EFFECTIVENESS OF INVENTORY MANAGEMENT PRACTICE IN CASE OF JIMMA UNIVERSITY MAIN CAMPUS

EFFECTIVENESS OF INVENTORY MANAGEMENT PRACTICE IN CASE OF JIMMA UNIVERSITY MAIN CAMPUS

                  SUBMITTED BY: HEIRU JEMAL

               ADVISOR MR. RETA MEGERSA (MBA)

RESEARCH PROPOSAL SUBMITTED TO UNDER TAKE RESEARCH IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR BA DEGREE IN LOGISTIC AND SUPPLY CHAIN MANAGEMENT

JIMMA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF LOGISTIC  AND SUPPLY CHAIN MANAGEMENT

DECEMBER 2010

JIMMA ETHIOPIA

ABSTRACT

This research will be conducted in Jimma University main campus mainly at inventory management department the general objective of the study is to assess the inventory management practice of Jimma University main campus. 

The total population is estimated to be 100 and out of this 30% will taken as a sample. The method of sampling is convenience as non probability sampling observation questionnaires and different documents will be used to collect data from primary and secondary sources.

ACKNOWLEDGMENT

First of all I would like to thanks my god for this endless help from beginning of my life to reach this stage. And then I would like to thanks my advisor Mr. Reta Megrsa (MBA) for this advise, support and in sight full comments in preparing of this research study.

TABLE OF CONTENTS

ABSTRACT. i

ACKNOWLEDGMENT. ii

TABLE OF CONTENTS. iii

CHAPTER ONE. 1

INTRODUCTION.. 1

1.1 Background of the study. 1

1.2. Statement of the problem.. 2

1.3. Objectives of the study. 3

1.3.1. General objectives. 3

1.3.2. Specific objectives of the study. 3

1.4. Significance of the study. 4

1.5. Scope of the study. 5

1.6. Limitation of the study. 6

CHAPTER TWO.. 7

LITERATURE REVIEW... 7

2.1 Definition of inventory. 7

2.2. Functions of inventory management 7

2.3. The need for inventory. 8

2.4. Inventory stores. 8

2.5 Alms of inventory management 8

2.6 Significance of inventory. 9

2.7 Types of inventories. 9

2.8. Relevant inventory costs. 10

2.9. Alternative inventory system.. 11

2.10 Inventory costing methods. 12

2.11 Inventory decision. 12

2.12 Tools of inventory management 13

2.13 What is inventory control 13

2.14. Inventory control techniques. 13

2.15 Economic order quantity (EOQ) 13

2.16 Stock taking. 14

2.17 Re-order level 14

CHAPTER THREE. 15

RESEARCH METHODOLOGY.. 15

3.1. The study area and population. 15

3.2. Nature of data. 15

3.3. Method of data collection. 15

3.4. Sample size and sampling technique. 16

3.4.1. Sample size. 16

3.4.2. Sampling techniques. 16

3.5 Method of data analysis & presentation. 16

CHAPTER FOUR.. 17

4. TIME AND COST BUDGET. 17

4.1. Time budget 17

4.2. Cost  Budget 18

REFERENCES. 19

Appendix I 20

DECLARATION.. 23

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

The research will be conducted on the assessment of inventory management practice in Jimma University main campus.  The research provides academic knowledge of conducting research and to give solutions for the campus  affecting inventory management of the main campus. Inventory is the stock of any item or resource in campus where as inventory management is the process of reducing inventory cost, keeping inventory from under or over stocking and determining order and recorder points in order to achieve organizational goals. Most studies shows that in the campus constitutes the major category of assets on the balance sheet. 

The main objective of this study is to assess the inventory management practice of Jimma university main campus.

1.2. Statement of the problem

Inventory management functions the “integrated process that operation, the firms and the value chains inventory policy” The reactive, or pull distribution channel. An alternative philosophy is planning through the productivity schedules products movement and allocation thought the channel according to demand and product availability. Generally poor inventory management practices are overstocking, under stocking bad issuing system and absence of stock taking are the main causes.

Over stocking is storing materials over the needed quantity. And it may result in damage of materials because of limited place to keep it. Under stocking on the contrary is maintaining small number of material below the demand of the campus it has negative impact on the over work of the campus  to achieve its goals goal. Bad issuing sometimes also sending the materials from store without keeping the requisition of user department. If the materials at certain area can not be controlled it is difficult to properly record incoming and out going materials.

The study will assess the overall activity of Jimma University main campus management section and also the research will answer.

1.     What is the strength of the existing inventory management system?

2.     What is the weakness of the firms inventory management system?

3.     Did the campus have inventory management professionals?

4.     what type of inventory control system the campus used?

5.     What factors affect effective inventory management the campus?

6.     What are tools and techniques of inventory control system?

7.     What inventory costing method are used by the campus?

8.     What type of stock taking system the campus uses?

9.     How can the campus determines the re-order level and order level?

1.3. Objectives of the study

The study has general and specific objectives.

1.3.1. General objectives

General objectives of the study is to assess inventory management practice of Jimma University main campus and provide possible solutions for the problems that will be identified.

1.3.2. Specific objectives of the study

The following are specific objectives of study

-        To identify the types of inventory control systems applied by Jimma university main campus.

-        To examine how inventory management function is critical for the firm

-        To investigate how the existing inventory management system of the campus support the management and financial accounting practice of the firm.

-        To examine the campus affecting inventory management practice of the main campus.

1.4. Significance of the study

The research is believed to have the following importance.

-        The study will show the over all inventory management system of the campus

-        The study will suggest solutions for the problem related to inventory management function in main campus

-        It enables employees of inventory management evaluate them selves

-        It will indicate the strengths and weakness of the firm inventory management practice.

1.5. Scope of the study

The study is limited to assess the inventory management practice at specific area of Jimma University main campus. The time duration of this research will be from February up to  May 2011.

1.6. Limitation of the study

The study is estimated encounter the following constraints

-        The campus managers who concern the study many not be volunteer to respond the needed information in depth.

-        Complexity of inventory system is to the difficulty of gathering information.

CHAPTER TWO

LITERATURE REVIEW

2.1 Definition of inventory

 Inventory can be defined as follow

Inventory refers to any kind of resources having economic value and is maintained to full fill the present and future needs of the main campus.

-        Inventory is a physical stock of items that business or production enterprise keeps in hand for efficient running of affairs or its production.

-        Inventory is the quantity of goods, raw materials or other resources that are idle at any given point of time.

-        Inventory control is the means by which materials of the correct quantity and quality is made available as a when required with due regard to economy in storage and ordering costs and working capital.

-        It is also defined as the systematic location, storage and recording of goods in such away that desired degree of service can be made to the operating shops at a minimum ultimate cost” (S.C sharma (1999). P. 509, 512). Inventory and its management are related both to materials management and physical distribution management. Material management and physical distribution management together constitute logistics management, the process of management both he movement and storage of materials and materials from their source to the point of ultimate consumtionysons (2006b). P. 315).

2.2. Functions of inventory management

 Inventory management cover wide variety of activities in the in venture management there is some functions the function are

§  To carry adequate stock to avoid stock out

§  To ensure optimum level of stock so that total inventory cost is minimized (Nair, 2002, PP 575-576)

§  To bay the right quantity of perishable items so that loss in cured by unsold items are minimized.

§  To order sufficiently higher quantity at a time so that repeated ordering and costs incurred in such manner can be reduced.

2.3. The need for inventory

Inventory is essential for every thing to get their resources efficiently and effectively.

§  To gain economies in purchasing beyond current requirements.

§  To maintain service stock while replacement stocks are in transit.

§  To protect against variations in demand. (S. C. Sharma (1999), P. 509)

2.4. Inventory stores

The words inventory and stores  are some times confused these must there fore be clearly under stood  stores means all those articles which are kept in stores while inventory comprise stores as well as materials in transit materials in products finished products and stocking company’s shows rooms and distribution centers which have not been sold out. (S.C Sharma (1999), P 509)

2.5 Alms of inventory management

There is aims for every thing to do some thing. There fore the aims of inventory management are:

-        Provide both internal and external customers with required service levels interms of quantity and order rate fill.

-        Ascertain present and future requirements for all types of inventory and to avoid stocking while avoiding bad in production.

-        Keeps cost to minimum by variety reduction economical lot sizes and analysis of costs incurred in obtaining and carrying inventories.

-        Provide up stream and down stream  inventory visibility to the supply chain.

2.6 Significance of inventory

The word inventory refers to any stock on hand at a given time. If materials is held for future use in an idle or unproductive sate waiting its intended purpose.

The relative importance of inventory management to an organization can b arrange by the over all investment in inventory and the magnitude of materials costs for all products. Inventory so late one part of the system from the next to allow each work independently absorb the stock of for cost errors, and permit the effective utilization of inventory management to control the lot sizes to that the over all costs associated with the purchase or manufacture are at a minimum (Terisine, R.J. 1994. 20-2)

Poor inventory management implies having enough item available when needed but not so much that an unnecessarily cost surplus incurred inventories are assort of lubrication for the supply production supply distribution system that protects it from excessive friction.

2.7 Types of inventories

It is very important to classify inventory in to different type and classification so as to help or to make easy in managing or control of inventory at every stage (levels). There are four basic type of inventories

I. Raw materials

-        These are items purchased from supplier to be used as in put to the production process.

-        They will be modified or transformed to the finished goods.

II. Finished goods

Are final product available for sale distribution or storage

III. Goods in process

-        Are partially? Completed products that are still in the production process. They represent the materials waiting fur there processing.

IV. Supplies

-        Are inventory items consumed in the normal function of the campus. That are not part of the final product.

(Tersine. R.J. 1994 P.P. 3.4)

 2.8. Relevant inventory costs

The objective of materials management are to minimize inventory investments. To maximize customer service. It is a plan to see that, the goals cam be inconsistent or even indirect conflicts the role of the materials management is thus to balance the objective in relation to the existing conditions and environmental limitations. The basic object of inventory management is to maximize customer service through maintaining appropriate amount of inventory with minimum possible cost. Inventory costs are costs associated with the operation of an inventory system. Thus the relevant costs included inventory are

a) The purchase cost (P)

The purchase costs of an item are the unit purchase it is obtained from an  external source or the unit production costs it is produced internally. For the purchase items it is the purchase costless modified for different quantity levels manufacturing items the unit cost include direct labor or campus  overhead.  

b) Ordering or set up cost (C)

This is the cost of placing an order. This cost directly with the number of order or setups placed and not at all weigh the size of the order. The ordering cost included making analyzing materials inspecting materials follows up orders and doing the processing necessary to complete the transaction.

c) Carrying costs or holding costs (H)

There are costs of items (inventories) in storage. This cost vary with the level of inventory and occasionally with the length of item an item is held. The greater the level of inventory overtime. The higher the caring cost caring casts can be included the costs of losing the use of funds field up in inventory like storages casts such as rent of building heating cooling righting security, record keeping, deprecation obsolescence, product deterioration etc.

d) Stock out cost (shortage cost)

This is the cost as a result of not having items in a storage. This can bring looses of good will profit loss of incur back order cost and delay in the customer service. Establishing the correct quantity to order from vendors or the size of lots submitted to the firms productive facilities involves a search for the minimum total cost resulting from the combined effects of fewer individual costs holding costs, setup costs ordering costs and storage costs (Tersine, R.J, 1994. PP. 13-15)

2.9. Alternative inventory system

There are two types of inventory systems that aid to control inventory in stock

A)   Perpetual system

Maintenance a continua’s record of the physical quantities inventory. It records the purchase of each item of inventory. This system is essential if adequate management planning and control over inventory are to be maintained and stock outs avoided. A firm uses this system must have physical count at least once a year or to confirm the balance in the inventory account.   

B) Periodic inventory system

A campus using a periodic system doesn’t maintain continues record of the physical quantities of inventory on hand. It takes physical counts periodically.

2.10 Inventory costing methods

There are three methods of inventory costing method. These are:-

1. First – in first – out (fifo)

This method is based on the assumption that costs should be computed out in the order in which incurred.  Inventory are thus stated in terms of recent costs.

2. Last – in first – our (Llfo)

Is a method based on the assumption that goods should be charged our the latest cost be the latest cost be the first that are charge out. Inventories are thus stated in terms of earliest cost.

3. Weighted average method

Is a method based an the assumption that goods should be charged out at an average cost such average being influenced by the number of unites acquired at the price. Inventories are stated at the same weighted average cost. 

2.11 Inventory decision

In the inventory management decision encompasses the principles procures and techniques for deciding what to order, haw much to order, when it is needed and how and where to store if there decisions at each of these levees should be consistent with decision at the other level and should support the campus objective by achieving desired level of customer crevice and achieving in venture inventory objective (Black store Hoffman 1991).

2.12 Tools of inventory management

There are four tools of inventory management these are

1.     ABC – analysis

2.     Bar-coding

3.     Radio frequency identification (RFID)

4.     Inventory soft ware

2.13 What is inventory control

Inventory, control may be said to be planned method where by investment in inventories held in stocks is maintained in such a manner that it ensures proper and smooth flow of materials needed for production operations as will as sales while at the same time, the total costs of investment in inventories is kept at minimum (A.K. Data (2001). P. 108).

2.14. Inventory control techniques

There are a number of techniques which play an important role in the inventory control program. These techniques are very helpful in rationalization of inventory control approach and assist in formulation of inventory control policies.

The following are the important tools  and techniques as inventory control: these are

-        Determination of stock level

-        Determination of safety stock

-        Determination of economic order quantity

-        Just in time.

-        Stock cared and bin card etc.

 2.15 Economic order quantity (EOQ)

EOA model as a mathematical tool for determining the order quantity that minimize the cast of ordering and holding of inventory.

EOQ is the size of order which gives maximum economy in purchasing any material and ultimately contributed as to wards maintaining the material the optimum level and at minimum cost. Which setting EOQ ordering cost and carrying casts are taken in to account. At EOQ level. Ordering cost and cost of carrying are equal when total of these two casts are lowest. 

EOQ =

2.16 Stock taking

Stock taking refers to the process of testing or checking the stores record with the actual items stocked in the store. The store received at any time should Shaw the exact potential quantity of raw materials and parts which are available for use. Stock taking which enables to know whether there are any discrepancies between actual count and record (i.e. It could be shortage of overage) in the postings, whether any pilferage is taking place, and whether  the materials are good in condition.

Stocktaking is also sometimes called internal audit of stores usually external activity is a must for any organization for conducting check on the account.

2.17 Re-order level

The replenishment order is given either on out side firm or to the production department. At the time of issue replacement order stock  should be sufficient for each item so that demand (ether per raw materials by production shops or of finished goods by customers) can reasonably be met from the stock until  replenishment this stock level when replenishment order is issued is known as re-order level.

This level is determined for each item by compromising between the cost of maintaining these stocks and the disservice to the customer if this demand is not met in time.

CHAPTER THREE

RESEARCH METHODOLOGY

3.1. The study area and population

The research is targeted to study inventory management practice of Jimma University main campus.  The main campus especially inventory management and other treated department in estimated to have 100 employees (population size)

3.2. Nature of data

There are two types of data that will be used for this study

1.     primary data is the data that will be collected mainly from employees of inventory management and related departments of the campus.

2.     secondary data is the data that will be gathered from written materials of the campus and others

Like - books

-   other researcher

-    internets   

3.3. Method of data collection

To collect primary data (from primary sources) the searchers is going to use

-        Observation

-        Questionnaire

-        Structured and unstructured interview questions.

To get secondary data, different documents from concerned bodies of the main campus will be referred and in addition other secondary sources like books, internets and other researches will be used.

3.4. Sample size and sampling technique

3.4.1. Sample size

Even though almost all employees in the main campus uses materials to perform their responsibility, because of cost and time constraints the sample will be selected mainly from inventory management section and related department of the main campus. Thus the sample size is estimated to be 30% the total population (100x 30/100) = 30).

3.4.2. Sampling techniques

To select the needed number of individuals from employees convenience sampling of non-probability sampling will be used. This technique permits the research to have complete freedom of selecting individual who can provided relevant data.

3.5 Method of data analysis & presentation

 After collecting data the collected data will be processes it will be further described by using tabulation percentage and graphs so that findng will be easy to be understood by every one.

Finally the out come of the project will be presented on written material and detailed oral: presentation

CHAPTER FOUR

4. TIME AND COST BUDGET

 4.1. Time budget

No	Activities	Jan	Feb	Mar	April	May
1	Data collection	x	x
2	Further literature review		x	x
3	Data processing and classification			x
4	Data analysis and interpretation			x	x
5	Typing analyzed data on the ordinal paper				x
6	Final paper submission an presentation					x

4.2. Cost  Budget

No	Description	Measurement	Unit cost		Total cost
			Birr	Cent	Birr	Cent
1	Transpiration	Distance	200	00	200	00
2	Paper	Package	70	00	70	00
	Typing	Ream	150	00	150	00
	Binding		5	00	15	00
	Pen		2	00	10	00
	Pencil		0	50	1	00
	Paper (Questionnaire duplicating)				40	00
	Miscellaneous expenses				100	00
Total					586	00

REFERENCES

1.     A.K. Data (2001), Material management, inventory control and logistics, 2^nd edition.

2.     Dobler, D.D, and Burt D,N (1996) Purchasing and supply management text and cases, 6^th edition , MC. Graw-Hill.

3.     Donald J.Bowersox and David J.closs (1996), Logistical Management. The integrated supply chain process, 1^st ed. Tata Mcgraw Hill publishing company Limited, New Dill.

4.     J.P saxena (2003), Warehouse Management and inventory control, New Delhiviles.

5.     K.K. Ahuja (1998), Production management, 2^nd ed, CBS publishers and Distributions.

6.     Lysons K. and Frringtion (2006). Purchasing and supply chain Management, 7^th edition.

7.     P.Gopalakrishamn and M. sundaresan (2003), Materials Management an integrated Approach, 24^th ed prentice hall of India private limited.

8.     S.C sharm (1999) , Production Management 1^st ed Khanna Publishers.

9.     Selemon Alemu (Phi) (June 2004), Research methods in Business and social science, Jimma university.

Effectiveness of Inventory management

Practice in Jimma University main campus

Appendix I

Jimma University

College of Business and Economics

Department of logistic and supply chain management 

A questionnaire to be filled only by employees who up furniture's to perform their responsibility’s in jimma university main camps

Dear respondents, the purpose of this questionnaires to collect data about inventory management practice/ responding to the questions will not create any  harm & will be kept confidentially and to be used for other  purpose except to the intended graduation research purpose put.

A tick mark (x) for  closed question and give clear description for open-ended question.

1. Personal information

A. Age         5 21-40                 5 41-60                 5 Above 61

B. Sex          5 Male                 5 Female             

C. Level of education                  5 Below 12                     5 Diploma 5

      5 12 Complete             5 Degree     5 Occupation     5 and above

2. Does the campus have inventory?

          5 Yes                                       5 No

3. If yes for Q. 2 what type of inventory do the campus have used?

          5 Furnitures                              5 finished goods   5 Other what are they

          5 Supplies                      5 all                      

4. Does the campus  implement inventory management function  effectively

          5 Yes                                       5 No

5.     If  no what are the factors affects, which needs to improve, specify?

______________________________________________________________________________________________________________________________

6. Does the campus use inventory control?

          5 Yes                                       5 No

7. If your answers for Q. 6 in yes what type of inventory control system the university apply? _________________________________________________

______________________________________________________________________________________________________________________________

8. Is there any problem which affects inventory management function of your campus?

          5 Yes                                       5 No

9. If yes for Q. 8 could you select the most factor which affects in inventory management function from the following

     5 In accurate inventory records       5 Excessive expediting

     5 High level inventory level           5 Manual compassing problems

      Others, please specify ___________________________________________

10.  Does your campus  apply inventory costing method(s)?

          5 Yes                                       5 No

11. If no for Q.10 , specify the reason behind?

      _______________________________________________________________

      _______________________________________________________________

12.  If yes Q.11 what inventory costing method  do the campus employee?

          5 First in –First- Out  (FIFO) method

          5 Last-in-first-out (LIFO) method

          5 Other please specify _________________________________________

13. What are the cost associated with inventory?

          5 High purchasing cost              5 high order/set up cost

          5 High stock cost                      5 others please, specify ____________

14. Do you maintain enough & appropriate storage are for each inventory?

                    5 Yes                                       5 No

15. What type of store system  does the campus use

          5 (Closed) store system             5 (Open) store system

 16. Does the location of the store is suitable for users department?

                    5 Yes                                       5 No

17. If the answer is no, what is the reason please monition it?

      ______________________________________________________________

      ______________________________________________________________

DECLARATION

I undersigned declare that this student research proposal is my original work and has not be presented for a degree in any other university and all the a materials used for this study have been duly acknowledged.

_________________________                            ________________________

Name of student                                                      Signature

This student research project (paper) has been submitted for examination with my approval as a University advisor.

_________________________                            ________________________

Name of advisor                                                   Signature

Data _______________________