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Volume 4, Issue 9, September – 2019 International Journal of Innovative Science and Research Technology

ISSN No:-2456-2165

IJISRT19OCT1632 www.ijisrt.com 91

Effects of Inventory Management System on Firm

Performance – An Empirical Study

Everline Chebet1 and Dr. Samson Kitheka2 1. Lecturer, School of Business, Technical University of Mombasa 2. Lecturer, School of Business, Technical University of Mombasa

Abstract:- The study was guided by the following

objectives: to find out how the systematic application

production in data processing (SAP), just in time system

and economic order quantity affect the organization

performance. Literature review indicated that previous

studies have brought out both positive relations and weak

relations between the inventory management practices

and the operational performance of firms. The researcher

used an empirical evidence to analyze the findings. The

study established that systematic application and

production in data processing affect performance of

organization. The study concluded that Economic order

quantity should be continuously reviewed were by

inventory control system is closely monitored at all time

to make it more effective.On recommendations, the first

recommendation made was that since SAP was found to

be significantly affects firm performance, organizations

should appropriately use the SAP technology in

managing their procurement for an efficient operations.

The second recommendation was based on EOQ. Since

EOQ was found to be an important technique in

inventory management, firms should ensure to order the

recommended lot size as determined by the EOQ.

Keywords:- Economic Order Quantity, Operational

Efficiency, Systematic Application Production in Data

Processing.

I. INTRODUCTION

Blanks (2014) research on the concept of leadership in

Europe discovered that inventory control was not seen as an

indicator of wealth as needed surplus inventories. Management was then taken into account in terms of storage.

However, today companies have begun to take over efficient

inventory control (Susan & Michael, 2015). In order to

decrease cost and stay competitive (Closs, 2012), managers

now need reliable and efficient inventory control more than

ever before. Inventory alone accounts for up to 30 per cent of

the investing capital of Dobleer and Burn (2014) in the

company. This is why Europe (2013) has established

processes and methods for adequate inventory control

through its Supplies Manual.

Colling, (2015) argues that productivity enhancement has been accomplished in the United States of America and

other western countries by decreasing labour cost per unit of

production. The elevated workforce levels in many produced

products have justified this approach. In latest years,

however, the labour unit cost ratio has reduced steadily. Even

big production companies, such as US automotive

assemblers, buy up to 60% of the product value. This means

that the management of inventories of raw materials is an

area where productivity can be greatly improved.

Mangolo, (2016), has suggested that inventory

management improves its activities for many organisations in

Africa. High quality manufacturers can deliver a variety of

products and create fast delivery from their backyards to

clients (Stanton, 2014). (Stanton, 2014). The management of

companies in Africa was asked about the effectiveness of

stock management processes in place as a consequence of

inconsistence of stock rates leading to different flaws, such as

losses arising from over-extended stocking, under-inventory,

expiry of inventories, inability to achieve the business

members ' objectives and low morality. These overcrowded

businesses make it hard to obtain late, departmental products from a warehouse keeper, resulting in bad stock service

delivery (Wood, 2014).

The Effect of Inventory Management on Profitability of

Cement Manufacturing Companies in Kenya, study done by

Edwin and Florence (2015), the research results establish an

adverse connection with the business ' profitability between

inventory turnover, stock conversion and storage costs.

Furthermore, the inventory level has been discovered to be

directly linked to company size and storage costs and

suggested that companies in Kenya strive to guarantee that the appropriate stock in their stores is kept safe from

excessive expense of holding and inventories.

 Concept of Inventory Management Inventory is a dormant inventory of physical objects

containing economic value that are kept under different

custody by an organization waiting in time in the future to be

packaged, processed, converted, used or sold (Selleemi,

2014). In order to satisfy customer service demands and

expectations, the choice concerning the quantity of inventory

that a business should take and its place within the company's

network is extremely important. Inventory management is the choice and control of operations to get the correct stock in the

correct location and at the correct moment at the correct

price, (Lyson & Farrington, 2014).

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Inventory management is a key task that determines

both the health of the supply chain and the impact of the balance sheet on economic health. Every company strives

constantly to preserve the best stock in order to satisfy its

demands and to prevent an inventory which may have an

effect on its finances. Continuous and careful evaluation,

planning and evaluation, and control over inventory

management require external and internal considerations.

Most organizations have separate departmental functions or

jobs called inventory planners which track the stock and

interface with manufacturing, procurement and finance

departments, continually and continually (Saleemi, 2014).

Chandra, (2014) has indicated that inventory management is likely to comprised activities such as demand

management which ensured that required operation and

maintenance of supplies are available at the right time in the

right quantity. Reviewing safety stock levels and controlling

minimum and maximum amount of inventory in terms of

both quantity and value ,implementing lean inventory

policies such as JIT contract to minimized investment in

inventory liaising with purchasing to ensure that supplies are

replenish in accordance with cooperate and procurement

policies, developing cost effective system and procedure

relating to the ordering, procurement budgeting of supplies, controlling the receipt inspection ,recording location and

issue of supplier to the user (Chandra, 2014).

II. STATEMENT OF THE PROBLEM

Inventory is a key business consideration in the attempt

to achieve supply chain optimization. In this complex and

dynamic market a firm should be able to come up with varies

techniques of having efficient inventory levels that would be

economical to the firm if they were to hold stock (Chandra,

2014). Poor inventory management brought about capital

being tied up as stock and hence impact negative on the firm by having to incur storage and carrying cost which prove to

be very expensive to the organization at large (Mwangi,

2015). The store department is also faced with some

challenges of inaccurate forecasting whereby they are unable

to anticipate future changes in external or internal forces that

affect the inventory level of the firm (Ngugi, 2014).

The effect of inventory management on organisational

performance was assessed in local research. Ogbo and

Onekanma (2014) noted that organisations, by attaining

lowered operating costs and enhanced sales efficiency, benefitted from inventory control management. The study

also established that there exists a relationship between

operational feasibility, utility of inventory management in

customer related issues and the cost effectiveness technique

used to enhance the return on investment of the company.

The study recommended further research on the impact of

personnel training and use of advanced technology to firm’s

inventory control success.

In Kenya, a case study of Safaricom on influence of

inventory management practices on organization’s competitiveness has been carried out by Kamau and Kagiri,

(2015). The research found that stock management practices

impact a company's profit maximisation, satisfaction of its

customers and development in market share and

consequently impact its competitiveness. In particular,

Safaricom Ltd's performance was impacted by inventory

shrinkage, stock investment and turnover. The study

recommended that increasing forecast accuracy and use of a

vendor managed inventory system would lead to lower out of

stock incidences, lower costs and increased customer service

levels. The study recommended use of an inventory

management practice that tackles issues of information management such as the Systematic Application and

Production software (Kamau & Kagiri, 2015). It however did

not explore the impact of these systems on organization

performance.

Naliaka and Namusonge, (2015) explored inventory

management and its role on competitive advantage of

manufacturing firms. The study also identified IT, inventory

control systems and inventory management practices as key

factors impacting a manufacturing firm’s competitiveness.

The sole focus of this study was manufacturing firms hence the findings cannot be generalized to the retail sector.

Therefore this study intends to bridge this gap by establishing

the effect of inventory management practices on firm

performance.

III. THE GENERAL OBJECTIVE

The general objective of this study was to determine the

effect of inventory management systems on firm

performance.

A. Specific Objective  To find out how Systematic Application and Production

software of inventory management system affects the firm

performance, an empirical review.

 To assess the effect of economic order quantity of inventory management on the firm performance,an

empirical review.

 To determine the effect of Just in time inventory control system on the firm performance, an empirical review.

B. Research Questions  Does Systematic Application and Production Software of

inventory management system affectsfirm performance?

 Do Economic Order Quantity of inventory management affects firm performance?

 Does Just in Time Inventory control system of inventory management affects firm performance?

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IV. LITERATURE REVIEW

Anichebe & Agu (2013) performed in chosen

organisations in Enugu, Nigeria, the impact of inventory

management on organisation's effectiveness. Data was

produced by means of surveys, oral interviews, comments,

books, newsagents and the Internet. From the analyzes, it was

found that, whatever the fact that companies studied, they

painted the picture that they applied the principles of good

inventory management, they occasionally found that

inventory problems were inadequate. The result was that the

manufacturing of one brand of its goods was scarce and thus

negatively impacted their profitability and consequential

efficiency. The management of stocks has an important impact on the productivity of organization. The relationship

between excellent stock management and corporate

profitability is extremely positive. The Anichebe and Agu

research (2013) found that inventory management is very

important for organizational achievement and development.

The full profits of an organisation are linked to the volumes

of products sold, which relate directly to the quality of the

product. The research suggested that organizations diversify

their inventory systems to meet particular requirements of

manufacturing and manage their inventory system carefully

to preserve manufacturing consistency.

A case study of the listed cement companies in Kenya,

Edwin and Florence, 2015: The impact of inventory

management on the profitability of Cement manufacturing

companies in Kenya. Given Kenya's milestone contribution

to the Kenyan economy, this study is needed to assess the

impacts of inventory management on Kenyan cement

companies ' profitability. An assessment of the annual

accounts for the three sampled companies listed on the

Nairobi Securities Exchange (NSE) was completed using

cross-sectional data from 1999 to 2014. In order to create a

connection between inventory conversion, inventory concentrations, inventory costs, company size, gross profit

margin and return on investments and development, the

common lower squares (OLS) were employed in information

analyzing as multi-regression modelling. The findings

provide a adverse relation with the profitability of the

business between inventory sales, stock conversion period

and storage costs. Moreover, stock levels were directly linked

to the size and storage costs of the company. The study by

Edwin and Florence (2015) suggested that cement companies

in Kenya try to guarantee that they maintain the correct

inventory in their stocks to protect themselves from excessive expense of holding and supplies.

Koin, Cheruiyotand Mwangangi, (2014) carried out a

survey on the impact of stock management on the

performance of an organization. The study will also employ a

descriptive research design that will make the study

population 459 and will guarantee that the available

population sampled is considered significant to inform the

scientist of the research targets formulated. The results show

that e inventory management and suppliers relationships have

excellent implications for supply chain efficiency in the manufacturing sector while order management and

warehouse management have a mild effect. This study shows

that the suggested strategy is practically and effectively

harmonised through this study, decision makers be presented

with procurement performance and valid solutions for

harmonization of inventory management (Koin, Cheruiyot &

Mwangangi, 2014).

A research on the impact of an efficient stock

management scheme on organizational performance of the

seven-up bottling business, Nile Mile Enugu was conducted

by Ogbo, Onekanma and Wilfred (2014). The researchers were encouraged to undertake this research to show the

significance of an efficient organisational performance

inventory control scheme in the bottling company. The

sample for the research consists of a total of 83 respondents.

It was discovered, by simple storage and recuperation of

material, increased sales efficiency and decreased operating

cost, that organisations benefit from inventory management.

The research also discovered that there is a link between

operational feasibility, the utility of inventory control

leadership in organization-related client questions and cost-

effectiveness techniques to improve the company's return on investment. Effective inventory management should be

acknowledged as one area for managing an organisation.

Organizations were advised to embrace the highest inventory

technique of their activities (Ogbo, Onekanma & Wilfred,

2014).

V. THEORETICAL FRAMEWORK

 Technology Diffusion Theory Rogers ' Innovation Theory is intended by proposing

five innovation characteristics that are "observability,

compatibility, capacity to test, comparative benefit and complexity" in the theory, which explain how innovation was

adopted for fresh concepts as well as for innovations (Rogers,

1965). There is a comparative benefit to an attribute when it

is seen that fresh inventions are better than the prior concept

that they replace. The theory of Rogers points out that it is

simpler for innovations to be implemented, which

demonstrate an increased benefit over the one before and

facilitate adoption. In addition, Greenhalghet al., (2014)

states that consumers do not embrace innovations with no

comparative benefit. An innovation's capacity to be accepted

readily is that it must be consistent with a prior concept, satisfy its past experience and fulfil current values. This

means that if it is more consistent, an innovation can be taken

more likely. An innovation which is considered difficult to

use and comprehend is said to be complicated. New

innovations, which define the significance of users, are

classified from simple to intricate and readily implemented

(Greenhalgh, 2014). It is called testing capabilities if the user

is able to experiment with an innovation in a minimum

period of time, and if the user can check the item in full

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before its implementation saves them resources, energy and

valuable time. The visibility of the results of innovation as seen by adopters is called observability, where innovation

becomes better acceptable if the findings are positive.

 Economic Order Theory The role of the Model Economic Order for the

reduction of costs of inventory of raw materials in a dairy

farm project was evaluated by Kisaka (2016). The project-

employed method compared the total cost of the raw material

inventory with the total costs of the inventory of raw

materials that the application for EOQ could have induced.

Kisaka, (2016) discovered that cost savings could be

achieved by using the EOQ model. Wisner, Tanand Leong, (2014) poised that inventory administration includes

adjustments between customer service, or item accessibility,

and cost of stock. Wisner, Tanand Leong, (2014) indicated

further that there are factors influencing the uncertainty of the

quantity of inventory to be kept in the store at a particular

time; cost factors and the uncertainty factor, which

incorporates demand uncertainty and time uncertainty. Tayur

(2012) discovered that procurement efficiencies can be

improved by controlling stock purchases and stock storage so

that the flow of products is even and excessive investment in

stock can at the same moment be maintained. Theory linked to improving the balance or balance between the expenses of

maintaining stock versus the advantages of holding inventory

in chambers, Lacey, (2015), when evaluating EOQ within a

service company. The advantage of an inventory is that

products are accessible as necessary. Chambers & Lacey

2015 The main cost of a stock is the capital chance cost used

for financing the stock, ordering expenses and the storage

charges. Similarly, as indicated by Brigham and Daves,

(2014) inventory management seeks to maximize on the

net benefit Brigham and Daves, (2014) has indicated further

that financial managers have an obligation both for

raising the capital expected to convey inventory and for the organizations performance. The concept of EOQ

guarantees the inventory administration a balance between

the inventories expected to manage activities are and on the

same hand holding the expenses of ordering and

conveying inventories to the least conceivable level. Since

inventory is emphatically identified with customer service, it

is worth close consideration (Rakesh, 2016). Rakesh, (2016)

analyzed EOQ inventory as a feature of association's general

cost regulation systems and several organizations used it as a

strategy to manage a balance in cost element on the

inventory. KuoHsien(2015) while analyzing EOQ, indicted that the optimal order size and optimal backorder level for

each order cycle can be minimized by administering JIT

concept and the lot size calculated by EOQ model. EOQ will

be used to illustrate the relationship between JIT lot sizing

and the cost related to determine the procurement performance in an organization.

 Lean Theory Heizer and Render (2014) indicate that “inventory

management or “inventory planning and control” refers to the

on-going provision of standard items with independent

demand, where some speculative quantity should always be

on hand. Therefore, lean theory concentrates on cost

optimization in stock systems. Decisions on production,

storage and overall supply chain matters can be accelerated

by this theory (Tempelmeier, 2015). It is suggested. The

theory is based on the financial quantity (EOQ) model, which seeks to optimize the amount of each ordered product.

Choice of Lean Theory for this study was informed by

the need to examine how inventory management influences

organizational performance thereby calling for a prudent

approach to inventory management. The theory therefore

brings to the fore, the possibility of diversity in operating

systems used to monitor levels of stock, and the difference in

items that may and Nadler, (2014), elaborates just in time as

a pull-based scheme to align manufacturing and business

processes across the supply chain in a timely way. The effect of lean theory on economic performance was evaluated by

Green and Inman (2005). Theory is that buffer stocks may be

eliminated and waste in manufacturing processes reduced to

a minimum. Eroglu and Hofer (2011) discovered that

leanness has a positive impact on a company's profitability.

You claim that lean inventory is the best instrument for

controlling inventory. The theory examines how producers

can achieve flexibility in ordering choices, decrease

inventory stocks retained on site and eliminate carrying

expenses in inventory. On the overall level, both the timing

and the magnitude of adoption are the empirical strength of

the lean account. In theory, however, inventory restricts the capacity of a company to react to demand changes. Studies

show that businesses are effectively optimizing stock via lean

supply chain methods and technologies in order to attain

greater rates of asset use and client satisfaction that lead to

enhanced business development, profitability, and market

share (Green & Inman 2015).

VI. CONCEPTUAL FRAMEWORK

In this section, the conceptual framework is presented

in a schematic interpretation as shown in figure 1 below. It identifies the variables that when put together explain the

issue of concern. It is formulated from the reflection of ideas.

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Fig 1:- Conceptual Framework

A. System Application and Product Software (SAP)

Effect of SAP to the organization is Balance

transparency because of integration among procurement and

back –office application such as budget execution one can

earmark funds for specific purchases. When a buyer makes a

purchase, the system check the budget to ensure that funds

are available for this item prevent preventing budget overruns

and update the budget with the new expenditure Role base

approval this is where by one can tie procurement related

approvals and release to organizational roles and automate

the review and sign off process (Eroglu& Hofer, 2015). The

process considers all require legal provision and administration.one can accelerate approval using integration

specific work flow process. Decreased error, increase saving

in addition to generating saving with basic inventory

management functionality one can use the material

management functionality of SAP for public sector to reduce

purchasing cost. Vendor evaluation and selection outline

agreement, and price comparison for example can be

standardizing using foundation document and process

workload (Eroglu& Hofer, 2015).

Successfully managing inventory is critical to success in the modern business environment. Profit margins are

extremely thin and there is little room for waste or inefficient

processes. SAP provides an inventory management system

that builds collaborative, agile and therefore cost-effective

supply chains that companies need to increase competitive

advantage (Lyson, & Farrington, 2014). SAP helps

organization to records goods receipts and goods issues in the

inventory. By integrating individual item prices or price lists,

one can simultaneously update inventory valuation. SAP

system are used in transparently integrates inventory and

accounting transactions. As a result, stock levels are adjusted,

inventory accounts credited or debited, and applicable

inventory variances accounted for as soon as a stock

movement is posted in SAP software system. Inventory

transfer functionality allows one to readily move items from

one location to another (Lyson& Farrington, 2014).

B. Economic Order Quantity (EOQ) The effective management of inventory control is very

crucial for successful companies. Therefore, the quantity of

economic order is an inventory strategy designed to identify

and retain the ideal balance between holding cost of a stock

and the ordering cost associated with the inventory. The

efficiency gains in inventory management can significantly improve the company's total financial performance. It was

created for the first time by F.W in early 20th century. The

Wilson EOQ Model, or merely Wilson Formula, is often

referred to as the economic order quantity. This recognizes

that the use of this approach by R.H has expanded

aggressively. In several cases Wilson has worked with his

customers to implement his strategy (Philip & Peter, 2014).

His clients were also Wilson's advisor. Regardless of the

scheme of inventory checks, the risk of being out of stock,

and the procurement costs will also be lowered if big

amounts are ordered on an uncommon basis, will also be offset by the higher average investment in stocks which leads

to higher stock holding costs (Doll and Torkzadeh, 2016). If

little is taken into consideration, then the holding cost of

stocks is decreased, while the costs of purchasing or

purchasing increase. There may also be higher opportunities

for stocks to be exhausted (Jessop and Marrison, 2015). The

technique used to estimate the highest amount of inventory

order by equalizing stock and reclassification conflicts, is the

optimal ordering amount of an item that minimizes expense

in brief financial order quantities (Lyson & Farrington,

2014).

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The Economic order quantity helps the organization to

recognize the smallest possible point in ordering expenses and transporting expenses related to an inventory. The

strategy is simultaneously to guarantee that client orders are

carried out promptly by the proprietor of the inventory. The

formula uses a few fundamental assumptions to define this

perfect balance (Lyson, 2015). Some of the assumptions

related to the economic order quantity formula are as

follows:-the order costs remain continuous. The rate of

demand is also presumed to stay continuous, which enables

the seller to buy inventory products in recurrent amounts.

Moreover, the supplier's ability to fill and ship the order to

the vendor inconsistent time does not change the lead time;

the lead-time is not only valid for the customer's demand for delivery within a specific amount of time. Finally the

purchase price is not modified and the complete order will be

received in batches or segments at the same time (Ruston,

2014).

The optimal condition for the seller is, according to

Johnston, (2015), to be capable of creating an inventory to

fill out pending client orders without staying for long periods

of time in the stock. Assuming that the materials necessary to

produce inventory products arrive promptly, are effectively

processed and stored within an acceptable timeframe in a complete stock of products, inventory costs can be

considerably lowered. The finished goods are taken from the

inventory, ordered and dispatched before much time has

elapsed to assess taxes on the total value of the existing

inventory. Maintaining the inventory near zero not only helps

to keep tax debt low, but also enables the seller to work in

warehouses for a bigger inventory without having to rent,

lease them or otherwise function (Jessop 2014). The

inventory management system ensures that the current

amount of material is procured from time to time and that

waste is eliminated completely in terms of resources idle time

not put into productive work .the performance of the organization can be enhance through a number of ways such

as administrative cost (Johnston, 2015).

The performance can also be enhance through

availability of materials if goods are brought to the

organization within the correct and stipulated time this

reduce lead time or waiting time that eliminate so many so

many bottleneck (Nerea, 2014). Increase quality, when an

item has improved quality either by using different supplier

or negotiating with existing supplier the improvement will be

reflected in a reduction of waste. purchasing improve performance of the organization in that the method use in

purchasing department improves supplier satisfaction and

these include introduction of E-procurement, vendor

management system and pay on receipt system (Johnston,

2015).

C. Just in Time Control System (JIT) JIT is a philosophy of manufacturing based on planned

elimination of all waste and continuous improvement of

productivity. It encompasses the successful execution of all

manufacturing activities required to produce a final product

from design engineering to delivery and including all stages

of conversion from raw materials onwards. The JIT idea was

created by the Toyota Motor Company in Japan in an

american variant of Kanban's scheme. Kanban relates to the

informative signposts that are connected to carts that supply

tiny quantities of necessary parts and other materials in

Japanese crops. Each sign details exactly the required

amounts of replenishment and the precise time of resupply.

Effective application of the idea of JIT has been shown to significantly decrease the inventory of components and

equipment, WIP and finished products. The Kanban and JIT

concepts also depend strongly on the quality of the products

and parts produced and an adequate and accurate logistics

scheme in order to handle equipment and physique delivery

(Coyle, 2013).

JIT is more than delivering an item where and when

required and at the right time, JIT is both a production

scheduling and inventory control technique and an aspect of

TQM. As a production control technique, it is concerned with adding value and eliminating waste by ensuring that any

resources needed for a production operation-whether raw

materials, finished products or anything in between-are

produced and available precisely when needed. This

emphasis on waste elimination means that JIT is an essential

element in lean production. JIT requires the provision of the

necessary systems and methods of communication between

purchasers and suppliers ranging from vehicle telephones to

EDI, so problems will arise if there is inadequate

communication both internally-from production to

purchasing-and externally-from purchasing to suppliers and

from suppliers to purchasing(Thompson, 2015).

JIT and its descendants (such as JIT II) refer to a set of

channel activities designed to deliver products to the end-user

just when they are needed, thus minimizing inventory

holding costs in the channel. JIT methods are widely used in

many manufacturing supply chain contexts as well as in the

marketing channels for products such as apparel. The

adoption of any of these methods increases business buyers

demand for quick delivery (by their very definition), spatial

convenience (products cannot be delivered quickly unless it

is close), bulky-breaking (to minimize inventory holding), and assortment and variety (to ensure that the right product is

always available at the right time (Coughlan, 2016).

When JIT's manufacturing and monitoring system is

used by businesses, they buy equipment and only create units

to satisfy the current requirement of clients. The inventories

of production systems are reduced to a minimum in just a

short period of time, and in some cases zero. In both

manufacturing and marketing businesses, the JIT method can

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be used. It does, however, have the most profound effect on

manufacturing businesses which retain three classes of raw materials stock, WIP and finished products. Traditionally,

manufacturing companies have maintained large amounts of

all three types of inventions to act as buffers so that

operations can proceed smoothly even if there are

unanticipated disruptions. Raw materials inventories provide

insurance in case of suppliers are late with deliveries. WIP

inventories are maintained in case a workstation is unable to

operate due to a breakdown or other reason. Finished goods

inventories are maintained to accommodate unanticipated

fluctuations in demand. While these inventories provide

buffers against unforeseen events, they have ac cost. In

addition to the money tied up in the inventories, experts argue that the presence of inventories encourages inefficient

and sloppy work, which results in too many defects and

dramatically increase in the amount of the required time to

complete a product (Baily, 2015).

A JIT inventory method entails understanding how

much a certain product is necessary to keep manufacturing

while ordering more of the same product. Two main factors

are involved. First, it is essential to understand how long the

product from the provider is to be delivered and to reach the

factory. Secondly, it is necessary to determine the expected life or use of the product. With this knowledge, processes can

be established to allow the item to be reorganized just in time

to arrive and substitute the item worn out without getting an

expanded storage replacement set (McConnell 2016).

D. Firm Performance The firm’s performance is a standard or indicator of

effectiveness and efficiency in operations such as cycle time,

productivity and regulatory compliance (Saleemi, 2016). In

order to increase the firm performance, a firm has to measure

both the input and the output side of the inventory

management (Abdel, 2016). The major goal of organizations is to reduce costs associated with inventory management,

which would impact positively the overall performance of the

organization. The Systematic Application and Production

software of inventory management, the economic order

quantity and Just in time technique of management when

properly handled, will enhance the firm’s performance.

In inventory management, the question that has to be

answered is always how much inventory a firm should keep

at a given time. Too much inventory consumes physical

space, creates a financial burden, and increases the possibility of damage, spoilage and loss (Rajagopalan, 2014). In

addition, excessive inventories often compensate for slow

and ineffective leadership, bad prediction, hazardous

planning and insufficient attention to processes and

processes. In this connection, even though the demand

volatility may restrict the implementation of this principle,

the pioneering lean production principle of Womack et al.

(1990) had to do with a reduction in inventory level (Kumar,

2014). On the other side, too little stock often disturbs

production and increases the chances of bad client service. In

many cases, if the desired product isn't readily accessible, excellent clients can become angry and take their company

elsewhere (Hereret al., 2012).

Empirical evidence in the inventory management‐ performance relationship produced given out an evidence on

the effects of inventory management on the firm

performance. Milgrom and Roberts (2013) and Dudley and

Lasserre (2014) specifically stated that information on

prompt and informative demand for customers can improve

corporate efficiency by reducing inventories. The

improvements in stock turnover (after JIT implementation) for a sample of 55 companies have demonstrated that Huson

and Nanda (2015) have resulted in a per share rise in income.

Deloof (2013) records a substantially adverse relationship

between gross operating revenue and the amount of day-

inventory samples from non-financial belgian companies for

1992-1996, which suggest that executives can provide their

shareholders with value by decreasing to a fair minimum the

amount of days in inventories. Boute (2004) provides further

proof from Belgium that, despite enhanced focus on

inventory reduction and Bouteet (2016), there has not been a

general decrease of inventories ratios, which concluded that businesses have more opportunities for poor economic

performers with very elevated inventory levels. This reflects

Shin and Soenen's (2015) results, which indicate that a big

number of government American companies are strongly

adverse in relation to the money conversion cycles and

corporate profitability. By looking at the market values of

companies in their different inventory strategies, Chen et al.

(2015) indicated that companies with abnormal inventory

yields abnormally bad; companies with abnormally small

stock returns normal stocks while companies with slightly

below average stocks perform best over time. Chen et al.

(2015) recorded Furthermore, Shah and Shin (2017) examining three structures-inventory, IT investment and

economic performance-empirical longitudinal data that span

four decades concluding that inventory reductions relate to

economic performance significantly and directly.

VII. RESEARCH METHODOLOGY

 Research Design Research design is the pattern that the researcher

intends to follow in conducting the research study

(Mugenda&Mugenda, 2004). Since the study was based on determining the influence of inventory management

techniques on procurement performance from literature

review, a cross sectional research survey will be adopted.

Oso, (2011) has stated that cross sectional research survey is

best fitted for the population which are heterogeneous in

nature but homogeneous in location. Thus a cross sectional

research survey was based on single examination of a cross-

section of population at one point in time for better results, in

this case the research papers of inventory management.

Additionally, high reliability is easy to obtain by presenting

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all subjects with a standardized stimulus which ensures that

observer subjectivity is greatly eliminated as reiterated by Mugenda and Mugenda, (2004).

 Data Collection, Analysis and Presentation Data was collected by cross examination of the relevant

research journals. The relevancy was based on topic,

variables, research design and year of publication. After the

collection, all the relevant research journals were analyzed

and the findings presented on tables.

VIII. RESEARCH FINDINGS

Several and relevant journals on the concept of inventory management systems on the firm performance

were reviewed and analyzed based on the objectives.

Findings was discussed as illustrated below.

A. Findings on SAP System The research journals showed that there was a

relationship between SAP system of inventory management

and the firm performance. For instance, Lysons, (2013)

indicated that SAP system is of inventory management

functionality revolves around the movement of materials in

and out of the storage facility and the physical count of those items at regular intervals. Inventory management is the

process of efficiently monitoring the flow of products into

and out of an existing inventory in the warehouse.This

process involves controlling the receipt of products to

prevent the inventory from becoming too high where items

are stored at an unnecessary cost, or too low where it can

cause a stock-out and production could be halted due to lack

of raw materials.

Most of the papers reviewed showed that SAP systems

control their inventory efficiently and effectively for a better

performance. According to Lyson, (2013) the analysis result in the researcher identified inventory management and gross

profit had a positive relationship, net profit had a negative

relationship and inventory management significantly affect to

gross profit margin and net profit margin. Hence

organizations have to take a correct the decision regarding

the inventory management administrative cost and another

relevant cost to increase the performance of the organization

(Onwubolu&Dube, 2016).

B. Findings on the EOQ The relevant journals reviewed showed significant

relationship between EOQ inventory and firm performance in

the cases analyzed. For instance, Zhao, Wu and Yuan, (2016)

found out that EOQ on the retail outlets brought a high

efficiency in procurement function. Relevantly, Njura,(2015)

an increase in revenue collection and stock efficiency when

EOQ strategy is used. Wisner, Tan and Leong, (2014) found

that the EOQ system can diminish the bullwhip effect that is

linked up with incorrect forecast of demand, improve the set-

up time of machines, help to better planning of production,

decrease administrative costs of customers, increase the

service level, truckload rate and decrease risk of stock out. It is also able to reduce the time needed for managing the

inventory level, set up the minimum order to optimize

loading, improve plans to minimize costs or disruptions in

the whole supply chain, detect deficiencies or surplus in the

goal financial statements and give more trust in the

relationship of both sides (Ross, 2016). Literature therefore

showed an evidence that EOQ affects firm performance

significantly.

C. Findings on the JIT Literature reviewed has shown that JIT can often be

found in managing inventory cases such as smaller retail stores, drug stores and grocery stores (Taylor, 2015). Whitin,

(2014) indicated that periodic stock control approach

considers lead time as a prescribed deterministic quantity or a

random variable. Significantly, Saxena, (2013) poised that

the application of the JIT ensures that by the time inventory

reaches the minimum level the quantity ordered is received.

On receipt of the ordered quantity of the material, the

inventory, which had reached the minimum level, increases

to the maximum level and consumption cycle restarts. On the

JIT the customer demand is checked by keeping in view the

lead time for obtaining the items and making the same available for use (Hadley &Whitin, 2014).Hadley and

Whitin, (2014) has further indicated that the periodic review

approach helps to avoid stock-outs with its costs and

overstocking which again may tie-up working capital and

may also lead to deterioration of stock and obsolescence in

the stores. The findings therefore indicated a significant

influence of JIT approach on firm performance.

D. Findings on Firm Performance Van-Weele, (2014) identified firm performance as a

measure of identifying the extent to which the operational

functions in the organization is able to reach the objectives and goals on with minimum; literature has shown that the

performance bust be based on set measures as key indicators.

Van-Weele (2014) noted that there are two main aspects of

the firm performance: effectiveness and efficiency. Firm’s

effectiveness was defined by Van-Weele (2014) as the extent

to which the previously stated goals and objectives are being

met by all the departments in an organization. It refers to the

relationship between actual and planned performance of any

human activity in the firm. Additionally, literature by Hadley

and Whitin, (2014) found out that firm’s efficiency is the

relationship between planned and actual resources required to realize the established goals and objectives and their related

activities, referring to the planned and actual costs. As a

result, inventory performance was found to be one of the

most important actors in in the firm. Thus in ensuring an

efficient and effectives in the firm, a proper inventory

management systems such as use of SAP, EOQ and JIT has

to be in place.

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IX. CONCLUSIONS, RECOMMENDATIONS AND FUTURE RESEARCH

A. Conclusions In reference to the study objectives, the conclusions

was based on each objective. The first study objective was to

determine the effects SAP system of inventory management

on firm performance. Literature review showed a significant

influence of SAP system on the efficiency and effectiveness

of the firm. Based on the research question which was on

whether SAP system affectsfirm performance, it was

therefore concluded that that SAP system significantly affects

the operational efficiency in the firm.

The second objective was to determine the effect of

EOQ on the firm performance. A review of literature showed

a significant influence of EOQ on firm performance. The

research question was based on how does EOQ of inventory

management affects firm performance based on empirical

review. It was therefore concluded that EOQ significantly

affects firm’s operation ability. The third objective of the

study was to determine the effects of JIT on the firm

performance in the case of empirical review. Based on the

research question which was on how does period review

approach affects procurement performance. It was concluded that JIT affects the firm performance significantly.

B. Recommendations Recommendations was made based on the selected

study objectives of the study. The first recommendation made

was that since SAP was found to be significantly affects firm

performance, organizations should appropriately use the SAP

technology in managing their procurement for an efficient

operations. The second recommendation was based on EOQ.

Since EOQ was found to be an important technique in

inventory management, firms should ensure to order the

recommended lot size as determined by the EOQ. Lastly, since the study found out a significant effect of periodic

review approach on procurement performance, organizations

should adopt the period approach while managing inventory

so as to ensure procurement efficiency.

C. Future Research Future research could consider testing different

variables of inventory management such as the ABC

Technique or VMI to check on their impacts on firm

performance. Further, future researchers may consider using

the same variables but should adopt different methodology to see whether similar results may be achieved.

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