BAHIR DAR UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

LOGISTICS AND SUPPLY CHAIN MANAGEMENT
DEPARTMENT

RESEARCH PROPOSAL SUBMITTED FOR PARTIAL

FULFILMENT OF BA DEGREE IN LOGISTICS AND SUPPLY
CHAIN MANAGEMENT

ASSESEMENT OF INVENTORY MANAGEMENT PRACTICE IN

CASE OF (BAHIR DAR UNIVERSITY COBE CAMPUS STUDENT’S
CAFETERIA)

BY:-
1. ABEL ANTENEH --------------------------------1310615
2. BERSUFIKAD ABEBAYEHU-----------------1310772
3. KOANG JOCK -----------------------------------1313392
4. SAMUEL ABERA--------------------------------1310136
5. TOLESA NIGUSE--------------------------------1205013

ADVISOR: TAFERE WORKU (PhD)

 July24, 2024 GC

ACKNOWLEDGEMENT
First and for most we would like to thank our Almighty God for all his charity and kindness he
has shown us throughout our life. The most sincere and deepest gratitude goes to our advisor
Tafere Worku (PhD), who really encourages and helped us in correcting and giving advices from
beginning of the study until the final draft. Our deepest love, appreciation and gratitude go to our
family for their financial and moral support we have immensely benefited not only in doing
this paper but in all years of our education. Lastly but not least we would like to extend our
thanks to Bahir Dar University students.

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Contents

ACKNOWLEDGEMENT.....................................................................................................................................i
ABSTRACT........................................................................................................................................................iv
CHAPTER ONE...................................................................................................................................................1
INTRODUCTION................................................................................................................................................1
1.1. Background of study............................................................................................................................1
1.2. Statement of the Problem.....................................................................................................................2
1.3. Research Question................................................................................................................................5
1.4. Objectives of the Study........................................................................................................................5
1.4.1. General Objectives.......................................................................................................................5
1.4.2. Specific Objectives......................................................................................................................5
1.5. Significant of the Study........................................................................................................................6
1.6. Scope of the Study...............................................................................................................................6
1.7. Limitation of the Study........................................................................................................................6
1.8. Organization of the paper.....................................................................................................................7
CHAPTER TWO..................................................................................................................................................8
REVIEW OF RELATED LITREATURE............................................................................................................8
2.1. Theoretical Review..............................................................................................................................8
2.1.1. Concept of Inventory...................................................................................................................8
2.1.2. The Usage of Inventory.............................................................................................................11
2.1.3. The Role of Inventory Management..........................................................................................12
2.1.4. Inventory Control.......................................................................................................................13
2.1.5. Model of Inventory Control Management.................................................................................14
2.1.6. Inventory Purchasing and Dissection.........................................................................................15
2.1.7. Handling of Inventory................................................................................................................17
2.1.8. Principles of Material Handling.................................................................................................18
2.1.9. The Impact of Excess Inventory................................................................................................19
2.1.10. Inventory Valuation...................................................................................................................20
2.1.11. Obsolescence.............................................................................................................................20
2.1.12. ABC Analysis............................................................................................................................21
2.2. Empirical Review...............................................................................................................................22
2.3. Summary of Empirical Review and Research Gap............................................................................24
2.4. Conceptual Framework......................................................................................................................25
CHAPTER THREE............................................................................................................................................26
RESEARCH METHDOLOGY..........................................................................................................................26
3.1. Introduction........................................................................................................................................26

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 3.2. Research Design.................................................................................................................................26
3.3. Research Approach............................................................................................................................26
3.4. Sampling technique and Sample Size................................................................................................26
3.4.1. Sampling technique...................................................................................................................26
3.4.2. Sampling size.............................................................................................................................27
3.5. Data Source and Collection Method..................................................................................................27
3.6. Data Presentation & Analysis............................................................................................................28
CHAPTER FOUR..............................................................................................................................................29
TIME AND BUDGET SCHEDULE..................................................................................................................29
4.1. Time Schedule...................................................................................................................................29
4.2. Time Budget.......................................................................................................................................29
REFERENCES...................................................................................................................................................30

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ABSTRACT
Inventory management is concerned with ensuring that all activities involved in storekeeping and
stock control are carried out efficiently and economically by those employed in the store. There
has been a question for management about the efficiency of inventory management procedures in
place resulting from inconsistencies of inventory levels leading to various weakness like losses
that come as a result of over and under-stocking, expiry inventory, failure to meet targets and
low morale of the organization members. As a result the organization stores are overcrowded
making the work of a store-keeper difficult, late issue of materials to the department and these in
turn result into poor inventory service delivery. An organization that has effective inventory
Management can achieve the benefits of effective use of labor, providing system flexibility,
increasing productivity, decreasing lead times, reduction in wastes, reduction in production
costs, increased product quality are achieved. Inventory control systems played a vital role in
organizational performance, and as such, organizations must ensure that inventory controlling
system are highly involved in material management activities hence achieving higher
organizational performance. The study was conducted to assess inventory management of Bahir
Dar university COBE campus student’s cafeteria. Objectives the study used 51 employees as
sample size from 203 total populations the cafeteria employees; these 51 sample size selected by
using Kothari formula. The study was a descriptive research design. The target population was
the student cafeteria employees. In this study the structured questionnaires and structured
interview were the main data collection instruments. The study employed both quantitative and
qualitative analysis techniques. Furthermore the collected data were processed and described by
using tabulation percentage and tables so that finding was easy to understand by everyone.

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 CHAPTER ONE
INTRODUCTION

1.1. Background of study

Inventory constitutes one of the most important elements of any system dealing with the supply,
manufacturing and distribution of goods and services. In fact inventories are common to farms,
manufacturers, traders, temples, prisons, zoos, universities and governments. The term inventory
can be used to mean several different things such as the stock on hand of materials at a given
time (a tangible asset which can be seen measured and control), an itemized list of all physical
assets, the value of the stock of goods owned by an organization at a particular time (Agrawal,
2009). Inventory is one of the most active elements in an operation and it is necessary not only
for the firm’ method and procedure used to provide reasonable assurance regarding the
achievement of objectives in the following categories: safe guarding assets, ensuring validity of
financial records and reports, promoting adherence to policy, procedures, regulations and laws,
and Promoting effectiveness and efficiency of operations (Handley and et al).

Inventory management is a key to any successful distribution business. Inventory management

provides everything you need to know about the receipt and movements of goods, the sale,
removal or other disposition of goods and the precise valuation and statues of goods remaining in
inventory at any time (Altekar, 2008). Inventory management is both a science and an art of
ensuring that just enough inventories are held by the organization to meet demand (Heizer, & et
al). The main objective of inventory management is to inform managers how much to re-order,
when to re-order, how frequently products should be re-ordered and the minimum safety stock
required. An effective inventory management ensures that inventory held at the right place, right
time and at the desired quantities (Ogbo, &et al). The inventory management requires latest and
relevant inventory management systems and techniques for each company (Zipkin, 2000).

Inventory management also involves setting of replenishment cycles, forecasting, valuation,

available space for inventory, quality management, managing returns and defective goods and
demand forecasting (Lau & Snell, 2006). In Ethiopia inventories constitutes a large amount of
dollar values in its annual purchasing. The inventories found in the universities are huge and
needs clear management systems. Dar University also has properties in all forms of inventories

6
and the study will be focus on the all inventory management practice of Bahir Dar university
COBE campus student’s cafeteria. The main objective of this proposed study is to assess the
inventory management practice of Bahir Dar University COBE Campus student’s cafeteria.

1.2. Statement of the Problem

Inventory management refers as the total activities in each operation stage may be in raw
material, semi-finished materials or finished goods, so make sure the availability of stock and the
over or under stocks always must be low (Mohammad et al, 2016). Inventory management
involves the control of assets for the purpose of sale or use in the normal course of the company
the total costs direct and indirect that is associated with holding inventories. The system used for
inventory must tie in to the operation of the firm. Inventory planning and management must be
responsive to the needs of the organization (Raj, 2009). Some organizations have excellent
inventory management system too many however have unsatisfactory inventory management
system. Sometimes it is assign that management does not recognize the importance of inventory
and its management practice on their proper allocation of resources (Stevenson, 2007).

Inventory management is important because firms will ensure assets and stock are well managed
and accurate demand forecasting is maintained to avoid unplanned procurement processes. This
will assist the firm in executing successful procurement processes that match demand and supply
forces (Brigham and Gapenski, 2013). Inventory management involves keeping accurate records
of finished goods (FG), raw material (RM) and work in process ( WIP) that are ready either for
shipment or further processing. This often means posting the production of newly completed
goods to the inventory totals as well as subtracting the most recent shipments of finished goods
to buyers. The relevance of inventory management practices is that they make it possible to
quickly convey information to sales personnel as to what is available and ready for shipment at
any given time (Dryden et al, 2012). Firms should design and develop an inventory management
system that balances the demand and supply. This is intended to reduce inventory costs,
reduce the cycle time and improved sharing of information. Therefore, the firm can
effectively manage its inventory and coordinate its supply chain system leading to improved
performance (Brigham et al, 2013).

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Inventory management can be described as the protection of over investment and under
investment in inventories, by improving on the main necessary operational activities.
Determination of the right level of investment in inventories, consistent with production
operation schedules and prompt services, is the activities of inventory management (Sharma,
2006). Inventory material represents an important asset. It is the largest single item and it has
accosted in every organization. Material management is the important aspects of any
organization to function handling and acquisition of stock, assigning line management, storage,
and material transport. Material management and control components role are very similar in
order to make organization effective efficient (Brutus, 2015).

Inventory management mostly serves two main purposes. First, all responsible inventory
management takes responsibility for availability of stock material. The availability of inventory
is important for the smooth running of operation. The second goal is by performing the required
activity; efficient service level can be achieved by minimizing the optimal costs (Reid &
Sanders, 2007). Every company manages its inventory items by using different ways of their
own managing system. However, the usage of inventory is similar, and also where the inventory
is stored or is ready to be used and the cost must expect to be low (Mohammad et al, 2016). The
inventory management scope is concerned with the replenishment and lead time, carrying costs
of inventory, asset management inventory forecasting, inventory valuation, inventory visibility,
future inventory price forecasting, available physical space for inventory, quality
management, returns and defective goods and damage forecasting (Lau, and Snell, 2006).

Inventory management is more concerned on controlling of each stapes of inventory activities.

This is practiced by involving the system of storekeeping and stock control activities efficiently
and economically in the store. Most of the time the efficiency of inventory management
procedures and practices are under question for management because many times the result of a
procedure of managing inventory have a problem of shortage leading different weakness may be
a losses that happens a result of over stock level, under stock level, expiry inventory, failure to
achieve the set goal (Godana & Ngugi, 2014). The basic objectives of Inventory management
is making sure the right item is offered at the right time, stored at a right place and minimizing
the cost of stock (Banjoko, 2000). The function of Inventory management is organizing the
works and responsibility together for determining the materials required for scheduling, storing

8
and disposing the obsolete inventory items (Wild 1998). Stock is created for keeping the reserve
inventory in to store for using when the need is arise in operation or at maintenance time. It
needs proper determination to control the level and to allow significant amount asset, frozen in
the form of stocks which increase ultimately competence of resource use (Ziukoy, 2015).

The classical material management is acquisition of materials and services of the required
quantity, at the right price, from the right source and at the right time (Brutus, 2015). Even
though there are factually many of different types of products produced in our society, there are
only two major decisions firstly making in controlling activity. The question of how large should
an inventory replenishment to be order? And when should an inventory replenishment order be
placed? Must be got the answer before any decision consider the main objective of management
frequently minimizing the problem, if it is more profitable by fast movement to get more
profitable but more expensive or make slow to cheaper the cost. Such type of strategy will be
optimal inventory control that can be minimize the sum of many stock costs that included to
production or services , storage and inventory shortage per unit of times a specific amount
of time (Ziukov, 2015).

Generally, inventory needs a serious managerial attention since it ties up a lot of organization
capital. However, Inventory keeping in store is very necessary for the activities of continuous
production or to sustainably render services to customer (Samuel & Ondiek, 2014). In Ethiopia
from the country and they are not managed properly. After they enter into the country from
abroad and produced domestically. For this reason the government of Ethiopia always calls the
people for the wellbeing of properties found in the whole part of the country; Universities are
now the target of the government to control and audit their usage of inventories and other
resources that they holds due to their improper management of resources especially inventories,
which accounts large portion of the budget (UP, 2013).

So that Bahir Dar University as an institution found in the country shares the problems
associated with managing inventories properly. Proper management of inventory enables firms to
mitigate inventory costs, reduce lead time and on-time delivery of goods and services.
Organizations that maintain proper inventory of raw materials are more likely to complete their
production on time (Wisner et al 2011). Inventory management control is part of the inventory

9
management: that helps to maintain continuity of production operations by maintaining a
smooth flow of raw materials without shortages (Shapiro, 2009).There has been a question for
management about the efficiency of inventory management procedures in place resulting from
inconsistencies of inventory levels leading to various weaknesses like losses that come as a result
of overstocking and under-stocking, expiry inventory, failure to meet targets and increase
inventory holding cost. As a result the company late issue of materials to the department and
these in turn result into poor inventory service delivery (Wood, 2004).These factor motivates the
researchers to conduct the study on this topic particularly to assess the problems of Bahir Dar
University COBE Campus student’s cafeteria associated with its inventory management system
the researchers tried to investigate and answer the following basic research questions.

The research conducted on basic research question assessing what inventory management
practice in Bahir Dar University COBE Campus.

1.3. Research Question

1 What inventory management system is currently being used by the cafeteria?
1 What are the weaknesses and strengths of the cafeterias inventory management system?
1 Does materials verified periodically in the cafeteria?
1 What are the possible factors that hinder the development of continuous inventory
management system of the cafeteria?

1.4. Objectives of the Study

1.4.1. General Objectives

The general objective of the study is to assess the practice of inventory management system of
Bahir Dar university COBE Campus student cafeteria.

1.4.2. Specific Objectives

1. Typically the (inventory management practice that is currently being used.

2. To assess the strength and weakness of the cafeterias inventory management system.
3. To evaluate the periodic inventory management system of the cafeteria.
4. To investigate the possible factors that hinders the development of the cafeteria inventory
management system.

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 1.5. Significant of the Study
This study result were believed to have the important significance for study area, for researchers,
for further researcher as well as for administration staff of the organization; it were provide
significant solution for problem related to the inventory management practice, it would enables
the researchers for partial fulfillment of BA degree in logistics and transport management, it also
help the further researcher as a sources for their future study related to inventory management
and on this study area and lastly it were provide the administration staff of the organization how
to understand problem they have face regarding to inventory management practice and also give
the way in which manner they should have to avoid the problem to provide better services.

1.6. Scope of the Study

Bahir Dar University is a public research university in Bahir Dar, Ethiopia, known for its training
of distinguished scientists and public servants. Established in 1966, the university offers bachelor
degree programs and continues to expand its research and teaching in various fields, including
PhD programs. The university's official slogan is "Wisdom at the source of the Blue Nile." It was
formed from the merger of two former higher institutions: Bahir Dar Polytechnic Institute and
Bahir Dar Teachers College. The Polytechnic Institute aimed to train skilled technicians in Agro-
Mechanics, Industrial Chemistry, Metal, Textile, Electrical and Wood Technologies. The
Teachers College, established in 1972, aimed to train multi-purpose primary education
professionals for rural life and development. The two institutions were integrated into Bahir Dar
University in 2000, and the university was officially inaugurated in 2001. The university is
organized into various faculties, including the Bahir Dar Institute of Technology, Ethiopian
Institutes of Textile and Fashion Technology, and the College of Agriculture and Environment.
Specifically the study was conducted in Bahir Dar university student’s cafeteria inventory
management practice in COBE campus, so the study was not including the whole universities
inventory management practice. Study was descriptive type of research to describe the existing
inventory management situations. The time duration of this study was from May up to July 2024.

1.7. Limitation of the Study

The major limitation is time constraint, Class not starting on time has made us tight on time for
everything. Additionally; the study is estimated encounter the following constraints: Lack of

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enough experience on the side of researchers, the respondents was busy to give the required data
on time, inefficiency of references.

1.8. Organization of the paper

The research was containing five chapters. Chapter one is deal with the introduction, statement
of the problem, organization of the study, objectives of the study, significance of the study, scope
of the study and limitation of the study. The second chapter deals with theoretical and empirical
literature review of the study. The third chapter deals with research methodology; research
design, research approach, sampling procedures and sample size, data sources and collection
method, data presentation and analysis. The fourth chapter deals with the data analysis and
interpretation of the study and the last chapter five deals with summary, conclusion and
recommendation.

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 CHAPTER TWO
REVIEW OF RELATED LITREATURE

This chapter projects to review theoretical and empirical theories related to the study to reveal
knowledge for more understanding of inventory management that supports the study analysis of
this research.

2.1. Theoretical Review

Theories are analytical instruments to understand the study, to elaborate and make assumption
about the subject matter. It can also help us to compare the conceptual framework are evaluate
and comment on the research gap of the given study (Mwangi & Nyambura, 2015).

2.1.1. Concept of Inventory

Inventories are materials or resources of any kind having some economic value. It is also a major
asset that should provide return for capital invested and either awaiting conversion or use in
future. Apart from these, there are many indirect materials such as maintenance materials, fuels
and lubricants, and other materials which are used in a manufacturing or service rendering
organizations. They are also classified as inventories of materials for future use. But they differ
only in their use and classification from raw and other direct materials. All required items are
stocked in to warehouse to be used when the needs arise (Datta, 2003).

Inventory is the stock of any item or resources used in an organization (Chase, 2010).Any idle
resource with economic value is inventory. It may be in the form of raw materials, work-in-
process or finished goods. Even cash sometimes form inventory, for instance the cash available
at hotels front office cash counter for en cashing traveler out irregularities in supply (Khanna;
2010).

Inventory is one of the main parts of the major business ready for sale. It can be the raw
materials inventory, work in progress inventory, and finished goods inventory. Inventory
turnover represents one of the primary sources that enable businesses to generate revenue and
continuous earnings to the company and owned by a business that has an advantage of being sold
to a customer. It includes items sold to end customer or retailers (Ackah&Ghansah, 2016).

13
According to Godana, &Ngugi (2014), inventory is essential to organization for production
activities, maintenance of plant and machinery as well as other operational requirements. This
results in tying up of money or capital which could have been used more productively. The
management of an organization becomes very concerned in inventory stocks are high. Inventory
is part of the company assets and is always reflected in the company

Types of Inventory

Most of inventory items are categorized as the following.

(a) Raw materials inventory as input to manufacturing system.

(b) Bought-out-parts (BOP) inventory which directly go to the assembly of product as it is.
(c) Work-in-progress (WIP) or work-in-process inventory or pipeline inventory.
(d) Finished goods inventory for supporting the distribution to the customers.
(e) Maintenance, repair, and operating (MRO) supplies. These include spare parts, indirect
materials, and all other sundry items required for production/service systems (Varta,
2014)

Inventory Systems and Management

An inventory system is the set of policies and controls that monitors levels of inventory and
determine what levels should be maintained, when stock should be replenished, and how large
orders should be. It provides the organizational structure and the operating policies for
maintaining and controlling goods to be stocked. The system is responsible for ordering and
receipt of goods; timing the order placement and keeping track of what has been ordered , how
much and from whom.(Chase, 2010). The inventory figure constitutes the bulk of the current
assets for most firms. A stock out can result in loss of profit from the missed sale, the loss of a
customer and good will, and in case of a production unit, lack of inventory of raw materials will
result in production coming to a halt. At the same times excess inventories increases the cost of
carrying the inventory. It is thus important for the manager to understand the implication of
inventory and to correctly manage in the most economical way (Khanna, 2010).

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Types of Inventory System

Periodic Inventory System- under a periodic system, a company determines the inventory
balance and cost of goods sold at the end of the accounting period. That is, firms or any business
organization can determined its inventory on perpetual system. The firm or business organization
made during the period increase inventory available for sale. At the time of operation purchase
discount and return can be occurred that recorded on temporary account and closed at the end of
period. The beginning inventory balance plus the net purchases is the cost of goods available for
sale that is, the total amount of inventory that will either be sold during the period or remain in
ending inventory. The ending inventory balance is taken based on a physical count of the
inventory (Mosich, 6th Ed 1989).

Perpetual Inventory System- in practice, technological advances have made the periodic
system obsolete and provided the computer software for firms to use a perpetual system. Under a
perpetual system, firms or business organization continually update inventory accounts for each
purchase and each sale. A perpetual system is superior to a periodic system because it always
provides current information about inventory levels; costs of goods sold, and gross profit
(Mosich, 6th Ed 1989).

Functions and Purposes of Inventory

From an inventory perspective, the ideal situations would be a responsive based supply chain.
Inventory is a current asset that should provide return on the capital invested. The return on
inventory investment is the marginal profit on sales that would not occur without inventory (Sox,
2010). According to Sox (2010), there are four functions of inventory. They are:-

Geographic Specialization: Allows geographical positioning across multiple manufacturing and

distributive unites of an enterprise. Inventory maintained at different locations and stages of the
value creation process allows specialization.

Decoupling: Allows economy of scale within a single facility and permits each process to
operate at a maximum efficiency rather than having the speed of the entire process constrained
by the slowest.

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Supply/Demand Balancing: Accommodates elapsed time between inventory availability
manufacturing, growing, or extraction) and consumption.

Buffering Uncertainty; Accommodates uncertainty related to demand in excess of forecast or

unexpected delays in order receipt and order processing in delivery and is typically referred to as
safety stock. The purpose of holding inventory is to allow the firm to separate the process of
purchasing, manufacturing and marketing of its primary products. The goal is to achieve
efficiencies in areas where costs are involved and to achieve sales at competitive prices in market
place (Anthony Raj; 2009).

2.1.2. The Usage of Inventory

Inventories are the stock of an organization that the company keeps on store for future usage
(Pandy, 2003). Inventory helps the organization to make important decision that is tangible at all
levels of activities, distribution and sales, being a main part of total current assets of many
organizations (Moore, Lee and Taylor, 2003).

It is essential to keep on hand a physical stock in the system to protect the uncertainty because
non availability of material may lead to delayance in production or project or service delivered.
Keeping inventory also has an opportunity cost of organization. So, the contradiction is though
we want inventory, it is not easy to have inventory. These conditions make inventory
management a difficult problem area in materials management. It also makes high inventory
turnover ratio which can be the indicator of enviable performance (Vrat, 2014).

Effective inventory management gives the chance to make continues competitive advantage and
improvement of the competitive position of the companies. This leads reduction in cost of
storing stock by replenishing just sufficient inventories, the right place, right time and cost. High
levels of inventory affect the organization cash flow, reduce efficiency and adversely affect the
procurement performance out of the capital. The inventory system helps the operating policies
and organizational work flow for replenishing and controlling materials in store. Capable
management of inventory system requires an appropriate system of making the decisions to
keeping track of items in inventory and how much and when the order is applied. In every
organization the decision on inventory is based on the facts about the balance of inventory on

16
hand, forecasting demand information, lead time and time variation, stock cost, ordering cost and
shortage cost (Naliaka&Namusonge 2015).

2.1.3. The Role of Inventory Management

The role of inventory management is to determine the level of inventory items to produce the
specific items, the system of planning and controlling of inventory items are based on the
product, customer needs and the operation activities is based on the available inventory. In
addition, inventory is importance for balance sheet that used as an increase the asset group on the
company balance sheet, because many firms play a role to reduce their investment in fixed asset,
plants, warehouses, office buildings, equipment and machinery by increasing their inventory
(Mohamed, et.al 2016). Inventory management system is essential to approve the quality of
control in stock handling and the area of customers served by consumer goods. A good inventory
system will lead the company easily to know the time to be order. Inventory management system
is also an essential means of tracing large shipment with in short time./an automated inventory
system enables to minimize the risk of error and helps by providing up to date information of the
stock items in the warehouse (Ackah & Ghansh 2016).

The role of inventory management is arranging and organizing over all operation of the
organization maintaining the transactions of sales appropriately keeping the level of stock to
satisfy customer driving profit by keeping the required inventory items, balancing the right
order as customer needs. The activities and controls of effective inventory management are very
necessary for any businesses successes. Since all business has a limited working capital,
inventory management responsible to make decisions what type of materials by, the quantity
bought, by how much or within the capital limits. These are the important decisions. Bulky
inventory keeping can tie up capital that may be used for other investment to generate income is
locked up without nothing.

On other way less keeping inventory items can be a weaker to satisfy customer need and the
organization can Poor inventory management had become an issue of great concern since
performance is regarded as the main stream for development of organizations. A truly effective
inventory management system minimizes the complexities involved in planning, executing and
controlling a supply chain network which is critical to business success. The opportunities

17
available by improving company (Ackah & Ghansh 2016). Therefore, Inventory management is
plays a very critical role for all types of organization. It is a vital for profit making and service
rendering organization for their successes.

2.1.4. Inventory Control

Inventory control is the management activities that attempt to maintain the uphold stocks at their
estimated levels. It is practiced by planning necessary stock sizes at usual intervals, by taking
two stocks then counting and valuing it at the same interval comparing the two sets of feedback
margining of variances (Sharma, 2006). Inventory is a major asset that should be the sources of
returns on capital investment. The marginal profit on sales got from return on inventory
investment accordingly, this would not occur without inventory. Accounting experts stated that
to accepting corporate profit-and-loss, without measuring the true cost and a benefit of inventory
is difficult. Because lack of measurement clarity it makes complex to evaluate the trade-offs
between service levels, operational activeness, and inventory maximum or minimum level, while
the cumulative of inventory levels have decreased, the inventory carry of much enterprise still it
is greater than their basic requirement (Bowersox, 2002).

Sharma (1997) stated that the inventory control is a very important activity of inventory
management and it plays an essential role for managing economic operation. Operational
efficiency and profitability of an organization, it is very vital to reduce the amount of capital
locked up in inventories. This will not only help in achieving return on investment by
minimizing tied-up working capital, but will also improve the liquidity position of the concern.
And also Benedict and margeridis (1999) described that inventory control means any time and
any where the required availability of materials in stock. The sum total of those activities of an
organization is important to procurement, storage, sales, disposal or usage of materials can be
identified by material management. Inventory management is ready when required and utilize
available storage space and the items are in balance. The maintain accountability and
responsibility of inventories asset is the inventory management. Inventory management, before
decision they must be checked plan budget and also must know how to order and when to be
order. Therefore, without any problem the stock is available easily in store at an optimum
(Costsmaros, 2003).Hence, inventory management must practice on the activities of planning
system through the operation of the service points and distribution.

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Inventory Records Management

Inventory control rescored is important to make decision to bay and sell. Some company control
their stock by taking physical inventories at regular intervals, monthly or quarterly. Others use a
dollar inventory rescored that what the inventory gives a rough idea of what the inventory may
be from day to day in terms of dollars. If the stock is made up of thousands of items, as it is for a
convenience type store, dollar control may be more practical than physical control (Amold,
1998). Inventory accuracy defines how well the inventory records, specifically the quantities on
hand, match the actual quantities in the storeroom. Accurate records are a prerequisite to
effective inventory management. Susan & Michael (2000) accuracy of inventory records is
necessary to provide satisfactory customer service, determine replenishment of individual items;
ensure that material availability meets repair or project demand, analyze inventory levels and
dispose of excess inventory.

Stock Verification and Accounting

To reconcile the stock records and documents for their accuracy and usefulness, to identify areas
which require more disciplined documents control, and to back up the balance sheet stock
figures, a provision for independent central stock verification team instead of departmental
committees be made to verify the stocks annually. A policy of centralized stock verification is
likely to result in better reconciliation of the assets as per the balance sheet and the actual assets
in the stock (Sharif, 2015).

2.1.5. Model of Inventory Control Management

Planning Inventory Order

To order, and inventory control, guide inventory planning. When to order is determined by the
demand and performance average and variation. The how much to order is determined by the
order quantity. Inventory control determines the process for monitoring inventory status.

Inventory Control System- Degree of Involvement

The effects of inventory control systems on organizational performance and effects of lead time
on organizational performance. Inventory control systems are the most important function of
materials management and it forms the nerve centre in any organization (Ramakrishna, 2005).

19
An inventory control system is a system that encompasses all aspects of managing a company's
inventories; purchasing, shipping, receiving, tracking, warehousing and storage, turnover, and
reordering. Using that definition, the respondents were required to respond to the statements as it
implied to the organization (Keitanye)

2.1.6. Inventory Purchasing and Dissection

Procurement is the processes of determining the order quantity purchase of items, work
processing, store requisitions, issue of enquiries, and evaluation of quotations, supplier appraisal,
negotiations, placing of contracts, progressing of deliveries and clarifying payments (Brutus,
2015). Successful inventory management involves creating a purchasing plan and design that
will ensure that items are available when they are needed but that neither too much nor too little
is purchased and keeping track of existing inventory and its use (Berling, 2011).

In every organization there are two types of common inventory management strategies are the
just-in-time method direct purchase for direct to use, where establishments plan to receive items
as they are needed rather than maintaining high inventory levels, and materials requirement
planning, which schedules materials deliveries based on sales forecasts. Proper inventory
management requires an organization to undertake stocking and use appropriate method to value
stock so as not to under or over state profits (Kotabo, 2002). The inventory purchasing
management approach of accurate response is an excellent mechanism that helps businesses.
Manages their inventory; especially to Public Service Company it enables to give a quality and
proper services.

Inventory Decision

The main objective of inventory management is identifying the effects of cost that having items
in stock and not having items in stock and compute the cost of holding and ordering the
inventory. In order to attain a balance between inventory availability and cost must be addressed
the main target inventory management volume that How much to order and when to be order
(Porter, 2011). Therefore, since inventories a key to any organization, inventory management
must be pay attention when decision making. There are different techniques and modeless can
help inventory management control systems.

20
Economic Order Quantity Model

Economic order quantity is the technique of determining the optimum quantity which can
be minimizes the total of inventory order and carrying costs. There are two types of major costs
included with inventory. Those are procurement costs which is vary with the number of orders in
annual procurement and carrying costs. This affects by raising the procurement costs, if the
inventory items purchased in small quantity. The annual purchasing of inventory costs directly
equivalent to the quantity in stock. If the quantity order in each order is small, the carrying cost
of stock is decreased. The procurement cost and the carrying costs are completely different. The
right quantity is obtained as opposite to as Jayakumar (2013)

EOQ=
√ 2∗demand∗order−cost
Carrying cost

(Jose V*, Jayakumar*, M. T* 2013)

The Re-order Point (ROP) model

The EOQ model thought us the quantity size to order, but not the time to order. The reorder
model finds out the time to order when the stock level go down to a predetermined amount, this
generalize a quantity of stock to cover for the lateness between order delivery or the time gap of
31 delivery and this activities that can reduce the risk of running stock out when the quantity
level low (Porter ,2011).

Determining When to Order

When Inventory items replenished, a reorder point can be specified in terms of units or days
supply. Consequently, it can be reordered reorder points under conditions of demand and
performance cycle certainty. The basic reorder point formula is:

 R = D*T

R = Reorder point in units;

D = Average daily demand in units; and

T = Average performance cycle length in days.

21
The use of reorder point formulations implies that the replenishment shipment will arrive as
scheduled. When uncertainty exists in demand or performance cycle length, safety stock is
required. When safety stock is necessary to accommodate uncertainty, the reorder point formula
is:

 R = D*T+SS

R = Reorder point in units;

D = Average daily demand in units;

T = Average performance cycle length in days; and

SS = Safety stock in units (Bowersox, 2002, page292)

Just In Time (JIT) model According to Canel, et al., (2000), JIT aims is to reduce time waiting
during production process. Therefore, the cost of inventories not only can be minimized but also
the time for the production also shortens. JIT concept is not saying about the standardization or
the way of managing but it really focusing on the zero inventories. This system builds a good
relationship and trust suppliers and based on willing of suppliers.

2.1.7. Handling of Inventory

Zijm (1999) defined as inventory material management is a movement of materials (raw

material, scrap, semi-finished, finished products spare parts) in processes of any operation
system, and in warehouse storage, in resaving processes and shipping areas. The main material
handling is concerned material flow with warehousing. There is some materials typical support
the material flows like forklifts, automated guided vehicles, shuttles, overhead crane and power
and free conveyors. Warehousing uses those materials for flow activities from place to place and
also to receiving and shipping areas. Essentially, according to materials usage and type the
receivers of inventory material warehouse may be divided as Distribution Warehouse,
Production Warehouses and Contract Warehouses.

22
Design of Material Handling System

Inventory material handling system designed is taking into consideration of cost minimization.
Material handling approach is most important activities in many conditions since, while material
handling can add a value to an organization, it is typically difficult to measure and enumerate the
benefits included with material handling. But the material handling cost is much easier to
measure the cost (Heragu, 2009).

2.1.8. Principles of Material Handling

According to Heragu (2009) , even if, material handling system designee haven followed rule
However, The College-Industry Council on Handling Education CIC-MHE) in collaboration
with the Material Handling Institute (MHI), represents the sanitization /cleansing/ of many years
experience and knowledge , they complied ten principles of material handling .

a) Planning Principle. All material handling necessarily planed according to the required
objectives.
b) Standardization Principle. Material handling method that to be standardize, fixable
equipment and software, keeping the modularity to the organization to achieve its setting
goals.
c) Work Principle. Material handling works it defines by the material movement without
stacking the activity of the organization keeping the level of inventory.
d) Ergonomic Principle. Balancing he human capabilities and limitations must be included
in designing and also material handling tasks and equipment must ensure on operation.
e) Unit Load Principle. The material flow and inventory objectives in each operation
activity must be insured and must be cheeked the availability of materials by supply
management.
f) Space Utilization Principle. Effective and efficient use must be equally available on
every stage and place.
g) System Principle. Every material movement on operation and storage all activity
integrated to form a coordinated, operational system which spans receiving, inspection,
storage, production, assembly, packaging, unitizing, order selection, shipping, and
transportation, and the handling of returns.

23
 h) Automation Principle. Material handling should be in every place must be
systemized or using computer system to improve the operational activity and efficiency,
decrease operating costs and also minimize the using unsafe manual labor.
i) Environmental Principle. At the time of designing and selecting the alternative
equipment, material handling system must be in to consideration.
j) Life Cycle Cost Principle. On material handling life cycle the economic analysis should
be considered. (Heragu, 2009). Heragu (2009) describe that material handling system is a
continuous management of a function of resource movement from one location to
another. It is more ordinary in manufacturing and also in service systems. Material
movement occurs everywhere and every time as required in warehouse or out of
warehouse.

Consequently, a minimum handling activity is very essential for any company. Due to the
manufactures produced varieties of products to easily satisfy the need of demand. Therefore,
highly efficient and effective material handling system is very necessary. Also material design
system included that facility layout, product routings, and material flow movement must be
considered (Heragu, 2009).

2.1.9. The Impact of Excess Inventory

Excess inventory of firm has a cost of holding an inventory and it will be negatively affects the
net cash flows of the firm. Those costs could be include capital cost,(interest opportunity) and
the storage costs, insurance, taxes, spoilage, losses and other related to storage costs. The amount
of other costs is based on firm decision that to take the action to excess inventory. In industry
case when the technology changes fast and the product cycle short, the price of products may be
festally go down. In any organization the excess inventories, the declining in price is part of the
holding excess inventory. In addition to these the cost of providing price protection and product
returns is increases in cases of excess inventory (Jijm, 1999).

According to Calloni et.al (2005) in some situations unfortunately a firm or a business might
forced to close and again to restart at that time the organization incur a cost. The cost of
inventory become to write off, all items that have an economical value like inventory materials
value will become less and it must scraped or sold at bargain price. These implies that inventory

24
write offs could incur additional cost of inventory disposal. So, if an excesses inventory a cause
of the value under, the profit margin become compacted. In addition, the liquidations that the
under value involve to marketing, and incurred distribution and selling costs. In general excesses
inventory is increase the total cost and decrease revenue and profit. Also there are many cases
that can be affected indirectly the price of inventory items. A firm may have a restricted price
control over excesses inventory, by giving the first opportunity to customer. Excess inventory
has an influence on flow of sources of funding availability and it is the main obstacle to the
business new opportunity of expansion.

2.1.10. Inventory Valuation

The inventory materials hold since it is idle, the price of those materials decrease in many
reasons that is a deductible cost. The net asset valuation is one of the simplest forms of company
valuation. It is computed to be the difference between the assets and liabilities based on the
respective Balance Sheet values. But net asset values are generally lower than market values as
many value creating items are not accommodated in the balance sheet for accounting reasons like
investments in marketing, education of employees etc. The asset valuation methodology is useful
in case of liquidation/closure of the business (Arooq & Agrajan, 2014).

2.1.11. Obsolescence

Obsolescence cost results from deterioration of product during storage. A Prime example of
obsolescence is product that ages beyond recommended sale date, such as hold and
pharmaceuticals. Obsolescence also includes financial loss when a product becomes obsolete I
terms of fashion or model design. Obsolescence costs are typically estimated based on past
experience concerning markdowns, and quantity destroyed. This expense is the percent of
average inventory value declared obsolete each year (Bowersox, 2002).

Inventory Costs

Inventory is the important asset of any organization. It plays an important role in to performance
of any firm for production activities and also essential for service render organization. However,
Inventory since it is an idle resources, it incurred on a period of times some costs to organization
or business is the expense associated with maintaining inventory. Inventory expense is calculated

25
by multiplying annual inventory carrying cost percent by average inventory value. Standard
accounting practice is to value inventory at purchase or standard manufacturing cost rather than
at selling price.

Storage

Storage cost must be allocated on the requirements of specific products since it is not related
directly to inventory value. In public or contract warehouses, storage

2.1.12. ABC Analysis

The company purchases different inventory items from different suppliers. There are many types
of control system such as ABC, XYZ, FSN, VEN. The concept of ABC is a model that can used
to form a rational inventory policy which to minimization of stock cost including storage
and wage cost. The purpose of ABC analysis is to organize the inventory materials according to
their usage and annual dollar. The amount is used to calculate by multiplying the amount per unit
by the annual rate. This analysis follows a simple rule of thumb (Kumar, 2017).

About 15%

Table 1 ABC Classification

Obsolete Inventory According to Grondyset to control the excess and obsolete inventory; it
needs sum controlling management mechanism to indicate the inventory material condition and
the level. To manage properly the excess and obsolete inventory management it needs some first
indicator to separate nonmoving stock, identify the level of slow moving stock in warehouse,
which may be treated as excess or obsolete inventory, including excess and obsolete then made
analysis allowing to show the reason of the occurrence of utilization of the inventory. The
indicator can be show the difference between the current and the previous inventory and the
amount of resource coming from last deliveries until zero value obtained after that multiplying it

26
by the number of days that passed since the delivery. FIFO (in accounting concern) or FCFS (in
logistics concern) method is the best option to get the actual slow moving stock.

2.2. Empirical Review

Different studies have been conducted by varies researchers, concerning the practices of
inventory management aim to investigating and control both public and private body with the
general practices in such companies. More of them have a problem of managing inventory items.
Ackah & Ghansha (2016) by their study, on the title of Assessment of Inventory Management,
the researchers assessed the Performance of the Production Sector to find out how the
management of inventory within work would be effective and bring a lot of cost savings for the
organization to increase organizational profitability. In order to reduce the cost of holding to
ensure the continuity of supply at the same time shows, how the management of inventory
within operational works would be effective and bring a lot of cost savings to the organization.
Therefore increasing organizational profitability since inventory represents the asset account.
Despite the growing concern for non-stock procurement policies, inventory continues to play a
vital role within organization supply chain (Ackah & GhanshaS 2016).

According UP (2016), studies on title of the assessed the problems of inventory management and
stock recorded handling in the warehouse. It is state that the major problems of inventory
management are- Lack of attention of store management, lack of assigned qualified employees to
the right position on the right time, no planning mechanism to solve problems to improve
inventory management and controlling system and lack of work performance evaluation of
employees of the warehouse. The warehouse management and employees are working on
inventory management and controlling function facing with lack of knowledge or skill to meet
the expected performance. The company inventory items kept unsafely, misused of some
materials and improper guide lines work manual. The researcher also gave his comment on the
company concerning the periodic and perpetual inventory system, company should attention to
inventory management, plan and evaluate warehouse employees performance, approve
employees who are assigned in warehouse and prepare work related policies and
procedures concerning to inventory management and controlling system.

27
Chan (2015) by her study she said that, examine the association between inventory management
and ineffective internal controls and hypothesize those managers found in firms with inventory
related material weaknesses in internal control are delayed in their inventory management, thus
their firms experienced more stock shortages and overages. The company and have a higher
possibility and magnitude of inventory impairments. It shown the weak evidence is that
inventory turnovers improve when the weaknesses are corrected.

UP (2015), Nganga (2013) and Nzuza (2015) on their studies, assessed factors affecting the
effectiveness of inventory control, on problem area of long purchasing processes system and
factors affecting inventory control problem on lack of knowledge and training of employees and
also the practices of inventory audit is negatively affected inventory. Ogbo and Ukpere(2014)
studies on the effective inventory control management; according to their finding un effective
inventory control system drives high inventory cost and storage cost that decreases the
organization profitability. Improving inventory control system has a benefit of cost reduction
improvising sales effectiveness, reduction of waste, transparency and accountability, easy
storage and high inventory utilization .In order to achieve all these, organization have to
maintain flexible inventory services.

Keitanyet systems and lead time in materials management, an organization can achieve the
benefits of effective use of labor, providing system flexibility, increasing productivity,
decreasing lead times, reduction in wastes, reduction in production costs, increased product
quality are achieved. The ratings showed that inventory control systems played a vital role in
organizational performance, and as such, organizations must ensure that inventory controlling
system are highly involved in material management activities hence achieving higher
organizational performance.

According to Mwangi and Nymbura (2015), understanding of the challenges faced by

organization on poor performance of inventory controlling system, has an advantage to the
organization successes. The results clearly indicate the necessity to provide support to
organization if they are to successfully manage inventory. Accordingly, support to overcome the
identified barriers of inventory management need to be recognized. However, most of the

28
businesses are not confident with inventory management as technique of influencing
performance of food processing companies.

Naliaka and Namusonge (2015),On their study, They conclude that the firm's computers are
linked with those of the suppliers in a real time environment although with varied responses. The
firm at a lesser extent has computerized all its inventory management systems. Inventory control
system has enhanced timely deliveries, to reduce production costs, to increase product quality, to
decreased production cycle time, to reduced wastages, to reduce stock levels and to increase
profitability. The ratings showed that inventory control systems played a vital role in attaining
competitive advantage, and as such, organizations must ensure that inventory control system be
highly involved in inventory management activities.

2.3. Summary of Empirical Review and Research Gap

Generally, in all the above studies researchers conducted inventory control management studies
by different researchers in different angles, concerning the factors affecting inventory
management, the assessment of inventory management, internal control system and the role of
inventory control management. These show that how inventory managing is the key part of the
management functions to perform in manufacturing, service renders company, any public
company, small and large industries. Inventory management plays a very significant role for any
firm and business Ackah &Ghansh (2016).

29
 2.4. Conceptual Framework

Current System
Type
Effectiviness
Control Level

Factors Hindering Development Strengths and Weaknesses

Inventory management
Internal Factors (Culture, Resource)
External Factors (Suppliers, Market
Efficient Ordering
Invrentory Accuracy
Demand) Cost Management

Periodic Inventory
Management
Frequency of Checks
Record Accuracy

30
 CHAPTER THREE

RESEARCH METHDOLOGY
3.1. Introduction
This chapter was describing the methods that were used in carrying out this study. This chapter
deals with, research design, research approach, population of study, sample and sampling
techniques, data collection procedure and data processing and analysis.

3.2. Research Design

The design of this study was a descriptive research design. A descriptive design is used in
explaining the determining the frequency with which the variables are implemented or the extent
to which the variables co-vary (Kothari, 2004). The researchers were used this type of design in
order to describe the existing situation.

3.3. Research Approach

The researcher used mixed research approach so as to incorporate method of data collection or
analyze data not only numerical data, which was customary for the quantitative research, but also
narrative data, which was norm for qualitative research in order to address the research questions
defined for a particular research study. The goal for researcher using the mixed method approach
is to draw from the strengths and minimize the weakness of the quantitative and qualitative
research approaches (Carrie, 2007)

3.4. Sampling technique and Sample Size

3.4.1. Sampling technique

To select the required number of individuals from employees the researchers were used non-
probability sample technique for this study. Non probability sampling is the type of sample
technique that gives freedom to the researchers to select sample they want to use. From the types
of non-probability sampling the researchers were used judgmental sampling techniques. The
reason behind the researchers to use this type of technique to collect data from appropriate

31
source is that it enables the researchers to use their own judgment to select respondent that
answer the research questions and to meet the research objective.

3.4.2. Sampling size

The total populations of Bahir Dar university COBE Campus student cafeteria employees are
167. These the researchers were used sample size by using Kothari formula (Kothari 2004)
formula;

2
Z ∗p∗q∗N
n= 2 2
e (N −1)+ Z ∗p∗q
2
1.96 ∗0.5∗0.5∗167
n= 2 2
0.05 (167−1 ) +1.96 ∗0.5∗0.5

n = 116.611 ≈ 117

Where;
n= size of the sample,
N= the population size,
z= standard variety at a given confidence level,
e = the desired level of precision,
p= the estimated proportion of an attribute that is
present in the population, and
q =1-p.

3.5. Data Source and Collection Method

The researchers were used both primary and secondary sources of data. Primary data is the data
that were collected mainly from employees of inventory management and related departments
includes; structured interview and questionnaires and Secondary data is the data that were
gathered from written materials such as journal, different documents.

32
3.6. Data Presentation & Analysis
To analyze the collected data of the study, both quantitative and qualitative data analysis are
made. Quantitative data analysis is based on the measurement of quantity or amount. It is
applicable to phenomena that can be expressed in terms of quantity. Data which are collected
through questionnaires are analyzed using quantitatively like percentage. Qualitative Data
analysis is concerned with qualitative phenomenon that is phenomena related to or involving
quality or kind. Which are collected through interview is analyzed qualitatively. Furthermore the
collected data were processed it was further described by using tabulation percentage so that
finding were easy to be understood by everyone. Finally the outcomes of the project were
presented on written material and with detailed oral presentation.

33
 CHAPTER FOUR

TIME AND BUDGET SCHEDULE

4.1. Time Schedule

No Activities May June July

1 Title selection XX

2 Literature search XX

3 Proposal writing XX

4 Data collection XX

5 Data analysis reporting XX

6 Submission to adviser first XX

draft
7 Final submission and XX
presentation

4.2. Time Budget

In order to under taker the proposal process effectively and efficient .It is necessary to prepare
cost budget, the table given below show the cost that is expected will be incurred in the proposal
grocers.

No Item Quantity Unit cost Total cost in birr

1 Paper 1DA 200 200

2 Pen 2 30 60

3 Flash 16GB 300 300

4 Internet cost Via wifi - -

5 Miscellany cost 350

Total 910

34
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