STRATEGIC SIGNIFICANCE OF INVENTORY

MANAGEMENT TO PROMOTE CUSTOMER SERVICE

DELIVERY (THE CASE MARS FOOD FACTORY)

A RESEARCH PAPER SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENT FOR THE
BACHELOR OF ARTS IN MANAGEMENT

BY:- BOKI TEREFA

ADVISOR:- SHIMELIS ZEWDIE (PHD)

DEPARTMENT OF MANAGEMENT
COLLEGE OF BUSINESS AND ECONOMICS
JIMMA UNIVERSITY

MAY, 2011
JIMMA, ETHIOPIA
 ABSTRACT

The strategic significance of inventory management is to promote customer service as

element of physical distribution management (PDM) has been recognized as the essential part of
marketing strategy and business process from organization wide respective of well run
companies. To be good performances in the market place an enterprise maybe required to
commit some capital. This study was review the available books on customer service, inventory
management, and physical distribution management.

The objective of study is to assess the strategic significance of inventory management to

promote service delivery. The research also explain the literature review and explain the
methodology which increased data collection tools types of data and sampling techniques. In
case of primary data the researcher may get them from employees of the organization through
questionnaire method of gathering data. The secondary data was obtained by analyzing
published material. Sample size of the population is 20% (40) respondents out of total
population 200 and the researcher used simple random sampling technique. The major findings
of he research is there is no good way of inventory management in the factory.

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 ACKNOWLEDGEMENTS

First and for most, I would like to thank my God for this all chance he gave me. Next, I
would like to extend my heart full gratitude to my advisors, Shimelis Zewdie (PhD) to good
advice and constructive comments he had been given. He had been kind enough to devote his
time to follow up each of my paper. My application and my heart full thanks go to my family
who have a great support in my life and for their morally and material support. Furthermore, I
would like to acknowledge my secretary as well as my friends for their support me.

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 TABLE OF CONTENTS

Title page
Abstract……………………..…………..…………………………………………………………….…i

Acknowledgements ………………………….………………………………………………………...ii

List of Tables …………………….………………………………………………………...v

CHAPTER ONE

1. Introduction …………………….….………..……………………………………………….... 1
1.1 Background of the Study ….………..………………………………………………….. 1
1.2 Statement of the problem……………….……..……………………………………………….. 3
1.3 Objective of the study ……………………….……………………………………………….…4
1.3.1 General objective …………………………..……………………………………………….…4
1.3.2 Specific objectives …………………..………..…………………………………………….4
1.4 Significance of the study …………….………….…………………………………………........4
1.5 Scope of the study ………………….…………….……………………………………………..5
1.6 Limitation of the study ……………………………………………………………………… 5
1.7 Organization of the paper …………………………………………………………………… 5

CHAPTER TWO

2. Literature review ……………………….………..……………………………………………. 6

2.1 Introduction ……………………….………..……………………………………………. 6
2.2. Physical distribution management …................................................................................7
2.2.1. Importance of physical distribution management …….…………………………………..7
2.2.2. Activities of physical distribution …………….………….……………………………..…8
2.3. Inventory management and ware housing …………………………………………………..….9
2.3.1. Ware house ……………………………………….…………………………………..…10
2.3.2. Customer service ………………………………………...………………………………...11
2.4. Customer service standards and elements ……………………………………………………. 13
2.5. Integrating customer service with inventory management and
other areas of marketing mix ……….. ……………………………………………………. 14

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CHAPTER THREE

3. Research design and methodology ………………..……………………………………….… 16

3.1. Study area …………………………………………………………………………………16
3.2. Types of data sources …………………………………………………………………… 16
3.3. Sampling techniques …………………………………………………………………………16
3.4. Method of data collection …………………………………….……………………………..16
3.5. Method of data analysis ……………………………………………………………………..17

CHAPTER FOUR

4. Data analysis and presentation …….. …………………………………………………………….18

CHAPTER FIVE

5. Conclusion and Recommendation….. ……………………………………………………………30

5.1. Conclusion …………………………………………………………………………. 30
5.2. Recommendation …………………………………………………………………………..32
5.3. Appendixes I
Bibliography
Appendixes II
Questionnaire

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 List of tables

Page
Table 1 Back ground of the respondents……………………………………………. 18
Table 2 Inventory management system………………………………………………19
Table 3 Inventory relation among the other department……………………………..20
Table 4 Inventory Controlling system in the office.………………………………….22
Table 5 Problem of Inventory control in the office and major inventory cost………23
Table 6 Method of Inventory improvement in the organizations.……………………24
Table 7 Recording way of inventory management ………………………………….25
Table 8 Availability of staff …………………………………………….25
Table 9 Computerized inventory system……………………………………………26
Table 10 Ability of the Suppliers ….. ……………………………………………27
Table 11 Customer service ……………………………………………………….27
Table 12 Strategic evaluation of factory ……………………………………………28
Table 13 Operating management performance……………………………………...29

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 CHAPTER ONE
INTRODUCTION

1.1 Background of Study

The strategic significance of inventory management to promote customer as element of
physical distribution management (PDM). Has been recognized as essential part of marketing
strategy and business from organization wide perspective of well of companies present day
competition starting to manifest itself here in our country requires business enterprise to remain
intimate which the customer and try their Level best to provide the desired level of service in the
most profitable way. (Armstrong G, and Kotler, P, or principles of marketing 1995) customer
have reached the point where they require more than the features of the product
(Christopher,1995,P.10) so customer service ultimately determines the success or failure of the
enterprise at the market place. The concern of customer service organizations may extend
beyond satisfying customer under normal operating conditions. Prudent managers may plan for
the rare case when the distribution system breaks down. Such preplanned actions for contingent
events may prevent less of customer patronage that could take extended period to time to recover
once good service performance has been restored.

Some organization establish customer service department that responds to customer

complaints and issues. While others establish a channel of authority to respond to customers.
This channel of authority may not resemble the actual chain of command in organizations. The
purpose of eyeleting this channel of authority may not resemble the actual chain of command in
organizations. The purpose of establishing this channel of authority is mainly to develop a
procedure to identify problems of customers through a series of events and direct him or her
problems of customers through a series of events and direct him or her an area where immediate
solution may be rendered. The channel collect complaint from customers as regards to product
and or services and replies are made at different times. The statistics of customer complaints can
help the enterprise the necessary measures to alleviate the problems. To be a good performer in
the market place, an enterprise may be required to commit some capital. Since inventories reprise
a major use of enterprise’s capital good management of them means keeping them at the lowest

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possible level consistent with the need to maintain a desired level of service. In adequate
inventory is also cost the excess will lead to excessive expend and inefficient utilizations of
capital and will ultimately lead to the death of the organizations. Different inventory models
have been developed so as to optimally management inventories. The Japanese have gone to the
extent of introducing the right good at right time at the right place (Ballou 1992.p.528).

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1.2 Statements of the problem

Enterprise is require the competence in their physical distribution activities to

successfully serve markets. In this study was hypothesized that merchandise wholesale and
import trade has to identify inventory management as a key business process to promote
customers service and as an area with substantial cost saving in physical distribution
management. In most manufacturing Firm’s it is increasingly difficult to manage inventories
effectively. Many scholars have found that lack of strategic significance of inventory
management had effect that either negative or positive effect on the factory. Inventory
management in manufacturing is the main problems of many organizations. The rational and
importance of doing this research is therefore, to know and find out the effect of strategic
significance of inventory management in factory. Therefore, strategic significance of inventory
management system will be quietly researchable because it is evident that currently many
problems are raised due to absence of good inventory management system of different
companies. Furthermore it is obvious that conducting kinds of research has a pivotal place of
factory. In decrease hazard ways of production, selecting and implementing appreciate inventory
management system for treating the exposed risks and to run its smooth operation. Hence, this
study was proposed to answer the following basic questions.

Research questions
 What techniques do the enterprise use to manage inventories?
 What is the number of times during specific period that average inventories sold?
 What policies are developed by the enterprise to create assortment to its customer?
 Who is responsible for inventory management in the factory?
 What benefits the enterprise get by existence of inventories management?

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1.2 . Objective of the study

1.3.1. General objective

The main objective of the study is to assess the strategic significance of inventory management
to promote customer service and potential area of cost saving in factory.

1.3.2. Specific objectives

 To assess enterprise use established inventory levels.

 To assess enterprise the employee practice of keeping extra inventory to protect appoint
out of stock coordination.
 To identify the strategic significance for inventory management to promote customer
services.
 To recommend the possible solution.

1.3 . Significance of the study

Strategies significance of inventory management to help executive of merchandise

wholesale and import enterprise in their attempt to deliver value to customer using inventory
management as one of the key business process in physical distribution management. After
completion these research used for any other researcher as a corner stone; Moreover, the studies
was also forwarded recommendation to any concerned bodies.

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1.4 . Scope of the study

This study is not targeted to study all organization that offers inventory management.
This is mainly because to it requires huge amount of resources including finance, time, man
power and other. So, to complete delimited to a study on the strategic significance of inventory
management only on merchandise wholesale. In addition this study has been limited to the
strategic significance of inventory management plays in poverty reduction through provision of
inventory management service. It does not make the decal investigation of financial viability.

1.6. Limitation of the study

The main problem that faces the researcher in the study is lack of written document in the
factory.

1.7. Organization of the paper

This paper is composed of five chapters the first chapter deals with the introduction that
include back ground of the study, statement of the problem, objectives of the study, significance
of study and limitations of the study.
The second chapter deals with review related that consist definition and concept of inventory
management. Third chapter deals with methods of data collection through primary and secondary
sources. The fourth chapter deals with data presentation and data analysis. Finally chapter five
deals with the conclusion and recommendation.

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 CHAPTER TWO
LITERATURE REVIEW

2.1. Introduction
Where the buyers start to prevail, the between the buyer and the seller is completely
different from that experienced in the seller market. In the former case customers have the
opportunity to choose among competing products. As the buyers dominance in the market
increase marketers focus on identifying few care activities on which the organization can
develop unique capabilities could be developed and customer service is promoted, inventory
management is one of the factors that determine how satisfied customers are likely to be with the
seller’s physical distribution activities. It is believed that superior market place performance
requires providing the customer with added value such as customer service. According to (Kotler
1999, p.447).

The new competition is not between what companies produce in their factors, but
between what they add to their factory output in the form of packaging, services, advertising
customer advice, delivery, arrangement, ware housing and other things that people value. It is
with in mind that chapter tries to investigate the strategic significance of inventory management
to customer service. This chapter is originated into six parts. The first part deals with an
overview of physical distribution management by emphasizing on major activities and
importance. The second part reviews brief history of inventors. The third part discusses the
inventory management and ware housing activity of physical distribution in some detail. The
fourth part deals with customer service, its definition and elements. The fifth parts deals with
integrating customer services with inventory management and other elements of marketing mix.
Finally, the importance of organizational structure to service is taken care of by part six.

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2.2. Physical distribution management
An over view (Stem and EI-ansary,1992,p.150) define physical distribution as a term
more appropriately applied to the outgoing product flow from the firm through same defined
network transportation like storage, or distribution nodes called a distribution network.
(Lambert and stock,1993,p.4) define physical distribution as the process of planning,
implementing and controlling the efficient, cost effective flow and storage of raw materials, in
process inventory, finished good, and relation information from the point of origin to the point of
consumption for the purpose of confirming to customer requirements.

The later definition of physical distribution emphasizes the efficient management of the flow of
goods from the point of origin to the point of conception requires planning, implementing and
control of transportation ware housing and storage, inventory control. In formation, and customer
service on this paper the definition of Lambert and stock is followed by emphasizing on finished
goods inventory.

2.2.1. Importance of physical distribution management

(PDM) argue that an efficient and economic physical distribution system similar to tangible asset
on factors book. They underscore the fact that it cannot be readily duplicated by the firm’s
competitors and can provide is customers with products quickly at low-cost, hence, gaining
market share over its competitors. Buyer market in which the buyers are dominant and sellers
have to scramble hard for customer. Sellers market is a market in which the sellers are dominant.
(Kotler,1998,p.16). 1992,p.432) emphasis the fact physical distribution management has
strategic uses in terms of more customer satisfaction and reducing cost this fact is under scored
parker stated. Improvement in marketing efficiency and reduction in marketing costs. There is
room for substantial improvement, particularly in perform once of the physical distribution cost
function of marketing which constitute a major part of the total marketing costs. In similar
fashion ducker said almost 50 cents of each dollar the American spend for goods for activities
that occur after the goods are made that is after have come in finished from economically
distribution is the process in which physical properties of matter are converted into economic
value, it brings the customer to the product.

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 The above statement does tell us the cost involved in physical distribution managements
is substantial and serves as powerful tool in competitive marketing hence, it deserves
management’s attention.

2.2.2. Activities of physical distribution

Accordingto (Sterm and EI-Ansary. P.155) the activities of physical distribution should be
managed by taking in to consideration simultaneously the cost of the activities involve when
trying to achieve a specified levels of customer service. The activities involve when trying to
improve in physical distribution according to (Lambert and Stock, 1993 p.13 are discussed as
follows:

Order processing:- physical distribution starts with customer order. The components of order
Processing activity may be broken down into three groups. Operational element such as order
entry editing scheduling, order shipping and invoicing, communication elements such as, order
modification order status inquires, racing and expediting, error correction and products
information requests, and credit collection elements including credit checking and account
receivable processing or collecting. The speed and accuracy of order processing has great deal do
with the level of customer service the company provides.
Traffic and transportation:- this activity refers to managing the movement of products and
including such as selecting the method of shipment (air, rail, water, truck) schooling specific
path (routing) and being aware of both domestic and intimation shipping requirements.
Transportation adds time and place utility to products. it also affects many decision making
areas, including product, market area, location and pricing.
Demand forecasting:- demand forecasting involves determining the amount of product
accompanying service that customer will require of sometime in the future physical distribution
forecast of demand determine how much of each item produced by the company must be
transported to the various markets the firms originate so that the proper amount of product can be
played or stored in each market area.
Distribution communication:- effective communication must take between the firm, its
customers and its supplies, the major functional components of the factors marketing physical
distribution, and finance accounting. The various physical distribution related activates such as
customer service, traffic and transportation, order processing, and inventory control, and the

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various components of physical distribution (inventory control, warehousing and customer
service) will be discuss subsequently in detail.

2.3. Inventory management and warehousing

The inventory control activity of physical distribution management is important because of the
financial necessity of maintaining a sufficient supply of product to meet customer’s need.
(Britannica.1986,p.36) defines inventories as any items hold in stock for a firm including
finished goods held for resale goods in process of production, raw materials, and goods that will
be consumed in the process of production. (Aquiline 1989, p.579) inventories as the stock of any
item or resource used in an organization and inventory management as a get of policies and
controls that monitors levels of inventories and determines what levels should be maintained
when stock should be replenished, and how large orders should be inventory level represent
another physical distribution decision that effects customer satisfaction. (Lambert and stock
1993, p 423 ) argue that as customer service levels move forward 100 percent inventory cost
increase proportionately. However, It is not cost effective for a company this inventory suggest
the need to develop an accurate inventory cost have different products could have differences in
demand levels and demand variation. Hence, the customer service should not only be improved
simply by increasing inventory but also by substituting transportation cost for inventory costs by
using premium transportation to improve customer service and to recognize the difference in
demand level of products as another possibilities. In general inventory control theory deals with
the determination of optional procedures for having inventory items so as to meet future demand.
According to (Stem and EI-ansary P.425) the objective of inventory control is to minimize
inventory cost (holding cost, ordering costs, stock out costs) subject to demand and customer
service constraints. Thus the decision when and how much to reorder is a matter of striking a
balance between inventory costs. The purpose of inventory control system according to the firm:
how much to reorder, when to reorder and how to control stock outs at the lowest cost. The
decisions made by managers to determine how much inventory to order and when to place the
order is influenced by uncertainty conditions of demand. And suggest the timely of models such
as economic order quantity (EOQ) and distribution resource planning (DRP) (lamberts and stock
1993, P, 409). Having determined resource the optimal procedures for acquiring inventory items

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to meet future demand, we also need to recognize assumptions of poor inventory management. In
this regard suggests the following are symptoms of poor inventory management, increasing
number of back orders, increasing dollar investment in inventory with back orders remaining
constant, high customer turnover rate, increasing number of orders being cancelled period and
lack of sufficient storage space.

From recognized the problem of balancing the quantity that will be used for replenish
inventory operation basis and the associated cost. To solve this problem Harris developed the
model that is used for finding the optimum order quantity has become known as the basic
economic order quantity (EOQ) formula (Ballou,1992, P,420).

Wide variance in inventory turnover among distribution centre among major inventory items,
deteriorating relationship with intermediated, as typified by dealer cancellations and deludes
orders, large quantities of obsolete items.

Discussion of inventory management in physical distribution is highly related to ware housing

decision. Thus takes discussion of ware housing decisions.

2.3.1. Warehouse

An enterprise has to store its goods while they wait to be gold. It is for the presence and
need of inventories that warehousing decision are made (Stem and El-Ansry p.171) suggest that
warehousing decision involve owner ship and location of ware houses. And solutions to these
problems are important for inventory management. An enterprise can either have their own ware
houses or use public ware houses on lease basis private ware houses offer profitability design to
meet special storage and handing needs warehouses facilities and operational and more
information feedback .In contrast, public warehouses facilities require no fixed no flexed
investment by the firm, offer location flexibility, the ability to increase ware houses space to
cover peak requirements, and can offer cost under certain circumstance as when it is necessary to
story seasonal inventories. Ware house location decisions are pretty much important because
selection decisions are difficult to reverse once they are made it impossible. (lamberts and Stock
1993, p.311) identified three types of location strategies. These are:

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 Market positioned warehouses. This strategy locates ware houses nearest to the final
consumer. It maximizes customer service levels and enables the firm to utilize transportation
economies. The factors that influence the placement of warehouses near to the market areas
served include transportation cost, order, size, local transport availability, and customer service
levels offered. Production positioned warehouses. These warehouses generally cannot provide
the same level of customer service as that offered by market positions warehouses. The factors
that in fluency the placements of ware houses close to the point of production are prohibit of row
material number in the production mix, assortment of products afford by customers.

Intermediately positioned warehouses afford by customers. At a midpoint between the

final customers and producer. A firm often follows this strategy if must offer higher customers
service levels and if it has a varied product offering being produced at several point locations.

2.3.2. Customer service:

Definitions: standards and elements (Ballou 1992,79-80) defines customer service as a means by
which factory attempt to differentiate their products, keep customers, increases sales and
improve profits.

It is believed that a significance difference in one or more in organizations is important to

customers. This definition emphasizes the fact that customer service could be one of the
differences that customer can value high and it could also be a vital competitive tool in the whole
exercise of keeping customer locality and improving profits. However, this definition lacks three
different aspects of customer’s service worth considering.

The definition fails to consider the importance of human element (the employees) in the
organizations that are the important the customer service strategy. In this regard (Kotler 1989,
p.21) argues that it does not make sense to advertise the organizations service before it is evader
to provide quality services, i.e. employees should be trained and motivated to serve the customer
well.

The definition fails to underscore the fact that customer service is dependent up on other
elements of physical distribution activities. According to (Gattoma 1994, p.12) customer service

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is the output of the physical distribution mix. This should as failure in any of the mix can affect
customer service.

The definition does not show use the costs associated with improve customer service higher
levels of customer service are usually associated with higher costs. The level of service increase
beyond the 70-80 percent mark, the associated cost increase for more that proportionately.
Therefore, it shows management’s prudence to shows attention on the human element, the cost
implications and the dependence of customer service on the other elements of physical
distribution mix besides its importance as competitive tool to be a good perform in the market
place. (Lambert and Stock 1993, p.112) define customer service as a process which take place
between buyer, seller and third party. The process results allowed added to the process or derive
exchanged. This values added in the exchange process might be short term as in a single
transactions or long terms as in a contractual relationship. The value added is also shared in that
each of the parties to the transaction or contracts are better off at the completion of the
transaction that there were before the transaction took place. Thus in a process view, customer
service is a process of providing significant value added benefits to the supply chain in cost
effective way. (Ballou 1992, p.80) argue since customer service will remain inclusive. However,
Lemberts and stock’s definition is followed in this paper and believe to give some insight to the
concept of customer service.

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2.4. Customer service standards and elements

The first step in developing customer service standards is to determine which element are most
important to the customer (Stem and EI-ansary p.160) this implies that there is great primal to be
placed on gaining an insight in to the factors that influence buyer behavior and in the context of
customer service which elements is taken as most important. (Ballou 1992.80-81) describes three
basic element of customer service is identified by the study made be American national council
of physical distribution management. There are:

Retranslation elements: These elements establish a climate for good customer service
providing a written statement of customer service policy, such as when goods delivered after an
order is placed, the procedure for handling claims add back orders and methods of shipment let
customer know what kind of service to expect. Establishing contingency plan for times when lab
our strikes or natural disasters affect normal service and proving technical mannuals for
customers.

Transaction elements: There are elements that directly result in the delivery of product to a
customer. Setting stock levels, selecting transportation modes and establishing order processing
procedures are examples. There are elements that affect delivery time, accuracy of order filling,
conditions of goods on receipt and stock availability.

Past transaction elements: These elements represent the array of services needed to support the
product in the field, to protect customers from detective products, to provide for return of
packages, and to handle claims, complaints and returns. These take place after the sale of the
product, but there must be planned for in the pre transaction and transaction stages.

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2.5. Integrating customer service with inventory management and other areas
Of marketing mix.
In broader marketing environment the complexity of cultural, legal, political economic
and functional frame works results in a need for more marketing mixes to be formulated to suit
in the individual segment of the population (Kinser, 1988. p.109). in broad terms the urban sub-
culture will normally acquire on mix while the rural segment will require another complete
different on formulating marketing mix requires marketer give a due emphasis to the
environment (cultural, legal, political, economical). The classical management dilemma in
inventory. Marketing mix is asset of controllable tactical marketing tools- product, price, place
and promotion that the firm blends to produce the response it wants in the to get market. (Gary
Armstrong and Philip kotler1996, p.48-49). Management revolves around the tradeoff between
inventory availability and cash flow. However, in customer service area, another dimension has
been added to this mix i.e. customer satisfaction using inventory management to increasing profit
according to (Christopher. 1992.p.106-109) This suggests the right inventory on the shelf can
cause customer satisfaction and may result in increase profits. Thus, advises enterprise to focus
on keeping the right in venture on the shelf to safety customer needs. (Gattoma 1996, p.20-23) in
the same line argues that inventory policies whether set by the distribution or marketing
executive or anyone else for that matter will have a significant bearing on the costs of operations
and the need for integration of customer service and inventory management, despite the diverse
interest of the various functions attempting to influence the level of inventories. Customer
service also needs integration not only with inventory management but also with other elements
of the marketing mix. customer service in isolation from other elements of the marketing mix
will never lead to success and it also need to be recognized as part of the company’s philosophy.
So what lessons does it afford to business enterprises? Obviously, business enterprise should be
able to customer service as integral part of the total offer they preside to their customers. This
may also help them shape the way they think of a customers. On the same line (Lambert and
Stock. 1993. p.44) argue that customer service represents the output of the physical distribution
system and the place components of the marketing mix. They further argue that it is measure of
the effectiveness of the physical distribution system, and customer service is the interface of

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physical distribution and marketing argue that while the customer service is the output of the
physical distribution system, customer satisfaction result when the factories performs well on the
components of marketing mix.

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 CHAPTER THREE
3. RESEARCH DESIGN AND METHODOLOGY

The study was conducted in mars food factory which found in Jimma town. This factory was
selected, since it’s manufacturing organization that use more inventories.

3.1 Study Area

The study was conducted in Jimma town which is located 345 km far away from Addis Ababa.
The factory selected for study is the Mars food factory.

3.2. Types of Data Sources

The researcher was used primary sources of data like questionnaires. The secondary data was
collected from the documents of the organization that includes purchasing manuals, merchandise
wholesale and import trade enterprise etc.

3.3. Sampling technique

Of the many of types of sampling used in research areas, the one the researcher was preferred in
this particular study for sampling is simple random sampling in which out of 200 total
population 20% (40) respondents were selected randomly.

3.4 .Method of data collection

The researcher was use different types of data collection mechanisms like questionnaires, and
document analysis. Open and closed ended questionnaires was distributed for some selected
employees. The primary data was collected by direct participation of respondents, because of
survey method is utilized. Secondary data was collected from different books, documents
manuals.

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3.5. Method of data analysis
After getting necessary information from different sources, the researcher planned to analyzed
data by using descriptive statistics like percentage, tabulation, and statements. The respondents
were classified in work places. The under trying reason is that data was collected in quantitative
method. This is the most important method of analysis for trade purpose. Hence, for all data
interpretation was made relying on the descriptive analysis. Finally was for warded
recommendation, findings and conclusion was done accordingly.

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 CHAPTER FOUR
4. DATA ANALYSIS AND PRESENTATION

In the very nature the science of inventory management is the responsibility to receipt and
distribution of appropriate quality of materials to justify operational need transport out
organization in the absence of good management and inventory control. This chapter mainly
focuses on the asses inventory management in the organization to promote customer service. 40
structured questioners distributed to the employees of the organization.

Table1. Background of the respondents

Respondents

No Item No Percentage

1. Sex

Male 25 62.5

Female 15 37.5

Total 40 100

2 Educational background

<12 grade 1 2.5

12 Complete 15 37.5

Diploma 14 35

Degree and above 10 25

Total 40 100

Source: (Survey result 2011)

As thedata shows on the above table the greater number of the respondents are composed
25(62.5%) of the respondents male and 15(37.5%) of the respondents female workers because of
exceeding number of male workers over in agency. From the total number of employees out of

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40 employees 1(2.5%) below12, 15(37.5%) 12 complete, 14(35%) diploma and 10(25%) degree.
According to the data greater numbers of the employees have 12 complete and diplomas.

Table 2. Inventory management system

No Item Respondents

No Percentage

3 It there clearly stated way of

inventory management and
practice in the organization

Yes 10 25

No 30 75

Total 40 100

4 What security and safety does

inventory in the store has?

Excellent

Very good 8 20

Good 12 30

Average 15 37.5

Poor 5 12.5

Total 40 100

Source: (Survey result 2011)

As the data shows on the above table 10(25%) responded there is a good way of inventory
management in the organizationa.30 (75%) responded there is nothing concerning to the clearly
way of inventory management.

According to the respondents suggestions about the use of security for the inventory in the
organization about 8(20%) of the respondents responded very good, 12(30%) of the respondents
responded good, 15(37.5%) of the respondent responded average and the rest 5(12.5%) of the
respondents responded poor way of materials in the store has security in terms of position of the
store has security in terms of position the storage shelving system risk of damage from the data

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can understand that course of the nature of the business itself do not allow store to be positioned
in the fixed place to assure the safety of stock reducing movement of the stock of the agency
when constructing store house .

Table3. Inventory relation among the other department

Respondents

No Item No Percentage

5 Does the supplier situated near

to the organization

Yes 10 25

No 30 75

Total 40 100

6 What type of relation do your

organization with its suppliers

Excellent

Very good

Good 5 12.5

Average 20 50

Poor 15 37.5

Total 40 100

Source: (Survey result 2011)

The above table shows that physical proximity as well as the true relationship users and
suppliers. According to the respondents 10(25%) responded supplier were situated near the
organizations and remain 30(75%) responded the supplier were not situated near the
organization.

Therefore, the store is not nearly located to the user. As the result there cannot satisfactory
service and user may not kind easily materials when they need. This could because for the device
in the work performance and efficiency of workers.

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Those that the proximity of store to the user able may facilitate its management. In the other
hand about relation in the organization with its supplies 12.5% of respondents responded good
relation 50% of the respondents responded average and the rest 37.5% responded there is not
totally good relation with suppliers. The primary reason for the absence of good relation is due to
the distance between user department and store which cause annoyance because of processing
time of requisitions submitted from the users. Therefore, it need to give series attention for the
well arrangement of materials in the store and providing additional training for the existing work
force and hiring additional skilled manpower.

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Table4. Inventory controlling system in the office

Respondents

No Item No Percentage

7 Is there large purchase at once

by your factory?

Yes 30 75

No 10 25

Total 40 100

8 What type of inventory

counting (physical counting)
does practice?

Period counting 35 87.5

Cycle counting 5 12.5

Sampling

Other

Total 40 100

9 Does the organization

employee former receiving
document while receiving
material

Yes 40 100

No

Total 40 100

Source: (Survey result 2011)

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As shown on the above table 75% of the respondents responded is there large purchase at once
and 25%o f the respondents are responded there is no large purchase at once to fulfill the need in
connection with this respondents adding their suggestion about the type of inventory counting in
the agency 87.5% of respondents responded it is periodic counting even though sometimes stoke
take place irregularly (cycle counting) as the rest 12.5% of the respondent suggestions. This
implies the irregularly of stock taking which may direct the organization towards unnecessary
cost of inventory due to unclearly stated statement about the weakness in the system of cost and
control of stoke and unknown value of stoke shown in the balance sheet because of missed
physical verification of stock.

As the data reveals 100% of the respondents responded the organization employee method of
receiving materials count. Therefore, the receiving materials document will be made by supply
department.

Table 5. Problem of inventory control in the office and major inventory cost.

Respondents
No. No. Percentages
Item
10 What type of inventory problem the organization
always face with source of supply problem
Repetitive of supply problem
Problem of flexible demand 30 75
Problem lead time 10 25
Total 40 100
11 From the following which is the major inventory
cost of your organization?
Purchase cost 35 87.5
Order setup cost
Holding cost
Stack out cost 5 12.5
Total 40 100
Source: (Survey result 2011)

Concerning the type of inventory problem the organization always face with 75% of respondent
responded problem of flexible demand and 25% of respondents responded the problem of lead
time from the supplier some of them responded the agencies time duration in the business is very

20
short means the duration of establishment of the organization is very short because of these
reason we have not full understanding about the problem and the respondents suggestions.

As the above table shows that 87.5% of respondents responded purchasing cost is the major cost
and the remaining 12.5% of respondents responded the stock out cost. The primary reason for the
cost of purchasing the organization is need many construction materials and for office material
incur very high cost as we as in the case of distance between the store and their work place the
organization is incur high stock out cost.

Table 6 Method of inventory improvement in the organization

Respondents

No Item No Percentage

12 What are the major actions the

organizations use to improve
the inventory system?

Standardize stock item 15 37.5

Reduce lead time 2 5

Reduce cycle time 15 37.5

User Fewer supplies 8 20

Total 40 100

Source: (Survey result 2011)

From the above table the major action in the organization use to improve the inventory system
37.5% of respondents responded standardize stock item 5% of respondents responded reduce
lead time, 37.5%of respondents responded reduce cycle time and the 20%of the respondents
responded the fewer supplies.

Table7 , Recording way of inventory management

Respondents

No Percentage

20
 No Item

13 Is the inventory management is

recorded in appropriate ways?

Yes 15 37.5

No 25 62.5

Total 40 100

Source: (Survey result 2011)

As the data presented on the table 37.5% respondent responded is there appropriate ways of
inventory management and 62.5% of the respondents responded there is no appropriate ways of
inventory management in the factories. If there is no appropriate ways of inventory management
in the organizations the factory risk to the cost.

Table 8, Availability of Staff

Respondents

No Item No Percentage

14 Do you think that there is sufficient

staff for the store keeping function

Yes 10 25

No 30 75

Total 40 100

Source: (Survey result 2011)

The data appearing in the table above which is about staffing for store 25% of the respondents
responded there is good staffing and the rest respondents responded there no good staffing. From
this data it can understood that there is insufficient staffing obviously it can disturb the overall
functions of the organization. As some of respondents of the organization responded that is
staffing problem is because of the attitude of the management of the organization to produce
operation with the existing staff with little change and other responded it is because of lack of

20
capital to rise additional workers according to the information controlling and maintaining
balanced and right amount of inventory would contribute to the un necessary average inventory
cost, stock out, delay in the issuing and receiving difficult in shelving arrangement. If the store is
insufficient to keep the inventory the factory is cost to the deterioration of the inventory.

Table 9, computerized inventory system

Respondents

No Item No Percentage

15 Is there any computerized

system of counting inventories?

Yes

No 40 100

Total 40 100

Source: (Survey result 2011)

As data reveal on the table from the sample size of respondents of 100%respondents responded
there is no computerized inventory control the organization. Therefore, the suggestion given
from the respondents the organization have the inventory controlling error to reduce the fraud,
attempt by same reason as well as to minimize unnecessary inventory cost incur the organization
in case of surplus and storage supplies in the store. It possible to say the factory face the
problems of inventory control and lack of good management of inventories.

Table 10: Immediate Response of Suppliers

No Item Respondents

No Percentage

16 Is there Immediate Response for

material

20
 Yes 13 32.5

No 27 67.5

Total 40 100

Source: (Survey result 2011)

The above table shows that suppliers section have about the response for the users materials
requisition 13(32%) of the respondents responded and 27(67.5%) of the respondents responded
that immediate from the supply department.

Table 11 Customer service

Respondents

No Item No Percentage

17 Does your company has

customer service department

Yes - -

No 40 100

Total 40 100

Source: (Survey result 2011)

As the above table shows from the total number of respondents that means 40(100%)
respondents that there is no customer service department in the factory. These implies the factory
have a lack of communication with it is customers. These problems can make the challenge
between the factory and it is customer.

Table12, Strategic evaluation of company

Respondents

20
 No Item No Percentage

18 Did the existing strategies

produce the desired results in
your factory?

Yes 16 40

No 24 60

Total 40 100

19 Where strategies and their

requirements communicated
effectively?

Yes 14 35

No 26 65

Total 40 100

Source: (Survey result 2011)

As the above table shows from the total 40 respondents 16(40%) respondents responded the
existing strategies produce the desired results and 24(60%) of the respondents responded that
means the existing strategies is not produce in the best system.

According to the strategies and their requirements communicated effectively. From the total 40
respondents 14(35%) responded the requirement communicated effectively and the remaining
responded there is no communicated effectively. As a suggestion the factory risks to the failure
of communication effectively communication with the organization.

Table 13. Operating management performance

Respondents

No Item No Percentage

20 Where results monitored and strategies revised as needed in

your factory?

Yes 35 87.5

No 5 12.5

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 Total 40 100

Source: (Survey result 2011)

As the above table shows 35(87.5 %) respondents responded the results monitored and strategies
revised is needed in the Factory and the remain respondent 5(12.5%) responded that there is no
the results of monitored and strategies revised in the factory. These implies the factory have a
problem to monitored and revise the strategies.

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 CHAPTER FIVE
5. CONCLUSION AND RECOMMENDATION

Using some concepts from the literature of the study, and findings the researcher has
come with the following conclusion and recommendation.

5.1. Conclusion

As the data presented in chapter four is to see there is real need of good inventory management
and how the inventory management function balancing this need with the cost of clearly stated
way of inventory management and practice in the organization.

According to the respondents responded did see nothing according to the clarity management
from the data the researcher can understand that of course the nature of the business itself do not
allow store to be positioned in fixed place to assure the safety stock reducing movement of the
stock.

For the question of the suppliers situated near to the organization. Therefore, explicitly we can
see that the store is not nearly located to the user. According to the suggestion of the respondents
these who responded no due to store located indifferent place it create multiplied job for the store
keeper and cause delay on work.

Due to relation between the supplier and the user department is they have not good relation. The
primary reason for the absence of good relation with supplies is due to the distance between
users department and store. Secondly due to poor arrangement of materials in the store,
carelessness insufficient manpower. For receiving material the agency material receives issued
by means of formal document and report for prepared regularly. The bad location of materials in
the store also may create tire some job for the store keeper of the time of issuing materials.

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Science inventory management is mainly concerned with attempting to strike balance between
customer service and inventory costs, incurred interms of infest expense may reduce the service
level that could be set. Absence of customer service may affect the enterprises ability to increase
market share. So the firm should identify inventory management as a key business process to
promote customer service. From the suggestions of respondents the management commit and to
follow strategies in the factory not much favorable.

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5.2. Recommendation

The researcher has forwarded the following recommendation for the better operation of the
inventory management of the agency.

 The way the inventory managed in the organization is not in good way in that there is
recurred building for ware house. So it is advisable for the company if it construct additional
building for safe inventory more efficiently.

 As the study indicates, the organization is practices periodic counting method of physical
counting, while not considering sampling method. So It is advantageous for the company if it
practice or use practice sampling method for the materials of uniform or standardized in
nature.

 The agency is facing the problem of lead time late delivery. So It is advisable for the
company if it adequate inventory on hand (safety stock) to overcome the problem of late
delivery by the suppliers.

 Classification and modification of the inventories in the store is not good. Therefore, it is
advantageous for the company if use classification and modification inventories.

 The agency advisable to enough staff that is imploring store keeper for the inventory in store
to make it secure.

 It is advisable for the company if use the computer that is key essential for inventories in that
it reduces the number of employees which reduces the agencies cost, it facilitates the
agencies operation.

 Agency is created for assortments of the inventory management.

 The manager of store keeper is responsible for inventory management in the factory.

 The enterprise gets the benefits from the existence of inventories management in the cost
area.

 It is advisable for the company if it use computerized system for the activities of inventory
management.

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 Create long lasting relationship with its customers and improving its inventory management
the factory established good climate for customer service.

 Strategic significance of inventory management good if assessing for the inventory

management.

 Strategic significance of inventory management best if it practice for the good management
inventories.

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 Appendixes I

BIBLIOGRAPHY

1. Ballou.R.H. (1992). Business Logistics management, 4th edition. Englowoo Cliffisi London;

Prentice Hall.

2. Christopher, (1995). Marketing; an introductory text, 3rd edition, Macmillan press Ltd.

3. Gattoma, (1994). Supply Chain Management, 3rd edition, Europe the penetration out lourcing.

4. Gray Armstrong, (1996). Principles of Marketing, 7th edition, prentice Halltorrent down loads.

5. M. Lambert and R. Stock (1993). Strategic Logistics Management program, 3rd edition,

United States department of energy.

6. Philip, Kotler, (1996). Principles of Marketing Management, 7th edition, North Western

University.

7. Philip, Kotler, (1998). Marketing Management, 8th edition, Prentice Hall of India.

8. Philip, Kotler, (1999). Marketing Management; Analysis Planning Implementation and

Control, 9th edition. Prentice Hall New Delhi.

20
 APPENDIXES II

JIMMA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPATMENT OF MANAGEMENT

Questionnaire

This question is was prepared to gather data on “the strategic significant of inventory
management to promote customer service in your organization. In partial fulfillment for BA in
management.

1. Sex Male  Female 

2. Educational background Degree  Diploma  12  > 12+ 

3. It there clearly stated way of inventory management and practice in the organization?

Yes  No 

1. What security and safety does the inventory in the store has?
Excellent  Very good  Good  Average  Poor 

5. Does the organization situate near to the organizations. Yes  No 

6. What type of safety of relation do your organization with its suppliers?

Excellent  Very good  Good  Average  Poor 

7. Is there large purchase of once by your factory? Yes  No 

8. What types of inventory counting (physical counting) does practice?

Periodic counting  Cycle counting  Sampling 

9. Does the organization employee formal receiving document while receiving materials?

Yes  No 

10. What type of inventory problem the organization always face with factory?
______________________________________________________________________

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11. From the following which is the major inventory cost of your organization?

Purchase cost  Holding cost  Order setup cost  Stock out cost 

12. What are the major section the organization use to improve the inventory system?

Standards stock time  Reduce lead time 

Reduce cycle time  Use power supplies 

13. Is the inventory management is recorded in appropriate ways?

Yes  No 

14. Do you think that there is sufficient staff for the store keeping function?

Yes  No 

15. Is there computerized inventory system of counting inventories applies by your factory?

Yes  No 

16. The organization when requesting for materials their immediate response supply sections?

Yes  No 

17. Does your factory have customer service department?

Yes  No 

18. Did the existing strategies produce the desired results in your factory?

Yes  No 

19. Where strategies and their requirements communicated effectively?

Yes  No 

20. Where results monitored and strategies revised as needed in your factory?

Yes  No 

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