5 FD 6

INVENTORY MANAGEMENT PRACTICES AND PRODUCTIVITY
OF LARGE MANUFACTURING FIRMS IN NAIROBI, KENYA
BY
FLORENCE NYAMBERE NGUMI
A RESEARCH PROJECT SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS FOR AWARD OF THE
DEGREE OF MASTER OF BUSINESS ADMINISTRATION,
SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI
NOVEMBER 2015
DECLARATION
This is my original work and has never been presented for a degree in any other
university.
Signature………………………………Date……………………………………………
Florence Nyambere Ngumi
D61/64527/2013
This project has been submitted for examination with my approval as University
Supervisor.
Signature:…………………………………Date:………………………………..
Dr. Peterson Obara Magutu
Department of Management Science
School of Business,
University of Nairobi
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ACKNOWLEDGEMENTS
First, I thank the almighty God for giving me the Grace to finish this research paper. My
special and sincere thanks go to my supervisors Dr. Peterson Obara Magutu and Mr.
Michael K. Chirchir for their guidance, support, suggestions, useful comments and
constructive critique which were all instrumental to the successful completion of this
research work. I also wish to appreciate the support and encouragement from my friends
and family during the tough times in the entire process, to all of you I am very thankful
and God bless.
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DEDICATION
This project is dedicated to my parents Fredrick Ngumi Ngai and Eunice Wangechi
Ngumi, and my dear brothers Guston Ngai Ngumi and Kevin Muriithi Ngumi for their
overwhelming support, inspiration, encouragement, understanding and prayers towards
the successful completion of this course. Your steadfast prayers towards completion of
my studies have indeed been answered. I pay glowing tribute and gratitude to the
Almighty God who has given me the wisdom to undertake this course.
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TABLE OF CONTENTS
DECLARATION............................................................................................................ ii
ACKNOWLEDGEMENTS ......................................................................................... iii
DEDICATION............................................................................................................... iv
LIST OF TABLES ........................................................................................................ ix
LIST OF FIGURES ....................................................................................................... x
ABBREVIATIONS AND ACRONYMS..................................................................... xi
ABSTRACT.................................................................................................................. xii
CHAPTER ONE ............................................................................................................ 1
INTRODUCTION.......................................................................................................... 1
1.1 Background of the Study .......................................................................................... 1
1.1.1 Inventory Management Practices....................................................................... 2
1.1.2 Firm’s Productivity ............................................................................................ 3
1.1.3 Large Manufacturing firms in Nairobi, Kenya .................................................. 4
1.2 Research Problem ..................................................................................................... 5
1.3 Research Objectives.................................................................................................. 6
1.4 Value of the Study .................................................................................................... 7
CHAPTER TWO ........................................................................................................... 8
LITERATURE REVIEW ............................................................................................. 8
2.1 Introduction............................................................................................................... 8
2.2 Theoretical Framework of Inventory Management Practices................................... 8
2.2.1 Theory of Constraints ........................................................................................ 8
2.2.2 Lean Theory ....................................................................................................... 9
2.3 Inventory Management Practices.............................................................................. 9
2.3.1 Activity Based Costing Practices..................................................................... 10
2.3.2 Just-In-Time Management Practices................................................................ 10
2.3.3 Economic Order Quantity Practices................................................................. 11
2.3.4 Materials and Requirements Planning Practices .............................................. 12
2.3.5 Vendor Managed Inventory Practices.............................................................. 12
2.3.6 Distribution Requirements Planning Practices ................................................ 13
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2.3.7 Barcoding Practices ......................................................................................... 14
2.3.8 Radio Frequency Identification Practices ........................................................ 14
2.4 Firm’s Productivity ................................................................................................. 15
2.5 Inventory Management Practices and Firm’s Productivity .................................... 15
2.6 Summary of Literature Review and Research Gap................................................. 16
2.6.1 Conceptual Model ............................................................................................ 17
CHAPTER THREE ..................................................................................................... 18
RESEARCH METHODOLOGY ............................................................................... 18
3.1 Introduction............................................................................................................. 18
3.2 Research Design...................................................................................................... 18
3.3 Population of the study ........................................................................................... 18
3.4 Sample Design ........................................................................................................ 19
3.5 Data Collection ....................................................................................................... 20
3.6 Data Analysis .......................................................................................................... 20
CHAPTER FOUR........................................................................................................ 22
DATA ANALYSIS, FINDINGS AND INTERPRETATION .................................. 22
4.1 Introduction............................................................................................................. 22
4.2 Response Rate ......................................................................................................... 22
4.3 Demographic and Respondents Profile................................................................... 22
4.3.1 Job Designation................................................................................................ 22
4.3.2 Length of continuous service in the current work position.............................. 23
4.3.3 Education Level ............................................................................................... 24
4.3.4 Duration of operation of the Organization ....................................................... 24
4.3.5 Operation in other countries outside Kenya..................................................... 25
4.3.6 Firm’s view on Inventory Management........................................................... 26
4.4 Inventory Management Practices Adopted by Large Manufacturing Firms .......... 26
4.4.1 Just-In-Time Management Practices in large manufacturing firms in Nairobi,
Kenya ........................................................................................................................ 27
4.4.2 Activity Based Costing Practices in large manufacturing firms in Nairobi,
Kenya ........................................................................................................................ 29
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4.4.3 Economic Order Quantity Practices in large manufacturing firms in Nairobi,
Kenya ........................................................................................................................ 30
4.4.4 Vendor Managed Inventory Practices in large manufacturing firms in Nairobi,
Kenya ........................................................................................................................ 32
4.4.5 Materials and Requirements Planning Practices in large manufacturing firms in
Nairobi, Kenya .......................................................................................................... 34
4.4.6 Distribution Requirements Planning Practices in large manufacturing firms in
Nairobi, Kenya .......................................................................................................... 36
4.4.7 Bar coding Practices in large manufacturing firms in Nairobi, Kenya............ 38
4.4.8 Radio Frequency Identification Practices in large manufacturing firms in
Nairobi, Kenya.......................................................................................................... 40
4.5 Firm’s Overall Productivity .................................................................................... 41
4.5.1 Inventory Costs ................................................................................................ 42
4.5.2 Customer Service ............................................................................................. 43
4.5.3 Stock outs......................................................................................................... 44
4.5.4 Inventory Turnover .......................................................................................... 45
4.6 Inferential Statistics ................................................................................................ 45
4.6.1 Regression Analysis......................................................................................... 45
4.6.2 ANOVA ........................................................................................................... 46
4.6.3 Regression Coefficient..................................................................................... 47
CHAPTER FIVE ......................................................................................................... 50
SUMMARY, CONCLUSION AND RECOMMENDATIONS ............................... 50
5.1 Introduction............................................................................................................. 50
5.2 Summary of the Findings........................................................................................ 50
5.3 Conclusion .............................................................................................................. 53
5.4 Study Limitations.................................................................................................... 55
5.5 Recommendations................................................................................................... 55
5.6 Suggestions for Further Studies .............................................................................. 57
REFERENCES............................................................................................................. 58
APPENDIX I ................................................................................................................ 61
Research Questionnaire............................................................................................... 61
APPENDIX II............................................................................................................... 70
vii
Large Manufacturing Firms in Nairobi, Kenya........................................................ 70
viii
LIST OF TABLES
Table 3.1: Sample Size ..................................................................................................... 19

Table 4.1 : Position in the organization ............................................................................ 23
Table 4.2: Operation in other countries outside Kenya .................................................... 25
Table 4.3: Firm’s view on Inventory Management .......................................................... 26
Table 4.4.1: Findings of Just-In-Time as a practice in the manufacturing firms.............. 27
Table 4.4.2: Findings of Activity Based Costing as a practice in the manufacturing firms
........................................................................................................................................... 29
Table 4.4.3: Findings of Economic Order Quantity as a practice in the manufacturing
firms .................................................................................................................................. 31
Table 4.4.4: Findings of Vendor Managed Inventory as a practice in the manufacturing
firms .................................................................................................................................. 32
Table 4.4.5: Findings of Materials Requirements Planning as a practice in the
manufacturing firms.......................................................................................................... 34
Table 4.4.6: Findings of Distribution Requirements Planning as a practice in the
Table 4.4.7: Findings of Bar coding as a practice in the manufacturing firms................. 38
Table 4.4.8: Findings of Radio Frequency Identification as a practice in the
Table 4.5: Firm’s Overall Productivity.......................................................................... 41
Table 4.5.1: Inventory Costs............................................................................................. 42
Table 4.5.2: Customer Service.......................................................................................... 43
Table 4.5.3: Stock Outs..................................................................................................... 44
Table 4.5.4: Inventory Turnover ....................................................................................... 45
Table 4.6.1: Model Summary ........................................................................................... 46
Table 4.6.2: ANOVA (Analysis of Variance) .................................................................. 46
Table 4.6.3: Regression Coefficients ................................................................................ 47
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LIST OF FIGURES
Figure 2.1 : Conceptual Model ..........................................Error! Bookmark not defined.

Figure 4.1: Length of continuous service in the current work position ............................ 23
Figure 4.2: Education Level.............................................................................................. 24
Figure 4.3: Duration of operation ..................................................................................... 25
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ABBREVIATIONS AND ACRONYMS
SCM: Supply Chain Management
SKU: Stock-keeping units
AUV: Annual Usage Value
ROP: Re-order Point
EPOS: Electronic Point of Sale
EOQ: Economic Order Quantity
JIT: Just-in-time
ABC: Activity Based Costing
MRP: Materials Requirements Planning
VMI: Vendor Managed Inventory
DRP: Distribution Requirements Planning
RFID: Radio Frequency Identification
SPSS: Statistical Package for Social Sciences
KAM: Kenya Association of Manufacturers
GDP: Gross Domestic Product
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ABSTRACT
The past 20 years have seen an increase in research focusing on operational issues
relating to supply chain management. Most of the research has been related to multi-
echelon inventory models. Inventory plays a big part in the manufacturing firms as it
accounts for more than 50% of the annual turnover. The motivation of the study was
based on the fact that long term success and survival of any organization depends entirely
on how well organizations are managing their costs. The study focused on answering the
following research questions; what inventory management practices are being used in
large manufacturing firms in Nairobi, Kenya? Is there any relationship between inventory
management practices and productivity of large manufacturing firms in Nairobi, Kenya?
The study was based on theory of constraints and Lean theory. The Research design used
was descriptive design. The population of study comprised of large manufacturing
companies that are based in Nairobi. According to the Kenya Association of
Manufacturers, there are a total of 499 large manufacturing companies operating in
Nairobi. The sample size of the study included 50 large manufacturing companies. The
study used primary data which was collected using a questionnaire and data was analyzed
using descriptive statistics including mean and standard deviation by use of the relevant
computer packages such as Microsoft Office Excel and Statistical Package for Social
Sciences (SPSS) program. The study concluded that inventory management practices
positively affect the productivity of large manufacturing firms in Nairobi, Kenya.
Effective inventory management has become a critical issue for firms’ productivity.
Large manufacturing firms have saved millions of dollars in costs and decreased
inventories while improving efficiency and customer satisfaction though inventory
management practices. Inventory management has resulted to integration of better
production methods to minimize costs and wastages. The study recommends that
inventory management should to be recognized as a top management function; control
measures should be taken on stock by fully adopting lean inventory systems that greatly
improve the performance of the procurement function; strategic supplier relationships
should be maintained by adopting Vendor Managed Inventory; firms should adopt
information technology in inventory management; and adhere to the legal policies in
place as they will help the procurement function to manage its inventory and improve on
performance because of the legal framework that is provided.
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CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
In today’s world of intense competition fueled by globalization, increasing consumer

awareness, and technological improvement, organizations that are keen towards large
scale success must at all times hype its service availability as consumers can very easily
divert their interests elsewhere (Sharma, 2009). Consequently, managing inventory
efficiently has become an important operational weapon for products and service firms
wishing to survive the competitive pressures. Most of these firms hold inventory so as to
meet their customers’ needs. Inventory therefore constitutes the most significant part of
current assets of these firms and because of the relative largeness of inventories
maintained by the firms, a considerable amount of fund is being committed to holding
inventory. It thus becomes essential to deploy cutting-edge techniques to manage
inventories so as to avoid lost sales, costs of changing production rates, overtime costs,
sub-contracting, unnecessary cost of sales and backorder penalties during periods of peak
demand (Chen, 2005).
Inventory management has enabled firms to have adequate quantities of high quality
items available to serve customer needs, while also minimize the costs of carrying
inventory (Brigham & Ehrhard, 2005).However, managing these inventories in order to
achieve their objectives has posed a great challenge to the firms. Many firms have not yet
established how much to invest in inventories and the right inventory levels to hold so as
satisfy customers. Too much inventory consumes physical space, creates a financial
burden, and increases the possibility of damage, spoilage and loss. On the other hand, too
little inventory often disrupts manufacturing operations, and increases the likelihood of
poor customer service. In many cases good customers may become irate and take their
business elsewhere if the desired product is not immediately available. Effort must be
made by management to decide on the optimum investment in inventory since it costs
more money to tie down capital in excess inventory (Lysons & Farrington, 2006).
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Inventory management has also become a fundamental part of supply chain management.
Supply chain management coordinates and integrates all the supply chain activities into a
seamless process. During the process, inventory holding and warehousing play an
important role in supply chains. As well as being significant in terms of cost, inventory
holding is important in terms of customer service since the product is made available to
the customer when needed, and warehousing being critical to the success or failure of
many supply chains (Frazelle, 2002).
The interest of management in better inventory management is much more than it was a
few years back. Temeng et al (2010) points out that, in the past, organizations have not
treated inventory as an asset that requires management and have therefore ignored the
potential savings from proper inventory management. As a result, many inventory
systems have been based on arbitrary rules. Unfortunately, some organizations end up
having more funds invested in inventory than necessary and are therefore not able to meet
customer demands because of poor distribution of investment among inventory items.
Managers, both in the public and private sector, are increasingly accepting the validity of
the practices of inventory management for improving the operational performance of
their undertakings.
1.1.1 Inventory Management Practices

Inventory is an accounting term for the value or quantity of raw materials, components,
assemblies, consumables, work-in-progress and finished stock that are kept or stored for
use as the need arises (Lysons, 2000). It is economically unsound and physically
impossible to have goods arrive in a system exactly when demand for them occurs.
Without stock at hand customers would have to wait for long periods before their orders
are fulfilled. Inventory is therefore vital to the successful functioning of manufacturing
firms and occupies the most strategic position in the structure of working capital. To
ensure organizational growth and productivity, it is important that good inventory
management be practiced since a substantial share of fund is invested in a firm’s
inventory (Kruger, 2005). Better management of inventories would release capital for use
elsewhere productively thus improving the productivity of an organization (Ghosh and
Kumar, 2003)
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In today global business environment which is characterized by numerous competitive
pressures and sophisticated customers demanding speedy solutions, manufacturing firms
are progressively turning to inventory management practices. Inventory management
enables the firm to control materials used and stored in the company with the objective of
providing exactly what is required where and when it is required employing a minimum
of residual stock thus incurring the least possible cost (Agha, 2010). Miller (2010) reveals
that the profitability of any organization directly and indirectly is affected by the
inventory management system operated by that firm.
The concept of inventory management practices basically focuses on the techniques used
to ensure that stock of raw materials or other supplies, work-in-progress and finished
goods are kept at levels which provide maximum service levels at minimum costs
(Lysons, 2000). Inventory management practices addresses two important questions of
how much to order/deliver and when to order thus helping an organization become more
productive and efficient than before, gravitate towards stock control, and quality control.
Some of these practices include Activity Based Costing, Economic Order Quantity,
Vendor Managed Inventory, Materials and Requirements Planning, Distribution
Requirements Planning, Just-in-time purchasing, Barcoding, and Radio Frequency
Identification.
1.1.2 Firm’s Productivity

Inventory management is attractive to senior management because it directly affects the
productivity of the firm. Productivity is an index that measures output (goods and
services) relative to the input (labor, materials, energy, and other resources) used to
produce it. It is measured by comparing the quantity of output with the quantity of one or
more inputs used to produce that output, expressed as the ratio of output to input (Jurison,
1997). A productivity measure describes how well the resources of an organization are
being used to produce goods and services. A firm with high productivity requires less
input to produce more output. The firm will then be able to charge a lower price and
consequently increase its market share. Jurison (1997), broadly classifies productivity
measures as single factor productivity measures (relating a measure of output to a single
measure of input), multifactor productivity measures (relating a measure of output to a
3
bundle of inputs), and total productivity measures (relating a measure of output to all
inputs).
Effective inventory management has become a critical issue for firms’ productivity.
Inventory management is essential in the operation of any business that wishes to achieve
efficiency in production. Many large manufacturing firms have saved millions of dollars
in costs and decreased inventories while improving efficiency and customer satisfaction
though various inventory management practices (Chapman et al., 2000). This is because
inventory management results to integration of better production methods to minimize
costs and wastages.
1.1.3 Large Manufacturing firms in Nairobi, Kenya
Manufacturing is an important sector in Kenya’s economy since it makes a substantial

contribution to the country’s economic development. With solid growth continuing in the
manufacturing industry, Kenya is poised to be among the fastest-growing economies in
East Africa, according to the World Bank Group’s economic analysis for the country.
However, as a share of GDP, Kenya’s manufacturing sector has been stagnant in recent
years. Low overall productivity and large productivity differences in firms across
subsectors point to lack of competition.
Manufacturing firms in Kenya are characterized by elongated or overextended chains of

retailers which, in turn, mean long chains of transactions between chain members and
consumers (Amoro, 2011). World firm (2007) showed that leading manufacturing firms
in Kenya are faced with problems of wrong forecasting due to lack of enough inventory
management information. New KCC was for example affected by poor inventory
management related cases leading to low performance. This caused erratic deliveries in
the firm, late deliveries and inflexibility hence affecting customer satisfaction (KAM,
2013). Unavailability of integrated inventory management has affected productivity at
manufacturing firms leading to reduced profits. To sustain growth and increase the
contribution of the manufacturing sector to GDP, firms should boost their level of
productivity to help the sector regain its competitiveness by managing the flow of stock.
4
1.2 Research Problem
Effective inventory flow management in supply chains is one of the key factors for
success. The challenge in managing inventory is to balance the supply of inventory with
demand. A firm would ideally want to have enough inventories to satisfy the demands of
its customers and avoid lost sales due to inventory stock-outs. On the other hand, the firm
does not want to have too much inventory staying on hand because of the cost of carrying
inventory. Enough but not too much is the ultimate objective (Coyle, Bardi & Langley,
2003). The secret of a good inventory control system thus lies in balancing the two
objectives to optimum advantage. Despite the benefits of inventory management,
Temeng, Eshun and Essy, (2010) point out that organizations have continuously ignored
the potential savings from proper inventory management and end up having more funds
invested in inventory than necessary. They are therefore not able to meet customer
demands because of poor distribution of investment among inventory items hence the
basis of this study
In majority of manufacturing industries, inventory constitutes the most significant part of
current assets (Songet, 2006). Manufacturing firms attain significant savings from
effective inventory management which amounts between 50% - 60% of total costs. A
potential 6% saving on total cost through effective inventory management is achievable
(Chen, 2005). In this view, the study wishes to assess the effect of inventory management
practices on productivity of large manufacturing firms in Nairobi, Kenya.
A number of studies have been done in the area of inventory management practices: Bai
and Zhong (2008) found out that inventory management is crucial for most companies
but is especially crucial for small businesses because of their limited resources. Proper
inventory management enhances a firm’s competitive strength and profitability due to
minimized costs, and customer satisfaction. This study was not conducted on large
manufacturing firms and does not show the relationship between inventory management
practices and the productivity of a firm. Kitheka (2010) in his study found out that
inventory management automation affects the performance of supermarkets since it leads
to improved customer service delivery levels and reduced operational costs. This study
5
was not on large manufacturing firms and did not show how inventory management
practices impacts on the productivity of a firm.
Ndunge (2012) found out that inventory management applications enabled edible oil
firms to minimize wastage of inventory and also minimize their costs. Implementation of
inventory management enabled the firm record higher profits; become more responsive to
their customers and suppliers needs and keen on capacity utilization. This study however
did not show how the practices of inventory management affect productivity of large
manufacturing firms. Gakinya (2013) found out that inventory management can influence
a firm’s supply chain performance by achieving service delivery to the customers,
meeting forecast demands and gaining a competitive edge. But this study however was
not on large manufacturing firms and did not show the impact of inventory management
practices on a firm’s productivity.
Anichebe and Agu (2013) in their research found out that the organizational effectiveness
can be improved by good inventory management. There is adequate inventory for
production, customer satisfaction and high profitability of the firm. However, this study
was not on how inventory management practices affects the productivity of a firm. Etim,
John and Ime (2014) established that inventory management practices can improve the
operational performance of a firm through efficiency in capital utilization, increased
service level, and reduced lead time and that firms that implement inventory management
models are able to handle material shortages, product stock outs, and component pile up.
But this study did not research on how inventory management practices impacts on firm’s
productivity. This study therefore sought to answer the following research questions:
what inventory management practices are being used in large manufacturing firms in
Nairobi, Kenya? Is there any relationship between inventory management practices and
productivity of large manufacturing firms in Nairobi, Kenya?
1.3 Research Objectives
The study objectives include:
a) To establish Inventory Management Practices commonly used by large

manufacturing firms in Nairobi, Kenya.
6
b) To establish the relationship between Inventory Management Practices and
productivity of large manufacturing firms in Nairobi, Kenya.
1.4 Value of the Study
The study will be beneficial to various stakeholders; it will be a source of information for
the large manufacturing firms that will help in understanding inventory management
practices, their mode of application and the practical relevance in the firm. The study will
also provide a framework for sound decision making as far as inventory management is
concerned.
The study will enable policy makers obtain knowledge of manufacturing industry
dynamics and the appropriate inventory management practices to be implemented. It will
also provide guidelines for policy makers for designing appropriate policies that will
regulate the industry.
To the academicians, the study will form a basis for further studies in the field of
inventory management and productivity of organizations, especially in the manufacturing
sector. This will probably generate and develop new knowledge and ideas to narrow the
gap in the area of inventory management.
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CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter explores relevant literature on inventory management practices that affect
productivity of large manufacturing firms. The review was undertaken to bring out the
gaps and enhance knowledge of better and efficient ways of managing inventory and
improving the productivity of an organization. It captures the concept of inventory
management practices, firm’s productivity, empirical review and a summary of the
literature review.
2.2 Theoretical Framework of Inventory Management Practices
Different theories have been employed to help bring clarity to the study of the effects of
inventory management practices on productivity of manufacturing firms. The study
borrows from the theory of constraints and lean theory to build the critical concerns on
effects of inventory management practices on productivity of large manufacturing firms.
2.2.1 Theory of Constraints
The theory of constraints is a management philosophy that seeks to increase

manufacturing throughput efficiency measured by sales through the identification of
those processes that are constraining the manufacturing system. The difficulties in the
theory of constraints are: very long lead times, large number of unfulfilled orders, high
level of unnecessary inventories or lack of relevant inventories, wrong materials order,
large number of emergency orders and expedition levels, lack of customers engagement,
absence of control related to priority orders which implies on schedule conflicts of the
resources (Goldratt, 2004). The theory emphasizes focus on effectively managing the
capacity and capability of these constraints to improve productivity and this can be
achieved by manufacturing firms applying appropriate inventory control practices.
Theory of constraints is a methodology whose basis is applied to production for the
minimization of the inventory (Cooper, 2006).
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2.2.2 Lean Theory
Lean theory is an extension of ideas of just in time. The theory eliminates buffer stock
and minimizes waste in production process (Green & Inman, 2005). Inventory leanness
positively affects the profitability of a business firm and is the best inventory control tool.
Firms that are leaner than industry average generally see positive returns to leanness
(Eroglu & Hofer, 2011). The theory elaborates on how manufacturers gain flexibility in
their ordering decisions, reduce the stocks of inventory held on site and eliminate
inventory carrying costs. Scholarly studies indicate that companies successfully optimize
inventory through lean supply chains practices to achieve high levels of asset utilization
and customer satisfaction leading to improved growth, profitability and market share
(Waller, Tangari & Williams, 2008). Criticism leveled against the theory is that it can
only be applicable when there is a close and long-term collaboration and sharing of
information between a firm and its trading partners.
2.3 Inventory Management Practices
Inventory management is very crucial to a firm because it is tailored to minimizing costs

or maximizing profits while satisfying customer’s demands by ensuring that balanced
items of stock are maintained at the right quantity, quality and that are available at the
right time and in the right place (Jay & Barry, 2006). The two essential questions to
address in inventory management are ‘When to order/deliver?’ and ‘How much to
order?’, that is, one time-related and one quantity-related. There are a number of
inventory management practices which answer these two questions in different ways and
can be categorized as working with dependent or independent demand. Inventory
management practices refers to the techniques used to ensure that stocks of raw materials
or other supplies, work-in-progress and finished goods are kept at levels which provide
maximum service levels at minimum costs (Lysons, 2000). They concern balancing
supply and demand, that is, the initiation, control and monitoring of manufacturing and
purchasing orders so as to maintain an uninterrupted material flow and value-adding
activity in manufacturing and warehouses (Jonsson & Mattsson, 2003).
9
2.3.1 Activity Based Costing Practices
Activity Based Costing is an Inventory classification system that allocates time and
money in inventory management and allows firms to deal with multiple product lines and
multitude of stock-keeping units (Bloomberg et al, 2002). ABC inventory classification
enables manufacturing firms to assess the status of every item kept in inventory in
addition to determining what specific attention is required by each group of inventory
(Banjoko, 2004).
By dividing a company’s inventory into different classifications- A, B, or C, Onwubolu et

al. (2006) indicates that managers can focus on the items that account for the majority of
the inventory. Banjoko (2004), describes, generally, the A items include approximately
10 percent of the items in inventory, with 50 percent of the monetary value generated.
The B items, includes roughly 40 percent of the items with 40 percent of the monetary
value. The C items, account for only 10 percent of the monetary value, yet include
approximately 50 percent of the items. This classification also allows for policies and
controls to be established for each class, for example, the purchasing resources expended
on supplier development should be much higher for A items than C items; A items should
have tighter physical inventory control such as more secure area; forecasting A items
may warrant more care than forecasting other items. Better forecasting, physical control,
supplier reliability, and an ultimate reduction in safety stock can all result from ABC
inventory management practices.
2.3.2 Just-In-Time Management Practices
JIT is a Philosophy of manufacturing based on planned elimination of all waste and

continuous improvement of productivity Young (2002). JIT production according to
Eckert (2007) is making what the customer needs, when it is needed and in the quantity
needed using the minimum resources of people, material, and machinery. The primary
elements of JIT include having only the required inventory when needed; to improve
quality to zero defects; to reduce lead time by reducing set-up times, queue lengths and
lot sizes; and to accomplish these things at minimum cost.
10
In order to achieve this, the process must have signals of what is going on everywhere
within that process. JIT emphasizes that production should create items that arrive when
needed, neither earlier nor later. Quick communication of the consumption of old stock,
which triggers new stock to be ordered, is key to JIT and inventory reduction. This saves
warehouse space and costs. The basic philosophy of JIT is that inventory is defined as
waste. The technique was first used by Ford Motor Company. It was subsequently
adopted and publicized by Toyota Motor Corporation of Japan in the 1950s (Lysons &
Gillingham 2003).
2.3.3 Economic Order Quantity Practices
The Economic Order Quantity (EOQ) is the optimal ordering quantity for an item of
stock that minimizes cost. It is the level of inventory that minimizes the total of the
inventory holding cost and ordering cost (Lysons & Farrington 2006). According to this
model, ordering costs decline with inventory holdings, while holding cost rises. The total
inventory-associated cost curve has a minimum point and this is the point where total
inventory costs are minimized.
Economic order quantity practices enable manufacturing firms to estimate how much of
an item should be ordered and when it should be ordered. The firm is able to plan its
inventory replenishment on a timely basis such as monthly, quarterly, half yearly or
yearly therefore minimizing storage costs within the warehouses since inventory is
coming in and going out immediately. Thus, this tends toward the just-in-time concept of
inventory management (Schonberger, 2008). EOQ can hence be used to determine what
items fit into the JIT model and what level of JIT is economically advantageous to the
particular organization (Lysons & Farrington, 2006).As manufacturing firms try to
improve on inventory management, they should consider Economic Order Quantity
practices as important tools they can use to ensure that supply of inventory does not hit a
stock out (Gonzalez, 2010).
11
2.3.4 Materials and Requirements Planning Practices
Materials requirement planning is a practice that makes available either purchased or

company manufacturing assemblies just before they are required by the next stage of
production or for delivery. It enables orders to be tracked throughout the entire
manufacturing process and assists purchasing and control departments to move the right
supplies at the right time to manufacturing or distribution points (Jacob, Berry, Whybark
& Volkmann, 2011).
The MRP system assists manufacturing firms in the detailed planning of production and
inventory management. The system is based on the recognition that demands for an item
may be dependent on the demand for other inventory items. The emphasis is on the end
product into which related parts are incorporated. The inventory quantities required are
specified on the basis of future demand. The demand for inventory items is precisely
determined from the master production schedule for the end products. In principle, the
approach attempts to control the flow of supplies to meet planned requirements, rather
than simply replenishing stocks as they are consumed (Saunders, 1997).
The operation of a lean MRP inventory system is very useful to manufacturing firms
since it results to relatively low inventory levels. The warehousing costs and material
handling costs are significantly reduced. This increases return on assets through
decreased conversion costs (Lysons & Gillingham, 2003).
2.3.5 Vendor Managed Inventory Practices
Vendor-managed inventory is a practice in which inventory replacement decisions are

centralized with upstream manufacturers or distributors (Frahm, 2003). It is a new feature
of supplier partnership in which emphasis is on good working relations between
customers and suppliers. The manufacturer enters into a collaborative or partnership
agreement with the distributor, under which the latter agrees to stock a specified range of
items and meet specified service levels. In return, the customer undertakes to buy the
specified items solely from the distributor and no longer keeps the items in stock.
Brownell (2005), states that this partnership enables manufacturing firms reduce chances
12
to defective items and the risk of obsolescence because the supplier is involved and for
this to work, proper communication is an important factor. It enhances working capital
due to the reduced inventory levels and obsolescence and enhanced stock turn with
improved cash flow.
VMI practices enables manufactures or distributors to eliminate the need for customers to
reorder, reduce or exclude inventory and obviate stock outs. It relieves the customer of
much of the expense of ordering, shipping the materials, counting inventory and stocking
low-value items. By passing these costs normally managed by the customer on the
supplier, the customer is able to reduce the overall cost of product and increase on
margins (Loughrin, 2008).There’s also reduced lead times with enhanced sales and a
reduction of lost sales due to stock outs (Irungu & Wanjau, 2011).
2.3.6 Distribution Requirements Planning Practices
Distribution Requirements planning is a practice for forecasting or projecting

requirements for finished products at the point of demand (Farrington & Lysons, 2006).
DRP system takes forecast demand and reflects this through the distribution system on a
time-phased requirement (Bailey, Farmer, Barry, Jessop, & David, 2008). From these
projections, requirement schedules for each echelon in the distribution system can be
derived. DRP practices acts by pulling the product through the distribution system once
demand has been identified. It is used to plan orders within a supply chain enabling the
firm to set certain inventory control parameters (like a safety stock) and calculate the
time-phased inventory requirements (Rushton, Croucher & Baker, 2011).This practice
works to the elimination of inventory and tries to combine the need for lower inventory
investment with improved customer service.
It is used as a method of handling stock replenishment in a multi-echelon environment

where, instead of independent control of the same item at different distribution points
using EOQ formulae, the dependent demand at a higher echelon (such as a central
warehouse) is derived from the requirements of lower echelons (such as regional
warehouses). DRP serves as a central role in coordinating the flow of goods inside the
13
factory with the system modules that place the goods in the hands of the customers
(Lysons & Farrington, 2006).
2.3.7 Barcoding Practices
Barcodes accelerate the flow of products and information throughout business. An

Electronic Point of Sale (EPOS) system verifies, checks and charges transactions,
provides instant sales reports, monitors and changes prices and sends intra- and inter-
store messages and data (Lysons & Farrington, 2006). Manufacturers use barcode
labeling to better manage their inventories, proving that a relatively simple, cost-effective
system provides up-to-date information on inventory status. When integrated into an
existing information system, barcoding allows the firm to track merchandise and to
conduct both full-scale inventories cycle counts. Inventory can be reconciled within a
short time. It provides more accurate data while saving both time and costs (Ogbabu,
2009).
Barcoding is applied in counting raw materials and finished goods inventories;

production reporting; warehouse applications including receiving, put away, picking and
shipping; identification of production bottlenecks; package tracking; and lot tracking
(Vastag & Whybark, 2005).
2.3.8 Radio Frequency Identification Practices
An RFID tag contains a silicon chip that carries an identification number and an antenna
able to transmit the number to a reading device. This means improved inventory
management and replenishment practices, which, in turn, results in a reduction of
interrupted production or lost sales due to items being out of stock (Farrington & Lysons,
2006). Individual components and products are identified and tracked throughout the
supply chain from production to point-of-sale and ensures that the right goods are
available in the right place with no discrepancies and zero errors. RFID makes the supply
chain considerably more precise and improves the efficiency and reliability of the entire
chain. As real-time information is made available, administration and planning processes
can be significantly improved (Hardgrave, Langford & Waller, 2008).
14
2.4 Firm’s Productivity
Productivity measures the relationship between products manufactured and the resources
used to create them. It is measured by comparing the quantity of output, that is, desired
results with the quantity of one or more inputs, that is, resources used, to produce that
output (Jurison, 1997) expressed as the ratio of output to input (Roach & Stephen,
1998).Productivity indicates how effectively resources are being used in the production
of various goods and is increased by producing more with fewer amounts of resources or
producing the same amount with fewer resources (Jurison, 1997).
Productivity measurements serve as scorecards of the effective use of resources by

determining if the organization is progressing well and providing information on how
effectively and efficiently the organization manages its resources (Roach & Stephen,
1998).Productivity relates to competitiveness: if two firms both have the same level of
output but one requires less input because of higher productivity, that one will be able to
charge a lower price and consequently increase its share in the market. Or that firm might
elect to charge the same price, thereby reaping a greater profit (Ondiek & Odera, 2012).
It is crucial that every firm develops and uses a comprehensive set of productivity
indicators that allows them to closely measure the extent to which an undertaking has the
right quantity of inventory in the right place at the right time, that is, the productivity of
their investment in inventory. This indicators measure the firm’s progress against
established target values for those indicators, as a way of measuring their effectiveness.
They include customer service levels which are closely related to safety stock; Inventory
costs; number of stock outs; rate of stock turn; return on investment; and lead times
(Schreibfeder, 2009, Lysons & Farrington, 2006).
2.5 Inventory Management Practices and Firm’s Productivity
Inventory management has significant for any relevant enterprise in an inventory

intensive manufacturing industry because effective practices in inventory management
will allow a firm to minimize inventory costs and avoid the consequences that come with
a shortage of material resources. Inventories are significant portions of current assets to
15
any business enterprise. Holding inventory ensures operational activities proceed
uninterrupted (Kotler & Keller, 2006). Therefore, to achieve high productivity
manufacturing firms apply various practices of inventory management to determine and
maintain an optimum level of investment in inventory that meets customer demands and
reduces inventory costs.
There have been numerous attempts to explain the relationship between inventory
management practices and the productivity of a firm. Rajeev (2010) argues that inventory
management practices are a way of acquiring competitiveness. Variables of his study
were inventory management practices as independent variable, and cost reduction as
dependent variable. The findings of the study indicated positive relationship between the
variables. Koumanakos (2008) studied the effect of inventory management on firm
performance of manufacturing firms operating in Greece. The hypothesis that lean
inventory management leads to an improvement in a firm’s financial performance was
tested. The findings suggest that the higher the level of inventories preserved by a firm,
the lower the rate of return. Eckert (2007) examined inventory management and the role
it plays in improving customer service levels. He found a positive relationship between
inventory management practices and customer satisfaction due to reduced number of
stock-outs.
2.6 Summary of Literature Review and Research Gap
The concept of inventory management has been expounded both in literature as well as
from the empirical studies done on the subject area. It is evident that management of
inventory has become a common practice among large manufacturing firms worldwide
and this is due to the various benefits that accrue to a firm as a result of managing its
inventories. Firms manage inventory to determine and maintain an optimum level
investment in inventory in order to achieve required operational performance. Firms have
continuously managed their inventory in order to improve their operations and meet
customer demand. To meet customer demand, firms have to ensure that stock-outs are
avoided without incurring high inventory costs. However, the various studies covered
have not extensively delved into inventory management practices in relation to the
16
productivity of large manufacturing firms. As a result, this study sought to explore
inventory management practices in the productivity of large manufacturing firms in
Nairobi, Kenya.
2.6.1 Conceptual Model
In this section, the identified variables to be investigated for interrelationship are

indicated. The study would seek to establish how adoption of the independent variable,
the inventory management practices can lead to realization of the dependent variable,
firm’s productivity.
Figure 2.1: Conceptual Model
Independent Variable Dependent Variable
Inventory Management Practices
Activity Based Costing

Firm’s Productivity
Just-in-time
Customer Service Level
Economic Order Quantity
Number of stock outs
Materials Requirements Planning
Rate of stock turn
Vendor Managed Inventory
Inventory costs
Distributions Requirements Planning
Return on investment
Radio Frequency Identification
Lead time
Barcoding
Source: Researcher, (2015)
17
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter discusses the research methodologies employed to answer the research
questions of the study. It describes the proposed research design, the target population,
the sample design, data collection instruments and procedures, and the techniques for
data analysis.
3.2 Research Design
The research adopted a descriptive survey research design in trying to focus on large
manufacturing firms operating in Nairobi, Kenya as it permits an in-depth investigation
of the problem under study (Yount, 2006). The design accurately describes an association
between variables minimizing bias and maximizing the reliability of the data (Kothari,
2004). Descriptive studies provide simple summaries about the sample and the
observations that have been made (Prem, 1995). This ensured that appropriate answers
are obtained for the research questions.
3.3 Population of the study
The population of the study in this research comprises of large manufacturing companies
that are based in Nairobi. In determining the size of the firm, several different measures
have been used and accepted as appropriate. Some of these measures are number of
employees in the firm, capital employed, volume of sales turnover and level and type of
technology used (Kenya Industrial Research and Development Institute (KIRDI).
However, this study used the list of large manufacturing firms in Nairobi, Kenya obtained
from KAM directory. According to the Kenya Association of Manufacturers, there are a
total of 499 large manufacturing companies operating in Nairobi. The 499 manufacturing
companies represented the study population. Due to their high numbers, they were
sampled according to various sectors under which they operate. The Nairobi area has
18
been chosen because it is where most of the manufacturing firms in various sectors are
concentrated thereby giving a big population where a proportionate sample was derived.
3.4 Sample Design
Stratified Random sampling as described by Cooper and Schindler (2006), was applied to
come up with the sample size. This is because the population of large manufacturing
firms is heterogeneous, implying that a simple random sample was unrepresentative of
the population. Using stratified random sampling ensured that each manufacturing firm is
represented in the sample for fair comparison and generalization of the findings. The
sample size of the study included 50 large manufacturing companies. This is arrived at
through a formula developed by Kelley and Maxwell (2003), which is, 0.101 as the
sample size multiplied by total population (0.101* 499). This formula is derived from a
series of samples assuming non-zero probability and is appropriate when the population
of the study is large. Table 3.1 shows how the sample size was arrived at.
Table 3.1: Sample Size
Sector No. of firms % Respondents
Building, mining & construction 20 4 2
Chemical& Allied sector 70 14 7
Energy, electrical & electronics 34 6.8 3
Food & beverages 71 14.2 7
Leather & footwear 7 1.4 1
Metal & Allied sector 66 13.2 7
Motor vehicle & Accessories 27 5.4 3
19
Paper & Board sector 63 12.6 6
Pharmaceutical & medical equipment 21 4.2 2
Plastics & rubber 68 13.6 7
Textile & Apparels 35 7 4
Timber, wood & furniture 17 3.4 2
Total 499 100 50
3.5 Data Collection
The study used primary data that was collected using a self-administered questionnaire. It
consists of both open and closed ended questions that are designed to elicit responses for
qualitative and quantitative analysis respectively. The questionnaire designed for this
study comprises of two sections. The first section obtained information on the profile of
the manufacturing firm; second section sought information related to the research
objectives.
Likert questions asked the respondents to indicate the extent to which the variables are
practiced. The self-administered questionnaires were sent through official e-mails and
others were dropped at the respondent’s office where possible. The study picked
inventory manager, purchasing manager and the chief procurement officer or the
equivalent from each of the manufacturing firms to participate in the study. Role of
inventory management on productivity of manufacturing firms and its application are
relevant at these levels prompting the choice of the respondent.
3.6 Data Analysis
Data was analyzed using descriptive statistics including mean and standard deviation by
use of the relevant computer packages such as Microsoft Office Excel and Statistical
20
Package for Social Sciences (SPSS) program. This was done by tallying up responses,
computing percentages of variations as well as describing and interpreting the data in line
with the study objectives. Two methods of data analysis were therefore adopted to enable
the researcher conduct a comprehensive analysis. Objective one was analyzed through
descriptive statistics in the form of frequencies and percentages; and regression analysis
was used for objective two.
The information was displayed by use of bar charts, graphs, pie charts and tables to
search for any correlation between the variables. The following regression equation used
to show the relationship between inventory management practices and productivity of
large manufacturing firms.
y = α + β1X1 + β2X2 + β3X3 + β4X4 + β5X5 + β6X6+β7X7+β8X8+ ε
Where: y = Firm’s Productivity
α = Constant; y intercept, that is, the value of y when x is equal to zero
β1….β8 = the slope representing degree of change in independent variable by one unit
variable
X1 = Activity Based Costing practices

X2= Just-in-time management practices
X3= Economic Order Quantity practices
X4= Materials and Requirements Planning practices
X5= Vendor Managed Inventory practices
X6 = Distributions Requirements Planning practices
X7 = Radio Frequency Identification practices
X8 = Barcoding practices
ε = error term
21
CHAPTER FOUR
DATA ANALYSIS, FINDINGS AND INTERPRETATION
4.1 Introduction
This chapter sought to establish the relationship between inventory management practices
and productivity of large manufacturing firms in Nairobi, Kenya. The chapter covers the
demographic information and the findings of the analysis based on the objectives of the
study. Descriptive and inferential statistics have been used to discuss the findings of the
study. Data was collected from inventory managers, purchasing managers and the chief
procurement officer or the equivalent from each manufacturing firm. The findings are
presented in the following sections.
4.2 Response Rate

The study targeted a sample size of 50 respondents from which 44 filled in and returned
the questionnaires in good time giving a response rate of 88%. This response rate was
sufficient to make conclusions for the study as it acted as a representative. According to
Mugenda and Mugenda (1999), a response rate of 50% is adequate for analysis and
reporting; a rate of 60% is good and a response rate of 70% and over is excellent. Based
on the assertion, the response rate was excellent.
4.3 Demographic and Respondents Profile

4.3.1 Job Designation
Job position of the respondents and how long they had worked in that position in the
same organization ensured that the survey results were valid and reliable. Role of
inventory management on productivity of manufacturing firms and its application is
relevant at certain levels. Respondents were asked to indicate whether they held the
positions of inventory management, chief procurement officer, procurement manager or
purchasing manager. The findings are given in Table 4.1.
22
Table 4.1: Position in the organization
Frequency Percentage
Inventory manager 16 36
Chief procurement officer 11 25
Procurement manager 9 21
Purchasing manager 8 18
Total 44 100
Source: Research Data, (2015)
From Table 4.1, majority (36%) of the respondents were inventory managers, 25% were
chief procurement officers, 21% were procurement managers and 18% were purchasing
managers. This means that majority of the respondents were inventory managers and
chief procurement officers and were in a good position to give relevant information on
the effects of inventory management practices on firm’s productivity.
4.3.2 Length of continuous service in the current work position

The respondent’s working experience based on the number of years they had worked in
that particular work position was useful for the study. The respondents were asked to
indicate whether they had worked in that particular position for less than five years, 5-10
years or over 10 years. The findings are shown in Figure 4.1.
Figure 4.1: Length of continuous service in the current work position
23
Figure 4.1 shows that, majority of the respondents (51.3%) indicated to have worked
while holding the same position in the organization for more than 10 years, 32.6 %
indicated to have worked for a period of 5 to 10 years while 16.1 % indicated to have
worked in that position for not more than 5 years. This implies that majority of the
respondents had worked for a considerable period of time and that they were in a good
position to give credible information relating to this research.
4.3.3 Education Level

The level of education attained by the respondents was also useful for the study. The
respondents were asked to indicate level of education attained in terms of graduate
degree, university degree and college diploma. The findings are shown in Figure 4.2.
Figure 4.2: Education Level
On the level of education, Figure 4.2 revealed that majority of the respondents (46%)
held a bachelor’s degree, 34% of the respondents held college diplomas while 20 % of
the respondents had a master’s degree. This illustrates that the respondents were highly
educated in their field of operation owing to the amount of knowledge acquired from
school. This enabled them to give credible information relating to this research.
4.3.4 Duration of operation of the Organization

Number of years the firm has been in operation ensured that the survey results were valid
and reliable. This enabled the study to compare the impact of inventory management
24
practices on productivity over the years. The respondents were asked to indicate how
long the firm had been in operation and the findings are as stipulated in Figure 4.3.
Figure 4.3: Duration of operation
Figure 4.3 shows that 48.3% of the manufacturing firms have been in operation for more
than 16 years, 31.7% for between 11 to 15 years while 20% of the manufacturing firms
have been in operation for 6 to 10 years. This is an indication that most of the
organizations have had more that 10 years to interact with SCM functions and thus can be
in a good position to measure the relationship that exists between inventory management
practices and productivity of the firm.
4.3.5 Operation in other countries outside Kenya

Operation in other countries was also useful for the study since inventory management
practices adopted by a firm largely depends on multinational operations. The respondents
were asked to indicate whether the firm operates in other countries outside Kenya and the
findings are as stipulated in Table 4.2.
Table 4.2: Operation in other countries outside Kenya
Opinion Frequency Percentage

Yes 39 88.6
No 5 11.4
Total 44 100
25
From Table 4.2, majority (88.6%) of the manufacturing firms operates in other countries
outside Kenya while 11.4% of the firms operate in Kenya only. This implies that both
multinational and local manufacturing firms were equitably engaged in this research.
4.3.6 Firm’s view on Inventory Management
Inventory management has enabled manufacturing firms to have adequate quantities of

high quality items available to serve customer needs, while also minimize the costs of
carrying inventory. The respondents were asked to indicate whether the firm viewed
inventory as one of the most expensive and important asset that requires proper
management so as to minimize costs and maximize profits. The findings are as stipulated
in Table 4.3.
Table 4.3: Firm’s view on Inventory Management

Opinion Frequency Percentage
The firm views inventory as one of the most Yes 37 84.1

expensive and important asset that requires No 7 15.9
proper management which is tailored to
minimizing costs and maximizing profits Total 44 100
while satisfying customers’ demands.
From Table 4.3, majority of the respondents (84.1%) agree while 15.9% were of the
contrary opinion. This implies that majority of the manufacturing firms view inventory as
one of the most expensive and important asset that requires proper management in an
effort to minimize costs and maximize profits while satisfying customers’ demands.
4.4 Inventory Management Practices Adopted by Large Manufacturing

Firms
Inventory management practices ensure that stocks of raw materials, work-in-progress
and finished goods are kept at levels which provide maximum service levels at minimum
26
cost. Inventory management practices include Activity Based Costing, Economic Order
Quantity, Vendor Managed Inventory, Materials and Requirements Planning,
Distribution Requirements Planning, Just-in-time, Barcoding, and Radio Frequency
Identification.
The respondents were asked to indicate to what extent the firm has adopted inventory
management practices in an effort to improve on productivity. A number of questions
were fronted to the respondents who gave their responses on a Likert scale of 1 to 5,
where 1 represented “Very small extent” and 5 represented “Very great extent”. The
results are presented as follows.
4.4.1 Just-In-Time Management Practices in large manufacturing firms

in Nairobi, Kenya
Just-in-time is one of the inventory management practices used in large manufacturing
firms in Nairobi, Kenya for planned elimination of all waste and continuous improvement
of productivity. The respondents were asked to indicate to what extent they agreed with
the statement in relation to Just-in-time management practices in large manufacturing
firms and they responded to various aspects under the variable on a five-point Likert
Scale (5=very great extent, 4=great extent, 3=moderate extent, 2=small extent, and
1=very small extent). The research findings are as in Table 4.4.1 showing the resultant
means and standard deviations of the variables.
Table 4.4.1: Findings of Just-In-Time as a practice in the manufacturing firms
Mean Std
Just-In-Time Practices
deviation
The firm creates items that arrive when needed, neither 4.39 0.28
earlier nor later;
The firm saves warehouse space and costs by managing 4.30 0.27
inventory using Just-in-time practice;
The firm applies Just-in-time practice to reduce lead time by 4.27 0.25
reducing set-up times, queue lengths and lot sizes;
The firm uses Just-in-time practice to reduce the frequency 4.25 0.24
27
of ordering;
The firm manufactures products based on planned 4.25 0.25
elimination of waste and continuous improvement of
productivity;
The firm reduces inventory and its associated carrying costs 4.20 0.22
by using Just-in-time practice;
The firm has only the required inventory when needed; 4.16 0.23
The firm uses Just-in-time practice to timely replenish 4.15 0.26
inventory;
The firm makes what the customers need, when it is needed 4.14 0.21
and in the quantity needed using the minimum resources;
The firm uses Just-in-time practice to improve quality of 4.07 0.20
products to zero defects.
Overall Mean 4.28
To a great extent (4.39≤mean≥4.07) Just-in-time practices were being undertaken by the

manufacturing firms. The respondents agreed to a great extent that the firm creates items
that arrive when needed, neither earlier nor later ,that the firm saves warehouse space and
costs, the firm applies Just-in-time practice to reduce lead time by reducing set-up times,
queue lengths and lot sizes, the firm is able to reduce the frequency of ordering, the firm
manufactures products based on planned elimination of waste and continuous
improvement of productivity, the firm reduces inventory and its associated carrying cost
by using Just-in-time, the firm has only the required inventory when needed, that the firm
uses Just-in-time practice to timely replenish inventory, the firm makes what the
customers need, when it is needed and in the quantity needed using the minimum
resources, and that the firm uses Just-in-time practice to improve quality of products to
zero defects.
The finding is in line with the Young (2002) study, that Just-in-time is a Philosophy of
manufacturing based on planned elimination of all waste and continuous improvement of
productivity and further concurs with Eckert (2007), that Just-in-time improves quality to
28
zero defects; reduces lead time by reducing set-up times, queue lengths and lot sizes and
accomplishes these things at minimum cost.
4.4.2 Activity Based Costing Practices in large manufacturing firms in

Nairobi, Kenya
Activity Based Costing is an inventory management practice used in large manufacturing
firms in Nairobi, Kenya to allocate time and money in inventory management in an effort
to improve on productivity. The respondents were asked to indicate to what extent they
agreed with the statement in relation to Activity Based Costing practices in large
manufacturing firms and they responded to various aspects under the variable on a five-
point Likert Scale (5=very great extent, 4=great extent, 3=moderate extent, 2=small
extent, and 1=very small extent). The research findings are as in Table 4.4.2 showing the
resultant means and standard deviations of the variables.
Table 4.4.2: Findings of Activity Based Costing as a practice in the manufacturing

firms
Mean Std
Activity Based Costing Practices
deviation
The firm uses Activity Based Costing practice to assess the status
4.51 0.25
of items in inventory;
Activity Based Costing practices enables the firm to deal with
4.45 0.25
multiple product lines and multitude of stock-keeping units;
The firm uses Activity Based Costing as an inventory classification
4.43 0.25
system to allocate time and money in inventory management;
The firm uses Activity Based Costing classification to develop
4.41 0.24
policies and controls for each class of inventory;
The firm uses Activity Based Costing practice to determine the
4.41 0.25
specific attention required by each group of inventory;
The firm divides inventory into different classifications of A, B or
4.39 0.24
C;
The firm focuses on the items that account for the majority of
4.29 0.24
inventory;
29
The firm uses Activity Based Costing practice for ultimate
4.27 0.23
reduction of safety stock.
Overall Mean 4.39
To a great extent (4.51≤mean≥4.27) Activity Based Costing practices were being

undertaken by the manufacturing firms. The respondents agreed to a very great extent
that the firm uses Activity Based Costing to assess the status of items in inventory and
that Activity Based Costing enables the firm to deal with multiple product lines and
multitude of stock-keeping units. Further, the respondents agreed to a great extent that the
firm uses Activity Based Costing as an inventory classification system to allocate time
and money in inventory management , the firm uses Activity Based Costing classification
to develop policies and controls for each class of inventory, the firm uses Activity Based
Costing to determine the specific attention required by each group of inventory, that the
firm divides inventory into different classifications of A, B or C and then focuses on the
items that account for the majority of inventory, and that the firm uses Activity Based
Costing for ultimate reduction of safety stock.
This finding concurs with the Banjoko (2004) study that product cost determination under
Activity Based Costing is more accurate and reliable because it focuses on the cause and
effect linkage of costs and activities in the context of producing goods.
4.4.3 Economic Order Quantity Practices in large manufacturing firms

in Nairobi, Kenya
Economic Order Quantity is one of the inventory management practices used in large
manufacturing firms in Nairobi, Kenya in an effort to improve on productivity by
determining the optimal ordering quantity for an item of stock that minimizes cost. The
respondents were asked to indicate to what extent they agreed with the statement in
relation to Economic Order Quantity practices in large manufacturing firms and they
responded to various aspects under the variable on a five-point Likert Scale (5=very great
extent, 4=great extent, 3=moderate extent, 2=small extent, and 1=very small extent). The
30
research findings are as in Table 4.4.3 showing the resultant means and standard
deviations of the variables.
Table 4.4.3: Findings of Economic Order Quantity as a practice in the

manufacturing firms
Economic Order Quantity Practices Mean Std

deviation
Economic Order Quantity practice enables the firm to plan
4.52 0.27
for its inventory replenishment on a timely basis;
The firm uses Economic Order Quantity to ensure that
4.50 0.26
inventory comes in and goes out immediately;
The firm maintains that level of inventory that minimizes
4.48 0.25
the total of inventory holding costs and ordering cost;
The firm orders the optimal ordering quantity for an item of
4.45 0.26
stock that minimizes cost;
The firm uses Economic Order Quantity practice to ensure
4.36 0.24
that supply of inventory does not hit a stock out;
Economic Order Quantity practice helps the firm in
4.32 0.25
deciding when to order an item of stock;
The firm uses Economic Order Quantity practice to estimate
4.27 0.25
how much of an item to order;
The firm uses Economic Order Quantity practice to
4.26 0.25
determine what items fit into the just-in-time model;
The firm minimizes storage costs within the warehouse by
4.25 0.27
use of Economic Order Quantity practice.
Overall Mean 4.37
To a great extent (4.52≤mean≥4.25) Economic Order Quantity practices were being

undertaken by the manufacturing firms. The respondents agreed to a very great extent
that Economic Order Quantity enables the firm to plan for its inventory replenishment on
a timely basis, that the firm uses Economic Order Quantity to ensure that inventory
31
comes in and goes out immediately, the firm maintains that level of inventory that
minimizes the total of inventory holding costs and ordering cost, and that the firm orders
the optimal ordering quantity for an item of stock that minimizes cost. Further,
respondents agreed to a great extent the firm uses Economic Order Quantity practice to
ensure that supply of inventory does not hit a stock out, Economic Order Quantity
practice helps the firm in deciding when to order an item of stock, the firm uses
Economic Order Quantity practice to estimate how much of an item to order, the firm
uses Economic Order Quantity practice to determine what items fit into the Just-in-time
model, and that the firm minimizes storage costs within the warehouse by using
Economic Order Quantity.
This finding supports the argument by Lysons & Farrington (2006), that Economic Order
Quantity practice calculates the most economical number of items that a business should
order to minimize costs and maximize value when re-stocking inventory.
4.4.4 Vendor Managed Inventory Practices in large manufacturing

firms in Nairobi, Kenya
Vendor Managed Inventory is one of the inventory management practices used in large
manufacturing firms in Nairobi, Kenya that centralizes inventory replacement decisions
with upstream distributors. The respondents were asked to indicate to what extent they
agreed with the statement in relation to Vendor Managed Inventory practices in large
Table 4.4.4: Findings of Vendor Managed Inventory as a practice in the

manufacturing firms
Vendor Managed Inventory Practices Mean Std

deviation
The firm uses Vendor Managed Inventory practice to 4.45 0.26
32
maintain timely delivery;
The firm uses Vendor Managed Inventory practice for

4.43 0.25
supplier partnerships;
The firm reduces the overall cost of product and increases
on margins by passing costs of ordering and shipping to the 4.43 0.26
supplier;
The firm buys specified items solely from the distributor
4.34 0.23
and no longer keeps items in stock;
The firm uses Vendor Managed Inventory to reduce
4.34 0.24
chances to defective items and risk of obsolescence;
The firm uses Vendor Managed Inventory practice to
4.32 0.25
achieve flexibility to responses;
The firm enhances working capital by reducing inventory
4.31 0.24
levels with use of Vendor Managed Inventory practice;
The firm uses Vendor Managed Inventory practice to
4.27 0.25
reduce lead times with enhanced sales;
The firm centralizes inventory replenishment decisions
4.23 0.26
with upstream distributors;
Vendor Managed Inventory practice enables the firm to
4.22 0.26
eliminate the need to reorder and avoid stock outs.
Overall Mean 4.33
To a great extent (4.45≤mean≥4.22) Vendor Managed Inventory practices were being

used by the manufacturing firms. The respondents agreed to a very great extent that the
firm uses Vendor Managed Inventory practice to maintain timely delivery. Further, the
respondents agreed to a great extent that the firm uses Vendor Managed Inventory for
supplier partnerships, the firm uses Vendor Managed Inventory to reduce the overall cost
of product and increase on margins by passing costs of ordering and shipping to the
supplier, that the firm buys specified items solely from the distributor and no longer
keeps items in stock, the firm uses Vendor Managed Inventory to reduce chances to
33
defective items and risk of obsolescence, the firm uses Vendor Managed Inventory
practice to achieve flexibility to responses, the firm enhances working capital by reducing
inventory levels with use of Vendor Managed Inventory practice, the firm uses Vendor
Managed Inventory practice to reduce lead times with enhanced sales, the firm
centralizes inventory replenishment decisions with upstream distributors, and that Vendor
Managed Inventory practice enables the firm to eliminate the need to reorder and avoid
stock outs.
This finding supports the study by Brownell (2005) that partnership enables
manufacturing firms reduce chances to defective items and the risk of obsolescence
because the supplier is involved and for this to work, proper communication is an
important factor. It enhances working capital due to the reduced inventory levels and
obsolescence and enhanced stock turn with improved cash flow.
4.4.5 Materials and Requirements Planning Practices in large

manufacturing firms in Nairobi, Kenya
Materials and Requirements Planning is one of the inventory management practices used
in large manufacturing firms in Nairobi, Kenya that results to relatively low inventory
levels and reduced warehousing and material handling costs. The respondents were asked
to indicate to what extent they agreed with the statement in relation to Materials and
Requirements Planning practices in large manufacturing firms and they responded to
various aspects under the variable on a five-point Likert Scale (5=very great extent,
4=great extent, 3=moderate extent, 2=small extent, and 1=very small extent). The
research findings are as in Table 4.4.5 showing the resultant means and standard
deviations of the variables.
Table 4.4.5: Findings of Materials and Requirements Planning as a practice in the

manufacturing firms
Materials and Requirements Planning Practices Mean Std

deviation
34
Materials and Requirements Planning assists the firms in the
4.52 0.27
detailed planning of production and inventory management;
The firm uses Materials and Requirements Planning to track
4.48 0.25
orders throughout the entire manufacturing process;
The firm increases return on assets through decreased
conversion costs by using Materials and Requirements 4.48 0.25
Planning;
The firm reduces inventory levels by using Materials and
4.48 0.26
Requirements Planning;
The firm uses Materials and Requirements Planning to reduce
4.45 0.25
warehousing costs and material handling costs;
The firm uses Materials and Requirements Planning to reduce
4.43 0.25
the amount of idle time;
The firm uses Materials and Requirement Planning to control
4.36 0.24
the flow of supplies to meet planned requirements;
Materials and Requirements Planning enables the firm to
move the right supplies at the right time to manufacturing 4.34 0.24
points;
Materials and Requirements Planning enables the firm
4.20 0.24
achieve efficiency of information flow;
The firm makes available assemblies just before they are
4.14 0.22
required by the next stage of production or for delivery.
Overall Mean 4.38
To a great extent (4.52≤mean≥4.14) Materials and Requirements Planning practices were

being undertaken by the manufacturing firms. The respondents agreed to a very great
extent that Materials and Requirements Planning assists the firms in the detailed planning
of production and inventory management, the firm uses Materials and Requirements
Planning to track orders throughout the entire manufacturing process, the firm reduces
inventory levels by using Materials and Requirements Planning , the firm increases return
35
on assets through decreased conversion costs by using Materials and Requirements
Planning, and that the firm uses Materials and Requirements Planning to reduce
warehousing costs and material handling cost. Further, the respondents agreed to a great
extent that the firm uses Materials and Requirements Planning to reduce the amount of
idle time, the firm uses Materials and Requirement Planning to control the flow of
supplies to meet planned requirements, Materials and Requirements Planning enables the
firm to move the right supplies at the right time to manufacturing points, Materials and
Requirements Planning enables the firm to achieve efficiency of information flow, and
that the firm makes available assemblies just before they are required by the next stage of
production or for delivery.
This finding is in line with the Saunders (1997) study that Materials and Requirements
Planning inventory system is very useful to manufacturing firms since it results to
relatively low inventory levels and significantly reduced holding and handling costs.
4.4.6 Distribution Requirements Planning Practices in large

manufacturing firms in Nairobi, Kenya
Distribution Requirements Planning is one of the inventory management practices used in
large manufacturing firms in Nairobi, Kenya to project requirements for finished goods at
the point of demand. The respondents were asked to indicate to what extent they agreed
with the statement in relation to Distribution Requirements Planning practices in large
Table 4.4.6: Findings of Distribution Requirements Planning as a practice in the

manufacturing firms
Mean Std
Distribution Requirements Planning Practices
deviation
36
Distribution Requirements Planning serves as a central role 4.45 0.26
in coordinating the flow of goods inside the factory;
The firm uses Distribution Requirements Planning as a 4.44 0.26
method of handling stock replenishment in a multi-echelon
environment;
Distribution Requirements Planning acts by pulling the 4.43 0.25
product through the distribution system once demand has
been identified;
The firm plans orders within a supply chain by using 4.42 0.26
Distribution Requirements Planning;
The firm uses Distribution Requirements Planning to 4.39 0.24
forecast requirements for finished products at the point of
demand;
The firm uses Distribution Requirements Planning to reduce 4.39 0.24
lead time;
The firm uses Distribution Requirements Planning for 4.29 0.27
lower investment in inventory;
The firm uses Distribution Requirements Planning to 4.28 0.26
improve customer service delivery;
The firm uses Distribution Requirements Planning to set 4.23 0.22
inventory control parameters like a safety stock.
Overall Mean 4.36
To a great extent (4.45≤mean≥4.23) Distribution Requirements Planning practices were

being undertaken by the manufacturing firms. The respondents agreed to a very great
extent that Distribution Requirements Planning serves as a central role in coordinating the
flow of goods inside the factory. The respondents further agreed to a great extent that the
firm uses Distribution Requirements Planning as a method of handling stock
replenishment in a multi-echelon environment , Distribution Requirements Planning acts
by pulling the product through the distribution system once demand has been identified,
37
that the firm plans orders within a supply chain by using Distribution Requirements
Planning, the firm uses Distribution Requirements Planning to forecast requirements for
finished products at the point of demand, that the firm uses Distribution Requirements
Planning to reduce lead time, the firm uses Distribution Requirements Planning for lower
investment in inventory, Distribution Requirements Planning is used to improve customer
service delivery, and that the firm uses Distribution Requirements Planning to set
inventory control parameters like a safety stock.
This finding is in line with the Baily, Farmer, Barry, Jessop, & David (2008) study that
Distribution Requirements Planning helps to forecast demand and reflects the distribution
system on a time-phased requirement.
4.4.7 Bar coding Practices in large manufacturing firms in Nairobi,

Kenya
Barcoding is an inventory management practice used in large manufacturing firms in
Nairobi, Kenya that accelerates the flow of products and information in an effort to
improve on productivity. The respondents were asked to indicate to what extent they
agreed with the statement in relation to barcoding practices in large manufacturing firms
and they responded to various aspects under the variable on a five-point Likert Scale
(5=very great extent, 4=great extent, 3=moderate extent, 2=small extent, and 1=very
small extent). The research findings are as in Table 4.4.7 showing the resultant means
and standard deviations of the variables.
Table 4.4.7: Findings of Barcoding as a practice in the manufacturing firms
Barcoding Practices Mean Std

deviation
The firm uses barcoding to reconcile inventory within a short time thus 4.48 0.25
saving both time and costs;
The firm uses barcoding to verify, check and charge transactions; 4.48 0.26
Barcode allows the firm to track merchandise and conduct inventory 4.43 0.25
cycle counts;
38
The firm uses barcoding to accelerate the flow of products and 4.41 0.24
information;
Barcoding practices are used by the firm for package tracking and lot 4.39 0.27
tracking;
The firm applies barcording in counting raw materials and finished 4.38 0.25
goods inventory;
The firm applies barcoding in warehouse applications of receiving, put 4.32 0.23
away, picking and shipping;
Barcode labeling enables the firm to provide up-to-date information on 4.27 0.22
inventory status;
Barcoding enables the firm to identify production bottlenecks. 4.27 0.21
Overall Mean 4.38
To a great extent (4.48≤mean≥4.27) barcoding practices were being undertaken by the

manufacturing firms. The respondents agreed to a very great extent that the firm uses
barcoding to reconcile inventory within a short time thus saving time and costs, and that
the firm uses barcoding to verify, check and charge transactions. The respondents further
agreed to a great extent that barcoding allows the firm to track merchandise and conduct
inventory cycle counts, that the firm uses barcoding to accelerate the flow of products
and information, barcoding practices are used by the firm for package tracking and lot
tracking, that the firm applies barcording in counting raw materials and finished goods
inventory, the firm applies barcoding in warehouse applications of receiving, put away,
picking and shipping, barcode labeling enables the firm to provide up-to-date information
on inventory status, and that barcoding enables the firm to identify production
bottlenecks.
This finding is in line with the Lysons & Farrington (2006) study that barcoding uses an
Electronic Point of Sale (EPOS) system that verifies checks and charges transactions,
provides instant sales reports, monitors and changes prices and sends intra- and inter-
store messages and data.
39
4.4.8 Radio Frequency Identification Practices in large manufacturing
firms in Nairobi, Kenya
Radio Frequency Identification is one of the inventory management practices used in
large manufacturing firms in Nairobi, Kenya in an effort to improve inventory
management and replenishment practices. The respondents were asked to indicate to what
extent they agreed with the statement in relation to Radio Frequency Identification
practices in large manufacturing firms and they responded to various aspects under the
variable on a five-point Likert Scale (5=very great extent, 4=great extent, 3=moderate
extent, 2=small extent, and 1=very small extent). The research findings are as in Table
4.4.8 showing the resultant means and standard deviations of the variables.
Table 4.4.8: Findings of Radio Frequency Identification as a practice in the

manufacturing firms
Mean Std
Radio Frequency Identification Practices
deviation
The firm uses Radio Frequency Identification to provide real-time
4.33 0.27
information about inventory;
Radio Frequency Identification ensures that the right goods are
4.30 0.23
available in the right place with no discrepancies and zero errors;
Real time information from Radio Frequency Identification enables
4.28 0.23
the firm to improve planning processes;
Radio Frequency Identification enables the firm to identify
4.27 0.22
components and products throughout the supply chain;
The firm uses Radio Frequency Identification to track components
4.27 0.25
and products throughout the supply chain;
The firm uses Radio Frequency Identification to transmit the
4.14 0.24
number of an item of stock to a reading device;
Radio Frequency Identification enables the firm to avoid
4.11 0.21
interrupted production or lost sales due to items being out of stock;
The firm uses Radio Frequency Identification practices to handle
4.05 0.22
stock replenishment.
Overall Mean 4.21
40
To a great extent (4.33≤mean≥4.05) Radio Frequency Identification practices were being

undertaken by the manufacturing firms. The respondents agreed to a great extent that the
firm uses Radio Frequency Identification to provide real-time information about
inventory, Radio Frequency Identification ensures that the right goods are available in the
right place with no discrepancies and zero errors, that real time information from Radio
Frequency Identification enables the firms to improve planning processes, Radio
Frequency Identification enables the firm to identify components and products
throughout the supply chain, the firm uses Radio Frequency Identification to track
components and products throughout the supply chain, the firm transmits the number of
an item of stock to a reading device, Radio Frequency Identification enables the firms to
avoid interrupted production or lost sales due to items being out of stock, and that the
firm uses Radio Frequency Identification practices to handle stock replenishment.
This finding is in line with the Farrington & Lysons (2006) study that a Radio Frequency
Identification tag contains a silicon chip that carries an identification number and an
antenna able to transmit the number to a reading device. This means improved inventory
management and replenishment practices, which, in turn, results in a reduction of
interrupted production or lost sales due to items being out of stock.
4.5 Firm’s Overall Productivity

Productivity measures the relationship between products manufactured and the resources
used to create them. It is measured by comparing the quantity of output, that is, desired
results with the quantity of one or more inputs, that is, resources used, to produce that
output. Respondents were asked to indicate their firm’s overall productivity in terms of
whether it was excellent, above average or below average and the findings are
summarized in Table 4.5.
Table 4.5: Firm’s Overall Productivity
Rate Frequency Percentage

Above average 22 50.0
41
Excellent 18 40.9
Below average 4 9.1
Total 44 100
From Table 4.5, majority (50%) of the respondents agreed that the firm’s overall
productivity was above average, 40.9% of the respondents indicated that it was excellent
while 9.1% of the respondents indicated that the firm’s overalls productivity was below
average. This implies that though productivity of many firms was above average there
was need for large manufacturing firms to improve their productivity by adopting proven
practices among them inventory management practices.
This finding is in line with Chapman et al. (2000) study that effective inventory
management has become a critical issue for firms’ productivity. Many large
manufacturing firms have saved millions of dollars in costs and decreased inventories
while improving efficiency and customer satisfaction though various inventory
management practices. This is because inventory management results to integration of
better production methods to minimize costs and wastages.
4.5.1 Inventory Costs

Inventory costs is one of the productivity indicators that is used to closely measure the
extent to which an undertaking has the right quantity of inventory in the right place at the
right time, that is, the productivity of the firm’s investment in inventory. The respondents
were asked to indicate approximate figures for the total ordering costs, storage and
holding costs and cost of stock out they have incurred for the past five years. The
findings are summarized in Table 4.5.1 showing the resultant means.
Table 4.5.1: Inventory Costs
Inventory costs
2009 2010 2011 2013 2014 Mean
Total ordering costs (Kshs) 10.12 9.65 8.45 7.12 6.65 8.40
Total storage and holding costs (Kshs) 8.62 6.32 5.31 4.21 3.75 5.64
Cost of stock out (Kshs) 7.6 7.3 5.64 4.22 2.1 5.37
42
From Table 4.5.1, total ordering cost, total storage and holding costs, and cost of stock
out recorded a significant decrease over the past five years. This finding concurs with the
Kruger (2005) and Lysons (2000) study, that to ensure organizational growth and
productivity, it is important that good inventory management be practiced since a
substantial share of fund is invested in a firm’s inventory. The concept of inventory
management practices basically focuses on the techniques used to ensure that stock of
raw materials or other supplies, work-in-progress and finished goods are kept at levels
which provide maximum service levels at minimum costs.
4.5.2 Customer Service

Customer service level is one of the most important measurements of productivity
because if the firm doesn’t have what its customers want, when they want it, they will
probably look for the product elsewhere. Respondents were asked to give indications of
the customer service levels for the past five years under various aspects of on time
delivery, order fulfillment rates, order fulfillment cycle time and orders received as
specified. The findings are summarized in Table 4.5.2 showing the resultant means.
Table 4.5.2: Customer Service
Customer Service 2009 2010 2011 2013 2014 Mean
Orders received as specified 44 52 75 81 88 68.00

On time delivery 36 54 68 82 89 65.80
Order fulfillment rates 31 50 62 78 85 61.20
Order fulfillment cycle time 38 58 67 63 74 60.00
From the finding, on time delivery and orders received as specified were found to be the
most common indicators. Order fulfillment rates and order fulfillment cycle time also
increased in the recent years. This means that the level of customer service for
manufacturing firms continued to improve over the past five years. This finding is in line
with the Jay & Barry (2006) study, that inventory management is very crucial to a firm
because it is tailored to satisfying customer’s demands by ensuring that balanced items of
43
stock are maintained at the right quantity, quality and that are available at the right time
and in the right place.
4.5.3 Stock outs

Stock outs indicate where a demand cannot be met due to the absence of the required
inventory and monitoring this helps manufacturing firms know whether they have the
right mix of stock and quantity. The respondents were asked to give an indication of the
approximate number of times a product is out of stock, a product line has been shut down
due to inventory stock out, number of times customers have back-ordered a product and
number of customers lost due to lack of product over a period of five years. The findings
are summarized in Table 4.5.3 showing the resultant means and standard deviation.
Table 4.5.3: Stock Outs
Stock outs 2009 2010 2011 2013 2014 Mean Std

deviation
Number of customers lost
460 340 280 195 82 271.4 0.18
due to lack of product;
Number of times a product
14 8 7 5 4 7.60 0.21
is out of stock;
Number of times a product
line has been shut down due 15 6 3 4 3 6.21 0.15
to inventory stock out;
Number of times customers
11 6 5 2 3 5.40 0.15
have back-ordered a product
From the stock outs assessment, the finding revealed that the number of customers lost
due to lack of product, the number of times a product is out of stock, number of times a
product line has been shut down due to manufacturing inventory stock out, and the
number of times customers have back-ordered a product had reduced significantly over
the past five years. The finding is in line with the Brigham & Ehrhard (2005) study, that
44
inventory management has enabled firms to have adequate quantities of high quality
items available to serve customer needs, while also minimize the costs of carrying
inventory.
4.5.4 Inventory Turnover

Inventory turnover represents the amount of profit earned for every shilling of the
average inventory investment. The respondents were asked to give an indication of the
approximate number of times the firm has sold off or used up its complete inventory and
the number of times inventory has been replaced over a period of five years. The findings
are summarized in Table 4.5.4.
Table 4.5.4: Inventory Turnover
Inventory Turnover 2009 2010 2011 2013 2014 Mean

Number of times the firm has sold off or
3 4 8 7 6
used up its complete inventory 5.6
Number of times inventory has been
2 1 6 4 9
replaced 4.4
From Table 4.5.4, the number of times the firm has sold off or used up its complete
inventory increased over the past five years. The number of times inventory has been
replaced also increased over time. This finding concurs with the Green & Inman (2005)
study, that inventory control eliminates buffer stock and minimizes waste in production
process. Inventory management positively affects the profitability of a business firm.
4.6 Inferential Statistics

4.6.1 Regression Analysis
Further the researcher conducted a multiple regression analysis so as to analyze the
inventory management practices and productivity of large manufacturing firms in
Nairobi, Kenya. The researcher applied the statistical package for social sciences (SPSS)
to code, enter and compute the measurements of the multiple regressions for the study.
45
Table 4.6.1: Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .924 .854 .813 .223
Adjusted R squared is the coefficient of determination which explains the extent to which
changes in the dependent variable can be explained by changes in the independent
variable or the percentage of variation in the dependent variable. From Table 4.6.1, the
value of Adjusted R Square was 0.813 an indication that there was a variation of .813
percent on equitable Firm’s Productivity due to changes in the independent variable
(Activity Based Costing, Just-in-time, Economic Order Quantity, Materials and
Requirements Planning, Vendor Managed Inventory, Distributions Requirements
Planning, Radio Frequency Identification and Barcoding practices).
This shows that 81.3 percent changes in equitable firm’s productivity could be
accounted to inventory management practices (Activity Based Costing, Just-in-time,
Economic Order Quantity, Materials and Requirements Planning, Vendor Managed
Inventory, Distributions Requirements Planning, Radio Frequency Identification and Bar
coding). R is the correlation coefficient which shows the relationship between the study
variables. From Table 4.6.1, it is notable that there extists a strong positive relationship
between the study variables as shown by the value of 0.924.
4.6.2 ANOVA
Table 4.6.2: ANOVA (Analysis of Variance)
Model Sum of Squares Df Mean Square F Sig.
Regression 63.588 4 15.897 7.062 .001b

1
Residual 87.789 39 2.251
46
Total 151.377 43
Critical value = 2.65

Analysis of Variance (ANOVA) consists of calculations that provide information about
levels of variability within a regression model and forms a basis for tests of significance.
The "F" column provides a statistic for testing the hypothesis that all β = 0 against the
null hypothesis that β ≠ 0 (Weisberg, 2005).
From the findings the significance value (p- value) is .001 which is less than 0.05 thus the
model is statistically significance in predicting how Activity Based Costing, Just-in-time,
Economic Order Quantity, Materials and Requirements Planning, Vendor Managed
Inventory, Distributions Requirements Planning, Radio Frequency Identification and
Barcoding practices affect the productivity of large manufacturing firms.
The calculated value at 5% level of significance was 7.062. Since the calculated value is
greater than the critical value (7.062>2.65), this shows that the overall model was
significant and that Activity Based Costing, Just-in-time, Economic Order Quantity,
Materials and Requirements Planning, Vendor Managed Inventory, Distributions
Requirements Planning, Radio Frequency Identification and Barcoding practices all have
a positive effect on the firm’s productivity.
4.6.3 Regression Coefficient

Multiple regression analysis was conducted to determine the relationship between
inventory management practices and productivity of large manufacturing firms.
Table 4.6.3: Regression Coefficients
Unstandardized Standardized
Coefficients Coefficients
Std.
Model B Error Beta T Sig.
1 Constant -1.421 .358 -3.969 .029
47
Activity Based Costing .431 .065 .421 6.631 .001
Just-In-Time .472 .098 .452 4.816 .012
Economic Order Quantity .362 .074 .341 4.892 .018
Materials and Requirements Planning .341 .102 .369 3.343 .003
Vendor Managed Inventory .387 .096 .341 4.031 .017
Distributions Requirements Planning .394 .104 .389 3.788 .394
Radio Frequency Identification .471 .114 .455 4.132 .471
Bar coding .422 .099 .398 4.263 .422
As per the data in Table 4.6.3, the equation
(y = α + β1X1 + β2X2 + β3X3 + β4X4 + β5X5 + β6X6 + β7X7 + β8X8 + ε) becomes:
Y = 1.421+ 0.431X1 + 0.472X2 + 0.362X3 + 0.341X4 + 0.387X5 +0.394X6 + 0.471X7

+0.422X8
The regression equation has established that taking all factors into account (Activity
based costing, Just-in-time, Economic Order Quantity, Materials and Requirements
Planning, Vendor Managed Inventory, Distributions Requirements Planning, Radio
Frequency Identification and Barcoding practices) constant at zero, productivity of large
manufacturing firms will be 1.421.The findings presented also shows that taking all other
independent variables at zero, a unit increase in Activity Based Costing practices will
lead to a 0.431 increase in productivity of large manufacturing firms; a unit increase in
Just-in-time management practices will lead to a 0.472 increase in productivity of large
manufacturing firms; a unit increase in Economic Order Quantity practices will lead to a
0.362 increase in productivity of large manufacturing firms; a unit increase in Materials
and Requirements Planning practices will lead to a 0.341increase in productivity of large
manufacturing firms; a unit increase in Vendor Managed Inventory practices will lead to
a 0.387 increase in productivity of large manufacturing firms; a unit increase in
Distributions Requirements Planning practices will lead to a 0.394 increase in
productivity of large manufacturing firms; a unit increase in Radio Frequency
48
Identification practices will lead to a 0.371increase in productivity of large manufacturing
firms; and a unit increase in Barcoding practices will lead to a 0.422 increase in
productivity of large manufacturing firms. All the variables were significant as their
significant value was less than 0.05 (p-value<0.05).
The finding of the study is in line with the Chapman et al. (2000) study that effective
inventory management has become a critical issue for firms’ productivity. Inventory
management is essential in the operation of any business that wishes to achieve efficiency
in production. Many large manufacturing firms have saved millions of dollars in costs
and decreased inventories while improving efficiency and customer satisfaction though
various inventory management practices .This is because inventory management results
to integration of better production methods to minimize costs and wastages.
The finding also supports the study by Kotler & Keller (2006) that inventory
management has significant for any relevant enterprise in an inventory intensive
manufacturing industry because effective practices in inventory management will allow a
firm to minimize inventory costs and avoid the consequences that come with a shortage
of material resources. Inventories are significant portions of current assets to
manufacturing firms. Holding inventory ensures operational activities proceed
uninterrupted, therefore, to achieve high productivity manufacturing firms apply various
practices of inventory management to determine and maintain an optimum level of
investment in inventory that meets customer demands and reduces inventory costs.
49
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
This chapter presents the summary of the study findings, conclusion and
recommendations drawn from the study findings. The chapter is based on the study
objectives, which were to establish inventory management practices commonly used by
large manufacturing firms in Nairobi, Kenya and to determine the relationship between
inventory management practices and productivity of large manufacturing firms in
Nairobi, Kenya.
5.2 Summary of the Findings

The study established that the firm viewed inventory as one of the most expensive and
important asset that requires proper management so as to minimize costs and maximize
profits while satisfying customers’ demands. The firm considers Just-in-time to
50
manufacture products based on planned elimination of waste and continuous
improvement of productivity; the firm makes what the customers need, when it is needed
and in the quantity needed using the minimum resources; the firm has only the required
inventory when needed; the firm reduces inventory and its associated carrying costs by
using Just-in-time practice; Just-in-time practice improves quality of products to zero
defects; the firm applies Just-in-time practice to reduce lead time by reducing set-up
times, queue lengths and lot sizes at minimum cost; the firm creates items that arrive
when needed, neither earlier nor later; the firm saves warehouse space and costs by
managing inventory; the firm uses Just-in-time practice to timely replenish inventory; and
reduce the frequency of ordering.
The study revealed that the firm classifies its inventory using inventory classification
system so as to allocate time and money in inventory management; Activity Based
Costing practice enables the firm to deal with multiple product lines and multitude of
stock-keeping units; the firm assesses the status of items in inventory using Activity
Based Costing; the firm divides inventory into different classifications of A, B or C and
determine the specific attention required by each group of inventory; the firm focuses on
the items that account for the majority of inventory; the firm uses Activity Based Costing
classification to develop policies and controls for each class of inventory; and for
ultimate reduction of safety stock. This finding concurs with Banjoko (2004), that
product cost determination under Activity Based Costing is more accurate and reliable
because it focuses on the cause and effect linkage of costs and activities in the context of
producing goods.
Further, the study found out that the firm orders the optimal ordering quantity for an item
of stock that minimizes cost; the firm maintains that level of inventory that minimizes the
total of inventory holding costs and ordering cost; the firm estimates how much of an
item to order by using Economic Order Quantity; the firm ensures that supply of
inventory does not hit a stock out; Economic Order Quantity enables the firm to plan for
its inventory replenishment on a timely basis; inventory comes in and goes out
immediately thus minimizing storage costs within the warehouse; the firm uses Economic
Order Quantity in deciding when to order an item of stock; and to determine what items
fit into the Just-in-time model.
51
The study also established that the firm centralizes inventory replenishment decisions
with upstream distributors; the firm buys specified items solely from the distributor and
no longer keeps items in stock; the firm uses Vendor Managed Inventory for supplier
partnerships; the firm reduces chances to defective items and risk of obsolescence; the
firm enhances working capital by reducing inventory levels with use of Vendor Managed
Inventory; the firm eliminates the need to reorder and avoids stock outs; the firm reduces
the overall cost of product and increases on margins by passing costs of ordering and
shipping to the supplier; the firm uses Vendor Managed Inventory to reduce lead times
with enhanced sales; to maintain timely delivery; and to achieve flexibility to responses.
This finding is in line with the Brownell (2005) study that partnership enables
manufacturing firms reduce chances to defective items and the risk of obsolescence
because the supplier is involved and for this to work, proper communication is an
important factor.
The study found out that the firm makes available assemblies just before they are
required by the next stage of production or for delivery; the firm uses Materials
Requirement Planning to control the flow of supplies to meet planned requirements; the
firm track orders throughout the entire manufacturing process; the firm move the right
supplies at the right time to manufacturing points; Materials Requirements Planning
assists the firms in the detailed planning of production and inventory management; the
firm uses Materials Requirements Planning to reduce the amount of idle time; to reduce
warehousing costs and material handling costs; to reduce inventory levels; and to achieve
efficiency of information flow; the firm increases return on assets through decreased
conversion costs by using Materials and Requirements Planning.
The research further revealed that the firm pulls the product through the distribution
system once demand has been identified; the firm sets inventory control parameters like a
safety stock using Distribution Requirements Planning; the firm plans orders within a
supply chain; the firm forecasts requirements for finished products at the point of
demand; the firm uses Distribution Requirements Planning for lower investment in
inventory; Distribution Requirements Planning serves as a central role in coordinating the
flow of goods inside the factory; Distribution Requirements Planning is used by the firm
as a method of handling stock replenishment in a multi-echelon environment; the firm
52
uses Distribution Requirements Planning to reduce lead time; and to improve Customer
Service Delivery. This finding supports the argument by Bailey, Farmer, Barry, Jessop, &
David, (2008) that Distribution Requirements Planning helps to forecast demand and
reflects the distribution system on a time-phased requirement.
The study established that in an effort to improve on productivity, the firm uses
barcoding to reconcile inventory within a short time thus saving both time and costs;
barcoding allows the firm to track merchandise and conduct inventory cycle counts; the
firm enables provides up-to-date information on inventory status by using barcode
labeling; the firm accelerates the flow of products and information; the firm uses
barcoding to verify, check and charge transactions; the firm applies barcoding in
warehouse applications of receiving, put away, picking and shipping; the firm applies
barcording in counting raw materials and finished goods inventory; to identify production
bottlenecks; and for package tracking and lot tracking.
The study found out that the firm transmits the number of an item of stock to a reading
device using Radio Frequency Identification; the firm uses Radio Frequency
Identification practices to handle stock replenishment; the firm identifies components and
products throughout the supply chain by use of Radio Frequency Identification; and track
components and products throughout the supply chain; Radio Frequency Identification
enables the firm to avoid interrupted production or lost sales due to items being out of
stock; the firm ensures that the right goods are available in the right place with no
discrepancies and zero errors; the firm uses Radio Frequency Identification to provide
real-time information about inventory that enables the firm to improve planning
processes.
5.3 Conclusion
The study concluded that inventory management practices affect the productivity of large
manufacturing firms in Nairobi, Kenya. Use of Just-in-time inventory model allows the
firms to reduce overhead expenses while ensuring that parts are available for
manufacturing products. Manufacturing is therefore based on planned elimination of all
waste and continuous improvement of productivity. Product cost determination by
53
Activity Based Costing has been more accurate and reliable because it focuses on the
cause and effect linkage of costs and activities when manufacturing products. Economic
Order Quantity practices have enabled manufacturing firms to estimate how much of an
item should be ordered and when it should be ordered. The firm orders that optimal
quantity for an item of stock that minimizes cost. The total inventory-associated cost
curve has a minimum point and this is the point where total inventory costs have been
successfully minimized.
The study also concluded that manufacturing firms use Vendor Managed Inventory for
supplier partnership and to maintain good working relations between customers and
suppliers. Vendor Managed Inventory relieved the firm of much of the expense of
ordering, shipping the materials, counting inventory and stocking low-value items. By
passing these costs on the supplier, the firms were able to reduce the overall cost of
product and increase on margins. Materials and Requirement Planning has contributed to
making available either purchased or company manufacturing assemblies just before they
are required by the next stage of production or for delivery. Lean Materials and
Requirements Planning inventory system is very useful to manufacturing firms since it
results to relatively low inventory levels.
Further, use of Distribution Requirements planning enables the manufacturing firms to

forecast or project requirements for finished products at the point of demand. This
practice has led to improved customer service since it focuses in placing the goods in the
hands of the customers when needed. The study also concluded that barcode labeling has
been very useful to manufacturing firms to better manage their inventories, since it is a
relatively simple, cost-effective system that provides up-to-date information on inventory
status. Radio Frequency Identification has contributed to the reduction of interrupted
production or lost sales due to items being out of stock and ensuring that goods are
available when needed.
On the other hand, the study also concluded that manufacturing firms are faced with
challenges of inventory management. Overstocking, poor supplier relationships and poor
utilization of Information Technology are some of the factors that have limited inventory
54
management. These firms are also faced with lack of flexibility, that is, entrusting a lot of
sensitive activities with one office and lack of well integrated database system to support
information flow. Most manufacturing firms have not recognized professionalism in
inventory management. Sensitive jobs like purchasing and supply are being done by non-
professionals who lack the know-how in inventory management which has actually
contributed to lack of recognition of the same. As compared to developed countries like
America and Japan, most Kenyan manufacturing firms have a long way to go in terms of
effective and efficient inventory management. Another problem faced by manufacturing
firms, especially small firms is lack of enough cash to employ in inventory management
with well managed database systems. It becomes very expensive for these firms to adopt
inventory management practices.
5.4 Study Limitations
While the objectives of the study were successfully accomplished, limitations of the
study should be noted. A survey methodology was used and which primarily targeted
staff directly involved in the procurement function in their respective organizations. It is
possible to have more refined results if other members in the organizations were included
in the study. Some of the respondents were also not willing to cooperate in filling the
study questionnaires while others took a long time to fill and complete the questionnaire.
To overcome this problem, extra efforts were made via personal calls and visits to
persuade and remind the respondents to fill-in and return the questionnaires in good time.
5.5 Recommendations
Arising from the findings of the study, some pertinent recommendations can be made.
These recommendations are aimed at improving the state of inventory management and
hence competitiveness of Kenyan manufacturing firms. Owing to the huge sum of money
firms spend on inventory, a lot of emphasis or attention needs to be given to inventory
management to enable manufacturing firms achieve best optimal cost structures.
Inventory management needs to be recognized as a top management function.
55
The study recommends that control measures should be taken on stock as it is the case of
cash by large manufacturing firms. This is because stock represents cash and a substantial
share of fund is invested in the firm’s inventory. Manufacturing firms should fully adopt
lean inventory systems in inventory management as this will greatly improve the
performance of the procurement function. Just-in-time systems should also be integrated
by the firms. A good inventory system will help in preventing stock outs, overstocking,
deterioration, obsolescence, and high carrying cost. The firms should make use of a
sound inventory system for decision making in the procurement function and the
company as a whole.
The focus should be on investing in an affordable, smart and effective inventory

management software solution to help ensure that profitability is maintained, and stock
flows optimally through the firm. Manufacturing firms should develop inventory
management software that is able to integrate with a host of other useful programs and
effective at helping the firm accurately keep track of everything that the firm sells. The
firms should set minimum and maximum inventory levels and use the system to notify
managers when a certain item is either reaching overstock or under stock levels.
The study also recommends strategic supplier relationships to be maintained by

manufacturing firms if procurement functions are to operate efficiently and offer quality
services. Long term relationships with suppliers should be sought by the manufacturing
firms. The firms should also enhance their communication with suppliers by adopting
Vendor Managed Inventory which will ultimately shift the responsibility of inventory
management from the procurement function. Supplier appraisal by the procurement
function should be a key element in inventory management as this will help evaluate the
suppliers and choose the best from the many and develop long term round table
relationships with them.
Further, the study recommends that large manufacturing firms in Kenya should adopt
Information Technology in inventory management. Automation can help the firm in stock
control by setting stock control levels and calculating the amount of stocks to hold and
dispatch thus improving the performance of the procurement function. Manufacturing
56
firms should also uphold the use of bar code technology. This helps to eliminate time-
consuming, data-transcription errors that are common with paper records and manual data
entry. The study also recommends that the procurement function of large manufacturing
firms in Kenya should adhere to the legal policies in place as they will help the
procurement function to manage its inventory and improve on performance because of
the legal framework that is provided. Through the procurement department, the
organization should be able to control and monitor inventory related costs. The head of
the department should be answerable to the chief executive officer.
5.6 Suggestions for Further Studies
The study confined itself to inventory management practices and productivity of large
manufacturing firms in Nairobi, Kenya. Other emerging practices like warehouse
management, Information Technology in inventory management, Strategic supplier
partnership, lean inventory systems and legal policies of the procurement function in the
manufacturing industry should also be investigated to establish how they affect
productivity of large manufacturing firms.
57
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60
APPENDIX I
RESEARCH QUESTIONNAIRE
Please give answers in the spaces provided and tick (√) in the box that matches your
response to the questions where applicable.
PART A: DEMOGRAPHIC AND RESPONDENTS PROFILE
1. Name of the Organization:

…………………………………………………………
2. What is your designation at the organization
……………………………………………………
3. How long have you worked in this position?
a) Less than five years ( )
b) 5-10 years ( )
c) Over 10 years ( )
4. What is your education level?
a) Secondary ( )
b) College Diploma ( )
c) University Degree ( )
d) Graduate Degree ( )
e) Others (specify)............................
6. For how long has your organization been in operation?
a) Under 5 years ( )
b) 6 – 10 years ( )
c) 11 – 15 years ( )
d) Over 16 years ( )
7. Do you operate in other countries outside Kenya? Yes ( ) No ( )
If yes, please list the countries that you operate in:
61
………………………………………………………………………………………………
………………………………………………………………………………………………
………………………………………………………………………………
PART B: INVENTORY MANAGEMENT PRACTICES ADOPTED

BY MANUFACTURING FIRMS
8. The firm views inventory as one of the most expensive and important asset that
requires proper management which is tailored to minimizing costs and maximizing
profits while satisfying customers’ demands.
Yes ( ) No ( )
9. a) To what extent has your manufacturing firm used Just-in-time Practices to manage
inventory in an effort to improve on productivity?
(Use the scale of: 1- Very small extent, 2- Small extent, 3- Moderate extent, 4- Great
extent, 5- Very great extent).
Very small
Very great
Just-in-time Practices
Moderate
extent
extent
extent
extent
extent
Great
Small
1.The firm manufactures products based on

planned elimination of waste and continuous
improvement of productivity
2.The firm makes what the customers need,

when it is needed and in the quantity needed
using the minimum resources
3.The firm has only the required inventory when

needed
4.The firm reduces inventory and its associated

carrying costs by using Just-in-time practice
5.The firm uses Just-in-time practice to improves

quality of products to zero defects
6. The firm applies Just-in-time practice to

reduce lead time by reducing set-up times, queue
62
lengths and lot sizes
7.The firm creates items that arrive when needed,

neither earlier nor later
8.The firm saves warehouse space and costs by

managing inventory using Just-in-time practice
9.The firm uses Just-in-time practice to timely

replenish inventory
10.The firm uses Just-in-time practice to reduce

the frequency of ordering
b)To what extent has your manufacturing firm used Activity Based Costing Practices to
manage inventory in an effort to improve on productivity?
Activity Based Costing Practices
Moderate
extent
extent
extent
extent
extent
Great
Small
small
great
Very
Very
1.Activity Based Costing practices enables the firm to
deal with multiple product lines and multitude of stock-
keeping units
2.The firm uses Activity Based Costing as an inventory
classification system to allocate time and money in
inventory management
3.The firm uses Activity Based Costing practice to
assess the status of items in inventory
4.The firm uses Activity Based Costing practice to
determine the specific attention required by each group
of inventory
5.The firm divides inventory into different
classifications of A, B or C
6.The firm focuses on the items that account for the
majority of inventory
7.The firm uses Activity Based Costing classification to
develop policies and controls for each class of inventory
8.The firm uses Activity Based Costing practice for

ultimate reduction of safety stock
63
c)To what extent has your manufacturing firm used Economic Order Quantity Practices
to manage inventory in an effort to improve on productivity?
Economic Order Quantity Practices
Moderate
extent
extent
extent
extent
extent
Great
Small
small
great
Very
Very
1.The firm orders the optimal ordering quantity
for an item of stock that minimizes cost
2.The firm maintains that level of inventory that
minimizes the total of inventory holding costs
and ordering cost
3.The firm uses Economic Order Quantity
practice to estimate how much of an item to
order
practice to ensure that supply of inventory does
not hit a stock out
5.Economic Order Quantity practice enables the
firm to plan for its inventory replenishment on
a timely basis
practice to determine what items fit into the
Just-in-time model
7. Economic Order Quantity practice helps the
firm in deciding when to order an item of stock
8.The firm minimizes storage costs within the
warehouse by use of Economic Order Quantity
practice
9.The firm uses Economic Order Quantity to
ensure that inventory comes in and goes out
immediately
d)To what extent has your manufacturing firm used Vendor Managed Inventory
Practices to manage inventory in an effort to improve on productivity?
Moderate
Vendor Managed Inventory Practices

extent
extent
extent
extent
extent
Great
Small
small
great
Very
Very
1.The firm centralizes inventory replenishment

decisions with upstream distributors
64
2.The firm uses Vendor Managed Inventory
practice for supplier partnerships
3.The firm buys specified items solely from

the distributor and no longer keeps items in
stock
4.The firm uses Vendor Managed Inventory to

reduce chances to defective items and risk of
obsolescence
5.The firm enhances working capital by

reducing inventory levels with use of Vendor
Managed Inventory practice
6.Vendor Managed Inventory practice enables

the firm to eliminate the need to reorder and
avoid stock outs
7.The firm reduces the overall cost of product

and increases on margins by passing costs of
ordering and shipping to the supplier
8. the firm uses Vendor Managed Inventory

practice to reduce lead times with enhanced
sales

practice to maintain timely delivery

practice to achieve flexibility to responses
e)To what extent has your manufacturing firm used Materials Requirements Planning
Very Small Moderate Great Very
Materials and Requirements Planning small extent extent extent great
Practices extent extent
1.The firm makes available assemblies just

before they are required by the next stage of
production or for delivery
65
2. The firm uses Materials Requirement
Planning to control the flow of supplies to
meet planned requirements
3.The firm uses Materials Requirements

Planning to track orders throughout the entire
manufacturing process
4. Materials Requirements Planning enables

the firm to move the right supplies at the
right time to manufacturing points
5. Materials Requirements Planning assists

the firms in the detailed planning of
production and inventory management.

Planning to reduce the amount of idle time

Planning to reduce warehousing costs and
material handling costs
8.The firm reduces inventory levels by using

9.Materials Requirements Planning enables

the firm achieve efficiency of information
flow
10.The firm increases return on assets

through decreased conversion costs by using
f)To what extent has your manufacturing firm used Distribution Requirements Planning
Very Small Moderate Great Very
Distribution Requirements Planning small extent extent extent great
Practices extent extent
1.The firm uses Distribution Requirements

Planning to forecast requirements for finished
products at the point of demand
66
2.The firm plans orders within a supply chain
by using Distribution Requirements Planning
3.Distribution Requirements Planning acts by

pulling the product through the distribution
system once demand has been identified
4. The firm uses Distribution Requirements

Planning to set inventory control parameters
like a safety stock

Planning for lower investment in inventory
6.Distribution Requirements Planning serves as

a central role in coordinating the flow of goods
inside the factory

Planning as a method of handling stock
replenishment in a multi-echelon environment

Planning to reduce lead time

Planning to improve Customer Service
Delivery
g)To what extent has your manufacturing firm used Barcoding Practices to manage
inventory in an effort to improve on productivity?
Barcoding Practices Very Small Moderate Great Very
small extent extent extent great
extent extent
1.The firm uses barcoding to verify, check and
charge transactions
2.The firm uses barcoding to accelerate the flow
of products and information
3. Barcode labeling enables the firm to provide
up-to-date information on inventory status
4.Barcoding allows the firm to track merchandise
and conduct inventory cycle counts
5.The firm uses barcoding to reconcile inventory
within a short time thus saving both time and
costs
67
6.The firm applies barcoding in warehouse
applications of receiving, put away, picking and
shipping
7.Barcoding enables the firm to identify
production bottlenecks
8.The firm applies barcording in counting raw
materials and finished goods inventory
9.Barcoding practices are used by the firm for
package tracking and lot tracking
h)To what extent has your manufacturing firm used Radio Frequency Identification
Radio Frequency Identification Very Small Moderate Great Very

Practices small extent extent extent great
extent extent
1.The firm uses Radio Frequency Identification
to transmit the number of an item of stock to a
reading device
practices to handle stock replenishment
3. Radio Frequency Identification enables the
firm to identify components and products
throughout the supply chain
to track components and products throughout
the supply chain
to provide real-time information about
inventory
6.Radio Frequency Identification enables the
firm to avoid interrupted production or lost
sales due to items being out of stock
7.Radio Frequency Identification ensures that
the right goods are available in the right place
with no discrepancies and zero errors
8.Real time information from Radio Frequency
Identification enables the firm to improve
planning processes
10. Kindly mention other inventory management practices, if any, adapted by your
organization.
………………………………………………………………………………………………
………………………………………………………………………………………………
11. How would you rate your firms overall productivity?
68
a) Extremely poor ( )
b) Below average ( )
c) Average ( )
d) Above average ( )
e) Excellent ( )
12. Kindly provide approximate figures on the variables that are listed in the table below
for the period from 2009 - 2014.
Inventory costs 2009 2010 2011 2013 2014

Total ordering costs (Kshs)
Total storage and holding costs (Kshs)
Cost of stock out (Kshs)
Customer Service 2009 2010 2011 2013 2014

On time delivery (%)
Order fulfillment rates (%)
Order fulfillment cycle time (%)
Orders received as specified (%)
Stock outs 2009 2010 2011 2013 2014

Number of times a product is out of
stock
Number of times a product line has
been shut down due to manufacturing
inventory stock out
Number of times customers have back-
ordered a product
Number of customers lost due to lack
of product
Inventory Turnover 2009 2010 2011 2013 2014

Number of times the firm has sold off
or used up its complete inventory
Number of times inventory has been
replaced
13. Please mention the challenges, if any that are faced in implementing inventory
management practices in large manufacturing firms
69
………………………………………………………………………………………………
…….………………………………………………………………………………………
……………….…………………………………………………………………
Thank you for your cooperation.
APPENDIX II
LARGE MANUFACTURING FIRMS IN NAIROBI, KENYA
Energy, Electricals and Electronics (34)
Alloy Steel Casting Ltd Karan Biofuel Ltd Power Technics Ltd
Amedo Centre Kenya Ltd Kenwest Cables Ltd Powerex Lubricants
Assa Abloy East Africa Ltd Kenya Power Ltd Reliable Electricals
Engineers (Nrb) Ltd
Aucma Digital Technology Libya Oil Kenya Limited Socabelec (E.A) Ltd
Africa Ltd (Formerly Mobil Oil
Kenya)
Avery East Africa Ltd Manufacturers and Solimpexs Africa Ltd
Suppliers (K) Ltd
Baumann Engineering Marshall Fowler Sollatek Electronics
Limited (Engineers) (Kenya) Limited
Biogas Power Holdings Metlex International Ltd Specialised Power Systems
(E.A) Ltd Ltd
Centurion Systems Ltd Metsec Ltd Synergy-Pro
East African Cables Ltd Mustek East Africa Limited Virtual City Ltd
Holman Brothers (E.A) Ltd Optimum Lubricants Ltd Vivo Energy Kenya Ltd
70
Iberaafrica Power (E.A) Ltd PCTL Automation Ltd
International Energy Pentagon Agencies
Technik Ltd
Building, Mining and Construction (20)
Athi River Mining Ltd Karsan Murji and Company Mombasa Cement Ltd
Limited
Bamburi Cement Limited Kay Salt Ltd Orbit Enterprises Ltd
Bamburi Special Products Kemu Salt Packers Saj Ceramics Ltd
Ltd
Central Glass Industries Kenbro Industries Ltd Savannah Cement
Flamingo Tiles (Kenya) Kenya Builders and Skylark Construction Ltd
Limited Concrete Ltd
Glenn Investments Ltd C/O Malindi Salt Works Wareng Ndovu Enterprises
The Mehta Group Ltd 2005
Homa Lime Company Ltd Manson Hart Kenya Ltd
Chemical and Allied (70)
Basco Products (K) Ltd Elux Products Ltd Pan Africa Chemicals Ltd
Bayer East Africa Ltd Eveready Batteries East Polychem East Africa
Africa Ltd
Beiersdorf East Africa Ltd Faaso Exporters Ltd Procter and Gamble East
Africa Ltd
Blue Ring Products Ltd Galaxy Paints and Coating PZ Cussons EA Ltd
Co. Ltd
BOC Kenya Limited Grand Paints Ltd Reckitt Benckiser (E.A) Ltd
Buyline Industries Limited Haco Tigerbrands East Revolution Stores Ltd
Africa Ltd
Canon Chemicals Limited Henkel Kenya Ltd Rumorth Group of
Companies Ltd
Canon Chemicals Limited Intercomsumer Products SC Johnson and Son Kenya
71
(Former United Chemicals) Ltd
Ltd
Carbacid (CO2) Limited Johnson Diversey East Sadolin Paints (E.A) Ltd
Africa
Chemicals and Solvents KAPI Limited Sanergy
(E.A) Ltd
Chrysal Africa Ltd Kel Chemicals Limited Soilex Prosolve Limited
Coates Brothers (E.A) Kip Melamine Co. Ltd Strategic Industries Limited
Limited
Continental Products Kridha Limited Supa Brite Ltd
Coopers K Brands Ltd Maroo Polymers Ltd Superfoam Ltd
Coopers K-Brands Ltd Match Masters Ltd Syngenta East Africa Ltd
Coopers Kenya Ltd MEA Ltd Synresins Ltd
Crown Berger Kenya Ltd Metoxide Africa Ltd Tata Chemicals Magadi Ltd
Crown Gases Ltd Milly Glass Works Ltd Tri-Clover Industries (K)
Ltd
Crown Paints (Kenya) Ltd Murphy Chemicals Ltd Twiga Chemicals Industries
Limited
Darfords Enterprises Ltd Oasis Limited Unilever East and Southern
Africa
Deluxe Inks Ltd Odex Chemicals Ltd Vitafoam Products Limited
Desbro Kenya Limited Orbit Chemicals Industries Westminister Paints and
Limited Resins Ltd
Diversey Eastern and Orbit Enterprises Ltd
Central Africa Limited
Eastern Chemicals Osho Chemicals Industries
Industries Ltd
Food and Beverage (71)
Africa Spirits Limited Jambo Biscuits (K) Ltd New Kenya Co-operative
Creameries Ltd
72
Agriner Agriculture Kabianga Dairy Ltd Nicola Farms Ltd
Development
Agro Chemical and Food Kakuzi Ltd Nutro Manufacturers EPZ
Company Ltd Ltd
Alpine Coolers Limited Kapa Oil Refineries Palmhouse Diaries Ltd
Limited
Arkay Industries Ltd Kenafric Industries Ltd Patco Industries Limited
Belfast Millers Ltd Kenblest Limited Pearl Industries Ltd
Broadway Bakery Ltd Kenya Nut Company Ltd Pembe Flour Mills Ltd
Brookside Dairy Ltd Kenya Sweets Ltd Proctor and Allan (E.A) Ltd
Bunda Cakes and Feeds Ltd Kenya Tea Development Promasidor Kenya Ltd
Agency
Buzeki Dairy Limited Kenya Tea Growers Sigma Supplies Ltd
Association
C. Dormans Ltd Kevian Kenya Ltd Spice World Ltd
Candy Kenya Ltd Kwality Candies and The Breakfast Cereal
Sweets Ltd Company (K) Ltd
Capwell Industries Limited Lazi Dairies Alliance Ltd Unga Group Ltd
Chirag Kenya Limited London Distillers United Millers Ltd
Deepa Industries Limited Mafuko Industries Limited Usafi Services Ltd
Edible Oil Products Mayfeeds Kenya Limited Valley Confectionery Ltd
Europack Industries Milly Fruit Processors Ltd Valuepak Foods
Limited
Farmers Choice Ltd Mini Bakeries (Nbi) Ltd W.E. Tilley (Muthaiga) Ltd
Githunguri Dairy Farmers Mjengo Ltd Wananchi Marine Products

Co-operative Society (K) Limited
73
Global Fresh Ltd Mombasa Maize Millers Wrigley Company (E.A)
Ltd
Global Tea and Mount Kenya Bottlers Ltd Xpressions Flora Ltd
Commodities (K) Limited
Gonas Best Ltd Mzuri Sweets Ltd
Green Forest Foods Ltd NAS Airport Services Ltd
Happy Cow Ltd Nesfoods Industries Ltd
Insta Products (EPZ) Ltd Nestle Foods Kenya Ltd

Leather and Footwear (7)
Alpharama Limited C and P Shoe Industries Ltd Zingo Investments Ltd
Bata Shoe Company Leather Industries of Kenya

(Kenya) Ltd Ltd
Budget Shoes Limited Sandstorm Africa Limited
Metal and Allied (66)
African Marine and General Elite Tools Napro Industries Limited

Engineering Co. Ltd
Allied East Africa Ltd Elite Tools Ltd Narcol Aluminum Rolling
Mills Ltd
Alloy Steel Casting Ltd Farm Engineering Ndume Ltd
Industries Limited
Apex Steel Limited Friendship Container Orbit Engineering Ltd
Manufacturers Limited
Apex Steel Limited Rolling Friendship Container Richfield Engineering Ltd
Mill Division Manufacturers Ltd
Ashut Engineers Ltd General Aluminum Rolmil Kenya Ltd
Fabricators Ltd
ASL Limited-Steel Division Greif East Africa Ltd Sheffield Steel Systems Ltd
ASP Company Ltd Hobra Manufacturing Ltd Soni Technical Services Ltd
74
Athi River Steel Plant Insteel Limited Southern Engineering Co.
Ltd
Blue Line Wire Products Kaluworks Ltd Specialised Engineering Co.
Ltd (E.A) Ltd
Booth Extrusions Limited Kens Metal Industries Standard Rolling Mills Ltd
Brollo Kenya Limited Kenya General Industries Steel Structures Ltd
Ltd
City Engineering Works Khetshi Dharamshi and Co. Steelmakers Ltd
(K) Limited Ltd
Cook N Lite Ltd Kitchen King Ltd Steelwool (Africa) Ltd
Corrugated Sheets Ltd Laminate Tube Industries Tarmal Wire Products Ltd
Limited
Crystal Industries Ltd Mabati Rolling Mills Technosteel Industries
Limited Limited
Davis and Shirtliff Ltd Marvel Lifestyle Ltd Tononoka Steel Ltd
Devki Steel Mills Ltd Mecol Limited Vicensa Investments Ltd
Doshi Enterprises Ltd Metal Crowns Ltd Viking Industries Ltd

East Africa Glassware Mart Modulec Engineering Warren Enterprises Ltd
Ltd Systems Ltd
East Africa Spectre Limited Nail and Steel Products Ltd Welding Alloys Limited
East African Foundry Nampak Kenya Ltd Wire Products Ltd
Works (K) Ltd
Motor Vehicle and Accessories (27)
Alamdar Trading Company Chui Auto Spring Industries Mann Manufacturing Co.
Limited Ltd Ltd
Associated Battery CICA Motors Megh Cushion Industries
Manufacturers (E.A) Ltd Ltd
Associated Vehicle Foton East Africa Ltd Mutsimoto Company
Assemblers Ltd Limited
75
Auto Ancillaries Ltd General Motors East Africa Pipe Manufacturers Ltd
Limited
Auto Springs Manufacturers Impala Glass Industries Ltd Sohansons Limited
Ltd Company
Autofine Filters and Seals Kenya Grange Vehicle Theevan Enterprises Ltd
Ltd Industries Ltd
Automotive and Industrial Kenya Vehicle Toyota Kenya Ltd
Battery Manufacturers Manufacturers Limited
Banbros Ltd King-Bird (K) Ltd Unifilters Kenya Ltd
Bhachu Industries Ltd Labh Singh Harnam Singh Varsani Brakelinings Ltd
Ltd
Paper and Board (63)
Paper House of Kenya Ltd Flora Printers Ltd Paper House of Kenya Ltd
Adpak International Ltd General Printers Ltd Paperbags Limited
Allpack Industries Ltd Graphics and Allied Ltd Pressmaster Ltd
Andika Industries Ltd Guaca Stationers Ltd Printing Services Ltd
Associated Paper and Highland Paper Mills Ltd Printpak
Stationery Ltd
Autolitho Ltd Icons Printers Ltd Printpak Multi Packaging
Ltd
Bag and Envelope Interlabels Africa Ltd Primtwell Industries Ltd
Converters
Bags and Balers International Paper and Punchlines Ltd
Manufacturers (K) Ltd Board Supplies Ltd
Cempack Solutions Ltd Kartasi Industries Limited Ramco Printing Works Ltd
Chandaria Industries Ltd Kenafric Diaries Regal Press Kenya Ltd
Colour Labels Ltd Kenya Litho Ltd Sintel Security Print
Solutions Ltd
76
Colour Packaging Limited Kim-Fay East Africa Ltd Soloh Worldwide
InterEnterprises Ltd
Colourprint Ltd L.A.B International Kenya Stallion Stationary
Ltd Manufacturers Ltd
D.L Patel Press Ltd Label Converters Standard Group Ltd
De La Rue Currency and Manipal International Statpack Industries Ltd
Security Print Ltd Printing Press Ltd
Dodhia Packaging Limited Modern Lithographic (K) Taws Limited
Ltd
East Africa Packaging Mufindi Paper Ltd Tetra Pak Ltd
Industries Limited
Elite Offset Ltd Nation Media Group The Rodwell Press Ltd
Limited Printing Plant
Ellams Products National Printing Press Twiga Stationers and
Limited Printers Ltd
Ellams Products Ltd Packaging Manufacturers Uneeco Paper Products Ltd
(1976) Ltd
English Press Limited Palmy Enterprises United Bags Manufacturers
Ltd
Pharmaceutical and Medical Equipment (21)
African Cotton Industries Elys Chemical Industries Novelty Manufacturing Ltd

Ltd Limited
Alpha Medical Gesto Pharmaceuticals Ltd Oss. Chemie (K) Limited
Manufacturers Ltd
Beta Healthcare Glaxo Smithkline Kenya Pharm Access Africa Ltd
International Ltd
Biodeal Laboratories Ltd KAM Industries Pharmaceutical
Manufacturing Co. (K) Ltd
Biopharma Ltd Laboratory and Allied Regal Pharmaceuticals Ltd
Limited
77
Cosmos Limited Manhar Brothers (K) Ltd Revital Healthcare (EPZ)
Ltd
Dawa Limited Medivet Products Ltd Universal Corporation
Limited
Plastic and Rubber (68)
ACME Containers Ltd Kenya Suitcase Sanpac Africa Ltd

Afro Plastics (K) Ltd King Plastic Industries Ltd Shiv Enterprises (E) Ltd
Betatrad (K) Ltd Kinpash Enterprises Ltd Signode Packaging Systems
Ltd
Bluesky Industries Ltd L.G Harris and Co. Ltd Silpack Industries Limited
Bobmil Industries Ltd Laneeb Plastic Industries Solvochem East Africa Ltd
Ltd
Brush Manufacturers Metro Plastics Kenya Springbox Kenya Ltd
Limited
Cables and Plastics Ltd Mombasa Polythene Bags Styloplast Limited
Ltd
Canaaneast Company Nairobi Plastics Ltd Styroplast Limited
Complast Industries Ombi Rubber Rollers Ltd Sumaria Industries Ltd
Limited
Coninx Industries Ltd Packaging Industries Ltd Super Manufacturers Ltd
Dune Packaging Limited Packaging Masters Limited Techpak Industries Ltd
Dynaplas Limited Plastic Electronics Thermopak Ltd
Elgon Kenya Ltd Plastics and Rubber Top Pak Ltd
Industries Ltd
Eslon Plastics of Kenya Ltd Polly Propelin Bags Ltd Treadsetters Tyres Ltd
Five Star Industries Ltd Polyblend Limited Umoja Rubber Products
Limited
Fleya Kenya Limited Polyflex Industries Limited Uni-Plastics Limited
General Plastics Limited Polythene Industries Ltd Vectus Kenya
78
Hi-Plast Ltd Premier Industries Limited Vyatu Ltd
Jamlam Industries Ltd Prosel Ltd Wonderpac Industries Ltd
Jumbo Chem Pyramid Packaging Ltd Zaverchand Punja Ltd
Kamba Manufacturing Raffia Bags (K) Ltd
(1986) Ltd
Kenpoly Manufacturers Rubber Products Ltd
Limited
Kenrub Ltd Safepak Limited
Kentainers Ltd Sameer Africa Ltd
Textile and Apparels (35)
Adpack Limited Kikoy Co. Ltd Squaredeal Uniforms

Centre Ltd
Alltex EPZ Ltd Le Stud Limited Staightline Enterprises
Alpha Knits Ltd Leena Apparels Ltd Summit Fibres Limited
Ashton Apparel EPZ Ltd Lifeworks Shukrani Limited Sunflag Textile and
Knitwear Mills Ltd
Bedi Investments Limited Longyun Garments Tarpo Industries Limited
Brilliant Garments Midco Textiles (EA) Ltd Teita Estate Ltd
Fantex (K) Ltd New Wide Garments (K) Thika Cloth Mills Ltd
Ltd
Kamyn Industries Limited Ngecha Industries Ltd United Aryan (EPZ) Ltd
Kavirondo Filments Ltd Senior Best Garments Vajas Manufacturers Ltd
Kenya EPZ Ltd
Kema (EA) Limited Shin-Ace Garments Kenya Wildlife Works (EPZ) Ltd
(EPZ) Ltd
Ken-Knit (Kenya) Ltd Spin Knit Limited World of Kikoys
Kenwear Garment Spinners and Spinners Ltd
Manufacturers
Timber, Wood and Furniture (17)
79
Comply Industries Ltd Panesars Kenya Ltd TimberTreatment
International Ltd
Economic Housing Group PG Bison Ltd Timsales Ltd
Ltd
Elburgit Enterprises Ltd Rai Plywoods (Kenya) Ltd Woodtex Kenya Ltd
Fine Wood Works Ltd Rosewood Furniture
Manufacturers
Furniture International Shah Timber Mart Ltd
Limited
Kenya Wood Limited Shamco Industries Ltd
Newline Ltd Shayona Timber
Source: Kenya Association of Manufacturers, (2015)
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INVENTORY MANAGEMENT PRACTICES AND PRODUCTIVITY

OF LARGE MANUFACTURING FIRMS IN NAIROBI, KENYA

FLORENCE NYAMBERE NGUMI

A RESEARCH PROJECT SUBMITTED IN PARTIAL

Florence Nyambere Ngumi

Dr. Peterson Obara Magutu

Department of Management Science

Table 3.1: Sample Size ..................................................................................................... 19

Figure 2.1 : Conceptual Model ..........................................Error! Bookmark not defined.

SCM: Supply Chain Management

SKU: Stock-keeping units

AUV: Annual Usage Value

ROP: Re-order Point

EPOS: Electronic Point of Sale

EOQ: Economic Order Quantity

ABC: Activity Based Costing

MRP: Materials Requirements Planning

VMI: Vendor Managed Inventory

DRP: Distribution Requirements Planning

RFID: Radio Frequency Identification

SPSS: Statistical Package for Social Sciences

KAM: Kenya Association of Manufacturers

GDP: Gross Domestic Product

1.1 Background of the Study

In today’s world of intense competition fueled by globalization, increasing consumer

1.1.1 Inventory Management Practices

1.1.2 Firm’s Productivity

1.1.3 Large Manufacturing firms in Nairobi, Kenya

Manufacturing is an important sector in Kenya’s economy since it makes a substantial

Manufacturing firms in Kenya are characterized by elongated or overextended chains of

1.3 Research Objectives

The study objectives include:

a) To establish Inventory Management Practices commonly used by large

1.4 Value of the Study

2.2 Theoretical Framework of Inventory Management Practices

2.2.1 Theory of Constraints

The theory of constraints is a management philosophy that seeks to increase

2.3 Inventory Management Practices

Inventory management is very crucial to a firm because it is tailored to minimizing costs

By dividing a company’s inventory into different classifications- A, B, or C, Onwubolu et

2.3.2 Just-In-Time Management Practices

JIT is a Philosophy of manufacturing based on planned elimination of all waste and

2.3.3 Economic Order Quantity Practices

Materials requirement planning is a practice that makes available either purchased or

2.3.5 Vendor Managed Inventory Practices

Vendor-managed inventory is a practice in which inventory replacement decisions are

2.3.6 Distribution Requirements Planning Practices

Distribution Requirements planning is a practice for forecasting or projecting

It is used as a method of handling stock replenishment in a multi-echelon environment

2.3.7 Barcoding Practices

Barcodes accelerate the flow of products and information throughout business. An

Barcoding is applied in counting raw materials and finished goods inventories;

2.3.8 Radio Frequency Identification Practices

Productivity measurements serve as scorecards of the effective use of resources by

2.5 Inventory Management Practices and Firm’s Productivity

Inventory management has significant for any relevant enterprise in an inventory

2.6 Summary of Literature Review and Research Gap

2.6.1 Conceptual Model

In this section, the identified variables to be investigated for interrelationship are