The Impact of Inventory Management Practice On Firms' Competitiveness and Organizational Performance

“The impact of inventory
management practice on firms’

competitiveness and
organizational performance”
Empirical evidence from micro

and
small enterprises in Ethiopia.
Group Members
O Cynthia Walter John (12224)
O Iqra Sultan (12252)
O Sana Hafeez (12248)
O Rimsha Ayub (12225)
O Saba Sultan (12251)
Introduction
O Micro and Small Enterprises (MSEs) have a great
importance in developing countries like Ethiopia
as they contribute to national income,
employment, exports, and entrepreneurship
development.
O The development of MSEs is the central focus of
the Ethiopia industrial development strategy as
it is stated in Growth and Transformation Plan
(GTP).
O Therefore, in the development process of any
country, the performance of MSEs based on
competition, productivity, and efficiency will play
a significant role in the economy.
O It is observed from literature that making use of
formal inventory management practices is one of
the ways to acquire competitiveness.
Inventory Management
O Deveshwar and Dhawal (2013) proposed that
Inventory management is a method that
companies use to organize, store, and replace
inventory, to keep an adequate supply of
goods at the same time minimizing cost.
O The challenge in managing inventory is to
balance the tradeoff between the supplies of
inventory with demand. a company wants to
have enough inventories to satisfy the
demands of its customers no lost sales due to
inventory stock-outs. On the other hand, the
company does not want to have too much
inventory staying on hand because of the cost
of carrying inventory.
Inventory Management in MSEs
O An effective and efficient management inventory is
one of the key factors for success of large and
small enterprises. Still it is one of the most
neglected management areas in small firms as
inventory investment for a small business takes up
a big percentage of the total budget.
O Study in 2006 revealed that poor record keeping
and lack of basic business management experience
and skills are major contributors to failure of small
business.
O MSEs are in most cases faced with the problems of
inadequate inventory of raw materials and spare
parts. These shortages often lead to breaks in
production schedule, machine breakdown, and low
capacity utilization and thus constituted a barrier to
Literature Review
O Lean Theory:
The Lean concept originated from the Toyota
production system and was initially applied to
manufacturing industry, where it has been used
to improve the efficiency and effectiveness of
process performance. Lean has been described
variously as a philosophy, an approach, a
technique and a transformational management
strategy with a number of tools that can be used
to achieve improvement in production
processes. The Lean methodology aims to
maximize value for customers while minimizing
waste in production.
Literature Review (Cont.)
Inventory Management
Techniques:
O Economic Order Quantity:
Economic order quantity (EOQ) is the ideal
order quantity a company should purchase to
minimize inventory costs such as holding costs
and order costs. This production-scheduling
model was developed in 1913 by Ford W.
Harris.
O Just in time Technique (JIT):
The "just-in-time method" is an
inventory strategy where materials are
only ordered and received as they are
needed in the production process. The
goal of this method is to reduce costs
by saving money on overhead
inventory expenses. The company must
be able to accurately forecast demand
for goods and services for the just-in-
time method to be effective.
O Vendor Managed Inventory:
Vendor Managed Inventory (VMI) is a
business model where the buyer of a
product provides information to a
vendor of that product and the vendor
takes full responsibility for maintaining
an agreed inventory of the material,
usually at the buyer's consumption
location.
O ABC Analysis:
ABC analysis is a type of inventory
categorization method in which inventory is
divided into three categories, A, B, and C, in
descending value. A has the highest value
items, B has lower value than A, and C has the
lowest value.
 A-items: 20% of all goods contribute to 80% of
the annual consumption value of the items
 B-items: 40% of all goods contribute to 15% of
 C-items: 40% of all goods contribute only 5% of
Conceptual Framework
Hypothesis Development
O Inventory management and competitiveness:
A study conducted in Kenya by Naliaka and
Namusonge (2015) identified that inventory
management affects competitive advantage of
manufacturing firms. The study further concludes
that the firm is able to compete based on quality
and that it delivers customer orders on time.
H1: Firms with high levels of inventory

management practices will have high levels of
competitive advantage.
Hypothesis Development (Cont.)
O Inventory management practices and
organizational competitiveness:
According to Nzuza (2015), the material held by
an organization makes up for most of the organization
assets. Most organization invests so much money in
materials and it is important for the organization to put in
place a good material management system in order to
manage the stock properly.
H2: Firms with high levels of inventory management

practices will have higher levels of organizational
performance.
Hypothesis Development (Cont.)
O Competitive advantage and organizational
performance:
Having a competitive advantage generally suggests
that an organization can have one or more of
the following capabilities when compared to its
competitors: lower prices, higher quality, higher
dependability, and shorter delivery time. These
capabilities will, in turn, enhance the organization’s
overall performance (Mentzer et al. 2000).
H3: Firms with high level of competitive advantage

will have higher level of organizational performance.
Methodology
O The study fall under quantitative survey
approach
O The target population of this study was
micro and small scale enterprise engaged
in manufacturing
O Target sample size consists of 200
respondents from MSEs (owners)
O The strata were manufacturers of metal,
wood, handicraft, food processing,
construction, and local-made electronics
products
Conclusion
O All the hypothesis were supported
and indicate the significant positive
impact of inventory management
practice.
O The finding of this study implies that
enhanced competitive advantage and
increased organizational performance
could have improved the levels of
inventory management practice.
Implication for MSE owner and
other stakeholders
O MSEs need to have the
necessary skills and knowledge
about the use of scientific
inventory management
techniques.
O MSEs should make a change
from manual record keeping to
computerized inventory
management system.
Limitation and recommendation
for future research
O A single respondent in a firm was asked to
respond to overall aspect of inventory
management practice but in reality no person
in a firm is in charge of inventory management
practices.
O The study is conducted with respect to MSEs
however, the finding may not work for medium
and large scale manufacturing firm therefore,
it is recommended for future researchers to
investigate in the context of large and medium
size manufacturing industry.
THANK YOU!

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The Impact of Inventory Management Practice On Firms' Competitiveness and Organizational Performance

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“The impact of inventory

management practice on firms’

Empirical evidence from micro

H1: Firms with high levels of inventory

H2: Firms with high levels of inventory management

H3: Firms with high level of competitive advantage

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