A Survey on Contemporary Inventory Techniques and Problems Faced By

Manufacturing Organizations in Pakistan

ABSTRACT:
The aim of the study has been to find various inventory management techniques by manufacturing
organizations with particular reference to Pakistan and to examine the already functional inventory
management practices of manufacturing organizations currently working in the country. The research
encompasses the problems faced by SMEs in Pakistan and will highlight those factors that are covertly or
overtly influencing the effectiveness of the inventory. These problems were previously ignored due to
dearth of research in the domain. A survey research design is followed in this study. The target population
is textile, Electronics, Automobiles and steel mills from all the major cities of Pakistan. This survey is based
on a sample size of 90 manufacturing firms out of total 300. The research has analyzed that manufacturing
firms are using various inventory management techniques such as the action level methods, just-in-time,
periodic review technique, material requirement planning 1 and economic order quantity. The problems of
inventory management faced by these manufacturing organization were underproduction, overproduction,
stock out situation, and High lead time and mismanagement of records. The causes identified for these
problems are lack of research and development, insufficient technological skills and that of documentation,
and they had significantly influenced the effectiveness of inventory management. This quantitative study
is highly significant to the manufacturing organization in Pakistan because it provides the guidelines and
assist the organizations to focus on the main concern that is manufacturing.
Keywords: Inventory, Inventory Management Practices, influential Factors, Documentation,
Manufacturing organization, SMEs, Periodic Review.
INTRODUCTION:
Manufacturing sector has been considered as the backbone for the economy of under developed states like
Pakistan and is the second largest sector which contribute around 13.5 percent to the total Gross Domestic
Product (GDP). It also plays its vital role in creating the employment opportunities and controlling the
unemployment rate of the country. The inventory system under study in its true nature is a periodic review
system where system is examined on well-designed intervals. The orders issued are replenished by the
supplier after very interval which is labeled as Lead time. The expectations from the designed system are
that the customer demand is always fulfilled without any delay and the desired stock is well managed and
maintained as per the needs of various customers. Inventory management efficiency in this regard has been
considered as the most critical management issue particularly for the public sector organizations. Logistics
in its true essence is certainly all about managing the inventory, whether the inventory is moving or staying,
whether it is in a raw state, in manufacturing, or finished goods. [1] 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 [2].
Since eons, multiple firms have faced a plethora of challenges especially in the realm of inventory
management or material control, consequently, affecting the performance of the manufacturing companies.
There have been many cases when each component was proved to be time critical, Likewise there are cases
of materials overstocking which eventually get expired or out dated, under stocking, lack of stock-taking,
theft of materials by workers and delays in deliveries of materials into the organizations among others[3].
It is therefore incumbent for manufacturing firms running in Pakistan to have sound, effective and well-
coordinated inventory management systems because of the accepted dynamic nature of business domain.
This Highly competitive nature of inventory business drastically affects the performance of the
organizations as a whole.
With the application of proper inventory management techniques, the right materials will be all time
available with the minimum storage costs and investment. Organizations have dramatically changed their
views of stock in the recent years [4]. Thus, the organization will be in the disadvantageous position to
compete in the manufacturing SMEs. Poor inventory management can create a serious impact on the
capacity of productivity in an organization. From the perspective of Esther [7], assets, equity, office
equipment, work-in-progress inventory and general operation equipment are also claimed as the inventories
that the organization needs to maintain well other than raw materials and finished products. In Pakistan,
while some manufacturing firms have adopted the modern inventory management techniques, most of the
firms are deprive of these state of the art techniques and are still following the traditional methods.
This paper aimed to find the inventory management techniques that are being recently used in Pakistan’s
manufacturing organization, problems faced by manufacturing organization and factors that influence the
effectiveness of inventory. The research objectives of this research paper are:
a) To find out inventory management techniques applied by manufacturing organizations in Pakistan’s
manufacturing organizations.
(b) To find out the Inventory management techniques and their contribution to the performance of
production department.
(c) To find out the Problems of Inventory Management faced by manufacturing organizations in Pakistan.
(d) To find out the Factors That Influencing the Effectiveness of Inventory Management in manufacturing
organizations in Pakistan.
3. Methodology:
In this study, I used descriptive research method to collect the numerical data for recently used techniques
for inventory management, problems faced in inventory management and factors that influence the
problems. Descriptive research method is used because in this paper the relationship among variables under
the study, is examined. Survey method was used because the collection of data through questionnaires
administered to a sample and the data collected can be used to suggest relationships between variables and
produce models for these relationships. The method is also preferred because it facilitates the collection of
a considerable amount of data quickly, efficiently and accurately.
3.1) Target Population and Sampling Frame

The target population was textile, Electronics, Automobiles and steel mills from all the major cities of
Pakistan. A questionnaire was given to each organization included in the sample to be filled by one
respondent from each organization’s production department or procurement department.
The sampling frame was consisted of 300 firms of textile, electronics, automobiles and steel mills in
Pakistan.

Manufacturing organizations Population Percentage

Textile mills 210 70%
Steel mills 39 13%
Automobile industry 23 7.66%
 Electronics industry 28 9.33%
Total 300 100%

3.2 Sampling Technique and Sample Size

The study used stratified random sampling. The target population was divided into strata. The strata are
necessary because the target population is heterogeneous in nature. The strata consisted of rolling mills,
food and beverage firms and textile manufacturing firms. Respondents were randomly selected from the
three strata and each respondent selected was issued with a questionnaire. Stratified random technique
was chosen because it gives each member of the population an equal chance of being selected and it thus
reduces biasness in the selection of cases to be included in the sample. Since the units selected for inclusion
within the sample are chosen using probabilistic methods, stratified random sampling allows us to make
statistical conclusions from the data collected that will be considered to be valid.
A Sample size of 90 manufacturing was used. The sample size was computed using Nassiuma Formula;
Where n is the sample size, N is the population, C is the coefficient of variation (0.4) and e is the margin of
error (0.05). A confidence level of 95% was used.
Manufacturing organizations Population Sample size
Textile mills 210 60
Steel mills 36 13
Automobile industry 20 11
Electronics industry 24 6
Total 300 90

3.3 Data collection instruments

Questionnaires were used as the data collection instruments. Questionnaire have two section in section A
questions were asked about the techniques used in the organization and their effects on the production
department. In section B of the questionnaire asked about the problem of inventory management and
adapted from the research done by Munyao et.al. [22]. It was modified from the research which was created
by Nzuza [23].
3.4 Response rate
Thirty eight out of the forty five questionnaires issued were returned fully filled with the remainder being
treated as non-response bias. The response rate reflected the view of Mugenda & Mugenda (2003) who
indicated that a response rate of 70% and over is very good as it gives a representative sample for
meaningful generalization and minimizes errors.

Questionnaire Frequency Percent,%

Returned 73 81.11%
Not returned 17 18.88%
Total 90 100%

4. ANALYSIS
4.1 Inventory Management Techniques

Respondents were asked to indicate the inventory management technique used in their organization.
 Inventory Management Technique Frequency Percentage%
Economic Order Quantity 30 41.09%
Action Level Methods 12 16.43%
Just-in-Time 21 28.76%
Periodic Review Technique 10 13.69%
Total 73 100%

Inventory management techniques

41.09% said that their
organization used economic
Economic Order Quantity order quantity, 16.43%%
14%
41%
indicated that they used action
29% Just-in-Time level methods, 28.76% used
16% Just-in-time, 13.69% used
Periodic Review periodic review technique and
Technique It is evident that Economic
Action Level Methods Order Quantity were the most
used.

4.2 Inventory management techniques and their contribution to the performance of production department

Respondents were asked to rate inventory management techniques based on their contribution to the performance of
the production department.

Inventory Management Poor Fair Good Very Good Excellent Total

Technique
Economic Order Quantity 6(8.21%) 7(9.58%) 9(12.32%) 38(52.05%) 13(17.80%) 73(100%)

Action Level Methods 11(15.06%) 27(36.98%) 6(8.21%) 16(21.91%) 13(17.80%) 73(100%)

Just-in-Time 5(6.84%) 6(8.21%) 10(13.69%) 18(24.65%) 34(46.57%) 73(100%)
Periodic Review Technique 39(53.42%) 10(13.69%) 11(15.06%) 8(10.95%) 5(6.84%) 73(100%)

4.2.1 Economic order quantity:

8.21% rated economic order quantity as poor, 9.58% rated it as fair, 12.32 % rated it as good, and 52.05% rated it as
very good while 17.8% rated it as excellence. It is evident that most respondents rated economic order quantity as
very good.

4.2.2 Action Level Method:

15.06% rated economic order quantity as poor, 36.98% rated it as fair, 8.21 % rated it as good, and 21.91% rated it
as very good while 17.80% rated it as excellence. It is evident that most respondents rated economic order quantity
as fair.

4.2.3 Just-in-Time:
6.84% rated economic order quantity as poor, 8.21% rated it as fair, 13.69 % rated it as good, and 24.65%
rated it as very good while 46.57% rated it as excellence. It is evident that most respondents rated economic
order quantity as excellent.
4.2.4 Periodic Review Technique:

53.42% rated economic order quantity as poor, 13.69% rated it as fair, 15.06% rated it as good, and
10.95% rated it as very good while 6.84% rated it as excellence. It is evident that most respondents rated
economic order quantity as poor.

45
40
35
30
25
20
15
10
5
0
Poor Fair Good Very Good Excellent

Economic Order Quantity Action Level Method Just-in-Time Periodic Review Technique

4.3 Problems of inventory:

Respondents were asked to indicate frequency of occurrence of the incidences to identify the problems of inventory
management faced by the manufacturing SMEs in Pakistan. The results have indicated the problems of inventory
management that are commonly faced in the manufacturing organization, which are underproduction,
overproduction, stock out situation, extensive lead time of materials and Mismanagement of of inventory records.
The research result illustrates that the majority of respondents from manufacturing SMEs have faced these problems
which is similar with the result of Munyao et al [22]. Table displays the problems of inventory management which
have been ranked based on never, rear, sometimes, often very often occurrence of the problems. The most frequently
(Most often) occurred problem is extensive lead time, which means the problem is delays in delivery of raw
materials from suppliers is the most common problem faced by the respondents. The second most alarming problem
is mismanagement of inventory records. According to previous researcher, the discrepancy of inventory is due to
error in manual documentation, misplacement and misappropriation of inventory in their organization [25; 26]

50
40
30
20
10
0
Over production Under Extensive lead Stock out Mismanagement Low level of Too much
production time situation of inventory Safety Stock distressed stock
records

never rearly sometimes often very often

4.4 Factors That Influencing the Effectiveness of Inventory Management in manufacturing
organizations in Pakistan.
In order to find the factors that influence the effectiveness of inventory management in manufacturing
organizations in Pakistan 15 items have been tested. Resultantly influencing factors are demands
forecasting, Risk analysis, documentation, Research & Development and Budget as shown in Figure 2.

50

40

30

20

10

0
Skills of employees Lack of MRP Documentation Research & Budget
Development

Never Rear Sometimes Often Very Often

According to Esther [7], some of the manufacturing organizations do not obey firmly the inventory policy in their
organization. Thus, the organizations fail and some of them do not maintain minimum and maximum stock because
they face financial problem.

Conclusion:

The study states that a state of the art inventory management system is the dire need of the manufacturing
organization of the third world countries like Pakistan to enhance the production as well as to tackle all the problems
associated with the industries regarding inventory management.

Moreover, for the manufacturing industries working at national level, in order to enhance their capabilities at global
level it is important to shift on a modern inventory management techniques than on the traditional approaches. It will
serve the labor and the overall finances.
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Caritas University, Amorji-Nike, Department of Accountancy.

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