Inventory Management on Performance

Anaka General Hospital (AGH) was constructed in 1969 and opened in 1974 by the president of the Government of Uganda at that time. It is a district Hospital with 100 bed capacity, it is the referral facility and head quarter for Nwoya Health sub district. It provides all primary health care services (PHC), for examples curative, preventive, promotive and rehabilitation to Anaka sub-county and referral to the entire district.

The vision is to improve the health of the people of Nwoya district in order to promote a healthy and productive population In early profits and non-profit making organizations, inventories constitute an important element in the management of the organization. The need for inventory management is influenced by the capacity of managing decisions since the existence of inventories will be determined by the capacity management strategies which are to be employed ( Wild, 1995).

Inventory management refers to the organizational efforts and procedures aimed at protecting the firm from extensive or inadequate levels of inventories and to maintain sufficient inventory for smooth production and sales (Pandey, 2003). Inventory management in Anaka General Hospital stores focuses on how many units of each inventory items are to be held in stock, how much should be issued at a given time and at what point should inventory be issued and dispatched ( Johns, 2002).

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For effective management of inventories, co-operation of the various departments in the organization is required. The departments vary from organization to another but they usually involve the purchasing department as the most important although each of which has a role to play in coordination amongst themselves to facilitate efficient and smooth process of ordering, receiving, issuing and usage of materials is required (White, 1997).

When inventories are properly managed, it leads to increased production hence improved organizational performance. Organizational performance comprises the actual output or results of an organization as measured against its intended outputs or goals and objectives. According to Richard et al. (2009) organizational performance encompasses three specific areas of a firm outcome: financial performance, product market performance, and shareholder return.

In recent years, many organizations have attempted to manage organizational performance using the balanced scorecard methodology where performance is tracked and measured in multiple dimensions such as: In recent years, many organizations have attempted to manage organizational performance using the balanced scorecard methodology where performance is tracked and measured in multiple dimensions such as:- customer service , social responsibility and employee stewardship Although the Balanced Scorecard has become very popular, there is no single version of the model that has been universally accepted.

The diversity and unique requirements of different enterprises suggest that no one-size-fits-all approach will ever do the job. Performance measurement is the use of statistical evidence to determine progress towards specific defined organizational objectives. There are many types of measurements. In school, exams are graded to establish the academic abilities; in sports, time is clocked in split seconds to verify the athletic abilities. Similarly in organizations, there are various tools and measurements to determine how well it performs.

Gamble, Strickland and Thompson (2007, p. 99) provide a comprehensive method for measuring performance of organizations. How well each company performs is dependent on the strategic plan. Some of the measurements include basic financial ratios such as debt-to-equity ratio and if the levels are an issue with creditworthiness. Statement of the Problem Inventory management is concerned with the management of inventories that are crucial for the efficient and effective running of an organization.

However, even if Anaka General Hospital is practicing good inventory management techniques/practices, it has continuously failed to meet the expectations of its customers that is to say the patients in the hospitals and the health centers it serves (The District Board of Survey Report 2011). These facts may be due to untimely delivery of medical supplies, poor quality of the medical supplies as well as employing incompetent workers who lack skills and the knowledge required.

This has impacted on the general performance of the Hospital negatively; therefore it is upon this basis that encourages the researcher to carry out an investigation into this anomaly hence prompting the research.

The purpose of the study is to find out whether inventory management affects performance in Anaka General Hospital, Nwoya district.  Objectives of the Study The specific objectives of the study will be:

1. To find out the techniques used in inventory management in Anaka General Hospital, Nwoya District
2. To establish the levels of performance in Anaka General Hospital, Nwoya District
3. To examine the relationship between inventory management and performance in Anaka General Hospital, Nwoya District

In order to arrive at the above set objectives, the study will focus on the following research questions.

1. What are the techniques used in inventory management in Anaka General Hospital?
2. What are the levels of performance in Anaka General Hospital?
3. What is the relationship between inventory management and performance in Anaka General Hospital?

The study will be carried in Anaka General Hospital Nwoya district. This is chosen because the researcher stays within Anaka Town Council and it’s cheaper in terms of transport and accommodation. The study will cover the important aspects in the variables under the study by taking into account the techniques of inventory management, importance of inventory management and the indicators of performance in Anaka General Hospital. The study will be undertaken within a period of five months ranging from February 2012-June 2012.

This time is chosen to provide a good cut for the attainment and access to the most recent data on inventory management and performance in Anaka General Hospital.

The study is expected to benefit and contribute through the following ways.

1. The study is part of the partial requirements for the award of a Bachelor Degree in Business Administration in Gulu University
2. The study will also help the researcher to widen the understanding of the relationship between inventory management and its associated costs and will help in acquiring more knowledge in the variable under study.
3. The study may also act as a basis for future research in the field of inventory management and performance.
4. The study may help policy makers in coming up with the procedures and strategies in inventory management and performance.

The Concept of Inventory Management

Inventory management refers to the organizational efforts and procedures aimed at protecting the firm from excessive and inadequate levels of inventories and to maintain sufficient inventories for the smooth production (Pandey, 2003). Inventory management is concerned essentially with the use and control of inventories. The need for inventory is influenced by capacity decisions since the existence of inventories will in parts be determined by the capacity management strategies which are to be employed ( Wild, 2002).

According to Gilbert et al (2000) inventory management has been defined in terms of an organization that aims at determining the range of qualities of materials and products, which should be stocked, and the regulation of the receipts and issues of materials. He further noted that inventory management must ensure that the business has the right quantity of goods in the right place and at the right time under inventory management, efforts should be made or placed at the right time, with the right quantity, with the right quality at the right place.

Broadly Lysons (2002) defines inventory as raw materials, work in progress and finished good. Inventory management aim at providing both internal and external customers with the required service levels in terms of quality and order fill rate, ascertaining present and further arrangements for all types of inventory to avoid over stocking while avoiding bottlenecks in production and costs to a minimum by variety reductions, economic sizes and analysis of costs incurred in obtaining and carrying inventories.

For effective management of inventories, it requires the co-operations of the various departments in the way the organization handles its inventories. The responsibility of managing work in progress and finished products may be with the material control department equally it could line some other section within the organization (Muhleman, 2000). According to Gupta (2001) inventory management is described as the process that involves fixing the minimum and maximum inventory levels, determining the size of the inventory to be carried at a given time and the issue price policy. 2. 2Techniques of Inventory Management in Organization

According to Nixon (2008), inventory management techniques include:

1. First In First Out (FIFO)

This method often referred to as (FIFO) is based on assumption that the first inventory acquired is the first inventory sold or issued out. In otherwise each sale is made out of the oldest inventories in stock. The ending inventories there for consists of the most recent cost which may be adopted by any business regardless of whether or not the physical flow of merchandise actually corresponds to this assumption of selling the oldest units in stock.

    2. Last In Fast Out (LIFO)

This method is based on the principle that materials entering store/production unit are the most recently purchased. This means materials issued to production are prized/issued using the most recent purchased price, the batch of goods purchased most recently are issued first. The closing stock is therefore valued at the oldest purchase price.

Weighted Average

According to the institute of management Accounting (London) weighted average cost is calculated by dividing total of materials in the sock from which the materials to priced or issued would be drown by the total quantity of materials in stock.

When the average costing method is used, the cost figures determined for the ending inventories are influenced by the various price paid during the year. The price paid early at the year may carry as much weight in pricing the ending inventories as a price paid at the end of the year. If the price has been rising during the year, the average unite cost will be less than the current cost prevailing at the balance sheet date.

The Re Order Level System (ROL)/ Fixed Order Point System

The reorder level is the level at which a replenishment order should be placed in order that delivery is when the minimum level is reached. Orders for the same fixed quantity will be required whenever it becomes necessary to do so. The frequency with which orders are made changes according to the level of demand, ROL system has the following characteristic; a pre determined level is set for each item. When the stock level falls to the ROL, a replenishment order is issued. Organizations operating this system maintain stock records with calculated re order levels.

The re order system has three control levels, the ROL which was already defined, the maximum stock level which a level above which stock should not normally rise and the minimum stock level which is a level below which sock should not be allowed to fall. It is also known as safety sock or buffer stock. Incase stock is to fall below this level, stoppage is likely to occur.

The Periodic Review System/ Fixed Interval

This system is sometimes called the constant cycle system. The stock will be reviewed at regular fixed intervals to determine whether more should be ordered.

An order will be raised for the required quantity. The system as the following characteristics; stock levels of all parts are reviewed at fixed interval for example every 2 weeks, where necessary, a replenishment order is issued, the quantity of the replenishment order is not a previously calculated economic order quantity but is based up on the likely demand until the next review, the present stock level and lead time. The replenishment order quantity seeks to bring stock up to a pre determined level.

The Economic Order Quantity Analysis (EOQ)

EOQ is a model that is used to decide optimum order size of the sock which will minimize the costs of ordering and holding cost. It is a deterministic type of model which assumes that all parameters (factors) are known with certainty. It assumes ordering and holding costs are known with certainty. There is a spontaneous delivery (no time lag between ordering and receiving) of items. The rate of demand is known and the demand period is normally assumed to be one year. There is unknown constant price per unit and all other factors are held constant.

The ABC Analysis

This relates to the classification of materials in the store. Materials are classified according to their importance. Group A are crucial for organizational performance, if there were a shortage of such material, production shortage would occur, they represent 70% of investment in inventory. Group B may not be crucial and they may not disrupt production activities but still they are also important. They normally represent 20% of investment in the inventory. Group C are materials which may be necessary for a firms production activities but are not so important.

They normally represent 10% of investment in inventory.

Just In Time Technique

Here items of very high value that are frequently used, it makes sense to attempt to keep low or possibly no inventory of these items and instead get frequent deliveries possibly on a daily basis. The objective is to avoid tying lots of money in stock (working capital). Organization will need to find extremely reliable suppliers of defect free product who are just in time oriented. Just in time is based on pull concept, where by suppliers wait for a signal from their customers before they deliver or replenish.

According to the study carried out by AVSI in 2005 inventory management techniques being used at the moment especially in areas of storage, and supply to medical supplies in Anaka General Hospital is a mixture of techniques . Stock brought today may be mixed up with already existing stock and when giving out stock to the clients, it does not matter which stock comes first either the old stock or the new stock.

Principles of Good Inventory Management

In the business world, not everyone follows good principles that aid in their success.

However, the principles of inventory management cannot be ignored if the organization expects to maintain a quality business with a good reputation for always being able to assist a customer. Employing good principles is the best way to profit in any industry because it keeps the organization a float in a world. Principles maintain organizational quality and responsibility to a project and to aspects that are most important in the inventory management (Graham, 2000).

This principle of inventory management is simple and easy to follow, if the organization simply makes it a point to do so.

For example, one of the top priorities in inventory management is to maintain a clear organized store in which all items are properly stored and labeled. This is important for several reasons. Cleanliness is important for an organization, staff and products the store (Lee, 2001). The organized storage and labeling allows easy location and order pull of stock or any item in the warehouse without any difficulty in searching.

If the organization employees good principles of inventory management it will be certain to rotate the stock, selling through order stock before delivering into new shipments.

This will ensure that the organization always has fresh products and doesn’t lose money by having to write off old items (Gary, 2002). Tracking Keeping careful track of all the items in the warehouse is one of the best principles of inventory management. Obviously, one can benefit greatly by employing just a few basic principles of inventory management in the organization work place. The more the organization work towards running a tight ship, the better off the organization will be as managers and the more profitable your department in business will be.

Organizational Performance According to Stonner (2002) organizational performance is the measure of how effective and efficient an organization is and how well it achieves the appropriate objectives. It involves the assessment of achievements of organizational objectives and planning for the future change. That is it involves the identification of major issues and solutions relating to one or more areas such as organizational strategy, human resource strategy, human resource policies, organizational structure design, staff skills mix and communication channel.

Problems of this nature can significantly limit organizational performance and development (Deloitte, 2006). Armstrong (2000) defined organizational performance as a state of degree of how an organization is governed in relation to the organizational goals; its capacity to successfully implement set objectives in order for it to achieve the organizational goals and objectives. Organizational performance is therefore a process; it can be positive or negative. Negative organizational performance is a degree in which an organization deviates from its set goals and objectives during the implementation of the short term and long term goals.

For organizational performance to be positively achieved, management should set short term and specific goals that can be feasible as well as able to guide long term goals. An organizational budget estimate should be tailored to meet its goals and objectives by identifying and removing obstacles during the implementation of the estimates. Pandey (2002) defined performance as the financial strength and weakness of a firm by properly establishing a link between the balance sheet and income statement.

He further argued that performance entails effectiveness which refers to the firm’s ability to serve and produce what is required by the market at a particular time effectively, which refers to the firm’s ability to serve and produce what is required by the market at a particular time effectively, which refers to the firm’s ability to serve and produce what’s required by the market at a particular time effectively which means meeting the objectives of the lower possible cost with the highest benefit.

Kotler (2002) stated that performance measures must focus attention on what makes identities and communicates the driver of success, support organizational learning and provide basis for assessment and rewards. He further lamented that it can be looked at in terms of competitive feasibility resource utilization and annotations. When seeking to improve the performance of an organization it is very helpful to regularly conduct assessments of current performance of the organization.

Assessment might be planned, systematic and explicit (these often are the best kinds of assessments) or un planned SWOT analysis diagnosis models without recognizing or referring to them as such. Along with comparison of results to various best practices or industry standards (Pearce, 2000). The organization is used to an ongoing performance management for employees, for example setting goals, monitoring the employee’s achievement of those goals, sharing feedback with the employee, evaluating the employee performance, rewarding performance or firing the employees.

Performance management applies to organizations too and includes recurring activities to establish organizational goals, monitor progress towards the goals and make adjustment to achieve those goals more effectively and efficiently. Those recurring activities are much of what leaders and managers inherently do in their organizations some do them far better than others.

The key performance indicator is a measure of performance, such measures are commonly used to help an organization define and evaluate how successful it is typically in terms of making progress towards its long term organizational goals.

The performance indicator may be monitored using the business intelligence techniques to assess the present state of the business and to assist in prescribing a course of action (Frank, 1998). The act of monitoring the performance indicators in real term is known as business activity monitoring. The key performance indicators are frequently used to value difficulties in measuring activities such as the benefits of leadership development, engagement service and satisfaction they are typically tied to an organization’s strategy using concepts or techniques such as balanced stored card (Quinn, 2000).

The key performance indicators differ depending on the nature of the organization and the organization’s strategy. They help to evaluate the process of an organization towards its vision and long term goals especially towards difficulties in quantifying knowledge based goals. The performance indicators differ from business drivers and aims or goals. A school might consider the failure rate of its students as a key performance indicator which might help the school under its position in the education community where as a business might consider the percentage of income from customers.

Therefore, the indicators of performance include:

1. Social Responsibility. These are values that guide people in organizations and corporate. Culture that embodies those values and values held by people outside the organization (Robert, 2000). He further says that social responsibility makes people buy a product from a company because of the company’s good reputation. Stonner, (2000), states that corporate culture can be a strong force for organizational performance.
2. Strategic Cost Management. According to Pearce (2000) modern businesses strategically manage their costs through identifying costs and drivers, developing appropriate process and strategies aimed at reducing or eliminating the costs so as to enhance business performance.

Information Sharing Quinn (2000) said that improved decision making and performance efficiently is due to realistic informed and detailed information sharing. He further asserts that outcomes of the relationship and interactive feedback are used o make improvements.

Flexibility of an organization is yet another determinant of performance. This means ability to manage change in a business. The increased performance of any organization is reflected in its ability to make changes without and delay. This flexibility can take a form of development needs continuous update of information or improved technology. Therefore, lack of flexibility in an organization’s activities will reflect reduced profits.

Relationship between Inventory Management and Performance It was observed that inventory management in organizations has a positive significant relationship with performances whereby when all the materials and inventories are properly managed; they lead to increased levels of efficiency and effectiveness that will help indecision making from the organization. According to a study conducted about inventory management by Karamagi (2004), on bank of Uganda, with the introduction of computerized system the overall management of stock has improved with regards to monitoring, reconciliation and reordering and requisition thus performance.

Accordingly, inventory management has helped in tracking record process so that stocks are available all the time so that there are no stock outs and for emergency purposes. Receipts and issues are posted directly and automatically on to the system other than stock cards. Akers and Porter (2001) included that the use of inventory management at any level of an organization can have implications for competitive advantage. At the highest echelons of an organization, the inventory management is crucial to successful strategic planning.

Duff (2001) and Mitskavick (2000) also reported that at the operational level, availability of inventory can result in increased organizational efficiencies such as increased sales, decreased inventory, increased customer service, shortened production lead times and lowered labour costs.

A research design is a plan to carry out a research project/ it is a pattern the research is going to follow/it is the overall plan or strategy for conducting the research. Oso and Onen, 2005 pg 69). For this research purpose, qualitative, quantitative and descriptive research designs will be used. The rationale for selection of the designs above is that case study uses smaller samples for in-depth analysis other than covering the entire population; the design is also multi model, concrete and contextual in nature.

This research is going to be carried out in Anaka General Hospital, Nwoya district. The study will target the following category of people: - medical superintendant, doctors, store keepers and other employees. They are chosen because of their day today mandate and interface with inventory management issues and Performance in Anaka General Hospital. Population and Sample Size Aggarwal (1988:14) stated that the term population in research refers to a universe of interest to the study. A population is the group to which a researcher would like the results of a study to be generalisable and make reference to a specific situation or context.

The study will include medical superintendant, doctors, store keepers, District Health Officer, nurses, other employees and selected patients and other employees. A number of 54 respondents will be expected to be given the questionnaires and or interviewed. The medical superintendant, doctors, storekeepers, employees and patients will be chosen because they are the people expected to be having enough experience as partners to the field of inventory management in Anaka General Hospital

This will be based on purposive sampling; According to Shaughnessy and Zechmeister (1997:139) purposive sampling is where the investigator selects individuals to be included in the sample on the basis of their special characteristics. This method shall be used by the researcher to obtain respondents who have some knowledge on the subject matter.

Purposive sampling design will be used to choose the area in which the study will be conducted because of the proximity to the researcher in views of time and fund constraints. The study will purposely be based at Anaka medical stores serving in this case as service provider and the community as patients/consumers.

The researcher will employ systematic random sampling to carry out the study. Systematic random sampling will be used to select the category of respondents to be Included in the sample. The purpose of using this technique is to avoid being bias in the Selection of respondents.

Systematic random samplings requires establishing the number from the population List in the camp then later identify every nth member in the population from the Randomized list of the population. This technique will group the population sampled into Separate identical subjects with equal chances that share similar or same characteristics to Ensure equitable representation of the population in the sample. This technique is Preferred because it selects without bias. It also saves time and Money.

The researcher shall collect fresh data and for the first time which will be original in nature from Anaka General Hospital stores and will directly be obtained from the filled records. 3. 5. 2Secondary Data The researcher will review literature which contains the data that has been collected by some other people but relevant to the researcher’s topic of the study for instance from magazines, journals, text books and internet sources. 3. 6Data Collection methods Data from the field will be obtained by use of combination of the following data collection methods.

The researcher will use questionnaires, interview and document analysis as the main tool for collecting data. The selection of this tool will be guided by the nature of data to be collected. 3. 6. 1Questionnaires Questionnaires will be used since the research is mainly with variables that cannot be directly observed such as views, opinions, perceptions and feelings of the respondents. Such information is best collected through questionnaires. The sample size comprise of (54) Respondents and given the time constraints, questionnaires is the ideal tool for collecting data.

The researcher intends to use categorized instrument that is both open and closed questions and optional responses. This will enable the researcher to balance between quality and quantity of data. It will also simplify data analysis and coming out with clear report on the study. This will be employed by the researcher to collect information from Anaka General Hospital by observing how the drugs are issued to the respective users and how they are stocked in the stores.

Data shall be collected using in-depth interviews and focus group discussions. Colin (1993:47) stated that “a guide can be directed on a given set of predetermined questions”. The researcher used an in-depth interview guide to gather information about the study. The in-depth interview approach is relevant because of the sensitivity of the issues being studied which required in-depth exploration.

Data Analysis and Management

Data analysis is defined as “a process of inspecting data with the goal of highlighting useful information, suggesting conclusions, and supporting decision making”. Data shall be obtained from detailed field notes and written data collected through questionnaires. The analysis shall involve the organization of data into themes by searching for patterns emerging from data collected. The information from the questionnaires shall be written and presented by researcher as provided by the respondents. This data shall be used by the researcher to provide a descriptive analysis of the respondents’ understanding of store management.

The findings will later be analyzed using Micro soft Excel to present the data in term of percentages using pie-charts and bar graph. This will be useful in displaying pattern in the collected data, and these patterns were used to make generalization on the basis of recommendation made. Ethical Considerations The research topic was first approved by faculty of Business and Development Studies of Gulu University research committee . The researcher will then obtain a letter of introduction from Gulu University which will be presented to the District Health Officer Nwoya District and Medical superintendent of Anaka General Hospital.

All respondents will be informed about the purpose of the study, their freedom to participant, and also assured of confidentiality, the researcher also promise to provide copies of his finding to the University and the MS, DHO of Anaka General Hospital 3. 9Limitation of the Study The following are the anticipated limitations; Some respondents may intend to withhold information for fear of exposing their incompetence. This will be overcomed by, assuring them of confidentiality of the information that they also stand to benefit if implementation of the recommendation of the study are taken.

There may be inadequate inventory control record for review by the researcher, more so because the Hospital does not even used electronic databases. To bridge the gap, interview and discussion will be used to identify and explain the missing or inaccurate data respectively. Financial constraint may also disturb the researcher since he is self-sponsored and to reduce the cost, the researcher will undertake some activities such as typing, binding the research proposal, the questionnaires, the interview schedules.

Time is a limitation in that the frame for submitting the search proposal is short considering the size of departments and the distance of Anaka General Hospital its 56KM from Gulu town and some respondents may delay completing of questionnaires due to their personal commitment and these may slow down the compilation of data. To prevent these, the researcher will engage a research assistant to speed up data collection.

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