THE IMPACT OF STOCK MANAGEMENT ON THE PERFORMANCE OF

MANUFACTURING FIRMS CASE STUDY OF RWENZORI

BEVERAGES (U) LTD.

AINEBYONA COLLINS MATEEKA

1173-05014-12957

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 DECLARATION
I declare that this research proposal is my own original effort and that it has not been submitted
to any other higher learning institutions
NAME: AINEBYONA COLLINS MATEEKA
REG.NO: 1173-05014-12957

Sign………………………………… Date………………………

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 APPROVAL
I certify that this research proposal was done under my supervision and is now ready for
submission to the College of Economics and Management.

SUPERVISOR

Sign………………………………… Date………………………
MR. NUWAGIRA KENNETH

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 DEDICATION
I dedicate this work to my wonderful and supportive parents Mr. Behumbiza Justus (father) Ms
Assimwe Josephine and Asiimwe Ruth mothers, friends Kizito Francis and my siblings.

iii
 ACKNOWLEDGEMENTS
I wish to thank God almighty for making it possible for me to complete this research proposal
despite the various constraining factors.
I would also wish to thank my supervisor Mr. Nuwagira Kenneth for a detailed and instructive
review of my research.
In this research proposal, I received full cooperation from various persons and therefore I would
wish to thank them for their kind assistance to me.
Finally, I am contented to express my immediate gratitude to whoever reads this paper.

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 LIST OF ACRONYMS
Ltd Limited

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 ABSTRACT
The study on the Impact of Stock Management on organizational success was conducted in
Mukono district using Rwenzori Beverages (U) Ltd as a case study. A total of 30 respondents were
selected as representative sample departments of purchasing, production and stores. The objectives
of the study were, to establish the inventory management systems and techniques in place, to find
out the costs associated with holding stock in an organization, to establish the measure of success
in an organization and to establish the relationship between stock management and organizational
success. The findings indicate that Rwenzori Beverages hold stock. The findings reveal that there
is formal stock management and several techniques are applied to manage stock which includes
stock taking and inventory level tracking. The research further reveals that many factors combine
to bring the organizations success a reality. These according to the research findings are; total cost
reduction, increase in daily sales and sales turnover, reduced waste, customer satisfaction and profit
levels. Stock Management has got a big impact on the success of an organization. Therefore
organizations need to put enough emphasis on the stores department
The research forwards some recommendations such as;
Costs
Management needs to be aware that there are a number of costs directly or indirectly attributed to
stock. These costs range from acquisition, storage and disposal costs. These costs need to be
eliminated to absolute minimum.
Monitoring and evaluation;
Precautionary measures therefore need to be put in place to guard against certain occurrences such
as fire and theft. The researcher also put forward areas for further research and these are;
1. Procurement and materials acquisition and organizational efficiency
2. The relationship between stores department and other departments

3. Buyer supplier relationship and operational efficiency.

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 TABLE OF CONTENT
DECLARATION..............................................................................................................................i
APPROVAL.....................................................................................................................................ii
DEDICATION................................................................................................................................iii
ACKNOWLEDGEMENTS............................................................................................................iv
LIST OF ACRONYMS...................................................................................................................v
ABSTRACT...................................................................................................................................vi
TABLE OF CONTENT.................................................................................................................vii

CHAPTER ONE............................................................................................................................1
1.0 INTRODUCTION.....................................................................................................................1
1.1 BACKGROUND TO THE STUDY..........................................................................................1
1.2 STATEMENT OF THE PROBLEM..........................................................................................4
1.3 PURPOSE OF THE STUDY.....................................................................................................4
1.4 RESEARCH OBJECTIVES......................................................................................................4
1.5 RESEARCH QUESTIONS.......................................................................................................4
1.6 SCOPE OF THE STUDY..........................................................................................................4
1.6.1 Content Scope......................................................................................................................4
1.6.2 Geographical scope..............................................................................................................6
1.6.3 Period Scope...........................................................................................................................6
1.7 SIGNIFICANCE OF THE STUDY..........................................................................................6
1.8 OPERATIONAL DEFINITION OF TERMS............................................................................6

CHAPTER TWO...........................................................................................................................8
LITERATURE REVIEW..............................................................................................................8
2.0 INTRODUCTION.....................................................................................................................8
2.1 STOCK MANAGEMENT........................................................................................................8
2.1.1 Types of stocks held in organizations.....................................................................................8

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2.1.2 Raw materials.........................................................................................................................9
2.1.3 Work in process.......................................................................................................................9
2.1.4 Finished goods........................................................................................................................9
2.1.5 Maintenance repair and Operating Supplies (MRO)..............................................................9
2.1.6 Transit stock............................................................................................................................9
2.1.7 Theoretical inventory............................................................................................................11
2.2 REASONS WHY ORGANIZATIONS HOLD STOCK..........................................................11
2.3 STOCK MANAGEMENT METHODS..................................................................................11
2.3.1 Manual Stock Management..................................................................................................11
2.3.2 Computerized Systems.........................................................................................................12
2.4 STOCK TAKING....................................................................................................................12
2.4.2 Continuous Stock taking.......................................................................................................12
2.4.3 Stock Discrepancies..............................................................................................................14
2.5 COSTS INVOLVED IN STOCK MANAGEMENT..............................................................14
2.5.1 Carrying costs /holding costs................................................................................................14
2.5.2 Purchasing costs....................................................................................................................14
2.5.3 Quality costs.........................................................................................................................14
2.6 DETERMINATION OF STOCK LEVELS.............................................................................15
2.6.1 Reorder level.........................................................................................................................15
2.6.2 Minimum level......................................................................................................................15
2.6.3 Maximum level.....................................................................................................................15
2.6.4 Buffer stock / safety stock....................................................................................................15
2.7 FACTORS AFFECTING STOCK LEVELS...........................................................................17
2.8 MODERN TECHNIQUES IN STOCK MANAGEMENT.....................................................17
2.8.1 Just in Time stock management technique (JIT)..................................................................17
2.8.2 Vendor Managed Inventory..................................................................................................17
2.8.3 Material Requirement Planning (MRP)................................................................................17
2.9 ORGANIZATIONAL SUCCESS............................................................................................19
2.10 THE RELATIONSHIP BETWEEN STOCK MANAGEMENT AND.................................19
2.11 CONCLUSION......................................................................................................................20
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CHAPTER THREE.....................................................................................................................21
METHODOLOGY......................................................................................................................21
3.0 INTRODUCTION...................................................................................................................21
3.1 RESEARCH DESIGN.............................................................................................................21
3.2 STUDY POPULATION..........................................................................................................21
3.3 SOURCE OF DATA................................................................................................................21
3.4 SAMPLING PROCEDURE....................................................................................................21
3.4.1 Sample size...........................................................................................................................23
3.5. DATA COLLECTION............................................................................................................23
3.5.1. Questionnaires.....................................................................................................................23
3.6 STUDY VARIABLES.............................................................................................................24
3.7 DATA PROCESSING AND ANALYSIS................................................................................24
3.7.1 Coding...................................................................................................................................24
3.7.2 Analysis.................................................................................................................................24
3.7.3 Editing...................................................................................................................................24
3.8 DATA PRESENTATION AND CONCLUSION.....................................................................24
3.9 LIMITATIONS OF THE STUDY...........................................................................................25
REFERENCES............................................................................................................................26

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 CHAPTER ONE

1.0 INTRODUCTION
This chapter covers the background of the study, statement of the problem, objectives of the study,
the scope of the study, significance of the study and the operational definition of terms.
1.1 BACKGROUND TO THE STUDY
1.1.1Historical perspective

Stock management globally meant too much inventory and too little management or too little
inventory and too much management. There can be severe penalties for excesses in either
direction (Smith, 2012).
Stock management problem proliferated, as technological progress increased the organization
ability to produce goods in greater quantities, faster and with multiple designs. According to
Godan (2014), the public compounded the problem by its receptiveness to varieties and
frequency design changes. There was no doubt that since the mid 80s, the strategic benefits of
inventory management, production planning and scheduling have become obvious.
For many organizations, there was no doubt that inventory management enhanced their
operations. Organizations with high levels of inventories such as raw material worked in process
and finished good; sustained production, ensured free flow of materials and offered a wide range
of products, which made easy the delivery of goods to the customers.
Globally, many organizations in that do not have proper stock management systems in their
operations face a lot of challenges most of which include dependency on the efficiency of the
supplier, missed sales in case of stock outs, high costs of obtaining materials and poor customer
service. However, organizations have recently found it as having a great impact on the success of
the organizations (Frazelle, 2002; Jessop, 1986). Good stock management by a firm will lower
costs, improve efficiency and ensure production while at the same time meet fluctuations in
customer demand. It will give the firm a competitive advantage as more efficient production can
feed through to lower prices and also customers are always satisfied as products will be available
on demand.

1.1.2 Conceptual Perspective

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Stock management has been defined by different scholars but all drive to the same meaning. The
international dictionary of management (1995) defines stock management as the use of
management techniques designed to determine and implement the holding of optimum levels of
stock, whether raw materials stocks, bought out goods, work in progress, or finished goods. Stock
availability is the most important aspect of customer service.

Firm Performance: An assessment of how performance is on three specific areas of firm outcomes:
financial performance, market performance, and customer value added (Richard, Devinney, Yip, &
Johnson, 2009).

Performance of an organization is measured basing on many variables regarding Financial

Performance, Market Performance, total cost reduction and meeting industry standards. According
to Host (1992), sales volume and growth rate of change in sales are used to evaluate organizational
performance. They are determined by evaluating marketing factors that influence sales, including
marketing strategies, competition, promotional programs and distribution decisions.

1.1.3 Theoretical Perspective

Strategic Choice Theory
According Child, (2016) the strategic choice theory pointed out the link between the choices of
management and the performance of a firm as well as relations of the firm’s internal and external
environment. the theory emphasized on the magnitude of the decisions made by management on
the performance of firm. Michelson (2013) established a strategic choice model that
demonstrated the inter-reliance between the environment and organizations, actions and general
business performance. The model focused on attaining a higher performance level so as to
enhance efficiency especially in the face of limited resources; however, the strategic theory was
unsuccessful in giving a more importance on contextual aspects, including environment,
technology as well as the degree of operation into account and merely considered how the
structure of a firm help in the performance of a business.
Stock management techniques were among the choices that the management considered while
making decisions as regards how to improve the performance of an organization. This research

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study aimed at helping us understand the choices of inventory management techniques that are
made by managers in order to improve the organizational performance of manufacturing firms in
terms of profitability, quality, efficiency, optimal production, production targets and on time
delivery.

Transaction Cost Analysis theory

According to Hall (2014) Transaction Cost Analysis (TCA) is a theory that guarantees expenses
of the supply chain are maintained to a minimal level TCA was widely adopted in a number of
areas, specifically in the study of economics and organizational structures and performance. In
the beginning of 1970s, the mathematicians and economist, Williamson, integrated TCA into the
model of general equilibrium and established his transaction costs economics in the novel theory
of an organization. Williamson (2015) argued that firms can reduce their costs of transaction via
vertical integration, as well as enhancing the degree of trust simultaneously. This type of
integration was likely to decrease the expenses of inventory management whilst escalating the
service level of the internal and external customers even as releasing capital to be utilized in
other quarters of a business.
The reduction of costs, which included the transaction costs experienced across the supply chain,
was one of the key objectives of an organization. Commonly, the reduction of transaction costs
resulted in an increase in the level of profitability. On the other hand, as explicated previously,
the inventory management techniques were expected to play a major role in enhancing the
efficiency of the supply chain management. Since one of the performance measurements in this
study was profitability, this study aimed at helping us to understand whether inventory
management techniques adopted by consumer goods manufacturing firms lead to an enhanced
profitability.

Theory of Economic Order Quantity (Wilson’s EOQ Model)

Coleman (2013) and Ogbo (2011) delineate the EOQ model as one that is focused on ordering
portions that minimizes the stability of the cost between the inventories holding costs and the re-
order costs. On the other hand, (Ogbo, 2011) defined the EOQ model as assumptions that are
critical to compute EOQ as provided: the costs of holding a stock are known, and are considered
constant; there are ordering costs which are perceived to be constant; the level of demand was

3
known and was regarded to be constant; that the lead time cycle was well-known and considered
constant; the price per unit was also considered constant; the replenishments made immediately,
the entire batch was delivered promptly and that the stock-outs are not allowed. One challenge of
EOQ was that it tends to ignore the necessity to have shield stocks, which are preserved in order
to cater for deviations during lead-time and demand making, and as such, it makes it complex to
be practiced. The EOQ model demanded that for each item that is preserved in a store, it is
critical to establish the point of ordering, which was considered the most cost operative quantity
of ordering. The model made an assumption that all other variables were constant and
disregarded the fact that uncertainties were frequent and ordinary in all firms. For instance,
uncertainty comprised of change in the level of demand, damage while transporting an item and
holdups during the delivery process. In this case, uncertainty in the level of demand would
consequently compel EOQ to be attuned so as to shield against uncertain business situation.
Due to doubts experienced in business environment, adjusted economic order quantity was an
EOQ model that should be adopted in the event fluctuation in demand was a widespread
phenomenon in this study, it was crucial to understand to what extent EOQ model was
implemented by consumer goods manufacturing firms in Nairobi, as well as the impact of EOQ
model on performance of consumer goods manufacturing firms in Nairobi.

1.1.4 Contextual perspective

In Uganda the scenario of stock management involves determining the purchasing practice and
techniques and strategy. A supply strategy is seen by Porter (1999) as an integral part of the general
competitive strategy of a firm. Determining the relationship to have with suppliers is therefore
crucial in stock management (Bain, 1959, Lenders, 1965). Nair (1999) explains that stock
management involves stock control, purchasing, stock losses, stock cover, stock turnover and
general stores operations and materials handling.

An example of effective stock management system is given by W. H. Smith who sells 100,000
product lines every year and more than a million orders are placed around 2,000 different suppliers
to keeping the shelves stocked at precisely the right level is an exciting task. By feeding sales
information directly in the computer, it enables stock to be replenished automatically and quickly

4
and frees staff to help customers and increase sales which in turn lead to success (Daily Monitor 10
October 2004 p 21). Firms that have not embraced the use of stock management in their operations
have been reported to miss the chances of maximizing sales. So poor performing industries look to
stock management to drive down costs improve performance and revolutionalise traditional
systems of production.
It is against this background that firms have realized the importance of stock management towards
organizational success Lewis and Trevin (2000). Firm performance is the ability of an organization
to do something well, (Longman Dictionary, 1987). Performance measures are necessary for
organizations because they show whether organizations are achieving their target set at strategic
and operational levels (Kermally, 1997).
The performance of an organization can also be implied on how the organization achieves its
mission and satisfy its customers’ needs in the most competitive way. The organization is said to be
successful when it can satisfy all its target customers in time, handle customer order in the right
time and use the available resources effectively and efficiently.

Rwenzori Beverages (U) Ltd is one of the biggest mineral water Manufacturing Company in
Uganda as well as East Africa. It is the first company in Uganda to manufacture Mineral water and
have 80% market share in mineral water industry in Uganda. The factory is located on plot 588,592
block 111 Kiwanga Mukono District. It is 16kms from Kampala city centre on the road to Jinja.
Rwenzori focuses its future on innovation and excellence in business. It has a well – equipped PET
bottling plant, which can produce over 400,000 bottles per day. The water bottling lines can
produce over 300,000 bottles per day. This reflects Rwenzori’s desire to keep a pace with
technological advances.

The company keeps different categories of stock including raw materials, finished products and
maintenance repair and operations supplies (MROs), some of which include 500 ml, 1000 ml and
1500 ml water bottles, PET bottles for soft drinks, Plastic containers for cosmetics, chemicals and
plastic bottles for medicines. Rwenzori looks forward to strengthening its market leadership
through constant enhancement of excellence of its products through innovative manufacturing and
marketing, reinvestments and an efficient countrywide distribution network and focuses on
extending its market leadership up to at least 95% courtesy of company profile. The company has

5
however not achieved the extra desired 15% of the market share probably because of poor stock
management system in place. It is therefore feared that stock management could impact on the
success of this organization (Rwenzori Internal Report, 2018)

1.2 Statement of the problem

Stock management is a very important aspect in an organization, and it allows efficient balance of
patterns of traffic flow, use of space, rapid and easy access to stock of input and output general
efficient stores operation and customer satisfaction. According to the Internal Annual Report
(2018) is however clear that Rwenzori Beverages (U) Ltd has failed to achieve the extra desired
15% of the market in the past two years which is probably attributed to the poor stock management
systems in place. The researcher is therefore undertaking a study to establish the relationship
between Stock Management and Organizational Success.

1.3 Purpose of the study

The purpose of the study was to establish the impact of Stock Management on the success of an
Organization using Rwenzori Beverages (U) Ltd as case study.

1.4 Research Objectives

i. To establish the inventory management systems and techniques in place
ii. To find out the costs associated with holding inventory in an organization
iii. To establish the measure of success in an organization
iv. To establish the relationship between stock management and organizational success

1.5 Research Questions

i. What are the inventory management systems and techniques in place?
ii. What are the costs associated with holding inventory in an organization?
iii. What are the measures of success in an organization?
iv. What is the relationship between stock management and organizational success?

6
1.6 Scope of the study
1.6.1 Content Scope
The study will encompass stock management as an independent variable while organizational
success as the dependent variable. The study will specifically focused on stock taking, and also
investigated stock levels in organization.

1.6.2 Geographical scope

The research will be conducted in Mukono district using Rwenzori Beverages (U) Ltd as a case
study. It is located on plot 588,592 block 111Kiwanga Mukono District. It is 16 Kilometers from
Kampala city centre on the road to Jinja. It is known to be a large company enough in terms of
stock management to cater for all the objectives of the study.

1.6.3 Period Scope

The study will consider information from respondents for a period of two years. (2016-2018)

1.7 Significance of the study

The finds of the study will assist;
i. The organization (Rwenzori Beverages) to be aware of the relationship between stock
management and organizational success and the recommendations will be used accordingly
to reform stock problems that might be existing in their organization.
ii. Future researchers will be provided with literatures and recommendations for future
research.
iii. The findings will also help other organizations to get an insight on how stock management
impacts on organizational success.

1.8 Operational definition of terms

Stock management as the use of management techniques designed to determine and implement
the holding of optimum levels of stock, whether raw materials stocks, bought out goods, work in
progress, or finished goods.

7
Firm Performance: An assessment of how performance is on three specific areas of firm
outcomes: financial performance, market performance, and customer value added (Richard,
Devinney, Yip, & Johnson, 2009).

8
 CHAPTER TWO
LITERATURE REVIEW

2.0 Introduction
This chapter consists of related literature on stock management following the research objectives
set in chapter one. It shows what has been written about stock management and how it impacts on
the organization. The chapter covers the meaning of stock management, types of stock held in an
organization, reasons why organizations hold stocks, stock management methods, costs involved in
stock management, determination of stock levels, factors affecting stock levels, modern techniques,
contribution of stock management, conclusion.

2.1 Theoretical review

Theory of Economic Order Quantity (Wilson’s EOQ Model)

Coleman (2013) and Ogbo (2011) delineate the EOQ model as one that is focused on ordering
portions that minimizes the stability of the cost between the inventories holding costs and the re-
order costs. On the other hand, (Ogbo, 2011) defined the EOQ model as assumptions that are
critical to compute EOQ as provided: the costs of holding a stock are known, and are considered
constant; there are ordering costs which are perceived to be constant; the level of demand was
known and was regarded to be constant; that the lead time cycle was well-known and considered
constant; the price per unit was also considered constant; the replenishments made immediately,
the entire batch was delivered promptly and that the stock-outs are not allowed. One challenge of
EOQ was that it tends to ignore the necessity to have shield stocks, which are preserved in order
to cater for deviations during lead-time and demand making, and as such, it makes it complex to
be practiced. The EOQ model demanded that for each item that is preserved in a store, it is
critical to establish the point of ordering, which was considered the most cost operative quantity
of ordering. The model made an assumption that all other variables were constant and
disregarded the fact that uncertainties were frequent and ordinary in all firms. For instance,
uncertainty comprised of change in the level of demand, damage while transporting an item and
holdups during the delivery process. In this case, uncertainty in the level of demand would
consequently compel EOQ to be attuned so as to shield against uncertain business situation.

9
Due to doubts experienced in business environment, adjusted economic order quantity was an
EOQ model that should be adopted in the event fluctuation in demand was a widespread
phenomenon in this study, it is crucial to understand to what extent EOQ model is implemented
by manufacturing firms in Uganda used, as well as the impact of EOQ model on performance of
manufacturing firms in Uganda.

2.1 Conceptual frame work

Stock Management
The international dictionary of management (1995) defines stock management as the use of
management techniques designed to determine and implement the holding of optimum level of
stock, whether stock, bought out goods, work in progress or finished goods. Lewis and Trevin
(200) also define stock management as the process of regulating and monitoring the amount of
goods available for sale so that there are always sufficient to meet demand. Stock management is
essentially concerned with ensuring that the acquisition, storage, holding and usage of all types of
stock are fully controlled at all times. That is making sure that firm has the right quantity of stock
at the right place and at the right time.

2.1.1 Types of stocks held in organizations

Bandenhorst and Rooyen (2002) identify four groups of stocks organizations hold. Raw material,
work in process, finished goods and maintenance repair and operation goods (MRO), these are
shown below.

2.1.2 Raw materials

Lysons (2002) explains raw materials as basic materials which undergo changes through
manufacturing processes in the course of being incorporated into the final product. This stock may
be commodities or extracted. Typically, raw materials are commodities such as grain, minerals and
many more.

10
2.1.3 Work in process
This generally include all materials that has been released for initial processing up to materials that
has been completely processed and is awaiting final inspection and acceptance before inclusion
into final goods. Any item that has apparent but is not raw materials is considered to be work in
process.

2.1.4 Finished goods

A finished good is a completed part that is ready for a customer order. (Sunil and Peter 2004).
Therefore finished goods are stock of completed products. These goods are inspected and have
passed final inspections requirements so that they can be sold directly to their final users, sold to a
retailer or held in anticipation of a customer order.

2.1.5 Maintenance repair and Operating Supplies (MRO)

These are items that are used to support and maintain the production process and its infrastructure.
Lysons (2000) explains that these goods are usually consumed as a result of the production process
but are not directly apart of the finished product. Examples of MRO goods include oil, lubricants,
coolants, uniforms, gloves, even office supplies such as staples, pens, papers are also part of MRO
supplies.

2.1.6 Transit stock

Transit stock results from the need to transport items from one location to another, and from the
fact that there is some transportation time involved in getting items from one location to another.
Sometimes this is known as pipeline stock. Merchandise shipping by truck or rail can some time
take days or even weeks to go from regional warehouse to a retail facility. Some large firms such
automobile manufacturers employ freight consolidators to pool their transit stock coming from
various locations into the shipping source to take advantage of the economies of scale.

2.1.7 Theoretical inventory

In their book managing business process flows, principles of operations management, Anupindi,
Chopra, Deshmukh, Van Meighem and Zemel discuss a final type of stock known as theoretical
stock. They described it as the average inventory for a given throughput assuming that there is no

11
work in process item has to wait in a buffer. Theoretical stock is a measure of minimum stock
needed to flow through the system without waiting.
2.2 REASONS WHY ORGANIZATIONS HOLD STOCK
According to Baily (2002), firms hold more stock that it is currently necessary to ensure that firms
operate properly. He however identifies other reasons for holding stock as;

i. To ensure sufficient availability of items to meet customer needs.

ii. To meet any future demand
iii. To take advantage of any bulk discounts.
iv. To absorb seasonal fluctuations and variations in usage and demand
v. To provide a buffer between processes
vi. To increase sales thereby increasing profits, if stock are held, a wider variety of products
are offered and customer demand is more immediately satisfied because the product is
available which prevent prospective customers from going elsewhere.

2.3 STOCK MANAGEMENT METHODS

Stock can be controlled and managed using a stock card. This may literally a card, which is
updated by hand or a file with in a computer system. The heart of all the systems is the paper work,
and the effective of the system depends on keeping the records updated.

2.3.1 Manual Stock Management

According to Harngren, Bhiman, Forster, and Daer (1999), stock can be checked by physical
checking and counting at the interval sufficient to an organization. This process is known as taking
and establishes the actual quantity and hence the value of the stock will be included in the balance
sheet. Many firms have used manual cards for a long time now. The time involved and risk of
errors increases and the number of items that needs to be handled increase. This has led to
automated or computerized system.

2.3.2 Computerized Systems

In computerized systems, the computer will automatically print a purchase requisition when stock

12
reaches their re-order point (Drury, 1996). Stock management is an ideal activity to computers.
Computers save time and take the ordering processor order processing easy. All tills are connected
to a master computer. Deliveries are fed into computer, and then as sales are recorded, stock levels
are adjusted.

2.4 STOCK TAKING

According to CIMA (1998), stock taking involves counting the physical stock at hand at a certain
date, and then checking this against the balance shown in the clerical records. There are two
methods of carrying out this process, which is periodic stocktaking and continuous stocktaking.

2.4.1 Periodic Stock taking Periodic stock taking is “a process whereby stock items are physically
counted and then valued” (CIMA official terminology). This is usually carried out annually and the
objective is to count all items of stock on a specific date.
2.4.2 Continuous Stock taking
Continuous stock taking is “the process of counting and valuing selected items at different times on
a rotating basis” (CIMA official terminology). This involves a specialist team counting and
checking at least once a year. The advantages of this system compared to periodic stocktaking are
as follows;

i. Staff morals are improved and standards are raised.

ii. The annual stocktaking is unnecessary and the disruption it causes is avoided
iii. Regular skilled stock takers can be employed reducing likely errors.
iv. Control over stock levels is improved and there is less likelihood of overstocking or stock.
v. Deficiencies and losses are revealed sooner than they would be if stocktaking were limited
to an annual basis.

13
2.4.3 Stock Discrepancies
CIMA (1998) explain that stock discrepancies are different between the physical amounts of an
item in store and the amount shown in the stock records. He explained that these can be disclosed
by stock checks/stocktaking.

The discrepancies arise because of;

Incorrect entries on the bill card from the goods received note, material requisition and material
returned note.

Pilferage, short issues, excess issues, returning of materials to the wrong bin or placing materials to
the wrong bin ordinarily. CIMA raises concern that when discrepancies occur, the causes should be
investigated and appropriate action be taken to ensure that it does not happen again.

2.5 COSTS INVOLVED IN STOCK MANAGEMENT

2.5.1 Carrying costs /holding costs

These arise when business holds stock of goods for sale, these cots include opportunity cost of the
investment tied up in stock, costs of storage and stores operations, interest charges, insurance costs,
risk of obsolescence and deterioration, theft and space rental. The contribution margin on the sale
plus any contribution margin lost or future sales hurt by customer ill-will caused by stock outs
(Harsher, Bhimani, Foster and Datar, 1999).

2.5.2 Purchasing costs

They consists of the cost of goods acquired from suppliers, freight and transportation costs, clerical
and Administrative costs associated will purchasing, accounting for and receiving of goods.
Discounts for different purchase order sizes and supplier terms affect purchasing costs.

2.5.3 Quality costs

The quality of a product or a service is its conformance with a pre announced or pre specified
standards. Four categories of costs of quality are often discussed, that is prevention costs, appraisal

14
costs, internal failure costs and external costs.

2.6 DETERMINATION OF STOCK LEVELS

Stocks are expensive both in themselves and in terms of the buildings and staff required to keep
them safely and securely (Birchall and Morris, 1995). They continue to say that stocks of materials
tie up a large proportion of the cash resources of a firm, especially if there is a long period between
their purchase and receipt of cash after their eventual resale. Basing on the analysis of past stock
usage and delivery times, a series of stock management levels can be calculated and used to stock
at their optimum levels (a level which minimizes costs). These levels will determine when to order
and how much to order.

2.6.1 Reorder level

It is a point at which a purchase order must be sent to the supplier for the supply of more materials.
According to CIMA (1998), the reorder level is determined as below; Reorder level = maximum
usage x minimum lead time

2.6.2 Minimum level

It is the level which stock would not normally be expected to fall. It usually responds with buffer /
safety stock, (Lyson, 2000) it is determined as below; Minimum level = reorder level x (average
usage x average lead time)

2.6.3 Maximum level

It is the level above which stock should not normally rise. It represents the normal peak holding,
that is buffer stock plus the reorder quantity (CIMA, 1998). It is determined as below; Maximum
level = reorder quantity – (minimum usage x minimum lead time)

2.6.4 Buffer stock / safety stock

This is the difference between the maximum possible usage in the minimum possible lead time and
the reorder level and is maintained to that, even if stock usage / or lead time are greater than
anticipated, the organization will not run out of stock. (Birchall and Morris, 1995) According to

15
Drury (2002), safety stocks are the amount of stock that is carried in excess of the expected use
during the lead time to provide cushion against running out of stock.

2.7 FACTORS AFFECTING STOCK LEVELS

Lead time, this is time between placing an order and when the order is actually received, (Maher,
1997). If the lead time is long, the stock must be maintained at high levels. Stock holding costs,
this is the cost of keeping the material in the store. According to Maher (1997), these costs
increase with the number of units of inventory. If these costs are high, then stock levels should be
high. Availability, that is if a particular item of the material is easily available throughout the
year, the stock level will be low.
Consumption / demand pattern, if any item of the material is demanded or used in greater
quantities, then their stock level should be kept high. Durability, stock levels of durable products
can be maintained at a higher level. In case of perishable goods, stocks should be kept at low
levels. Trade discounts, sometimes suppliers offer high discounts for large quantities. If the benefit
of trade discount is greater than stock holding costs, the stocks should be kept at high levels.
2.8 MODERN TECHNIQUES IN STOCK MANAGEMENT
2.8.1 Just in Time stock management technique (JIT)
According to Lysons (2006), Just in Time is a manufacturing philosophy based on planned
elimination of all forms of waste and continuous improvement of productivity. Just in Time is the
exact adjustment of production to quantity and time held.

2.8.2 Vendor Managed Inventory

Recent research has shown the importance of improving the supply chain competitiveness by
means of supply Chain Management and strategic alliance. Vendor managed inventory is
considered as an important option in a strategic alliance, because Vendor Managed Inventory not
only has the ability to reduce costs, but also to improve service levels and create business
opportunities for all parties in the supply chain (Tyan and Wee, 2002).

2.8.3 Material Requirement Planning (MRP)

According to Sunk and Peter (2004), material requirement planning is a computer based resource
management system designed for items that have dependent demand. It looks at order quantities
period by period as such, allows discrete ordering (ordering only what is needed). In this way,

16
inventory levels can be kept at a very low level; a necessary for complete item with dependent
demand.

17
2.9 ORGANIZATIONAL SUCCESS
Success is the ability of a person or machine or an organization to do something well. Success
needs a lot of work, effort and preparation (Longman Dictionary, 1987). Success measures are
necessary for organizations because they show whether organizations are achieving their target set
at strategic and operational levels (Kermally, 1997). Success of an organization is measured basing
on many variables regarding customer satisfaction, sales volume, total cost reduction and meeting
industry standards. According to Host (1992), sales volume and growth rate of change in sales are
used to evaluate organizational success. They are determined by evaluating marketing factors that
influence sales, including marketing strategies, competition, promotional programs and distribution
decisions. Sales problems are determined in order to understand seasonal variations, turnover rates
for merchandise and customer profiles. In human resource management of an organization when
determining success, human relations must be evaluated to establish capabilities of employees,
compensation trends, employee turnover. Better human resource management creates order, proper
resource utilization and overall control of the organization, (Sransfield, Hawkins, Hudion and
Daries, 1996)

2.10 THE RELATIONSHIP BETWEEN STOCK MANAGEMENT AND

ORGANIZATIONAL SUCCESS
According to CIMA (1998), the objective of holding stock is to increase sales thereby increasing
profits. If stocks are held, a wider variety of products is offered and customer demand is more
immediately satisfied because the product is available which prevents prospective customers from
going elsewhere. Effective stock management maintains customer loyalty. It avoids ill-will of
customers that may be caused by stock outs hence hurting or reducing future sales and profit
margins. Building and maintaining customer loyalty means continued earning by the company.
Frazelle, 2002, Jessup, 1986, explains that good stock management by a firm will lower costs,
improve efficiency and ensure production can meet fluctuations in customer demand. It will give
the firm a competitive advantage as more efficient production can feed through to lower prices and
also customers should always be satisfied as products will be available on demand. Poor stock
management systems may lead to dependency on the efficiency of the suppliers, missed sales
incase of stock outs, high costs of obtaining materials and poor customer service.

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2.11 CONCLUSION
Analysis of literature indicates that most writers neglect pointing out the appropriate stock
management methods while others do not recognize the added advantage of stock management.

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 CHAPTER THREE
METHODOLOGY

3.0 INTRODUCTION
This chapter presents the research design, study population, study sample, instrument, sources of
data administration, data analysis and limitations of the study.

3.1 RESEARCH DESIGN

The study is intended to establish the impact of stock management and organizational success.
Therefore both quantitative and qualitative methods of analyzing data will be used to obtain the
information required.

3.2 STUDY POPULATION

The study population will be both junior and senior staff of the organization that is purchasing
department, Production Accounting and stores. This will be done to avoid biasness in dealing with
only one category of respondents. The researcher will therefore interview a sample 28 respondents
of Rwenzori Beverages (U) Ltd basing on the Slovenes formula of determining the sample size.

3.3 SOURCE OF DATA

The researcher will use both primary and secondary sources. Primary data will be collected
physically from the respondents through interviews; questionnaires will be distributed to the staff
of Rwenzori Beverages (U) Ltd. Secondary data will be collected through reading various
literature of the organization and the research work of other researchers.

3.4 SAMPLING PROCEDURE

The study used purposive and simple random sampling, where the names of respondents will be
written on small pieces of papers for each respondent and mixed up in a box and then be picked
one by one at random. All samples will have the same and equal probability of being picked.

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21
3.4.1 Sample size

The research will target 30 respondents; that is, 13 from stores department, 12 from Procurement
department and 8 from Production and 7 Accounting Department also a sample of 28
respondents whereby 11will come from stores, 10 from procurement, 4 from production and 3 from
Accounting Department.

The Sloven’s Formula will be used here to determine the sample size;

N
n= 2
1+ N (e)

30
n=
1+30 (0.05)2

30
n=
1+30 (0.0025)❑

30
n= ¿
1+0.075 ¿❑

30
n= ¿
1.075 ¿❑

Therefore n = 28 Respondents

Table 1 : Showing the sample size of respondents

Department Target population Sample size
Stores department 13 11
Procurement 12 10
Production 8 4
Accounting department 7 3
Total 30 28
Source: Primary Data, 2019

3.5. DATA COLLECTION

3.5.1. Questionnaires
The study will use a self administered questionnaires; the questionnaires will be issued to
respondents to answer in order to get findings. Self administered questionnaires will be used

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because they will give time to the respondents to fill the questionnaire without supervision. They
are also free from bias because the data will be given directly by the respondents without any
interference.

3.6 STUDY VARIABLES

The independent variable is stock management; defined as the use of management techniques
designed to determine and implement the holding of optimum levels of stock, whether raw or
attainment of desired goals or results. Success of an organization is measured basing on many
variables regarding customer satisfaction, sales volume, total cost reduction growth rate of change
in sales and meeting industry standards.

3.7 DATA PROCESSING AND ANALYSIS

3.7.1 Coding
The data collected will be arranged in groups of similar questions from different questionnaires as
answers will be given unique looks to make the job easier.

3.7.2 Analysis
Percentages and tables will be used for quantified items into frequencies and judgmental facts.
Other methods will be used to enhance simplicity and good understanding.

3.7.3 Editing
The data collected will be edited for accuracy and completeness and to find out how well
respondents answered the questions. This was done in line with due considerations paid to
questionnaires sent to the respondents so as to detect the gaps which may have been left to ensure
data quality of this study.

3.8 DATA PRESENTATION AND CONCLUSION

Data will be collected, sorted and organized by description. Data will then be presented in tables
showing frequencies and percentages. Pie charts will also be used relative to respondents’ answers.

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3.9 LIMITATIONS OF THE STUDY
Research might be a very lengthy exercise which may involve procedures to be undertaken. The
researcher met several problems indicated below.

Difficulties in meeting the intended respondents. Some respondents may be unwilling to give
information needed by the researcher

Financial costs, the financial requirements of this research may be so high due to the distance
between the researcher and the study area. Other costs to be incurred prior to the completion of the
state, printing, photocopying, phone calls for making appointments with the respondents.

There might be little time to carry out the research because of conflict between work, studies and
research itself.

24
 REFERENCES
Baily et al (1996) Purchasing Principles and Management 7th Edition

Charles T. Horngren George Foster, Srikant M. Datar (1994)

Cost Accounting 8th Edition Prentice Hall Inc. United Kingdom

Charles T. Horngren, Alnoor Bhimani, George Foster and Srikant M. Datar. 1999 CIMA (1998)
Cost Accounting and Quantitative Methods (Stage 1, Paper 2) B.P.P Publishing Limited London.

Colin Drury (2000) Management and Cost Accounting 4th Edition

International Thomas Business press London Colin Drury (2000) Management and Cost
Accounting 5th Edition

Thomson Learning India Daily monitor (10th October) page 24

David H. (1992) Entrepreneurship (Eastern Economists edition). Prentice Hall Inc. New Jessy
USA

David Jessop and Morrison (1986) Management and Control of Stock, 4th Edition Pitman
Publishing 128 Long Acre India

Hano Johnson and G. Terry (1995) International Dictionary of Management 5th Edition

John Birchald and Graham Morris (1995) Business Studies.

Thomas Nelson and Sons Ltd. United Kingdom Longman Dictionary (1987) of contemporary
English (New Edition) Longman UK

Lyson Kenneth (2000) Purchasing and Supply Chain Management 5th Edition Lyson Kenneth
(2002)

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Purchasing and Supply Chain Management 6th Edition Management and Cost Accounting (10th
Edition) Prentice Hall Europe
Rogers Lewis and Roger Trevil (2000) Business Vocational (3rd); Stanly Thornes Ltd United
Kingdom.

Shane Mariarity and Carl. P. Allen (1984) Cost Accounting Harper and Row Publishers Inc
United States of America

Sultan Kermally (1977) Management Ideas. Reed Educational and Professional Publishing Ltd
Welle

Arjan van (2003) Purchasing and Supply Chain Management 2nd Edition New Dhelhi India.
Thomson Learning

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