therefore its finding may not be generalizable to SMMEs operating in Cape Town, particularly those from other sectors such as the FCMG sector.
2.5 A REVIEW OF PRIOR STUDIES ON THE EFFECTIVENESS OF INVENTORY-
27
DeHoratius (2004) conducted an empirical analysis study in the US to investigate inventory inaccuracy using a sample size of 37 retail stores of one retailer. The study explored the systematic variations in 370 000 inventory records and observed inaccuracy both within and across stores. Specifically, 65% of the records were found to be inaccurate. This high percentage suggests that the sampled stores were managing inventory poorly from a record- keeping perspective. In most cases, the recorded inventory level of an item was inconsistent with the quantity found in the store. These inaccuracies were likely to create a range of problems such as loss of productivity, manufacturing of unwanted items, and reduction in the levels of commitment to customer needs (Meyer, 1991). The above study was, however, conducted in the US and thus its findings may not be generalizable to South African SMMEs.
The study also did not focus specifically on SMMEs but rather on the inventory-records accuracy of a large retailer, which incidentally is but a portion of inventory management.
Rajeev’s (2008) Indian study mentioned in Section 2.4 also reveals a number of ineffective inventory-management practices employed by Indian SMMEs in his sample of 69 SMMEs.
Some of these include lack of appreciation by entrepreneurs of the importance of inventory- management practices, lack of qualified staff, lack of progress in the area of human resources development, low usage of computers, low importance given to forecasting, and generally a low importance given to lead-time. Rajeev (2008) asserts that the effort to even introduce effective inventory-management practices in SMMEs was very limited due to a lack of initiation, expertise and financial constraints. However, as noted earlier, Rajeev’s (2008) study employs a limited sample that renders the findings ungeneralizable to the entire population of the machine-tool sector in India. In addition, Rajeev’s (2008) study only focuses on SMME’s in the machine-tool sector and thus the generalisability of its findings may not be extended to SMME’s in other sectors. Besides, the study was conducted in India; thus its findings may not be applicable to an African country, such as South Africa.
In Silver’s (2008) Canadian overview of publications, practical applications and suggestions for future research on inventory management, inventory problems and associated models were categorized by a number of dimensions. Some of these categories included shelf-life, the nature of supply process, procurement cost structure, the nature of the product and type of demand process, information and control, and the number of stocking points, time duration and single versus multiple items. Silver (2008) mentions that a substantial gap exists between the theory and practice of inventory management. He asserts that there is a need for easily understood procedures, particularly in small organisations. Silver (2008) suggests that more attention needs to be given to the behavioural aspects of inventory management.
He states that one of the most crucial phases of an effective inventory management is
convincing the decision-makers and those people providing inventory information that the
‘decision system’ is not replacing them but aiding them, and that it is in their best interests to cooperate. This suggests that the ineffectiveness of inventory management techniques may be as a result of a ‘lack of cooperation’ from users. Silver’s (2008) overview, though informative, does not provide empirical results on whether SMMEs were managing their inventory effectively or not. Besides, it is also a Canadian overview which may not be generalizable to the South African context.
In a clear departure from the above international studies on IM effectiveness, Kiprotich (2011) conducted a study investigating the working-capital management practices and financial performance of sugarcane out-grower companies in Kenya. The study adopted a descriptive cross-sectional survey research design. A sample size of 30 managerial staff members from ten out-grower companies were approached and primary data collection was accomplished by the use of a semi-structured questionnaire. Findings revealed long inventory-holding periods, stock-out tendencies and in other cases inventory surpluses.
Emergency ordering and supply stoppages were still, however, experienced at low levels.
Kiprotich (2011) concluded that the out-grower companies lacked adequate knowledge and skills on inventory optimisation. Although this study is relevant to the current study, it was conducted in Kenya, using a limited sample size; therefore its findings may not be generalizable to SMMEs in Cape Town, particularly those in the FMCG sector.
In a related African study, Nyabwanga (2012) investigated the inventory-management practices of small-scale enterprises in Kenya, using a structured questionnaire of 70 businesses. Nyabwanga (2012) found that the owners/managers were effective in reviewing the inventory levels of their businesses, fairly effective in determining the appropriate maximum and minimum inventory levels to be held, and in making sure that adequate inventory is available at all times. However, the sampled SSEs were less effective in determining the appropriate re-order levels of their stock as the SSEs were not good at determining when to place replenish orders. This is because their re-order level did not depend on the lead time and the demand during the lead time. The SSEs were also found to be less effective in the use of computers in monitoring inventory levels, a finding that supports the assertion by Kwame (2007) that small businesses do not use computers in their business operations. Nyabwanga (2012) concludes that, in general, the SSEs surveyed were effective in managing the level of their inventory. Nyabwanga’s (2012) study, however, employed a limited sample in a small town, which renders its findings ungeneralizable to the entire population of SSEs in Kenya, let alone in South Africa.
29
2.6 A REVIEW OF PRIOR STUDIES ON THE CHALLENGES FACED BY SMMES WHEN