A CRITICAL ANALYSIS OF THE NEXUS BETWEEN EFFECTIVE INVENTORY MANAGEMENT PRACTICES AND THE FINANCIAL PERFORMANCE OF ORGANIZATIONS IN CAMEROON

CHAPTER ONE

INTRODUCTION

Background of the study

Ensuring the financial viability and provision of services to consumers or users are fundamental business objectives that are substantially influenced by the efficient management of inventory. Because an ineffective inventory system can lead to a decline in customers, revenues, and ultimately profit, inventory management is a critical function in every organisation. A greater volume of sales results from efficient inventory management, which in turn impacts the organization's financial performance (Brandon, 2019). Given that inventories comprise a significant portion of a company's working capital, it is critical that they be managed efficiently and effectively in order to prevent wasteful expenditures. Neglecting inventory management poses a significant risk to a company's long-term profitability and could potentially result in its demise.

Historically, the implementation of inventory control was not considered essential.  Indeed, an abundance of inventories was regarded as a sign of affluence. At that juncture, management regarded overstocking as advantageous. In recent times, however, businesses have begun to adopt efficient inventory management. More than ever before, managers require dependable and efficient control to reduce expenses and maintain a competitive edge. Blake (2018) argues that the implementation of inventory control contributes to increased profitability through the reduction of expenses related to material storage and management.  There are numerous justifications for maintaining inventory. An excess of inventory may lead to the immobilisation of funds, an escalation in holding expenses, the degradation of materials, obsolescence, and larceny. Conversely, material scarcity may result in the postponement of product sales, strained customer relations, and insufficient utilisation of machinery and equipment.

According to Panti (2019), inventory or stock denotes the possession of resalable output and operational inputs of a business. Moreover, inventory management was concerned with regulating the level of investment in inventory so that the control procedure would enhance the value of the firm's rate of return, which would be advantageous to the organisation. According to Altan (2019), the primary objective of efficient inventory management is to oversee the movement of all inventory and ascertain the timing and quantity of orders that will be fulfilled using each inventory item. In the past, excess inventory was considered wealth management rather than inventory control, according to Duyile (2020). However, in the present day, many organisations have adopted effective control as a performance-based solution. Inventory management enhances financial performance without a doubt, as it reduces expenses related to material handling and storage, as well as stock-outs of products.

According to Bello (2018), company's operations are negatively impacted by inadequate inventory, and an excess of inventory leads to additional expenses that decreased the company's profitability. A corporate entity can effortlessly optimise its profitability through the implementation of a proficient inventory management system. Effective inventory management enhances a company's financial performance, which signifies the capacity of a corporate entity to generate profits during a specified period through the utilisation of its assets; profit is, in essence, a metric employed to assess business performance. The majority of managers have disregarded the potential cost savings that could be realised through effective inventory management, perceiving inventories as a necessary evil rather than a benefit that requires management. As a consequence, certain organisations neglect inventory management, leading to inadequate or excessive stock levels, which impede or halt production and generate substantial carrying costs that compromise the efficiency of the firm (Olu, 2022).

Additionally, inventory control is integrated into supply chain management. SCM has, in recent years, emerged as a significant means of bolstering a business's competitive edge; consequently, it has become a crucial concern for the majority of organisations. In a developing nation such as Cameroon, it is imperative that all business organisations implement an effective inventory management system. According to Kotler (2002), as cited in Plank (2018), inventory management encompasses all the tasks associated with establishing and overseeing the stock levels of finished goods, semi-finished materials (work in progress), and raw materials. Its objective is to ensure sufficient supplies are available to customers while minimising the expenses associated with overstocking or understocking.  Inventory is an expense incurred by the proprietor. Costs for materials and labour are borne by the manufacturer. As a result, the manufacturer's fundamental objective is to maintain an inventory level that provides optimal stock at the lowest possible cost. Inventory management that is efficient is critical to the operation of any business. One of the three trends identified by Plank (2018) regarding the evolution of logistics solutions in industry relates to the increased integration of logistics activities beyond the boundaries of an organisation in an effort to reduce cost components such as inventory capital costs and flow handling costs.

Prior empirical research has assessed the influence of profitability on business enterprises, both within the context of Cameroon and in various other nations (Franco et al., 2019). However, the majority of these studies assessed the relationship between inventory management and profitability by primarily examining inventory policy, liquidity, solvency, and operating efficiency as determinants of financial performance. Inventory turnover, inventory conversion period, net profit margin, and return on assets were not accounted for in the evaluation of inventory management and financial performance. 

1.2 Statement of the problem

Inventory management is the process by which each item of stock is identified within an organisation. Predominantly, inventory management entails determining the quantity and location of stocked products. Inventory management plays a crucial role in safeguarding the consistent and premeditated progression of production by preventing the arbitrary disruption caused by the depletion of materials or products across various locations within a facility or in multiple locations of a supply network (Oxlade, 2019). Efficient inventory administration is a critical factor in maximising the profit of an organisation. Profit maximisation is contingent upon cost minimization and revenue maximisation. 

The efficient concept of maximisation entails increasing revenue without expanding resource consumption. The significance of inventory management within an organisation is to guarantee that the capital of the business is not inherently tied down in the form of physical goods in the store, which could potentially facilitate fraudulent activities and larceny.  Alternatively stated, the administration seeks to minimise stock losses resulting from store operations. Therefore, within a business organisation, stock and the subsequent profitability of the enterprise are of the utmost importance. Inventory issues involving excessive or insufficient quantities on hand can result in the failure of a company. Production interruptions may ensue if a critical inventory item becomes depleted at a modest business. Therefore, the effective administration of this stockholding economics is aptly termed inventory management (Price, 2021).  

Therefore, it should be properly maintained, as it is related to the financial success of the organisation. An organization's annual revenue can be significantly impacted by efficient and well-planned inventory management. The objective of this current research is to provide resolutions to challenges that are inherent in the inventory management practices of commercial enterprises. This is because a company's inventory can significantly impact whether the company succeeds or fails. Therefore, ineffective inventory management can result in stock-outs, which will inevitably result in the loss of customers and goodwill, a decline in the company's profits, and ultimately its demise.  

1.3 Objectives of the Study 

The aim of this study is to critically analyse the nexus between effective inventory management practices and the financial performance of organizations in Cameroon. Specifically the study seeks:

To establish the extent to which inventory management practices are implemented by profit organizations in Cameroon.

To determine the challenges faced while implementing Inventory Management practices in business organizations in Cameroon.

To establish the relationship between inventory management practices and financial performance of organizations in Cameroon.

1.4 Research Questions

The following research questions will be answered in this study:

To what extent are inventory management practices implemented by profit organizations in Cameroon?

What are the challenges faced while implementing Inventory Management practices in business organizations in Cameroon?

What is the relationship between inventory management practices and financial performance of organizations in Cameroon?

1.5 Research Hypothesis

The following null hypothesis will validate this study:

Ho1: The extent inventory management are practices implemented by profit organizations in Cameroon.

1.6 Significance of the study

This study will be useful to inventory control managers who will have to define how often inventory levels are reviewed to determine when and how much to order and whether it is performed on perpetual or periodic basis.

To business organizations who may wish to adopt the study, it will shade more light on how well they can manage their inventory strategically so as to maximize profit.

The study will also help scholars to build knowledge and find possible future research on the effects of inventory management systems.

1.7 Scope of the study

The study aims to critically analyse the nexus between effective inventory management practices and the financial performance of organizations in Cameroon. Empirically, this study will establish the extent to which inventory management practices are implemented by profit organizations, determine the challenges faced while implementing Inventory Management practices, and establish the relationship between inventory management practices and financial performance of organizations.

This study will be carried out in Cameroon.

1.8 Limitation of the study

Slight limitations were encountered by the researchers during the course of the investigation. The primary limitation was the scarcity of literature on the subject, which stems from the extensive discourse surrounding effective inventory management practices and the financial performance of organisations in Cameroon. As a result, the researcher had to invest more time and money in locating pertinent materials, literature, and information, as well as in the data collection process, which led to the researcher selecting a limited sample size consisting of only residents. Furthermore, the researcher's concurrent involvement in this study and other scholarly obligations may hinder their ability to devote their utmost attention to the research. Notwithstanding the limitations encountered throughout the research process, every factor was minimised in an effort to provide the utmost and ensure the success of the study.

1.9 Definition of terms

Inventory: It can be defined as the available stock, in the warehouse of the firm.

Inventory techniques: These are techniques to control, coordinate and utilize stock effectively.

Stock control: Activity process or study of stock ensuring that quantities of stock or raw materials suppliers or finished goods are such that satisfactory services level is maintained for all stock keeping unit while holding cost are minimized.

Inventory management: Inventory management is the process of ordering, storing and using a company's inventory: raw materials, components, and finished products.

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