivity indicators that is used to closely measure the

extent to which an undertaking has the right quantity of inventory in the right place at the

right time, that is, the productivity of the firm’s investment in inventory. The respondents

were asked to indicate approximate figures for the total ordering costs, storage and

holding costs and cost of stock out they have incurred for the past five years. The

findings are summarized in Table 4.5.1 showing the resultant means.

Table 4.5.1: Inventory Costs

Inventory costs 2009 2010 2011 2013 2014 Mean

Total ordering costs (Kshs) 10.12 9.65 8.45 7.12 6.65 8.40

Total storage and holding costs (Kshs) 8.62 6.32 5.31 4.21 3.75 5.64

Cost of stock out (Kshs) 7.6 7.3 5.64 4.22 2.1 5.37

43


From Table 4.5.1, total ordering cost, total storage and holding costs, and cost of stock

out recorded a significant decrease over the past five years. This finding concurs with the

Kruger (2005) and Lysons (2000) study, that to ensure organizational growth and

productivity, it is important that good inventory management be practiced since a

substantial share of fund is invested in a firm’s inventory. The concept of inventory

management practices basically focuses on the techniques used to ensure that stock of

raw materials or other supplies, work-in-progress and finished goods are kept at levels

which provide maximum service levels at minimum costs.

4.5.2 Customer ServiceCustomer service level is one of the most important measurements of productivity

because if the firm doesn’t have what its customers want, when they want it, they will

probably look for the product elsewhere. Respondents were asked to give indications of

the customer service levels for the past five years under various aspects of on time

delivery, order fulfillment rates, order fulfillment cycle time and orders received as

specified. The findings are summarized in Table 4.5.2 showing the resultant means.

Table 4.5.2: Customer Service

Customer Service 2009 2010 2011 2013 2014 Mean

Orders received as specified 44 52 75 81 88 68.00

On time delivery 36 54 68 82 89 65.80

Order fulfillment rates 31 50 62 78 85 61.20

Order fulfillment cycle time 38 58 67 63 74 60.00


From the finding, on time delivery and orders received as specified were found to be the

most common indicators. Order fulfillment rates and order fulfillment cycle time also

increased in the recent years. This means that the level of customer service for

manufacturing firms continued to improve over the past five years. This finding is in line

with the Jay & Barry (2006) study, that inventory management is very crucial to a firm

because it is tailored to satisfying customer’s demands by ensuring that balanced items of

44

stock are maintained at the right quantity, quality and that are available at the right time

and in the right place.

4.5.3 Stock outsStock outs indicate where a demand cannot be met due to the absence of the required

inventory and monitoring this helps manufacturing firms know whether they have the

right mix of stock and quantity. The respondents were asked to give an indication of the

approximate number of times a product is out of stock, a product line has been shut down

due to inventory stock out, number of times customers have back-ordered a product and

number of customers lost due to lack of product over a period of five years. The findings

are summarized in Table 4.5.3 showing the resultant means and standard deviation.

Table 4.5.3: Stock Outs

Stock outs 2009 2010 2011 2013 2014 Mean Std

deviation

Number of customers lost

due to lack of product;460 340 280 195 82 271.4 0.18

Number of times a product

is out of stock;14 8 7 5 4 7.60 0.21

Number of times a product

line has been shut down due

to inventory stock out;

15 6 3 4 3 6.21 0.15

Number of times customers

have back-ordered a product11 6 5 2 3 5.40 0.15


From the stock outs assessment, the finding revealed that the number of customers lost

due to lack of product, the number of times a product is out of stock, number of times a

product line has been shut down due to manufacturing inventory stock out, and the

number of times customers have back-ordered a product had reduced significantly over

the past five years. The finding is in line with the Brigham & Ehrhard (2005) study, that

45

inventory management has enabled firms to have adequate quantities of high quality

items available to serve customer needs, while also minimize the costs of carrying

inventory.

4.5.4 Inventory TurnoverInventory turnover represents the amount of profit earned for every shilling of the

average inventory investment. The respondents were asked to give an indication of the

approximate number of times the firm has sold off or used up its complete inventory and

the number of times inventory has been replaced over a period of five years. The findings

are summarized in Table 4.5.4.

Table 4.5.4: Inventory Turnover

Inventory Turnover 2009 2010 2011 2013 2014 Mean

Number of times the firm has sold off or

used up its complete inventory3 4 8 7 6

5.6

Number of times inventory has been

replaced2 1 6 4 9

4.4


From Table 4.5.4, the number of times the firm has sold off or used up its complete

inventory increased over the past five years. The number of times inventory has been

replaced also increased over time. This finding concurs with the Green & Inman (2005)

study, that inventory control eliminates buffer stock and minimizes waste in production

process. Inventory management positively affects the profitability of a business firm.

4.6 Inferential Statistics

4.6.1 Regression AnalysisFurther the researcher conducted a multiple regression analysis so as to analyze the

inventory management practices and productivity of large manufacturing firms in

Nairobi, Kenya. The researcher applied the statistical package for social sciences (SPSS)

to code, enter and compute the measurements of the multiple regressions for the study.

46

Table 4.6.1: Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate

1 .924 .854 .813 .223


Adjusted R squared is the coefficient of determination which explains the extent to which

changes in the dependent variable can be explained by changes in the independent

variable or the percentage of variation in the dependent variable. From Table 4.6.1, the

value of Adjusted R Square was 0.813 an indication that there was a variation of .813

percent on equitable Firm’s Productivity due to changes in the independent variable

(Activity Based Costing, Just-in-time, Economic Order Quantity, Materials and

Requirements Planning, Vendor Managed Inventory, Distributions Requirements

Planning, Radio Frequency Identification and Barcoding practices).

This shows that 81.3 percent changes in equitable firm’s productivity could be

accounted to inventory management practices (Activity Based Costing, Just-in-time,

Economic Order Quantity, Materials and Requirements Planning, Vendor Managed

Inventory, Distributions Requirements Planning, Radio Frequency Identification and Bar

coding). R is the correlation coefficient which shows the relationship between the study

variables. From Table 4.6.1, it is notable that there extists a strong positive relationship

between the study variables as shown by the value of 0.924.

4.6.2 ANOVA

Table 4.6.2: ANOVA (Analysis of Variance)

Model Sum of Squares Df Mean Square F Sig.

1Regression 63.588 4 15.897 7.062 .001b

Residual 87.789 39 2.251

47

Total 151.377 43


Critical value = 2.65

Analysis of Variance (ANOVA) consists of calculations that provide information about

levels of variability within a regression model and forms a basis for tests of significance.

The "F" column provides a statistic for testing the hypothesis that all β = 0 against the

null hypothesis that β ≠ 0 (Weisberg, 2005).

From the findings the significance value (p- value) is .001 which is less than 0.05 thus the

model is statistically significance in predicting how Activity Based Costing, Just-in-time,

Economic Order Quantity, Materials and Requirements Planning, Vendor Managed

Inventory, Distributions Requirements Planning, Radio Frequency Identification and

Barcoding practices affect the productivity of large manufacturing firms.

The calculated value at 5% level of significance was 7.062. Since the calculated value is

greater than the critical value (7.062>2.65), this shows that the overall model was

significant and that Activity Based Costing, Just-in-time, Economic Order Quantity,

Materials and Requirements Planning, Vendor Managed Inventory, Distributions

Requirements Planning, Radio Frequency Identification and Barcoding practices all have

a positive effect on the firm’s productivity.

4.6.3 Regression CoefficientMultiple regression analysis was conducted to determine the relationship between

inventory management practices and productivity of large manufacturing firms.

Table 4.6.3: Regression Coefficients

Model

Unstandardized

Coefficients

Standardized

Coefficients

B

Std.

Error Beta T Sig.

1 Constant -1.421 .358 -3.969 .029

48

Activity Based Costing .431 .065 .421 6.631 .001

Just-In-Time .472 .098 .452 4.816 .012

Economic Order Quantity .362 .074 .341 4.892 .018

Materials and Requirements Planning .341 .102 .369 3.343 .003

Vendor Managed Inventory .387 .096 .341 4.031 .017

Distributions Requirements Planning .394 .104 .389 3.788 .394

Radio Frequency Identification .471 .114 .455 4.132 .471

Bar coding .422 .099 .398 4.263 .422


As per the data in Table 4.6.3, the equation

(y = α + β1X1 + β2X2 + β3X3 + β4X4 + β5X5 + β6X6 + β7X7 + β8X8 + ε) becomes:

Y = 1.421+ 0.431X1 + 0.472X2 + 0.362X3 + 0.341X4 + 0.387X5 +0.394X6 + 0.471X7

+0.422X8

The regression equation has established that taking all factors into account (Activity

based costing, Just-in-time, Economic Order Quantity, Materials and Requirements

Planning, Vendor Managed Inventory, Distributions Requirements Planning, Radio

Frequency Identification and Barcoding practices) constant at zero, productivity of large

manufacturing firms will be 1.421.The findings presented also shows that taking all other

independent variables at zero, a unit increase in Activity Based Costing practices will

lead to a 0.431 increase in productivity of large manufacturing firms; a unit increase in

Just-in-time management practices will lead to a 0.472 increase in productivity of large

manufacturing firms; a unit increase in Economic Order Quantity practices will lead to a

0.362 increase in productivity of large manufacturing firms; a unit increase in Materials

and Requirements Planning practices will lead to a 0.341increase in productivity of large

manufacturing firms; a unit increase in Vendor Managed Inventory practices will lead to

a 0.387 increase in productivity of large manufacturing firms; a unit increase in

Distributions Requirements Planning practices will lead to a 0.394 increase in

productivity of large manufacturing firms; a unit increase in Radio Frequency

49

Identification practices will lead to a 0.371increase in productivity of large manufacturing

firms; and a unit increase in Barcoding practices will lead to a 0.422 increase in

productivity of large manufacturing firms. All the variables were significant as their

significant value was less than 0.05 (p-value<0.05).

The finding of the study is in line with the Chapman et al. (2000) study that effective

inventory management has become a critical issue for firms’ productivity. Inventory

management is essential in the operation of any business that wishes to achieve efficiency

in production. Many large manufacturing firms have saved millions of dollars in costs

and decreased inventories while improving efficiency and customer satisfaction though

various inventory management practices .This is because inventory management results

to integration of better production methods to minimize costs and wastages.

The finding also supports the study by Kotler & Keller (2006) that inventory

management has significant for any relevant enterprise in an inventory intensive

manufacturing industry because effective practices in inventory management will allow a

firm to minimize inventory costs and avoid the consequences that come with a shortage

of material resources. Inventories are significant portions of current assets to

manufacturing firms. Holding inventory ensures operational activities proceed

uninterrupted, therefore, to achieve high productivity manufacturing firms apply various

practices of inventory management to determine and maintain an optimum level of

investment in inventory that meets customer demands and reduces inventory costs.

50

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

This chapter presents the summary of the study findings, conclusion and

recommendations drawn from the study findings. The chapter is based on the study

objectives, which were to establish inventory management practices commonly used by

large manufacturing firms in Nairobi, Kenya and to determine the relationship between

inventory management practices and productivity of large manufacturing firms in

Nairobi, Kenya.

5.2 Summary of the FindingsThe study established that the firm viewed inventory as one of the most expensive and

important asset that requires proper management so as to minimize costs and maximize

profits while satisfying customers’ demands. The firm considers Just-in-time to

51

manufacture products based on planned elimination of waste and continuous

improvement of productivity; the firm makes what the customers need, when it is needed

and in the quantity needed using the minimum resources; the firm has only the required

inventory when needed; the firm reduces inventory and its associated carrying costs by

using Just-in-time practice; Just-in-time practice improves quality of products to zero

defects; the firm applies Just-in-time practice to reduce lead time by reducing set-up

times, queue lengths and lot sizes at minimum cost; the firm creates items that arrive

when needed, neither earlier nor later; the firm saves warehouse space and costs by

managing inventory; the firm uses Just-in-time practice to timely replenish inventory; and

reduce the frequency of ordering.

The study revealed that the firm classifies its inventory using inventory classification

system so as to allocate time and money in inventory management; Activity Based

Costing practice enables the firm to deal with multiple product lines and multitude of

stock-keeping units; the firm assesses the status of items in inventory using Activity

Based Costing; the firm divides inventory into different classifications of A, B or C and

determine the specific attention required by each group of inventory; the firm focuses on

the items that account for the majority of inventory; the firm uses Activity Based Costing

classification to develop policies and controls for each class of inventory; and for

ultimate reduction of safety stock. This finding concurs with Banjoko (2004), that

product cost determination under Activity Based Costing is more accurate and reliable

because it focuses on the cause and effect linkage of costs and activities in the context of

producing goods.

Further, the study found out that the firm orders the optimal ordering quantity for an item

of stock that minimizes cost; the firm maintains that level of inventory that minimizes the

total of inventory holding costs and ordering cost; the firm estimates how much of an

item to order by using Economic Order Quantity; the firm ensures that supply of

inventory does not hit a stock out; Economic Order Quantity enables the firm to plan for

its inventory replenishment on a timely basis; inventory comes in and goes out

immediately thus minimizing storage costs within the warehouse; the firm uses Economic

Order Quantity in deciding when to order an item of stock; and to determine what items

fit into the Just-in-time model.

52

The study also established that the firm centralizes inventory replenishment decisions

with upstream distributors; the firm buys specified items solely from the distributor and

no longer keeps items in stock; the firm uses Vendor Managed Inventory for supplier

partnerships; the firm reduces chances to defective items and risk of obsolescence; the

firm enhances working capital by reducing inventory levels with use of Vendor Managed

Inventory; the firm eliminates the need to reorder and avoids stock outs; the firm reduces

the overall cost of product and increases on margins by passing costs of ordering and

shipping to the supplier; the firm uses Vendor Managed Inventory to reduce lead times

with enhanced sales; to maintain timely delivery; and to achieve flexibility to responses.

This finding is in line with the Brownell (2005) study that partnership enables

manufacturing firms reduce chances to defective items and the risk of obsolescence

because the supplier is involved and for this to work, proper communication is an

important factor.

The study found out that the firm makes available assemblies just before they are

required by the next stage of production or for delivery; the firm uses Materials

Requirement Planning to control the flow of supplies to meet planned requirements; the

firm track orders throughout the entire manufacturing process; the firm move the right

supplies at the right time to manufacturing points; Materials Requirements Planning

assists the firms in the detailed planning of production and inventory management; the

firm uses Materials Requirements Planning to reduce the amount of idle time; to reduce

warehousing costs and material handling costs; to reduce inventory levels; and to achieve

efficiency of information flow; the firm increases return on assets through decreased

conversion costs by using Materials and Requirements Planning.

The research further revealed that the firm pulls the product through the distribution

system once demand has been identified; the firm sets inventory control parameters like a

safety stock using Distribution Requirements Planning; the firm plans orders within a

supply chain; the firm forecasts requirements for finished products at the point of

demand; the firm uses Distribution Requirements Planning for lower investment in

inventory; Distribution Requirements Planning serves as a central role in coordinating the

flow of goods inside the factory; Distribution Requirements Planning is used by the firm

as a method of handling stock replenishment in a multi-echelon environment; the firm

53

uses Distribution Requirements Planning to reduce lead time; and to improve Customer

Service Delivery. This finding supports the argument by Bailey, Farmer, Barry, Jessop, &

David, (2008) that Distribution Requirements Planning helps to forecast demand and

reflects the distribution system on a time-phased requirement.

The study established that in an effort to improve on productivity, the firm uses

barcoding to reconcile inventory within a short time thus saving both time and costs;

barcoding allows the firm to track merchandise and conduct inventory cycle counts; the

firm enables provides up-to-date information on inventory status by using barcode

labeling; the firm accelerates the flow of products and information; the firm uses

barcoding to verify, check and charge transactions; the firm applies barcoding in

warehouse applications of receiving, put away, picking and shipping; the firm applies

barcording in counting raw materials and finished goods inventory; to identify production

bottlenecks; and for package tracking and lot tracking.

The study found out that the firm transmits the number of an item of stock to a reading

device using Radio Frequency Identification; the firm uses Radio Frequency

Identification practices to handle stock replenishment; the firm identifies components and

products throughout the supply chain by use of Radio Frequency Identification; and track

components and products throughout the supply chain; Radio Frequency Identification

enables the firm to avoid interrupted production or lost sales due to items being out of

stock; the firm ensures that the right goods are available in the right place with no

discrepancies and zero errors; the firm uses Radio Frequency Identification to provide

real-time information about inventory that enables the firm to improve planning

processes.

5.3 Conclusion

The study concluded that inventory management practices affect the productivity of large

manufacturing firms in Nairobi, Kenya. Use of Just-in-time inventory model allows the

firms to reduce overhead expenses while ensuring that parts are available for

manufacturing products. Manufacturing is therefore based on planned elimination of all

waste and continuous improvement of productivity. Product cost determination by

54

Activity Based Costing has been more accurate and reliable because it focuses on the

cause and effect linkage of costs and activities when manufacturing products. Economic

Order Quantity practices have enabled manufacturing firms to estimate how much of an

item should be ordered and when it should be ordered. The firm orders that optimal

quantity for an item of stock that minimizes cost. The total inventory-associated cost

curve has a minimum point and this is the point where total inventory costs have been

successfully minimized.

The study also concluded that manufacturing firms use Vendor Managed Inventory for

supplier partnership and to maintain good working relations between customers and

suppliers. Vendor Managed Inventory relieved the firm of much of the expense of

ordering, shipping the materials, counting inventory and stocking low-value items. By

passing these costs on the supplier, the firms were able to reduce the overall cost of

product and increase on margins. Materials and Requirement Planning has contributed to

making available either purchased or company manufacturing assemblies just before they

are required by the next stage of production or for delivery. Lean Materials and

Requirements Planning inventory system is very useful to manufacturing firms since it

results to relatively low inventory levels.

Further, use of Distribution Requirements planning enables the manufacturing firms to

forecast or project requirements for finished products at the point of demand. This

practice has led to improved customer service since it focuses in placing the goods in the

hands of the customers when needed. The study also concluded that barcode labeling has

been very useful to manufacturing firms to better manage their inventories, since it is a

relatively simple, cost-effective system that provides up-to-date information on inventory

status. Radio Frequency Identification has contributed to the reduction of interrupted

production or lost sales due to items being out of stock and ensuring that goods are

available when needed.

On the other hand, the study also concluded that manufacturing firms are faced with

challenges of inventory management. Overstocking, poor supplier relationships and poor

utilization of Information Technology are some of the factors that have limited inventory

55

management. These firms are also faced with lack of flexibility, that is, entrusting a lot of

sensitive activities with one office and lack of well integrated database system to support

information flow. Most manufacturing firms have not recognized professionalism in

inventory management. Sensitive jobs like purchasing and supply are being done by non-

professionals who lack the know-how in inventory management which has actually

contributed to lack of recognition of the same. As compared to developed countries like

America and Japan, most Kenyan manufacturing firms have a long way to go in terms of

effective and efficient inventory management. Another problem faced by manufacturing

firms, especially small firms is lack of enough cash to employ in inventory management

with well managed database systems. It becomes very expensive for these firms to adopt

inventory management practices.

5.4 Study Limitations

While the objectives of the study were successfully accomplished, limitations of the

study should be noted. A survey methodology was used and which primarily targeted

staff directly involved in the procurement function in their respective organizations. It is

possible to have more refined results if other members in the organizations were included

in the study. Some of the respondents were also not willing to cooperate in filling the

study questionnaires while others took a long time to fill and complete the questionnaire.

To overcome this problem, extra efforts were made via personal calls and visits to

persuade and remind the respondents to fill-in and return the questionnaires in good time.

5.5 Recommendations

Arising from the findings of the study, some pertinent recommendations can be made.

These recommendations are aimed at improving the state of inventory management and

hence competitiveness of Kenyan manufacturing firms. Owing to the huge sum of money

firms spend on inventory, a lot of emphasis or attention needs to be given to inventory

management to enable manufacturing firms achieve best optimal cost structures.

Inventory management needs to be recognized as a top management function.

56

The study recommends that control measures should be taken on stock as it is the case of

cash by large manufacturing firms. This is because stock represents cash and a substantial

share of fund is invested in the firm’s inventory. Manufacturing firms should fully adopt

lean inventory systems in inventory management as this will greatly improve the

performance of the procurement function. Just-in-time systems should also be integrated

by the firms. A good inventory system will help in preventing stock outs, overstocking,

deterioration, obsolescence, and high carrying cost. The firms should make use of a

sound inventory system for decision making in the procurement function and the

company as a whole.

The focus should be on investing in an affordable, smart and effective inventory

management software solution to help ensure that profitability is maintained, and stock

flows optimally through the firm. Manufacturing firms should develop inventory

management software that is able to integrate with a host of other useful programs and

effective at helping the firm accurately keep track of everything that the firm sells. The

firms should set minimum and maximum inventory levels and use the system to notify

managers when a certain item is either reaching overstock or under stock levels.

The study also recommends strategic supplier relationships to be maintained by

manufacturing firms if procurement functions are to operate efficiently and offer quality

services. Long term relationships with suppliers should be sought by the manufacturing

firms. The firms should also enhance their communication with suppliers by adopting

Vendor Managed Inventory which will ultimately shift the responsibility of inventory

management from the procurement function. Supplier appraisal by the procurement

function should be a key element in inventory management as this will help evaluate the

suppliers and choose the best from the many and develop long term round table

relationships with them.

Further, the study recommends that large manufacturing firms in Kenya should adopt

Information Technology in inventory management. Automation can help the firm in stock

control by setting stock control levels and calculating the amount of stocks to hold and

dispatch thus improving the performance of the procurement function. Manufacturing

57

firms should also uphold the use of bar code technology. This helps to eliminate time-

consuming, data-transcription errors that are common with paper records and manual data

entry. The study also recommends that the procurement function of large manufacturing

firms in Kenya should adhere to the legal policies in place as they will help the

procurement function to manage its inventory and improve on performance because of

the legal framework that is provided. Through the procurement department, the

organization should be able to control and monitor inventory related costs. The head of

the department should be answerable to the chief executive officer.

5.6 Suggestions for Further Studies

The study confined itself to inventory management practices and productivity of large

manufacturing firms in Nairobi, Kenya. Other emerging practices like warehouse

management, Information Technology in inventory management, Strategic supplier

partnership, lean inventory systems and legal policies of the procurement function in the

manufacturing industry should also be investigated to establish how they affect

productivity of large manufacturing firms.

58

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61

APPENDIX I

RESEARCH QUESTIONNAIRE

Please give answers in the spaces provided and tick (√) in the box that matches your

response to the questions where applicable.

PART A: DEMOGRAPHIC AND RESPONDENTS PROFILE

1. Name of the Organization:

…………………………………………………………

2. What is your designation at the organization

……………………………………………………

3. How long have you worked in this position?

a) Less than five years ( )

b) 5-10 years ( )

c) Over 10 years ( )

4. What is your education level?

a) Secondary ( )

b) College Diploma ( )

c) University Degree ( )

d) Graduate Degree ( )

e) Others (specify)............................

6. For how long has your organization been in operation?

a) Under 5 years ( )

b) 6 – 10 years ( )

c) 11 – 15 years ( )

d) Over 16 years ( )

7. Do you operate in other countries outside Kenya? Yes ( ) No ( )

If yes, please list the countries that you operate in:

62

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………

PART B: INVENTORY MANAGEMENT PRACTICES ADOPTED

BY MANUFACTURING FIRMS8. The firm views inventory as one of the most expensive and important asset that

requires proper management which is tailored to minimizing costs and maximizing

profits while satisfying customers’ demands.

Yes ( ) No ( )

9. a) To what extent has your manufacturing firm used Just-in-time Practices to manage

inventory in an effort to improve on productivity?

(Use the scale of: 1- Very small extent, 2- Small extent, 3- Moderate extent, 4- Great

extent, 5- Very great extent).

Just-in-time Practices

Ver

y sm

all

exte

nt

Smal

lex

tent

Mod

erat

eex

tent

Gre

atex

tent

Ver

y gr

eat

exte

nt

1.The firm manufactures products based onplanned elimination of waste and continuousimprovement of productivity

2.The firm makes what the customers need,when it is needed and in the quantity neededusing the minimum resources

3.The firm has only the required inventory whenneeded

4.The firm reduces inventory and its associatedcarrying costs by using Just-in-time practice

5.The firm uses Just-in-time practice to improvesquality of products to zero defects

6. The firm applies Just-in-time practice toreduce lead time by reducing set-up times, queue

63

b)To what extent has your manufacturing firm used Activity Based Costing Practices to

manage inventory in an effort to improve on productivity?

lengths and lot sizes

7.The firm creates items that arrive when needed,neither earlier nor later

8.The firm saves warehouse space and costs bymanaging inventory using Just-in-time practice

9.The firm uses Just-in-time practice to timelyreplenish inventory

10.The firm uses Just-in-time practice to reducethe frequency of ordering

Activity Based Costing PracticesV

ery

smal

lex

tent

Smal

lex

tent

Mod

erat

eex

tent

Gre

atex

tent

Ver

ygr

eat

exte

nt

1.Activity Based Costing practices enables the firm todeal with multiple product lines and multitude of stock-keeping units2.The firm uses Activity Based Costing as an inventoryclassification system to allocate time and money ininventory management3.The firm uses Activity Based Costing practice toassess the status of items in inventory4.The firm uses Activity Based Costing practice todetermine the specific attention required by each groupof inventory5.The firm divides inventory into differentclassifications of A, B or C6.The firm focuses on the items that account for themajority of inventory7.The firm uses Activity Based Costing classification todevelop policies and controls for each class of inventory

8.The firm uses Activity Based Costing practice forultimate reduction of safety stock

64

c)To what extent has your manufacturing firm used Economic Order Quantity Practices

to manage inventory in an effort to improve on productivity?

Economic Order Quantity Practices

Ver

ysm

all

exte

nt

Smal

lex

tent

Mod

erat

eex

tent

Gre

atex

tent

Ver

ygr

eat

exte

nt

1.The firm orders the optimal ordering quantityfor an item of stock that minimizes cost2.The firm maintains that level of inventory thatminimizes the total of inventory holding costsand ordering cost3.The firm uses Economic Order Quantitypractice to estimate how much of an item toorder4.The firm uses Economic Order Quantitypractice to ensure that supply of inventory doesnot hit a stock out5.Economic Order Quantity practice enables thefirm to plan for its inventory replenishment ona timely basis6.The firm uses Economic Order Quantitypractice to determine what items fit into theJust-in-time model7. Economic Order Quantity practice helps thefirm in deciding when to order an item of stock8.The firm minimizes storage costs within thewarehouse by use of Economic Order Quantitypractice9.The firm uses Economic Order Quantity toensure that inventory comes in and goes outimmediately

d)To what extent has your manufacturing firm used Vendor Managed Inventory

Practices to manage inventory in an effort to improve on productivity?

Vendor Managed Inventory Practices

Ver

ysm

all

exte

nt

Smal

lex

tent

Mod

erat

eex

tent

Gre

atex

tent

Ver

ygr

eat

exte

nt

1.The firm centralizes inventory replenishmentdecisions with upstream distributors

65

2.The firm uses Vendor Managed Inventorypractice for supplier partnerships

3.The firm buys specified items solely fromthe distributor and no longer keeps items instock

4.The firm uses Vendor Managed Inventory toreduce chances to defective items and risk ofobsolescence

5.The firm enhances working capital byreducing inventory levels with use of VendorManaged Inventory practice

6.Vendor Managed Inventory practice enablesthe firm to eliminate the need to reorder andavoid stock outs

7.The firm reduces the overall cost of productand increases on margins by passing costs ofordering and shipping to the supplier

8. the firm uses Vendor Managed Inventorypractice to reduce lead times with enhancedsales

9.The firm uses Vendor Managed Inventorypractice to maintain timely delivery

10.The firm uses Vendor Managed Inventorypractice to achieve flexibility to responses

e)To what extent has your manufacturing firm used Materials Requirements Planning


Materials and Requirements PlanningPractices

Verysmallextent

Smallextent

Moderateextent

Greatextent

Verygreatextent

1.The firm makes available assemblies justbefore they are required by the next stage ofproduction or for delivery

66

2. The firm uses Materials RequirementPlanning to control the flow of supplies tomeet planned requirements

3.The firm uses Materials RequirementsPlanning to track orders throughout the entiremanufacturing process

4. Materials Requirements Planning enablesthe firm to move the right supplies at theright time to manufacturing points

5. Materials Requirements Planning assiststhe firms in the detailed planning ofproduction and inventory management.

6.The firm uses Materials RequirementsPlanning to reduce the amount of idle time

7.The firm uses Materials RequirementsPlanning to reduce warehousing costs andmaterial handling costs

8.The firm reduces inventory levels by usingMaterials Requirements Planning

9.Materials Requirements Planning enablesthe firm achieve efficiency of informationflow

10.The firm increases return on assetsthrough decreased conversion costs by usingMaterials Requirements Planning

f)To what extent has your manufacturing firm used Distribution Requirements Planning


Distribution Requirements PlanningPractices

Verysmallextent

Smallextent

Moderateextent

Greatextent

Verygreatextent

1.The firm uses Distribution RequirementsPlanning to forecast requirements for finishedproducts at the point of demand

67

2.The firm plans orders within a supply chainby using Distribution Requirements Planning

3.Distribution Requirements Planning acts bypulling the product through the distributionsystem once demand has been identified

4. The firm uses Distribution RequirementsPlanning to set inventory control parameterslike a safety stock

5.The firm uses Distribution RequirementsPlanning for lower investment in inventory

6.Distribution Requirements Planning serves asa central role in coordinating the flow of goodsinside the factory

7.The firm uses Distribution RequirementsPlanning as a method of handling stockreplenishment in a multi-echelon environment

8.The firm uses Distribution RequirementsPlanning to reduce lead time

9.The firm uses Distribution RequirementsPlanning to improve Customer ServiceDelivery

g)To what extent has your manufacturing firm used Barcoding Practices to manage

inventory in an effort to improve on productivity?

Barcoding Practices Verysmallextent

Smallextent

Moderateextent

Greatextent

Verygreatextent

1.The firm uses barcoding to verify, check andcharge transactions2.The firm uses barcoding to accelerate the flowof products and information3. Barcode labeling enables the firm to provideup-to-date information on inventory status4.Barcoding allows the firm to track merchandiseand conduct inventory cycle counts5.The firm uses barcoding to reconcile inventorywithin a short time thus saving both time andcosts

68

6.The firm applies barcoding in warehouseapplications of receiving, put away, picking andshipping7.Barcoding enables the firm to identifyproduction bottlenecks8.The firm applies barcording in counting rawmaterials and finished goods inventory9.Barcoding practices are used by the firm forpackage tracking and lot tracking

h)To what extent has your manufacturing firm used Radio Frequency Identification


Radio Frequency IdentificationPractices

Verysmallextent

Smallextent

Moderateextent

Greatextent

Verygreatextent

1.The firm uses Radio Frequency Identificationto transmit the number of an item of stock to areading device2.The firm uses Radio Frequency Identificationpractices to handle stock replenishment3. Radio Frequency Identification enables thefirm to identify components and productsthroughout the supply chain4.The firm uses Radio Frequency Identificationto track components and products throughoutthe supply chain5.The firm uses Radio Frequency Identificationto provide real-time information aboutinventory6.Radio Frequency Identification enables thefirm to avoid interrupted production or lostsales due to items being out of stock7.Radio Frequency Identification ensures thatthe right goods are available in the right placewith no discrepancies and zero errors8.Real time information from Radio FrequencyIdentification enables the firm to improveplanning processes

10. Kindly mention other inventory management practices, if any, adapted by your

organization.

………………………………………………………………………………………………

………………………………………………………………………………………………

11. How would you rate your firms overall productivity?

69

a) Extremely poor ( )

b) Below average ( )

c) Average ( )

d) Above average ( )

e) Excellent ( )

12. Kindly provide approximate figures on the variables that are listed in the table below

for the period from 2009 - 2014.

Inventory costs 2009 2010 2011 2013 2014Total ordering costs (Kshs)Total storage and holding costs (Kshs)Cost of stock out (Kshs)

Customer Service 2009 2010 2011 2013 2014On time delivery (%)Order fulfillment rates (%)Order fulfillment cycle time (%)Orders received as specified (%)

Stock outs 2009 2010 2011 2013 2014Number of times a product is out ofstockNumber of times a product line hasbeen shut down due to manufacturinginventory stock outNumber of times customers have back-ordered a productNumber of customers lost due to lackof product

Inventory Turnover 2009 2010 2011 2013 2014Number of times the firm has sold offor used up its complete inventoryNumber of times inventory has beenreplaced

13. Please mention the challenges, if any that are faced in implementing inventory

management practices in large manufacturing firms

70

………………………………………………………………………………………………

…….………………………………………………………………………………………

……………….…………………………………………………………………

Thank you for your cooperation.

APPENDIX II

LARGE MANUFACTURING FIRMS IN NAIROBI, KENYA

Energy, Electricals and Electronics (34)

Alloy Steel Casting Ltd Karan Biofuel Ltd Power Technics Ltd

Amedo Centre Kenya Ltd Kenwest Cables Ltd Powerex Lubricants

Assa Abloy East Africa Ltd Kenya Power Ltd Reliable Electricals

Engineers (Nrb) Ltd

Aucma Digital Technology

Africa Ltd

Libya Oil Kenya Limited

(Formerly Mobil Oil

Kenya)

Socabelec (E.A) Ltd

Avery East Africa Ltd Manufacturers and

Suppliers (K) Ltd

Solimpexs Africa Ltd

Baumann Engineering

Limited

Marshall Fowler

(Engineers)

Sollatek Electronics

(Kenya) Limited

Biogas Power Holdings

(E.A) Ltd

Metlex International Ltd Specialised Power Systems

Ltd

Centurion Systems Ltd Metsec Ltd Synergy-Pro

East African Cables Ltd Mustek East Africa Limited Virtual City Ltd

Holman Brothers (E.A) Ltd Optimum Lubricants Ltd Vivo Energy Kenya Ltd

71

Iberaafrica Power (E.A) Ltd PCTL Automation Ltd

International Energy

Technik Ltd

Pentagon Agencies

Building, Mining and Construction (20)

Athi River Mining Ltd Karsan Murji and Company

Limited

Mombasa Cement Ltd

Bamburi Cement Limited Kay Salt Ltd Orbit Enterprises Ltd

Bamburi Special Products

Ltd

Kemu Salt Packers Saj Ceramics Ltd

Central Glass Industries Kenbro Industries Ltd Savannah Cement

Flamingo Tiles (Kenya)

Limited

Kenya Builders and

Concrete Ltd

Skylark Construction Ltd

Glenn Investments Ltd C/O

The Mehta Group Ltd

Malindi Salt Works Wareng Ndovu Enterprises

2005

Homa Lime Company Ltd Manson Hart Kenya Ltd

Chemical and Allied (70)

Basco Products (K) Ltd Elux Products Ltd Pan Africa Chemicals Ltd

Bayer East Africa Ltd Eveready Batteries East

Africa Ltd

Polychem East Africa

Beiersdorf East Africa Ltd Faaso Exporters Ltd Procter and Gamble East

Africa Ltd

Blue Ring Products Ltd Galaxy Paints and Coating

Co. Ltd

PZ Cussons EA Ltd

BOC Kenya Limited Grand Paints Ltd Reckitt Benckiser (E.A) Ltd

Buyline Industries Limited Haco Tigerbrands East

Africa Ltd

Revolution Stores Ltd

Canon Chemicals Limited Henkel Kenya Ltd Rumorth Group of

Companies Ltd

Canon Chemicals Limited Intercomsumer Products SC Johnson and Son Kenya

72

(Former United Chemicals)

Ltd

Ltd

Carbacid (CO2) Limited Johnson Diversey East

Africa

Sadolin Paints (E.A) Ltd

Chemicals and Solvents

(E.A) Ltd

KAPI Limited Sanergy

Chrysal Africa Ltd Kel Chemicals Limited Soilex Prosolve Limited

Coates Brothers (E.A)

Limited

Kip Melamine Co. Ltd Strategic Industries Limited

Continental Products Kridha Limited Supa Brite Ltd

Coopers K Brands Ltd Maroo Polymers Ltd Superfoam Ltd

Coopers K-Brands Ltd Match Masters Ltd Syngenta East Africa Ltd

Coopers Kenya Ltd MEA Ltd Synresins Ltd

Crown Berger Kenya Ltd Metoxide Africa Ltd Tata Chemicals Magadi Ltd

Crown Gases Ltd Milly Glass Works Ltd Tri-Clover Industries (K)

Ltd

Crown Paints (Kenya) Ltd Murphy Chemicals Ltd Twiga Chemicals Industries

Limited

Darfords Enterprises Ltd Oasis Limited Unilever East and Southern

Africa

Deluxe Inks Ltd Odex Chemicals Ltd Vitafoam Products Limited

Desbro Kenya Limited Orbit Chemicals Industries

Limited

Westminister Paints and

Resins Ltd

Diversey Eastern and

Central Africa Limited

Orbit Enterprises Ltd

Eastern Chemicals

Industries

Osho Chemicals Industries

Ltd

Food and Beverage (71)

Africa Spirits Limited Jambo Biscuits (K) Ltd New Kenya Co-operative

Creameries Ltd

73

Agriner Agriculture

Development

Kabianga Dairy Ltd Nicola Farms Ltd

Agro Chemical and Food

Company Ltd

Kakuzi Ltd Nutro Manufacturers EPZ

Ltd

Alpine Coolers Limited Kapa Oil Refineries

Limited

Palmhouse Diaries Ltd

Arkay Industries Ltd Kenafric Industries Ltd Patco Industries Limited

Belfast Millers Ltd Kenblest Limited Pearl Industries Ltd

Broadway Bakery Ltd Kenya Nut Company Ltd Pembe Flour Mills Ltd

Brookside Dairy Ltd Kenya Sweets Ltd Proctor and Allan (E.A) Ltd

Bunda Cakes and Feeds Ltd Kenya Tea Development

Agency

Promasidor Kenya Ltd

Buzeki Dairy Limited Kenya Tea Growers

Association

Sigma Supplies Ltd

C. Dormans Ltd Kevian Kenya Ltd Spice World Ltd

Candy Kenya Ltd Kwality Candies and

Sweets Ltd

The Breakfast Cereal

Company (K) Ltd

Capwell Industries Limited Lazi Dairies Alliance Ltd Unga Group Ltd

Chirag Kenya Limited London Distillers United Millers Ltd

Deepa Industries Limited Mafuko Industries Limited Usafi Services Ltd

Edible Oil Products Mayfeeds Kenya Limited Valley Confectionery Ltd

Europack Industries

Limited

Milly Fruit Processors Ltd Valuepak Foods

Farmers Choice Ltd Mini Bakeries (Nbi) Ltd W.E. Tilley (Muthaiga) Ltd

Githunguri Dairy Farmers

Co-operative Society

Mjengo Ltd Wananchi Marine Products

(K) Limited

74

Global Fresh Ltd Mombasa Maize Millers Wrigley Company (E.A)

Ltd

Global Tea and

Commodities (K) Limited

Mount Kenya Bottlers Ltd Xpressions Flora Ltd

Gonas Best Ltd Mzuri Sweets Ltd

Green Forest Foods Ltd NAS Airport Services Ltd

Happy Cow Ltd Nesfoods Industries Ltd

Insta Products (EPZ) Ltd Nestle Foods Kenya Ltd

Leather and Footwear (7)

Alpharama Limited C and P Shoe Industries Ltd Zingo Investments Ltd

Bata Shoe Company

(Kenya) Ltd

Leather Industries of Kenya

Ltd

Budget Shoes Limited Sandstorm Africa Limited

Metal and Allied (66)

African Marine and General

Engineering Co. Ltd

Elite Tools Napro Industries Limited

Allied East Africa Ltd Elite Tools Ltd Narcol Aluminum Rolling

Mills Ltd

Alloy Steel Casting Ltd Farm Engineering

Industries Limited

Ndume Ltd

Apex Steel Limited Friendship Container

Manufacturers Limited

Orbit Engineering Ltd

Apex Steel Limited Rolling

Mill Division

Friendship Container

Manufacturers Ltd

Richfield Engineering Ltd

Ashut Engineers Ltd General Aluminum

Fabricators Ltd

Rolmil Kenya Ltd

ASL Limited-Steel Division Greif East Africa Ltd Sheffield Steel Systems Ltd

ASP Company Ltd Hobra Manufacturing Ltd Soni Technical Services Ltd

75

Athi River Steel Plant Insteel Limited Southern Engineering Co.

Ltd

Blue Line Wire Products

Ltd

Kaluworks Ltd Specialised Engineering Co.

(E.A) Ltd

Booth Extrusions Limited Kens Metal Industries Standard Rolling Mills Ltd

Brollo Kenya Limited Kenya General Industries

Ltd

Steel Structures Ltd

City Engineering Works

(K) Limited

Khetshi Dharamshi and Co.

Ltd

Steelmakers Ltd

Cook N Lite Ltd Kitchen King Ltd Steelwool (Africa) Ltd

Corrugated Sheets Ltd Laminate Tube Industries

Limited

Tarmal Wire Products Ltd

Crystal Industries Ltd Mabati Rolling Mills

Limited

Technosteel Industries

Limited

Davis and Shirtliff Ltd Marvel Lifestyle Ltd Tononoka Steel Ltd

Devki Steel Mills Ltd Mecol Limited Vicensa Investments Ltd

Doshi Enterprises Ltd Metal Crowns Ltd Viking Industries Ltd

East Africa Glassware Mart

Ltd

Modulec Engineering

Systems Ltd

Warren Enterprises Ltd

East Africa Spectre Limited Nail and Steel Products Ltd Welding Alloys Limited

East African Foundry

Works (K) Ltd

Nampak Kenya Ltd Wire Products Ltd

Motor Vehicle and Accessories (27)

Alamdar Trading Company

Limited

Chui Auto Spring Industries

Ltd

Mann Manufacturing Co.

Ltd

Associated Battery

Manufacturers (E.A) Ltd

CICA Motors Megh Cushion Industries

Ltd

Associated Vehicle

Assemblers Ltd

Foton East Africa Ltd Mutsimoto Company

Limited

76

Auto Ancillaries Ltd General Motors East Africa

Limited

Pipe Manufacturers Ltd

Auto Springs Manufacturers

Ltd Company

Impala Glass Industries Ltd Sohansons Limited

Autofine Filters and Seals

Ltd

Kenya Grange Vehicle

Industries Ltd

Theevan Enterprises Ltd

Automotive and Industrial

Battery Manufacturers

Kenya Vehicle


Toyota Kenya Ltd

Banbros Ltd King-Bird (K) Ltd Unifilters Kenya Ltd

Bhachu Industries Ltd Labh Singh Harnam Singh

Ltd

Varsani Brakelinings Ltd

Paper and Board (63)

Paper House of Kenya Ltd Flora Printers Ltd Paper House of Kenya Ltd

Adpak International Ltd General Printers Ltd Paperbags Limited

Allpack Industries Ltd Graphics and Allied Ltd Pressmaster Ltd

Andika Industries Ltd Guaca Stationers Ltd Printing Services Ltd

Associated Paper and

Stationery Ltd

Highland Paper Mills Ltd Printpak

Autolitho Ltd Icons Printers Ltd Printpak Multi Packaging

Ltd

Bag and Envelope

Converters

Interlabels Africa Ltd Primtwell Industries Ltd

Bags and Balers

Manufacturers (K) Ltd

International Paper and

Board Supplies Ltd

Punchlines Ltd

Cempack Solutions Ltd Kartasi Industries Limited Ramco Printing Works Ltd

Chandaria Industries Ltd Kenafric Diaries


Regal Press Kenya Ltd

Colour Labels Ltd Kenya Litho Ltd Sintel Security Print

Solutions Ltd

77

Colour Packaging Limited Kim-Fay East Africa Ltd Soloh Worldwide

InterEnterprises Ltd

Colourprint Ltd L.A.B International Kenya

Ltd

Stallion Stationary

Manufacturers Ltd

D.L Patel Press Ltd Label Converters Standard Group Ltd

De La Rue Currency and

Security Print Ltd

Manipal International

Printing Press Ltd

Statpack Industries Ltd

Dodhia Packaging Limited Modern Lithographic (K)

Ltd

Taws Limited

East Africa Packaging

Industries Limited

Mufindi Paper Ltd Tetra Pak Ltd

Elite Offset Ltd Nation Media Group

Limited Printing Plant

The Rodwell Press Ltd

Ellams Products National Printing Press

Limited

Twiga Stationers and

Printers Ltd

Ellams Products Ltd Packaging Manufacturers

(1976) Ltd

Uneeco Paper Products Ltd

English Press Limited Palmy Enterprises United Bags Manufacturers

Ltd

Pharmaceutical and Medical Equipment (21)

African Cotton Industries

Ltd

Elys Chemical Industries

Limited

Novelty Manufacturing Ltd

Alpha Medical

Manufacturers Ltd

Gesto Pharmaceuticals Ltd Oss. Chemie (K) Limited

Beta Healthcare

International

Glaxo Smithkline Kenya

Ltd

Pharm Access Africa Ltd

Biodeal Laboratories Ltd KAM Industries Pharmaceutical

Manufacturing Co. (K) Ltd

Biopharma Ltd Laboratory and Allied

Limited

Regal Pharmaceuticals Ltd

78

Cosmos Limited Manhar Brothers (K) Ltd Revital Healthcare (EPZ)

Ltd

Dawa Limited Medivet Products Ltd Universal Corporation

Limited

Plastic and Rubber (68)

ACME Containers Ltd Kenya Suitcase


Sanpac Africa Ltd

Afro Plastics (K) Ltd King Plastic Industries Ltd Shiv Enterprises (E) Ltd

Betatrad (K) Ltd Kinpash Enterprises Ltd Signode Packaging Systems

Ltd

Bluesky Industries Ltd L.G Harris and Co. Ltd Silpack Industries Limited

Bobmil Industries Ltd Laneeb Plastic Industries

Ltd

Solvochem East Africa Ltd

Brush Manufacturers Metro Plastics Kenya

Limited

Springbox Kenya Ltd

Cables and Plastics Ltd Mombasa Polythene Bags

Ltd

Styloplast Limited

Canaaneast Company Nairobi Plastics Ltd Styroplast Limited

Complast Industries

Limited

Ombi Rubber Rollers Ltd Sumaria Industries Ltd

Coninx Industries Ltd Packaging Industries Ltd Super Manufacturers Ltd

Dune Packaging Limited Packaging Masters Limited Techpak Industries Ltd

Dynaplas Limited Plastic Electronics Thermopak Ltd

Elgon Kenya Ltd Plastics and Rubber

Industries Ltd

Top Pak Ltd

Eslon Plastics of Kenya Ltd Polly Propelin Bags Ltd Treadsetters Tyres Ltd

Five Star Industries Ltd Polyblend Limited Umoja Rubber Products

Limited

Fleya Kenya Limited Polyflex Industries Limited Uni-Plastics Limited

General Plastics Limited Polythene Industries Ltd Vectus Kenya

79

Hi-Plast Ltd Premier Industries Limited Vyatu Ltd

Jamlam Industries Ltd Prosel Ltd Wonderpac Industries Ltd

Jumbo Chem Pyramid Packaging Ltd Zaverchand Punja Ltd

Kamba Manufacturing

(1986) Ltd

Raffia Bags (K) Ltd

Kenpoly Manufacturers

Limited

Rubber Products Ltd

Kenrub Ltd Safepak Limited

Kentainers Ltd Sameer Africa Ltd

Textile and Apparels (35)

Adpack Limited Kikoy Co. Ltd Squaredeal Uniforms

Centre Ltd

Alltex EPZ Ltd Le Stud Limited Staightline Enterprises

Alpha Knits Ltd Leena Apparels Ltd Summit Fibres Limited

Ashton Apparel EPZ Ltd Lifeworks Shukrani Limited Sunflag Textile and

Knitwear Mills Ltd

Bedi Investments Limited Longyun Garments Tarpo Industries Limited

Brilliant Garments Midco Textiles (EA) Ltd Teita Estate Ltd

Fantex (K) Ltd New Wide Garments (K)

Ltd

Thika Cloth Mills Ltd

Kamyn Industries Limited Ngecha Industries Ltd United Aryan (EPZ) Ltd

Kavirondo Filments Ltd Senior Best Garments

Kenya EPZ Ltd

Vajas Manufacturers Ltd

Kema (EA) Limited Shin-Ace Garments Kenya

(EPZ) Ltd

Wildlife Works (EPZ) Ltd

Ken-Knit (Kenya) Ltd Spin Knit Limited World of Kikoys

Kenwear Garment

Manufacturers

Spinners and Spinners Ltd

Timber, Wood and Furniture (17)

80

Comply Industries Ltd Panesars Kenya Ltd TimberTreatment

International Ltd

Economic Housing Group

Ltd

PG Bison Ltd Timsales Ltd

Elburgit Enterprises Ltd Rai Plywoods (Kenya) Ltd Woodtex Kenya Ltd

Fine Wood Works Ltd Rosewood Furniture

Manufacturers

Furniture International

Limited

Shah Timber Mart Ltd

Kenya Wood Limited Shamco Industries Ltd

Newline Ltd Shayona Timber

Source: Kenya Association of Manufacturers, (2015)

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