The Relationship Between Inventory Management and Firm's Performance: the Case of Edible Oil Industry in Kenya

Abstract

Inventories occupy the most strategic position in the structure of working capital of most business enterprises. It constitutes the largest component of current assets in most business firms. The objective of this study was to determine if there is a relationship between inventory management and firm's performance and to find out if there are any challenges faced in implementation of inventory management in edible oil firms. To achieve this, a cross-sectional research design was adopted. Questionnaires were distributed to the operation managers and a part being filled up by the finance managers of the edible oil firms. Responses were analyzed through Statistical Product and Services Solutions. The study established that edible oil firms used different inventory applications to manage their inventories. Applications used helped in minimizing wastages and thus only few firms recorded obsolete inventories. Firms which had incorporated strategic relationship with their suppliers had achieved efficiency in their operations. Challenges faced included bad company policies, lack of finance, outdated technology, poor demand forecasts and lack of trained staff. Measures to alleviate the challenges faced included advancement of technology used, employee participation and training employee accordingly. The finance data was analyzed through ratios and it was found that there was a relationship between the firm's performance and inventory management. As companies progressed in implementation of inventory management over their years in operation and production, higher profits were recorded as compared to the previous years. Other metrics levied on strategic, tactical and operation levels to ascertain firms operational performance observed that edible oil firms were responsive to their customer, supplier needs and keen on capacity utilization to achieve efficiency in their production. Inventory management practices needed to be incorporated in operations to achieve efficiency in production. Better production methods needed to be integrated to minimize costs and wastages. Management need to realize the importance of employee participation in the production process and also utilize the production unit to its maximum.