FACTORS INFLUENCING EFFICIENT INVENTORY MANAGEMENT IN THE INSURANCE INDUSTRY IN KENYA: A CASE OF CIC INSURANCE IN NAIROBI COUNTY
A RESEARCH PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DIPLOMA IN PURCHASING AND SUPPLIES MANAGEMENT, OF UNIVERSITY OF NAIROBI
DEDICATION
This research is dedicated to all my family members and friends for their inspiration, support, encouragement and understanding throughout the research period.
God bless you all.
ACKNOWLEDGEMENT
It is not easy to thank everyone who had an input into this research, for the list is almost inexhaustible. However, there are those individuals and institutions, without whom, the research consultation and interviews would have been near impossible to take place.
I wish to register my sincere gratitude to some of the contributors including my lecturers and supervisors for the light they shed on me and the encouragement since we met and all along, for the success of this research.
TABLE OF CONTENTS
LIST OF ABBREVIATIONS/ACCRONYMS. x
1.1 Background of the Study. 1
1.1.1 Concept of Inventory Management 2
1.1.2 Factors influencing efficiency in inventory management 3
1.2 Statement of the Problem.. 5
1.4 Objectives of the study. 6
1.5 Significance of the Study. 7
1.6 Delimitation’s the Study. 7
1.7 Limitations of the Study. 8
1.8 Definition of Significant Terms used in the Study. 8
2.2 Inventory Management in Organizations. 10
2.2.1 Conceptual Framework. 10
2.3 Factors Influencing Efficiency in Inventory Management in Organizations. 12
2.3.1 Quantity of Obsolete Inventory. 12
2.3.2 Organizational Policies. 13
2.3.4 Information Technology. 15
2.5 Summary of the Literature Review.. 18
RESEARCH DESIGN AND METHODOLOGY.. 20
3.4 Sample Design and frame. 21
3.6 Data Collection Procedures. 22
3.7 Data Analysis Techniques. 23
DATA ANALYSIS AND INTERPRETATIONS. 24
4.2.1 Gender Distribution of the Respondents. 24
4.2.2 Age of the Respondents. 25
4.2.3 Length of Working in the Company. 26
4.2.5 Respondents’ Departments. 27
4.3 Factors Influencing Efficiency in Inventory Management 27
4.3.1 Quantity of Obsolete Inventory. 28
4.3.2 Inventory Management Policies. 30
4.3.4 Information Technology. 36
SUMMARY OF FINDINGS, CONCLUSIONS, DISCUSSIONS AND RECOMMENDATIONS 39
5.2 Summary of the Findings. 39
5.5 Recommendations for Further Studies. 42
Appendix I: Research Questionnaire. 47
LIST OF TABLES
Table 3.1: Target Population. 25
Table 4.2: Gender of the Respondents. 29
Table 4.3: Age Brackets of the Respondents. 30
Table 4.4: Respondents’ Duration of Work in the Company. 31
Table 4.5: Respondents’ Level of Education. 32
Table 4.6: Respondents’ Departments. 33
Table 4.7: Effect of Obsolete Stock Affects Inventory Management 34
Table 4.8: Level of Agreement on Aspects of Obsolete Inventory. 36
Table 4.9: Existence of Inventory Management Policies. 37
Table 4.10: Extent to which Inventory Management Policies are executed. 38
Table 4.11: Extent that Management Policy affects Inventory Management 39
Table 4.12: Encouragements of Staff Training by Employer 41
Table 4.13: Guidance of Staff on Performance. 42
Table 4.14: Efforts to Improve Skills of Employee. 43
Table 4.15: Application of IT on Inventory Management 45
LIST OF FIGURES
Figure 4.1: Extent to which Obsolescence Affects Inventory Management 35
Figure 4.2: Competence of Staff 39
Figure 4.3: Need for Staff Training on Inventory Management 40
Figure 4.4: Frequency of Training Sessions. 41
Figure 4.5: Encouragement of Further Study. 43
Figure 4.6: Existence of Information Technology. 44
Figure 4.7: Use of Information Technology in Inventory Management 45
LIST OF ABBREVIATIONS/ACCRONYMS
CEI Cost of Excess Inventories
CEO Chief Executive Officer
CIC Co-operative Insurance Company of Kenya
IT Information Technology
LTD Limited
SPSS Statistical Package for Social Sciences
ABSTRACT
Inventory management is the process that usually involves controlling the transfer in of units in order to prevent the inventory from becoming too high, or dwindling to levels that could put the operation of the company into jeopardy. Factors influencing efficiency in inventory management consist of essential tasks that must be executed in order to realize business goals. This study sought to investigate the factors influencing efficient inventory management in the insurance industry in Kenya with a special focus on CIC insurance in Nairobi County. This was a case study since the unit of analysis was one organization. The target population of this study was the staff working in the Head Office of CIC insurance in Nairobi. There was approximately one hundred and eighteen (118) management staff currently serving in the Head Quarters of CIC insurance in Nairobi. These were spread across 7 Departments which included Credit Department, Department of Finance, Human Resource Department, Sales and Marketing Department, Operations Department, Public Relations Department and IT Department. The study sampled 47 top, middle and low level management staff using stratified random sampling method. The researcher used both primary and secondary data. Primary data was collected using a survey questionnaire. The close-ended questions enabled the researcher to collect quantitative data. Descriptive analysis was used to analyze the respondents’ views about the critical success factors influencing inventory management in CIC insurance. The data was then grouped into various categories. The quantitative data was presented in tables and charts as well as quantitative statistics like percentages, frequencies, means and standard deviations. The study recommends that, proactive inventory control practices should be employed to make a measurable difference in the organizations’ operations as far as inventory cost is involved. To counter the challenge of high inventory costs, the organization should consider ordering goods in bulk over a given period of time well predicted according to demand. The research also recommends that there is need to have a good inventory management system, well recruit trained staff and adequate standby IT personnel to aid in system issues. The organization should use IT to manage the inventory. These systems eliminate events of stock outs. To eliminate organizational challenges, the researcher recommends most levels that cause bureaucracy in approving orders are eliminated and that there are fewer levels for stock approval. The study recommended that skilled personnel be assigned duties on demand forecast so as to be competent on forecast demand in relation to environmental changes.
CHAPTER ONE:
INTRODUCTION
1.1 Background of the Study
The insurance industry provides protection against financial losses resulting from a variety of hazards. By purchasing insurance policies, individuals and businesses can receive compensation or indemnification for losses due to car accidents, theft of property, and fire damage; medical expenses; and loss of income due to disability or death. The industry players consist mainly of insurance carriers (companies) and insurance agencies and brokerages. Insurance industry facilitates investments to harness new technologies. Globally, it is clear that a massive scheme of adaptation measures are needed, especially in the most vulnerable countries – countries that have contributed least to climate change but will suffer worst from its effects (Bergsteiner, 2005).
Insurance solutions have the potential to provide tangible results for the most vulnerable countries and soften the blow of climate-related disasters. Inventory management in the insurance industry concerns most managers of marketing and supply businesses, whether they are retail, wholesale, or service oriented. Inventory status entails record keeping function, keeping track of receipts, internal transfers and allocation of goods in the warehouse material allocated to orders and find withdraws or shipment from the warehouse. Viability of the insurance business relies on many factors, one of which is a reliable inventory management system. Risk pooling in the insurance business suggests that demand variability is reduced if one aggregates demand across locations because as demand is aggregated across different locations, it becomes more likely that high demand from one customer will be offset by low demand from another. This reduction in variability allows a decrease in safety stock and therefore reduces average inventory.
Inventory management that is properly maintained can keep a company’s supply chain running smoothly and efficiently. However, there are many challenges in inventory management that can occur both in private and public sectors. They can cost an organization more money and can lead to an excess of inventory (overstock) that is difficult to move. Most of these challenges are usually due to poor inventory processes, out-of-date systems untrained staff assigned responsibility of managing inventories, poor focusing of demand, poor organizational structure adopted by the organization and others more. This study concerns itself with investigating the factors that influence efficient inventory management in the insurance industry.
1.1.1 Concept of Inventory Management
Inventory refers to stocks of anything necessary to do business (Hadley and Whitin, 2000). These stocks represent a large portion of the business investment and must be well managed in order to maximize profits. Inventory consists of all goods owned and held for customer satisfaction. It is therefore important for any organization to keep a good balance between the amount of inventory to keep at any one time so as to ensure that both internal and external customers are satisfied without causing the organization to incur high inventory costs. Unless inventories are controlled, they are unreliable, inefficient and costly. Inventory, to many business owners, is one of the more visible and tangible aspects of doing business (Bose, 2006). Raw materials, goods in process and finished goods all present various forms of inventory. In recent years there has been increasing pressure on all levels of governments globally to improve performance (Koumanakos, 2008). The inventory management policy and procedure minimizes inventory and costs of inventory ownership. The Procedure ensures the best inventory practices are employed and align with overall company financial objectives and meet operational needs.
Inventory management is the process of efficiently overseeing the constant flow of units into and out of an existing inventory. This process usually involves controlling the transfer in of units in order to prevent the inventory from becoming too high, or dwindling to levels that could put the operation of the company into jeopardy. According to Mattsson (2007) competent inventory management also seeks to control the costs associated with the inventory, both from the perspective of the total value of the goods included and the tax burden generated by the cumulative value of the inventory. The objective of inventory management is to replace a very expensive asset called inventory with a less expensive asset called information. In order to accomplish this objective, the information must be timely, accurate, reliable and consistent.
Inventory management answers the question of how much inventory is needed to buffer against the fluctuations in forecast, customer demand and supplier deliveries. Inventory management is therefore important in order to maximize customer service, maximize efficiency of purchasing and production, minimize inventory investment and maximize profit (Mattsson, 2007). Inventory management in the insurance industry is concerned with planning and control of information flow. It is a process by which events are made to conform to a plan. Inventory in the insurance industry is a key business consideration in the attempt to achieve supply chain optimization (Lysons 2003). This is evident by the fact that inventory especially of a capital nature becomes absolute before its total life time out right lack of use of some assets for period of time.
In Kenya, a lot of developments have taken place at the natural level both at the public and private sector giving a lot of value to inventory. Many organizations are currently facing inventory management problems such as distributing inventory on-time and maintain the correct inventory levels to satisfy the customer or end users (Thummalapalli, 2010). Organizations understand the need for maintaining the accurate inventory levels but sometimes fall short leading a wide performance gap in maintaining inventory accurately. The inventory inaccuracy can consume much of the investment on purchasing inventory and many times leads to excessive inventory. As such it is worth looking at the various critical success factors influencing inventory management.
1.1.2 Factors influencing efficiency in inventory management
The factors that influence efficiency in inventory management consist of essential tasks that must be executed in order to realize business goals. By identifying these efficiency factors, organizations can establish a common reference point for managers and employees, and create a meaningful context for day-to-day work (Lysons 2003). Inventory management challenges are a vexing problem for organizations, affecting operational efficiency, customer satisfaction and revenue. The challenges have existed for too long and are universal, thus not limited to a single organization but to all businesses. It is not only limited to the public sector but also to the private sector organizations such as CIC insurance. Many organizations around the world have not given inventory management the prominence it deserves in spite of its varied importance.
The rapid growth of the insurance business has created the opportunity for insurance companies to perform inventory management. However this also creates the need for them to put into place a robust business continuity environment and backup arrangements as well as user-friendly service level agreements. Currently the challenges that faces insurance companies in their inventory management functions are existence of both positive and negative variances, obsolete stock, overstocking and under stocking of some materials, theft cases and unpredictable customer demands. The insurance industry in Kenya continues to face various challenges in inventory management with regard to competition, technological advancements, government policies and customer service which all affect the effectiveness of inventory management in the insurance companies. As such this study focuses on the critical success factors in inventory management in Kenyan insurance industry where the focus was on CIC insurance Company.
1.1.3 CIC Insurance
The Co-operative Insurance Company of Kenya (CIC) was founded in 1978 and is wholly owned by over 1,350 co-operative societies and about 2,500 individual co-operative members. CIC is a composite Insurance company, transacting both long term and general business, and is the only Co-operative insurance company in Africa. However due to change in the insurance Act, CIC is in the process of restructuring to separate General Business from Life. In addition the company plans to establish other subsidiaries, including CIC Asset management (already established) to create synergy and take advantage of related businesses.
The subsidiaries are expected to become operational by 2011. In the last 12 years CIC has undergone major transformations and growth to become the fourth largest life business underwriter in Kenya, and ninth largest insurance general business underwriter out of forty three Insurance companies in Kenya. CIC is currently the market leader in cooperative and microfinance sectors with an average growth of 27% over the last five years. Over the years CIC has built partnerships and memberships that have propelled the company to its current position in the insurance Industry in Kenya. CIC is a member of International Co-operative Alliance (ICA) and International Co-operative and Mutual Insurance Federation (ICMIF).
The rapid growth of business has created the opportunity for the Company to perform inventory management. In building their inventory system, CIC conducted detailed surveys to understand the inventory purpose and relative risk levels. The inventory underwent periodic updates as inventory models change and new models emerge. Several benefits are evident such as increased awareness and understanding of the models used to support significant business decisions. Development of the inventory management system in CIC is based on materiality and overall risk, and more robust validation processes have identified important areas for improvement. However, business costs significantly grow with each year and most of the cost is absorbed to the cost of holding inventory. While inventory is a prerequisite for operation, they are expensive to store and they tie up operating capital in the Company hence the need to investigate the problem of inventory management in CIC Company.
1.2 Statement of the Problem
There are a number of challenges that cause confusion with inventory management in the insurance firms. Some of the more common challenges with inventory management systems include unqualified employees in charge of inventory. In the insurance industry as in other service industries, there is difficulty in determining the desired stock levels that ensure a free flow of materials without incurring heavy expenses in stocking those materials. While many factors may be responsible for the increase in the obsolete and slow moving stocks, majority of the insurance companies which is associated with logistics have continuously emphasized on the need to invest in logistic management and particularly on inventory management.
The problem of inventory management in the insurance companies may be attributed to high quantities of obsolete stock (like stationeries) held in an organization, extended lead times, resistance to change by both the top management and employees, lack of trained staff on inventory management skills, and lastly inaccurate demand forecast. There is difficulty in determining the desired stock levels that ensure a free flow of materials without incurring heavy expenses in stocking those materials. The inventory in the insurance companies has not been able to run the organisations smoothly as there have been several stock outs or total lack of various stock items. There is also an inaccurate or uncertain demand forecast, a source of uncertainty affecting inventory levels at the police department. This has increased the need for safety stock to meet future demand regardless of the demand uncertainty.
Despite the importance of inventory management in organizations, there has been no current nor recent study that has investigated the factors influencing efficient inventory management in the developing countries like Kenya. As such there exists a knowledge gap with regard to the factors influencing efficient inventory management in the insurance industry in Kenya. This study, therefore, sought to investigate the critical success factors influencing inventory management in the insurance industry in Kenya with a special focus on CIC insurance.
1.3 Purpose of the Study
This study sought to investigate the factors influencing efficient inventory management in the insurance industry in Kenya with a special focus on CIC insurance in Nairobi County.
1.4 Objectives of the study
The objectives of the study were:
- To establish how quantity of obsolete stocks influence efficiency of inventory management in the insurance industry in CIC
- To determine how organizational policies influence efficiency of inventory management in the insurance industry in CIC.
iii. To assess how training influences efficiency of inventory management in the insurance industry in CIC
- To establish how information technology influences efficiency of inventory management in the insurance industry in CIC
1.4 Research Questions
For the study to achieve the above mentioned objectives it was guided by the following research questions:
- How does quantity of obsolete stocks influence efficiency of the inventory management in the insurance industry in CIC?
- How do organizational policies influence efficiency of inventory management in the insurance industry in CIC?
iii. How does training influence efficiency of inventory management in the insurance industry in CIC?
- How does information technology influence the efficiency of inventory management in the insurance industry in CIC?
1.5 Significance of the Study
The study would be important not only to CIC insurance managers but also other managers in the insurance sector and to larger extent managers of other industries. It would help them understand the various critical success factors in inventory management and how insurance firms can achieve competitive edge. The study would also help other managers know the methods used in gathering and applying critical success factors in inventory management, which help them improve their inventory management styles.
This study would be important to the policy makers in the insurance industry as they would be able to know for certain what critical success factors play a bigger role in shaping their inventory management and how they can affect the performance of the insurance companies in order to remain competitive.
The study would act as a source of reference material for future researchers on other related topics; it would also help other academicians who undertake the same topic in their studies. The study highlights other important relationships that require further research; this would be in the areas of relationships between critical success factors in inventory management and performance.
1.6 Delimitation’s the Study
The study was about the factors influencing the efficiency of inventory management in the insurance industry in firms in Kenya. This study was delimited to CIC insurance Company’s Head Office in Nairobi County. This involved collecting information from the management staff working in the Head Office in Nairobi on the critical success factors in inventory management in the insurance companies. This was relevant in collecting the data required as time and distance were the limiting factors that inhibited the researcher from collecting the data from all the insurance sector institutions across the country.
1.7 Limitations of the Study
The researcher was likely to encounter various limitations that would hinder access to information that the study was looking for.
Time and Resource Constraints: The main limitation that the researcher expected to hinder the study was its inability to include more organizations. This was a case focusing on the factors influencing efficiency in inventory management in CIC insurance. The study would cover more organizations across the country so as to provide a more broad based analysis. The researcher encountered problems of time as the research was taken in a short period which limited time for doing a wider research. However, the researcher countered the limitation by carrying out the research across all the departments and management levels in the organization which enabled generalization of the study findings.
Unavailability of the Respondents: The researcher foresaw a challenge in securing the employees precious time considering their busy working schedules. The researcher had to make proper arrangements with employees to avail themselves for the study off-time hours as well as motivating the employees on the value of the study. The researcher also had to exercise utmost patience and care and in view of this the researcher had to make every effort possible so as to acquire sufficient data from respondents. The researcher followed up with emails and phone calls where delays from respondents arose.
Confidentiality: The respondents approached were likely to be reluctant in giving information fearing that the information asked would be used to intimidate them or print a negative image about them or the organizations. The researcher handled the problem by carrying with her an introduction letter from the University and assured them that the information they gave would be treated confidentially and it would be used purely for academic purposes.
1.8 Definition of Significant Terms used in the Study
Inventory management The process of efficiently overseeing the constant flow of units into and out of an existing inventory through controlling the transfer in of units in order to prevent the inventory from becoming too high, or dwindling to levels that could put the operations of the company into jeopardy. (Saxena, 2009)
Organizational policies Policies are written statements, developed in light of the organizations missions and values, which communicate, document your organizations plans, instructions, intents, and process. They guide management, staff and volunteers. These are policies that contain hard and fast rules and regulations that define the general conduct of the organizations operation. (Chirawu, 2012)
Quantity of Obsolete stocks This is inventory that is not usable anymore either due to the product being at the end of its life cycle or has not sold for a set time period, generally determined by the industry. (Saxena, 2009)
Training This is the acquisition of knowledge, skills and competencies as a result of the teaching of vocational or practical skills and knowledge that relate to specific useful competencies. (Jacoby, 2004)
Informational Technology This is the application of computers and telecommunications equipment to store, retrieve, transmit and manipulate data often in the context of a business (Butler, 2012)
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This research investigates the factors influencing effecient inventory management. Inventory management is very crucial within an organization and particularly in service sector since a greater percentage of the budgetary resources are directed and expended through inventory management. This chapter summarizes the information from other researchers who have carried out their research on critical success factors influencing inventory management in insurance companies or in the same field of study. The specific areas covered are inventory management in organizations, factors influencing effective inventory management in organizations, quantity of obsolete inventory, inventory management policies, training, demand forecasting, empirical review and summary of the literature review.
2.2 Inventory Management in Organizations
2.2.1 Conceptual Framework
The conceptual framework diagram shown above highlights the varied factors that affect how effective an inventory management system can be when applied in the operations of an organization. This generally affects how records are shipped out and received in a company resulting to the success of a business.
Thummalapalli (2010) indicates that inventory management is the means by which material of the correct quality and quantity is made available as when required with due regard to the economy in storage and ordering cost, purchasing, price and working capital. This involves, deciding the extent stockholding of items individually into the storehouse and regulating the issue of stock from the warehouse.
Inventory management determines of record point and quantities for proper replenishment of the items in the warehouse. Inventory management determines the proper level of provide proper customer service while minimizing the costs of carrying inventory. Inventory management concerns most managers of marketing and supply businesses, whether they are retail, wholesale, or service oriented. The total cost of maintaining the desired inventory level must be held down to a reasonable figure, but the inventory must also be large enough to permit the company to effectively merchandise the products and services it sells. If the manager doesn’t control his inventories to accomplish both of these objectives, the business may not be able to prosper or even to survive against competition.
Schmidt (2009) established that suppliers cannot accurately estimate demand means and variances because of time depending order quantities and biasing effects of inter-arrival times. This may lead to inappropriate computations of reorder points and safety levels. The aggregation of order data can improve the calculations resulting in lower inventories with almost identical service levels. The mean inventory can also be reduced by sharing information but may lead to considerably lower service levels, if unchecked. In the process, the performance of the supply chain may be improved by aggregating order date and compares the results with improvements derived from information sharing strategies.
In his study on Inventory management problems in developing countries, Goonatilake (1984), states that ineffective inventory control is a major problem faced by industries in developing countries and that even the very basic inventory control concepts and techniques are not used by the majority of the companies studied. Due to the heavy reliance on imported industrial raw materials and parts, and the endemic bureaucratic delays and associated communication problems in developing countries, order lead times cannot be computed with any degree of accuracy. Therefore manufacturers attempt to overcome the uncertainty by carrying excessive amounts of buffer stocks.
2.3 Factors Influencing Efficiency in Inventory Management in Organizations
A successful business relies on many factors, one of which is a reliable and efficient inventory control system (Fearon, Dobler, and Killen 1992). Inventory control consists of everything from accurate record-keeping to shipping and receiving of products. Inventory control that is properly maintained can keep a company’s supply chain running smoothly and efficiently. However, there are many common inventory control problems that can occur. Verification of inventory includes both book verification and physical verification while verification of records in every detail is the duty and also the responsibility of the auditor, opinions differ as to whether he should make a complete verification of all the items of stock, for the purpose of certifying their value as shown in the balance sheet or if a sampling approach suffices for the purpose of verification (Mattsson, 2007).
At the end of stock-taking, a comparison is made between the physical count and the book records. At this stage the auditors raise questions on errors and inaccuracies and satisfy themselves as to the genuineness of the reasons provided to them so as to eliminate the possibility of fraud in this connection. Book records are then adjusted in respect of shortages and surpluses and accordingly, a proper valuation of inventory is arrived at to be subsequently shown in the balance sheet (Chatterjee, 2005).
2.3.1 Quantity of Obsolete Inventory
Obsolete inventory, also known as obsolete stock, refers to inventory that is not usable anymore either due to the product being at the end of its life cycle or has not sold for a set time period, generally determined by the industry. Mattsson (2007) argues that once these items have diminished in value, the company must discount the product or discard them, which can cause large losses for a company. Also known as “dead” or “excess” inventory, obsolete inventory can be the result of poor products, forecasts of demand, and inventory management (Stanley and Wisner, 2002).
According to Mattsson (2007) obsolete inventory has become a prominent phenomenon in most of the organizations. Many organizations are striving to avoid obsolete inventory and are also trying to avoid excessive inventory. The items when become obsolete are unusable and it does not yield any value to the services and in turn they consume valuable storage space in the warehouses, added are the taxes. These excessive costs may yield to increase in the overall facility costs. The organizations must implement steps and methods that can help inventory managers identify the excessive inventory and make use of the excessive inventory before it turns out to be obsolete (Thummalapalli, 2010).
A significant amount of investment can be saved when organizations have no obsolete and excessive inventory. Any decrease in these numbers can reduce the operational costs and most importantly taxes paid due to inventory stored in the warehouse will also decrease (Tokar and Williams, 2008). Many business owners have difficulty throwing away products they paid good money for. But holding on to obsolete products just burns up even more investments. Stanley and Wisner (2002) further posit that eliminating obsolete stock promptly, and use the cash and space you save for something more profitable.
2.3.2 Organizational Policies
Chirawu defines organizational policies as written statements, developed in light of the organizations missions and values, which communicate, document your organizations plans, instructions, intents, and process. They guide management, staff and volunteers. (Chirawu, 2012)
According to Sari (2008) inventory management policies are policies that contain hard and fast rules and regulations that define the general conduct of the warehouse operation. Examples of the types of policies that organizations will define are as follows: health and safety, human resources management, security, pest control, warehouse maintenance and cleaning, quality control, record keeping and reporting, reverse logistics – Return of goods and exit strategy in the event of downscaling or shutting down operations, disposal of obsolete and damaged goods.
They define step by step how the activities in the warehouse should be carried out and clearly defines the processes to be adopted (Liyanage, 2010). These can be adopted as ‘best practice’. Procedures should be considered as streamlining the business processes and providing checks and balances. They provide guidance to warehouse managers and must have some level of flexibility to cater for unique situations, than to be rigidly adhered to (Koumanakos, 2008). This can be achieved by limiting the level of detail that the procedures document defines, allowing more flexibility and/or by arranging ‘dispensations’ to allow departure from the procedures in order to optimize local performance, especially in emergencies.
The procedures will normally provide the step by step guidance on how to manage each aspect of warehousing and may cover: receiving and issuing of supplies; quality control or verification; storage of goods; how to control stock movement (stock control); documentation flow; how to detect and deal with stock losses; how rejected material will be managed; and how to deal with unwanted material, obsolete and scrap, disposal (Koumanakos, 2008).
2.3.3 Training
The term training refers to the acquisition of knowledge, skills and competencies as a result of the teaching of vocational or practical skills and knowledge that relate to specific useful competencies (Koumanakos, 2008). As Kaburu (2010) assets training is a major investment that must clearly be linked to identifiable business needs . Training is often seen as the process of equipping people for improved or better performance towards achieving organizational objectives. Kaburu (2010) confirms that in most organizations today resources are scarce and have to be used carefully. This is of the essence and trainers of all kinds are required to justify their positions and account for the activities.
According to Bernard (2007) inventory management personnel must have personal acumen, knowledge, capacity to handle technology keenness and good judgment to carry out inventory management function, receiving, inspection storage and re warehousing, picking, parking, shipping. The level of efficiency depends on the level of academic and professional qualifications of the staff deployed to man the inventory management systems. Proper trained staff will ensure best practices carried out in inventory management while inadequate trained staff will not be able to manage inventory to the expected states. The researches will compare the staff available to investigate the adequacy of the training (Bernard 2007).
Warehouse employees must be made in integral part of the dynamic system that includes the computer for processing and dissemination advanced electronic controls materials handling equipment both for storage and for movement and advanced techniques for handling and shipping products (Morrrison, 1974). The computer will force warehouse staff to have specialized training to handle the functions for which they are responsible (Kumar, 1996). Job satisfaction will increase as if recognizes that the warehouse personnel have an important position to play for the specialization required by advanced equipment will also lead to increased job enrichment of warehouse staff.
2.3.4 Information Technology
As companies increasingly use their supply chain to compete and gain market share, spending and activity in this area are notably on the upswing. Technology and process upgrades at forward-thinking companies clearly show that supply chain excellence is more widely accepted as an element of overall business strategy and that increasing value to customers is not just management’s, but everyone’s business. The application of these technologies, especially in the service industry, has substantially lowered the time and cost to process an order, leading to impressive improvements in management of inventory control (Clark and Hammond 1997).
Effective inventory management depends upon consolidating, integrating, and analyzing data collected from many sources such as, distribution centers and warehouses. Conventional tracking systems require manual intervention, which is labor intensive, time consuming, and error-prone. On the other hand, the use of information technology has significant advantages over the conventional methods; these are discussed below: the use information technology assists in inventory monitoring and asset visibility. In a replenishment-based system, whenever the total inventory at a warehouse or distribution center drops below a certain level, the system could place an automatic order. Electronically tagged products will allow stores to track the location and count of inventories in real time. This will better monitor demand for certain products and place orders to prevent an out-of-stock situation. The high levels of inventory monitoring obtained using IT can particularly benefit FMCG industries.
There is a general belief within industry that capturing and sharing real-time demand information is the key to improved inventory management, thus improving service provision. Information technology facilitates information sharing and contributes to the reduction of lead times and shipment frequency by reducing the time and cost to process orders. Liljenberg (1996) studies how to use shared information to improve allocation of inventory among the retailers. In his model preserved information is exploited for both uses: better management replenishments and better allocations of the resources.
As items are continuously monitored, Inventory shrinkages including thefts, misplacement of items can be avoided using Information technology. IT systems implementation will depend on the cost of change to the new technology as well as the benefits accruing from exploiting some of the possibilities that the technology brings. Several issues should be considered for successful IT systems implementation. Level of tagging has a greater influence on total IT systems related costs. Tags can be applied at item level, case level or pallet level. Denser the level of tagging more would be information gathered and higher would the associated costs.
Supply chain technology helps companies reduce inventory investments while maintaining or improving customer service levels. Using supply chain applications, companies can invest in inventory that has the potential to contribute greater profitability while meeting customer expectations. One way is by gaining insight into opportunities to the tradeoffs of customer service and corresponding inventory investment requirements (Sunil, and Meindl, 2007). Technology helps synchronize and balance the two opposing business objectives of achieving ultimate customer service at a low cost.
According to Zokaei and Simons (2006), the effectiveness of an inventory management is measured in terms of satisfying customer expectations and efficiency is measured by comparing the inputs and the outputs. Also the performance of a service chain depends on the service level of the service provider at different levels, so it is important that a common framework is developed for analyzing the effectiveness and efficiency of the service chain incorporating the service levels of the service provider at each level of the service chain. In order to achieve the optimal effectiveness and efficiency levels of the service chain it is important to have healthy levels of information flow at all levels of the service chain. According to Cachon & Fisher (2000) the developed value shared data communication or information strategies reduced the service chain expenses by 2.2% when compared with the conventional information flow plans. Using information technology as an effective tool, leveling of information sharing across the service chain could be achieved thereby resulting in the increase of the revenue or reducing costs in the whole supply chain.
2.4 Empirical Review
Inventory Management is an integral part of business operations in all organizations including insurance companies. The cost of holding inventory includes not only the opportunity cost but also the storage and insurance costs, and the risk of spoilage or obsolescence. Inventory mismanagement will adversely affect an organization’s operations by arresting financial resources that could have been channeled to other profitable sectors and/or activities. Advances in computer technology have given this concept a further impetus, since it is now possible to obtain real-time operating data to fin-tune the entire logistics program. While the material management concept has largely found a place in the manufacturing environment, it is not to be supposed that this is the exclusive province of materials management.
The world has been moved towards integrated and collaborative approach to inventory management within the supply chain rather than isolated approach to manage inventory. In previous research studies (Liyanage, 2010; Sundberg, 2009; Mattsson, 2007; Viale, 1996) it was found out that most of the inventory managers tend to take inventory management decisions based on intuition due to lack of the professional expertise in the field, no proper analysis of inventory data, human bias of the senior managers that result with use of rule of thumb, no user involvement in inventory management systems, inventory decisions are not integrated with strategic needs of the organizations, and ultimately result with no proper inventory management practices with an organization (Liyanage, 2010).
Pohlen and Goldsby (2003) noted that there has been considerable interest in recent years among practitioners and researchers regarding how to make the dream of an integrated supply chain a reality. The idea of the entire supply chain acting in a coordinated, synchronous fashion to achieve higher levels of customer service for end customers at a lower total supply chain cost is inherently attractive. The desired outcomes not only enhance customer loyalty and margins, but also ensure the very survival of the firm and its supply chain partners in increasingly competitive markets. However, rendering the levels of cooperation and coordination necessary among multiple parties to garner these benefits has proven anything but simple.
Supply chain management has received substantial attention from researchers and practitioners, yet in many companies management is struggling to implement supply chain processes within their firms and across the supply chain (Liyanage, 2010). Inventory management act as a major component of any supply chain irrespective of whether it is product or service supply chain. Inventory management plays an important role in matching demand and supply within the each and every partner in the entire supply chain, ultimately providing flexibility in coping up with external and internal events of the today’s uncertain, globalized business environment (Liyanage, 2010).
In his study on Inventory control problems in Developing Countries, Goonatilake (1984), states that ineffective inventory control is a major problem faced by industries in developing countries and that even the very basic inventory control concepts and techniques are not used by the majority of the companies studied. Due to the heavy reliance on imported industrial raw materials and parts, and the endemic bureaucratic delays and associated communication problems in developing countries, order lead times cannot be computed with any degree of accuracy. Therefore manufacturers attempt to overcome the uncertainty by carrying excessive amounts of buffer stocks. To free resources that may be tied up in unnecessary inventory stock, there is need to review the current inventory management systems. Cheatman (1989) has proposed new measure of inventories, and has proposed the computation of the Cost of Excess Inventories (CEI) along with recommendations for Management’s use of this tool.
The tight monetary market and optimization of resources through proper inventory control becomes one of the major challenges for the material managers in every organization (Kumar, 1996). Widening gulf between theory and practice has become remarkable phenomena in this age of science and technology. When the frontiers of knowledge are widening and the theory is developing at fast rate, the practice is lagging far behind. This is probably true about all branches of knowledge and especially true for inventory management area (Kumar, 1996). A sound inventory management approach will manage different inventory items differently and will not apply the same business rule to all inventories.
Multiple product lines and inventory control require companies to focus upon more important inventory items and utilize more sophisticated and effective approaches to inventory classification is usually the first step towards efficient inventory management (Njau, 2007). In any organization, inventories range from very important and expensive items to not so expensive and low less important items. A wide range of these items is significant from a financial point of view (Njau, 2007).
2.5 Summary of the Literature Review
The issues discussed in this section of literature review have not given the solution to the inventory management challenges. Inventory management remains a major challenge since no past major activity has established an effective solution to supplier management related challenges. Despite the concerted efforts of bureaucrats, economists and managers, very few inventory management approaches turn out the way they are expected. This is simply a reflection of the fact that all paths taken are inherently risky. Specialists in payroll processing thus spreading fixed costs and achieving economies of scale. Such specialists have the focus needed to identify areas that are candidates for improvement and the knowledge needed to act successfully on that awareness.
The review of the literature indicates that the impact of quantity of obsolete stocks, inventory management policies, training and demand forecasting are highly influential success factors in inventory management. In the literature review it comes out that efficient inventory management makes good economic sense. In essence inventory management as a discipline has not been widely researched on within the insurance industry. However no study had ever focused on investigating the critical success factors in inventory management in insurance companies in Kenya. It was in this light that the study aimed to close the knowledge gap by investigating the factors influencing efficiency in inventory management in the insurance industry in Kenya with a special focus on CIC insurance in Nairobi County.
CHAPTER THREE:
RESEARCH DESIGN AND METHODOLOGY
3.1 Introduction
This chapter discusses the methodology that was used in gathering the data, analyzing the data and reporting the results. Here the researcher aimed at explaining the methods and tools used to collect and analyze data to get proper and maximum information related to the subject under study.
3.2 Research Design
This was a case study since the unit of analysis was one organization. This was a case study aimed at getting detailed information regarding the critical success factors influencing inventory management in CIC insurance. According to Yin (1994) a case study allows an investigation to retain the holistic and meaningful characteristics of real life events. Kothari, (2004) noted that a case study involves a careful and complete observation of social units. It was a method of study in depth rather than breadth and places more emphasis on the full analysis of a limited number of events or conditions and other interrelations. Primarily data collected from such a study is more reliable and up to date.
3.3 Target Population
Collis and Hussey (2003), define the population as a body of people or any other collection of items under consideration for research purposes. According to Cooper and Schinder (2000), a population is the total collection of elements which researchers can make inferences. While a population is the total number of all elements that share a common characteristic, a sample is a relatively small subset of the population (Hair Jr., Money, Samouel, Page and Celsi, 2011).
The target population of this study was the staff working in the Head Office of CIC insurance in Nairobi. There was approximately one hundred and eighteen (118) management staff currently serving in the Head Quarters of CIC insurance in Nairobi. These were spread across 7 Departments which included Credit Department, Department of Finance, Human Resource Department, Sales and Marketing Department, Operations Department, Public Relations Department and IT Department. The population characteristics were as follows.
| Sections | Population (Frequency) | Percentage % |
| Top management | 12 | 10 |
| Middle level management | 17 | 14 |
| Low level management | 89 | 75 |
| Total | 118 | 100 |
Source: CIC Insurance Group Limited, 2011
3.4 Sample Design and frame
A sample is a subset of the population (Hair Jr., Money, Samouel, Page and Celsi, 2011). According to Bajpai (2011), a sampling frame is a list that contains information about the subjects that have been drawn from the population. According to Cooper and Schindler (2000), a sampling frame is a list of elements that are present in the population from which the sample will be drawn from. The frame shall include a numerical identifier for each individual, plus other identifying information about characteristics of the individuals, to aid in analysis and allow for the division into further frames for more in-depth analysis.
The study sampled the heads of departments and the CEO using purposive sampling method, since they were the ones conversant with the critical success factors influencing inventory management in CIC insurance. As such, the study involved the Managers/heads of departments and their assistants in collecting data. Stratified random sampling technique was used since population of interest was not homogeneous and could be subdivided into groups or strata to obtain a representative sample. From the above population of one hundred and eighteen, a sample of 40% was selected from within each group in proportions that each group bears to the study population. This sample is appropriate because the population is not homogeneous and the units are not uniformly distributed. Furthermore, owing to the big number of target population and given the time and resource constraints, the sampling of at least 30 elements is recommended by Mugenda and Mugenda (1999). This generated a sample of 47 respondents which the study sought information from. The selection is as follows.
| Sections | Population (Frequency) | Sample Ratio | Sample |
| Top management | 12 | 0.4 | 5 |
| Middle level management | 17 | 0.4 | 7 |
| Low level management | 89 | 0.4 | 36 |
| Total | 118 | 0.4 | 47 |
3.5 Research Instruments
Research procedure is a summary description of the steps taken in conducting the study. This is done to ensure for replicability purposes to help another researcher in following the research methodology used without any difficulty.
The researcher proposed to pilot the study with a sample totaling approximately 0.1% of the CIC’s management staff population. This will total a sample of 10. Bryman and Bell (2003) add that it is highly desirable to pilot a research instrument so as to carry out preliminary analysis of issues such as whether respondents tend to answer in identical ways to a question or whether any question was omitted. The selected sample of 10 was to be picked through simple random sampling. The participants who participated in the pre-test will not participate in the actual research.
The purpose of this pre-testing was to get at the thinking behind the answers so that the researcher could accurately assess whether the questionnaire was being filled properly, whether the questions were actually understood by the respondents, and whether the questions asked what the researcher thought they were asking. This also assessed if the respondents were able to provide and were willing to provide the necessary information.
At this stage the respondents actually filled out the questionnaire, giving their views along the way or afterwards. Two of the ten questionnaires were to be given in an interview form, so the researcher could ask for clarification of the answers and they could also clarify the questions. The respondents were encouraged to think aloud as they answered. A comprehensive letter detailing the purpose of the research was to be sent to the respondents together with the questionnaire. The researcher will further follow up the questionnaire with a reminder through email to any late respondents.
3.6 Data Collection Procedures
The researcher used both primary and secondary data. Primary data was collected using a survey questionnaire while secondary data was collected by use of desk search techniques from published reports and other documents. Secondary data included the companies’ publications, journals, periodicals and information obtained from the internet.
The study used of a survey questionnaire administered to each member of the sample population. The questionnaire had both open and close-ended questions. The close-ended questions provided more structured responses to facilitate tangible recommendations. The closed ended questions were used to test the rating of various attributes and this helped in reducing the number of related responses in order to obtain more varied responses. The open-ended questions provided additional information that might not have been captured in the close-ended questions. The questionnaire was carefully designed and tested with a few members of the population for further improvements. This was done in order to enhance its validity and accuracy of data to be collected for the study.
3.7 Data Analysis Techniques
Before processing the responses, the completed questionnaires were edited for completeness and consistency. The data was then coded to enable the responses to be grouped into various categories. The data collected was mainly quantitative in nature. This therefore means that descriptive analysis techniques were used. Descriptive analysis was done quantitatively by use of descriptive statistics. This included use of descriptive statistical tools such as Ms. Excel and SPSS (Statistical Package for Social Sciences) to generate frequencies, percentages, means and standard deviations. Tables, figures and charts were used to summarize responses for further analysis and facilitate comparison. This generated quantitative reports on the factors influencing efficiency in inventory management in CIC insurance in Nairobi County.
CHAPTER FOUR:
DATA ANALYSIS AND INTERPRETATIONS
4.1 Introduction
This chapter presents the analysis and interpretations of the data from the field. It presents analysis and findings of the study as set out in the research methodology on the factors influencing efficient inventory management in the insurance industry in Kenya with a special focus on CIC insurance. The data was gathered exclusively from an interview guide as the research instrument. The interview guide was designed in line with the objectives of the study. To enhance data quality of data obtained, unstructured questions were used whereby respondents indicated their views and opinions about the factors influencing efficient inventory management in CIC insurance.
The study sampled 47 respondents from the target population in collecting data with regard to the critical success factors influencing inventory management in CIC insurance.
| Response | Frequency | Percentage |
| Responded | 35 | 74 |
| Not responded | 12 | 26 |
| Total | 47 | 100 |
From the study, 35 out of the 47 sample respondents availed themselves and participated in the study contributing to 74% response rate. This commendable response rate was made a reality after the researcher made personal calls and visits to request the respondent to avail them and make arrangements of filling the questionnaire at their convenience as well as insisting the importance of participating in the study.
4.2 General Information
4.2.1 Gender Distribution of the Respondents
The research sought to find out the gender of the respondent. Table 4.2 shows the distribution of the respondents by gender.
Table 4.2: Gender of the Respondents
| Gender | Frequency | Percentage |
| Male | 18 | 52 |
| Female | 17 | 48 |
| Total | 35 | 100 |
From the findings, a significant number of the respondents were males as shown by 52%, while 48% were females. This shows that CIC insurance Kenya Limited had both male and female members. This means that the decisions made in the organization are gender sensitive and hence are likely to be supported by all.
4.2.2 Age of the Respondents
The study required to indicate the range in which their age fell. The findings are presented in table 4.3.
Table 4.3: Age Brackets of the Respondents
| Age Bracket | Frequency | Percentage |
| 18 – 24 Years | 0 | 0 |
| 25 – 30 Years | 5 | 13 |
| 31 – 34 years | 7 | 21 |
| 35 – 40 years | 10 | 29 |
| 41 – 44 years | 6 | 17 |
| 45 – 50 years | 5 | 13 |
| Over 51 years | 3 | 8 |
| Total | 35 | 100 |
According to the study, majority (29%) of the respondents showed that their ages fell between 35 and 40 years, 21% of them indicated that they were aged between 31 and 34 years, 17% of the respondents were aged between 41 and 44 years, 13% of them were aged 25 to 30 years and 45 to 50 years in each case, while 8% of the respondents were over 51 years of age.
4.2.3 Length of Working in the Company
The length of service/working in an organization determines the extent to which one is aware of the issues sought by the study. The respondents were therefore required to indicate the length of time they had worked in the Insurance Company.
Table 4.4: Respondents’ Duration of Work in the Company
| Duration | Frequency | Percentage |
| 0-5 yrs | 7 | 20.8 |
| 5-10 yrs | 9 | 25.0 |
| 10-15 | 18 | 50.0 |
| Over 15 yrs | 1 | 4.2 |
| Total | 35 | 100.0 |
The study found that majority of the respondents as shown by 50% had worked in the Company for 10 to 15 years, 25% of them had been working in the company for 5 to 10 years, 20.8% indicated that they had worked in the company for 0 to 5 years and 25% of the respondents indicated that they had been in the Company for more than 15 years. This shows that majority of the respondents had enough experience on the issue of the critical success factors influencing inventory management in CIC insurance to give credible information.
4.2.4 Level of Education
Table 4.5: Respondents’ Level of Education
| Education Level | Frequency | Percent |
| Certificate | 1 | 4.2 |
| Diploma | 6 | 16.7 |
| Bachelor’s degree | 23 | 66.7 |
| Masters Degree | 4 | 12.5 |
| Total | 35 | 100.0 |
On the respondents’ highest level of education, the study found that majority of the respondents as shown by 66.7% had attained Bachelor’s degree as their highest level of education, 16.7% of them had attained diploma level of education, those who had masters degrees were shown by 12.5%, while 4.2% of them had attained certificate level of education. This information shows that the respondents were knowledgeable enough to contribute positively in this study.
4.2.5 Respondents’ Departments
The study sought to establish the distribution of the respondents in various departments within the Company.
Table 4.6: Respondents’ Departments
| Department | Frequency | Percentage |
| Human Resource Department | 6 | 18 |
| Finance Department | 4 | 10 |
| Credit Department | 4 | 10 |
| Operations Department | 11 | 32 |
| Sales and Marketing Department | 6 | 18 |
| IT Department | 2 | 6 |
| Public Relations Department | 2 | 6 |
| Total | 35 | 100 |
Majority of the respondents worked in the operations department as shown by 32% of the respondents, 18% of them worked in the sales and marketing department, another 18% of them worked in the human resource department, 10% of the respondents indicated that they worked in the finance department as well as another 10% of them who worked in the credit department, while 6% of the respondents worked in IT department, public relations department in each case.
4.3 Factors Influencing Efficiency in Inventory Management
The study sough the respondents’ views on the nature of inventory management in the Company. Majority of the respondents indicated that inventory management in the Company is fairly good. They expressed their views that with enough capital planning becomes easier, payments are done when due, this improves supplier customer relationship reducing prices and improving competitive edge. Others stated that capital means high inventory and thus high working capital. According to the respondents, too much stock ties cash which would have been used in other services.
4.3.1 Quantity of Obsolete Inventory
The study sought to investigate whether quantity of obsolete stocks have influence on the inventory management.
Table 4.7: Effect of Obsolete Stock Affects Inventory Management
| Response | Frequency | Percent |
| Yes | 31 | 88.6 |
| No | 4 | 11.4 |
| Total | 35 | 100.0 |
From the study, majority (88.6%) the respondents were of the opinion that obsolete stock affects inventory management while the rest (11.4%) argued that obsolete have no effect on inventory management.
The study further sought to establish the extent to which obsolete inventory affects inventory management in the Insurance Company. The results are as depicted in figure 4.1.
Figure 4.1 shows the result on the effect of obsolete stock on effective inventory management. From the findings, 57% indicated that obsolete stock affects inventory management at a great extent, 28% at a very great extent, 6% were of the opinion that obsolete stock affects inventory management at a low extent while 6% and 3% were reluctant to the query and no effect respectively. This depicts that obsolete stock affects inventory management, thus should be factored in the budget of the organization.
Table 4.8 shows the level of the respondent agreement on the statements regarding demand forecast on management of inventory. Most of the respondents moderately agreed that Large global consumer saw prices of some commodity products drop as much as there is effective inventory control and management as it’s the vehicle of price maximizing as indicated by mean score of 2.66, other respondents had the same level of agreement that A good inventory system must be in a position to help the organization maintain a good quantity level to offer a service delivery that will keep the customers satisfied as indicated by mean score of 2.52 . Majority of the respondents strongly agreed that supply chain is high affected more by the trend by global business environment as depicted by mean score of 1.24; other respondent strongly agreed that Company that does not have good inventory system encounters inaccurate demand forecast as indicated by mean score of 1.21.
| Statements on Obsolete Inventory | Strongly Agree | Agree | Moderately agree | Disagree | Strongly Disagree | Mean | STD |
| Supply chain is high affected more by the trend by global business environment | 22 | 18 | 14 | 4 | 2 | 1.24 | 1.244 |
| Company that does not have good inventory system encounters inaccurate demand forecast. | 25 | 16 | 9 | 6 | 4 | 1.21 | .819 |
| A good inventory system must be in a position to help the organization maintain a good quantity level to offer a service delivery that will keep the customers satisfied | 6 | 24 | 20 | 8 | 2 | 2.52 | .871 |
| Large global consumer saw prices of some commodity products drop as much as there is effective inventory control and management as it’s the vehicle of price maximizing | 8 | 22 | 14 | 14 | 2 | 2.66 | 1.078 |
| suppliers cannot accurately estimate demand means and variances because of time depending order quantities and biasing effects of inter-arrival times | 10 | 28 | 4 | 9 | 2 | 2.34 | 1.233 |
The study sought to establish the influence of obsolete inventory on the inventory management practices in the organization. The respondents reiterated that the main effect of quantity of obsolete stock is on the financial status of the inventory department as the stock is not going to be used once declared obsolete. These excessive costs resulting from acquisition of obsolete stock may yield to increase in the overall facility costs. They also indicated that they consume valuable storage space in the warehouses, added are the taxes.
4.3.2 Inventory Management Policies
The researcher was inquisitive to investigate whether inventory management policies were laid down at the company. From the finding all (100%) of the respondents purported that there was clear laid down inventory management policy.
On the same, the study sought to establish whether there existed inventory management policies in CIC Company. Table 4.9 shows the results on this question.
| Response | Frequency | Percent |
| Yes | 32 | 91.4 |
| No | 2 | 5.7 |
| Don’t know | 1 | 2.9 |
| Total | 35 | 100.0 |
Majority (91.4%) of the respondents argued that policies were practiced in the organization, 5.7% cited that inventory management policies were not exercised in the organization while the rest (2.9%) were not sure whether management policies were conducted in their organization. This implies an organization that is conscious in inventory management policies.
The study requested the respondents to indicate the extent to which some inventory management policies affect inventory management.
Table 4.10: Extent to which Inventory Management Policies are executed
| Statements on Inventory Management Policies | Strongly Disagree | Disagree | Neutral | Agree | Strongly Agree | Mean | Std. Dev |
| Policies and procedures are in place to guide inventory management process in the organization. | 0 | 0 | 11.4 | 45.7 | 42.9 | 4.31 | 0.676 |
| The policies and procedures are well known to the staff. | 8.6 | 25.7 | 28.6 | 34.3 | 2.9 | 2.97 | 1.043 |
| There are proper records of stock in the inventory management department. | 0 | 2.9 | 28.6 | 34.3 | 34.3 | 4.00 | 0.874 |
| There is proper authorization of stock issuance. | 0 | 0 | 20.0 | 48.6 | 31.4 | 4.11 | 0.718 |
| The right documents are in use in managing inventory. | 0 | 5.7 | 20.0 | 40.0 | 34.3 | 4.03 | 0.891 |
From the findings, majority of the respondents agreed that policies and procedures are in place to guide inventory management process in the organization as indicated by a mean score of 4.31. Almost the same number of the respondents agreed that there is proper authorization of stock issuance, the right documents were in use in managing inventory and that there were proper records of stock in the inventory management department as indicated by a mean score of 4.11, 4.03 and 4.00 respectively. Lastly, the study found that policies and procedures were clearly known to the staff as few of the respondents were neutral with the statement as depicted by a mean score of 2.97. This illustrates that for effective inventory management practices, policies should be put in place as the guideline.
The study aimed at investigating the extent to which management policies affect inventory management.
Table 4.11: Extent that Management Policy affects Inventory Management
| Extent | Frequency | Percent |
| Little extent | 2 | 5.71 |
| Moderate extent | 2 | 5.71 |
| Great extent | 18 | 51.43 |
| Very great extent | 13 | 37.14 |
| Total | 35 | 100 |
From the findings, 51.4% indicated that management policies affected inventory management at a great extent, 37.1% were of the opinion that management policy affect inventory management at a very great extent while those felt that management policy affected inventory management at moderate extent and small extent had 5.7% in each case.
4.3.3 Staff Training
Competence of the staff is one essential factor that determines effectiveness of the organization on its operation.
From the findings, most (45.71%) of the respondents indicated that staff were good on executing inventory management practices as a result of being trained. Forty (40%) indicated that staff were fairly competent on executing inventory management practices, 8.6% were of the opinion that staff were excellent on executing inventory management practices while 5.7% argued that staff were poor due to inadequate training on inventory management practices. This implies that despite the training upgrade, competence of employees was not fully emphasized.
Figure 4.3 depicts results on the finding whether there is need for training staff on inventory management.
Figure 4.3: Need for Staff Training on Inventory Management
According to the findings, majority (86% ) were of the opinion that there was need for training staff on inventory management, 8% had no idea of the essence of training staff on inventory management while almost the same number of 6% totally opposed the need of training staff on inventory management. This implies that only those who were at management level realized the need of training staff on inventory management where those in lower level were not aware of benefits that may accrue on inventory management training.
The researcher sought to find out from the respondents whether the employer offered inventory management training to staff.
Table 4.12: Encouragements of Staff Training by Employer
| Response | Frequency | Percent |
| Yes | 22 | 62.86 |
| No | 7 | 20.00 |
| Don’t know | 6 | 17.14 |
| Total | 35 | 100 |
More than half (62.8%) of the respondents indicated that their employer offered inventory management training, 20% argued that their employer did not offer inventory management training while the rest (17.4%) were not aware of what was inventory management. This depicts that most of the organization had embraced inventory management and for effective practices staff were given training on the same.
Figure 4.4 illustrates the results on the frequency of the employer in training the staff.
Most of the respondents (40%) of the respondents argued that training on inventory management were offered to them quarterly, 31.4% indicated that they were offered training on inventory management annually while 28.6% indicated that they were offered training half year. Training is one strategy of maintaining and developing staff competence and skill, due to this reason management in the organization had involved their staff in inventory management training to enhance their effectiveness.
The researcher sought to know whether junior staff were guided by the senior staff on carrying out tasks.
Table 4.13: Guidance of Staff on Performance
| Response | Frequency | Valid Percent |
| Yes | 29 | 87.9 |
| No | 1 | 3.0 |
| Don’t know | 5 | 14.1 |
| Total | 35 | 100.0 |
Majority (87.9%) indicated that their senior staff assisted junior staff in carrying out tasks on inventory management, 14.1% were not aware whether junior staff were under guidance of senior staff on inventory management while 3% indicated that junior staff were not guided by the senior staff. This shows that senior staff were also concerned for effective management process of inventory management down from the lower level up to the management level.
Further the researcher was inquisitive to determine whether the organization encourages staff to aspire for further studies.
Most (45.7%) of the respondents indicated that they were not given study leave, 34.3% argued that their organization encourages employees for further studies by offering them leave. From the finding it is clear that despite the need to train staff on inventory management, most of the organization does not give their employees study leave for further study.
The respondents were requested to indicate whether there were more efforts by the management to improve the skills of the staff.
Table 4.14: Efforts to Improve Skills of Employee
| Response | Frequency | Percent |
| Yes | 29 | 82.86 |
| No | 2 | 5.71 |
| Don’t know | 4 | 11.43 |
| Total | 35 | 100.00 |
Majority (82.9%) of interviewed respondents indicated that management had extra effort of improving staff skills, 11.4% were not conversant of any effort by the management to improve staff effort while 5.7% were of the opinion that no effort was being taken by the management to improve staff skills. From the findings it is clear that despite lack of enough training to the employees there were extra activities that the management engages on to improve staff skills.
4.3.4 Information Technology
Figure 4.11 shows the response of the interviewed respondents on whether there is existence of information technology system within the organization.
According to the findings majority (83%) indicated that their organization had a system of information technology that assisted in inventory management, 17% indicated that there was no information technology system that guided in preserving information or data on inventory management. This implies that as technology keeps on changing also the organization applies its implication on management of the information and data.
The researcher requested the respondents to indicate the extent to which information technology has been embraced within their respective organizations.
From the findings, majority (51.4%) of the interviewed respondents argued that information technology had been in used at a great extent, 37.14% were of the opinion that IT has been in use at a very great extent, those who were on the opinion that IT was in use of inventory management at small extent and moderate extent were 5.71% in each case. According to the findings, it’s clear that most of the organization use information technology in inventory management.
Table 4.15 depicts the results on the extent to which information technology aspects are applied within the organization.
Table 4.15: Application of IT on Inventory Management
| Applications of IT in Inventory Management | Strongly Agree | Agree | Moderate Agree | Disagree | Strongly Disagree | Mean | STDev |
| The organization considers in investing in I.T systems that enable it to handle inventory management easily. | 20 | 10 | 4 | 1 | 0 | 1.80 | 0.719 |
| The organization trains its staff in inventory management on the use of I.T systems. | 6 | 16 | 10 | 2 | 1 | 1.97 | 0.707 |
| There is always some I.T trained professionals to aid staff on the use of the system. | 13 | 18 | 2 | 2 | 0 | 1.61 | 0.471 |
| There are more computers in the organization that helps in management of inventory per each personnel on inventory management practices. | 18 | 12 | 3 | 2 | 0 | 1.50 | 0.473 |
Most of the respondents agreed that their organization trained its staff on application of IT system in inventory management as indicated by a mean score of 1.97, almost the same number of the respondents agreed that their organization considers in investing in I.T systems so that to enable them effectively manage inventory as shown by a mean score of 1.80. those who were on opinion that their organization always have IT trained professionals who aided staff on the use of the system had a mean score of 1.61 while a mean score of 1.50 agreed that there were more computers in the organization that helps in management of inventory per each personnel on inventory management practices.
CHAPTER FIVE:
SUMMARY OF FINDINGS, CONCLUSIONS, DISCUSSIONS AND RECOMMENDATIONS
5.1 Introduction
This chapter provides the summary of the findings from chapter four, and also it gives the conclusions and recommendations of the study based on the objectives of the study. The objectives of this study were to establish whether quantity of obsolete stocks affect the efficiency of the inventory management in the insurance industry in Kenya, to investigate whether inventory management policies affect the efficiency of inventory management in the insurance industry in Kenya, to find out whether training affect the efficiency of inventory management in the insurance industry in Kenya and to establish whether information technology affect the efficiency of inventory management in the insurance industry in Kenya. The focus of the study was on CIC Insurance (K) Limited.
5.2 Summary of the Findings
The study found that inventory management in CIC insurance Company is fairly good. The respondents also expressed their views that with enough capital planning becomes easier, payments are done when due, this improves supplier customer relationship reducing prices and improving competitive edge. From the study, high levels of obsolete stock in the insurance industry result from poor products, forecasts of demand, and improper inventory management. Further the study found that obsolete stock affects inventory management of most organizations at a great extent.
From the findings it was clear that the Organization had inventory management policies laid down and were fully practiced to ensure effective inventory management. The policies and procedures were used as a guideline in inventory management process thus reduction of errors and mistakes that may arise as a result of poor inventory management. The study also found that management policy affected inventory management at a great extent. The study also established that management policies in the inventory department define the general conduct of the warehouse operation. They also concern themselves with return of goods and exit strategy in the event of downscaling or shutting down operations, disposal of obsolete and damaged goods. The policies also define how the activities in the warehouse should be carried out and clearly defines the processes to be adopted as well as streamlining the business processes and providing checks and balances.
On training, the study found that most of the staff were good on their competence as a result of prior training that they were given. Additionally, there was need for training staff on inventory management in order to pull their experience and skills on executing their duties in inventory management issues. However management encouraged their staff in developing their knowledge through training which in most organizations were offered quarterly a year. Despite offering training to staff, junior employees in the docket of inventory management were guided by their senior staff in order to horizon their performance and efficiency of managing inventory. Contrary to the need of training, the study found that staff were not given study leave for further study instead training was done internally which were done through on the job training.
The study found that their organization applied modern technology in managing inventory. Likewise uses of information technology within organization management practices particularly on inventory management were used at a great extent. Moreover the study noted that most of the organizations have trained their staff on application of IT system in inventory management.
5.3 Conclusions
The study concluded that the organization had obsolete stock which affected inventory management. In order to have effective management in inventory there was need to have analytical obsolete items report that was used to analyze the outcome. High levels of obsolete stock in the insurance industry result from poor products, forecasts of demand, and improper inventory management. Further, the insurance firm, just like many other service firms carry out demand forecasting when need arises as well as when the economic conditions change. As such teams of experts oversee the changes in demand in the inventory department who are involved with demand forecasting and control of inventories.
On inventory management policies and procedures, the study concludes that policies and procedures are in place to guide inventory management process in the organization. There are procedures and policies which regard warehouse maintenance and cleaning, inventory quality control, record keeping and reporting. Management policies in the inventory department define the general conduct of the warehouse operation. They also concern themselves with return of goods and exit strategy in the event of downscaling or shutting down operations, disposal of obsolete and damaged goods. The policies also define how the activities in the warehouse should be carried out and clearly defines the processes to be adopted as well as streamlining the business processes and providing checks and balances. There are proper records of stock in the inventory management department. Proper records determine the proper level of providing proper services while minimizing the costs of carrying inventory. The desired inventory is usually held down to a reasonable figure, but large enough to permit the company to effectively merchandise the products and services it offers.
The study further deduces that the staff in the insurance company are competent in stock/warehouse management and that they posses enough knowledge of what is required of them. On the same the study found that staff training improves staff competence hence required each individual to be conversant to be guided on managing inventory from lower level. The organization use the competencies as the standards for assessing candidates throughout the screening and selection process as well as advertising and communicating the organization’s requirements to potential applicants.
The study finally concluded that the IT system is useful in inventory management in the Company. Moreover the study concluded that the organization had realized the benefit of IT system on inventory management. The organization had trained its staff on application of IT system in inventory management, the organization considers in investing in I.T systems so as to enable them effectively manage inventory, the organization always have IT trained professionals who aided staff on the use of the system and there are more computers in the organization that helps in management of inventory per each personnel on inventory management practices.
5.4 Recommendations
From the study findings and conclusions, lack of technological skills on inventory management systems is a major drawback in inventory management in the industry. As such, the effects of obsolete stock are seen on the financial status of the inventory department, excessive costs resulting from acquisition of obsolete stock may yield to increase in the overall facility costs and valuable storage space consumed in the warehouses as well as added taxes. The study recommends that, proactive inventory control practices should be employed to make a measurable difference in the organizations’ operations as far as inventory cost is involved. To counter the challenge of high inventory costs, the organization should consider ordering goods in bulk over a given period of time well predicted according to demand. This will help to reduce on obsolete stocks therefore lower the total inventory costs.
The research also recommends that there is need to have a good inventory management system, well recruit trained staff and adequate standby IT personnel to aid in system issues. The organization should use IT to manage the inventory. These systems eliminate events of stock outs. IT systems would help the procurement department to plan in advance and ensure that there is enough space in the warehouse to hold all the incoming materials. The organizations should employ systems that have been thoroughly tested and retried to handle effective inventory management. This will help in ensuring that technology related issues are resolved and in time therefore ensuring that customer satisfaction is in no way negatively impacted on.
To eliminate organizational challenges, the researcher recommends most levels that cause bureaucracy in approving orders are eliminated and that there are fewer levels for stock approval. Departments must also effectively communicate their demands to the inventory department and adequate market research should be carried on from time to time.
On demand forecast, the study concluded that organizations to come up with the prior means of forecasting demand so as to mitigate the challenges that are encountered as a result of poor demand forecast. Still on the same the study recommended that skilled personnel be assigned duties on demand forecast so as to be competent on forecast demand in relation to environmental changes.
Finally, it is recommended by the study that, since inventory is one of the important elements of current assets and reflects the investment of a firm’s fund, CIC insurance should employ competent staff to efficiently manage inventories in order to avoid unnecessary investments. A firm, which neglects the control of inventories, will have to face serious problems relating to long-term profitability and may fail to survive. With the help of competent staff in inventory control, a firm reduces the levels of inventories losses and improves on production and sales.
5.5 Recommendations for Further Studies
The study has explored the critical success factors influencing inventory management in the insurance industry in Kenya with a special focus on CIC insurance and established that quantity of obsolete stocks, inventory management policies, training and demand forecasting are the main inventory management factors that affect the efficiency of inventory management in CIC insurance Company. The insurance industry in Kenya however is comprised of various other insurance companies which differ in their way of inventory management and have different settings all together. This warrants the need for another study which would ensure generalization of the study findings for all the insurance companies in Kenya and hence pave way for new policies. The study therefore recommends another study be done with an aim to investigate the critical success factors influencing inventory management in the insurance industry in Kenya.
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APPENDICES
Appendix I: Research Questionnaire
INSTRUCTIONS
Kindly answer all the questions to the best of your ability. Indicate with a tick or filling in the space(s) provided.
PART A: GENERAL INFORMATION
- What is your gender?
Male [ ] Female [ ]
- Your age bracket (Please tick as appropriate)
18 – 24 Years [ ] 25 – 30 Years [ ]
31 – 34 years [ ] 35 – 40 years [ ]
41 – 44 years [ ] 45 – 50 years [ ]
Over 51 years [ ]
- How long have you been working in this Company?
0-5 yrs [ ] 5-10 yrs [ ]
10-15 [ ] Over 15 yrs [ ]
- What is your highest academic qualification?
Certificate [ ] Diploma [ ]
Bachelor’s degree [ ] Masters Degree [ ]
Others (Specify…………………………..) [ ]
- What is your department?
Credit Department [ ] Department of Finance [ ]
Human Resource Department [ ] Sales and Marketing Department [ ]
Operations Department [ ] Public Relations Department [ ]
IT Department [ ] Other Specify………………………………
PART B: CRITICAL SUCCESS FACTORS IN INVENTORY MANAGEMENT
- How would you describe the nature of inventory management in the Company?
………………………………………………………………………………………………………………………………………………………………………………………………………………
………………………………………………………………………………………………………
OBSOLETE INVENTORY
- In your opinion, what has contributed to the high levels of obsolete stock?
…………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………… …………………………………………………………………………………………………………………………………………………….
- To what extent does a high quantity of obsolete stock affect the efficiency of inventory management at CIC Company?
| To a very great extent | To a great extent | To a moderate extent | To a little extent | To no extent |
- What is the influence of obsolete inventory on the inventory management practices in the Organization?
…………………………………………………………………………………………………………………………………………………….
…………………………………………………………………………………………………………………………………………………….
- To what extent do you agree with the following statements on the influence of obsolete inventory on the inventory management practices in the Organization?
| Strongly agree | Agree | Moderately agree | Disagree | Strongly disagree | |
| Supply chain is high affected more by the trend by global business environment | |||||
| Company that does not have good inventory system encounters inaccurate demand forecast. | |||||
| A good inventory system must be in a position to help the organization maintain a good quantity level to offer a service delivery that will keep the customers satisfied | |||||
| Large global consumer saw prices of some commodity products drop as much as there is effective inventory control and management as it’s the vehicle of price maximizing | |||||
| suppliers cannot accurately estimate demand means and variances because of time depending order quantities and biasing effects of inter-arrival times |
INVENTORY MANAGEMENT POLICIES
- State whether policies and procedures in inventory management are adhered to in the inventory management department.
Yes ( ) No ( ) Don’t know ( )
- If yes please indicate the extent to which it is applied in your organization.
Very small extent ( ) Small extent ( ) moderate extent ( )
Great extent ( ) Very great extent ( )
- Please indicate the extent to which you agree or disagree to the following statements as relates to policies and procedures in inventory management. Use a scale of 1 to 5 where 1 = strongly disagree 2 = Disagree, 3 = Neutral, 4 = Agree, 5 = strongly agree
| Statements | 1 | 2 | 3 | 4 | 5 |
| Policies and procedures are in place to guide inventory management process in our organization. | |||||
| The policies and procedures are well known to the staff | |||||
| There are proper records of stock in the inventory management department | |||||
| There is proper authorization of stock issuance | |||||
| The right documents are in use in managing inventory |
TRAINING
- Please rate the staff competencies on the inventory management in your Company.
Excellent [ ] Good [ ]
Fair [ ] Poor [ ]
Don’t know [ ]
- What is your agreement on the frequency of staff training in inventory management processes is carried out in the inventory management department.
| Strongly Agree (5) | Agree (4) | Neutral (3) | Disagree (2) | Strongly Disagree (1) | |
| Monthly | |||||
| Quarterly | |||||
| Half Yearly | |||||
| Yearly | |||||
| Not at all |
- From your understanding, could you state any two (2) Inventory management areas where most staff demonstrates incompetence?
(i)……………………………………………………………………………………
(ii)……………………………………………………………………………………
- Does staff training and development affect the efficiency of Inventory management in Kenya CIC Company?
Yes [ ] No [ ]
If yes, explain……………………………………………………………………………
INFORMATION TECHNOLOGY
- Does this Company have information technology system in its inventory management?
Yes [ ] No [ ]
- To what extent has this Company embraced information technology system in its inventory management?
| To a very great extent | To a great extent | To a moderate extent | To a little extent | To no extent |
- What is your level of agreement the statements on the application of information technology in the inventory management within the organization?
| Agreement with Various aspects of information technology applied | Strongly Agree | Agree | Moderate Agree | Disagree | Strongly Disagree |
| The organization considers in investing in I.T systems that enable it to handle inventory management easily. | |||||
| The organization trains its staff in inventory management on the use of I.T systems. | |||||
| There is always some I.T trained professionals to aid staff on the use of the system. | |||||
| There are more computers in the organization that helps in management of inventory per each personnel on inventory management practices. |
THANK YOU!!
