Effects Of Inventory Control On The Performance Of Construction Companies
TABLE OF CONTENTS
TABLE OF CONTENTS
LIST OF TABLES
LIST OF FIGURES
1.0 Background to the Study
1.1 Statement of the Problem
1.2 Purpose of the Study
1.3 Objectives of the Study
1.4 Research Questions
1.5 Scope of the Study
1.5.1 Geographical Area:
1.5.2 Subject Matter
1.5.3 Period/ Time scope
1.6 Significance of the Study
2.1 Approaches to Inventory Control
2.2 Inventory costs incurred in procurement process
2.3 The relationship between approaches of inventory control and financial performanc
3.1 Research Design
3.2 Survey population
3.3 Sampling method
3.4 Sampling Size
3.5 Data collection
3.5.1 Source of data
3.6 Data processing, analysis and presentation
3.7 Limitations and anticipated soluti
PRESENTATION AND INTERPRETATION OF THE FINDINGS
4.1 Background information of respondents
4.2 Inventory Control
4.3 Inventory costs incurred in procurement process in Kavuma Investments
4.4 The relationship between Approaches of Inventory Control and Financial Performance of Kavuma Investments 28
SUMMARY CONCLUSION AND RECOMMENDATIONS
5.1 Summary of the findings
5.1.1 Inventory Control
5.1.2 Inventory costs incurred in procurement process in Kavuma Investments
5.1.3 The relationship between Approaches of Inventory Control and Financial Performance of Kavuma Investments
5.4 Area for Further Research
APPENDIX 1: QUESTIONNAIRE FOR STAFF MEMBERS
The purpose of the study was to establish the relationship between inventory control and its impact on the performance of construction companies in Uganda basing on the following objectives; to determine approaches to inventory control used by Kavuma Investments, to find out the Inventory costs incurred in procurement process in Kavuma Investments, and to find out the relationship between approaches of inventory control and financial performance of Kavuma Investments
The descriptive aspect of the research design was used in establishing the company performance and the analytical research design was used to establish relationship between inventory control and performance. The sample size of 30 was determined by formulae of Krejcie Morgan (1970). Data was both primary and secondary. Primary data was collected by the use of questionnaires and secondary data was got from reports, journals, and internet. Frequency tables, and graphs were worked out basing on the data entered into excel. In these frequency tables, and graphs analysis was done with a corresponding percentage. However statistical packages for social sciences (SPSS) were used to determine the relationship between the two variables.
Findings revealed that Goods are not inspected on receipt, staff members of Kavuma Investments do not pay maximum attention to those inventories whose value is highest, all store staffs of Kavuma Investments are not highly skilled, it experiences under stocks situations, and gets damaged goods from its stored. Besides that Kavuma Investments is faced with costs of checking on orders and m maintaining records of the entire process, handling costs. Nevertheless, there is a strong positive relationship between approaches of Inventory Control and Financial Performance at Pearson correlation coefficient r= 0.794.
It was recommended that Kavuma Investments should forecast market for its products so that it stocks enough inventories to avoid under stocks and reduce on damaged inventory.
1.0 Background to the Study
Inventory control involves the coordinating of materials availability, controlling, utilization and procuring of materials. Inventory control is the direction of activities with the purpose of getting the right inventory in the right place at the right time and in the right quantity and it’s directly linked to production function of any organization which implies that the inventory management system operated will affect the profitability of an organization directly and indirectly (Alm, 2000).
Inventories are the stock of raw materials, work in progress, finished goods and supplies held by a business organization to facilitate operations in the production process, (Pandey, 1995). Also if the company fails to manage its inventory efficiently, it is likely to face profitability problems (Block and Hirt, 1987). The goal of inventory management therefore is to provide the inventories required to sustain operations at minimum costs (Dickerson 1995).
Inventory control helps organization to establish the proper inventory levels through the economic order quantity; and to keep track of this level through inventory control system which many be manual such as two bin method and red line method, or computerized inventory control systems. Proper inventory controls also require an organization to undertake stocking and use appropriate method to value stock so as not to under or over state profits (Kotabo, 2002).
Companies incur substantial costs in the procurement and maintenance of inventories, which costs form a large portion of production costs. Inventory costs include: carrying costs such as storage and insurance; ordering costs like transporting and store placement; and stock out costs like redundancy and loss of sales. A company cannot achieve an outstanding performance without proper and efficient control of materials. Materials are as much as cash itself and any theft, wastage and excessive use of materials are of immediate financial loss and leads to poor performance of a company (Kotabo, 2002).
Laugero (2002) noted that Material control involved a systematic control and regulation of purchase, storage and usage of materials in such a way to maintain an even flow. In recent years, the construction industry has been facing a number of challenges especially in inventory management or material control, thus affecting the performance of most construction companies. There have been cases of materials overstocking which eventually get expired or out dated, under stocking lack of stock-taking theft of materials by workers and delays in deliveries of materials at the sites, among others
Inventory control can be done through introduction of different measures so as to prevent the company from incurring unnecessary losses made by different departments. Measures which can be put in place for example stock-taking which is the accounting of stock at every end of the month, so as to record the lost and available stock. Making proper supervisions on sites during construction of buildings so to avoid theft of materials by workers. The company should set up strict rules to procurement officers and store managers which they should follow during purchasing and storing of material so as to avoid loss of inventory in the Kavuma construction company (u) Ltd, medium size firm of building and civil engineering contractors as the case study.
Kavuma investments has existed for over 10 years with the objective of maximizing profits and providing better services to customers at the right time. To date the company does not focus on how much of each inventory item a firm should hold in stock, how much should be ordered at a given time and at what point inventory should be ordered. This has greatly affected its production, sales and hence reducing on its financial performance (Audit Report 3rd October 2010).
It’s therefore important for an organization to have a sound, effective and well-coordinated inventory management system because the business environment is rapidly changing, highly competitive and it drastically affects the performance of the organization.
The over past years, construction industry has experienced a lot of challenges in Uganda while trying to carry out its inventory management and material control processes, and As seen from Table 1 Kavuma Inventory lost a number of inventory during construction . This could be partly attributed to poor inventory management. The researcher therefore wants to investigate the relationship between inventory management and performance of Construction Company.
Table 1: Lost Inventory in Kavuma Investments 2006-2009
Source: Store Keeper
The purpose of the study was to establish the relationship between inventory control and its impact on the performance of construction companies in Uganda, a case study of Kavuma Investments (U) Ltd.
- To determine approaches to inventory control used by Kavuma Investments.
- To find out the Inventory costs incurred in procurement process in Kavuma Investments
iii. To find out the relationship between approaches of inventory control and financial performance of Kavuma Investments
- What are the approaches to inventory control used by Kavuma Investments?
- What are the inventory costs incurred in procurement process in Kavuma Investments?
iii. What is the relationship between approaches to Inventory Control and Financial Performance of Kavuma Investments?
The study was carried out at Kavuma Investments (U) limited, at its workshop located at plot 56 Ntinda Road, and its offices located on plot 52 Jinja Road at Kitgum House, Kampala.
The study mainly focused on materials control and performance of construction companies in Uganda. It evaluated the procurement, handling, storage and stock taking processes. It further examined the influence of lack of efficient materials control techniques on the collapse of infrastructures.
The study covered a period of five years from 2006 to 2010
(i) The study is to help staff members of Kavuma Investments reveal the impact of materials control on the performance of construction companies in Uganda, and the researcher hopes that it will help the management and Technical personal to employ effective materials control techniques in order to improve on their construction works.
(ii) The study is to add knowledge to the existing literature about material control and performance of construction companies in Uganda.
(iii) It is to lead to the ward of a degree of Bachelor of commerce degree Makerere University, to the researcher.
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