De La Salle University – Dasmariñas

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

EFFECTS OF INVENTORY MANAGEMENT PRACTICES

ON THE PERFORMANCE OF FEEDS
DEALER IN CAVITE

A Research Proposal Submitted to the Faculty of the

College of Business Administration and Accountancy
De La Salle University – Dasmariñas
Dasmariñas City, Cavite

In Partial Fulfillment of the Requirement

in ACTG413b (Research for Accounting and Finance)

LYKA JANE ROGUEL

October 19, 2020
 De La Salle University – Dasmariñas
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

CHAPTER 1

INTRODUCTION

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. Inventory

management is the ability of the management to organize the availability of the

items for their customers. It is important for the management to have a control

over the purchasing, manufacturing, and distribution departments of the company.

Having good inventory management practices allows the organization to cover up

the discrepancy between supply and demand, reduce the risk of supply loss, and

minimize the overall inventory cost. (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). The ability to

understand the impact of inventories 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 practices includes the usage of Economic Order

Quantity (EOQ) which asks the questions how much of each item must be
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COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

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 (ABC), 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.

(Mastering Strategic Management, 2011). It contains actual outcomes or outputs

instead of just expected or targeted outputs. A major element of strategic

management is the assessment of operational performance. The assessment

focuses on three main outcomes, which are shareholder value results, financial

performance, and market performance. The performance measures in the internal

business process contributes in determining the overall capability of an

 De La Salle University – Dasmariñas
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

organization. These 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. Performance, however, is a very complex subject

since how it can be measured needs to be given a great deal of thought.

(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 could have a positive or negative influence in the performance of the firm’s

profitability depending on how the management controls their inventories. 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, according to Bett, K. (2018),

Inventory management practices are responsible in determining the management

efficiency measures of Small Medium Enterprises (SME). However, based on

Bett's own judgement, most SMEs may have these practices on paper, but they

may not be implemented on the operations of those small businesses.

According to Victoire, M. (2015), observation shows that there is a serious

issue with the inventory management practices in manufacturing organizations,

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COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

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, this

study aims to focus on knowing how small enterprises manage their inventories,

what practices do they use, and how do their inventory management practices

affects their performance. With the use of EOQ model and ABC analysis, it

would be possible to know how the management of these small enterprises

handles their inventories. The study also aims to know whether these small

enterprises use the JIT and MRP systems, and what other possible inventory

management practices do they implement. The result of the models mentioned

above would be able to determine the profitability of the company, which would

lead into knowing how these inventory management practices affects their

performance. In this study, the inventory management practices of the feeds

dealers in Cavite will be the main concern.

Background of the Study

Authors of the previous studies have enumerated different inventory

management practices. Throughout their studies, they were able to identify the

problems of the inventory systems in different industries. In contrast, there were

also findings which shows consistency of the positive relationship between

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COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

inventory management and organizational performance (Sahari, S., Tinggi, M., &

Kadri, N., 2012). Sriyanalugsana, S., & Suwantararangsri, K. (2020), reveals in

their study that management practices offers a general approach to inventory

management which can enhance the SME’s sustainability in the market. Much

research has indicated that inventory management is one of the keys to success for

businesses in many countries. However, the focus on inventory performance may

be a lower priority for the SME’s management when compared to winning a

bigger market share. According to Lwiki, T., Ojera, P. B., Mugenda, N. G., &

Wachira, V. K. (2013), it can be concluded that small businesses can benefit more

from increased inventory efficiency, than medium and large business as measured

by profitability. Hence, potential for improvement is greater in smaller firms due

to the possibility that the medium and larger manufacturing firms have already

implemented fully technological advanced inventory management systems and

have already maximized its potential effect of inventory efficiency.

Effective inventory control management is recognized as one of the areas

where capability should be acquired by any organization's management. The

organization's ability to develop an effective inventory control management

system would depend on the extent to which it considers the benefits of such a

system. (Ogbo, A. I., & Ukpere, W. I., 2014). The results of Ogbo, A. I., &

Ukpere, W. I., (2014) study have generally shown that organizations are able to

gain a lot from an effective inventory control management system. Some benefits
 De La Salle University – Dasmariñas
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

include optimal resource utilization, cost reduction, improved profitability,

improved profitability , waste reduction, transparency and accountability, easy

stock storage and retrieval, high inventory utilization, etc. Organizations must,

however, maintain flexible inventory service in order to accomplish all of these.

The study of Bett, K. (2018) found that out of the five inventory

management practices used in his study, Economic Order Quantity was the most

embraced practice. Three of them, including Vendor Management Inventory, Just-

In-Time were also slightly behind Economic Order Quantity practice but at a

lower rate. The least applicable practice was found to be Material Requirement

Planning. However, based on the study of Ngubane, N., Mayekiso, S., Sikota, S.,

Fitshane, S., Matsoso, M., & Juan-Pierré, B. (2015), while the some SMEs are

aware inventory, inventory systems, and inventory management, it was found that

their respondents do not make sufficient use of formal inventory management

system available to them. It is obvious that the respondents actually made use of

the more informal inventory management systems, and customized inventory

management strategies have been deployed as well. Because of this, inventory

management systems and inventory management strategies can not guarantee

business operations profitability, improvement, and liquidity.

Nemtajela, N., & Mbohwa, C. (2017) stated in their study the importance

of calculations of safety stocks. It is because if the inventory models are not

calculated correctly, it can lead to too much inventory tying up the investments of
 De La Salle University – Dasmariñas
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

the organization or too little inventory causing shortages. Proper inventory

management of any organization saves the organization from poor quality

products and manufacturing, deceiving customers, and losing profits.

Statement of the Problem

The success of one’s organization depends on how they satisfy their

customer’s demand while being financially viable (Wild, 2017). There has been a

lack of data from previous literatures about the inventory management practices

used by small wholesale and retail businesses such as feeds dealers, and which

one is most likely to give the best organizational performance. Therefore, this

study will specifically answer the following questions:

1. What inventory management practices do feeds dealers implement?

2. What is the effect of the inventory management practices used by the feeds

dealers in the profitability of the company and its relationship with their

customers?

3. What is inventory management practices would give the best result in

company’s organizational performance?

Statement of the Objectives

This study aims the general objective of the effect of inventory

management practices in the organizational performance of the feeds dealers in

Cavite by focusing on the following specific objectives:

 De La Salle University – Dasmariñas
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

1. To determine the different inventory management practices used by feeds

dealers in Cavite.

2. To determine the effect of the inventory management practices in the

performance of the feeds dealers in Cavite.

3. To determine which management inventory practices works best in feeds

dealers industry.

Significance of the Study

The result of this study will help the feeds dealers determine which

inventory management practice would work best in their type of business. This

study will be able to show how their current practices affects their organizational

performance. It would help feeds dealers compare their current inventory

management practices to other inventory management practices available.

Moreover, this study would be able to give options to the feeds dealers whether to

switch to different practice of just stick with their current inventory management

practice.

This research paper will not just be helpful to the companies in the same

industry but also to the students and future researchers. It may serve to guide them

as a reference in conducting their own research paper with the similar topic. It

will also be helpful for those aspiring people who wants to enter the same industry

and for those who wants to start their own small merchandise or retail businesses.
 De La Salle University – Dasmariñas
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

Scope and Limitations

This research study will be conducted from September 2020 to January

2020. It will cover the most common inventory management models such as the

EOQ model and ABC analysis, and JIT system. Several feeds dealers in Caviwere

considered in this study. The respondents consists of the feeds dealers themselves

and their employees who manages their inventory and financial statements.

Organizational performance commonly includes the company’s financial

performance, shareholder return, and market performance, However, this study

will only focus on the feeds dealer’s financial performance which includes the

firm’s cost and profitability; and non-financial indicator such as customer

satisfaction.

Shareholder return and market performance will not be discussed in this

study since the study only focuses on small businesses. Any details about those

feeds dealer’s suppliers will also not be revealed for confidentiality. The

respondents are also not required to reveal their name, but the details to where

they operate their business may be stated in this study.

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COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

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.

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).

Bett, K. (2018). Inventory Management Practices and Operational Performance of

Small and Medium Enterprises in Kenya: a Study of Pharmaceutical
Manufacturers in Nairobi, Kenya.

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.

Narayan, P., & Subramanian, J. (2009). Inventory Management-principles and

Practices. Excel Books India.

Drexl, A., & Kimms, A. (Eds.). (2013). Beyond Manufacturing Resource

Planning
(MRP II): advanced models and methods for production planning.
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Victoire, M. (2015). Inventory Management Techniques and Its Contribution on

Better Management of Manufacturing Companies in RWANDA Case
Study: SULFO RWANDA Ltd. European Journal of Academic Essays,
2(6), 49-58.

Mastering Strategic Management (2011). Retrieved from

https://open.lib.umn.edu/
strategicmanagement/front-matter/publisher-information/

Ogbo, A. I., & Ukpere, W. I. (2014). The impact of effective inventory control
management on organisational performance: A study of 7up bottling
company nile mile enugu, nigeria. Mediterranean Journal of Social
 De La Salle University – Dasmariñas
COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

Sciences, 5(10), 109-109.

Sriyanalugsana, S., & Suwantararangsri, K. (2020). THE KEY DEVELOPMENT

TO ENHANCE INVENTORY MANAGEMENT FOR A NEW INSECT
SNACK FOOD SME IN THAILAND. Kasem Bundit Engineering
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Nemtajela, N., & Mbohwa, C. (2017). Relationship between inventory

management and uncertain demand for fast moving consumer goods
organisations. Procedia Manufacturing, 8, 699-706.