Inventory Management in Textile and Apparel Merchandising

Statistical and Descriptive Research

Bachelor Thesis , 2020 , 66 Pages

Business economics - Business Management, Corporate Governance

This study aimed to analyze loss due to poor or improper inventory management in the Bahir Dar Textile Share Company (BDTSC). The study sought to find the inventory management techniques used by the spinning section at BDTSC established the level of effectiveness of inventory management.

It also determined the strength and weakness of the company, inventories the control system used, the police and procedure used, assessing the general material handling strategy in BDTSC at spinning section, the role of kaizen in the organization and the coordination of one department to the other in the organization.

The study adopted both a statistically and descriptive research design. The target population was store department, production department, kaizen case team department, planning, and programming department, marketing and selling department, cost and budgeting department, and purchase department.

Table of content

DECLARATION

Abstract

Acknowledgement

LIST OF ABBREVIATIONS

List of figure

List of table

Chapter One: Introduction
1.1 Background of the study
1.2 Background of Host Company
1.3 Mission, vision and objective of the company
1.3.1 Mission
1.3.2 Vision
1.3.3 Objective of the company
1.4 Statement of the problem
1.5 Objective of the project
1.5.1 General objective of the project
1.5.2 Specific objective
1.6 Some research questions
1.7 Significance of the study
1.8 Scope of the study
1.9 General work flow of spinning section in BDTSC
1.10 Limitation of the study
1.11 Structure of the study

2 Chapter Two: Literature Review
2.1 Inventory
2.2 Inventory Management
2.3 Scope of the inventory management
2.4 Nature of inventories
2.5 Needs of inventory
2.6 Types of Inventories
2.6.1 Cycle stock
2.6.2 Safety or buffer stock
2.6.3 Seasonal stock
2.6.4 Dead stock
2.7 Requirement for effective inventory management
2.7.1 Inventory count (keep track) the inventory
2.7.2 Demand for cast and lead time information
2.7.3 Cost information holding inventories
2.7.4 Ordering cost
2.8 Inventory management Techniques
2.8.1 Economic order quantity
2.8.2 TWO BIN Method:
2.8.3 FIXED PERIOD ORDERING:
2.8.4 THREE BIN Method:
2.8.5 FIXED ORDER QUANTITY:
2.8.6 Proper storage
2.8.7 Just –in-time inventory control:-
2.8.8 Out sourcing (ABC analysis)
2.9 Inventory control procedures
2.10 Impact of Improper Management of Inventory
2.11 Material Storage Losses

3 Chapter Three: Research methodology and Design
3.1 Data type
3.2 Subject of the study
3.3 Method of data collection
3.4 Source of data collection
3.5 Sample size
3.6 Sampling technique
3.7 Data presentation and Analyzing
3.8 Method of presenting the outcome

4 Chapter Four: Data Presentation, Analysis and Interpretation
4.1 Respondents’ Personal Information
4.1.1 Respondents’ Sex distribution for the returned respondents
4.1.2 Respondents’ educational level
4.1.3 Respondents’ age distribution
4.2 Nature’s of inventory management of the Organization
4.3 The policies and procedures of inventory management
4.4 Inventory control system
4.5 Inventory management techniques of the organization
4.6 Kaizen and BDTSC
4.7 Any general comment regarding inventory management in the organization (Source: Questionnaire)
4.8 Formula and conversion plan of spinning section
4.9 General structure of the organizations material handling strategy
4.10 Downtime of the organization for 2008
4.11 Economic order quantity of the organization

5 Chapter Five: Summary, Conclusion and Recommendation
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendation

FURTHER RESEARCH

Reference

Appendix 1

Appendix 2

Appendix 3

Abstract

This study aimed to analysis loss due to poor or improper inventory management in BDTSC. The study sought to find the inventory management techniques used by spinning section at BDTSC, established the level of effectiveness of inventory management. It also determined the strength and weakness of the company, inventory control system used, the police and procedure used, assessing the general material handling strategy in BDTSC at spinning section, the role of kaizen in the organization and the coordination of one department to the other in the organization.

The study adopted both statistically and descriptive research design. The target population was store department, production department, kaizen case team department, planning and programming department, marketing and selling department, cost and budgeting department and purchase department. A survey was non-probability judgmental sampling technique. A questionnaire was used as data collection instrument. The total sample that the researcher are select 25 respondents. One questionnaire was issued to one respondent in non-probability judgmental sampling technique. And finally 20 respondents from 25 respondent give response.

The study found out that BDTSC used fixed order inventory management techniques, perceptual inventory control system used, shortest processing time commonly used priority rules in the company, and in the last the study found the organizations loss due to downtime, both in production and monetary form, loss due to material handling problem and calculate EOQ for five years from 2004-2008. The study also proved that there was a significant way to reduce loss and improve inventory management system.

This paper also provides recommendation to the company and for further research.

Keywords: Inventory, inventory management, Order Quantity, two bin system, three bin system, fixed order, fixed quantity, proper storage, JIT, safety sock, dead stock, seasonal stock

Acknowledgement

Before and above all, we would like to thank “God” forgive strength and ability in order to carry out this research.

Further, we extend our warm and deep appreciation and gratitude to our Adviser; Annu K. for her support and encouragement while doing the project and continuous evolution of our project progress beyond given the title of our research.And also, we would like to thank Bahirdar University especially ‘Ethiopian institute of Textile and Fashion Technology’ for designing this program through that students develop their knowledge.

Finally, we would like to give sincere thanks the employees of BDTSC, who were willing to respond to our interview & other quires. Thanks goes to our friends and family who contributed for the accomplishment of this study.

LIST OF ABBREVIATIONS

Abbildung in dieser Leseprobe nicht enthalten

List of figure

Figure 1.1 working process of spinning section

Figure 2.1 TWO BIN Method

Figure 2.3 THREE BIN Method

Figure 4 Number of Selected and Returned Respondents’

Figure 5 Respondents’ educational level

Figure 6 the industry regarding the use of procedure and police

Figure 7 Coordination among department

Figure 8 Inventory management technique

Figure 9 kaizen application

Figure 4.10 material handling structure of BDTSC

Figure 4.11 affected cop by dust particle

Figure 4.12 damaged cotton in raindrop and in the flood of water in the store

Figure 4.13 waste material

Figure 4.14 loss of production in k.g due to downtime

Figure 4.15 loss of production against plan due to downtimes

Figure 4.16 money loss due to downtime

Figure 4.17 money loss against plan due to downtime

Figure 4.18 economic order quantity

List of table

Table 1 Respondents’ Sex distribution

Table 2 Respondents’ age distribution

Table 3 the term inventory management

Table 4 the industry policies & procedures

Table 5 the industry regarding optimal level of inventory.

Table 6 Time delivered finished goods

Table 7 the industry regarding loss analysis.

Table 8 Control system

Table 9 Checking inventory items

Table 10 Purchased inventory

Table 11 managing inventory

Table 12 role of kaizen

Table 13 conversion chart

Table 14 Loss due to scrap (waste in spinning section)

Table 15 downtime in 2008

Table 16 five years annual consumption, carrying cost, ordering cost and its cost aspect

Chapter One: Introduction

1.1 Background of the study

Inventory consists of the most important element of any system dealing with the supply, manufacture and distribution of goods and service. The concept of inventory management is very old but it came in light when harrie F.W, published his work on classical order size model and the work was extended by raymend F.F (1991) and Wilson R.M (1934). But only after the second world war with the development of operational research and computer technology that the theoretical concepts got a practical application.

Holding inventory is often interpreted as carrying an asset, but also means carrying risk in terms of obsolescence deterioration axed quality faults in financial terms inventory impacts the balance sheet, cash flow, profit and loss account. Operationally inventory affects production efficiency and on time delivery (coldratte, 1999) identifies inventory a key component for measuring business performance in manufacturing environment. Thus good management of inventory, essential to achieving business objective and building competitive advantage. Inventory management refers to the events or activities that affect inventory during the process of transferring in put resources and material to put goods. Achieving inventory management is a precursor to inventory management which is concerned with the means used to balance inflicting organizational objectives on the overall level of stock held to determine optimum inventory level for each (Dabbker, 1982).

Most studies in the manufacturing sector concentrate on the western companies as the awareness about systematic inventory management exist in the west. Therefore this research attempts to widen the geographical scope by examining cost loss, customer loss and sale loss due to inventory management gap in BDTSC.

1.2 Background of Host Company

The former name of Bahir Dar textile share company is called Bahir Dar Textile mills S.C., vertically integrated textile company, manufacturing 100% cotton products, including yarns and fabrics .It was established in 1961 from the fund of Italian war reparation in the town of Bahir Dar, 570 km North West of Addis Ababa, Ethiopia. 99% of the share was owned by the Ministry of Finance that had got from Italy government and the rest on percent and 1% by different organizations. Such as: Agricultural and industrial bank of development, Ethiopia Cement Corporation, Commercial bank of Ethiopia , Ethiopian small industry axion and Debre Berhanu wool factory.

When the company was established, there were 563 Ethiopian employees of which 360 males and 203 females. The initial capacity of the mills was 20,000 spindles, 360 looms together with processing plant with the total output of 10 million meter square fabric per year. The legal shape to the company was given in May, 1961, when the Company was registered as a Public Corporation, in the name of The Bahir Dar Textile Mills, S.C. with a capital of Eth. Birr 9,649,600. The Government established National Textiles Corporation and the factory became under the corporation management and the business title changed from textile mills to textile factory. After 27 years of establishment of the factory; of the number weaving machineries reached to 423, the total employees raised to 3,000, the capital grew to16 million Eth. Birr and the total production reached to 20 million meter square per year. The Company employed during 2003 was approximately 1,980 people. However; at present there are 1300 employees. In 1989, the Factory rehabilitated its spinning and weaving section replacing most of the machines and renovating the rest with. 44.2 million Eth. Birr. As of September 1999, the Factory changed from a Public Enterprise to a Share Company and it was financially restructured. Its capital amounts at present to 56,808,379 Eth. Birr. Its total land holding is 187,908 square meters of which 39,200 square meters is covered by building. Such as: Office, Raw materials and finished goods (warehouse), Chemical storehouse, Clinic, Production room, Workshops, Stores. In 2004, with 22 million Eth. Birr, some finishing processing machineries have been changed with modern machineries.

1.3 Mission, vision and objective of the company

1.3.1 Mission

The business missions of BDTSC are:

- Producing quality products of fabrics & yarns and being low cost provider, to be preferred company in domestic and export markets and profitable.
- By Satisfying customer needs, contribute foreign currency for the country.

1.3.2 Vision

The Business vision of the Company is to see being competitive in the domestic and export markets in quality & low cost providing of textile products.

1.3.3 Objective of the company

The main objectives of the factory are:

- To manufacture yarn & all kinds of finished clothes from cotton.
- To produce goods for household use.
- To sell its products locally & abroad.
- To engage generally in any other trade or business conducive to the Attainment of its objectives.

1.4 Statement of the problem

As the researcher browse the website related to inventory management, hold the following facts that necessitate for this study to be conducted which has a research topic of loss analysis in BDTSC due to improper inventory management.

Then inventory management lets companies enjoy many benefits which include achieving inventory balance, using resource wisely, cutting costs, saving time and becoming more efficient and planning a head for seasonal changes in demand. But in BDTSC, there is inadequate inventory management system. This leads production, sale (profit) and customer loss. In 2007 and 2008 E.C. the company’s production plan are 4,597,814 and 4,106,000 k.g respectively and the actual are 1,971,059 and 2, 053, 000K.g respectively, so the company loss 47% and 50% from its plan. The total sale plan of the organization in 2007 and 2008 E.c are 220,259, 000 and 347,634, 000 respectively and the actual total sale are 198,233, 000 and 142,989, 000 respectively. So the sale loss of the company against its plan are 5% and 59% respectively. Also Due to improper inventory management of the organization many customer loss.

According to these evidence this loss due to improper inventory management study is emphasize on how BDTSC improve inventory management system to come up with a good result along with attaining the plan and main objective of the industry.

1.5 Objective of the project

1.5.1 General objective of the project

The general objective of the project is loss analysis in BDTSC due to improper (poor) inventory management.

1.5.2 Specific objective

- To determine the industry strength and weaknesses with regarding to inventory management.
- To assess the general structure of the organization’s inventory handling strategy.
- To analyze the inventory management technique used in the company.
- To analyze inventory management system used in the company.
- To find out the economic order quantity of the yarn products of the company.
- To suggest ideas to manage the inventory level of the organization.

1.6 Some research questions

1. Does the industry manage its inventory in appropriate way?
2. Does the industry inventory management policy, procedure and techniques are to maintain the optimum level?
3. Does the industry very careful to buy the right items, at the right price and in the right quantity?
4. Does the industry analysis loss due to poor inventory management before this time? If you answer yes which method is used?

1.7 Significance of the study

The researcher has an expectation, the study will provide a clear picture about the value or importance of inventory management in BDTSC and to identify problem concerning inventory management. It isbelieved that the study was clearly reflect, what to see any opportunities to utilize, to give relevant recommendation, suggestion and solution that help top management as well as the organization to make good decision concerning about inventory management and help in designing a better systematic form for inventory management system. In addition, to give an overview of the factory use of inventory management industry to external bodies.

1.8 Scope of the study

Since the main objective of the study is loss analysis due to inventory management in BDTSC, the study limited to examining spinning department of the industry in order to analysis production and sale loss and customer loss of the company as the whole to investigate the issue in-depth and to make the study manageable.

1.9 General work flow of spinning section in BDTSC

Abbildung in dieser Leseprobe nicht enthalten

Figure 1. 1 working process of spinning section

Source: - researchers view from direct observation

1.10 Limitation of the study

The research face a problem of time to collect all necessary data from employees of the industry and some respondents are involuntary to give available information. In addition, the employer is involuntary to tell the real information regarding the inventory management of the organization.

1.11 Structure of the study

The study was arranged in five chapters. The first chapter deals with the introductory part mainly about back ground of the study, background of the organization, statement of the problem, objective of the study, significance of the study, scope of the study, scopes of inventory management and limitation of the study. The second chapter concerned with related literature review describes the detail theoretical aspect of the study. The third chapter deals with data collection methods and methodology and the fourth chapter provide data presentation, analysis and interpretation. Finally, the last chapter provide summary, conclusion and recommendations.

2 Chapter Two: Literature Review

2.1 Inventory

Inventories are the stocks of raw materials, work in progress, finished goods and supplies held by a business organization to facilitate operations in the production process (Pandey, 2005). Inventories can either be assets as well as items held in the ordinary course of business or they can be goods that will be consumed or used in the production of goods to be sold (Green and James, 2000). Inventory is considered to have originated from the military’s need to supply themselves with arms, ammunition, and rations as they moved from their base to a forward position (Cachon, and Fisher, 2000). Inventory as a business concept evolved only in the 1950‟s mainly due to the increasing complexity of supplying one’s business with materials and slipping out products in an increasing globalized supply chain and inventory management (Cecil and Robert, 2006).

2.2 Inventory Management

According to Silver, David and Rein, (1998), inventory management is a system concerned with integration of information, transportation, acquisition, inspection, material handling, warehousing, packaging and control of supplies and ensuring security of inventory. Inventory management aims at discovering and maintaining optimal levels of investment in all types of inventories and maximizing the flow of goods, information and other related resources like people and energy from the point of origin to the point of final consumption (Peter, 2000).

Historically, inventory management has often been associated with either 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. Inventory problems have proliferated as technological progress has increased the organization‟s ability to produce goods in greater quantities faster and with multiple design variations. The public has compounded the problem by its receptiveness to variations and frequent design changes (Tersine, 2009).

Since the mid1980s, the strategic benefits of inventory management and production planning and scheduling have become obvious. The business press has highlighted the success of Japanese, European and North American firms in achieving unparalleled effectiveness and efficiency in manufacturing and distribution. In recent years, many of the firms have „raised the bar‟, yet again by coordinating with other firms in their supply chains. For instance, instead of responding to unknown and variable demand, they share information so that the variability of the demand they observe is significantly lower (Silver, Pyke and Peterson, 1998).

Inventory are stock of raw materials, work in process and finished good. That appear at numerous points throughout a firm’s production and logistic channel (Ballsu 2004, p.326). According to chase Jocobs and Aquilando (2004, p.545) inventory is the stock of any item or resource used in an organization. Whereas Mosich (1988 p.396) inventory is can be defined as the amount of raw materials, finished goods and work in process to be stocked for the smooth running of a plants operation. So a manufacture company will hold stocks as the adequate amount of material resource in a transformation system. Many authors have defined the word management in different ways. Plunket and Ather 1986 defined management as the process of setting and achieving goals through the execution of five basic management functions (Planning, organizing, staffing, directing and controlling that utilize human, Financial and material resource. Therefore, inventory management is the process of tracking product orders keeping adequate amount of products on hand and organizing products in Warehouse and retail location. And also inventory management is the active control program which allows the management of sales, purchases and payments.

2.3 Scope of the inventory management

The scope of inventory management concerns the balance between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space, quality management, replenishment, returns and defective goods, and demand forecasting. Balancing these competing requirements leads to optimal inventory levels, which is an ongoing process as the business needs shift and react to the wider environment.

2.4 Nature of inventories

Inventories consists of good held for sale to customers, partially completed goods, and material and supplies to be used in production. Inventory items are acquired and sold continuing by a merchandising enterprise or acquired, placed in production, converted to a finished product, and sold by a manufacturing enterprise. The sale of merchandise or finished products is the primary source of revenue for most non service business enterprises (Mosich 1988 p.397).

2.5 Needs of inventory

Particularly Stevenson (1999 p.77) the reason for hold inventories are discussed in detail in the following paragraphs.

First, inventory helps to project against stock outs, delayed delivers and expected increase in the risk of shortages lays can occurs because of weather conditions, supplies stock outs, delivers of wrong materials, quality problem and soon. The risk of shortage can be reduce by holding safety stock which are stocks in excess of average demand to compensate for variability in demand and lead time.

Second, to decuple predations, historically manufacturing firms have used inventories as buffers between successive operations to maintain continuity of production that would otherwise distributed by events such as breakdown of equipment and accidents that cause apportion at operation to shutdown of temporarily. The problem is resolved, firms have used buffers from supplies and finished goods inventory to buffer sale operation from manufacturing descriptions more recently, company have taken a closer look at buffer inventories recognizing the cost and spaces they require and realizing that finding and eliminating sources of description can greatly decreased the need for decoupling operations.

Third, it also helps to smooth product requirements in a firm may experience seasonal patterns in demand often build up inventories during at seasonal periods to meets very high requirement during certain period.

2.6 Types of Inventories

Regarding types of inventory different literatures provide different description of inventory type based on their own task objective. However, for this study the researcher favor the inventory type provided by Stock and Manbert (2001, p 232-235)

2.6.1 Cycle stock

Cycle stock is inventory that results from the replenishment process and is required in order to meet demand under condition of certainty that is when the firm can predict demand and rends times almost perfectly.

Inventories in transit are items that are in routs from one location to other. They may be considered parts of cycle stock even though they are not shipment until after they arrive at the destination.

2.6.2 Safety or buffer stock

Safety or buffer stock is held in excess of cycle stock because of uncertainty in demand or lead time. The notation is that a portion inventory should be devoted to cover short range variation in demand and lend time.

2.6.3 Seasonal stock

Seasonal stock is a form of respective stock that involve that accumulation of inventory before a reason begins in order to maintain as table labor force and stable in runs or in the case of agricultural products, inventory accumulated as the result of a growing season that limits availability throughout the years.

2.6.4 Dead stock

Dead stock is inventories that no one want at least immediately. The question is why any organization would incur the costs associated with holding these item rather than simply disposing of them. One reason might be that management expected demand to resume at some point in the future.

2.7 Requirement for effective inventory management

Regarding requirements for effective inventory management different literatures describe in different ways based on their own task objective, but for this study the researcher favor particularly Stephenson (1999, p.561-562) describe in his book about requirements for effective inventory management in to four distinct mechanisms that are:-

2.7.1 Inventory count (keep track) the inventory

This mechanisms to control the inventory, physical count has to be conducted. This count enables to the manager to determine the quantity on hand. Then the manager estimate how much will be demand period prior to the next delivery periods and bases the order quantity on that information.

2.7.2 Demand for cast and lead time information

Inventories are used to satisfy demand requirement. So, it is essential to have reliable estimate of the amount and timing of demand. Similarly, it is essential to know how long it will take for order to be diverse. In addition, manager need to know the extent to which demand and lead time (the time between submitting and order & receiving it might vary the greater the potential variability the great or the need for additional stock to reduce the risk of shortage between delivers. Thus, there is critical link between forecasting and inventory management.

2.7.3 Cost information holding inventories

Invites three basic cost holding transaction ordering and shortage costs holding or carrying costs relates to physically having items in shortage costs.

2.7.4 Ordering cost

Are the cost of ordering and receiving inventory they are the cost that vary with the actual placement on order. These includes determining how much is needed, preparing invoices, shipping costs, inspecting goods up on arrival for quality and quantity and motive goods to temporary storage ordering cost are generally expressed as fixed dollar amount per order regardless of order size shortage costs result when demand exceed the supply of inventory on hand.

2.8 Inventory management Techniques

Different literatures provide different description of inventory management techniques based on their own task objective. However, for this study the researcher favor the inventory management techniques provided by J.Gitman (1997, p.797-802).

2.8.1 Economic order quantity

One of the major inventory management’s problem to be resolved is how much inventory should be added when inventory replaced, if the firm is buying raw material. Economic Order Quantity is one of the important techniques used to determine the optimum quantity or number of orders to be placed from the suppliers. The main objectives of economic order quantity is to minimize the cost of ordering, cost of carrying materials and total cost of production. Ordering costs include cost of stationery, salaries of those engaged in receiving and inspecting, general office and administrative expenses of purchase departments. Carrying costs are incurred on stationery, salaries, rent, materials handling cost, interest on capital, insurance cost, risk of obsolescence, deterioration and wastage of materials and evaporation.

Economic Order Quantity can be calculated by the following formula:

Abbildung in dieser Leseprobe nicht enthalten

2.8.2 TWO BIN Method:

Abbildung in dieser Leseprobe nicht enthalten

Figure 2.1 TWO BIN Method

Source: - the inventory management techniques provided by J.Gitman (1997, p.797-802).

This is a simple method used usually in warehousing where in an item is stored in two locations or bins in a warehouse and the stock is replenished in the first bin from the second bin once the first bin is consumed completely. The required quantity to be filled in the second bin is placed for ordering.

The availability of stock in each bin is calculated based on reorder lead time to ensure enough stock is made available till the new stock arrives.

2.8.3 FIXED PERIOD ORDERING:

In this system there is fixed time interval between every order placed for the item. For example a vendor will visit the store in person and check the inventory of the respective products and resupply the products based on the sales for the time duration. This kind of ordering is done in small format stores like pharmacies and grocery stores.

2.8.4 THREE BIN Method:

Abbildung in dieser Leseprobe nicht enthalten

Figure 2.3 THREE BIN Method

Source: - the inventory management techniques provided by J.Gitman (1997, p.797-802).

This is a common method following in manufacturing where Kanban system is being followed. It is similar to two bins system with a third bin at the suppliers' location. The supplier will not manufacture spare parts for the manufacturer until the reserve bin is emptied. Three bins each with a Kanban card tracking movement of inventory is available, one at manufacturing/ shop floor, one at the shop/back store, one with the supplier. Once the inventory in manufacturing/shop floor bin/display is consumed/sold, it is replenished with the complete bin from the back store/shop. Later the back store bin is sent to the supplier and replace with a complete bin from the supplier. Then the supplier will manufacture to fill the inventory in the third bin with him. This will act as a complete loop until manufacturing of the product is ceased.

2.8.5 FIXED ORDER QUANTITY:

This method is used to avoid ordering mistakes and ensure regular replenishment of existing products. Only a fixed quantity can be ordered at one time for the item. This type of ordering is usually used in auto replenishment of goods where in auto reordering point is set in system and when the product's inventory level hits the reordering point or minimum stock levels, an order is placed to the maximum stocking capacity of the product. To use this method the retailer should know the minimum and maximum stocking capacity of the product based on space allocated and the sales trend.

2.8.6 Proper storage

In the internal procedure for purchasing materials are matched by similar procedures for storing and issuing material in order to safeguard the investment. The procedure include storage and insurance materials must be carefully identified stored. Reordered and preserved by the store room clerk. Material requisition is prepared by the factory supervisor and indicates the quantity job number description etc. when the materials are transferred from the store room.

2.8.7 Just –in-time inventory control:-

The just-in-time inventory control is more just on inventory control system, it is a production and management system. Not only is inventory cut down to minimum, but the time and physical distance between the various production operations are also reduced. In addition management is unwilling to trade off costs to develop close relationship with suppliers and promote speedy replenishment of inventory in return for the ability to hold less safety stock (pewon p. 728). The just in time inventory system depends on how well companies manage in suppliers the system puts tremendous pressure on suppliers. They will have to develop adequate system and procedures to satisfactory meet the need of manufactures.

2.8.8 Out sourcing (ABC analysis)

A few years ago there was a tendency on the part of many companies to manufacture all components in house now more and more companies are adopting the practice out sourcing. Out sourcing is a system of giving attention to materials according to the degree of their importance. It is not desirable take some degree of control on all the items. The firm should pay maximum attention to those items whose value is highest for this purpose the item will be dried in there categories A, B and C the higher value items are classified as ‘A” items and would be under the highest control ‘C” item represent relatively least value and would be under simple control “B” items fall in between these categories and require reasonable attention of management. The A, B, C analysis can contracts on important items and also known as control by importance and exception.

2.9 Inventory control procedures

One of the most effective of ensuring out investment in inventory under control is to check all item inventory on regular basic once physical check has been carried the result can to be compared with theoretical or book inventories any discrepancies noted and acted on there are three chief method of inventory checking (Williamson, 1998).

Accordingly stock verification is an important aspect to ensure and maintain a balanced inventory. The following are the two systems of stock verification adopted in different industries:

(1) Periodic Inventory System: Under this system, quantity and value of materials are checked and verified at the end of the accounting period after having a physical verification of the units in hand.
(2) Continuous Stock Verification: Continuous stock taking ensures that the balances of all items of stocks are checked at least three to four times in a year by physical verification. It avoids long and costly procedure of closing down the stores for stock taking on periodical basis. Stock discrepancies are detected on timely basis and preventive measures can be taken. The correctness of the physical stocks as reflected in the books is ensured and thus the monthly accounts represent a true and fair view of the business. Continuous Stock Verification not only serves as an essential tool of material control but also will help in proper presentation of accounting information to the management.
(3) Perpetual Inventory System: The Perpetual Inventory System is also known as Automatic Inventory System. This is one of the important methods adopted for verification inventories to know the physical balances. One of the major inventory management’s problem to be resolved is how much inventory should be added when inventory replaced, if the firm is buying raw material. Perpetual Inventory System as a method of recording stores balances after every receipt and issue to facilitate regular checking and to obviate closing down for stock taking. Impact of Improper Management of Inventory

2.10 Impact of Improper Management of Inventory

Inventory Management has emerged as a focal point in organizational efforts to reduce losses. The management of capital within an organization has a substantial contribution towards profits and Inventories are usually an organization’s largest asset. Inventory Management activities impact the following:

- Sales Forecasting or Demand Management
- Sales and Operations Planning
- Production Planning
- Material Requirements Planning
- Inventory Rotation

2.11 Material Storage Losses

The investment in materials constitute a major portion of current assets, so it is essential to exercise effective stores control. Stores control helps to avoid losses from misappropriation, damage, deterioration etc. Generally material storage losses arising during storage may be classified as:

1. Normal Loss
2. Abnormal Loss

(1) Normal Loss: Normal Losses arise during the storage of materials due to the avoidable reasons of pilferage, theft, careless of materials handling, clerical errors, improper storage, wrong entries etc.
(2) Abnormal Loss: Abnormal Losses arise during the storage of materials due to unavoidable causes of evaporation, shrinkage, bulk losses due to accident, fire, etc.

3 Chapter Three: Research methodology and Design

This refer to the variables over which the data for the study has been collected and the method that used in the data collection, analysis and interpretations.

3.1 Data type

The researchers tried to study about loss analysis due to improper inventory management in BDTSC. The data gathered for study are both primary and secondary data.

3.2 Subject of the study

The researcher’s tries to study about loss analysis due to improper inventory management for the achievement of the objective of the study, the researcher used both quantitative and descriptive analysis of data.

3.3 Method of data collection

The data were obtained from two types of source. Primary data are collected from BDTSC employees on the basis of observation, structure questionnaire and unstructured interview data. The researcher in addition used the secondary data collected from the consecutive last one and half years (2016-2017) annual report of the industry.

3.4 Source of data collection

The researcher used the primary data and secondary data sources but more focus on primary data because obtained enough information in great depth, avoid on interpretation of the answer for the question. And also, avoid refusal to give the right information as well as it is flexible. The primary data source of this study included the employees and the related departments such as, purchasing department, production department, store department and also the management. Besides of primary data source, secondary data source and also included in this study. These information has been obtained through last one years and six month for financial statement.

3.5 Sample size

Using all population for data collection is difficult for one researcher. As sampling is using small part of large population to make conclusion about the whole population. The researcher selected 25 respondents from different department such as store department, production department, marketing and selling department, cost and budgeting department and purchase department through establishing judgmental sampling technique.

3.6 Sampling technique

In this study the sampling method used to acquire the respondents was non-probability judgmental sampling technique. A core characteristic of non-probability sampling techniques is that samples are selected based on the subjective judgment of the researcher, rather than random selection (i.e., probabilistic methods), which is the cornerstone of probability sampling techniques. This technique has been used sampling method, because to selected respondents that have the expected good knowledge about the inventory management in the industry as well as the researcher’s permit to have complete freedom of selecting individual who can provide relevant data and to choose sample element according to the researcher wish/desire.

3.7 Data presentation and Analyzing

After the necessary data has been collected from both primary and secondary sources, the next assignment had data presentation and analyzing. Thus, the researchers was used tabulation and percentage which helps the researcher to present all the collected information in the simplest form to arrive at effective conclusions and possible recommendations. Data processing is an activity which involves editing, coding and classifying data to make it suitable for further analysis, then the compiled data has processed. After all the relevant data has been collected and presenting, then they have been analysis has further transformation of the presented data groups. Finally, the outcome of the project would be presented on written material and detailed oral presentation.

3.8 Method of presenting the outcome

Once the analysis process is completed, the interpretation of all data was follows, it has been presented using different tools such as table and percentage to make clear the relation among variable. Finally, the analyzed data has been presented in easy understand way to draw conclusion and find out the major factors that affect inventory management.

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• College: Bahir Dar University (Ethiopian Institute of Textile and Fashion Technology)
• Author: Eyob Minbale (Author)
• Publication Year: 2020
• Pages: 66
• Catalog Number: V924344
• ISBN (eBook): 9783346239495
• ISBN (Book): 9783346239501
• Language: English
• Tags: inventory, management, textile, apparel, merchandising, statistical, descriptive, research