EFFECTS OF INVENTORY MANAGEMENT PRACTICES ON THE PERFORMANCE
OF FEEDS DEALER IN CAVITE
Lyka Jane R. Roguel
Inventory plays an important role in every organization. Even those who do not
have financial background needs to have an understanding about the inventory
information in the company’s financial statement. The ability to understand the impact
on the income statement and cash flow statement of the company can help one improve
his ability to have the right item and the right quantity in the right place at the right time
(Muller, 2019). Inventory management is the ability of the management to organize the
availability of the items for their customers. Since the success of one’s business highly
depends on the ability of the organization to provide goods or services to their
customers while remaining financially viable, it is important for the management to have
a control over the purchasing, manufacturing, and distribution functions of the company.
Having a good inventory management practices helps the company to cover up for the
mismatch between the supply and demand processes, minimize the risk of failure to
supply, and minimize the overall cost in supply chain. (Wild, 2017). In order to ensure
that there is a continuity between function, the inventory management must tie together
certain objectives such as company’s strategic goals, sales forecast or demand
management, sales and operations planning, production planning, and materials
requirement planning. (Narayan, P., & Subramanian, J., 2009).
Inventory management practices includes the usage of Economic Order Quantity
(EOQ) which asks the questions how much of each item must be stocked, and when
should an order be released and for what quantity. EOQ can be used in conjunction with
various inventory management systems including Just-in-time(JIT) and EOQ models.
Activity-based costing, on the other hand, has been considered useful in the field of
warehousing operations, where various activities occur and conventional accounting
schemes fail to recognize the effect of these activities on the company's overall
profitability (Narayan, P., & Subramanian, J., 2009). Inventory management practice
also includes Materials Requirements Planning (MRP) which is the most common
planning tool used in the industry today. MRP is a method for measuring the materials
and components necessary for the development of a product. It requires tracking of the
materials and components on hand, determining what is needed, and then scheduling
their production or purchase. (Drexl, A., & Kimms, A. , 2013).
Inventory management practices plays an important role in the performance of
an organization. Organizational performance corresponds to how well an organization
performs to accomplish its vision, goal and objectives. It comprises real results or
outputs compared with intended outputs. The analysis focuses on three key results
which are the performance of shareholder value, the financial performance, and the
performance of the market. The evaluation of organizational efficiency is a critical
component of strategic management. Performance, however, is a very complex matter,
and a great deal of consideration needs to be paid to how it is measured. Performance
measures in the internal business process contribute to organizational performance.
These steps help answer the main question, "What do we have to excel at?”.
Examples include the time it takes to create or provide goods or services for the benefit
of the company and how much time does it takes to produce a new product and get it to
market. (Mastering Strategic Management, 2011).
Many previous researches have proven how inventory management practices
greatly affects the performance of a firm, whether it be big or small. For instance, based
on the study findings of Mwangi, L. (2016), inventory conversion period, management
efficiency, firm size, inventory conversion, and inventory days have a negative and
positive influence in the performance of the firm’s profitability. Sahari, S., Tinggi, M., &
Kadri, N. (2012), on the other hand, have concluded on their studies that there is a
positive relationship between inventory management and financial performance of the
firm. Furthermore, Bett, K. (2018) revealed that the Inventory management practices are
responsible for the operational performance indicators of the Small Medium Enterprises
(SMEs). However, based on his own judgement, most SMEs might be having these
practices on paper but not operationalized nor instituted.
According to Victoire, M. (2015), observation shows that there is a serious issue
with the inventory management practices in manufacturing organizations, especially in
the case of SMEs. With the companies having different inventory policies implemented,
ONIKOYI, I. A., AMNIM, F. F., OJO, S., & AJE, C. O. (2017) recommends to further
conduct a study regarding the best inventory management practices such as JIT, MRP
and EOQ. In addition, with Bett, K. (2018) having a second thought about SMEs actual
practices in its operations, the researcher have decided to conduct a study focusing on
knowing how small businesses manage their inventories, what practices do they use,
and how do their inventory management practices affects their performance. In this
study, the researcher have chosen to study on the inventory management practices of
rice dealers in Cavite. This paper intends to bring in the relevant problem of the feeds
dealers with regards to their inventory management and its effects on their
organizational performance.
References:
Sahari, S., Tinggi, M., & Kadri, N. (2012). Inventory management in Malaysian
construction firms: impact on performance. SIU Journal of Management, 2(1), 59-72.
Link:
https://www.researchgate.net/profile/Michael_Tinggi/publication/265349733_Inventory_
Management_in_Malaysian_Construction_Firms_Impact_on_Performance/links/56f097
7e08ae70bdd6c94ecc/Inventory-Management-in-Malaysian-Construction-Firms-Impact-
on-Performance.pdf
Mwangi, L. (2016). The effect of inventory management on firm profitability and
operating cash flows of Kenya Breweries Limited, beer distribution firms in Nairobi
county (Doctoral dissertation).
Link:
http://erepository.uonbi.ac.ke/bitstream/handle/11295/98572/Lydia%20Mwangi%20Final
%20Project%20Final.pdf?sequence=1&isAllowed=y
Bett, K. (2018). Inventory Management Practices and Operational Performance of Small
and Medium Enterprises in Kenya: a Study of Pharmaceutical Manufacturers in Nairobi,
Kenya.
Link:
http://erepository.uonbi.ac.ke/bitstream/handle/11295/105017/Bett_Inventory
%20Management%20Practices%20and%20Operational%20Performance%20of
%20Small%20and%20Medium%20Enterprises%20in%20Kenya-%20a%20Study%20of
%20Pharmaceutical%20Manufacturers%20in%20Nairobi,%20Kenya.pdf?
isAllowed=y&sequence=1
ONIKOYI, I. A., AMNIM, F. F., OJO, S., & AJE, C. O. (2017). Effect of Inventory
Management Practices on Financial Performance of Larfage Wapco Plc. Nigeria.
European Journal of Business and Management, 9(8), 113-122.
Link:
https://core.ac.uk/reader/234627780
Narayan, P., & Subramanian, J. (2009). Inventory Management-principles and
Practices. Excel Books India.
Link:
https://books.google.com.ph/books?hl=en&lr=&id=-
XKqiGceTp4C&oi=fnd&pg=PA1&dq=inventory+management+practices+book&ots=WsL
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Drexl, A., & Kimms, A. (Eds.). (2013). Beyond Manufacturing Resource Planning (MRP II): advanced
models and methods for production planning. Springer Science & Business Media.
