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Inventory Management at Makerere University Business School and Its Impact on the Revenue Performance of Small and Medium Enterprises

1,2Ayoo Irene Oywa

1Department of Business Administration of Kampala International University Uganda.

 2Faculty of Business Administration of Makerere University Uganda.

ABSTRACT

Numerous studies have explored the effectiveness of implementing operations management techniques in inventory management and its impact on revenue performance. This study aims to ascertain the significance of inventory management, its various approaches, and the correlation between managing inventory effectively and revenue performance. Employing a secondary data collection method, the researcher reviewed and analyzed pertinent documents from various authors. The research findings reveal that a majority of small and medium-sized enterprises struggle to adopt new inventory management methods, thereby adversely affecting their revenue performance. When inventory management isn’t integrated seamlessly, treating it as a separate entity, these enterprises struggle to ensure optimal resource utilization. However, the study also notes the presence of both positive and negative relationships between inventory management strategies and sales performance. In conclusion, the study recommends that SMEs enhance their inventory management techniques to positively impact business revenue. This improvement is crucial for streamlining operations and maximizing financial outcomes.

Keywords: Inventory management, Business revenue, Applying operations, Management techniques, Sales performance.

INTRODUCTION

Inventories constitute the most significant part of current assets in business. On average inventories are approximately 60% of current assets in every business unit. [1, 2] argued that inventory is the most important aspect in business performance; it calls for SMEs to make inventory assets productive by aggressively managing and controlling inventory levels at minimal loss of sales and returns or without excess carrying costs. According to [2], inventories are defined as the stock of the product of a business in manufacturing for sale and components required to make up a product. In other words, the stock of manufactured products and materials that make up a product, [3]. He further argues that good inventory management is a major source of increased productivity, improved return on investment and better customer service. Therefore, an attempt to neglect the management of inventories will jeopardise the firm’s long-term revenue performance and may fail ultimately, [4]. [5] reveals that many SMEs in Uganda have not taken inventory management as a serious and necessary issue which has led to shortages and low profits. High inventory levels in SMEs tie up capital in stock and low stock levels are also undesirable as they can result in stock-outs, [6]. Similarly, in resource-poor settings, SMEs do not consider inventory management practices as having a role in inventory turnover. This was evidenced in the study done by [7] who asserted that for companies in resource-poor settings to improve their turnover and effectively compete in the global market, they must not only effectively carry out inventory management but also have enabling organizational policies and management support. The major aim of inventory management is to avoid excessive and inadequate levels of inventory and to maintain only sufficient inventory for the smooth performance of the business, [2]. In addition to the above, [8] argues that investment in inventory should be minimized as costs associated with holding inventory affect levels of revenue. Due to poor application inventory management techniques, many SMEs seem to have revenue problems. This is probably because the majority of businesses are not aware of the importance of inventory management and its effect on revenue performance. The researcher will throw more light on the importance of inventory management as relates to revenue performance.

Despite efforts put in by business organizations to increase revenue performance by emphasizing on proper inventory management system, performance is continuously deteriorating due to poor inventory management, (Procurement New, May-June 2004). The inventory costs as a percentage of total logistics costs are increasing [9]. Despite this rise, many organizations have not taken full advantage of ways to lower inventory costs through proper inventory management techniques and as a result, it is likely to affect their cash inflows and will lead to low revenues. Inventories are a significant portion of the current assets of any business enterprise [10]. Inaccuracies in an inventory create a range of problems, including loss of productivity, the manufacturing of unwanted items, a reduction in the levels of customer commitment, the accumulation of costly physical inventories and frustration [11]. The cost of any of these inaccuracies can indeed be significant. Therefore, this study was carried out to establish the relationship between inventory management and revenue performance of SMEs.

DISCUSSION

In a wrap-up, the researcher observed that organizations should have ideal inventory management because it helps to reduce costs, increase revenue and hence improve the financial performance of an organization. There are several inventory management techniques but they are all aimed at reducing the overall costs of an organization and hence improving the revenue performance, however, there are also several changes in inventory management as sometimes the approaches are not easily applicable in developing countries like Uganda and it is hard to exactly anticipate demand which in turn leads to over stocking hence increasing overall costs.

CONCLUSION

The Approaches of Inventory Management

The researcher discovered that there are various approaches, and models of inventory management as mentioned above, these include; Economic Order Quantity, ABC analysis, Just-in-time, Periodic Review System, Electronic Point Sale, Re-order Level, Vendor Managed Inventory, Enterprise Resource Planning, Materials Requirement Planning and Postponement. However, most importantly a firm should choose the most appropriate approach applicable to its operations given the fact that others are not suitable for SMEs in Uganda coupled with the high cost of applying, technological advancement and lack of skilled personnel.

The Relationship Between Inventory Management and Revenue Performance of SMEs

The researcher concluded that there was a strong relationship between inventory management and the revenue performance of SMEs in line with the associations among inventory. IT investments and financial performance can lead to significantly reduced inventory costs, the ownership structure of the firm, strategic direction, size of the board and innovation. However, there was a negative impact between gross operating income and the number of inventory days, no overall decrease in inventory ratios despite an increased focus on inventory reduction, SMEs with very high inventory ratios had a bad financial performance, the cash conversion cycle and corporate profitability for SMEs.

Recommendations 

  • Business organizations should reduce their supplier’s lead times and use effective ERP tools.
  • The challenges of knowing customer needs can be overcome by instituting an automated Customer Relationship Management (CRM) system that will handle customer complaints, assess customer requirements and act as a feedback system to the customer.
  • The demand forecasting procedures and software have to be improved to analyse historical demand data more accurately, input external factors like lost sales, and seasonal changes and flexibility to handle emergencies. The software should be linked to the CRM to attain this goal. These then result in focused procurement based on customer needs and eventually reduce the re-order rates.
  • Inventory management should not be handled in totality but in aggregate with management information system and human resources, customizing the system to link the CRM module to both purchase and demand forecasting modules.
  • Also integrate the purchasing, manufacturing, distribution marketing and sales to come up with clear policies and make good use and application of appropriate inventory management techniques.
  • The researcher therefore recommends, that for companies involved in the distribution industry to achieve continuous growth in turnover, management support must augment operations management efficiency.

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CITE AS: Ayoo Irene Oywa (2023). Inventory Management at Makerere University Business School and Its Impact on the Revenue Performance of Small and Medium Enterprises. IDOSR JOURNAL OF CURRENT ISSUES IN ARTS AND HUMANITIES 9(2):23-38. https://doi.org/10.59298/IDOSRJCIAH/2023/2.3.3300

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